The Supreme Court of India’s decision to overturn an arbitral award in the case of Delhi Metro Rail Corporation Ltd. (DMRC) v. Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) has raised significant concerns regarding the future of India’s arbitration framework. This case, which involved a highly controversial exercise of curative jurisdiction by the Supreme Court, has stirred debate in legal and commercial circles and brought into question the attractiveness of foreign investments and infrastructure projects in India.
India has repeatedly sought to strengthen its arbitration framework, especially with the amendments introduced to the Arbitration and Conciliation Act in 2015, 2019, and 2021. These amendments aimed at improving the arbitration mechanism, promoting arbitration as a preferred mode of dispute resolution, and making India an attractive destination for foreign investments. The Supreme Court’s decision in the DMRC v. DAMEPL, using curative jurisdiction effectively as a weapon to unsettle resolved disputes, casts a shadow over these efforts and undermines the finality of arbitral awards.
It has prompted many scholars to ask: Does the country’s commitment to the principles of minimal judicial intervention and judicial independence, still stand true?
The facts, and a brief history
Let us examine the facts. The dispute between DMRC and DAMEPL arose from a public-private partnership project involving the construction and operation of a metro rail system connecting Delhi’s international airport with the city center. The contractual agreement between the two entities involved a detailed structure, with DAMEPL being responsible for financing, design, procurement, and installation, while DMRC acted as the public utility managing the project. The termination of the contract by DAMEPL, citing various breaches and defects, led to an arbitration process that resulted in a tribunal’s award in favor of DAMEPL, entitling them to approximately Rs. 7,500 crores in damages.
The arbitral award was challenged under Section 34 of the Arbitration and Conciliation Act, which permits limited judicial review of arbitral awards on the grounds of procedural irregularities or violations of public policy. The Delhi High Court initially upheld the award, and the matter was subsequently taken to the Supreme Court. After careful examination, the Supreme Court dismissed a review petition filed by DMRC, but in a surprising turn of events, a curative petition was filed and allowed by the same court. This decision marked a significant departure from the normal scope of judicial review and sparked widespread criticism.
Critics argue that the judgment contradicts the ethos of minimal judicial interference in arbitration and undermines the finality of judicial decisions, particularly those of the Supreme Court. Curative petitions, traditionally used in exceptional cases such as those involving gross miscarriages of justice or violations of natural justice, were never intended to serve as a means of re-evaluating substantive commercial disputes.
However, the Supreme Court in the DMRC v. DAMEPL case used its curative jurisdiction to reconsider the merits of the arbitration award, despite the fact that the award had been upheld multiple times by different courts. The court cited “grave miscarriage of justice” as its justification for setting aside the previous judgments, including the arbitral award itself. But it did not answer the million [or in this case, billion] dollar question – what if the exercise of curative jurisdiction does not cure, but instead, causes the ailment?
How this judgement can lead to a chronic ailment for India’s credibility, our legal system and the economy
In the view of the author, there are four very grave ailments which it can and has caused.
First, the ruling has serious implications for public-private partnerships (PPPs) and infrastructure projects in India. One of the key concerns is that this judgment could deter private players from participating in future infrastructure projects due to the perceived risk of prolonged litigation. The unpredictability of the Indian legal system, exemplified by this case, might discourage both domestic and international investors, who might view the judicial process as fraught with uncertainty. If public bodies like DMRC, a state-owned entity, can challenge arbitral awards even after they have been upheld by the Supreme Court, private companies may fear that their contractual rights will not be settled, discouraging them from bidding for nation building activities.
Secondly, the ruling reeks of judicial overreach. The Supreme Court’s re-evaluation of factual issues, such as the interpretation of the termination clause in the contract and the significance of the CMRS certificate, is seen as a departure from the principles of arbitration law that emphasize minimal interference by courts in the arbitration process. The tribunal, comprising subject-matter experts, had already considered the evidence and arrived at its decision, which was subsequently upheld by the Delhi High Court. For the Supreme Court to now intervene and re-assess the evidence raises serious questions about the appropriate role of the judiciary in arbitration cases. Further, in the context of arbitration law, the Supreme Court’s decision in this case also contradicts Section 34(2A) of the Arbitration and Conciliation Act, which specifically prohibits courts from setting aside arbitral awards based on a reappreciation of evidence. The very essence of arbitration is that disputes should be resolved efficiently and finally, with minimal judicial interference. By permitting the curative petition and intervening in the substantive aspects of the case, the Supreme Court undermines the core principles of arbitration law.
Thirdly, DMRC’s filing of the curative petition came after a delay of eight months following the dismissal of its review petition in 2021, which is in violation of the Supreme Court Rules, 2013. The delay raises concerns about the seriousness and urgency of the matter. Curative petitions are intended to address matters of grave concern, and the time-lapse between the review petition’s dismissal and the curative petition’s filing suggests that DMRC may not have genuinely believed in the existence of a miscarriage of justice. The Court’s decision to entertain the curative petition despite these procedural lapses suggests a willingness to extend the scope of curative jurisdiction beyond its original intent.
Adding salt to the wound – the use of contempt jurisdiction akin to turning the knife
Finally, to add a cherry to a very large cake, the Court issued a contempt notice against DAMEPL for failing to refund the funds deposited by DMRC. The delay in this refund, which lies with the banks, has now led DAMEPL to face contempt charges.
You will recall that following the Arbitral Award, DMRC deposited Rs. 1,700 crore with a consortium of banks to comply with earlier court directives. When the Supreme Court subsequently ordered the refund of this amount with interest (which now stands at more than Rs 4,500 crore) to DMRC, the banks delayed processing the refund. Surprisingly, the contempt notice issued by the court targets both DAMEPL and the banks, even though DAMEPL has no control over the funds, which are held by the banks. The banks, as custodians of the deposited funds, are alone the relevant stakeholders responsible for executing the refund.
By involving DAMEPL in the contempt proceedings, the court exacerbates the private party’s burdens in a dispute where it has already faced systemic disadvantages. It has also needlessly prolonged the dispute. It almost holds up a banner to those seeking to invest in India, to take a u-turn and find growth elsewhere.
And consider this – during the pendency of the dispute, the DMRC has enjoyed access to the metro line and the revenues flowing therefrom. With all the failures at multiple levels, does there not follow in equity a duty from it [DMRC] to the private contractor and the banks?
So what next, from here?
The author maintains that while the conclusion is his, it is the most rational conclusion to arrive at it in light of both the law and the facts of the case. A challenge that there is either a fairer or most equitable solution is welcome – no one can mount such a challenge.
Was the Supreme Court right in using its powers under Art. 142?
India’s arbitration framework, which aims to provide a swift and effective resolution of disputes, has long aspired to rival Singapore and London as a hub for arbitration. That requires stable verdicts. The Supreme Court itself acknowledges in its judgment, that curative jurisdiction should be reserved for rare and egregious cases. But it does a poor job of showing how this case was either egregious or rare. It was, by all accounts, a commercial dispute where the facts were plain and had gone through the judicial lens several times.
The Constitutional power for curing injustice was envisaged as an extraordinary power, and even the Constituent Assembly allowed it [Draft Article 118] to pass without much debate, since this was meant to be an extreme step where blatant wrongs were to be set right by the court of last resort. By extending it to a typical commercial arbitration matters, the court risks opening the floodgates for future curative petitions in other commercial cases.
Does Contempt lie, and if so, against whom?
No, contempt does not lie. The curative jurisdiction being exercised by the Court is itself ridiculously unfair and should never have been done.
Additionally, the only institutions against whom contempt even theoretically might lie are the banks, not the private contractor in this case.
And so, what now?
The Court needs to ‘cure’ its own curative action, and drop the contempt proceedings. We as a nation are in a race against time to become developed by 2047, and such actions do not help.
