Delhi Metro loses ₹4,600 cr arbitral award against Reliance Infra for Airport line

New Delhi, India (Urban Transport News): Anil Ambani-led Reliance Infrastructure is set to get Rs 4,600 crore from Delhi Metro Rail Corporation Ltd (DMRC) after the Supreme Court of India upheld an arbitration award in its favour in a case related to the Delhi Metro's Airport Express Line Metro project.

In 2008, Delhi Metro Rail Corporation Limited (DMRC) had signed an agreement with Reliance Infra’s special purpose entity Delhi Airport Metro Express Private Limited (DAMEPL) for design, installation, commissioning, operation and maintenance of 22.7-km Airport Metro Express Line which connecting New Delhi Metro Station to Indra Gandhi International Airport with 6 stations.

In 2012, DAMEPL complained to DMRC for faulty design and poor quality in the installation of bearings in the viaduct of Airport Metro Express Line. DAMEPL served a notice requesting DMRC to remove the defects in viaducts within a period of 90 days, failing which it shall be treated as a breach of the agreement as the entire viaducts and stations were build under the supervision of DMRC. Mangu Singh, present Managing Director of DMRC, was the in-charge of the project during the construction period.

As DMRC failed to remove the defects within 90 days from the date of the notice served to it, DAMEPL issued a second notice terminating the concession agreement which results in an event of default under the concession agreement. Aggrieved by DAMEPL's notice, DMRC filed for arbitration claiming that the termination notice issued by DAMEPL was illegal and asked for compensation of Rs 3,173 crore with an interest of 18 per cent per annum.

In response to DMRC's arbitration claim, DAMEPL justified the termination as being in conformity with the concession agreement and consequently, filed a counterclaim seeking an amount of Rs 3,470 crore as termination payment along with interest.

The Arbitral Tribunal “undertook an in-depth analysis of the defects in the civil structure and steps taken for their repair/rectification” and “concluded that there were as many as 1,551 cracks in 367 girders, i.e., 72% of the girders were affected by such cracks”. It further held that “these defects were neither cured nor effective steps taken by DMRC within the cure period up to October 8, 2012, constituting a material breach on the part of DMRC”.

After hearing both parties, the Arbitration Tribunal upheld DAMEPL’s claims and directed DMRC to pay Rs 2,782.33 crore, along with further interest, as a termination payment. This award was challenged by DMRC at the Delhi High Court, which set aside the arbitration award issued by Tribunal on May 11, 2017. DAMEPL then challenged this decision at the Supreme Court of India.

Allowed DAMEPL's appeal, A bench of Justices L Nageswara Rao and S Ravindra Bhat upheld the May 11, 2017, award to DAMEPL and set aside January 15, 2019, order of the Delhi High Court division bench which partly set aside the arbitral award.

“The appeal filed by DAMEPL is allowed and the judgment of the Division Bench of the High Court is set aside. The conclusion of the Division Bench that the award of the Arbitral Tribunal suffers from patent illegality and shocks the conscience of the court is held to be erroneous," said the division bench.

The bench further said that there is “no ambiguity in the findings of the Arbitral Tribunal regarding the time given for curing the defects and the effective date of termination of the Concession Agreement” and, therefore, it is “not in agreement with the findings of the Division Bench that there is an ambivalence in the award concerning the date of termination, having a bearing on the final outcome of the award”.

“The Hon’ble Supreme Court has pronounced judgment in the Airport Metro Express line matter today and the appeal of DAMEPL has been allowed. The judgment is being currently analysed for future course of action,” said Anuj Dayal, Executive Director (Corporate Communications), DMRC.