Authors: Srividhya Ragavan* and Niraj Kumar Seth**
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The Government of India has constituted an Expert Committee under the Chairmanship of Dr. T. K. Vishwanathan (hereinafter, Committee), former Law Secretary, to examine the working of the arbitration law in the country and recommend reforms to The Arbitration and Conciliation Act, 1996 (hereinafter, ACA). The Committee recognizes the imminent need to improve the arbitration process and fast-track the enforcement of arbitral awards. The objective is to strengthen India’s stature in the investing community of the globe as a jurisdiction where justice is not denied because it is delayed. Lately, though, the working of the arbitration system in India has tended to mirror and mimic the flaws that plague the Indian judiciary, thus bringing down its stature to the point of redundancy.
A dispute between Delhi Metro Rail Corporation (hereinafter, DMRC) and Delhi Airport Metro Express Private Limited (hereinafter, DAMEPL) involving a unique public-private partnership to construct, operate, and maintain the Delhi Airport Metro Line (hereinafter, Project) serves as one of the many examples that exposes the flaws in India’s arbitration regime. [1] The original agreement between the parties allocated the civil work responsibility to DMRC, while DAMEPL secured the right, through a competitive bidding process, to operate and maintain the Project. The commercial operation of the Project commenced in 2011. Within a year of operation, DAMEPL discovered serious defects in the civil work of the Project, which they alleged constituted a material breach of the agreement. It caused DAMEPL to suspend commercial operations of the Project in 2012 and to issue a notice to DMRC requiring them to cure the identified defects. On failure of DMRC to rectify the defects, DAMEPL issued a termination notice, effective 2013, and claimed termination payment due to them from DMRC for breach of their obligation under the agreement. This triggered DMRC to invoke the arbitration clause in the agreement with a view to challenge the validity of the termination notice.
An arbitral tribunal constituted in 2013, about nine months after the invocation of arbitration, passed the arbitral award (hereinafter, Award) in 2017. The Award was passed after 68 hearings spanning over a period of three years and ten months! The Award upheld the validity of the termination notice and granted consequential relief in favor of DAMEPL, amounting to $563.66 million, out of which $207.57 million was the interest component (using INR/$ exchange rates as of September, 2023). The only step that remained was the execution of the award. This blog captures the inordinate delay in the execution of the Award. It highlights how the delay detrimentally affects dearly required infrastructure projects, deters private investments, dampens India’s ability to manage public-private partnerships, and, finally, showcases how the Indian judiciary can subject investors to a roller coaster ride.
First, the Award was challenged unsuccessfully by DMRC under §34 of ACA, before the Single Judge Bench of the Delhi High Court, which directed them to deposit 75% of the Award amount in an escrow account within a specified time.[2] Second, DMRC filed an appeal under §37 of ACA at the Division Bench of Delhi High Court, raising fresh issues of facts not raised before.[3] The bench set aside the Award in 2019, 20 months after it was passed, on the grounds that it suffered from patent illegality under §34(2A) of ACA. The Court arguably perpetrated a judicial overreach in reaching this conclusion by indulging in either fresh issues of facts or decided questions of law, going against the mandate of §5 of ACA, which specifically limits such judicial intervention. Third, DAMEPL, as the aggrieved party, filed a Special Leave Petition (hereinafter, SLP) in the Supreme Court of India.[4] The Supreme Court upheld the arbitral award in 2021, after 31 months from the date of filing of the SLP petition. The Court held that arbitral awards could not be interfered with and advocated judicial restraint while examining their validity, citing §34, read with §37 of ACA, which mandated a narrow scope for judicial intervention.
The roller-coaster ride to enforce the arbitral award by a private party in a public-private partnership agreement best illustrates how the arbitration regime in India has failed its main purpose of quick resolution of disputes. The delays characterize India as a business-unfriendly jurisdiction and can repel foreign private investors. In fact, nearly ten years after the invocation of arbitration and over six years after the passing of the Award, the case is still lingering in the form of a pending Curative Petition before the Supreme Court, which was filed by DMRC in response to the SLP.[5] During the period between the passing of the Award in 2017 and the filing of the Curative Petition in 2022, the total interest component in the gross Award amount depicted in the figure below, has jumped from $207.57 million to $486.47 million, representing a staggering 234% increase from the principal amount! This comes at the cost of taxpayers’ money that should have been spent more constructively on public welfare, such as improving the infrastructure, instead of squandering on frivolous lawsuits.
Given that DMRC is a joint venture between two of its principal shareholders, the Government of India and the State Government of Delhi, this dispute also exposes the need to curb misuse of the system by government parties for streamlining due execution of arbitral awards in public-private partnerships. The government party, being DMRC, has repeatedly and arguably, unconscionably deployed every possible tactic to delay execution of the Award, ultimately compelling the Delhi High Court, in 2023, to lift the corporate veil of DMRC in order to force the principal shareholders to execute the Award.[6] Indeed, the inordinate delays from judicial appeals opportunities provide a perverse incentive for government parties to delay execution at the cost of public funds and infrastructure projects. The ACA must be amended to narrow the scope of judicial interventions with a view to prevent abusive appeals and to ensure prompt execution of arbitral awards.
Now, the Committee has the burden of (a) establishing statutory limitations to prevent judicial overreach of arbitral awards, (b) clarifying the scope for appeals, and (c) providing for the timely execution of arbitral awards. The Committee should particularly engage on issues involving public-private partnerships to restore India’s image as an investor-friendly jurisdiction.
Cost of Delays in the Dispute
Source: DMRC Cases (all figures in $Million using $/INR exchange rate as of September 3, 2023).
* Srividhya Ragavan is a Professor of Law and director of International Programs at Texas A&M University School of Law. She is an expert in international trade and intellectual property laws. An elected member of the American Law Institute, details of her books and publications can be found at here.
** Niraj Kumar Seth is a legal consultant based in New Delhi, India. He is a graduate in law and commerce from University of Delhi and holds a Masters in Law from the National Institute of Securities Market and Maharashtra National Law University, Mumbai. A longer version of the issue is available at the National Law School of India Law Review here, and will be presented at the National Law School of India University, Bangalore, with a focus on public-private partnerships in India on Dec 7, 2023.
[1] See O.M.P. (COMM.) 307/2017 (Del. 2017); See also FAO(OS) (COMM) 58/2018 (Del. 2019); See also SLP (C) No. 4115 of 2019 (Sup. Ct. 2021).
[2] See O.M.P. (COMM.) 307/2017 (Del. 2017).
[3] See FAO(OS) (COMM) 58/2018 (Del. 2019).
[4] See SLP (C) No. 4115 of 2019 (Sup. Ct. 2021).
[5] See OMP (ENF.)(COMM.) 145/2021 (Del. 2023).
[6] See OMP (ENF.)(COMM.) 145/2021 (Del. 2023).