Author: Kapil Gaikwad

Court: Supreme Court of India

Citation: 2025 SCC OnLine SC 2088

Date of the Judgement: September 26, 2025

Case Type: Civil Appeal arising from Special Leave Petition (Civil) No. 2706 of 2024

Bench: Justice B.R. Gavai (Former CJI) and Justice Augustine George Masih

Facts

For the establishment of the three coal-fired thermal power plants in Odisha with a total capacity of 350 MW each, SEPCO Electric Power Construction Corporation (EPC Contractor) and GMR Kamalanga Energy Ltd. (GMRKE) reached different agreements in 2008. Civil works, onshore/offshore supply, and coordination contracts were included in the agreements; a fourth unit was later added (later suspended in August 2011).

Disagreements were caused due to financial rights, defects arising in the projects, and delays. In January 2015, SEPCO demobilized, and in June 2015, arbitration was started. The Arbitral Tribunal awarded SEPCO approximately ₹995 crores, notwithstanding unequivocal “No Oral Modification” provisions (Section 25.5.3) in the contract, ruling that GMRKE had implicitly renounced the notice requirements of the contract relying on a March 2012 email and the Jinan Agreement.

In accordance with Section 34 of the Arbitration and Conciliation Act, 1996, GMRKE opposed the decision arguing, that they were treated badly, the whole process was biased, and the contract was changed. SEPCO took the issue to the Supreme Court after the Division Bench lifted the award and the Section 34 judgment, which the Single Judge had first ruled against.

Issues

1. Would it be possible for the Arbitral Tribunal to apply the principles of waiver/estoppel in the face of unequivocal “No Oral Modification” clauses and at the same time make a proper interpretation of the contract about the notice provisions?
2. Was the authority in charge of the Tribunal equal to all parties in connection with the rights mentioned in the 1996 Act, as our next question concerns Chapter 3 to Chapter 6?
3. By going beyond the terms of the contract and rewriting it, did the award violate Section 28(3)?
4. In case of concurrent findings did the Divisional Bench exercise its jurisdiction under section 37 too far?

Arguments

SEPCO’s Contentions:

• Renusagar Power Company v. General Electric Company was a decision wherein the courts’ authority as per Section 34 was restricted, and only serious mistakes of fact or law could justify the case being reopened.
• The legal doctrine of estoppel, as recognized by the Singapore Court of Appeal (Charles Lim Teng Siang) and the UK Supreme Court (Rock Advertising Ltd. v. MWB Business Exchange), is a rule that among others can be cited as an exception to the so-called “No Oral Modification” clauses.
• The Division Bench did so unlawfully by reappraising the evidence and giving its own interpretation instead of the one that the lower court had used because it considered the scope of Section 37 to be narrower than that of Section 34.
• After arguments, the Single Judge properly dismissed the Section 34 petition on an admissions stage.
• Unless specifically stated otherwise, contractual termination clauses do not affect common law termination rights (Anson’s Law of Contract).

GMRKE’s Contentions:

• The Tribunal violated both natural justice and Section 18 (equal treatment) by fabricating an estoppel theory that SEPCO had never raised.
• While SEPCO’s claims were permitted despite the same failures—patent discrimination—GMRKE’s counterclaims exceeding ₹150 crores were denied for lack of notice.
• The Tribunal made alterations to the contractual milestones that particularly impacted the Performance Guarantee Tests, which included the successful completion of Unit Characteristics Tests, a test that Unit 1 was already known to have failed.
• By ignoring express contractual terms, the award violated Section 28(3), shocked the court’s conscience, and warranted interference under both Section 34(2)(b)(ii) (public policy) and Section 34(2-A) (patent illegality).

Judgement

The Supreme Court at the time of the SEPCO appeal hearing confirmed the ruling of the Division Bench which had removed the arbitration award and had SEAL’s operational goal sealed off. The Court said:

1. Waiver/Estoppel Improper: The Tribunal was wrong in thinking that the waiver and estoppel could be deduced from the March 2012 exchanges, without the support of pertinent pleadings and proofs linked to them. This decision eclipses the barring oral modification rule in Section 25.5.3. In addition, the two-fold requirement of Rock Advertising, namely, unequivocal representation and reliance, was not satisfied.

2. Violation of Natural Justice (Section 18): The Tribunal, by recognizing SEPCO’s claims without notice, while at the same time overruling GMRKE’s counterclaims on the same issue, has shown by its actions that it had a preference for one of the parties.

GMRKE was also denied the opportunity to present evidence regarding the estoppel theory introduced by the Tribunal (Ssangyong Engineering; Associate Builders).

3. Contract Rewriting (Section 28(3)): The Tribunal exceeded its authority by altering the contract terms, particularly in relation to the conditions for the Performance Guarantee Test. Section 6.1.7.1(a) explicitly stated that the Performance Guarantee Tests were to be performed only after the Reliability Run and Unit Characteristics Tests had been passed—Unit 1’s Unit Characteristics Test was publicly announced as a failure.

4. Section 37 Jurisdiction Proper: Where the basic policy of Indian law and the principles of natural justice were trampled upon, the Division Bench rightly revaluated the award. The unequal treatment and the modification of the contract were so outrageous that they provided a basis for interference.

Legal Reasoning & Personal Commentary

This court decision underlines important arbitration law concepts and also manages to weigh party preference against the control of the courts.

Doctrinal Significance:

The Court’s reliance on Section 28(3) is extremely important. The ruling—referring to Saw Pipes, Associated Engineering, and South East Asia Marine Engineering—established that arbitrators are “creatures of contract”; their authority derives solely from the stipulations of the contract. This prevents arbitral tribunals from assuming the role of courts of equity that would overturn the negotiations between the parties. The ruling which considers alterations to breach Section 34(2)(b)(ii) (fundamental policy) gives clear-cut justifications for quashing awards that are not limited to the contract terms.

Natural Justice Framework

Substantial equality has been discussed by the Court in its analysis under section 18 minus procedural fairness. The discriminatory actions of allowing SEPCO’s claims to be noticed while disallowing GMRKE’s claims, which were the same, are clearly the violations of audi alteram partem. This is in agreement with Narinder Singh and confirms that “unable to present his case” (Section 34(2)(a)(iii)) comprises not only denial of equal treatment but also procedural irregularities.

Party Autonomy vs. Public Policy:

In international commercial arbitration, the Court (Section 28(1)(b)(i)—the parties selected English law of substance) has recognized a great extent of party autonomy, nonetheless, it is right to limit this to the extent that the principles of the lex arbitri which the parties have chosen apply. The “No Oral Modification” clause designates intentional risk sharing; allowing spoken waiver where there is no written proof lessens the contract’s firmness—one of the essential traits of commercial law.

Critical Observation:

The ruling of the court not to allocate the prize separately (paragraph 111) appears unfairly strict. When the individual claims are of such merit that they can stand alone, then under the provision of Section 34(2)(a)(iv) the splitting up of the claims enhances efficiency. But, since the discrimination was so widespread in the award, full annulment was the right course of action in this case.

Practical Impact:

The judgment declared unmistakably: (1) arbitrators can’t count on facts or theories not pleaded; (2) the clauses that bar waiver must be backed by clear and convincing proof at least to be annulled; (3) equal treatment of parties is an absolute requirement; and (4) “minimal interference” cannot be equated with “no interference” when the integrity of the process is put at risk.

The reversal of the ₹995 crore award reveals that even large commercial awards cannot be upheld if they are procedurally defective at the very foundation—a necessary check that prevents arbitral overreach while at the same time maintaining the efficiency that arbitration offers.