Equal Treatment Is Non‑Negotiable: Supreme Court sets aside arbitral award for asymmetric waiver of contractual notices and rewriting milestone preconditions

Case: SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd.

Citation: 2025 INSC 1171

Court: Supreme Court of India

Bench: B.R. Gavai, CJI and Augustine George Masih, J.

Date: 26 September 2025

Introduction

This appeal arose from a high-value EPC dispute between SEPCO (contractor) and GMR Kamalanga Energy Ltd. (owner) over a 3x350 MW thermal power project (with a suspended fourth unit) in Odisha, governed by a suite of EPC agreements. Arbitration was agreed to be conducted “in Singapore in accordance with the Indian Arbitration and Conciliation Act, 1996,” while the substantive contract law was English law. The arbitral tribunal awarded SEPCO a net recovery of approximately INR 995 crores. The High Court’s Single Judge refused to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act). On appeal under Section 37, the Division Bench set aside both the award and the Section 34 order. SEPCO challenged this outcome before the Supreme Court.

The central questions before the Supreme Court included: whether the tribunal could infer a waiver/estoppel dispensing with contractual notices despite explicit “No Oral Modification/No Waiver” clauses; whether the tribunal applied contractual notice requirements asymmetrically (violating Section 18 of the A&C Act); whether it rewrote milestone preconditions by treating Performance Guarantee Tests as “successfully completed” notwithstanding failure of the required Unit Characteristics Test; and the permissible scope of interference under Sections 34 and 37 of the A&C Act.

Summary of the Judgment

The Supreme Court dismissed SEPCO’s appeal and affirmed the Orissa High Court Division Bench’s decision setting aside the arbitral award and the Single Judge’s order. The Court held:

Section 18 (Equal Treatment) violation: The tribunal applied a supposed waiver of contractual notices in SEPCO’s favour but denied GMR equivalent treatment on its counterclaims. This asymmetric approach violated due process and the statutory guarantee of equal treatment.
Section 28(3) violation (decide in accordance with contract and trade usages): The tribunal rewrote the contract by inferring a waiver/estoppel against express “No Oral Modification/No Waiver” clauses (Clause 25.5) without unequivocal evidence; and by deeming Performance Guarantee Tests successful despite failure of the prerequisite Unit Characteristics Test (Sections 6.1.5, 6.1.6, 6.1.7.1).
Seat and applicable laws clarified: Although the venue was Singapore, the lex arbitri was Indian law (A&C Act, 1996). Substantive contractual interpretation was governed by English law, but mandatory Indian arbitration law (Sections 18, 28(3), 34, 37) controlled the validity of the award.
Scope under Sections 34 and 37: Section 37 review is narrower than Section 34; however, where a Section 34 court fails to address fundamental statutory violations, a Section 37 court may intervene. Given the patent breach of Sections 18 and 28(3), interference was warranted.
No severance/modification of award: The award was pervasively infected with due process and contract‑rewrite errors, not amenable to severance or modification. Consistent with M. Hakeem and the majority in Gayatri Balasamy, the Court declined to salvage parts of the award.
Other merits (e.g., Unit 4 suspension): The Court chose not to examine those issues to avoid impermissible modification, given the award’s wholesale invalidity.

Analysis

Precedents Cited and Their Influence

Associate Builders v. DDA (2015) 3 SCC 49 and Ssangyong Engineering v. NHAI (2019) 15 SCC 131: The foundational authorities channeling post‑2015 amendments to “public policy,” emphasizing narrow judicial review. They support intervention where an award violates the “fundamental policy of Indian law,” including denial of natural justice and breach of statutory mandates like Sections 18 and 28(3).
ONGC v. Saw Pipes (2003) 5 SCC 705: The Court re‑affirmed that an arbitrator must decide in accordance with the contract. Breaches of Section 28(3) (failure to take into account contract terms) justify setting aside.
Associated Engineering Co. v. State of A.P. (1991) 4 SCC 93: Arbitrators are creatures of contract; traveling outside contractual bounds is jurisdictional error. This underpins the finding that the tribunal impermissibly rewrote notice and testing preconditions.
MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163, UHL Power v. State of H.P. (2022) 4 SCC 116, Reliance Infrastructure v. State of Goa (2024) 1 SCC 479: These decisions restrict re‑appreciation under Sections 34/37. The Supreme Court reconciles them by holding that the Division Bench intervened not to substitute views on merits but to cure fundamental statutory violations.
M. Hakeem (2021) 9 SCC 1 and Gayatri Balasamy v. ISG Novasoft (2025) 7 SCC 1: M. Hakeem held Section 34 courts cannot modify awards. The majority in Gayatri Balasamy recognized narrowly tailored corrections (clerical/computational errors, limited interest adjustments) and severance where feasible. Here, the award’s defects were pervasive and intertwined, so neither modification nor severance was appropriate.
Konkan Railway v. Chenab Bridge Project (2023) 9 SCC 85: Reiterates that Section 37 courts should not reinterpret contracts; their remit is to ensure Section 34 limits are respected. The Supreme Court finds the Division Bench stayed within bounds by addressing statutory violations, not recasting contractual bargains.
Enercon (India) v. Enercon GmbH (2014) 5 SCC 1, Vedanta v. GoI (2020) 10 SCC 1, and Disortho S.A.S. v. Meril Life Sciences (2025 SCC OnLine SC 570): These inform the seat/venue analysis and choice of law architecture, supporting the Court’s conclusion that Indian lex arbitri applied notwithstanding the Singapore venue.
Rock Advertising v. MWB (UKSC 2018) and Charles Lim v. Hong Choon Hau (SGCA 2021): Comparative guidance on “No Oral Modification” (NOM) clauses. The Court stresses that NOM and “No Waiver” provisions cannot be sidestepped by casual reliance on emails or conduct; equitable estoppel requires unequivocal representation and reliance—which were absent here.
Additional authorities cited for context include Western Geco (2014), Dyna Technologies (2019), Parsa Kente (2019), Bharat Enterprise (2023 SCC OnLine SC 369), and classic English/Privy Council decisions on error of law on the face of the award and incorporation of contracts (e.g., Absalom, Landauer, Champsey Bhara, Allen Berry), each supporting the supervisory court’s ability to look at the contract where the award is built upon or departs from it.

Legal Reasoning

1) Choice of law and seat/venue

The EPC agreements adopted English law as the governing law of the contract (lex contractus) and stipulated arbitration “in Singapore in accordance with the Indian A&C Act.” The Supreme Court confirms: venue is Singapore, but the seat/lex arbitri is India (A&C Act), hence Sections 18, 28(3), 34 and 37 apply. The tribunal’s decisions must align with Indian arbitration’s mandatory norms, although the underlying contractual terms are construed under English law.

2) Waiver/estoppel vs. NOM and “No Waiver” clauses

Clause 25.5 of the CWEETC Agreement contains robust “No Waiver” and “No Oral Modification” language, requiring written, signed variations. The tribunal nevertheless inferred, sua sponte, an estoppel/waiver of the contractual notice requirement from a March 2012 email and the Jinan Agreement, even though SEPCO had not pleaded a March 2012 waiver case (its pleaded waiver theory concerned March 2010 and was rejected). This:

Contravened the contract’s NOM/No Waiver regime, absent unequivocal representation and reliance (as required by Rock Advertising and similar authorities);
Deviated from Section 7.3.2’s express notice mechanics (72‑hour notice, rolling updates, documentation); and
Breached Section 28(3) by deciding contrary to the contract’s terms.

Most critically, the tribunal applied the inferred waiver selectively: SEPCO’s claims were entertained without notices, but GMR’s counterclaims were rejected for lack of notices. This asymmetric indulgence violates Section 18’s equal treatment guarantee and the audi alteram partem dimension recognized in Ssangyong and Associate Builders.

3) Rewriting milestone preconditions

Sections 6.1.5 (Reliability Run), 6.1.6 (Unit Characteristics Tests), and 6.1.7.1 explicitly condition Performance Guarantee Tests (PGTs) on the successful completion of both the Reliability Run and the Unit Characteristics Test. The tribunal found the Unit Characteristics Test for Unit 1 had failed, yet awarded SEPCO the PGT‑linked 5% price tranche by deeming the PGTs “successfully completed.” This is a classic Section 28(3) infraction—substituting the tribunal’s sense of equity for the contract’s express sequence and preconditions.

4) Errors of fact and their role

The Division Bench had noted a mistaken recording of the contractual coal moisture range (recorded as 9–12% instead of the correct 7–15%), which arguably distorted delay/liability findings. Ordinarily, factual missteps do not warrant interference under Sections 34/37. But where the award is already vitiated by Section 18 and Section 28(3) violations, the appellate court may, and did, consider such errors as part of the broader context of perverse and unequal adjudication.

5) Scope under Sections 34 and 37; severability and modification

The Court reiterates:

Section 34 is a limited recourse; courts do not sit in appeal. However, awards contrary to Section 18 and Section 28(3), or to the fundamental policy of Indian law, can be set aside.
Section 37 review is even narrower; the Division Bench correctly intervened because the Single Judge failed to appreciate facial statutory violations.
Severance/modification: In line with M. Hakeem and the majority in Gayatri Balasamy, the Court declined to sever or modify; defects were pervasive and inseparable from the award’s core logic.

Impact and Prospective Significance

This decision establishes and consolidates several important propositions for India‑seated arbitrations (including international commercial arbitrations seated in India):

Section 18 is a potent, standalone ground: Unequal application of procedural or substantive contractual requirements (e.g., notice conditions) as between parties will attract setting aside. Arbitrators must apply rules symmetrically or give parties a fair opportunity to answer new theories.
NOM/No Waiver clauses have real bite: Arbitrators cannot dilute express NOM/No Waiver clauses through casual references to correspondence. Equitable estoppel requires clear, unequivocal representation and reliance; absent that, Section 28(3) compels adherence to written modification requirements.
Milestone discipline: Performance‑linked payments conditioned on defined test sequences cannot be awarded on “substantial compliance” theories that contradict express preconditions. This will affect infrastructure, power, and EPC disputes where PGTs and similar certifications drive cash flow.
Seat vs venue clarity: Drafting arbitration clauses declaring a foreign venue but the A&C Act as the procedural law will likely be read as India‑seated. Mandatory Indian norms (Sections 18, 28(3), 34, 37) will apply, while substantive contract law can still be foreign (here, English law).
Section 37’s role as a corrective: While limited, Section 37 can correct a Section 34 court’s failure to engage with patent statutory breaches. Appellate Division Benches can set aside awards in such cases without being accused of re‑trying the merits.
Remedial restraint reaffirmed: Post‑Gayatri Balasamy, courts will be slow to “salvage” by modifying awards; when due process and contract‑rewrite errors pervade the award, the remedy will be to set it aside in toto.
Practical drafting signal: Parties who intend to relax notice provisions or milestone preconditions should memorialize that decision in formal, signed writings compliant with NOM clauses. Emails suggesting cooperation are unlikely to suffice.

Complex Concepts Simplified

Section 18 (Equal Treatment): Both sides must get the same procedural fairness. An arbitrator cannot quietly apply one rule to Party A and a different rule to Party B.
Section 28(3): Arbitrators must decide disputes by applying the contract’s actual words and relevant industry customs. They are not free to “improve” the bargain.
No Oral Modification (NOM) and No Waiver: Clauses that say “changes must be in writing and signed” prevent informal changes. A party claiming an exception must show very clear conduct/words and reliance.
Waiver vs Estoppel: Waiver is a deliberate, knowing giving up of a right. Estoppel stops a party from going back on a representation if the other side relied on it. Both are tightly policed when NOM clauses exist.
Seat vs Venue: The “seat” is the legal home of the arbitration (determines the arbitration law and courts’ supervisory powers). The “venue” is just where hearings happen.
Section 34 vs Section 37: Section 34 is the main, narrow route to challenge an award. Section 37 is an even narrower appeal against a Section 34 decision. Neither allows a full re‑hearing.
“Shock the conscience”/“Fundamental policy of Indian law”: Short‑hand for very serious defects—like clear denial of due process or blatant disregard of mandatory legal rules.
Wednesbury unreasonableness: A decision so irrational that no reasonable decision‑maker could reach it. It helps courts identify perverse awards without becoming appellate forums.

Practical Takeaways for Drafting and Advocacy

Where contracts contain NOM/No Waiver clauses, formalize any relaxation of notice or testing requirements through signed amendments or variation orders. Do not rely on ambiguous emails.
Ensure notice mechanics (timelines, content, rolling updates, documentation) are followed. If impossible, contemporaneously document why and seek agreed dispensations in writing.
Arbitrators should avoid constructing unpleaded cases. If a new theory (e.g., estoppel) emerges, grant both parties an opportunity to lead evidence and be heard.
Where performance payments are conditioned on sequential tests, tribunals should resist “equitable” shortcuts that contradict express preconditions.
On challenge, frame Section 18 and 28(3) violations distinctly. Courts are more willing to intervene where due process and mandatory contract‑adherence rules are flouted.
Be realistic about severance/modification post‑M. Hakeem and Gayatri Balasamy. If errors are systemic, the likely remedy is setting aside the entire award.

Conclusion

SEPCO v. GMR Kamalanga is a robust reaffirmation of two pillars of Indian arbitration law: equal treatment under Section 18 and fidelity to contract terms under Section 28(3). The Supreme Court signals that arbitrators cannot paper over explicit NOM/No Waiver and notice regimes with inferred estoppels, particularly when doing so asymmetrically. Nor can tribunals relax milestone preconditions that the parties themselves negotiated as payment gates. While the Court is careful to preserve the narrowness of Sections 34 and 37, it underscores that those limits give way when awards transgress mandatory norms and the fundamental policy of Indian law.

The immediate practical message for commercial parties and tribunals is clear: document any departure from contractual procedures in the precise manner the contract requires; apply rules evenly to both sides; and resist the temptation to “improve” bargains in the name of equity. Where these basics are overlooked, courts will step in—even at the Section 37 stage—to restore the rule of law in arbitral adjudication.

Equal Treatment Is Non‑Negotiable: Supreme Court sets aside arbitral award for asymmetric waiver of contractual notices and rewriting milestone preconditions (SEPCO v. GMR Kamalanga, 2025 INSC 1171)