Jaksons Developers (P) Ltd vs Delhi Development Authority

* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 30.04.2026
Judgment pronounced on: 05.05.2026

+ O.M.P. (COMM) 349/2023
JAKSONS DEVELOPERS (P) LTD .....Petitioner
Through: Mr. Sumit Bansal, Sr. Adv.
with Mr. Udaibir Singh Kochar,
Mr. Pankaj Gupta, Mr. Utsav
Garg, Ms. T Rampal, Ms.
Nikita Gupta, Ms. Samvartika
Pathak & Mr. Pushkar Khanna,
Advs.
versus

DELHI DEVELOPMENT AUTHORITY .....Respondent
Through: Mr. Sanjay Vashistha, Mr.
Siddhartha Goswami, Mr. Krish
Bhatia & Mr. Aditya Sachdeva,
Advs.

CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN
J U D G M E N T
1. This petition is filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short „the Act‟) seeking setting
aside/modification of the arbitral award dated 25.04.2023 (for brevity
„the award‟) alongwith addendum dated 21.05.2023.
2. The facts shorn of unnecessary details are that the
respondent/Delhi Development Authority (DDA) invited bids for
commercial plot No. 3B1, Twin District Towers, Rohini (admeasuring
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11130.40 sq. mtrs.) for construction of a hotel to provide
accommodation for the Commonwealth Games 2010 (CWG). The
petitioner/ Jakson Developers (P) Ltd. was the successful bidder and
on 04.01.2008 a Demand-cum-Allotment Letter was issued. The hotel
project was required to be made operational within twenty four
months from the date of allotment. The petitioner company was
obligated to furnish a performance security equivalent to five percent
of the bid amount in the form of a bank guarantee, valid for a period
of four years. The petitioner submitted building plans in March 2008,
however the Chief Fire Officer approved them only in November
2008 and Delhi Urban Arts Commission in December 2008. In the
meanwhile, the petitioner submitted a Performance Bank Guarantee
(PBG) of Rs.9,30,00,000/- (Rupees Nine Crores and Thirty Lakhs)
under clause Clause 3.14 of the tender document and was given
formal possession of the plot on 08.09.2008. The petitioner continued
construction above plinth level in anticipation of plan approval and the
DDA levied "Prior to Sanction Charges" against the petitioner, which
were deposited by the petitioner in May 2009 being a condition for
formal approval of the building plans.
2.1 The respondent/DDA intended to invoke the PBG in May 2010
for non-completion of the work within twenty four months of the
allotment letter. The petitioner filed a petition under Section 9 of the
Act and this Court on 09.06.2010 restrained DDA from encashing the
PBG. The relevant part of the order dated 09.06.2010 is as under:
“In view of the submission made by the petitioner in the
petition as well as from the documents placed on record, I
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am of the view that the petitioner has made a prima facie
case in its favour for grant of ex parte ad interim
injunction
Till the next date of hearing, the respondent is restrained
from invoking and encashing the bank guarantee as
furnished by the petitioner in pursuance of the
performance security as per Clause 3 .14 of the general
terms and conditions of the tender document with the
respondent for allotment of hotel plot 3B 1, Twin District
Centre, Sector 10, Rohini, Delhi.”
2.2 The petitioner completed the hotel and made it operational in
September 2010 before the start of CWG 2010 and applied for the
completion certificate on 15.09.2010 but the respondent rejected the
request on 21.09.2010. The petitioner rectified the issues on
24.09.2010 and sought Limited Term Permission, which was granted
on 29.09.2010 subject to conditions. The hotel was used during the
CWG 2010 and the permission was extended from time to time.
Thereafter, disputes between the parties were referred to arbitration.
The court appointed a sole arbitrator vide order dated 12.05.2011. The
application under Section 17 of the Act was decided on 22.10.2013
and the arbitrator directed that respondent can encash the PBG but the
amount was to be kept in a Fixed Deposit (FDR) with a nationalized
bank. The relevant part of the order dated 22.10.2013 is as under:
“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
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these proceedings. The said amount along with interest
accrued thereon shall abide the outcome of the matter.”
2.3 The award was passed on 25.04.2023, and an addendum thereto
on 21.05.2023. The DDA was held not entitled to invoke the PBG and
was directed to release the PBG amount to the petitioner. The interest
accrued on the PBG amount was not to be released to the petitioner,
aggrieved the petitioner filed the present petition.
3. Learned counsel for the petitioner argues that the finding that
the respondent could not have invoked the PBG has attained finality.
Vide order dated 22.10.2013, the PBG was directed to be kept in a
FDR and the interest accrued thereon was a part and parcel of the PBG
only. The submission is that the award to the extent of denying the
petitioner interest accrued on FDR suffers from patent illegality.
4. Per contra , the discretion under Section 31(7) of the Act is with
the arbitrator to include or not to include interest in the sum for which
the award is made. The arbitrator denied the petitioner grant of interest
under Section 31(7) of the Act and the petitioner is not entitled to get
interest accrued on the FDR. The plea is that in absence of the
challenge to the non-grant of interest under Section 31(7) of the Act
the petitioner cannot pray for release of the interest accrued on FDR.
4.1 The argument is that the delay in completion of work was
attributable to both the parties and consequently the petitioner was
rightly denied the interest accrued on the FDR.

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5. The only pin-pointed issue is that whether after the conditional
encashment of the PBG pursuant to the order under Section 17 of the
Act with a rider to keep the amount in an FDR in a nationalized bank,
can the interest accrued on the FDR be retained by the respondent in
spite of the decision that the PBG could not have been encashed?
6. The petitioner in compliance with clause 3.14 of the tender
document furnished a PBG to the tune of five percent of the bid
amount. Clause 3.14 of the tender document provided penalty for non-
completion of the hotel within twenty four months. The PBG to the
extent of penalty amount scheduled in the clause for the period of
delay in completion of the hotel could be encashed.
7. The dispute arose between the parties with regard to the delay
in completion of the project. In the application filed under Section 9 of
the Act this Court vide order dated 09.06.2010, restrained invoking
and encashing of the bank guarantee. After appointment of the
arbitrator by order dated 22.10.2013 the interim relief was decided
under Section 17 of the Act. The restraint order was vacated subject to
the condition that during the pendency of the arbitration proceedings
the realised amount shall be kept in an FDR in a nationalized bank and
the amount along with interest accrued on FDR shall abide by the
outcome of the proceedings. The PBG was encashed and kept in an
FDR by the respondent. The arbitrator vide award dated 25.04.2023,
held that the respondent was neither entitled to invoke nor to encash
the PBG. The claim of the petitioner for direction to the respondent
not to encash PBG was allowed. The relevant paragraphs of the award
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are reproduced below:
“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 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.
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133. In view of the aforesaid discussion respondent was
not entitled to invoke and proceed to encash the bank
guarantee.
xxx xxx xxx
Claim No. 2
Under this claim claimant requests that respondent be
directed not to encash the bank guarantee furnished by
claimant in pursuance of clause 3.14 of the tender
document.
The claim is allowed in view of the finding that
respondent is not entitled to invoke and encash the bank
guarantee. Accordingly, respondent is interdicted from
proceeding to encash the bank guarantee.”
(emphasis supplied)
8. The respondent filed counter claims to invoke/encash PBG and
seeking interest for the period from expiry of twenty four months for
completion of hotel till the encashment of the PBG. Both the counter
claims were rejected.
9. In the award the directions to give effect to the order passed
under Section 17 of the Act were not issued. On an application filed
under Section 33 of the Act by the petitioner, an addendum dated
21.05.2023 was issued correcting the award. Directions were issued
that amount of Rupees Nine Crores and Thirty Lakhs realized on
encashment of PBG be released to the petitioner and due to rejection
of the claim for interest on the claimed amount the interest accrued on
PBG was not to be released to the petitioner. The operative portion of
the addendum dated 21.05.2023 is reproduced below:
“a) The respondent shall release to the claimant an
amount of Rs. 9,30,00,000/- realised on encashment of
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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.
6. This addendum is attached with the corrected Award.”
10. The respondent was held not entitled to invoke and encash the
PBG and this finding attained finality. The encashment of the PBG by
the respondent in pursuance to interim order was conditional. The
amount realised could not have been used by the respondent but was
to be kept in an FDR in a nationalized bank. The realised amount
along with interest accrued on FDR was subject to outcome of the
arbitration proceedings. The interest accrued on the FDR was not
governed by Section 31(7) of the Act and it partakes of the character
of the principal amount kept in FDR. The arbitrator after holding that
the respondent could not have invoked/encashed the PBG had no basis
to segregate the principle amount and the interest accrued thereon.
This is also evident from the orders under Section 17 of the Act
wherein it was stated that the amount of PBG along with interest
thereon shall abide by the outcome of the matter. The FDR as a whole
will have to go as per the decision of the arbitrator with regard to
invocation of the PBG.
11. The condition imposed under Section 17 of the Act that the
respondent shall not use the amount realised by encashing PBG was to
ensure that the FDR be released to the party found entitled to it. The
condition got defeated by permitting the respondent to retain the
interest of the FDR, inspite of not being entitled to invoke/encash
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PBG. The interim arrangement of keeping the PBG amount in the
FDR to ensure that the principal amount in the intervening period
earns interest and ultimately the entitled party gets the principal
amount along interest accrued is negated. The Supreme Court in
Central Bank of India v. Ravindra & Ors. , (2002) 1 SCC 367 stated
as under:
“25. In State Bank of India v. Avtar Singh Saih [AIR 1986
P&H 381 : (1986) 89 Punj LR 321] while rejecting the
borrower's application under Order 6 Rule 5 of the Code of
Civil Procedure seeking direction to the bank to point out
separately by breaking up its claim so as to show the
amount of the principal and the interest separately, it was
held that the principal amount found due not only means the
principal amount but also the amount due as interest which
has become part of the principal.”
(emphasis supplied)
12. The contention of the learned counsel for the respondent that
the arbitrator had a discretion under Section 31(7) of the Act to grant
or not to grant interest is of no avail. Section 31(7) of the Act deals
that if the parties have not agreed otherwise, the arbitrator while
awarding the payment of money may include in the sum the interest
awarded at a rate deemed reasonable. In this case, the payment of
money was not awarded by the arbitrator, it was held that the
respondent was not entitled to invoke and encash the PBG and the rest
of the relief was consequential thereto. In other words the award was
only that the PBG could not have been encashed, the natural
consequence is the end of interim arrangement of keeping the amount
of PBG in FDR and the FDR as a whole would be going back to the
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petitioner.
13. The argument of the respondent that the delay in completion of
project was attributable to both the parties and therefore the
respondent was to keep the interest on the FDR is noted to be rejected.
The conclusion of the arbitrator is unambiguous that the respondent
could not have invoked the PBG, there is no discussion and reason
recorded in the award for directing non-release of interest of the FDR
to the petitioner. The non-release of FDR interest to the petitioner
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.
14. Another angle to be considered is that on one hand the counter
claims of respondent for invoking PBG and for seeking interest for the
period of delay in completion of the hotel was rejected yet, the
respondent was indirectly awarded interest from date of opening of
FDR till encashment. Both of these findings are mutually
contradictory.
15. The view of the arbitrator of segregating the principle amount
of the FDR from the interest accrued thereon is not a plausible view.
The only possible view after concluding that the PBG could not have
been invoked, is that the FDR as a whole should go to the petitioner.
16. There cannot be quarrel with the proposition that scope of
interference under Section 34 of the Act is limited but in case of a
perverse finding and award suffering from patent illegality for being
against the statutory provision, the interference should be made under
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Section 34 of the Act.
17. The Supreme Court in Gayatri Balasamy v. ISG Novasoft
Technologies Ltd. , (2025) 7 SCC 1 held that while an arbitral award
cannot be modified under Section 34 of the Act, a severable part of the
award may be set aside. The relevant paragraphs are quoted below:
“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.
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
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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.
(emphasis supplied)
18. 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, are
not dependant on other claim awarded and are not intricately
connected with each other. The award to the extent directing that the
interest accrued on the FDR for the amount realised on encashment of
PBG shall not be released to the petitioner, is set aside.
19. The petition is allowed.



AVNEESH JHINGAN, J
MAY 05, 2026
‘ha’
Reportable:- Yes
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