TaxTMI 
TaxTMI 
2019 (1) TMI 2058
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....bjections under Section 34 of the A & C Act upholding the award dated 11th May, 2017 passed by the Arbitral Tribunal. 2. DMRC is a state-owned company with equal participation from the Government of India and the Government of National Capital Territory of Delhi. 3. The respondent, Delhi Airport Metro Express Private Limited ('DAMEPL', for short), is a company incorporated as a special purpose vehicle by the consortium of M/s Reliance Infrastructure Limited and M/s Construcciones Y Auxiliar de Ferrocarriles SA, Spain ("consortium", for short). 4. The consortium were successful bidders in the international competitive bidding process for construction, operation and maintenance of the Delhi Airport Metro Express Line ("AMEL", for short) based on Public- Private Partnership model for providing high speed metro connectivity with maximum speed of 120 Kms per hour between New Delhi Railway Station and Indira Gandhi International Airport, T-3 Terminal with further line till Section-21 at Dwarka with underground section of 15.7 Kms and elevated viaduct section of 7 Kms. 5. On 25th August, 2008 Concessionaire Agreement ('CA', for short) was signed and executed be....
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....ue sources like lease of retail space, property development in adjacent areas, advertisements, vending machines etc. As per the terms, the concessionaire was required to carry out an independent study to assess the revenue likely to be generated from traffic and non-fare revenue sources and prepare their own business model. The business plan was not a part of the CA. As per DMRC business plan prepared by DAMEPL had indicated losses for first five years and surplus earnings thereafter. 13. Based on the business model, DAMEPL had quoted annual concessionaire fee of Rs. 51 crores to be paid to DMRC with escalation of 5% (cumulative) per year till termination. Requirement of payment of annual concessionaire fee as stated by DAMEPL was incorporated in Article 8.2 of the CA and became a binding term. 14. DAMEPL had paid concessionaire fee of Rs. 51 crores for the first year of operation i.e. for the period from 23rd February, 2011 to 22nd February, 2012. Thereafter, they did not pay concessionaire fee. 15. DAMEPL by letter dated 20th April, 2012, had requested DMRC to defer payment of concessionaire fee for five years due to financial constraints. In this letter while accepting ....
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.... material filled above/below the bearings was damaged or had loosened for which repair action had been taken on priority. DAMEPL was asked to impose speed restrictions as deemed necessary in interest of safety. 18. The Ministry of Urban Development had thereupon convened a meeting of stakeholders on 2nd July, 2012 and a Joint Inspection Committee ("JIT", for short) was set up. JIT had inspected the site on 4th and 5th July,2012 and submitted their report, which was signed by representatives of DMRC and DAMEPL. 19. DAMEPL by their letter dated 6th July, 2012 to DMRC had expressed their intent to stop the operations with effect from 8th July, 2012 on the ground that the line was unsafe to operate. Operations were stopped by DAMEPL with effect from 8th July, 2012. 20. On 7th July, 2012, in the second round of meeting held with the Ministry of Urban Development, it was envisaged that joint inspection would be completed by 15th July, 2012. DAMEPL had also agreed to repair viaduct bearings. 21. On 9th July, 2012, DAMEPL issued notice setting out a nonexhaustive list of defects, which according to them had created unsafe conditions to operate AMEL and thereby had prevented DAM....
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....tober, 2012 with the representatives of DMRC, DAMEPL, Systra, TUV-SOGL, an independent engineer, in which various issues pertaining to trial runs were discussed. 28. DMRC claims that on 22nd October, 2012 they had informed DAMEPL that all bearings had been repaired. DAMEPL had then requested that they should be given seven days" notice when they can make a public announcement for commencement of the operations of the line. 29. On 26th October, 2012, it was decided that trial runs would be held on 28th October, 2012 with a stipulation on specific piers that would be observed during the train trial runs. 30. Notwithstanding the aforesaid meetings, on 23rd October, 2012 DMRC invoked the arbitration clause under Article 36.2. However, there was substantial delay in constitution of the Arbitration Tribunal consisting of Mr. H.L. Bajaj, Presiding Arbitrator, Mr. S.S. Khurana, Arbitrator and Mr. A.P. Mishra, Arbitrator, which was constituted on 8th August, 2013. 31. On 19th November, 2012, DMRC and DAMEPL submitted a joint application to CMRS for re-opening of the line with the speed limit of 80 kilometres per hour. This application for inspection had resulted in CMRS asking f....
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....RC by their letter dated 3rd October, 2013 had agreed to withdrawal of DAMEPL"s claim on the issue of viability and restructuring of CA/project. This issue was also deliberated in the second sitting of the Arbitral Tribunal held on 19th October, 2013 in which DAMEPL had stated that at that stage they would not claim for restructuring and if such claim at all subsists or survives, it would be post any decision on the issue of validity of termination or consequential reliefs. Thereupon, the Arbitral Tribunal had recorded that the issue to be determined would relate to termination notice dated 8th October, 2012 issued by DAMEPL and all consequential and cognate claims arising from and relating to termination notice. The Arbitral Tribunal during the course of hearings had passed orders on different applications referring to another arbitration proceeding pending between the parties. Arbitration Tribunal held that in the present arbitration they were not interested to go into the question of fixing responsibility for the defects nor would they entertain such attempt. However, questions relating to cause of defects, their nature, severity and curability were relevant for determination of....
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....er the defect were cured or not and whether effective steps were taken within the cure period to remedy the breaches (see paragraph 24 of the Award). In paragraph 27, reference was made to chronology of events in the form of correspondence written by DAMEPL that had referred to latent or inherent defects. Arbitration Tribunal had thereafter held:- "28. From the aforesaid, it transpires that the notice dated 9" July 2012 is not confined only to defects relating to bearings. It gives a "non-exhaustive" list of the various defects and makes reference to various "latent/inherent" defects as well. DMRC has not only admitted but has also contended and led evidence to show that defects, apart from those relating to bearing assembly, such as cracks at the soffit of the girders, were according to DMRC addressed and repaired. If DMRC was concerned only with the defects in bearing assembly and understood the complaint of DAMEPL as relating only to the bearing assembly, there was no point of DMRC addressing various other defects such as cracks at the soffit of the girders, gaps between the girders and girder and the shear key and twist in girders, etc. The contention of DAMEPL is that....
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....period of 90 days to cure this defect and this has caused Material Adverse Effect on the Concessionaire (DAMEPL). 2. Twist in the Girders Effective steps were not taken to cure twist in all the girders (twist up to 20 mm was left unattended) and girders of suspect integrity were allowed to remain in the network. This constitutes a DMRC Event of Default. DMRC is in breach and this breach has Material Adverse Effect on the Concessionaire (DAMEPL). 3. Gaps between girders and between girders and shear key No action to cure this defect was taken by the claimant (DMRC) during the cure period (09- 07-2012 to 0810-2012). Gaps higher than 25 mm were not rectified. As such, this defect was neither cured nor effective steps were "77. In the light of the aforesaid, it is clear that there were defects in the civil structure of the Airport Metro Line. It is also found that the above mentioned defects, which would have Material Adverse Effect on the performance of the obligations under the CA by DAMEPL, have not been cured within the cure period of 90 days from the date of the cure notice nor have effective steps been taken to cure such defects. 78. Thus, it i....
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.... F Was perceived financial unviability and not the defects in the structure, the real reason of the termination of the CA by DAMEPL? G Has DAMEPL failed to discharge its onus of disproving DMRC's case by not leading oral evidence to counter the rebuttal evidence of DMRC or was DAMEPL entitled to disprove the case of DMRC and prove its own case by cross examining the witnesses of DMRC? H Did the issuance of certificate by CMRS show that the defects were duly cured?" 42. Regarding prayer for specific enforceability and performance of CA, it was held that such prayer cannot be granted since DMRC had committed breach of contract having 'material adverse effect' on the ability of DAMEPL to perform the contract which disentitled DMRC to seek performance of CA. Further, specific performance was not permissible under Section 14 (1) (d) of the Specific Relief Act. Section 10 of the Specific Relief Act would not be applicable as this was not a case relating to immoveable property. On issue "B" it was observed that DAMEPL"s participation in the discussions during the period 9th July, 2012 to 8th October, 2012 was immaterial as the CA was in operation and had n....
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....arison to the overall cost of the project has been spent in the process of curing the defects." 44. On issue 'E', the Arbitration Tribunal held that DAMEPL was responsible only for maintaining such section of the site which had been handed over and not that section of which mere access was granted. DMRC had not formally handed over the site to DAMEPL and had only provided the access. Defects in the DMRC"s work were apparent within 12 months of the handing over of the section and DAMEPL had advised the same to the consultant. DAMEPL was not aware of the completion certificate issued to the civil contractors effective from 30th September, 2010. "Built drawings" were not provided to DAMEPL till much after the cure notice dated 9th July, 2012. There was no document to show that there was formal handing over of the site by DMRC and taking over by DAMEPL. 45. With regard to issues F, G and H, we would like to reproduce the findings of the Arbitration Tribunal in entirety:- "F. Issue: Was perceived financial unviability and not the defects in the structure, the real reason of the termination of the OA by DAMEPL? 99. DMRC in its Statement of Claim (Para 47) ....
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....RC In rebuttal is not correct, In legal support of their contention that DAMEPL need not have led evidence In rerebuttal but was entitled to discredit the rebuttal evidence of the witnesses by their cross examination and with reference to various documents and codal provisions, DAMEPL has cited various judgments. 104. Findings and Conclusion: The Tribunal has considered the evidence both oral and documentary led by the parties. The Tribunal has also considered the provisions of various applicable codes. We are aware that the provisions of the Arbitration and Conciliation Act, 1996 (Section 19) clarify that the Arbitrators are not bound by the provision of the Indian Evidence Act, 1872. Thus, strict compliance with the provisions of the Evidence Act by the arbitrators is not warranted. However, even if the provisions of the Indian Evidence Act 1872 was to be considered, the judgments cited by DAMEPL support the proposition that it is indeed possible for a party to establish its own case by means of the opponent's witness. In this respect, we quote herein below an extract (page 429) from the judgment of the Karnataka High Court, in the case of Shri. Ramchandra a....
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....t by DMRC in the entire stretch of the line. Such type of repairs have been done for the first time on the Metro Network and needs to be monitored. (xii) Cracks in soffit of some of the "U" girders have also been repaired by DMRC. These cracks are required to be monitored during operation also to make sure that the situation remains stable. The monitoring of cracks for any propagation should be carried out as per Railway Board"s letter no.2012/Proj/AME/1/6 dated 04.01.2013 addressed to CPM/AP/DMRC. (xiii) Apart from routine inspection, operation and maintenance by the Concessionaire, DMRC should also carry out periodical inspection to ensure that the condition to track structure, viaducts etc is commensurate with speed in operation. Further increase of speed in this section beyond 50 (fifty) kmph up to the propose speed of 80 (eighty) kmph may be authorized by Dir/W/DMRC, who accompanied the inspection, in steps of 10 Kmph at the time on satisfactory tram operation in the section for a reasonable period of time and after his personal inspection, satisfaction, certification and after due consideration of items mentioned in para 2 (ix) to (xii) above. Befor....
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....interest, it was held, would be payable and accrued from 7th August, 2013, i.e., 30 days after DAMEPL had raised the demand for termination payment vide their letter dated 8th July, 2013. It was also directed that in terms of Article 29.9, this amount shall be credited to the Escrow account, details of which had been furnished by DAMEPL. As per the DMRC, total amount of interest payable in terms of the Award towards termination payment cumulatively amounts to Rs. 4506.02 crores. 49. The Award has also directed DMRC to pay Rs. 147.52 crores with interest @ 11% per annum from the date of payment of stamp duty on the Award to DAMEPL towards expenses incurred for operating AMEL from 7th January, 2013 to 30th June, 2013 on account of net operating cost of Rs. 39.76 crores and net debt servicing cost of Rs. 107.76 crores. 50. DMRC has been also directed to reimburse Rs. 62.07 crores on account of encashment of bank guarantee of Rs. 55 crores and Rs. 7.07 crores on account of differential commission and penal interest charged by the bank from DAMEPL. DMRC is also directed to reimburse the principal security deposit of Rs. 56.8 lacs along with interest @ 11% per annum, which would ac....
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....teps for curing the defects as required by Concession Agreement? (Para 11 & 12 of Reply) Claimants DMRC failed to take effective steps for curing the defects as required by the Concession Agreement. 10. Whether the participation of Respondent in the repair process, submission of Application to CMRS and recommencement of Operation and Maintenance of the Project by Respondent, proves that the contentions of Respondent, as contained in letter dated October 8, 2012, stood negated and nullified. (Para 32 of the claim) In the negative. DMRC'S ISSUES ON COUNTER CLAIM: Sr No. Issues Answers 1. Whether the Respondent is entitled to sum of Rs. 3470 cr. as Termination Payment along with interest and further interest @ SBI PLR plus 2% per annum as claimed in the Counter Claim? DAMEPL (Respondent) is entitled to the sum of Rs. 2782.33 crores from DMRC. Interest and manner of payment should be as stipulated in Articles 29.8 and 29.9 of CA. 2. Whether the Respondent is entitled to sum of Rs. 166.32 crore including interest on the Principal amount of Rs. 152.59 cr. of claims in Counter Claim? In the affirmative. DAMEPL is entitled to receive the sum ....
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....fice Memorandum issued by NITI Aayog would be applicable was to be decided on the next date of hearing. This order was challenged by the DMRC before the Division Bench without success and the Special Leave Petition by DMRC was also dismissed. 54. Learned single Judge by the impugned judgment dated 6th March, 2018 has upheld the Award and rejected the objections filed by DMRC under Section 34 of the A&C Act. It directs DMRC to deposit the amount awarded alongwith interest directly with the Escrow account maintained by the project lenders. The bank guarantee issued by the concessionaire and furnished by DAMEPL to secure payment made by DMRC was discharged. INTERIM ORDERS IN THIS APPEAL 55. On the present appeal being preferred, vide order dated 10th April, 2018 the Court disposed of interim application for stay, CM No. 13435/2018, taking letter dated 9th April, 2018 written by the DMRC on record. By the said letter, the DMRC had undertaken and the order dated 9th April 2018 has directed that DMRC would be liable to pay service dues of DAMEPL to its bankers. This order was subject to final outcome of the appeal and in the event of DMRC succeeding, appropriate orders for resti....
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.... payment of requisite stamp duty on account of encashment of bank guarantee of Rs. 55 crores and Rs. 7.07 crores on account of differential commission and penal interest and lastly refund of security deposit of Rs. 56.8 lacs with interest @ 11% per annum from the date of payment of requisite stamp duty by DAMEPL. Whether participation in the reconciliation process, signing of the application form dated 19th November, 2012 submitted to CMRS for recommencement of AMEL and operation thereafter for a period of 5 ½ months from 21st January, 2013 till 30th June, 2013 had amounted to waiver of the right to terminate 59. The aforesaid question and issue have been discussed by the Arbitral Tribunal under legal issue "B". Their findings are that DAMEPL"s participation during the cure period from 9th July, 2012 to 8th October, 2012 was inconsequential and would not amount to waiver. Subsequent participation of DAMEPL in the discussions, submission of papers to CMRS and operation of AMEL from 23rd January 2013 till 30th June 2013, after issue of termination notice on 8th October, 2012, was without prejudice. DMRC had invoked the conciliation process under Article 36.1 of the CA. F....
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....2013 written by DAMEPL to DMRC. 62. Having considered the contention raised on both sides, we are not inclined to interfere with the findings recorded in paragraph 87 of the Award, which reads as under:- "87.1 ........during the cure period DAMEPL was required to give all assistance in the process and since it had made substantial investment in the infrastructure of the metro line, it was obviously interested in the process being undertaken. No sooner was the termination notice given on 08.10.2012 (CD-28, Pg. 284), DAMEPL repeatedly asserted that whatever it was doing was "without prejudice" to its rights and contentions and, additionally, the parties immediately invoked the conciliation process under Article 36.1 of CA followed immediately by invoking the arbitration by DMRC by its letter dated 23.10.2012 (Miscellaneous Application dated 30.10.2013, Pg. 14-15). The subsequent actions of DAMEPL were without prejudice to its rights and contentions as well as without prejudice to the pendency of the arbitral proceedings. Thus, far from "negating" or "nullifying" the termination notice, DAMEPL was insisting upon the same." The aforesaid findings are predicated and found....
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....iver by estoppel or promissory estoppel is to show willingness of the representor to forego his rights, which should be reasonably seen by the other side. Reference in this regard can be also made to Motor Oil (Hellas) Corinth Refineries S.A. v. Shipping Corp. of India, (1990) 108 N.R. 280 (HL), interpreting expression "waiver", in its different contours. Waiver, it was observed, in a sense is abandonment of a right which arises by virtue of a party making an election, which may arise when a state of affairs comes into existence in which one party becomes entitled, either in terms of the contract or by general law to exercise a right and he has to decide whether or not to do so. Characteristically, this state of affairs arises where the other party has repudiated the contract or has committed a breach if the contract, which entitles the innocent party to bring it to an end, but the latter has made a tender of performance which conform to the terms of the contract. If a party with the knowledge of the fact, which has given rise to repudiation, acts in a manner consistent only with treating the contract as still alive, he is taken in law to have exercised his election to affirm the c....
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.... DMRC, provided that the Concessionaire shall be deemed not to have abandoned such operation if such abandonment was (i) as a result of Force Majeure Event and is only for the period such Force Majeure is continuing, or (ii) is on account of a breach of its obligations by DMRC. (xiv) The Concessionaire repudiates this Agreement or otherwise evidences an intention not to be bound by this Agreement; XXXXX (xvi) The Concessionaire has delayed any payment that has fallen due under this Agreement if such delay exceeds 90 (ninety) days." 70. Article 29.1.2 empowers the DMRC to terminate the agreement by issue of termination notice to the concessionaire if the concessionaire has failed to cure such breach or default within the period provided in the CA. However, before issuing termination notice, DMRC was obliged to issue notice in writing to inform the concessionaire of its intent to issue termination notice and grant 15 days time to the concessionaire to make representation against such intended termination notice. Upon expiry of 15 days, whether or not any representation was received, DMRC had sole discretion to issue termination notice. Article 29.1.3 is subjec....
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....re. The expression 'material adverse effect' has been defined in the CA to mean "material adverse effect of any act or any event on the ability of either party to perform any of its obligations under and in accordance with the provisions of this agreement". Obligations of DMRC have been set out in Article 9 of the CA. Article 10 deals with the obligations of the concessionaire, i.e., DAMEPL. 72. The cure notice dated 9th July, 2012 states that DAMEPL had noticed certain defects in DMRC"s works, which were affecting performance obligations of DAMEPL under the CA. A non-exhaustive list of defects that had created unsafe conditions for performance of DAMEPL"s obligations under the CA were thereafter enumerated and read as:- "i) Failure by the DMRC/Claimant to assume correct Superimposed Dead-load in its design; ii) The Co-efficient of Dynamic augmentation (CDA) assumed by the Claimant for longitudinal analysis in the Design Basis Report" iii) The strengthening by the Claimant of all piers having eccentric pier caps by jacketing of reinforced concrete; iv) Non-adherence of the Design by the Claimant, such: a) Non-adherence to desi....
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....hi International Airport - Dwarka Sector 21 ("Project") consequent of upon DMRC's Event of Default Ref : a) Concession Agreement dated August 25, 2008 ("Concession Agreement") b) Our letter no. DAME/DMRC/2012/4728 dated July 9, 2012 ("Notice to cure DMRC Events Of Default") c) DMRC's letter no. DMRC/20/1I/AP/P1 dated August 3, 2012 ("DMRC"s Reply") d) Our letter no. DAME/DMRC/2012/5101 dated October 5. 2012 Dear Sir, 1.0 The Concessionaire writes in respect of the captioned subject and the letters under reference hereinabove 2.0 Notwithstanding anything that is alleged in DMRC's Reply, the Concessionaire hereby repeats and reiterates that it has duly complied with all its obligations under the Concession Agreement and maintenance manuals including in respect of the conduct of regular inspections and undertaking of repairs of the works which were its responsibility. 3.0 The Concessionaire submits that it was due to its efforts and periodic inspections only that the Defects could be detected. The Defects being latent/inherent in DMRC Works were not capable of identification at any point of time, inclu....
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....nominee and instruct him to be present at a mutually convenient time to takeover the possession of the Project Assets and the inventory thereof. If DMRC fails to appoint its nominee or agree upon a mutually convenient lime within 7 days hereof, then the Project will be vacated at the sole risk and liability of DMRC. and the Concessionaire will not be responsible for any form of risk or liability whatsoever in relation to the Project Assets or any inventory forming part thereof. 12.0 In the event DMRC fails, neglects or delays to do the acts and things stated above, the Concessionaire reserves right to initiate appropriate legal actions at DMRC's risk as to costs and consequences. 13.0 Nothing contained in this Termination Notice shall be seen as a waiver of any of the Concessionaire's rights or the obligations of DMRC, under the Concession Agreement, of any nature. The Concessionaire hereby reserves all its rights and remedies against DMRC. 14.0 Unless otherwise defined herein, the capitalized terms shall mean to have the same meaning as ascribed to such term under the Concession Agreement or under the Notice to cure DMRC Events of Default." No....
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....lt" have been mentioned in the Award. 77. We have already quoted paragraph 78 of the Award, which states that the DMRC had failed to take effective steps to cure the breach within 90 days of the notice dated 9th July, 2012 and as such ingredients of Article 29.5.1(i) of the CA were satisfied. Termination notice issued on 8th October, 2012, effective immediately was valid. Paragraph 115 records that the Arbitral Tribunal had already concluded in paragraph 78 that termination notice dated 8th October, 2012 was valid. Accordingly, the counter claims of DAMEPL were being considered. Ex facie the CA could not have been terminated with immediate effect from the date of termination notice. DAMEPL would not even contend to the contrary. 78. Paragraphs 128, 130 and 131 of the Award read as under: - "128. The other component of Termination Payment is "Debt due". "Debt due" comprises of two elements i.e. Rupee term loan and External commercial borrowing (in foreign currency). For the loan received and repaid, we have relied upon the information submitted by DAMEPL through their advocates vide letter no. DJK/HM/1208 dtd. 01.12.2014. In the absence of definition of "Transfer Date....
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....re period was 90 days plus 90 days and this argument is an afterthought and was raised before the learned single Judge for the first time. DMRC was required to cure the defects or take effective steps to cure the defects within 90 days from the date of DAMPEL"s letter dated 9th July, 2012 and were not entitled to another period of 90 days after termination notice dated 8th October, 2012. This was not what is postulated under Article 29.5.1 (i) of the CA. 81. In the written submissions, it is also stated that the Arbitral Award has considered the entire period including the period upto 7th January, 2013 to examine and conclude whether the defects had been cured or effective steps had been taken to cure the defects. (See paragraph 44 at page 65 of the written submissions.) 82. In other words, DAMEPL in the written submissions in alternative has taken the effective date for the purpose of clause (i) to Article 29.5.1 as 7th January, 2013. However, this is not what the Arbitral Tribunal has held in the first part of the award, including paragraphs 78 and 115 quoted above. DAMEPL has not explained and justified the reason for the two dates. 83. DMRC has submitted that the conte....
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....rnative" that Arbitral Tribunal had taken 7th January,2013 as the relevant date for Article 29.5.1 of the CA. 87. The Award in paragraph 107 quotes CMRS sanction dated 18th January, 2013, which records that repairs of all bearings used in U girders and cracks in some soffit of some of U girders have been carried out and the situation was stable. However, the repairs were required to be monitored, to ensure that the position remained stable. DMRC was directed to carry out routine inspection, operation and maintenance. Permission to operate AMEL at 50 kilometres per hour was granted with right to increase the speed till 80 kilometres per hour in steps of 10 kilometres per hour at a time on personal inspection, satisfaction, certification of conditions specified by the Director (W) DMRC. For increase in speed beyond 80 kilometres per hour, DMRC was to approach the CMRS for sanction with adequate justification. 88. The Arbitral Tribunal after recording the said position rejected the contention of DMRC observing that AMEL was to serve as a high-speed connectivity and severe speed restrictions were imposed by CMRS. It did not examine the issue, and question and answer how and in wh....
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....inistration, require the attendance before him of metro railway official and to require answers or returns such inquiries as he thinks fit to make from such metro railway official or from the me & railway administration; and (c) require the production of any book, document or material object belonging to or in the possession or control of any metro railway administration which appears to him to be necessary to inspect. XXXXX 14. Sanction of Central Government to the opening of metro Railway-The metro railway in the metropolitan city of Delhi 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 hall(sic), 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 struc....
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....lway for Public Carriage of Passenger Rules, 2002 as enacted, on power and authority of CMRS including those delegated to him by the Central Government, state:- "Rule 4: "Supply of documents to the Commissioner. - (1) The Chief Executive Officer shall, while making reference to the Commissioner for inspection and report on the safety of the metro railway under sub-rule (2) or rule 3, furnish all relevant documents to the Commissioner from the following list of documents, namely;-- (a) Tabulated details; (b) Index plan and sections; (c) drawings of works; (d) Certificate; (e) List of infringements of moving and fixed dimensions; (f) Working orders to be enforced at the operations control centre and at each station. (g) Administrative note giving salient features of the project. (2) The documents referred to in sub-rule (1) shall indicate the distances from the same fixed point in kilometers and decimals up to two digits and the fixed point shall be clearly defined in a note on the plant and section sheets of the work documents. (3) The datum adopted shall be mean sea level as fixed by the....
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....head equipment masts/ overhead current collection system as applicable. (3) The comments on the following matters, namely:-- (a) Moving and fixed dimensions; (b) Strength of bridges / viaducts; (c) Brake and communication; (d) System of working; (e) Electric traction equipment; and (f) Type of rolling stock, proposed along with list of restrictions, shall be contained in the certificate in Form XVI. (4) List of infringements of moving and fixed dimensions shall be prepared as specified in Form XVII and shall contain full explanations for the infringements and restrictions or precautions to be adopted because of them and the reference to the authority of the Central Government under which the infringement is permitted for allowed. (5) Working orders to be enforced at each station on the metro railway to be opened shall be prepared in accordance with the provisions of the Delhi Metro Railway General Rules, 2002 and shall specify any special conditions that are required to be met with and such orders shall include working rules." XXXXX Rule 22:"Sanction to open metro railway. - (1) Th....
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....mited versus Sterlite Industries (India) Limited, (1999) 5 SCC 688 and Booz Allen versus SBI Home Finance, (2011) 5 SCC 532). 94. Thus, the Arbitral Tribunal was required to treat and give legal effect to the sanction and permission accorded for public carriage of passengers vide CMRS certificate of fitness dated 18th January, 2013. Sanction/permission was given after examining the civil structure be it cracks, twists and gaps in the girders, which were not found to be compromising fitness and safety for public use. Conspicuously, the Arbitral Tribunal did not consider the legal effect and consequence of the permission/sanction accorded by the CMRS in the first portion of the Award recorded in the summary of arbitral views in paragraphs 77, 78 and paragraph 115 of the Award. Grant and effect of sanction/permission accorded by CMRS dated 18th January, 2013 was ignored and bypassed. 95. The aforesaid error in the impugned Award has occurred because the legal issue "H" has been determined and decided separately, whereas it should have been decided and considered in the first portion of the Award with reference to the validity of termination. Even the legal issue "H"-Did the issu....
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....ctification work were undertaken with involvement of consultants. Trial runs were also done and a joint application for re-opening the line was made to CMRS. DAMEPL had participated in the said meetings without prejudice to their rights. (x) On 18th January, 2013, CMRS had granted permission/certification for re-starting AMEL. (xi) DAMEPL thereupon has started operations on the line from 22nd January, 2013. Operation continued till 30th June, 2013. (xii) DMRC has been thereafter operating and maintaining AMEL since 1st July, 2013. No accident and damage to life and property has been reported and alleged in the period from 22nd January, 2013 till the Award dated 11th May, 2017. (xiii) The sanction/permission granted by CMRS was in terms of the Metro Act and the Rules. It is a statutory sanction not amenable to challenge in arbitration. (xiv) Notwithstanding the aforesaid sanction/approval, the Arbitral Tribunal has held that DMRC had not taken steps to cure the structural defects and, therefore, "DMRC Event of Default" under Article 29.1.1 of the CA had occurred. Defects in girders, etc. had caused "material adverse effect" on DAMEPL"s pe....
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....elevant and inconsequential. Pertinently certification/permission was granted by CMRS after due verification of the civil structure including the defects in girders. Certification by CMRS was binding and its validity was not capable of "submission to arbitration". Cumulative effect of the aforesaid discussions is that the Award shocks conscience of the Court. Consequently, the Award on the said finding would falter and fail on the tests and parameters elucidated in Associate Builders versus Delhi Development Authority, (2015) 3 SCC 49, a judgment is cited and relied by both the sides. The decision holds that Section 5 of the A&C Act bars Courts from intervening with the arbitration award governed by Part-I, except on the grounds mentioned in Sections 34(2) and (3) of the A&C Act, which (including sub-section 2A) read as under:- "34. Application for setting aside arbitral award.- XXXXX (2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjecte....
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.... aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter." 99. Explaining the expression "public policy in India" in Associate Builders (supra), the Supreme Court referred to their earlier judgments in Renusagar Power Company Limited versus General Electric Company, 1994 Supp (1) SCC 644, ONGC Limited versus Saw Pipes Limited, (2003) 5 SCC 705, Hindustan Zink Limited versus Friends Coal Carbonisation, (2006) 4 SCC 445, McDermott International Inc. versus Burn Standard Company Limited, (2006) 11 SCC 181, Centrotrade Minerals & Metals Inc. versus Hindustan Copper Limited, (2006) 11 SCC 245, DDA versus R.S. Sharma and Company, (2008) 13 SCC 80, J.G. Engineering (P) Limited versus Union of India, (2011) 5 SCC 7....
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.... construe the terms of the contract in a reasonable manner. Construction of the terms of the contract is primarily for the Arbitrator to decide. The Courts would only interfere when the Arbitrator construed the contract in a way that it can be said that no fair minded or reasonable person would do. 100. In the aforesaid background, we are not examining the issue whether the earlier cure notice dated 9th July, 2012 was bad and contrary to law as it was indeterminate and not specific. However, we would record that the DMRC had submitted that the cure notice under law must be exhaustive and specific and not vague and unspecific. Reliance was placed upon judgments in Heisler versus Anglo Dal Limited, [1954] 1 W.L.R. 1273 and Glencore Grain Rotterdam BV versus Lebanese Organisation for International Commerce, [1997] C.L.C. 1274. Computation of the amount due under Article 29.5.2 101. DMRC has challenged inclusion of Rs. 611. 95 crores in equity to compute adjusted equity and award of Rs. 983.02 crores as 130% of adjusted equity as termination payment due on DMRC"s "Event of Default" under Article 29.5 of the CA. 102. Article 29.5.2 reads as under:- "Upon termination....
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....dispute pertains to equity. In the balance sheets, books and records of the Registrar, paid up and issued share capital of DAMEPL is Rs. 1 lakh. DAMEPL"s claim letter dated 8th July, 2013 states that their equity share capital was Rs. 1 lakh. On the paid-up and issued share capital also there is no dispute. 106. The dispute pertains to Rs. 685 crores that was brought in as share application money and was so recorded in the balance sheet and books of DAMEPL for the year ending 31st March, 2010. However, in the balance sheet and books for the year ending 31st March,2011 Rs. 685 crores was not shown as share application money. It was specifically shown as "Subordinate Debt". This conversion was pursuant to resolution of the Board of Directors of DAMEPL. Notice of termination dated 8th October,2012 had quantified 130% adjusted equity payable as Rs. 1,30,000/-. In letter dated 1st December, 2012 the subordinate debt shown as payable by DAMEPL to M/s Reliance Infrastructure Ltd. was Rs. 687.90 crores, which includes Rs. 685 crores. DAMEPL in their claim letter dated 8th July,2013 had stated that subordinate debt of Rs. 670.77 crores from M/s Reliance Infrastructure Ltd. had been used ....
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....ed Debt under the definition of CA. Second question is, can a project of this magnitude be executed with an equity of Rs. 1 lakh? No lender will fund a project of this size if Promoters intends to provide only Rs. 1 lakh as Equity. In the present case, it will tantamount to an irrationally high Debt Equity ratio. It is a common practice by lenders to fund the projects at around 60 : 40 to 80 : 20 as Debt: Equity ratio. The lenders do allow promoters (in the instant case R Infra) to bring in their part of contribution, representing equity, either in the form of equity share capital or preference share capital / subordinated debt or a mix thereof. Generally, a condition is imposed by the lenders on the promoters that till the time, the borrower has paid its part of proportionate equity contribution, it will not be entitled to receive loan. 126. At this stage, the definition of the word "equity" in the CA may be recapitulated. The said definition specifically covers not only the equity capital of DAMEPL, but includes "the funds advanced by any member of the consortium or by any of its shareholders to the Concessionaire for meeting the equity component of the Concessi....
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....7.54 crores After COD (February, 2011) * WPI on COD = 148.10 * WPI on the reference date i.e. the date of Termination (07.01.2013) = 170.3 * Variation in WPI = 22.20 * % variation = 15% * Adjusted equity = 657.54x1.15 = Rs. 756.17 crores * 130% Adjusted Equity = Rs. 983.02 crores 128. The other component of Termination Payment is "Debt due". "Debt due" comprises of two elements i.e. Rupee term loan and External commercial borrowing (in foreign currency). For the loan received and repaid, we have relied upon the information submitted by DAMEPL through their advocates vide letter no. DJK/HM/1208 dtd. 01.12.2014. In the absence of definition of "Transfer Date" in the CA, we have taken the date of termination i.e. 07.01.2013 as the reference date for the calculation of the "Debt due." 128.1 Details of Rupee Term Loan are given in page 28 to 30. On analyzing the said details, the following position emerges: * Loan received till the date of termination (07.01.2013) = Rs. 1273,05,68,176/- * Loan repaid till 07.01.2013 = Rs. 12,32,78,012/- * Net loan as on 07.01.2013 =....
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....he Arbitral Panel. Q54 Madam, whether as per the Company law, the definition of equity includes subordinate debts? Ans No." 110. DMRC being aggrieved have highlighted the consequences of Rs. 611.5 crores being treated as a part of equity in their written submissions stating;- "a. On Rs. 611.5 Crores which has been treated as equity and has been enhanced by WPI, and thus adjusted equity is Rs. 983 Cr. and the total interest of SBI PLI + 2% from August 2013 till date is approximately Rs. 834 Crore, which comes to Rs. 1817 Crores. b. On treating this amount of Rs. 611.5 Crores as subordinate debt and therefore debt due, the interest amount would be zero as the carrying cost on this subordinate debt which is loan from promoters of DAMEPL is NIL as shown in the balance sheet of DAMEPL for FY 2012-13 at page No. 10 and 15 of the compilation dated 25.09.2018 tendered by DAMEPL to the Hon"ble Court, wherein no interest amount/rate has been shown as payable on the amount of subordinate debt. The difference between amount mentioned in Para (b) & (a) is Rs. 1205.50 Crore." DMRC"s calculation on interest on termination payment in the above computation ....
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....n in WPI occurring between the first day of the month of Appointed Date and the Reference Date; b) from COD and until the 4th (fourth) anniversary thereof, an amount equal to the Adjusted Equity as on COD shall be deemed to be the base (the "Base Adjusted Equity") and the Adjusted Equity hereunder shall be a sum equal to the Base Adjusted Equity, revised at the commencement of each month following COD to the extent of venation in WPI occurring between the COD and the Reference Date. c) after the 4th (fourth) anniversary of COD, the Adjusted Equity hereunder shall be a sum equal to the Base Adjusted Equity, reduced by 0.42% (zero point four two per cent) (This number shall be substituted in each case by the product of 100 divided by the number of months comprising the Concession Period. For example, the figure for a 20 year Concession Period shall be 100/240 = 0.416 rounded off to decimal points i.e. 0.42) thereof at the commencement of each month following the 4th (fourth) anniversary of the Project Completion Date and the amount so arrived at shall be revised to the extent of variation in WPI occurring between COD and the Reference Date; and the aforesaid shall a....
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.... to the Termination Date. provided that if all or any part of the Subordinated Debt is convertible into Equity at the option of the lenders and/or the Concessionaire, it shall for the purposes of this Agreement be deemed to be Subordinated Debt even after such conversion and the principal thereof shall be dealt with as if such conversion had not been undertaken. "Concessionaire's Capital Costs" means following: * Prior to COD, the cost of the Concessionaire's Works as set forth in the Financing Documents plus any further additional capital cost for any Change of Scope Instructed since the finalization of the Financing Documents; and *After COD, the actual capital cost of the Concessionaire's Works upon Project Completion as certified by the Statutory Auditors." 113. The expression "equity" means sum expressed in Indian rupee representing equity share capital of the concessionaire. It also includes funds advanced by any member of the consortium or by any of its shareholders for meeting equity component of concessionaire"s capital costs. Therefore, all amounts or funds advanced by member of the consortium or shareholders do not quali....
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....cing documents plus any additional capital cost. After COD, the actual capital cost of concessionaire"s work upon project completion as certified by the statutory auditors. 115. As noticed above, IRCON in their report had valued the cost of assets to clear overheads and other charges installed and created by DAMEPL at Rs. 2273.67 crores. These details have been set out in paragraph 118 of the Award. Arbitral Tribunal had held that the question of actual capital cost of concessionaire"s work was inconsequential. 116. The Award ignoring the clear position on both factual and legal has substantially allowed the claim of DAMEPL to hold that amount of Rs. 611.95 crores should be considered as equity contribution by promoters as it was close to commercial operation dated 23rd January, 2011. Balance 73.05 crores was considered to be office and maintenance expenses. The date of 23rd February, 2011 with reference to commencement of commercial operation is not to be found in any of the clauses and at best would have been rebuttable presumption that the money could be converted into equity but the fact that this amount was never converted into equity and in fact was treated and converte....
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....ursuant to this Agreement shall become due and payable to the Concessionaire by DMRC within thirty days of a demand being made by the Concessionaire with the necessary particulars duly certified by the Statutory Auditors. If DMRC fails to disburse the full Termination Payment within 30 (thirty) days, the amount remaining unpaid shall be disbursed along with interest an annualised rate of SBI PLR plus two per cent for the period of delay on such amount." 120. The award thus draws a difference between the 'termination payment' which are covered and on which interest would be payable under Article 29.8 post thirty days after demand for payment of termination payment is made by DAMEPL, and interest payable on other amounts awarded. This finding in the award is reasonable and we do not think that it can be challenged under section 34 of the A&C Act. Termination payments have been classified separately and interest is payable by DMRC to the concessionaire after thirty days of demand by the concessionaire with necessary particulars certified by the statutory auditors. Rate of interest payable in case of default and failure by DMRC to make payment has been specified. The finding....
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....tion payment has to be dealt with differently. Rate of interest payable is different. Even otherwise, nothing prevents DAMEPL from paying interest to its promoters on the money advanced on receipt of payment etc. by modifying the terms mutually agreed. The transaction between the two is not at arm"s length. Promoter in the present case has stated that they have borrowed money on interest to finance the costs incurred by DAMEPL. 123. We have quoted above the definition of the term "subordinate debt" which in Clause B refers to 6 months LIBOR rate plus 2% in case of loan based upon foreign currency. Questions would necessarily arise as to application of provisions of Article 29.8 of the C.A. to subordinate debt expressed in foreign currency. This aspect has not been considered in the award. Neither has this aspect been raised by the DMRC in the objections or during the course of arguments before us. We do not therefore, make any comment on the said aspect. CONCLUSION AND RESTITUTION 124. We have already referred to the interim order passed by the learned Single Judge and thereafter in the present appeal by which DMRC has undertaken and is bearing the interest burden on the d....
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....l award and observed that this expression is not used in the A&C Act. Subsection 6 to Section 31 contemplates an interim award which is not one in respect of which final award can be made but can be a final award on the matters covered by it made at the interim stage. Reference can be made to the earlier decision in the case Hindustan Zinc Ltd. versus Friends Coal Corbonisation, (2006) 4 SCC 445 wherein the Supreme Court has held that it was impermissible for the Appellate Bench of the High Court to do recalculation after it had failed to interfere with the portion of the award on the ground that it was opposite to the specific terms of the contract. Reference was also made by DMRC to judgment of the Madras High Court and Bombay High Court in Central Warehousing Corporation versus A.S.A. Transport, (2008) 3 MLJ 382 and R.S. Jiwani versus Ircon International Ltd,. (2010) 1 Bom. CR.529. In the former case it was held after relying upon the Mc Dermott International Inc. (Supra) that once an award has been set aside consequential reliefs cannot be granted and the parties have been left to begin with the arbitration if they so desire. Decision of the Full Bench of Bombay High Court, how....
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....Shin Satellite Public Co. Ltd. versus Jain Studios Ltd., (2006) 2 SCC 628, where the Supreme Court was dealing with the issue whether an arbitration clause could be invoked inasmuch as a particular clause of the agreement was against public policy and unenforceable. Reference was made to paragraph 430 of Halsbury Law of England, 4th Edition, Volume 9, page 297 drawing four general principles applicable to severance in case of contracts. The second principle states that severance can be allowed where it is possible to strike out the offending parts, without re-writing or re-arranging the contract. Thirdly, the court would not alter entirely the scope and intention of the agreement and, fourthly, shorn of offending parts, the contract must retain characteristics of a valid contract, otherwise the other parts of the contract would also become unenforceable. Chitty on Contracts (29th Edn. Vol. 1) pages 1048-49 also draws distinction between cases where provisions are wholly void and where good part is severable and not dependent upon the bad part, which can be then severed, in which case good can be retained and bad can be rejected. Care must be taken that the Court do not re-write or ....