Bombay High Court delivers a split verdict on the Mumbai Metro-1 arbitration dispute, significantly reducing the financial burden on MMRDA | File Photo
Mumbai, Feb 25: The Bombay High Court on Tuesday partly allowed a petition filed by the Mumbai Metropolitan Region Development Authority (MMRDA) challenging an arbitral award passed in favour of Mumbai Metro One Private Limited (MMOPL) in disputes arising from execution of Mumbai’s first Metro corridor between Versova and Ghatkopar.
Justice Sandeep Marne, on Tuesday, upheld some components of the 2023 majority arbitral award while setting aside several high-value claims, substantially reducing the financial liability imposed on MMRDA.
Background of dispute
MMOPL was incorporated by MMRDA and a consortium of Reliance Infrastructure Ltd. and Veolia Transport S.A. as the SPV (special purpose vehicle) for implementation of the Metro-1 project. In the SPV of MMOPL, Reliance Infrastructure Ltd. held 69% equity share capital, Veolia Transport S.A. held 5% equity share capital and MMRDA held 26% of the equity share capital.
The dispute arose from the Concession Agreement dated March 7, 2007, for development, construction, operation and maintenance of Metro-1 under the Build-Own-Operate-Transfer (BOOT) model. MMOPL had claimed escalation in project costs allegedly caused by delays attributable to the authority.
In August 2023, a three-member arbitral tribunal delivered a 2:1 majority award granting MMOPL claims aggregating to nearly Rs 992 crore along with interest, while rejecting MMRDA’s counterclaims. A dissenting arbitrator had rejected all claims of MMOPL.
MMRDA challenged this arbitral award before the High Court under Section 34 of the Arbitration and Conciliation Act.
Interim orders and Supreme Court intervention
On June 10 last year, while considering MMRDA’s interim application seeking a stay on the operation of the arbitral award, another High Court bench directed the Authority to deposit Rs 1,169 crore for a conditional stay on the arbitral award.
However, the Supreme Court on July 14, 2025, stayed the HC interim order, subject to MMRDA depositing 50 per cent of the awarded amount in the High Court, after which the Authority deposited nearly Rs 560 crore. The Supreme Court had clarified that its order would not preclude the High Court from finally deciding MMRDA’s challenge to the award.
Court applies principle of severability
After final arguments, Justice Marne, in a detailed 163-page judgment, ruled that certain portions of the award were legally sustainable while others were not.
The court observed that the “bad part of the award is not inseparably interwoven with the good part,” holding that the principle of severability could be applied since unsustainable claims were independent of valid ones.
The High Court upheld MMOPL’s entitlement to Rs 35 crore towards deductions made from Viability Gap Funding along with interest, Rs 13.16 crore towards rent paid for land at Wadala, and Rs 30.48 crore incurred due to construction of a steel bridge instead of a concrete bridge at Andheri station.
The court also sustained compensation of Rs 163.22 crore towards increase in the cost of system works.
However, claims towards additional overhead expenses of Rs 100 crore, financing and interest expenses of Rs 125 crore, and opportunity costs on loss of profit amounting to over Rs 23 crore were set aside, terming them “unsustainable”.
Since the award was partly upheld, the court declined to grant litigation costs to either side but reduced arbitration costs payable by MMRDA to MMOPL from Rs 1 crore to Rs 50 lakh.
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Intervention by NARCL
The court further allowed intervention by National Asset Reconstruction Company Limited (NARCL), which had acquired loans advanced to MMOPL by consortium lenders after the accounts turned non-performing assets.
It directed that amounts deposited by MMRDA pursuant to earlier court orders be transferred to the project’s escrow account maintained for lenders.
At the request of MMRDA, the High Court stayed transfer of the deposited amount for eight weeks.
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