Delay in Public Utility Projects Is Per Se a Loss: Supreme Court Upholds ₹27 Crore Damages Against Solar Developer

“The Burden Is On the Defaulter to Prove No Loss — Not On the Government to Prove Loss in Public Contracts”, In a landmark pronouncement Supreme Court of India restoring the ₹27.06 crore compensation earlier awarded for delayed commissioning of a 20 MW solar power project under the Jawaharlal Nehru National Solar Mission (JNNSM).

“This was not merely a commercial breach, but a failure in a public utility project committed to the nation’s clean energy transition,” held a Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar, reinforcing the enforceability of liquidated damages clauses in public contracts, even in the absence of direct proof of financial loss.

“Clause 4.6 Gets Triggered on Admitted Delay”: Court Reinstates Single Judge’s Finding on Commissioning Failure

The dispute stemmed from a Power Purchase Agreement (PPA) signed on January 24, 2012, between SEL and NVVNL, under which SEL was obligated to commission 20 MW of solar power by February 26, 2013. However, SEL only commissioned 10 MW after a two-month delay and the remaining 10 MW after five months, leading NVVNL to invoke Clause 4.6 of the PPA and initiate arbitration proceedings for liquidated damages.

Noting that the delay was admitted, the Supreme Court categorically held,

“Clause 4.6 of the PPA that provides for liquidated damages for delay in commencement of supply of power gets attracted.”

The Arbitral Tribunal, in a split award, had awarded only ₹1.2 crores. This was substantially modified by the Delhi High Court’s Single Judge under Section 34 of the Arbitration and Conciliation Act, 1996, who granted ₹27.06 crores, amounting to 50% of the liquidated damages stipulated in Clause 4.6, to be recovered monthly from SEL’s sale proceeds.

“Proof of Actual Loss Not Necessary in Public Utility Contracts”: Supreme Court Reaffirms Public Interest Exception Under Section 74

Rejecting SEL’s contention that NVVNL was not entitled to liquidated damages in the absence of evidence of actual loss, the Supreme Court upheld the public interest character of the JNNSM scheme.

“The PPA… was entered into for the purpose of enabling the sale of bundled up power… This activity was definitely in public interest and with a view to promote green energy.”

The Court held that Section 74 of the Indian Contract Act, 1872, which permits recovery of reasonable compensation even without proof of actual loss, applies squarely in such public utility contexts.
Referring to the binding precedent in Construction and Design Services v. DDA, the Court reiterated,

“In such cases, the burden would be on the party committing the breach to show that no loss was caused by the delay or that the amount stipulated as liquidated damages was in the nature of penalty.”

The attempt by SEL to distinguish the public character of the contract was categorically dismissed. “The commissioning of the solar plant by SEL was with a view to satisfy and take the solar mission forward. This activity involves public interest and the environment at large.”

“Courts Can Modify Awards Under Section 34 Without Rewriting the Merits”: Supreme Court Backs Limited Judicial Power

On the issue of whether the Section 34 court had the jurisdiction to modify the arbitral award, the Supreme Court referred to its Constitution Bench ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. and decisively held:

“The modification was only with a view to apply Clause 4.6.2 of the PPA to the facts of the case… not a jurisdictional error.”

Dismissing SEL’s claim that courts could only set aside and not modify awards, the Bench observed,

“To deny courts the authority to modify an award—particularly when such a denial would impose significant hardships, escalate costs, and lead to unnecessary delays—would defeat the raison d'être of arbitration.”

The Court clarified that the Single Judge had not re-appreciated evidence, but merely applied the contractually agreed formula under Clause 4.6 to determine reasonable compensation.

“Section 37 Is Not a Forum for Reworking Compensation Already Decided”: Division Bench Faulted for Excess of Jurisdiction

The Supreme Court held that the Delhi High Court’s Division Bench had exceeded its jurisdiction under Section 37 when it reduced the compensation to ₹20.70 crores by recalculating damages based on its own interpretation of delay metrics.

“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… would be beyond the scope of Section 37.”

Citing its own decision in AC Chokshi Share Broker Pvt. Ltd. v. Jatin Pratap Desai, the Court reiterated:

“The Section 37 court must only determine whether the Section 34 Court had exercised its jurisdiction properly and rightly, without exceeding its scope.”

Since the Single Judge had computed the liquidated damages strictly under Clause 4.6, and awarded 50% as a discretionary measure, there was no perversity or arbitrariness that would warrant interference.

“A Commercial Contract Serving Public Purpose Is Not Just a Private Bargain”: Supreme Court Clarifies the Interplay Between Contractual Freedom and Public Duty

In what will likely become a key precedent for renewable energy contracts, infrastructure projects, and public-private partnerships, the Court made a broader observation:

“A person who enters into a contract with Government does not necessarily thereby undertake any public duty… but in cases like the present, the entire project is rooted in public interest, and default undermines that very purpose.”

The Court reminded parties dealing with public infrastructure:

“Having agreed to incorporate Clause 4.6 in the PPA, SEL cannot now contend that NVVNL had failed to prove exact loss. The right to reasonable compensation flows from the agreement itself.”

The Supreme Court allowed NVVNL’s appeals, dismissed SEL’s appeals, and restored the judgment of the Single Judge awarding ₹27.06 crores as liquidated damages, with monthly recovery from SEL’s earnings. No costs were awarded.

Date of Decision: January 30, 2026