When Party Is Unable To Analyse Or Argue On Contention Raised By Other, It Will Be Breach Of Natural Justice: Supreme Court

The Supreme Court held that when a party is unable to analyse, comment or argue on a contention raised by the other party, it will be deemed as a breach of natural justice and thereby, also a violation of the most fundamental notions of justice.

The Court held thus in 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 observed, “When a party is unable to analyse, comment or argue on a contention raised by the other party, it will certainly be deemed as a breach of natural justice and thereby, also a violation of the most fundamental notions of justice. Henceforth, the arbitral award is required to be set aside by the courts under Section 18 and Section 34 Sub-Section 2 Clause (a) Sub-Clause (iii) of the 1996 Act.”

The Bench said that although the parties have a great deal of discretion in choosing the governing law, their choices cannot conflict with the mandatory provisions in the jurisdiction of the seat of the concerned arbitration.

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.

Brief Facts

The Division Bench of the High Court had allowed an Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) read with Section 13 of the Commercial Courts Act, 2015 by the Respondent (GMR Kamalanga Energy Limited). The said Appeal was allowed to the effect that the Judgment in Arbitration Petition as passed by the Single Judge of the High Court under Section 34 of A&C Act, was set aside along with the Arbitral Award. The said award was rendered in favour of the Appellant (SEPCO Electric Power Construction Corporation).

The Appellant had entered into numerous agreements with the Respondent with the objective of construction of three 350 Mega Watt coal-fired thermal power plants at the village of Kamalanga in District Dhenkanal of State of Odisha. As numerous disputes arose between the parties, SEPCO went on to demobilize from the sites of construction of the concerned Project midway, around January 2015. This led to the initiation of arbitration proceedings. Being aggrieved by the Judgment of the High Court, the Appellant was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “Through a holistic appreciation of the Section 28 Sub-Section (1) Clause (b), along with Sub Clause (i), it is prima facie comprehensible that International Commercial Arbitrations, wherein seat has been adopted to be India or the 1996 Act, are always subject to Section 28 Sub Section (1) Clause (b) of the 1996 Act, which, in turn, emphasizes that fundamental principle of party autonomy. The parties to a dispute are always at liberty to choose the substantive law, procedural law, and the law of the arbitration agreement so applicable. Party autonomy is widely acknowledged as the foundation of the contemporary arbitration and is protected by the arbitral legislations, numerous institutional guidelines and international treaties.”

The Court enunciated that the principle of party autonomy does not vest absolutely and the laws governing the arbitration agreement, the substantive contract, and the procedural conduct of the arbitration may differ, as in the instant case.

“To reiterate, the parties have, as per the settled law and the gestation of party autonomy, adopted for the English law to be applicable to the substantive interpretation of the contractual terms, while the procedural aspect, as it appears from the aforesaid reflection of the jurisprudence, shall be governed by the laws of the land of this nation, being India, for its law of arbitration, the 1996 Act, being the seat”, it added.

The Court remarked that even under the current arbitration regime, judicial intervention is narrowly confined to specific, enumerated grounds and arbitral decisions must adhere to natural justice, and cannot rest solely on personal beliefs or perceived moral duties.

“But it appears that the Arbitral Award has extensively relied upon the terms of the contract(s), and it was appropriate and good in law on the part of the Division Bench to peruse the contractual terms between the parties. Moreover, it would not be arrogate to refer to and rely upon the provisions of the Amended CWEETC Agreement”, it further said.

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.

“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 reiterated.

The Court, therefore, concluded that 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.

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)

Appearance:

Appellant: Senior Advocates Neeraj Kishan Kaul, Jayant Mehta, AOR Garima Bajaj, Advocates Sumeet Kachwaha, Samar Singh Kachwaha, Ankit Khushu, Bhavana Chandak, Aakshat Khetarpal, Vikramaditya Sanghi, Dhruv Sharma, Dhanya Krishnan, and Udit Sidhra.

Respondent: Senior Advocates A.M. Singhvi, Ashok Parija, Ciccu Mukhopadhaya, AOR E. C. Agrawala, Advocates Mahesh Agarwal, Prashant Pakhidey, Manu Krishnan, Aanchal Mullick, Manav Gill, Daksh Arora, Avishkar Singhvi, Swastika Parija, and Nidhiram Sharma.

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