Delhi Development Authority vs Jaksons Developers (P) Ltd Through Its Authorised Signatory Shri Peayush Agarwal, Ceo
- Court
- Delhi High Court
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
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Reserved on: 13 October, 2026
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Pronounced on: 06 November, 2026
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Uploaded on: 06 November, 2026
# CNR No. DLHC010341402026
+ FAO(OS) (COMM) 192/2026 & CM APPL. 49274/2026, CM
APPL. 49275/2026 & CM APPL. 49276/2026
DELHI DEVELOPMENT AUTHORITY .....Appellant
Through: Mr. Sanjay Vashishtha, SC with
Mr. Siddhartha Goswami & Mr.
Aditya Sachdeva, Advs.
versus
JAKSONS DEVELOPERS (P) LTD THROUGH ITS
AUTHORISED SIGNATORY SHRI PEAYUSH AGARWAL,
CEO .....Respondent
Through: Mr. Sumit Bansal, Sr. Adv. with
Mr. Praveen Gupta, Ms. Maheen
Khan, Ms. Riya Goyal & Mr.
Ashim Shridhar, Advs.
CORAM:
HON’BLE MR. JUSTICE DINESH MEHTA
HON’BLE DR. JUSTICE ADITI CHOUDHARY
J U D G M E N T
REPORTABLE
Per, ADITI CHOUDHARY, J.
1. The appellant has filed the present appeal under Section 37(1)(c)
of the Arbitration and Conciliation Act, 1996 (for brevity, ‘the Act’)
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read with Section 13 (1A) of the Commercial Courts Act, 2015 against
the judgment of the learned Single Judge dated 05.05.2026 in
OMP(COMM) 349/2023 titled Jaksons Developers (P) Ltd. v. Delhi
Development Authority , by which the Arbitral Award dated 25.04.2023
read with addendum dated 21.05.2023, has been modified.
FACTUAL MATRIX
2. Shorn of unnecessary details, the facts leading to filing of this
appeal are that, the appellant/Delhi Development Authority (for brevity
‘DDA’) invited bids for commercial plot No. 3B1, Twin District
Towers, Rohini (admeasuring 11,130.40 sq. mtrs.) for construction of a
hotel in order to provide accommodation for the Commonwealth Games
2010 (for brevity CWG 10). The respondent/Jaksons Developers (P)
Ltd. (for brevity, ‘JDPL’) was the successful bidder. On 04.01.2008, a
Demand-cum-Allotment Letter was issued to JDPL. The hotel project
was required to be made operational within twenty-four months from
the date of allotment.
2.1 In March 2008, JDPL submitted building plans which were
approved by the Chief Fire Officer (for brevity ‘CFO’) in November
2008 and by the Delhi Urban Arts Commission (for brevity ‘DUAC’)
in December 2008. On 09.06.2008, JDPL in terms of the contract,
furnished a performance bank guarantee (for brevity ‘PBG’) for a sum
of Rs. 9,30,00,000/- as performance security (equivalent to 5% of the
bid amount), valid for a period of four years as per clause 3.14 of the
tender document. On 08.09.2008, JDPL was given formal possession of
the plot and the conveyance deed was also executed in its favour. JDPL
continued construction in anticipation of land approval. On 15.05.2009,
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JDPL deposited “prior to sanction charges” with DDA being the
condition for formal approval of the building plans.
2.2 In May 2010, DDA intended to invoke the PBG for non-
completion of work within twenty-four months of the allotment letter.
JDPL filed a petition under Section 9 of the Act (OMP No. 360/2010)
in this Court seeking stay on the invocation of the PBG. Vide order
dated 09.06.2010, DDA was restrained from invoking and encashing the
PBG till the next date of hearing. On 21.10.2011, this Court permitted
JDPL to file an application under Section 17 of the Act and directed the
interim order to continue till such time the learned Arbitrator passes an
order in the application. On 15.09.2010, JDPL completed the hotel and
made it operational before the CWG 10 and applied for
completion/occupancy certificate. On 21.09.2010, DDA rejected the
said application. On 24.09.2010, JDPL rectified the deficiencies and
sought for limited term permission which was granted on 29.09.2010.
The hotel was used during the CWG 10.
3. Vide order dated 12.05.2011, this Court appointed the Arbitrator
and disputes between the parties were referred to arbitration. An
application under Section 17 of the Act filed by JDPL was decided by
the learned Arbitrator vide the said order dated 22.10.2013. The interim
order restraining the invocation of the PBG was vacated, subject to the
condition that DDA would encash the PBG but the amount would be
kept in a fixed deposit (for brevity ‘FDR’) in a nationalized bank during
the course of the arbitration proceedings and that the said amount along
with interest accrued thereon, would abide the outcome of the matter.
4. The learned Arbitrator passed the award on 25.04.2023 and an
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addendum thereto on 21.05.2023. DDA was inter alia held not entitled
to invoke or encash the PBG and was directed to release the PBG
amount i.e. Rs. 9,30,00,000/- to JDPL. Claim No. 8 of JDPL with regard
to interest on the awarded amount @ 18% per annum was rejected on
the ground of mutual delay attributable to both the parties besides the
CFO and DUAC. DDA filed two counter claims to invoke/encash the
PBG and seeking interest for the period from expiry of 24 months (for
completion of hotel) till the encashment of the PBG. Both the counter
claims along with other counter claims filed by DDA were rejected. The
addendum to the arbitral award dated 21.05.2023 clarified that since
Claim No. 8 of JDPL for interest was rejected, the interest accrued on
the PBG shall not be released to the claimant. Aggrieved, JDPL filed
the petition under Section 34 of the Act (OMP Comm. No. 349/2023)
challenging the award to the extent it withheld the interest on the FDR.
5. The learned Single Judge vide the impugned judgment held that
the interest accrued on the FDR was not governed by Section 31(7) of
the Act and partook the character of the principle amount kept in the
FDR. The condition imposed in the order under Section 17 of the Act,
that JDPL shall not use the amount realized by encashing the PBG was
to ensure that the FDR be released to the party found entitled to it. There
was no reason recorded in the award for not releasing the interest
accrued on the FDR. What was denied in the counter claim of DDA was
indirectly allowed. The contention of the learned counsel for DDA that
the learned Arbitrator had a discretion under Section 31(7) of the Act to
grant or not to grant interest was of no avail, as the payment of such
money was not awarded by the learned Arbitrator. The conclusion of
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the learned Arbitrator that DDA could not have invoked the PBG was
unambiguous and there was no reason recorded in the award for
directing non release of the interest accrued on the FDR to JDPL. The
only possible view after concluding that the PBG could not have been
invoked is that the FDR as a whole should go to JDPL. The non-release
of FDR interest to JDPL relying upon rejection of grant of interest under
Section 31(7) of the Act on the claimed amount is against the statutory
provision, vitiating the finding with patent illegality. It was further held
that the award could be modified since the part of the award directing
release of amount of Rs. 9,30,00,000/- realised on encashment of PBG
and the directions qua the interest accrued on FDR not to be released to
the petitioner, are severable. Accordingly, the part of the award
directing interest accrued on the FDR not to be released to the JDPL
was set aside.
RIVAL SUBMISSIONS OF BOTH SIDES
6. We have heard the learned counsels for both sides.
7. Learned counsel for the appellant/DDA argued that there was no
reason for the learned Single Judge to modify the award under Section
34 of the Act, since there was no patent illegality in the award. The
learned Single Judge while holding that the interest accrued on the FDR
partakes the character of the principal amount relied upon the judgment
in Central Bank of India v. Ravindra and Others (2002) 1 SCC 367,
which was decided in an entirely different context of bank-borrower
loan accounts and the question of capitalisation of interests under
banking regulations. The observation of the Hon’ble Supreme Court in
the said case that interest can become “part of the principle” was made
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specifically in contractual and regulatory setting and had no application
to the interest accruing on an FDR, maintained pursuant to a corpus-
preservation order under Section 17 of Act. The impugned judgment
treats the order under Section 17 dated 22.10.2013, which directed that
the FDR amount “ along with interests accrued thereon shall abide the
outcome of the matter ” as a substantive direction that pre-determined
the entitlement to interest which amounts to a fundamental misreading
of the nature and effect of Section 17 orders.
7.1 It was further argued that the finding of the learned Single Judge
that Section 31(7) of the Act has “no application” because the payment
of money was not awarded by the learned Arbitrator is not legally
sustainable. The direction to release Rs.9,30,00,000/- i.e. proceeds of
the encashed PBG was plainly a direction relating to payment of money
and the award directing release of the said sum constitutes a money
award. The question whether any pre-award interest was to accompany
the monetary relief fell squarely within the learned Arbitrator’s
discretion and jurisdiction under Section 31(7)(a) of the Act. The
learned Arbitrator having recorded findings of substantial mutual delay
attributable to both parties as well as CFO and DUAC took a conscious
decision to deny pre-award interest to JDPL. This decision was given
expression through Claim no. 8 and was reflected in the addendum. The
learned Single Judge erred in treating the learned Arbitrator’s findings
on interest which were supported by detailed reasons on mutual delay
and were in the zone of plausible arbitral conclusion, as patently illegal.
7.2 It was further argued that the Hon’ble Supreme Court in Gayatri
Balasamy v. ISG Novasoft Technologies Ltd. , (2025) 7 SCC 1, laid
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down that the power in the proviso to Section 34(2)(a)(iv) of the Act,
permits the Court to set aside only that part of an award which contains
decisions on matters that are not submitted to arbitration. The proviso
enables Courts to severe the non-arbitral portion from the arbitral
portion of an award. In the present case, the interest on the FDR was
part of Claim no. 8 in the Statement of Claim which was specifically
adjudicated upon and rejected. The proviso to Section 34(2)(a)(iv) of
the Act which is the textual basis for severance under Gayatri Balasamy
( supra ) has no application to a portion of an award that deals with a
matter within the scope of submission.
8. Per contra, it was argued by learned counsel for the
respondent/JDPL that vide the order under Section 17, the PBG was
encashed and directed to be kept in an FDR, so that the interest accrued
thereon could be given to the party who succeeded with regard to the
PBG. Thus, the learned Arbitrator could not deny JDPL the interest
accrued on the FDR. The award to this extent suffered from patent
illegality which has been rightly modified by the learned Single Judge.
There was no question of application of Section 31(7) of the Act to the
interest accrued on the FDR, as there was no payment of money
awarded by the learned Arbitrator. There was no reason for the learned
Arbitrator to award the interest accrued on the FDR to DDA when its
counter claims were rejected. The learned Arbitrator totally misdirected
himself while mixing up the claim of interest i.e. Claim No. 8 and the
interest as accrued on the PBG, as they are two different aspects to be
considered by the learned Arbitrator. The claim for interest was upon
the claims as made by JDPL before the learned Arbitrator and the
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interest accrued upon the PBG was a totally different issue inasmuch as
the same was interest accrued on the PBG and was different from the
grant of interest as claimed under Claim no.8 made before the learned
Arbitrator. Where the PBG belonged to JDPL, it was entitled to the
interest thereon. Where the invocation was wrongly done, the interest
could not be held by DDA which would amount to it benefiting from its
own wrong doing.
ANALYSIS OF THE CONTENTIONS AND FINDINGS
9. The issue before us is whether the award to the extent that it
denied interest accrued on the FDR (on the encashed PBG amount) to
JDPL, suffered from patent illegality warranting interference under
Section 34 of the Act. Since the judgment of the learned Single Judge
has been challenged on the ground that it ignored the parameters laid
down as to the limitations which a Judge hearing objections to an
arbitral award under Section 34 is subject to, we deem it necessary to
first state the law on the subject. Clauses (2) and (3) of Section 34 of the
Act read as follows-:
“34. Application for setting aside arbitral awards
(1)…..
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application establishes on the basis of
the record of the arbitral tribunal that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
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(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains decisions on matters not submitted to
arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in
conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement, was
not in accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being
in force, or
(ii) the arbitral award is in conflict with the public policy
of India.
Explanation 1.-For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.-For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian
law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by
reappreciation of evidence.
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making
that application had received the arbitral award or, if a request
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had been made under section 33, from the date on which that
request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application
within the said period of three months it may entertain the
application within a further period of thirty days, but not
thereafter.”
10. With regard to the grounds for judicial intervention under Section
34 of the Act, the Hon’ble Supreme Court in MMTC Ltd. v. Vedanta
Ltd. , (2019) 4 SCC 163, held as under:
“10. Before proceeding further, we find it necessary to briefly
revisit the existing position of law with respect to the scope of
interference with an arbitral award in India, though we do
not wish to burden this judgment by discussing the principles
regarding the same in detail. Such interference may be
undertaken in terms of Section 34 or Section 37 of the
Arbitration and Conciliation Act, 1996 (for short “the 1996
Act”). While the former deals with challenges to an arbitral
award itself, the latter, inter alia, deals with appeals against
an order made under Section 34 setting aside or refusing to
set aside an arbitral award.
11. As far as Section 34 is concerned, the position is well-
settled by now that the Court does not sit in appeal over the
arbitral award and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e. if the award is
against the public policy of India. As per the legal position
clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of Indian
public policy, in turn, includes a violation of the fundamental
policy of Indian law, a violation of the interest of India,
conflict with justice or morality, and the existence of patent
illegality in the arbitral award. Additionally, the concept of
the “fundamental policy of Indian law” would cover
compliance with statutes and judicial precedents, adopting a
judicial approach, compliance with the principles of natural
justice, and Wednesbury [Associated Provincial Picture
Houses v. Wednesbury Corpn., (1948) 1 KB 223 (CA)]
reasonableness. Furthermore, “patent illegality” itself has
been held to mean contravention of the substantive law of
India, contravention of the 1996 Act, and contravention of the
terms of the contract.
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12. It is only if one of these conditions is met that the Court
may interfere with an arbitral award in terms of Section
34(2)(b)(ii), but such interference does not entail a review of
the merits of the dispute, and is limited to situations where the
findings of the arbitrator are arbitrary, capricious or
perverse, or when the conscience of the Court is shocked, or
when the illegality is not trivial but goes to the root of the
matter. An arbitral award may not be interfered with if the
view taken by the arbitrator is a possible view based on facts.
(See Associate Builders v. DDA [Associate Builders v. DDA,
(2015) 3 SCC 49: (2015) 2 SCC (Civ) 204]. Also see ONGC
Ltd. v. Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003)
5 SCC 705]; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation [Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445]; and McDermott
International Inc. v. Burn Standard Co. Ltd. [McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC
181])
13. It is relevant to note that after the 2015 Amendment to
Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2),
the scope of contravention of Indian public policy has been
modified to the extent that it now means fraud or corruption
in the making of the award, violation of Section 75 or Section
81 of the Act, contravention of the fundamental policy of
Indian law, and conflict with the most basic notions of justice
or morality. Additionally, sub-section (2-A) has been inserted
in Section 34, which provides that in case of domestic
arbitrations, violation of Indian public policy also includes
patent illegality appearing on the face of the award. The
proviso to the same states that an award shall not be set aside
merely on the ground of an erroneous application of the law
or by reappreciation of evidence.
14. As far as interference with an order made under Section
34, as per Section 37, is concerned, it cannot be disputed that
such interference under Section 37 cannot travel beyond the
restrictions laid down under Section 34. In other words, the
court cannot undertake an independent assessment of the
merits of the award, and must only ascertain that the exercise
of power by the court under Section 34 has not exceeded the
scope of the provision. Thus, it is evident that in case an
arbitral award has been confirmed by the court under Section
34 and by the court in an appeal under Section 37, this Court
must be extremely cautious and slow to disturb such
concurrent findings.”
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11. In Somdatt Builders-NCC-NEC (JV) v. National Highways
Authority of India and Others , (2025) 6 SCC 757, the Hon’ble Supreme
Court held as follows:
“45. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta
Ltd., (2019) 4 SCC 163: (2019) 2 SCC (Civ) 293] , this Court
held that as far as Section 34 is concerned, the position is well
settled that the Court does not sit in appeal over an arbitral
award and may interfere on merits only on the limited ground
provided under Section 34(2)(b)(ii) i.e. if the award is against
the public policy of India. Even then, the interference would
not entail a review on the merits of the dispute but would be
limited to situations where the findings of the arbitrator are
arbitrary, capricious or perverse or when the conscience of
the Court is shocked or when the illegality is not trivial but
goes to the root of the matter. An arbitral award may not be
interfered with if the view taken by the arbitrator is a possible
view based on facts. As far as interference with an order made
under Section 34 by the Court under Section 37 is concerned,
it has been held that such interference under Section 37
cannot travel beyond the restrictions laid down under Section
34. In other words, the Court cannot undertake an
independent assessment of the merits of the award and must
only ascertain that the exercise of power by the Court under
Section 34 has not exceeded the scope of the provision.
46. What is public policy of India has been explained in
Ssangyong Engg. & Construction [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020)
2 SCC (Civ) 213] . It means the fundamental policy of Indian
law. Violation of Indian statutes linked to public policy or
public interest and disregarding orders of superior courts in
India would be regarded as being contrary to the fundamental
policy of Indian law. It would also mean that the arbitral
award is against basic notions of justice or morality. An
arbitral award can be set aside on the ground of patent
illegality i.e. where the illegality goes to the root of the matter
but re-appreciation of evidence cannot be permitted under the
ground of patent illegality.
47. In PSA Sical Terminals [PSA Sical Terminals (P) Ltd. v.
V.O. Chidambranar Port Trust, (2023) 15 SCC 781] , this
Court reiterating the well-settled principles held as under:
(SCC pp. 803-804, paras 40-41)
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“40. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the
court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of “public
policy of India”, which has been held to mean “the
fundamental policy of Indian law”. A judicial
intervention on account of interfering on the merits of the
award would not be permissible. However, the principles
of natural justice as contained in Sections 18 and
34(2)(a)(iii) of the Arbitration Act would continue to be
the grounds of challenge of an award. The ground for
interference on the basis that the award is in conflict with
justice or morality is now to be understood as a conflict
with the “most basic notions of morality or justice”. It is
only such arbitral awards that shock the conscience of
the court, that can be set aside on the said ground. An
award would be set aside on the ground of patent
illegality appearing on the face of the award and as such,
which goes to the roots of the matter. However, an
illegality with regard to a mere erroneous application of
law would not be a ground for interference. Equally,
reappreciation of evidence would not be permissible on
the ground of patent illegality appearing on the face of
the award.
41. A decision which is perverse, though would not be a
ground for challenge under “public policy of India”,
would certainly amount to a patent illegality appearing
on the face of the award. However, a finding based on no
evidence at all or an award which ignores vital evidence
in arriving at its decision would be perverse and liable to
be set aside on the ground of patent illegality.””
12. Considering that the nature and scope of proceedings before us
are under Section 37 of the Act, reference in this regard is made to the
decision of the Hon’ble Supreme Court in MMTC Ltd. ( supra ) which
sets out the scope of proceedings under Section 37 of the Act. The
relevant paragraph of which is reproduced as under:
“14. As far as interference with an order made under Section 34,
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as per Section 37, is concerned, it cannot be disputed that such
interference under Section 37 cannot travel beyond the restrictions
laid down under Section 34. In other words, the court cannot
undertake an independent assessment of the merits of the award,
and must only ascertain that the exercise of power by the court
under Section 34 has not exceeded the scope of the provision. Thus,
it is evident that in case an arbitral award has been confirmed by
the court under Section 34 and by the court in an appeal under
Section 37, this Court must be extremely cautious and slow to
disturb such concurrent findings.”
13. Applying the tests laid down by the Hon’ble Supreme Court, we
have to examine whether the learned Single Judge exceeded his
jurisdiction in modifying the impugned arbitral award. The learned
Single Judge has held that where the conditional encashment of the PBG
and its conversion into an FDR pursuant to the order under Section 17
was subject to the final award and the learned Arbitrator had held that
DDA was not entitled to invoke the PBG, the interest accrued on the
FDR could not have been retained by DDA. Reliance has been placed
on the observation in the order under Section 17, wherein it was
observed that “ the amount of PBG along with interest thereon shall
abide by the outcome of the matter ”. A reading of the said order makes
it obvious that the direction was given by the learned Arbitrator as an
interim measure to protect the interest of the parties depending upon the
final outcome. Despite finding that no exceptions applied for non-
invocation of the PBG, the learned Arbitrator allowed its encashment by
DDA but however, did not allow DDA to use the encashed amount and
directed that the said amount be kept in an FDR so that the principal
sum in the interregnum earns interest, as the purpose was to ensure that
the FDR i.e. the principal sum and interest is released to the party found
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‘entitled’ to the PBG. It has been rightly held by the learned Single
Judge that the condition got defeated by permitting DDA to retain the
interest on the FDR, in spite of finally holding that DDA was not entitled
to invoke or encash the PBG.
14. The learned Single Judge while holding that the interest partook
the character of the principal amount kept in the FDR, has relied upon
the judgment of the Hon’ble Supreme Court in Central Bank of India
( supra ). Perusal of the said judgment shows that it is distinguishable on
facts as it relates to the law governing the debtor and creditor and is on
the aspect of the meaning to be assigned to the phrases, “the principal
sum adjudged” and “such principal sum” in Section 34 of the Code of
Civil Procedure, 1908 (for brevity ‘CPC’), in suits for recovery of
money, especially those filed by banking institutions against their
borrowers.
15. We shall now deal with the finding whether the non-release of the
FDR interest to JDPL relying upon rejection of grant of interest under
Section 31(7) of the Act on the claimed amount, is against the statutory
provisions vitiating the finding with patent illegality. For proper
appreciation, it would be apposite to briefly set out the fate of the claims
and counter claims. In the award, JDPL’s Claim no.1 for a sum of Rs.50
crores as compensation for business losses suffered by it due to the
alleged delays of DDA in granting the requisite permission/ approvals
was disallowed since JDPL had also contributed to the delays, and
moreover, it failed to produce reliable evidence in support of the claim.
Claim no. 2 for directing DDA not to encash the PBG was allowed.
Claim no. 3 for repayment of prior to sanction charges was allowed to
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the extent of Rs. 75,74,701/-. Claim no. 4 for repayment of extra interest
on the term loan; Claim no. 5 for extra expenses incurred by JDPL on
account of delay in sanction of the building plans; Claim no. 6 for
expenses incurred on account of delay in providing electricity
connection and electrification of the area and; Claim no. 7 for expenses
incurred towards diesel consumption charges and generator rentals etc.
along with interest thereon were rejected, since no evidence was
adduced. Claim no. 8 for 18% interest on the awarded amount till the
actual date of payment was rejected since it was held that JDPL was also
guilty of causing substantial delays and had raised unnecessary,
frivolous and vexatious claims without any shred of evidence. Claim no.
9 for Rs. 5 lacs with interest as cost of litigation was rejected. Claim no.
10 for Rs. 20 crores as damages was rejected, as no evidence was led.
16. As regards the counter claims, vide Counter Claim no. 1 DDA
claimed that JDPL is liable to pay the amount of the said PBG i.e. Rs.
9,30,00,000/- for the various acts, omissions, breaches and defaults of
JDPL and particularly its failure to perform its obligations under the
contract. Vide Counter Claim no. 2 it was claimed that d ue to the acts
of JDPL, DDA was unable to receive the proceeds of the PBG since
04.01.2010 and accordingly interest was sought on the said amount of
the PBG @ 18% per annum from 4.1.2010 till 30.11.2011, and further
till the proceeds of the PBG were actually received. In Counter Claim
no. 3 DDA sought pendente lite and future interest @ 18% per annum
on the counter claim amounts from JDPL. Vide Counter Claim no. 4 it
was claimed that JDPL was liable to pay the costs of various litigations,
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quantified at Rs. 2 lacs, besides the actual costs of the arbitration
proceedings. All the four counter-claims were rejected.
17. The relevant part of the award regarding invocation of the PBG
reads as under:
“ Re Invocation of the Bank Guarantee
128. In order to arrive at a decision in this regard, it will be
necessary to look at Clause 3.14 of the tender document:
Clause 3.14: Performance Security
The construction of the hotel will have to be completed and
made functional within a period of 24 months from the date of
allotment-cum-demand letter of the land. The intending Tender
purchaser shall be required to deposit the performance security
to the tune of 5% of the bid amount before the time of execution
of the conveyance deed, which shall be in the nature of a bank
guarantee in an approved form valid for 4 years. The institution
furnishing such security shall be subject to the approval of the
same by the Authority. The penalty for delay in completion of
the hotel beyond 24 months shall be levied as under:
SI. No. Delay Period beyond 24 months Penalty Amount
1. upto 30 days 1% of the bid amount
2. Above 30 days and upto 90 days 2% of the bid amount
3. Above 90 days and upto 180 days 4% of the bid amount
4. Above 180 days 5% of the bid amount
Bank guarantee amount to the extent that there is delay in
completion of hotel, will be encashed as per the schedule
mentioned above. The date of completion will be treated as the
date on which necessary completion certificate is obtained by
the intending auction purchaser.
129. As is apparent from the aforesaid clause the auction purchaser is
required to deposit performance security to the tune of 5 per cent of
the bid amount before the execution of the conveyance deed. The said
clause further provides that the penalty for delay in completion of the
hotel beyond 24 months shall be levied as per the scale and range
stipulated in the table incorporated in the clause. It is noteworthy that
the said clause does not provide that the levy is for loss or damage that
respondent would suffer in the event of delay in completion of the hotel.
The said clause also does not provide that the percentage of the bid
amount that would be levied for the delay in completing the hotel is a
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genuine pre-estimate of loss or damages that respondent/public at
large would suffer in the event of delay. The clause does not provide
for liquidated damages at all. Words like compensation and liquidated
damages are conspicuously missing from the clause. The clause seeks
to punish claimant by levy of penalty in the event of delay in completing
the hotel. The words ‘penalty for delay in completion of the hotel
beyond 24 months shall be levied...’: indicate that levy for delay is by
way of in terrorem. The levy is in the nature of threat and is meant to
secure the completion of the hotel building within the period stipulated
in the clause by striking fear of punishment in the tenderer that in case
he fails to complete the hotel it would be saddled with penalty for the
delay. The mere fact that the penalty is variable does not show that the
percentage of the amount payable for the delay is in the nature of
liquidated damages.
130. A look at the aforesaid provision does not show that it was an
agreed genuine pre-estimate for the loss that may be sustained by
respondent on failure of claimant to complete the hotel by the
stipulated date or before the Common Wealth Games as per the
decision of L.G. There is not even an assertion in clause 3.14 that the
parties had arrived at a genuine pre-estimate of loss/damages. Rather
the provision shows that on breach of the contract respondent will be
entitled to penalty calculated on the basis of the aforesaid table. Table
reveals that quantum of penalty is linked to bid amount. In case clause
3.14 deals with liquidated damages, question arises how a genuine
pre-estimate of damages can be linked to the bid amount. No nexus
appears between the two nor has any nexus been established. Such a
formulation cannot be construed as a genuine pre-estimate of
liquidated damages. The said provision is out and out a penalty clause.
The clause must be read as per the words or language used and no
extrinsic evidence or pleadings or arguments can be taken into
consideration to construe the words of a clause which is unambiguous.
Respondent has tried to add to the said clause by its pleadings and
contentions, which is not permissible.
131. Dehors the aforesaid discussion regarding substantial delays of
the parties as well as of the CFO and DUAC, respondent was not
entitled to invoke bank guarantee as the hotel was operational during
the Commonwealth Games and thereafter for number of months in
accordance with the permission given by respondent. Obviously, the
said permission was given as the construction of the hotel was
complete and it was found fit for being operationalised. At that stage
the hotel only lacked occupancy certificate. Respondent has not
pleaded that notwithstanding the fact that the construction of the hotel
was not complete and it was not capable of being operationalised, it
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was still being given limited term permission. Therefore, since the
construction of the hotel was complete, it was operational during the
Commonwealth Games and it is not the case of respondent that there
were complaints from the customers about any inadequacy in services
of the hotel, there cannot be any loss to respondent or public at large
on the spacious ground that hotel did not have the completion
certificate/occupancy certificate as on 03.01.2010 or on the date
limited term permission was granted. In the circumstances the
occupancy certificate was a mere formality.
132. Respondent has not adduced evidence to show any loss suffered
by it or by the public at large due to the hotel not having been granted
occupancy certificate before the Common Wealth Games in terms of
clause 4.13 of the tender document. The said clause being a penalty
clause, respondent in order to invoke the bank guarantee was bound
to show loss suffered by it due to breach, if any, of clause 3.14 of the
underlying contract. Learned counsel for respondent has relied on the
decisions which deal with clauses that provide for liquidated damages
in the event of breach of the underlying contract.
133. In view of the aforesaid discussion respondent was not entitled to
invoke and proceed to encash the bank guarantee”.
(Emphasis supplied)
18. When the issue of the interest on the FDR was brought up in the
application under Section 33, the learned Arbitrator while amending the
award by way of the addendum corrected the award on Claim no. 2 to
read that DDA shall release to JDPL an amount of Rs. 9,30,00,000/-
realised on encashment of the PBG and since Claim no. 8 for interest
had been rejected, the interest accrued on the FDR shall not be released
to JDPL. The relevant part of the addendum reads as under:
“4. The need to correct the award on claim no.2 has arisen in
view of the following order that was passed by this tribunal on
October 22, 2013 on the application of claimant under Section 17 of
the Arbitration and Conciliation Act, 1996 seeking stay of the
invocation of the performance bank guarantee in the amount of Rs
9,30,00,000/-:
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67. Since the invocation of the bank guarantee does not fall
in any of the exceptions to the general rule, the interim order
restraining the bank guarantee does not deserve to be
confirmed. Accordingly the same is vacated subject to the
Respondent keeping the amount that may be realised as a
result of encashment of bank guarantee in a fixed deposit in
a nationalised bank during the course of these proceedings.
The said amount along with interest accrued thereon shall
abide the outcome of the matter.
In the application under Section 33 of the Arbitration and
Conciliation Act circulated on behalf of claimant, it is stated to the
effect that the respondent encashed the performance bank guarantee
and the amount realised has been kept in a fixed deposit. The learned
counsel for respondent has confirmed on instructions of his client
that the amount realised on encashment of the bank guarantee has
been kept in a fixed deposit. In the light of the aforesaid position and
having regard to the finding recorded at para 133 of the award dated
April 25, 2023, that respondent was not entitled to invoke and encash
the performance bank guarantee, the correction in the award on
claim no. 2 needs to be carried out. Accordingly, the award on claim
no. 2 is corrected to read as under:
Claim No. 2
a) The respondent shall release to the claimant an amount of Rs.
9,30,00,000/- realised on encashment of the performance bank
guarantee.
b) Since claim no. 8 for interest has been rejected, the interest
accrued on the bank guarantee shall not be released to the
claimant. ”
(Emphasis supplied)
19. The learned Arbitrator allowed the interest on the FDR to be
retained by DDA since Claim no.8 for interest on the amount awarded
to JDPL was rejected. Significantly, Counter Claim no.2 of DDA for
interest on the PBG was outrightly rejected by the learned Arbitrator
since it was held that DDA is not entitled to invoke the PBG. Where
DDA was held not entitled to invoke the PBG or get interest thereon, it
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remains to be explained how the benefit of the same by way of interest
on the FDR could be allowed to be retained by DDA. There is no
reasoned finding recorded in the award for denying interest accrued on
the FDR to JDPL. It has been rightly held by the learned Single Judge
that on the one hand the counter claims of DDA for invoking the PBG
and for seeking interest for the period of delay in completion of the hotel
was rejected while on the other, DDA was indirectly awarded interest
from date of opening of the FDR till encashment and that both of these
findings are mutually contradictory.
20. In deciding Claim no. 8 (whether to award interest on the amount
awarded to JDPL), the learned Arbitrator was exercising his jurisdiction
under Section 31(7) of the Act. The said provision reads as under:
“ 31.Form and contents of arbitral award
(1)………
(7) (a) Unless otherwise agreed by the parties, where and in so far
as an arbitral award is for the payment of money, the arbitral
tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or any
part of the money, for the whole or any part of the period between
the date on which the cause of action arose and the date on which
the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the
award otherwise directs, carry interest at the rate of two percent.
higher than the current rate of interest prevalent on the date of
award, from the date of award to the date of payment.
Explanation.—The expression “current rate of interest” shall have
the same meaning as assigned to it under clause (b) of section 2 of
the Interest Act, 1978(14 of 1978)”
21. Seen in the context of the above Section, the encashed amount of
PBG was not an amount awarded or “the sum for which the award is
made” within the meaning of Section 31(7) of the Act but was given to
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JDPL since the PBG was not to be invoked by DDA in view of the
rejection of its Counter Claim no.1. Thus, the application of Section
31(7) of the Act could not be extended to the interest accrued on the
FDR. In the fact situation, it was rightly held by the learned Single
Judge that the non-release of FDR interest to JDPL relying upon
rejection of grant of interest under Section 31(7) of the Act on the
claimed amount, was against the statutory provision, vitiating the
finding with patent illegality.
22. Coming to the aspect of modification of the award, the
parameters for modification have been laid down by the Hon’ble
Supreme Court in Gayatri Balasamy ( supra ), wherein it was held as
under:
“ II. Severability of awards
32. In the present controversy, the proviso to Section 34(2)(a)(iv)
is particularly relevant. It states that if the decisions on matters
submitted to arbitration can be separated from those not
submitted, only that part of the arbitral award which contains
decisions on matters non-submitted may be set aside. The proviso,
therefore, permits courts to sever the non-arbitrable portions of an
award from arbitrable ones. This serves a twofold purpose. First,
it aligns with Section 16 of the 1996 Act, which affirms the
principle of kompetenz-kompetenz, that is, the arbitrators'
competence to determine their own jurisdiction. Secondly, it
enables the Court to sever and preserve the “valid” part(s) of the
award while setting aside the “invalid” ones. [ The “validity” and
“invalidity”, as used here, does not refer to legal validity or merits
examination, but validity in terms of the proviso to Section
34(2)(a)(iv) of the 1996 Act.] Indeed, before us, none of the parties
have argued that the Court is not empowered to undertake such a
segregation.
33. We hold that the power conferred under the proviso to Section
34(2)(a)(iv) is clarificatory in nature. The authority to sever the
“invalid” portion of an arbitral award from the “valid” portion,
while remaining within the narrow confines of Section 34, is
inherent in the Court's jurisdiction when setting aside an award.
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34. To this extent, the doctrine of omne majus continet in se
minus—the greater power includes the lesser—applies squarely.
The authority to set aside an arbitral award necessarily
encompasses the power to set it aside in part, rather than in its
entirety. This interpretation is practical and pragmatic. It would
be incongruous to hold that power to set aside would only mean
power to set aside the award in its entirety and not in part. A
contrary interpretation would not only be inconsistent with the
statutory framework but may also result in valid determinations
being unnecessarily nullified.
35. However, we must add a caveat that not all awards can be
severed or segregated into separate silos. Partial setting aside may
not be feasible when the “valid” and “invalid” portions are legally
and practically inseparable. In simpler words, the “valid” and
“invalid” portions must not be interdependent or intrinsically
intertwined. If they are, the award cannot be set aside in part.”
23. It was argued by learned counsel for the appellant/DDA that the
Hon’ble Supreme Court in Gayatri Balasamy ( supra ) laid down that
the power in the proviso to Section 34(2)(a)(iv) of the Act permits the
Court to set aside only that part of an award which contains decisions
on matters that were not submitted to arbitration. The proviso enables
the Court to severe a non-arbitral portion from the arbitral portion of an
award. It was argued that in the present case the interest accrued on the
FDR was part of Claim no. 8 in the Statement of Claim which was
specifically adjudicated upon and rejected. We cannot accept this
argument as the interest on the FDR was not a part of Claim no. 8 in the
Statement of Claim. Claim no. 8 was for directing DDA to pay interest
@ 18% on the awarded amount till the actual date of payment. With
regard to the justification for modification of award, it has been rightly
held by the learned Single Judge that the portion of the award directing
release of the amount of Rs. 9,30,00,000/- realised on encashment of
PBG and the directions qua the interest accrued on the FDR not to be
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released to the JDPL are severable, and are not dependant on the other
claim awarded.
24. Accordingly, the learned Single Judge has rightly set aside the
award of the learned Arbitrator to the extent that it did not allow
payment of interest accrued/realized on the PBG, which was factually
an interest on the FDR which was prepared pursuant to the order dated
22.10.2013 passed by the learned Arbitrator under Section 17 of the
Act, after the PBG was encashed. According to us, the interest of the
FDR is nothing but the fruit of the principal amount of the FDR. Since
the principal amount, being the amount of PBG, was ordered to be given
to the claimant/JDPL, the interest as a natural corollary should also go
to JDPL and the learned Single Judge has, therefore, rightly modified
the award and ordered payment of interest to JDPL.
25. In the above view of the matter, we are not inclined to interfere
with the impugned judgment dated 05.05.2026 of the learned Single
Judge.
26. The present appeal is therefore dismissed. Pending applications
also stand disposed of.
ADITI CHOUDHARY
(JUDGE)
DINESH MEHTA
(JUDGE)
NOVEMBER 06, 2026
naw/p’ma/va
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