Introduction
In Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd., 2024 INSC 292, the Indian Supreme Court (“Indian Supreme Court”) recently invalidated an arbitral award for patent illegality that Delhi Metro Rail Corporation Ltd. (DMRC) obtained against the Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) in an Indian-seated arbitration over the construction of a rail line (“Delhi Metro”). The Delhi Metro decision is important for international arbitration practitioners because it not only (a) reversed a prior Indian Supreme Court ruling upholding the award but also (b) demonstrated that Indian courts will review the merits of an award when deemed necessary to address perceived substantive errors.
Background
The Delhi Metro decision arose out of a 2008 agreement between DMRC and DAMEPL to build, operate and maintain a rail line at the Delhi airport. DMRC was in charge of land acquisition and civil structures, while DAMEPL managed the design, supply, installation, testing and commissioning of the railway systems. DAMEPL had the exclusive right to run the project as a commercial enterprise.
In 2012, citing delays by DMRC in providing access to the rail stations, DAMEPL requested a deferment of the concession fee it was obligated to pay to DMRC, after which, DAMEPL stated that it would stop operations because of safety issues. Almost two months later, DAMEPL issued a “cure notice” to DMRC, which listed defects that DMRC said DAMEPL had to fix within 90 days to avoid a “material breach,” and a “DMRC Event of Default” that would permit DAMEPL to terminate the agreement.
The cure period expired without DMRC curing the alleged defects, which led to DAMEPL terminating the agreement. DAMEPL subsequently initiated formal conciliation efforts pursuant to the agreement, and after those efforts failed, in October 2012, DAMEPL, commenced arbitration against DMRC.
A three-member arbitral tribunal was constituted in August 2013 and issued a unanimous award in favor of DAMEPL and against DMRC in May 2017. The award held that DAMEPL was entitled to various damages, including a termination payment of INR 2782.33 crores (or approximately US$432 million), plus interest.
Supreme Court’s decision to reopen the arbitral award
After DAMEPL obtained the award, DMRC made multiple attempts in the Indian courts to overturn it on the merits, with varying degrees of success. A Single Judge of the Delhi High Court initially upheld the arbitration tribunal’s decision, but it was later overturned on appeal by the Division Bench of the Delhi High Court, which found the award “perverse” and “irrational.” Dissatisfied with the ruling, DMRC appealed again to the Indian Supreme Court. In November 2021, a two-judge Bench of the Indian Supreme Court once more upheld the arbitral award. The review petition challenging the Indian Supreme Court’s decision was also dismissed, resulting in the filing of a curative petition.
In a final bid to challenge the award, DMRC submitted a curative petition to the Indian Supreme Court. A curative petition is a special application that allows parties to further appeal a final judgment from the Indian Supreme Court to prevent injustice after a review petition is dismissed or has been exhausted. A curative petition is guaranteed under the Constitution of India.
A three-judge bench, consisting of Chief Justice of India D.Y. Chandrachud and Justices B.R. Gavai and Surya Kant, considered that application and found the award to be patently illegal and perverse, citing its failure to consider crucial evidence such as the certification by the Commissioner of Metro Rail Safety, which impacted the validity of DAMEPL’s contract termination. The Indian Supreme Court noted that the arbitral tribunal had also ignored the express terms of the agreement, which stipulated that if DMRC took “effective steps” during the cure period, DAMEPL could not exercise the contractual power to terminate. Consequently, the Indian Supreme Court reinstated the Division Bench’s judgment that had partially overturned the arbitral award and ordered that DAMEPL refund to DMRC any amounts that DMRC had paid toward the award. In short, the Indian Supreme Court conducted its own merits review of the underlying contract and facts and reached a different conclusion about liability and its consequences than the arbitral tribunal did.
Discussion
The Delhi Metro decision carries substantial implications for India’s effort to promote itself as a safe arbitral seat because many parties will consider the Indian Supreme Court’s decision to review the award on the merits unconventional, regardless of the propriety of the ultimate outcome. Moreover, many international parties will find the amount of post-award litigation unsettling, as it plays to old fears that arbitral awards in India may only be the beginning of the dispute.
While many international practitioners might consider a merits review inconsistent with international practices, the review not only complied with domestic Indian law and procedures but also sought to ensure an equitable reading of the parties’ contract. Accordingly, the impact of the Delhi Metro decision may be limited for international parties, as it concerned a domestic award issued under Indian governing law. Nevertheless, it serves as a good reminder that even countries that are parties to the New York Convention are free to follow their own local court procedures when enforcing awards, and that may allow for the right to conduct a more extensive review of the merits in some cases.
Conclusion
Although India has made substantial gains in dispelling the belief that its courts will interfere with arbitral awards, and though the Indian Supreme Court has demonstrated a clear pro-arbitration trend over the last 15 years that has greatly assisted the country’s efforts to promote itself as a safe arbitral seat, the Delhi Metro decision may give international parties pause when considering India as a seat in the future.
Client Alert 2024-133
