The Scope of Curative Jurisdiction in Arbitration

The recent ruling by a three-judge bench in the case of Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd. (“DMRC case”) has drawn significant criticism from legal scholars and practitioners. However, this criticism may be somewhat misplaced.

The primary criticism appears to focus on the exercise of curative jurisdiction. However, just weeks before the DMRC case, the Supreme Court's seven-judge bench set aside a five-judge bench decision on the stamping issue using its extraordinary curative jurisdiction in the matter titled “In Re: Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899”, a decision that was well received. Therefore, the legal community's unease with the DMRC judgment likely stems from issues other than the mere use of curative jurisdiction.

The curative petition in the DMRC case arose from disputes over a concession agreement between DMRC and DAMEPL regarding the Airport Metro Express Line Project. A three-member Arbitral Tribunal passed an arbitral award in favour of DAMEPL, which was upheld by a single judge of the Delhi High Court, but set aside by the Division Bench on grounds of perversity and patent illegality. DAMEPL then filed a Special Leave Petition under Article 136 of the Constitution, and a two-judge bench of the Supreme Court restored the award, dismissing DMRC's review petition. Subsequently, DMRC filed a curative petition.

The three-judge bench of the Supreme Court considered two key issues: first, the maintainability of the curative petition, and second, the correctness of the decision of the two-judge bench in setting aside the decision of the Division Bench of the High Court, which had declared the arbitral award patently illegal.

On the first issue, the Court in essence held that the jurisdiction of the Supreme Court, when deciding a curative petition, extended to cases where the court had acted beyond its jurisdiction, resulting in a grave miscarriage of justice.

On the second issue, in examining the scope of interference with arbitral awards under Section 34 of the ACA, the Court held, while the interpretation of a contract was exclusively within the domain of the arbitrator, construction of a contract in a manner that no fair-minded or reasonable person would take, was impermissible, and would result in the award suffering from the vice of patent illegality. The Supreme Court opined that the two-judge bench of the Supreme Court erred in interfering with the decision of the Division Bench and that the latter’s decision provided adequate reasons to conclude that the Award suffered from perversity and patent illegality which included that the Award overlooked crucial facts and evidence. The Court also observed that the arbitral Award had overlooked the express terms of the Agreement.

Concerns about the impact of this decision on India's aspirations to become an international arbitration hub, given that the award in question is domestic, in my view are overstated. The court's intervention is based on grounds of patent illegality and perversity, which are only applicable to domestic arbitrations. Therefore, the decision in the DMRC case is unlikely to negatively impact India's status as a preferred seat for arbitration, as the doctrine of patent illegality does not extend to international commercial arbitration or the enforcement of foreign awards.

Additionally, as mentioned earlier, the decision in the stamp matter was well received within the domestic and international arbitration community. Recently, Gary Born at a lecture titled “Recent Developments in International Arbitration: Swiping Left & Swiping Right”, delivered at the offices of Holland and Knight in New York, endorsed the decision of the seven judges. Clearly, the issue does not lie with the Supreme Court's exercise of curative jurisdiction.

The counterargument to my above suggestions could be that, although the DMRC case pertains to domestic arbitration, it sets a precedent for the potential exercise of curative power to international commercial arbitration and foreign awards.

While that appears unlikely, the answer perhaps lies in restricting (in fact doing away) with the expansive doctrine of patent illegality, which includes perversity and irrationality or in other words, Wednesbury. It is the inclusion of Wednesbury principles, that poses a greater threat to Indian arbitration. I have consistently warned against the expansion of this doctrine, predicting that it would eventually have negative repercussions. The current situation exemplifies the adverse consequences of broadening the doctrine of patent illegality.

The justification of this expanded doctrine rests on perceived deficiencies in the quality of Indian arbitrators. It is important to consider, if the messaging is that Indian arbitrators are not competent enough for domestic arbitration, why would they be perceived as competent by foreign parties? It is important to consider why foreign parties would consider India as a preferred seat, if indeed the quality of Indian arbitrators is questionable, and there is a need for accreditation or mandatory training courses to enhance their competence and not expand the court’s jurisdiction. The establishment of the Arbitration Bar of India presents an opportunity to address this issue.

The Supreme Court has clarified that “the exercise of the curative jurisdiction of this Court should not be adopted as a matter of ordinary course” and “should not be used to open the floodgates and create a fourth or fifth stage of court intervention in an arbitral award”. To prevent the excessive use of curative jurisdiction, its application might be limited to issues impacting rights in rem, such as in the case of the stamping matter, rather than being used to address perceived injustices in individual cases.

This approach would strike the right balance in the exercise of curative jurisdiction.

About the author: Payal Chawla is a practising advocate specialising in arbitration and commercial litigation and is the founder of JUSCONTRACTUS.