Supreme Court: Nearly ₹1,000 Crore Arbitral Award Set Aside—Tribunal Rewrote Contract, Misapplied Estoppel, Violated Fundamental Policy of Indian Law
Case Name: SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd.
Date of Judgment: September 26, 2025
Citation: 2025 INSC 1171; Civil Appeal @ SLP (C) No. 2706 of 2024
Bench: Hon’ble Mr. Justice Augustine George Masih and Hon’ble Mr. Justice Sandeep Mehta
Held: The Supreme Court affirmed the decision of the Division Bench of the Orissa High Court which had set aside an arbitral award of approximately ₹995 crores passed in favour of SEPCO Electric Power Construction Corporation. The Court held that the Arbitral Tribunal had exceeded its jurisdiction, acted contrary to the fundamental policy of Indian law, and delivered an award that could not be sustained under the Arbitration and Conciliation Act, 1996. In particular, the Tribunal’s reliance on doctrines of waiver and estoppel to override express contractual stipulations, its approach of rewriting critical provisions of the agreement, and its decision to grant large monetary claims without cogent evidence were all found to be fatal infirmities. The judgment re-emphasised that arbitral tribunals must remain within the four corners of the contract and cannot, in the guise of doing justice, substitute their own notions of fairness for the bargain agreed by the parties.
Summary: The dispute had its genesis in an EPC contract executed between SEPCO and GMR Kamalanga Energy for the establishment of three thermal power units in Odisha, with discussions also extending to the construction of a proposed fourth unit. Serious disputes arose concerning delays in completion, issues related to coal and fuel supply, site access, and suspension of works. SEPCO invoked arbitration and in September 2020 obtained an award from the Tribunal granting claims aggregating nearly ₹995 crores. The Tribunal had invoked the equitable doctrines of waiver and estoppel to justify its findings, despite the fact that the contract expressly contained “No Oral Modification” and “No Waiver” clauses which prevented precisely such arguments from being entertained. In addition to this, the Tribunal awarded substantial damages towards prolongation costs, suspension of Unit 4, and performance guarantees, even though many of these claims were unsupported by ledgers, primary evidence or contemporaneous documentation. Counterclaims raised by GMR were dismissed largely on the basis of procedural objections such as want of notice.
The award was challenged before the Orissa High Court. A Single Judge, while noting some irregularities, nevertheless upheld the award in 2022. The matter was carried in appeal where the Division Bench in 2023 reached the opposite conclusion. The Division Bench found that the Tribunal had fundamentally misdirected itself, misunderstood technical issues such as coal moisture parameters and site access obligations, and in effect granted damages without proof. More seriously, the Tribunal was found to have ignored explicit contractual provisions and to have rewritten the contract by diluting clauses concerning termination and performance guarantees. The Division Bench concluded that such conduct shocked the conscience of the court and warranted setting aside of the award under Section 34 and Section 37 of the Arbitration and Conciliation Act.
In appeal before the Supreme Court, SEPCO argued that interference with arbitral awards is strictly limited and that the High Court had improperly reassessed evidence and substituted its own view. Reliance was placed on leading precedents such as Renusagar, ONGC v. Saw Pipes, and Associate Builders, all of which caution against expansive judicial review of awards. GMR, on the other hand, maintained that this was a case of perversity where the Tribunal had not merely erred but had crossed the bounds of its mandate, ignored the contract, and granted reliefs that no reasonable tribunal could have granted.
The Supreme Court examined the award, the findings of the Division Bench, and the precedents governing judicial interference. The Court agreed that the High Court had not engaged in re-appreciation of evidence but had only intervened because the award itself was fundamentally flawed in law. It held that arbitral autonomy does not authorise tribunals to disregard express contractual clauses or to substitute their own sense of equity for the bargain of the parties. By invoking waiver and estoppel against the face of prohibitory clauses, and by granting reliefs without supporting proof, the Tribunal had gone far beyond permissible limits. Such an award, the Court observed, was not merely erroneous but was in conflict with the fundamental policy of Indian law and the basic notions of justice, and therefore could not be allowed to stand.
Decision: The Supreme Court dismissed the appeal and affirmed the judgment of the Orissa High Court Division Bench. Consequently, the arbitral award dated 7 September 2020, as corrected on 17 November 2020, was permanently set aside.