PPPs And Lessons From DMRC Vs DAMEPL Case
Public Private Partnerships are two-edged swords and have to be dealt with sensitively. Beneficial in ensuring lifecycle private sector efficiencies in project design and operations, they can also cause grave anguish – especially, when private parties nitpick the fine print of the rather elaborate model concession agreements that were devised by the erstwhile Planning Commission. The recently pronounced Supreme Court judgement in the case of the Delhi Metro Corporation Ltd (DMRC) and the Delhi Airport Metro Express Ltd (DAMEPL) yields a case in point.
The DMRC project was an express train between New Delhi Metro Station and the IGI Airport for a distance of 22.7 Km. The bid was bagged by a Reliance Energy consortium which formed an SPV called the Delhi Airport Metro Express Pvt. Ltd. (DAMEPL). It was agreed amongst the parties that all civil works, land acquisition, and other clearances from the Government would be handled by DMRC while supply, installation, testing, and commissioning of various systems were to be handled by DAMEPL. Immediately after the commercial operation date DAMEPL requested DMRC to conduct a joint inspection of viaduct and its bearing and pointed out shortcomings in the construction. DAMEPL stopped operations of the line in June 2012 and issued a notice requiring DMRC to cure the defects in DMRC's works within the prescribed period of 90 days. Ultimately, DAMEPL terminated the Concession Agreement in October 2012 on grounds of DMRC default. DMRC invoked arbitration under the Concession Agreement. In the meanwhile, between January 2013 and June 2013, the metro operations were resumed by DAMEPL, albeit with reduced speed of trains. The matter proceeded to arbitration with the main issue being the validity of DAMEPL’s 2012 termination notice.
DMRC claimed that DAMEPL’s termination notice was illegal as it had upheld own commitments under the Concession Agreement and sought a compensation of INR 3173 crores with interest of 18% per annum. DAMEPL justified the termination of Concession Agreement and sought an amount of INR 3470 crores as termination payment along with interest in its counter claim. The arbitral tribunal agreed with DAMEPL that there was defective workmanship on the part of DMRC which caused material breach of the Concession Agreement. Accordingly, the termination notice issued by DAMEPL was held to be valid and DAMEPL was awarded a total of INR 2782 crores as termination payment, besides interest. DMRC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award of the arbitral tribunal. The single judge of the Delhi High Court dismissed the DMRC petition, but in appeal, the division bench reversed the judgment of the single judge and allowed the appeal filed by DMRC. The Supreme Court, however, rejected the judgement of the Division bench. It decided that Courts must refrain from appreciating or re-appreciating matters of fact as well as law. The Apex Court found no fault in the findings of the arbitral tribunal and observed, “As the arbitrator is the sole judge of the quality as well as the quantity of the evidence, the task of being a judge on the evidence before the Tribunal does not fall upon the court in exercise of its jurisdiction under Section 34.”
Public authorities will have to be perspicacious. They should not take refuge in the faults of the private partner, or in mutual waivers and signing of supplementary agreements. Public authorities should anticipate and apprehend from the beginning – the huge legal and financial implications – of their own acts of omission and commission.
The author is a former Secretary GOI
