Supreme Court sinks Shreeram Builders award that rewrote a Thane land deal, orders refund at 9 percent
Justice Sanjay Kumar and Justice Sanjeev Sachdeva uphold the Bombay High Court setting aside of a majority award that granted specific performance at six times the contract rate, but invoke Article 142 to make the Thanawalas return what the builder paid, with interest.
An arbitral tribunal that decides a contract case must decide it on the contract. Two retired judges sitting as the majority of a three-member tribunal in Thane did not. They treated an Agreement for Development of 6 August 2003 as an agreement to sell, ordered the landowners to convey their 2/9th share of a 16,414 square yard plot, fixed the price at six times the rate the parties had written down, netted off payments made under a superseded memorandum, and awarded damages in the alternative in case a court disagreed. On 29 October 2026 the Supreme Court held that none of this could survive Section 34 of the Arbitration and Conciliation Act, 1996, and upheld the Bombay High Court’s decision of 5 March 2024 setting the award aside. Justice Sanjay Kumar, writing for himself and Justice Sanjeev Sachdeva, opened by calling the case, yet again, “the saga of an arbitral award sailing into rough seas”.
The builder did not leave empty-handed. The landowners, having terminated the agreement in April 2008, had themselves ignored Clause 54, which obliged them to return the consideration received if no construction had taken place on their share. Invoking Article 142 of the Constitution, the Court directed the Thanawalas to refund every amount Shreeram Builders paid under the agreement with simple interest at 9 percent a year from the date of each payment until actual refund. Civil Appeal Nos. 9817-9818 of 2024 were disposed of in those terms, with parties bearing their own costs.
A family plot in Panchpakhadi and a 2/9th share
The land lies in Village Panchpakhadi, Taluka and District Thane: three adjoining parcels totalling 16,414.23 square yards, or 13,723 square metres, with chawls, sheds and a bungalow on them. It came down from Govindlal Jugaldas Thanawala, who died intestate in 1936, to his three sons Kantilal, Prabhulal and Madhukant, who executed a registered partition deed on 31 March 1974 allotting a third to each but never divided the land on the ground. Partition litigation had run since 1983 and was still pending when this dispute began.
Kantilal died in 2002, and his third passed to his sons Upendra, Pankaj and Vyomesh. Upendra and Pankaj, with Upendra’s son Vishal and Pankaj’s sons Kunal and Niket, together held 2/9th of the property; these five were the respondents before the Supreme Court. Shreeram Builders, a partnership of Ramesh Amrutlal Mehta, Deepak Ramesh Mehta and Alpa Ketan Mehta, had separately bought Vyomesh’s 1/9th share in 2008 and the 1/3rd share of Madhukant’s heirs in 2009, and claimed about 44.44 percent of the larger property in all.
What the agreement of 6 August 2003 actually said
The document ran to 64 clauses and three schedules. Its first page recorded an agreement value of ₹2,28,75,000 and stamp duty of ₹2,29,000, which is one percent. The five Thanawalas were called the Vendors. The firm and its partners were called the Purchaser, except that in the opening paragraph the word had been cut out and Developers written in by hand, uninitialled, while the rest of the document went on calling them the Purchaser. Paragraph R recorded an earlier memorandum of understanding of 15 March 2002 between Kantilal, Upendra, Pankaj and the two Mehtas.
Clause 1 gave the Purchaser the right to develop the Vendors’ undivided 2/9th share in the Floor Space Index available for the property, jointly estimated at about 25,000 square feet of net FSI. Clause 3 fixed the price at ₹915 per square foot, which produced the ₹2,28,75,000, and provided that the consideration would rise or fall proportionately if the FSI changed before the municipal plan was sanctioned, but that changes after sanction would be to the Purchaser’s account alone. Clause 4 added ₹5,00,000 if the Purchaser chose to build basements. Clause 5 recorded earnest money of ₹55,00,000 paid on signing; Clause 6 split the balance of ₹1,73,75,000 into ten instalments of ₹17,37,500, payable by whichever of three routes came first: within 30 months of the commencement certificate, within 30 months of plan sanction, or on fixed dates beginning 30 April 2005 and 1 August 2005, then 1 June 2006 and the first day of every fourth month after that. Clause 7 required the Vendors to serve a written notice of any default and give 15 days to cure it, and then declared that time was of the essence, as did Clauses 63 and 64.
Clause 9 recorded that possession of the 2/9th share had been handed over on signing, except for the bungalow, its gardens and Room No. 1 in Chawl No. 1, which the Vendors kept. Clause 20 let the Purchaser buy, at ₹450 per square foot, any FSI arising from land near the nallah that the Vendors claimed by adverse possession, if it got that land regularised. Clause 22 let the Purchaser sell flats and shops in the project and keep the proceeds. Clause 37 required a deed of conveyance of the 2/9th share, but not until all instalments had been paid. Clause 51 superseded all prior agreements, the 2002 memorandum included. Clause 53 ended the agreement automatically on any default in payment within time, and Clause 54 provided that if no construction had by then been carried out on the Vendors’ share, they would repay the consideration received, without interest. Clause 61 sent disputes to arbitration.
Six late instalments, fifteen refused cheques and a termination notice
The builder never obtained a sanctioned plan, so the fixed-date route under Clause 6 was the only one available, and the whole consideration fell due by 1 March 2008. The Court set out the record instalment by instalment. The first, due 30 April 2005, was paid on 2 May 2005, with ₹1,95,000 of it arriving only on 6 July. The second came 50 days late, the third 26, the fourth 35, the fifth 34 and the sixth 47 days late, on 17 April 2007. The Vendors accepted all six without protest and without any Clause 7 notice. For the seventh to ninth instalments the builder offered ten cheques dated 10 October 2007 for ₹34,75,000 and five cheques dated 27 March 2008 for ₹17,37,500; the Vendors returned them on 16 April 2008, by which time the delays ran to 144, 52 and 117 days. The tenth instalment was never tendered. On 9 April 2008 the Thanawalas served a legal notice terminating the agreement.
The tribunal that followed consisted of Justice S.D. Pandit (retired) as umpire, P.S. Mudholkar, a retired judge nominated by the builder, and V.P. Patil, a retired judge nominated by the Thanawalas. Before it, the builder said it had paid ₹1,59,22,000 of the price, plus ₹19,50,000 to Kantilal that the Vendors had agreed to reimburse; it sought specific performance or, in the alternative, damages of ₹41,46,49,688. The Thanawalas pleaded limitation and breach, insisted the document was a development agreement only, and counter-claimed ₹110,70,00,000 with ₹20,00,000 in costs.
The majority award and its arithmetic
On 10 December 2011 Justice Pandit and Mr Mudholkar held for the builder, with Mr Patil dissenting and dismissing both claim and counter-claim with costs. The majority reasoned that the nomenclature was not conclusive; that there was no clause for returning possession after development; that Clause 3 passed the benefit of FSI changes to the builder, which an owner would ordinarily keep; that marketable title and indemnity would be pointless in a pure development deal; and that Clause 22 let the builder sell units and keep the proceeds. It also relied on a written statement Upendra and Pankaj had filed in Civil Suit No. 445 of 2008, in which they stated that by the 2003 agreement they had agreed to sell the property to Shreeram Builders; citing Union of India v. Moksh Builders and Financiers Ltd., AIR 1977 SC 409, the majority treated that admission as binding on them and on their sons.
On default, the majority held that the Vendors could not rely on time being of the essence when they had taken six late instalments without a Clause 7 notice, and that the refused cheques showed the builder had the means to pay. It accepted that ₹19,50,000 had been paid to Kantilal, since Upendra conceded it in cross-examination, and attributed ₹13,18,334 of it to Upendra and Pankaj, along with ₹26,222 of a payment to the Gujarat Financial Corporation. With ₹1,19,18,670 in instalments and ₹55,00,000 in earnest money, the Vendors were found to have received ₹1,87,63,226 in all.
Then came the step that decided the case. Citing the passage of time and the escalation of land prices, the majority held that the builder should pay six times the agreed rate, ₹5,490 instead of ₹915 per square foot, which made the price ₹13,72,75,000. Deducting ₹1,87,63,226 left ₹11,85,11,774; crediting the builder with 10 percent interest on what it had paid, ₹93,81,610, brought the net to ₹10,91,30,164. The award directed the builder to deposit that sum within three months and the Thanawalas to execute a sale deed of their 2/9th share within a month of the deposit, excluding only their share in the bungalow, garden, room and courtyard. If a superior forum reversed the finding on specific performance, damages of ₹23,21,19,892 would be payable instead. The counter-claim was dismissed, and a later application by the Thanawalas under Section 33(4) for an additional award was rejected on 18 February 2012 as out of time.
Two rounds in Thane, two in Bombay
Both sides challenged the award under Section 34 before the Principal District Judge, Thane. The first decision, of 29 March 2017, went the builder’s way, but the Bombay High Court on 26 June 2019 remitted the matter by consent. On 25 January 2020 the District Judge dismissed both applications and upheld the award in full. Both sides appealed under Section 37, and on 5 March 2024 a single judge of the High Court allowed the Thanawalas’ appeal and set aside the majority award and the order of 18 February 2012.
The High Court held that the conditions precedent to a conveyance, a joint conveyance with the other owners, completion of construction and payment of everything due, had all gone unfulfilled; that the consideration remained variable until the project was built; that the award violated Section 28(3) by ignoring the terms of the contract; that the ₹19,50,000 under the 2002 memorandum was superseded by Clause 51; that awarding damages in the alternative offended the fundamental policy of Indian law; and that the one percent stamp duty, where an agreement to sell attracted five percent, showed the document was a development agreement. It also held, on the authority of Ramabai Shriniwas Nadgir v. Government of Bombay, AIR 1941 Bom 144, that an admission could be used only in the proceedings in which it was made.
Stamp duty and labels do not settle what a contract is
The Supreme Court parted company with the High Court on two points before agreeing with it on the one that mattered. The stamp duty proved nothing: parties routinely dress a document up as something else to escape a higher duty, and the settled position, restated in Sasan Power Ltd. v. North American Coal Corporation (India) Ltd., (2016) 10 SCC 813, is that the rights and obligations an agreement creates determine its character, not its name. The reliance on Ramabai was also misplaced: the Bombay High Court had itself explained in Dattatraya Shripati Mohite v. Shankar Ishwara Mohite, AIR 1960 Bom 153, that the decision does not bar a court from considering admissions made in other suits on the same subject, a point the Supreme Court noted in Basant Singh v. Janki Singh, AIR 1967 SC 341.
The Court found the agreement an unusual hybrid. A typical development agreement has the owner contribute land, the developer bring funds, and both share the built-up area. Here the Thanawalas, in the Court’s words, “literally washed their hands off the whole project”: they took no share of the construction or its sale proceeds and were paid only on the strength of the FSI. But classifying the document was beside the point. Whatever its label, the agreement spelled out the order in which each side was to perform, and that sequence bound the parties. Section 28(3) requires an arbitral tribunal to decide in accordance with the terms of the contract, and the award had to be tested against it.
The test under the unamended Section 34
Because both Section 34 applications were filed long before 23 October 2015, the Court applied the unamended Section 34, following Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, and Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287. Under the Constitution Bench ruling in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1, the appellate jurisdiction under Section 37 is coterminous with that under Section 34, so the High Court was entitled to test the award afresh despite the District Judge’s confirmation.
The bench traced the meaning of public policy under the old provision from Renusagar Power Co. Ltd. v. General Electric Co., (1994) Supp 1 SCC 644, through ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705, which added patent illegality going to the root of the matter, to ONGC v. Western Geco International Ltd., (2014) 9 SCC 263. Against that it set the deference owed to arbitrators in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, and UHL Power Co. Ltd. v. State of Himachal Pradesh, (2022) 4 SCC 11: a plausible construction of the contract cannot be disturbed. The limit comes from OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd., (2025) 2 SCC 417, and Ssangyong itself: an award that goes against the terms of the contract, or creates a new contract and foists it on an unwilling party, is patently illegal, though the ground is available only in exceptional cases.
Where the arbitrators went wrong
The fundamental error, Justice Kumar wrote, was that the majority dealt with the matter as if it were a regular suit for specific performance of an agreement to sell rather than an arbitration on a contract with a binding sequence of obligations. The same approach continued in the Supreme Court, where the builder argued that it had paid about 82 percent of the price, had deposited the balance of ₹41,11,744 with the District Court at Thane on 15 July 2017, and was willing to pay the enhanced ₹13,72,75,000. The Court declined the invitation: its task was only to test the award against Section 34.
On that test the award failed at several points. The price was due in full by 1 March 2008 and was not paid. The Vendors’ failure to serve a Clause 7 notice had cured the delay on the six instalments they accepted, but it did not erase the time stipulations; to hold otherwise would mean the Vendors had to accept payment whenever it came. The consideration was still fluid on the date of the award: it depended on the FSI available at plan sanction, which never happened, on regularisation of the adverse-possession land under Clause 20, and on whether basements were built under Clause 4. A conveyance was due only when everything had been paid, and that event had not occurred on either the estimated or the actual price, which remained indeterminate.
The award also went beyond the subject matter. The agreement excluded the bungalow, its gardens and Room No. 1 in their entirety, yet the award carved out only the Thanawalas’ 2/9th share in them, drawing the rest into the conveyance although the owners of the other 7/9th were not before the tribunal. It credited the builder with ₹13,18,334 paid to Kantilal under the 2002 memorandum, which Clause 51 had superseded, and with ₹26,222 on account of the Gujarat Financial Corporation, which was outside the agreement altogether. And where the contract fixed ₹915 per square foot, the arbitrators adopted a new rate of ₹5,490 with no computation and no reasoning; the direction, the Court said, was beyond the scope of the agreement and defied logic. The agreement provided for no damages, so the award of damages had no foundation, and granting them in the alternative to specific performance was opposed to public policy, as the High Court had rightly held.
The two arbitrators, the Court concluded, had not merely construed the express terms contrarily but “supplanted them with new terms, as per their own fancies”. The High Court’s separate inquiry into whether the document was an agreement to sell had been unnecessary; its finding that Section 28(3) was violated was enough, and correct.
Clause 54 and Article 142
Having upheld the setting aside, the Court turned to what the Thanawalas had done with the money. Clause 53 ended the agreement on default; Clause 54 then required them, if no construction had been carried out on their share, to repay the consideration received, without interest. No construction had been carried out, yet the Vendors had kept the money from the termination of 9 April 2008 to the present day, and it was not open to them to retract from the agreement while retaining the price. Rather than send the parties into a fresh round of litigation, the Court exercised its power under Article 142. The no-interest condition would have applied had the money been returned on 9 April 2008; having held it since, the Vendors must now return it with reasonable interest.
Order
The appeals are disposed of. The Bombay High Court’s judgment of 5 March 2024 setting aside the majority award and the order of 18 February 2012 stands. The respondents are directed to return the amounts paid to them under the agreement of 6 August 2003 with simple interest at 9 percent per annum from the date of each payment until actual refund. The appellant’s amounts lying in deposit with the courts are to be returned to it with any interest accrued. Parties bear their own costs.