TMI Blog2021 (9) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... dings and findings in relation to other defects, deficiencies and constraints in the civil structure of the AMEL which are not referred to herein, the Arbitral Tribunal concluded that the defects had not been cured within the cure period of 90 days from 09.07.2012 nor had effective steps been taken to cure such defects. Ergo, the termination notice issued by DAMEPL on 08.10.2012 was valid. Whether the issue of certificate by the Commissioner on 18.01.2013, giving clearance for resuming operations of the AMEL, showed that the defects were duly cured? - HELD THAT:- After examining the certificate issued by the Commissioner, the Arbitral Tribunal held that while the Commissioner had sanctioned resumption of services, certain conditions were imposed, essentially relating to the restriction of speed up to 50 km per hour, which had a material bearing on the prime purpose of the AMEL intended to serve as a high-speed connectivity line. Moreover, the Commissioner himself recognized that the operation of the Line had to be regularly monitored. The subsequent operation of the Line by DMRC was found to be not relevant for determining the validity of the termination notice dated 09.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dv. Ms. Anjali Chandurkar, Adv. Mr. Mahesh Agarwal, Adv. Ms. Megha Mehta, Adv. Mr. Nishant Rao, Adv. Mr. E. C. Agrawala, AOR JUDGMENT L. NAGESWARA RAO, J. Leave granted. 1. Whether in exercise of its power under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter, the 1996 Act ), the Division Bench of the Delhi High Court was right in interfering with the award dated 11.05.2017 passed by the Arbitral Tribunal in favour of the Appellant - Delhi Airport Metro Express Pvt. Ltd. (hereinafter, DAMEPL or the Concessionaire ), is the question that arises for consideration in these Appeals. 2. Delhi Metro Rail Corporation Ltd. (hereinafter, DMRC ), a joint venture of the Government of India and the Government of National Capital Territory of Delhi, proposed implementation of the Airport Metro Express Line project in New Delhi, from New Delhi Railway Station to Dwarka Sector 21 via Indira Gandhi International Airport, New Delhi (hereinafter, AMEL ). The approximate length of the project was 22.7 kilometers. It was decided to develop the project by engaging a concessionaire for financing, design, procurement, installation of all systems (includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deemed necessary in the interest of safety. 5. The Ministry of Urban Development, Government of India convened a meeting of all the stakeholders on 02.07.2012. The views of all the parties relating to the defects were obtained and a Joint Inspection Committee was formed. An interim report was submitted by the Joint Inspection Committee after inspection on 4th 5th July, 2012. Subsequently, DAMEPL stopped operations of the Line on 08.07.2012. 6. A notice was issued by DAMEPL on 09.07.2012, asking DMRC to cure the defects in DMRC s works within a period of 90 days from the date of the notice, failing which it shall be treated as a breach having Material Adverse Effect on the Concessionaire under the Concession Agreement. In the said notice dated 09.07.2012, a non-exhaustive list of defects was set out by DAMEPL. Thereafter, a number of meetings were conducted between the parties which were attended by SYSTRA, the original design consultant for the viaduct sections. It appears from the record that DMRC had also engaged some other agencies for carrying out the repair work. 7. DAMEPL issued a notice dated 08.10.2012 terminating the Concession Agreement as, according to it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as being in conformity with the Concession Agreement and consequently, filed a counter claim seeking an amount of Rs.3,470 crore as termination payment along with interest and further amounts as detailed in the counter claim, on the ground that DMRC did not cure the defects in the civil structure in terms of the cure notice dated 09.07.2012. As DMRC did not comply with its obligations under Article 29.5.1(i), DAMEPL justified the termination notice dated 08.10.2012 and the consequent claim of termination payment from DMRC under Article 29.5.2. 10. The Arbitral Tribunal formulated the following primary issues for consideration in relation to the termination notice dated 08.10.2012: - i) Were there any defects in the civil structure of the airport metro line? (ii) If there were defects, did such defects have a material adverse effect on the performance of the obligation of DAMEPL under CA? (iii) If there were defects in the civil structure, which had a material adverse effect on the performance of the obligations under the CA by DAMEPL, have such defects been cured by DMRC and / or have any effective steps been taken within a period of 90 days from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e neither cured nor effective steps taken by DMRC within the cure period up to 08.10.2012, constituting a material breach on the part of DMRC. On the basis of the above findings and findings in relation to other defects, deficiencies and constraints in the civil structure of the AMEL which are not referred to herein, the Arbitral Tribunal concluded that the defects had not been cured within the cure period of 90 days from 09.07.2012 nor had effective steps been taken to cure such defects. Ergo, the termination notice issued by DAMEPL on 08.10.2012 was valid. 13. Having decided on the validity of the termination notice, the Tribunal went on to consider certain legal issues so as to determine questions around specific performance of the contract, or alternatively, the award of damages and the outcome of the counter claim filed by DAMEPL. One such issue considered by the Arbitral Tribunal was whether the issue of certificate by the Commissioner on 18.01.2013, giving clearance for resuming operations of the AMEL, showed that the defects were duly cured. After examining the certificate issued by the Commissioner, the Arbitral Tribunal held that while the Commissioner had sanctioned r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itral Tribunal and they needed no intervention by the Court exercising its power under Section 34 of the 1996 Act. He was also of the view that the Court cannot substitute its view when there are two views possible and the view taken by the Arbitral Tribunal is a plausible one. 15. DMRC filed an appeal under Section 37 of the 1996 Act read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (the title since amended to Commercial Courts Act, 2015), challenging the correctness of the judgment passed by the learned Single Judge on 06.03.2018 dismissing the objections filed by DMRC under Section 34 of the 1996 Act. The Division Bench reversed the judgement of the learned Single Judge and allowed the appeal filed by DMRC. The award passed by the Arbitral Tribunal was partly set aside. The parties were left to invoke the arbitration clause for adjudication of the issues that were not decided by the Division Bench. The judgement of the Division Bench dated 15.01.2019 is assailed in these Appeals. 16. DMRC has also filed SLP (C) No.8311 of 2019 challenging the correctness of the aforesaid judgement of the Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of share capital), was based on an assumption that the debt-to-equity ratio is commonly 60:40 or 80:20, contrary to the evidence on record. This was held to be an egregious mistake committed by the Tribunal. The High Court also found fault with the award which ignored the resolution passed by the board of directors of DAMEPL on 16.03.2011, by which the amount of Rs. 611.95 crore was converted to subordinated debt. The High Court held that Adjusted Equity under the Concession Agreement does not contemplate funds recognized as subordinated debt to be treated as Equity . With respect to the interpretation of the various provisions of the Concession Agreement and the resultant conclusions on Adjusted Equity , the High Court held that the findings of the Tribunal on this issue were in violation of Sections 28(1)(a) and 28(3) of the 1996 Act, as elaborated in Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, as contractual provisions had been interpreted in a way no fair-minded and reasonable person would. 19. In light of the reasons mentioned, the High Court set aside the conclusions of the Arbitral Tribunal on the validity of the termination notice and that R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation. Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation 1. For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion public policy of India , whether contained in Section 34 or in Section 48, would now mean the fundamental policy of Indian law as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to Renusagar understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award. 39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award. 40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wande ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal would not fall within the expression patent illegality . Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression patent illegality . What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the day. Ssangyong (supra) 27. In light of the principles elucidated herein for interference with an arbitral award by a court in exercise of its jurisdiction under Section 34 of the 1996 Act, we proceed to consider the questions that arise in these Appeals as to whether the Division Bench of the High Court was right in setting aside the award of the Arbitral Tribunal dated 11.05.2017. Validity of the termination notice and consequences of the CMRS sanction 28. Mr. Harish Salve, learned Senior Counsel appearing for the Appellant (DAMEPL), submitted that the High Court committed an error in setting aside the award of the Arbitral Tribunal by deviating from the well-settled principles for interference under Sections 34 and 37 of the 1996 Act. The findings recorded by the Arbitral Tribunal in relation to the existence of defects in the civil structure and failure on the part of DMRC in curing those defects/not taking effective steps to cure the defects are findings of fact which cannot be made subject to review by the court exercising its jurisdiction under Section 34. He asserted that interpretation of the provisions of the Concession Agreement is within the domain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .07.2012 but extended for another 90 days from the termination notice dated 08.10.2012. According to the Respondent, a serious error was committed by the Arbitral Tribunal in its interpretation of Article 29.5.1 of the Concession Agreement. Abundant material placed by DMRC to show effective steps were taken to cure the defects was not considered by the Arbitral Tribunal. The Commissioner in exercise of his powers conferred by the Delhi Metro Act permitted the opening of the AMEL on 18.01.2013 after considering all safety aspects and the AMEL has been in operation since then without any adverse event. The subsequent smooth functioning of the AMEL is a relevant consideration which was ignored by the Arbitral Tribunal. DAMEPL s participation in several meetings that were conducted which led to inspections and steps taken to address the defects as well as the AMEL being run by DAMEPL from 22.01.2013 to 30.06.2013 would show that even DAMEPL was aware that effective steps had been taken to cure the defects. 30. Termination by DAMEPL for DMRC Event of Default is dealt with in Article 29.5.1 which reads as under: - 29.5 Termination for DMRC Event of Default 29.5.1 The Concessionai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the findings of the Arbitral Tribunal regarding the time given for curing the defects and the effective date of termination of the Concession Agreement, we are not in agreement with the findings of the Division Bench that there is an ambivalence in the award concerning the date of termination, having a bearing on the final outcome of the award. The ancillary issue that arises for consideration is whether the period for curing the defects is 180 days or 90 days under Article 29.5.1 of the Concession Agreement. The Arbitral Tribunal in its award has clearly held that DMRC failed to cure the defects before the expiry of 90 days from the initial notice laying down the non-exhaustive list of defects issued on 09.07.2012. The said conclusion is the outcome of interpretation of Article 29.5.1 of the Concession Agreement by the Tribunal. An attempt was made by the learned Senior Counsel appearing for the Respondent to impress upon this Court that as the termination notice would become effective only after 90 days from the date of its issue, i.e., 08.10.2012, DMRC could avail this period as well to address the defects and if the defects stood cured or effective steps were taken within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. In addition thereto, the certificate is conclusive of the fact that there were no defects in the civil structure, as otherwise, the Commissioner would not have permitted the AMEL to be opened. On the basis of the certificate issued by the Commissioner, the Respondent has argued that all defects pointed out by DAMEPL had been cured. In any event, effective steps had been taken to cure the defects by periodical meetings and inspections being held. 33. The Arbitral Tribunal was called upon by the parties to decide whether there was a breach of the Concession Agreement due to the fault of DMRC and whether the defects pointed out by DAMEPL were cured within the period specified in the notice dated 09.07.2012. Safety of the AMEL was not an issue that fell for determination by the Arbitral Tribunal, though DAMEPL had insisted on not continuing operations of the Line citing safety concerns arising from the defects in its structural integrity. It is no doubt true that the Commissioner is the competent authority to determine the safety of the AMEL. It is also beyond cavil that the Commissioner would not have granted permission to restart the AMEL unless it was of the opinion that resta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of the quality as well as the quantity of the evidence, the task of being a judge on the evidence before the Tribunal does not fall upon the court in exercise of its jurisdiction under Section 34. State of Rajasthan v. Puri Construction Co. Ltd. and Another (1994) 6 SCC 485 On the basis of the issues submitted by the parties, the Arbitral Tribunal framed issues for consideration and answered the said issues. Subsequent events need not be taken into account. 36. For the aforementioned reasons, the conclusion of the Division Bench that the award of the Arbitral Tribunal suffers from patent illegality and shocks the conscience of the court is held to be erroneous. Adjusted Equity 37. Article 29.5.2 of the Concession Agreement which deals with Termination Payment is as follows:- 29.5.2 Upon termination by the Concessionaire on account of DMRC Event of Default, DMRC shall pay to the Concessionaire, by way of Termination Payment, an amount equal to a) Debt Due; b) 130 % of the Adjusted Equity; c) Depreciated Value of the Project Assets, if any, acquired and installed on the Project after the 10th anniversary of the COD. 38. It is relevant to note the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aire s Works as set forth in the Financing Documents plus any further additional capital cost for any Change of Scope instructed since the finalisation of the Financing Documents; and After COD, the actual capital cost of the Concessionaire s Works upon Project Completion as certified by the Statutory Auditors. Debt Due means the aggregate of the following sums expressed in Indian Rupees outstanding on the Transfer Date: a) the principal amount of the debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost (the principal ) but excluding any part of the principal that had fallen due for repayment two years prior to the Termination Date; b) all accrued interest, financing fees and charges payable under the Financing Agreements on, or in respect of, the debt referred to in Sub-clause (a) above until the Transfer Date but excluding (i) any interest, fees or charges that had fallen due one year prior to the Transfer Date, (ii) any penal interest or charges payable under the Financing Agreements to any Senior Lender, and (iii) any pre-payment chares in relation to accelerated repayment of debt except where such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. The Tribunal was correct in holding that the amount of Rs.611.95 crore advanced by DAMEPL s promoter would qualify for inclusion under the definition of Equity on a plain reading of the said definition. Construction of the contract is within the jurisdiction of the Tribunal and merely because another view is possible, the court cannot interfere with such construction and substitute its own view. 40. On the other hand, it was contended by DMRC that the amount of Rs.611.95 crore was recorded as share application money in the balance sheet of DAMEPL as on 31.03.2010. However, the said amount was shown as subordinated debt in the balance sheet as on 31.03.2011. The Respondent referred to the resolution passed by the board of directors of DAMEPL on 16.03.2011, in which a decision was taken to convert the share application money into subordinated debt. DMRC urged that the conversion of the share application money as subordinated debt was a calculated move on the part of DAMEPL. If the share application money had been allowed to retain the nature of equity, DAMEPL would have lost the entire amount in the event of termination of the Concession Agreement by DMRC for Concession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible view expressed by the Tribunal on construction of the terms of the Concession Agreement cannot be substituted by the High Court. This view is in line with the understanding of Section 28(3) of the 1996 Act as a ground for setting aside the arbitral award, as held in Associate Builders (supra) and thereafter upheld in Ssangyong (supra). No case has been made out by the High Court to establish violation of Section 28(3). Having carefully examined the Concession Agreement, the findings recorded by the Tribunal and the findings recorded by the Division Bench, we are not in a position to hold that the opinion of the Tribunal on inclusion of Rs.611.95 crore under Equity is a perverse view. It cannot be said that the Tribunal did not consider the evidence on record, especially the resolution dated 16.03.2011 passed by DAMEPL s board of directors. We also do not find fault with the approach of the Tribunal that the understanding of the term equity as per the Companies Act, 2013 is not relevant for the purposes of determining Adjusted Equity in light of the express definition of the term in the Concession Agreement. As has been held in Ssangyong (supra), mere contravention of subs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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