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[Supreme Court] Unfounded Conclusions or Awards That Disregard Evidence Are Legally Flawed and Can Be Challenged on Grounds of Patent Illegality

Introduction

In the curative petition of Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express (P.) Ltd[i], the jurisdiction of the Hon’ble Supreme Court (‘SC’) was invoked under a. 142 of the Constitution of India. The SC discussed the maintainability of this petition and held that the arbitral award was both perverse and legally flawed due to patent illegality, causing a miscarriage of justice. The SC held that it has inherent powers to entertain this petition and therefore upheld the order of the Division Bench of Delhi High Court (‘DB DHC’).

Brief Facts

  • Delhi Metro Rail Corporation (‘DMRC’) and Delhi Airport Metro Express Private Limited (‘DAMEPL’) were the two parties involved in the construction of a metro line. DAMEPL won the bid in 2008 to operate the Delhi Airport Metro Express Ltd (‘AMEL’), connecting New Delhi Railway Station, the airport, and other parts of Delhi.

  • Based on the bid, a public-private partnership (‘PPP’) was created through a Concession Agreement (‘2008 agreement’), where DMRC handled permissions and paid for land acquisition and DAMEPL designed and operated AMEL. DAMEPL had two years to build this metro line and maintain it until August 2038. During construction, DAMEP identified flaws in the project and notified DMRC. Despite discussions, the issues were not resolved by DMRC and therefore, DAMEPL ultimately stopped the work. In view of the termination, DMRC initiated a conciliation process which failed, therefore DMRC escalated the issue to arbitration in October 2012.

  • An arbitration panel as per the 2008 agreement was formed in August 2013 to settle the dispute between DMRC and DAMEPL. In May 2017, the tribunal ruled in favour of DAMEPL. Aggrieved by the ruling, DMRC challenged the arbitration award before the single bench of the Delhi High Court (‘Single Bench DHC’) but lost. DMRC then appealed before the DB DHC, where the appeal was partly allowed.

  • DAMEPL challenged the order of the DB DHC before the SC, where the appeal was decided in favour of DAMEPL and the two-bench of the SC restored the original arbitration award.

  • Aggrieved by the two-bench SC decision of upholding the arbitration award, DMRC filed a review petition before the SC, which was rejected. This review petition was filed by DMRC in an attempt to overturn the two-bench SC decision. Therefore, as a re-attempt to overturn the two-bench SC decision, DMRC approached the SC through this curative petition invoking the powers of the SC under a. 142 of the Constitution seeking to re-agitate the issue.

Observations

  • The SC observed that it can hear a curative petition under limited circumstances to prevent abuse of the Court system and to avoid serious injustice to the party seeking relief. However, the SC acknowledged that it is not possible to list all the reasons why the SC might hear a curative petition and further emphasized that such petitions are a last resort and should not be used to simply challenge a final decision which is merely not favourable to either of the parties challenging it.

  • The main question before the SC was whether the DB DHC had overstepped its bounds in overturning the arbitration award. The SC examined whether the DHC had strayed from the established principles for reviewing such awards as per the provisions of ss. 34 and 37 of the Arbitration and Conciliation Act, 1996 (‘Act’). The SC emphasized that the Act aims to minimize court intervention in arbitration processes and that judicial involvement is restricted to specific reasons as outlined in the provisions of s. 34 of the Act. The SC observed that an arbitral award may be set aside if it impairs the legal validity and is contrary to substantive legal provisions of the Act.

  • The SC also clarified that patent illegality arises when the arbitrator adopts a view in contradiction to the Act and emphasized the meaning of ‘patent illegality’. Patent illegality arises firstly when the award contradicts a fundamental legal principle and secondly when the award violates basic provisions of justice and fairness of the Act, as discussed, and held in the Associate Builders vs. Delhi Development Authority[ii] case.

  • The SC noted that it uses its power cautiously and intervenes in exceptional circumstances requiring its involvement. It was further noted that while deciding the merits of a Special Leave Petition, the SC must limit its interference. Furthermore, it was observed that the SC acts under a. 136 of the Constitution, where it has a different role than the Court acting under s. 37 of the Act. While s. 37 of the Act allows for a broader evaluation of the award, the role of the SC is limited, and it can only check if the Court acting under s. 37 of the Act has made a jurisdictional error by applying the wrong tests to challenge the award.

  • By placing reliance upon the case of Associate Builders (supra), the SC held that the arbitral award was patently illegal as the single bench of DHC had overlooked the certifications of CMRS which decided the validity of the termination of the agreement. The SC further noted that the arbitral tribunal only focussed on the conditions imposed on the speed of the metro line rather than focusing on the CMRS certification.

  • The SC observed that the arbitral award overlooked the vital evidence and therefore, it was unreasoned. It further held that the DB DHC had rightly recognized that the tribunal ignored vital evidence, leading to a perverse and blatantly illegal decision, which therefore justified the intervention of the SC through this curative petition.

  • Based on the proper scope of intervention under s. 34 of the Act, the SC, therefore, concluded that the two-bench judgement of the SC was erred and the decision amounted to re-evaluating facts already decided by the arbitration panel, which had caused a grave miscarriage of justice and therefore the SC exercised its powers under a. 142 of the Constitution and allowed the curative petition and upheld the judgement of the DB DHC.

Our Analysis

The SC underlined its power to intervene in arbitration awards lacking clear reasoning under a. 142 of the Constitution. This judgment serves as a crucial reminder that the SC must intervene when arbitral awards contain glaring errors, misinterpretations, and demonstrably wrong conclusions. In such exceptional circumstances, the SC can step in, rectify the mistakes of the tribunal, and even set aside the entire award which showcases the SC's unwavering commitment to arbitration as an efficient dispute resolution method with swift outcomes and minimal judicial involvement. However, the SC cautioned against overuse of this power under a. 142 of the Constitution as excessive intervention could lead to a surge in litigation, with losing parties potentially relitigating issues through curative petitions after exhausting all available remedies which could create chaotic proceedings. In light of this decision, we can expect fresh rounds of litigations from losing parties dissatisfied by the judgements and decisions held by the co-ordinate courts.





End Notes

[i] [2024] 161 taxmann.com 618 (SC)

[ii] 2015 3 SCC 49






Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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