The Supreme Court of India has definitively settled a protracted legal battle involving a 2003 land development agreement, ruling that an arbitral tribunal acted beyond its jurisdiction by rewriting contractual terms. A Division Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva dismissed the appeal filed by Shreeram Builders, effectively upholding the Bombay High Court's decision to set aside an arbitral award that had previously granted the developer specific performance.

The dispute centered on an "Agreement for Development" executed on August 6, 2003, between Shreeram Builders and a landowning family regarding an undivided 2/9th share in prime land located at Village Panchpakhadi, Thane. While the majority of a three-member arbitral tribunal—led by former judge Justice S.D. Pandit—had declared the landowners' 2008 termination of the agreement illegal and directed the execution of a sale deed, the Supreme Court found this award fundamentally flawed. The Bench concluded that the arbitrators had disregarded the clear, sequential obligations established by the parties, essentially creating a new contract that neither side had signed.

"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," the Supreme Court noted. This judicial intervention serves as a strong signal to arbitral tribunals that they cannot depart from the substantive terms of a contract under the guise of interpretation.

Contractual Sequence and Judicial Limits

The Court highlighted that the agreement set out a specific, binding order for the performance of obligations. Crucially, the final consideration payable to the landowners was fluid, contingent upon future events such as the municipal sanctioning of building plans and the potential regularization of adverse possession. Because Shreeram Builders had failed to secure these necessary municipal approvals, the total consideration remained indeterminate. Under the original agreement, the execution of a conveyance deed was explicitly linked to the full payment of all amounts due. By ordering the execution of the sale deed despite these unmet conditions, the arbitral tribunal bypassed the contract’s own requirements.

Furthermore, the Court found the tribunal’s calculation of the sale price to be arbitrary. The arbitrators had unilaterally increased the agreed-upon rate of ₹915 per square foot to ₹5,490 per square foot—a sixfold increase—without offering any rational basis or computational logic. This, combined with the tribunal's attempt to adjust payments from a superseded Memorandum of Understanding, led the Supreme Court to agree with the High Court that the award suffered from "patent illegality." The Bench reiterated that Section 28(3) of the Arbitration and Conciliation Act, 1996, mandates that tribunals must decide cases in accordance with the terms of the contract and trade usages; failing to do so renders an award amenable to challenge.

Rejection of Alternative Relief and Public Policy

Beyond the specific performance issue, the Court scrutinized the arbitral award’s alternative grant of damages. The developer had sought nearly ₹41.46 crore in damages as a fallback position. The Supreme Court observed that the underlying agreement contained no provisions for such damages. By awarding them, the tribunal violated fundamental principles of public policy. The Bench noted that the inclusion of property excluded from the original agreement—specifically the bungalow, gardens, and chawl rooms—within the scope of the directed sale deed further demonstrated an overreach that prejudiced the rights of co-owners who were not even parties to the arbitration.

The legal clarity provided by the Court confirms that while Section 37 of the Arbitration and Conciliation Act offers appellate recourse, the scope of judicial review in setting aside an award remains rooted in ensuring that the arbitration process does not result in an unfair or irrational outcome that " shocks the conscience of the court ."

Final Directions Under Article 142

Despite ruling against Shreeram Builders on the merits of specific performance, the Supreme Court invoked its plenary powers under Article 142 of the Constitution to ensure complete justice between the parties. It observed that the landowners had terminated the agreement in 2008, yet they had retained the substantial sums already paid by the builder without initiating a timely refund, despite Clause 54 of the agreement explicitly requiring the return of such funds in the event that no construction had taken place on the disputed land.

To resolve the matter without relegating the parties to yet another cycle of litigation, the Supreme Court ordered the landowners to refund all amounts received from Shreeram Builders with simple interest at 9% per annum from the date of each payment until the date of actual refund. Additionally, the Court directed the return of all deposits made by the developer into the District Judge's court in Thane, along with any accrued interest. By disposing of the appeals in this manner, the Court has effectively closed the curtain on a dispute that began more than two decades ago, underscoring that while builders must strictly adhere to development timelines and payment schedules, landowners cannot retain payments received under a contract they have formally terminated. All parties are to bear their own costs in the matter.