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Friday, September 17, 2021

Explained: How did the dispute between Reliance and Delhi Metro reach the Supreme Court?

Anil Ambani-led Reliance Infra wins Rs 2,782 crore arbitral award against Delhi Metro Rail Corporation: What is the case?

Written by Sourav Roy Barman , Edited by Explained Desk | New Delhi |
Updated: September 14, 2021 12:46:44 pm
Reliance Delhi Metro dispute, Supreme Court on Reliance DMRC dispute, Delhi Metro arbitration, Delhi, Delhi News, Indian Expresshe dispute between the DMRC and DAMEPL started little more than a year after the line became functional. (File Photos)

Ending a protracted legal battle, a two-judge Bench of the Supreme Court on Thursday (September 9) upheld a 2017 arbitration tribunal order to the Delhi Metro Rail Corporation (DMRC) to pay Anil Ambani-owned Reliance Infrastructure Rs 2,800 crore plus interest in connection with the termination of a contract to run the Airport Express Line.

The Delhi government, which has a 50 per cent stake in DMRC, had waded into the dispute in 2018, with Chief Minister Arvind Kejriwal demanding an investigation by the CBI into alleged huge losses to the exchequer. The Centre holds the other 50 per cent stake in DMRC.

In 2008, DMRC had signed a contract with Delhi Airport Metro Express Private Ltd (DAMEPL) promoted by Reliance Infrastructure, related to the design, installation, commissioning, operation and maintenance of the line. This was the first PPP agreement signed by DMRC.

DMRC Executive Director (Corporate Communications) Anuj Dayal said on Thursday, “The Hon’ble Supreme Court has pronounced judgment in the Airport Metro Express line matter today and the appeal of DAMEPL has been allowed. The copy of the judgement is not yet uploaded on the Supreme Court’s website. On receipt of the judgment copy, it will be analysed for future course of action.”
Reliance Infra did not immediately respond to requests for a comment.

What is the history of the Airport Express line of the Delhi Metro?

The 22.7-km Airport Express line, codenamed Orange line, runs between New Delhi Railway Station and Dwarka Sector-21, via IGI Airport’s Terminal 3.

Built at a cost of around Rs 5,800 crore, it was opened in February 2011, after failing to meet the original launch deadline of before the 2010 Commonwealth Games.

The trains stop at three stations en route — Shivaji Stadium, Dhaula Kuan, and Aerocity. A commuter can get to the international airport from New Delhi railway station in the heart of the city in just 20 minutes.

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What was the dispute about?

The dispute between the DMRC and DAMEPL started little more than a year after the line became functional.

On July 7, 2012, services on the line came to a halt with DAMEPL, which was entrusted with running the trains, alleging serious technical defects in its construction.

By then, Reliance Infra had also claimed that the line was suffering huge losses due to less-than-projected ridership: while the projection was 40,000 persons per day, the daily ridership stood at half that — around 20,000.

This, DAMEPL argued, was coming in the way of raising revenue through other modes such as advertising, leasing out shops to retailers, and property development, etc.

And when did DAMEPL exit the contract?

As per the agreement, the DAMEPL was supposed to run the line for 30 years. However, on October 8, 2012, DAMEPL served a termination notice on DMRC, citing issues related to financial viability and the alleged failure on the part of the corporation to fix the defects in the construction.

DMRC disputed the notice and referred the matter for arbitration proceedings.

Even as these proceedings were underway, DAMEPL restarted services on the line in January 2013. However, it wrote to DMRC on June 27, 2013 announcing that it would not be able to run the line from the midnight of June 30.

DMRC then took over the operation of the line, as per the terms of the contract. The line has remained functional, and DMRC has claimed it has managed a turnaround in terms of ridership.

What was the verdict of the arbitration tribunal?

In May 2017, the tribunal ruled in favour of DAMEPL, and directed DMRC to pay Rs 2,950 crore as compensation along with interest.

Reliance Infra put the total amount due to it at the time at around Rs 4,500 crore.

Earlier in 2014, then Attorney General Mukul Rohatgi had opined, based on a reference from the Centre, that the DMRC should pay damages to DAMEPL.

The DMRC challenged the tribunal order in the Delhi High Court, but got no relief. Subsequently, a division Bench of the court set aside the order, following which Reliance Infra filed an appeal in the Supreme Court. The verdict came on Thursday.

What were the termination clauses in the contract?

They said that upon termination of the contract, even in the event of default on DAMEPL’s part, “DMRC shall pay to the concessionaire by way of termination payment an amount equal to 80% (eighty per cent) of the debt due (of the concessionaire)”.

In the case of termination due to default on DMRC’s part, the DMRC shall pay “debt due, 130% of the adjusted equity; and Depreciated Value of the Project Assets, if any, acquired and installed on the Project after the10th anniversary of the COD (commercial operations date, or date of opening)”.

What has been the position of the Delhi government?

In March 2018, the Delhi government’s advisory body, which was at the time led by Ashish Khetan, submitted a report that alleged that DMRC had “wilfully distorted” the agreement with DAMEPL to extend favours to Reliance Infrastructure, thus “bleeding” the public exchequer.

The report claimed that the provision of Total Project Cost (TPC) in the agreement, which is a standard in public-private partnership projects as it caps the termination liability of the government, was “removed” by the DMRC.

It also claimed that the agreement had not even been cleared by the DMRC board.

“This wilful omission (of TPC) in the case of DAEML is one of the main reasons why the private concessionaire led by Anil Ambani Group has bagged such a large arbitral award, to the detriment of the exchequer,” the report said.

Doing away with the TPC also allowed the concessionaire to indulge in “Gold-Plating of costs”, which essentially means adding unnecessary features, beyond the scope of an agreement, to the tune of over Rs 500 crore, the report alleged.

It added that the rate of interest on the payment of termination amount was enhanced to provide an “unfair financial advantage” to DAMEPL.

“Further, there were serious multiple defects and lapses in the entire civil construction of DAEML by the DMRC which led to the termination of the agreement. Safety of passengers has also been seriously compromised.”

Both DMRC and Reliance Infra had refused to comment on the report.

So what happened next?

Armed with the report, Kejriwal wrote to then Home Minister Rajnath Singh in July 2018, demanding a CBI probe into the matter.

“The entire episode would lead to an onerous burden of about Rs 4,700 crore, which will have to be shared equally by the Centre and the Delhi government. Yet, the Government of NCT of Delhi has no means of taking any preventive or corrective action as the DMRC is neither answerable to it nor does it exercise any form of control or authority over DMRC,” Kejriwal wrote.

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