Homeowner Alleges Defective Construction After Completion Certificate; Delhi High Court Upholds Arbitral Award, Says Certificate Does Not Prove Contractor Fulfilled Contractual Construction Standards and Specifications
Construction Completed Within Six Months but Owner Alleges Defective Work; Delhi High Court Upholds Arbitral Award After Court-Ordered Independent Inspection
Facts
M.K. Construction entered into an agreement dated 8 April 2008 with Major General Hoshiar Singh (Retd.) for construction of a residential house at Greater Noida. The work was divided into two phases—structural/civil work followed by finishing work—and was stipulated to be completed within eleven months. M. K. CONSTRUCTION
The construction was completed in approximately six months. The contractor applied for the occupancy/completion certificate on 10 October 2008, which was issued on 22 May 2009. Following joint measurement, the contractor raised a final bill of ₹64,90,848, against which the homeowner paid ₹56,31,000. M. K. CONSTRUCTION
On 23 July 2009, the homeowner issued a notice alleging defects, deficiencies and delay. Arbitration followed. The homeowner claimed ₹16.55 lakh while the contractor counterclaimed ₹14.59 lakh. The first award dated 6 February 2014 rejected the homeowner’s claims and awarded the contractor ₹8,59,484 plus 9% interest, professional charges and arbitration costs. M. K. CONSTRUCTION
In an earlier appeal, however, the Delhi High Court set aside that award and directed the arbitrator to appoint a government-approved architect as Local Commissioner, inspect and measure the property, and decide the dispute afresh. M. K. CONSTRUCTION
After considering the Local Commissioner’s report, the arbitrator passed a fresh award dated 6 September 2018. After adjustment of counterclaims, ₹3,50,189 plus interest up to August 2018 was held recoverable by the homeowner. The arbitrator additionally awarded ₹1 lakh for mental agony, ₹1 lakh architect’s fee, ₹92,966 arbitration expenses and ₹75,000 legal expenses, along with future interest. M. K. CONSTRUCTION
The Commercial Court rejected the contractor’s Section 34 challenge, though it reduced future interest from 18% to 10% simple interest. M.K. Construction therefore approached the Delhi High Court under Section 37. M. K. CONSTRUCTION
Issues
The principal issues were whether the completion certificate and delayed objections defeated the homeowner’s allegations of defective construction; whether the arbitrator could adjust the cost of material supplied by the homeowner and award damages including mental harassment; whether such factual findings could be reopened under Section 37; and whether the award became void because it was delivered beyond the alleged six-month period after the Local Commissioner’s report.
Appellant Contractor’s Arguments
M.K. Construction argued that the construction had admittedly been completed and that no defects were raised between completion in August 2008 and issuance of the completion certificate in May 2009.
It also challenged ₹22,500 awarded for delayed possession as allegedly beyond the homeowner’s pleadings and disputed adjustment of ₹2,48,085 towards wood and the iron gate, contending that there was no justification for deducting the amount from its bill. M. K. CONSTRUCTION
The contractor further challenged the ₹1 lakh compensation for mental harassment and argued that the arbitrator’s mandate had expired because the fresh award was not passed within six months of receiving the Local Commissioner’s report. M. K. CONSTRUCTION
Respondents’ Arguments
The respondents emphasised the extremely restricted scope of a Section 37 appeal. They argued that the Court could neither reappreciate evidence nor sit as an appellate forum over factual findings of the arbitrator.
They also contended that the ₹22,500 objection had not been specifically taken in the Section 34 proceedings; the wood deduction followed the contractual allocation of material costs; and Section 29A did not apply because arbitration had commenced before the 2015 Amendment. M. K. CONSTRUCTION
Analysis of the Law
Completion Certificate Does Not Prove Contractual Performance
This is the judgment’s most significant proposition.
The High Court held that completion of construction and issuance of a statutory completion certificate are distinct from the question whether construction was executed according to the parties’ contractual specifications and required quality.
A completion certificate issued by statutory authorities concerns compliance with statutory requirements for issuance of that certificate. It does not certify that the contractor has fulfilled every obligation under the construction agreement.
Accordingly, the contractor could not use the completion certificate as conclusive proof that there were no defects or deficiencies.
The Court also held that the homeowner’s delay of approximately seven months in raising objections was not fatal to the claim. M. K. CONSTRUCTION
Narrow Scope of Section 37
The High Court reiterated that interference under Section 37 is narrower than under Section 34.
The appellate court cannot independently reassess the merits of the arbitral award or undertake a fresh appreciation of evidence. Its principal function is to determine whether the Section 34 Court exercised its jurisdiction within legally permissible limits. M. K. CONSTRUCTION
Relying on Bombay Slum Redevelopment Corporation v. Samir Narain Bhojwani, MMTC Ltd. v. Vedanta Ltd., UHL Power Co. Ltd. v. State of H.P., Punjab State Civil Supplies Corporation v. Sanman Rice Mills and Larsen Air Conditioning v. Union of India, the Court reiterated that a reasonable interpretation of the contract by the arbitrator cannot ordinarily be disturbed merely because another interpretation is possible. M. K. CONSTRUCTION
₹22,500 for Delayed Possession
The contractor argued that ₹22,500 had been awarded even though no such claim had been made.
The High Court refused interference because this specific plea had not been raised in the Section 34 petition. It further observed that every factual or legal error does not justify interference under Section 34—and still less under Section 37. M. K. CONSTRUCTION
Adjustment for Wood Supplied by Homeowner
Clause 9 placed the cost of raw material for civil and finishing work upon the contractor.
The arbitrator had recorded a factual finding that the wood was actually supplied by the homeowner. Consequently, its value was adjusted against the contractor’s bill.
The High Court refused to revisit that factual conclusion, reiterating that Section 37 does not permit the Court to sit in appeal over factual findings unless they suffer from perversity. M. K. CONSTRUCTION
₹1 Lakh for Mental Harassment
The contractor argued that compensation for mental harassment was inconsistent with the first arbitral award.
The Court rejected this argument because the first award dated 6 February 2014 had already been set aside. After remand, the arbitrator was required to adjudicate the matter afresh and could therefore award compensation after considering the evidence before him.
A finding contained in an award that no longer existed could not invalidate the fresh award. M. K. CONSTRUCTION
Was the Award Void for Delay?
The contractor argued that the arbitrator was required to conclude the proceedings within six months after receipt of the Local Commissioner’s report.
The High Court rejected this contention.
It held that its earlier direction did not impose an inflexible or peremptory deadline whose expiry automatically terminated the arbitrator’s mandate. Moreover, the contractor had not pleaded this objection in its Section 34 petition. M. K. CONSTRUCTION
Section 29A Does Not Apply Retrospectively
The arbitrator had originally been appointed in 2012, whereas Section 29A prescribing timelines for arbitral proceedings was introduced by the 2015 Amendment.
The High Court held that setting aside the earlier award and remitting the dispute for fresh adjudication did not create a completely new arbitration. It was a continuation of the original arbitral proceedings.
Consequently, Section 29A did not apply unless the parties had otherwise agreed. M. K. CONSTRUCTION
Court’s Reasoning
The Court essentially found that M.K. Construction was attempting to reopen factual questions already examined by the arbitrator and upheld by the Commercial Court.
The statutory completion certificate could not conclusively establish contractual performance. The arbitrator was entitled to consider the Local Commissioner’s inspection, measurements, contractual terms and other evidence in determining whether work was defective or deficient.
Similarly, adjustment for materials, compensation following remand and other factual determinations could not be reconsidered merely because the contractor disagreed with them.
The Section 37 jurisdiction was not a second merits appeal.
Conclusion
The Delhi High Court found no ground for interference under Section 37 and dismissed M.K. Construction’s appeal. M. K. CONSTRUCTION
The judgment is particularly useful for three propositions:
A statutory completion/occupancy certificate does not establish that construction satisfies contractual quality and specification requirements; factual findings of an arbitrator cannot ordinarily be reappreciated under Section 37; and Section 29A does not apply to pre-2015 arbitral proceedings merely because an award is subsequently set aside and the matter remitted for fresh adjudication.
Case Details
Case: M. K. Construction v. Maj. Gen. Hoshiar Singh (Retd.) & Anr.
Court: High Court of Delhi at New Delhi
Case No.: FAO (COMM) 86/2023 & CM APPL. 17066/2023
CNR No.: DLHC010123892023
Bench: Justice Avneesh Jhingan and Justice Shail Jain M. K. CONSTRUCTION
Reserved: 24 September 2026
Pronounced: 30 September 2026 M. K. CONSTRUCTION
Result: Appeal dismissed; arbitral award as sustained by the Commercial Court remained undisturbed
