Party in default of assured return clause cannot invoke section 55 of contract act to resist termination for delayed possession: Delhi high court

Delhi High Court's Ruling: Defaulting Parties Cannot Use Section 55 to Delay Contract Termination.

Case Name: Omaxe Ltd. v. Joginder Singh Nijjar and Anr.

Citation: (2026) ibclaw.in 4669 HC

Coram: Justice V. Kameswar Rao and Justice Manmeet Pritam Singh Arora

The Delhi High Court has dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, upholding an Arbitral Award that directed refund of the sale consideration paid for a commercial unit along with interest, on account of delay in completion of the project.

The dispute arose from an Allotment Agreement dated 2nd May, 2008 for a commercial unit in the Omaxe Novelty Mall, Amritsar, and a contemporaneous Addendum under which the Appellant agreed to pay an assured monthly return of 9% until the offer of possession. The Allotment Agreement stipulated a construction period of 36 months, expiring on 1st May, 2011. The Appellant failed to complete construction by this date, and the Respondents terminated the Allotment Agreement on 18th April, 2013, seeking refund of the principal amount with interest.

The Arbitral Tribunal, presided over by Justice B. S. Chauhan (Retd.) as Sole Arbitrator, awarded refund of the principal amount of Rs. 3,35,04,650 along with pendente lite interest at 14% per annum, computed at Rs. 4,16,94,674, future interest at 12% on the total sum, and costs of Rs. 25 lakhs. The learned Single Judge dismissed the Appellant's Section 34 challenge to this Award.

Before the Division Bench, the Appellant argued that time was never of the essence of the contract, a finding recorded by the Arbitral Tribunal itself, and that the assured return clause showed the parties had contemplated delay and provided compensation for it. It was further argued that the stoppage of construction between 2008 and 2012, caused by objections raised by the Archaeological Survey of India regarding the height of construction near a protected monument, constituted force majeure under Clause 26(b) of the Allotment Agreement. The Appellant also contended that the termination notice, issued only by two of five co-allottees, could not validly terminate a joint allotment, and that the interest awarded was excessive and contrary to the contractual rate.

The Court held that a challenge founded solely on Section 55 of the Indian Contract Act, 1872 is not, by itself, a ground for setting aside an award under the amended Section 34 unless it amounts to patent illegality or breach of the fundamental policy of Indian law. On facts, the Court noted that the Appellant had itself discontinued payment of the assured monthly returns from 1st May, 2010, well before the Respondents terminated the agreement in 2013, and held that a party who fails to perform its own reciprocal promise, under Section 54 of the Contract Act, cannot rely on Section 55 to resist the other party's termination.

On force majeure, the Court upheld the Arbitral Tribunal's finding that the Appellant had commenced construction without the mandatory NOC from the Archaeological Survey of India despite being aware of the requirement, and continued accepting bookings without disclosing the dispute, disentitling it from treating the resulting stoppage as a force majeure event.

The Court also upheld the finding that the counter-claims for specific performance and holding charges were barred by limitation, and that the remaining co-allottees were not necessary parties, the Respondents having been awarded only their proportionate 33.33% share.

On interest, the Court held that Clause 26(f) of the Allotment Agreement, providing for a lower rate, applied only where delay was due to force majeure, a plea already rejected on facts. Noting that other clauses of the Allotment Agreement permitted the Appellant to charge allottees interest between 18% and 24% for defaults, and the Appellant's own conduct in withholding payment despite no stay on the Award, the Court found no infirmity in the 14% interest awarded.

The appeal was dismissed with costs of Rs. 2,00,000, and the Appellant was directed to deposit the awarded amount along with up-to-date interest with the Executing Court within one week.