An arbitral tribunal derives its authority from the agreement between the parties. While arbitration provides an alternative to conventional litigation, it does not confer upon arbitrators an unrestricted power to reshape contractual obligations, revise agreed consideration, or grant relief that the parties never contemplated. The freedom to resolve disputes outside the courtroom remains inseparable from the obligation to respect the contract that makes arbitration possible.This distinction assumes particular importance when an arbitral tribunal, motivated by considerations of fairness or commercial realities, attempts to fashion a remedy that departs from the express terms of the agreement. An award may appear equitable in its outcome, yet remain legally unsustainable if it substitutes the arbitrators' judgment for the bargain voluntarily concluded by the parties.The Supreme Court examined this fundamental limitation on arbitral authority in Shreeram Builders v. Upendra Kantilal Thanawala and Others (2026 INSC 1176), deciding whether an arbitral tribunal could direct specific performance of an agreement despite the non-fulfilment of contractual conditions and independently enhance the consideration payable under that agreement. In its judgment dated 29 October 2026, the Court reaffirmed that an arbitral tribunal cannot rewrite a contract or grant relief in derogation of its express provisions. The decision highlights the importance of Section 28(3) of the Arbitration and Conciliation Act, 1996, and explains why contractual interpretation cannot become an exercise in contractual reconstruction.Significantly, while declining to restore the arbitral award, the Supreme Court also exercised its extraordinary jurisdiction under Article 142 of the Constitution to ensure that the parties who terminated the agreement did not unjustifiably retain the consideration received under it.Background of the Dispute: A Development Agreement and Competing ClaimsThe dispute originated from an agreement dated 6 August 2003 between Shreeram Builders, a partnership firm, and members of the Thanawala family concerning immovable property situated at Village Panchpakhadi in Thane, Maharashtra. The properties comprised three adjoining parcels of land in which the respondents collectively held an undivided two-ninths share. The agreement contemplated the development of a shopping, commercial and residential complex on the property, subject to specified exclusions and contractual obligations.Under the agreement, the consideration was initially calculated at ₹2,28,75,000, based on an estimated Floor Space Index (FSI) of 25,000 square feet at ₹915 per square foot. However, the amount was not necessarily final. The agreement expressly contemplated adjustments depending on the FSI available when the municipal building plan was sanctioned.An earnest money payment of ₹55 lakh was made, while the balance of ₹1,73,75,000 was to be paid in ten instalments of ₹17,37,500 each, according to the contractual schedule.The agreement also imposed several obligations relating to partition of the property, municipal approvals, construction, security for payments and eventual execution of conveyance documents.Disagreements subsequently arose regarding payment of instalments and performance of the contractual obligations. The respondents terminated the agreement through a legal notice dated 9 April 2008.Shreeram Builders disputed the termination and invoked the arbitration clause, contending that the agreement was essentially one for sale and that the respondents were obliged to complete the transaction.The respondents maintained that the agreement was only for development and that the builder had failed to comply with its essential conditions. These competing interpretations eventually became central to the arbitral proceedings.The Arbitral Award: Specific Performance at an Enhanced PriceA three-member arbitral tribunal was constituted to resolve the dispute. On 10 December 2011, the majority of the tribunal ruled in favour of Shreeram Builders, while the third arbitrator delivered a dissenting award. The majority concluded that the agreement was, in substance, an agreement to sell rather than merely a development agreement. It also held that the respondents' termination of the agreement was unjustified.The tribunal consequently directed specific performance and ordered the respondents to execute a sale deed concerning their two-ninths share, subject to specified exclusions.However, the most consequential feature of the award was its treatment of the contractual consideration. Although the agreement prescribed a rate of ₹915 per square foot, the majority arbitrators considered the passage of time and escalation in land prices. They increased the rate sixfold to ₹5,490 per square foot.On that basis, they calculated the total consideration at ₹13,72,75,000 and, after making adjustments for earlier payments and interest, directed the builder to deposit ₹10,91,30,164. The majority award also determined that, if the relief of specific performance was reversed by a superior authority, the builder would be entitled to damages quantified at ₹23,21,19,892.The dissenting arbitrator, however, dismissed both the claim and the counterclaim. The majority award therefore raised an important legal question: Could arbitrators replace an agreed contractual rate with a substantially higher figure merely because property values had increased?More fundamentally, could they order execution of a conveyance deed without ensuring compliance with the contractual conditions governing such execution?These questions ultimately determined the fate of the award.From the District Court to the Supreme CourtThe majority award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, before the Principal District Judge, Thane.Following an earlier round of proceedings and remand, the District Judge, by judgment dated 25 January 2020, dismissed the challenges filed by both sides and upheld the majority award. The matter thereafter reached the Bombay High Court under Section 37 of the Act.By judgment dated 5 March 2024, the High Court set aside the majority award. It found that the arbitrators had disregarded material contractual provisions and granted relief contrary to the agreement. The High Court particularly emphasised that the agreement prescribed conditions precedent to execution of the conveyance deed. Those conditions had not been satisfied.It also questioned the arbitrators' decision to revise the consideration, adjust payments made under an earlier agreement and grant alternative damages despite already awarding specific performance. Aggrieved by the High Court's interference, Shreeram Builders approached the Supreme Court.The central issue was no longer simply whether the agreement constituted an agreement to sell or a development agreement. The more significant question was whether the arbitral award could survive judicial scrutiny when its operative directions departed from the contractual framework.Section 28(3): The Contract as the Foundation of Arbitral AuthorityThe Supreme Court examined the dispute principally through Section 28(3) of the Arbitration and Conciliation Act, 1996.The provision requires an arbitral tribunal, while deciding a dispute and making an award, to take into account the terms of the contract and the trade usages applicable to the transaction. The Court explained that where contractual terms are clear and explicit, there is ordinarily no occasion to import trade usages to alter their meaning.This requirement serves a fundamental purpose. Arbitration is based on party autonomy. Parties voluntarily agree upon their respective rights and obligations and select arbitration as the mechanism for resolving disputes arising from that arrangement.The arbitrator's authority must therefore operate within the framework of the agreement. The Court recognised that interpreting contractual language is ordinarily within the domain of the arbitral tribunal. An award cannot be invalidated merely because a court prefers another reasonable interpretation.However, there is a substantial difference between interpreting a contractual provision and replacing it with an entirely different obligation. The former is an accepted exercise of arbitral jurisdiction. The latter may amount to an impermissible rewriting of the agreement.The Court's analysis thus preserved the principle of limited judicial interference while recognising that arbitral discretion cannot extend to imposing a bargain that the parties never made.Why the Majority Award Was Legally Unsustainable1. Failure to Respect the Agreed Payment ScheduleThe agreement expressly provided that payment of instalments within the stipulated period was essential to the transaction. Clauses 6, 7, 63 and 64 addressed the timing of payments and emphasised the importance of contractual deadlines.The Supreme Court observed that the first six instalments had been paid after their respective due dates. Although the respondents accepted those payments without protest, subsequent instalments were not paid according to the agreed schedule.The final payment obligation was required to be completed by 1 March 2008, but this did not occur. The majority arbitrators had treated the respondents' acceptance of earlier delayed payments as sufficient to prevent them from relying upon the time stipulations.The Supreme Court disagreed with that broader conclusion. It explained that acceptance of delayed payments without invoking the contractual notice procedure could cure the defaults associated with those particular instalments. However, such conduct did not extinguish the contractual requirement that future payments be made within the prescribed period.Otherwise, the respondents would effectively be compelled to accept payment whenever the builder chose to tender it, irrespective of the agreed deadlines. Such an interpretation would defeat the express intention of the parties.2. Conveyance Could Not Be Ordered Before Contractual Conditions Were FulfilledAnother significant defect concerned the direction to execute a conveyance deed. The agreement established a sequence of obligations involving payments, municipal approvals, development-related requirements and eventual conveyance.Importantly, the execution of the conveyance deed was linked to payment of all amounts due under the agreement. The Supreme Court found that the total consideration remained undetermined because the municipal building plan had not been sanctioned.The consideration was linked to the FSI available at the relevant stage and could be adjusted depending upon additional contractual circumstances. Consequently, the majority arbitrators could not simply treat the estimated consideration as final and direct conveyance without compliance with the contractual mechanism.The Court observed that the tribunal had overlooked the agreed sequence of performance. Even if the agreement were characterised as one involving sale, that classification did not authorise the arbitrators to dispense with its express conditions.3. Arbitrators Could Not Unilaterally Increase the Contractual RatePerhaps the clearest instance of contractual rewriting was the enhancement of consideration from ₹915 to ₹5,490 per square foot. The majority arbitrators justified the increase by referring to the passage of time and escalation in property prices.The Supreme Court found no contractual foundation for this exercise. The parties had expressly prescribed the applicable rate and the circumstances in which consideration could increase or decrease. The agreement did not authorise an independent revision merely because market prices had appreciated.The Court further observed that the arbitrators had offered no adequate reasoning or calculation explaining why the rate should be multiplied sixfold. The resulting direction was therefore beyond the scope of the agreement.This finding is particularly important in commercial arbitration. Market fluctuations may alter the economic attractiveness of a transaction, but they do not automatically empower an arbitral tribunal to revise the contractual price.Where parties have consciously allocated commercial risks through express provisions, the tribunal must respect that allocation.4. Earlier Agreements Could Not Override the Superseding ContractThe Court also examined Clause 51, which expressly provided that the agreement dated 6 August 2003 superseded previous agreements between the parties, including an earlier Memorandum of Understanding dated 15 March 2002. Despite this provision, the majority arbitrators had adjusted ₹13,18,334 against the consideration payable, relying upon an alleged payment made under the earlier arrangement.The Supreme Court held that this adjustment could not be sustained in the face of the supersession clause. Similarly, an adjustment of ₹26,222 concerning a liability to the Gujarat Financial Corporation was found to be outside the scope of the agreement.The decision illustrates the importance of respecting clauses that define the relationship between successive contractual arrangements. An arbitral tribunal cannot selectively revive obligations or payments arising from superseded agreements when the operative contract excludes them.5. Relief Could Not Extend to Property Expressly ExcludedThe agreement expressly excluded the bungalow, adjoining gardens and a specified room in Chawl No. 1 from the property covered by the transaction. However, the majority award excluded only the respondents' two-ninths share in the specified property, rather than excluding the property in its entirety.This created the effect of bringing other interests in the excluded property within the proposed conveyance. The Supreme Court found this particularly problematic because the owners of the remaining seven-ninths share were not parties before the arbitral tribunal.The award therefore went beyond the contractual subject matter and potentially affected the rights of persons who were not participating in the arbitration. This aspect reinforces the principle that arbitral relief must remain confined to the rights and obligations properly submitted for adjudication.Alternative Damages: Another Departure from the AgreementThe majority award had also quantified damages payable to Shreeram Builders if the relief of specific performance was subsequently reversed. The Supreme Court found this approach unsustainable.The Court observed that the agreement did not provide for claims towards liquidated or unliquidated damages by either side. In the circumstances of the case, it held that the alternative damages awarded to the builder lacked a contractual foundation.The Court also disapproved of the conditional formulation under which damages would become payable if a superior authority set aside the primary relief. Such a direction was inconsistent with the established requirements governing arbitral awards.The ruling should be understood in the context of the particular agreement and the relief fashioned by the tribunal. It does not establish that damages can never be awarded in arbitration unless expressly mentioned in a contract. Rather, the Court found that the damages direction in this award could not be justified within the applicable contractual and legal framework.Judicial Review: Interpretation Is Permissible, Rewriting Is NotIn reaching its conclusion, the Supreme Court considered several decisions concerning judicial interference with arbitral awards.In Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, the Court had recognised that interpretation of contractual terms is primarily a matter for arbitrators. A reasonable interpretation ordinarily deserves judicial deference.Similarly, UHL Power Company Limited v. State of Himachal Pradesh (2022) 4 SCC 11, affirmed that an award should not be disturbed merely because another plausible interpretation is available.However, in South East Asia Marine Engineering and Constructions Limited v. Oil India Limited (2020) 5 SCC 164, the Supreme Court recognised that an interpretation which is not plausible upon a complete reading of the contract may render an award vulnerable to interference.The Court also referred to OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited (2025) 2 SCC 417, which reiterated the obligation of arbitral tribunals to decide disputes in accordance with contractual terms.These precedents demonstrate that judicial deference is not absolute. Courts ordinarily cannot reassess contractual interpretation merely because they disagree with the arbitrator. Nevertheless, intervention becomes justified when the tribunal disregards express provisions and effectively creates a new contractual arrangement.The distinction is not between a correct and an incorrect interpretation in the ordinary appellate sense. It is between an interpretation reasonably available under the contract and a decision that abandons the contract altogether.Nature of the Agreement Was Not the Decisive QuestionAn interesting feature of the judgment is the Supreme Court's treatment of the controversy over whether the document was a development agreement or an agreement to sell.The Court recognised that the agreement was unusual. Although titled an Agreement for Development, it contemplated the eventual conveyance of the respondents' share in the property to the builder or its nominee.Unlike conventional development arrangements, the respondents were not entitled to a proportionate share of the constructed area or sale proceeds. Their consideration was principally linked to the available FSI and specified additional amounts.The Court therefore acknowledged the complex character of the transaction. Nevertheless, it held that resolving the precise classification of the agreement was unnecessary for deciding the validity of the award.Regardless of its classification, the agreement expressly prescribed how the parties were required to perform their obligations.Those terms remained binding. The tribunal could not disregard the contractual sequence merely by describing the transaction as an agreement to sell. This approach demonstrates that the substance of contractual obligations is more important than the label attached to the instrument.Article 142: Supreme Court Orders Refund with InterestAlthough the Supreme Court upheld the interference with the majority award, it did not overlook the conduct of the respondents. The agreement contained provisions addressing the consequences of default and termination.Under Clause 54, where the agreement came to an end and no construction had been carried out on the respondents' share, the respondents were required to return the consideration received, without interest. The Court found that the respondents had failed to comply with this obligation.Having terminated the agreement in April 2008, they could not retain the amounts received from the builder indefinitely.The Supreme Court therefore exercised its jurisdiction under Article 142 of the Constitution, which empowers it to pass orders necessary for doing complete justice. It directed the respondents to refund the amounts paid to them under the agreement, together with simple interest at 9% per annum from the date of each payment until actual refund.The Court reasoned that the contractual stipulation excluding interest would have applied had the respondents refunded the money when they terminated the agreement. Their continued retention of the amounts justified the award of reasonable interest.The Court also directed the return of amounts deposited by the builder with the courts, together with accrued interest, if any.The appeals were disposed of accordingly, with the parties bearing their own costs. This part of the judgment is particularly significant because it demonstrates that refusing to enforce an invalid arbitral award does not necessarily leave the parties without an appropriate remedy.Significance of the Judgment for Commercial ArbitrationThe decision carries important implications for arbitration involving construction contracts, development agreements, property transactions and other commercial arrangements.It reinforces the binding character of contractual provisions. Arbitrators must interpret agreements as they stand rather than modify them to achieve what appears to be a commercially fair outcome.It highlights the importance of conditions precedent. Where a contract links a particular obligation to the fulfilment of specified requirements, the tribunal cannot disregard those requirements merely because one party has substantially performed other obligations.It protects the allocation of commercial risk. Parties who agree upon a particular pricing mechanism cannot ordinarily have that mechanism replaced through arbitral discretion.The judgment clarifies the limits of judicial intervention. Courts must respect plausible contractual interpretations, but they are not required to uphold awards that substitute new terms for those expressly agreed upon.Finally, the Court's exercise of Article 142 illustrates the distinction between the legality of an arbitral award and the broader question of ensuring that neither party improperly retains a financial benefit after termination of the contractual relationship.Click Here to Read the Official JudgmentConclusionThe Supreme Court's decision in Shreeram Builders v. Upendra Kantilal Thanawala and Others draws a clear boundary between the power to interpret a contract and the power to rewrite it.The arbitral tribunal had attempted to resolve a long-standing commercial dispute by enhancing consideration, directing conveyance despite unfulfilled contractual conditions, adjusting payments outside the operative agreement and granting conditional alternative damages.The Supreme Court held that such an approach could not be reconciled with Section 28(3) of the Arbitration and Conciliation Act, 1996.At the same time, the Court ensured that the respondents fulfilled their obligation to return the money received under the terminated agreement, with interest justified by their prolonged retention of those amounts.The central principle emerging from the judgment is that arbitration permits flexibility in dispute resolution, but not freedom from the contract itself. An arbitral award derives its legitimacy from the agreement it seeks to enforce. Once the tribunal abandons that agreement and substitutes its own terms, it risks exceeding the very authority entrusted to it.Important LinkLaw Library: Notes and Study Material for LLB, LLM, Judiciary, and Entrance Examsm