Delhi High Court upholds arbitral award exempting Delhi Airport from fee payments during COVID

The Delhi High Court on Friday upheld an arbitral award in favor of Delhi International Airport Limited (DIAL), exempting it from paying annual fees (AF) to the Airports Authority of India (AAI) during the COVID-19 pandemic. .Justice Dinesh Kumar Sharma also affirmed the extension of the Operation, Management, and Development Agreement (OMDA) term by two years, citing the unprecedented impact of the pandemic on aviation operations.."It is a matter of common acknowledgement that during Covid, it had materially and adversely effected the function of the business. The learned arbitral tribunal (AT) taking into account the terms of the contract and the trade and usages along with the commercial sense has taken a holistic view in extending the tenure of the contract. The findings of the learned AT are based on these facts, and the Court does not find any perversity in them," the Court said..The dispute arose from the financial strain caused by the COVID-19 pandemic, which severely disrupted aviation operations worldwide. DIAL, the operator of Indira Gandhi International Airport (IGIA), invoked the force majeure clause under the OMDA, seeking relief from its obligation to pay AAI 45.99% of its revenue as annual fees. DIAL argued that the pandemic coupled with government-imposed travel restrictions, led to a drastic reduction in air traffic and passenger movement, rendering it unable to meet its financial obligations.However, AAI contested DIAL's invocation of force majeure, arguing that the pandemic did not meet the contractual conditions required to trigger the clause. AAI further contended that DIAL had continued to pay the fees during the initial months of the pandemic, demonstrating its ability to meet its obligations..In its award dated December 21, 2023, the Arbitral Tribunal (AT) ruled in favor of DIAL, holding that the COVID-19 pandemic constituted a force majeure event under the OMDA. The AT found that the pandemic had materially and adversely affected DIAL's ability to generate revenue since operational expenses exceeded income during the relevant period. The tribunal also noted that DIAL was legally obligated to continue operating the airport despite the financial strain, making it impossible to fulfill its payment obligations to AAI.The AT excused DIAL from paying the Annual Fees for the period from March 19, 2020 to February 28, 2022 and extended the OMDA term by two years to compensate for the disruption caused by the pandemic..The AAI filed a petition under Section 34 of the Arbitration and Conciliation Act challenging the arbitral award. .The High Court upheld the arbitral award, rejecting AAI's petition to set aside the decision. The Court emphasized that the arbitrator's interpretation of the contract was plausible and based on a thorough examination of the evidence. The Court noted that the pandemic had caused an unprecedented decline in air traffic and passenger movement and it severely impacted DIAL's revenue streams."The various notifications issued by the Government from time to time, restricting and suspending air travel to curb the pandemic has also be taken into account. In this regard, even the AAI annual report displayed the material adverse effect of Covid-19 and the same was duly considered by the learned AT," the order said. .The Court agreed with the arbitral tribunal's finding that the COVID-19 pandemic qualified as a force majeure event under the OMDA. The pandemic had materially and adversely affected DIAL's ability to generate revenue, fulfilling the conditions set out in Article 16 of the OMDA, it concluded."The Court considers that the purpose of the force majeure clause in any contract, is to prevent the parties from suffering undue losses. The purpose is that the business under the contract should continue and may not be put to an end.... In a situation where the closure of the Airport was not an option and the expenditure was more than the revenue earned, the learned AT has rightly held that DIAL had to be excused from the payment of AF," the judgment said..Hence, the Court upheld the AT's decision to extend the OMDA term, finding that it was a reasonable and commercially sensible solution to compensate DIAL for the period during which it was unable to operate the airport at full capacity due to the pandemic.."This communication occurred when COVID-19 had just begun, and at that time, the full scope of its impact was unknown. Even the best scientists and economists were uncertain about the pandemic‘s longterm effects. The world was in the early stages of trying to manage the situation, and it was unimaginable that its effects would last as long as they did. At the time, AAI reasonably assumed that the impact would be short-lived, likely continuing only until June 2020, and thus accommodated the DIAL. However, it is now widely recognized that the pandemic lasted far longer than anticipated," the Court ruled. .It thus upheld the arbitral award and dismissed the Section 34 petition filed by the AAI. .AAI was represented by Solicitor General Tushar Mehta and Additional Solicitor General Raghavendra P Shankar with advocates Karan Lahiri, Prateek Arora, Neelabh Bist, Rishieka Ray and Pallavi Misra,.DIAL was represented by Senior Advocates Parag Tripathi and Raj Shekhar Rao with advocates Rishi Agarwala, Apoorv P Tripathi, Dheeresh Kumar Dwivedi, Manu Krishnan, Daksh Arora and Nikhil..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.