The first floor of the building, which was being renovated for a new outlet of renowned designer Ritu Kumar, collapsed partially on Wednesday.
Khan market is considered one of the most expensive retail locations in India.
Following the collapse, the second floor of the building caved in while the ground floor, which houses a Bank of India branch, developed some cracks.
NDMC officials said the building is owned by Manju Madan who has already been served a notice directing to secure the building by removing the structural defects within seven days or face demolition.
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"This is sheer negligence and incompetence on the part of the contractor and he must be penalised for it," said Sanjiv Mehra, President of Khan Market Traders Association.
He added "the ground floor houses the Bank of India branch. Almost 30-40 people could have lost their lives if the slab of the roof had fallen on the floor. This is sheer incompetency of the contractor."
An inquiry into the incident has been ordered by NDMC chairperson Jalaj Srivastava and the building has been declared dangerous due to which the Bank of India on the ground floor has been asked to keep the branch shut for at least seven days.