Supreme Court: The present appeal challenged the judgment dated 27-09-2023 passed by the Division Bench of the Orissa High Court (‘High Court’), contending that it ought not to have interfered with the arbitral award. By the impugned judgment, the Division Bench set aside both the arbitral award and the earlier judgment dated 17-06-2022 passed by the Single Judge under Section 34 of the Arbitration and Conciliation Act, 1996 (‘the Act’).
The Division Bench of B.R. Gavai, CJ and Augustine George Masih, J.*, stated that that an arbitrator lacks the power to deviate from or to reinterpret the terms of the contract while making an award. The awards must be within the parameters of the agreement entered between the parties. The Court further observed that an attack on the fundamental policy of Indian law allows for reappreciation of arbitral award and thereby, the impugned judgment could not be faulted with, on the ground of having exceeded its jurisdiction under Section 37 of the Act. The Division Bench was correct in this regard, as to open the necessary floodgates of re-appreciation of the arbitral award. Accordingly, the Court upheld the impugned judgment, affirming that the arbitral award and the judgment passed by the Single Judge in favour of Sepco Electric Power Construction Corporation (‘Sepco’) were rightly set aside by the Division Bench of the High Court.
Background
Sepco was an Engineering, Procurement, and Construction Contractor which entered into numerous agreements with GMRKE Limited to construct three 350 Mega Watt coal-fired thermal power plants at the village in Odisha. A fourth 350 Mega Watt equivalent plant (‘Unit 4’) was included as part of the aforesaid agreements through amendment. However, the work in relation to the said Unit 4 was suspended by GMRKE Limited in August 2011.
Subsequently, owing to delays in the Project, parties met at Jinan City and executed the Minutes of Meeting dated 7-11-2012 (‘Jinan Agreement’). As numerous disputes arose between the parties, SEPCO demobilized from the sites of construction of the concerned Project midway. Following all the apparent disagreements, SEPCO issued a Notice of Dispute against GMRKE Limited, followed by arbitration notice by SEPCO, which led to constitution of the arbitral tribunal.
Despite acknowledging no adducing of evidence by SEPCO on compliance of notices, the Arbitral Tribunal focused on the entitlement of waiver or estoppel. It placed reference to the email dated 18-3-2012 inviting cooperation by GMRKE Limited for waiver of condition of notices and the acceptance thereof by SEPCO on 29-3-2012. Despite the contention of GMRKE Limited on such an impossibility owing to the “No Oral Modification” clause, equitable estoppel was deemed to have arisen in March 2012. The determination of the arbitral tribunal gave net effect that GMRKE Limited was liable to pay Rs. 995 Crores to SEPCO.
Assailing the arbitral award, GMRKE Limited moved the Single Judge of the High Court contending unfair treatment of the parties. Rejecting the claims raised by GMRKE Limited, the Singe Judge of High Court clarified that the judicial interference was only permitted in cases where arbitral awards were shocking to the conscience or which go against the most fundamental principles of justice. Determining no violation of Section 18 or Section 34(2)(b)(ii) of the Act had been proven, the Single Judge held the arbitral award did not merit any interference.
Subsequently, an appeal was filed before the Division Bench of High Court, the arbitral tribunal shocked the conscience of the court by exceeding its jurisdiction and reiterated that any award that disregards the binding precedents through numerous decisions of this Court could be set aside on grounds of violating fundamental policy of Indian law. Thus, the SEPCO filed the present appeal.
Analysis, Law, and Decision
The Court stated that an appeal lies against an order of setting aside an arbitral award or refusal under Section 34 of the Act and under Section 37(1)(c) of the Act. The scope under Section 37 of Act is inherently limited or rather, narrower, and is governed by the mandate under Section 34(2) of the Act. In the absence of the express or implied choice of law, it is the law that has the closest and the most real connection with the arbitration agreement, that is applicable.
The Court stated that party autonomy is widely acknowledged as the foundation of the contemporary arbitration and is protected by the arbitral legislations, numerous institutional guidelines and international treaties. In the present case, the parties have adopted for the English law to be applicable to the substantive interpretation of the contractual terms, while the procedural aspect, shall be governed by the laws of the land of this nation, being India.
1. Whether arbitral award was correct in determining oral waiver of notice and/or equity estoppel as against the terms of contract?
Regarding the issue of notice between the parties, the Court noted that in the present case, the arbitral tribunal rejected SEPCO’s contention that condition precedent for allegedly mandatory contractual notices was waived by the parties in March 2010. Despite this, and without it being raised on behalf of SEPCO, the arbitral tribunal placed reliance on the Jinan Agreement and emails concerned from March 2012 that the condition for contractual notices was waived. GMRKE Limited was never given an opportunity to exhibit evidence to this effect. This observation on behalf of the Arbitral Tribunal amounted to modification of the terms of the contract.
The Court stated that SEPCO was mistaken to contend that notices might be dispensed for claims for prolongation costs and delay but not for defects within the Defect Liability Period. The Court referred to the clause of the Agreement, which explicitly mandated the notice, and stated that both the arbitral tribunal and the Single Judge mistakenly granted relief to SEPCO, upholding the assumed waiver of the mandate of notice despite explicit provisions to the otherwise. Moreover, the issue of waiver also juxtaposed itself to the mandate of Section 28(3) of the Act. The Court stated that the arbitral tribunal has explicit duty under Section 28(3) of the Act to resolve dispute in accordance with terms of contract and accepted business practices.
The Court emphasised that an arbitrator lacks the power to deviate from or to reinterpret the terms of the contract while making an award. The awards must be within the parameters of the agreement entered between the parties. The Court relied on Oil and Natural Gas Corpn. Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, wherein it was held that any deviation from the mandate of Section 28(3) of the Act was a valid ground for lambasting an arbitral award.
The Court stated that the interpretation of an arbitral award determines whether a contract or a specific provision thereof is considered part of the award. If a clear reliance is placed by the arbitrator on the contract, a presumption arises in favour of the incorporation, while a vague or general reference opposes such a presumption. The Court stated that when a party was unable to analyse, comment or argue on a contention raised by the other party, it would be deemed as a breach of natural justice and thereby, violated most fundamental notions of justice. Thus, the Court set aside the arbitral award.
The Court stated that the arbitral tribunal applied aforesaid waiver discriminately between the parties. Even the Single Judge of the High Court failed to correctly peruse and apply the law provisioned through the Act, despite prima facie nature of the discrimination of the Arbitral Tribunal were brought on record.
2. Whether the issue of suspension and cancellation of Unit 4 was determined correctly by the Arbitral Tribunal?
The Court iterated that the arbitral award violated the very principles and notions of natural justice altogether, beginning from the discriminatory treatment of the parties or even assumption of specific arguments that were not raised at all before the Arbitral Tribunal. Therefore, the Court stated that it was a futile and merely academic exercise to delve into the issue regarding suspension/cancellation of Unit 4 or any other specific contention on merits for that matter, as such a determination would amount to a modification of the part of the decision of the Arbitral Award, which was not permitted or contemplated as per the statute.
The Court stated that undoubtedly, the interference under jurisprudence laid down under Section 34 and 37 of the Act was narrow. However, the principles of natural justice, and the public policy of India were paramount and could not be ignored or side lined in an attempt not to frustrate the patent/latent commercial wisdom of the parties to seek an alternative means of dispute resolution. Such issues attack the root of the Indian legal system, and the courts cannot be made a mere spectator to such gross violations.
The Court stated that an attack on the fundamental policy of Indian law allows for reappreciation and thereby, the impugned judgment could not be faulted with on the ground of having exceeded its jurisdiction under Section 37 of the Act. The Division Bench was correct in this regard, as to open the necessary floodgates of re-appreciation of the arbitral award. The Court stated that it was apparent that the arbitral award was not good in law and was not liable to be restored.
The Court stated that non-interference and non-setting aside of the award would have hampered upon the fundamental policy of Indian law and the public policy of India. The arbitral tribunal itself being a creature of the arbitration agreements, could not have travelled beyond its mandate to rewrite the constitution of its own existence through observing the condition of notice having been waived. Thus, the Court upheld the impugned judgment and stated that the arbitral award and judgment passed by Single Judge was rightly set aside by the Division Bench of the High Court.
[Sepco Electric Power Construction Corpn. v. GMR Kamalanga Energy Ltd., 2025 SCC OnLine SC 2088 decided on 26-9-2025]
*Judgment authored by- Justice Augustine George Masih
Advocates who appeared in this case:
For the Petitioner: Senior Advocates Neeraj Kishan Kaul, Jayant Mehta, AOR Garima Bajaj, Advocates Sumeet Kachwaha, Samar Singh Kachwaha, Ankit Khushu, Bhavana Chandak, Aakshat Khetarpal, Vikramaditya Sanghi, Dhruv Sharma, Dhanya Krishnan, and Udit Sidhra.
For the Respondents: Senior Advocates Dr. A.M. Singhvi, Ashok Parija, Ciccu Mukhopadhaya, AOR E. C. Agrawala, Advocates Mahesh Agarwal, Prashant Pakhidey, Manu Krishnan, Aanchal Mullick, Manav Gill, Daksh Arora, Avishkar Singhvi, Swastika Parija, and Nidhiram Sharma.
Buy Arbitration and Conciliation Act, 1996 HERE
