Liquidated damages are not awardable under Section 74 without proof of actual loss or legal injury.

In brief

The question

1. Whether TANGEDCO was entitled to encash the Performance Bank Guarantees despite the Appellant's claims of Force Majeure and lack of proven loss.

The court held

The Tribunal rejected the prayer for refund of the Bank Guarantee amount, upholding the encashment based on contractual timelines.

It also directed

The Tribunal set aside the Commission’s order regarding the Appellant's liability for liquidated damages and remanded the case for a fresh determination on whether TANGEDCO suffered any actual loss.

01Facts

The Appellant entered into a Power Purchase Agreement (PPA) with Respondent No. 2 (TANGEDCO) on September 26, 2017, for a solar power project, with a commissioning deadline of 24 months.

pp. 3-4

Due to the imposition of "Safeguard Duty" on solar modules, the Appellant failed to commission the project within the maximum allowable 34-month window.

pp. 4, 10-11

Consequently, TANGEDCO encashed Performance Bank Guarantees (PBGs) worth ₹15 crores.

pp. 6-7

The Appellant approached the Tamil Nadu Electricity Regulatory Commission (TNERC) seeking a project-specific extension, which was rejected via order dated February 2, 2021.

p. 2

The Commission held that the PPA stood automatically terminated and the Appellant was liable for liquidated damages (LD) under Article 14.

p. 2, 6

02Issues

i.1. Whether TANGEDCO was entitled to encash the Performance Bank Guarantees despite the Appellant's claims of Force Majeure and lack of proven loss.

p. 7 / para. 13 · p. 12 / para. 20

ii.2. Whether the Commission erred in awarding liquidated damages to TANGEDCO without proof of actual loss suffered due to the non-commissioning of the project.

p. 14 / para. 23

03Law Applied

Section 74 of the Indian Contract Act, 1872, which stipulates that while parties can pre-estimate damages, the court will only award "reasonable compensation" not exceeding the named amount, regardless of whether actual loss is proved.

p. 18, 20

Section 73 of the Indian Contract Act, 1872 regarding compensation for loss caused by breach.

p. 16

The Tribunal relied on the Supreme Court precedents in Kailash Nath Associates v. DDA, which held that loss is a sine qua non for damages and proof of loss is only dispensed with if it is difficult or impossible to prove.

pp. 21-24

Maula Bux v. Union of India, which clarified that where loss is determinable in money, the claimant must prove it.

pp. 25-27

Provisions in the judgment · 3 · Linked ones open on LawLens

Indian Contract Act, 1872 Section 73 Section 74 Section 75

04Reasoning

Regarding the PBGs, the Tribunal found that under Article 14 of the PPA, encashment was a contractually triggered consequence of missing the 24-to-29-month timeline, independent of proven loss.

p. 10, 13

The Appellant failed to properly amend its pleadings to challenge the encashment before the Commission.

p. 12

Regarding Liquidated Damages, the Tribunal noted that the Commission failed to ascertain if TANGEDCO suffered any actual legal injury or loss.

p. 31

While TANGEDCO argued that quantifying loss in power distribution is complex, the Tribunal held that the Commission acted in an "arbitrary and cavalier manner" by awarding LD without first determining if the case was one where proving loss was truly impossible or if TANGEDCO could demonstrate proximity of damage.

pp. 31-32