The Supreme Court of India has held that the arbitrator cannot rewrite the terms of a contract while deciding the arbitration award. In the case of (GMRKE) (2025), the court was hearing a challenge to the decision of an Orissa High Court division bench that had set aside a single-judge bench order of the high court, upholding the arbitration award.
In the present matter, SEPCO had struck multiple contracts to construct three 350 megawatt coal-fired thermal power plants in the state of Odisha for GMRKE. Several disputes arose leading to SEPCO demobilising the construction midway and issuing a notice of dispute, followed by a notice of arbitration to GMRKE.
The contracts had a “no oral modification” clause, where only an official modification would lead to a change in execution of the construction.
Despite this, certain modifications were made that were presented to have been agreed by GMRKE in emails. The arbitral tribunal refused GMRKE’s contention that this was impossible under the “no oral modification” clause and deemed equitable estoppel to have arisen.
The tribunal, in its award, determined the claims in an all-embracing manner, observing security lapses and failure by GMRKE in providing coal and fuel oil for the project. The tribunal also did not consider GMRKE’s contentions of “no oral modification” and “no waiver” clauses in the contract.
The tribunal ultimately held that GMRKE was liable to pay INR9.95 billion (USD105.94 million) to SEPCO.
GMRKE then challenged this award before an Orissa High Court single-judge bench contending unfair treatment, adjudicating outside the pleadings of the parties, and procedural and legal errors by the arbitral tribunal. GMRKE alleged that the tribunal’s conduct was ultra vires its jurisdiction.
The high court rejected GMRKE’s contentions on the grounds of procedural error due to coming before it under the wrong provisions. GMRKE had filed the challenge before the court under section 34 of the Arbitration and Conciliation Act, 1996, but the partiality of an arbitrator is to be challenged under sections 12(3) and 13 of the same regulation. The court also cited lack of evidence in support of GMRKE’s claims for dismissing the appeal.
The single-judge bench ultimately ruled in favour of SEPCO.
GMRKE then challenged this before a division-bench of the high court that allowed the challenge and observed that the arbitral tribunal’s conduct and conclusion was in breach of the contracts between the parties, as it exceeded its jurisdiction and changed the terms of the contract by disregarding them.
The division bench relied on (2023) and (2021) in its decision and set aside the award by the arbitral tribunal.
SEPCO then challenged this decision before the Supreme Court of India.
SEPCO argued that, as per (1984) and (2003), a mistake of fact or law by the arbitrator does not call for the court’s interference and set aside the award. SEPCO relied on (2014) and the to assert that an arbitral award would be contrary to the fundamental policy of Indian law, only on the violation of the doctrine of audi alteram partem (hear the other side).
SEPCO also argued about the scope of GMRKE’s challenge, termination clause and estoppel as part of its contentions.
GMRKE reiterated the contentions it made before the division bench of the high court.
The Supreme Court observed that the arbitral tribunal relied on a previous agreement and emails for a waiver of contractual notices, even though SEPCO did not rely on them, and GMRKE was not given the opportunity to exhibit evidence, which amounted to modification of contract terms by the tribunal. The court reiterated that “the arbitrator lacked the power to deviate from or reinterpret the terms of the contract”.
Finally, the court the division-judge bench’s decision and observed that the arbitral award was not good in law and was in violation of a fundamental policy of Indian law, the principles of natural justice and notions of justice, thereby shocking the conscience of the court.
SEPCO filed a revision petition before the court, which was recently .
