This Supreme Court judgment underscores the narrow scope of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. It affirms that an arbitral award can be set aside if it violates the fundamental policy of Indian law, principles of natural justice, or the terms of the contract, or if it exhibits patent illegality or perversity that shocks the conscience of the court. The Tribunal must adjudicate within the contractual framework and cannot rewrite the agreement.
Facts Of The Case:
The dispute arose between SEPCO Electric Power Construction Corporation, an EPC contractor, and GMR Kamalanga Energy Ltd., the project owner, concerning the construction of thermal power plants in Odisha. Following delays and disagreements, SEPCO demobilized from the site in 2015 and initiated arbitration. The Arbitral Tribunal rendered an award in 2020, largely in SEPCO’s favor, ordering a net payment from GMR. A key contention was the Tribunal’s finding that the contractual condition precedent of issuing notices for claims had been waived by GMR via a 2012 email, despite a “No Oral Modification” clause in their agreement. The Tribunal also applied this waiver selectively, granting SEPCO’s claims while rejecting GMR’s counterclaims for lack of notice. GMR challenged the award under Section 34 of the Arbitration Act before the Orissa High Court, which upheld the award. On appeal under Section 37, the Division Bench set aside both the award and the Single Judge’s order, finding that the Tribunal had rewritten the contract, violated principles of natural justice by treating the parties unequally, and made a patently illegal interpretation by deeming a Performance Guarantee Test successful despite a prerequisite test having failed. SEPCO’s appeal to the Supreme Court ensued.
Procedural History:
The procedural history commenced with SEPCO initiating arbitration, leading to an award in its favor in 2020. GMRKE Ltd. challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996 before a Single Judge of the Orissa High Court, which upheld the award. Aggrieved, GMRKE Ltd. filed an appeal under Section 37 of the Act before a Division Bench of the same High Court. The Division Bench allowed the appeal, setting aside both the arbitral award and the Single Judge’s order. SEPCO then approached the Supreme Court of India by filing a Special Leave Petition (SLP), which was granted, leading to the instant Civil Appeal. The Supreme Court, after hearing the parties, dismissed SEPCO’s appeal, thereby affirming the Division Bench’s decision to set aside the arbitral award.
READ ALSO:Use of Blunt Side of Weapons Key: Supreme Court Converts 302 IPC to 304 in Land Dispute Killing
Court Observation:
The Supreme Court observed that the Arbitral Tribunal acted beyond its jurisdiction by rewriting the contract. It held that the Tribunal erroneously created a case of waiver of contractual notice requirements not pleaded by SEPCO, violating the express “No Oral Modification” clause and the fundamental principle of party autonomy. The Court further found a grave violation of Section 18 of the Arbitration Act, as the Tribunal applied the waiver discriminatorily—granting SEPCO’s claims while rejecting GMR’s counterclaims for want of notice. This constituted a violation of natural justice and the fundamental policy of Indian law. Additionally, the Tribunal’s finding that a Performance Guarantee Test was successful, despite the failure of a mandatory prerequisite test, was a patently illegal interpretation that modified the contract’s core terms, shocking the conscience of the court.
Final Decision & Judgement:
The Supreme Court dismissed SEPCO’s appeal and upheld the decision of the Division Bench of the Orissa High Court. Consequently, the Arbitral Award dated 07.09.2020 and the Single Judge’s order upholding it under Section 34 of the Arbitration and Conciliation Act, 1996, both stand set aside. The Court affirmed that the Arbitral Tribunal’s award was in conflict with the public policy of India as it violated the fundamental policy of Indian law and the basic notions of justice by rewriting the contract and meting out discriminatory treatment to the parties. No order was made as to costs.
Case Details:
Case Title: SEPCO Electric Power Construction Corporation vs. GMR Kamalanga Energy Ltd. Citation: 2025 INSC 1171 Appeal Number: (Arising out of SLP (C) No. 2706 of 2024) Date of Judgement: September 26, 2025 Judges/Justice Name: Justice B.R. Gavai & Justice Augustine George Masih
Download The Judgement Here