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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 ..... accorded by the CMRS in the first portion of the Award recorded in the summary of arbitral views in paragraphs 77, 78 and paragraph 115 of the Award. Grant and effect of sanction/permission accorded by CMRS dated 18th January, 2013 was ignored and bypassed. 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 of termination. Most importantly, the Arbitral Tribunal had ignored and did not consider vital evidence of certification for commercial operations accorded by CMRS while deciding the question of civil structure faults and in holding that no effective steps to cure the defects were taken. Reasoning virtually over-rules, negates and rejects statutory certification accorded by CMRS. Arbitral Tribunal without reason has held that the permission accorded and subsequent satisfactory commercial operations were not relevant and inconsequential. Pertinently certification/permission was granted by CMRS after due verification of the civil structure including the defects in girders. Certification by CMRS was binding and its validity was not capable of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n DMRC Event of Default including the finding of Rs. 611.5 crores should be treated as equity in adjusted equity, is set aside and quashed. Direction/award for payment of interest under Article 29.8 would become infructuous. Appeal allowed in part. - HON'BLE MR. JUSTICE SANJIV KHANNA AND HON'BLE MR. JUSTICE CHANDER SHEKHAR For the Appellant : Mr. P.S. Narasimha, ASG, Mr. Parag P. Tripathi Mr. Ajit Kumar Sinha, Sr. Advocates with Mr. Tarun Johri, Mr. Ankit Saini, Mr. Srinivasan Ramaswamy Ms. Athira G. Nair, Advocates. For the Respondent : Mr.P. Chidambaram, Sr. Advocate with Mr.Rishi Agrawala, Ms. Megha Mehta Agrawal Mr. Nishant Rao, Advocates. JUDGMENT SANJIV KHANNA, J.: Delhi Metro Rail Corporation Ltd. ('DMRC', for short) in this intra Court appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ( A C Act, for short) read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 has impugned judgment and order dated 6th March, 2018, whereby the learned single Judge has dismissed objections under Section 34 of the A C Act upholding the award dated 11th May, 2017 passed by the Arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is now known as Metro Railways (Operation and Maintenance) Act, 2002 [hereinafter would be referred to as the Metro Act ]. Clearance was given with conditions and reduced speed limit of 105 kilometers per hour. On 23rd February, 2011, COD was achieved when Airport Line Consultancy as per Article 17.6 of the CA had issued provisional completion certificate. 10. DMRC had incurred expenditure of Rs. 2,700 crores towards costs for executing their part of obligations. 11. Exact figure of the costs incurred on fixed assets by the DAMEPL is unclear. Paragraph 118 of the Award refers to the report of IRCON who were appointed by DMRC as consultants to evaluate the works executed by DAMEPL. As per the IRCON s report cost of assets including overheads and other charges created by DAMEPL was Rs. 2273.67 crores. (This figure has been referred to indicate that DAMEPL had incurred substantial expenditure/costs. We express no opinion on correctness or otherwise of the report). 12. DAMEPL was entitled to collect fare from the passengers and from non-fare revenue sources like lease of retail space, property development in adjacent areas, advertisements, vending machines etc. As per the terms, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restructuring of the CA (see paragraph 111 of the Award). 16. DAMEPL by their letter dated 22nd March, 2012 had requested DMRC to arrange for joint inspection of viaducts and bearings before expiry of Defect Liability Period of the civil contractors. For convenience and clarity, we must state that viaducts were constructed and fell within the scope of civil work executed by DMRC. 17. DAMEPL by letter dated 23rd May, 2012 had alleged that there were serious design and quality issues with regard to installation of viaducts bearings and there were signs of girders having sunk at some locations causing deformation and cracks. DMRC had responded by their letter dated 2nd June, 2012, stating that detailed inspections as per Article 19 of the CA and all preventive maintenance were within the scope of concessionaire i.e. DAMEPL. DAMEPL was asked to give detailed inspection reports to DMRC for review and their comments. DMRC had inspected some locations identified by DAMEPL and had noticed that bearings were not damaged but the grouting material filled above/below the bearings was damaged or had loosened for which repair action had been taken on priority. DAMEPL was asked to impose speed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10th October, 2012 controverted and negated the contentions of DAMEPL, including the grounds relied by DAMEPL for terminating the CA. 25. DMRC further invoked Article 36.1 for conciliation process for amicable resolution of the disputes. 26. As per DMRC, the meeting called by Ministry of Urban Development on 12th October, 2012 was attended by representatives of DMRC, DAMEPL, Ministry of Railways, Systra and other sub-contractors engaged in repair work. In this meeting, DMRC had stated that 1986 bearings out of 2016 bearings had been rectified and other associate works such as load test, etc. would be completed by 31st October, 2012. DAMEPL had agreed to start the project after 31st October, 2012 with trial run of trains loaded with sand bags being undertaken. Thereafter, clearance from CMRS would be sought. 27. On 12th October, 2012, DAMEPL had agreed to participate in the conciliation proceedings in accordance with Article 36.1 of the CA. Weekly meetings were thereupon held on 20th and 22nd October, 2012 with the representatives of DMRC, DAMEPL, Systra, TUV-SOGL, an independent engineer, in which various issues pertaining to trial runs were discussed. 28. DMRC claims that on 22nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice. 34. On 27th June, 2013, DAMEPL addressed a letter to DMRC calling upon them to take over the project and the assets by close of business hours of 30th June, 2013. DAMEPL stopped operations on close of working hours of 30th June, 2013 and AMEL operations were handed over to DMRC, who have continued to operate AMEL since 1st July, 2013. 35. As noticed above, on 8th August, 2013 the Arbitral Tribunal consisting of Mr. H.L. Bajaj, Mr. S.S. Khurana and Mr. A.P. Mishra were constituted. The first sitting was held on 6th September, 2013. The arbitration proceedings continued for nearly three years. On 11th May, 2017, a unanimous Arbitral Award was pronounced substantially in favour of DAMEPL. The Award 36. The Arbitral Award dated 11th May, 2017 records that DAMEPL in the first hearing held on 21st September, 2013 had stated that in view of the termination notice dated 8th October, 2012, they were not proceeding and pressing their claim for restructuring of CA. DMRC by their letter dated 3rd October, 2013 had agreed to withdrawal of DAMEPL s claim on the issue of viability and restructuring of CA/project. This issue was also deliberated in the second sitting of the Arbitral Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid issues would then lead us to the determination of consequential questions particularly those related to specific performance of the contract or, alternatively, the award of damages or the outcome of the counter claim filed by DAMEPL. 39. Under the heading JURISDICTION , the Arbitral Tribunal rejected the plea of DMRC that it had no jurisdiction to examine, who was responsible for defects; whether civil segment of AMEL was plagued by permanent defects . Referring to the contention of DMRC that DAMEPL had raised several issues regarding defects, which were not mentioned in the cure notice/letter dated 9th July, 2012 or at any time between June, 2012 to January, 2013, when operations had re-commenced, it was observed that the notice dated 9th July, 2012 was not an exhaustive list of defects as DAMEPL had stated that unless and until it was ascertained what the defects were, it was not possible to find out whether the defect were cured or not and whether effective steps were taken within the cure period to remedy the breaches (see paragraph 24 of the Award). In paragraph 27, reference was made to chronology of events in the form of correspondence written by DAMEPL that had ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g summary was recorded by the Arbitral Tribunal:- The views of the Arbitral Tribunal on defects/design deficiencies/constrains in the civil structures of Delhi Metro Airport Line are summarized herein below:- SI No. Defect/Deficiency in Design/Constraints Views of the Arbitral Tribunal 1. Cracks at the bottom of the girders Occurrence of such large numbers of cracks in the base slab of the prestressed concrete girders within just one year of train operation, tentative assessment of the cause of cracks, unreliable measurement of crack depth which in many cases extend to more than half of the depth of bottom slab of U girder and non serious inspection of the repairs by an agency appointed by DMRC impact adversely on the integrity of the structure. This leads to the conclusion that DMRC is in the breach of the CA as effective steps were not taken within the cure period of 90 days to cure this defect and this has caused Material Adverse Effect on the Concessionaire (DAMEPL). 2. Twist in the Girders Effective steps were not taken to cure twist 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 constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation notice and by its conduct of operating the line subsequent to the termination notice? C Is the sudden and abrupt abandonment of a public interest project and the abrupt termination of the OA by DAMEPL valid? D Was DAMEPL entitled to or justified in termination of the OA, since the cost of repairs of the alleged defects was only approximately Rs. 14 crores as compared to the total costs of the project of approximately Rs. 5700 crores? E Did DAMEPL fail to carry out the required inspection resulting in the alleged defects not being discovered during the defect liability period of the civil contractors? Or, as contended by DAMEPL, was only limited access permitted to DAMEPL by DMRC without actually handing over the structures as required under the CA? F Was perceived financial unviability and not the defects in the structure, the real reason of the termination of the CA by DAMEPL? G Has DAMEPL failed to discharge its onus of disproving DMRC's case by not leading oral evidence to counter the rebuttal 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be seen is the nature of the defects themselves and not the costs of the repairs. It is the contention of DAMEPL that defects have not been cured and / or effective steps have not been taken during the cure period and, thus, the question of the quantum of the expense is immaterial. The fact that the repairs were not cured shows that the exercise undertaken by DMRC to repair the defects was inadequate. 93. Finding and Conclusion: In view of our conclusions that there were defects which caused material breach of the CA and all the defects have not been cured nor have effective steps been taken during the cure period, It is not relevant that only a small amount in comparison to the overall cost of the project has been spent in the process of curing the defects. 44. On issue 'E', the Arbitration Tribunal held that DAMEPL was responsible only for maintaining such section of the site which had been handed over and not that section of which mere access was granted. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EPL ought to have led evidence in re-rebuttal to discredit the evidence of the said witnesses which DAMEPL has not done and, thus, DAMEPL has failed to prove its case. 103. DAMEPL, on the other hand, contends that Mr. Muls and Mr. Kataria have been elaborately cross examined while giving evidence in rebuttal and by the said cross examination, DAMEPL has successfully discredited the evidence of Mr. Muls and Mr. Kataria. DAMEPL contends that DAMEPL has been able to show from various codal provisions and the documents produced during the course of rebuttal cross examination that the evidence given by DMRC In rebuttal is not correct, In legal support of their contention that DAMEPL need not have led evidence In rerebuttal but was entitled to discredit the rebuttal evidence of the witnesses by their cross examination and with reference to various documents and codal provisions, DAMEPL has cited various judgments. 104. Findings and Conclusion: The Tribunal 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 (Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irements for periodical inspection shows that CMRS was not entirely satisfied with the condition of the line. Further, It is the submission of DAMEPL that events that have taken place after the date of the termination of CA are not relevant. 107. Findings and Conclusion- For the purposes of considering the aforesaid submissions the relevant extract of the CMRS sanction dated 18.01.2013 (RC - 14. Page 165 to 169) are reproduced below; - (xi) The repairs to all the bearings used in U girders have been carried out by DMRC in the entire stretch of the line. Such type of repairs have been done for the first time on the Metro Network and needs to be monitored. (xii) Cracks in soffit of some of the U girders have also been repaired by DMRC. These cracks are required to be monitored during operation also to make sure that the situation remains stable. The monitoring of cracks for any propagation should be carried out as per Railway Board 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .58 crores on account of external commercial borrowings as debt due. Further Rs. 983.02 crores was payable by DMRC to DAMEPL being 130% of adjusted equity. Ergo, an amount of Rs. 2782.33 crores was payable by DMRC to DAMEPL under Article 29.5.2 of the CA. 48. DMRC, it was held was also liable to pay interest on Rs. 2782.33 crores payable as termination payment as per Article 29.8 of the CA at annualized rate of SBI Prime Lending Rate (PLR) plus 2%. The interest, it was held, would be payable and accrued from 7th August, 2013, i.e., 30 days after DAMEPL had raised the demand for termination payment vide their letter dated 8th July, 2013. It was also directed that in terms of Article 29.9, this amount shall be credited to the Escrow account, details of which had been furnished by DAMEPL. As per the DMRC, total amount of interest payable in terms of the Award towards termination payment cumulatively amounts to Rs. 4506.02 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitration. 8. Whether, as stated by Respondents, the Claimants had failed to cure the breach within the period specified under Concession Agreement as per the provisions of Article 29.5.1? (Para 11 of Reply) In the affirmative. 9. Whether, as stated by Respondent, the Claimants failed to make honest or sincere efforts or take effective steps for curing the defects as required by Concession Agreement? (Para 11 12 of Reply) Claimants DMRC failed to take effective steps for curing the defects as required by the Concession Agreement. 10. Whether the participation of Respondent in the repair process, submission of Application to CMRS and recommencement of Operation and Maintenance of the Project by Respondent, proves that the contentions of Respondent, as contained in letter dated October 8, 2012, stood negated and nullified. (Para 32 of the claim) In the negative. DMRC S 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30th May, 2017, learned single Judge had directed DMRC to pay Rs. 60 crores directly to the lead banker, subject to furnishing of an unconditional bank guarantee of Rs. 65 crores. The controversy; whether the Office Memorandum issued by NITI Aayog would be applicable was to be decided on the next date of hearing. This order was challenged by the DMRC before the Division Bench without success and the Special Leave Petition by DMRC was also dismissed. 54. Learned single Judge by the impugned judgment dated 6th March, 2018 has upheld the Award and rejected the objections filed by DMRC under Section 34 of the A C Act. It directs DMRC to deposit the amount awarded alongwith interest directly with the Escrow account maintained by the project lenders. The bank guarantee issued by the concessionaire and furnished by DAMEPL to secure payment 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt servicing cost for the period 7th January, 2013 to 30th June, 2013; payment/refund of Rs. 62.07crores with interest @ 11% per annum from the date of payment of requisite stamp duty on account of encashment of bank guarantee of Rs. 55 crores and Rs. 7.07 crores on account of differential commission and penal interest and lastly refund of security deposit of Rs. 56.8 lacs with interest @ 11% per annum from the date of payment of requisite stamp duty by DAMEPL. Whether participation in the reconciliation process, signing of the application form dated 19th November, 2012 submitted to CMRS for recommencement of AMEL and operation thereafter for a period of 5 months from 21st January, 2013 till 30th June, 2013 had amounted to waiver of the right to terminate 59. The aforesaid question and issue have been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the pending adjudication before the Arbitral Tribunal. Reference is made to the contents of the letter dated 31st January, 2013 written by DAMEPL to DMRC. 62. Having considered the contention raised on both sides, we are not inclined to interfere with the findings recorded in paragraph 87 of the Award, which reads as under:- 87.1 ........during the cure period DAMEPL was required to give all assistance in the process and since it had made substantial investment in the infrastructure of the metro line, it was obviously interested in the process being undertaken. No sooner was the termination notice given on 08.10.2012 (CD-28, Pg. 284), DAMEPL repeatedly asserted that whatever it was doing was without prejudice to its rights and contentions and, additionally, the parties immediately invoked 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 nullifyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by election, the contract continues to be in force. Essence of waiver by estoppel or promissory estoppel is to show willingness of the representor to forego his rights, which should be reasonably seen by the other side. Reference in this regard can be also made to Motor Oil (Hellas) Corinth Refineries S.A. v. Shipping Corp. of India, (1990) 108 N.R. 280 (HL), interpreting expression waiver , in its different contours. Waiver, it was observed, in a sense is abandonment of a right which arises by virtue of a party making an election, which may arise when a state of affairs comes into existence in which one party becomes entitled, either in terms of the contract or by general law to exercise a right and he has to decide whether or not to do so. Characteristically, this state 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DMRC, provided that the Concessionaire shall be deemed not to have abandoned such operation if such abandonment was (i) as a result of Force Majeure Event and is only for the period such Force Majeure is continuing, or (ii) is on account of a breach of its obligations by DMRC. (xiv) The Concessionaire repudiates this Agreement or otherwise evidences an intention not to be bound by this Agreement; XXXXX (xvi) The Concessionaire has delayed any payment that has fallen due under this Agreement if such delay exceeds 90 (ninety) days. 70. Article 29.1.2 empowers the DMRC to terminate the agreement by issue of termination notice to the concessionaire if the concessionaire has failed to cure such breach or default within the period provided in the 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 stip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect of any act or any event on the ability of either party to perform any of its obligations under and in accordance with the provisions of this agreement . Obligations of DMRC have been set out in Article 9 of the CA. Article 10 deals with the obligations of the concessionaire, i.e., DAMEPL. 72. The cure notice dated 9th July, 2012 states that DAMEPL had noticed certain defects in DMRC s works, which were affecting performance obligations of DAMEPL under the CA. A non-exhaustive list of defects that had created unsafe conditions for performance of DAMEPL s obligations under the CA were thereafter enumerated and read as:- i) Failure by the DMRC/Claimant to assume correct Superimposed Dead-load in its design; 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 3, 2012 ( DMRC s Reply ) d) Our letter no. DAME/DMRC/2012/5101 dated October 5. 2012 Dear Sir, 1.0 The Concessionaire writes in respect of the captioned subject and the letters under reference hereinabove 2.0 Notwithstanding anything that is alleged in DMRC's Reply, the Concessionaire hereby repeats and reiterates that it has duly complied with all its obligations under the Concession Agreement and maintenance manuals including in respect of the conduct of regular inspections and undertaking of repairs of the works which were its responsibility. 3.0 The Concessionaire submits that it was due to its efforts and periodic inspections only 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RC fails, neglects or delays to do the acts and things stated above, the Concessionaire reserves right to initiate appropriate legal actions at DMRC's risk as to costs and consequences. 13.0 Nothing contained in this Termination Notice shall be seen as a waiver of any of the Concessionaire's rights or the obligations of DMRC, under the Concession Agreement, of any nature. The Concessionaire hereby reserves all its rights and remedies against DMRC. 14.0 Unless otherwise defined herein, the capitalized terms shall mean to have the same meaning as ascribed to such term under the Concession Agreement or under 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were being considered. Ex facie the CA could not have been terminated with immediate effect from the date of termination notice. DAMEPL would not even contend to the contrary. 78. Paragraphs 128, 130 and 131 of the Award read as under: - 128. The other component of Termination Payment is Debt due . Debt due comprises of two elements i.e. Rupee term loan and External commercial borrowing (in foreign currency). For the loan received and repaid, we have relied upon the information submitted by DAMEPL through their advocates vide letter no. DJK/HM/1208 dtd. 01.12.2014. In the absence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive steps had been taken to cure the defects. (See paragraph 44 at page 65 of the written submissions.) 82. In other words, DAMEPL in the written submissions in alternative has taken the effective date for the purpose of clause (i) to Article 29.5.1 as 7th January, 2013. However, this is not what the Arbitral Tribunal has held in the first part of the award, including paragraphs 78 and 115 quoted above. DAMEPL has not explained and justified the reason for the two dates. 83. DMRC has submitted that the contention is not an afterthought 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action, certification of conditions specified by the Director (W) DMRC. For increase in speed beyond 80 kilometres per hour, DMRC was to approach the CMRS for sanction with adequate justification. 88. The Arbitral Tribunal after recording the said position rejected the contention of DMRC observing that AMEL was to serve as a high-speed connectivity and severe speed restrictions were imposed by CMRS. It did not examine the issue, and question and answer how and in what way the speed restrictions imposed would amount 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the opening of the metro railway under section 14, obtain a report from the Commissioner that- a. he has made a careful inspection of the metro railway and the rolling stock that may be used thereon; b. the moving and fixed dimensions as laid down by the Central Government have not been infringed; c. the track structure, strength of bridges, standards of signaling system, traction system, general structural character of civil works and the size of, and maximum gross load upon, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gits and the fixed point shall be clearly defined in a note on the plant and section sheets of the work documents. (3) The datum adopted shall be mean sea level as fixed by the Survey of India and heights shall be mentioned with reference to the datum in metres and decimals up to two digits. (4) The documents referred to in sub-rule (1) shall be signed by atleast an officer equivalent to senior administrative grade rank except the certificate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a portion thereof as the case may be, under Section 14 of the Ordinance as such or subject to such conditions as may be considered by it for the safety of the public. (2) The Chief Executive Officer shall publish the date of opening of Delhi metro railway or a portion thereof for public carriage of passengers in the local newspapers both in English and Hindi 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anction by CMRS for re-commencement of operations are two separate issues is ex facie incorrect and unacceptable. Submission has to be rejected for the simple reason that issue of sanction by CMRS directly relates to whether or not the defects in the viaducts had been repaired or effective steps for repair had been undertaken by DMRC. Permission 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 posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arbitral Tribunal has given two conflicting effective dates of termination. In the first portion of the Award, they have upheld the termination notice dated 8th October, 2012, which had immediately terminated the CA. In the second portion of the Award, they have taken the date of termination of CA as 7th 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 effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ope 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, (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 morali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective. This implies fair and equal treatment to parties and adherence to the principles of audi alteram partem. Another juristic principle is that the decision/award should not be perverse or irrational, i.e. findings based 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versary of COD, in this case does not apply. Article 29.5.2 draws a distinction between debt due and equity. In case of debt due no enhancement is given and the actual amount of debt due is paid. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nated debt as promoters contribution / Equity share capital appear in various statements submitted by DAMEPL. Equity share capital Rs 1 lakh (appearing in Balance sheet) and 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Adjusted Equity . In the absence of a clear cut documentary proof submitted by DAMEPL, this Tribunal has to go by the documents 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 clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conversion was pursuant 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 first day of the month of Appointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 convertible into Equity at the option of the lenders and/or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 completion as certified by the statutory auditors. 115. As noticed above, IRCON in their re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round 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 the necessary particulars duly certified by the Statutory Auditors. If DMRC fails to disburse the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable 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 promoters on the money advanced on receipt of payment etc. by modifying the terms mutually agreed. The transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 by it made at the interim stage. Reference can be made to the earlier decision in the case Hindustan Zinc Ltd. versus Friends Coal Corb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 public policy and unenforceable. Reference was made to paragraph 430 of Halsbury Law of England, 4th Edition, Volume 9, page 297 drawing four g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 DMRC and DAMEPL to file appropriate application under Section 9 or other provision of the A C Act. It will also be open to the DMRC to file an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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