By IndiaHub 
The court said that in these (as is where is basis) cases, the DDA has no obligation to provide the essential civic amenities like sewerage facility, water connection, roads and electricity as a pre-requisite condition for full payment.
Background of the plot auctioned by DDA
DDA held an open auction to sell plots in Sector 20, Part II, Dwarka, New Delhi, which included commercial Plot No. 8. The buyer put in a bid of Rs 17.51 crore for this plot.
The auction took place on January 16, 2007, and the buyer was the winning bidder. The auction’s General Terms and Conditions included an arbitration clause stating that any disputes regarding the interpretation of this agreement would be settled by the Vice-Chairman of the Delhi Development Authority with arbitration held in Delhi.
Following the general terms and conditions of the auction, the buyer deposited an earnest money of 25% of the total sale consideration, amounting to Rs 4.45 crore on the same day. Later on May 4, 2007, the DDA sent a letter confirming the acceptance of the buyer’s bid and instructed them to pay the balance sale amount of approximately Rs 13.06 crore within 90 days from the date of issuing the letter.
On July 16, 2007, the plot buyer sent a letter askin for more time to pay the remaining sale amount due to “some unforeseen circumstances”. Then on November 12, 2007, the buyer wrote again seeking another extension because they couldn’t secure a loan as they hadn’t received the necessary permission. The DDA responded with a letter on January 9, 2008, granting final extension until January 28, 2008.
Plot buyer’s grievance
It is the grievance of the plot buyer that they sent several letters to the DDA asking for basic infrastructure like sewerage facility, water connection, roads and electricity connection to make the plot usable.
According to the plot buyer, since the DDA ignored their requests, he filed a Writ Petition being W.P. (C) No. 685/2008 in the Delhi High Court, seeking direction to the DDA to provide the infrastructural facilities at the subject plot. The Writ Petition was dismissed in a judgment dated January 6, 2017.
On January 28, 2008, the plot buyer offered to pay the remainin amount in Court, but only if the DDA provided the essential amenities. The DDA took time to seek instructions and the matter was adjourned. However, the plot buyer claimed that the DDA forfeited the earnest money without ever asking them to pay the balance amount.
The plot buyer filed another appeal but lost it. However, the court allowed the plot buyer to contest the earnest money forfeiture before the Arbitration tribunal. So, the plot buyer brought the case to the Arbitration Tribunal. After hearing both the sides and considering the evidence and documents on record, the sole Arbitrator issued the Arbitral Award on September 14, 2020, dismissing all the plot buyer’s claims.
Aggrieved with the Arbitration award, the plot buyer filed an appeal in the Delhi High Court. On November 11, 2025, the plot buyer lost the case in the Delhi High Court.
Summary of the judgement
Advocate Mayank Arora, Partner, Chambers Of Bharat Chugh, said to ET Wealth Online that in the present case the Delhi High Court declined to interfere with the arbitral award essentially because the challenge was found to fall outside the narrow and well-settled contours of interference by the court under Section 34 of the Arbitration and Conciliation Act.
Arora said: “The Court reiterated that it does not sit as an appellate forum over arbitral findings, nor can it re-appreciate evidence or substitute its own view merely because another interpretation is possible.”
Factually, the Court found that the arbitrator’s conclusions were rooted in the contractual framework governing the auction.
Arora said: “The plot had been sold to the Petitioner on an ‘as is where is’ basis, with a clear stipulation that the bidder had inspected the site and accepted the existing state of infrastructure. More importantly, the arbitrator had returned a categorical finding of fact—supported by contemporaneous correspondence and earlier writ proceedings in the same matter —that the buyer’s failure to pay the balance consideration stemmed from financial incapacity, not from the alleged absence of civic amenities.”
The High Court noted that this factual finding had already been crystallised in prior litigation and could not be reopened indirectly through a Section 34 petition.
On forfeiture of the earnest money deposit, the arbitrator’s view that forfeiture of such earnest money is not inherently penal, particularly in public auctions, was also supported by binding precedent.
According to Arora, the Court further held that the arbitrator had correctly applied the law in placing the burden on the defaulting bidder to demonstrate that the forfeiture was arbitrary or disproportionate—a burden the bidder failed to discharge.
Arora says that the Court also accepted the arbitrator’s reasoning that losses suffered by a public authority in such cases cannot always be arithmetically quantified. Delay in development of a commercial plot, loss of public revenue, exclusion of other bidders, litigation costs, and blockage of capital were all legitimate considerations.
Arora says: “In this backdrop, the forfeiture clause operated as a reasonable pre-estimate of loss rather than a penalty. Ultimately, the High Court found no patent illegality, perversity, or violation of public policy in the award.”
Delhi High Court analyses facts of the case
The Delhi High Court in its judgement (O.M.P. (COMM) 42/2021, I.A. 1681/2021) dated November 11, 2025 said that the plot buyer is primarily aggrieved by rejection of its claim No. 1 pertaining to refund of the forfeited ‘Earnest Money Deposit’ of Rs 4.45 crore.
The Sole Arbitrator rejected the claim No. 1 of the plot buyer on the following grounds:
- (a) the petitioner (plot buyer) failed to establish that there was an ‘understanding’ between the parties that the respondent (DDA) will provide basic civic amenities first and then the petitioner will pay the remaining balance 75% of the bid amount;
- (b) the non-payment of the balance consideration was due to lack of funds and not due to non-availability of basic civic infrastructure;
- (c) the petitioner’s (plot buyer) plea for non-payment of balance consideration due to non-availability of basic civic infrastructure was rejected by the Court in W.P. (C) No. 685/2008 and the contentions of the parties have been crystallised and cannot be re-agitated;
- (d) the petitioner (plot buyer) never challenged the reasonableness of the forfeiture prior;
- (e) the burden to prove that the stipulated condition was by way of ‘penalty’ or that the compensation was ‘unreasonable’ or that the respondent did not suffer any loss was on the petitioner (plot buyer) and the petitioner (plot buyer) failed to prove the same;
- (f) the valuation reports relied upon by the petitioner (plot buyer) to show that the respondent (DDA) will earn more on re-sale were unreliable and not proved;
- (g) the respondent (DDA) would suffer loss in terms of cost of re-auction, loss on interest on the unpaid balance amount, revenue that could have been generated from the vacant subject plot, delay in development of public utility which caused inconvenience and loss to general public etc.;
- (h) quantum of loss suffered by Public Authorities in such cases is difficult to prove and for this reason the forfeiture clause is stipulated as a pre-estimate quantum of loss; and (i) Kailash Nath is not applicable in the present matter, as also held by the Coordinate Bench of Delhi High Court in W.P. (C) No. 685/2008.
The Sole Arbitrator relied upon a catena of judgments in support of his said findings.
Delhi High Court analyses forfeiture of money clause
The Delhi High Court said that the question that needs to be answered first is what is the nature of the ‘Earnest Money Deposit’ made by the plot buyer, which was forfeited by the respondent (DDA).
Case law cited: Supreme Court in K.R. Suresh v. R. Poornima, 2025 SCC OnLine SC 1014
The Delhi High Court said that in the present case, as per Clause No. 2 (vi) of the General Terms and Conditions of the Auction the person whose bid has been accepted in the Auction is required to submit 25% of the bid offered as ‘Earnest Money Deposit’ on the day of the auction itself.
Consequently, after acceptance of the bid an allotment-cum-demand letter will be issued to the highest bidder.
As per Clause No. 4 (i) of the General Terms and Conditions of the Auction (reproduced above), the highest bidder is required to deposit the remaining 75% of the bid offered and accepted by the Authorities within 90 days of the issuance of allotment-cum-demand letter or within the extended period as granted.
Further, as per Clause No. 4 (iii) of the General Terms and Conditions of the Auction in case such person fails to pay the remaining 75% of the bid offered and accepted by the Authorities within the stipulated period, the auction bid shall stand automatically cancelled and the ‘Earnest Money Deposit’ shall stand forfeited without any notice.
The Delhi High Court said that a conjoint reading of these clauses from the General Terms and Conditions of the Auction show that the ‘Earnest Money Deposit’ deposited by the bidder is part of the purchase price i.e., 25% of the total bid amount.
Further, the forfeiture of the said ‘Earnest Money Deposit’ on failure on part of the bidder to pay the remaining bid amount within the stipulated period represents a guarantee that the bidder will make good on its bid after having accepted the allotmentcum-demand, and if it fails to do so the ‘Earnest Money Deposit’ will be forfeited.
Delhi High Court said: “Hence, the ‘Earnest Money Deposit’ in the present case falls within the parameters of the ‘earnest money’ as described in K.R. Suresh judgement.”
The Delhi High Court said that the next issue that needs consideration is whether the petitioner (plot buyer) was in violation of Clause No. 4 (iii) of the General Terms and Conditions of the Auction, thereby entitling the respondent (DDA) to forfeit the ‘Earnest Money Deposit’.
The Sole Arbitrator has made a factual finding that the reason for delay in payment of the remaining 75% of the sale consideration by the petitioner (plot buyer) was not due to non-availability of civic amenities but on account of insufficiency of funds with the petitioner. Nowhere in the various letters has the petitioner (plot buyer) mentioned about non-availability of civic amenities as reason for nonpayment of the balance sale consideration.
Subsequently, the respondent (DDA) through a letter dated January 9, 2008 granted extension to the petitioner (plot buyer) till January 28, 2008.
However, the petitioner instead filed a Writ Petition (W.P. (C) No. 685/2008), which was dismissed vide judgment dated 06.01.2017. In the said judgment a Coordinate Bench of Delhi High Court also took into consideration the said letters dated 16.07.2007 and 12.11.2007 and observed that the actual reason for not paying the balance bid amount was the fact that the petitioner (plot buyer) did not have adequate funds.
Further, the Division Bench of Delhi High Court while dismissing the LPA No. 378/2017 filed against the judgment dated 06.01.2017 granted liberty to the petitioner (plot buyer) only to challenge “the reasonableness of the forfeiture”.
In view of the said judgment and order by this Court, the Sole Arbitrator observed that the Court has already adjudicated that non-availability of civic infrastructural amenities was not the reason for non-payment of the balance consideration and hence, the same cannot be re-agitated in the arbitral proceedings.
Further, the Sole Arbitrator observed that the burden to establish that there was an ‘understanding’ that the respondent (DDA) will provide civic amenities before full payment was upon the petitioner (plot buyer).
The Sole Arbitrator was of the view that the petitioner (plot buyer) failed to establish that any such ‘understanding’ was arrived at or it had any legal sanctity.
The petitioner (plot buyer) in the arbitral proceedings contended that it addressed various letters requesting the respondent (DDA) to provide the civic amenities. However, the Sole Arbitrator was of the view that the petitioner (plot buyer) has failed to establish that any such representation was made to the respondent (DDA), since the petitioner (plot buyer) failed to prove that any such letter was served by it to the respondent (DDA) or produce copy of any such letters or summon any witness to prove delivery of such letters
Delhi High Court said: “I find no infirmity with the said findings of the Sole Arbitrator. The said findings of the Sole Arbitrator are based on the pleadings of both parties and after applying judicial mind to the documents on record and examination of the witness evidences.”
Delhi High Court: Plot is sold on “as is where is basis”
The Delhi High Court said that in a petition under Section 34 of the 1996 Act (Arbitration Act) is not to re-examine the evidence or reassess the facts of the matter. Further, a Coordinate Bench of Delhi High Court in W.P. (C) No. 685/2008 has already taken a view that nonavailability of civic infrastructural amenities was not the reason for non-payment of balance 75% balance consideration and the same has also been observed by the Sole Arbitrator.
The Sole Arbitrator further observed that as per the General Terms and Conditions of the Auction the subject plot was auctioned on ‘as is where is basis’.
The Delhi High Court said that the petitioner (plot buyer) is bound by the General Terms and Conditions of the Auction and hence, the petitioner was expected to know of the infrastructural facilities on the subject plot before bidding for it.
The Delhi High Court said that in support of the said finding, the Sole Arbitrator has correctly placed reliance on Punjab Urban Planning & Development Authority v. Raghu Nath Gupta, (2012) 8 SCC 197 and Municipal Corpn., Chandigarh v. Shantikunj Investment (P) Ltd., (2006) 4 SCC 109.
Delhi High Court said: “In view of the aforesaid, it is clear that the respondent had auctioned the subject plot on ‘as is where is basis’ and hence, the petitioner cannot contend that it withheld the payment of balance sale consideration as the respondent turned deaf ears to its request for providing civic infrastructural amenities.”
The Delhi High Court said that the Sole Arbitrator has relied upon many judgments to reach the finding that the ‘Earnest Money Deposit’ was rightly forfeited by the respondent (DDA) as it was the petitioner (plot buyer) who breached its obligation to pay the balance consideration even after grant of extension, as per the terms and conditions of the Auction.
Delhi High Court said: “The findings of the Sole Arbitrator are reasonable and plausible view, supported by such judgments as mentioned above. It cannot be said that the Sole Arbitrator has not applied judicial mind or not considered pleadings or evidences on record.”
Delhi High Court analyses the Rs 4.45 crore forfeiture clause
The Delhi High Court said that after having reached the aforesaid conclusion that the forfeiture of the ‘Earnest Money Deposit’ by the respondent (DDA) was as per the General Terms and Conditions of the Auction, the only issue that falls for consideration is whether the forfeiture of 25% of the sale consideration i.e., Rs. 4.45 crore was reasonable.
The judgment dated 06.01.2017 passed in W.P. (C) No. 685/2008 and order dated 21.09.2017 passed in LPA No. 378/2017 have crystallized the contentions of the parties and the Sole Arbitrator was only to adjudicate upon the reasonableness of the forfeiture of the “Earnest Money Deposit”.
The Delhi High Court said that it is pertinent to take note of Section 74 of the ICA, which deals with compensation for loss/ damage caused by a breach of the contract when a particular sum of liquidated damages or penalty is already set forth under the terms of the contract. It provides that such compensation must be reasonable and it cannot, in any circumstance, exceed the amount stipulated in the contract
The Delhi High Court said that the ambit of Section 74 of the ICA has been interpreted by the Supreme Court in catena of cases, especially in regards to earnest money. The Supreme Court in K.R. Suresh judgement, while referring to Fateh Chand judgement and Maula Bux judgement, observed that clause for the forfeiture of earnest money is not penal in nature and hence, Section 74 of the ICA is not applicable to such situations.
The Delhi High Court said that on perusal of certain paragraphs from K.R. Suresh’s judgement, it shows that forfeiture of “earnest money‟ is not “penal” in nature and hence, principles of Section 74 of the ICA are not applicable when forfeiting “earnest money‟.
Delhi High Court said: “Applying the said principle to the present case, the forfeiture of the “Earnest Money Deposit” deposited by the petitioner (plot buyer) cannot be regarded as penal in nature.”
Case law cited:
- Supreme Court in Desh Raj and Others v. Rohtash Singh, (2023) 3 SCC 714, while taking note of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
The Delhi High Court said that from the perusal of the paragraphs in the above mentioned case law, the proposition of law is that in cases where the terms of the contract provides that factum of the pre-estimate amount is in the nature of earnest money, the burden is on the party seeking refund/ reduction to prove that the same is penal in nature and failure to prove so would lead to treating any pre-estimated amount as a genuine pre-estimate of loss.
Similarly, in the present case it was on the petitioner (plot buyer) to prove that forfeiture of “Earnest Money Deposit” was in fact penal in nature and not genuine pre-estimate of loss.
To that effect, the Sole Arbitrator in paragraphs No. 46 and 47 of the impugned Award, observed that the petitioner (plot buyer) failed to establish that the stipulated condition was by way of “penalty” or that the compensation was “unreasonable”.
The Sole Arbitrator relied upon Construction & Design Services v. DDA, (2015) 14 SCC 263 to observe that the burden of proof is on the person committing breach to show that no loss was suffered by the other party or that the amount specified in the contract was not reasonable. In the said judgment the DDA awarded a contract to the appellant therein for constructing a sewerage pumping station and since the appellant failed to complete the same, the DDA levied compensation for delay.
The Delhi High Court said that the Sole Arbitrator took note of the losses suffered by the respondent (DDA) and also observed that the petitioner (plot buyer) has failed to prove that the respondent will earn profit on re-sale of the subject plot.
The Delhi High Court reproduced the relevant paragraphs of the arbitration award and said that a brief review of the said paragraphs shows that the Sole Arbitrator has returned findings that the respondent (DDA) suffered loss in terms of loss of revenue, sale consideration, expected expenses during re-auction, litigation cost, loss of interest on un-paid consideration and others.
The Sole Arbitrator further observed that in cases of open public auction, it is difficult to prove precise quantum of loss suffered by the public authority and therefore, the forfeiture clause works as a pre-estimate of the quantum of loss.
The Sole Arbitrator further stated that the petitioner after having been allotted the subject plot, in exclusion of other bidders, cannot later contend that the forfeiture clause is in nature of penalty.
Lastly, the Sole Arbitrator held that since there is no evidence establishing exact quantum of loss suffered by the respondent as the petitioner has failed to establish the same, hence 25% of the sale consideration was a correct pre-estimate of loss.
Delhi High Court said: “The said findings of the Sole Arbitrator are plausible views given after due application of mind and reasoning. In light of the said findings and law as discussed above, I am unable to agree with the averments of the petitioner that the burden to prove loss was upon the respondent.”
The Delhi High Court said that in the present case, the “Earnest Money Deposit” was in nature of pre-estimate of loss and not penalty and in such case the burden was on the party seeking refund i.e., the petitioner to prove that the forfeiture was in nature of penalty, which the petitioner (plot buyer) failed to do so, as also observed by the Sole Arbitrator and hence, it is treated as “genuine pre-estimate of loss”.
Delhi High Court judgement
The Delhi High Court said that in the present case, the findings of the Sole Arbitrator are plausible views, based on analysis of contentions raised by both parties, including the case laws cited.
Judgement:
- The findings provided by the Sole Arbitrator in the impugned Award cannot said to be perverse or impossible, that no reasonable person could have arrived at. The above discussion answers all the objections raised by the petitioner in the present petition.
- In view of the aforesaid, the impugned Award is not in contravention with the public policy of India or patently illegal and I find no merit in the contentions raised by the learned counsel for the petitioner to set aside the impugned Award.
- Consequently, the present petition is dismissed along with all pending applications, if any.
What is Arbitration?
Saumya Brajmohan, Partner at Solomon & Co., said to ET Wealth Online that arbitration is a private dispute resolution mechanism governed by the Arbitration and Conciliation Act, 1996 , wherein the parties choose a neutral third party, called an arbitrator, to decide the disputes that have arisen between them instead of going to court.
Provision for an arbitration clause is often referred in commercial contracts, since the resolution of disputes is typically faster, more flexible, and confidential compared to traditional litigation. One of the key features of the arbitration proceedings is confidentiality, and unlike court proceedings which are generally open to the public and part of the public record, arbitration hearings and awards are not publicly accessible.
Brajmohan says: “Thus, the details of the dispute, evidence, arguments, and the final award remain private unless a party voluntarily discloses them or they become part of a public court record for example, if the award is challenged before a court. This confidentiality is why many businesses choose arbitration; it protects sensitive commercial information and preserves business relationships while still ensuring a binding resolution.”
“Conflict with the public policy of India” How is this term defined?
Ishita Jain, Partner at Sagus Legal and Advocate-on-record, Supreme Court of India, explains that the term public policy of India has evolved over the years through various judicial pronouncements and subsequent amendment in 2015.
Jain explains:
- The Supreme Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 had held that an award is against the public policy of India in the following cases: (i) contrary to the fundamental policy of Indian law, (ii) contrary to the interests of India, (iii) contrary to justice or morality, or (iv) patently illegal. The Supreme Court further observed that patent illegality occurs when the arbitral award passed is contrary to substantive provisions of law, the Arbitration and Conciliation Act, 1996 or the terms of the contract.
- Subsequently, in 2015, the Supreme Court in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 redefined public policy of India including only the following: (i) contravention of fundamental policy of Indian law (ii) against justice or morality and (iii) patently illegal where such illegality goes to the root of the matter. The Supreme Court emphasised that while deciding challenge to an arbitral award, courts should avoid going into the merits of the dispute.
- However, soon thereafter, the 2015 Amendment to the Arbitration and Conciliation Act, 1996 was enforced which brought Explanation 1 to Section 34. Explanation 1 to Section 34 limited the scope of public policy of India to the following: (i) arbitral award was induced or affected by fraud or corruption; (ii) contravention with the fundamental policy of Indian laws; (iii) conflict with the most basic notions of morality or justice.
According to Jain recently, in the case of OPG Power Generation Pvt. Ltd. vs Enexio Power Cooling Solutions India Pvt. Ltd. and Anr., (2025) 2 SCC 417, the Supreme Court held that an arbitral award would not be considered to be against public policy of India only on a mere violation of themunicipal laws of India.
Further, it was held that there must be inter alia, violation of fundamental policy of Indian law including a law meant to serve public interest or publicgood. While explaining the expression ‘contrary to fundamental policy of Indian Law’, the Supreme Court held that the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country.
The Supreme Court also gave examples of instances where the award would be considered to be in contravention with the fundamental policy of Indian Law, such as:
(i) violation of the principles of natural justice;
(ii) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and
(iii) violating law of India linked to public good or public interest.
According to Jain, in the said case, the Supreme Court also explained the expression most basic notions of morality and justice. The Court observed that in judicial sense, ‘justice’ is nothing more nor less than exact conformity to some obligatory law.
Jain says: “The test is that it must conflict with the most basic notions of justice. While the Court observed that no precise definition or meaning could be given to expression ‘most basic notions of justice’, however, the court observed that it ought to be such elementary principles of justice that their violation could be figured out by a prudent man i.e., if the award conflicts with such elementary/ fundamental principles of justice that it shocks the conscience of the Court.”
According to Jain, the Court further explained the term ‘morality’ and observed that it would cover such agreements as are not illegal but would not be enforced given the prevailing mores of the day. An arbitral award can be set aside on this ground only if something shocks the conscience of the court.
Jain says: “In view of the above discussions, it is clear that the nature or subject matter of the contract is irrelevant to plead the ground of conflict with the public policy of India to challenge an arbitral award. Thus, an arbitral award passed qua disputes arising out of contract related to residential plots can also be challenged on the ground of conflict with the public policy of India.”