New Delhi: The Supreme Court Wednesday set aside its own three-year-old judgment that had restored a “patently illegal” arbitral tribunal award asking the Delhi Metro Rail Corporation (DMRC) to pay Rs 2,782.83 crore with interest to Delhi Airport Metro Express Private Limited (DAMEPL).
The award to DAMEPL — promoted by the Anil Ambani-owned Reliance Infrastructure — was in connection with the construction and operation of the Airport Metro Express Line (AMEL) in the capital.
A three-judge bench led by Chief Justice of India (CJI) D.Y. Chandrachud said the 9 September 2021 order, delivered by a two-judge bench, had set aside a “well considered decision” of the Delhi High Court (HC) that upset the arbitral tribunal award.
The latest judgment came on a curative petition filed by the DMRC and was delivered more than two years after a review petition against the original judgment was dismissed in November 2021.
Also comprising justices B.R. Gavai and Surya Kant — two judges who will go on to hold the CJI’s post in the next year — the bench said there was no “valid basis” for the Supreme Court to interfere with the Delhi HC’s decision. The top court also said its 2021 verdict had caused a “grave miscarriage of justice”, which warranted the SC invoking its Article 142 jurisdiction (utilised to deliver justice) and intervene in the case again.
It is very rare for the top court to entertain curative petitions, a remedy evolved by the Supreme Court to revisit its own judgments. It is equally rare for the court to hear such petitions in an open court. A curative petition is filed after the rejection of a review petition filed against the original judgment.
Given that relief in curative petitions is not common, the three-judge bench clarified that “the exercise of the curative jurisdiction of this court should not be adopted as a matter of ordinary course. Curative jurisdiction should not be used to open the flood gates and create a fourth or fifth stage of court intervention in an arbitral award under this court’s review jurisdiction or curative jurisdiction, respectively”.
Justifying its intervention in the given case, the bench observed: “In the specific facts and circumstances of this case to which we have adverted in the course of the discussion, we have come to the conclusion that this court erred in interfering with the decision of the division bench of the high court. The judgment of the division bench (of the HC) was based on a correct application of the test under Section 34 (of the Arbitration and Conciliation Act).”
On the top court’s September 2021 decision, the bench said that by setting aside the HC’s judgment, “this court restored a patently illegal award which saddled a public utility with an exorbitant liability,” resulting in “grave miscarriage of justice”.
Hence, the bench added, the curative petition must be allowed. It restored the position that existed before the pronouncement of the September 2021 SC judgment and halted the execution proceeding that DAMEPL had initiated before the Delhi HC for enforcing the arbitral award.
The bench said that this proceeding must be discontinued and the amount, if any, deposited by DMRC pursuant to the top court’s judgment shall be refunded.
What was the case?
According to the concession agreement signed in 2008 between DMRC and DAMEPL, the former was to be responsible for all civil works as well as the appointment of consultants, land acquisition and getting other clearances from the government and other authorities.
DAMEPL was to provide the design, supply, installation, testing and commissioning of various systems such as rolling stock, power supply, overhead equipment, signalling, track system, platform, screen doors, ventilation, architectural finishing etc.
In October 2012, DAMEPL issued a termination notice on the ground that defects pointed out in the construction were not cured by DMRC within the stipulated 90 days. This notice was sent after DAMEPL had begun operations and it said the defects had adverse effects on the performance of the obligations by it to operate, manage and maintain the project.
DMRC initiated conciliatory proceedings and then invoked arbitration when these failed.
On an in-depth analysis of the defects in the civil structure and steps taken for their repair or rectification, the tribunal concluded that “there were as many as 1,551 cracks in 367 girders, i.e., 72 percent of the girders were affected by such cracks” and that “these defects were neither cured nor [were] effective steps taken by DMRC within the cure period up to 08.10.2012, constituting a material breach on the part of DMRC”.
Before the tribunal, DMRC maintained that it had cured the defects and furnished a safety certificate issued by the commissioner of metro rail safety (CMRS) in support of it. However, the tribunal said the certificate mandated rigorous monitoring of the operations of the line and imposed speed restrictions.
Since the purpose of the Airport Metro Line was to serve as a high-speed line, the tribunal found that the certificate was not relevant for deciding the issue.
On the DMRC’s appeal, a single judge of the HC upheld the award. But on appeal, a division bench reversed it and partly set aside the arbitral award. It was against this that DAMEPL approached the SC, where a two-judge bench set aside the division bench order.
The HC’s division bench held that DAMEPL’s termination notice was invalid, opining that the speed restrictions were not stated as the reason for ending the agreement with DMRC. As there was no deliberation on this being a justification for termination before the tribunal, the award was silent and unreasoned on this issue, the HC said. It declared the safety certificate to be binding on the tribunal, which overlooked it by treating it as irrelevant.
But in its 2019 verdict, the top court held that the defects were not cured and that DMRC never argued the fitness certificate was binding. It said that the tribunal comprised engineers and the award could not be scrutinised by a legally trained mind in the same manner as the tribunal members.
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‘No defects when termination effected’
During the curative petition hearing, DMRC said the defects had no material adverse effect on the DAMEPL’s performance of obligations under the agreement.
Attorney General R. Venkataramani argued that when termination was effected, there were no defects pending and the safety certificate was issued on a joint application by both the parties. Also, the metro line was functioning smoothly after termination of the contract, an aspect entirely ignored by the tribunal. This amounted to a miscarriage of justice.
Moreover, the commissioner who issued the certificate is the final authority under law and the arbitral tribunal could not have substituted the certificate with its own finding on the safety of the line.
DAMEPL contested the DMRC’s claim of the metro line running smoothly and claimed its speed was increased only last year in March and not over the years, as stated by the metro corporation. The arbitrator, it said, is the sole judge of the quality and quantity of evidence, and judicial intervention is needed only when an arbitral award is vitiated by patent illegality.
Further, in the wake of the rejection of review petition, the top court’s September 2021 judgment had attained finality and the curative petition could not be treated as a second review, DAMEPL urged before the court.
Faulting its own judgment, the three-judge bench ruled Wednesday that “there is a fundamental error in a manner in which this court dealt with the challenge to the decision of the High Court.” It agreed with the HC’s judgment that the arbitral tribunal had overlooked crucial facts and evidence on record that were crucial to the determination of the issues before it.
From the record, the CJI-led court said, it was clear that the DMRC took steps towards curing defects, which led to the eventual resumption of operations, and the tribunal gave no explanation as to why the steps taken by the metro corporation were not “effective steps” within the meaning of the termination clause incorporated in the agreement.
In its interpretation, the tribunal placed “curing of defects” and “taking steps to cure defects” at par to mean that only the completed curing of defects is relevant. This understanding of the agreement by the tribunal was misplaced, the SC said.
Incremental progress, even if it does not lead to a complete cure, is an acceptable course of action to prevent termination according to the 2008 agreement, the bench held. This means once a cure notice is served to a party, it would be open to it to either cure defects or initiate effective steps, even if this could not culminate in a complete curing of defects within the cure period, the bench said.
Importantly, both DMRC and DAMEPL had jointly sought permission for the fitness certificate. As they approached the commissioner for the certificate, the parties said the repairs had been inspected by an independent engineer; an analysis of the cracks revealed that the integrity of the girders was intact and there was no cause of concern.
Therefore, SC held, the certificate was a relevant piece of evidence about the safety of the structure and, accordingly, to decide the issue.
(Edited by Tikli Basu)