Legal certainty needs to be a priority not a casualty – this is a foundational pillar of the Indian judicial system which serves as a form of comfort for parties entering into the labyrinth of legal complexities. While echoing this sentiment, the Supreme Court in the past has been candid enough to admit that despite its decision being fallible, such decisions would continue to be final. Unfortunately, the Supreme Court’s recent decision in Delhi Metro Rail Corporation Limited v Delhi Airport Metro Express Private Limited (“DMRC Decision”) has shaken this foundation.
In the DMRC Decision, the Supreme Court has in exercise of its curative jurisdiction, opted to unravel an arbitral award of more than 80 billion rupees, along with interest passed in favor Delhi Airport Metro Express Private Limited (“DAMEPL”). It is unfortunate that the Supreme Court, after laboring last year to clear the path for parties seeking to commence arbitration proceedings with minimum judicial intervention, has now extinguished the light at the end of the tunnel for such parties with the DMRC Decision.
Background
In 2008, the Delhi Metro Rail Corporation Limited (“DMRC”) awarded to DAMEPL, the contract for construction, operation and maintenance of the Delhi Airport Metro Express. Subsequently, disputes arose between the parties on aspects relating to the design and construction of the project, which were ultimately referred to arbitration. On May 11, 2017, a three-member Tribunal passed an award in favor of DAMEPL. DMRC soon challenged this award before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”). However, this challenge was not successful and was dismissed. DMRC then appealed this dismissal before the Division Bench of the Delhi High Court under Section 37 of the Act.
After considering the parties submissions, the Division Bench was pleased to partially set aside the award. The parties finally reached the Supreme Court in 2021 when DAMEPL challenged this decision before the Supreme Court by way of a Special Leave Petition under Article 136 of the Indian Constitution before the Supreme Court. This challenge was successful, with the Supreme Court setting aside the Section 37 decision and restoring the award. Soon a review petition was filed against this decision under Article 137 of the Indian Constitution, which was dismissed on November 23, 2021 (i.e., the award was not interfered with). Faced with this rejection, the DMRC invoked the curative jurisdiction of the Supreme Court. The petition was filed more than 8 months after the review was dismissed. Interestingly, the Supreme Court finally passed the DMRC Decision in April 2024, i.e., 30 months after the dismissal of the review petition and 18 months after the curative petition was filed.
In India, invoking the curative jurisdiction of the Supreme Court is the last resort for litigants. It is the Court’s extra-ordinary power to pass such decrees or make such orders as are “necessary for doing complete justice in any cause or matter pending before it”. As set out above, in this case the arbitral award had undergone four rounds of challenge – two before the Delhi High Court and two before the Supreme Court itself, before DMRC filed the curative petition.
While considering the fifth and last round of challenge, the Supreme Court took an uncharacteristic approach, opting to undertake a detailed merit-based analysis of the award, including review of the evidence basis which the Arbitral Tribunal passed the award. Basis this detailed review, the Court concluded that the award was perverse and patently illegal as it (a) bypassed the material on record; and (b) failed to reconcile inconsistencies between the factual averments made in the cure notice, which formed the basis of termination on the one hand and the evidence placed on record on the other. In view of the above, the Supreme Court proceeded to annul the award on the ground of ‘grave miscarriage of justice’ given ‘the exceptional circumstances of this case where the process of arbitration has been perverted by the arbitral tribunal to provide an undeserved windfall to DAMEPL’.
As a consequence, it called upon DAMEPL to refund a sum of approximately 2.6 billion rupees paid to it during enforcement of the award, including after the Supreme Court’s earlier judgment. The Supreme Court has sought to hook its intervention to the Supreme Court's seminal decision in Rupa Ashok Hurra v Ashok Hurra and Anr. ((2002) 4 SCC 388). This decision permits the exercise of the curative jurisdiction only on two exceptional grounds - ‘abuse of process’ or ‘gross miscarriage of justice’. However, these are subject to a secondary filter of breach of principles of natural justice or bias. Thus, the Supreme Court’s curative powers can only be exercised to remedy instances of ‘abuse of process’ or ‘gross miscarriage of justice’ stemming from the violation of principles of natural justice/bias.
The Supreme Court in the DMRC Decision, however, has premised its intervention only on the first filter of ‘gross miscarriage of justice’, ignoring the equally important secondary filter of bias/ breach of principles of natural justice. Thus, the decision is an unanchored hook, premised on a token compliance of the strict mandate laid down in Rupa Hurra. This is concerning as Rupa Hurra unhinged is justice hurried and almost buried. The DMRC Decision sets a dangerous precedent, allowing the Supreme Court to unravel arbitral proceedings which have come to fruition and endured four rounds of challenge, on the dubious premise of a public utility being purportedly saddled with exorbitant liability. While the DMRC Decision contains a warning that the Supreme Court’s curative jurisdiction should not be ‘adopted as a matter of ordinary course’ and ‘used to open the floodgates and create a fourth or fifth stage of court intervention in an arbitral award’ the Court’s own nonadherence of the above guardrails undercuts this warning.
Undoubtedly, the Supreme Court’s out of turn intervention has set in motion a disconcerting chain of events, the domino effect which will be experienced for years to come. Primary amongst them being the creation of a quasi-government sovereignty ground in terms of protection. This is alarming as it creates a new set of rights for the government without any statutory backing and encourages public departments to agitate this ground in an attempt to escape liability/ delay enforcement on an unfavorable award. Moreover, the DMRC Decision may encourage other government bodies to also re-open and agitate old lost causes.
Given India’s perennial battle against the staggering number of pending Court cases, can we really allow unscrambling of a scrambled egg, even assuming that such a thing is possible. Given the above, it would be unwise to measure the impact of this decision only through the eyes of the parties present before the Court. It would also have to be assessed through the lens of lenders, vendors, and foreign investors as well as their perception of India as a credible land of business opportunities. Every time an arbitration does not result in a final and binding determination, it loses its efficacy. Once contracts lose efficacy, parties start pricing the inefficiency as a risk. Therefore, while we roll out the red carpet to welcome parties to the ease of doing business, one must bear in mind that before they step foot, these parties are looking at such inefficiencies to determine the cost of doing business. Those who may otherwise be prominent business houses but have a lower appetite for risks, may opt to either reduce their exposure or avoid taking any further risks.
Even from a DMRC- DAMEPL perspective, during the period of 30 months between the Supreme Court’s review dismissal and passing of the DMRC Decision, there was no stay on the award. Consequently, the award was executed as a judgment of the Court and resulted in payment of approximately 2.6 billion rupees from DMRC to DAMEPL. Various lenders and vendors took the word on the Supreme Court in the review petition to be final and binding on the parties. Accordingly, both parties, i.e. DAMEPL and DMRC raised money based on the finality of the Supreme Court’s review dismissal. No doubt, the DMRC Decision directs refund of this amount of approximately 2.6 billion rupees, however, it amounts to effectively unscrambling a scrambled egg. Money lent or paid basis the finality of a judgment can never be completely restituted, as at least some parties will be left without a remedy though they dealt with DAMEPL and DMRC on the basis of the understanding that they were acting on the Supreme Court’s final verdict. Therefore, the DMRC Decision makes even the Supreme Court’s fabled finality fallible.
Moreover, the DMRC Decision leaves open the most important issue - whose train is it anyway? While DAMEPL faced the initial risk of construction and operation, it is the government that has been maintaining and reaping the benefits of the functioning metro rail for the past 10 years. DAMEPL is still entitled to receive the consideration for the train, which it has not received till date. However, the DMRC Decision overlooks this important aspect. Consequently, the parties are left with no option but to re-agitate their disputes in an attempt to achieve closure which the DMRC Decision fails to provide. In fact, the DMRC Decision another battle of the heavy weights provided that both survive another five rounds of litigation, that too after securing an award, given the fact that the DMRC Decision rings the bell for a fresh fight.
As can be seen, the Supreme Court’s approach and ultimate decision in the DMRC-DAMEPL case have left no winners but perhaps the biggest loser being arbitration. It is hoped that the legislature and judiciary both work towards restoring the sanctity of arbitral proceedings in India and remedy the anomaly created by the DMRC Decision.
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