Section 37 A&C Act Bars Evidence Reappraisal: Delhi High Court Dismisses DDA’s Arbitration Appeal On Bank Guarantee Encashment, Watch And Ward Dues
Deekshitha Sharmile
The High Court of Delhi Single Bench of Justice Chandrasekharan Sudha on December 11, 2025 dismissed the Delhi Development Authority’s appeal and sustained an arbitral award in favour of M/s Harjinder Brothers, holding that the appellate court cannot reappraise evidence while exercising jurisdiction under Section 37. The dispute arose from a housing construction contract and a subsequent supplementary arrangement in which the contractor sought payment of “watch and ward” security charges and contested the Delhi Development Authority’s encashment of a ₹1,55,829 bank guarantee issued through Punjab and Sindh Bank. The Court found the arbitrator’s view on watch and ward entitlement and the bank guarantee encashment to be a possible and reasonable construction that did not warrant interference on public policy grounds.
The dispute arose from a construction contract awarded by the Delhi Development Authority (DDA) to a registered contractor for building 103 dwelling units in Dwarka, New Delhi. The agreement was executed in August 1994, with completion stipulated by March 1996. The work was completed in May 1997, after which disputes arose regarding pending items and payments.
A supplementary agreement was executed in March 2000, covering finishing works and watch and ward services until allotment of flats. The contractor claimed payments for these services and sought recovery of ₹5,00,000, alleging wrongful encashment of a bank guarantee of ₹1,55,829 by the DDA. The contractor argued that the encashment was without notice and that legitimate charges remained unpaid.
The DDA contended that the contractor failed to complete the original works, leading to withholding of amounts in the final bill. It argued that watch and ward charges were payable only after fulfillment of obligations under the main agreement, which the contractor had not met. The DDA maintained that ₹1,84,800 had been wrongly paid and was recoverable under Clause 29 of the original agreement, justifying encashment of the bank guarantee.
The matter was referred to arbitration, resulting in an award favoring the contractor. The DDA challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed, leading to the present appeal under Section 37.
The Court observed, "It is settled law that the scope of enquiry in an appeal under Section 37 of the Act is quite limited." The Court stated, "The Apex Court in Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills 2024 SCC OnLine SC 2632, held that the scope of intervention of the court in arbitral matters is virtually prohibited, if not absolutely barred and that interference is confined only to the extent envisaged under Section 34 of the Act."
The Court recorded, "The appellate power of Section 37 of the Act is limited within the domain of Section 34 of the Act." The Court stated, "It 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 Court observed, "The Appellate Court has no authority under law to consider the matter in dispute before the arbitral tribunal on merits to find out as to whether the decision of the arbitral tribunal is right or wrong upon reappraisal of evidence as if it is sitting in an ordinary court of appeal."
The Court stated, "The arbitral award is not liable to be interfered with unless a case for interference as set out in Section 34 is made out." The Court recorded, "It cannot be disturbed only for the reason that, instead of the view taken by the arbitral tribunal, the other view, which is also a possible view, is a better view according to the appellate court." The Court noted, "Its power is more akin to that of superintendence as is vested in civil courts while exercising revisionary powers."
On the standard of public policy review, the Court recorded, "In Associate Builders vs DDA, (2015) 3 SCC 49, the scope of public policy under Section 34 (2)(b)(ii) was explained as the merits of an arbitral Award can be examined only when the Award is in conflict with public policy of India, and even then only within narrow judicially recognised limits." The Court stated, "The Section 34 court cannot act as a first appellate court on facts."
The Court recorded, "An award can be set aside for being contrary to justice or morality only if it shocks the conscience of the court." The Court stated, "Patent illegality will have to go to the root of the matter; involve contravention of substantive law, contravention of the Act, or/and contravention of the terms of the contract." The Court noted, "However, if the arbitrator adopts a possible and reasonable construction of the contract, the court cannot substitute its own interpretation."
With reference to the two principal claims, the Court recorded, "Claim (a) is regarding the encashment of the bank guarantee and claim (d) is relating to the charges towards watch and ward." On the bank guarantee issue, the Court stated, "Regarding the encashment of bank guarantee, the arbitrator found that the same had been encashed without any notice to the claimant and without showing that any loss had been caused to the DDA by the action or inaction of the claimant." On Clause 29, the Court stated, "But clause 29 of the agreement, on which the DDA relies on itself, says that an audit has to be conducted to ascertain the amounts due."
The Court recorded, "Delhi Development Authority shall have right to cause an audit and technical examination of works and the final bills of the contractor including all supporting vouchers, abstract etc. to be made after payment of the final bill and if as result of such audit and technical examination any sum is found to have been over paid…" The Court noted, "Admittedly, no audit was conducted by the DDA." On watch and ward, the Court recorded, "As long as possession was not taken over by the DDA, it was the responsibility of the claimant to keep the flats safe and secure, for which they are certainly entitled to watch and ward charges."
The Court directed: "In these circumstances, I find no infirmity in the impugned order calling for an interference by this Court. The appeal sans merit is thus dismissed. Application(s), if any pending, shall stand closed."
Advocates Representing the Parties
For the Petitioners: Ms. Chand Chopra and Ms. Anshika Prakash, Advocates for Mr. Sanjay Katyal, Standing Counsel
Case Title: DDA vs M/S Harjinder Brothers
Neutral Citation: 2025:DHC:11225
Case Number: FAO 475/2013 and CM APPL. 20058/2013
Bench: Justice Chandrasekharan Sudha
