Date of judgement:
09 September 2021
Bench:
Justice Nageswara Rao
Justice Ravindra Bhat
Parties:
Appellants – Delhi Airport Express Pvt Ltd.
Respondent – Delhi Metro Rail Corporation Ltd.
Subject:
A mere contravention from the substantive law cannot be a ground for setting aside an Arbitration Award rather it should be linked with public policy and public interest and an arbitral award is said to be patently illegal is when the arbitrator takes a view which no fair-mined and reasonable person would take.
Legal Provisions:
- Section 5 of the Arbitration and Conciliation Act, 1996 - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
- Section 7 of the Arbitration and Conciliation Act, 1996 - In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
- Section 8 of the Arbitration and Conciliation Act, 1996 - Power to refer parties to arbitration where there is an arbitration agreement.
- Section 28 of the Arbitration and Conciliation Act, 1996 - Rules applicable to substance of dispute.
- Section 34 of the Arbitration and Conciliation Act, 1996 - Application for setting aside arbitral award
- Section 37 of the Arbitration and Conciliation Act, 1996 - Appealable orders.
Overview
- The DMRC (Delhi Metro Rail Corporation) proposed an Airport Metro Express Line (AMEL) Project. A concession agreement between DMRC and DAMEPL (Delhi Airport Metro Express Private Limited) for design, installation, commissioning, operation and maintenance of the AMEL came into existence. Initially, extension was granted as work could not be completed in time and safety clearance was obtained from the Commissioner of Metro Rail Safety (CMRS) and date of operation started on 23.02.2011.
- On 22.03.2011, DAMEPL requested for a joint inspection of materials. Another letter by DAMEPL to DMRC was written raising issues on design and quality of installations. By a reply, DMRC stated that the same was being inspected and taken care of. DAMEPL issued a legal notice to rectify the same and after the stipulated time of 90 days, the concession agreement was terminated. DMRC triggered the arbitration clause in the concession agreement.
- The Arbitral Tribunal, assessing the defects pointed out by the DAMEPL and whether necessary steps were taken, observed that there were as many as 1551 cracks in 367 girders. Taking into consideration the numerous cracks in the gliders, it concluded that this affected the integrity of the structure. In the view of this Tribunal, as necessary steps were not taken, DMRC was in breach of the concession agreement and hence it upheld the termination letter issued by DAMEPL as valid. It also further observed that the safety clearance issued by CMRS came with certain caveats. So, even the CMRS was aware of the defects.
- DMRC filed a set aside petition under Section 34 of the Act before the Delhi High Court. This court dismissed the petition that no proper case was made for intervention by this court. An appeal under Section 37 of the Act challenging the order of the Delhi High Court.
- The Division Bench reversed the Delhi High Court’s order and set aside the Arbitral Award on the ground that there was patent illegality in the order of the tribunal. The Division Bench stated that as there were two separate termination letters issued, it got confused. It further went on to hold that the Tribunal did not consider the CMRS safety clearance which was a significant testimonial.
- The Supreme Court while assessing the case mainly referred to direction of R.F. Nariman in SSangyong Engineering and Construction Company Ltd v. NHAI (2019) to reiterate the limited scope of interference of the courts in matters pertaining to Arbitration Awards.
- This Court went on to define and interpret the scope of ‘patent illegality’. It held that every error cannot be termed as patent illegality and only when its contravention of substantive law is linked to public policy and interest, it can be termed as ‘patent illegality’. It further stated that re-appreciation of evidence can only be done by an appellate court and not by a set aside court.
- It was held that the findings and award of the Arbitration Tribunal took into consideration the CMRS clearance and there were technically qualified members in the panel who were capable of understanding the intricacy of the subject-matter. It was very evident that there were immense defect and it was the finding of the Arbitral Tribunal that there were no steps taken to cure the defects.
- The court after observing the facts and rationale of the Arbitral Tribunal set aside the view of the division bench that held that the tribunal’s award was patently illegal.
- Considering the above facts and circumstances of the case, the appeal was allowed and High Court’s order was set aside.
Issue
- Whether the award passed by the Arbitral Tribunal suffered from patent illegality?
Judgement Analysis
- The Court, while deciding the case, condemned the actions of High Court wherein they tend to unnecessarily set aside the Arbitral Award in the pretext of existing patent illegality in the award. This is because the Arbitration and Conciliation Act was brought into force for reducing burden of the existing courts and also to quicken the process of delivery of justice. To enable the arbitration tribunals to act autonomously, Section 5 is envisaged in the Act.
- For consideration for setting aside an arbitral award, it must fall under Section 34 of the Act where it specifically mentions grounds for setting aside of arbitral awards. Explanation 1 to Section 34 of the Act provides the scope of arbitral awards which are conflicting with the public policy of India.
- It is also important to note that after the amendment, the words “interest of India” was removed so as to restrict courts from interfering under the guise of the scope of these words. After the amendment, three specific categories and scope of the above words is restricted to the third point in the 1st Explanation.
- It was also laid down that while an appellate court enjoys the power to re-appreciate the facts, it cannot be so for a set aside court. Mere wrong application of law should not be considered as patent illegality, rather it should be considered if the award is in contrast to the decision of fair-minded and rational man.
Conclusion
While the object of the Arbitration and Conciliation Act is to bring in an impartial person with requisite knowledge to smoothen the process of amicable settlement, it should be kept in mind that the autonomy must be upheld and there should be reduced interference of courts for the effective delivery of justice.
This would lead to corrosion of the aim of the 1996 Act which is minimal judicial interference with quick delivery of justice. It would go against the object if they are categorised as perverse or patently illegal without looking into the perspective of the said expressions.
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Interesting Questions to Analyse:
1. What would be categorised as ‘an award in conflict with the public policy in India” under the Arbitration and Conciliation Act, 1996?
