BHUPESH BHAYANA vs. KUNAL SETH AND ANOTHER
By Tanushika Verma
CITATION: 2026 SCC OnLine SC 950
Decided on May 26, 2026
CASE NO: Civil Appeal Nos. 8192–8193 of 2026
[Special Leave Petition (Civil) Nos. 19222–19223 of 2026]
[Diary No. 20732 of 2024]
BENCH: SANJAY KUMAR and K. VINOD CHANDRAN, JJ.
PARTIES AND REPRESENTATIVES:
Appellant: Bhupesh Bhayana and Kiran Bhayana.
Respondents: Kunal Seth and Sarita Seth
ISSUES:
Is proof of actual loss required to enforce a delay-penalty clause, or does it stand independent of that proof?
What was the actual commencement date of the Clause 7 construction period, and over what duration did the penalty apply?
Does granting relief under Clause 7 while refusing it under Clause 13 constitute patent illegality — and, given that the owners raised no challenge to the award, does that ground still hold up?
Under Sections 34 and 37, do courts have the authority to modify an arbitral award, as addressed in Gayatri Balasamy?
Is Article 142 available as a route to modify the award and bring the litigation to a close?
CASE DESCRIPTION
In this case, Bhupesh Bhayana and his mother, Kiran Bhayana, co-owned a historic building inherited from their late husband and father, Sudershan Kumar Bhayana. Kunal Seth and his mother, Sarita Seth, were the representatives of the estate of the late builder Vinod Seth, who planned to renovate the property. In an agreement dated April 9, 2010, Vinod Seth committed to reconstructing the building and paying Rs. 64,00,000 in instalments, of which Rs. 45,00,000 had been received. The remaining Rs. 19,00,000 were contingent upon reaching a construction milestone that hasn't been met. The contract allowed for a twelve-month construction timeline with a two-month grace period, imposing a penalty of Rs. 10,000 per day for delays. The agreement emphasises the importance of commitment and communication between the parties.
The builder invoked the arbitration clause, and on his Section 9 application, a Sole Arbitrator was appointed by consent order dated 21-09-2012. By an award dated 21-10-2013, the Arbitrator found the builder in breach and awarded the owners Rs 72,00,000 as Clause 7 penalty, calculated over a two-year period the Arbitrator treated as the likely completion time. On the builder's counterclaim, the Arbitrator allowed Rs 36,92,400 towards construction costs (unproved by voucher but also uncontested by the owners) and directed refund of the Rs 45,00,000 already paid, holding that forfeiture under Clause 13 could not additionally be claimed once damages had been awarded under Clause 7, reasoning that this would penalise the builder twice. Since the builder's total entitlement (Rs 81,92,400) exceeded the owners' award, the owners were left owing the builder a net Rs 9,92,400.
Only the builder challenged the award, under Section 34, in OMP No. 1125 of 2014. By order dated 15-04-2019, the Single Judge upheld the award but modified the compensation period — since the owners had not challenged the award themselves, the construction-cost component was confirmed outright, but the Judge held the Arbitrator's chosen dates for computing the Clause 7 penalty were unfounded and substituted her own period, running from 09-08-2011 to October 2012 (when the claim petition was filed). This reduced the owners' award from Rs 72,00,000 to Rs 42,00,000. Cross-appeals under Section 37 followed, FAO (OS) No. 132 of 2019 by the owners and FAO (OS) No. 204 of 2019 by the builder's heirs. By common judgment dated 27-09-2023, the Division Bench held that the Single Judge's approach of substituting her own view of the correct dates exceeded the scope of Section 34, which does not permit modification. On the merits, the Division Bench went further and held the owners disentitled to any compensation at all, reasoning that they had not independently proved actual damage and that, in any event, Clause 7 damages could only run until the owners' own termination of the agreement on 11-11-2011. Only the builder's (unchallenged) counterclaim was left standing. Both sides then appealed to the Supreme Court, which, in the meantime, directed the owners to deposit Rs 50,00,000 with the High Court without prejudice to their rights (order dated 10-07-2024) and stayed the builder's execution proceedings (order dated 05-12-2025).
JUDGEMENT AND REASONING OF THE COURT
Sanjay Kumar, J. first corrected the Division Bench's approach to liquidated damages. The Court held that where a contract itself stipulates a per-day penalty for delay, the very existence of that clause reflects the parties' agreed measure of damage, and the claimant need not separately prove actual loss; the Division Bench's insistence on independent proof of damage was, on this footing, erroneous.
On the correct period for Clause 7 penalty, the Court found that both the Arbitrator and the Single Judge had overlooked the operative trigger in Clause 7, the date on which vacant land was actually handed over to the builder, not the date of the agreement. On the builder's uncontroverted pleadings, the site was cleared and made available on 09-07-2010, so the twelve-month period (plus two months' grace) expired on 09-09-2011. Since the owners themselves terminated the agreement on 11-11-2011, and could not claim delay penalty for a period after they ended the contract, the Court confined the owners' entitlement under Clause 7 to the 63-day window between 09-09-2011 and 11-11-2011, Rs 6,30,000 at Rs 10,000 per day.
On patent illegality, the Court held that the Arbitrator ought to have compensated the owners separately under both Clause 7 (for delay) and Clause 13 (for breach and consequent forfeiture), since the two clauses addressed distinct contingencies; treating an award under one as foreclosing relief under the other was an inconsistent construction of the agreement amounting to patent illegality under Section 34(2-A). However, since the owners had never filed their own Section 34 challenge to the award, this particular illegality had attained finality and could not be revisited to revive the forfeiture claim.
The Court accordingly held the owners entitled to Rs 6,30,000 and the builder's heirs entitled to the earlier-confirmed Rs 81,92,400 (Rs 45,00,000 refund plus Rs 36,92,400 construction costs, both unchallenged by the owners and hence final, with interest on this sum already denied and no appeal pressed against that denial). Netting the two sums, and adjusting the Rs 50,00,000 already disbursed to the builder's heirs pursuant to the Court's earlier interim order, the Court directed the owners to pay a final balance of Rs 25,62,400, with no interest payable by either side.
ANALYSIS
This case sits alongside DMRC v. DAMEPL as a companion illustration of how the Supreme Court is currently managing the tension between correcting patently illegal awards and preserving arbitral finality, but the two pull in opposite directions. DMRC used curative jurisdiction to unwind a final, executed award because an earlier round of appellate interference had itself gone beyond permissible limits. Bhupesh Bhayana does the reverse: the Court expressly finds the award patently illegal, declines to set it aside, and rewrites its outcome directly under Article 142, treating Gayatri Balasamy's modification power as available even for an ordinary two-party commercial dispute rather than reserving it for matters of singular public consequence. The doctrinal move worth watching is the sequencing in paragraphs 21 and 24. The Court identifies patent illegality in the Arbitrator's simultaneous denial of relief under Clause 13 while granting it under Clause 7, a substantive interpretive error, not a computational slip, yet immediately holds that this very ground cannot be revisited because the owners never raised it under Section 34. In the same breath, the Court goes on to recompute the Clause 7 period itself (correcting the vacant-possession date) and to overturn the Division Bench's no-damages finding, effectively substituting its own merits assessment for both the Arbitrator's and the Division Bench's. The Court is, in substance, doing something close to what it criticised the Single Judge for doing in 2019, treating adjudicatory jurisdiction over the award as a licence to reweigh the correctness of an arbitral finding, while simultaneously holding that a different, and arguably more serious, illegality in the same award is beyond reach because of a procedural default. The result is defensible as rough justice between two families who have litigated since 2012, but it leaves unclear exactly which categories of error in an award remain confined to annulment-or-nothing and which are now fair game for direct judicial recalculation under the modification power.
The holding on liquidated damages is the more portable part of the judgment: a party need not prove actual loss where the contract itself fixes a penalty for delay, since the clause is itself evidence of the agreed measure of damage. This is consistent with settled principles on liquidated damages generally and is likely to be cited independently of the arbitration-modification discussion. Lastly, the entire process of arbitration and its essence lies in its nature, i.e., serving a speedy solution to the parties.
CONCLUSION
Bhupesh Bhayana v. Kunal Seth confirms that a stipulated penalty clause dispenses with the need for independent proof of loss, and demonstrates that the Article 142 modification power recognised in Gayatri Balasamy extends to routine property and construction disputes, not merely matters of exceptional public interest. In choosing to correct rather than annul a patently illegal award — while treating a different illegality in the same aware as final for want of a timely challenge, the judgment favours a pragmatic end to fourteen years of litigation over a fully consistent statement of when modification, as opposed to annulment or plain finality, is the appropriate response to an illegal award.