SC Sets Aside Majority Arbitral Award, Holds Tribunals Cannot Rewrite Contractual Terms, and Orders Refund of Consideration With Interest

In a judgment delivered on October 29, 2026, the Supreme Court of India ha dismissed the appeals filed by the developer, affirming the Bombay High Court’s decision under Section 37 of the Arbitration and Conciliation Act, 1996, which had set aside a majority arbitral award. Justice Sanjay Kumar, speaking for the bench, held that the arbitral tribunal committed patent illegality and violated Section 28(3) of the Act of 1996 by rewriting the terms of the agreement, creating new financial rates, ignoring mandatory sequence of obligations, and granting un-pleaded reliefs.

Background

• The Agreement: On August 6, 2003, an agreement titled “Agreement for Development” was executed between five members of the Thanawala family (“Vendors”) and Shreeram Builders (“Purchaser/Developers”) in respect of a 2/9th undivided share in three adjoining parcels of land ad measuring 16,414.23 square yards at Village Panchpakhadi, Thane, Maharashtra.
• Termination and Arbitration: The total consideration was pegged at 2,28,75,000/- based on a projected FSI area of 25,000 square feet. Following disputes regarding delayed payments and non-procurement of sanctioned building plans, the Thanawalas terminated the agreement via a legal notice dated April 9, 2008. The parties referred the dispute to a three-member arbitral tribunal comprising an umpire and two retired judges.
• The Majority Award vs. Appellate Rulings:
  • On December 10, 2011, the majority award ruled in favour of the developer, declaring the termination illegal and directing specific performance upon payment of a recomputed balance consideration of 10,91,30,164/-, while also granting an alternate award for damages of over 23 crores.
  • After initial remand rounds and concurrent upholding by the District Judge, the Bombay High Court, vide judgment dated March 5, 2024, set aside the majority award, holding it to be in direct contravention of Section 28(3) and violative of the fundamental policy of Indian law.

Supreme Court’s Analysis

1. Scope of Interference Under Unamended Section 34

• The Supreme Court reiterated that under the unamended Section 34 of the Act of 1996 (governing applications filed prior to October 23, 2015), an award can be set aside if it is contrary to the fundamental policy of Indian law, justice, morality, or is patently illegal.
• Citing benchmarks from Associate Builders, Ssangyong Engineering, and OPG Power Generation, the Court emphasised that while an arbitrator’s plausible interpretation of contract terms is final, an award that goes contrary to the express terms or rewrites the contract is patently illegal and perverse.

2. Rewriting the Contract and Violation of Section 28(3)

The Supreme Court highlighted multiple fundamental errors and jurisdictional overreaches in the majority award:

• Indeterminate Consideration and Preconditions: The agreement explicitly linked the final consideration to future variables (such as municipal plan sanctions, FSI modifications, regularization of adverse possession, and basement construction) and conditioned conveyance execution on full payment and completion. The arbitral tribunal could not freeze or guess these figures prematurely.
• Fabrication of New Rates: The agreement stipulated 915/- per square foot for FSI area. Without any logical basis or computation, the majority award arbitrarily multiplied this rate sixfold to 5,490/- per square foot, effectively creating a new commercial bargain for the parties.
• Inclusion of Excluded Property: The agreement expressly shielded the family bungalow, surrounding gardens, and Room No. 1 in Chawl No. 1. The majority award improperly included portions of this excluded property within the scope of the conveyance deed.
• Reviving Superseded Claims: Clause 51 of the agreement mandated that all prior understandings, including a 2002 MoU, stood superseded and forfeited. Despite this, the majority award credited payments made under the defunct MoU (such as 19,50,000/- to Kantilal).
• Contradictory Alternative Reliefs: Granting specific performance while simultaneously awarding an alternative of 23+ crores in damages displayed a total lack of judicial approach.

3. Mutual Default and Equitable Restitution Under Article 142

• While the developer failed to adhere strictly to payment schedules and obtain sanctioned plans, the Thanawalas also breached Clause 54 by terminating the contract yet retaining the substantial consideration monies paid by the developer without returning them.
• Invoking powers under Article 142 of the Constitution to do complete justice and prevent a fresh round of litigation, the Court ruled that the Thanawalas could not unjustly enrich themselves by retaining the advance consideration.

Final Relief and Directions

• Appeals Dismissed: The appeals filed by Shreeram Builders were dismissed, upholding the setting aside of the majority arbitral award.
• Refund of Consideration: In exercise of powers under Article 142, the Supreme Court directed the Thanawala respondents to refund all amounts received under the agreement to the appellant developer, carrying simple interest at 9% per annum from the date of each respective payment until actual realization.
• Release of Court Deposits: Any amounts deposited by the appellant developer in connection with the litigation are to be returned along with accrued interest, if any. Parties were ordered to bear their own costs.

Citation: Shreeram Builders v. Upendra Kantilal Thanawala (2026 INSC 1176)