Introduction

• It is a landmark judgment of Section 34 of the Arbitration & Conciliation Act, 1996 (A&C Act).

Facts

• The Delhi Metro Rail Corporation (DMRC) who was the Respondent in the case, engaged in a Concession Agreement with a consortium led by Reliance Infrastructure Ltd., known as Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) who was the Appellant in the case.
• While respondent handled the civil structure's design and appellant DAMEPL requested a joint inspection of the viaduct and its bearings before the defect liability period expired, citing concerns about design and installation quality issues.
• Cracks resulting in sunk girders were observed.
• Appellant, interpreting the unaddressed defects as a material breach, terminated the Agreement.
• Respondent invoked arbitration, but the Arbitral Tribunal found respondent's failure to remedy defects within the stipulated time constituted a material breach, validating the appellant's termination notice.
  • The Tribunal awarded Rs. 2,782 Crores plus interest to appellant.
• Respondent sought to set aside the award under Section 34 of the A&C Act alleging patent illegality and violation of public policy.
• The single judge of Delhi High Court dismissed the application, prompting the respondent's appeal under Section 37 of the A&C Act.
• The Division Bench, citing perversity and irrationality, set aside the award due to conflicting termination dates and alternative plausible views.
• The appellant and respondent separately filed Special Leave Petitions before the Supreme Court challenging the Division Bench's judgment.

Issues Involved

• Whether the Division Bench of Hon’ble Delhi HC erred in its judgment by setting aside the award and deviating from the settled principles for interference under Sections 34 and 37 of the A&C Act?

Observation

• The SC meticulously scrutinised the scope of judicial review under Section 34 of the A&C Act, emphasising the Act's primary objective to limit judicial interference in arbitration.
• It stressed a narrow interpretation of grounds for challenging arbitral awards, discouraging courts from re-evaluating facts or law.
• Exceptions were outlined, permitting intervention if the arbitrator's decision was patently unreasonable or if jurisdictional errors occurred.
• Examining the concept of patent illegality, the Court clarified that it must strike at the core of the matter, not being superficial or every legal error.
• The definition of public policy was reiterated, emphasizing the need for a statutory violation to be linked to public policy.
• The Court rejected the Division Bench's judgment, upholding the validity of the termination notice, the CMRS certificate, and the compensation awarded to appellant.
• SC criticized the Division Bench for dual errors, namely re-evaluating facts and substituting its views, ultimately setting aside the Division Bench's judgment and reinstating the arbitral award in favor of appellant.
• The SC's decision underscores the importance of restricting court interference under Section 34, reinforcing the limited grounds for challenging arbitral awards.

Conclusion

• SC allowed the appeal and set aside the judgment of the Division Bench of Delhi HC.