Supreme Court upholds finding of economic duress and breach but strikes down arbitral quantification; parties left to pursue remedies

A bench of Justices Abhay S. Oka and Pankaj Mithal heard appeals arising from competing challenges under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 to an arbitral award in a long-running development dispute between Larsen & Toubro Limited (L&T) and Puri Construction Ltd. (PCL). The appeals concerned whether the Development Agreement was novated by a later Supplementary Agreement and Tripartite Agreement, whether those agreements were tainted by coercion, and whether the Arbitral Tribunal’s monetary awards and indemnity directions could stand.

The Court dismissed the appeals and largely affirmed the Division Bench of the Delhi High Court that the Supplementary Agreement was a "non-starter", that it was vitiated by economic duress, and that L&T committed a fundamental breach of the Development Agreement; it also upheld the permanent injunction restraining L&T from interfering with PCL’s development rights and confirmed the award of arbitration costs to PCL. At the same time the Court upheld the High Court’s setting aside of several monetary components of the award including the Rs. 35 crore damages, the alternate Rs. 75 crore compensation, the Rs. 5 crore for failure to return licences, and the broad Rs. 50 crore indemnity in favour of PCL  on the ground that the quantifications were unsustainable or beyond the tribunal’s proper scope. The Court recorded that it was bound by precedents holding that courts had limited powers under Section 34 and could not modify an arbitral award; it noted that the Division Bench in this case did not purport to modify the award but left parties "to pursue the appropriate course of action under law." The Court, in its reasoning, observed: “Looking to the clauses in the Supplementary Agreement, the finding recorded by the Tribunal that, as the conditions precedent in the relevant clauses were not complied with by L&T, the Supplementary Agreement was a non‑starter is undoubtedly a possible finding which could not have been interfered with under Section 34 of the Arbitration Act. Moreover, it is a finding of fact.” The Court also noted the Division Bench’s observation that "parties are left to pursue the appropriate course of action under law."

Background
The dispute arose from a Development Agreement dated 10 March 1998 under which L&T agreed to develop land owned by PCL in Gurgaon; allocation among parties and obligations with respect to payment of External Development Charges (EDC) and built-up area to ITCREF were central to the contract matrix. A Supplementary Agreement (30 December 1999) and a Tripartite Agreement (10 January 2000) with Lord Krishna Bank were executed after PCL purported difficulties in meeting EDC and other conditions. PCL later terminated the Development Agreement and invoked arbitration; L&T counter‑claimed. The Arbitral Tribunal on 28 December 2002 found L&T in fundamental breach, held the Supplementary and Tripartite Agreements tainted by coercion, and granted multiple reliefs including damages, repayment to the Bank, return of licences or alternative compensation, injunctions and indemnity.

PCL sought enforcement and L&T challenged aspects of the award under Section 34. The learned Single Judge set aside the award; on appeal under Section 37 the Division Bench partly reversed and partly upheld the tribunal’s findings — affirming coercion and breach, upholding the injunction and costs, but setting aside the award’s quantification of monetary relief and broad indemnity. The Supreme Court considered the limited scope of judicial interference under Section 34 (citing Project Director, National Highways No.45E & 220 v. M. Hakeem) and found the tribunal’s factual findings on conditions precedent, coercion and abandonment to be plausible and not vitiating the award on the statutory grounds. The Court agreed with the High Court that the tribunal’s detailed monetary calculations lacked sufficient evidentiary basis under Section 73 of the Contract Act and therefore could not be sustained. The Court also endorsed the Division Bench’s rebuke of overlong argumentation, quoting its remark on "the prolix and near interminable arguments" and observed that parties were left to pursue appropriate remedies; title deeds deposited with the Registrar were ordered released to PCL.

Case Details:
Case No.: 2025 INSC 523 (Civil Appeal Nos. 2575-2578 of 2016, et al.)
Case Title: Larsen and Toubro Limited versus Puri Construction Pvt. Ltd. and Others
Appearances:
For the Petitioner(s): [Senior counsel for Larsen & Toubro Limited — names not specified in judgment]
For the Respondent(s): [Senior counsel for Puri Construction Pvt. Ltd. — names not specified in judgment]