Delhi HC sets aside arbitration award directing DMRC to pay over Rs 2700 crore to Reliance Infra unit

The Delhi High Court has partly set aside an arbitration award directing state-owned Delhi Metro Rail Corporation (DMRC) to pay over Rs 2700 crore to a unit of Reliance Infrastructure Ltd for breach of an agreement between them..“We would, therefore…completely set aside the Award except to the extent we have upheld the conclusion of the Arbitral Tribunal on the question of waiver”, the Court has held..The matter will be adjudicated afresh if either the DMRC or the Reliance Infratel Unit invoke and initiate arbitration proceedings on their dispute..The judgment was pronounced by a Division Bench of (now Supreme Court Judge) Justice Sanjiv Khanna and Justice Chander Shekhar in an appeal preferred by DMRC against an order of a Single Judge Bench upholding the said award..In March 2018, a Single Judge Bench of Justice Sanjeev Sachdeva had dismissed DMRC’s objections under Section 34 of the Arbitration and Conciliation Act, 1996 and upheld a May 2017 arbitration award which directed DMRC to pay over Rs 2700 crore to Reliance Infrastructure’s Unit, along with interest, for breach the agreement between them for construction, operation and maintenance of the Airport Metro Express Line project..This agreement was terminated by the Reliance Infra’s Unit, Delhi Airport Metro Express Pvt. Ltd (DAMEPL), on October 8, 2012. The company’s grievance was that DMRC failed to honour its obligation to cure defects in the civil structure of the project, which in turn severely affected the performance of DAMEPL under the agreement..Subsequently, DAMEPL invoked Article 29.5.1 of the agreement and called upon DMRC to pay the “termination amount”..As the dispute escalated and the conciliation attempt failed, the matter was referred to arbitration. Through its award, the tribunal directed DMRC to compensate DAMEPL for hindering its performance in the Airport Express project as per the agreement..The said award was challenged by DMRC before the Delhi High Court, and was upheld by the Single Judge Bench. Aggrieved by the order, DMRC moved the High Court in appeal..Setting aside the award, the Division Bench observed,.“….we would hold that the impugned Award suffers from perversity, irrationality and patent illegality in the face of the Award in the form of confusion and ambivalence as to the termination notice and the date of termination.“.The Court further recorded that the arbitral tribunal had “ignored and did not consider vital evidence” while deciding the question of “civil structure faults” and in holding that no effective steps to cure the defects were taken by DMRC..Finding that the award had “shocked the conscience of the Court”, it was decreed,.“Findings of the Arbitral Tribunal on “Termination for DMRC’s Event of Default” under Article 29.5 of the CA (the agreement) are set aside and quashed…In view of the above, Award of Rs.2782.33 crores to DAMEPL under Article 25.2 as termination payment under Article 29.5.2 on “DMRC Event of Default” including the finding of Rs.611.5 crores should be treated as equity in adjusted equity, is set aside and quashed.”.The Court, however, refused to interfere with the tribunal’s finding that DAMEPL’s conduct during the dispute was inconsequential and did not amount to waiver of the right to terminate the agreement..DMRC was represented by Additional Solicitor General PS Narasimha and Senior Advocates Parag Tripathi and Ajit Kumar Sinha, along with Advocates Tarun Johri, Ankit Saini, Srinivasan Ramaswamy and Athira G Nair..DAMEPL was represented by Senior Advocate P Chidambaram with Advocates Rishi Agrawala, Megha Mehta Agrawal and Nishant Rao..Read the Judgment: