Introduction
Judicial intervention in arbitral awards is often a recurring and contested issue under Indian arbitration law, particularly in matters involving liquidated damages under commercial contracts. This case (M/s Saisudhir Energy Ltd. v. M/s NTPC Vidyut Vyapar Nigam Ltd.)¹ is another example in which the court reiterated that arbitral tribunals are the primary decision-makers on contractual disputes subject to arbitration and that courts must exercise restraint when reviewing arbitral awards. The dispute arose out of a solar power project where delays in commissioning led to claims for liquidated damages. An arbitral tribunal decided the matter and awarded damages, which was subsequently intervened by the High Court while exercising powers under sections 34 and 37 of the Arbitration and Conciliation Act, 1996 [“the Act’’]. The Supreme Court [“the court”] was therefore called upon to decide whether such an interference was legally permissible.

Brief Facts
NTPC Vidyut Vyapar Nigam Ltd. (“NTPC”) was designated as the nodal agency under the Jawaharlal Nehru National Solar Mission launched by the Government of India, to facilitate procurement and sale of solar power through Power Purchase Agreements (“PPA”) with solar power developers. Pursuant to this mandate, NTPC entered into a PPA with M/s Saisudhir Energy Ltd. (“SEL”), under which SEL agreed to establish and supply 20 MW of solar power at a tariff of INR 8.22 per unit, which was substantially lower than the tariff of INR 15.39 per unit approved by the Regulatory Commission. The PPA stipulated 26.02.2013 as the scheduled commissioning date and incorporated Clause 4.6, providing for liquidated damages in the event of delay. On 30.01.2013, SEL sought a two-month extension, citing exigencies and invoking the force majeure clause. The request was rejected by NTPC on the grounds that the mandatory prior notice requirement under the PPA had not been complied with. SEL consequently failed to commission the project within the stipulated time and commissioned only 10 MW after a delay of five months. SEL thereafter approached the Delhi High Court seeking restraint on the encashment of the bank guarantees furnished under the PPA pending arbitration. Upon invocation of the arbitration clause, a three-member arbitral tribunal was constituted. The tribunal directed SEL to pay NTPC INR 1.2 crores, being 20% of the performance bank guarantee at the rate of INR 30 lakhs per MW, rejected SEL’s claim for reimbursement of expenditure, and held NTPC entitled to encash bank guarantees amounting to INR 49.92 crores, excluding earnest money deposit. Aggrieved, both parties challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Delhi High Court modified the award, reducing damages to 50% under Clause 4.6. Appeals under Section 37 were filed by both parties, resulting in further modification, directing SEL to pay damages of INR 1,00,000 per MW for the period of delay, amounting to INR 20.70 crores. The said judgment was challenged before the Supreme Court by way of cross-appeals.

Observation of the Court
The court observed that the timelines agreed to by the Parties in the PPA were not followed by SEL, attracting the liquidated damages clause. This clause is to be interpreted in light of section 74 of the Indian Contract Act, and the period of delay needs to be taken into account in granting the compensation, with actual loss being immaterial in case of an undisputed breach.² Therefore, the court has upheld the modification of the award under section 34 of the Act by the Ld. single judge of the Delhi High Court with a view to applying clause 4.6 of the PPA, which has also upheld by the bench under section 37 of the Act. The court relied on the Constitution bench decision in Gayatri Balasamy³ recognising the power of section 34 court to modify an award to a limited extent, which includes enhancing the amount of reasonable compensation in the context of this power.

Concerning the damages, the court held that the division bench was not justified in modifying the damages granted by the Ld. Single judge under section 34 of the Act, and set aside the order passed by the bench. The court held that the bench exceeded its jurisdiction under section 37 in recalculating the amount of compensation NTPC was entitled to. The bench failed in demonstrating that the compensation granted by the Ld. single judge was perverse or arbitrary or that it travelled beyond the provisions of clause 4.6 of the PPA, which becomes a requirement of exercising jurisdiction under the section to modify the award. The jurisdiction of section 37 court lies merely in determining whether section 34 court had exercised jurisdiction properly and rightly, without exceeding its scope. Aligning with the findings of the Ld. single judge, the court had no jurisdiction to modify the award granted.

Analysis
This judgment is a strong reaffirmation of the principle of minimal judicial interference in arbitration. The court, by setting aside the High Court’s modification under section 37 of the Act, clearly demarcated the limited powers of the court under the given section. This decision becomes crucial to ensure that arbitration remains an efficient and final method of dispute resolution in commercial contracts. The court has emphasised that sections 34 and 37 of the Act do not empower the courts to correct arbitral awards as per their discretion, but rather, their power is limited to cases where the award passed is arbitrary or perverse. Overall, this judgment strengthens India’s pro-arbitration image and aligns with the legislative intent of reducing judicial intervention in arbitral proceedings, making them efficient in resolving disputes outside of the longstanding court process.

By - Manasi Chaudhari and Srishti Sati