Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation, (2022) | Arbitration Case

The Case Summary 'Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation' by Shivani Sangwan contains a significant decision where the apex court tried to strengthen the supremacy of party autonomy in the arbitration apparatus. Alternative Dispute Resolution, or ADR, refers to a number of ways to resolve a dispute outside of the complicated legal system. It is a technique where parties attempt to settle their differences secretly in front of a neutral expert. Like a court's ruling, the judgment is binding on the parties. It encompasses techniques including negotiation, conciliation, mediation, and arbitration. These adhere to the rights to justice, access to counsel, and a prompt trial guaranteed by Article 39A of the Indian Constitution. Even Section 89 of the Code of Civil Procedure, 1908 calls for using ADR to resolve conflicts.

The UNCITRAL Model Law's Article 34 is the foundation for Section 34 of the 1996 Act. The incapacity of the party is the sole basis for vacating an arbitral award. Furthermore the inadequacy of the contract, lack of an appropriate notice to the party beyond the purview of the reference, legality in the arbitral tribunal's composition or the non-arbitrability of the claim being in opposition to societal norms are some other grounds which set aside the award. The present appeal is based upon the same provision.

Court: The Supreme Court of India

Bench: Justice L. Nageswara Rao and Justice B.R. Gavai

Citation: Civil Appeal No. 3657 of 2022

Date of Judgment: 5th May, 2022

Facts

1. The Airport Metro Express Line project in New Delhi, from New Delhi Railway Station to Dwarka Sector 21, via Indira Gandhi International Airport, New Delhi, was proposed by Delhi Metro Rail Corporation Ltd. (hereinafter, "DMRC," a joint venture of the Government of India and the Government of National Capital Territory of Delhi). The project had a rough length of 22.7 kilometres. The project would be developed by hiring a concessionaire to handle the funding, design, procurement, and installation of all systems (including but not limited to rolling stock, overhead electrification, track, signaling and telecommunication, ventilation and air conditioning, automatic fare collection, baggage check-in and handling, depot and other facilities). DMRC was tasked with designing and building the project's fundamental civil structures. The project was a public-private partnership.

2. The operation of the Airport Express was the subject of debate. To be more specific, on March 22, 2012, the Delhi Airport Metro Limited asked the Delhi Metro Corporation to set up a joint examination of viaducts and bearings before the civil contractors' allotted time for reporting defects under the Agreement expired. Delhi Airport Metro Limited then wrote to Delhi Metro Corporation again on May 23, 2012, flagging major design and quality flaws with the installation of viaduct bearings, such as indications that some girders had sunk at specific areas, causing deformation and cracks. The Airport Express finally stopped operating on July 8, 2012.

3. On July 9, 2012, Delhi Airport Metro Limited cited the terms of the Agreement, outlined a non-exhaustive list of flaws that needed to be fixed by Delhi Metro Corporation within 90 days, and warned that failing to do so would result in an event of default. Delhi Metro Corporation cited the conciliation process outlined in the Agreement and refuted any claims to the contrary.

4. Following approval from the Commissioner of Metro Road Safety ("Safety Certificate"), Delhi Airport Metro Limited resumed operations on January 22, 2013, but soon after sent a letter requesting Delhi Metro Corporation to assume control of the project and the assets by the end of business on June 30, 2013. Since July 1, 2013, Delhi Metro Corporation has been in charge of the Airport Express operations.

5. On May 11, 2017, an arbitral award determined that Delhi Airport Metro Limited had the right to receive the termination payment and interest under the Agreement because Delhi Metro Corporation had violated the terms of the Agreement and had not cured the breach within the allotted time ("Award").

6. In accordance with Section 34 of the Arbitration and Conciliation Act, Delhi Metro Corporation challenged the Award before the Single Judge. The Award was upheld by the honorable Single Judge. In accordance with Section 37 of the Arbitration and Conciliation Act, Delhi Metro Corporation appealed this decision before the Delhi High Court Division Bench.

7. Following concerns were the subject of advanced submissions. First, whether Delhi Airport Metro Limited's right to terminate the Agreement was waived by operating the metro line and taking part in the reconciliation process after terminating the Agreement. Second, whether the termination notice was properly issued and the Award correctly determined that Delhi Metro Corporation had failed to take effective measures to remove defects, which resulted in a "material adverse effect" on Delhi Airport Metro Limited. Third, whether the termination payment and interest on such payment was correctly computed by the arbitral tribunal.

8. The Division Bench decided not to question this finding, which was noted in the Award. According to the Division Bench, it would be challenging to conclude that the Judgement was faulty on the waiver issue and as a result could not be changed under the restricted authority and scrutiny available when contesting an arbitral award.

9. The arbitral tribunal had cited two different effective dates of termination, the Delhi High Court observed. The termination notice dated October 8, 2012 was upheld by the tribunal in the first half of the Award, however the tribunal referred to January 7, 2013 as the date of termination in the second portion of the Award. The Division Bench stated that conflicting dates of termination could, therefore, materially alter the results of the findings by the arbitral tribunal and that the date of termination was crucial in determining whether Delhi Metro Corporation had cured or taken effective steps to cure the defects within the period specified in the Agreement.

10. The Bench concluded that the arbitral panel had erroneously determined, without giving any explanation, that the Safety Certificate was irrelevant and unimportant. The Division Bench further stated that the Safety Certificate was issued following careful examination of the civil structure and found that its validity did not permit submission to arbitration, and as a result, the arbitral tribunal had disregarded important evidence.

11. The Delhi High Court overruled the arbitral tribunal's decision, ruling that the Award had considered the sums as equity notwithstanding clear and convincing evidence to the contrary that the share application funds had been converted to subordinate debt. It was also noted that Delhi Airport Metro Limited had chosen to convert the share application funds into subordinate debt on purpose and voluntarily in order to safeguard and insulate itself in the event they encountered a default and the payment was to be paid in lieu of such default.

12. Except for the portion where it affirmed the arbitral tribunal's decision that Delhi Airport Metro Limited had not renounced its rights to terminate the Agreement, the Division Bench of the Delhi High Court completely set aside the Award.

13. An appeal was filed in the Supreme Court by Delhi Airport Metro Limited against the decision of the High Court.

Issues Involved

• Whether in exercise of its power under Section 37 of the Arbitration and Conciliation Act, 1996 the Division Bench of the Delhi High Court was right in interfering with the award passed by the Arbitral Tribunal
• Whether the "sum" awarded under clause (a) of sub­section (7) of Section 31 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "1996 Act") would include the interest pendente lite or not.

Laws Applied

The Arbitration and Conciliation Act, 1996

Form and contents of arbitral award [Section 31 (7) (a)]

Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

Application for setting aside arbitral award(Section 34)

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if— (a) the party making the application [establishes on the basis of the record of the arbitral tribunal that]—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1.— For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.— For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.]

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

Appealable orders(Section 37)

(1) Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—

(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

Judgment

The Honourable Supreme Court observed that if the parties have an agreement, the arbitral tribunal will not have the power to award an interest, and the parties' agreement will direct the arbitral tribunal as to how the interest should be awarded and calculated. Additionally, it was emphasized that the provision makes it very clear that the arbitral tribunal has complete discretion whether or not to award interest and is not required to do so. In this regard, the Tribunal may exercise its discretion to grant interest at a pace it finds appropriate. The Tribunal may also decide whether to grant interest on the entire sum, a portion of the sum, for the entire period, or merely for a short time.

The Hon'ble Supreme Court noted that the phrase "unless otherwise agreed by the parties" emphasized the fact that the Arbitral Tribunal would lose its discretion with respect to any of the aspects covered under clause (a) of sub-section (7) of Section 31 of the 1996 Act once the parties had agreed on those aspects. Additionally, the Supreme Court believed that every word and phrase in the provision needed to be given effect. The words "unless otherwise agreed by the parties" would become superfluous if the argument made by the appellant were to be adopted, and such interpretations must be avoided because they are entirely flawed.

The Arbitral Award had been passed in accordance with the provisions as contained in clause (a) of sub-section (7) of Section 31 of the Act and is also in accordance with the phrase "unless otherwise agreed by the parties," the Court held. The Arbitral Tribunal had correctly given effect to the specific agreement between the parties pertaining to the rate of interest.

Thus, the Hon'ble Supreme Court held that there was no error in the observations made by the learned Single Judge of the Delhi High Court in paragraph 30 of the impugned judgment and order dated 10th March, 2022. Accordingly, the appeal was dismissed.

Conclusion

In this ruling, the Supreme Court discussed the significance of the parties' having an agreement when setting the interest rate on the main sum. The Arbitral Tribunal will forfeit its discretion and only make decisions in accordance with the parties' agreement if there is a written agreement between the parties that details how the interest will be calculated. As a result, it will be easier to ensure that Arbitrators do not violate the letter of the agreement that brought the parties before the Tribunal. Even more significantly, this Court's observation gives the parties the authority to decide how their agreements and disagreements are resolved through the Arbitration process. This decision serves as a valuable reminder that courts cannot ignore glaring mistakes, erroneous interpretations, or perverse conclusions in an arbitral award. In such unusual circumstances, courts may interfere in the arbitral tribunal's findings and annul arbitral verdicts.

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