SC overturns its own order, calls arbitral award 'patently illegal'

The Supreme Court did something it almost never does: it reversed its own final order. On a Delhi afternoon in April 2024, a three-judge bench led by the Chief Justice of India sat down to decide whether a Rs 2,782 crore arbitration award—already upheld once by the Supreme Court itself—should be torn up. The answer would turn on a single clause in a contract, a safety certificate, and the difference between fixing a problem and merely trying to.

Could a government company, after losing an arbitration, losing before a single judge, and then watching the Supreme Court restore the award against it, still get the final word? The answer, the Court said, was yes—but only because the award was so flawed that letting it stand would be a "grave miscarriage of justice."

When the airport line stopped running

In 2008, Delhi Metro Rail Corporation (DMRC), a government company, entered into a public-private partnership with Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), a special purpose vehicle of Reliance Infrastructure. The deal: DAMEPL would build and operate the high-speed Airport Express line connecting New Delhi Railway Station to Indira Gandhi International Airport.

For four years, the trains ran. Then, in 2012, DAMEPL reported structural defects in the viaduct—the elevated track on which the trains ran. The company issued a "cure notice" to DMRC, demanding that the defects be repaired within 90 days as the contract required. When DMRC did not complete the repairs within that period, DAMEPL terminated the agreement and walked away from the project.

DMRC disagreed. It said the defects were not as serious as DAMEPL claimed, and that the termination was premature. The dispute went to arbitration.

The award that kept growing

A three-member Arbitral Tribunal heard the case. In May 2017, it ruled in favour of DAMEPL. The tribunal ordered DMRC to pay Rs 2,782.33 crore as termination payment—the amount the contract said DMRC must pay if it was responsible for the termination. Plus interest. Plus costs.

DMRC challenged the award before a Single Judge of the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (the provision that allows a court to set aside an arbitral award on limited grounds). The Single Judge dismissed the challenge. The award stood.

DMRC appealed to a Division Bench of the same High Court under Section 37 (the provision that allows an appeal against a Section 34 order). This time, the result was different. In September 2021, the Division Bench partly allowed the appeal. It set aside the award, calling it "perverse" and "patently illegal"—meaning the tribunal's interpretation of the contract was so unreasonable that no reasonable person could have reached it.

Why the Division Bench said the award was illegal

The Division Bench focused on clause 29.5.1(i) of the concession agreement. That clause gave DMRC two options when DAMEPL issued a cure notice: either actually cure the defect, or take "effective steps" to cure it. The tribunal had read both options as requiring complete cure. The Division Bench said that was wrong. If both options meant the same thing, the second option—"effective steps"—would have no meaning at all. The contract deliberately gave DMRC a choice: fix it, or show you are seriously trying to fix it.

The Division Bench also found that the tribunal had ignored vital evidence. DAMEPL had terminated the agreement based on safety defects. But the Commissioner of Metro Rail Safety (CMRS)—the statutory authority whose certification is required before a metro line can operate—had issued a certificate that, according to DMRC, showed the defects were not as serious as claimed. The tribunal had treated the CMRS certificate as irrelevant to the question of whether the termination was valid. The Division Bench said this was a fundamental error. A certificate from the very authority whose approval is needed for safe operation could not be brushed aside when the entire dispute was about safety.

The Supreme Court's first intervention

DAMEPL appealed to the Supreme Court under Article 136 of the Constitution (the provision that allows the Supreme Court to hear appeals from any court or tribunal in its discretion). A two-judge bench heard the appeal. In September 2021, it allowed DAMEPL's appeal and restored the arbitral award. The Division Bench's judgment was set aside. DMRC was back to owing Rs 2,782 crore.

DMRC filed a review petition—a request for the same bench to reconsider its decision. The review was dismissed in November 2021. The door seemed closed.

The curative petition: a door that rarely opens

But DMRC had one more option: a curative petition. This is a post-review remedy created by the Supreme Court itself in the 2002 case Rupa Hurra v. Ashok Hurra. It is meant for cases where the court's final order has caused a "grave miscarriage of justice" that cannot be corrected any other way. The threshold is extremely high. The court almost never entertains curative petitions.

DMRC filed a curative petition under Article 142 of the Constitution (the provision that gives the Supreme Court the power to pass any order necessary to do complete justice). The petition argued that the earlier two-judge bench had made a fundamental error by restoring an award that was patently illegal. The error was so serious, DMRC said, that allowing it to stand would be a miscarriage of justice.

What the three-judge bench found

A three-judge bench—Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice B.R. Gavai, and Justice Surya Kant—heard the curative petition. On April 10, 2024, it allowed the petition and set aside the earlier Supreme Court judgment. The Division Bench's order was restored. DMRC did not have to pay the Rs 2,782 crore.

The Court's reasoning was sharp. First, it held that the curative jurisdiction under Article 142 could be invoked not only for violations of natural justice (the right to a fair hearing) or judicial bias, but whenever declining to reconsider would perpetuate an irremediable injustice. Restoring a patently illegal arbitral award, the Court said, was exactly that kind of injustice.

Second, the Court examined the two-judge bench's interference with the Division Bench's judgment. Under Article 136, the Supreme Court must interfere sparingly with Section 37 judgments. It should only ask whether the appellate court exceeded its jurisdiction—not whether the appellate court's decision was right or wrong on the merits. The two-judge bench, the Court found, had not applied this limited standard. The Division Bench's findings were well-reasoned. There was no basis for the Supreme Court to interfere.

Third, the Court agreed with the Division Bench on the interpretation of clause 29.5.1(i). The tribunal's reading—that both "cure" and "effective steps to cure" required complete cure—rendered the second phrase meaningless. This was not even a "possible view" of the contract. It was a clear error that made the award patently illegal under Section 34(2-A) of the Arbitration Act (the provision that allows a court to set aside a domestic arbitral award if it is "patently illegal"—meaning it violates the fundamental policy of Indian law, or the contract's terms, or is so unreasonable that no reasonable person could have reached it).

Fourth, the Court held that the tribunal had ignored vital evidence by treating the CMRS certificate as irrelevant to the validity of the termination. When a party terminates a contract based on safety defects, a statutory certificate about those very defects cannot be dismissed as irrelevant. An award that ignores such evidence is perverse—and perversity is a ground for setting aside an award under Section 34(2-A).

Why this matters for every arbitration in India

For practitioners, this judgment sends a clear message: an arbitral award that misreads a contract so badly that it makes one clause meaningless will not survive judicial scrutiny. The "patent illegality" ground is not a rubber stamp. Courts will look at whether the tribunal's interpretation is even possible—and if it is not, the award will be set aside.

The judgment also clarifies the scope of the Supreme Court's power under Article 136 in arbitration appeals. The Court will not interfere with a well-reasoned Section 37 judgment just because it disagrees with the result. The appellate court's jurisdiction is limited, and so is the Supreme Court's.

THE PLAY: When drafting a termination clause, never give two alternatives that mean the same thing—a tribunal that conflates them will produce an award that no court can save.

The Airport Express line still runs. The trains still carry passengers from New Delhi to the airport in eighteen minutes. But the money that one side thought it was owed—Rs 2,782 crore—will never change hands. The Supreme Court ended where the Division Bench began: with a contract, a certificate, and the difference between curing a defect and merely trying to.