On 10th April, the Supreme Court of India (SC), in a landmark order in response to a curative petition, overturned a Rs8,000-crore arbitration order in favour of the Anil Ambani group. The arbitral order, after long litigation, had been previously ratified by a two-member bench of the SC in September 2021.
The SC’s curative order is indeed significant and it has huge financial implications for Reliance Infrastructure Ltd (RInfra) whose subsidiary Delhi Airport Metro Express Pvt Ltd (Delhi Airport Metro) remained a ‘going concern’ only in anticipation of receiving a hefty payout from the government-owned Delhi Metro Rail Corporation (DMRC).
DMRC too have won a new lease of life. Its own financial future was in doubt, after the Rs8,000-crore award against it, especially since it has already forked out over Rs2,782.33 crore into an escrow account.
However, the extraordinary verdict has overshadowed any discussion on the implications for the Anil Dhirubhai Ambani group (ADAG) --one of India’s biggest corporate defaulters. Instead, the legal fraternity, as well as the corporate world, is agog at the SC’s decision to admit a curative petition in a commercial dispute and to overturn, in its entirety, an earlier order of the same court.
This is because a curative petition is a device invented to reopen cases that are considered finally settled, after a review. It has been used very rarely, and only when there is a patent illegality or a grave miscarriage of justice, warranting correction.
While ruling on this case, the SC has stressed that the curative jurisdiction shouldn't be exercised routinely or be allowed to open floodgates, creating a fourth or fifth stage of court intervention in arbitral awards. However, more commercial disputes will, undoubtedly, seek such a review in future, and it raises serious concerns about whether this will further prolong commercial disputes and add to the already high cost of litigation. It also has serious implications for ease of doing business in India.
At the same time, SC notes that that in this particular case, ‘declining to reconsider (SC’s earlier order) would be oppressive to judicial conscience and cause perpetuation of irremediable injustice’. Clearly this case has great legal significance, but this column will focus on why the construction of a simple metro line ended up in a long legal battle.
Here is a quick summary of facts. In 2008, Delhi Airport Metro signed an agreement with DMRC to build the airport line which it could have run until 2038.The airport line was built and commissioned in February 2011.
Soon enough, in 2012, Delhi Airport Metro asked DMRC to defer the concession fee it had to pay, alleging delay in access to stations among eight ‘defects’ in providing the necessary support. It is suspected that this happened because traffic on the line was not up to expectations and viability of the project was in doubt. In July 2012, Delhi Airport Metro simply stopped operations alleging that it was unsafe to run the line and issued a termination notice to DMRC.
Serious efforts were initiated to resolve issues, but without success. However, the two companies came together to make a joint application to the commissioner of metro railway safety seeking to restart the airport line, in June 2013. Permission was granted, subject to several restrictions, and at a truncated speed of 50kmph (kilometres per hour); but the metro was up and running again. SC’s curative order notes that metro speed was progressively increased with permission from the safety commissioner and it, currently, operates at the top speed of 120kmph.
After conciliation attempts failed, the Delhi Airport Metro invoked arbitral proceedings in 2013, even though the metro was now running. In May 2017, a 3-member tribunal unanimously ruled in favour of the Anil Ambani company, in a sweeping order where DMRC was asked to pay a total of Rs8,000 crore including a termination payment of Rs2,782.33 crore, plus interest, plus some debt-service expenses as well as refund security deposits and bank guarantee. We will discuss details later.
The order, predictably, led to a chain of litigation. A petition filed in the Delhi High Court by the government-controlled DMRC was dismissed. So, it filed an appeal before the division bench of the High Court, which, significantly reversed the arbitral order. So Delhi Airport Metro now moved the SC with a special leave petition.
In 2021, a two-member bench of the Supreme Court overturned the Delhi HC division bench order and restored the arbitral award. But DMRC wasn’t giving up. It filed a review petition which was also dismissed. It then worked on a curative petition claiming grave miscarriage of justice and illegality. DMRC’s powerful legal team was able to persuade the SC to admit the petition and it was heard by the three senior-most judges led by the chief justice of India, DY Chandrachud.
Why Did the Curative Petition Overturn the SC Order of 2021?
Time favoured DMRC. Over time, it was clear that the eight ‘defects’ alleged by the Anil Ambani entity were addressed, to a great extent, since the metro was running smoothly for five and a half years, until the date of the award. The speed was also gradually allowed to be increased by the safety commissioner; but this did not impress the 3-member arbitral tribunal that ruled unanimously in favour of Delhi Airport Metro. One reason why the division bench of the Delhi High Court, hence, found the award to be perverse, irrational and patently illegal, was that it ignored the vital evidence about safety certification.
Interestingly, the SC’s curative order is pretty harsh on the its 2-member bench as well. It says, this bench failed to justify its ‘interference with the well-considered decision of the (Delhi High Court) Division Bench’ and, by overturning the order, had ended up reinstating ‘a patently illegal award, burdening a public utility with excessive liability’. It considered this a ‘grave miscarriage of justice’ warranting exercise of curative jurisdiction and set aside the arbitral order in its entirety.
The Fallout
The outcome of this legal saga extends far beyond the two litigants, affecting not only the financial stability of RInfra but also raises questions about corporate governance and accountability within the Anil Ambani group.
Immediately after the award, the big question was: How will Delhi Airport Metro refund nearly Rs3,000 crore to DMRC? Moneylife columnist, V Ranganathan’s column (Anil Ambani's Delhi Airport Metro: Courting a Curious Controversy!) has pointed out how RInfra had claimed that deposits by DMRC into an escrow account were ‘utilised to repay debts of Delhi Airport Metro to banks’. RInfra itself, he points out, has defaulted on various loan commitments and is mired in multiple litigations in various subsidiary companies. And yet, it informed stock exchanges that the verdict would have no implications for it.
How is this possible, asks Mr Ranganathan? It turns out that minister Hardeep Singh Puri, who has led the battle for DMRC, had insisted that the payments by DMRC would only go into an escrow account until the case was finally decided. This ensured that Delhi Airport Metro and RInfra never had access to the money. This fact is contrary to the claim in RInfra’s accounts statement that part-payment received from DMRC had been ‘utilised for its debt payments’ and explains why it does not have to pay any money after the order.
An upshot of the curative order is that Delhi Airport Metro is no longer a going concern; this has grave implications for the parent RInfra as well. Will the Securities and Exchange Board of India (SEBI) and the exchanges investigate the contradictions in RInfra’s stock exchange filings and accounts?
But then, this contradiction is fairly mild, when compared with other charges against Anil Ambani group entities. Consider the example of Reliance Capital which has been admitted to bankruptcy proceedings (IndusInd International Holdings has emerged the successful bidder). A scathing order by the national financial reporting authority (NFRA) earlier this week (Reliance Capital: NFRA Slaps Rs4.50 Crore Penalty on Pathak HD & Associates, 2 CAs for Professional Misconduct, Biased Auditing for FY18-19), reveals how the company was being run as a part of the Anil Ambani group.
NFRA imposed a penalty of Rs4.50 crore on the audit firm Pathak HD & Associates (PHD) and its two partners Parimal Kumar Jha and Vishal D Shah, holding them guilty of professional misconduct for their negligent audit of Reliance Capital Ltd for 2018-2019. Mr Jha and Mr Shah have been barred for 10 years and five years, respectively, from undertaking any audit-related activity. NFRA pointed out that the auditors failed to display diligence, despite Price Waterhouse & Co LLP (PW) having quit after raising suspicion of a massive Rs12,571 crore fraud in loans and investments to group entities.
With Reliance Communications already out of his control, the latest order marks a huge blow to Anil Ambani who had a personal net worth of over US$40bn (billion) and was listed among the 10 richest persons in the world, just after his split with Mukesh Ambani.
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