High court sets aside ₹1,891 cr arbitral award against NTPC in dispute with Jindal group arm | Company Business News

New Delhi: In a relief for state-run power company NTPC Ltd, the Delhi high court has set aside an arbitral award that directed the company to pay ₹1,891 crore to Jindal Infralogistics Ltd, a Jindal Group company.

The court’s single bench order, passed on 30 January, found the award to be “patently illegal and perverse”, stating that it lacked a proper basis for the quantification of damages. “The award is so perverse, it has to go in totality,” the court observed while striking it down.

Jindal Infralogistics, a subsidiary of Jindal SAW Ltd, announced in an exchange filing on Monday that it plans to challenge the verdict before a division bench of the high court.

The dispute arose from a 2011 tripartite agreement between NTPC, Jindal Infralogistics, and the Inland Waterways Authority of India (IWAI) for the transportation of coal via National Waterway 1 to NTPC’s Farakka thermal power plant in West Bengal. 

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As per the agreement, Jindal ITF was responsible for developing infrastructure for coal transportation, with Phase 1 to be completed within 15 months and Phase 2 within 24 months. 

However, significant delays occurred—400 days for Phase-1 and 674 days for Phase-2. This escalated when, in 2017, Jindal ITF initiated arbitration proceedings, claiming that NTPC was responsible for the delays. In response, NTPC terminated the agreement.

On 27 January, 2019, the arbitral tribunal ruled in favor of Jindal ITF, awarding ₹1,891 crore in damages for wrongful termination. This included ₹417.32 crore for pre-commercial operation date (pre-COD) shortfalls in minimum guaranteed quantity (MGQ) and ₹1,108.93 crore for the alleged wrongful termination of the tripartite agreement (TPA).

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NTPC challenged the award in the Delhi high court, citing several grounds. First, it argued that the award was flawed due to the non-joinder of a necessary party, as Inland Waterways Authority, a key entity in the agreement, was not included in the arbitration. Second, it claimed that the damages granted for the pre-COD period violated provisions of the Indian Contract Act, 1872, which regulate compensation for contract breaches.

Third, NTPC pointed out that the TPA had a “no damages” clause for the pre-COD period, yet the tribunal awarded damages. Additionally, NTPC argued that the calculation of damages was incorrect, as the tribunal used the wrong starting date for its computations. It also contended that the ₹1,108 crore compensation for wrongful termination was unjustified, as Jindal ITF neither fulfilled its contractual obligations nor accounted for the costs it would have incurred for the remaining operational period. Moreover, NTPC asserted that the tribunal erroneously treated the TPA as a non-terminable contract, despite its clear provisions.

It’s to be noted here that the pre-COD period is the time before a project starts operating commercially. In this case, it refers to the period before the coal transportation system was completed and ready to be used for its intended purpose.

The court sided with the state-run power company and ruled that the arbitral tribunal had exceeded its mandate and failed to provide a valid justification for the damages awarded. It noted that the tribunal had acted beyond the contractual terms and emphasized that arbitration proceedings must be conducted with due diligence and expertise.

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