Thanawala Owners Must Refund Builder With 9% Interest As Supreme Court Rejects Award Rewriting Land Deal

The parties executed an “Agreement for Development” on 6 August 2003 concerning the respondents’ undivided 2/9th share in land at Thane.

The agreement provided for development and payment of consideration in instalments, with conveyance to follow payment of all amounts due.

After the respondents terminated the agreement in 2008, the dispute went to arbitration.

The majority award granted the appellant specific performance, fixed an enhanced consideration, and directed conveyance; the dissenting arbitrator rejected the claims.

The District Judge upheld the majority award, but the Bombay High Court set it aside under Section 37 of the Arbitration and Conciliation Act, 1996.

The appellant appealed to the Supreme Court.

The Court applied the unamended Section 34 of the Arbitration and Conciliation Act, 1996, applicable because the Section 34 applications were filed before 23 October 2015; an award could be set aside for conflict with public policy, including patent illegality going to the root of the matter.

Section 28(3) requires an arbitral tribunal to decide in accordance with the contract’s terms.

Although contractual interpretation is primarily for the arbitrator, an award is vulnerable where the interpretation is not a plausible one or the tribunal effectively rewrites the contract.

The Court relied on Associate Builders v. Delhi Development Authority, Ssangyong Engineering and Construction Co. Ltd. v. NHAI, and related authorities on those principles.

It also exercised its power under Article 142 to do complete justice.

The agreement prescribed a sequence of obligations: the balance consideration was payable by the specified dates, the total consideration remained subject to later events affecting FSI and other sums, and conveyance was conditional on payment of all amounts due.

The majority award nevertheless ordered conveyance despite incomplete payment and indeterminate consideration, adopted a new rate without contractual basis, adjusted sums paid under a superseded memorandum, and included property excluded by the agreement.

It therefore supplanted, rather than interpreted, the contract and violated Section 28(3), warranting the High Court’s interference under Section 34.

Separately, because no construction had been carried out on the respondents’ share, Clause 54 required them to return the consideration received; their retention of those sums after terminating the agreement justified relief under Article 142.

Exercising Article 142, it directed the respondents to refund the amounts paid to them under the agreement, with simple interest at 9% per annum from the date of each payment until actual refund.

It also directed that the appellant’s sums deposited in court be returned with any accrued interest.

The parties were ordered to bear their own costs.