The main legal point established in the judgment is the interpretation of contractual clauses as a reasonable pre-assessment of loss likely to be incurred in the event of breach, and the requirement of proof of damages or actual damages under the agreement.

S. RAVINDRA BHAT, J.

1. This appeal is directed against an order of the learned Single Judge rejecting the petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred as ‘The Act’). The appellant had challenged the legality of the award of the Tribunal dated 24.11.2016.

2. The appellant entered into an agreement with the respondent (hereinafter referred as ‘NVVN’) pursuant to the scheme of the Union Ministry of New and Renewable Energy which had floated the Jawaharlal Nehru National Solar Mission. The mission proposed to purchase solar power and power from other non-conventional sources -the NVVN was to enter into long term agreements at a fixed tariff to be determined by the Central Electricity Regulatory Commission. The appellant proposed to set up a solar power plant based on an innovative technology known as Solar Dish Sterling Engine Based Technology to be provided to it by a foreign collaborator-M/s. Infinia Corporation, USA. The appellant approached the Rajasthan Renewable Energy Corporation Ltd. for a long term arrangement for supply from their intended power plant using Infinia technology. It is stated that the corporation empanelled the appellant for purchase of the power. The appellant opted for the National Solar Mission under the Jawaharlal Nehru Solar Mission with the consent of the Rajasthan Corporation and entered into a Power Purchase Agreement with NVVN on 23.07.2010. As a part of the obligations under that Power Purchase Agreement, the appellant furnished two Performance Bank Guarantees for Rs. 2.5 crores each on 23.07.2010 and 13.10.2010. Under the terms of the Power Purchase Agreement, the appellant was obliged to commence power supply from their intended power plant by 15.02.2013; NVVN was under an obligation to purchase the power so generated @ Rs. 15.31 per KWH for 25 years. Citing insurmountable barriers in ensuring compliance with the terms of the agreement due to commercialization of technology, the appellant requested for permission to establish a plant based on Photo-Voltaic (PV) Technology. It sought – as an alternative, extension of the date of commencing of the power supply – in July 2012 and pushing the agreed date of 15.02.2013 to later date. This request was declined by the Central Government on 28.08.2012. The appellant could not therefore establish the power plant and supply the power within the time agreed. The appellant requested for withdrawal of the Performance Bank Guarantees by NVVN. However, on 14.03.2013 NVVN stated that there was breach and failure by the appellant in the performance of its obligations under the agreement and proceeded to encash the bank guarantees.

3. These developments occasioned a claim to arbitration by the appellant. It sought for a direction/award – which in fact amounted to a claim for the return of Rs. 5 crores encashed by NVVN with interest at 18 % per annum from 13.03.2013 till actual date of payment. The NVVN’s defence was that Rs. 5 crores forming part of the two Performance Bank Guarantees was a genuine pre-estimation of loss likely to be incurred in the event of appellant’s non-compliance with the supply of the power under the agreement. It was also urged that having benefited from the Power Purchase Agreement and the underlying benefits of the scheme, the appellant cannot characterize the encashment of Rs. 5 crores as penal. The NVVN in other words stated that the concerned clauses enabling to encash the bank guarantees were not penal clauses but a reasonable pre-assessment of loss likely to be incurred in the event of breach. The award of the tribunal, accepted the NVVN’s contentions and rejected the claim for refund of an amount of Rs. 5 crores with interest.

4. Before the learned Single Judge under Section 34, the appellant had advanced two fold contentions – one that without proof of actual damage or loss, the NVVN could not have legitimately encashed the bank guarantees and that the concerned contractual ter