The Supreme Court of India recently delivered a landmark ruling in SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. (2025 LiveLaw (SC) 963), reiterating that arbitral awards must strictly remain within the parameters of the agreement between parties. The Court dismissed the appeal of Chinese company SEPCO Electric, which had challenged the Orissa High Court Division Bench’s decision to set aside a nearly ₹995 crore arbitral award in its favour.
This judgment is significant as it underscores the limited powers of arbitral tribunals, particularly in relation to Section 28(3) of the Arbitration and Conciliation Act, 1996. It reaffirms that arbitral tribunals cannot reinterpret or override express contractual terms under the guise of equitable doctrines such as waiver or estoppel.
Background of the Case
The dispute arose out of an EPC (Engineering, Procurement and Construction) agreement between SEPCO Electric Power Construction Corporation (SEPCO), a Chinese company, and GMR Kamalanga Energy Ltd. (GKEL).
In 2015, SEPCO abandoned the construction site, leading to disputes being referred to arbitration. In 2020, an arbitral tribunal awarded SEPCO nearly ₹995 crore, relying on a 2012 email exchange to hold that GMR had waived the contractual requirement of notice for raising claims.
However, the EPC agreement contained a clear “No Oral Modification” (NOM) clause, mandating that any waiver or variation must be agreed in writing and signed by both parties. The Orissa High Court Division Bench found that the arbitral tribunal had overstepped its authority by relying on an email to infer waiver, effectively rewriting the contract. The Division Bench therefore set aside the arbitral award under Section 37 of the Arbitration and Conciliation Act, 1996.
SEPCO appealed to the Supreme Court, arguing that the High Court had exceeded its limited scope under Section 37, which is narrower than Section 34 of the Act.
Issues Before the Supreme Court
The Supreme Court examined the following issues:
- Whether an arbitral tribunal can rely on conduct or email communication to infer waiver, despite the contract requiring a written waiver signed by both parties.
- Whether the High Court Division Bench was justified in setting aside the award under Section 37, given its limited scope.
- Whether Section 28(3) of the Arbitration Act mandates strict adherence to contractual terms, even where equitable considerations are invoked.
Supreme Court’s Reasoning
1. Primacy of Contractual Terms
The Court emphasised that arbitrators are creatures of the contract. Section 28(3) of the Arbitration and Conciliation Act explicitly requires arbitral tribunals to decide disputes “in accordance with the terms of the contract and taking into account the usages of the trade applicable to the transaction.”
The tribunal, by construing an informal email as waiver, departed from the express terms of the EPC agreement. The “No Oral Modification” clause barred any waiver or modification unless executed in writing and signed by both parties. Thus, the tribunal’s reliance on an email amounted to rewriting the bargain struck by the parties.
2. Limits of Arbitral Power
The judgment reiterated established precedents that arbitrators cannot go beyond the four corners of the contract. The Court observed:
“Numerous precedents laid down by this Court have often emphasised that an arbitrator lacks the power to deviate from or to reinterpret the terms of the contract while making an award. The awards must be within the parameters of the agreement entered between the parties.”
This ruling sends a strong message that arbitral awards based on creative reinterpretation of contracts will not survive judicial scrutiny.
3. Scope of Section 37 Review
SEPCO had argued that the Division Bench overstepped its powers under Section 37, since the scope of interference is narrower than under Section 34. The Supreme Court rejected this contention, clarifying that:
- While courts must show restraint,
- A “patent illegality” such as violation of Section 28(3) or ignoring an express contractual clause justifies intervention even under Section 37.
The Court held that both the arbitral tribunal and the Single Judge had erred in granting relief to SEPCO by assuming waiver, despite the EPC agreement mandating written consent. Thus, the Division Bench was correct in setting aside the award.
4. Waiver and Equitable Estoppel Not Pleaded
The Court also highlighted that SEPCO had never pleaded waiver or equitable estoppel in its case. By relying on an email to create a case of waiver, the tribunal introduced a new legal basis not advanced by SEPCO, which exceeded its jurisdiction.
This was a fundamental violation of arbitral procedure and contrary to Section 18 of the Arbitration Act, which ensures equal treatment of parties and adherence to pleaded claims.
Key Legal Takeaways
The judgment provides clarity on several important aspects of arbitration law:
- Arbitrators bound by contract: Section 28(3) mandates strict adherence to the terms of the contract. Arbitrators cannot introduce doctrines like waiver or estoppel to override express provisions.
- No Oral Modification Clauses enforceable: Where parties have agreed to a NOM clause, informal communications such as emails cannot substitute for written, signed agreements.
- Scope of judicial review: Even under Section 37, courts can set aside arbitral awards if they exhibit patent illegality or ignore explicit contractual stipulations.
- Doctrine of waiver must be pleaded: Arbitral tribunals cannot base awards on unpleaded legal doctrines. Doing so violates due process and the tribunal’s mandate.
Impact of the Judgment
This ruling will have a significant impact on arbitration in India, especially in infrastructure, EPC, and commercial contracts where NOM clauses are standard. It strengthens the principle that:
- Contracts are sacrosanct.
- Arbitrators cannot reframe agreements to suit perceived equities.
- Judicial intervention, though minimal, remains available where awards contravene express contractual provisions.
For foreign investors and companies engaging in arbitration in India, this decision provides certainty and predictability. It reassures parties that tribunals cannot bypass contractual safeguards, and courts will intervene in cases of blatant deviation.
Conclusion
The Supreme Court’s decision in SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. is a reaffirmation of the sanctity of contracts in arbitration law. By dismissing SEPCO’s appeal, the Court made it clear that arbitral tribunals cannot reinterpret contractual terms or create new doctrines not contemplated by the parties.
The ruling will be cited as a precedent to ensure that arbitration remains a contract-governed process, not an exercise in equitable discretion. With this judgment, the Supreme Court has once again drawn a fine balance between respecting arbitral autonomy and upholding the binding force of commercial agreements.
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