This arrangement works much better, but some adjustments are needed to make it work. First, the fireplace grouping needs to be tightened. It crowds the dining area and you need a passageway behind the couch. Turn the rug lengthwise, parallel to the fireplace. Pull the large couch about 2 1/2 feet closer to the fireplace, and place the two chairs and loveseat on the ends of the rug, and pull them closer together. This will give you a more intimate conversation area, and not impose on the other areas of the room. Remove that floor lamp from behind the couch. If you need the light in that area, put it by the fireplace. Also, the stereo system on the mantel needs to find another home. Maybe it can go IN the fireplace instead. At the other end of the room, I think the arrangement would look better if the seating were rotated 90 degrees. Keep the rug and coffee table in its current configuration, place the sofa either facing the window or with its back to the window, and put the two chairs opposite it. Finally, the dining area. Now that you've moved the big leather chairs, you should have enough room. Your rug is too small. It should be big enough to give you at least a 2 ft. border all the way around when the chairs are pushed in. And it's a really beautiful table; please uncover it. I can't see what kind of lighting that area has. It really needs a pendant or chandelier hanging directly over the table.

On your paint problem I can't be much help. This usually happens because of damp -- please get a damp expert to make sure that there isn't any damp lurking in your walls. I had this once when I had pipes leaking inside the walls. I didn't know that. The other alternative is something like painting before the plaster is dry or some kind of chemical mismatch. I do know you will have to scrape all the mucky powdery stuff away and start again, at least on those areas. Don't try to seal and prime and repaint until you know exactly what the problem is and how to fix it.

I like the ceiling. I think the hanging lights are too fancy and distract from the ceiling decor. A simpler light would look better or sticking with the canned lights you have. The walls have too many big, black things on them. It's hard to tell if they are windows with shade --- in which case I'd pick something lighter, perhaps to echo the ceiling, TVs (how many do you need?) or what. I'd consider a big piece of statement art in the place of at least one. If you're on a budget, get a large, high quality photo in the right colors, you can take it yourself. Sepia and black architectural might work. I like more color and more natural light. You may have closed the shades for a better picture, so it's hard to comment on the light, plus windows are a feature of your room, not exactly a decorator's choice. I would consider how to get a few small pops of color in, pillows, flowers, candles, maybe even a runner rug along the right wall. If you are doing this as part of a portfolio, the entire ensemble would look more welcoming with a few touches like someone lives there. Something on the coffee table, for example. A few books and a candle. A tray with tea things, a vase of flowers or basket of fruit. Pick one or two things and make it composed. You see this a lot in designer Houzz photos. Here's an example, you note this picture would be a lot more stark with an empty table: https://www.houzz.com/photos/21-house-contemporary-living-room-san-francisco-phvw-vp~60642

What a beautiful house, Shahbaaz! I live in a similar house - a 150-year-old colonial bungalow in Kumaon. You have already received lots of excellent advice from better-qualified people, so all I would say is, keep its age and heritage character the central theme. The white tiles do clash, I am afraid ... flooring with terracotta tiles would echo the roof and look lovely. The columns and the arches over the doors and windows are amazing. But I'd say, leave it all chuna-painted - there's a beauty and softness to it. Don't let the painters add too much neel (indigo) in the limewash -- in the hills where I live, they put far too much if I don't watch out and the result is a harsh white. Natural lime has a softer, creamy look.