In a significant ruling, the Delhi High Court has held that an “Act of God” qualifies as a force majeure event, and does not justify retention of performance bank guarantees if it was beyond the control of the concerned party.
The division bench comprising Justice Rajiv Shakdher and Justice Amit Bansal delivered this judgment in the case of NTPC Vidyut Vyapar Nigam Ltd. vs Oswal Woolen Mills Ltd. (FAO(OS) (COMM) 263/2018 & CMAPPL. 47514/2018) on July 3, 2024.
Background:
The case arose from a dispute between NTPC Vidyut Vyapar Nigam Ltd. (NTPC) and Oswal Woolen Mills Ltd. (Oswal) regarding a solar power project. NTPC had encashed Oswal’s performance bank guarantee of Rs. 1.82 crore due to a delay of less than one day in commissioning the solar power plant.
Oswal contended this delay was due to factors beyond its control – the commissioning committee constituted by authorities visited the site only on January 9, 2012, the scheduled commissioning date, and completed connectivity formalities at 11:15 PM. Since it was nighttime, power generation could only begin the next day.
The Arbitral Tribunal had ruled in Oswal’s favor, directing NTPC to refund the encashed amount. This was upheld by a Single Judge of the Delhi High Court, leading to NTPC’s appeal before the division bench.
Key Legal Issues:
1. Whether the delay in commissioning qualified as a force majeure event under the contract
2. Whether NTPC was justified in retaining the encashed bank guarantee amount
3. Scope of judicial interference in arbitral awards
Court’s Decision:
The High Court dismissed NTPC’s appeal, upholding the arbitral award and single judge’s order. The court made several important observations:
1. Force Majeure Event: The court agreed with the Arbitral Tribunal that the delay caused by the late visit of the commissioning committee and inability to generate power at night constituted a force majeure event beyond Oswal’s control.
Justice Shakdher noted: “The AT was correct in concluding that a force majeure event, i.e., Act of God, had caused commissioning to be delayed up until 10.01.2012 for reasons which were beyond the control of Oswal.”
2. No Justification for Retaining Bank Guarantee: The court held that NTPC could not retain the encashed bank guarantee amount without proving it suffered any legal injury due to the brief delay.
The judgment stated: “NTPC could not have retained monies recovered through encashment of Performance Bank Guarantee on account of liquidated damages without having averred that it had suffered legal injury on account of the delay in commissioning, which was only a couple of hours.”
3. Limited Judicial Interference: The court reiterated that courts have limited scope to interfere with arbitral awards unless there is patent illegality or perversity.
“Appreciation of evidence and material placed on the record by the disputants in the course of arbitral proceedings falls within the domain of the AT,” the bench observed.
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The court noted that NTPC had neither pleaded nor shown that the arbitral award was patently illegal regarding the issue at hand.
Lawyers and Parties:
– For NTPC: Mr. Chetan Sharma, Additional Solicitor General, with Mr. Puneet Taneja, Mr. Amit Gupta, Mr. Saurabh Tripathi, Mr. Manmohan and Mr. Vikramaditya Singh
– For Oswal: Mr. Sanjeev Mahajan, Ms. Sarika V. Mahajan, and Mr. Pranjal Tandon
