TMI Blog2024 (4) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... stice to exercise the jurisdiction of this Court under Article 142 while entertaining a curative petition. In essence, the jurisdiction of this Court, while deciding a curative petition, extends to cases where the Court acts beyond its jurisdiction, resulting in a grave miscarriage of justice. Scope of interference of courts with arbitral awards - HELD THAT:- The contours of the power of the competent court to set aside an award under Section 34 has been explored in several decisions of this Court. In addition to the grounds on which an arbitral award can be assailed laid down in Section 34(2), there is another ground for challenge against domestic awards, such as the award in the present case. Under Section 34(2-A) of the Arbitration Act, a domestic award may be set aside if the Court finds that it is vitiated by patent illegality appearing on the face of the award. In ASSOCIATE BUILDERS VERSUS DELHI DEVELOPMENT AUTHORITY [ 2014 (11) TMI 1114 - SUPREME COURT] , a two-judge Bench of this Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In essence, therefore the award is unreasoned. It overlooks vital evidence in the form of the joint application of the contesting parties to CMRS and the CMRS certificate. The arbitral tribunal ignored the specific terms of the termination clause. It reached a conclusion which is not possible for any reasonable body of persons to arrive at. The arbitral tribunal erroneously rejected the CMRS sanction as irrelevant. The award bypassed the material on record and failed to reconcile inconsistencies between the factual averments made in the cure notice, which formed the basis of termination on the one hand and the evidence of the successful running of the line on the other. The Division Bench correctly held that the arbitral tribunal ignored vital evidence on the record, resulting in perversity and patent illegality, warranting interference. The parties are restored to the position in which they were on the pronouncement of the judgement of the Division Bench. The execution proceedings before the High Court for enforcing the arbitral award must be discontinued and the amounts deposited by the petitioner pursuant to the judgment of this Court shall be refunded. The Curative petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment remained undisturbed in the exercise of the review jurisdiction of this Court. Review Petition (C) Nos. 1158-1159/2921. A. Factual Background 2. The petitioner, Delhi Metro Rail Corporation DMRC is a state-owned company wholly owned by the Government of India and the National Capital Territory of Delhi. The respondent, Delhi Airport Metro Express Private Limited DAMEPL / Concessionaire is a special purpose vehicle incorporated by a consortium comprising of Reliance Infrastructure Limited and Construcciones Y Auxiliar de Ferrocarriles SA, Spain. The consortium bagged the contract for the construction, operation and maintenance of the Delhi Airport Metro Express Ltd AMEL in 2008. The Concession Agreement 2008 Agreement envisaged a public-private partnership for providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi. 3. Under the 2008 Agreement, DAMEPL was granted exclusive rights, license and authority to implement the project and concession in respect of AMEL. This included the right to manage and operate the Project as a commercial enterprise. DMRC was to undertake clearances and be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. 10. On 30 June 2013, DAMEPL halted operations and handed over the line to DMRC. Before this, on 19 November 2012, both parties made a joint application to the Commissioner of Metro Railway Safety CMRS / Commissioner for re-opening of AMEL for public carriage of passengers. Enclosed with the application, was an administrative note jointly signed by representatives of both DAMEPL and DMRC, which we shall avert to in the course of the judgment. 11. Following this application, after inquiry and inspection, the CMRS issued sanction on 18 January 2013. This sanction was subject to certain conditions including speed restrictions. Specifically, the metro was to be run at a speed of 50kmph, and an increase in speed beyond 50kmph up to 80kmph was to be authorized in steps of 10kmph at a time. For an increase in speed beyond 80kmph, DMRC was to approach the Commissioner for sanction with a justification as to the improvements carried out by it. 12. Consequently, on 22 January 2013, AMEL operations were commenced by DAMEPL. On 30 June 2013, the project assets were handed over by DAMEPL to DMRC. After that, from 01 July 2013, DMRC continued AMEL operations. 13. In August 2013, the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutable to DMRC s faulty design; that these defects were not cured and no effective steps were taken to cure them within the 90-day cure period, resulting in material adverse effects to DAMEPL, entitling it to terminate the concession agreement. 18. The Tribunal was required to adjudicate on the validity of the termination notice. It framed the following issues: Were there any defects in the civil structure of the airport metro line? If there were defects, did such defects have a material adverse effect on the performance of the obligation of DAMEPL under CA? 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 of notice by DAMEPL to cure the defects by DMRC and thus, were DMRC in breach of the CA as per 29.5.1 (i)? 19. The Tribunal undertook an analysis of the defects in the structure and whether they had been cured or effective steps taken during the cure period. It noted that 72% of the girders were affected by cracks; the cause of the cracks was uncertain; the depth of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. The Division Bench of the High Court Division Bench partly set aside the award as perverse and patently illegal, for the following reasons : 24.1. On the validity of the termination, ex-facie, the termination which was effective immediately from the date of termination was invalid. There was some ambiguity on the relevant date of termination. The award did not interpret clause 29.5.1(i) of the concession agreement regarding the duration of the cure period; 24.2. The speed restrictions were not stated as the reason for termination in the cure or termination notices and there was no deliberation on this being a justification for termination before the Tribunal. Thus, the award was silent and unreasoned on this issue; and 24.3. Underlining the significance of the CMRS sanction under the Act of 2002, the findings of the tribunal on this issue were incorrect because (i) the award overlooked the legal effect of the CMRS certificate which was binding on the tribunal; and (ii) the award erroneously treated the CMRS certificate as irrelevant to the issue of the validity of the termination by wrongly separating the issue of defects and material adverse effects from the issue of the certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2002 The 2002 Act , the termination notice was invalid; 28.3. Clause 29.5.1 of the agreement shows that the termination ought to have been effected after 90 days from the cure notice plus 90 days in addition. Termination was thus effective only on 07 January 2013 and on this date, none of the defects were pending to be rectified by DMRC; 28.4. The sanction/certificate granted by CMRS was issued on a joint application by both the parties after thorough inspection of the operations. The terms of the agreement and the provisions relating to the CMRS process under the 2002 Act are intrinsically connected; 28.5. The Tribunal should have considered the binding effect of the CMRS sanction as the issue of speed was neither raised, nor deliberated before it and was irrelevant to the termination; 28.6. The line has been running since 1 July 2013. The speed of operations was sanctioned at 50kmph, and has been progressively increased to 60 kmph in January 2013, 80 kmph in August 2013, 90 kmph in July 2019, and ultimately 100 kmph and then 110 kmph in 2023. The metro was running at 80 kmph prior to the termination of the agreement. It is currently running at 120kmph for which a fresh sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored the award on 09 September 2021 and the review against this decision was dismissed on 23 November 2021; 29.6. According to the decision in Rupa Hurra (supra), the court is not supposed to sit over a judgment like a court of appeal. The scope of the review jurisdiction is narrow in itself and does not warrant rehearing and correction of a judgment. Curative proceedings cannot be treated as a second review; and 29.7. DAMEPL is not unjustly enriching itself. DAMEPL completed the project with an investment of Rs 2802 Crores comprising of debt and equity contributions and it continued to service the debt even after handing over the line to DMRC. DMRC on the other hand, has paid the decretal amount of Rs 2599.18 Crores while Rs 5088 Crores under the decree is outstanding as on 31 January 2024. G. Analysis I. Curative Jurisdiction may be invoked if there is a miscarriage of justice 30. Senior Counsel for the respondent set forth preliminary objections challenging the maintainability of the Curative Petition, in view of the scope of that jurisdiction delineated inter alia in the decision in Rupa Hurra (supra) We will first lay down the contours of the jurisdiction of this Court to ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse in the guise of a curative petition under inherent power. It is common ground that except when very strong reasons exist, the Court should not entertain an application seeking reconsideration of an order of this Court which has become final on dismissal of a review petition. It is neither advisable nor possible to enumerate all the grounds on which such a petition may be entertained. 51. Nevertheless, we think that a petitioner is entitled to relief ex debito justitiae if he establishes (1) violation of the principles of natural justice in that he was not a party to the lis but the judgment adversely affected his interests or, if he was a party to the lis, he was not served with notice of the proceedings and the matter proceeded as if he had notice, and (2) where in the proceedings a learned Judge failed to disclose his connection with the subject-matter or the parties giving scope for an apprehension of bias and the judgment adversely affects the petitioner. 34. The enumeration of the situations in which the curative jurisdiction can be exercised is thus not intended to be exhaustive. The Court went on to lay down certain procedural requirements to entertain a curative petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en explored in several decisions of this Court. In addition to the grounds on which an arbitral award can be assailed laid down in Section 34(2), there is another ground for challenge against domestic awards, such as the award in the present case. Under Section 34(2-A) of the Arbitration Act, a domestic award may be set aside if the Court finds that it is vitiated by patent illegality appearing on the face of the award. 38. In Associate Builders vs. Delhi Development Authority 2015 3 SCC 49 , a two-judge Bench of this Court held that although the interpretation of a contract is exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, is impermissible. A patent illegality arises where the arbitrator adopts a view which is not a possible view. A view can be regarded as not even a possible view where no reasonable body of persons could possibly have taken it. This Court held with reference to Sections 28(1)(a) and 28(3), that the arbitrator must take into account the terms of the contract and the usages of trade applicable to the transaction. The decision or award should not be perverse or irrational. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. ( emphasis supplied ) 40. In essence, the ground of patent illegality is available for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. Patel Engineering Limited vs North Eastern Electric Power Corporation Limited (2020) 7 SCC 176. A finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of patent illegality . An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice. 41. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal 44. In the case at hand, the Division Bench found the award to be perverse, irrational and patently illegal since it ignored the vital evidence of CMRS certification in deciding the validity of termination. This, the Division Bench held, overlooked the statutory certification deeming it irrelevant without reasons and thus the award was patently illegal according to the test in Associate Builders (supra). Division Bench, paras 98-99. 45. This Court in appeal against the judgment of the Division Bench of the High Court held that the award was not perverse. Factual findings such as the finding that the cure period was 90 days and that DAMEPL was entitled to terminate the contract, could not, it was held, be interfered with. Civil Appeal, para 31. On the CMRS Certificate, this Court held that the arbitral tribunal was deciding whether there was a breach of the agreement and whether the defects were cured within the cure period; hence the safety of the line was not an issue before the tribunal. This Court held that the Commissioner may be the competent authority to determine the safety of the project but the certificate itself did not show that the defects were cured within 90 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (each a DMRC Event of Default ), unless any such DMRC Event of Default has occurred as a result of Concessionaire Event of Default or due to a Force Majeure Event. (i) DMRC is in breach of this Agreement and such breach has a Material Adverse Effect on the Concessionaire and DMRC has failed to cure such breach or take effective steps for curing such breach within 90 (ninety) days of receipt of notice in this behalf from the Concessionaire; ( emphasis supplied ) 49. The Tribunal found that since certain defects remained after the cure period, this was indicative of the fact that the defects were not cured and that no effective steps were taken. However, logically, the fact that defects existed at the end of the cure period relates to one aspect of the termination clause that the defects were not completely cured. It does not explain whether effective steps were taken within the cure period. Effectively, the Tribunal considered that in-progress steps that had not yet culminated into completely cured defects were not effective steps to offset termination. This places the two components i.e. curing of defects and taking effective steps to cure defects at par, to mean that only the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked the plain words of the clause but also rendered the phrase effective steps otiose. ii. The award overlooked vital evidence and matters on the record 55. The erroneous and misleading framing of the issue as noted above led to the ignoring of vital evidence relevant to the issue of termination. The arbitral tribunal held that since the Commissioner imposed conditions of inspection and speed restrictions, this meant that the defects were not fully cured. 56. Certainly, the imposition of conditions shows that the defects were not cured completely, to warrant an unconditional sanction for full speed operations. However, as the Division Bench of the High Court correctly observed, the separation of the validity of termination and relevance of the CMRS certificate was the reason for this erroneous finding. Since the effective steps aspect was overlooked, the CMRS certificate was erroneously deemed to be irrelevant. 57. On 19 November 2012, a joint application was made by the parties to the Commissioner under the 2002 Act. Significantly, the annexure to the application which was jointly signed by the parties states as set out below: f) The repairs have been Inspected by an Independent E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and property. The arbitral tribunal was correct in concluding that the joint application does not constitute a waiver of the termination, but this evidence was vital considering the change in DAMEPL s position on the safety of the line from the date of the cure notice to the date of the joint application. DMRC did take certain steps to alleviate DAMEPL s concerns so as to warrant this change of position. There is no explanation forthcoming in the award about why none of these steps initiated during the cure period were effective steps . This gap in reasoning stems from the arbitral tribunal wrongly separating the issue of termination and the CMRS certificate. 60. Besides the effective steps aspect, there is another reason why the CMRS certificate ought to have been treated as relevant. The Tribunal treats the cure notice as a crucial document. At paragraph 26 of the award, it noted that since the cure notice dated 9th July 2012 is a crucial document in this case, it is useful to quote certain paragraphs of the said letter . The cure notice, in turn, was heavily premised on the safety of operations. Cure Notice paras 18,21,26, and 27. Interestingly, at paragraph 27 of the cure not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling stock will be attended with danger to the public using it, the Commissioner shall send a report to the Central Government who may thereupon direct that (i) the metro railway be closed for the public carriage of passengers; or (ii) the use of the rolling stock be discontinued; or (iii) the metro railway or the rolling stock may be used for the public carriage of passengers subject to such conditions as it may consider necessary for the safety of the public. 21. Delegation of powers. The Central Government may, by notification, direct that any of its powers or functions under this chapter, except power to make rule under Section 22, shall, in relation to such matters and subject to such conditions, if any, as may be specified in the notification, be exercised or discharged also by the Commissioner. 62. In essence, the scheme of the 2002 Act, provides that no metro line will operate except with the previous sanction of the Central Government. Section 14, Metro Railways (Operations and Maintenance) Act 2002. Before granting the sanction, the Central Government has to obtain a report from the Commissioner that (inter alia) the latter has carefully inspected the metro railway, the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contents bearing on vital elements of safety. 66. The cure notice, which contains statements bearing on the safety of the line and other material indicating that the line was running uninterrupted are matters of record. While the cure notice contains allegations about the line not being operational, there is evidence on the record indicating that the line was in fact running. Even if we were to accept that the finding of the arbitral tribunal that the defects were not completely cured during the cure period is a factual finding incapable of interference, it is clear from the record that DMRC took steps towards curing defects which led to the eventual resumption of operations. The award contains no explanation as to why the steps which were taken by DMRC were not effective steps within the meaning of the termination clause. 67. In essence, therefore the award is unreasoned on the above important aspects. It overlooks vital evidence in the form of the joint application of the contesting parties to CMRS and the CMRS certificate. The arbitral tribunal ignored the specific terms of the termination clause. It reached a conclusion which is not possible for any reasonable body of persons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of the execution proceedings for enforcing the arbitral award are set aside. 70. Before concluding, we clarify that the exercise of the curative jurisdiction of this Court should not be adopted as a matter of ordinary course. The curative jurisdiction should not be used to open the floodgates and create a fourth or fifth stage of court intervention in an arbitral award, under this Court s review jurisdiction or curative jurisdiction, respectively. 71. 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 in the appeal under Section 37 of the Arbitration and Conciliation Act 1996 was based on a correct application of the test under Section 34 of the Act. The judgment of the Division Bench provided more than adequate reasons to come to the conclusion that the arbitral award suffered from perversity and patent illegality. There was no valid basis for this Court to interfere under Article 136 of the Constitution. The interference by this Court has resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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