1. EPC contracts for power plants — disputes over delays and payments — Arbitral Award set aside by Division Bench of High Court under Section 37, 1996 Act. (Para 4 , 5 , 6 , 7 , 8 , 9 , 11 , 12 , 13 , 14 , 15 )
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2025 Supreme(SC) 1750
SUPREME COURT OF INDIA
B.R. GAVAI, CJI, AUGUSTINE GEORGE MASIH, J.
Sepco Electric Power Construction Corporation – Appellant
Versus
GMR Kamalanga Energy Ltd. – Respondent
Civil Appeal No. 12272 of 2025 [Arising Out of SLP (C) No. 2706 of 2024]
Decided On : 26-09-2025
Advocates appeared:
For Petitioner(s): Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Jayant Mehta, Sr. Adv. Mr. Sumeet Kachwaha, Adv. Mr. Samar Singh Kachwaha, Adv. Ms. Ankit Khushu, Adv. Ms. Garima Bajaj, AOR Ms. Bhavana Chandak, Adv. Mr. Akshat Khetarpal, Adv. Mr. Vikramaditya Sanghi, Adv. Mr. Dhruv Sharma, Adv. Ms. Dhanya Krishna, Adv. Mr. Udit Sidhra, Adv.
For the Respondent(s): Dr. A.m. Singhvi, Sr. Adv. Mr. Ashok Parija, Sr. Adv. Mr. Ciccu Mukhopadhaya, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Prashant Pakhidey, Adv. Mr. Manu Krishnan, Adv. Ms. Aanchal Mullick, Adv. Mr. Manav Gill, Adv. Mr. Daksh Arora, Adv. Mr. Avishkar Singhvi, Adv. Ms. Swastika Parija, Adv. Mr. Nidhiram Sharma, Adv. Mr. E. C. Agrawala, AOR
For Petitioner(s): Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Jayant Mehta, Sr. Adv. Mr. Sumeet Kachwaha, Adv. Mr. Samar Singh Kachwaha, Adv. Ms. Ankit Khushu, Adv. Ms. Garima Bajaj, AOR Ms. Bhavana Chandak, Adv. Mr. Akshat Khetarpal, Adv. Mr. Vikramaditya Sanghi, Adv. Mr. Dhruv Sharma, Adv. Ms. Dhanya Krishna, Adv. Mr. Udit Sidhra, Adv.
For the Respondent(s): Dr. A.m. Singhvi, Sr. Adv. Mr. Ashok Parija, Sr. Adv. Mr. Ciccu Mukhopadhaya, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Prashant Pakhidey, Adv. Mr. Manu Krishnan, Adv. Ms. Aanchal Mullick, Adv. Mr. Manav Gill, Adv. Mr. Daksh Arora, Adv. Mr. Avishkar Singhvi, Adv. Ms. Swastika Parija, Adv. Mr. Nidhiram Sharma, Adv. Mr. E. C. Agrawala, AOR
The tribunal's determination to waive notice requirements undermines contractual obligations and violates natural justice, leading to an unequal treatment of parties, thus warranting the award's annulment under Sections 34 and 37 of the Arbitration Act.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 34 and 37 - Interpretation of contractual provisions in arbitration - The tribunal's decision to waive the requirement for notice, contrary to explicit contractual terms, constitutes misconduct and leads to an unequal treatment of parties - The Arbitral Award's conclusions on claims, particularly for delay damages, shocked the conscience of the Court, violating fundamental principles of natural justice. (Paras 1, 2, 17, 116, 120, 124)
(B) Natural Justice - Equal treatment of parties under Section 18 - Violation occurs where one party is allowed to deviate from contractual obligations without due process, leading to adverse impacts on the other party’s claims and rights. (Paras 104, 106, 120, 123)
(C) Jurisdiction of Arbitral Tribunal - The tribunal cannot exceed the boundaries set by the governing contract, and any amendment unilaterally made violates the rights of involved parties as enshrined in the contract. (Paras 92, 123)
Judgement Key Points
Certainly. Based on the provided legal document, here are the key points summarized:
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The Supreme Court upheld the jurisdiction of the arbitral tribunal but emphasized that its authority is limited to interpreting and enforcing the terms of the contract as agreed upon by the parties. The tribunal cannot rewrite or modify contractual provisions beyond its mandate (!) (!) .
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The Court reaffirmed that judicial review under Section 34 of the Arbitration Act is narrow and primarily concerned with procedural irregularities, violations of natural justice, or contraventions of public policy. It is not an occasion for re-evaluating the merits of the dispute (!) (!) .
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The Court found that the arbitral tribunal improperly rewrote contractual terms, especially regarding waiver and notices, which amounted to exceeding its jurisdiction and was contrary to the explicit provisions of the agreements (!) (!) (!) .
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The arbitral award was set aside because it violated principles of natural justice, including discrimination between parties and failure to treat them equally, especially in the context of waiver and notice requirements (!) (!) .
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The Court highlighted that the tribunal's reliance on alleged oral waivers and estoppel, without proper evidence or explicit contractual consent, was impermissible and amounted to modifying the contract unlawfully (!) (!) (!) .
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The arbitral tribunal's findings on claims related to the performance of tests, delays, and contractual milestones were found to be based on distorted facts and erroneous interpretations, leading to awards that were contrary to the contractual provisions (!) (!) .
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The Court emphasized that the arbitral tribunal's decisions must align with the contractual terms and that deviations or reinterpretations that alter the core obligations of the parties are unlawful (!) (!) (!) .
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The Court reaffirmed that the scope of interference under Section 37 is even narrower than under Section 34 and that courts should only intervene if the award is manifestly arbitrary, perverse, or in violation of fundamental principles of justice and natural justice (!) (!) .
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The Court also noted that the arbitral award's violation of the principles of natural justice, including discrimination and failure to consider all claims properly, justified its setting aside (!) (!) .
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The overall conclusion was that the arbitral award was in conflict with the fundamental policy of Indian law, violated natural justice, and exceeded the tribunal's jurisdiction, warranting its annulment (!) (!) .
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The appellate court's role under Section 37 is limited to examining whether the lower court or tribunal exceeded its jurisdiction, and it should not re-assess the merits or re-interpret contractual provisions unless there is a clear violation of principles of natural justice or public policy (!) (!) .
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The Supreme Court upheld the decision of the division bench of the high court to set aside the arbitral award and the associated judgment, confirming that the award was fundamentally flawed and in breach of the principles of justice and natural justice (!) (!) .
Please let me know if you require further elaboration or specific legal advice based on these points.
Legal Category Hierarchy
- practice and procedure
- contract law
Table of Contents
2. Limited scope of interference under Sections 34 and 37 — validity of equitable estoppel over no oral modification clauses — common law termination rights. (Para 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 )
3. Arbitral Tribunal discriminately applied waiver of notice — rewrote contractual milestone conditions — violated Section 18 and Section 28(3) of the 1996 Act — award is perverse. (Para 83 , 85 , 86 , 87 , 88 , 101 , 103 , 104 , 105 , 107 , 108 , 109 , 113 , 116 , 117 , 119 , 120 , 121 , 122 , 123 )
4. Arbitral awards violating natural justice, Section 18 equal treatment, or Section 28(3) contract terms are contrary to public policy and subject to interference. (Para 90 , 91 , 92 , 94 , 105 , 112 )
5. Civil Appeal dismissed — Impugned Judgment upheld — Arbitral Award and Section 34 Judgment remain set aside. (Para 124 , 125 )
6. What is the scope of judicial interference with an arbitral award under Sections 34 and 37 of the 1996 Act?
Interference is limited and narrow, permitted only on specific grounds like violation of public policy, patent illegality, or natural justice. Courts cannot re-evaluate merits or substitute their own interpretation unless the award is perverse or shocks the conscience of the court. (Para 58 , 60 , 61 , 62 , 68 , 70 , 71 )
7. To what extent can an arbitral tribunal deviate from the express terms of a contract?
Under Section 28(3), tribunals must decide disputes in accordance with contract terms. They lack the power to rewrite or deviate from the agreement; such disregard constitutes a jurisdictional error and violates the fundamental policy of Indian law. (Para 90 , 91 , 92 , 94 , 95 )
8. What constitutes a violation of the principle of equal treatment under Section 18 of the 1996 Act?
A violation occurs when a tribunal discriminately applies legal principles—such as granting a waiver of notice to one party while denying it to the other—thereby denying a party a full opportunity to present its case. (Para 104 , 105 , 107 , 109 , 119 )
9. Can equitable estoppel or oral waiver override a no oral modification clause in a commercial contract?
Such clauses are safeguards. Overriding them requires unequivocal representation and reliance. In the absence of explicit intent to relinquish known rights, an arbitrator cannot assume a waiver to modify contractual mandates. (Para 84 , 86 , 88 , 99 )
10. How is the applicable law determined when the seat and substantive law differ in an international commercial arbitration?
Parties may choose different laws for the substantive contract (lex contractus) and the arbitration agreement (lex arbitri). The substantive law governs interpretation, while the law of the seat governs the procedural conduct and challenges to the award. (Para 75 , 78 , 81 , 82 )
JUDGMENT :
AUGUSTINE GEORGE MASIH, J.
1. Leave granted.
2. The instant Civil Appeal, arising from Special Leave Petition (Civil) No. 2706 of 2024, assails the Judgment dated 27.09.2023 in ARBA (ICA) No. 1 of 2023 (hereinafter, “Impugned Judgment”) by Division Bench of the High Court of Orissa (hereinafter, “High Court”) moved under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter “1996 Act”) read with Section 13 of the COMMERCIAL COURTS ACT , 2015 by the sole Respondent herein, being, GMR Kamalanga Energy Limited (hereinafter “GMRKE Limited”).
3. Vide the Impugned Judgment, the appeal was allowed to the effect that Judgment dated 17.06.2022 in ARBP (ICA) No. 1 of 2021 as passed by the Single Judge of the High Court under Section 34 of the 1996 Act (hereinafter “ Section 34 Judgment”) was set aside along with the Award dated 07.09.2020 (as corrected on 17.11.2020) (hereinafter “Arbitral Award”), both of which were rendered in favour of the sole Petitioner herein being SEPCO Electric Power Construction Corporation (hereinafter, “SEPCO”). This was done through framing of the following issues by the Division Bench of the High Court:
“(A) Whether the Tribunal interpreted the contractual provisions correctly in assessing that issuance of contractual notices is a condition precedent? If so, then can the condition of issuance of notice be waived and whether a party can claim estoppel consequent thereto?
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(B) Whether the Tribunal based its analysis and findings on mistaken facts?
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(C) Whether the Tribunal’s interpretation of the contractual provisions shocks the conscience of the Court?
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(D) Whether the Ld. Single Judge was correct in dismissing the Section 34 petition at the stage of admission without considering all the arguments made by the parties?
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(E) In light of the above whether the orders of the Ld. Single Judge and the Ld. Arbitral Tribunal have ‘shocked the conscience of this Court’, or ‘are contrary to the basic notions of justice’, or ‘are in express violation of Section 28 (3) of the A&C Act’ which necessitates interference by this Court under Section 37 of the A&C Act?”
4. The factual matrix, as presented before us by SEPCO is that it was an Engineering, Procurement, and Construction (hereinafter “EPC”) Contractor which entered into numerous agreements with GMRKE Limited with the objective of construction of three 350 Mega Watt coal-fired thermal power plants at the village of Kamalanga in District Dhenkanal of state of Odisha (hereinafter collectively, “Project” and individually, “Unit 1”, “Unit 2” and “Unit 3”) on behalf of the latter and its operations thereof. The details of the aforesaid agreements are as follows:
(a) Agreement for Civil Works and Engineering, Erection, Testing and Commissioning dated 28.08.2008, bearing Contract No. GMR-SEPCO-03 (hereinafter, “CWEETC Agreement”)
(b) Guarantee and Co-ordination Agreement dated 28.08.2008 (hereinafter, “GCA”)
(c) Onshore Supply Agreement dated 28.08.2008, bearing Contract No. GMR-SEPCO-02 (hereinafter, “Onshore Supply Agreement”)
(d) Offshore Supply Agreement dated 28.08.2008, bearing Contract No. GMR-SEPCO-01 (hereinafter “Offshore Supply Agreement”) (hereinafter collectively, “EPC Agreements”)
5. A fourth 350 Mega Watt equivalent plant (hereinafter “Unit 4”) was proposed and also included as part of the aforesaid agreements through amendments dated 31.05.2010, amending the Milestone Dates and the prices of the contract in the EPC Agreements. However, the work in relation to the said Unit 4 was suspended by GMRKE Limited in August 2011.
6. Subsequently, owing to delays in the Project, parties met at Jinan City, People’s Republic of China. This led them to agree and execute the Minutes of Meeting dated 07.11.2012 (hereinafter “Jinan Agreement”).
7. As numerous disputes are said to have arisen between the parties, SEPCO went on to demobilize from the sites of construction of the concerned Project midway, around January 2
