The appellants (landowners) entered into a Joint Development Agreement (JDA) and a General Power of Attorney (GPA) on 04.06.2008 with respondent No.1 (developer) for development of schedule properties. The JDA required the developer to obtain a sanction plan and commence construction within three months, completing the owners' area within 42 months plus a six-month grace period. The developer failed to obtain the sanction plan or commence construction even after several years. The appellants terminated the JDA and GPA. In arbitration, the tribunal found the developer had failed to perform its obligations; the termination was valid. The tribunal directed the developer to execute deeds of cancellation and revocation, and held the appellants jointly liable to refund the security deposit of ₹1,95,75,000 and reimburse ₹27,00,000 pre-construction expenditure with 18% interest.
Respondent No.1 challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Commercial Court, while acknowledging the limited scope of Section 34 and that the tribunal's findings were not perverse or contrary to public policy, set aside the award on the sole ground that the tribunal failed to give effect to Clauses 26.1 and 26.2 of the JDA, which required a written notice of breach and a 15-day cure period.
On appeal, the High Court held:
1. The Arbitral Tribunal expressly considered Clause 26 and found that, because the developer had not even applied for a sanction plan, issuing a cure notice would be an empty formality. This was a plausible interpretation of the contract in its factual context.
2. Clause 26 cannot be read in isolation; it must be construed in the context of the entire JDA, whose object was development of the property. A fundamental, prolonged breach going to the root of the agreement cannot be cured by a mere 15-day notice.
3. Under settled law (Assam State Electricity Board v. Buildworth; S.V. Samudram; Associate Builders; Ssangyong; Konkan Railway), interpretation of a contract lies within the exclusive domain of the Arbitral Tribunal. A court under Section 34 cannot substitute its own interpretation for a plausible one, nor act as an appellate authority. Patent illegality must go to the root of the matter; mere erroneous interpretation does not qualify.
4. The Commercial Court, having itself extracted the tribunal's reasoning on Clause 26, erred in holding the tribunal ignored the clause and in substituting its own view. This exceeded the permissible scope of interference.
The Commercial Appeal was allowed. The impugned judgment of the Commercial Court was set aside, and the arbitral award was confirmed.
