TaxTMI 
TaxTMI 
2026 (2) TMI 225
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....eloper on account of delay caused in commissioning a power plant. A three-member Arbitral Tribunal while holding that there was a delay in commissioning the power plant, by majority, awarded an amount of Rs.1.2 crores towards the claim made by the employer. Both parties raised objections under Section 34 of the Act of 1996. A learned Single Judge of the Delhi High Court proceeded to grant an amount of Rs. 27.06 crores to the employer on account of delay on the part of the Solar Power Developer in commissioning the power plant. Both parties further took recourse to Section 37 of the Act of 1996. By the impugned judgment, the Division Bench modified the order passed under Section 34 of the Act of 1996 in the matter of grant of liquidated damages and reduced the amount to Rs. 20.70 crores. 2. The facts relevant for considering the challenge as raised by the parties to the aforesaid common judgment are that, in 2010 the Ministry of Power, Government of India, launched the Jawaharlal Nehru National Solar Mission (for short, "the JNNSM") with the objective of deploying 20000 Mega Watt (MW) of grid connected solar power in three phases by 2022 at a reasonable cost. The JNNSM postulated....
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....he bank guarantees as per Clause 4.6 of the PPA. On 21.07.2015, the three-member Arbitral Tribunal passed a split award. As per the majority award, SEL was directed to pay NVVNL Rs.1.2 crores being 20% of the original performance guarantee at the rate of Rs.30 lakhs per MW. The claim made by SEL for reimbursement of expenditure was, however, rejected. The minority award on the other hand held that it was not possible to work out the actual loss suffered by NVVNL on account of delay in commissioning the project. The liquidated damages as mentioned in Clause 4.6 of the PPA were held to be a genuine pre-estimate of loss suffered and SEL was directed to pay the same. NVVNL was held entitled to encash the bank guarantees amounting Rs.49.92 crores excluding the bank guarantees furnished towards earnest money deposit. 5. Both the parties were aggrieved by the aforesaid awards and they took recourse to the provisions of Section 34 of the Act of 1996. By the judgment dated 08.09.2016, a learned Judge of the Delhi High Court held that there was delay on the part of SEL in commencing the supply of power in terms of the PPA. He held that NVVNL had not invested any amount in the said project....
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....f damage caused or loss suffered was a sine qua non for claiming compensation on account of such breach. In absence of any such loss being proved by NVVNL before the Arbitral Tribunal, it was not entitled to receive any liquidated damages under Clause 4.6.2 of the PPA. Both the Courts erred in relying upon the decision in M/s Construction and Design Services vs. D.D.A. 2015 INSC 92 inasmuch as the employer therein had made various investments in the concerned project and had suffered loss due to delay. It was urged that in the present case, NVVNL had not made any investment whatsoever and that all investments were in fact made by SEL. While the contractor in the said case had abandoned the project, SEL had successfully commissioned the Solar Power Project and it was running smoothly. A delay of few months, therefore, ought not to be the reason to impose liquidated damages on SEL. It was further submitted that ignoring the limited power available under Sections 34 and 37 of the Act of 1996, the Courts proceeded to modify the arbitral award while granting liquidated damages. A merit based evaluation under Sections 34 and 37 of the Act of 1996 was impermissible and a review of the ....
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....on behalf of NVVNL was not justified in reducing that amount to Rs.20.70 crores. Finally, it was submitted that the dispute between the parties was of the year 2013 and relegating the parties to any fresh proceedings was totally unwarranted. It was prayed that the appeal preferred by NVVNL be allowed. 9. We have heard the learned Senior Advocates for the parties at length and we have also perused the documentary material on record. Having given our due consideration to the entire matter, we find that the Division Bench in exercise of jurisdiction under Section 37 of the Act of 1996 was not justified in modifying the amount of compensation awarded by the Court under Section 34. 10. The PPA entered into by NVVNL with SEL on 24.01.2012 was in its capacity as the Nodal Agency for carrying out the objectives under the JNNSM. This was to enable the sale of bundled up power by NVVNL to various distribution utilities at prices determined by the regulatory commission. A total of 20 MW solar power was to be commissioned under the PPA. It is an admitted position under the terms of the PPA that the date of commissioning was fixed as 26.02.2013. SEL, however, failed to meet this deadline.....
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....tariff changes, that part of the capacity of the Project for which the commissioning has been delayed shall be paid at the tariff as per Article 9.2 of this Agreement." 11. As regards failure on the part of SEL to meet the deadline for commissioning solar power is concerned, there is no dispute that SEL failed to meet the agreed deadline as the supply of 10 MW power was undertaken with a delay of two months and the supply of balance 10 MW power was undertaken after a delay of about five months. The majority award in paragraph 97 records this aspect, including the admission on the part of SEL that such delay in fact had been occasioned. The learned Single Judge while dealing with the proceedings under Section 34 of the Act of 1996 has in paragraphs 57, 76 and 77 recorded in clear terms that the breach of contract was admitted by SEL and that there was in fact delay on its part in supplying power. The Division Bench in the appeals filed under Section 37 of the Act of 1996 affirmed this position. The aforesaid would indicate that insofar as the grievance raised by NVVNL that SEL failed to commission 20 MW power within the time stipulated under the PPA is concerned, the said positio....
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....e provisions of Section 74 were the subject matter of consideration by this Court in M/s Construction and Design Services (supra) wherein it was held in the context of delay in providing a public utility service that in such a case, the delay in commissioning of such utility service itself can be taken to have resulted in loss in the form of environmental degradation. In the said case, the contract was in relation to the construction of a sewerage pumping station. It was observed that providing for a sewerage pumping station was of public utility to maintain and preserve clean environment. It was held that if the parties had pre-estimated the loss likely to be caused, it would be unjustified to arrive at the conclusion that the party that had committed the breach was not liable to pay compensation. 13. The learned Single Judge while exercising jurisdiction under Section 34 of the Act of 1996 relied upon the aforesaid decision and while exercising discretion in the matter of award of reasonable compensation proceeded to grant 50% of the amount of damages that NVVNL was entitled to under Clause 4.6 of the PPA. The Division Bench in appeal recorded its agreement with the view of th....
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....ation process more cumbersome than even traditional litigation. 43. Equally, Section 34 limits recourse to courts to an application for setting aside the award. However, Section 34 does not restrict the range of reliefs that the court can grant, while remaining within the contours of the statute. A different relief can be fashioned as long as it does not violate the guardrails of the power provided under Section 34. In other words, the power cannot contradict the essence or language of Section 34. The court would not exercise appellate power, as envisaged by Order XLI of the Code of Civil Procedure, 1908. 44. We are of the opinion that modification represents a more limited, nuanced power in comparison to the annulment of an award, as the latter entails a more severe consequence of the award being voided in toto. Read in this manner, the limited and restricted power of severing an award implies a power of the court to vary or modify the award. It will be wrong to argue that silence in the 1996 Act, as projected, should be read as a complete prohibition. 45. We are thus of the opinion that the Section 34 court can apply the doctrine of severability and mod....
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....ruction and Design Services (supra) in fact provides sufficient indication of the manner in which the aspect of reasonable compensation could be considered wherein a public utility project is involved. In such cases, the burden would be on the party committing the breach to show that no loss was caused by the delay or that the amount stipulated as liquidated damages was in the nature of penalty. In the facts of the present case, this burden has not been discharged by SEL. In fact, it has remained content by urging that NVVNL having failed to make any investment under the PPA, it neither suffered any loss of capital or loss of interest, notwithstanding the delay. Having agreed to incorporate Clause 4.6 in the PPA, it is clear that the rights of the parties ought to be determined bearing in mind the terms agreed and SEL would not be justified in contending that NVVNL had failed to indicate the exact loss suffered by it due to the delay in commissioning of the project. The learned Single Judge as well as the Division Bench have in our view rightly approached this aspect of the matter and have held that NVVNL in terms of Clause 4.6 of the PPA is entitled to reasonable compensation. We,....