Sri Dilip C. & Anr. v. Smt. Diana D’Souza & connected matters

What happened

The owner holds one acre of land in Sy. No. 157, Bidaluru Village, Devanahalli Taluk, Bengaluru District. By a Joint Development Agreement of 28 February 2014 with the developers, the land was to be developed into a multistoried housing project within two years, by 27 February 2016, but nothing was done until 2021, when the owner invoked the arbitration clause, and a sole arbitrator was appointed by the High Court's order of 3 March 2022 in CMP No. 296/2021. By an award of 29 August 2024 in AC No. 160 of 2022 the arbitrator allowed the owner's claim with costs, held that the agreement and the general power of attorney of 28 February 2014 stand cancelled, directed the developers to execute cancellation deeds, failing which the owner could have them executed through the court at the developers' cost including stamp duty, and directed that the refundable deposit stands forfeited and is to be retained by the owner. In the developers' challenge under section 34, the Commercial Court on 19 March 2025 affirmed the award in part but set aside the forfeiture of the advance, giving the developers liberty to take proceedings to recover it.

The developers appealed, arguing that they could not develop the land because there was no proper approach road, that despite the owner's efforts nothing moved, and that, once the Commercial Court held that forfeiture was not permitted, it should have directed a refund with interest. The owner answered that for more than seven years the developers did nothing, that it never promised a 40-feet road, that the arbitrator decided the issues comprehensively, and cross-appealed against the setting aside of the forfeiture, saying that forfeiture does not fall within any ground under section 34. The judgment decides the lead appeals, COMAP No. 290 of 2025 and the owner's COMAP No. 305 of 2025 arising from Commercial Application No. 169 of 2024, and the cause title lists four further appeals arising from similar awards and orders, while the operative order refers only to the proceedings in that application.

Questions before the court

• Could the Commercial Court under section 34 set aside the arbitral award to the extent that it directed forfeiture of the advance paid by a developer that failed to perform a joint development agreement for seven years?

Why the court ruled this way

The Court noted that the agreement has no provision for forfeiture of the advance if the developers fail to perform, but that for seven years the developer did not develop the property or take effective steps to implement the agreement (paragraph 11). Interference with an award is limited, arbitration being an outcome of party autonomy, and unless a ground in section 34 is present the court should be loath to interfere (paragraph 11). Forfeiture of the advance of a developer that failed to carry out its obligations for seven years cannot be said to conflict with the public policy of India, to contravene the fundamental policy of Indian law or to conflict with the basic notions of morality or justice, and the award is not vitiated by patent illegality, so the interference of the Commercial Court to that extent was not proper (paragraphs 11–12). The developers' submission that they could not develop the land for want of an approach road did not displace the arbitrator's findings (paragraphs 7–8 and 11).

Controlling point

Forfeiture of the advance paid by a developer that failed for seven years to implement a joint development agreement does not come within any ground under section 34, even though the agreement has no express forfeiture clause, and the Commercial Court was not entitled to interfere with the arbitrator's direction.

Order and next steps

The Court dismissed the developers' appeal, affirmed the Commercial Court's judgment of 19 March 2025 in Com.A.P. No. 169/2024 except that its interference with the award to the extent of forfeiture of the advance was set aside, and allowed the owner's appeal.

Practical implications

A developer that signs a joint development agreement should perform within the agreed time and cannot count on recovering an advance after a long default, because an arbitrator's decision to let the owner retain it will not readily be disturbed under section 34, and an owner that has an award of forfeiture should defend it on the footing that section 34 does not permit re-appraisal.

Limits of this ruling

• The Court decided the appeals on the limited scope of section 34 and did not examine the merits of the dispute about the approach road or the quantum of the advance. The judgment does not state the amount of the advance, and its operative order refers to the lead proceedings in Commercial Application No. 169 of 2024.