Curse Or Cure? Indian Supreme Court Exercises “Curative Jurisdiction” Setting Aside Arbitral Award

In 2012, disputes arose on certain alleged defects in the structures of the project which DAMEPL sought to be corrected by the DMRC. Citing DMRC's failure to cure the defects, the CA was eventually terminated by DAMEPL. The DMRC initiated arbitration proceedings challenging the termination.

In May 2017, a three-member arbitral tribunal passed a unanimous award in favour of DAMEPL, awarding DAMEPL with c. USD 900 million (including the accrued interest) (the “Award”).

The journey of the challenge

The Award went through various stages of challenge in the Indian courts:

1. A single judge of the Delhi High Court refused to set aside the award finding the tribunal to have arrived at a plausible view;
2. In appeal, the Division Bench of the Delhi High Court partly set aside the award as perverse and patently illegal;
3. On further appeal by way of special leave petition (“SLP”), the Supreme Court (2-judge bench) set aside the decision of the Division Bench and restored the Award;
4. A further review petition against the above judgment in the Supreme Court was dismissed.
5. 5.Finally, the aggrieved DMRC approached the Supreme Court (3-judge bench) seeking exercise of the Court's curative jurisdiction, which was exercised to set aside the Award.

Curse or cure?

The most scathing criticism of the Judgment is coming from critics arguing that the Supreme Court's exercise of its exceptional jurisdiction risks opening up the floodgates for a fifth ground of challenge in an already long appeals process in arbitration proceedings. They argue that this is against the commercial principles and finality principle embedded in an arbitration.

However, a closer reading of the Judgment reveals that these criticisms may be unfounded. Further, the Judgment, in fact helps strengthen the arbitration regime:

• In ordinary arbitration matters, the Judgment will help reduce multiple appeals.

Under India's arbitration law, only one appeal is available against a decision setting aside or refusing to set aside an arbitral award [fn] Arbitration and Conciliation Act 1996, s 37 [/fn]. In the present case, this appeal was made and exhausted once a decision was made in appeal by the Delhi High Court (as explained in (2) above).

However, an SLP appeal to the Supreme Court (as mentioned in (3)) is not barred under the arbitration law. It is a constitutional right which must, nevertheless, be exercised only in exceptional cases where the Supreme Court may grant leave to appeal.

The Judgment cautions Supreme Court judges to “be slow in interfering” with a judgment of the first appellate (as was done in (2) above) under an SLP and exercise its jurisdiction only in exceptional circumstances. The Judgment clarifies that in arbitration appeals, such “exceptional” circumstances arise only where there is an error in exercising of jurisdiction by the first appellate court (here, the Division Bench).

Exercising its curative jurisdiction, the Supreme Court restored the judgment of the Division Bench which had set aside the award under the parameters of the first and only appeal available under the arbitration law of the land. The Supreme Court noted that the judgment of the Division Bench had “provided more than adequate reasons to come to the conclusion that the arbitral award suffered from perversity and patent illegality.” Accordingly, there was no valid basis for the Supreme Court to interfere (as it incorrectly did in (3) above).

The Judgment is thus a clear message to stop the Supreme Court judges from interfering in arbitration matters. As a matter of ordinary course, the appeals process must stop at the first appeal (i.e. at (2) above).

Appreciating the irony that the Judgment was a curative petition to the Supreme Court itself (i.e. another exceptional constitution remedy), the Judgment also cautions against the exercise of this curative jurisdiction as a matter of ordinary course, except in the very exceptional circumstances to correct the “grave miscarriage of justice”.

In light of the Judgment, the Supreme Court judges will be careful and avoid interfering with the prudence of the first appellate court as a matter of ordinary course. As a result, most appeals against awards will end up being finalised at the first appeal stage ((2) above) itself.

This should result in speedier enforcement or challenges of awards, thus helping achieve finality in these disputes in a quicker manner.

• In exceptional cases, parties have an avenue to appeal against a perverse award.

Under India's arbitration law, a domestic award can be set aside if the Court finds it to be vitiated by “patent illegality” or perversity appearing on the face of the award [fn] Arbitration and Conciliation Act 1996, s 34(2A) [/fn]. However, as explained above, this ground of challenge against an award is ordinarily available only at the challenge and first appellate court level (i.e. ((1) and (2) above respectively).

However, the Supreme Court's curative jurisdiction was warranted in this case since allowing the patently illegal Award to be enforced would have meant a re-writing of the explicit terms of contract (i,e, the CA) by the judge/ tribunal. This would have been in clear violation of established legal principles. The Judgment notes that the interpretation of the terms of the CA as adopted by the tribunal “was not even a possible view”.

The Supreme Court exercised its exceptional jurisdiction to correct the “grave miscarriage of justice” caused by its 2-judge bench by “restoring a patently illegal award which saddled a public utility with an exorbitant liability”.

The Judgment establishes that in such exceptional cases, the court will not act as a helpless spectator so as to permit a patently illegal and perverse award to be enforced.

This should lead to a higher confidence in the enforcement process as parties to an arbitration can rest assured that in exceptional cases where a perverse award may have escaped scrutiny by the first appellate court, they may have recourse with the Supreme Court. However, as explained in (i) above, the Supreme Court (both under SLP or curative jurisdiction) will be slow to interfere with such an Award unless the high threshold of the “exceptional” nature of the dispute warranting such interference has been met.

The Supreme Court's Judgment has done well to caution against interference in arbitration appeals by its judges encouraging the appeals process to be finalised at the first appellate court level as a matter of ordinary course.

However, this cure brings its own curse. The Judgment was made in exercise of the Supreme Court's inherent power to “cure” the overeager exercise of the SLP jurisdiction in arbitration matters. Despite the Supreme Court's caution, the Judgment now sets a precedent that a challenge to arbitral awards may be brought by invoking the Supreme Court's curative jurisdiction in “exceptional” cases. There remains a risk for various appeals in arbitral awards being brought in the Supreme Court, trying to fit their grounds under the ambit of this “exceptional” criteria and alleging “gross injustice” by a subordinate court/ bench to invoke the court's curative jurisdiction.

Further, while the Judgment was exercise of curative jurisdiction re a domestic award, it is unclear whether this jurisdiction could be exercised for international arbitration awards. For such awards, under Indian arbitration law, the scope of review is extremely restricted and there is no ground of “patent illegality” available to challenge an award, but there is a risk that the Supreme Court may still be approached on other “exceptional” grounds, such as fraud.

While the Judgment is intended as a step to cure injustice, only time will tell whether the curative jurisdiction in arbitration matters turns out to be a curse or a cure.

Ankit is an Advocate qualified to practice law in the courts of India and as a Solicitor of the Senior Courts of England and Wales. He currently practices in New Delhi. Views are personal.