NLA Insights
5 October 2026
The Supreme Court’s decision in SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. examines the extent to which an arbitral tribunal may depart from the express terms of a contract while adjudicating disputes arising therefrom. The Court emphasised that a tribunal is bound by the contractual framework agreed upon between the parties and cannot disregard express provisions relating to notice requirements, waiver and conditions governing contractual performance merely on the basis of surrounding circumstances or considerations of fairness and equity.
The judgment sets out, in a power-project setting, where an arbitral tribunal’s interpretive latitude ends and where the contract it serves begins.
SEPCO Electric Power Construction Corporation (“SEPCO”) was engaged as an Engineering, Procurement and Construction (“EPC”) contractor for the development of a coal-fired thermal power project at Kamalanga, Odisha. For this purpose, SEPCO entered into a series of interrelated contracts with GMR Kamalanga Energy Limited (“GMRKE”) for the construction of three 350 MW thermal power units, which was subsequently expanded to four (04) units. The principal agreement relevant to the dispute was the Civil Works and Engineering, Erection, Testing and Commissioning Agreement (“CWEETC Agreement”) dated 28 August 2008.
The CWEETC Agreement, as subsequently amended, contained specific contractual provisions governing the parties’ rights and obligations in the event of delay or disruption. In particular, Sections 4.2.5 and 7.3.2 prescribed a mandatory notice mechanism in respect of delay and disruption events. Further, Section 25.5 contained express “no waiver” and “no oral modification” provisions governing any waiver or modification of the parties’ contractual rights and obligations.
Following delays in the execution of the Project, the parties entered into a further arrangement, referred to as the “Jinan Agreement”, in November 2012. SEPCO subsequently demobilised from the Project Site in January 2015 and invoked arbitration in June 2015. A three-member Arbitral Tribunal rendered its Award in September 2020, which was subsequently corrected in November 2020. The Tribunal awarded SEPCO a net amount of approximately INR 995 crores. A significant aspect of the Award was the Tribunal’s finding that by virtue of an email dated 18 March 2012, GMRKE had waived the contractual requirement for SEPCO to issue formal notices of delay and disruption under Sections 4.2.5 and 7.3.2 of the amended CWEETC Agreement. The Tribunal reached this conclusion notwithstanding the express “no waiver” and “no oral modification” provisions contained in Section 25.5 of the Agreement.
GMRKE challenged the Award under Section 34 of the Arbitration and Conciliation Act, 1996. The learned Single Judge dismissed the challenge and upheld the Award. Aggrieved thereby, GMRKE preferred an appeal under Section 37 of the Act. The Division Bench of the Orissa High Court allowed the appeal and set aside both the judgment rendered under Section 34 and the arbitral Award in its entirety. SEPCO thereafter challenged the Division Bench judgment before the Supreme Court.
The Supreme Court upheld the findings and reasoning of the Division Bench on the aforesaid issues and, consequently, dismissed SEPCO’s appeal. The Supreme Court held that despite the limited scope of interference with an arbitral award, the Division Bench was justified in setting aside the award. The Court observed that:
125. We summarize the aforesaid findings as, despite the limited scope of interference, the Division Bench was obligated to have interfered with the arbitral award owing to fulfilment of conditions mandating a reappreciation of the merits of the award under Section 34 of the 1996 Act. Non-interference and non-setting aside of the award would have hampered upon the fundamental policy of Indian law as well as the public policy of India. The Arbitral Tribunal, itself being a creature of the EPC 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. It further discriminated between the parties, showcasing violation of the provisions of the 1996 Act. As this arbitral award could not have been severed owing to the aforesaid reasons, thereby it is apt to set aside the whole arbitral award.
The aforesaid observations emphasise that an Arbitral Tribunal, being a creature of the EPC agreements, cannot travel beyond the mandate conferred upon it by the parties or modify the contractual framework by treating an express contractual requirement as waived. The Supreme Court further highlighted that the Tribunal’s discriminatory treatment of the parties constituted a violation of the provisions of the Arbitration and Conciliation Act, 1996. Accordingly, the Supreme Court upheld the judgment of the Division Bench, observing that the arbitral award and the judgment of the Single Judge under Section 34 of the Arbitration and Conciliation Act, 1996, had been rightly set aside. The Court’s findings are discussed below in the context of the key issues arising from the dispute.
The Supreme Court’s treatment of the issue of waiver constitutes one of the most significant and widely applicable aspects of the judgment. The Court noted that the Division Bench of the High Court had found that the Arbitral Tribunal had effectively modified the contract by holding that the contractual notice requirement had been waived in favour of SEPCO. However, despite granting SEPCO’s claims notwithstanding its failure to issue the requisite contractual notices, the Tribunal rejected GMRKE’s counterclaims on the ground that GMRKE had failed to serve equivalent notices.
The Supreme Court observed that the Division Bench had correctly identified this as a glaring instance of unequal treatment. It further affirmed that such discriminatory treatment was contrary to the principle of equality enshrined in Section 18 of the Arbitration and Conciliation Act, 1996. The Court also noted that GMRKE’s contention that the Tribunal had modified the contract by recognising a waiver of notice in favour of SEPCO, while denying GMRKE similar treatment, had been rejected by the Single Judge in a cursory manner. The Court consequently upheld the finding that the Tribunal had effectively modified the contractual framework, resulting in discriminatory treatment contrary to Section 18 of the Arbitration and Conciliation Act, 1996.
A significant inconsistency in the award concerned the Performance Guarantee Test. Under Section 6.1.7 of the amended agreement, successful completion of the Reliability Run Test and Unit Characteristics Test was a precondition for undertaking the Performance Guarantee Test. However, the Tribunal awarded INR 255 crores on the basis that the Performance Guarantee Test had been successfully completed, while simultaneously recording that the Unit Characteristics Test for Unit 1 had failed. The Supreme Court upheld the Division Bench’s finding that these conclusions were irreconcilable and effectively amounted to rewriting the contractual milestone requirements.
The central principle emerging from the judgment is that an arbitral tribunal derives its authority from the agreement between the parties and, in terms of Section 28(3) of the Arbitration and Conciliation Act, 1996, must decide the dispute in accordance with the terms of the contract. The court’s observation establishes that although an arbitrator may interpret and construe contractual provisions, such interpretation must remain within the parameters of the agreement between the parties. Further, while an arbitrator enjoys considerable latitude in interpreting contractual provisions, such discretion does not extend to rewriting, disregarding or selectively applying express contractual requirements. Where such departure is also accompanied by a violation of the principles of equality and natural justice, the award may be liable to interference under Sections 34 and 37 of the Act.
A further ground for setting aside the award arose under Section 18 of the Arbitration and Conciliation Act, 1996, which mandates equal treatment of the parties. The Tribunal excused SEPCO’s failure to issue the requisite contractual notices on the ground of waiver, while rejecting GMRKE’s counterclaims for failure to comply with similar notice requirements. The Court held that such selective application of the same contractual requirement amounted to unequal treatment of the parties and was, by itself, sufficient to render the award contrary to the public policy of India.
The findings concerning the contractual notice requirements, the Performance Guarantee Test and the unequal application of contractual provisions reinforce the central principle that an arbitral tribunal cannot depart from the contractual framework agreed between the parties or substitute it with its own assessment of their rights and obligations.
For parties to EPC and other long-term commercial contracts, the judgment underscores the significance of carefully drafted notice, waiver and modification provisions, which cannot ordinarily be displaced by informal correspondence or considerations of fairness. For counsel challenging an award, the decision provides a useful framework: the focus should be on demonstrating how the tribunal has departed from, disregarded or rewritten the express terms of the contract, rather than merely questioning the correctness of its interpretation on merits.
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