Between The Lines - May 2024

KEY HIGHLIGHTS

• Supreme Court allows curative petition against an arbitral award.
• Delhi High Court: Shares registered in favor of the pledgee as the 'beneficial owner' does not amount to sale of shares.
• Supreme Court: Stamp duty not applicable on every individual increase in the authorised share capital once the cap amount is paid.
• Supreme Court: The payment of unearned increase in value payable to the lessor, post a merger or amalgamation of companies upheld.

I. Supreme Court allows curative petition against an arbitral award.

In the matter of Delhi Metro Rail Corporation Limited v. Delhi Airport Metro Express Private Limited [Curative Petition (C) Nos. 108-109 of 2022], decided on April 10, 2024, the Supreme Court ("SC") bench allowed a curative petition filed by Delhi Metro Rail Corporation Limited ("Petitioner" / "DMRC") and held that the SC previously erred in interfering with the judgment pronounced by the Division Bench of High Court of Delhi ("Delhi HC") which had set aside the arbitral award passed against the Petitioner.

Facts

Petitioner is a company wholly-owned by the Government of India and the National Capital Territory of Delhi. Delhi Airport Metro Express Private Limited ("Respondent" / "DAMEPL") is a special purpose vehicle incorporated by a consortium comprising of Reliance Infrastructure Limited and Construcciones Y Auxiliar de Ferrocarriles SA, Spain. The aforesaid consortium was awarded the contract for the construction, operation and maintenance of the Airport Metro Express Line ("AMEL") in the year 2008 ("2008 Agreement"). The 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. Under the 2008 agreement, the Respondent was granted exclusive rights, license and authority to implement the project and concession in respect of AMEL.

However, in April 2012, the Respondent sought a deferment of the concession fee by citing delays in providing access to the stations by the Petitioner. Thereafter, the Respondent expressed its intention to halt operations alleging that the metro line was unsafe to operate and stopped the operations on July 8, 2012. Thereafter, on July 9, 2012, the Respondent issued a notice to the Petitioner containing a "non-exhaustive" list of eight defects which according to it affected the performance of its obligations under the 2008 Agreement and further stated that the aforesaid defects caused "material adverse effect" on the performance of the obligations by it to operate, manage and maintain the project.

Thereafter, on October 8, 2012, the Respondent issued a notice terminating the 2008 Agreement on the ground that the period of 90 days had elapsed since the cure notice in spite of which the defects had not been cured within the cure period. In view of the afore-mentioned, the Petitioner initiated conciliation proceeding as provided in terms of the 2008 Agreement. However, upon failure of the conciliation proceeding, the Petitioner initiated arbitration proceeding on October 23, 2012 as per the 2008 Agreement. Accordingly, in August 2013, the Arbitral Tribunal was constituted. Thereafter, on May 11, 2017, the three-member Arbitral Tribunal passed a unanimous award in favour of the Respondent.

In the arbitral award, it was held that the Respondent was entitled to: the termination payment of INR 2782.33 crores plus interest in terms of the 2008 agreement; expenses incurred in operating AMEL from January 7, 2013 to June 30, 2013 and debt service made by the Respondent during this period to the tune of INR 147.52 crores plus interest at 11% per annum from the date of payment of stamp duty; refund of the bank guarantee amounting to INR 62 crores plus interest at 11% per annum which had been encashed and to security deposits with the service providers, amounting to INR 56.8 lakhs plus interest at 11% per annum and that the Petitioner was entitled to INR 46.04 crores as concession fee for the period from February 23, 2012 to January 7, 2013.

The aforesaid arbitral award was challenged by the Petitioner before the Learned Single Judge of the Delhi HC under Section 34 (Application for setting aside arbitral awards) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). Learned Single Judge of the Delhi HC upheld the arbitral award observing that so long as the award was reasonable and plausible, considering the material before the Tribunal, no interference was warranted, even if an alternate view was possible. It was further held that the Arbitral Tribunal had analyzed the material and evidence in great detail and arrived at a plausible conclusion. Hence, the Learned Single Judge of the Delhi HC dismissed the aforesaid petition. Thereafter, the Petitioner preferred an Appeal under Section 37 (Appealable orders) of the Arbitration Act before the Division Bench of Delhi HC. The Division Bench of Delhi HC partly set aside the arbitral

award as perverse and patently illegal for the reasons as stated hereinafter. On the aspect of validity of termination, the Division Bench of Delhi HC observed that the Arbitral Tribunal had not correctly interpreted the clause of the 2008 Agreement regarding the duration of cure period. Further, it was observed that the arbitral award was silent and unreasoned on the issue of termination.

Aggrieved by the decision of the Division Bench of Delhi HC, the Respondent preferred a special leave petition under Article 136 (Special leave to appeal by the Supreme Court) of the Constitution of India. In light of the afore-mentioned, a two-judge bench of the SC allowed the appeal and restored the arbitral award. Briefly stated, the SC observed that there was no ambiguity in the date of termination and even if a different view from the view taken by the Arbitral Tribunal was possible, construction of the provisions of the 2008 agreement was within the exclusive jurisdiction of the Arbitral Tribunal. A review petition was filed against the aforesaid decision, however, the same was dismissed. Thereafter, the Petitioner approached the SC in curative petition under Article 142 (Enforcement of decrees and orders of the Supreme Court and orders as to discovery, etc.) of the Constitution of India.

Issues

1. Whether the curative petition is maintainable.
2. Whether the SC was justified in restoring the arbitral award which had been set aside by the Division Bench of the Delhi HC on the ground that it suffered from patently illegality.

Arguments

Contentions of the Petitioner:

The Petitioner submitted that the Arbitral Tribunal ignored vital evidence, warranting the interference of Delhi HC under Section 37 of the Arbitration Act. The Petitioner further contended that interference of the Delhi HC with the patent illegality was justified and the SC ought to have refrained from exercising its powers enshrined under Article 136 of the Constitution of India. Further, it was contended that miscarriage of justice as per the decision of the SC in the matter of Rupa Hurra v. Ashok Hurra [(2002) 4 SCC 388] ("Rupa Hurra Case") is linked with patent illegality.

It was contended by the Petitioner that considering the definition of "material adverse effect" under the 2008 Agreement, the defects had no material adverse effect on the Respondent's performance of obligations under the 2008 Agreement, which is apparent from the very fact that the metro line was working.

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