Supreme Court Voids Arbitrators' Land Award, Builder Gets Refund, Not the Property

3 days ago

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NEW DELHI: The Supreme Court on Thursday set aside a majority arbitral award that had ordered a Maharashtra land-owning family to convey its 2/9th share in a city plot to Shreeram Builders at six times the price written into the contract, holding that arbitrators cannot rewrite the bargain the parties signed. The builder, who was promised the land and had already paid roughly ₹1.87 crore of a ₹2.28 crore deal, does not get the property. It gets its money back, with simple interest at 9% per annum from the date of each payment.

A Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva held that the two arbitrators who made the majority award had "completely supplanted" the express terms of the 2003 agreement "with new terms, as per their own fancies", in violation of Section 28(3) of the Arbitration and Conciliation Act, 1996. The Court upheld the Bombay High Court's decision to strike the award down, but used Article 142 of the Constitution to order a refund so that the parties were not sent into another round of litigation.

Case at a Glance

Case Title: Shreeram Builders v. Upendra Kantilal Thanawala and Others
Case No.: Civil Appeal Nos. 9817-9818 of 2024
Citation: 2026 INSC 1176
Bench: Justice Sanjay Kumar (author) and Justice Sanjeev Sachdeva
Date of Judgment: 29 October 2026
Challenged: High Court judgment dated 05.03.2024 setting aside a majority arbitral award under Section 37 of the Arbitration and Conciliation Act, 1996
Outcome: Award not restored; respondents directed to refund all amounts received with 9% simple interest; parties to bear their own costs

The Question Behind the Headline: Who Walks Away With the Land?

Nobody gets a decree for the land. The Supreme Court agreed with the High Court that the majority award could not survive scrutiny under Section 34 of the Act, as it then stood. But because the respondents had themselves failed to follow Clause 54 of the agreement, which required them to repay the consideration if the contract ended without any construction on their share, the Court did not leave the builder empty-handed. The sections below explain how the case got there.

Background: A Development Agreement That Behaved Like a Sale

The Agreement of 6 August 2003

The Thanawala family owned an undivided 2/9th share in a plot, while the remaining shares belonged to other owners. By an agreement dated 06.08.2003, titled "Agreement for Development", Shreeram Builders and its partners undertook to develop the property. The estimated consideration for the family's share was ₹2,28,75,000, worked out at ₹915 per square foot on a projected floor space index (FSI) area of 25,000 square feet. Earnest money of ₹55,00,000 was admittedly paid, and the balance of ₹1,73,75,000 was payable in ten instalments of ₹17,37,500 each.

The agreement excluded the family's bungalow, the gardens in front of and behind it, and Room No. 1 in Chawl No. 1. Clause 51 superseded all earlier arrangements, including a memorandum of understanding dated 15.03.2002. Clauses 63 and 64 stated that payment of instalments on the due dates, and time itself, were of the essence. Clause 61 sent disputes to arbitration, with each side appointing one arbitrator.

What Went Wrong With the Payments

The first instalment fell due on 30.04.2005 and the last was to be cleared by 01.03.2008. The builder paid the first six instalments late, between two and fifty days after their due dates, and the family accepted them without protest. For the seventh, eighth and ninth instalments, cheques were offered on 10.10.2007 and 27.03.2008, but the family returned them on 16.04.2008. The tenth instalment of ₹17,35,500 was never tendered. In the meantime, the family terminated the agreement by a legal notice dated 09.04.2008. The builder also never obtained a sanctioned building plan, so the contractual payment modes tied to a commencement certificate or a sanctioned plan never became available.

What the Majority Award Granted

By a majority, the arbitral tribunal held that the agreement was in substance an agreement to sell, not merely a development agreement, and that the termination was invalid. It granted specific performance on payment of ₹10,91,30,164. To get there, it asked the builder to pay six times the contractual rate, that is ₹5,490 per square foot instead of ₹915, for a total of ₹13,72,75,000, from which it deducted the amounts paid and added interest adjustments. It also awarded, in the alternative, damages of ₹23,21,19,892 in case the specific performance relief was reversed. The family's counter-claim of ₹110,70,00,000 with ₹20,00,000 in costs was rejected for want of supporting material.

The Journey Through the Courts

The Principal District Judge, Thane, confirmed the award under Section 34. On appeal under Section 37, a learned Judge of the High Court set it aside by a judgment dated 05.03.2024. The High Court found that the award violated Section 28(3), that three conditions precedent to a conveyance had not been met, that the consideration remained variable and undetermined, that granting alternative damages offended the fundamental policy of Indian law, and that the builder lacked readiness and willingness. Both sides then reached the Supreme Court.

What the Supreme Court Held

Scope of Review: Section 37 Is as Wide as Section 34

Relying on the Constitution Bench decision in Gayatri Balasamy v. ISG Novasoft Technologies Limited ((2025) 7 SCC 1), the Court reiterated that appellate jurisdiction under Section 37 is coterminous with, and as broad as, the Court's jurisdiction under Section 34. The High Court was therefore entitled to test the award afresh, even though the District Judge had already confirmed it.

Because both sides had filed their Section 34 applications long before 23.10.2015, the Court held that the unamended Section 34 governs, following Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India ((2019) 15 SCC 131) and BCCI v. Kochi Cricket Private Limited ((2018) 6 SCC 287).

The Tests for Interfering With an Award

The Court surveyed the settled grounds on which an award may be set aside as contrary to public policy: the fundamental policy of Indian law, the interest of India, justice or morality, and patent illegality going to the root of the matter. It also revisited the principle that a plausible interpretation of the contract by the arbitrator must be respected, while an award that decides against the express terms of the contract is patently illegal. The Court noted that an arbitral tribunal must decide in accordance with the terms of the contract under Section 28(3), as reiterated in OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited and SEAMEC Limited v. Oil India Limited.

The Majority Award Treated an Arbitration Like an Ordinary Suit

The Court found the "fundamental error writ large" in the majority award was that it handled the dispute as a regular suit for specific performance of an agreement to sell, rather than as an arbitration under a contract that prescribed a binding sequence of performance. That approach, it said, continued even in the arguments before the Supreme Court.

"The fundamental error writ large in the majority award is that it dealt with the matter as if it was a regular suit for specific performance of an agreement to sell and not as an arbitration arising out of a contract that visited obligations upon the parties thereto with a binding sequence as to how they were to perform their respective parts."

Label or No Label, the Agreement Had a Sequence

The Court observed that the agreement did not conform to the typical prototype of a development agreement, in which a landowner expects a share in the built-up area or sale proceeds. Here the family "literally washed their hands off the whole project" and were to be paid a price linked to the FSI. Yet, the Court said, whether the document was classed as a development agreement or an agreement to sell was not essential. What mattered was that its terms required the parties to perform their obligations in a particular order, and the award had to honour that order.

The Price Was Not Fixed, and the Payments Were Not Complete

The Court held that the total consideration had never been fully determined. It stayed linked to the sanctioned plan and total FSI, to additional FSI if the family's alleged adverse possession was regularised (at ₹450 per square foot), and to a ₹5,00,000 payment if basements were built. The conveyance deed was to follow only after all amounts were paid, yet even the estimated consideration of ₹2,28,75,000 had not been paid by 01.03.2008. A conveyance could not be directed while the contract's own conditions remained unmet.

On the late instalments, the Court drew a careful line. Because the family never issued a notice under Clause 7 and accepted the first six instalments without protest, those delays stood cured. But that did not wipe out the time stipulation or the repeated clause that time was of the essence. Otherwise, the family would be bound to accept payment whenever the builder chose to make it, which the Court said "was never the intention of the parties".

Six Times the Price, With No Reasons

The Court called the direction to pay ₹5,490 per square foot "completely beyond the scope of the agreement" that "defied logic". The contract stipulated ₹915 per square foot, and ₹450 for the extra FSI area. It was not for the two arbitrators to invent a new rate, and no computation or reasoning was offered for why the rate was multiplied by six.

"Thus, the two learned arbitrators not only construed the express terms of the agreement contrarily but completely supplanted them with new terms, as per their own fancies."

Three More Defects the Court Flagged

Excluded property dragged in: The agreement left out the bungalow, gardens and Room No. 1 in their entirety. The majority award excluded only the family's 2/9th share in that property, thereby pulling the rest into the proposed conveyance, even though the owners of the remaining 7/9th share were not before the tribunal.
Superseded MoU and unrelated payments counted: Clause 51 had wiped out rights under the earlier MoU of 15.03.2002, yet the award adjusted ₹13,18,334 for a payment said to have been made under it, and ₹26,222 for a dues payment to Gujarat Financial Corporation.
Damages without foundation: The agreement provided for no damages, liquidated or unliquidated. Awarding damages in the alternative, in case the specific performance relief was set aside, was contrary to the established tenets of arbitral awards and opposed to public policy.

The Court also said the High Court's reliance on Ramabai Shriniwas Nadgir v. Government of Bombay to ignore the family's admission in an earlier suit was misplaced. That discussion proved unnecessary to the outcome, since the Section 28(3) violation was enough to uphold the High Court's order.

Why the Court Still Ordered a Refund

The Court noted one more crucial fact. The family had alleged breach by the builder to justify the termination, but it had itself failed to abide by Clause 54. Under Clauses 53 and 54, if the agreement ended on default and no construction had been made on the family's share, the family had to repay the consideration it received. The family never returned the money when it terminated the contract on 09.04.2008, and kept it for years.

The Court therefore held that although it found no ground to uphold the majority award, it was appropriate to exercise jurisdiction under Article 142 to "do complete justice instead of relegating the parties to a fresh round of litigation". It noted that the no-interest condition in Clause 54 would have applied only if the money had been returned on 09.04.2008, and said it would be fair that the respondents now pay reasonable interest.

"We, accordingly, direct the respondents to return the amounts paid to them under the agreement with simple interest thereon @ 9% per annum from the date of each payment made by the appellant till the date of actual refund. Further, the appellant's amounts lying in deposit with the Courts may also be returned, along with the interest accrued thereon, if any."

The builder had deposited ₹41,11,744 with the District Judge's Court at Thane on 15.07.2017, and that sum can now be returned with accrued interest. The appeals were disposed of on these terms, with the parties bearing their own costs.

What This Means Going Forward

Arbitrators must stay inside the four corners of the contract. If the agreement fixes a rate, a sequence of performance and conditions precedent, a tribunal cannot replace them with its own sense of fairness.
How a document is labelled matters less than what its clauses require the parties to do, and in what order. A tribunal that skips the contractual sequence risks having its award set aside as patently illegal.
Courts hearing appeals under Section 37 have the same breadth of review as under Section 34, so a confirmation by the District Judge does not insulate an award.
Where an award fails on public policy grounds, the Supreme Court may still use Article 142 to craft a practical remedy, such as a refund with interest, rather than send parties back to square one.
Drafters should spell out refund, interest and time-of-essence clauses clearly, since the fallout of a failed development or sale arrangement will be decided on those words.

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Frequently Asked Questions

Did the Supreme Court uphold the arbitral award in Shreeram Builders v. Upendra Kantilal Thanawala?

No. The Supreme Court held that the majority award could not be upheld and agreed with the High Court that it violated Section 28(3) of the Arbitration and Conciliation Act, 1996, because the arbitrators rewrote the contract's terms.

Can an arbitral tribunal change the price or other terms of a contract?

No. Section 28(3) requires a tribunal to decide in accordance with the terms of the contract. Replacing a contractual rate of ₹915 per square foot with ₹5,490 per square foot, as the majority award did, was held to be beyond the scope of the agreement and without any reasoning.

Why did the Court order a refund when it refused to enforce the award?

Under Clause 54 of the agreement, the family had to repay the consideration if the agreement ended without construction on their share. Since they never returned the money, the Court used Article 142 to direct a refund with 9% simple interest from the date of each payment, rather than force a fresh round of litigation.

Which version of Section 34 applied to this case?

The unamended Section 34 applied, because both parties filed their applications before 23.10.2015, the date from which the 2015 amendment applies to Section 34 applications.

Is the High Court's power under Section 37 narrower than under Section 34?

No. Relying on the Constitution Bench in Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court held that appellate jurisdiction under Section 37 is coterminous with, and as broad as, the jurisdiction under Section 34.

Keywords

Shreeram Builders v. Upendra Kantilal Thanawala, 2026 INSC 1176, Supreme Court arbitral award set aside, Section 28(3) Arbitration and Conciliation Act, Section 34 patent illegality, Section 37 appeal, arbitrators cannot rewrite contract, development agreement versus agreement to sell, Article 142 refund with interest, Gayatri Balasamy, Justice Sanjay Kumar, Justice Sanjeev Sachdeva

Case Title: Shreeram Builders v. Upendra Kantilal Thanawala and Others

Case No.: Civil Appeal Nos. 9817-9818 of 2024

Citation: 2026 INSC 1176

Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva

Download the Judgment (PDF): Shreeram Builders v. Upendra Kantilal Thanawala, 2026 INSC 1176

Source: Judgment shared on Google Drive