The Supreme Court has reiterated that courts may modify arbitral awards instead of setting them aside where annulment would cause hardship and delay, while bringing a quietus to a 14-year-old construction dispute between a Delhi property owner and a builder by exercising powers under Article 142 of the Constitution of India.

In the matter, the dispute was that a 2010 redevelopment agreement under which the Bhayana family agreed to allow reconstruction of their old building in Delhi, while the builder was entitled to retain the second floor. The builder was also required to pay ₹64 lakh to the owners as earnest money and compensation. The agreement further stipulated that construction had to be completed within 12 months, with a two-month grace period, failing which the builder would pay a penalty of ₹10,000 per day for delay.

Justice Sanjay Kumar and Justice K. Vinod Chandran while referring to Gayatri Balasamy vs. ISG Novasoft Technologies Limited (2025) 7 SCC 1, observed, “Though the award, being patently illegal, deserves to be set aside under Section 34(2A) of the Arbitration Act, we are of the opinion that doing so would not be in the interest of justice, given the fact that the parties have been litigating since the year 2012… when setting aside an award would impose significant hardship and lead to unnecessary delay, it would be open to the Court to modify the award within the guardrails stipulated in the said judgment. Further, it was also held therein that this Court’s power under Article 142 of the Constitution can be used to effect substantial justice between the parties instead of relegating them to a fresh round of litigation. We, therefore, exercise our power under Article 142 of the Constitution so as to give a quietus to the dispute between the parties in the light of what has been stated hereinabove”.

Advocate Tanmaya Mehta appeared for the petitioner and respondent-in-person appeared.

In the matter, construction, however, was abandoned in August 2011 after only the basement, stilt and ground floor were built. The owners terminated the agreement in November 2011, following which disputes were referred to arbitration.

In 2013, the arbitrator found the builder to be in breach and awarded compensation, while also partly allowing the builder’s counterclaim. The matter thereafter travelled through proceedings under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court, eventually reaching the Supreme Court.

The Court noted that the arbitral award suffered from patent illegality on several aspects, including calculation of the contractual penalty. At the same time, it found that setting aside the award at this stage would reopen a dispute pending since 2012 and force the parties into another round of arbitration and litigation.

“…we find that the Award dated 21.10.2013 was patently illegal in more ways than one. The Arbitrator ought not to have denied the owners their just deserts under both the contractual clauses, viz., Clause 7 and Clause 13 of the agreement dated 09.04.2010. When the contract itself contemplated that they would be separately recompensed for the delay in construction, on the one hand, and for the breach of the agreement, on the other, under these two clauses, it was not for the Arbitrator to grant them relief only under Clause 7 and deny them the right of forfeiture under the other clause, viz., Clause 13. This being the correct construction of the agreement clauses, the contrary and inconsistent interpretation by the Arbitrator constitutes a patent illegality under Section 34(2A) of the Arbitration Act. However, despite this patent illegality writ large on the face of the award, the owners did not choose to file an application under Section 34 of the Arbitration Act in that regard. Therefore, the award attained finality insofar as this issue is concerned”, the Bench observed.

Accordingly, the Court modified the award itself and determined that the owners were entitled to ₹6.3 lakh as contractual penalty for the limited period between September and November 2011, while the builder remained entitled to refund and construction costs totalling ₹81.92 lakh.

After adjusting amounts already paid pursuant to earlier orders, the Court directed payment of the balance amount and ordered that neither side would be entitled to interest.

Cause Title: Bhupesh Bhayana and another v. Kunal Seth and another (Neutral Citation: 2026 INSC 546)

Appearances:

Petitioner: Tanmaya Mehta, Adv., Sandeep Singh, AOR.

Respondent: Respondent-in-person.

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