Arbitral tribunal cannot rewrite contract or grant relief contrary to its terms: Supreme court

Supreme Court Affirms Limits on Arbitral Tribunals: Contracts Must Be Interpreted as Written

Shreeram Builders v. Upendra Kantilal Thanawala and others, Civil Appeal Nos. 9817 and 9818 of 2024, 2026 INSC 1176, decided on 29 October 2026. The Supreme Court has reiterated that an arbitral tribunal must decide a dispute in accordance with the terms of the contract and cannot rewrite the parties’ bargain or grant relief contrary to it.

A Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva was hearing appeals arising from an Agreement for Development dated 6 August 2003. Under it, members of the Thanawala family agreed to give Shreeram Builders the right to develop their 2/9th undivided share in three adjoining parcels of land in Thane. The consideration was fixed at ₹915 per square foot on an estimated 25,000 square feet of floor space index, totalling ₹2,28,75,000, payable in instalments with time stipulated to be of the essence. The family terminated the agreement by notice dated 9 April 2008, alleging breach by the builder.

The dispute went to a tribunal of three arbitrators. By a majority award dated 10 December 2011, the tribunal held the termination illegal, treated the agreement as one to sell, and granted the builder specific performance on payment of ₹10,91,30,164. The third arbitrator dissented and dismissed both the claim and the counter claim. The Principal District Judge, Thane, upheld the majority award under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act), but the Bombay High Court, in an appeal under Section 37, set it aside on 5 March 2024. The builder then approached the Supreme Court.

Law Applied

As the Section 34 applications were filed long before 23 October 2015, the Court held that the unamended provision governed the challenge, following Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (2019) and Board of Control for Cricket in India v. Kochi Cricket Private Limited (2018). Relying on the Constitution Bench in Gayatri Balasamy v. ISG Novasoft Technologies Limited (2025), it noted that jurisdiction under Section 37 is as broad as that under Section 34, so the High Court could test the award afresh.

Reviewing precedents such as Oil and Natural Gas Corporation Limited v. Saw Pipes Limited (2003) and Associate Builders v. Delhi Development Authority (2015), the Court reiterated that construction of a contract is primarily for the arbitrator and a plausible view must be respected. However, Section 28(3) of the Act requires a tribunal to decide in accordance with the contract, and an award contrary to its terms is patently illegal.

Nature Of The Agreement

The High Court had treated the agreement as one for development alone, partly because only 1% stamp duty was paid. The Supreme Court held that nomenclature and stamp duty are not decisive, as the rights and obligations created determine a document’s character. It observed that this was not a typical development agreement, since the landowners were to receive no share in the built up area or sale proceeds. Yet it held that classification was unnecessary, because the agreement prescribed a sequence of performance that bound both the parties and the tribunal.

Majority Award Held To Have Rewritten The Contract

The Court identified the fundamental error as the majority’s treatment of the matter as an ordinary suit for specific performance, rather than an arbitration governed by a binding contractual sequence.

All instalments were to be paid by 1 March 2008, and time was repeatedly declared to be of the essence. The Court held that the absence of a notice under Clause 7 cured the delay in the first six instalments, which were accepted without protest, but did not wipe out the time stipulations. Payment of the balance consideration was not completed in terms of Clause 6.

The consideration also remained open. It depended on a sanctioned plan, which the builder never obtained, on additional floor space if adverse possession was regularised under Clause 20, and on basements under Clause 4. The agreement made the conveyance deed conditional on payment of all amounts due, which had not occurred.

The majority excluded only the respondents’ 2/9th share in the bungalow, gardens and room in Chawl No. 1, although the agreement left that property out entirely. This brought the rest of it within the proposed conveyance, even though the owners of the remaining 7/9th share were not before the tribunal.

Clause 51 superseded all prior agreements, including the memorandum of understanding dated 15 March 2002, yet the tribunal adjusted ₹13,18,334 for payments said to have been made under it and ₹26,222 for a liability to Gujarat Financial Corporation. It also directed payment at six times the agreed rate, that is ₹5,490 per square foot, without any computation or reasons. Since the agreement made no provision for damages, the alternative award of damages, in the event specific performance was set aside, was without foundation and opposed to public policy.

The Court concluded that the arbitrators had supplanted the express terms with new terms, in violation of Section 28(3). The High Court was therefore right to interfere, and it was unnecessary to decide whether the agreement was one for sale or for development.

Refund Directed Under Article 142

Though the award could not stand, the Court noted that the respondents had themselves failed to abide by Clause 54. That clause required them, on termination for default where no construction had been made on their share, to return the consideration paid without interest. They had retained the money since 2008.

Invoking Article 142 of the Constitution to do complete justice and avoid a fresh round of litigation, the Court directed the respondents to return the amounts paid to them under the agreement, with simple interest at 9% per annum from the date of each payment until actual refund. The builder’s amounts lying in deposit with the courts may also be returned with accrued interest, if any. The appeals were disposed of, with the parties to bear their own costs.