Finality Fractured: India’s Arbitration Image Post DMRC v. DAMEPL

Gargi Bindal[1]

Introduction

The Indian jurisprudence has taken commendable steps to establish a pro-arbitration stance. However, the deviation from this pro-arbitration stance has been displayed in SC’s recent judgment, Delhi Metro Rail Corporation v. Delhi Airport Metro Express Private Limited [“DMRC v. DAMEPL”]. This judgment has raised concerns as an arbitral award was set aside at the fifth level of scrutiny by invoking curative jurisdiction. . This concern has become more pronounced following the ruling in Gayatri Balasamy v. ISG Novasoft, where the Supreme Court held that courts possess limited powers to modify arbitral awards under Sections 34 and 37 of the Indian Arbitration and Conciliation Act, 1996. In Gayatri Balaswamy, while the majority recognised instances like severability, clerical errors, and post-award interest modifications, the dissent by Justice Viswanathan strongly cautioned against merit-based intervention, echoing the very apprehensions that surfaced in DMRC v. DAMEPL. This judgment, therefore, both reaffirms and restricts the contours of court involvement, providing new interpretive clarity to the phrase ‘judicial interference’.

Background

In 2008, DMRC awarded the Airport Metro contract to DAMEPL, but disputes led to arbitration. In 2017, INR 3000 crore award was passed in DAMEPL’s favour, eventually set aside by the SC in its curative jurisdiction.  

Stage	Timeline	Description
Stage 1	March 2018	Challenge to the arbitral award Under Section 34 of the Arbitration Act, 1996 ["the Act"], DMRC contested the award before a single judge of the Hon’ble High Court of Delhi ["DHC"]. The DHC rejected the challenge and upheld the arbitral award observing that the award was reasonable and no intervention was necessary.
Stage 2	Jan 2019	Appeal under Section 37 The award passed in favour of DMRC was partially set aside by the Ld. Division Bench of DHC due to patent illegality after DMRC challenged the Judgment passed by the Ld. Single Bench of the DHC under Section 37 of the Act.
Stage 3	September 2021	Special Leave Petition [“SLP”] before SC DAMEPL, aggrieved with the order passed by Ld. Division Bench exercising its jurisdiction under Section 37 of the Act, filed a SLP. The SC upheld the DMRC award, stating that it was neither blatantly unlawful nor perverse.
Stage 4	November 2021	Review Petition before SC DMRC filed a Review Petition which was dismissed.
Stage 5	April 2024	Curative Petition before SC SC allowed the Curative Petition [“CP”] filed by DMRC and set aside the award on the ground of patent illegality.

At the stage of CP, the SC conducted a merit-based evaluation of the award, finding the Tribunal had ignored key evidence and contractual terms. After seven years, it set aside the award, directing DAMEPL to return INR 2800 crores received from DMRC during execution.

Deconstructing the matter

In the DMRC case, the judgment debtor managed to get the award set aside by SC in the exercise of the CP on the grounds of miscarriage of justice and perverse illegality. However, this interpretation overlooks several essential factors being:-

3.1 Jurisdictional Overreach

The CP should not have been allowed in the instant case to overturn the arbitral award, which was upheld after three rounds of litigation. The judgment in Rupa Hurra v. Ashok Hurra outlined two exhaustive grounds for allowing a CP: a breach of natural justice principles or the presence of bias on the part of the judge.  It also introduced the test of ‘manifest injustice’, emphasizing that a CP should only be entertained in rare cases.

In this context, the reasons cited by DMRC for contesting the award in the CP, such as assertions that the defects did not significantly impact obligations under the Agreement and that DMRC had taken practical steps to address the deficiencies, were purely factual in nature and thus outside the inherent power of SC. However, the SC allowed the CP by analysing the facts afresh to conduct a factual analysis, ultimately reaching a conclusion that could be viewed as an alternative perspective. In doing so, the Court exceeded its restricted jurisdiction and overlooked its established precedents, which have consistently upheld that contract interpretation is solely the responsibility of the arbitrator. Further, by applying the test of manifest injustice, the court intervened and deviated from the principles of Rupa judgment.

3.2 Delay in Enforcement

The fifth round of review in the DMRC case contradicts the principle of prompt enforcement of arbitral awards. The parties chose arbitration with the expectation that their case would be resolved quickly. However, the present case compounds the challenges faced by the decree-holder, who remains entangled in multiple rounds of litigation despite receiving a favourable award. The SC, while considering the SLP in the DMRC case, underscored the significance of prompt enforcement of arbitral awards. It duly noted that under Article 136, the interference must be spare and only when exceptional circumstances exist. However, it went against that principle while considering the CP. This brings India back to the position of the White Industries case, whereby despite having the ICC award in favour of White Industries and against Coal India, the award could not be enforced for approximately 10 years. More recently, the Antrix- Devas dispute has similarly highlighted persistent challenge in the enforcement of foreign arbitral awards in India.

3.3  Impact on Business Climate

The DMRC judgment would negatively impact the cost of doing business in India. The SC's observation of not burdening the public utility with significant financial liability is exceptionally flawed because if the public exchequer argument were applied to commercial disputes, private companies would lose trust in Arbitration Such an approach effectively adopts a differential standard of enforcement for public sector undertakings, compromising the neutrality and finality that arbitration is designed to provide. This not only distorts the level playing field between public and private parties but also compromises investor confidence in India’s arbitration framework, as private firms might view arbitration against government entities as inherently biased. This ruling may also deter foreign investors from selecting arbitration seated in India, leading them to prefer arbitration in other jurisdictions in their contracts with Indian Government companies, with the hope of limiting the interference of Indian Courts.

Pro enforcement approach of SC

India has sought to establish itself as a pro-arbitration jurisdiction by reversing infamous decisions such as Venture Global,  Phulchand Exports, and Bhati Case. To emphasise judicial non-interference, several judgments have been delivered- such as Vijay Karia, where the principle of non-interference with foreign awards was upheld. In Vedanta, it was reiterated that minimal judicial intervention should be the objective, while Avitel reaffirmed India’s pro arbitration stance, emphasising the need for limited judicial interference in the enforcement of foreign arbitral awards. The Court set a high threshold for challenging awards based on alleged arbitrator bias and underscored the importance of timely objections and robust enforcement mechanisms in international arbitration. Despite these efforts, the DMRC judgment deviates from India’s pro-enforcement trajectory. The rationale behind such deviation was that the Court concluded that the Tribunal had not properly given due consideration to contractual provisions and important evidence under the concession agreement. This extensive merits review and intervention deviated from contemplated minimal judicial intervention under the Act departed from the prevailing pro- arbitration approach. By allowing such intervention and delay, the judgment risks setting a precedent that undermines the finality of awards, thereby weakening the confidence of investors in India’s arbitration framework.

Comparative analysis with other jurisdictions

While Indian Courts have made significant strides towards a pro-arbitration approach, their practice is still inconsistent, particularly in the case of public policy or claims of procedural infirmity. A comparative analysis helps illustrate the spectrum of judicial mindsets around the world and provides benchmarks for assessing India’s arbitration regime.

5.1  Singapore

The Singapore Courts adopt a narrow and rigorous interpretation of the statutory grounds for setting aside awards. The Pacific Richfield Marine case, encapsulates Singapore's stance by stating that the power to set aside awards should be exercised rarely.  Further, enforcement policy in Singapore is so vigorous that in cases like CHY v. CIA, the Singapore Courts rejected the application to set aside any award even when the award was contrary to Singapore’s Public Policy. This approach reflects the prevailing judicial philosophy of minimal intervention in arbitral awards. However, Indian Courts have shown inconsistent approach with judicial intervention still being a huge concern.

5.2  China

In recent years, China’s arbitration has experienced rapid growth, accompanied by significant efforts to foster a more arbitration-friendly judicial environment. A report analyzing data from 2012 to 2022 indicates that over the past decade, the courts in the People's Republic of China have fully recognized and enforced more than 90% of foreign awards presented to them, with nearly half of these cases being resolved within six months. Compared to India, China has shown a more structure approach towards enforcement of award.

5.3  United Kingdom

The Commercial Court in the United Kingdom generally adopts a non-interference approach to arbitration whenever possible. The Court recognises that the primary aim of the Arbitration Act 1996 is to "significantly reduce the extent of court intervention in the arbitral process." Excessive court involvement undermines the finality of arbitral awards and reduces the effectiveness of international arbitration as a reliable dispute resolution mechanism. As a result, the success rate for applications challenging awards with a seat in London is relatively low, standing at approximately 11% for applications filed in 2019-2020. Judicial Intervention in India is more frequent compared to the UK, impacting its reputation as an arbitration hub.

Conclusion

The SC, by exercising its inherent power under the CP, has defeated the ends of pro-arbitration jurisprudence. The extreme interference of the court in conducting a merit-based analysis of an arbitral award defies the stance of the hands-off approach taken by the court in the last 10 years. Excessive judicial intervention and strict enforcement undermine the efficiency of arbitration and make it into unpredictable traditional litigation. Thereby reducing the trust of private parties and foreign investors in doing business in India. The judiciary has been promoting the culture of commercial arbitration and ought to take inspiration from countries such as Singapore, China, Hong Kong and the United Kingdom to adopt a hands-off approach with minimal judicial intervention. This would help prevent delays like those observed in the DMRC case and ensure the smooth enforcement of arbitral awards.

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[1] Gargi Bindal is a final-year law student at the Institute of Law, Nirma University. She has a keen interest in arbitration law, constitutional law, and commercial law. Gargi has honed her legal research and advocacy skills through participation in prestigious national and international moot court competitions, including the Willem C. Vis International Commercial Arbitration Moot (Vienna), the Herbert Smith Freehills Moot, and the B.R. Sawhney Memorial Moot etc. She can be reached at gargibindal05@gmail.com.