Arbitral Tribunal Cannot Rewrite Contract Terms Or Grant Specific Performance By Supplanting Agreed Sequence: Supreme Court Upholds Setting Aside Of Award Under Section 28(3) & 34 Arbitration Act

"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," Supreme Court.

Emphasizing that an arbitral tribunal is statutorily bound to decide disputes in strict adherence to contractual terms and cannot substitute agreed terms with its own fancies, the Supreme Court on October 29, 2026, upheld a Bombay High Court decision setting aside a majority arbitral award that had granted specific performance of a complex development agreement.

A Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva ruled that by altering the sequence of obligations, ignoring time-bound payment defaults, fabricating an unexplained sixfold price escalation, and granting alternate damages not contemplated under the contract, the majority award committed patent illegality and violated Section 28(3) of the Arbitration and Conciliation Act, 1996.

The dispute originated from an 'Agreement for Development' executed on August 6, 2003, between the appellant developer, Shreeram Builders, and the respondent landowners for developing a 2/9th undivided share in three land parcels situated in Thane. Following continuous payment delays and non-procurement of municipal sanction, the respondents terminated the agreement on April 9, 2008, triggering arbitration where a majority arbitral award treated the pact as an agreement to sell, enhanced consideration sixfold, and decreed specific performance. The Bombay High Court, exercising appellate jurisdiction under Section 37, set aside the majority award on the ground that the tribunal committed a jurisdictional error by rewriting the contract in direct violation of Section 28(3) of the Act.

Whether an arbitral tribunal has the jurisdiction to rewrite express contractual terms regarding sequential performance, fluid consideration, and time-bound payment schedules without violating Section 28(3) of the Arbitration and Conciliation Act, 1996?

Whether an arbitral award that directs specific performance and alternative damages by ignoring contractually superseded MoUs and unilateral inclusion of non-parties' property is patently illegal under Section 34 of the Act?

Whether the Supreme Court, while upholding the setting aside of an arbitral award, can exercise its plenary powers under Article 142 of the Constitution of India to direct refund of the consideration received along with interest to prevent multiplicity of litigation?

Contractual Nomenclature Subordinate To Actual Rights And Obligations

The Supreme Court observed that the nomenclature of an agreement is never decisive of its real legal character, holding that courts and tribunals must look at the substantive rights and obligations created thereunder. Rejecting the High Court’s reliance on the payment of 1% stamp duty as proof of a development contract, the Bench underscored the precedent laid down in Sasan Power Limited v. North American Coal Corporation (India) Limited to reiterate that the contents and bargain determine the nature of the transaction.

Section 37 Appellate Powers Coterminous With Section 34 Annulment Jurisdiction

Reaffirming the Constitution Bench ruling in Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court noted that the appellate jurisdiction under Section 37 is coterminous with Section 34 of the Act. Because the Section 34 applications were instituted prior to October 23, 2015, the unamended legal regime applied, permitting judicial interference if an award violates the fundamental policy of Indian law, shocks the judicial conscience, or exhibits patent illegality going to the root of the matter.

Tribunal Cannot Obliterate Express Time-Bound Obligations And Sequential Precedents

The Bench pointed out that the majority arbitral award erroneously approached the dispute as if it were a routine civil suit for specific performance rather than an arbitration constrained by Section 28(3). The agreement explicitly made time the essence for payment of instalments by March 1, 2008, and tied the execution of the conveyance deed to full settlement of consideration and project completion. The tribunal erred in concluding that the mere acceptance of belated initial instalments cured subsequent extensive defaults and entirely wiped out the time stipulations of the contract.

Unilateral Alteration Of Undetermined Consideration Violates Public Policy

The Court highlighted that the consideration payable remained fluid under Clauses 3, 4, and 20 of the agreement, being linked to municipal plan sanction, adverse possession regularization, and basement construction. In the absence of a sanctioned plan, the consideration remained indeterminate, yet the arbitral majority unlawfully fixed an arbitrary rate of ₹5,490 per square foot—six times the agreed rate of ₹915—without any rationale or computation, thereby creating an entirely new commercial bargain for the parties.

Inclusion Of Third-Party Property And Awarding Alternative Damages Constitutes Patent Illegality

The Bench observed that the arbitral majority committed further patent illegality by directing conveyance of excluded bungalow properties without the remaining 7/9th co-owners being parties to the arbitration. The tribunal also adjusted monies paid under a superseded Memorandum of Understanding in teeth of Clause 51, and awarded alternative damages of ₹23.21 crores despite the contract containing no provision for damages. The Court held that granting alternative damages in the event a specific performance award is set aside defies established arbitral jurisprudence and contravenes public policy.

Plenary Powers Invoked Under Article 142 To Direct Refund With 9% Interest

While affirming the High Court's order setting aside the award, the Bench found that the respondent landowners had failed to comply with Clause 54, which mandated the immediate refund of consideration upon termination. Exercising its plenary powers under Article 142 of the Constitution to do complete justice and preclude fresh litigation, the Supreme Court directed the respondents to return all amounts received from the appellant developer along with simple interest at the rate of 9% per annum calculated from the date of each respective payment until actual realization.

Disposing of the appeals, the Supreme Court upheld the Bombay High Court's judgment setting aside the majority arbitral award and ordered the respondents to refund all received consideration to the appellant with 9% simple interest per annum, while ordering the release of deposited court funds with accrued interest.

Date of Decision: October 29, 2026

Case Title: Shreeram Builders v. Upendra Kantilal Thanawala and Others | Civil Appeal Nos. 9817-9818 of 2024

Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva