A protracted legal battle between Reliance Infrastructure Ltd and the Delhi Metro Rail Corporation (DMRC) came to a conclusion on Thursday, with a Supreme Court bench headed by Justice L Nageswara Rao upholding a 2017 arbitration award in favour of the Anil Ambani-led group to the tune of Rs 4,600 crore, including interest.
The verdict arrives in quite a timely fashion for Anil Ambani with his telecom firms battling bankruptcy. Ambani himself is also contesting a personal insolvency case against him lodged by the country’s largest lender.
What was the case about?
Back in 2008, the DMRC had entered into an agreement with Delhi Airport Metro Express Private Ltd (DAMEPL), a subsidiary of Reliance Infra, relating to the design, installation, operation and maintenance of the 22.7 km-long Airport Express line running between New Delhi Railway Station and Dwarka Sector-21.
Rs 5,800 crore was pumped into constructing the line which became operational in February 2011. The project was particularly significant as it represented the first public-private partnership (PPP) in metro construction and operations.
But just some 18 months after it became operational, services were discontinued on the line with DAMEPL citing serious technical problems in its construction. As per the PPP agreement, the DMRC was responsible for the line’s construction with Reliance Infra being charged with its maintenance and operations.
If Reliance Infra was to find any problems with the line’s construction, it was to inform the DMRC within a year. After the expiry of that one year, the DMRC argued, the line becomes Reliance Infra’s sole responsibility.
The blame game reached a head on October 8, 2012, when the DAMEPL served a termination notice to DMRC, claiming that the line was not financially viable while also citing DMRC’s failure to address the technical defects of the line.
The DMRC disputed the notice thereby instigating arbitration proceedings. However, even while arbitration was underway, the line was restarted by DAMEPL in January 2013. It operated the line until June 30 when the DMRC took over its reigns. The line has been in service ever since.
In May 2017, an arbitration tribunal made up of a DMRC nominated panel (as required by the concession agreement) ruled in favour of DAMEPL, ordering the DMRC to compensate DAMEPL to the tune of Rs 2950 crore. With the addition of interest, that sum rose to Rs 4,450 crore.
“We are very happy with the outcome. Even if DMRC challenges this in the high court, they will have to pay us 75 per cent of the amount which will help the SPV (special purpose vehicle) repay debt and also reduce the debt burden of the parent company,” said Lalit Jalan, chief executive officer of Reliance Infra following the arbitration award, referring to a government guideline issued in 2016 relating to PPP agreements.
The DMRC challenged the arbitration tribunal decision, taking the matter to the Delhi High Court where it found no relief. The order was set aside by a Division Bench of the court upon which Reliance Infra took the matter, via an appeal, to the Supreme Court. And on Thursday, the apex body upheld the arbitration tribunal’s decision, paving the way for Reliance Infra to claim the sum owed to it by the DMRC.
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