The Supreme Court of India has upheld the Bombay High Court’s decision setting aside an arbitral award that directed Shreeram Builders to pay a revised consideration for acquiring a share in a property in Thane. The Court held that arbitrators cannot replace contractual terms with conditions of their own. However, it directed the property owners to refund the money received, with 9% annual interest.
Background
The dispute arose from an Agreement for Development dated August 6, 2003. It was signed between Shreeram Builders and Upendra Kantilal Thanawala and others, and covered their 2/9th share in land at Panchpakhadi, Thane. The price was ₹915 per square foot for an estimated 25,000 square feet of FSI (floor space index, the buildable area allowed on a plot), totalling ₹2,28,75,000.
The landowners terminated the agreement in April 2008, and the dispute went to arbitration. In December 2011, a majority award declared the termination illegal and granted specific performance. It directed the builders to pay ₹10,91,30,164 and the landowners to execute a sale deed. The Principal District Judge, Thane, upheld the award, but the High Court set it aside on March 5, 2024.
A Bench of Justices Sanjay Kumar and Sanjeev Sachdeva said it was not essential to decide whether the document was a development agreement or an agreement to sell. What mattered was the order in which the parties had to perform their obligations.
The Court noted that the full payment was not made by March 1, 2008. The total price also stayed open to change because the builder never obtained a sanctioned plan. Under the agreement, the sale deed was to be executed only after all dues were paid.
The Court also found that the majority award had adjusted payments linked to an earlier MoU that the agreement had superseded. It had adopted a rate of ₹5,490 per square foot, six times the agreed rate, without giving reasons. It had included part of the property meant to be excluded and had granted alternative damages that the agreement did not provide for. The Court said:
“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.”
The Court agreed with the High Court that Section 28(3) of the Arbitration and Conciliation Act, 1996 was violated, and it did not restore the award. However, it noted that the landowners had kept the money paid to them even after terminating the agreement. It observed:
“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 retain the said amount when they wished to retract from the agreement.”
The respondents must now refund all amounts received, with 9% simple interest from the date of each payment until actual refund. The builder’s deposits lying with the courts may also be returned with accrued interest.
The appeals were disposed of, with parties bearing their own costs.
Case Details
Case Title: Shreeram Builders v. Upendra Kantilal Thanawala and Others
Case Number: Civil Appeal Nos. 9817–9818 of 2024
Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva
Decision Date: October 29, 2026
