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TMI Blog2019 (1) TMI 2058X X X X Extracts X X X X X X X X Extracts X X X X ..... ct upholding the award dated 11th May, 2017 passed by the Arbitral Tribunal. 2. DMRC is a state-owned company with equal participation from the Government of India and the Government of National Capital Territory of Delhi. 3. The respondent, Delhi Airport Metro Express Private Limited ('DAMEPL', for short), is a company incorporated as a special purpose vehicle by the consortium of M/s Reliance Infrastructure Limited and M/s Construcciones Y Auxiliar de Ferrocarriles SA, Spain ("consortium", for short). 4. The consortium were successful bidders in the international competitive bidding process for construction, operation and maintenance of the Delhi Airport Metro Express Line ("AMEL", for short) based on Public- Private Partnership model for providing high speed metro connectivity with maximum speed of 120 Kms per hour between New Delhi Railway Station and Indira Gandhi International Airport, T-3 Terminal with further line till Section-21 at Dwarka with underground section of 15.7 Kms and elevated viaduct section of 7 Kms. 5. On 25th August, 2008 Concessionaire Agreement ('CA', for short) was signed and executed between DMRC and DAMEPL. 6. DMRC had undertaken cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjacent areas, advertisements, vending machines etc. As per the terms, the concessionaire was required to carry out an independent study to assess the revenue likely to be generated from traffic and non-fare revenue sources and prepare their own business model. The business plan was not a part of the CA. As per DMRC business plan prepared by DAMEPL had indicated losses for first five years and surplus earnings thereafter. 13. Based on the business model, DAMEPL had quoted annual concessionaire fee of Rs. 51 crores to be paid to DMRC with escalation of 5% (cumulative) per year till termination. Requirement of payment of annual concessionaire fee as stated by DAMEPL was incorporated in Article 8.2 of the CA and became a binding term. 14. DAMEPL had paid concessionaire fee of Rs. 51 crores for the first year of operation i.e. for the period from 23rd February, 2011 to 22nd February, 2012. Thereafter, they did not pay concessionaire fee. 15. DAMEPL by letter dated 20th April, 2012, had requested DMRC to defer payment of concessionaire fee for five years due to financial constraints. In this letter while accepting that AMEL had been running without glitches since 23rd February, 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which repair action had been taken on priority. DAMEPL was asked to impose speed restrictions as deemed necessary in interest of safety. 18. The Ministry of Urban Development had thereupon convened a meeting of stakeholders on 2nd July, 2012 and a Joint Inspection Committee ("JIT", for short) was set up. JIT had inspected the site on 4th and 5th July,2012 and submitted their report, which was signed by representatives of DMRC and DAMEPL. 19. DAMEPL by their letter dated 6th July, 2012 to DMRC had expressed their intent to stop the operations with effect from 8th July, 2012 on the ground that the line was unsafe to operate. Operations were stopped by DAMEPL with effect from 8th July, 2012. 20. On 7th July, 2012, in the second round of meeting held with the Ministry of Urban Development, it was envisaged that joint inspection would be completed by 15th July, 2012. DAMEPL had also agreed to repair viaduct bearings. 21. On 9th July, 2012, DAMEPL issued notice setting out a nonexhaustive list of defects, which according to them had created unsafe conditions to operate AMEL and thereby had prevented DAMEPL from performing its obligations as per the CA. DMRC was asked to take all act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, in which various issues pertaining to trial runs were discussed. 28. DMRC claims that on 22nd October, 2012 they had informed DAMEPL that all bearings had been repaired. DAMEPL had then requested that they should be given seven days" notice when they can make a public announcement for commencement of the operations of the line. 29. On 26th October, 2012, it was decided that trial runs would be held on 28th October, 2012 with a stipulation on specific piers that would be observed during the train trial runs. 30. Notwithstanding the aforesaid meetings, on 23rd October, 2012 DMRC invoked the arbitration clause under Article 36.2. However, there was substantial delay in constitution of the Arbitration Tribunal consisting of Mr. H.L. Bajaj, Presiding Arbitrator, Mr. S.S. Khurana, Arbitrator and Mr. A.P. Mishra, Arbitrator, which was constituted on 8th August, 2013. 31. On 19th November, 2012, DMRC and DAMEPL submitted a joint application to CMRS for re-opening of the line with the speed limit of 80 kilometres per hour. This application for inspection had resulted in CMRS asking for details which were supplied by DAMEPL and DMRC. CMRS had thereupon asked for extra load test on 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and restructuring of CA/project. This issue was also deliberated in the second sitting of the Arbitral Tribunal held on 19th October, 2013 in which DAMEPL had stated that at that stage they would not claim for restructuring and if such claim at all subsists or survives, it would be post any decision on the issue of validity of termination or consequential reliefs. Thereupon, the Arbitral Tribunal had recorded that the issue to be determined would relate to termination notice dated 8th October, 2012 issued by DAMEPL and all consequential and cognate claims arising from and relating to termination notice. The Arbitral Tribunal during the course of hearings had passed orders on different applications referring to another arbitration proceeding pending between the parties. Arbitration Tribunal held that in the present arbitration they were not interested to go into the question of fixing responsibility for the defects nor would they entertain such attempt. However, questions relating to cause of defects, their nature, severity and curability were relevant for determination of issues (see paragraph 17 of the Arbitral Award). 37. DMRC had led evidence which included affidavits of Mr. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d). In paragraph 27, reference was made to chronology of events in the form of correspondence written by DAMEPL that had referred to latent or inherent defects. Arbitration Tribunal had thereafter held:- "28. From the aforesaid, it transpires that the notice dated 9" July 2012 is not confined only to defects relating to bearings. It gives a "non-exhaustive" list of the various defects and makes reference to various "latent/inherent" defects as well. DMRC has not only admitted but has also contended and led evidence to show that defects, apart from those relating to bearing assembly, such as cracks at the soffit of the girders, were according to DMRC addressed and repaired. If DMRC was concerned only with the defects in bearing assembly and understood the complaint of DAMEPL as relating only to the bearing assembly, there was no point of DMRC addressing various other defects such as cracks at the soffit of the girders, gaps between the girders and girder and the shear key and twist in girders, etc. The contention of DAMEPL is that some of the said defects which were pointed out by DAMEPL and actually found to exist, which DMRC claims to have remedied, are not cured. A necessary pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wist in all the girders (twist up to 20 mm was left unattended) and girders of suspect integrity were allowed to remain in the network. This constitutes a DMRC Event of Default. DMRC is in breach and this breach has Material Adverse Effect on the Concessionaire (DAMEPL). 3. Gaps between girders and between girders and shear key No action to cure this defect was taken by the claimant (DMRC) during the cure period (09- 07-2012 to 0810-2012). Gaps higher than 25 mm were not rectified. As such, this defect was neither cured nor effective steps were "77. In the light of the aforesaid, it is clear that there were defects in the civil structure of the Airport Metro Line. It is also found that the above mentioned defects, which would have Material Adverse Effect on the performance of the obligations under the CA by DAMEPL, have not been cured within the cure period of 90 days from the date of the cure notice nor have effective steps been taken to cure such defects. 78. Thus, it is concluded that DMRC is in breach of the CA as it has failed to cure the breach or take effective steps for curing the breach within 90days of the notice dated 09.07.2012 from DAMEPL. Such breach has Materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buttal evidence of DMRC or was DAMEPL entitled to disprove the case of DMRC and prove its own case by cross examining the witnesses of DMRC? H Did the issuance of certificate by CMRS show that the defects were duly cured?" 42. Regarding prayer for specific enforceability and performance of CA, it was held that such prayer cannot be granted since DMRC had committed breach of contract having 'material adverse effect' on the ability of DAMEPL to perform the contract which disentitled DMRC to seek performance of CA. Further, specific performance was not permissible under Section 14 (1) (d) of the Specific Relief Act. Section 10 of the Specific Relief Act would not be applicable as this was not a case relating to immoveable property. On issue "B" it was observed that DAMEPL"s participation in the discussions during the period 9th July, 2012 to 8th October, 2012 was immaterial as the CA was in operation and had not been terminated. After the termination notice dated 8th October, 2012, DAMEPL had asserted that it was participating without prejudice to their rights and contentions. Besides DMRC had invoked re-conciliation process under Article 36.1 of the CA. Immediately thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. DMRC had not formally handed over the site to DAMEPL and had only provided the access. Defects in the DMRC"s work were apparent within 12 months of the handing over of the section and DAMEPL had advised the same to the consultant. DAMEPL was not aware of the completion certificate issued to the civil contractors effective from 30th September, 2010. "Built drawings" were not provided to DAMEPL till much after the cure notice dated 9th July, 2012. There was no document to show that there was formal handing over of the site by DMRC and taking over by DAMEPL. 45. With regard to issues F, G and H, we would like to reproduce the findings of the Arbitration Tribunal in entirety:- "F. Issue: Was perceived financial unviability and not the defects in the structure, the real reason of the termination of the OA by DAMEPL? 99. DMRC in its Statement of Claim (Para 47) contends that the action of DAMEPL was nothing else but an attempt on the part of DAMEPL to absolve itself from the obligation under the CA as a result of the financial distress in which DAMEPL had found itself after aggressively bidding for the project. DMRC submitted that the said cause cannot be legal and valid cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has considered the evidence both oral and documentary led by the parties. The Tribunal has also considered the provisions of various applicable codes. We are aware that the provisions of the Arbitration and Conciliation Act, 1996 (Section 19) clarify that the Arbitrators are not bound by the provision of the Indian Evidence Act, 1872. Thus, strict compliance with the provisions of the Evidence Act by the arbitrators is not warranted. However, even if the provisions of the Indian Evidence Act 1872 was to be considered, the judgments cited by DAMEPL support the proposition that it is indeed possible for a party to establish its own case by means of the opponent's witness. In this respect, we quote herein below an extract (page 429) from the judgment of the Karnataka High Court, in the case of Shri. Ramchandra and Ors. Vs Shri Vittal and Other Reported in ILR 2009 KAR (Page 423 to 432) (Compilation of Judgments submitted by DAMEPL on 20.08.2016). "The object of cross examination is twofold. Firstly, to weaken qualify or destroy the case of the opponent. To impeach the accuracy, credibility and general value of the evidence given in chief, to sift the facts already stated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard"s letter no.2012/Proj/AME/1/6 dated 04.01.2013 addressed to CPM/AP/DMRC. (xiii) Apart from routine inspection, operation and maintenance by the Concessionaire, DMRC should also carry out periodical inspection to ensure that the condition to track structure, viaducts etc is commensurate with speed in operation. Further increase of speed in this section beyond 50 (fifty) kmph up to the propose speed of 80 (eighty) kmph may be authorized by Dir/W/DMRC, who accompanied the inspection, in steps of 10 Kmph at the time on satisfactory tram operation in the section for a reasonable period of time and after his personal inspection, satisfaction, certification and after due consideration of items mentioned in para 2 (ix) to (xii) above. Before any increase in the speed, he should satisfy himself about the adequacy and any necessary attention as required with reference to the safety of public carriage of passengers. For increasing the speed beyond 80 kmph, the DMRC shall approach the Commission for sanction with adequate justification in regard to the improvements brought out." 108. From the said letter, it is evident that the CMRS sanction clearly recognizes that rigorous monito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 506.02 crores. 49. The Award has also directed DMRC to pay Rs. 147.52 crores with interest @ 11% per annum from the date of payment of stamp duty on the Award to DAMEPL towards expenses incurred for operating AMEL from 7th January, 2013 to 30th June, 2013 on account of net operating cost of Rs. 39.76 crores and net debt servicing cost of Rs. 107.76 crores. 50. DMRC has been also directed to reimburse Rs. 62.07 crores on account of encashment of bank guarantee of Rs. 55 crores and Rs. 7.07 crores on account of differential commission and penal interest charged by the bank from DAMEPL. DMRC is also directed to reimburse the principal security deposit of Rs. 56.8 lacs along with interest @ 11% per annum, which would accrue from the date of payment of requisite stamp duty on the Award. 51. Some of the other counter claims made by DAMEPL have been rejected on the ground of duplication or principle of remoteness of damages. The claim for refund of the concessionaire fee was also rejected on the ground that it cannot be granted under the CA. 52. For the sake of clarity, we would like to reproduce paragraph 139 of the Award, which summarizes the claims raised and answers given by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ISSUES ON COUNTER CLAIM: Sr No. Issues Answers 1. Whether the Respondent is entitled to sum of Rs. 3470 cr. as Termination Payment along with interest and further interest @ SBI PLR plus 2% per annum as claimed in the Counter Claim? DAMEPL (Respondent) is entitled to the sum of Rs. 2782.33 crores from DMRC. Interest and manner of payment should be as stipulated in Articles 29.8 and 29.9 of CA. 2. Whether the Respondent is entitled to sum of Rs. 166.32 crore including interest on the Principal amount of Rs. 152.59 cr. of claims in Counter Claim? In the affirmative. DAMEPL is entitled to receive the sum of Rs. 147.52 crores from DMRC interest at the rate of 11 percent per annum will accrue from the date requisite stamp duty is paid by DAMEPL. 3. Whether the Respondent is entitled to sum of Rs. 105.74 cr with interest @ 18% per annum as claimed in Counter Claim? In the negative. 4. Whether the Respondent is entitled to an amount of Rs. 66.93 crores with interest @ 18% per annum as claimed in Counter Claim? In the affirmative. DAMEPL is entitled to receive sum of Rs. 62.07 crores. Interest at the rate of 11 percent per annum will accrue from the date requisite stamp du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by DMRC was discharged. INTERIM ORDERS IN THIS APPEAL 55. On the present appeal being preferred, vide order dated 10th April, 2018 the Court disposed of interim application for stay, CM No. 13435/2018, taking letter dated 9th April, 2018 written by the DMRC on record. By the said letter, the DMRC had undertaken and the order dated 9th April 2018 has directed that DMRC would be liable to pay service dues of DAMEPL to its bankers. This order was subject to final outcome of the appeal and in the event of DMRC succeeding, appropriate orders for restitution, etc. would be passed. Thereafter, CM No. 17581/2018 was filed by promoter of DAMEPL, namely, M/s Reliance Infrastructure Limited, which application was subsequently disposed of vide order dated 26th September, 2018 as not pressed since arguments had commenced in the main appeal itself. OBJECTIONS/ SUBMISSIONS 56. Objections raised by DMRC can be divided under the following heads:- (i) Waiver of termination notice by election and conduct. (ii) Validity of termination notice dated 8th October, 2012 and the findings of the Award that the DMRC had not taken effective steps for removal of defects and thereby caused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en discussed by the Arbitral Tribunal under legal issue "B". Their findings are that DAMEPL"s participation during the cure period from 9th July, 2012 to 8th October, 2012 was inconsequential and would not amount to waiver. Subsequent participation of DAMEPL in the discussions, submission of papers to CMRS and operation of AMEL from 23rd January 2013 till 30th June 2013, after issue of termination notice on 8th October, 2012, was without prejudice. DMRC had invoked the conciliation process under Article 36.1 of the CA. Further, DAMEPL had made substantial investment in the infrastructure of AMEL and, therefore, they were interested in the process being undertaken. Throughout DAMEPL had not relinquished, abandoned, waived or negated the termination notice. Reliance was placed upon the correspondence as per which the DAMEPL had throughout asserted the termination. 60. On behalf of DMRC, it was submitted that to sustain an action based upon contractual right of termination, the termination must be unequivocal in both letter and conduct. In the present case, the conduct was inconsistent with termination and, therefore, doctrine of waiver should have been applied. When a contract is te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked the conciliation process under Article 36.1 of CA followed immediately by invoking the arbitration by DMRC by its letter dated 23.10.2012 (Miscellaneous Application dated 30.10.2013, Pg. 14-15). The subsequent actions of DAMEPL were without prejudice to its rights and contentions as well as without prejudice to the pendency of the arbitral proceedings. Thus, far from "negating" or "nullifying" the termination notice, DAMEPL was insisting upon the same." The aforesaid findings are predicated and founded on the conduct of DAMEPL, including the letters written by them, which had made it clear that their participation in the conciliation proceedings, etc. were without prejudice to their rights. There is force in the contention of DAMEPL that the finding in the Award should not be re-appraised afresh. 63. DAMEPL had also drawn our attention to the DMRC application dated 6th December, 2014 filed before the Arbitral Tribunal for interim direction relying upon Articles 36.2.4 and 36.3.3 of the CA for directing DAMEPL to operate and maintain AMEL and the assets till the arbitration proceedings attained finality. The application was opposed. The aforesaid Articles 36.2.4 and 36.3.3 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of affairs arises where the other party has repudiated the contract or has committed a breach if the contract, which entitles the innocent party to bring it to an end, but the latter has made a tender of performance which conform to the terms of the contract. If a party with the knowledge of the fact, which has given rise to repudiation, acts in a manner consistent only with treating the contract as still alive, he is taken in law to have exercised his election to affirm the contract. The election must be unequivocal. 66. The conduct of DAMEPL in commencing operations from 22nd January, 2013, notwithstanding the earlier termination vide notice dated 8th October, 2012, would indicate their intent and desire to find an amicable solution and resolve financial unviability as stated in communications dated 20th April, 2012 and 24th September, 2012 expressing DAMEPL"s desire to re-negotiating the terms, but it would be difficult to hold that the decision of the Arbitral Tribunal on the issue of waiver is flawed and can be corrected in limited jurisdiction and scrutiny under Section 34 of A & C Act. Similarly, the contention that use of words "without prejudice" in the communication and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA. However, before issuing termination notice, DMRC was obliged to issue notice in writing to inform the concessionaire of its intent to issue termination notice and grant 15 days time to the concessionaire to make representation against such intended termination notice. Upon expiry of 15 days, whether or not any representation was received, DMRC had sole discretion to issue termination notice. Article 29.1.3 is subject to Article 29.2 and stipulates that the DMRC could issue cure notice for any of the defaults or breaches under the agreement asking the concessionaire to cure the breach or default specified therein. Issue of cure notice would not relieve the concessionaire from liability of damages caused by breach or default or extend the period of the CA. DMRC, however, had right to extend the period during which the concessionaire was required to take reasonable action to cure the defects. We shall subsequently refer to Article 29.4 as this clause is of some significance, when we deal with the question of computation/calculation of termination made in the Award with reference to termination payment payable on "DMRC Event of Default" 71. Article 29.5 deals with "Termination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n; ii) The Co-efficient of Dynamic augmentation (CDA) assumed by the Claimant for longitudinal analysis in the Design Basis Report" iii) The strengthening by the Claimant of all piers having eccentric pier caps by jacketing of reinforced concrete; iv) Non-adherence of the Design by the Claimant, such: a) Non-adherence to design principles; b) Non-compliance to dimensional requirements; c) Non-compliance of material specifications; and d) Method Statements have not been prepared, independently checked, approved and followed; e) Defects in the U-Girder; f) Defects in Pier Caps v) The Claimant failed to ensure adequate gap between the girders and the shear key, which has led to permanent flaw in the civil structure; vi) Twist in girder has led to permanent damage to girder; vii) The cracks in the girder are relatable to inherent defect in the design of the girder." 73. Notice states that DAMEPL had carried out inspections without original and other relevant designs and drawings, which had not been provided by DMRC. Defects in DMRC"s work were not capable of being noticed and identified at the time of taking over due to defaults of latent and inherent nature. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that the Defects could be detected. The Defects being latent/inherent in DMRC Works were not capable of identification at any point of time, including at the lime of providing access of the Site to the Concessionaire for carrying out the Concessionaire's Works. 4.0 DMRC, despite receiving notifications and all necessary and reasonable support from the Concessionaire, has failed to cure the breach of its obligations under the Concession Agreement Including for the cure of the Defects, which have resulted into the DMRC Events of Default. 5.0 A period of 90 (ninety) days has expired since the issue of Notice to cure DMRC Events of Default, and none of the DMRC Events of Default have been cured. 6.0 In view of the above, the Concessionaire hereby terminates the Concession Agreement under Article 29.5.1 of the Concession Agreement. 7.0 The exercise of its rights by the Concessionaire concerning termination of the Concession Agreement under Article 29.5 1 of the Concession Agreement is without prejudice to its rights and remedies available to it under the Concession Agreement, law or in equity. 8.0 As the Concession Agreement is terminated due to the DMRC Event of Default, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Notice to cure DMRC Events of Default." Notice was not specific on failures albeit had simply eluded to latent/inherent defects in DMRC"s work that had not been cured despite notification and DAMEPL"s support. CA was terminated with immediate effect. 75. As per DMRC in terms of Article 29.5.1 DAMEPL should have given 90 days" notice in writing to DMRC setting out its intention to terminate the CA, post and in addition to the cure notice of 90 days to constitute "DMRC Event of Default". For valid termination under Article 29.5.1 the default by DMRC in the form of failure to cure or take effective steps to cure was "upon occurrence and continuation" till the date of termination. The period postulated in Article 29.5.1 was 90 days plus 90 days and then and then alone on DMRC's failure to cure or take effective steps, there would be "DMRC"s Event of Default". Specific emphasis was laid on the words "The Concessionaire may after giving 90(ninety) days notice......upon occurrence and continuation of any of the following events......(i) DMRC has failed to cure such breach or take effective steps for curing such breach within 90 (ninety) days". DMRC also relies upon letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of definition of "Transfer Date" in the CA, we have taken the date of termination i.e. 07.01.2013 as the reference date for the calculation of the "Debt due". XXXXX "130. Prayer (b) of the Counter Claim DAMEPL has contended that after termination of the CA from 07.01.2013, they were asked to run the line which they continued up to 30.06.2013..... Therefore , DAMEPL is entitled to Rs. 147.52 Crores against this counter claim...." ''131. Prayer (c) of the Counter Claim DAMEPL has contended that it has been servicing the debt after handing over of the line on 01.07.2013 to DMRC. In CC-5, it has claimed that an amount of Rs. 104.41 crores have been paid by DAMEPL during the period 01.07.2013 till 30th November, 2013. DAMEPL has further claimed interest from the date of filing claim till the date of actual payment at the rate of 18% p.a. DAMEPL has led the evidence of Ms. Neena Goel who has examined the records and verified the figures. This evidence has not been challenged by DMRC nor any counter evidence led. Tribunal has examined the above claim and is of the view that the interest allowed in the claims at Annexure CC-1 and CC-3 substantially cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and was raised before Arbitral Tribunal. Reference was made to the written submissions filed by the DMRC before the Arbitral Tribunal dated 24th November, 2016, wherein it was submitted:- "35. The issuing of termination notice on 8th October, 2012 itself was against the provision of above mentioned provision of Concession agreement because even if it is assumed that DMRC Event of Default had occurred under CA or was in continuation in the opinion of Respondent, still they were not entitled to terminate the Concession Agreement on 8th October, 2012. They were only entitled to issue 90 days notice for termination." 84. Similar written submissions on the said aspect made before the single Judge, read :- "xxvii. That issuing of termination notice on 8th October, 2012 itself was against the provision of above mentioned provision of CA because even if it is assumed that DMRC Event of default had occurred under CA or was in continuation in the opinion of Respondent, still they were not entitled to terminate the CA on 8th October, 2012." 85. We cannot decide this controversy except by referring to the Award, which does not interpret Article 29.5.1(i) of the CA with specific referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 'material adverse effect' on DAMEPL as defined in the CA. Findings in paragraphs 77 and 78 refer to defects in girders etc. and failure to cure the defects. Speed restrictions were not treated as "material adverse effect". Findings in paragraph 108 on the other hand state that notwithstanding the clearance and statutory certification given by CMRS, the prime purpose of the project was high speed connectivity which was not possible to comply with the speed restrictions. This was not the ground or reason given in either the cure notice or the termination notice. How and why speed restriction would have prevented DAMEPL from performing their obligation in the CA to constitute "material adverse effect" is neither stated nor elucidated and explained by reasoning. The question whether speed restriction as imposed would justify the termination of the CA should have been debated and answered after due deliberation on facts put forth by both sides. Factual assertions and counters were argued before us, but we refrain from making any comments as the Award is silent and has not examined the facts and given reasons. 89. Relevant provisions of the Metro Act read:- "7. Appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon, the axles of any rolling stock, comply with the requirements laid down by the Central Government; and d. in his opinion, metro railway can be opened for the public carriage of passengers without any danger to the public using it. (2) If the Commissioner is of the opinion that the metro railway cannot be opened without any danger to the public using it, he shall, in his report, state the grounds therefor, as also the requirements which, in his opinion, are to be complied with before sanction is given by the Central Government. (3) The Central Government after considering the report of the Commissioner, may sanction the opening of the metro railway under section 14 as such or subject to such conditions as may be considered necessary by it for the safety of the public. MM XXXXX 21. Delegation of Powers - The Central Government may, by notification, direct that any of its powers or Delegation of functions under this Chapter, except power to make rule under section 22, shall, in relation such matters and subject to such conditions, if any, as may be specified in the notification, be exercised or discharged also by the Commissioner." 90. CMRS is appointed under Section 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tificate which shall be signed by the Chief Executive Officer himself. (5) The Chief Executive Officer shall furnish such documents to the Commissioner, as far as possible, at least one month in advance of the stipulated date of inspection." Rule 5: "Contents of documents .-(1) Tabulated details which shall consist of important characteristics of the metro railway or a portion thereof to be opened for public carriage of passengers, and in particular shall include - a) Curve abstract as specified in Form I ; b) Gradient abstract as specified in Form ll ; c) Bridge abstract as specified in Form III ; d) Viaduct abstract as specified in Form IV ; e) Important bridges abstract as specified in Form V ; f) Ballast and permanent way abstract as specified in Form VI; g) Stations and station sites as specified in Form VII; h) Brief particulars of rolling stock as specified in Form VIII ; I) Brief particulars of traction installations as specified in Form IX ; J) power supply installation abstract as specified in Form X ; K) Restricted Over Head Equipment clearances abstract as specified in Form XI ; (l) Electrical crossings over metro railway tracks as specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndi languages. Rule 23: "Opening of a metro railway by the Commissioner. - (1) The Commissioner may also sanction opening of Delhi metro railway for public carriage of passengers, subject to such conditions as he may impose in the interest of the passengers. While giving sanction to the opening of metro railway, he will, however, forward his inspection report to the Central Government: (2) On receipt of the inspection report of the Commissioner, the Central Government may confirm, modify or cancel the sanction given under sub-rule (1) subject to such conditions, alterations or relaxation as may be considered necessary." 92. CMRS performs statutory functions and duties under Sections 9 and 10 of the Metro Act. Under Rule 23 CMRS may also sanction opening of Delhi metro railway for public carriage of passengers. CMRS as the technical expert is vested with authority and power to decide on the safety of the metro tracks/lines, opening and operations of metro tracks/lines and empowered to suspend traffic, close metro line/station and re-open metro line/station previously open to public carriage, etc. 93. Safety of metro line is a matter of public importance and therefore statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion certifies to safety and fitness of repairs that were undertaken for commencement of commercial passenger operations of the AMEL. The Arbitral Tribunal has also obviously erred in not accepting and taking into consideration the factum that the line was operationalized and put to use continuously after DAMEPL had recommenced operations from 22nd January, 2013 till 30th June, 2013. Thereafter, DMRC had continued to operate the line till the Award was pronounced on 11th May, 2017. The fact that speeds were increased from time to time and numbers of trips and passengers had increased were spurned and discarded. During this period of over four years there were no problems, issues and even one accident. This is too obvious and apparent to have been ignored and treated as inconsequential. 97. In view of the aforesaid discussion, the following position emerges:- (i) DAMEPL was incurring losses. (ii) DAMEPL had written to DMRC for deferment of payment of concessionaire fee and re-structuring of the CA. (iii) DMRC had rejected the prayers. (iv) DAMEPL had operated AMEL from 23rd March, 2011 till 8th July, 2012. During this period, there were no accidents and damage to life and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th January, 2013. Thus, the Arbitral Award on the date of termination is ambivalent if not contradictory. (xvii) CMRS certificate was separately dealt with in Ground "H". Arbitral Award holds that sanction/certification by CMRS dated 18th January, 2013 was inconsequential as there was restriction with upper speed limit of 50 KMPH to start with, whereas AMEL was to serve as high speed connectivity line. Further, rigorous monitoring was required. Arbitral Tribunal did not answer legal issue "H"- Did the issuance of certificate by CMRS show that the defects were duly cured? (xviii) Similarly, in Ground "H" it has been held that subsequent operation of the line by DAMEPL and DMRC from 23rd February, 2012 till the date of Award in November,2017 was inconsequential. (xix) Award does not hold that the speed restriction imposed with certification dated 18th January,2012 had "adverse material effect" on DAMEPL"s obligations in the CA. 98. In the light of the aforesaid discussion, we would hold that the impugned Award suffers from perversity, irrationality and patent illegality in the face of the Award in the form of confusion and ambivalence as to the termination notice and the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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,- (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. (2A) An arbitral award arising out of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on no evidence, or the arbitral tribunal takes into account something irrelevant to the decision or ignores the vital evidence in arriving at the decision. This principle would also apply when the finding outrageously defies logic. Arbitration award is perverse and irrational if no reasonable person would have arrived at the same decision. However, the courts must exercise caution and not treat themselves as court of appeal and consequently correct errors of fact for the Arbitrator is the ultimate master of quantity and quality of evidence. Sub-section (2A) states and requires that patent illegality should be appearing on the face of the award. Re-appreciation of evidence is not permitted and should not be undertaken. An award based on little or no evidence which does not measure in quality to a trained legal mind would not be held to be invalid on this score. Under the heading "Justice" it was observed that an award can be said to be against justice, when it shocks the conscience of the Court. Thereafter, the Supreme Court dealt with the concept and ground of "morality" as distinct and separate from "justice". Under the heading "Patent Illegality" reference was made to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In case of equity, "adjusted equity" enhanced to 130% is payable. Expressions debt due, equity and adjusted equity have been defined in the CA and quoted and interpreted below. 103. We must also reproduce Article 29.4 which applies on "Concessionaire"s Event of Default" in which case DMRC is liable to pay an amount equal to 80% of the debt due. No amount is payable on account of equity/adjusted equity to DAMEPL in case of "Concessionaire"s Event of Default". Article 29.4 reads as under: - "29.4 Upon Termination by DMRC on account of a Concessionaire"s event of Default during the Operations Period, DMRC shall pay to the Concessionaire by way of Termination Payment an amount equal to 80% (eighty percent) of the Debt Due. For the avoidance of doubt, the Concessionaire hereby acknowledges that no Termination Payment shall be due or payable on account of a Concessionaire"s Default occurring prior to COD." 104. DAMEPL it is accepted and admitted had applied for and was sanctioned project loans to the extent of Rs. 1508.50 crores and US$ 106000000 by banks and financial institutions. The tripartite escrow agreement dated 24th March, 2009 was executed amongst DAMEPL, the lenders and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also in DAMEPL's claim letter dated 08.07.2013 (CD 17, page 316) * Equity by Promoters towards project of Rs. 685 crores in Annexure CC-1 of the Counter Claim * Net Subordinated Debt from R-lnfra of Rs. 687.90 crores worked out on page 26 of the details submitted by DAMEPL vide letter no. DJK/HM/1208 dtd. 01.12.2014 * Subordinated debt of Rs. 670.77 crores from R-lnfra used for the project assets (DAMEPL's claim letter dtd. 08.07.2013) * Subordinated debt (promoter's contribution) of Rs. 611.95 crores by transfer of Share application dtd. 16.03.2011 (page 55 of the details submitted by DAMEPL vide letter no. DJK/HM/1208 dtd. 01.12.2014.) 125. We have examined the above figures in the light of the provisions in the CA. First question is whether "subordinated debt from the promoters" is covered under the definition of subordinated debt given in the CA. From the definition of subordinated debt given in the CA (reproduced on page 161), it is clear that only such subordinated debts which are advanced or provided by the lenders or the Concessionaire for meeting Concessionaire's Capital Costs and interest thereon as stipulated are to be treated as Subordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available with it. On page 55 of the document submitted on 01.12.2014 on behalf of DAMEPL, an amount of Rs. 611.95 crores appears as "Transfer from share application - BOD Resolution 16th March, 2011". This figure of Rs 611.95 crores also appears at page 35 in the calculations given by DAMEPL vide their letter dated 1.12.2014 quoted above. To support the figure of Rs 73.27 crores (Equity contribution after COD towards project assets), there is no authentic document provided by the Respondent. Therefore, we have decided to consider this amount as equity contribution from the Promoters as this is closest to the COD (23.02.2011). Adjusted equity will be worked out as per the formula given in CA taking this amount (Rs. 611.95 crores) as "Equity". 127. After having decided the equity amount, we proceed to work out the "Adjusted equity" in the manner stipulated in the CA. * Equity funded till COD =Rs.611.95 crores * WPI on Appointed date (August 2008) = 128.90 Appointed date taken as date of signing of Concession Agreement (25.08.2008) as date of financial close / date of commencement of Concession Period is not available in the documents submitted by the parties. * WPI on CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uant to resolution of the Board of Director of DAMEPL passed on 16th March.2011. The resolution though accepted and admitted was not filed and brought on record by DAMEPL. Claim made was therefore contrary to the books, records and even the Board resolution. Ms.Neena Goel, partner of T.R. Chadha & Co., Chartered Accountants, who was produced by DAMEPL to prove the claim in question, in her crossexamination had stated as under:- "Q53. In that case, madam, please justify in law the difference between the figure of equity by promoters as reflected in annexure CC-1 to the counter claim and the audited balance sheet for the year ending 31-03-2013 of DAMEPL? Ans. The figure of equity, I state once again, in the audited balance sheet for the year ended 31-03-2013 is as per Companies Act, 1956, i.e value for which shares have been issued. Regarding the definition of equity and debt as per the Concession Agreement there seems to be a case of interpretation of the definition as given in the Concession Agreement. The wording seems to suggest that subordinated debt may be included in "equity". Therefore I have stated earlier also that this is a matter which needs to be decided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission made by DAMEPL in the balance sheet on equity share capital of Rs. 1.0 lakh which was also the figures mentioned in the DAMEPL"s claim letter dated 8th July, 2013 and earlier letter dated 8th October, 2012. 112. The expressions "equity", "adjusted equity", "debt due", "subordinated debt" and "concessionaire"s capital costs" have been defined in the CA and read as under:- "Equity" means the sum expressed in Indian Rupees representing the equity share capital of the Concessionaire and shall include the funds advanced by any Member of the Consortium or by any of its shareholders to the Concessionaire for meeting the equity component of the Concessionaire's Capital Costs. "Adjusted Equity" means the Equity funded in Indian Rupees and adjusted on the first day of the current month (the "Reference Date"), in the manner set forth below, to reflect the change in its value on account of depreciation and variations in WPI, and for any Reference Date occurring: a) on or before COD, the Adjusted Equity shall be a sum equal to the Equity funded in Indian Rupees and expended on the Project, revised to the extent of one half of the variation in WPI occurring between the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges in relation to accelerated repayment of debt except where such charges have arisen due to Authority Default; and c) any Subordinated Debt which is included in the Financial Package and disbursed by lenders for financing the Total Project Cost; "Subordinated Debt' means the aggregate of the following sums expressed in Indian Rupees or in the currency of debt, as the case may be, outstanding as on the date of termination: a) the principal amount of debt provided by lenders or the Concessionaire for meeting the Concessionaire's Capital Cost and subordinated to the financial assistance provided by the Senior Lenders; and b) all accrued interest on the debt referred to in Sub-clause (a) above but restricted to the lesser of actual interest rate and a rate equal to 5% (five per cent) above the Bank Rate in case of loans expressed in Indian Rupees and lesser of the actual interest rate and six-month LIBOR (London Inter Bank Offer Rate) plus 2% (two per cent) in case of loans expressed in foreign currency, but does not include any interest that had fallen due one year prior to the Termination Date. provided that if all or any part of the Subordinated Debt is convertib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of termination. This means the principal amount of debt owed by the lenders or concessionaires, i.e., the promoters, for meeting the concessionaire"s capital cost and subordinated to financial assistance provided by the senior lenders. It also includes interest on the debt above, but restricted to lesser or actual interest and rate equal to 5% above bank rate in case of loans expressed in Indian rupees and lesser of the actual interest rate and six month LIBOR plus 2% in case of loan in foreign currency. It does not include interest that had fallen due one year prior to the termination date. The last part of the definition of "subordinated debts" states that if all or any part of the subordinated debt is convertible into equity at the option of the promoters of the concessionaire, it shall be deemed to be subordinated debt even after the conversion. The principal thereafter will be dealt with as if conversion had not been undertaken. The expression "concessionaire"s capital cost" means cost of the concessionaire"s works set forth in the financing documents plus any additional capital cost. After COD, the actual capital cost of concessionaire"s work upon project completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, absurd and perverse. These findings of the Arbitral Tribunal are set aside on the ground of irrationality and no reasonable person in the given circumstances would have arrived and reached. Sections 28(1)(a) and (3) of the A&C Act are also attracted as the contractual terms have been completely ignored or misconstrued in a way that no fair minded and reasonable person would do. INTEREST 118. The award under challenge on several claims has awarded interest to DMRC and DAMEPL @ 11% per annum which would accrue from the date of payment of requisite stamp duty. This was in view of the Article 36.2.6.1, which reads as under:- "36.2.6.1 Where the arbitral award is for payment of money, no interest shall be payable on the whole or any part of the money for any period till the date on which the award is made" 119. However, the award has awarded interest @ SBI PLR plus 2% for delay in payment of termination payment, in view of article 29.8 of the C.A., which reads as under:- "29.8 Termination Payments: The Termination Payment pursuant to this Agreement shall become due and payable to the Concessionaire by DMRC within thirty days of a demand being made by the Concessionaire with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest as stated therein i.e. SBI PLR rate plus 2% per annum is payable. Actual interest rate applicable to the concessionaire could be less or even more than the rates specified in Article 29.8. Difference in language of Article 29.8 and interest component to be included in "subordinate debt" as noticed above is perceptible. In latter case, till termination payment becomes due, actual interest payable restricted to an upper limit is payable. Article 29.8 is differently worded and applies on DMRC"s failure to make payment within 30 days after termination payment becomes due. For the same reason it would not matter whether interest free loan or debt was granted. 122. In the written submission filed by the DMRC, they have submitted that no interest should be payable on Rs. 611.5 crores by treating the said amount as subordinate debt, even under Article 29.8. In terms of above reasoning this argument cannot be accepted and must be rejected. Period covered under "subordinate debt" clause and Article 29.8 relating to termination payment has to be dealt with differently. Rate of interest payable is different. Even otherwise, nothing prevents DAMEPL from paying interest to its promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interference in cases of fraud, bias, violation of principles of natural justice etc. but the Court cannot correct errors of arbitration. It can only quash the award leaving the parties to free to begin the arbitration again if they so desire. Court"s interference is, therefore, to be minimum and confined to issues: (i) Whether the award is contrary to the terms of the contract, and therefore, no arbitrable dispute arose between the parties. (ii) Whether the award was in any way violative of the public policy. (iii) Whether the award is contrary to substantive law in India, which would include Sections 55 and 73 of the Contract Act. (iv) Whether the reasons are vitiated by perversity in evidence in contract. (v) Whether adjudication of a claim has been made in respect whereof there was no dispute or difference or whether the award is vitiated by internal contradictions. 127. Supreme Court in this case had also examined the issue of partial award and observed that this expression is not used in the A&C Act. Subsection 6 to Section 31 contemplates an interim award which is not one in respect of which final award can be made but can be a final award on the matters covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration award has been set up under Section 34 about the deficiencies in the arbitral award which may be curable by allowing arbitral tribunal to take such measures which can eliminate the grounds for setting aside the arbitral award. This judgment in paragraph 15 has referred to the decision in Mc Dermott International Inc. (Supra) and has made observations on the assumption, without expressing any opinion on the correctness and application of the principle that an appeal is in continuum of the application under Section 34 of the Act. 129. In R.S. Jiwani (supra), the Full Bench of Bombay High Court while applying the doctrines of severability and partial validity had clarified that the said principles can be applied only when portions of claims/counter claims are capable of being severed and separated from the rest and not when the decisions on issues are inter-connected and bifurcation would alter the scope of the Award. Reference was made to Shin Satellite Public Co. Ltd. versus Jain Studios Ltd., (2006) 2 SCC 628, where the Supreme Court was dealing with the issue whether an arbitration clause could be invoked inasmuch as a particular clause of the agreement was against publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 147.76 crores towards net operating costs from operations between 7th January, 2013 to 30th June, 2013 and net debt servicing costs, Rs. 62.07 crores with interest on account of bank guarantee and bank commission and Rs. 56.8 lakhs with interest for refund of security deposit is liable to be set aside in view of the findings recorded on termination on "DMRC Event of Default". The matter would have to be adjudicated afresh if either DMRC or DAMEPL is to invoke and initiate arbitration proceedings. Our directions for a fresh adjudication would apply to validity or invalidity of non-exhaustive notice dated 9th July, 2012 on which we have made no specific pronouncement as the issue is interconnected and linked with the findings in the Award set aside and quashed by the present judgment. This observation and finding would equally apply to claims of DMRC and counter claims of DAMEPL rejected and dismissed for various reasons/grounds. The award on these aspects will not be treated as binding and final, and these can be made subject matter of fresh adjudication. 131. On the question of restitution and whether any orders or directions are required, we leave it open to the DM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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