Delhi High Court
Dalmia Solar Power Ltd. vs Ntpc Vidyut Vyapar Nigam Ltd. on 14 March, 2017
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
23
+ O.M.P. (COMM) 120/2017
DALMIA SOLAR POWER LTD. ..... Petitioner
Through: Mr. Akhil Sibal with Mr.Dinesh
Goyal, Mr. Ankur Mahindro and Ms.
Smita Mohan, Advocates
versus
NTPC VIDYUT VYAPAR NIGAM LTD. ..... Respondent
CORAM: JUSTICE S. MURALIDHAR
ORDER
% 14.03.2017
1. The present petition under Section 34 of the Arbitration and Conciliation
Act, 1996 („Act‟) filed by Dalmia Solar Power Ltd. challenges an arbitral
Award dated 24th November, 2016 passed by the Arbitral Tribunal („AT‟) in
the disputes between the Petitioner and the Respondent, NTPC Vidyut
Vyapar Nigam Ltd.
2. The facts in brief are that the Ministry of New and Renewable Energy,
Government of India (hereafter 'Ministry') floated the Jawaharlal Nehru
National Solar Mission, under which it proposed to purchase solar power
and power from other non-conventional sources, through the Respondent, on
a long term basis at a fixed tariff to be determined by the Central Electricity
Regulatory Commission.
3. The Petitioner opted for the said scheme. It proposed to establish a solar
power plant based on an innovative technology known as Solar Dish
Starling Engine Based Technology, which was to be provided to it by a
foreign collaborator- M/s Infinia Corporation, USA („Infinia‟).
4. The Petitioner approached the Rajasthan Renewable Energy Corporation
Ltd. („RRECL‟) for a long term arrangement for supply from their intended
power plant using Infinia technology. It is stated that in March, 2009, the
RRECL empanelled the Petitioner for purchase of power by the Rajasthan
Discoms Power Procurement Centre.
5. On 19th July, 2010, the Petitioner migrated to the Jawaharlal Nehru
National Solar Mission with the consent of RRECL. The Petitioner entered
into a Power Purchase Agreement („PPA‟) with the Respondent and
pursuant thereto, on 23rd July 2010, the Petitioner furnished to the
Respondent two Performance Bank Guarantees („PBGs‟) dated 23rd July,
2010 and 13th October, 2010 in the sum of Rs. 2.5 Crores each. Under the
terms of said PPA, the Petitioner was obliged to commence power supply
from their intended power plant by 15 th February, 2013. The Respondent
was under an obligation to purchase the power so [email protected] Rs 15.31 per
KWH for a period of 25 years.
6. The Petitioner states that Infinia faced problems in commercialization of
the technology. Infinia ultimately went into bankruptcy without providing to
the Petitioner the said commercialized technology and equipment support.
7. The Petitioner then apprised the Ministry about the above development
and requested for permission to establish a plant based on photo-voltaic
(PV) Technology instead of Infinia technology. Alternatively, by a letter
dated 4th July, 2012, it sought extension of the date of commencing of the
power supply. The Ministry, by its letter dated 28 th August, 2012, declined
the Petitioner‟s request for change in technology. As a result, the Petitioner
could not establish the plant and supply the power by the deadline of 15th
February, 2013.
8. By a letter dated 13th March, 2013, the Petitioner requested the
Respondent to withdraw the said PBGs. By a letter dated 14th March 2013,
the Respondent informed the Petitioner that since it had failed to achieve the
milestone contained in Clause 8 of the Migration Guidelines and Article
3.3.3 of the PPA, the PBGs had been encashed. By a letter dated 28th July
2015, the Petitioner asked the Respondent to refund the said amount of Rs.
5,00,00,000/- with [email protected] 18% p.a. The Respondent, however, declined
the said request.
9. In the above background, the disputes between the parties were referred to
the AT. The Petitioner claimed from the Respondent the said sum of Rs. 5
crores together with interest @ 18% p.a. from 13th March, 2013, the date of
encashment of PBGs, till the actual date of payment, apart from the costs of
the arbitral proceedings.
10. In its statement of defence, the Respondent pointed out that the very
object of specifying the amount of Rs. 5 crores as the quantum of the PBGs
was to obviate the need to demonstrate the actual loss that might be
incurred. It was contended that the precise extent of legal injury and loss, on
account of the failure by the Petitioner to fulfil its obligation under the PPA,
could not be quantified. It was further submitted that having taken the
benefit of the scheme of the PPA, the Petitioner cannot at this stage,
characterize the sum of Rs. 5 crores as being penal in nature or in terrorem.
Without prejudice to the above contention, the Respondent submitted that
the provision of such liquidated damages („LD‟) was a necessity in case of a
regulated industry such as the power sector. Considering the fact that it was
difficult to prove the actual damages and the parties needed to be clear about
the quantum of damages, the provisions of Article 4.6.4 of the PPA had been
adopted.
11. On the other hand, it was contended by the Petitioner that the question of
pre-estimate of any loss or damages likely to be caused to the Respondent
did not arise and it was illogical to consider the amount of PBGs as LD. It
was submitted that it was well settled that proof of actual loss was a sine qua
non for retention of money towards damages.
12. Considering the nature of the dispute, no oral evidence was adduced by
the parties. The AT framed the following issues, by its order dated 20 th July,
2015:
"(i) Whether the Respondent was in breach of the
Power Purchase Agreement by not providing for the
Letter of Credit/Payment Support Mechanism as
provided in Article 10.4.2 and 10.4.9 and if so, to what
effect?
(ii) Whether the Respondent is justified in declining
the Claimant's request for extension of time or change
in technology to set-up the power plant?
(iii) Whether the encashment of Performance Bank
Guarantee issued by the Punjab National Bank in
favour of the Respondents in absence of any notice
given to the Claimant prior to the encashment was
contrary to the Power Purchase Agreement dated
15.10.2010?
(iv) Whether the Claimant is entitled to recover the
Bank Guarantee Amount or any part thereof from the
Respondent?
(v) Whether the encashment of the Performance Bank
Guarantee by the Respondent is penal in nature or an
act of terrorem as claimed by the Claimant, and if so,
the effect thereof?
(vi) Whether the termination of Power Purchase
Agreement by the Respondent is valid and in terms of
the Power Purchase Agreement?
(vii) Whether the Claimant is entitled to interest on the
amount found recoverable from the Respondent? If
yes, at what rate and for what period?
(viii) Relief.
(ix) Cost."
13. In the impugned Award, the AT formulated a core question in para 45
as: "Did the Respondent commit any breach of the terms of the
agreement?" The AT noted that "no provision in the PPA has been brought
to this Tribunal's notice, which empowers the Respondent either to extend
the time or to permit the Claimant to change the technology."
Consequently, the AT held that the order of the Central Government
contained in the Ministry‟s letter dated 28th August, 2012 declining to grant
any extension of time for performance of the obligation under the PPA
could not be said to be in breach of the terms of the PPA. Further,
considering that the PBGs in question were unconditional, it was held that
they could have been encashed any time by the Respondent without prior
notice to the Petitioner.
14. Relying on the decisions in Maula Bux v. Union of India AIR 1970 SC
1955 and Fateh Chand v. Balkishan Das AIR 1963 SC 1405, it was
contended by the Petitioner before the AT that encashment of PBGs
amounted to forfeiture of security for damages which might be suffered by
the Respondent. If it was not to be considered as a security for damages, the
amount of the PBGs should be treated as "penalty". Since the Respondent
had not pleaded or proved that it has suffered any damages, no LD was to be
paid and therefore, the PBGs could not have been encashed by the
Respondent. Reliance was also placed on Kailash Nath Associates v. Delhi
Development Authority (2015) 4 SCC 136; Indian Oil Corporation v.
Lloyds Steel Industries Ltd. 2007 (4) Arb LR 84 (Del); and Forbes Gokak
Ltd. v. Central Warehousing Corporation 2003 (1) Arb LR 279 (Del).
15. As regards Section 74 of the Indian Contract Act, 1872 („ICA‟), the AT
referred to the decisions in Maula Bux (supra) and Fateh Chand (supra)
and held that the amount payable to a party to a contract, in the event of
default of other party to perform its part of the contract within the stipulated
time, "by itself cannot be held to be a penalty". The AT then posed a
question "whether the Respondent has suffered any damage/loss must be
determined having regard to the entire facts and circumstances of the case."
The AT referred to ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705, where it
was held that if the amount of compensation set out in the contract is a
genuine estimate of loss which the parties knew would likely to result from
breach of contract, proving of loss by such party by leading evidence would
not be necessary.
16. The AT also referred to the decision of Construction & Design Services
v. Delhi Development Authority 2015 (1) CDR 153 (SC) 4 where the view
of the learned Single Judge, holding that the delay in performance of the
contract involving construction of a public utility service could itself be a
ground for compensation without proving the actual loss, was set aside by
the Division Bench. The AT then concluded that it could not be said in the
facts and circumstances of the present case the mere difficulty in
performance of the contract did not give rise to a case of frustration of
contract. Importantly, it was observed by the AT that on the issue of the
amount specified being unreasonable, "the claimant has neither raised such a
plea nor adduced any evidence in this behalf." Consequently, the Petitioner's
claim was rejected by the AT.
17. Mr. Akhil Sibal, learned counsel for the Petitioner, placed considerable
reliance on the decision in Construction & Design Services (supra) which
held that where proving of actual loss may not be possible, the Court may
proceed on 'guess work to some extent', as to the quantum of compensation
that is to be allowed. Reliance was also placed on Saisudhir Energy Ltd. v.
NTPC Vidyut Vyapar Nigam Ltd. 2016 (5) Arb LR 137 (Del).
18. It was submitted by Mr. Sibal that the AT completely failed to return any
finding on whether the amount of the PBGs could be said to be "reasonable
compensation" for the breach of contract by the Petitioner. The AT also
failed to examine the specific plea of the Petitioner in this regard. Mr. Sibal
also relied on the decisions in Fateh Chand (supra) and Maula Bux (supra)
to urge that in the absence of any specific evidence of loss suffered by the
Respondent, it was incumbent on the Court to determine what was
'reasonable compensation'. The AT could not have awarded the entire
amount specified in the PPA as compensation to the Respondent.
19. What is unable to be disputed by Mr. Sibal is the factual finding in the
impugned Award to the effect that the Petitioner did not adduce any
evidence to show that the amount specified in the contract was not
reasonable. The law in this regard, as explained in several decisions from
Fateh Chand (supra) onwards is fairly well settled. In ONGC Ltd. v. Saw
Pipes Ltd. (supra) the Court observed as under:
"64. .....Section 74 emphasizes that in case of breach of
contract, the party complaining of the breach is entitled to
receive reasonable compensation whether or not actual loss
is proved to have been caused by such breach. Therefore, the
emphasis is on reasonable compensation. If the
compensation named in the contract is by way of penalty,
consideration would be different and the party is only
entitled to reasonable compensation for the loss suffered.
But if the compensation named in the contract for such
breach is genuine pre-estimate of loss which the parties
knew when they made the contract to be likely to result from
the breach of it, there is no question of proving such loss or
such party is not required to lead evidence to prove actual
loss suffered by him. Burden is on the other party to lead
evidence for proving that no loss is likely to occur by such
breach."
20. The burden of proof being on the person committing breach to show that
no loss was suffered by the other party or that the amount specified in the
contract was not reasonable was reiterated in Construction & Design
Services v. DDA (supra) as under:
"16. Once it is held that even in absence of specific
evidence, the respondent could be held to have suffered
loss on account of breach of contract, and it is entitled to
compensation to the extent of loss suffered, it is for the
appellant to show that stipulated damages are by way of
penalty. In a given case, when highest limit is stipulated
instead of a fixed sum, in absence of evidence of loss, part
of it can be held to be reasonable, compensation and the
remaining by way of penalty. The party complaining of
breach can certainly be allowed reasonable compensation
out of the said amount if not the entire amount. If the
entire amount stipulated is genuine pre-estimate of loss,
the actual loss need not be proved. Burden to prove that
no loss was likely to be suffered is on party committing
breach, as already observed."
21. In the considered view of the Court, the AT could not have possibly
determined whether the amount specified in the PPA is reasonable without
any evidence in that regard being led by the Petitioner. Mere pleadings
without some supporting evidence was insufficient for that purpose.
Although Mr. Sibal sought to draw a comparison with the relevant clauses in
ONGC Ltd. v. Saw Pipes Ltd. (supra), the fact remains that no shred of
evidence was, in fact, adduced by the Petitioner in the present case to show
that the specified compensation amount was unreasonable.
22. In the above circumstances, the conclusion reached by the AT that the
Petitioner was not entitled to any relief cannot be said to be perverse or
opposed to fundamental policy of India within the scope of Section 34 (2)(d)
(ii) of the Act. No grounds have been made to interfere with the impugned
Award of the AT.
23. The petition is accordingly dismissed with no order as to costs.
S. MURALIDHAR, J
MARCH 14, 2017
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