Delhi High Court
Turner Morrison Ltd vs Karma Konchok Namgyal on 16 July, 2026
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on:04.05.2026
Judgment delivered on :16.07.2026
+ FAO(OS) (COMM) 130/2020 and CM APPL. 42522/2021
TURNER MORRISON LTD .....Appellant
versus
KARMA KONCHOK NAMGYAL .....Respondent
Advocates who appeared in this case:
For the Appellant : Mr. Sandeep Sethi, Sr. Adv. with Mr. Rishi
Agrawala, Mr. Lalit Gupta, Ms. Aarushi
Tiku, Mr. Vikram Choudhary, Ms. Riya
Kumar, Advs.
For the Respondent : Mr. Amit Rawal, Sr. Adv. with Mr.
Saurabh Suman Sinha, Ms. Sujal Gupta, Mr.
Harshit Khanduja and Mr. Pulkit Shree,
Advs.
CORAM:
HON'BLE MR. JUSTICE ANIL KSHETARPAL
HON'BLE MR. JUSTICE AMIT MAHAJAN
JUDGMENT
AMIT MAHAJAN, J.
1. Through the present appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereafter ‘the Act’), the
Appellant/ Turner Morrison Ltd. (‘TML’) is essentially assailing the
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correctness of judgment dated 14.05.2020 in O.M.P. (COMM)
50/2018 (hereafter ‘impugned judgment’), as well as the Common
Arbitral Award dated 31.10.2017 passed in two arbitrations-
Arbitration I and Arbitration II, on the following counts:
i. That in Arbitration I pertaining to construction cost dispute, the
contractually agreed rate of interest of 36% per annum was to
be reckoned from the date when Respondent No.2/ Namgyal
Institute for Research on Ladakhi Art and Culture (‘NIRLAC’)
installments fell due in terms of the Construction Agreement
dated 11.12.1995; andii. That in Arbitration II pertaining to maintenance cost dispute,
the agreed rate of interest/ penalty at the rate of 2% per month
on the outstanding service and electricity charges under the
Facilities and Maintenance Contract dated 15.10.1999 and
Facilities and Maintenance Agreement dated 29.11.2001 was to
be paid by NIRLAC.
2. By the Common Award, the learned Arbitrator had awarded
interest at the rate of 7.5% per annum on delayed payments under the
Construction Agreement dated 11.12.1995 from 20.01.2007 (that is,
the date when the demand notice was sent by the TML to NIRLAC to
recover the construction cost along with interest and expenses), and
rejected the TML’s claim for interest at the agreed rate of 36% per
annum. The Arbitrator had also rejected the TML’s claim for interest
on outstanding electricity service and other maintenance charges. By
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the impugned judgment, the learned Single Judge set aside the
Common Award to the extent that it has reduced the rate of interest
from 36% to 7.5% without interfering with the Arbitrator’s findings in
regard to the date from when the interest in this regard was to be
reckoned. The learned Single Judge further held that the Arbitrator’s
view that there being no liability on NIRLAC to pay any penalty on
service and electricity charges was also plausible.
3. Shorn of unnecessary details, the brief facts of the case are as
under:
Arbitration I
3.1. On 22.11.1995, a Perpetual Lease Deed was executed between
the President of India and NIRLAC for a plot of Nazul Land
measuring 5324.40 sq. mtrs. whereunder NIRLAC was to complete
construction of a building on the subject plot within two years.
3.2. As NIRLAC was not in a position to comply with the terms of
the Lease due to paucity of funds, it approached TML for carrying out
the construction. Pursuant to the same, TML and NIRLAC entered
into the Construction Agreement dated 11.12.1995 wherein it was
decided that TML would obtain necessary approvals, permissions for
construction on the plot and recover the cost of construction with
interest from NIRLAC. The relevant sub clauses in this respect are as
under:
“3.2 (a) It will be the obligation of the First Party to make
payments to the Contractor in accordance with the Schedule ofSignature Not Verified
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payment annexed hereto and in the event delay in any payment, the
First Party shall pay interest@ 36% per annum on the delayed
payment.
(b) That till the entire construction cost is paid by the First Party to
the Second Party. The Second Party shall have a lien over the said
land a/ongwith constructions thereon and in that event shall have
full authority and power to – appropriate all its construction cost,
interest and expenses by sale, transfer or lease of such constructed
area so as to meet the outstanding liabilities of the First Party and
in that event the First Party shall not raise any objection in any
manner whatsoever
(c)That further to secure the payments to be made to the Second
Party the First Party shall deposit the original title deeds of the
said property with the Second Party who shall retain the same as a
security till the entire payment and entire construction cost and all
the dues and expenses payable by the First Party to the Second
Party is paid fully.”
3.3. Further, the payment schedule under the Construction
Agreement provided for payment in the following manner:
“1. 20% as advance for mobilization.
2. 15% on completion of Foundation.
3. 15% on laying Ground Floor Roof slab.
4. 15% on laying First Floor roof slab.
5. 10% on completion of Superstructure.
6. 10% after Brick work, plastering, flooring.
7. 10% on Sanitary fixtures & wood work, like door Windows.
8. 5% on possession.”
3.4. On 11.12.1995 itself, NIRLAC also entered into ten separate
unregistered agreements to lease various portions of the proposed
building to different entities for an initial term of 9 years, which was
renewable for successive terms of 9 years each. As per TML, the
aforesaid arrangement was entered to enable NIRLAC to raise
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finances to meet the proposed construction cost, however, NIRLAC
was unable to generate sufficient funds and it defaulted in making
payments. This led TML to acquire leasehold rights qua these Leases
by separate deeds of assignment.
3.5. Thereafter, on 02.06.1997, TML and NIRLAC also executed
supplemental agreements agreeing that NIRLAC will refund the
Security and cost of construction with interest along with any amount
spent by TML on alteration/ modification and loss/ damage suffered
by TML if TML has to vacate the property due to action of NIRLAC
or any statutory authority or due to any government stipulation. GPA’s
dated 11.12.1995 and 04.03.1999 were executed by NIRLAC in
favour of TML’s nominees authorising them to let out the constructed
building and generate some rental inflow which could be adjusted
towards recovery of construction cost.
3.6. In February, 1999, NIRLAC entered into two agreements to
forego a sum of ₹2.1 crores and ₹20 lakhs respectively out of total
security deposit payable by TML to NIRLAC in respect of the
acquired leases as well as in respect of the additional area of building.
3.7. Construction was completed by TML on 11.06.1999 and
Municipal Corporation of Delhi (‘MCD’) issued a completion
certificate. As the constructed area was 71,146 sq. ft., in terms of the
Agreement, NIRLAC was liable to pay construction cost of ₹14.23
crores (at the rate of ₹2000/- sq. ft.) along with interest on delayed
payment. On 01.10.1999, NIRLAC handed over possession of the
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premises measuring 44,900 sq. ft. area on the 1st to 5th floors along
with the adjoining terraces and also an area measuring 11,322 sq. ft. in
the basement of the building to TML.
3.8. After completion of construction, separate registered tripartite
Agreements to lease were entered into with different lessees with
consent of NIRLAC and TML continued to receive rent (which was to
be adjusted towards constructed cost) till 14.11.2006, on which date
the property was sealed by MCD pursuant to Delhi Development
Authority cancelling the Perpetual lease in favour of NIRLAC on the
ground of alleged unauthorised subletting to commercial
organisations.
3.9. Aggrieved by NIRLAC’s failure to pay the due amount and as it
could no longer recover the amount by leasing out portions of the
constructed building, TML issued a demand notice dated 20.01.2007
to recover the construction cost along with interest and expenses.
Thereafter, TML filed two separate petitions under Section 9 of the
Act, which were allowed by common order dated 23.09.2009 and
NIRLAC was inter alia restrained from occupying or using and/or
alienating, encumbering or parting with possession of subject plot.
The Appeals against the interim order were dismissed.
3.10. In the first arbitration, TML essentially sought the due amount
towards construction cost with compound interest at the rate of 36%
annum. The learned Arbitrator rejected all the claims of TML and
directed it to deliver back the original title deeds of the plot and
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building constructed thereon to NIRLAC. Rate of interest was reduced
to 7.5% per annum as the Arbitrator found the interest at the rate of
36% per annum to be hit by Usurious Loans Act, 1918. By the
impugned judgment, the learned Single Judge held that the Arbitrator
had erred in reducing the rate of interest despite the subject contract
expressly providing for interest at the rate of 36% per annum.
However, the learned Single Judge found that the claim of TML in
respect of entitlement to interest with effect from 11.12.1995 had been
rightly rejected by the Arbitrator on the ground that it appeared that
both parties had proceeded on the basis that TML would bear the
construction cost and but for the sealing, TML would have proceeded
to receive rent till expiry of Lease.
3.11. The learned Single Judge, however, granted liberty to the
Appellant to seek a fresh reference through Arbitration with regard to
disputes relating to the rate of interest payable under Arbitration-I.
Arbitration II
3.12. After construction of the building was completed, by lease deed
dated 15.10.1999, NIRLAC and TML granted a lease of common
areas to one M/s. Tuareg Properties and Security Services Ltd.
(‘Tuareg’), a subsidiary of TML. Tuareg was further approached for
providing and maintaining various facilities in the said building, which
led to Facilities and Maintenance Contract dated 15.10.1999 being
executed. Since NIRLAC was in possession of the ground floor of the
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building measuring 13,500 sq. ft and the parking area of 2,188 sq. ft.
in the basement, Tuareg was providing facilities/ services to NIRLAC.
3.13. On 29.11.2001, Tuareg and NIRLAC entered into another
Facilities and Maintenance Agreement dated 29.11.2001 under which
Tuareg agreed to provide facilities to space occupied by NIRLAC,
subject to payment of service fee of ₹80,580/ month during the 1st year
and ₹94,010/ month for the next two years.
3.14. Subsequently, NIRLAC let out a part of the ground floor to M/s.
Pfizer Limited and a separate Facilities and Maintenance Agreement
dated 01.09.2004 was entered amongst Tuareg, Pfizer and NIRLAC
whereafter Pfizer started paying the service fees.
3.15. By way of deed of assignment dated 16.03.2005, Tuareg
assigned all its rights under Facilities and Maintenance Contract dated
15.10.1999 in favour of TML. After sealing of the property on
14.11.2006, various occupants in the building vacated their respective
areas, due to which, TML has been unable to provide services and
earn income despite investing a significant sum in machinery. This led
TML to raise a claim of ₹11.33 crores till 31.08.2017 on NIRLAC
towards service, electricity and other charges.
3.16. The said claim was rejected by the learned Arbitrator and the
learned Single Judge did not interfere with the observations in this
respect.
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4. Before this Court, the learned Senior Counselfor the
Appellantraised a limited grievance and submitted that since the
learned Single Judge had already restored the contractual rate of
interest, the only controversy that persisted was in relation to the
period for which the interest was payable. He submitted that the
learned Arbitrator virtually rewrote the entire contract which is
impermissible.
5. He submitted that in terms of the Construction Agreement,
NIRLAC was obliged to make timely payments to the Appellant as
per the payment schedule in lieu of the construction costs incurred by
the Appellant and in the event of delay, NIRLAC was liable to pay
interest @36% per annum on delayed payments. He submitted that the
final instalment fell due and payable upon handing over the possession
which took place on 01.10.1999. He submitted that in view of the
inability of NIRLAC to pay the construction costs to the Appellant,
the possession of a portion of built-up property was handed over to the
Appellant to enable the Appellant to recover its legitimate dues.
6. He submitted that once the learned Arbitrator in paragraph 80 of
the award had categorically noted that the liability of NIRLAC to pay
construction cost as per the construction agreement remained
unaffected then the liability to pay interest also has to be reckoned
from the date of the first default.
7. He submitted that the learned Arbitrator of its own accord
evolved the theory of there being three options to recover the
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construction cost whereas the Construction Agreement under Clause
3.2 clearly provided for a complete mechanism and entitlement to
recover the construction cost along with interest on delayed payments.
He submitted that separate tri-partite agreements to lease were entered
into to generate rental inflows which could be adjusted towards
recovery of construction cost.
8. He submitted that the so-called option (iii) as culled out by the
learned Arbitrator was never acted upon and the same has been
confirmed by the learned Arbitrator himself in paragraph 80 of the
impugned award. He submitted that the Appellant was appropriating
rent and adjusting the same towards construction cost along with
interest till the date of sealing of the property on 14.11.2006 under
separate registered tri-partite agreements to lease.
9. He submitted that the learned Single Judge as well as learned
Arbitrator erred in noting that the date of default would be 20.01.2007.
He submitted that when the learned Arbitrator had already concluded
in paragraph 80 of the award that NIRLAC at no point in time was
absolved of their liability to pay the construction cost, there is no basis
to conclude that the Appellant for the first time indicated its intention
to claim the construction cost on 20.01.2007.
10. He submitted that the learned Single Judge failed to appreciate
that the option iii as culled out by the learned Arbitrator was never
given effect to at any point of time. He submitted that the learned
Arbitrator, in fact, had concluded in paragraph 80 that NIRLAC’s
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contention that it was not liable to pay construction cost is not
supported by the construction agreement and that the document show
that the liability of NIRLAC to pay construction cost remained
unaffected. He submitted that the learned Arbitrator in paragraph 80(e)
of the impugned award categorically noted that there would have been
no need for the Construction Agreement to provide for payment of
construction cost by NIRLAC in 8 installments or to provide for
payment of interest in the event of delay if the parties had agreed that
the construction cost was recoverable from the holders of the ten
unregistered leases. He further submitted that if the fund raising for
construction through 10 separate leases had been acted upon and no
amount was due then there was no reason for NIRLAC to allow the
Appellant to rent out property to recover construction cost for 7 years
till the sealing occurred on 14.11.2006.
11. He submitted that the learned Single Judge proceeded on a
wrong premise that the Appellant was resorting to three options as
detailed in the impugned award. He submitted that since NIRLAC did
not pay the construction cost as per the agreement and the separate 10
unregistered leases were never acted upon, the only option for
recovery was through appropriating rents by leasing out premises to
unrelated parties. He consequently submitted that the Appellant is
entitled to interest at 36% per annum from the date it fell due, that is,
from 11.12.1995 in terms of the construction agreement.
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12. It is also pleaded on behalf of the Appellant that the learned
Single Judge erred in not granting the agreed rate of interest(s)/
penalty @2% per month on the outstanding service and electricity
charges under the Facilities and Maintenance Contract dated
15.10.1999 and Facilities and Maintenance Agreement dated
29.11.2001 even though the service and electricity charges were not
fully paid by the Respondents.
13. Per contra, the learned Senior counsel for the Respondent
submitted that the scope of this Court under Section 37 of the Act is
circumspect. He submitted the learned Arbitrator rightly concluded
that NIRLAC was not liable to pay interest on construction cost for
any period prior to 20.01.2007.
14. He submitted that as is evident from a perusal of the impugned
award also, the learned Arbitrator relied upon the annual reports of the
Petitioner from the year ending 1998 upto 2005-2006 and concluded
that in none of these annual reports/Balance sheets did the Appellant
ever show NIRLAC as a debtor from whom any construction cost or
any interest was due.
15. He submitted that on the day when the construction agreement
was entered into that is on 11.12.1995, 10 separate agreements to lease
were also entered into with the subsidiaries of the Appellant to
generate sufficient funds for commencing and completing the
construction. He submitted that the Appellant was to recover the
construction cost from the lessees. He submitted that the Appellant
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had three options to recover the amount and only when the property
was sealed did the Appellant for the first time made a claim that
NIRLAC was liable to pay the due amount.
16. He submitted that for the entire period between 1995 till the
property was sealed, no demand for payment was made to NIRLAC
and submitted that there is no acknowledgement of debt in terms of
Section 18 of the Limitation Act, 1963. He consequently submitted
that the Appellant is barred from making a claim for payment of
interest prior to 20.01.2007.
17. He submitted that even otherwise, the learned Single Judge by
the impugned judgment had given a liberty to the Appellant to seek a
fresh reference through Arbitration with regard to disputes pertaining
to the rate of interest payable under Arbitration-I. He submitted that in
that regard, the Appellant had preferred a petition under Section 11 of
the Act and the same was dismissed as withdrawn with liberty to file
afresh if the Appellant’s challenge to the Award was decided in its
favour in the present petition before this Court or the Supreme Court.
ANALYSIS
18. At the outset, it is relevant to appreciate the limited scope of an
appeal under Section 37 of the Act. It is well-settled that appellate
jurisdiction under the aforesaid provision is constrained within the
domain under Section 34 of the Act, and rather, the appellate power of
this Court is even more restricted than the powers conferred under
Section 34 of the Act. It is not open to the Court to reappreciate the
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evidence or review the merits of the case and interference is
permissible only if the Court exercising power under Section 34 of the
Act has not acted within the contours of the provision or failed to
exercise the power so conferred. Recently, in the case of Jan De Nul
Dredging India (P) Ltd. v. Tuticorin Port Trust: (2026) 3 SCC 186,
after adverting to a catena of judgments, the Hon’ble Apex Court has
expounded on the scope of interference under Section 37 of the Act.
Discussing the scope and objective of the Act which allows only
limited grounds for challenge against the arbitral award, the Hon’ble
Apex Court Cautioned against excessive interference by Courts and
noted as under:
“23. The primary object of the Act is to provide speedy and
inexpensive mode of resolution of disputes through the process of
arbitration with the minimum intervention of the law courts. In this
context, it would be beneficial to refer and quote Section 5 of the
Act which reads as under:
“5. Extent of judicial intervention.–Notwithstanding
anything contained in any other law for the time being in
force, in matters governed by this Part, no judicial
authority shall intervene except where so provided in this
Part.”
24. The above Section 5 of the Act contemplates that in matters of
arbitration governed by Part I i.e. in relation to domestic
arbitration, minimum intervention of the judicial authority is
acceptable unless it is otherwise provided under Part I of the Act.
In other words, in order to speed up the remedial measures under
the Act in relation to domestic arbitration, there has to be
minimum intervention of the court and, if necessary, it has to be
only in strict compliance with the provisions of the Act.
25. The Act provides for the challenge of the arbitral award before
the court on limited grounds as contemplated by Section 34 of the
Act i.e. where one of the party was under some incapacity; or
where the arbitration agreement itself was not valid; or the parties
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were not given proper notice of the appointment of an arbitrator or
the arbitral proceedings; or was unable, for some reason, to
present his case before the arbitrator or Arbitral Tribunal; or if the
arbitral award deals with the dispute not contemplated or falling
within the terms of the arbitration or deals with the matters beyond
the scope of the arbitration; or where the constitution of the
Arbitral Tribunal was not in accordance with arbitration
agreement; and, or where the court finds the subject-matter of the
arbitral dispute was incapable of settlement by arbitration or the
arbitral award is in conflict with the public policy of India.
26. In short, apart from the above grounds, the arbitral award is
not open for challenge under Section 34 of the Act on any other
ground. So, the intervention of the court is limited. Therefore,
technicalities apart, the main ground for challenge of the arbitral
award in the instant case, which survives is that of the award being
in conflict with the public policy of India i.e. whether it is in
contravention with the fundamental policy of India or is in conflict
with the most basic notions of morality or justice.
xxx
29. …It is settled in law that the appellate powers under Section
37 are limited to the scope of Section 34 and cannot exceed
beyond it. Certainly, therefore, if an award is not liable to be
disturbed under Section 34 of the Act, the same could not have
been interfered with in exercise of powers under Section 37 of the
Act.
30. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd.,
(2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , this Court has very
succinctly laid down the powers of appellate court under the Act. It
held as under : (SCC p. 167, para 14)
“14. As far as interference with an order made under
Section 34, as per Section 37, is concerned, it cannot be
disputed that such interference under Section 37 cannot
travel beyond the restrictions laid down under Section 34.
In other words, the court cannot undertake an
independent assessment of the merits of the award, and
must only ascertain that the exercise of power by the
court under Section 34 has not exceeded the scope of the
provision. Thus, it is evident that in case an arbitral
award has been confirmed by the court under Section 34
and by the court in an appeal under Section 37, this Court
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must be extremely cautious and slow to disturb such
concurrent findings.”
31. In Konkan Railway Corpn. Ltd. v. Chenab Bridge
Project [Konkan Railway Corpn. Ltd. v. Chenab Bridge Project,
(2023) 9 SCC 85 : (2023) 4 SCC (Civ) 458] , a three-Judge Bench
of this Hon’ble Court has extensively dealt with the jurisprudence
around Sections 34 and 37 of the Arbitration Act. This Court has
held that : (SCC p. 93, paras 18-19)
“18. … Scope of interference by a court in an appeal
under Section 37 of the Act, in examining an order, setting
aside or refusing to set aside an award, is restricted and
subject to the same grounds as the challenge under
Section 34 of the Act.
19. Therefore, the scope of jurisdiction under Section 34
and Section 37 of the Act is not akin to normal appellate
jurisdiction. [UHL Power Co. Ltd. v. State of H.P., (2022)
4 SCC 116, para 15 : (2022) 2 SCC (Civ) 401. See
also Dyna Technologies (P) Ltd. v. Crompton Greaves
Ltd., (2019) 20 SCC 1, paras 24, 25] It is well-settled that
courts ought not to interfere with the arbitral award in a
casual and cavalier manner. The mere possibility of an
alternative view on facts or interpretation of the contract
does not entitle courts to reverse the findings of the
Arbitral Tribunal. [Ibid; SsangyongEngg. & Construction
Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC
(Civ) 213; Parsa Kente Collieries Ltd. v. Rajasthan Rajya
Vidyut Utpadan Nigam Ltd., (2019) 7 SCC 236, para 11.1
: (2019) 3 SCC (Civ) 552] “
33. In UHL Power Co. Ltd. v. State of H.P. [UHL Power Co.
Ltd. v. State of H.P., (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401]
, a three-Judge Bench of this Court observed as under : (SCC p.
124, para 16)
“16. … the jurisdiction conferred on courts under Section
34 of the Arbitration Act is fairly narrow, when it comes
to the scope of an appeal under Section 37 of the
Arbitration Act, the jurisdiction of an appellate court in
examining an order, setting aside or refusing to set aside
an award, is all the more circumscribed.”
34. In a recent case of Bombay Slum Redevelopment Corpn. (P)
Ltd. v. Samir Narain Bhojwani [Bombay Slum Redevelopment
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Corpn. (P) Ltd. v. Samir Narain Bhojwani, (2024) 7 SCC 218] , a
Bench of this Court, of which one of us (P. Mithal, J.) was a
member, had held that the jurisdiction of the appellate court
dealing with an appeal under Section 37 of the Act against the
judgment in a petition under Section 34 of the Act is more
constrained than the jurisdiction of the court dealing with a
petition under Section 34 of the Act.
35. The gist of the aforesaid decisions is that the jurisdiction of the
court under Section 37 of the Act is akin to the jurisdiction of the
court under Section 34 of the Act, and, therefore, the scope of
interference by the court in appeal under Section 37 cannot go
beyond the grounds on which challenge can be made to the award
under Section 34 of the Act. Moreover, the courts exercising
powers under Sections 34 and 37, do not act as a normal court,
and therefore, ought not to interfere with the arbitral award on a
mere possibility of an alternative view.”
36.In other words, the scope of interference of the court with the
arbitral matters is virtually prohibited, if not absolutely barred.
The powers of the appellate court are even more restricted than the
powers conferred by Section 34 of the Act. The appellate power
under Section 37 of the Act is exercisable only to find out if the
court exercising power under Section 34 of the Act, has acted
within its limits as prescribed thereunder or has exceeded or
failed to exercise the power so conferred. The appellate court
exercising powers under Section 37 of the Act has no authority of
law to consider the matter in dispute before the Arbitral Tribunal
on merits so as to hold as to whether the award of the Arbitral
Tribunal is right or wrong. The appellate court in exercise of such
power cannot sit as an ordinary court of appeal and reappraise the
evidence to record a contrary finding. The award of the Arbitral
Tribunal cannot be touched by the court unless it is contrary to the
substantive provision of law or any provision of the Act or the
terms of the agreement.
xxx
50. Before parting, we consider it proper to note that the Act is a
special enactment which aims to resolve contractual/commercial
disputes through arbitration with the minimum intervention of the
court, if not without the intervention of the court. In the event, the
courts are allowed to step in at every stage and the arbitral
awards are subjected to challenge before the courts in hierarchy
before court of first instance, through regular appeals and finally
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by means of SLP/civil appeal before the Supreme Court, it would
obviate/frustrate and defeat the very purpose of the Act. It is,
therefore, necessary to accept the arbitral award if it is not
patently illegal or does not fall within the scope of intervention
under Section 34 of the Act. The appeal thereof has a much
narrower scope of intervention particularly when the arbitral
award has been upheld under Section 34 of the Act. The appellate
jurisdiction acquires little significance only when the arbitral
award has been erroneously upheld or set aside by the court in
exercise of its power under Section 34 of the Act as discussed
earlier, but has no authority of law to consider the matter which
was before the Arbitral Tribunal on merits.”
(emphasis supplied)
19. In the present case, the sole question before this Court is
whether the learned Single Judge, while exercising jurisdiction under
Section 34 of the Act, committed any jurisdictional error or applied an
incorrect legal standard in declining to interfere with the impugned
common award insofar as it did not grant interest at the rate of 36%
per annum to the Appellant from when the respective installments fell
due and it also rejected the Appellant’s claim for grant of interest/
penalty at the rate of 2% on the outstanding service and electricity
charges under the Facilities and Maintenance Contract dated
15.10.1999 and Facilities and Maintenance Agreement dated
29.11.2001.
Arbitration I :Interest on Construction Costs
20. The Appellant has sought to impress upon this Court that the
impugned common award is perverse as the learned Arbitrator has
exceeded his ambit by re-writing the terms of the contract, despite
which, the learned Single Judge has upheld the findings of the learned
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Arbitrator in regard to this issue.The limited argument agitated by the
Appellant is that NIRLAC was obliged to make timely payments to
the Appellant and the learned Arbitrator erroneously evolved its own
theory of there being three options to effectuate recovery of
Construction Costs. Reliance is also placed on Paragraphs 80 and 84
of the impugned common award to impress upon this Court that there
are certain inconsistencies in findings of the Arbitrator in regard to
NIRLAC’s ensuing liability of construction costs.
21. Though there is no doubt that the terms of the Agreement/
Contract between the parties are sacrosanct in nature, it also cannot be
denied that construction of contractual terms rests within the domain
of the Arbitrator and interference is only permissible if the Arbitrator’s
interpretation is manifestly unreasonable that no fair-minded person
could adopt it [Ref. Ssangyong Engineering and Construction
Company Limited v. National Highways Authority of India: (2015)
15 SCC 131].
22. Pertinently, the said argument found favour with the learned
Single Judge and ultimately persuaded the Court to partly set aside the
impugned common award and find that it was not open to the learned
Tribunal to reduce the rate of interest of 36% per annum that was
stipulated in the contract to 7.5% per annum. Consequently, liberty
was granted to the Appellant to seek a fresh reference through
Arbitration with regard to the disputes relating to the rate of interest
payable under Arbitration I. However, the learned Single Judge
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rejected the Appellant’s claim for grant of interest from the date when
the installments fell due by noting as under:
“50. The claim of the Petitioner with regard to grant of interest
with effect from 11.12.1995 i.e. the date when the installments fell
due has been rightly rejected by the Tribunal and the period has
been reckoned from 20.01.2007. The Arbitrator analysed the three
options by which the recovery of the cost was to be secured. After
extracting the three options, the Arbitrator gave a finding that it
was the Petitioner who had created an anomalous and
amorphous position by keeping the three options open. The
premises were sealed on 14.11.2006, which is when the rental
income ceased, and it was only thereafter that the Petitioner issued
a notice dated 20.01.2007 choosing a different option to recover
the balance from NIRLAC. But for the sealing, Petitioner would
have proceeded to receive the rent till the expiry of the
Lease.Thus, according to the Arbitrator, both parties proceeded
on the basis that the Petitioner was the lessee and would bear the
construction cost and enjoy the property without any obligation to
account for the rents. Therefore, according to the Arbitrator till
this period there was no liability of NIRLAC to pay the cost. This
part of the Award suffers from no infirmity and calls for no
interference.”
(emphasis supplied)
23. Though the learned Single Judge has succinctly summarised the
observations of the learned Arbitrator on this issue, considering the
arguments agitated by the Appellant in relation to the purported
rewriting of the contract by the learned Arbitrator, this Court considers
it apposite to refer to the relevant portion of the impugned common
award, which is as under:
“80. But, the question is whether NIRLAC was at any time
absolved of the liability to pay the construction cost as provided in
construction agreement, in view of the execution of the agreements
to lease with the ten nominees of claimant? At the outset, it should
be noted that the method of recovery contemplated by the
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contended by claimant. It is true that independent of the
construction agreement, on the same day (11.12.1995), at the
instance of claimant, NIRLAC entered into ten agreements to
lease in favour of the nominees of claimant which were
subsequently assigned in favour of TMLL. It is also true that
certain amounts were paid as security deposit in terms of the
lease. NIRLAC’s contention that it is not liable to pay the
construction cost at all as claimant had agreed to receive the
construction cost from the ten lessees, is not supported by the terms
of the construction agreement. The documents/evidence show that
the liability of NIRLAC to pay the construction cost at per the
construction agreement remained unaffected, as is evident from
the following…
81…The execution of the powers of attorney on 11.12.1995 and
4.3.1999 indicated that claimant kept open the option of
recovering the construction cost as mentioned in clause 3.2(b) of
the construction agreement (that is, by recovering the rent and
adjusting it towards construction cost).
xxx
82…The documents show that claimant created an anomalous
and amorphous position by keeping all the three options open.
Only after the premises was sealed on 14.11.2006 and the rental
income from the premises ceased, claimant, by issuing a notice
dated 20.1.2007, chose the (second) option by contending that
various portion of the premises were let out by it on behalf of the
claimant and the rents/revenue received by it were
appropriatedtowards the construction cost, interest and expenses,
leaving a balance to be recovered from NIRLAC. Till then, both
parties had proceeded on the basis of the third option, that is,
receiving the construction cost from the ten lessees ( or their
assignee) thereby relieving NIRLAC from the obligation to pay
the construction cost or interest thereon. But for the sealing on
14.11.2006, claimant would have proceeded to receive the rents
till 30.9.2008 (that is, expiry of nine years from 01.10.1999) even
in the absence of a registered lease, without any obligation to
account for or appropriate the rents. Claimant fell back on second
option obviously because the chances of getting the premises de-
sealed and earning rentals till 30.9.2008 appeared to be remote
and it thought that’ it can maintain a claim for· a large sum. Be
that as it may. The question is whether claimant was entitled to
change the option as late as 2007? The Tribunal has found that it
can do so.
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83. The claim made by claimant for recovery of the balance of the
construction cost with interest and expenses after adjusting
rents/revenue received from the premises ( the second option
referred to above) is authorised by and is in accordance with the
provisions of the construction agreement, namely clause 3.2(b).
The provisions of ·unregistered agreements to lease providing for
an alternative method of recovery absolving NIRLAC of the
liability to pay the construction cost cannot be enforced, as
admittedly, the crucial term of the said agreements providing for
payment of the construction cost by the agreement holders was
never given effect; and NIRLAC did not seek
enforcement/specific performance of the terms of the agreements
of lease by insisting that the construction cost should be
recovered only from the agreement holders, absolving it from
liability. Therefore, contention ofNIRLAC that it is not liable to pay
the construction cost and consequently not liable to pay interest,
cannot be accepted.
84. But, the above is subject to one condition/clarification.
Even if claimant is entitled to recover the construction cost and
expenses, by receiving the rents on behalf of NIRLAC and
appropriating the rents towards the dues (by exercising the second
option), the evidence clearly shows that till 20.1.2007, both parties
had proceeded on the basis that claimant was the ‘lessee’ which
would bear the construction cost in terms of the agreements to
lease and enjoy the portions of the premises delivered to it on
1.10.2009 as lessee without any obligation to account for the
rents and consequently, there was no liability on the part of
NIRLAC to pay the construction cost or any interest on the
construction cost. It was only on 20.l.2007, for the first time,
claimant indicated its intention to claim the construction cost,
expenses and interest from NIRLAC. As claimant shifted to the
third option from the second option only on 20.1.2007, claimant
will be entitled to interest on the construction cost (due if any)
only from the date of notice (20.1.2007) and not in regard to any
earlier period.”
(emphasis supplied)
24. Pertinently, the entire dispute in relation to the date from which
the interest will be due thus rests on the three options as culled out by
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the learned Arbitrator in paragraph 82 of the impugned award, which
are premised on Clause 3.2 of the Construction Agreement dated
11.12.1995. The ‘three options’as provided in the said paragraph of
the common award are as follows:
“(i) To recover the construction cost (secured by mortgage by
deposit of title deeds) with interest and expenses from NIRLAC.
[NOTE: This is without exercising the lien to receive the rents
and adjust the same towards the construction cost.]
(ii) To recover the construction cost with interest and expenses by
letting out the premises and recovering the rents and adjusting the
same towards the construction cost, interest and expenses (by
exercising the lien over the land and building with power to
lease/sell/transfer the premises created under the construction
agreement). For this purpose, claimant had obtained registered
general powers of attorney in favour of its nominees authorising
them to let out and recover rents.
(iii) To recover the construction cost from the prospective lessees
of the premises nominated by TML (who were either the
subsidiaries or group companies of TML ), in whose favour
NIRLAC had executed agreements to lease dated 11.12.1995
(simultaneously with the execution of the construction agreement),
thereby relieving NIRLAC from the liability to pay the construction
cost.”
25. Though the Appellant has sought to agitate that the learned
Arbitrator has virtually re-written the contract by evolving the non-
existing theory of ‘Three options’ to recover the construction cost, a
bare reading of Clause 3.2 of the Construction Agreement dated
11.12.1995 reflects that the interpretation of the learned Arbitrator is
not implausible or manifestly unreasonable. On first blush there
appears to be an inconsistency in findings of the Arbitrator in regard to
NIRLAC’s ensuing liability of construction costs, however, a holistic
reading of the Award indicates that the learned Arbitrator has read
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Clause 3.2 of the Construction Agreement dated 11.12.1995 to contain
multiple methods of recovery of construction costs.
26. Although it has also been noted by the learned Arbitrator that
the liability of NIRLAC remained unaffected, the learned Arbitrator
has clearly also stipulated that the same was subject to one condition.
It has been clearly elaborated by the learned Arbitrator that the
evidence indicates that till 20.01.2007, the parties were proceeding on
the basis that the Appellant was the lessee and it would bear the
construction cost by enjoying the premises delivered to it on
01.10.1999 without any obligation to account for rent. It has been
specifically observed by the learned Tribunal that the Appellant in its
accounts showed the construction of the building on NIRLAC plot in
different ways but it did not treat or show NIRLAC as a debtor from
whom the construction cost or any interest was due in any of the
annual reports/ balance sheets. This led the Tribunal to opine that till
seizing of the premises, the parties had proceeded on the basis that
there was no liability on part of NIRLAC to account for the
construction cost or interest thereon.
27. Further, the observation that NIRLAC’s liability remained
unaffected cannot be read in isolation. The said observation was made
while addressing NIRLAC’s argument that its liability was entirely
negated in terms of the unregistered lease agreements (which
NIRLAC had entered into with nominees of the Appellant) alongside
the Construction Agreement dated 11.12.1995. NIRLAC had
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essentially sought to impress upon the learned Arbitrator that its
liability was absolved in terms of the unregistered Lease Agreements
as the same provided for an alternative arrangement of recovery
wherein NIRLAC’s liability to pay the construction cost was
substituted by liability of the nominees of the Appellant and the clause
in the Construction Agreement was a formality. In this context it was
observed that theunregistered Lease Agreements did not
absolveNIRLAC’s liability under the Construction Agreement as the
Lease Agreements were never executed and neither party had sought
specific performance of the same, and it was open to the Appellant to
change option of recovery under the Construction Agreement
subsequently. It was thus observed by the learned Arbitrator that
NIRLAC’s liability under the Construction Agreement remained
unaffected.
28. Perusal of the impugned common award reflects that the learned
Arbitrator was of the view that NIRLAC had no liability to pay the
construction cost or any interest on the same till the seizing of the
premises (as the parties had proceeded on the basis that the Appellant
would bear construction costs as a lessee even in absence of a
registered leaseunder the third option). It appears that as per the
learned Arbitrator, the Appellant shifted from the third option to the
second option on 20.01.2007 and the observation in paragraph 84 to
the contrary is merely a typographical error.
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29. It is only through notice dated 20.01.2007 that the Appellant
chose a different option to recover the duesby contending that various
portion of the premises were let out by it and the rents/revenue
received were appropriated towards the construction cost, interest and
expenses, leaving a balance to be recovered from NIRLAC.Thereby,
though the parties had proceeded on the basis of the third option,
ultimately, the Appellant chose to effectuate recovery of the
construction costs through the second option when the premises were
sealed. But for the sealing, the Appellant would have proceeded to
receive the rent till expiry of the Lease and enjoyed the property
without any obligation to account for rents.
30. Pertinently, till the notice dated 20.01.2007, no notice for
recovery was sent by the Appellant and the same lends credence to the
Arbitrator’s view that the parties were proceeding on the basis that the
Appellant was to bear construction costs as a lessee.
31. It has ultimately been rightly appreciated that the Appellant had
created a peculiar situation by keeping all its three options open. The
arguments urged by the Appellant do not demonstrate ex facie patent
illegality which warrants interference. Possibility of an alternative
interpretation of the contractual terms is insufficient for tinkering with
the well-reasoned and plausible interpretation of the contractual terms.
32. Having perused the impugned common award as well as the
material on record, this Court is of the opinion that the learned Single
Judge has rightly declined to interfere in this regard. There is no
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perversity in the impugned common award and the learned Single
Judge has rightly upheld the findings of the learned Arbitrator. This
Court finds no material to conclude that the learned Single Judge
applied an incorrect legal standard or erred in not exercising the
jurisdiction vested in it.
33. Needless to say, insofar as the rate of interest is concerned,
since no cross appeal has been preferred by NIRLAC, it is presumed
that there is no challenge to the rate of interest awarded by the learned
Single Judge.
Arbitration II :Claim for interest/ penalty at the rate of 2% on the
outstanding service and electricity charges
34. Even though arguments were primarily addressed in relation to
date from which interest was to be paid on construction costs, insofar
as thesaid issue is concerned, a perusal of the impugned judgment
reflects that the learned Single Judge declined to interfere in this
respect on finding that the view of the Arbitrator was based on
analysis of the contractual clauses between the parties as well as the
law of damages. After undertaking a lengthy appraisal of the findings
of the Tribunal, the learned Single Judge ultimately came to the
conclusion that the view taken by the Arbitrator was a possible one.
35. Before proceeding further, it is imperative to first take note of
the relevant contractual clauses in this respect. Before the learned
Arbitrator, the Appellant had placed reliance upon Clause 3.2 of the
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Facilities and Maintenance Contract dated 15.10.1999, which reads as
under:
“In the event this Agreement is terminated and/or Tuareg is forced
to cease to enjoy the benefits under this Agreement during the
Initial Term or any renewals thereof because of any action of
TMLL or NIRLAC or because of any Government stipulations or
because of any action of the Delhi Development Authority or any
other Government Authority, TMLL and NIRLAC shall refund to
Tuareg the entire amount spent on the infrastructure for provision
of Facilities, including but not limited to expenditure on air
conditioning plant, elevators, electrical distribution system, water
supply and sanitation facilities, horticulture, etc. along with
interest @36% p.a. along with all losses and damages suffered by
Tuareg.”
It was found that the claim was not governed byClause 3.2, and
the same was also conceded by the Appellant.
36. An alternative contention was raised by the Appellant before the
Arbitrator that it was entitled to interest by way of penalty at the rate
of 2% per annum, compounded monthly, under Clause 11 of the
Facilities and Maintenance Agreement dated 29.11.2001, which reads
as under:
“DEFAULT BY NIRLAC
Should NIRLAC default in payment of the Service or other fees
payable hereunder or otherwise not conform to Tuareg’s notices of
payment given to him Tuareg is entitled to terminate this
Agreement by a thirty (30) day’s written notice or to forthwith
cease providing any or all of the Facilities and/or facilities to the
Occupied Space, including but not limited to the ceasing of
provision of air conditioning, lighting, electricity and/or water
supply, and NIRLAC is not entitled to claim any compensation of
any damage or loss of business which may result therefrom.
NIRLAC also agrees to pay penalty at the rate of 2% per month on
the overdue amount to Tuareg calculated on a monthly basis from
the date of default until full payment is completed.”
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37. As also appreciated by the learned Single Judge, perusal of the
impugned common award indicates that the learned Arbitrator
returned a finding that the amount claimed towards service and
electricity charges were adjusted against the excessive recoveries
made by it and nothing was due. Thus, there was no question of
interest.It was furtheropined by the learned Arbitrator that Clause 11
did not support the case of the Appellant and the same was only a
provision for penalty. On a careful reading of the provision, the
learned Arbitrator concluded that the words-‘calculated on a monthly
basis’ did not refer to compounding but merely to penalty, if any,
being calculated for every month even if the amount was overdue for a
part of the month. Rejecting the claim of the Appellant in this regard,
the learned Arbitrator noted that there was no claim for penalty, as
what was claimed was interest at the rate of 36%.
38. Further, it was observed that Section 74 of the Indian Contract
Act, 1872 would be attracted, which disentitles a party from seeking
damages simply to recover penal sum provided in the agreement and
only reasonable compensation for breach can be awarded. Noting that
a provision for penalty merely fixes the upper limit for damages which
can be awarded, the learned Arbitrator rightly found that there was no
liability to pay any penalty as in this case nothing was due towards
service and electricity charges.
39. The Appellant made a claim for compound interest at the rate of
36% per annum, and alternatively, raised a claim for compound
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interest at the rate of 2% per month. It was rightly noted that there was
no claim for penalty. The learned Arbitrator took a rational view that
in such circumstances, there was no question of compound interest
being awarded when there was no provision for interest at all. The
learned Arbitrator also fairly noted that if any amount was due
towards service and electricity charges, the Appellant would be
entitled to maximum penalty of 24% per annum as penalty, however,
no penalty was awarded as the learned Arbitrator awarded northing
towards service charges and electricity charges due to excess recovery
already effected by the Appellant.
40. As noted above, only reasonable compensation for breach can
be awarded and a pre-estimate penal clause does not per se entitle the
Appellant to such penalty. The learned Arbitrator has consciously
appraised the facts of the case and rejected the Appellant’s claim,
which has been cogently upheld by the learned Single Judge after
appreciating that the Arbitrator’s findings are based on cogent
appreciation of law of damages when a pre-estimate penalty is
stipulated.
41. Upon careful examination of the common award as well as the
impugned judgment, this Court is of the opinion that the learned
Single Judge has rightly opined that the view taken by the learned
Arbitrator is plausible and the same is based on a scrupulous
examination of the relevant law as well as the contractual clauses,
which cannot be interfered with in the present proceedings.
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CONCLUSION
42. In view of the aforesaid discussion, this Court is of the opinion
that the present appeal is without any merit and we find no such
palpable error or infirmity which warrants interference with the
impugned judgment.
43. The present appeal is accordingly dismissed.
AMIT MAHAJAN, J.
ANIL KSHETARPAL, J.
JULY 16, 2026
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