AKP Dispute Resolution Digest October 09, 2025

We are delighted to share this month's AKP Dispute Resolution Monthly Digest. Please feel free to write to us with your feedback at info@akandpartners.in.

1. Arbitration and Conciliation

1.1. Power and Energy

1.1.1. Supreme Court rules arbitral tribunal cannot rewrite contract terms

The Supreme Court held that a tribunal cannot rewrite a contract and treat the parties unfairly, and upheld the decision of the Orissa High Court to set aside an arbitral award of INR 995 Crore (Indian Rupees Nine Hundred Ninety-Five Crore only).[AKP1]  SEPCO Electric Power Corporation (“SEPCO”) and GMR Kamalanga Energy Ltd (“GMRKEL”), the project owner, were at odds. On appeal, a Division Bench of the High Court overturned the award that a High Court Single Judge had upheld under Section 34 of the Arbitration and Conciliation Act, 1996 ("1996 Act"). The High Court had found that the tribunal had ignored a ‘No Oral Modification’ clause in the contract by creating its own theory that the requirement for contractual notices had been waived by conduct. This central issue led to the appeal before the Supreme Court. The Supreme Court reinforced that the fundamental principles of arbitration, i.e. an arbitral tribunal is a creature of the contract and cannot travel beyond its explicit terms. The Supreme Court held that inventing a theory of waiver to bypass an explicit contractual clause is an impermissible act of rewriting the agreement. Furthermore, the tribunal's act of applying this waiver to allow the contractor's claims while rejecting the owner's counterclaims for lack of similar notices constituted a clear violation of the principles of natural justice and equal treatment enshrined in Section 18 of the 1996 Act. The judgment confirms that such a patent illegality, which contravenes the fundamental policy of Indian law, is a valid ground for a court to set aside an award.

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1.2. Real Estate

1.2.1. Supreme Court clarifies that party autonomy prevails in awarding interest

The Supreme Court held that Section 31(7) of the Arbitration and Conciliation Act, 1996 applies by default only if the agreement between the parties is silent on the post award interest. The dispute between HLV Limited (formerly Hotel Leelaventure) (“HLV”) and PBSAMP Projects Pvt. Ltd. (“PBSAMP”) centred on the correct calculation of interest on an arbitral award. The award-holder, PBSAMP, claimed compound interest for the post-award period, while HLV Limited argued that their contract and the award only provided simple interest. The Supreme Court, in its judgment, settled the issue in favour of HLV Limited, setting aside the High Court's order. The essence of this ruling is its decisive clarification on the primacy of party autonomy in determining interest in arbitration. The Court examined the parties’ Memorandum of Understanding (“MoU”), which expressly stipulated a simple interest of 21 per cent (Twenty-one per cent) per annum till the actual date of payment. The arbitral award had faithfully applied this clause. The Supreme Court held that the statutory provision for compound interest under Section 31(7) of the Arbitration and Conciliation Act, 1996, only applies as a default mechanism when an award is silent on post-award interest. Since the parties' own agreement and the subsequent arbitral award had provided for a complete and continuous interest regime, there was no scope for the executing court to modify the award by superimposing the statutory interest formula. This judgment reinforces that an executing court cannot go behind the award and must enforce it as it stands, especially when it reflects the parties' original agreement.

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2. Debt Recovery

2.1. Real Estate

2.1.1. Supreme Court rules right to redeem mortgaged property is extinguished on publication of auction notice

The Supreme Court has delivered a definitive ruling on the borrower's 'right of redemption' under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). The court held that the borrower's right to redeem its property is available only before the publication of the notice of public auction for that property. The case involved borrowers who attempted to redeem their mortgaged property by paying the outstanding dues after a sale certificate had already been issued to a successful auction purchaser. The High Court had allowed the redemption, relying on an older interpretation of the law. The central issue before the Supreme Court was whether the borrower's right to redeem the property survives until the registration of the sale certificate, or if it is extinguished earlier. In its judgment, the Supreme Court allowed the auction purchaser's appeal. The essence of this judgment lies in its conclusive interpretation of the amended Section 13(8) of the SARFAESI Act. The Court clarified that following the 2016 amendment to this section, the borrower's right to redeem the mortgaged property is available only ‘before the date of publication of the notice for public auction.’ Once the auction notice is published, the right is extinguished. The Court held that this specific provision in the SARFAESI Act, a special law, overrides the general provisions of the Transfer of Property Act, 1882. This ruling provides crucial certainty to the auction process, protects the rights of successful bidders, and furthers the SARFAESI Act's objective of expeditious debt recovery.

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3.  Negotiable Instruments Act

3.1. Manufacturing Industry

3.1.1. Supreme Court observes that a demand notice seeking an amount greater than the dishonoured cheque is not maintainable

The Supreme Court held that a criminal complaint under the Negotiable Instruments Act, 1881 (“NI Act”) is not maintainable if the demand notice demands an amount greater than the actual dishonoured cheque. This case involved a criminal complaint filed by Kaveri Plastics for a dishonoured cheque of INR 1,00,00,000 (Indian Rupees One Crore only). The drawer challenged the complaint, Mahdoom Bawa Bahrudeen Noorul, because the statutory demand notice erroneously demanded payment of INR 2,00,00,000 (Indian Rupees Two Crore only). The Supreme Court had to decide whether a criminal complaint under the NI Act is maintainable when the demand notice specifies an incorrect amount. In its judgment, the Court affirmed the High Court’s decision to quash the complaint, holding the notice to be legally invalid. It held that the notice under Proviso (b) to Section 138 of the NI Act must demand the ‘said amount of money,’ which means the exact amount of the dishonoured cheque. Since the NI Act creates a criminal offence, its procedural conditions must be complied with meticulously. An incorrect demand, even if claimed to be a ‘typographical error,’ is a fatal defect because it fails to provide the drawer with a clear and unambiguous opportunity to make the correct payment and thereby avoid prosecution. The ruling establishes that there is no room for a ‘substance over form’ approach regarding the core components of a statutory notice under the NI Act.

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4. Taxation

4.1. Infrastructure

4.1.1. Supreme Court strikes down Rajasthan’s tax exemption for local goods as discriminatory

The Supreme Court held that an exclusive Value Added Tax (“VAT”) exemption to goods produced within the state creates a discriminatory and protectionist trade barrier; therefore, a notification by the Rajasthan Government to exempt VAT on asbestos produced within the state was unconstitutional.  The court decided the constitutional validity of a tax notification from the State of Rajasthan, which provided a full exemption from VAT to asbestos cement products manufactured within the state. This benefit was not extended to similar products imported from other states, which remained subject to VAT. Manufacturers outside Rajasthan challenged this, arguing it created a discriminatory trade barrier. The issue was whether such a tax exemption, which exclusively favours local manufacturers, violates the guarantee of free trade and commerce under Article 304(a) of the Constitution of India. This provision prohibits discriminatory taxation against goods from other states. The Supreme Court quashed the notification in this significant judgment, holding it unconstitutional. The Court held that while states have the power to offer incentives for industrial growth, they cannot use taxation to create protectionist barriers that discriminate against goods from other states. It clarified that the limited exception allowing such incentives must be narrowly applied to specific, time-bound circumstances like developing backward areas. It does not permit a blanket exemption for all local producers. By creating a zero-tax environment for local goods while taxing those from outside, the notification created an ‘unfavourable bias’ that directly impeded the free trade.

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5. Insolvency Law

5.1. Power and Energy

5.1.1. Supreme Court rules profits earned during insolvency belong to the rescued company, not old creditors

The Supreme Court held that profits made by a corporate debtor during the Corporate Insolvency Resolution Process (“CIRP”) belong to the company and are retained by the successful resolution applicant as part of the ‘clean slate’ principle. In the judgment concerning the insolvency resolution of Bhushan Power and Steel Limited (“BPSL”), the Supreme Court has provided crucial clarity on the ownership of profits generated by a company during its CIRP. The case involved appeals by the company's erstwhile promoters and certain creditors against the resolution plan submitted by JSW Steel Ltd. (“JSW”). The issue was whether the substantial operational profits earned by BPSL while under the CIRP should be distributed amongst the original creditors or be retained by the revived company for the benefit of the successful resolution applicant, i.e. JSW. The Supreme Court dismissed the appeal and upheld the resolution plan. The judgement provides certainty to the insolvency framework by strengthening the ‘clean slate’ principle. The Court decisively held that a successful resolution applicant takes over the company as a going concern, which includes all its assets and liabilities, including any profits or losses accrued during the CIRP, unless the bid documents had specified otherwise. The Court rejected the creditors' claim to the profits, warning that allowing such undecided claims to appear after a plan's approval would be like ‘hydra heads popping up,’ creating uncertainty and deterring future corporate rescuers.

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Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Mr. Anuroop Omkar

Partner, AK & Partners

info@akandpartners.in