Arbitral Tribunal Discriminated Between Parties: Supreme Court Upholds Setting Aside Of Arbitral Award

The Supreme Court has upheld the setting aside of an Arbitral Award, saying that the Arbitral Tribunal discriminated between the parties, showcasing violation of the provisions of the Arbitration and Conciliation Act, 1996 (A&C Act).

The Court was hearing a Civil Appeal filed by SEPCO Electric Power Construction Corporation against the Judgment of the Orissa High Court.

The two-Judge Bench comprising Chief Justice of India (CJI) B.R. Gavai and Justice Augustine George Masih remarked, “The Arbitral Tribunal, itself being a creature of the EPC Agreements, could not have travelled beyond its mandate to rewrite the constitution of its own existence through observing the condition of notice having been waived. It further discriminated between the parties, showcasing violation of the provisions of the 1996 Act. As this Arbitral Award could not have been severed owing to the aforesaid reasons, thereby it is apt to set aside the whole Arbitral Award.”

The Bench said that non-interference and non-setting aside of the award would have hampered upon the fundamental policy of Indian law as well as the public policy of India.

Senior Advocates Neeraj Kishan Kaul and Jayant Mehta represented the Appellant while Senior Advocates A.M. Singhvi, Ashok Parija, and Ciccu Mukhopadhaya represented the Respondent.

Court’s Observations

The Supreme Court in view of the facts of the case, observed, “A perusal of the Arbitral Award, which has also been considered in elaborate detail by the Division Bench would reveal that the Arbitral Tribunal had meted out a discriminatory treatment to SEPCO and GMRKE Limited. On one hand, while SEPCO’s claims have been granted despite its admitted failure to issue contractual notices, the counter claims of GMRKE Limited have been rejected on the ground that it failed to serve equivalent notices.”

The Court was of the view that even the Single Judge of the High Court failed to correctly peruse and apply the law provisioned through the A&C Act, despite prima facie nature of the discrimination of the Arbitral Tribunal brought on record and pressed into service by GMRKE Limited.

“The Division Bench correctly held that it cannot turn a blind eye to such a glaring example of unequal learned Division Bench also held that such discrimination was violative of the equality principle enshrined under Section 18 of the 1996 Act”, it noted.

The Court said that the Division Bench came to a considerable conclusion that the Arbitral Award passed by the Arbitral Tribunal was in conflict with the public policy of India inasmuch as the Arbitral Award was passed in violation of the principles of natural justice.

“A discriminatory treatment was meted out by the Arbitral Tribunal to GMRKE Limited as against SEPCO and that the Arbitral Award amounted to modification of the contractual terms. We find that the findings of the Division Bench are recorded after considering the entire material on record and are in consonance with the law laid down by the decisions of this Court in Associate Builders (supra), and Ssangyong Engineering (supra). Therefore, we see no reason to interfere with the well-reasoned findings as recorded by the Division Bench”, it added.

The Court further remarked that no form of reasonability would allow for such a discrimination between the parties by an Arbitral Tribunal.

“Moreover, the Single Judge erred in observing that no plea for discrimination was raised by GMRKE Limited before the Arbitral Tribunal. No party could have imagined the verbatim of an award to be passed by a tribunal to raise the contention of discrimination. This is despite the observations in the Section 34 Judgment to the effect that Single Judge reiterated the mandate to set aside an award if it violates the principles of natural justice or the jurisprudence of Section 18 of the 1996 Act”, it also observed.

Conclusion

The Court held that the Arbitral Award is violative of the very principles and notions of natural justice altogether, beginning from the discriminatory treatment of the parties as to non-consideration of arguments by GMRKE Limited or even assumption of specific arguments that were not raised at all before the Arbitral Tribunal.

“… the jurisprudence, as also identified in the aforesaid issues, clarifies that the principles of natural justice, and the public policy of India are paramount and cannot be ignored or sidelined in an attempt not to frustrate the patent or latent commercial wisdom of the parties to seek an alternative means of dispute resolution. Such issues attack the root of the Indian legal system and the courts cannot be made a mere spectator to such gross violations”, it concluded.

Accordingly, the Apex Court dismissed the Appeal and upheld the impugned Judgment.

Cause Title- SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Ltd. (Neutral Citation: 2025 INSC 1171)

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