Author: Amal Shukla, 3rd Year B.A.LL.B (Hons.) Student at Hidayatullah National Law University.
DMRC verdict unveiled: expanding extent of judicial intervention and interpretation of patent illegality.
Keywords: Judicial Intervention, Patent Illegality, Arbitration.
Abstract:
Arbitration, as an Alternative Dispute Resolution method, is desired for itsexpeditious and cost-effective nature. However, it is also subject to judicial review and because of the increasing scope of judicial review, the arbitration landscape is going through a major transformation. The judgement in the case of Delhi Metro Rail Corporation v. Delhi Airport Metro Express(p) Ltd, highlights a pivotal shift in this context. By allowing a curative petition against an arbitral award, the court has added an additional layer of judicial review. Furthermore, by expanding the interpretation of “Patent illegality”, the court attempts to rectify the errors made by arbitral tribunals, but in doing so it raises concerns about the dilution of the efficacy of the whole process. The verdict in this case reflects a step back from the pro-arbitration stance and poses a risk of making arbitration less desirable as a dispute resolution method. This article will discuss the reasoning behind the Supreme Court’s judgment, its implication for the future of arbitration in India, and the challenge of balancing the delivery of complete justice with maintaining the efficiency of arbitration.
Introduction:
Recently, the Supreme Court in the verdict of the case Delhi Metro Rail Corporation Ltd. V. Delhi Airport Metro Express(p) Ltd (DMRC case) has led to two significant developments in the arbitration landscape in India. Firstly,by allowing a curative petition the court enlarged the extent of judicial intervention in arbitration, Secondly, this verdict deals with the evolving interpretation of “patent illegality” as a ground to set aside an arbitral award under Section 34 of the Arbitration and Conciliation Act,1996(‘the Act’). Both these aspects of the judgment have the potential to bring down the efficacyand reliability of Arbitration as an expeditious dispute resolution mechanism.
While allowing a review petition against an arbitral award and expanding the interpretation of “Patent illegality”, the Supreme Court appears to have taken a step back from pro-arbitration stance. This article delves into the court’s reasoning behind this judgment and the repercussions of this verdict on the Arbitration landscape in India.
Factual Background of the Case:
The Delhi Metro Rail Corporation Ltd. (DMRC) and Delhi Airport Metro Express Private Limited (DAMEPL) entered into a concession agreement in 2008. DAMEPL was given the designing, construction, operation, and maintenance rights of the Airport Metro Express Line in New Delhi. After the project became operational in February 2011, DAMEPL invited DMRC in March 2011 to conduct a joint inspection of the viaduct and its bearings before the defect liability period of the civil contractors expired. In March 2012, DAMEPL made a request to defer the payment of the concession fee, as there was a delay in the handover of stations to DAMEPL. In July DAMEPL stopped operations due to safety concerns and a notice was served to DMRC, listing the defects to be cured within 90 days. In October 2012, DAMEPL terminated the concession agreement citing failure on the part of DMRC to rectify the Defects. Following this, in August 2013 DMRC initiated arbitral proceedings in 2013. The three-member Arbitral Tribunal ruled in favor of DAMEPL, passing its award in May 2017 with a substantial compensation amount of ₹7687 crore to be paid by DMRC.
DMRC first challenged the award before the Delhi High Court under Section 34 of the Act. This Application was dismissed and consequently, an appeal was filed before the division bench under Section 37 of the Act. The division bench partly allowed the appeal and decided to set aside the award. Aggrieved by the decision of the division bench DAMEPL filed a special leave petition (hereafter SLP). The Supreme Court, while deciding the SLP, restored the award and as a consequence, a curative petition was filed.
Expanding the extent of judicial intervention:
As per Section 34 of the Arbitration and Conciliation Act,1996, the only recourse against an arbitral award is an application of setting aside. Further, the order of the court under this section is appealable under section 37 of the act. Sub-section 3 of Section 37 provides that a further appeal can be made to the Supreme Court. It can be seen that the provisions of the Arbitration and Conciliation Act provide for a series of judicial interventions before enforcement of an arbitral award, however, these are limited to an appeal before the Supreme Court. In the case at hand, the Supreme Court has added another stage of judicial intervention by allowing the curative petition.
The curative power of the Supreme Court lies in Article 142 of the Constitution, which confers upon the Supreme Court, the power to pass a decree or order to do complete justice. However, as per the precedent set by the case of Rupa Hurra v. Ashok Hurra (Rupa Hurra), where the validity of a decree of divorce was in question, a curative petition can only be considered after the court has concluded a case in the review stage thus it is a last resort for a litigant who has lost in the review stage. This resort is not a matter of course and its exercise is subject to certain boundaries laid down Rupa Hurra.
In Rupa Hurra the Supreme Court restrained its curative powers to certaingrounds and also limited the interpretations of these grounds. As per the Rupa Hurra judgment, the Supreme Court can allow a curative petition under the following grounds 1) Violation of the principle of natural justice, 2) when there is a question of bias against the presiding judge, and 3) where there is abuse of process of court. The court added a word of caution that these grounds were not exhaustive however, a curative petition shall only be allowed in rare circumstances and it cannot be used as garb to file another appeal.
The Supreme Court while allowing the curative petition observed that a curative petition may be invoked in case there is a miscarriage of justice. The court also relied on the lines of Justice Quadri to observe that, the duty of the court to render justice shall not be on a lower pedestal than the principle of finality. The rationale behind allowing the curative petition was that the Supreme Court’s judgment in the SLP led to a grave miscarriage of justice by restoring a patently illegal award that was correctly set aside by the division bench of Delhi High Court and thus the curative petition shall be allowed.
Allowing a curative petition against an arbitral award has wide repercussionsas it adds another stage of judicial interference before an arbitral award can be enforced. Though the court states that allowing a curative petition shall not be an ordinary course of action, it still raises concerns of increasing judicialinterference in arbitration as the grounds laid down in Rupa Hurra are not exhaustive. Moreover, Arbitration is supposed to be an expeditious process of dispute resolution but, increasing judicial interference poses a threat of making it even more time-consuming than litigation. Finally, at this juncture, it becomes important to point out that the Supreme Court with this verdict in the DMRC case has taken a step backward after a series of pro-arbitration judgments including the In Re – Interplay between arbitration agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 where it dealt with the question, whether an arbitration agreement would be non-existent or invalid if the respective contract is not stamped? The courtreiterated the principle of limited judicial interference in arbitration,particularly at the referral stage.
Meaning of patent illegality.
Sub-section 2A of Section 34 of the Act, provides that an arbitral award other than one in International Commercial Arbitration may also be set aside on the grounds of patent illegality appearing on the face of the award. The interpretation of the phrase “patent illegality” has been previously dealt by the Supreme Court in a series of cases, with each case adding on to the scope of “patent illegality”, this verdict is a further addition substantiating the previous interpretations. Crucial Judgements dealing with the meaning of the phrase “Patent illegality” are as follows:
Associate Builders v. Delhi Development Authority(Associate Builders)
Associate builders could not complete the construction work within the stipulated time, which led to the initiation of arbitral proceedings and the tribunal ruled that the delay was caused due faults of Delhi Development Authority. An Application under Section 34 was filed, which was dismissedand subsequently, an appeal under Section 37 was made, where the division bench of Delhi High Court overruled the award. The matter was finally raised before the Supreme Court.
Supreme Court while deciding whether the division bench exceeded its jurisdiction while overruling the award, held that although the interpretation of the terms of contracts is within the exclusive domain of the arbitrator, it is not permissible to interpret the contract in a manner that no rational person will interpret. Thus, such an interpretation will render the award patently illegal.The court further held that the award must not be perverse or irrational and as a test of perversity and irrationality, it laid down the following points. An award will be considered ‘perverse’ or ‘irrational’ where the findings are (i) not based on evidence, (ii) based on irrelevant material or (iii) ignores a vitalpiece of evidence. Further, it was held that ‘patent illegality’ may also arise incase there is a breach of arbitration statute and principle of natural justice.
In this case, the dispute was regarding a contract for the construction of a four-lane bypass on a National Highway. The appellant was to be compensated for inflations in the prices of components used, as per the contract. The agreed method for this was to use the Whole Sale Price Index (WPI) 1993-1994 as the base year. However, the respondents unilaterally revised the WPI to take 2004-2005 as the base year. This was referred for arbitration where the revision was upheld. Aggrieved by this award, the appellant filed an application under Section 34 of the Act which was dismissed. The matter was consequently taken to the Supreme Court.
The court while interpreting the phrase “Patent illegality”, reiterated the ratio of Associate Builders and held that when an award ignores vital evidence, itwould be ‘perverse’ and hence liable to be set aside on the grounds of ‘patent illegality’.
Relying on the above judgements the court observed that in the case at handthe High Court had rightly held that the award overlooked crucial evidence and hence was perverse and patently illegal. The award ignored that under clause 29.5.1(i) of the contract it was stipulated that if “effective steps” were taken by DMRC during the cure period, the contract could not be terminated. The tribunal erred in the interpretation of the two components of the above clause, namely “cure” and “effective steps to cure defects” and it considered that steps that are in progress but have not culminated in cured defects cannot be taken as ground to avoid termination. As per the court, the parties could not have intended this, as they agreed to use the phrase “effective steps”. Thus, the tribunal had an irrational interpretation of the contract. Based on this interpretation, the tribunal also ignored crucial evidence, specifically the CMRS (Commissioner of Metro Rail Safety) certification of the metro line.
This broadened interpretation of the term “Patent Illegality” is in line with the primary objective of the judiciary; to render complete justice however, it can also lead to an unnecessary increase in litigation against arbitral awards before they can be enforced. Thus, on one hand this broader view has the potential to rectify patently illegal awards, on the other hand, it can potentially be misusedto make unnecessary challenges.
Conclusion.
The Supreme Court’s decision in DMRC Case marks a pivotal moment in the arbitration landscape. The court’s decision to allow a curative petition in this case adds another stage of judicial scrutiny, has the potential to undermine the efficiency and finality of the arbitration process. This judgment raises concerns about increased judicial interference, which can make arbitration even more time-consuming than litigation.
Moreover, the interpretation of “Patent Illegality” adopted in this judgment emphasizes the need to correct a miscarriage of justice however, it may also be subject to misuse and potentially lead to frequent challenges to arbitral awardsundermining the efficiency of arbitration as an expeditious way of dispute resolution.
In conclusion, the Supreme Court’s decision represents a step back from a pro-arbitration stance, potentially impacting the arbitration landscape in the future. It remains to be seen how this judgment will influence the balance between ensuring justice and maintaining the efficiency and finality of the arbitration process.
Comments