DELHI AIRPORT METRO EXPRESS PVT. LTD v. DELHI METRO RAIL CORPORATION LTD

2.2 The arbitral tribunal was called upon by the parties to decide whether there was a breach of the Concession Agreement A B C D E F G H 988 SUPREME COURT REPORTS [2021] 5 S.C.R. due to the fault of DMRC and whether the defects pointed out by DAMEPL were cured within the period specified in the notice dated 09.07.2012. Safety of the AMEL was not an issue that fell for determination by the arbitral tribunal, though DAMEPL had insisted on not continuing operations of the Line citing safety concerns arising from the defects in its structural integrity. It is no doubt true that the Commissioner is the competent authority to determine the safety of the AMEL. It is also beyond cavil that the Commissioner would not have granted permission to restart the AMEL unless it was of the opinion that restarting of commercial operations would not pose a danger to the public. However, the certificate by itself cannot come to the rescue of DMRC to show that the defects pointed out by DAMEPL were cured within the expiry of 90 days from 09.07.2012. The finding of the arbitral tribunal that the defects were not cured is one of fact which cannot be interfered with by the court. [Para 33][1014- C-F]

2.3 The CMRS certificate was relied upon by DMRC before the arbitral tribunal as a strong piece of evidence to support its case that the defects were cured. DMRC did not contend before the tribunal that the CMRS certificate is binding and is conclusive of the defects being cured/effective steps taken to cure the defects. The conditions imposed by the Commissioner relating to speed restrictions and close monitoring of the Line, according to the tribunal, support the contention of DAMEPL that the defects were not fully cured. The issue before the tribunal was whether the defects were cured within 90 days from the notice dated 09.07.2012 and the certificate dated 18.01.2013 is relevant for deciding the said issue. The High Court’s view that the issue of the CMRS certificate being dealt with separately has a bearing on the tribunal’s determination of the validity of the termination notice cannot be accepted. The members of the arbitral tribunal, nominated in accordance with the agreed procedure between the parties, are engineers and their award is not meant to be scrutinised in the same manner as one prepared by legally trained minds. In any event, it cannot be said that the view of the tribunal is perverse. Therefore, the High Court’s opinion that the award A B C D E F G H DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. 989 of the tribunal on the legality of the termination notice is vitiated due to the vice of perversity cannot be accepted. [Para 34][1014- F-H; 1015-A-B]

2.4 The Division Bench referred to various factors leading to the termination notice, to conclude that the award shocks the conscience of the court. The discussion in the impugned judgement amounts to appreciation or re- appreciation of the facts which is not permissible under Section 34 of the 1996 Act. The Division Bench further held that the fact of the AMEL being operated without any adverse event for a period of more than four years since the date of issuance of the CMRS certificate, was not given due importance by the arbitral tribunal. As the arbitrator is the sole judge of the quality as well as the quantity of the evidence, the task of being a judge on the evidence before the tribunal does not fall upon the court in exercise of its jurisdiction under Section 34. On the basis of the issues submitted by the parties, the arbitral tribunal framed issues for consideration and answered the said issues. Subsequent events need not be taken into account. [Para 35][1015-B-E]

2.5 The conclusion of the Division Bench that the award of the arbitral tribunal suffers from patent illegality and shocks the conscience of the court is held to be erroneous. [Para 36][1015- E-F]

2.6 The tribunal focused on two components of Termination Payment, which are ‘Debt Due’, and 130 % of the ‘Adjusted Equity’. The tribunal was correct in holding that the amount of Rs.611.95 crore advanced by DAMEPL’s promoter would qualify for inclusion under the definition of ‘Equity’ on a plain reading of the said definition. Construction of the contract is within the jurisdiction of the tribunal and merely because another view is possible, the court cannot interfere with such construction and substitute its own view. [Para 39][1018-F-G; 1019-A-B]

2.7 The opinion of the tribunal is that the amount of Rs.611.95 crore was an amount advanced by DAMEPL’s promoter which was not disputed by DMRC. The submission advanced by DMRC, that it was only the equity share capital as is understood within the meaning of the Companies Act, 2013 which is liable to be paid by DMRC under Article 29.5.2, was rejected by the A B C D E F G H 990 SUPREME COURT REPORTS [2021] 5 S.C.R. A B C D E F G H Ttribunal. 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. On the other hand, the Division Bench of the High Court relied upon the board resolution dated 16.03.2011 and held that the tribunal ought not to have treated the said amount as ‘Equity’ after the share application money was converted into subordinated debt. After a detailed consideration of the relevant clauses of the Concession Agreement, the High Court held that the tribunal had committed a serious error in its tabulation of ‘Adjusted Equity’ by completely ignoring the evidence on record. [Para 41][1019-G-H; 1020-A-C]

2.8 Even assuming the view taken by the High Court is not incorrect, a possible view expressed by the tribunal on construction of the terms of the Concession Agreement cannot be substituted by the High Court. This view is in line with the understanding of Section 28(3) of the 1996 Act as a ground for setting aside the arbitral award. No case has been made out by the High Court to establish violation of Section 28(3). Having carefully examined the Concession Agreement, the findings recorded by the tribunal and the findings recorded by the Division Bench, it cannot be held that the opinion of the tribunal on inclusion of Rs.611.95 crore under ‘Equity’ is a perverse view. It cannot be said that the tribunal did not consider the evidence on record, especially the resolution dated 16.03.2011 passed by DAMEPL’s board of directors. Also, there is no fault with the approach of the tribunal that the understanding of the term equity as per the Companies Act, 2013 is not relevant for the purposes of determining ‘Adjusted Equity’ in light of the express definition of the term in the Concession Agreement. The support placed by the Division Bench on the interpretation of Section 28(1)(a) of the 1996 Act as adopted in Associate Builders’s case is, therefore, no longer good law. The findings of the High Court are set aside and the award by the tribunal in respect of the computation of Termination Payment under Clause 29.5.2 is upheld. [Para 42][1020-C-H] DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. 991 Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 : [2014] 13 SCR 895 – held not good law. Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)(2019) 15 SCC 131 : [2019] 7 SCR 522 – referred to.

2.9 As regards the ground of challenge in SLP(c) No. 8311 of 2019, as the participation of DAMEPL in several meetings held after issuance of the termination notice dated 09.07.2012 and its decision to continue operating the AMEL was without prejudice, the tribunal rejected the submission of DMRC that the doctrine of waiver applied and that DAMEPL was estopped from terminating the Concession Agreement after having actively participated in the process of rectifying the defects pointed out. The Division Bench of the High Court approved the said finding on the ground that the decision of the tribunal could not be held to be flawed within the limited scrutiny afforded to courts under Section 34 of the 1996 Act. The Division Bench of the High Court rightly refrained from interfering with the findings on waiver by the tribunal. The prayer for a direction to DAMEPL for specific performance of its obligations under the Concession Agreement to operate the AMEL was refused by the tribunal. The Division Bench of the High Court in its judgment observed that the said findings had not been challenged before the High Court. Therefore, there is no reason for this Court to adjudicate on the point of specific performance of the Concession Agreement. [Para 43, 44][1021-B-E]

2.10 The tribunal awarded interest in accordance with the terms of the Concession Agreement on termination payment. DMRC contended before the High Court that the award in respect of interest had to be set aside on the ground that it would result in unjust enrichment. After a thorough consideration of Article 29.8 and Article 36.2.6.1 of the Concession Agreement, the High Court has rightly refused to interfere with the findings by the tribunal relating to interest and there is no cause for interference. The judgment of the Division Bench of the High Court is set aside. [Para 45, 46][1021-E-G] A B C D E F G H 992 SUPREME COURT REPORTS [2021] 5 S.C.R. A B C D E F G H State of Rajasthan v. Puri Construction Co. Ltd. and Another (1994) 6 SCC 485 : [1994] 3 Suppl. SCR 616 – referred to. Case Law Reference (2020) 2 SCC 455 [2012] 4 SCR 122 relied on relied on [2019] 7 SCR 522 referred to [1993] 3 Suppl. SCR 22 referred to [1994] 3 Suppl. SCR 616 referred to Para 23 Para 23 Para 23 Para 26 Para 35 [2014] 13 SCR 895 held not good law Para 42 CIVIL APPELLATE JURISDICTION : Civil Appeal No.5627 of 2021. From the Judgment and Order dated 15.01.2019 of the High Court of Delhi at New Delhi in FAO (OS) (COMM) No.58 of 2018. With Civil Appeal No.5628 of 2021. Tushar Mehta, SG, Harish N. Salve, J. J. Bhatt, P. S. Narsimha, Parag Tripathi, Ajit Sinha, Sr. Advs., Ms. Anjali Chandurkar, Mahesh Agarwal, Ms. Megha Mehta, Nishant Rao, Biswabara Dash, E. C. Agrawala, Tarun Johri, Advs. for the appearing parties. The Judgment of the Court was delivered by L. NAGESWARA RAO, J. Leave granted.

#1. Whether in exercise of its power under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter, ‘the 1996 Act’), the Division Bench of the Delhi High Court was right in interfering with the award dated 11.05.2017 passed by the Arbitral Tribunal in favour of the Appellant -Delhi Airport Metro Express Pvt. Ltd. (hereinafter, ‘DAMEPL’ or the ‘Concessionaire’), is the question that arises for consideration in these Appeals.

#2. Delhi Metro Rail Corporation Ltd. (hereinafter, ‘DMRC’), a joint venture of the Government of India and the Government of National DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 993 Capital Territory of Delhi, proposed implementation of the Airport Metro Express Line project in New Delhi, from New Delhi Railway Station to Dwarka Sector 21 via Indira Gandhi International Airport, New Delhi (hereinafter, ‘AMEL’). The approximate length of the project was 22.7 kilometers. It was decided to develop the project by engaging a concessionaire for financing, design, procurement, installation of all systems (including but not limited to rolling stock, overhead electrification, track, signaling and telecommunication, ventilation and air conditioning, automatic fare collection, baggage check-in and handling, depot and other facilities). DMRC had to undertake design and construction of basic civil structure for the project, which was in the nature of a public private partnership.

#3. The bid of a consortium comprising Reliance Energy Limited (renamed as Reliance Infrastructure Limited) and M/s Construcciones y Auxiliar de Ferrocarriles, S.A. was accepted by DMRC, by issuing a letter of acceptance on 21.01.2008. Thereafter, on 25.08.2008, a Concession Agreement was entered into between DMRC and DAMEPL for design, installation, commissioning, operation and maintenance of the AMEL. It was agreed between the parties that all civil works as well as appointment of consultants, land acquisition and other clearances from the Government and other authorities have to be obtained by DMRC and the design, supply, installation, testing and commissioning of various systems like rolling stock, power supply, overhead equipment, signalling, track system, platform, screen doors, ventilation, architectural finishing etc. were to be provided by DAMEPL. As the work could not be completed in time, extensions were granted and finally, safety clearances were obtained from the Commissioner of Metro Railway Safety (hereinafter, the ‘CMRS’ or ‘Commissioner’) on 10.01.2011. The date of commercial operation was achieved on 23.02.2011.

#4. On 22.03.2012, DAMEPL requested DMRC for a joint inspection of viaduct and its bearings before expiry of the defect liability period of the civil contractors. Another letter was written by DAMEPL on 23.05.2012, complaining of issues relating to the design and quality in the installation of viaduct bearings. It was mentioned in the said letter that there were signs of girders having sunk at some locations as a result of deformations/cracks. DMRC responded to the said letter of DAMEPL on 08.06.2012 by which DAMEPL was informed that inspections were carried out at the locations pointed out by DAMEPL and no bearings A B C D E F G H 994 SUPREME COURT REPORTS [2021] 5 S.C.R. were found damaged. However, DMRC admitted that grouting material filled above/below the bearings was damaged/loosened for which action would be taken to repair them on priority. Due to the said defects, DMRC advised DAMEPL to impose speed restrictions as deemed necessary in the interest of safety.

#5. The Ministry of Urban Development, Government of India convened a meeting of all the stakeholders on 02.07.2012. The views of all the parties relating to the defects were obtained and a Joint Inspection Committee was formed. An interim report was submitted by the Joint Inspection Committee after inspection on 4 th& 5 th July, 2012. Subsequently, DAMEPL stopped operations of the Line on 08.07.2012.

#6. A notice was issued by DAMEPL on 09.07.2012, asking DMRC to cure the defects in DMRC’s works within a period of 90 days from the date of the notice, failing which it shall be treated as a breach having Material Adverse Effect on the Concessionaire under the Concession Agreement. In the said notice dated 09.07.2012, ‘a non-exhaustive list of defects’ was set out by DAMEPL. Thereafter, a number of meetings were conducted between the parties which were attended by SYSTRA, the original design consultant for the viaduct sections. It appears from the record that DMRC had also engaged some other agencies for carrying out the repair work.

#7. DAMEPL issued a notice dated 08.10.2012 terminating the Concession Agreement as, according to it, the defects that were pointed out in the notice dated 09.07.2012 were not cured within a period of 90 days, resulting in an Event of Default under the Concession Agreement. DMRC invoked arbitration under Article 36.2 of the Concession Agreement on 23.10.2012. On 22.01.2013, the Line was restarted with reduced speed after a certificate sanctioning resumption was issued by the Commissioner on 18.01.2013. According to DAMEPL, it agreed to operate the Line only as an agent in public interest and on instructions of DMRC, although DAMEPL’s stance was not accepted by DMRC. DAMEPL stopped its operations on 30.06.2013 and handed over the Line to DMRC on the next day.

#8. At this stage, it is relevant to refer to Article 36 of the Concession Agreement which refers to dispute resolution. Article 36.2.2, read with Article 36.2.3, provides that all disputes, whatsoever arising between the parties, out of, touching upon or relating to construction, measuring, A B C D E F G H DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 995 operation or effect of the Concession Agreement or the breach thereof, shall be settled through arbitration by reference to a sole arbitrator, where the total value of claims do not exceed Rs.1,500,000/-. Beyond this limit, the dispute shall be referred to three arbitrators who will be selected from a panel of engineers with requisite qualifications and professional experience relevant in the field to which the Concession Agreement relates. The panel shall be from serving or retired engineers of government departments or of public sector.

#9. The main issue that arose for determination before the Arbitral Tribunal constituted under the Concession Agreement is the validity of the termination notice dated 08.10.2012. DMRC claimed that the termination notice issued by DAMEPL is illegal, as DMRC had taken various steps honouring its obligations under the Concession Agreement. A direction was sought from the Arbitral Tribunal to DAMEPL to take over operations of the AMEL under the Concession Agreement, and in the alternative, to grant compensation of Rs.3,173 crore with interest of 18% per annum. Further monetary reliefs were sought by DMRC. The claim of compensation sought by DMRC was dependent on the determination of the main issue, i.e., the validity of the termination notice dated 08.10.2012.DMRC also raised an issue on the real motive of DAMEPL to terminate the Concession Agreement. DAMEPL justified the termination as being in conformity with the Concession Agreement and consequently, filed a counter claim seeking an amount of Rs.3,470 crore as termination payment along with interest and further amounts as detailed in the counter claim, on the ground that DMRC did not cure the defects in the civil structure in terms of the cure notice dated 09.07.2012. As DMRC did not comply with its obligations under Article 29.5.1(i), DAMEPL justified the termination notice dated 08.10.2012 and the consequent claim of termination payment from DMRC under Article 29.5.2.

#10. The Arbitral Tribunal formulated the following primary issues for consideration in relation to the termination notice dated 08.10.2012: - “i) Were there any defects in the civil structure of the airport metro line? (ii) If there were defects, did such defects have a material adverse effect on the performance of the obligation of DAMEPL under CA? A B C D E F G H 996 SUPREME COURT REPORTS [2021] 5 S.C.R. (iii) If there were defects in the civil structure, which had a material adverse effect on the performance of the obligations under the CA by DAMEPL, have such defects been cured by DMRC and / or have any effective steps been taken within a period of 90 days from the date of notice by DAMEPL to cure the defects by DMRC and thus were DMRC in breach of the CA as per 29.5.1 (i)?”

#11. In assessing whether the defects pointed out by DAMEPL were cured and/or effective steps to cure them were taken by DMRC within the time stipulated in the notice dated 09.07.2012, the Arbitral Tribunal undertook an in-depth analysis of the defects in the civil structure and steps taken for their repair/rectification. Insofar as the existence of defects is concerned, the Arbitral Tribunal concluded that there were as many as 1551 cracks in 367 girders, i.e., 72 % of the girders were affected by such cracks. Reports of inspections conducted at the behest of DMRC, giving mapping data of the cracks, were relied upon by the Tribunal to hold that such cracks were spread in a large number of girders. The Tribunal referred to the meeting dated 02.07.2012 conducted by the Ministry of Urban Development during which the Managing Director, DMRC expressed his views that the cracks occurred during “lowering” and not during operations. The evidence of Mr. Muls of Systra was considered by the Arbitral Tribunal to hold that they were not sure of the cause of the cracks. On account of such large numbers of cracks in the base slab of the pre-stressed concrete girders in about a year of train operation, coupled with unreliable measurement of crack depth and non- serious inspection of the repairs by an agency appointed by DMRC, the Arbitral Tribunal was of the opinion that these defects adversely impacted the integrity of the structure. As effective steps were not taken within the cure period of 90 days, the Tribunal held that DMRC was in breach of the Concession Agreement, resulting in Material Adverse Effect on the Concessionaire.

#12. As far as twist in the girders were concerned, the Arbitral Tribunal found that there were about 80 girders with twists varying between 10 to 20 mm which had not been rectified and no effective steps were taken to cure the defects in such girders. The defects pointed out by DAMEPL regarding gaps between the shear key and the girder being more than 25 mm and between 10 mm to 25 mm were not addressed and only gaps below 10 mm were addressed by some grinding, detailed A B C D E F G H DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 997 methodology for which was not brought out by DMRC in its evidence, as per the findings of the Arbitral Tribunal. Therefore, the Tribunal concluded that these defects were neither cured nor effective steps taken by DMRC within the cure period up to 08.10.2012, constituting a material breach on the part of DMRC. On the basis of the above findings and findings in relation to other defects, deficiencies and constraints in the civil structure of the AMEL which are not referred to herein, the Arbitral Tribunal concluded that the defects had not been cured within the cure period of 90 days from 09.07.2012 nor had effective steps been taken to cure such defects. Ergo, the termination notice issued by DAMEPL on 08.10.2012 was valid.

#13. Having decided on the validity of the termination notice, the Tribunal went on to consider certain legal issues so as to determine questions around specific performance of the contract, or alternatively, the award of damages and the outcome of the counter claim filed by DAMEPL. One such issue considered by the Arbitral Tribunal was whether the issue of certificate by the Commissioner on 18.01.2013, giving clearance for resuming operations of the AMEL, showed that the defects were duly cured. After examining the certificate issued by the Commissioner, the Arbitral Tribunal held that while the Commissioner had sanctioned resumption of services, certain conditions were imposed, essentially relating to the restriction of speed up to 50 km per hour, which had a material bearing on the prime purpose of the AMEL intended to serve as a high-speed connectivity line. Moreover, the Commissioner himself recognized that the operation of the Line had to be regularly monitored. The subsequent operation of the Line by DMRC was found to be not relevant for determining the validity of the termination notice dated 09.07.2012. The Arbitral Tribunal answered this issue in favour of DAMEPL. On consideration of the counter claim of DAMEPL, the principal issue that came up before the Arbitral Tribunal was on determination of the amount of Termination Payment payable by DMRC under the Concession Agreement. In this regard, the Tribunal had to determine the quantum payable under each component of Termination Payment, one of which was ‘Adjusted Equity’. DAMEPL sought payment of an amount of Rs.3,470 crore as Termination Payment. In this total, an amount of Rs.685 crore, which had been infused by DAMEPL’s promoter, was factored in by DAMEPL for the purposes of calculating ‘Adjusted Equity’. Relying on the relevant clauses of the Concession Agreement, the Tribunal first sought to determine the portion of funds that would A B C D E F G H 998 SUPREME COURT REPORTS [2021] 5 S.C.R. A B C D E F G H qualify as ‘Equity’ under the Concession Agreement, which would then be used for arriving at the figure of ‘Adjusted Equity’. Out of Rs.685 crore which was sought to be slotted under the head ‘Equity’ by DAMEPL, an amount of Rs.611.95 crore was determined to be ‘Equity’ by the Tribunal, on the basis of the evidence produced and the construction of the relevant provisions of the Concession Agreement. Thereafter, the Tribunal worked out ‘Adjusted Equity’ at Rs.983.02 crore and awarded a total amount of Rs.2782.33 crore, along with further interest, as Termination Payment to be made to DAMEPL.

#14. DMRC filed a petition under Section 34 of the 1996 Act for setting aside the award of the Arbitral Tribunal dated 11.05.2017 in the Delhi High Court, which was dismissed by the learned Single Judge of the High Court by a judgement dated 06.03.2018 observing that grounds for interference had not been made out by DMRC. The learned Single Judge held that the findings recorded by the Arbitral Tribunal on facts, law and interpretation of the Concession Agreement were all within the realm of the Arbitral Tribunal and they needed no intervention by the Court exercising its power under Section 34 of the 1996 Act. He was also of the view that the Court cannot substitute its view when there are two views possible and the view taken by the Arbitral Tribunal is a plausible one.

#15. DMRC filed an appeal under Section 37 of the 1996 Act read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (the title since amended to Commercial Courts Act, 2015), challenging the correctness of the judgment passed by the learned Single Judge on 06.03.2018 dismissing the objections filed by DMRC under Section 34 of the 1996 Act. The Division Bench reversed the judgement of the learned Single Judge and allowed the appeal filed by DMRC. The award passed by the Arbitral Tribunal was partly set aside. The parties were left to invoke the arbitration clause for adjudication of the issues that were not decided by the Division Bench. The judgement of the Division Bench dated 15.01.2019 is assailed in these Appeals.

#16. DMRC has also filed SLP (C) No.8311 of 2019 challenging the correctness of the aforesaid judgement of the Division Bench in relation to the issues of grant of interest, waiver of the termination notice due to DAMEPL’s conduct of operating the project for more than five months from 22.01.2013, refusal by the Division Bench to grant relief of DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 999 specific performance of the Concession Agreement and non-consideration of the issue pertaining to the real reason for the termination of the Concession Agreement by DAMEPL. Reasons given by the Division Bench for setting aside the

#17. The Division Bench of the High Court held that the award of the Arbitral Tribunal had recorded two different termination dates. As the Tribunal had based its reasoning on the validity of the termination notice on two different dates leading to confusion and ambivalence as to the termination notice and the date of termination, the award was found to be suffering from the vices of perversity, irrationality and patent illegality. The High Court observed that in deciding the question on defects in the civil structure and whether effective steps were taken to cure the defects, the Arbitral Tribunal had committed serious error by holding, without ‘reason’, that the vital evidence of the sanction granted by the CMRS for resumption of commercial operations of the AMEL and the fact that DMRC had successfully operated the AMEL from 30.06.2013 till the date of the award without any adverse incident were inconsequential. The High Court found fault with the Arbitral Tribunal in virtually negating the certificate issued by the CMRS under the Delhi Metro Railway (Operation and Maintenance) Act, 2002 (hereinafter, ‘the Delhi Metro Act’) and held that the cumulative effect of the findings of the award on this issue ‘shocked the conscience of the court’.

#18. On the issue of Adjusted Equity, while considering the approach taken by the Arbitral Tribunal for computation of the amounts payable under Article 29.5.2, the High Court was of the opinion that the Tribunal’s reasoning was completely flawed and perverse. The High Court ruled that the reasoning adopted by the Tribunal was patently illegal and the conclusion reached after doing so, was one which no reasonable person would have come to. According to the High Court, the treatment of Rs.611.95 crore as ‘Equity’ by the Tribunal, on the ground that such a project could not have been executed with only Rs.1 lakh as equity funded by DAMEPL’s promoter (in terms of share capital), was based on an assumption that the debt-to-equity ratio is commonly 60:40 or 80:20, contrary to the evidence on record. This was held to be an egregious mistake committed by the Tribunal. The High Court also found fault with the award which ignored the resolution passed by the board of directors of DAMEPL on 16.03.2011, by which the amount of Rs. 611.95 A B C D E F G H 1000 SUPREME COURT REPORTS [2021] 5 S.C.R. crore was converted to subordinated debt. The High Court held that ‘Adjusted Equity’ under the Concession Agreement does not contemplate funds recognized as subordinated debt to be treated as ‘Equity’. With respect to the interpretation of the various provisions of the Concession Agreement and the resultant conclusions on ‘Adjusted Equity’, the High Court held that the findings of the Tribunal on this issue were in violation of Sections 28(1)(a) and 28(3) of the 1996 Act, as elaborated in Associate Builders v.Delhi Development Authority1, as contractual provisions had been interpreted in a way no fair-minded and reasonable person would.

#19. In light of the reasons mentioned, the High Court set aside the conclusions of the Arbitral Tribunal on the validity of the termination notice and that Rs.611.95 crore was ‘Equity’ for the purpose of Article 29.5.2 of the Concession Agreement. Consequently, the award of Rs.2,782.33 crore to DAMEPL was set aside. In view of the above findings, the High Court considered the direction for payment of interest to have become infructuous. The High Court felt that it would be inappropriate to hear the parties on the issue of restitution at that stage and granted liberty to the parties to move appropriate applications under the 1996 Act to seek remedies available to them. Contours of the Court’s power to review arbitral awards

#20. The 1996 Act was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also to define the law relating to conciliation and for matters connected therewith, by taking into account the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and the UNCITRAL Conciliation Rules. One of the principal objectives of the 1996 Act is to minimize the supervisory role of courts in the arbitral process. With respect to Part I of the 1996 Act, Section 5 imposes a bar on intervention by a judicial authority except where provided for, notwithstanding anything contained in any other law for the time being in force. An application for setting aside an arbitral award can only be made in accordance with provisions of Section 34 of the 1996 Act. Relevant provisions of Section 34 (as they were prior to the Arbitration and Conciliation (Amendment) Act, 2015) read as under:- 1 (2015) 3 SCC 49 A B C D E F G H DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 1001 “34. Application for setting aside arbitral award. — (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if— (a) the party making the application furnishes proof that— (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or A B C D E F G H 1002 SUPREME COURT REPORTS [2021] 5 S.C.R. A B C D E F G H (ii) the arbitral award is in conflict with the public policy of India. Explanation.—Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. …”

#21. An amendment was made to Section 34 of the 1996 Act by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter, ‘the 2015 Amendment Act’). A perusal of the statement of objects and reasons of the 2015 Amendment Act would disclose that the amendment to the 1996 Act became necessary in view of the interpretation of the provisions of the 1996 Act by courts in certain cases which had resulted in delay of disposal of arbitration proceedings and increase in interference by courts in arbitration matters, which had the tendency to defeat the object of the 1996 Act. Initially, the matter was referred to the Law Commission of India to review the shortcomings in the 1996 Act in detail. The Law Commission of India submitted its 176th Report, recommending various amendments to the 1996 Act. However, the Justice Saraf Committee on Arbitration constituted by the Government, was of the view that the proposed amendments gave room for substantial intervention by the court and were also contentious. Thereafter, on reference, the Law Commission undertook a comprehensive study of the amendments proposed by the Government, keeping in mind the views of the Justice Saraf Committee and other stakeholders. The 246th Report of the Law Commission was submitted on 05.08.2014. Acting on the recommendations made by the Law Commission in its 246th Report, amendments by way of the 2015 Amendment Act were made to several provisions of the 1996 Act, including Section 34. The amended Section 34 reads as under: - “34. Application for setting aside arbitral award. — (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if— DELHI AIRPORT METRO EXPRESS PVT. LTD. v. DELHI METRO RAIL CORPORATION LTD. [L. NAGESWARA RAO, J.] 1003 (a) the party making the application furnishes proof that— A (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation 1. —For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,— B C D E F G H 1004 SUPREME COURT REPORTS [2021] 5 S.C.R. (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2. —For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re- appreciation of evidence. …” 22. A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the 1996 Act is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, 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. (See: Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited.2,Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another3andRashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran4).

#23. For a better understanding of the role ascribed to courts in reviewing arbitral awards while considering applications filed under