SEPCO Electric Power Construction Corporation vs. GMR Kamalanga Energy Ltd.
Background
SEPCO and GMR Kamalanga Energy Ltd. (GMRKE) were parties to EPC agreements for a power project. An Arbitral Tribunal passed an award largely in SEPCO's favour, which a Single Judge of the Orissa High Court upheld under Section 34 of the Arbitration Act. On appeal under Section 37, a Division Bench of the High Court set aside both the Section 34 judgment and the arbitral award itself, holding that the Tribunal had treated the two parties unequally and had gone beyond its mandate. SEPCO then appealed to the Supreme Court.
Decision Breakdown
The Supreme Court examined whether the Division Bench had exceeded the narrow scope of interference permitted under Sections 34 and 37. It found that the Arbitral Tribunal had discriminated between the parties (allowing SEPCO's claims despite SEPCO's own failure to issue mandatory contractual notices, while rejecting GMRKE's counter-claims for the very same failure) which violated the principle of equal treatment under Section 18 of the Act and the public policy of India. The Court also agreed that the Tribunal had effectively rewritten the contract by treating a failed Unit Characteristic Test as if the Performance Guarantee Test had been validly completed, going beyond its mandate. Given these fundamental defects, the Supreme Court held that the Division Bench was right to fully set aside the award rather than sever the bad parts from the good, and dismissed SEPCO's appeal with no order as to costs.
Lesson Learnt
Courts can and will set aside an arbitral award, even though judicial interference with arbitration is meant to be minimal, where the tribunal treats the parties unequally or rewrites the contract beyond its mandate, since such defects strike at the fundamental policy and public policy of Indian law.