Beyond the verdict: The long-term impact of DMRC vs. DAMEPL on Indian Arbitration

The Supreme Court of India’s judgment in the DMRC vs. DAMEPL case is a crucial precedent in the history of Indian Arbitration. The ruling, which overturned an arbitral award through the court’s curative jurisdiction, has profound implications for the arbitration landscape in India. This case attempts a delicate balance between ensuring justice and preserving the autonomy of the arbitration process. As we delve into this landmark decision, it is necessary to examine its potential long-term impact on arbitration in India and beyond.

In 2008, Delhi Metro Rail Corporation Ltd. (DMRC) and Delhi Airport Metro Express Private Limited (DAMEPL) entered into a concession agreement granting DAMEPL the rights to design, construct, operate, and maintain the Airport Metro Express Line in New Delhi. The project became operational in February 2011, but by March, DAMEPL invited DMRC to undertake a joint inspection of the viaduct and its bearings before the expiry of the defect liability period of the civil contractors. In March 2012, DAMEPL requested DMRC to consider deferring the payment of the concession fee due to delays in the handover of stations by DMRC. By July, DAMEPL stopped operations citing safety concerns and served a notice to DMRC listing defects to be cured within 90 days. In October 2012, DAMEPL formally terminated the concession agreement, citing DMRC’s failure to rectify defects. DMRC initiated arbitral proceedings in August 2013, and a three-member Arbitral Tribunal was constituted.

In May 2017, the Arbitral Tribunal ruled in favor of DAMEPL, awarding substantial compensation, including termination payments, operating expenses, and refunds of security deposits. DMRC challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, but the Delhi High Court’s single judge upheld the award in 2018, maintaining that it was reasonable and plausible. In 2019, a Division Bench of the Delhi High Court set aside the arbitral award, declaring it perverse and patently illegal. In 2021, the Supreme Court reinstated the award. Eventually, in 2024, the Supreme Court delivered a final judgment, through a curative petition,  upholding its decision to overturn the arbitral award, emphasizing the need to correct gross miscarriages of justice.

The Supreme Court’s use of curative jurisdiction is central to this case. Article 142 of the Indian Constitution grants the court inherent powers to do complete justice. In Rupa Hurra v. Ashok Hurra, the Court established that curative petitions could prevent abuse of process and correct gross miscarriages of justice; however, it ought to be treated as a rarity. The DMRC vs. DAMEPL ruling underscores this principle to some extent but also attempts the precarious balance between ensuring justice and maintaining the finality of arbitral awards.

Exercising curative jurisdiction in arbitration cases has its own pros and cons. On one hand, it serves as a critical tool to rectify judgments that result in a miscarriage of justice, ensuring fairness even after all appeals have been exhausted. On the other hand, the ruling introduces uncertainty, as parties may now anticipate potential judicial intervention even after the conclusion of the arbitral process. Moreover, while the Supreme Court’s intervention emphasizes the need for arbitrators to be meticulous in their reasoning, thereby enhancing the quality of arbitral awards, excessive judicial intervention risks undermining the finality of arbitral awards which is a cornerstone of arbitration that attracts parties seeking swift and decisive resolutions.

Let us juxtapose this law relating to judicial review of arbitral awards in India with the law relating to judicial review of arbitral awards in other countries.

United States:

In the United States, the Federal Arbitration Act (FAA) strictly limits judicial review of arbitration awards. The seminal case Hall Street Associates, L.L.C. v. Mattel, Inc.[i] (2008) reinforced that courts could not expand the grounds for review beyond those explicitly stated in the FAA, thereby preserving the autonomy of arbitration.

United Kingdom:

In the United Kingdom, the Arbitration Act 1996 allows for broader judicial intervention in cases of serious irregularity affecting the tribunal, the proceedings, or the award. The case of Lesotho Highlands Development Authority v. Impregilo SpA (2005) demonstrated the UK courts' readiness to correct fundamentally flawed awards, similar to the Indian Supreme Court’s approach in DMRC vs. DAMEPL.

France:

French arbitration law, particularly under the Code of Civil Procedure, maintains a balance between autonomy and judicial oversight. French courts generally respect the finality of arbitral awards, but they will intervene in cases where the award is contrary to public policy, lacks impartiality, or if the arbitral tribunal exceeded its mandate.

Singapore:

Singapore's International Arbitration Act, along with the Arbitration Act, provides for limited judicial intervention, focusing on procedural integrity and public policy. The case of PT First Media TBK v. Astro Nusantara International BV and Ors. (2013) highlighted Singapore's cautious approach to intervention, ensuring that arbitral awards are respected unless they violate fundamental principles of justice.

Hong Kong:

Hong Kong follows a similar approach under the Arbitration Ordinance, where the courts respect the finality of arbitral awards. Judicial intervention is limited to instances of serious procedural irregularity or when the award violates public policy, as seen in the case of Gao Haiyan v. Keeneye Holdings Ltd. (2011).

From this, it appears that the laws and precedents of the United Kingdom regarding judicial review of arbitral awards are comparable to those of India. In contrast, the laws and precedents of Singapore, the United States, Hong Kong, and France provide robust protection to arbitral awards and maintain their finality more effectively.

Here are some key impacts of DMRC vs. DAMEPL Judgment:

Heightened Scrutiny: Arbitrators will face increased scrutiny, ensuring that awards are well-reasoned and free from fundamental errors. This could elevate the standards of arbitral proceedings in India.

Judicial Oversight: While the ruling underscores the importance of judicial oversight, it necessitates a balanced approach to avoid undermining the arbitration process’ efficiency and attractiveness.

Arbitration Preference: Parties may become hesitant to opt for arbitration, fearing prolonged litigation and judicial interference, which could lead to a preference for traditional litigation.

Legal Precedents: The judgment sets a precedent for future cases, influencing how courts interpret and intervene in arbitration awards, particularly concerning curative jurisdiction.

Institutional Arbitration: The ruling could prompt a shift towards institutional arbitration, where established arbitration institutions provide greater oversight and ensure adherence to best practices, thereby reducing the need for judicial intervention.

Mediation as an Alternative: Mediation and conciliation, especially for high-value disputes, may provide a less adversarial and potentially quicker resolution method. We may see the focus shifting from mere arbitration to Med-Arb or Med-Arb-Med.

The government of India’s recent guidelines for arbitration and mediation in contracts of domestic public procurement, issued in June 2024, further highlight the evolving landscape of dispute resolution in the country. These guidelines stress the importance of speed, convenience, and finality in arbitration while addressing the unique challenges faced by government entities. They also indirectly discourage opting for arbitration as a method of dispute resolution in public procurement by the government.

The Supreme Court’s judgment in DMRC vs. DAMEPL, coupled with the recent guidelines on arbitration and mediation, has undeniably shaken up the Indian arbitration landscape. While the intention behind the judgment—to correct gross miscarriages of justice—is commendable, the decision has also sparked concerns about the future of arbitration in India. This case highlights a critical issue: the thin line between necessary judicial oversight and overreach.

Critics argue that excessive judicial intervention, as seen in this case, risks undermining the very foundation of arbitration, which is built on the principles of finality and efficiency. Parties seek arbitration to avoid the drawn-out processes and unpredictability of traditional litigation. However, if judicial interference becomes a norm rather than an exception, the attractiveness of arbitration as a swift and decisive dispute resolution mechanism could be severely compromised.

The new government guidelines, emphasizing mediation and the speed and finality in arbitration, are a step in the right direction. However, they also subtly discourage the use of arbitration in public procurement, hinting at a preference for alternative methods. This could be seen as a reaction to the unpredictability brought about by judicial interventions like those in the DMRC vs. DAMEPL case.

Looking ahead, India faces a critical juncture. If it is to become a global arbitration hub, it must strike a delicate balance: ensuring justice and accountability without stifling the autonomy that makes arbitration appealing. The future of Indian arbitration hinges on this balance. Stakeholders must work together to create an ecosystem where arbitration remains a preferred choice for dispute resolution. It’s a daunting task, but with careful navigation and adherence to both global standards and domestic realities, India can rise to the occasion.

As Mahatma Gandhi said, “The future depends on what you do today.” The evolving landscape of Indian arbitration requires thoughtful action and strategic planning. With perseverance and a commitment to justice, India can build a balanced and robust arbitration framework that truly stands out in the global arena.

About the author: Rishabh Gandhi is an Arbitration lawyer and former trial court Judge. Gandhi is also the founder of Rishabh Gandhi and Advocates.

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