The 5th Leg Of Judicial Intervention, A Question On The Reputation Of India As An Arbitral Seat
Author: LawSphereX
Category: Arbitration & ADR
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THE 5TH LEG OF JUDICIAL INTERVENTION, A QUESTION
ON THE REPUTATION OF INDIA AS AN ARBITRAL SEAT Sunidhi Mathur, Centre for Legal Studies, GIBS, Rohini, New Delhi.
ABSTRACT
Man does not live in isolation, in today’s interconnected world, conflicts are an inseparable and inevitable part of the humankind. It is human nature to have various demands and needs, with the arousal of such needs, a want to fulfill them arises, but with limited resources at hand, fulfillment of all wants is not possible, thus disputes are bound to emerge. Resolution of disputes is a pre- eminent aspect of a society, even before the advent of the courts, people used various methods to resolve disputes. The system of outside court settlements is not a new one, it has been a long-going practice. Primordial, non- judicial methods of resolving disputes have often been employed by various communities at large.
It is believed that traditional litigation along with being a tedious process, often leaves parties bruised, displeased and fragmented, in turn escalating hostility and bitterness among people. Over a period of time, people have been inclining more towards methods of alternative dispute resolutions. This has led to an increase in the demand and development of such methods in the country. Alternative dispute resolution (ADR) methods offer a more compassionate, advantageous and tailored approach in solving conflicts. Preference of these methods over the conventional litigation system, has led to major recent developments of this field and led to the advancement of pro- arbitration approach in India. But is India with all its nuances of the arbitral system, a satisfactory arbitral seat?
Is what this research paper aims to analyze in the view of the recent DMRC v/s DAMEPL1 case and its Supreme court ruling. In this historic case, the Supreme Court by taking an out of the ordinary course decided to revisit its division bench’s ruling and overturned an arbitral award of nearly 8,000 crore which had been pending for more than a decade.
This unprecedented and pioneering act of the Apex Court has led to several questions, discussions and debates about a prospective 5th leg of judicial intervention in arbitral awards and the position of commercial arbitration in India. The aim of this paper is to analyze the case and evaluate its pros and cons and its implication on the future of arbitration in India. I.
FACTUAL
BACKGROUND
OF THE CASE: Timeline
1. The Petitioner, Delhi Metro Rail Corporation (DMRC), is a state-owned enterprise
which is wholly owned by the Government Of India and the National Capital Of Delhi. Whereas, Delhi Airport Metro Express Private Limited, the Respondent is a specialized syndicate incorporated by Reliance Infrastructure Limited and Construcciones Y Auxiliar de Ferrocarriles SA, Spain. The dispute originated from disagreements over the termination of a concessionaire contract for the Airport Metro Express Line Project.
2. In 2008 the consortium entered into a first of its kind Public- Private -Partnership (PPP)
agreement for the design, construction, commissioning, operation, and maintenance of Delhi Airport Metro Express Line.
3. Under the contract DAMEPL Was given exclusive rights and authority for the
completion of the said agreement within 2 years’ time along with obligations to maintenance until August 2038. However, after certain delays and the grant of licenses and permissions the project commenced in February 2011.
4. In May 2012, DAMEPL complained about certain faults and safety issues, responding
to this DMRC stated pursuant to its inspections no such defects were found. Later, DAMEPL, ingeminated its concerns and asserted that these defects constituted for “material adverse effects” impeding its ability to fulfill its obligations as per the contract. It issued a notice to DMRC giving it 90 days’ time to cure the defects.
5. Finally, in October 2021, DAMEPL terminated the contract citing safety concerns and
failure of DMRC to cure them within the stipulated time.
6. Following the termination, DMRC invoked the Arbitral Clause of the agreement.
7. In August 2013, a three-member Arbitral Tribunal was constituted which rendered its
unanimous award in favor of DAMEPL, 3 years later, in May 2017.
8. Aggrieved by the tribunal’s award, DMRC, contested the decision by filing an
application u/s 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court, which was dismissed by the court.
9. Later in January 2019, an appeal filed u/s 37 of the Arbitration and Conciliation
Act,1996 was allowed by the High Court, the Division Bench of the High Court partially allowed the appeal and set aside the arbitral award, citing ignorance to the ambiguity in the termination provisions of the award.
10. Then, DAMEPL proceeded to pursue relief by filing a Special Leave Petition (SLP),
which resulted in a two-judge bench allowing the appeal and reinstating the arbitral award.
11. Aggrieved DMRC, filed a review petition seeking relief, which was dismissed and thus,
in turn laying the groundwork for the present “Curative Petition”. II.
CURATIVE
PETITION AND ARTICLE OF THE INDIAN CONSTITUTION A curative petition is a request to the court to review its own decision even after the actual review petition has been dismissed. Curative petition finds its roots in the Constitution of India under Articles 137 according to which the Supreme Court shall have the power to review any judgment pronounced or order made by it. The concept of curative petition first evolved through the case of Rupa Hurra2 in which an important question arose that if the aggrieved party is entitled to relief and appeal
2 Rupa Ashok Hurra vs Ashok Hurra & Anr AIR 2002 SC 1771
against the final judgment of the court after the review petition had already been dismissed. Article 142 provides a unique power to the apex court to do “complete justice” between the parties, at the time when the law or any statute may not provide a remedy to resolve the situation and do complete justice. the Supreme Court of India has the power to issue any verdict or order to provide “complete justice”, such an order by the Supreme Court will be enforceable across India. III.
ISSUES
The Supreme court while pronouncing the judgment in the present case in discussion exercised its inherent powers under article 142 and decided the case under a curative petition, addressing the miscarriage of justice carried out by the erroneous interpretation of the contractual clauses of the agreement. In doing so, the court dealt with the following issues: -
1. Maintainability and admissibility of the Curative Petition.
2. Whether it was proper for this Court to maintain the arbitral award that the Division
Bench of the High Court had set aside given that it was demonstrably unlawful? IV.
ANALYSIS
This unprecedented decision by the Supreme Court gave rise to debates and discussions about the status of judicial interference in arbitral procedures. It raises questions regarding the finality of judgments given by the Supreme court. Since, the Supreme Court is the highest judicial authority of the country and every decision given by it, is final and binding upon the country as a whole, this anomalous decision by the Apex Court raises questions and concerns, that, if the rulings rendered by the Supreme Court itself are to be considered final or not. The Supreme court in the Rupa Hurra Case stated that “It is a well settled law that the Supreme Court’s curative jurisdiction is to be exercised sparingly and in rare cases to prevent grave miscarriages of justice or irredeemable injustice.”
In light of the above statement, it can be debated that despite three rounds of judicial intervention in the case, was there an actual NEED for the Supreme Court to exercise its Curative Jurisdiction or if the Supreme Court in exercise of its Curative Jurisdiction has contradicted its own stance of “sparing use of curative jurisdiction” It must be noted that the Arbitration act itself provides a very limited scope for judicial intervention in arbitral proceedings. There is an already high threshold set by Section 34 of the Arbitration Act for a court to intervene in an arbitral ruling. Section 37 acts as an even more difficult roadblock since it limits the appellate court's authority of determining whether the lower court properly used its authority under section 34, rather than allowing it to conduct a thorough examination of the award on its merits.
The supreme court’s decision to overturn the arbitral award, to say the least, is puzzling, given the continuous emphasis of the judiciary upon making India the center for arbitration by having pro arbitral award policies. This decision by the apex court opened a pandoras box inducing intriguing observations. Brought out by disputes over termination of a concession agreement, the Supreme Court’s decision can be viewed as two-fold: - Firstly, the court observed that there had been an erroneous interpretation of the contractual provisions, citing which the court took this unparallelled step in aid of public interest and justice. Exercising its inherent powers under article 142, the court discerned the Tribunal’s shortcoming in interpreting the termination clauses.
While giving its judgement the court held that the appeal court could have set aside the award tainted by “Patent Illegality” relying upon section 34(2)(A) of the Arbitration and Conciliation Act. Along with this the court opined that the ignorance on that part of the tribunal of the vital evidence while deciding the award, led to substantial miscarriage of justice. Thus, it can be noted that, the court by giving this decision, saved or prevented grave injustice to the state, by ensuring that the state does not suffer because of a faulty arbitration process and disregard to fundamental evidences, it also made sure that the state is not weighed down by a hefty value of the award, especially at a time when DMRC is in a brawl of financial restraint.
It can be rightly argued that the court in this instance, saved face of the justice system and the sanctity of contractual obligations and clauses, setting a precedent holding up the importance of careful analysis and diligent follow through of contractual clauses.
Another facet of this judgement can be analyzed bearing in mind that, if allowing a special leave to appeal was rare, it was even rarer for curative petitions to be entertained. One of the three rounds of judicial intervention before the Supreme Court’s decision was when DAMEPL pursued relief through a Special Leave Petition (SLP), which resulted in the appeal being allowed and the award being reinstated by a two-judge bench of the court. Now, stressing upon the fact that, the case underwent a considerable amount of adjudication before the court overturned the award, it must be noted that re-analysis of the merits of a case in a “curative petition”, despite several previous emphasis from the courts on the “rare nature” of curative jurisdiction, this step by the Supreme Court is unprecedented for.
It is being argued that, though this step was evoked to rectify judicial errors which were causing grave injustices, on the other hand, it can be contended that, the invocation of such jurisdiction delays the finality to a dispute by giving rise to a new forum for appeal before the court. Thus, in turn giving rise to the question of “Speedy Justice or Finality? ” in regards to judgments of the court, which brings upon great dilemma considering the principles of ‘justice delayed is justice denied’ and ‘minimal interference of courts in the arbitral process’ V.
KEY TAKEAWAYS
Considering the above presented arguments highlighting the two sides of this judgement, brings upon a few key takeaways: -
1. Supreme Court being the ‘Guardian of the Indian Constitution’ has always strived to
work towards protecting and preserving the sanctity of the Constitution’s basic framework, people’s rights and public interest. In doing so it possesses a few special powers that bestow upon it the authority to change, revoke or renew any decision by any court. But recent judgements by the court have inflicted upon debates and are being highly contested. This difference of opinion gives rise to two sides as discussed above, one roots for this decision, while the other contends it may create more confusion in an already complicated arbitration process. However, this decision by the Supreme Court was taken in good faith to protect the public interest. It can be viewed as a course correction done by the court of its previous action. This action certainly preserves the public interest against the unreasonable award.
2. But at the same time, raises fingers upon the arbitration system of India, that it could
not hold the line against judicial scrutiny even after a long period of 4 years.
3. This brings into perspective the enormous role of courts in review of arbitral awards in
practicality, which is contrary to the theoretical provisions of the said act.
4. It sets a precedent for judicial intervention in arbitral proceedings in cases where stakes
are higher than usual. It sets out to become a paradigm for judicial review of high value awards against the state on grounds of public interest. This might lead to a situation where in cases of high stakes commercial contracts where state is a party, it may reduce the incentive of state to act as a rational party to contract in lieu of having greater confidence than before of being able to obtain judicial review against the award.
5. Another aspect of this judgement is its effect on PPP contracts. Public Private
partnerships may be highly affected, given the precedential possibility of the state to invoke judicial intervention and some private entities may even stop doing contracts with the state, thereby affecting the economy.
6. This further highlights the need for a comprehensive reform in the state activities both
as a part of any civil litigation or commercial contracts, as challenges faced by private parties in such contracts such as contract management, allocation of risks along with a gavel of litigation proceedings hanging over them have come to light, which may further decrease the role/ part of private entities in such contracts.
7. Section 32(A) of the Arbitration Act- Patent Illegality a ground for dismissal of the
award created space for more subjective interpretation by the courts, again leaving room for interpretation and uncertainty as to what perverse or irrational may be in each case.
8. Another vital fact which this judgement brings upon is the importance of contractual
terms in such contracts. It places emphasis on the fact that the terms of the contract are supreme and MUST be followed with full attention to detail and precision. The actions of the parties must be in accordance with the terms of the contract in order to avoid such conflicts in the future.
CONCLUSION
The court’s decision of revoking the award, instead of planting the seed of consistency seemed to have instead sown the seed for another form or avenue for challenge of arbitral awards in the court. The court in the way of preserving justice, may have provided a fifth leg of judicial review, i. e. Curative Petitions in case of arbitral awards. Although while giving this judgment the court cited a notice for caution in cases of curative jurisdiction, that exercise of this jurisdiction for review is not the rule, but an exception. It also stated that, only in ‘exceptional cases’ must this avenue be exercised. However, this judgment still leaves room for interpretation.
The skeptical nature of the judgement does create a substantial possibility for this avenue to be used as yet another form of judicial review in cases of arbitral awards in high stake cases, the aggrieved party may tend to litigate all the way to the Supreme Court holding the torch of this case as a precedent to invoke such proceedings. How these cases will be dealt with in the future is yet to be known, but seeing that a new prospect just opened up, there is expectancy of many more such cases ending up in the long pile of cases in the courts. As a country with an aim to become Pro Arbitral, this judgement may have become an impediment towards the growth of India as an arbitral seat and may have left a lot to the subjective interpretation of parties and the courts in case-to-case basis. Thus, leaving the law regarding Arbitration in India still kaleidoscopic.
Too many avenues of appeal when in cahoots with fickle exercise of judicial powers renders the impact of pro arbitration policies insignificant. Concluding the above, the judgment though given for the preservation of public interest may or may not have left the status of India as an arbitral seat as ambivalent. The laws regarding arbitration need to be made more consistent and efficient in dispute resolution without having to turn to the courts for final resolution.