Delhi High Court Upholds Release Of ₹9.30 Crore Bank Guarantee With Interest In 2010 Commonwealth Games Hotel Dispute

The Delhi High Court has recently upheld an order directing the Delhi Development Authority (DDA) to release ₹9.30 crore, along with the interest earned on it, to Jaksons Developers. The company had furnished a performance bank guarantee (PBG) for a hotel project intended to accommodate visitors during the 2010 Commonwealth Games.

A Division Bench of Justice Dinesh Mehta and Dr. Justice Aditi Choudhary held that the interest earned on the fixed deposit could not be withheld after the company was found entitled to the underlying PBG amount.

“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,” the court observed.

The dispute arose after the DDA invited bids for a commercial plot at Twin District Towers, Rohini, for constructing a hotel to provide accommodation during the Commonwealth Games. Jaksons Developers emerged as the successful bidder. The allotment letter, issued on January 4, 2008, required the hotel to become operational within 24 months.

Jaksons furnished a PBG of ₹9.30 crore on June 9, 2008, equivalent to 5% of the bid amount. The guarantee was valid for four years.

In May 2010, the DDA intended to invoke the PBG on the ground that the hotel had not been completed within the stipulated 24 months. Jaksons approached the court and obtained an interim order restraining the DDA from invoking or encashing the guarantee on June 9, 2010.

The hotel was completed and made operational on September 15, 2010, before the Commonwealth Games. Jaksons applied for a completion and occupancy certificate, but the DDA rejected the application on September 21. Jaksons rectified the deficiencies on September 24 and sought limited-term permission, which was granted on September 29. The hotel was used during the Games.

The arbitrator allowed the DDA to encash the PBG in October 2013, but directed it to keep the ₹9.30 crore proceeds in a fixed deposit until the arbitration was decided. Both the principal and interest earned on it would abide by the outcome.

In April 2023, the arbitrator held that the DDA was not entitled to invoke the PBG and directed it to return ₹9.30 crore to Jaksons. However, it rejected the company's separate claim for 18% interest on the awarded amount, citing delays attributable to both parties, the Chief Fire Officer and the Delhi Urban Arts Commission. The DDA's counterclaims, including its claim for interest on the PBG, were also rejected.

An addendum issued the following month nevertheless directed that the FDR interest not be released to Jaksons because its claim for interest had been rejected. The company challenged this part of the award before the High Court. A single judge set it aside, holding that the FDR interest was not governed by Section 31(7) of the Arbitration Act and went with the principal amount.

The DDA appealed, but the division bench rejected its arguments. It held that the FDR interest was distinct from Jaksons' claim for 18% interest on the award. Relying on Gayatri Balasamy v. ISG Novasoft Technologies Ltd., the court held that the relevant portions of the award were severable and dismissed the appeal.

For DDA (Appellant): Advocate Sanjay Vashishtha, Standing Counsel, along with Advocates Siddhartha Goswami and Aditya Sachdeva.

For Jaksons Developers (Respondent): Senior Advocate Sumit Bansal, along with Advocates Praveen Gupta, Maheen Khan, Riya Goyal and Ashim Shridhar.