New Filters: Dispute Resolution and Arbitration

If you are not happy with the results, please do another search

JSA Prism | Dispute Resolution | April 2025

Please click here to download the document.

Supreme Court of India holds that an arbitration agreement will be governed by Indian law where foreign location is not the seat but is only the venue of arbitration, and the substantive contract is governed by Indian law

In a recent judgment, the Supreme Court of India (“Supreme Court”) in Disortho S.A.S vs. Meril Life Sciences Private Limited[1] has exercised jurisdiction under section 11 (6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and appointed a sole arbitrator, wherein the dispute settlement clause in the contract, provided for disputes to be settled by arbitration in Bogota DC, Colombia, in accordance with the rules of the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota DC.

Brief facts

Disortho S.A.S (“Disortho”), a Colombian company, and Meril Life Sciences Private Limited (“Meril”), an Indian company, entered into an International Exclusive Distributor Agreement (“Contract”) for distribution of medical products in Colombia.

The Contract specified that it would be governed and construed in accordance with the laws of India, and all matters arising in consequence of the Contract would be subject to the jurisdiction of the Courts in Gujarat, India.

The dispute settlement clause in the Contract required disputes to be resolved through conciliation, failing which by arbitration to be conducted at Bogota DC, Colombia, in accordance with the Rules of the Arbitration and Conciliation of the Chamber of Commerce of Bogota DC.

When disputes arose between the parties, Disortho filed an arbitration petition under Section 11(6) of the Arbitration Act, before the Supreme Court seeking the appointment of an arbitrator. Meril opposed the petition on jurisdictional grounds contending that Indian Courts do not have jurisdiction.

Decision of the Supreme Court

The Supreme Court considered judicial precedents which discussed various legal systems which come into play in such trans-border arbitrations, viz., the law governing the substantive contract; the law governing the arbitration agreement; the law governing the performance of the arbitration agreement and the law governing the procedural aspects of arbitration.

As regards determining the law that governs the arbitration agreement, the Supreme Court considered the principles laid down by the UK Supreme Court in Enka Insaat Ve Sanayi AS and OOO Insurance Company Chubb[2] and held that the conclusions set out therein, including, that where the law governing the arbitration agreement is not specified, the law governing the substantive contract will generally apply to the arbitration agreement, which is part of the substantive contract, and that the choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that law governing the substantive contract was intended to apply to the arbitration agreement, state the correct legal position, except on aspects where Courts in India have taken a different view.

Interpreting the clauses in the Contract, based on principles laid down in various earlier judgements, the Supreme Court concluded that the seat of arbitration has not been expressly designated by the parties and Bogota DC is only the venue for arbitration. The Supreme Court further held that since the Contract stipulated that it would be governed and construed in accordance with the laws of India, and that all matters arising in consequence of the Contract would be subject to the jurisdiction of the Courts in Gujarat, India, it has jurisdiction over matters relating to the appointment of the arbitrator. The Supreme Court held that the designation of Bogota DC as the venue for arbitration and choice of the Rules of the Arbitration and Conciliation of the Chamber of Commerce of Bogota DC will not take away the jurisdiction expressly conferred on the Indian courts.

Noting that the Contract does not expressly identify a separate law governing the arbitration agreement, the Supreme Court held that by implication, Indian law governs the arbitration agreement. The Supreme Court further held that use of the premises of the arbitration centre at Bogota DC for the arbitration proceedings, will not imply that Colombian law will govern the arbitration agreement. The Supreme Court also held that the applicability of Colombian law is limited to the arbitration proceedings and matters relating to the award.

Conclusion

The judgement is an addition to the earlier judgements of the Supreme Court, wherein the Supreme Court had discussed the complexity involved in interpretation, when different legal systems come into play in contracts involving parties from different jurisdictions. The judgement underscores the importance of carefully drafting arbitration clauses, especially in international contracts, to avoid jurisdictional ambiguities.

This Prism is prepared by:

Vinod Kumar
Partner

Saibarath
Senior Associate

For more details, please contact [email protected]

[1] Arbitration Petition No.48 of 2023

[2] (2020) UK SC 38. This judgement followed the principles of Sulamerica Cia Nacional De Seguros S.A. and others Vs Enesa Engenharia S.A and Others (2012) EWCA Civ 638

Tags Delhi HC, Delhi High Court, Dispute Resolution, Disputes, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates

JSA Successfully Represented Resolution Professional of Smaaash Entertainment (“Corporate Debtor”) in Securing Relief Against Obstruction of Corporate Debtor’s Operations

JSA successfully represented Mr. Bhrugesh Amin (“RP”), Resolution Professional of the Corporate Debtor, before the Hon’ble National Company Law Tribunal, Mumbai (“NCLT”), in obtaining injunctive relief against the erstwhile promoters in using domain name and other social media accounts containing brand name “SMAAASH”. The Resolution Professional was constrained to file an Application under Section 19 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016, and Rule 11 of the NCLT Rules, 2016, inter-alia, seeking:

injunction against the erstwhile promoters and its related party from using of the brand name “SMAAASH” in domain name, social media accounts et al;
transfer the domain “smaaash.com” back to the Corporate Debtor, even though the said domain name was not created by the Corporate Debtor. Accepting the contentions advanced by the Resolution Professional, the Hon’ble NCLT held that:
- The Hon’ble NCLT has jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 to decide the disputes relating to violation of trademarks since such disputes are connected with the insolvency resolution of the Corporate Debtor.
- Domain name falls within the definition of ‘mark’ under Section 2(zb) of the Trade Marks Act, 1999. Hence, using of the domain name with brand name “SMAAASH” amounts to infringement of the Corporate Debtor’s Trade Mark.
- Having possession of domain name “www.smaaash.com” by the erstwhile promoters and its related party (even though the said domain name is not owned by the Corporate Debtor) amounts to “cyber-squatting”. Thus, the Corporate Debtor is entitled to a relief of not only an injunction from usage of domain name but also the relief of transfer of domain name in favour of the Corporate Debtor. By the Order, the Hon’ble NCLT ensured that the brand name “SMAAASH” and associated digital assets of the Corporate Debtor are protected, allowing the RP to manage the business effectively without obstruction. The Order lays down the principles regarding the jurisdiction of the Hon’ble Tribunal’s in resolving disputes relating to intellectual property and digital assets of the Corporate Debtor.

Our Dispute team comprised of Lead Partner, Varghese Thomas, Partner, Kunal Kaul and Fatema Kachwalla & Senior Associate, Virgil Braganza.

Tags Brand Protection, Corporate Insolvency, Corporate Law, Cyber Squatting, Digital Assets, Domain Disputes, Ibc, Insolvency And Bankruptcy, Intellectual Property, JSA Deal Alert, Judicial Precedent, Legal Advisory, NCLT, Resolution Professional, section 60, SMAAASH, Tech Law, Trademark Law

JSA successfully defends PTC India Financial Services Ltd. before the Telangana High Court in a Writ Petition challenging rejection of One Time Settlement Proposals submitted by promoter in relation to the CIRP of the corporate debtor

JSA has successfully advised and represented PTC India Financial Services Ltd. (“PFS”) before the Telangana High Court in a Writ Petition under Article 226 of Constitution of India filed by Mandava Holdings Private Limited (“MHPL/Petitioner”) against – (i) PFS, (ii) Reserve Bank of India and (iii) Rungta Mines Limited (Successful Resolution Applicant). MHPL, being a promoter of NSL Nagapatnam Power and Infratech Limited (“Corporate Debtor”), an entity undergoing Corporate Insolvency Resolution Process (“CIRP”), proposed various One Time Settlement (“OTS”) offers to PFS, which were rejected. Aggrieved by it, MHPL preferred a Writ Petition, seeking a Writ of Mandamus in the nature of a direction that PFS rejected MHPL’s OTS in violation of the Reserve Bank of India Framework for Compromise Settlements and Technical Write-offs dated 8 June 2023 (“RBI Framework”).

The Telangana High Court by Judgment dated 24 December 2024 rejected the Writ Petition (“Judgment”). The High Court’s Judgment assumes significance as it reaffirms the following important principles:

Once a resolution plan has been duly approved by the Committee of Creditors (“CoC”), it becomes binding upon all stakeholders, including inter alia the creditors and the resolution applicant, and such resolution plan cannot be withdrawn under Section 12A of the Insolvency and Bankruptcy Code, 2016 (“Code”).
Any decision of withdrawal of insolvency application under Section 12A of the Code post the admission of CIRP is subject to the approval of the CoC in the manner prescribed in the said provision.
The commercial wisdom of the CoC assumes a position of superiority to all the stakeholders and the CoC itself is bound by its approval of Resolution Plan and cannot be allowed to resile from its decision.
The Code is comprehensive and self-contained in nature, and adjudicates all disputes arising out of, or concerning insolvency of a corporate debtor. As such, Writ Jurisdiction of the High Court cannot be invoked under Article 226 of the Constitution of India.

An appeal impugning the Judgment was filed by MHPL before the Division Bench of the Telangana High Court. However, the Divion Bench also disposed of the Appeal against the Judgment and directed MHPL to pursue its remedies before the NCLT Hyderabad, where the CIRP qua the Corporate Debtor is ongoing.

Our Disputes Team comprised Lead Partner, Sidharth Sethi, Partner, Shreya Sircar, and Associate, Kunal Saini.

The matter was argued by Mr. Niranjan Reddy, Senior Advocate, who was assisted by our team.

Matter value – INR 671 crores.

Judgement Date – 24^th December 2024.

Tags CIRP, Commercial Wisdom, Committee Of Creditors, Corporate Law, Dispute Resolution, Financial Law, Ibc, Insolvency And Bankruptcy, JSA Deal Alert, Legal Advisory, Legal Update, OTS, Rbi Framework, Resolution Plan, Telangana High Court, Writ Jurisdiction

Section 11 – A Minimalist Approach To The Constitution Of An Arbitral Tribunal In India

Arbitrations in India are subject to frequent judicial intervention throughout their tenuous lifespans, whether at the stage of interim relief, constitution of an arbitral tribunal or challenge to an award.

Please click here to read the full article authored by our Principal Associate – Siddhesh Pradhan and Associate Sanjana Pandey, which was published in Mondaq.

Tags Alternative Dispute Resolution, Arbitral tribunal, Arbitration in India, Arbitration Law, Corporate Law, Dispute Resolution, Indian law, JSA, Judicial Intervention, Law firm India, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Insights, Minimalist approach, Section 11

JSA Prism | Dispute Resolution | April 2025

Please click here to download the document.

Supreme Court reaffirms limited scope of appeal under Section 37 of Arbitration and Conciliation Act, 1996

In the case of M/s. C&C Constructions Limited vs. IRCON International Limited[1], the Hon’ble Supreme Court of India (“Supreme Court”) re-affirmed that Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34 of the Arbitration Act. The Supreme Court also examined the validity of Clause 49.5 of the General Conditions of Contract (“GCC”) which barred the appellant/contractor from claiming damages or compensation for delays caused by the respondent/employer’s failure to fulfil its contractual obligations.

Brief facts

The parties entered into an agreement for the construction of Road Over Bridges (“ROBs”). The agreement provided for dispute resolution through arbitration.
Disputes arose between the parties concerning delays in the completion of the project, the imposition of penalties, and the validity of claims related to these delays.
M/s. C&C Constructions Limited (“Appellant/Contractor”) invoked the arbitration clause, leading to the initiation of arbitration proceedings.
The Appellant had submitted an undertaking for 3 (three) specific locations where ROBs were to be constructed, agreeing not to make any claims other than for escalation due to delays. Despite this, the Appellant later made claims for damages due to delays caused by the Respondent, for which extensions had been granted.
IRCON International Limited (“Respondent/Employer”) filed an application under Section 16(2) of the Arbitration Act, arguing that Clause 49.5 of the GCC barred the Appellant from claiming damages or compensation for delays caused by the Respondent.
Clause 49.5 of GCC states that any failure or delay by the Respondent/Employer in fulfilling contractual obligations does not entitle the Appellant/Contractor to damages or compensation. Instead, the Appellant/Contractor is only entitled to a reasonable extension of time as determined by the Respondent/Employer.
The Arbitral Tribunal passed an award in the Respondent’s application under Section 16 of the Arbitration Act on December 21, 2019, by which all claims were rejected based on clause 49.5 of GCC.
The Appellant challenged the award under Section 34 of the Arbitration Act, before the High Court of Delhi (“Delhi HC”). The Delhi HC dismissed the petition, holding that a term like Clause 49.5 of the GCC would bar the Appellant’s claim. It was also held that Clause 49.5 of the GCC was valid and, after the Appellant accepted the same, it could not contend to the contrary.
Being aggrieved by the Delhi HC’s judgment, the Appellant then appealed under Section 37 of the Arbitration Act to the Division Bench of the Delhi HC. The Division Bench dismissed the appeal, affirming the validity of Clause 49.5 of the GCC and stating that the Respondent had not waived its requirements. Consequently, the Appellant filed a special leave petition before the Supreme Court to appeal against the High Court’s Division Bench’s order.

Issues

The judgment deals with the following issues:

whether Clause 49.5 of the GCC, which prevents the Contractor from claiming damages or compensation for delays caused by the Respondent/Employer, is valid and enforceable?
whether the Respondent had waived the requirements of Clause 49.5 of the GCC through its conduct or communications, thereby allowing the Appellant to make claims for damages despite the clause?

Findings and analysis

Re: Limited scope of interference in appeal under section 37 of the Arbitration Act

The Appellant, for the first time in the appeal before the Supreme Court, invited the Court to examine the validity of Clause 49.5 of the GCC in light of Sections 23 and 28 of the Indian Contract Act, 1872.
The Appellant argued that the Delhi HC should have examined this issue. However, the Supreme Court observed that this contention was not raised by the Appellant either at the Section 34 stage before the learned Single Judge or at the Section 37 stage before the Division Bench. Therefore, the Supreme Court held that it is not open for the Appellant to raise this contention for the first time in the appeal before the Supreme Court.
The Supreme Court also relied on Larsen Air Conditioning and Refrigeration Company vs. Union of India[2] wherein it was held that when an award is upheld or substantially upheld under Section 34 of the Arbitration Act then the scope of appellate court under Section 37 of the Arbitration Act to review the finding in an award becomes narrower.
The Supreme Court also referred to the judgment of Konkan Railway Corporation Limited vs. Chenab Bridge Project Undertaking[3] to establish that scope of interference by a court in examining an award is limited. The grounds for setting aside or refusing to set aside an award in an appeal under Section 37 of the Arbitration Act is restricted and subject to the same grounds as available under Section 34 of the Arbitration Act.
The Supreme Court found no merit in the appeal and dismissed it, reaffirming the limited scope of interference in appeals under Section 37 of the Arbitration Act.

Re: Findings in relation to clause 49.5 of the GCC

The Supreme Court examined the clause 49.5 of the GCC and concluded that the Appellant had given a solemn undertaking not to make any claim other than for escalation in respect of delays in the completion of work. The claims made were contrary to these undertakings, and only an extension of time was available for such delays. Therefore, the Supreme Court held that by the undertakings, the Appellant agreed not to make a claim contrary to what is provided in clause 49.5 of the GCC. Consequently, by conduct, the Appellant was estopped from challenging the validity of clause 49.5 of the GCC.
The contention in relation to clause 49.5 of the GCC having been waived by the Respondent was raised by the Appellant for the first time before the Division Bench in the appeal under Section 37 of the Arbitration Act. The Supreme Court noted that although such argument could not have been raised at the stage of an appeal, it still examined the same.
On the argument of waiver, On the argument of waiver, the Supreme Court held that the Respondent’s request for the Appellant to submit detailed claims for early processing of the extension requests could not be termed as a waiver of Clause 49.5 by any stretch of the imagination. The argument of waiver of Clause 49.5 was thus rejected by the Supreme Court, and the finding of the High Court’s Division Bench that there was no merit in such contention was upheld.

Conclusion

This judgment reinforces the well-established principle that courts have a limited scope of interference in an arbitral award. It adds to the growing body of precedents that emphasise judicial restraint in arbitration matters. The Supreme Court, in line with prior rulings, reiterated that a high threshold of proof is required to convince the court that an arbitral award is vitiated by any of the grounds enumerated under Section 34 of the Arbitration Act. Mere dissatisfaction with the award or a claim that the tribunal misinterpreted contractual provisions is insufficient to warrant judicial intervention. The Supreme Court also upheld strict interpretation of the contract by the Arbitral Tribunal. When parties enter a contract with full awareness of its terms, then later, a party cannot challenge the contractual terms simply because it ceases to be favorable to one party. The judgment establishes that the parties as well as the Arbitral Tribunal in passing an award and adjudicating the disputes are bound by the terms of the contract.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Deepank Anand
Associate

Shivangi Pathak
Associate

For more details, please contact [email protected]

[1] 2025 INSC 138

[2] (2023) 15 SCC 472

[3] (2023) 9 SCC 85

Tags Delhi HC, Delhi High Court, Dispute Resolution, Disputes, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates

JSA Prism | Dispute Resolution | April 2025

Please click here to download the document.

Supreme Court holds that an entity being subject to regulatory guidelines under a statute does not automatically make it amenable to writ jurisdiction

A recent judgment of the Hon’ble Supreme Court of India (“Supreme Court”) has held in S. Shobha vs. Muthoot Finance Ltd.[1], that a body, public or private, should not be categorised as being amenable to writ jurisdiction simply because it is governed by the rules and regulations framed by a statutory regulatory authority. Relying on various legal precedents, the Supreme Court held that the most important and vital consideration while determining the maintainability of a writ application is the ‘function’ test.

Brief facts

Muthoot Finance Limited (“Respondent”), is a company registered under the Companies Act, 1956, regulated by the Reserve Bank of India (“RBI”). The Respondent company is a private financier.
The brief facts giving rise to the dispute are that S. Shobha (“Petitioner”) availed of a loan from the Respondent by pledging gold. Notably, the loan agreement between the parties contained an arbitration clause.
Disputes arose between the parties, and the Petitioner invoked the writ jurisdiction of the High Court of Karnataka at Bengaluru (“Karnataka HC”). The Learned Single Judge entertained the writ petition, despite noting that the Respondent did not have the status of ‘State’ under Article 12 of the Constitution of India (“Constitution”), since the Respondent had acted contrary to an interim order.
In appeal, the Division Bench of the Karnataka HC held that the writ petition is not maintainable on, inter alia, the following grounds:
- the definition of ’State’ within the meaning of Article 12 of the Constitution, has not been satisfied in the present case;
- the transaction of loan by pledging of gold by the Petitioner with the Respondent, could not be held to be involving any public function or being in the public realm; and
- the Respondent company is not discharging any public function.
Aggrieved, the Petitioner preferred a special leave petition before the Supreme Court.

Issue

Whether the Respondent company, a private financier, although regulated by a statutory regulator, being the RBI, can be said to be amenable to writ jurisdiction?

Key findings of Supreme Court

After appreciating the submissions advanced by the parties as well as legal precedents, the Supreme Court held that on applying the ‘function’ test, the Respondent cannot be called a public body; it has no duty towards the public; it has no power to take any action or pass any order affecting the rights of the members of the public. Therefore, in the absence of any public duty or public function, the Respondent cannot be said to be amenable to writ jurisdiction.
In support of the above conclusion, the Supreme Court observed that the duty of the Respondent is towards its account holders, which may include the borrowers who have availed of any loan facility. The binding nature of its orders and actions is confined to its account holders, borrowers and to its employees. The Supreme Court summed up the legal position as regards the amenability to writ jurisdiction as follows:
- Instrumentality or agency of State: For issuing writ against a legal entity, it would have to be an instrumentality or agency of a State or should have been entrusted with such functions as are Governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence Governmental.
- Statutory function: A writ petition under Article 226 of the Constitution may be maintainable against (i) the State Government; (ii) authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function.
- Mere subjection to regulation by statutory body not enough to invoke writ jurisdiction: Although a non-banking finance company is duty bound to follow and abide by the guidelines provided by the RBI for smooth conduct of its affairs in carrying on its business, yet those are in the nature of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company.
- Private company/scheduled bank not carrying on public function/duty: A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty.
- Private body performing public duty: Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty.
- If a private body is discharging a public function and the denial of any rights is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action.
- Mere statutory force not sufficient to attract writ jurisdiction: Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body.
- No general definition of public authority or public action: There cannot be any general definition of public authority or public action. Each case must be decided on its own facts.

Conclusion

This judgment reinforces the settled principles as regards the invocation of writ jurisdiction. Invocation of writ jurisdiction with respect to a private entity not discharging any public function or public duty cannot be proceeded against in writ jurisdiction. There are other civil remedies available to an aggrieved party in such cases, for instance, filing a civil suit or invocation of arbitration clause, if available in the agreement/arrangement between the parties.

This Prism has been prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Kunal Saini
Associate

For more details, please contact [email protected]

[1] 2025 INSC 117 (judgment dated 24 January 2025)

Tags Article 226, Constitutional Law, Indian law, JSA, Judicial Review, Leading Law Firm, Leading Lawyers, Legal Update, Legal Updates, Public Function, Regulatory Compliance, Supreme Court, Writ Jurisdiction

JSA Prism | Dispute Resolution | March 2025

Please click here to download the Prism as a PDF.

Forfeiture of earnest money, if ‘reasonable’, does not amount to imposing a penalty and therefore does not fall under Section 74 of the Indian Contract Act, 1872

The Supreme Court of India (“Supreme Court”) in Godrej Projects Development Limited vs. Anil Karlekar and Ors.[1], has held that forfeiture of a reasonable amount of earnest money is permissible and does not constitute a penalty under Section 74 of the Indian Contract Act, 1872 (“Contract Act”), provided it is not excessive.

Brief facts

The Respondents Anil Karlekar and Ors. (“Complainants/Respondents”) booked an apartment with Godrej Projects Development Limited (“Appellant/Developer”) in its project styled as ‘Godrej Summit’ (“Project”) by paying an application money of INR 10,00,000 (Indian Rupees ten lakh).
The Appellant allotted an apartment to the Complainants in the Project. Pursuantly, an Apartment Buyer Agreement (“Agreement”) was executed between the parties.
Subsequently, the Appellant completed the construction of the Project and offered possession to the Complainants. However, the Complainants sought cancellation of the allotment and demanded a full refund of INR 51,12,310 (Indian Rupees fifty one lakh twelve thousand three hundred and ten).
Thereafter, the Complainants filed a Consumer Complaint (“Complaint”) against the Appellant before the National Consumer Disputes Redressal Commission (“NCDRC”), seeking a full refund along with 18% interest per annum.
The NCDRC, vide order dated October 25, 2022, disposed of the Complaint and held that the Appellant could deduct only 10% of the Basic Sale Price (“BSP”) as cancellation charges. In effect, the NCDRC directed the Appellant to refund the remaining amount along with 6% simple interest per annum, within a specified period. Aggrieved by the NCDRC’s decision, the Appellant filed an appeal before the Supreme Court.

Issue

Whether forfeiture of a reasonable amount of earnest money deposit constitutes a penalty under Section 74 of the Contract Act?

Findings and analysis

While partly allowing the appeal, the Supreme Court held as follows:

forfeiture of earnest money is permissible, provided it is reasonable and not excessive or arbitrary. In such circumstances, it shall not amount to a ‘penalty’ under Section 74 of the Contract Act;
while relying on its judgment in Maula Bux vs. Union of India[2], the Supreme Court reiterated that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Contract Act, inasmuch as, such a forfeiture does not amount to imposing a penalty.
The Supreme Court further observed that if under the terms of the contract, the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid, such an undertaking is in the nature of a penalty and would attract the provisions of Section 74 of the Contract Act.
The Supreme Court also analysed and relied upon the decision rendered by the NCDRC in DLF Limited vs. Bhagwanti Narula[3] and Ramesh Malhotra and Anr. vs. Emaar Mgf Land Limited and Anr.[4],wherein it was held that 10% of the BSP is a reasonable amount which is liable to be forfeited as earnest money. Additionally, the Supreme Court also relied on other decisions passed by it in Ireo Grace Realtech Private Limited vs. Abhishek Khanna and Ors.[5], Wing Commander Arifur Rahman Khan and Aleya Sultana and Ors. DLF Southern Homes Private Limited and Ors[6], Pioneer Urban Land and Infrastructure Limited vs. Govindan Raghavan[7], and held that the forfeiture of the 20% of the BSP as earnest money by the Appellant was excessive, one-sided and unconscionable and therefore, not enforceable in law.

Conclusion

The Supreme Court has reaffirmed that the forfeiture of earnest money is permissible, provided it is reasonable and proportionate. It upheld the validity of forfeiture of earnest money observing that such clauses should not be one-sided or excessively punitive and that such an amount must be just and fair not qualifying as a penalty under Section 74 of the Contract Act. Any forfeiture that is excessive, punitive, or one-sided amounts to a penalty.

While earnest money serves as security for contractual performance, its forfeiture should not be excessive to the extent that it qualifies as a penalty. If a forfeiture is deemed unreasonable or oppressive, the court has the authority to intervene and reduce the amount, ensuring that contractual terms remain equitable and enforceable.

This Prism is prepared by:

Sidharth Sethi
Partner

Shreya Sircar
Partner

Kunal Saini
Associate

For more details, please contact [email protected]

[1] Civil Appeal No. 3334 of 2023, decided on February 3, 2025

[2] (1969) 2 SCC 554

[3] 2015 SCC OnLine NCDRC 1613

[4] 2020 SCC OnLine NCDRC 789

[5] (2021) 3 SCC 241

[6]. (2020) 16 SCC 512

[7] (2019) 5 SCC 725

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates

JSA Prism | Power | March 2025

Please click here to download the prism.

JSA secures relief for Brahmani Thermal Power Private Limited, as Appellate Tribunal for Electricity upholds force majeure-based relinquishment of Long-Term Access sans any liability

In a significant judgment, the Appellate Tribunal for Electricity (“APTEL”) in the case of M/s Brahmani Thermal Power Private Limited vs. Central Electricity Regulatory Commission[1] held that Brahmani Thermal Power Private. Limited (“BTPPL”)[2] was entitled to relinquish its Long-Term Access (“LTA”) without any liability, due to force majeure events. By doing so, APTEL set aside Ld. Central Electricity Regulatory Commission’s (“CERC”) findings, by emphasising that the delay in land acquisition by the concerned State Government was a force majeure event beyond BTPPL’s control. APTEL returned these findings after considering Regulation 18 of the CERC (Grant of Connectivity, Long-term Access and Medium-term Open Access in inter-State Transmission and related matters) Regulations, 2009 (“Connectivity Regulations, 2009”).

Brief facts

The Appellant, BTPPL formerly known as Navbharat Power Private Limited, planned to establish a 1050 MW (2×525 MW) coal-based thermal power plant in Odisha. For this, it executed a Memorandum of Understanding (“MoU”) with the State Government of Odisha on June 9, 2006. Under the MoU, the State Government through its instrumentality, Odisha Industrial Infrastructure Development Corporation (“IDCO”), was to acquire 1,200 (one thousand two hundred) acres of land and hand it over free from encumbrances to BTPPL for setting up the power plant. BTPPL thereafter executed a Bulk Power Transmission Agreement (“BPTA”) with Power Grid Corporation of India Limited (“PGCIL”) for LTA to the transmission network on June 7, 2010.
The land was identified and the acquisition process commenced. After certain payments by BTPPL, the Government of Odisha issued Section 4(1) notification under the Land Acquisition Act, 2013 on November 6, 2007, which was followed by Section 6(1) notifications on November 29, 2008, and December 11, 2008. BTPPL obtained clearances from various authorities in relation to the identified land, some even before the BPTA was executed.
On July 30, 2009, the Collector, Dhenkanal informed that the Project area of 546.98 (five hundred and forty-six point nine eight) hectares fell within the Ayacut area of Rengali Right Canal System (“RRCS”), which required the matter to be settled with the Water Resources Department. Thereafter, the Water Resources Department inter alia requested BTPPL to revise its requirement of land or relocate the project. BTPPL expressed its inability to relocate.
Meanwhile, the MoU expired on December 31, 2011, and was not extended by the State Government. BTPPL had submitted a proposal reducing the share of Ayacut land and requested IDCO to initiate land acquisition process. BTPPL had also requested PGCIL to postpone the commercial operation date of the plant.
It was only on July 16, 2012, that the Department of Water Resources gave its in-principal acceptance to establishment of the plant in the Ayacut area of RRCS. BTPPL then wrote to the State Government of Odisha to seek resumption of the land acquisition process. It also sought extension of the MoU, but in vain.
Finally, BTPPL issued a force majeure notice on June 25, 2013, and sought relinquishment of the LTA and return of the bank guarantee submitted by it. PGCL advised BTPPL to approach CERC. Accordingly, BTPPL filed a petition[3] before CERC claiming force majeure under the BPTA and return of the bank guarantee.
On April 12, 2017, CERC rejected BTPPL’s claim of force majeure, ruling that the project was abandoned for commercial reasons and that force majeure under the BPTA only provided temporary relief, not an exit from obligations. CERC further held that BTPPL must pay relinquishment charges as per Regulation 18 of the Connectivity Regulations, 2009 and it was not entitled to a refund of the INR 36,00,00,000 (Indian Rupees thirty-six crore) bank guarantee.

Issue

Whether the BPTA was frustrated on account of force majeure events faced by BTPPL?

Findings of APTEL

Clause 9 of BPTA extends to permanent force majeure events

Clause 9 of the BPTA is not limited to only temporary force majeure events. The use of word ‘practicable’ in the last sentence of Clause 9 merely indicates that the agreement may be continued after the Force Majeure event ceases to exist if the affected party finds it practical so to do. To say that Clause 9 applies only in case of ‘temporary failure to carry out the Terms of the Contract’ would tantamount to adding words to the written agreement, which is impermissible.
APTEL in its earlier Judgment dated May 19, 2020 in PEL Power Limited vs. CERC and Anr.[4] (“PEL Power Judgment”) regarding an identical clause had held the same. There is no stay on PEL Power Judgment. The PEL Power Judgment was followed in judgment dated May 14, 2024, titled Himachal Sorang Power Private. Limited vs. CERC and Ors.[5]. The Appeal filed by Central Transmission Utility India Limited against the Himachal Sorang judgment has been dismissed by Hon’ble Supreme Court on August 27, 2024.

Force majeure events prevented BTPPL from setting up the plant

CERC’s finding that the project was abandoned due to commercial reasons is entirely unreasoned. The practice of writing unreasoned and cryptic orders needs to be deprecated sternly. Though CERC’s order could be set aside on the ground of it containing no reasons, the appeal was heard finally considering that it has been pending adjudication for more than 7 (seven) years.
The main reasons due to which the project could not be executed were: (a) failure on the part of the State Government to acquire land for project before expiry of the notifications issued under Sections 4(1) & 6(1) of the Land Acquisition Act, 2013; and (b) failure on the part of the State Government to extend/renew the MoU beyond December 31, 2011. Both these factors were undoubtedly beyond the control of BTPPL and therefore, constitute force majeure events contemplated under Clause 9 of the BPTA.
When the MoU dated June 9, 2006, clearly made it an obligation upon the State Government to acquire the land required for the project through IDCO and place it at the disposal of BTPPL free from any encumbrances, there was no reason or occasion for BTPPL to initiate land acquisition process. It is the State Government which has failed to fulfil its obligations under the MoU for which BTPPL cannot be held responsible.
Regulation 8 of the Connectivity Regulations, 2009 is only applicable in cases of voluntary relinquishment, without being affected by force majeure events.
As on June 25, 2013, when BTPPL issued force majeure notice, there was no stranded spare capacity in the lines in question, since no work began on these lines. This also rules out applicability of Regulation 18 of the Connectivity Regulations, 2009, which presupposes stranded capacity on account of relinquishment.
Therefore, CERC’s order is set aside, and the Appeal is allowed. Central Transmission Utility India Limited is directed to return BTPPL’s bank guarantee within 2 (two) weeks.

Conclusion

APTEL’s judgment rightly recognises force majeure conditions faced by the generator which prevented operationalisation of the LTA under BPTA. It also respects the force majeure clause in the BPTA by not resorting to a pedantic interpretation of the clause to hold that it covers permanent force majeure events also. Furthermore, it upholds the force majeure clause of the BPTA even in light of Regulation 18 of the Connectivity Regulations, 2009, by expressly holding that there was no stranded capacity in the present matter.

The Prism is prepared by:

Abhishek Munot
Partner

Malcolm Desai
Principal Associate

Samikrith Rao
Senior Associate

For more details, please contact [email protected]

[1] Judgment dated March 20, 2025, in Appeal No. 235 of 2017

[2] BTPPL was represented by JSA team comprising Abhishek Munot, Malcolm Desai and Samikrith Rao.

[3] Petition No. 317/MP/2013

[4] Appeal No. 266 of 2016

[5] 2024 SCC OnLine APTEL 13

Tags Appellate Tribunal, Bank Guarantee, Electricity Law, Energy Law, Force Majeure, Infrastructure Law, JSA, JSA Thought Leadership, Leading Law Firm, Leading Lawyers, Legal Update, Legal Updates, LTA Regulation, Power Sector, Regulatory Compliance, Transmission Law

JSA Prism | Dispute Resolution | March 2025

Please click here to download the document.

Delhi High Court upholds exemption granted to Delhi International Airport Limited from payment of Annual Fee

On March 7, 2025, the single judge of the High Court of Judicature at Delhi (“Delhi HC”) in the case of Airports Authority of India vs. Delhi International Airport Limited and Anr.[1], granted relief to Delhi International Airport Limited (“DIAL”) in proceedings filed by Airport Authority of India (“AAI”) under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) by upholding an arbitral award dated 21 December 2023 (as corrected under Section 33 of the Act vide order dated 16 January 2024) decided in favour of DIAL (“Arbitral Award”).

The issue before the Arbitral Tribunal (“AT”) was whether during the period of the pandemic, the general provisions of the contract between AAI and DIAL, which mandates DIAL to pay an Annual Fee (“AF”) at a certain percentage, will continue to operate if DIAL had sought benefit of the force majeure clause. The case of DIAL was that though they continued to run the operation, their revenues had fallen down so much that they were unable to meet even the expenses. On the other hand, the case of the AAI was that firstly, it cannot be said that the DIAL was unable to pay the AF and secondly, the conditions as provided in the force majeure clause never existed in entirety. The AT agreed with the contentions of DIAL and passed an award against AAI.

AAI filed a petition under Section 34 of the Arbitration Act challenging the Arbitral Award on the grounds that it is perverse, contrary to law and fundamentally alters the contractual framework between the parties, which has been dismissed by the Delhi HC.

Brief facts

AAI executed an Operation, Management and Development Agreement (“OMDA”) dated April 4, 2006, with DIAL, whereunder Article 11 required DIAL to pay AAI an AF for each year during the term of OMDA at 44.99 % of projected revenue as set forth in the business plan for a said year. The AF is payable in 12 (twelve) equal Monthly Instalments (“Monthly AF” or “MAF”)to be paid through an escrow bank. A delay in MAF bears interest calculated at State Bank of India prime lending rate + 10% p.a.

In March 2020, upon the outbreak of the COVID-19 pandemic, DIAL sought relief under force majeure provision of OMDA i.e. Article 16, citing force majeure and requested AAI to refrain from instructing the escrow bank regarding the Monthly AF for April 2020 and sought a 3 (three) month waiver upto June 2020 on MAF payments due to the nationwide lockdown.

In response, AAI requested a board resolution confirming the invocation of force majeure. While the board resolution was pending, AAI accepted DIAL‘s request and granted a 3 (three) month deferral of MAF payments from April to June 2020 on a ‘without prejudice’ basis. Under this arrangement, DIAL was required to pay the cumulative MAF for April, May and June 2020, computed on actual revenues by July 15, 2020, without incurring interest under Article 11 of the OMDA. However, DIAL did not provide the required board resolution confirming the invocation of force majeure and continued to pay the MAF for April, May and June 2020 despite the above arrangement agreed with AAI. In fact, on May 1, 2020, DIAL reaffirmed its commitment to paying MAF.

On June 24, 2020, DIAL provided AAI a board resolution and formally requested deferment of MAF payments on a cash basis, submitting board meeting minutes and a document titled ‘Detailed Note on Relaxation in Business Plan Submission and Payment of MAF’. On August 7, 2020, AAI rejected this request and directed DIAL to comply with its OMDA obligations.

Pertinently, even while DIAL formally sought to be excused from MAF payments, nonetheless, it continued to remit the MAF as per the usual practice.

Parties invoked Article 15.1.1 of the OMDA for seeking resolution of the ongoing dispute. The AT was constituted on January 13, 2021. The Arbitral Award was passed on December 21, 2023, whereby the Tribunal inter alia excused DIAL from making payment of AF for the period March 19, 2020, to 28 February 2022, while rejecting all the counterclaims of AAI. The Arbitral Award was pronounced on January 6, 2024, and on January 2024 16, the learned AT, sou motu, passed an order under Section 33 of the Arbitration Act, correcting certain stenographical errors in the Arbitral Award.

Issue

Whether Impugned Arbitral Award is patently illegal and contrary to public policy, warranting its setting aside under Section 34 of the Act?

Findings and analysis

The Delhi HC undertook a detailed analysis of the limited grounds on which a court can interfere under Section 34 of the Arbitration Act. While relying on plethora of judgments, the single judge inter alia noted the following ratios:

the 3 (three) characteristics of a reasoned order can be fathomed i.e. that the order is: (a) proper, (b) intelligible and (c) adequate. The award can only be interfered with if the court reaches to the conclusion that the perversity of the award goes to the root of the matter and there is no possibility of alternative interpretation which may sustain the arbitral award (Dyna Technologies vs. Crompton Greaves Limited[2]);
the court, in exercising its jurisdiction under Section 34 of the Arbitration Act to set aside an award, must determine whether the award is so irrational that no reasonable person could have reached the same conclusion. (Associate Builders vs. DDA[3]);
if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with (Kuldeep Singh vs. Commr. of Police[4])
the court is of the considered view that ‘a force majeure clause’ in a contract is generally an exception or an eclipse provision, meaning thereby if a force majeure is enforced the performance as mandated in the other terms of the contract will remain eclipsed till the force majeure event persists (Treitel on Frustration and Force Majeure, 3^rd Edition). Whether the force majeure has taken place or not or it exists or not or the time till when it exists is a question of fact to be determined by the AT;
a business-like interpretation of contractual provisions must be adopted in construing contracts entered into by persons of business to govern business dealings. The court must ensure that interpretation of law in commercial cases must not be disjointed from the intent and object which those having business dealings seek to sub-serve (Mumbai Metropolitan Region Development Authority vs. Unity Infraprojects Limited[5]);
the law is not divorced from business realities nor can the vision of the judge who interprets the law be disjointed from the modem necessities to make business sense to business dealings (UHL Power Company Ltd. vs. State of Himachal Pradesh[6]); and
Construction of the terms of a contract is primarily for an arbitrator to decide (Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Limited[7]), etc.

On basis of the above jurisprudence on Section 34 of the Arbitration Act, the Delhi HC held that there is no illegality or perversity in the impugned award passed by AT. The Delhi HC observed that AT has duly taken into account all the conditions as contained in Article 16.1.2 of the OMDA and appreciated the evidence of both parties. The AT also noted that OMDA was entered into with the motive of earning profit with the exception of contracted relief pertaining to force majeure circumstances and endeavour of the adjudicator should be to neutralise profit/losses between the parties.

As per the financial statement of DIAL for the year ending March 31, 2021, the total income/receipt from the sundry operations of the Airport aggregated at INR 1669.31 crore (Indian Rupees one thousand six hundred sixty-nine point thirty one crore) while the total expenses aggregated at INR 2567.10 crore (Indian Rupees two thousand five hundred sixty-seven point ten crore). The evidence produced by DIAL demonstrated an adverse impact on DIAL’s revenue with effect from March 2020 which has rightly been noted by the AT. DIAL was mandated to ensure that the airport services continued to function for handling permitted flight operations/transportation for essential goods/fire, law and order and emergency services. Therefore, DIAL was compelled by law to incur all the costs in the maintenance and operation of the airport. There is no fault with the finding of the AT that merely because the payment was made, it cannot be held that they were unable to make payment of the AF.

The Delhi HC also observed that the arbitrator is the final Arbiter of the disputed facts between the parties. The question of ‘inability’ is pre-dominantly a question of fact, which has been determined by the AT on the basis of the evidence produced by the parties. There is no finding which can be said to have been rejected without any evidence, nor is there any material on record to suggest that any extraneous material has been taken into account, or any relevant material has not been considered. In a situation where the closure of the Airport was not an option and the expenditure was more than the revenue earned, the AT has rightly held that DIAL had to be excused from the payment of MAF. In view of the same, the Delhi HC did not find any perversity in the Arbitral Award passed by the AT and dismissed the petition filed by AAI.

Conclusion

The Delhi HC has once again reiterated and upheld the principle that interpretation of the terms of the contract falls within the domain of the arbitrator alone and even if the alternative view is available, the court cannot substitute its own while exercising powers under Section 34 of the Arbitration Act.

This Prism is prepared by:

Poonam Verma Sengupta
Partner

Priyakshi Bhatnagar
Senior Associate

For more details, please contact [email protected]

[1] O.M.P. (COMM) 186/2024

[2] (2019) 20 SCC 1

[3] (2015) 3 SCC 49

[4] (1999) 2 SCC 10

[5] (2008) SCC OnLine Bom 190

[6] (2022) 4 SCC 116

[7] (2019) 7 SCC 236

Tags Delhi HC, Delhi High Court, Dispute Resolution, Disputes, JSA, JSA Prism, Leading Law Firm, Leading Lawyer, Leading Lawyers, Legal Updates, Newsletter

Supreme Court upholds invocation of urgency clause for land acquisition in Yamuna Expressway Project; saves exposure of thousands of crores

JSA successfully advised and represented Yamuna Expressway Industrial Development Authority (“YEIDA”) before the Hon’ble Supreme Court (“the Court”) in a landmark case concerning the acquisition of land for an integrated development project surrounding the Yamuna Expressway (“the Yamuna Expressway Project”). The Supreme Court’s judgment in Kali Charan and Others v. State of U.P. and Others, Civil Appeal No. 13119 of 2024 and 34 other civil appeals, decisively upheld the legality of the acquisition process and paved the way for the Yamuna Expressway Project’s continued progress.

The Yamuna Expressway Project spans 18,000 hectares across 16 villages in Gautam Buddha Nagar and forms a vital component of YEIDA’s development blueprint. The instant litigations concerned the acquisition of 2,375 hectares in 14 villages, impacting 12,868 landowners, with YEIDA having already invested approximately INR 972 crores.

The Supreme Court dismissed 29 civil appeals filed by landowners challenging the acquisition on the ground that the invocation of the urgency clause under the Land Acquisition Act, 1894 (“the 1894 Act”) was valid. Further, it allowed 6 civil appeals filed by YEIDA and set aside various decisions of the Allahabad High Court that had directed YEIDA to pay an enhanced amount of compensation to the erstwhile landowners.

The case involved unique challenges as conflicting decisions from co-ordinate benches of the Allahabad High Court had to be resolved (with certain decisions upholding the acquisition while others had declared it as illegal). The Hon’ble Supreme Court held the High Court’s decisions striking down the acquisitions to be per incuriam and upheld the judgments that had found the acquisition process to be legal and valid. The present decision, therefore, finally provides clarity and consistency of law regarding the vast lands acquired by YEIDA.

The Court’s further key findings are:

The Court affirmed YEIDA’s policy of planned development along the Yamuna Expressway, recognizing the integral connection between the Expressway itself and the development of adjacent lands for commercial, residential, and recreational activities.
The Court distinguished the Yamuna Expressway Project from standalone projects.
The Court held that the application of urgency clause under the 1894 Act was legal and justified, given the project’s scale and public importance.

Our Disputes Team is comprised of lead partners, Amar Gupta and Divyam Agarwal; senior associates, Pranav Tanwar and Zain Maqbool; and associates, Mohit Sharma and Abhay Pratap Singh.

Tags Disputes Update, Infrastructure Development, JSA, JSA Updates, Land Acquisition, Landmark Judgment, Leading Law Firm, Leading Lawyers, Legal Updates, Real Estate Law, Supreme Court, YEIDA

New Filters: Dispute Resolution and Arbitration

Supreme Court of India holds that an arbitration agreement will be governed by Indian law where foreign location is not the seat but is only the venue of arbitration, and the substantive contract is governed by Indian law

Supreme Court reaffirms limited scope of appeal under Section 37 of Arbitration and Conciliation Act, 1996

Brief facts

Issues

Findings and analysis

Conclusion

Supreme Court holds that an entity being subject to regulatory guidelines under a statute does not automatically make it amenable to writ jurisdiction

Forfeiture of earnest money, if ‘reasonable’, does not amount to imposing a penalty and therefore does not fall under Section 74 of the Indian Contract Act, 1872

Brief facts

Issue

Findings of APTEL

Clause 9 of BPTA extends to permanent force majeure events

Force majeure events prevented BTPPL from setting up the plant

Conclusion

Delhi High Court upholds exemption granted to Delhi International Airport Limited from payment of Annual Fee

Deals & Matter Corner

Articles & Publications

JSA Live

Blogs

Disclaimer & Confirmation