Delhi Metro Ordered to Pay Arbitral Award: Supreme Court Rejects DMRC's Appeal

The Supreme Court of India, in the case of Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) v. Delhi Metro Rail Corporation (DMRC), delivered a crucial ruling on May 5, 2022, concerning arbitration disputes and the payment of an arbitral award. The case revolved around the enforcement of an arbitral award favoring DAMEPL and whether the awarded sum under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, included pendente lite interest.

Background of the Case

DAMEPL was awarded the contract to build and operate the Delhi Airport Metro Express Line under a concession agreement signed on August 25, 2008. However, disputes arose between the parties regarding project completion, operational safety, and financial liabilities. As a result, DAMEPL terminated the contract on October 8, 2012, and initiated arbitration proceedings under the agreement.

On May 11, 2017, the arbitral tribunal awarded DAMEPL compensation for the termination payment, which included an amount of Rs. 2782.33 crores. The tribunal also directed DMRC to pay interest on this amount from the date of termination. However, DMRC challenged the award under Section 34 of the Arbitration and Conciliation Act, and the Delhi High Court initially set aside part of the award. This decision was later reversed by the Supreme Court in a separate judgment dated September 9, 2021, reinstating the arbitral award.

Following this, DAMEPL sought enforcement of the award, but a fresh dispute arose regarding whether the amount payable under Section 31(7)(a) included interest accrued before the award date.

Legal Issues

Whether the sum awarded under Section 31(7)(a) of the Arbitration and Conciliation Act includes interest for the pre-award period.
Whether DMRC is liable to pay interest on the entire termination payment, including amounts due from the cause of action to the date of the award.
The interpretation of the phrase “unless otherwise agreed by the parties” in Section 31(7)(a) of the Act.

Arguments by DAMEPL

DAMEPL, represented by Senior Advocate Harish Salve, argued that:

The Supreme Court had already upheld the arbitral award, and DMRC was liable to make the full payment.
The High Court had misinterpreted Section 31(7)(a) by excluding pendente lite interest from the total sum payable.
Under Section 31(7)(a), the awarded sum must include pre-award interest, and DMRC was liable to pay interest from the date of cause of action.
The arbitral tribunal had properly calculated interest under the concession agreement, and the courts should not interfere.

Arguments by DMRC

DMRC, represented by Senior Advocate Parag Tripathi, contended that:

As per the concession agreement, interest payment terms were pre-determined and did not cover the additional pendente lite interest.
The contract between the parties governed all aspects of interest payments, and the arbitration award must adhere to those terms.
The High Court was correct in interpreting Section 31(7)(a) as excluding pre-award interest from the amount to be calculated for further interest.
The Supreme Court’s earlier decision upholding the award did not address this specific issue, and thus the matter remained open for adjudication.

Supreme Court’s Observations

The Supreme Court examined the legal interpretation of Section 31(7)(a) and reviewed its previous judgment in Hyder Consulting (UK) Ltd. v. State of Orissa. The Court noted:

“The sum awarded by the arbitral tribunal may include interest for the pre-award period, and once included, it forms part of the total amount on which post-award interest is to be computed.”

Regarding the contractual agreement between the parties, the Court observed:

“When parties agree on a specific interest rate within the contract, the arbitral tribunal must adhere to it. However, in the absence of such an agreement, Section 31(7)(a) applies in full.”

The Court also held that the phrase “unless otherwise agreed by the parties” in Section 31(7)(a) of the Arbitration Act restricted arbitral discretion only where a prior agreement existed. Since the concession agreement provided for interest on delayed termination payments, the tribunal’s decision complied with the contractual terms.

Final Judgment

The Supreme Court upheld the Delhi High Court’s decision rejecting DAMEPL’s claim for additional pre-award interest but affirmed the liability of DMRC to pay the awarded amount as per the concession agreement.

It ruled:

The awarded sum under Section 31(7)(a) does not automatically include pre-award interest unless the arbitral tribunal explicitly includes it.
DMRC must pay interest in accordance with the concession agreement and as determined by the arbitral tribunal.
The Supreme Court’s previous ruling upholding the award remained valid, and DMRC must comply with the payment order.

Key Takeaways

The ruling clarifies the interpretation of Section 31(7)(a) of the Arbitration Act concerning pre-award interest.
It reinforces that arbitral discretion is limited by contractual agreements between parties.
The case reaffirms that post-award interest applies to the total sum determined by the arbitral tribunal.
Arbitration awards, once upheld by the Supreme Court, must be executed without delay.

Conclusion

The Supreme Court’s decision in Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation establishes a significant precedent in arbitration law by interpreting the scope of Section 31(7)(a) of the Arbitration and Conciliation Act. While it denied additional claims for pendente lite interest, the Court upheld the fundamental obligation of DMRC to honor the arbitral award.

This judgment reinforces the principle that contractual agreements dictate interest payments in arbitration cases and provides much-needed clarity on the scope of pre-award interest in Indian arbitration law.

Petitioner Name: Delhi Airport Metro Express Pvt. Ltd..
Respondent Name: Delhi Metro Rail Corporation.
Judgment By: Justice L. Nageswara Rao, Justice B.R. Gavai.
Place Of Incident: Delhi.
Judgment Date: 05-05-2022.

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