The Bombay High Court has upheld an arbitral award terminating a redevelopment agreement in favour of a housing society, holding that the developer had committed repeated contractual breaches and was not entitled to any compensation in view of an express contractual bar.
The dispute arose from a 2007 redevelopment project where the society’s members vacated their premises, but construction stalled after 2011. Despite entering into consent terms in 2017 to resolve disputes and extend timelines, the developer failed to meet its obligations, including payment of transit rent and completion of construction. The society ultimately terminated the agreement in June 2018, which was upheld by the arbitral tribunal along with an award of over ₹7 crore in favour of the society.
Validity of Termination & Award Upheld
Refusing to interfere under Section 34 of the Arbitration and Conciliation Act, the Bombay High Court held that the arbitral tribunal had undertaken a detailed examination of contractual terms, correspondence, and evidence, and its findings on breach could not be termed perverse. The Court emphasised that once such breaches were established, the termination of the development agreement and consent terms was justified.
“commission of breaches by the Petitioner of the DA and of the Consent Terms is rightly held to be proved by the Arbitral Tribunal. Termination of the DA, POA and of the arrangements under the Consent Terms by the Society is rightly upheld by the Tribunal. Petitioner has failed to make out any valid ground under Section 34 of the Arbitration Act for setting aside the said finding.”
The Court upheld the arbitral award granting ₹7.08 crore to the society, holding that the amount represented admitted liabilities under the consent terms, including arrears of transit rent, interest, and costs. It found no error in the award, noting that once termination of the agreement was validly upheld, the monetary claim in favour of the society necessarily followed.
No Compensation to Developer, But Granted Restitution
The Court’s refusal to grant any compensation or restitution to the developer. It upheld Clause 22 of the development agreement, which barred the developer from claiming damages upon termination due to its own default. The Court reiterated that an arbitral tribunal, being bound by the contract, cannot award relief contrary to its terms.
The Court, while examining the developer’s claim for restitution under Section 64 of the Contract Act, partly disagreed with the arbitral tribunal and held that restitution is not barred in principle, but must be confined to what truly constitutes a “benefit” received by society. It clarified that the tribunal erred in rejecting the claim in its entirety and accordingly upheld the developer’s right to restoration, but only to a limited extent. The Court drew a clear distinction between different heads of expenditure, holding that amounts spent on the purchase of TDR, FSI, or tit-bit land could qualify as recoverable benefits, whereas construction costs and rent paid to members do not constitute benefits to the society and are therefore not refundable. Consequently, the award was set aside only to this limited extent, while the rest of the findings were upheld.
Appearances
Mr. Rajiv Narula a/w. Mr. Abhishek Bhadang and Mr. Tarang Jagtiani I.b. Jhangiani Narula and Associates, for the Petitioner.
Mr. Mayur Khandeparkar i/b Mr. Tushar Gujjar a/w. Mr. Deepak Singh and Mr. Lancelot Lewis i/b St. Partners, for the Respondent.
