Full Judgment Text
2024 INSC 292
Reportable
IN THE SUPREME COURT OF INDIA
INHERENT JURISDICTION
Curative Petition (C) Nos.108-109 of 2022
In
Review Petition (C) Nos.1158-1159 of 2021
In
Civil Appeal Nos 5627-5628 of 2021
Delhi Metro Rail Corporation Ltd. …Petitioner
Versus
Delhi Airport Metro Express Pvt. Ltd. …Respondent
Signature Not Verified
Digitally signed by
Sanjay Kumar
Date: 2024.04.10
10:53:32 IST
Reason:
Page 1 of 39
PART A
J U D G M E N T
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents
A. Factual Background ................................................................................................... 3
B. DMRC’s claim and the Tribunal’s findings ............................................................. 7
.................................................................................... 10
C. Decisions of the High Court
........................................................................... 11
D. Judgment of this Court in appeal
E. Issues in the Curative Petition. .............................................................................. 12
F. Submissions .............................................................................................................. 12
G. Analysis ..................................................................................................................... 16
I. Curative Jurisdiction may be invoked if there is a miscarriage of justice. .. 16
II. Scope of interference of courts with arbitral awards .................................. 19
III. The award was patently illegal .................................................................. 24
i. Interpretation of the termination clause by the Tribunal was
unreasonable ................................................................................................. 26
ii. The award overlooked vital evidence and matters on the record ........... 29
H. Conclusion ................................................................................................................. 37
Page 2 of 39
PART A
1. The curative jurisdiction of this Court under Article 142 of the Constitution has
been invoked in regard to its decision in
Delhi Airport Metro Express
1
Private Limited vs. Delhi Metro Rail Corporation Ltd . . The judgment
2
remained undisturbed in the exercise of the review jurisdiction of this Court.
A. Factual Background
3
2. The petitioner, Delhi Metro Rail Corporation is a state-owned company wholly
owned by the Government of India and the National Capital Territory of Delhi.
4
The respondent, Delhi Airport Metro Express Private Limited is a special-
purpose vehicle incorporated by a consortium comprising of Reliance
Infrastructure Limited and Construcciones Y Auxiliar de Ferrocarriles SA,
Spain. The consortium bagged the contract for the construction, operation and
5
maintenance of the Delhi Airport Metro Express Ltd in 2008. The Concession
6
Agreement envisaged a public-private partnership for providing metro rail
connectivity between New Delhi Railway Station and the Indira Gandhi
International Airport and other points within Delhi.
3. Under the 2008 Agreement, DAMEPL was granted exclusive rights, license
and authority to implement the project and concession in respect of AMEL.
This included the right to manage and operate the Project as a commercial
enterprise. DMRC was to undertake clearances and bear costs relating to
land acquisition, and civil structures, while DAMEPL was to undertake among
1
(2022) 1 SCC 131.
2
Review Petition (C) Nos. 1158-1159/2921.
3
“DMRC”
4
“DAMEPL”/” Concessionaire”
5
“AMEL”
6
“2008 Agreement”
Page 3 of 39
PART A
other things, the design, supply, installation, testing and commissioning of
railway systems. DAMEPL was to complete the work in two years, and
thereafter, to maintain AMEL until August 2038.
4. In April 2012, DAMEPL sought a deferment of the concession fee, citing
delays in providing access to the stations by DMRC. DAMEPL stated that
while AMEL had been running without a glitch since 23 February 2011, the
retail activity had not picked pace. DAMEPL urged DMRC to extend their
support, to this first-of-its-kind public-private partnership by deferring the
concession fee payable by DAMEPL.
5. There was an exchange of correspondence between the parties which
ultimately led the Ministry of Urban Development to convene a meeting of
stakeholders in July 2012. A Joint Inspection Committee was set up to inspect
the defects alleged by DAMEPL.
6. Meanwhile, DAMEPL expressed its intention to halt operations, alleging that
the line was unsafe to operate. Operations were stopped on 08 July 2012. On
09 July 2012, DAMEPL issued a notice to DMRC containing a ‘non-
exhaustive’ list of eight defects which according to them, affected the
7
performance of their obligations under the 2008 Agreement . The notice
stated that the defects were attributable to faulty construction and deficient
designs which affected project safety.
7
“Cure Notice”
Page 4 of 39
PART A
7. DAMEPL stated that the defects caused a “material adverse effect” on the
performance of the obligations by it to operate, manage and maintain the
project. DMRC was therefore requested to cure the defects within 90 days
from the date of this notice, failing which it stated that it would be considered
that a “Material Breach” and a “DMRC Event of Default” had occasioned,
entitling DAMEPL to terminate the 2008 agreement.
8. On 8 October 2012, DAMPEL issued a notice terminating the 2008
8
agreement. The termination notice stated that as 90 days had elapsed since
the cure notice in spite of which the defects had not been cured within the
‘cure period’, DAMEPL as Concessionaire was terminating the agreement in
terms of clause 29.5.1 of the 2008 agreement.
9. DMRC initiated conciliation under clause 36.1 of the 2008 Agreement. Since
conciliation did not succeed, DMRC initiated arbitration proceedings on 23
October 2012 under clause 36.2 of the 2008 agreement.
10. On 30 June 2013, DAMEPL halted operations and handed over the line to
DMRC. Before this, on 19 November 2012, both parties made a joint
9
application to the Commissioner of Metro Railway Safety for re-opening of
AMEL for public carriage of passengers. Enclosed with the application, was
an administrative note jointly signed by representatives of both DAMEPL and
DMRC, which we shall avert to in the course of the judgment.
8
“Termination Notice”
9
“CMRS”/”Commissioner”
Page 5 of 39
PART A
11. Following this application, after inquiry and inspection, the CMRS issued
sanction on 18 January 2013. This sanction was subject to certain conditions
including speed restrictions. Specifically, the metro was to be run at a speed
of 50kmph, and an increase in speed beyond 50kmph up to 80kmph was to
be authorized in steps of 10kmph at a time. For an increase in speed beyond
80kmph, DMRC was to approach the Commissioner for sanction with a
justification as to the improvements carried out by it.
12. Consequently, on 22 January 2013, AMEL operations were commenced by
DAMEPL. On 30 June 2013, the project assets were handed over by
DAMEPL to DMRC. After that, from 01 July 2013, DMRC continued AMEL
operations.
13. In August 2013, the arbitral tribunal comprising Mr AP Mishra, Mr SS Khurana
10
and Mr HL Bajaj was constituted. On 11 May 2017, the three-member
11
Tribunal passed a unanimous award in favour of DAMEPL .
14. The award held that DAMEPL was entitled first, to the termination payment of
Rs. 2782.33 Crores plus interest terms of the concession agreement;
in
second, to expenses incurred in operating AMEL from 07 January 2013 to 30
June 2013 and debt service made by DAMEPL during this period, of Rs
147.52 Crores plus interest at 11% per annum from the date of payment of
stamp duty; third, to the refund of the bank guarantee amounting to Rs 62.07
Crores plus interest at 11% p.a. which had been encashed; to security
fourth,
deposits with the service providers, amounting to Rs 56.8 Lakhs plus interest
10
“Tribunal”
11
“Award”
Page 6 of 39
PART B
at 11% p.a.; and that DMRC was entitled to Rs 46.04 Crores as Concession
fee for the period from 23 February 2012 to 7 January 2013.
15. Assailing the award, DMRC instituted an application under Section 34 of the
12
Arbitration and Conciliation Act 1996 before the Delhi High Court. The
13
Single-Judge of the High Court dismissed the petition . This gave rise to an
appeal under Section 37 before a Division Bench of the High Court. The
14
appeal was partly allowed.
16. Against the decision of the Division Bench of the High Court, DAMEPL moved
a Special Leave Petition under Article 136 of the Constitution. A two-judge
bench of this Court allowed the appeal, and restored the award. The review
petition assailing this decision was dismissed. Thus, the curative petition.
B. DMRC’s claim and the Tribunal’s findings
17. Before the Tribunal, DMRC claimed that – (i) it took steps to cure the defects
immediately after it received the cure notice, including approaching SYSTRA -
the original design consultant and convening meetings with the Ministry of
Urban Development and that DAMEPL actively participated in all of these
steps; (ii) that the real reason for the termination notice was that DAMPL had
ceased to find the project financially viable. DMRC sought, inter alia , quashing
of the termination notice; and a direction to the respondent to resume the
performance of its obligations under the 2008 agreement. DAMEPL, on the
other hand, claimed that there were defects attributable to DMRC’s faulty
12
“Arbitration Act”.
13
OMP (COMM) 307/2017 & OMP (I) (COMM) 200/2017 (‘Single Judge’)
14
FAO(OS)(COMM) 58/2018 & CM Nos. 13434/2018 (‘Division Bench’)
Page 7 of 39
PART B
design; that these defects were not cured and no effective steps were taken to
cure them within the 90-day cure period, resulting in material adverse effects
to DAMEPL, entitling it to terminate the concession agreement.
18. The Tribunal was required to adjudicate on the validity of the termination
notice. It framed the following issues:
“Were there any defects in the civil structure of the
airport metro line?
If there were defects, did such defects have a
material adverse effect on the performance of the
obligation of DAMEPL under CA?
If there were defects in the civil structure, which
had a material adverse effect on the performance
of the obligations under the CA by DAMEPL, have
such defects been cured by DMRC and/or have
any effective steps been taken within a period of
90 days from the date of notice by DAMEPL to
cure the defects by DMRC and thus, were DMRC
in breach of the CA as per 29.5.1 (i)?”
19. The Tribunal undertook an analysis of the defects in the structure and whether
they had been cured or effective steps taken during the cure period. It noted
that 72% of the girders were affected by cracks; the cause of the cracks was
uncertain; the depth of the cracks was not reliably determined; and that the
inspection for repairs carried out at the instance of DMRC was ‘non-serious’.
Further, it noted that there were twists in about 80 girders and gaps between
the shear key and the girders which were not cured by DMRC in the cure
period. Taken together, these defects were considered to have compromised
the integrity of the structure. This, the Tribunal held, amounted to a breach of
DMRC’s obligations under the 2008 agreement resulting in a material adverse
effect on the concessionaire.
Page 8 of 39
PART B
20. The Tribunal framed the legal issues that arose for its consideration. The
issue about the validity of the termination agreement was framed in the
following terms:
“D. Was DAMEPL entitled to or justified in
termination of the CA, since the cost of repairs of
the alleged defects was only approximately Rs.14
crores as compared to the total costs of the project
of approximately Rs. 5700 crores?”
21. The issue pertaining to the CMRS certificate was framed as follows:
“H. Did the issuance of certificate by CMRS show
that the defects were duly cured?”
22. Both these issues were answered in the negative by the Tribunal. On Issue
‘D’ about the validity of the termination, it was held that since the Tribunal had
found that there were defects in the civil structure, which remained uncured
during the cure period, the amount incurred by DMRC in repairs compared to
15
the overall cost of the project was irrelevant. On issue ‘H’, about the CMRS
certificate, the tribunal found that the CMRS sanction mandated rigorous
monitoring of operations of the line and imposed a speed restriction. Since the
purpose of the line was to serve as a high-speed line, the tribunal found that
the speed restrictions meant that this purpose was not served and therefore,
the CMRS certificate or the subsequent operation of the line were not relevant
16
in deciding the issues before it.
15
The Award, para 93.
16
ibid, paras 105-108.
Page 9 of 39
PART C
C. Decisions of the High Court
17
23. The Single Judge of the High Court deciding the Section 34 application
, ,
upheld the award, observing that so long as the award was reasonable and
plausible, considering the material before the Tribunal no interference was
warranted, even if an alternate view was possible. It was held that the
Tribunal, in this case, had analysed material and evidence in great detail, and
arrived at a plausible conclusion.
18
24. The Division Bench of the High Court partly set aside the award as perverse
and patently illegal, for the following reasons:
24.1. On the validity of the termination, ex-facie, the termination which
was effective immediately from the date of termination was invalid. There
was some ambiguity on the relevant date of termination. The award did
not interpret clause 29.5.1(i) of the concession agreement regarding the
duration of the cure period;
24.2. The speed restrictions were not stated as the reason for termination
in the cure or termination notices and there was no deliberation on this
being a justification for termination before the Tribunal. Thus, the award
was silent and unreasoned on this issue; and
24.3. Underlining the significance of the CMRS sanction under the Act of
2002, the findings of the tribunal on this issue were incorrect because (i)
the award overlooked the legal effect of the CMRS certificate which was
17
“Single Judge”.
18
“Division Bench”.
Page 10 of 39
PART D
binding on the tribunal; and (ii) the award erroneously treated the CMRS
certificate as irrelevant to the issue of the validity of the termination by
wrongly separating the issue of defects and material adverse effects from
the issue of the certificate.
D. Judgment of this Court in appeal
25. This Court set aside the decision of the Division Bench and restored the
arbitral award on the following grounds:
25.1. There was no ambiguity in the date of termination and even if a
different view from that of the tribunal were possible, construction of the
provisions of the contract was within the exclusive domain of the tribunal;
25.2. The award was not perverse. The finding of the tribunal that the
defects were not cured was a finding of fact, not warranting interference;
25.3. DMRC had not contended before the Tribunal that the certificate
was binding and conclusive of the fact that the defects were cured or that
effective steps had been taken; and
25.4. The Division Bench of the High Court was in error in holding that the
issue of the CMRS certificate was wrongly separated from the issue of
defects. It held that dealing with the certificate separately from the validity
of termination did not render the tribunal’s findings on the latter erroneous.
The Tribunal comprised of engineers and the award could not be
scrutinised in the same manner as an award drawn by a legally trained
mind.
Page 11 of 39
PARTs E/F
26. The review petition against the above judgment of this Court was dismissed
on 23 November 2021.
E. Issues in the Curative Petition
27. The issues that arise for our consideration are (i) whether the curative petition
is maintainable; and (ii) whether this Court was justified in restoring the arbitral
award which had been set aside by the Division Bench of the High court on
the ground that it suffered from patently illegality.
F. Submissions
28. We have heard Mr R Venkataramani, Attorney General for India and Mr K K
Venugopal, Mr Parag Tripathi, and Mr Maninder Singh senior counsel on
behalf of the petitioners. They made the following submissions:
28.1. Considering the definition of ‘material adverse effect’ under the
concession agreement, the defects had no material adverse effect on
DAMEPL’s performance of obligations under the agreement, as is
apparent from the running of the metro line. The purpose of the
agreement was fully subserved, as evinced by the continuous running of
the line;
28.2. The purpose of the cure notice was to demand cure compliance
from DMRC. As long as ‘effective steps’ were taken by DMRC,
culminating in cure compliance under the statutory process under the
Page 12 of 39
PART F
19
Metro Railways (Operation and Maintenance) Act, 2002 , the termination
notice was invalid;
28.3. Clause 29.5.1 of the agreement shows that the termination ought to
have been effected after 90 days from the cure notice plus 90 days in
addition. Termination was thus effective only on 07 January 2013 and on
this date, none of the defects were pending to be rectified by DMRC;
28.4. The sanction/certificate granted by CMRS was issued on a joint
application by both the parties after thorough inspection of the operations.
The terms of the agreement and the provisions relating to the CMRS
process under the 2002 Act are intrinsically connected;
28.5. The Tribunal should have considered the binding effect of the
CMRS sanction as the issue of speed was neither raised, nor deliberated
before it and was irrelevant to the termination;
28.6. The line has been running since 1 July 2013. The speed of
operations was sanctioned at 50kmph, and has been progressively
increased to 60 kmph in January 2013, 80 kmph in August 2013, 90 kmph
in July 2019, and ultimately 100 kmph and then 110 kmph in 2023. The
metro was running at 80 kmph prior to the termination of the agreement. It
is currently running at 120kmph for which a fresh sanction was obtained
from the CMRS. The smooth operation of the metro line for five and a half
years, until the date of the award was entirely ignored by the Tribunal,
making the award perverse;
19
The 2002 Act
Page 13 of 39
PART F
28.7. The running of the metro line shows that even if there were defects,
they did not render the metro unviable nor did they interfere with
DAMEPL’s obligations under the agreement. Thus, the award is perverse
and patently illegal;
28.8. The tribunal ignored vital evidence, warranting the High Court’s
interference under Section 37 of the Arbitration Act. The miscarriage of
justice principle is informed by the scheme of the Arbitration Act;
28.9. The High Court’s interference with the patent illegality was justified
and this Court under Article 136 ought to have been slow to interfere with
the decision of the Division Bench of the high Court. Miscarriage of justice
20
in terms of the decision in Rupa Hurra vs. Ashok Hurra is linked with
patent illegality. The High Court’s interference under Section 37 was
justified because the exercise of jurisdiction under Section 34 was
erroneous; and
28.10. The issue of the fitness of the line was a matter falling under the
2002 Act under which the Commissioner was the final authority to decide
on the safety of the metro. The certificate could not have been substituted
by the Tribunal’s finding on safety of the line.
29. We have heard Mr Harish Salve, Mr Kapil Sibal, Mr JJ Bhatt and Mr Prateek
Seksaria, learned senior counsel for the respondent. They have made the
following submissions:
20
2002 4 SCC 388.
Page 14 of 39
PART F
29.1. The curative petition is not maintainable as this Court cannot revisit
the conclusions arrived at by the Tribunal;
29.2. DMRC has taken over the project and has been operating it since
01 July 2012 without having paid for its operation between 01 January
2013 till 30 June 2013, except for a small fraction of the total awarded
amount;
29.3. Till early March 2023, the trains were running at 90kmph, as
opposed to the speed of 120kmph at which they ought to have been
running;
29.4. The issue about the relevance of the CMRS certificate has been
squarely addressed by the Single Judge and this Court. The arbitrator is
the sole judge of the quality and the quantity of evidence;
29.5. The award was made after 68 hearings and after consideration of
35,000 pages of documents and oral evidence. It has been two and a half
years since this Court restored the award on 09 September 2021 and the
review against this decision was dismissed on 23 November 2021;
29.6. According to the decision in Rupa Hurra (supra), the court is not
supposed to sit over a judgment like a court of appeal. The scope of the
review jurisdiction is narrow in itself and does not warrant rehearing and
correction of a judgment. Curative proceedings cannot be treated as a
second review; and
Page 15 of 39
PART G
29.7. DAMEPL is not unjustly enriching itself. DAMEPL completed the
project with an investment of Rs 2802 Crores comprising of debt and
equity contributions and it continued to service the debt even after
handing over the line to DMRC. DMRC on the other hand, has paid the
decretal amount of Rs 2599.18 Crores while Rs 5088 Crores under the
decree is outstanding as on 31 January 2024.
G. Analysis
I. Curative Jurisdiction may be invoked if there is a miscarriage of
justice
30. Senior Counsel for the respondent set forth preliminary objections challenging
the maintainability of the Curative Petition, in view of the scope of that
jurisdiction delineated inter alia in the decision in Rupa Hurra (supra) We will
first lay down the contours of the jurisdiction of this Court to entertain a
curative petition in exercise of its inherent powers under Article 142.
31. In Rupa Hurra (supra), a Constitution Bench of this Court dwelt on whether
any relief is available against a final judgement of this Court after the
dismissal of a petition seeking review of the judgement. Two opinions were
authored. The main judgment was by Justice Syed Shah Quadri (on behalf of
Chief Justice S P Bharucha, Justice Variava, Justice Shivraj Patil and
himself). A concurring opinion was authored by Justice U C Banerjee.
32. Justice Quadri observed that the concern of the Court for rendering justice in
a cause cannot be considered less important than the principle of finality.
Page 16 of 39
PART G
There are certain situations, the opinion observed, which would require
reconsideration of a final judgement even after the review has been dismissed
to set right a miscarriage of justice. Such circumstances, the court held, are
those where declining to reconsider the judgement would be oppressive to
judicial conscience and cause the perpetuation of irremediable injustice.
Justice Quadri observed:
“ 42. … the duty to do justice in these rarest of rare
cases shall have to prevail over the policy of
certainty of judgment as though it is essentially in
the public interest that a final judgment of the final
court in the country should not be open to
challenge, yet there may be circumstances, as
mentioned above, wherein declining to
reconsider the judgment would be oppressive
to judicial conscience and would cause
”
perpetuation of irremediable injustice.
(emphasis supplied)
33. This Court laid down an overarching principle that the Court may entertain a
curative petition to (i) prevent abuse of its process; and (ii) to cure a gross
21
miscarriage of justice. The Court provided examples of such circumstances,
such as a violation of the principles of natural justice; or a situation where the
Judge fails to disclose his connection with the subject matter or the parties,
giving scope for an apprehension of bias. However, the Court observed that it
is not possible to exhaustively enumerate the grounds on which a curative
petition may be entertained. The Court noted as follows:
“50. The next step is to specify the requirements to
entertain such a curative petition under the
inherent power of this Court so that floodgates are
21
Rupa Hurra, para 49.
Page 17 of 39
PART G
not opened for filing a second review petition as a
matter of course in the guise of a curative petition
under inherent power. It is common ground that
except when very strong reasons exist, the Court
should not entertain an application seeking
reconsideration of an order of this Court which has
become final on dismissal of a review petition
. It is
neither advisable nor possible to enumerate all
the grounds on which such a petition may be
entertained.
51. Nevertheless, we think that a petitioner is
entitled to relief ex debito justitiae if he establishes
(1) violation of the principles of natural justice in
that he was not a party to the lis but the judgment
adversely affected his interests or, if he was a
party to the lis, he was not served with notice of the
proceedings and the matter proceeded as if he had
notice, and (2) where in the proceedings a learned
Judge failed to disclose his connection with the
subject-matter or the parties giving scope for an
apprehension of bias and the judgment adversely
affects the petitioner.”
34. The enumeration of the situations in which the curative jurisdiction can be
exercised is thus not intended to be exhaustive. The Court went on to lay
down certain procedural requirements to entertain a curative petition such as
a certificate by a Senior Advocate about fulfilling of the requirements.
35. In his concurring opinion, Justice Banerjee also laid down a similar test of
‘manifest injustice’ to exercise the jurisdiction of this Court under Article 142
while entertaining a curative petition. In essence, the jurisdiction of this Court,
while deciding a curative petition, extends to cases where the Court acts
beyond its jurisdiction, resulting in a grave miscarriage of justice. We now
proceed to lay down the scope of jurisdiction of this Court and the competent
Page 18 of 39
PART G
courts below while dealing with cases arising out of an application to set aside
an arbitral award under Section 34 of the Arbitration Act.
II. Scope of interference of courts with arbitral awards
36. Section 34 of the Arbitration Act delineates the grounds for setting aside an
arbitral award. The provision, as amended by the Arbitration and Conciliation
(Amendment) Act, 2015 reads as follows:
“34. Application for setting aside arbitral award.—
…
(2) An arbitral award may be set aside by the Court
only if—
…
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable
of settlement by arbitration under the law for the
time being in force, or
(ii) the arbitral award is in conflict with the public
policy of India.
Explanation 1. --For the avoidance of any doubt, it
is clarified that an award is in conflict with the
public policy of India, only if,--
(i) the making of the award was induced or affected
by fraud or corruption or was in violation of section
75 or section 81; or
(ii) it is in contravention with the fundamental policy
of Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2. --For the avoidance of doubt, the
test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a
review on the merits of the dispute.
Page 19 of 39
PART G
(2A) An arbitral award arising out of arbitrations
other than international commercial
arbitrations, may also be set aside by the
Court, if the Court finds that the award is
vitiated by patent illegality appearing on the
face of the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous application
of the law or by reappreciation of evidence.”
(emphasis supplied)
37. The contours of the power of the competent court to set aside an award under
Section 34 has been explored in several decisions of this Court. In addition to
the grounds on which an arbitral award can be assailed laid down in Section
34(2), there is another ground for challenge against domestic awards, such as
the award in the present case. Under Section 34(2-A) of the Arbitration Act, a
domestic award may be set aside if the Court finds that it is vitiated by ‘patent
illegality’ appearing on the face of the award.
22
38. In Associate Builders vs. Delhi Development Authority , a two-judge
Bench of this Court held that although the interpretation of a contract is
exclusively within the domain of the arbitrator, construction of a contract in a
manner that no fair-minded or reasonable person would take, is
impermissible. A patent illegality arises where the arbitrator adopts a view
which is not a possible view. A view can be regarded as not even a possible
view where no reasonable body of persons could possibly have taken it. This
Court held with reference to Sections 28(1)(a) and 28(3), that the arbitrator
must take into account the terms of the contract and the usages of trade
applicable to the transaction. The decision or award should not be perverse or
22
2015 3 SCC 49.
Page 20 of 39
PART G
irrational. An award is rendered perverse or irrational where the findings are (i)
based on no evidence; (ii) based on irrelevant material; or (iii) ignores vital
evidence. Patent illegality may also arise where the award is in breach of the
provisions of the arbitration statute, as when for instance the award contains
no reasons at all, so as to be described as unreasoned. A fundamental breach
of the principles of natural justice will result in a patent illegality, where for
instance the arbitrator has let in evidence behind the back of a party. In the
above decision, this Court observed:
“ 31. The third juristic principle is that a decision
which is perverse or so irrational that no
reasonable person would have arrived at the same
is important and requires some degree of
explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it arrives
at; or
(iii) ignores vital evidence in arriving at its
decision,
such decision would necessarily be perverse.
…
42.2. (b) A contravention of the Arbitration Act itself
would be regarded as a patent illegality — for
example if an arbitrator gives no reasons for an
award in contravention of Section 31(3) of the
Act, such award will be liable to be set aside .”
(emphasis supplied)
Page 21 of 39
PART G
23
39. In Ssangyong Engineering & Construction Co. Ltd. vs. NHAI , a two-
judge bench of this Court endorsed the position in
Associate Builders
(supra), on the scope for interference with domestic awards, even after the
2015 Amendment:
“ 40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in
paras 42.3 to 45 in Associate Builders , namely,
that the construction of the terms of a contract is
primarily for an arbitrator to decide, unless the
arbitrator construes the contract in a manner
that no fair-minded or reasonable person
would; in short, that the arbitrator's view is not
even a possible view to take. Also, if the
arbitrator wanders outside the contract and
deals with matters not allotted to him, he
commits an error of jurisdiction. This ground of
challenge will now fall within the new ground
added under Section 34(2-A).
…
41. Thus, a finding based on no evidence at
all or an award which ignores vital evidence in
arriving at its decision would be perverse and
liable to be set aside on the ground of patent
illegality. Additionally, a finding based on
documents taken behind the back of the parties by
the arbitrator would also qualify as a decision
based on no evidence inasmuch as such decision
is not based on evidence led by the parties, and
therefore, would also have to be characterised as
perverse.”
(emphasis supplied)
40. In essence, the ground of patent illegality is available for setting aside a
domestic award, if the decision of the arbitrator is found to be perverse, or so
irrational that no reasonable person would have arrived at it; or the
23
2019 15 SCC 131.
Page 22 of 39
PART G
construction of the contract is such that no fair or reasonable person would
24
take; or, that the view of the arbitrator is not even a possible view. A ‘finding’
based on no evidence at all or an award which ignores vital evidence in
arriving at its decision would be perverse and liable to be set aside under the
head of ‘patent illegality’. An award without reasons would suffer from patent
illegality. The arbitrator commits a patent illegality by deciding a matter not
within his jurisdiction or violating a fundamental principle of natural justice.
41. A judgment setting aside or refusing to set aside an arbitral award under
Section 34 is appealable in the exercise of the jurisdiction of the court under
Section 37 of the Arbitration Act. It has been clarified by this Court, in a line of
precedent, that the jurisdiction under Section 37 of the Arbitration Act is akin
to the jurisdiction of the Court under Section 34 and restricted to the same
25
grounds of challenge as Section 34.
42. In the statutory scheme of the Arbitration Act, a recourse to Section 37 is the
only appellate remedy available against a decision under Section 34. The
Constitution, however, provides the parties with a remedy under Article 136
against a decision rendered in appeal under Section 37. This is the
discretionary and exceptional jurisdiction of this Court to grant Special Leave
to Appeal. In fact, Section 37(3) of the Arbitration Act expressly clarifies that
no second appeal shall lie from an order passed under Section 37, but nothing
in the section takes away the constitutional right under Article 136. Therefore,
in a sense, there is a third stage at which this court tests the exercise of
24
Patel Engineering Limited vs North Eastern Electric Power Corporation Limited (2020) 7 SCC 176.
25
MMTC Ltd. v. Vedanta Ltd, (2019) 4 SCC 163, para 14; Konkan Railways v. Chenab Bridge Project
Undertaking, 2023 INSC 742, para 14.
Page 23 of 39
PART G
jurisdiction by the courts acting under Section 34 and Section 37 of the
Arbitration Act.
43. While adjudicating the merits of a Special Leave Petition and exercising its
power under Article 136, this Court must interfere sparingly and only when
exceptional circumstances exist, justifying the exercise of this Court’s
26
discretion. The Court must apply settled principles of judicial review such as
whether the findings of the High Court are borne out from the record or are
based on a misappreciation of law and fact. In particular, this Court must be
slow in interfering with a judgement delivered in exercise of powers under
Section 37 unless there is an error in exercising of the jurisdiction by the Court
under Section 37 as delineated above. Unlike the exercise of power under
Section 37, which is akin to Section 34, this Court (under Article 136) must
limit itself to testing whether the court acting under Section 37 exceeded its
jurisdiction by failing to apply the correct tests to assail the award.
III. The award was patently illegal
44. In the case at hand, the Division Bench found the award to be perverse,
irrational and patently illegal since it ignored the vital evidence of CMRS
certification in deciding the validity of termination. This, the Division Bench
held, overlooked the statutory certification deeming it irrelevant without
reasons and thus the award was patently illegal according to the test in
27
(supra).
Associate Builders
26
Chandi Prasad Chokhani v. State of Bihar, AIR 1961 SC 1708; Pritam Singh v. State, 1950 SCC 189.
27
Division Bench, paras 98-99.
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PART G
45. This Court in appeal against the judgment of the Division Bench of the High
Court held that the award was not perverse. Factual findings such as the
finding that the cure period was 90 days and that DAMEPL was entitled to
28
terminate the contract, could not, it was held, be interfered with. On the
CMRS Certificate, this Court held that the arbitral tribunal was deciding
whether there was a breach of the agreement and whether the defects were
cured within the cure period; hence the safety of the line was not an issue
before the tribunal. This Court held that the Commissioner may be the
competent authority to determine the safety of the project but the certificate
itself did not show that the defects were within 90 days. This Court
cured
disagreed with the Division Bench and held that the CMRS certificate had no
bearing on the validity of the termination.
46. There is a fundamental error in the manner in which this Court dealt with the
challenge to the decision of the High Court. This jurisdiction of this Court was
invoked under Article 136 of the Constitution. The Court was exercising its
jurisdiction over a decision rendered by the Division Bench of the High Court
in appeal under Section 37. The Division Bench had held that the award
overlooked crucial facts and evidence on record that were crucial to the
determination of the issues before the arbitral tribunal. This led to the award
being perverse and patently illegal within the parameters of Section 34 as
explained in the judgments of this Court in (supra) and
Associate Builders
Ssangyong (supra). The award overlooked the express terms of clause
29.5.1(i) which stipulated that if “effective steps” were taken during the cure
28
Civil Appeal, para 31.
Page 25 of 39
PART G
period by DMRC, the contractual power to terminate could not be exercised.
This Court incorrectly considered the CMRS certificate to be irrelevant to the
validity of the termination.
i. Interpretation of the termination clause by the Tribunal was
unreasonable
47. Interference with an arbitral award cannot frustrate the ‘ commercial wisdom
behind opting for alternate dispute resolution ’, merely because an alternate
29
view exists. However, the interpretation of a contract cannot be
unreasonable, such that no person of ordinary prudence would take it. The
contract, which is a culmination of the parties’ agency, should be given full
effect. If the interpretation of the terms of the contract as adopted by the
30
tribunal was not even a possible view, the award is perverse.
48. Clause 29.5.1(i) entitles the concessionaire to terminate the agreement if
DMRC “failed to cure such breach or take effective steps for curing such
breach” within the cure period. Pertinently, the clause uses two separate
phrases, “cure” and “effective steps to cure”. The clause reads as follows:
“29.5.1 The Concessionaire may after giving 90
(ninety) days’ notice in writing to DMRC terminate
this Agreement upon the occurrence and
continuation of any of the following events (each a
“DMRC Event of Default”), unless any such DMRC
Event of Default has occurred as a result of
Concessionaire Event of Default or due to a Force
Majeure Event.
(i) DMRC is in breach of this Agreement and such
breach has a Material Adverse Effect on the
29
Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1, paras 24, 25.
30
Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking, 2023 9 SCC 85.
Page 26 of 39
PART G
Concessionaire and DMRC has failed to cure
such breach or take effective steps for curing
within 90 (ninety) days of receipt of
such breach
notice in this behalf from the Concessionaire;”
(emphasis supplied)
49. The Tribunal found that since certain defects remained after the cure period,
this was indicative of the fact that the defects were not cured and that no
effective steps were taken. However, logically, the fact that defects existed at
the end of the cure period relates to one aspect of the termination clause –
that the defects were not completely cured. It does not explain whether
effective steps were taken within the cure period. Effectively, the Tribunal
considered that in-progress steps that had not yet culminated into completely
cured defects were not “effective steps” to offset termination. This places the
two components i.e. ‘curing of defects’ and ‘taking effective steps to cure
defects’ at par, to mean that only the completed curing of defects is relevant.
The Tribunal fails to explain what amounts to an ‘effective step’ and how the
steps taken by DMRC were not effective, within the meaning of the phrase.
50. Evidently, this could not have been the intention of the parties, because they
have clearly agreed to include the phrase “effective steps”. They clearly
intended that once a cure notice was served on a party, it would be open to
them to either cure defects or to initiate effective steps, even if they could not
culminate into the complete curing of defects within the cure period.
Incremental progress, even if it does not lead to complete cure, is an
acceptable course of action to prevent termination according to the 2008
Agreement.
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PART G
51. The Tribunal did not appreciate the individual import of the two phrases
separately from each other. This was not a matter of mere “alternate
interpretation” of the clause, but an unreasonable and uncalled for
interpretation of the clause, which frustrated the very provision, and which no
reasonable person would have accepted considering the terms of the clause.
We must clarify that Tribunal could have still arrived at the conclusion that the
steps taken during the cure period were not effective within the meaning of the
clause for certain reasons. However, such discussion and reasoning is
conspicuously absent.
52. Issue H framed by the Tribunal- “ Did the issuance of certificate by CMRS
show that the defects were duly cured ” similarly glosses over the effective
steps aspect of the clause. Given this framing, the issue was bound to be
answered in the negative since the CMRS certificate does not conclude that
the defects were completely cured.
53. The decisions of the Single Judge and this Court are similarly silent on the
aspect of “effective steps”. In paragraphs 31 to 34 of its judgment, this Court
noted that since the defects were not cured in 90 days, the termination was
valid. Impliedly, this Court found that the defects ought to have been
fully
cured within the cure period in order to avoid termination.
54. The judgment of this Court also never tested the relevance of the CMRS
certificate vis-à-vis “effective steps”. This Court accepted a reading of the
termination clause by the Arbitral tribunal and the Single Judge that was not
even a possible view and could not have been arrived at on any objective
Page 28 of 39
PART G
assessment. This Court not only overlooked the plain words of the clause but
also rendered the phrase “effective steps” otiose.
ii. The award overlooked vital evidence and matters on the record
55. The erroneous and misleading framing of the issue as noted above led to the
ignoring of vital evidence relevant to the issue of termination. The arbitral
tribunal held that since the Commissioner imposed conditions of inspection
and speed restrictions, this meant that the defects were not fully cured.
56. Certainly, the imposition of conditions shows that the defects were not cured
completely, to warrant an unconditional sanction for full speed operations.
However, as the Division Bench of the High Court correctly observed, the
separation of the validity of termination and relevance of the CMRS certificate
was the reason for this erroneous finding. Since the ‘effective steps’ aspect
was overlooked, the CMRS certificate was erroneously deemed to be
irrelevant.
57. On 19 November 2012, a joint application was made by the parties to the
Commissioner under the 2002 Act. Significantly, the annexure to the
application which was jointly signed by the parties states as set out below:
“f)
The repairs have been Inspected by an
Independent Engineer M/s TUV, engaged by
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PART G
DMRC to conduct the technical check on the
quality of work and to ensure that the repairs
are carried out as per the approved repair
. The copies of the certificates
methodology
obtained from TUV are enclosed as Annexures
xvii.
g) Cracks in soffit of some ‘U’ girders were also
observed and, therefore, inspection of all the
girders have been done and mapping of the cracks
have been undertaken accordingly (Annexure-
xviii). Cracks have beery noticed in 367 girders.
These cracks were analysed by M/s SYSTRA and
their report is, enclosed as Annexure xix. They
have concluded that there is no effect on the
integrity of the girders and that there is no
reason to-be further worried . M/s SYSTRA have
also given the repair methodology for these cracks
from the point of view of durability and to avoid
permeation of water during the service life of
girders, (Included in Annexure-xvi). Accordingly,
the cracks wider than 0.2 mm have been Injected
with epoxy resin and cracks less than 0.2 mm have
been sealed with epoxy sealant.
h)
Train trials after repairs by DMRC have been
completed successfully and all systems have
been checked for correct functioning at various
speeds Including at speed of 120 kmph. Track
recording was done with OMS-2000 during these
trials and no peak of value ≥ 0.15g was recorded
upto 120 Kmph (results of OMS 2000 are enclosed
in Annexure XIV)”
(emphasis supplied)
58. Admittedly, some of the defects were cured in their entirety and steps were
taken by DMRC to cure the remainders, based on which the parties had jointly
sought permission under the 2002 Act. The parties stated that the repairs had
been inspected by an independent engineer; an analysis of the cracks
revealed that the integrity of the girders was intact and there was no cause of
concern. Further, the parties stated that the train trials “after repairs by DMRC
have been completed successfully and all systems have been checked for
Page 30 of 39
PART G
correct functioning at various speeds including the speed of 120kmph”. It is
apparent on the face of the record that certain repairs were completed by
DMRC and the trials had been completed at full speed as on the date of
application, 19 November 2012.
59. On 9 July 2012, about four months before the date of the joint application,
DAMEPL had averred in the cure notice that the project was not ‘safe for
operations’ and that it posed a threat to life and property. The arbitral tribunal
was correct in concluding that the joint application does not constitute a
waiver of the termination, but this evidence was vital considering the change
in DAMEPL’s position on the safety of the line from the date of the cure notice
to the date of the joint application. DMRC did take certain steps to alleviate
DAMEPL’s concerns so as to warrant this change of position. There is no
explanation forthcoming in the award about why none of these steps initiated
during the cure period were ‘effective steps’ . This gap in reasoning stems from
the arbitral tribunal wrongly separating the issue of termination and the CMRS
certificate.
60. Besides the effective steps aspect, there is another reason why the CMRS
certificate ought to have been treated as relevant. The Tribunal treats the cure
notice as a crucial document . At paragraph 26 of the award, it noted that
th
“since the cure notice dated 9 July 2012 is a crucial document in this case, it
is useful to quote certain paragraphs of the said letter” . The cure notice, in
31
turn, was heavily premised on the safety of operations. Interestingly, at
paragraph 27 of the cure notice, DAMEPL avers that the trains can only be
31
Cure Notice paras 18,21,26, and 27.
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PART G
operated once the defects are cured to the satisfaction of the stakeholders
about the safety of operations.
61. Reference may be made to the 2002 Act under which the CMRS is the
relevant statutory stakeholder whose satisfaction about the safety of
operations is necessary for running of the metro. The relevant provisions of
the Act may be adverted to here:
“ 14. Sanction of Central Government to the
opening of metro railway .—The metro railway in
the the National Capital Region, metropolitan city
and metropolitan area shall not be opened for the
public carriage of passengers except with the
previous sanction of the Central Government.
15. Formalities to be complied with before
giving sanction to the opening of metro
—(1) The Central Government shall,
railway.
before giving its sanction to the opening of the
metro railway under Section 14, obtain a report
from the Commissioner that—
(a) he has made a careful inspection of the metro
railway and the rolling stock that may be used
thereon;
(b) the moving and fixed dimensions as laid down
by the Central Government have not been
infringed;
(c) the track structure, strength of bridges,
standards of signalling system, traction system,
general structural character of civil works and the
size of, and maximum gross load upon, the axles
of any rolling stock, comply with the requirements
laid down by the Central Government; and
(d) in his opinion, metro railway can be opened for
the public carriage of passengers without any
danger to the public using it.
(2) If the Commissioner is of the opinion that the
metro railway cannot be opened without any
danger to the public using it, he shall, in his report,
state the grounds therefor, as also the
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PART G
requirements which, in his opinion, are to be
complied with before sanction is given by the
Central Government.
(3) The Central Government, after considering the
report of the Commissioner, may sanction the
opening of the metro railway under Section 14 as
such or subject to such conditions as may be
considered necessary by it for the safety of the
public.
18. Power to close metro railway opened for
public carriage of passengers. —Where, after the
inspection of the metro railway opened and used
for the public carriage of passengers or any rolling
stock used thereon, the Commissioner is of the
opinion that the use of the metro railway or of any
rolling stock will be attended with danger to the
public using it, the Commissioner shall send a
report to the Central Government who may
thereupon direct that—
(i) the metro railway be closed for the public
carriage of passengers; or
(ii) the use of the rolling stock be discontinued; or
(iii) the metro railway or the rolling stock may be
used for the public carriage of passengers subject
to such conditions as it may consider necessary for
the safety of the public.
21. Delegation of powers .—The Central
Government may, by notification, direct that any of
its powers or functions under this chapter, except
power to make rule under Section 22, shall, in
relation to such matters and subject to such
conditions, if any, as may be specified in the
notification, be exercised or discharged also by the
Commissioner.”
Page 33 of 39
PART G
62. In essence, the scheme of the 2002 Act, provides that no metro line will
32
operate except with the previous sanction of the Central Government.
Before granting the sanction, the Central Government has to obtain a report
from the Commissioner that (inter alia) the latter has carefully inspected the
metro railway, the general structure of civil works and that in their opinion, the
metro railway can be opened for passengers without any danger to the
33
public. The Central Government may sanction the opening of the line as
34
such or subject to conditions it considers necessary for public safety. If the
Commissioner is of the opinion that the use of the metro will “attend danger to
the public using it”, they may send a report to the Central Government, which
may in turn direct that the metro be closed or may be open for public carriage
35
only subject to certain conditions. The powers of the Central Government
36
may be delegated to the Commissioner.
63. The structure and safety of the project, as certified by the CMRS, were thus
relevant before the Tribunal, making the CMRS certificate a vital piece of
evidence in deciding the issue. The CMRS certificate was relevant evidence
about the safety of the structure. Considering the statutory scheme of the
2002 Act, especially Section 15, the Tribunal erred in deeming the sanction
irrelevant to its central issue – which was the validity of the termination, which,
according to the cure notice, was premised on safety.
32
Section 14, Metro Railways (Operations and Maintenance) Act 2002.
33
Section 15, ibid.
34
Section 15(3), ibid.
35
Section 18, ibid.
36
Section 21, ibid.
Page 34 of 39
PART G
64. Overall, the cure notice places great emphasis on the safety of the
passengers, which, they claimed stood compromised by defects, justifying
discontinuation of operations. This issue falls directly within the domain of the
Commissioner under the scheme of the 2002 Act.
65. Rather than considering the vital evidence of the CMRS certificate towards
safety and effective steps, the arbitral tribunal focussed on the conditions
imposed by the Commissioner on speed and regarding inspections. While the
Division Bench correctly noted that the certificate was relevant for the issue of
the validity of termination, this Court held that safety was not in issue, even
though DAMEPL insisted on discontinuing operations citing safety concerns.
We respectfully disagree with this Court’s re-assessment of the Division
Bench’s interpretation. The cure notice was relevant for the reasons stated
above. Moreover, the fact that DAMEPL premised it on safety could not have
been overlooked by the Tribunal. In doing so, it overlooked vital evidence
pertaining to an issue that goes to the root of the matter. The cure notice was
obviously on the record and merited consideration for its contents bearing on
vital elements of safety.
66. The cure notice, which contains statements bearing on the safety of the line
and other material indicating that the line was running uninterrupted are
matters of record. While the cure notice contains allegations about the line not
being operational, there is evidence on the record indicating that the line was
in fact running. Even if we were to accept that the finding of the arbitral
tribunal that the defects were not completely cured during the cure period is a
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PART G
factual finding incapable of interference, it is clear from the record that DMRC
took steps towards curing defects which led to the eventual resumption of
operations. The award contains no explanation as to why the steps which
were taken by DMRC were not ‘effective steps’ within the meaning of the
termination clause.
67. In essence, therefore the award is unreasoned on the above important
aspects. It overlooks vital evidence in the form of the joint application of the
contesting parties to CMRS and the CMRS certificate. The arbitral tribunal
ignored the specific terms of the termination clause. It reached a conclusion
which is not possible for any reasonable body of persons to arrive at. The
arbitral tribunal erroneously rejected the CMRS sanction as irrelevant. The
award bypassed the material on record and failed to reconcile inconsistencies
between the factual averments made in the cure notice, which formed the
basis of termination on the one hand and the evidence of the successful
running of the line on the other. The Division Bench correctly held that the
arbitral tribunal ignored vital evidence on the record, resulting in perversity
and patent illegality, warranting interference. The conclusions of the Division
Bench are, thus, in line with the settled precedent including the decisions in
Associate Builders (supra) and Ssangyong (supra).
Page 36 of 39
PART H
H. Conclusion
68. The judgment of the two-judge Bench of this Court, which interfered with the
judgment of the Division Bench of the High Court, has resulted in a
miscarriage of justice. The Division Bench applied the correct test in holding
that the arbitral award suffered from the vice of perversity and patent illegality.
The findings of the Division Bench were borne out from the record and were
not based on a misappreciation of law or fact. This Court failed, while
entertaining the Special Leave Petition under Article 136, to justify its
interference with the well-considered decision of the Division Bench of the
High Court. The decision of this Court fails to adduce any justification bearing
on any flaws in the manner of exercise of jurisdiction by the Division Bench
under Section 37 of the Arbitration Act. By setting aside the judgement of the
Division Bench, this Court restored a patently illegal award which saddled a
public utility with an exorbitant liability. This has caused a grave miscarriage of
justice, which warrants the exercise of the power under Article 142 in a
Curative petition, in terms of (supra).
Rupa Hurra
69. The Curative petitions must be and are accordingly allowed. The parties are
restored to the position in which they were on the pronouncement of the
judgement of the Division Bench. The execution proceedings before the High
Court for enforcing the arbitral award must be discontinued and the amounts
deposited by the petitioner pursuant to the judgment of this Court shall be
refunded. The part of the awarded amount, if any, paid by the petitioner as a
result of coercive action is liable to be restored in favour of the petitioner. The
Page 37 of 39
PART H
orders passed by the High Court in the course of the execution proceedings
for enforcing the arbitral award are set aside.
70. Before concluding, we clarify that the exercise of the curative jurisdiction of
this Court should not be adopted as a matter of ordinary course. The curative
jurisdiction should not be used to open the floodgates and create a fourth or
fifth stage of court intervention in an arbitral award, under this Court’s review
jurisdiction or curative jurisdiction, respectively.
71. In the specific facts and circumstances of this case to which we have
adverted in the course of the discussion, we have come to the conclusion that
this Court erred in interfering with the decision of the Division Bench of the
High Court. The judgment of the Division Bench in the appeal under Section
37 of the Arbitration and Conciliation Act 1996 was based on a correct
application of the test under Section 34 of the Act. The judgment of the
Division Bench provided more than adequate reasons to come to the
conclusion that the arbitral award suffered from perversity and patent illegality.
There was no valid basis for this Court to interfere under Article 136 of the
Constitution. The interference by this Court has resulted in restoring a patently
illegal award. This has caused a grave miscarriage of justice. We have
applied the standard of a ‘grave miscarriage of justice’ in the exceptional
circumstances of this case where the process of arbitration has been
perverted by the arbitral tribunal to provide an undeserved windfall to
DAMEPL.
Page 38 of 39
PART H
72. The curative petitions are allowed in the above terms.
73. Pending applications, if any, stand disposed of.
…...…...….......………………....…CJI.
[Dr Dhananjaya Y Chandrachud]
..…...…...….......………………....…..J.
[B R Gavai]
…....…...….......………………....…..J.
[Surya Kant]
New Delhi
April 10, 2024
Page 39 of 39