This judgment decides only the appeal under section 37(1)(c) of the Arbitration and Conciliation Act, 1996 against the Single Judge's modification of the award. It does not reopen the arbitrator's findings on the parties' other claims and counter-claims, and it does not decide any question about the underlying allotment or the hotel project beyond the bank-guarantee dispute.
- Case
- Delhi Development Authority v. Jaksons Developers (P) Ltd.
- Court
- High Court of Delhi
- Decision
- Citation
- 2026:DHC:9957-DB
- Bench
- Dinesh Mehta; Aditi Choudhary
- Judgment by
- Aditi Choudhary
- Case numbers
- FAO(OS) (COMM) 192/2026
- Outcome
- Appeal under section 37(1)(c) of the Arbitration and Conciliation Act, 1996 dismissed: the Division Bench declines to interfere with the Single Judge's judgment of 5 May 2026 modifying the arbitral award.
The decision
The Delhi High Court has dismissed the Delhi Development Authority's appeal against a Single Judge's modification of an arbitral award, holding that the interest earned on an encashed performance bank guarantee kept in a fixed deposit belongs to the developer to whom the principal was ordered to be returned. A Division Bench of Justices Dinesh Mehta and Aditi Choudhary, in a reportable judgment delivered on 6 November 2026, held that the interest was the fruit of the principal and not an award of interest governed by section 31(7).
The dispute concerned a performance bank guarantee of Rs 9.30 crore furnished by Jaksons Developers (P) Ltd. for a hotel project in Rohini. The arbitrator had held that DDA was not entitled to invoke or encash the guarantee and directed the amount to be released to the developer, but the award withheld the interest the money had earned while held in a fixed deposit during the arbitration. The Single Judge set aside that part of the award; the Division Bench has now upheld that modification.
Background: the guarantee, the hotel and the award
DDA allotted commercial plot No. 3B1, Twin District Towers, Rohini, measuring 11,130.40 sq. m, to Jaksons Developers for a hotel to house visitors to the Commonwealth Games 2010. A demand-cum-allotment letter issued on 4 January 2008, and on 9 June 2008 the developer furnished a performance bank guarantee of Rs 9.30 crore, 5 per cent of the bid amount, as performance security. Possession was given on 8 September 2008, and the hotel was completed and operational before the Games.
In May 2010 DDA sought to invoke the guarantee for non-completion within 24 months. The developer obtained a stay, and by an order under section 17 of the Act dated 22 October 2013 the arbitrator vacated the restraint on condition that DDA encash the guarantee but keep the amount in a fixed deposit, with the amount and the interest on it to abide the outcome. The award of 25 April 2023, with an addendum of 21 May 2023, held DDA not entitled to invoke or encash the guarantee and directed release of the Rs 9.30 crore. The developer's Claim No. 8, for interest at 18 per cent on the awarded amount, was rejected for mutual delay attributable to both parties, and DDA's counter-claims were rejected. The addendum clarified that, since Claim No. 8 was rejected, the interest on the fixed deposit would not be released.
The issue: whose interest is it?
The developer challenged the award under section 34 only to the extent it withheld the interest on the fixed deposit. The Single Judge held that the interest was not governed by section 31(7), which deals with interest on sums awarded by a tribunal, because the encashed guarantee money had not been awarded as a sum of money but was held under the section 17 order to abide the outcome. The interest partook of the character of the principal, and no reason was recorded in the award for not releasing it. The Division Bench noted that the Central Bank of India authority relied on for that proposition was distinguishable on its facts. The Single Judge set aside that part of the award and ordered the interest to be paid.
DDA appealed under section 37(1)(c), arguing that the Single Judge had wrongly modified the award, that the arbitrator's discretion under section 31(7) covered the interest, and that the award's rejection of interest in Claim No. 8 and the addendum showed a conscious decision to deny it. The question was whether the Single Judge's modification was within the narrow scope of section 34 and whether the interest on the deposit was severable from the rest of the award.
The rule: section 31(7) and severability of awards
Section 31(7)(a) empowers a tribunal to include interest, at a rate it deems reasonable, on the money for the period between the date the cause of action arose and the date of the award; section 31(7)(b) provides for post-award interest. The provision therefore governs interest on sums directed to be paid by an award. Separately, the Supreme Court's decision in Gayatri Balasamy holds that the power to set aside an award under the proviso to section 34(2)(a)(iv) includes the power to set it aside in part, where the valid and invalid portions are severable — the greater power includes the lesser.
The Division Bench applied both principles. The encashed guarantee amount was not an amount awarded or 'the sum for which the award is made' within section 31(7); it was money given to the developer because the guarantee was not to be invoked, following the rejection of DDA's counter-claim. The application of section 31(7) could not be extended to the interest accrued on the fixed deposit, and the Single Judge had rightly held that withholding it on the basis of the rejection of interest under section 31(7) was against the statutory provision and vitiated the finding with patent illegality.
The reasoning: fruit of the principal, severable from the rest
The Court rejected DDA's argument that the interest on the fixed deposit was part of Claim No. 8. That claim sought interest at 18 per cent on the awarded amount until payment; the interest on the deposit was a different thing — the return earned by money that had been preserved under the section 17 order. The portion of the award directing release of the Rs 9.30 crore realised on encashment and the direction that the interest not be released were severable and not dependent on the other claims awarded, so the Single Judge could set aside the latter without disturbing the former.
On the merits of the interest, the Court held that the interest on the fixed deposit is nothing but the fruit of the principal amount. Since the principal, being the guarantee amount, was ordered to be given to the developer, the interest as a natural corollary should also go to the developer. The Court was not inclined to interfere with the Single Judge's judgment of 5 May 2026, and dismissed the appeal; pending applications also stand disposed of.
Outcome and what happens next
The appeal is dismissed, and the Single Judge's modification stands: the interest accrued on the fixed deposit is to be paid to Jaksons Developers along with the principal of Rs 9.30 crore. The judgment does not disturb any other part of the award, including the rejection of the developer's Claim No. 8 for interest on the awarded amount and the rejection of DDA's counter-claims.
The decision confirms that, where disputed money is parked in a fixed deposit under a section 17 order, the interest follows the principal, and that a section 34 court may sever and set aside only the offending part of an award where the parts are independent.
BANTHRY ANALYSISFor law students
Three ideas are worth carrying from this judgment. First, section 31(7) interest is interest on a sum awarded — it does not govern money merely preserved under a section 17 interim order, where the money and its accretion abide the outcome. Second, Gayatri Balasamy gives section 34 courts a scalpel, not only a hammer: an award can be set aside in part where the invalid portion is severable, which is why the Single Judge could correct the interest direction without unravelling the whole award. Third, once the guarantee could not have been invoked, the whole deposit, principal and interest, belonged to the developer.
READING PROMPTSQuestions for a closer reading
- Why did the Court hold that section 31(7) of the Arbitration and Conciliation Act did not govern the interest on the fixed deposit?
- On what basis could the Single Judge modify the award instead of setting it aside in full, and how did Gayatri Balasamy support that?
- Why was the interest on the fixed deposit not part of the developer's Claim No. 8 for interest on the awarded amount?
