Arbitral Award Cannot Be Set Aside For Non-Adjudication Of Claims Specifically Abandoned By Parties: Delhi High Court

"The material question is whether the reliefs which were not adjudicated continued to remain for determination after the parties made the statement... if the scope of adjudication stood confined to the claim of Respondent No.3 concerning the amount paid towards the Bank liability, the learned Sole Arbitrator could not be faulted merely because the original pleadings contained additional reliefs which were no longer required to be adjudicated." Delhi High Court, in a judgment dated October 5, 2026, held that an arbitral tribunal is not required to adjudicate every relief originally pleaded if the parties have, by a joint statement recorded during proceedings, expressly confined the scope of the dispute to a specific claim.

A division bench of Justice Anil Kshetarpal and Justice Bharat Parashar observed that a court, while exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996, cannot fault an arbitrator for failing to decide abandoned claims, as the arbitral process is governed by the conduct and understanding of the parties as recorded in the order-sheets.

The dispute arose between partners of a firm, M/s Nova Electro World, concerning the dissolution of the partnership and the settlement of accounts. During the subsistence of the partnership, the firm availed a cash-credit facility from Union Bank of India, for which the appellant-partner had stood as a guarantor. Upon the firm’s default, the appellant paid Rs. 23,90,000 to the bank to discharge the firm's liability and subsequently sought reimbursement from his co-partners before the learned Sole Arbitrator.

The primary question before the court was whether the learned District Judge was justified in setting aside an arbitral award on the ground that the arbitrator failed to adjudicate all initial claims, despite a recorded submission by the parties to limit the scope of the award to a single claim. Additionally, the court examined whether a partner’s claim for reimbursement of a liability paid as a guarantor constitutes a personal claim outside the scope of an arbitration agreement governing the partnership.

Binding Nature of Procedural Statements

The High Court emphasized that the order-sheet dated December 11, 2023, which recorded that the "award may be passed only on the claim made by respondent No.3," acted as a formal narrowing of the arbitral scope. The bench noted that the arbitrator’s reliance on this statement to exclude other peripheral claims like dissolution and rendition of accounts was legally sound and consistent with party autonomy.

Parties Define the Scope of Arbitration

The court rejected the District Judge’s finding that the arbitrator had a mandatory duty to decide every original relief regardless of the parties' conduct. The bench held that once parties consciously narrow the dispute, the arbitrator acts within their jurisdiction by limiting the award to the live, pressed issues.

"The absence of a separate document cannot, by itself, efface the statement actually recorded in the contemporaneous proceedings... The arbitration proceedings are to be examined on the basis of the record of the proceedings and the conduct of the parties before the Tribunal."

Distinction Between Guarantor Capacity and Partner Liability

Addressing the second issue, the High Court clarified that a partner’s status as a guarantor does not render their claim for reimbursement a "personal dispute" outside the partnership agreement. The court highlighted that the payment was made to discharge a firm's liability, not a personal debt, and was therefore integrally connected to the inter se financial affairs of the partners.

Court Distinguishes Corporate/Individual Debts

The bench observed that the Settlement Certificate issued by the bank clearly identified the account as that of the partnership firm. The fact that the appellant was a guarantor merely provided the bank with a remedy, but it did not alter the fundamental nature of the payment as a discharge of a partnership liability, which remains a valid subject for arbitration under the partnership deed.

"The Appellant, being one of the partners, was not required, merely for discharging an existing liability of the partnership firm, to obtain prior permission of the other partners before making such payment."

Limited Scope of Section 34 Review

The High Court further cautioned that an appellate court under Section 34 of the Arbitration Act cannot substitute its own appreciation of evidence for that of the arbitrator. The court found that the arbitrator had correctly analyzed the evidence, including the bank’s settlement records and cross-examination admissions, and that there was no jurisdictional error in the award.

The High Court concluded that the District Judge erred in law by conflating the appellant's personal capacity as a guarantor with the character of the debt as a partnership liability. Consequently, the Court allowed the appeal and restored the arbitral award in its entirety.

Date of Decision: 05 October 2026