Encashment, Delay and Force Majeure: A case analysis of NTPC vs PTPL

The Delhi High Court’s decision dated 18^th July 2025, in the matter of NTPC Vidyut Vyapar Nigam Ltd v. Precision Technik Pvt Ltd[1], offers a valuable precedent on the interpretation of force majeure clauses in Power Purchase Agreements (“PPAs”), the scope of Performance Bank Guarantee (“PBG”) encashment, and the limits of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

This article analyses the ruling and draws attention to how the Court balanced the sanctity of arbitral autonomy with the permissible grounds for interference in arbitral awards.

Brief Background of the Dispute

On 25^th July 2010, the Ministry of New and Renewable Energy (“MNRE”), Government of India, issued guidelines under Phase‑1, Batch‑1 for the selection of grid-connected solar power projects. Under these guidelines, NTPC Vidyut Vyapar Nigam Ltd (“NTPC”) was appointed as the Nodal Agency to facilitate the procurement of solar power from selected developers.

Following this, NTPC released a Request for Selection (“RfS”) inviting bids from interested solar power developers. Precision Technik Pvt. Ltd. (“PTPL”) submitted its bid on 21^st September 2010, and was awarded the project via a Letter of Intent dated 11^th December 2010.

Subsequently, on 10^th January 2011, NTPC and PTPL entered into a PPA for establishing a 5 MW solar power plant at Pokhran, Rajasthan. Under Article 3.1 of the PPA, PTPL was required to complete all pre-commissioning activities within 180 days from the effective date[2] and to commission the project by 9^th January 2012, referred to as the Scheduled Commissioning Date (“SCOD”).

However, the Superintending Engineer, Jodhpur, certified the project as commissioned only on 8^th February 2012, indicating a delay of about one month beyond the SCOD. In light of this delay, NTPC invoked Article 4.6 of the PPA and encashed 20% of the PBG originally submitted by PTPL on 5^th January 2011.

Although power was first injected into the grid on 21^st February 2012, a subsequent communication from MNRE, through the Rajasthan Renewable Energy Corporation Ltd. (“RRECL”), confirmed the official Commissioning Date as 22^nd March 2012. On that basis, NTPC argued that installation and commissioning of all project-related equipment were completed only on that later date.

PTPL disputed this position and, on 3^rd May 2012, invoked arbitration as per Article 16.3.2 of the PPA. The dispute was then referred to an Arbitral Tribunal for resolution.

 This blog is a part of our Global Arbitration Services.

Arbitral Award and Subsequent Court Proceedings

The Arbitral Award, delivered on 8^th May 2015, upheld PTPL’s claims. The Arbitral Tribunal found that the delay in project commissioning was due to governmental delays in granting approvals and clearances, particularly for laying the transmission line to the pooling substation. It held that such delays qualified as a force majeure event under the PPA, being beyond PTPL’s control. On this basis, the Tribunal ruled that the actual commissioning date, 21^st February 2012, ought to be treated as the Scheduled Commissioning Date, and that NTPC’s encashment of the PBG, a sum of ₹ 1.82 crore was therefore unjustified.

Aggrieved by this finding, NTPC filed a petition under Section 34 of the Arbitration and Conciliation Act (the “A&C ACT”) before the Delhi High Court. By its order dated 18^th December 2018, the learned Single Judge partially set aside the arbitral award, allowing NTPC to retain the encashed PBG amount. The Court held that since equipment installation was completed and energy was injected into the grid on 21^st February 2012, the project was deemed to be commissioned on that date. This resulted in a 43-day delay from the original SCOD of 9^th January 2012. Importantly, the Court held that obtaining approvals and clearances was PTPL’s contractual obligation, and therefore such delays were foreseeable and could not be treated as force majeure.

However, the Court rejected NTPC’s claim for damages for the period between 8^th February and 21^st February 2012, holding that it was not legally sustainable in the circumstances. As both parties were dissatisfied with different parts of the High Court’s ruling, they each filed cross-appeals challenging separate portions of the 18^th December 2018 order.

NTPC filed its appeal[3] seeking to completely overturn the arbitral award and to recover additional liquidated damages for the delay between 8^th February and 21^st February 2012. On the other hand, PTPL filed its appeal[4] contesting the order insofar as it permitted NTPC to retain ₹1.82 crore from the encashed PBG.

Issues Raised

1. Whether the delay in commissioning of a 5 MW solar power project caused by administrative delays in obtaining approvals qualified as a force majeure event under the PPA.
2. Whether NTPC was entitled to retain the encashed PBG amounting to ₹1.82 crores, or claim further liquidated damages for the delay beyond 8^th February 2012.
3. Whether the Arbitral Tribunal’s interpretation of force majeure and exoneration of PTPL from delay was legally sustainable and within its jurisdiction.

The Court’s Observations

1. Force majeure – exhaustive interpretation: The Court, while specifically noting that Article 11.3.1 of the PPA used the word “means”, indicating an exhaustive enumeration of force majeure events, pointed out that the courts have consistently held that the use of the word “means” in definitional clauses limits the meaning strictly to what is listed[5].

2. Standard of judicial interference under Section 34 and 37 A&C Act: The Court reiterated that the judicial review of arbitral awards is limited to grounds of patent illegality, perversity, or violation of fundamental legal principles[6] and that Section 37 appeals must be confined to whether the Section 34 court acted within its jurisdiction.

3. Encashment of PBG: While noting that Article 4.6.1 of the PPA permits NTPC to recover liquidated damages from the PBG in case of delay in commissioning, the Court held that proof of actual loss is not required where pre-estimated liquidated damages are stipulated and not penal in nature[7].

The Judgment

PTPL’s force majeure claim

The Arbitral Tribunal had held that delays caused by the State agency RRECL in forwarding PTPL’s request for Section 68 approval, re-demarcation of the project site by the Patwari, and the delays in constructing the approach road constituted force majeure under the PPA. However, the Delhi High Court reversed this on several grounds:

• Foreseeable delays are not force majeure: Bureaucratic delays are commonplace and foreseeable in infrastructure contracts. Hence, they do not satisfy the test of being “beyond control” and “unavoidable despite reasonable care” as required under Article 11.3.1 and 11.4.
• Self-induced delay: PTPL delayed initiating the Route Survey until after achieving financial closure, despite no contractual bar. The Court held that this deferment was a unilateral decision and amounted to self-induced delay.
• Lack of diligence: PTPL failed to exercise “Prudent Utility Practices” expected of a power developer, thus disqualifying the events as force majeure under Article 11.6.
• Failure to notify: PTPL did not issue any timely notice under Article 11.5, which is a precondition to claim relief under force majeure.

NTPC’s Right to retain PBG

The Court upheld NTPC’s right to retain ₹1.82 crores encashed from the PBG for the delay till 8^th February 2012 for the following reasons:

• The Court found that the Arbitral Tribunal had wrongly disregarded Article 4.6.1, which authorizes NTPC to recover pre-agreed liquidated damages for delay.
• The Court rejected PTPL’s plea that Article 4.4.1 (relating to generation shortfall) should apply instead of Article 4.6.1, holding both clauses operate in separate spheres: Article 4.4.1 post-commissioning and Article 4.6.1 pre-commissioning.
• The Court declined NTPC’s claim for additional damages for the 13-day period from 08.02.2012 to 21.02.2012, as PTPL’s conduct, though negligent, was not entirely without intent or malice.

Key Takeaways

The Delhi High Court’s decision underscores several critical principles in construction arbitrations:

1. Force majeure clauses must be interpreted strictly. Commercial parties, especially in infrastructure projects, must anticipate administrative delays and plan accordingly.
2. Pre-estimated liquidated damages provisions, if reasonable and contractually valid, do not require proof of actual loss, particularly in public utility contracts.
3. Courts exercising jurisdiction under Sections 34 and 37 cannot reappraise evidence or reinterpret contracts unless the award is patently illegal or perverse.
4. Timing and diligence are central to discharging obligations under PPAs. Developers must ensure proactive compliance and not rely on retrospective force majeure defenses.

Noteworthy Precedents Cited

• Energy Watchdog v. CERC, (2017) 14 SCC 80 – on applicability of Section 56 where force majeure is contractually defined.
• McDermott Int’l v. Burn Standard, (2006) 11 SCC 181 – arbitral tribunal is the final authority on facts.
• Kailash Nath Associates v. DDA, (2015) 4 SCC 136 – requirement of proving loss in the absence of pre-estimated liquidated damages.
• Associate Builders v. DDA, (2015) 3 SCC 49 – framework for interfering with arbitral awards under Section 34.
• Urban Infrastructure Ltd. v. UOI, (2019) 8 SCC 416 – interpretation of “means” vs “includes” in contract clauses.

Recommendations for Drafting PPAs and Force Majeure Clauses

1. Clearly define force majeure events — Use “includes” rather than “means”

• Why: Courts strictly interpret definitions that use “means” as exhaustive, leaving no room to cover unlisted events (as reaffirmed in Precision Technik and Kasilingam).
• How: Use “includes” or “includes but is not limited to” to keep the force majeure clause non-exhaustive.

Recommended drafting:

“Force Majeure includes any event or circumstance, or combination thereof, beyond the reasonable control of the Affected Party, including but not limited to…”

2. Include bureaucratic or regulatory delays where applicable

• Why: Administrative delays (e.g., from statutory agencies like RRECL, land revenue officials, or local municipalities) are often foreseeable but can still materially impede project execution.
• How: If the project depends on third-party/government approvals, explicitly include delays in obtaining statutory permits in the force majeure definition.

Recommended inclusion:

“…any unreasonable delay by governmental authorities in granting mandatory consents, clearances, or approvals, despite timely application and due diligence by the Affected Party…”

3. Mandate strict compliance with notice requirements

• Why: As clarified in the judgment, failure to issue a timely notice disqualifies a party from claiming force majeure (see Article 11.5 of the NTPC PPA).
• How: Reinforce the requirement for contemporaneous notice and make it a condition precedent to relief.

Recommended clause:

“Notice of a Force Majeure event shall be issued within [7] days of its occurrence. Failure to comply with this obligation shall disentitle the Affected Party from claiming any relief under this clause.”

4. Preserve the distinction between delay and post-commissioning performance

• Why: In NTPC v. PTPL, the distinction between delays in commissioning (pre-SCOD) and shortfall in generation (post-SCOD) was critical.
• How: Draft separate clauses:
  • For pre-commissioning delay: liquidated damages or bank guarantee forfeiture.
  • For generation shortfall: performance-based tariffs or shortfall compensation.

5. Avoid ambiguity in risk allocation

• Why: PTPL’s claim failed partly because responsibilities under Articles 3.1 and 4.1.1 were unambiguous, the developer bore the entire risk.
• How: List out which party bears risk for:
  • Land possession and title;
  • Grid connectivity and substation access;
  • Environmental and transmission line approvals.

6. Quantify liquidated damages and justify them

• Why: Courts will uphold LD clauses only if they are a genuine pre-estimate of loss (Kailash Nath, Construction & Design Services).
• How: Provide a commercial rationale in the recital or schedule for the LD amount (e.g., per MW/day).

Recommended clause:

“In the event of delay in Scheduled Commissioning, the SPD shall be liable to pay liquidated damages at the rate of INR [X]/MW/day, representing a fair pre-estimate of loss due to default in supply and non-utilization of grid allocation.”

7. Incorporate mitigation obligations

• Why: Article 11.6 requires the Affected Party to use reasonable efforts to mitigate the effects of a force majeure.
• How: Reinforce that mitigation is a continuous obligation and failure to do so will result in loss of entitlement.

Suggested addition:

“The Affected Party shall take all reasonable steps to mitigate the impact of the Force Majeure event and resume performance at the earliest opportunity.”

8. State that time is of the essence (if applicable)

• Why: PTPL attempted to argue that time was not of the essence. Courts will enforce delay penalties only if this is explicitly stated.
• How: Include an express declaration.

Suggested language:

“The Parties agree and acknowledge that time is of the essence in respect of all obligations under this Agreement, including Scheduled Commissioning.”

9. Link PBG forfeiture to defined events and cap it

• Why: Avoid disputes over whether encashment is penal. Courts examine whether the forfeiture correlates to actual or estimated loss.
• How: Clearly connect forfeiture to defined commissioning milestones and cap it proportionally.

10. Avoid contradictory cross-references between clauses

• Why: In the NTPC case, PTPL tried to invoke post-commissioning clauses (Article 4.4.1) to avoid pre-commissioning LDs.
• How: Use internally consistent language and specify that LD and compensation provisions operate independently.

Conclusion

The NTPC v. PTPL judgment provides an important cautionary tale: developers must plan for regulatory risk, communicate delays contemporaneously, and draft agreements with foresight and precision. Well-drafted PPAs not only reduce post-award disputes but also improve enforcement chances if matters escalate to arbitration or judicial review.

Foot Notes……………………………………………………………………..

[1] FAO (OS) (COMM) 42/2019 and 128/2019

[2] The effective date is 10 January 2011

[3] FAO(OS)(COMM) 42/2019

[4] FAO(OS)(COMM) 128/2019

[5] The Court relied upon P. Kasilingam v. PSG College of Technology, 1995 Supp (2) SCC 348; Jaishri Laxmanrao Patil v. State of Maharashtra, (2021) 8 SCC 1

[6] The Court referred to Associate Builders v. DDA, (2015) 3 SCC 49; Dyna Technologies Private Limited v. Crompton Greaves Limited, (2019) 20 SCC 1

[7] The Court reiterated the principles laid down in Construction & Design Services v. DDA, (2015) 14 SCC 263; NTPC v. Saisudhir Energy Ltd., 2018 SCC OnLine Del 13477