Liquidated damages for delay in public utility projects may be awarded without exact proof of loss, and Section 37 cannot recalculate plausible compensation.

In a public utility project delayed at the commissioning stage, reasonable compensation by way of liquidated damages may be awarded under Section 74 of the Indian Contract Act, 1872 without strict proof of exact actual loss, especially where the stipulation addresses delay affecting public interest and environmental objectives. The defaulting party must show that no loss was caused or that the clause is penal. Under Section 37 of the Arbitration and Conciliation Act, 1996, an appellate court cannot rework or reduce a plausible compensation determination already made within the contractual framework under Section 34 unless it is shown to be arbitrary, perverse, or outside that framework.

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Issues: (i) whether the employer was entitled to reasonable compensation by way of liquidated damages for delay in commissioning a public utility project without proving actual loss; (ii) whether the Division Bench, in exercise of jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, was justified in reworking and reducing the amount of compensation awarded under Section 34.

Issue (i): whether the employer was entitled to reasonable compensation by way of liquidated damages for delay in commissioning a public utility project without proving actual loss.

Analysis: The contractual schedule for commissioning was admitted to have been breached, and the agreed clause provided consequences for delayed commissioning. In a project undertaken to advance the objectives of the solar mission and promote green energy, the delay was treated as a matter affecting public interest and environmental welfare. Applying Section 74 of the Indian Contract Act, 1872, the Court held that in such cases the stipulated sum operates as a basis for reasonable compensation, and the burden lay on the defaulting party to show that no loss was caused or that the stipulation was penal in nature.

Conclusion: Yes. The employer was entitled to reasonable compensation notwithstanding the absence of proof of exact actual loss.

Issue (ii): whether the Division Bench, in exercise of jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996, was justified in reworking and reducing the amount of compensation awarded under Section 34.

Analysis: The learned Single Judge had determined compensation by applying the contractual clause and exercising a limited discretion on the quantum. The Court held that the Division Bench went beyond the permissible scope of Section 37 by substituting its own assessment for a plausible determination already made under Section 34, without showing that the earlier determination was arbitrary, perverse, or outside the contractual framework. The Court also held that the limited power of modification recognized in arbitration jurisprudence could not justify the appellate re-calculation undertaken in this case.

Conclusion: No. The Division Bench was not justified in reworking or reducing the compensation.

Final Conclusion: The judgment of the Division Bench was set aside to the extent it altered the compensation, the Single Judge's order was restored, and the employer's claim to the amount determined under the contractual clause stood upheld.

Ratio Decidendi: In a public utility or public interest project, delay can justify reasonable compensation under Section 74 of the Indian Contract Act, 1872 without strict proof of exact loss, and an appellate court under Section 37 of the Arbitration and Conciliation Act, 1996 cannot re-assess or reduce a plausible compensation determination made within the contractual framework by the Section 34 court.

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