New Delhi, September 10, 2021: While upholding the arbitral award passed by the Tribunal in favour of Delhi Airport Metro Express in respect of the computation of Termination Payment, the Supreme Court has observed that judicial interference with the arbitral awards is limited to the grounds set out u/s 34 of the Arbitration & Conciliation Act, and the courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or re-appreciation of matters of fact as well as law.
The Division Bench of Justice L. Nageswara Rao and Justice S. Ravindra Bhat opined that the view taken by the Tribunal that the amount contributed by a member of the consortium or by shareholders to meet the ‘Concessionaire’s Capital Costs’ in any form, including where such funds are classified as subordinated debt, cannot be treated as ‘Subordinated Debt’ in terms of its definition in the Concession Agreement, is a reasonable and possible view.
The background of the case was that there was a concession agreement in 2008 between DAMEPL and DMRC for Delhi Airport Express on a Build–operate–transfer (BOT) basis. However, DAMEPL terminated the agreement in 2012 citing various structural defects in the metro line which were allegedly not cured by DMRC despite being pointed out by DAMEPL.
Accordingly, DMRC invoked an arbitration clause seeking to initiate arbitration, and claimed that the termination notice issued by DAMEPL was illegal, as DMRC had taken various steps for honouring its obligations under the concession agreement.
Later, the Arbitral Tribunal awarded damages to the DAMEPL and directed DMRC to pay Rs.2800 crore plus interest.
After considering the arguments and precedents, the Apex Court observed that the public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, or secondly, that such award is against basic notions of justice or morality.
“Insofar as domestic awards made in India are concerned, an additional ground is now available under subsection (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law”, noted the Division Bench.
In short, what is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality, added the Bench.
The Division Bench also made it clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.
The Top Court said that it has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards.
“There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award”, observed the Court.
Stating that such approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards, the Apex Court highlighted that several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorizing them as perverse or patently illegal without appreciating the contours of the said expressions.
Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’. Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’, added the Court.
Therefore, the Apex Court explained that what is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award.
The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’, concluded the Top Court.