Overview
The Supreme Court recently handed down its judgment in a complicated arbitration matter involving SEPCO Electric Power Construction Corporation ("SEPCO") and GMR Kamalanga Energy Ltd. ("GMRKE Ltd."). The appeal was from the Division Bench judgment of the Orissa High Court dated 27 September 2023 by which the Division Bench had set aside the arbitral award dated 7 September 2020 as well as the order of the Single Judge dated 17 June 2022 rejecting GMRKE's Section 34 petition. The issue primarily concerned the interpretation of contractual terms under the Arbitration and Conciliation Act, 1996, specifically whether the arbitral tribunal had misinterpreted the requirement for contractual notices and applied the principles of waiver and estoppel.
Factual facts of the case
SEPCO, a state-owned Chinese engineering company, was commissioned by GMRKE Ltd. as the Engineering, Procurement, and Construction (EPC) contractor for the installation of a 3x350 MW coal-based thermal power plant at Kamalanga, Odisha.
Four main contracts were signed on 28 August 2008:
(i) the Civil Works and Engineering, Erection, Testing and Commissioning Agreement (CWEETC),
(ii) the Guarantee and Co-ordination Agreement (GCA),
(iii) the Onshore Supply Agreement, and
(iv) the Offshore Supply Agreement, in aggregate referred to as the EPC Agreements.
Later project delays prompted the parties in China to negotiate, resulting in the "Jinan Agreement" of 7 November 2012, whereby certain milestones and obligations were redefined. There remained differences, and SEPCO demobilized from the worksite in January 2015 and resorted to arbitration.
The Arbitral Award
The arbitral tribunal held that GMRKE Ltd. had violated various undertakings, such as delays in granting site access, failure to construct a boundary wall, and non-delivery of necessary coal and fuel oil. These failures were held to have resulted in delays and cost expenditures to SEPCO. Although some claims, like extra compensation for switchyard changes, were disallowed, SEPCO was entitled to compensation for GMRKE Ltd.'s delay attributable costs, including extensions.
Finally, the tribunal held that GMRKE Ltd. owed SEPCO around ?995 crore, consisting of various currency components, following the adjustment of counterclaims for defects and liquidated damages.
Aggrieved, GMRKE Ltd. filed a case in Orissa HC and the court reversed the findings of the arbitral tribunal.
Appeal before the Supreme Court
SEPCO went to the Supreme Court under Article 136, asserting that the interference of the Orissa High Court in the arbitral award was improper. The primary question for the Court to decide was whether the Division Bench had overstepped its jurisdiction by re-evaluating factual conclusions and contractual interpretations submitted by the arbitral tribunal.
The main legal issue was the scope of Judicial Interference (Sections 34/37) – Whether courts could set aside the award for violating fundamental policy, public policy of India, or principles of fairness, given that the tribunal acted beyond the four corners of the contract.
Supreme Court’s decision
The Supreme Court overruled the judgement of Orissa High Court and said that the HC had almost reappraised the entire contractual and evidentiary matrix, which is beyond the limited permissible ambit of judicial review under Sections 34 and 37 of the Arbitration Act. The top court reiterated that the courts are not to serve as appellate authorities over arbitral awards and that interference is warranted only if the award is perverse, patently illegal, or against the fundamental principles of justice.
Case Reference: Sepco Electric Power Construction Corporation (Appellant) v. GMR Kamalanga Energy Ltd. (Respondent) Civil Appeal No. of 2025 (Arising Out of SLP (C) No. 2706 of 2024) (B.R. GAVAI, C.J. AND AUGUSTINE GEORGE MASIH, J.)
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