Supreme Court affirms High Court in setting aside arbitral award for rewriting contract and denying fair opportunity

A bench of Chief Justice B. R. Gavai and Justice Augustine George Masih heard the civil appeal arising out of SLP (C) No. 2706 of 2024 by SEPCO Electric Power Construction Corporation against the Division Bench of the Orissa High Court. The appeal challenged the High Court’s order under Section 37 of the Arbitration and Conciliation Act, 1996 that had set aside a domestic arbitral award (dated 07.09.2020, corrected 17.11.2020) previously upheld by a Single Judge under Section 34.

The Supreme Court dismissed SEPCO’s appeal and upheld the Division Bench’s judgment setting aside both the Single Judge’s order and the Arbitral Award. The Court held that the Arbitral Tribunal had effectively “rewritten the contract”, treated parties unequally and proceeded on an alleged oral waiver and equitable estoppel contrary to express contractual “No Waiver” and “No Oral Modification” clauses. The Court emphasised the limited scope of judicial interference under Sections 34 and 37 but held interference was warranted where the award violated fundamental principles of justice and the statutory scheme. The Court, in its reasoning, observed: The Court also noted that “the parties shall be treated with equality and each party shall be given a full opportunity to present his case,” and found that denial of that opportunity amounted to breach of Section 18 of the 1996 Act; the award had “shocked the conscience of the court.”

Background The dispute arose from multi-contract EPC arrangements between SEPCO (contractor) and GMR Kamalanga Energy Ltd. (owner) for construction of three 350 MW coal-fired units (and a proposed Unit 4) at Kamalanga, Odisha. Delay-related disputes, demobilisation by SEPCO in 2015 and alleged breaches led SEPCO to issue a Notice of Arbitration in June 2015. The Arbitral Tribunal issued a comprehensive award largely in SEPCO’s favour, netting SEPCO close to INR 995 crores after credits and counterclaims.

GMRKE challenged the award under Section 34 before the Orissa High Court, arguing inter alia that the tribunal had wrongly held that contractual notice requirements were waived or estopped by conduct and emails of March 2012 despite express contractual clauses (Section 25.5.3) requiring written modification; that the tribunal relied on mistaken facts (eg, misrecording coal moisture ranges); and that it exceeded its jurisdiction by revising milestone and termination provisions and by granting performance-test entitlements despite recorded test failures. The Single Judge had refused to set aside the award, but on appeal the Division Bench allowed GMRKE’s challenge under Section 37 and set aside both the Single Judge’s order and the award, relying on established precedents including Associate Builders, Ssangyong and Saw Pipes and applying the test that an award which “shocked the conscience” or violated natural justice and Section 28(3) and Section 18 of the 1996 Act warranted interference.

SEPCO’s submissions in the Supreme Court relied on the narrow scope of interference under Sections 34/37 and precedent such as Renusagar, Saw Pipes and ONGC v. Western Geco; it also argued estoppel could, in limited circumstances, operate as exception to “No Oral Modification” clauses. The Supreme Court, after canvassing arbitration jurisprudence (including recent five‑judge guidance on modification/correction of awards), held that the Division Bench correctly found the tribunal had gone beyond its mandate, applied waiver selectively, and denied GMRKE a fair opportunity; consequently the High Court’s order was upheld. The appeal was dismissed and there was no order as to costs.

Case Details: Case No.: 2025 INSC 1171 (Civil Appeal arising out of SLP (C) No.2706/2024) Case Title: SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. Appearances: For the Petitioner(s): [Not indicated in judgment text] For the Respondent(s): [Not indicated in judgment text]