TaxTMI 
TaxTMI 
2024 (4) TMI 557
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....sions of the High Court .................................................................................... 10 D. Judgment of this Court in appeal ........................................................................... 11 E. Issues in the Curative Petition. .............................................................................. 12 F. Submissions .............................................................................................................. 12 G. Analysis ..................................................................................................................... 16 I. Curative Jurisdiction may be invoked if there is a miscarriage of justice. .. 16 II. Scope of interference of courts with arbitral awards .................................. 19 III. The award was patently illegal .................................................................. 24 i. Interpretation of the termination clause by the Tribunal was unreasonable ................................................................................................. 26 ii. The award overlooked vital evidence and matters on the record ........... 29 H. Conclusion ........................
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....A Joint Inspection Committee was set up to inspect the defects alleged by DAMEPL. 6. Meanwhile, DAMEPL expressed its intention to halt operations, alleging that the line was unsafe to operate. Operations were stopped on 08 July 2012. On 09 July 2012, DAMEPL issued a notice to DMRC containing a 'non exhaustive' list of eight defects which according to them, affected the performance of their obligations under the 2008 Agreement "Cure Notice". The notice stated that the defects were attributable to faulty construction and deficient designs which affected project safety. 7. DAMEPL stated that the defects caused a "material adverse effect" on the performance of the obligations by it to operate, manage and maintain the project. DMRC was therefore requested to cure the defects within 90 days from the date of this notice, failing which it stated that it would be considered that a "Material Breach" and a "DMRC Event of Default" had occasioned, entitling DAMEPL to terminate the 2008 agreement. 8. On 8 October 2012, DAMPEL issued a notice terminating the 2008 agreement. "Termination Notice" The termination notice stated that as 90 days had elapsed since the cure notice in spite of which th....
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.... Rs 46.04 Crores as Concession fee for the period from 23 February 2012 to 7 January 2013. 15. Assailing the award, DMRC instituted an application under Section 34 of the Arbitration and Conciliation Act 1996 "Arbitration Act" before the Delhi High Court. The Single-Judge of the High Court dismissed the petition OMP (COMM) 307/2017 & OMP (I) (COMM) 200/2017 ('Single Judge'). This gave rise to an appeal under Section 37 before a Division Bench of the High Court. The appeal was partly allowed. FAO(OS)(COMM) 58/2018 & CM Nos. 13434/2018 ('Division Bench') 16. Against the decision of the Division Bench of the High Court, DAMEPL moved a Special Leave Petition under Article 136 of the Constitution. A two-judge bench of this Court allowed the appeal, and restored the award. The review petition assailing this decision was dismissed. Thus, the curative petition. B. DMRC's claim and the Tribunal's findings 17. Before the Tribunal, DMRC claimed that - (i) it took steps to cure the defects immediately after it received the cure notice, including approaching SYSTRA - the original design consultant and convening meetings with the Ministry of Urban Development and that DAMEPL actively partic....
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....he alleged defects was only approximately Rs.14 crores as compared to the total costs of the project of approximately Rs. 5700 crores?" 21. The issue pertaining to the CMRS certificate was framed as follows: "H. Did the issuance of certificate by CMRS show that the defects were duly cured?" 22. Both these issues were answered in the negative by the Tribunal. On Issue 'D' about the validity of the termination, it was held that since the Tribunal had found that there were defects in the civil structure, which remained uncured during the cure period, the amount incurred by DMRC in repairs compared to the overall cost of the project was irrelevant. The Award, para 93 On issue 'H', about the CMRS certificate, the tribunal found that the CMRS sanction mandated rigorous monitoring of operations of the line and imposed a speed restriction. Since the purpose of the line was to serve as a high-speed line, the tribunal found that the speed restrictions meant that this purpose was not served and therefore, the CMRS certificate or the subsequent operation of the line were not relevant in deciding the issues before it. ibid, paras 105-108. C. Decisions of the High Court 23. The Single J....
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....ng that the issue of the CMRS certificate was wrongly separated from the issue of defects. It held that dealing with the certificate separately from the validity of termination did not render the tribunal's findings on the latter erroneous. The Tribunal comprised of engineers and the award could not be scrutinised in the same manner as an award drawn by a legally trained mind. 26. The review petition against the above judgment of this Court was dismissed on 23 November 2021. E. Issues in the Curative Petition 27. The issues that arise for our consideration are (i) whether the curative petition is maintainable; and (ii) whether this Court was justified in restoring the arbitral award which had been set aside by the Division Bench of the High court on the ground that it suffered from patently illegality. F. Submissions 28. We have heard Mr R Venkataramani, Attorney General for India and Mr K K Venugopal, Mr Parag Tripathi, and Mr Maninder Singh senior counsel on behalf of the petitioners. They made the following submissions: 28.1. Considering the definition of 'material adverse effect' under the concession agreement, the defects had no material adverse effect on DAMEPL's perf....
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....e been slow to interfere with the decision of the Division Bench of the high Court. Miscarriage of justice in terms of the decision in Rupa Hurra vs. Ashok Hurra 2002 4 SCC 388 is linked with patent illegality. The High Court's interference under Section 37 was justified because the exercise of jurisdiction under Section 34 was erroneous; and 28.10. The issue of the fitness of the line was a matter falling under the 2002 Act under which the Commissioner was the final authority to decide on the safety of the metro. The certificate could not have been substituted by the Tribunal's finding on safety of the line. 29. We have heard Mr Harish Salve, Mr Kapil Sibal, Mr JJ Bhatt and Mr Prateek Seksaria, learned senior counsel for the respondent. They have made the following submissions: 29.1. The curative petition is not maintainable as this Court cannot revisit the conclusions arrived at by the Tribunal; 29.2. DMRC has taken over the project and has been operating it since 01 July 2012 without having paid for its operation between 01 January 2013 till 30 June 2013, except for a small fraction of the total awarded amount; 29.3. Till early March 2023, the trains were running at 90kmph,....
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....ould require reconsideration of a final judgement even after the review has been dismissed to set right a miscarriage of justice. Such circumstances, the court held, are those where declining to reconsider the judgement would be oppressive to judicial conscience and cause the perpetuation of irremediable injustice. Justice Quadri observed: "42. ... the duty to do justice in these rarest of rare cases shall have to prevail over the policy of certainty of judgment as though it is essentially in the public interest that a final judgment of the final court in the country should not be open to challenge, yet there may be circumstances, as mentioned above, wherein declining to reconsider the judgment would be oppressive to judicial conscience and would cause perpetuation of irremediable injustice." ( emphasis supplied ) 33. This Court laid down an overarching principle that the Court may entertain a curative petition to (i) prevent abuse of its process; and (ii) to cure a gross miscarriage of justice. Rupa Hurra, para 49. The Court provided examples of such circumstances, such as a violation of the principles of natural justice; or a situation where the Judge fails to disclose his....
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....terference of courts with arbitral awards 36. Section 34 of the Arbitration Act delineates the grounds for setting aside an arbitral award. The provision, as amended by the Arbitration and Conciliation (Amendment) Act, 2015 reads as follows: "34. Application for setting aside arbitral award.- ... (2) An arbitral award may be set aside by the Court only if- ... (b) the Court finds that-- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation 1. --For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2. --For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a revi....
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....rverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where: (i) a finding is based on no evidence, or (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. ... 42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality - for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside." ( emphasis supplied ) 39. In Ssangyong Engineering & Construction Co. Ltd. vs. NHAI 2019 15 SCC 131, a twojudge bench of this Court endorsed the position in Associate Builders (supra), on the scope for interference with domestic awards, even after the 2015 Amendment: "40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless t....
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.... the Arbitration Act, a recourse to Section 37 is the only appellate remedy available against a decision under Section 34. The Constitution, however, provides the parties with a remedy under Article 136 against a decision rendered in appeal under Section 37. This is the discretionary and exceptional jurisdiction of this Court to grant Special Leave to Appeal. In fact, Section 37(3) of the Arbitration Act expressly clarifies that no second appeal shall lie from an order passed under Section 37, but nothing in the section takes away the constitutional right under Article 136. Therefore, in a sense, there is a third stage at which this court tests the exercise of jurisdiction by the courts acting under Section 34 and Section 37 of the Arbitration Act. 43. While adjudicating the merits of a Special Leave Petition and exercising its power under Article 136, this Court must interfere sparingly and only when exceptional circumstances exist, justifying the exercise of this Court's discretion. Chandi Prasad Chokhani v. State of Bihar, AIR 1961 SC 1708; Pritam Singh v. State, 1950 SCC 189. The Court must apply settled principles of judicial review such as whether the findings of the High Co....
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....l to the determination of the issues before the arbitral tribunal. This led to the award being perverse and patently illegal within the parameters of Section 34 as explained in the judgments of this Court in Associate Builders (supra) and Ssangyong (supra). 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. This Court incorrectly considered the CMRS certificate to be irrelevant to the validity of the termination. i. Interpretation of the termination clause by the Tribunal was unreasonable 47. Interference with an arbitral award cannot frustrate the 'commercial wisdom behind opting for alternate dispute resolution', merely because an alternate view exists. Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1, paras 24, 25. However, the interpretation of a contract cannot be unreasonable, such that no person of ordinary prudence would take it. The contract, which is a culmination of the parties' agency, should be given full effect. If the interpretation of the terms of the contract as adopted by the tribu....
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.... within the cure period. Incremental progress, even if it does not lead to complete cure, is an acceptable course of action to prevent termination according to the 2008 Agreement. 51. The Tribunal did not appreciate the individual import of the two phrases separately from each other. This was not a matter of mere "alternate interpretation" of the clause, but an unreasonable and uncalled for interpretation of the clause, which frustrated the very provision, and which no reasonable person would have accepted considering the terms of the clause. We must clarify that Tribunal could have still arrived at the conclusion that the steps taken during the cure period were not effective within the meaning of the clause for certain reasons. However, such discussion and reasoning is conspicuously absent. 52. Issue H framed by the Tribunal- "Did the issuance of certificate by CMRS show that the defects were duly cured" similarly glosses over the effective steps aspect of the clause. Given this framing, the issue was bound to be answered in the negative since the CMRS certificate does not conclude that the defects were completely cured. 53. The decisions of the Single Judge and this Court are ....
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....ed by M/s SYSTRA and their report is, enclosed as Annexure xix. They have concluded that there is no effect on the integrity of the girders and that there is no reason to-be further worried. M/s SYSTRA have also given the repair methodology for these cracks from the point of view of durability and to avoid permeation of water during the service life of girders, (Included in Annexure-xvi). Accordingly, the cracks wider than 0.2 mm have been Injected with epoxy resin and cracks less than 0.2 mm have been sealed with epoxy sealant. h) Train trials after repairs by DMRC have been completed successfully and all systems have been checked for correct functioning at various speeds Including at speed of 120 kmph. Track recording was done with OMS-2000 during these trials and no peak of value ≥ 0.15g was recorded upto 120 Kmph (results of OMS 2000 are enclosed in Annexure XIV)" ( emphasis supplied ) 58. Admittedly, some of the defects were cured in their entirety and steps were taken by DMRC to cure the remainders, based on which the parties had jointly sought permission under the 2002 Act. The parties stated that the repairs had been inspected by an independent engineer; an analy....
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....in the the National Capital Region, metropolitan city and metropolitan area shall not be opened for the public carriage of passengers except with the previous sanction of the Central Government. 15. Formalities to be complied with before giving sanction to the opening of metro railway.-(1) The Central Government shall, before giving its sanction to the opening of the metro railway under Section 14, obtain a report from the Commissioner that- (a) he has made a careful inspection of the metro railway and the rolling stock that may be used thereon; (b) the moving and fixed dimensions as laid down by the Central Government have not been infringed; (c) the track structure, strength of bridges, standards of signalling system, traction system, general structural character of civil works and the size of, and maximum gross load upon, the axles of any rolling stock, comply with the requirements laid down by the Central Government; and (d) in his opinion, metro railway can be opened for the public carriage of passengers without any danger to the public using it. (2) If the Commissioner is of the opinion that the metro railway cannot be opened without any danger to the public....
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....the Central Government, which may in turn direct that the metro be closed or may be open for public carriage only subject to certain conditions. Section 18, ibid. The powers of the Central Government may be delegated to the Commissioner. Section 21, ibid. 63. The structure and safety of the project, as certified by the CMRS, were thus relevant before the Tribunal, making the CMRS certificate a vital piece of evidence in deciding the issue. The CMRS certificate was relevant evidence about the safety of the structure. Considering the statutory scheme of the 2002 Act, especially Section 15, the Tribunal erred in deeming the sanction irrelevant to its central issue - which was the validity of the termination, which, according to the cure notice, was premised on safety. 64. Overall, the cure notice places great emphasis on the safety of the passengers, which, they claimed stood compromised by defects, justifying discontinuation of operations. This issue falls directly within the domain of the Commissioner under the scheme of the 2002 Act. 65. Rather than considering the vital evidence of the CMRS certificate towards safety and effective steps, the arbitral tribunal focussed on the co....
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.... record, resulting in perversity and patent illegality, warranting interference. The conclusions of the Division Bench are, thus, in line with the settled precedent including the decisions in Associate Builders (supra) and Ssangyong (supra). H. Conclusion 68. The judgment of the two-judge Bench of this Court, which interfered with the judgment of the Division Bench of the High Court, has resulted in a miscarriage of justice. The Division Bench applied the correct test in holding that the arbitral award suffered from the vice of perversity and patent illegality. The findings of the Division Bench were borne out from the record and were not based on a misappreciation of law or fact. This Court failed, while entertaining the Special Leave Petition under Article 136, to justify its interference with the well-considered decision of the Division Bench of the High Court. The decision of this Court fails to adduce any justification bearing on any flaws in the manner of exercise of jurisdiction by the Division Bench under Section 37 of the Arbitration Act. By setting aside the judgement of the Division Bench, this Court restored a patently illegal award which saddled a public utility wit....