Supreme Court Restored Single Judge's Higher Liquidated-Damages Award in Solar-Power Delay Dispute

A bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar heard cross appeals concerning the quantum of liquidated damages payable for delay in commissioning a 20 MW solar power project under the Jawaharlal Nehru National Solar Mission. The appeals arose from a Division Bench judgment of the Delhi High Court dated 18.01.2018 which had reduced the compensation awarded for delay; the matter concerned competing challenges under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

The Court held that the Division Bench exceeded its jurisdiction under Section 37 by reworking the computation of reasonable compensation and restored the Single Judge's order. The Court observed that modification of an arbitral award to enhance reasonable compensation by a Section 34 court was permissible within the limited power recognized by this Court in Gayatri Balasamy, but any appellate interference under Section 37 could not substitute the appellate court's view for a plausible exercise of discretion by the Section 34 court. The Court, in its reasoning, observed: “We are thus of the opinion that the Section 34 court can apply the doctrine of severability and modify a portion of the award while retaining the rest. This is subject to parts of the award being separable, legally and practically, as stipulated in Part II of our Analysis.” The judgment also relied on the principle in Section 74 of the Indian Contract Act, noting that “the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive ... reasonable compensation not exceeding the amount so named.”

Background

The dispute arose from a PPA dated 24.01.2012 between M/s Saisudhir Energy Ltd. (SEL) and NTPC Vidyut Vyapar Nigam Ltd. (NVVNL), appointed as the nodal agency under the JNNSM, for supply of 20 MW solar power at a discounted tariff. The scheduled commissioning date was 26.02.2013. SEL sought time extension and invoked force majeure but its request was rejected for failure to give the seven-day notice required by the PPA. SEL commissioned 10 MW on 26.04.2013 (two months late) and the remaining 10 MW on 24.07.2013 (about five months late).

A three-member Arbitral Tribunal issued a split award: the majority directed SEL to pay ₹1.2 crore while the minority held SEL liable to pay liquidated damages and directed encashment of bank guarantees totaling about ₹49.92 crore. Both parties challenged the award under Section 34. A learned Single Judge of the Delhi High Court found breach and, invoking Clause 4.6 of the PPA and Section 74 principles, computed the liquidated-damage entitlement at ₹54.12 crore and, in exercise of discretion, awarded 50% (₹27.06 crore) to NVVNL, adjusting recovery against monthly payments to SEL. The Division Bench, on appeals under Section 37, reduced the award to ₹20.70 crore by re-calculating damages under Clause 4.6.

SEL contended that NVVNL failed to prove actual loss and that courts travelled beyond the limited jurisdiction under Sections 34 and 37; it relied on Kailash Nath and Gayatri Balasamy. NVVNL argued that the JNNSM project was of public utility and that delay itself sufficed to justify compensation under Section 74 and the court’s precedents, seeking full enforcement of Clause 4.6.

The Supreme Court upheld that Clause 4.6 applied and that where public-interest projects were concerned the burden lay on the breaching party to show absence of loss or that the clause was penal. The Court found the Single Judge’s determination of 50% of the computed amount to be a plausible exercise of discretion and held that the Division Bench was not justified in substituting its own calculation under Section 37. Consequently, the Division Bench’s modification stood set aside and the Single Judge’s orders in OMP Nos.410/2015 and 446/2015 were restored. Civil Appeal Nos.12894-12895 of 2024 (preferred by NVVNL) were allowed; Civil Appeal Nos.12892-12893 of 2024 (preferred by SEL) were dismissed. The parties were directed to bear their own costs.

Case Details: Case No.: 2026 INSC 103; Civil Appeal Nos.12892-12893 of 2024; Civil Appeal Nos.12894-12895 of 2024 Case Title: M/s Saisudhir Energy Ltd. v. M/s NTPC Vidyut Vyapar Nigam Ltd. (and cross appeals) Appearances: For the Petitioner(s): Mr. Nakul Dewan, Senior Advocate (for SEL in Civil Appeal Nos.12892-12893); Mr. Gopal Jain, Senior Advocate (for NVVNL in Civil Appeal Nos.12894-12895) For the Respondent(s): Mr. Gopal Jain, Senior Advocate (for NVVNL in Civil Appeal Nos.12892-12893); Mr. Nakul Dewan, Senior Advocate (for SEL in Civil Appeal Nos.12894-12895)