Supreme Court’s Intervention In Arbitral Awards: A Detailed Analysis Of The Curative Petition In DMRC v. DAMEPL

1. Introduction

In April 2024, the Supreme Court of India delivered its judgment in Delhi Metro Rail Corporation v. Delhi Airport Metro Express Private Limited¹ ('DMRC v. DAMEPL'), overturning an arbitral award of nearly Rs. 8,000 crore against DMRC. The award was to be paid to DAMEPL, a joint venture between Reliance Infrastructure Limited and Construcciones Auxiliar de Ferrocarriles, S.A. (CAF), Spain. In a rare use of its extraordinary powers under Article 142 of the Constitution of India, the Supreme Court heard a curative petition filed by DMRC, challenging an earlier order that had upheld the arbitral award. The judgment brings finality to a decade-long contractual dispute that began in 2013 with arbitration proceedings.

The Supreme Court's decision to invoke its curative jurisdiction in this case has sparked significant debate in legal circles. It has raised important questions about the role of courts in reviewing arbitral awards and the grounds upon which such awards may be challenged. The judgment, while addressing issues of patent illegality and public interest, also highlights the challenges surrounding the timeliness, consistency, and finality of contract enforcement, especially in light of the multiple avenues of appeal available under the Arbitration and Conciliation Act, 1996 (the "Arbitration Act") and the Constitution of India.

2. Facts leading to filling of the Curative Petition

The Petitioner (DMRC) is a state-owned enterprise wholly owned by the Government of India and the Government of National Capital Territory of Delhi. The Respondent, (DAMEPL), is a special-purpose vehicle formed by a consortium comprising Reliance Infrastructure Limited and CAF (Spain). In 2008, this consortium was awarded the concession agreement for the design, construction, commissioning, operation, and maintenance of the Airport Metro Express Line Project, which would provide metro connectivity between New Delhi Railway Station and Indira Gandhi International Airport.

Under the concession agreement, DAMEPL was tasked with implementing various aspects of the project, such as managing the operation and maintenance of the metro line, while DMRC was responsible for obtaining necessary government clearances and bearing costs related to civil works and land acquisition. DAMEPL was required to complete the project within two years, with an extension provided in case of delays. By February 2011, the metro line commenced commercial operations.

However, several issues arose during the subsequent operations. In 2012, DAMEPL raised concerns over deformities and cracks in the viaduct bearings and requested DMRC to address these issues. Despite DMRC's assurance to repair the damaged bearings, DAMEPL continued to assert that the defects were significant enough to affect the safety of the project. In July 2012, DAMEPL halted the operations, citing safety concerns, and issued a notice to DMRC demanding the rectification of defects. DAMEPL terminated the concession agreement in October 2012, arguing that DMRC had failed to remedy the defects within the stipulated period.

DMRC responded by initiating arbitration proceedings in November 2012, contending that it had taken steps to address the defects and that DAMEPL’s termination of the agreement was unjustified. The arbitration tribunal, however, sided with DAMEPL, determining that DMRC had failed to meet its contractual obligations and that the defects in the project were severe enough to justify termination. In May 2017, the tribunal awarded DAMEPL a termination payment, operational expenses, and other financial compensations.

Aggrieved by the arbitral award, DMRC filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court. The Single Judge dismissed the petition, and the Division Bench partly allowed the appeal, setting aside the arbitral award. DAMEPL subsequently filed a special leave petition before the Supreme Court under Article 136 of the Constitution, which was initially allowed, and the arbitral award was restored. A review petition filed by DMRC against this order was dismissed, leading to the filing of a curative petition.

3. Supreme Court’s take in the Curative Petition

The Supreme Court addressed two critical issues in the DMRC v. DAMEPL case: (i) the maintainability of the curative petition, and (ii) whether the Court was justified in restoring the arbitral award that had been set aside by the Division Bench of the High Court on the grounds of patent illegality.

The Court referred to the Constitution Bench decision in Rupa Hurra v. Ashok Hurra, which explored whether any remedy is available after the dismissal of a review petition. In Rupa Hurra, the Court clarified that a curative petition could be entertained in exceptional circumstances, specifically to correct gross miscarriages of justice or to prevent an abuse of judicial process. It emphasized that curative petitions are not to be invoked routinely, but only in cases where refusing to reconsider a judgment would perpetuate irreversible injustice.

The Court noted that for a curative petition to be entertained, the following procedural requirement must be met: a certificate from a Senior Advocate affirming that the criteria for filing a curative petition have been fulfilled. The Court also emphasized that such petitions should be considered only in rare cases where manifest injustice is evident.

The Supreme Court reinforced that judicial review of arbitral awards is limited to specific grounds, one of which is "patent illegality" under Section 34 of the Arbitration and Conciliation Act. Referring to its previous judgment in Associate Builders v. DDA, the Court reiterated that while it is the arbitrator's prerogative to interpret a contract, the award can be set aside if it is perverse, irrational, or based on no evidence. The Court further emphasized that an award could be overturned if it violates fundamental principles of Indian law or breaches the principles of natural justice.

In this case, the Supreme Court identified two significant flaws in the arbitral award:

• The Arbitral Tribunal had not adequately explained what constituted "effective steps" to cure the breach, as specified in the concession agreement. The Court observed that the Tribunal had conflated the completion of defect rectification with the effectiveness of the steps taken, which did not align with the intentions of the parties under the agreement.
• The Court found that the Tribunal had disregarded crucial evidence, particularly the certificate from the Commissioner of Metro Railway Safety (CMRS), which confirmed that the defects were being addressed and the project was operational at high speeds. The Tribunal had erroneously deemed this certificate irrelevant, focusing instead on conditions for inspections and speed restrictions.

The Supreme Court concluded that the two-judge bench of the Court, which had previously restored the arbitral award, had committed a miscarriage of justice. Exercising its powers under Article 142 of the Constitution, the Court allowed the curative petition and restored the decision of the Division Bench of the High Court, which had set aside the award. The Court emphasized that curative jurisdiction should be used sparingly, and in this case, the intervention was warranted due to the severe miscarriage of justice involved.

4. Conclusion

The DMRC v. DAMEPL case underscores critical issues in India's arbitration framework, highlighting both the uncertainties in judicial review and the broader challenges that arbitration faces in the country. Despite the Arbitration Act providing a legal structure for challenging arbitral awards, the inconsistent application of judicial review provisions has created significant ambiguity. The introduction of "patent illegality" as a ground for review adds to this uncertainty by leaving room for subjective interpretations.

Furthermore, the proliferation of avenues for contesting awards, combined with inconsistent judicial practices, has led to delays, diminishing arbitration's intended role as a quicker and more efficient alternative to litigation. The case also brings to light the difficulties faced by private parties in contracts involving the state, with the complexities of risk allocation, contract management, and litigation often resulting in unpredictable outcomes.

Ultimately, the DMRC v. DAMEPL case serves as a call to reform India’s arbitration system. Arbitration, which was meant to offer faster and more cost-effective dispute resolution, has become as expensive and protracted as traditional litigation. With the government itself expressing concerns about the fairness and high costs of arbitration, it is clear that substantial reforms are necessary to restore arbitration’s credibility and efficiency in commercial dispute resolution in India.

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