Developer Loses ₹2.31 Crore Compensation As Karnataka HC Upholds Set-Aside: Costs Of Unapproved Layout Work Didn’t Prove Landowners Benefited

The parties entered into development agreements for residential layouts. The agreements placed responsibility for obtaining statutory approvals and carrying out development on the developer. After the landowners terminated the agreements, the developer sought specific performance or, alternatively, monetary compensation.

The arbitral tribunal refused specific performance but awarded compensation under Section 64 of the Contract Act, based principally on the developer’s expenditure. The Commercial Court dismissed the developer’s Section 34 challenges to the refusal of specific performance, but allowed the landowners’ challenges and set aside the compensation award. The developer appealed under Section 37 of the Arbitration and Conciliation Act, 1996.

Under Sections 34 and 37 of the Arbitration and Conciliation Act, courts do not reappreciate evidence or substitute their view for a plausible arbitral interpretation; interference is confined to statutory grounds, including patent illegality in a domestic award, which must go to the root of the matter.

The Court relied on Ssangyong Engineering and Construction Co. Ltd. v. NHAI, which construes the public-policy ground narrowly, and Delhi Airport Metro Express Pvt. Ltd. v. DMRC, which recognises patent illegality where, among other things, an award rests on no evidence, ignores vital evidence, or adopts a view that is not even plausible.

Section 64 of the Contract Act requires a party rescinding a voidable contract to restore, so far as may be, a benefit received under it; proof of the other party’s expenditure alone does not establish such a benefit.

Sections 70 and 73 were also considered by the tribunal: Section 70 was held inapplicable to the express-contract circumstances, and Section 73 was unavailable because the landowners were not found to have breached the agreements.

The tribunal’s refusal of specific performance rested on the agreements’ express allocation of responsibility for obtaining approvals to the developer, the director’s admission that no fresh or renewed layout approval had been obtained, and the failure to establish that delay resulted from the landowners’ conduct. That conclusion was a plausible view of the evidence and did not justify appellate interference.

As to compensation, however, the tribunal quantified the developer’s expenditure without independently determining whether the landowners had received a benefit, or its nature, extent, or value. Evidence that works were undertaken, and expenditure incurred, did not satisfy Section 64’s requirement of a benefit received by the rescinding party. Because that omission went to the foundation of the monetary relief, the award was patently illegal, and the Commercial Court was justified in setting it aside.

It dismissed all four appeals, leaving undisturbed the dismissal of the developer’s Section 34 petitions and the setting aside of the monetary compensation.