Hotel Developer To Get FDR Interest On ₹9.3-Crore PBG DDA Was Not Entitled To Encash, Delhi HC Upholds

In brief

The question

1. Whether the Tribunal’s denial of the interest accrued on the FDR, despite holding that DDA was not entitled to invoke the PBG, was vitiated by patent illegality and could be set aside under Section 34.

The court held

The Court held that the Tribunal’s refusal to release the FDR interest to JDPL was patently illegal and that the Single Judge had properly modified the award to direct payment of that interest to JDPL.

It also directed

DDA’s appeal was dismissed, and the pending applications were disposed of.

01Facts

DDA allotted JDPL a plot for a hotel and obtained a performance bank guarantee (PBG) of ₹9.30 crore.

After DDA sought to invoke the PBG for delay in completion, the Arbitral Tribunal permitted encashment but directed DDA to place the proceeds in a fixed deposit (FDR), with the amount and accrued interest to abide by the outcome of the arbitration.

pp. 2–3, 20

The Tribunal ultimately held that DDA was not entitled to invoke the PBG and directed release of its principal amount to JDPL, but, by addendum, denied JDPL the FDR interest because its separate claim for interest under Section 31(7) of the Arbitration and Conciliation Act, 1996 had been rejected.

pp. 3–4, 20–21

On JDPL’s Section 34 petition, the Single Judge set aside the direction withholding the FDR interest. DDA appealed under Section 37, contending that the modification exceeded the permissible scope of review.

pp. 4–5, 7

02Issues

i.1. Whether the Tribunal’s denial of the interest accrued on the FDR, despite holding that DDA was not entitled to invoke the PBG, was vitiated by patent illegality and could be set aside under Section 34.

pp. 8–9, 15–16, 21

ii.2. Whether the Single Judge could modify the award by severing the direction denying FDR interest from the rest of the award.

pp. 22–24

03Law Applied

Section 34(2A) permits a domestic arbitral award to be set aside for patent illegality apparent on its face, but not merely for an erroneous application of law or on reappreciation of evidence; Section 37 review cannot exceed the limits of Section 34 and is not an appeal on the merits (MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163).

pp. 9–14

Under Section 31(7)(a), an arbitral tribunal may award pre-award interest on money for which the award is made; that discretion does not govern interest earned on a sum held in an FDR under an interim preservation order, where the principal is later released as the party’s entitlement rather than awarded as a monetary claim.

pp. 20–22

Under Gayatri Balasamy v. ISG Novasoft Technologies Ltd., (2025) 7 SCC 1, an award may be set aside in part where the affected portion is severable and not legally or practically interdependent with the remainder.

pp. 22–23

Provisions in the judgment · 13 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 10 provisions

Section 37 Section 9 Section 17 Section 34 Section 31 Section 33 Section 75 Section 81 Section 16 Section 18

Commercial Courts Act, 2015 Section 13

Code of Civil Procedure, 1908 Section 34

Interest Act, 1978 Section 2

04Reasoning

The Tribunal’s Section 17 order required the encashed PBG proceeds and accrued interest to abide by the arbitration’s outcome; it was intended to preserve the fund and its earnings for the party ultimately found entitled to the PBG.

pp. 14–15, 20

Once the Tribunal held that DDA was not entitled to invoke the PBG, withholding the FDR interest allowed DDA to retain a benefit arising from the encashment, despite the rejection of its counterclaims, and the award gave no reasoned basis for that result.

pp. 19–21

The interest on the FDR was distinct from JDPL’s Claim No. 8 for interest on amounts awarded: Section 31(7) governed the latter, not the accrued return on the preserved PBG proceeds.

pp. 15–16, 21–23

The direction concerning FDR interest was severable from the direction releasing the principal, so the Single Judge’s partial modification remained within the permissible scope of Section 34.

pp. 22–24