SIMPLIFYING THE CURATIVE VERDICT IN DMRC VS. DAMEPL (2024) : START TO END

FACTS AND BACKGROUND

In 2008, DMRC, a State-owned Company and DAMEPL/Concessionaire, a consortium led by Reliance Infrastructure Limited and a Spanish company, entered into a Concession Agreement to build and operate a metro rail line connecting New Delhi Railway Station and the Indira Gandhi International Airport for building and operating a metro rail line connecting New Delhi Railway Station and the Indira Gandhi International Airport.

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Dispute and Arbitration:

In 2012, DAMEPL issued a defect cure notice to DMRC, alleging defects in construction and design that impeded project performance inter-alia seeking curing of the defects within 90-days.

Following unsuccessful attempts to resolve the issues, DAMEPL terminated the agreement.

Arbitration Award: Disputes were referred to arbitration, resulting in a unanimous award in August 2017. According to this arbitral award, DAMEPL was entitled to:

1.    Termination payment of Rs 2782.33 crores plus interest as per the concession agreement.

1. Reimbursement of Rs 147.52 crores plus interest for operating expenses and debt service from January to June 2013.

2. A refund of the bank guarantee amounting to Rs 62.07 crores plus interest.

3. Return of security deposits with service providers totaling Rs 56.8 lakhs plus interest.

Additionally, the award stated that DMRC was entitled to Rs 46.04 crores as a concession fee for the period from February 2012 to January 2013.

Section 34 (Single Bench): Appeal dismissed: Award confirmed

Reasoning:

1.    Defects not cured.

2.    Termination Valid.

3.    Certificate showed that there were defects.

 Section 37 (Division Bench): Appeal allowed: Award set aside.

Reasoning:

1.    Termination was not valid as the effective date of termination would be after 90 days and not on date of termination notice which was ambiguous. The award did not interpret the clause 29.5.1(i) of the concession agreement regarding the duration of the cure period.

2.    The Tribunal overlooked the legal effect of the CMRS certificate which was binding on the tribunal.

3.    The CMRS Certificate granted sanction that came with a condition that the metro can operate subject to with certain speed restrictions. However, the speed restrictions were not stated as the reason for termination in the cure or termination notices. There was no deliberation on this being a justification for termination before the Tribunal. The Award was silent and unreasoned on this aspect.

4.    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 certificate.

SLP (Article 136): Appeal dismissed: S.37 Order set aside: Award restored 

Reasoning:

1.    There was no ambiguity in the date of termination and even if a different view from that of the tribunal were possible. The construction of the provisions of the contract was within the exclusive domain of the tribunal.

2.    The finding of the tribunal that the defects were not cured was a finding of fact, not warranting interference; 

3.    DMRC had not contended before the Tribunal that the certificate was binding and conclusive of the fact that the defects were cured or that effective steps had been taken.

4.    Dealing with the certificate separately from the validity of termination did not render the Tribunal’s findings on the latter erroneous.

5.    The Tribunal comprised of engineers and the arbitral award could not be scrutinised in the same manner as an arbitral award drawn by a legally trained mind. 

Review: Appeal dismissed: Award restored 

Reasoning:

CMRS certificate had no bearing on the validity of the termination.

Curative: Appeal Allowed: S.37 Order confirmed: Award set aside

Reasoning:

1.    Patent Illegality: Unreasonable interpretation of Clause: Placing reliance on Judicial pronouncements (Associate Builders V DDA, Ssangyong Engineering & Construction Co. Ltd. vs. NHAI), the court observed that although the interpretation of a contract is exclusively within the domain of the arbitrator, the interpretation of a contract cannot be unreasonable. The award overlooked the express terms of clause 29.5.1(i) which stipulated that if “effective steps” were taken during the cure period by DMRC, the contractual power to terminate could not be exercised. Clause 29.5.1(i) entitles the concessionaire to terminate the agreement if DMRC “failed to cure such breach or take effective steps for curing such breach” within the cure period.

The Tribunal fails to explain what amounts to an ‘effective step’ and how the steps taken by DMRC were not effective, within the meaning of the phrase.

 2.    Perversity: Ignorance of vital Evidence: An award is rendered perverse or irrational where the findings are (i) based on no evidence; (ii) based on irrelevant material (material given behind the back); or (iii) ignores vital evidence. 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. It is clear from the record that DMRC took steps towards curing defects which led to the eventual resumption of operations. 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.

Conclusion

The Courts exercising it's power interfering with an award that has been confirmed three times i.e., in Section 34 Appeal, SLP, Review Petition was finally set aside affirming the Section 37 Division Bench Order demonstrates that the Supreme Court has wide powers that is not granted by any law made by Parliament, but rather by the Supreme Court itself, through the exercise of its power under Article 137 of the Constitution of India and the power of Curative reflects the Supreme Court’s ability to ensure justice by reviewing and correcting its own decisions, even though this power is not explicitly provided for by parliamentary legislation.

The concept of the curative petition was established in the landmark case of Rupa Ashok Hurra v. Ashok Hurra and Another (2002). In this case, the Supreme Court laid down specific guidelines for the filing of curative petitions, emphasizing that such petitions should only be entertained if there was a genuine miscarriage of justice.

• Gross Miscarriage of Justice: The curative judgment found that the arbitral award was perverse and patently illegal, primarily because it overlooked vital evidence (Certificate and metro line was operational) and unreasonably interpreted the contract (effective steps taken(. This oversight constituted a gross miscarriage of justice as it ignored crucial aspects affecting the validity of the termination.
  

• Principles of Natural Justice: The tribunal's failure to adequately address the "effective steps" taken by DMRC within the cure period and its dismissal of the CMRS certificate were seen as violations of natural justice principles. These failures implied that the arbitration did not provide a fair and comprehensive examination of the evidence and issues.

• Final Remedy: The case had exhausted other legal remedies, including reviews and appeals up to the Supreme Court level, before resorting to a curative petition.

The curative judgment in the DMRC vs. DAMEPL case appears to align with the guidelines established in the Rupa Ashok Hurra judgment. The Supreme Court identified a gross miscarriage of justice due to the arbitral tribunal’s oversight of significant evidence (Certificate) and unreasonable contract interpretation (Effective steps taken). By addressing these issues through its curative power, the Supreme Court acted within the principles set out in Rupa Ashok Hurra, ensuring that justice was ultimately served.

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