Delhi High Court Sets Aside Rs 1,891-Crore Arbitration Award Against NTPC, Cites 'Patent Illegality'

The Delhi High Court recently set aside an arbitral award that directed NTPC Ltd. to pay Rs 1,891 crore to Jindal Infralogistics Ltd., a subsidiary of Jindal SAW Ltd. and part of the OP Jindal group.

The dispute arose out of a seven-year tripartite agreement between NTPC, Jindal ITF, and the Inland Waterways Authority of India. This agreement, signed in 2011, was for the transportation of coal through National Waterway 1 to the Farakka thermal power plant in West Bengal.

The Farakka plant is managed and controlled by NTPC.

Jindal ITF was required to build the necessary infrastructure for the transportation of imported coal. Under the agreement, NTPC entered into various contracts to procure the required coal.

Phase-1 of the infrastructure was required to be constructed within 15 months from the date of the agreement's signing, and Phase-2 was required to be completed within 24 months. However, there was a significant delay of about 400 days in the completion of Phase-1 and an even greater delay of 674 days in the completion of Phase-2.

The fiasco prompted Jindal ITF to initiate arbitration proceedings against NTPC in 2017. Jindal ITF argued that the delay in the construction was attributable to NTPC and therefore sought damages from the public sector undertaking. This, in turn, prompted NTPC to terminate the tripartite agreement.

In 2019, the arbitral tribunal awarded an amount of Rs 1,891 crore to Jindal ITF for wrongful termination of the tripartite agreement.

While setting aside the award, the Delhi High Court noted patent illegality and perversity in the award granted in favour of Jindal ITF. “The award is so perverse, it has to go in totality,” the court said.

It added that the arbitral tribunal failed to show any basis for the quantifications of damages.

“It is a case where apparently, the learned arbitral tribunal has travelled much beyond the contractual terms,” the high court noted.

The high court went on to remark that the arbitral award shocked the conscience of the court and said that the tribunal had an obligation to conduct the arbitral proceedings with appropriate care and skill.

In an exchange filing on Monday, Jindal ITF stated that it will be filing an appeal against the ruling before the division bench of the high court.