The Supreme Court has ruled that the jurisdiction of an appellate court under Section 37 of the Arbitration and Conciliation Act, 1996, is limited to determining whether the Section 34 Court exercised its jurisdiction properly. The Apex Court held that a Section 37 Court cannot substitute its own view for a “plausible view” taken by the Section 34 Court, nor can it embark on a fresh calculation of liquidated damages.
The Bench, comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar, set aside a judgment of the Division Bench of the Delhi High Court which had modified the amount of compensation awarded by a Single Judge in a dispute regarding the delay in commissioning a solar power plant. The Court restored the Single Judge’s order, emphasizing that re-working compensation amounts exceeded the permissible scope of Section 37.
Background of the Case
The dispute originated from the Jawaharlal Nehru National Solar Mission (JNNSM), launched in 2010. NTPC Vidyut Vyapar Nigam Ltd. (NVVNL), the nodal agency, entered into a Power Purchase Agreement (PPA) with M/s Saisudhir Energy Ltd. (SEL) on January 24, 2012. SEL was to supply 20 MW of solar power, with a scheduled commissioning date of February 26, 2013.
SEL failed to meet the deadline, commissioning 10 MW on April 26, 2013 (a two-month delay) and the remaining 10 MW on July 24, 2013 (a five-month delay). Clause 4.6 of the PPA stipulated liquidated damages for such delays.
In the ensuing arbitration, a three-member Tribunal passed a majority award on July 21, 2015, directing SEL to pay only Rs. 1.2 crores. The minority member, dissenting, held that NVVNL was entitled to encash bank guarantees worth Rs. 49.92 crores as a genuine pre-estimate of loss.
Challenging the award under Section 34 of the 1996 Act, a Single Judge of the Delhi High Court set aside the majority award on September 8, 2016. While noting that NVVNL had not proved actual damage, the Single Judge held the delay constituted a breach and, balancing equities, modified the award to grant 50% of the damages claimable under Clause 4.6 (approx. Rs. 27.06 crores).
Both parties appealed under Section 37. The Division Bench, on January 18, 2018, modified the Single Judge’s order, reducing the compensation to Rs. 20.70 crores by applying a different calculation method (Rs. 1,00,000 per MW per day).
Arguments Before the Court
SEL contended that NVVNL failed to prove actual loss, a requirement under Section 74 of the Indian Contract Act, 1872, citing Kailash Nath Associates vs. D.D.A.. It argued the PPA was a commercial contract, and since NVVNL made no investment, no loss occurred. Crucially, SEL argued that Courts under Sections 34 and 37 cannot modify arbitral awards or evaluate the merits of the dispute.
NVVNL argued that the project was a public utility involving public interest. Relying on M/s Construction and Design Services vs. D.D.A., it asserted that in such projects, delay implies loss (e.g., environmental degradation), and actual loss need not be proved. NVVNL maintained it was entitled to the full liquidated damages of Rs. 54.12 crores under the PPA and that the Division Bench erred in reducing the amount.
Supreme Court’s Analysis
Public Interest and Liquidated Damages: The Court rejected the argument that the PPA was merely a commercial agreement, noting its objective was to promote green energy under the National Solar Mission. Citing M/s Construction and Design Services, the Court held that in public utility projects, the burden is on the breaching party to prove no loss was caused—a burden SEL failed to discharge.
Scope of Section 34: Power to Modify: The Court upheld the Single Judge’s power to modify the award. Referring to the Constitution Bench decision in Gayatri Balasamy vs. ISG Novasoft Technologies Limited, the Court observed:
“The modification of the award so as to enhance the amount of reasonable compensation by the Section 34 Court was a permissible exercise… The modification is only with a view to apply Clause 4.6.2 of the PPA to the facts of the case.”
Limits of Section 37 Jurisdiction: The Supreme Court strongly disapproved of the Division Bench’s interference. It held that the Division Bench exceeded its jurisdiction by re-calculating the compensation when the Single Judge’s determination was neither arbitrary nor perverse.
“The modification in the amount of reasonable compensation by the Division Bench is merely a substitution of its view in place of the plausible view taken by the learned Single Judge. Such course of taking a different view of the same matter from the one taken under Section 34 of the Act of 1996 would be beyond the scope of Section 37 of the Act of 1996.”
The Bench cited AC Chokshi Share Broker Private Limited vs. Jatin Pratap Desai, reiterating:
“…the Court under Section 37 must only determine whether the Section 34 Court had exercised its jurisdiction properly and rightly, without exceeding its scope.”
Decision
The Supreme Court allowed NVVNL’s appeal and dismissed SEL’s cross-appeal. It set aside the Division Bench’s judgment to the extent it modified the compensation and restored the Single Judge’s order awarding 50% of the liquidated damages.
Case Details:
- Case Title: M/s Saisudhir Energy Ltd. v. M/s NTPC Vidyut Vyapar Nigam Ltd. (and connected matters)
- Case Numbers: Civil Appeal Nos. 12892-12893 of 2024 & 12894-12895 of 2024
- Bench: Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar
