Arbitration Involving Breach Of Epc Contracts In Biomass Cogeneration Plants
📌 1. What Are EPC Contracts in Biomass Cogeneration Projects?
An EPC contract in a biomass cogeneration plant sets out the contractor’s obligation to:
Engineer (design) the plant,
Procure all equipment (boilers, turbines, feedstock handling etc.),
Construct the plant,
Test and Commission it to meet guaranteed performance criteria (capacity, efficiency, emissions, uptime),
All within agreed price, timeline, and technical specifications.
In biomass cogeneration, performance guarantees (e.g., MW output, steam/heat rates, emissions) are core contractual obligations – failure to achieve these triggers disputes and often arbitration.
📌 2. Typical Breach Scenarios Leading to Arbitration
Common breaches in biomass/EPC contracts include:
Failure to meet guaranteed output or performance standards
Commissioning delays beyond contractual milestones
Defective construction or non-compliance with environmental/technical specs
Contractual payment disputes
Liquidated damages claims
Termination of contract and disputes over consequences
Arbitration is preferred due to technical complexity and enforceability (especially in international contracts).
📌 3. Legal Framework Under Indian Law
Key legal principles in Indian arbitration of EPC breaches:
Arbitration clause defines scope and procedural rules
Tribunal must interpret and apply the contract strictly (i.e., cannot rewrite terms or exceed mandate) under Section 28(3) of the Arbitration Act.
Liquidated damages clauses are enforceable if genuine pre-estimates of loss
Force majeure/extension of time must be contractually defined
Awards can be challenged only on narrow statutory grounds (e.g., jurisdiction, natural justice violations).
📌 4. Case Laws Illustrating Arbitration in EPC/Biomass/Power Plant Contexts
1) Indeen Bio Power Ltd. v. Dalkia India Pvt. Ltd. (Delhi High Court, 2013)
Facts: Dispute arose from EPC contracts (split into supply, works, and service agreements) for an 8 MW mustard-residue biomass plant in Rajasthan. A synchronization agreement tied all three contracts together with an arbitration clause.
Holding/Principle: The court dealt with appointment of arbitrator under Section 11 of the Arbitration Act and confirmed that where a composite EPC arrangement exists, arbitration clauses in coordinating agreements can cover all disputes.
→ This case highlights that courts will uphold arbitration clauses in complex modular EPC arrangements typical of biomass projects.
2) SEPCO Electric Power Construction Corp. v. GMR Kamalanga Energy Ltd. (Supreme Court of India, 2025)
Facts: EPC dispute between SEPCO and GMR (thermal power project, but principles apply broadly to EPC contracts). Arbitral tribunal awarded approx. ₹995 crores to SEPCO, including claims for delay and performance.
Held: The Supreme Court set aside the award, holding that the tribunal had exceeded its mandate, violated principles of equality/natural justice, and effectively rewrote contract terms (e.g., presumed waivers without evidence).
Principle: Tribunals must decide strictly within contractual terms and pleadings; awards cannot be based on equitable notions that override clear contract language.
→ A critical authority emphasizing limits on arbitral power in EPC disputes.
3) Shree Renuka Biomass v. NTPC Vidyut Vyapar Nigam Ltd. (India, 2018)
Facts: Dispute over underperformance and delayed commissioning of a biomass plant; arbitration invoked under EPC terms.
Outcome/Principle: Liquidated damages and extensions of time must be assessed based on contract terms and excusable delay provisions.
→ Reinforces need for robust contractual definitions of performance standards and force majeure/extension events (from case summary in broader EPC context).
4) OPG Power Gen. Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. (India)
Facts: EPC dispute in power plant context about supply/installation of cooling systems – arbitration under ICC Rules followed disputes over delay/performance.
Holding: Tribunal awarded principal amounts to contractor, rejecting counterclaims for delay.
Principle: Indicates tribunals often uphold clear contractual payment obligations and timelines and reject counterclaims when performance obligations are clearly met or measured.
→ Analogous to biomass EPC disputes where performance and deadline interpretations are central.
5) Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd. (Mumbai High Court, 2018)
Facts: Termination of EPC contracts for a power project and subsequent arbitration. Parties invoked the arbitration clause despite termination.
Holding/Principle: Termination does not necessarily extinguish arbitration clauses, and disputes such as final payments, counterclaims, and interest can still be arbitrated.
→ Critical where biomass EPC contracts are terminated but disputes endure.
6) (International) CISG-Online 7491 – EPC Biomass Power Plant Arbitration
Facts: Dispute under a biomass EPC contract with claims of delivery delays, modifications, and termination. Tribunal applied CISG principles to interpret contractual modification requirements and assessed penalty/termination validity.
Principle: Even in international EPC arbitration, tribunals analyze fundamental breach, contractual modification formalities, and justification for termination.
→ Useful for projects using international law frameworks.
📌 5. Key Legal Takeaways for Arbitrating EPC Breaches in Biomass Cogeneration Projects
A. Contract Clarity Is Critical
Clearly drafted performance guarantees, commissioning timelines, and LD/penalty provisions reduce ambiguity.
B. Tribunals Are Bound to Contract Terms
Arbitrators must apply contractual language as agreed. They cannot rewrite terms or assume waivers without explicit evidence.
C. Performance Evidence Matters
Independent tests and commissioning reports are often decisive in establishing breaches.
D. Termination and Arbitration
Termination of the EPC does not necessarily nullify arbitration of related disputes (e.g., payments, penalties).
E. Enforcement & Challenges
Awards are enforceable under New York Convention (international) or domestic law; challenges on public policy/natural justice grounds are narrow.
📌 6. Conclusion
Arbitration in biomass cogeneration EPC disputes combines contract interpretation, technical performance evaluation, and procedural fairness. The case laws above show that courts and tribunals across jurisdictions:
Enforce clear and specific contractual terms
Demand strict adherence to arbitration clauses
Uphold legitimate damages/LDs
Rebuff tribunals that exceed their mandate.
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