SC – Arbitrator Cannot Rewrite Contract for Award of Specific Performance of Agreement
Judgment dated 29.10.2026 of the Supreme Court in Civil Appeal Nos.9817-9818 of 2024 of Shreeram Builders Vs. Upendra Kantilal Thanawala and others
Clause 61 of the Development Agreement dated 6.8.2003 between the appellants and the respondents provided for settlement of disputes between the parties for arbitration.
The agreement was terminated by the notice dated 2.4.2008.
By the Award dated 10.12.2011, the majority of the Arbitral Tribunal held in favour of the appellant and its partners – claimants. It was held that the appellants are entitled to specific performance of the agreement on deposit of Rs.10.91 crores, execution of the sale deed.
By the application under Section 33(4) filed in 2012 after delay of 27 days,, the respondents for additional award on the ground that the majority award failed to consider clauses 1 and 3 of the agreement while quantifying the amount payable by the appellants. The majority of the Arbitral Tribunal dismissed the application on the ground of limitation.
Both the parties filed section 34 petitions in the Court of Principal District Judge, Thane. The learned Judge held in favour of the appellants and dismissed the petition of the respondents. The High Court remanded the matter to the Principal District Judge for fresh consideration.
However, the Principal District Judge dismissed both the applications.
By the judgment dated 5.3.2024, the High Court allowed petition of the respondents and quashed the majority arbitral award.
Further, the agreement did not provide for any claim being made by either side towards damages, liquidated or unliquidated. Though both sides raised claims in this regard before the arbitral tribunal, be it termed as damages or as compensation, it ought to have been noted that the agreement did not speak of any such relief being granted to either of them. The award of damages to the appellant in the majority award was, therefore, without foundation. Further, the grant of such relief, in the alternative, if the relief of specific performance was set aside, is contrary to the established tenets applicable to an arbitral award and was, therefore, opposed to public policy, as rightly noted by the High Court.
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. Their approach was clearly at variance with the edicts of this Court as to interpretation of the underlying contract. Their award, therefore, ought not to have granted the relief of specific performance to the appellant and its partners, by holding them entitled to execution of a deed of conveyance for the 2/9th share of the respondents, in total derogation of the agreement terms. These were the 53 aberrations in the majority award that weighed with the High Court while exercising appellate jurisdiction under Section 37 of the Act of 1996. Though the High Court also went into the issue as to whether the subject agreement was an agreement to sell or was merely for development, that exercise was not necessary, in the light of the correct finding by the High Court that Section 28(3) of the Act of 1996 stood violated by the rewriting of the contract in the majority award. In essence, the judgment dated 05.03.2024 passed by the High Court gave effect to the settled principle of law that it is not open to an arbitral tribunal to do so. 62. However, we may note one other crucial fact at this stage. Though the respondents attributed breach of the agreement to the appellant to justify its termination by way of their legal notice dated 09.04.2008, there is no denying the fact that they themselves failed to abide by Clause 54 of the agreement. Clause 53 thereof recorded that, in the event of there being any default in payment of amounts within time, the agreement would come to an end and the rights given to the appellant would automatically stand terminated. In the event of this clause having application, Clause 54 stated to the effect that if no construction was made by then on the 2/9th share of the respondents, they would be liable to pay back the amount paid towards consideration only, without interest. The respondents, therefore, had to return the consideration paid by the appellant, as no construction was made on their 2/9th share. It was not open to them to 54 55 retain the said amount when they wished to retract from the agreement. Therefore, though we find no grounds to uphold the majority award for the reasons aforestated, we deem it appropriate to exercise jurisdiction under Article 142 of the Constitution, so as to do complete justice instead of relegating the parties to a fresh round of litigation on this issue. Further, we may note that the ‘no-interest’ condition would have applied had the respondents returned the monies on 09.04.2008, when they terminated the agreement, but they failed to so and retained the same till date. It would only be fair that they do so now with 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.
