Arbitration off track

Delhi Metro shareholders should step up

Barely 10 days after the Bar Council of India’s rules on foreign lawyers practising in India raised anticipation of the country emerging as an international arbitration centre, the government moved to amend a law that circumscribes a domestic arbitral award. On March 17, the Delhi High Court ordered the Centre and the Delhi government, joint shareholders of the Delhi Metro, to pay in full Rs 4,700 crore arbitral award to Delhi Airport Metro Private Ltd (DAMEPL), a subsidiary owned by Anil Ambani’s Reliance Infrastructure, or face action. Since the amount exceeds Delhi Metro’s earnings, the court has the right to attach the earnings of the Delhi Metro to enforce the award. To forestall this eventuality, the government has moved a draft Bill to amend a clause in Section 89 of the Delhi Metro Railway (Operation and Maintenance) Act, 2002, which allows any court to attach the earnings of the Metro rail administration “in execution of a decree or order”.
 

The Ministry of Housing and Urban Affairs, which has moved the Bill, has explained in a background note that the amendment is needed to ring-fence the Metro from closure, bringing the city to a halt and causing law and order problems. This argument may be overstated since the same Section forestalls the attachment of Metro rolling stock and related operational hardware without government sanction. Instead, the move raises multiple questions about the integrity of the Central and state governments’ principles in enforcing contracts and following court rulings. The two shareholders would have done better if they had discharged the obligations to their subsidiary by bearing half the cost of the award as they had indicated. A legal amendment to weaken an arbitral award does not enhance India’s reputation, already damaged by the ignominy of parrying a French court order to UK-based Cairn Energy to seize 20 Indian government properties in Paris to enforce an international arbitration award it won in a tax dispute.
 

The controversy is also likely to compromise the government’s massive Rs 111-trillion National Infrastructure Pipeline, which aims to develop world-class infrastructure and is predicated on the public-private partnership template. DAMEPL operated the Delhi Metro’s airport line till 2012 under a concession agreement, which was terminated over defects in civil construction, for which the public sector company was responsible. Ironically, it was the Delhi Metro that invoked the arbitration clause under the agreement, only to find itself at the losing end of an arbitral award. The Delhi High Court’s latest ruling is the culmination of an arbitral tribunal’s decision in favour of DAMEPL way back in 2017, which has survived multiple appeals in the High Court and Supreme Court. It was the result of DAMEPL’s appeal for enforcing the 2017 award, after which the Delhi Metro deposited part of the amount and then said it lacked sufficient money in its bank account and other funds available with it were earmarked for employee salaries and associated benefits. Thereafter, the court directed the utility to either approach its shareholders to divert its funds or raise loans. In November last year, the court was told the shareholders would examine the proposal to bear half the total arbitration award. Instead, both shareholders appeared to have reneged on that commitment and sought protection in legislative legerdemain, which does neither of them credit.