Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-012892-012893 – 2024 |
| Diary Number | 4501/2018 |
| Judge Name | HON’BLE MR. JUSTICE ATUL S. CHANDURKAR |
| Bench |
HON’BLE MR. JUSTICE J.K. MAHESHWARI HON’BLE MR. JUSTICE ATUL S. CHANDURKAR |
| Precedent Value | Binding authority |
| Overrules / Affirms |
|
| Type of Law | Arbitration law; contract law (liquidated damages) |
| Questions of Law | Whether Section 34 of the Arbitration and Conciliation Act, 1996, allows limited modification of an arbitral award under the doctrine of severability to enhance liquidated damages, and whether an appeal under Section 37 permits re-calculation of that compensation on merits. |
| Ratio Decidendi | The Court held that Section 34 inherently includes a limited power to modify an arbitral award (by applying the doctrine of severability) provided the modification stays within the award’s original contours. However, appeals under Section 37 are confined to jurisdictional errors and cannot re-work factual or quantitative determinations of compensation. The Division Bench of the Delhi High Court exceeded its Section 37 jurisdiction by substituting its own calculation of liquidated damages, and that portion of its judgment was set aside to restore the Single Judge’s award. |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
|
| Facts as Summarised by the Court | The nodal agency (NVVNL) and solar developer (SEL) entered a 20 MW PPA under the National Solar Mission with a 26 Feb 2013 commissioning date. SEL delayed tranche-wise by 2 and 5 months. A split arbitral award granted ₹ 1.2 cr liquidated damages. The Delhi High Court’s Single Judge awarded ₹ 27.06 cr under Section 34; the Division Bench reduced it to ₹ 20.70 cr on appeal under Section 37. The Supreme Court restored the Single Judge’s award. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts and arbitral tribunals dealing with Section 34/37 challenges under the Arbitration and Conciliation Act, 1996. |
| Persuasive For | High Courts and arbitration panels on the scope of judicial intervention and modification powers under Section 34. |
| Overrules | Delhi High Court Division Bench judgment dated 18 Jan 2018 in OMP Nos. 410/2015 & 446/2015 (recalculation of liquidated damages under Section 37). |
| Follows |
|
What’s New / What Lawyers Should Note
- Reaffirms that Section 34 courts can modify an arbitral award under the doctrine of severability without triggering a fresh arbitration.
- Clarifies that appeals under Section 37 are confined to jurisdictional scrutiny and cannot re-calculate or substitute the arbitral tribunal’s quantification of liquidated damages.
- Confirms in public-utility contracts invoking Section 74 of the Indian Contract Act, proof of actual loss is not a precondition for enforcing a genuine pre-estimate of damages.
- Emphasises the burden on the breaching party to demonstrate absence of loss if seeking to evade pre-agreed liquidated damages.
- Affirms that commercial PPAs executed under government mission schemes may attract public-interest principles for liquidated damages.
Summary of Legal Reasoning
- SEL admitted delay in commissioning 10 MW tranches by 2 and 5 months under PPA Clause 4.6.
- Section 74, Indian Contract Act, applied to liquidated damages in a public-utility context (per Construction & Design Services).
- Single Judge under Section 34 quantified “reasonable compensation” at 50% of the contract’s liquidated-damages ceiling.
- Supreme Court held Section 34 includes a limited modification power (severability doctrine) as endorsed in Gayatri Balasamy.
- Appeal under Section 37 must assess only jurisdictional correctness (per A.C. Chokshi), not re-work substantive calculations.
- Division Bench exceeded Section 37 scope by recalculating compensation; that portion was set aside.
Arguments by the Parties
Petitioner (SEL)
- NVVNL failed to prove actual loss; Section 74 requires proof of damage for compensation.
- PPA was a commercial contract, not a public-utility project; Construction & Design Services is inapplicable.
- Both High Court tiers impermissibly reviewed merits and re-calculated damages under Sections 34 and 37.
- Relied on Gayatri Balasamy to argue against judicial enhancement beyond the arbitral award.
Respondent (NVVNL)
- JNNSM PPA served public-utility objectives; actual loss need not be separately proved.
- Clause 4.6’s liquidated-damages formula was a genuine pre-estimate enforceable in full.
- Division Bench should have awarded the full ₹ 54.12 cr rather than reduce it to ₹ 20.70 cr.
- Relied on Construction & Design Services and Chamundeshwari Electricity Supply Co. for no-proof-of-loss principle.
Factual Background
Under the Jawaharlal Nehru National Solar Mission, NVVNL (nodal agency) and SEL entered a PPA on 24 Jan 2012 for a 20 MW solar plant at ₹ 8.22/unit, with a 26 Feb 2013 commissioning deadline. SEL commissioned 10 MW after 2 months and the balance after 5 months of delay. An Arbitral Tribunal imposed ₹ 1.2 cr damages; the Delhi High Court Single Judge granted ₹ 27.06 cr under Section 34, the Division Bench reduced it to ₹ 20.70 cr under Section 37. The Supreme Court restored the Single Judge’s award.
Statutory Analysis
- Section 34, Arbitration and Conciliation Act, 1996: empowers courts to set aside or—under the doctrine of severability—modify arbitral awards within statutory guardrails.
- Section 37, Arbitration and Conciliation Act, 1996: confines appeal to questions of jurisdictional error, prohibiting fact- or merits-based re-calculation of awards.
- Section 74, Indian Contract Act, 1872: liquidated-damages clause is enforceable in public-interest contracts without need to prove actual loss, subject to reasonableness.
Procedural Innovations
None beyond reaffirming existing jurisprudence on Section 34 modification and Section 37 appeal scope.
Alert Indicators
- ✔ Precedent Followed – Gayatri Balasamy v. ISG Novasoft Technologies Ltd. and A.C. Chokshi v. Jatin Pratap Desai