HSA | Dispute Resolution & Arbitration Monthly Update | June 2024

Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd

Supreme Court of India | 2024 SCC OnLine SC 522

Background facts

• In 2008, Delhi Airport Metro Express Pvt Ltd (Respondent) was granted a concession agreement to construct, operate, and maintain the Delhi Airport Metro Express Line until August 2038. Delhi Metro Rail Corporation (Appellant) was in charge of land acquisition and civil structures, while Respondent handled the design, supply, installation, testing, and commissioning of railway systems in order to provide for metro rail connectivity between New Delhi Railway Station and Indira Gandhi International Airport and other locations within Delhi.
• In April 2012, the Respondent requested a deferment of the concession fee due to delays by Appellant in providing access to stations and slow retail activity. On July 08, 2012, the Respondent halted operations, citing safety concerns due to alleged defects in construction and design by Appellant. Thereafter, on July 09, 2012, the Respondent issued a notice listing 8 defects and demanded Appellant to cure these within 90 days, failing which it would terminate the agreement. Subsequently, on October 08, 2012, the Respondent terminated the agreement after the 90-day period lapsed without resolution.
• Due to the unsuccessful conciliation attempt, the Appellant resorted to arbitration to resolve the disputes. In May 2017, the Arbitral Tribunal ruled in favour of the Respondent, awarding them INR 2782.33 crores plus interest, along with other compensations.
• Being aggrieved, the Appellant challenged the award in the Delhi High Court, where a Single-Judge dismissed their application. Pursuant thereto, the Division Bench of the High Court partly allowed the Appellant's appeal.
• Being aggrieved by the aforesaid, the Respondent appealed to the Supreme Court of India (SC), which restored the arbitral award. The Appellant's review petition was dismissed, leading to the present curative petition before the SC.

Issues at hand?

• Whether the curative petition is maintainable based on the facts and circumstances of the case?
• Whether the SC was justified in restoring the arbitral award, which had been set aside by the Division Bench of the High Court on the ground of 'patent illegality'?

Decision of the Court

• At the outset, the SC reiterated the principles from Rupa Hurra v. Ashok Hurra¹ , emphasizing that curative jurisdiction should be invoked only in cases where there is a grave miscarriage of justice due to the Court acting beyond its jurisdiction, and therefore held that the curative petition is maintainable.
• The SC reaffirmed the principles governing judicial interference with arbitral awards under Section 34 and Section 37 of the Arbitration and Conciliation Act. The SC further referred to previous judgments, such as Associate Builders v. DDA² and Ssangyong Engineering and Construction Co. Ltd v. NHAI³ , highlighting that courts should only interfere with arbitral awards that are irrational or devoid of reasoning to the extent that no reasonable person would reach the same conclusion. The SC then emphasized that awards lacking evidence or ignoring vital evidence could be considered perverse and liable to be set aside.
• The SC also clarified that decisions under Section 37 are not subject to appeal, but the constitutional right to challenge such decisions under Article 136 remains unaffected. However, the SC emphasized that the jurisdiction under Article 136 should be sparingly invoked and limited to exceptional circumstances.
• The SC determined that the arbitral award in favor of the Respondent was tainted by manifest illegality and the Arbitral Tribunal failed to consider crucial evidence and misinterpreted the termination clause of the concession agreement. It further held that the Arbitral Tribunal also failed to differentiate between 'curing defects' and 'taking effective steps to cure defects.' and that the Arbitral Tribunal incorrectly concluded that the presence of defects at the end of the cure period indicated a failure to take effective steps, which did not align with the terms of the concession agreement
• The SC held that the Arbitral Tribunal overlooked vital evidence, particularly the CMRS certificate and the actions taken by the Appellant to cure the defects. The SC noted that the Appellant had taken substantial steps to address the defects, and this progress should have been considered under the 'effective steps' clause of the agreement.
• Therefore, the SC invoked its powers under Article 142 to set aside its earlier decision and upheld the judgment of the Division Bench of the High Court

Mercator Ltd v. Dredging Corporation of India Ltd

Delhi High Court | 2024 SCC OnLine Del 3075

Background facts

• Mercator Ltd (Decree Holder) sought enforcement of 3 arbitral awards against Dredging Corporation of India Ltd. (Judgment Debtor).
• The 3 arbitral awards were passed in separate arbitral proceedings conducted in relation to 3 charterparty agreements. Aggrieved by the awards, the judgment debtor filed petitions in order to set aside the awards under Section 68 of the English Arbitration Act, 1996 before the High Court of Justice of England and Wales (Seat Court). However, these petitions were dismissed by the Court. When the matter reached the stage of enforcement, the judgment debtor raised similar objections.
• The objections raised by the judgment debtor were: -
  1. Regarding the Composition of the Arbitral Tribunal: - The arbitration agreement provided that the arbitration proceedings shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA). As per the judgment debtor, Rule 5 (a) of the LMAA required that the arbitrators shall be members of the LMAA. However, as per the judgment debtor, the arbitral tribunal comprised of 2 retired judges and a lawyer who were not experts in the field of maritime law according to the judgment debtor. Therefore, as per the judgment debtor, the arbitration enforcement of the award must be denied under Section 48 (1)(d) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) as the same contravened with the rules of appointment of arbitrator.
  2. The Decree Holder argued that the objection regarding the composition of the arbitral tribunal was never raised earlier during the arbitration. Moreover, the Decree Holder argued that the above-mentioned objection was contrary to the case which the Decree Holder pleaded before the Seat Court
     Violation of Merchant Shipping Act, 1958: - As per the judgment debtor, the vessels which were the subject matter of the charterparty agreements were loaded in contravention of Section 313 of the Merchant Shipping Act, and attracted penalties provided under Section 436 of the Merchant Shipping Act. As per the judgment debtor, one of the objects of the Merchant Shipping Act was to safeguard and secure Indian ships, and the award holder's claims conflicted with the public policy of India. Therefore, as per the Judgment debtor, the arbitration was violative of substantive provisions of the Merchant Shipping and therefore contrary to the public policy of India under Section 48(2)(b) of the Arbitration Act.
• According to the Decree holder, the objection regarding violation of the Merchant Shipping Act was already dealt with in the arbitral award as well as the judgment of the Seat Court. The Decree Holder's advocate also drew the Delhi High Court's attention to the submissions made by the judgment debtor before the Seat Court.

Issues at hand?

• Whether contravention of the Merchant Shipping Act, 1958 results in a conflict with the Public Policy of India

Decision of the Court

• The High Court first culled out the principles which govern the exercise of powers and jurisdiction under Section 48 of the Arbitration Act which provides for conditions required for the enforcement of foreign award and meticulously analyzed the scope of public policy under the Arbitration Act. The Court was of the view that public policy in context of foreign awards is to be interpreted narrowly and in consonance with international notions of public policy. The Court held that not all violations of a statute result in contravention of public policy
• The Court relied on Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited⁴ wherein Supreme Court observed that "bonafide challenges to arbitral appointments have to be made in a timely fashion and should not be used strategically to delay the enforcement process".
• The Court opined that enforcement of an award should not be declined in cases where the judgment debtor raises the issue pertaining to composition of the arbitral tribunal before the executing court for the first time. This is because such an issue could have been raised by the judgment debtor before the Tribunal and before the seat Court. The Court noted that the parties were already aware of the composition of the arbitral tribunal for almost a decade. According to the court the challenge to the constitution of the arbitral tribunal was the judgment debtor's afterthought.

Dani Wooltex Corporation & Ors v. Sheil Properties Pvt. Ltd. & Anr

Supreme Court of India | Civil Appeal No. 6462 of 2024

Background facts

• Dani Wooltex Corporation (First Appellant), a partnership firm owning land in Mumbai, had entered into a Development Agreement dated August 11, 1993 (Development Agreement) with Sheil Properties (First Respondent), a real estate developer. Additionally, a Memorandum of Understanding (MOU) entered into between the First Appellant and Marico Industries (Second Respondent), a consumer goods company, allowed the Second Respondent to purchase part of the First Appellant's property. The Second Respondent issued a public notice inviting objections to the said MOU, and the First Respondent objected, asserting that any transaction between the First Appellant and the Second Respondent would be subject to the Development Agreement.
• A dispute arose between the First Appellant and the First Respondent, leading the First Respondent to file a suit for the specific performance of the MOU, as modified by certain consent terms, and the Second Respondent was also made a party to this suit. Meanwhile, the Second Respondent also filed a suit against the First Appellant, with the First Respondent also named a defendant. Eventually, a senior member of the Bar was appointed as the sole arbitrator to resolve the disputes among the three parties. The appointment order, passed on October 13, 2011 in the Second Respondent's suit, referred the dispute to arbitration. On November 17, 2011, the First Respondent's suit was also referred to the same Arbitrator. Thus, the Arbitral Tribunal was tasked with handling claims from both the First Respondent and the Second Respondent against the First Appellant.
• The Second Respondent's claim was heard first, resulting in an arbitral award on May 6, 2017. However, the proceedings for the First Respondent's claim did not proceed forward. Subsequently, on November 26, 2019, the First Appellant requested the Arbitral Tribunal, for the dismissal of the First Respondent's claim on the grounds of abandonment. This was followed by another communication on January 7, 2020. In response, the Arbitral Tribunal scheduled a meeting for March 11, 2020, which the First Respondent did not attend. A subsequent meeting on March 18, 2020 was also not held due to the COVID-19 pandemic. The next meeting took place on August 12, 2020, where the Arbitral Tribunal directed the First Appellant to file a formal application for dismissal, which they did on August 27, 2020.
• The First Appellant argued that the First Respondent's inaction for 8 years indicated abandonment of the claim. However, the First Respondent opposed this, contending no ground existed for dismissal under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (Act). Despite the opposition to the application for dismissal, on December 1, 2020, the Arbitral Tribunal terminated the proceedings, placing reliance on the decision given in the case of NRP Projects Pvt. Ltd. v. Hirak Mukhopadhyay & Anr⁵ . The First Respondent challenged this termination before the Bombay High Court, which set aside the Arbitral Tribunal's order and directed the continuation of the proceedings.
• Aggrieved by the said order of the Bombay High Court, the First Appellant challenged the said order before the Supreme Court (SC), hence the present appeal.

Issue at hand?

• Whether the termination of the arbitral proceedings by the Arbitral Tribunal under Section 32(2)(c) of the Act was valid?

Decision of the Tribunal

• At the outset, the SC delved into the authority of the Arbitral Tribunal, particularly in reference to Section 32(2)(c) of the Act, which outlines circumstances leading to the termination of arbitral proceedings. The SC emphasized that such termination must be justified by a careful assessment of whether continuation of the arbitral proceedings becomes genuinely unnecessary or impossible. The SC, after hearing the submissions from all parties, observed that mere non-appearance of a party, as in the present case, does not automatically render proceedings unnecessary, and furthermore, abandonment of claim must be unmistakably established through compelling evidence.
• Additionally, the SC also noted that in the present case, separate arbitral proceedings were initiated involving distinct claimants and respondents. Furthermore, despite no directive from the Arbitral Tribunal to simultaneously hear the First Respondent's claim alongside the Second Respondent's, the First Respondent diligently attended hearings until the passing of the award on the Second Respondent's claim. Accordingly, the SC was of the opinion that there was no express or implied abandonment of claim by the First Respondent because the conduct of a claimant who, after filing his statement of claim, does not move the Arbitral Tribunal to fix a date for the hearing, per se, would not amount to the abandonment of the claim or to infer that the proceedings have become unnecessary.
• Furthermore, the SC also opined that it is the Arbitral Tribunal's duty to fix a meeting for hearing even if parties to the proceedings do not make such a request. It is the duty of the Arbitral Tribunal to adjudicate upon the dispute referred to it. Accordingly, the SC held that the reasoning given by the Arbitral Tribunal for dismissing the claim of the First Respondent was insufficient.
• Consequently, the SC Arbitral Tribunal's termination of proceedings, filed by the First Respondent, lacked a substantive basis and sufficient reasoning and thus the Arbitrator had committed illegality in holding that there was an abandonment of claim by the First Respondent. Therefore, the SC concluded that the Bombay High Court was correct in setting aside the termination order and directing the Arbitral Tribunal to continue the arbitration.

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