Games hotel guarantee DDA could not invoke: Delhi HC says Rs 9.3 crore returns with interest
A Division Bench of Justice Dinesh Mehta and Justice Aditi Choudhary upheld a single judge who set aside the part of an arbitral award letting DDA keep interest on a fixed deposit made from an encashed bank guarantee the arbitrator held DDA had no right to invoke.
Jaksons Developers finished a hotel at Rohini in time for the 2010 Commonwealth Games. The Delhi Development Authority still moved to encash its Rs 9.30 crore performance bank guarantee for late completion, and an arbitrator later held that it had no right to.
The award ordered DDA to hand back the Rs 9.30 crore but let it keep the interest earned on the fixed deposit holding that money. On 6 November 2026 the Delhi High Court held that the interest had to go to Jaksons as well.
Justice Aditi Choudhary wrote the judgment for a Division Bench that also included Justice Dinesh Mehta. It dismissed DDA’s appeal against a single judge who had set aside that one part of the award.
A hotel for the Games, and a guarantee
DDA invited bids for commercial plot 3B1 at Twin District Towers, Rohini, measuring 11,130.40 square metres, for a hotel to house visitors to the 2010 Games. Jaksons won, and DDA issued its demand-cum-allotment letter on 4 January 2008. The hotel had to be operational within 24 months.
Jaksons furnished a performance bank guarantee of Rs 9.30 crore on 9 June 2008, equal to 5 per cent of its bid and valid for four years. It took possession on 8 September 2008 and kept building in anticipation of approval.
From encashment threat to arbitration
In May 2010 DDA said it would invoke the guarantee for non-completion within 24 months. Jaksons went to the High Court under Section 9 of the Arbitration Act, and on 9 June 2010 DDA was restrained from encashing it.
The hotel opened on 15 September 2010. DDA rejected Jaksons’ application for a completion certificate on 21 September, Jaksons fixed the deficiencies, and a limited-term permission followed on 29 September. The hotel was used during the Games.
On 12 May 2011 the court appointed an arbitrator. On 22 October 2013, deciding Jaksons’ application under Section 17, the arbitrator vacated the bar on invocation. DDA could encash the guarantee, but had to put the money in a fixed deposit at a nationalised bank. The amount, with the interest accrued, would abide the outcome of the case.
What the arbitrator held
The award of 25 April 2023 went Jaksons’ way on the guarantee. DDA was held not entitled to invoke or encash it, and its counter claims for the Rs 9.30 crore and for interest on it were rejected.
The arbitrator read Clause 3.14 of the tender as a penalty, not liquidated damages. The award said the clause did not speak of loss, compensation or a genuine pre-estimate, and DDA had led no evidence of loss. The hotel had been working during the Games, so the arbitrator treated the missing occupancy certificate as a formality.
Jaksons’ claim for Rs 50 crore in business losses failed, as did claims for Rs 20 crore in damages and several expense heads. It got back Rs 75,74,701 in prior-sanction charges.
Its Claim No. 8, for 18 per cent interest on the awarded sum, was rejected. The arbitrator found that delay was shared by both sides, the Chief Fire Officer and the Delhi Urban Arts Commission.
The addendum that split the money
Jaksons applied under Section 33 and the issue of the deposit came up. By an addendum on 21 May 2023 the arbitrator corrected the award on Claim No. 2. DDA was to release the Rs 9.30 crore.
The second part said that because Claim No. 8 for interest had been rejected, the interest accrued on the guarantee would not be released to Jaksons. Jaksons challenged only that part, under Section 34.
The single judge’s reasoning
On 5 May 2026 the single judge held that Section 31(7) of the Act did not govern interest on the fixed deposit, which took the character of the principal kept in it. Nothing in the award gave a reason for withholding it.
Once the arbitrator held DDA could not invoke the guarantee, the judge said, the only possible view was that the whole fixed deposit went to Jaksons. What DDA had lost in its counter claim had been allowed to it indirectly. He set that part aside and ordered the interest paid.
DDA’s case
Mr Sanjay Vashishtha, Senior Counsel, appeared for DDA. He said the single judge relied on Central Bank of India v. Ravindra, a case about bank loans and capitalised interest, which had no bearing on a fixed deposit kept under a Section 17 order.
He also said the release of Rs 9.30 crore was a money award, so pre-award interest was within the arbitrator’s discretion under Section 31(7)(a). The arbitrator, he argued, had made a conscious choice after finding mutual delay, and that was a plausible view.
Relying on Gayatri Balasamy v. ISG Novasoft Technologies, he added that a court may sever only the part of an award on matters not submitted to arbitration. The interest, he said, was part of Claim No. 8, which the arbitrator had decided.
Jaksons’ answer
Mr Sumit Bansal, Senior Advocate, appeared for Jaksons. He said the deposit was ordered so that the interest could go to whichever side won on the guarantee. Jaksons won, so it was entitled to the interest.
Claim No. 8 and the fixed deposit interest, he argued, were different things. The arbitrator had mixed them up. DDA, having invoked the guarantee wrongly, could not profit from its own wrong.
The limits of review
The bench began with the law on challenges to awards. It set out Section 34, including the patent illegality ground in Section 34(2A), and quoted the Supreme Court in MMTC Ltd v. Vedanta Ltd and Somdatt Builders-NCC-NEC (JV) v. NHAI.
A court does not sit in appeal over an award, and an appeal under Section 37 cannot travel beyond the limits of Section 34. The question, it said, was whether the single judge had exceeded those limits. It framed the issue this way:
“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” (para 9)
Why the Section 17 order mattered
The bench read the order of 22 October 2013 as an interim measure. The arbitrator had let DDA encash the guarantee but not use the money, so that the principal would earn interest and the whole fund would reach whoever was found entitled.
That condition, it held, was defeated if DDA kept the interest after losing on the guarantee itself. The bench agreed with the single judge on that point.
The bench did not rest on Central Bank of India, which the single judge had cited. It called that case distinguishable, since it concerned the meaning of the principal sum in Section 34 of the Code of Civil Procedure, in bank recovery suits.
Two findings that could not sit together
The court noted that the arbitrator rejected DDA’s Counter Claim No. 2 for interest on the guarantee, holding DDA could not invoke it at all. Yet the addendum let DDA keep the interest accrued on the deposit.
The award, it said, gave no reasoned finding for denying that interest to Jaksons, and the two positions were mutually contradictory. It asked how DDA could retain the benefit of the deposit after being held not entitled to the guarantee, and found no answer in the award.
Section 31(7) did not apply
Section 31(7) lets an arbitrator add interest to the sum for which an award is made. The bench held that the encashed guarantee was not a sum awarded in that sense. It went to Jaksons because DDA could not invoke it.
So Claim No. 8 and the rejection of interest under Section 31(7) had no bearing on interest earned on the deposit. Refusing it on that footing contravened the statute and was a patent illegality.
Severing one part of the award
On Gayatri Balasamy, the bench noted that the Supreme Court allows an award to be set aside in part, if the valid and invalid portions are not intertwined. It rejected DDA’s argument that interest on the deposit was part of Claim No. 8.
Claim No. 8 was a claim for 18 per cent on the awarded amount. The direction to release the Rs 9.30 crore and the direction on the deposit interest were severable, the court held, and did not depend on the other claims. It called the deposit interest
“nothing but the fruit of the principal amount of the FDR” (para 24)
Since the principal was to go to Jaksons, the interest followed as a natural corollary.
Order
The Division Bench declined to interfere with the judgment of 5 May 2026 and dismissed DDA’s appeal. The pending applications were disposed of.
The part of the award denying Jaksons the interest on the fixed deposit stays set aside, and the interest is payable to Jaksons along with the Rs 9.30 crore. The judgment gives no figure for the accrued interest.