Arbitrator Cannot Ignore Signed Documents and Rely on Conjecture: Delhi High Court Upholds Setting Aside of Award in Partnership Dispute

“There is no finding that the Retirement Deed was fabricated. Once signed documents are admitted, burden lies on the signatory to prove vitiating circumstances” – Delhi High Court

In a crucial reaffirmation of the limits of arbitral authority and judicial oversight, the Delhi High Court on 22 December 2025 dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, and upheld the setting aside of an arbitral award which had wrongly declared a retirement deed as void. The Division Bench comprising Justice Navin Chawla and Justice Madhu Jain ruled that the arbitral award suffered from “patent illegality” and was rightly set aside by the Single Judge under Section 34 of the Act.

In Shri Brajendra Khandelwal v. M/s Rajendra Iron Mart & Ors. [FAO(OS)(COMM) No. 194 of 2022], the Court held:

“Once it is found that the Retirement Deed has been signed by the appellant after it had been printed, it was for the appellant to show the circumstances under which it was signed and prove the grounds on which it would stand vitiated. The learned Arbitrator had therefore, completely misdirected himself.”

“Arbitrator Ignored Admitted Signatures, Failed to Return Finding on Fabrication” – Court Finds Award Perverse and Unsupported by Evidence

The core issue before the Court was whether the Arbitral Award dated 30.01.2019, which held the appellant to be a continuing partner of the firm and declared his retirement deed null and void, had been passed in accordance with law or suffered from patent illegality.

The appellant, Brajendra Khandelwal, had challenged a Retirement Deed dated 19.01.2010 and a subsequent Form V filing before the Registrar of Firms, both bearing his signatures, claiming that he had only signed blank papers which were later misused by the other partners to fraudulently record his retirement.

The Division Bench, however, found this explanation legally and factually unsustainable, particularly since: “There is no finding that the Retirement Deed was manipulated or fabricated as alleged by BK.”

The Court highlighted that: “A visual examination of the Retirement Deed indicates that it was not signed on a blank stamp paper. The Arbitral Tribunal had also not returned any finding that the blank stamp papers were signed by BK, which were subsequently misused by printing the Retirement Deed.”

Background: Disputed Retirement and Alleged Fabrication in Partnership Reconstitution

The dispute emerged from a partnership reconstitution concerning Rajendra Iron Mart, a firm originally formed by the appellant’s predecessors. Brajendra Khandelwal claimed that he had never consented to retire and accused the respondents of fabricating a Retirement Deed and forging a Form V filing before the Registrar of Firms.

An arbitral tribunal, constituted on the appellant’s request under Section 11, ruled in his favour. The arbitrator held that the Retirement Deed was invalid and that the appellant remained a partner.

However, the respondents successfully challenged the award before the Delhi High Court under Section 34. The learned Single Judge set aside the award, prompting the appellant to file the present appeal under Section 37.

Reiterating Limits of Judicial Review Under Sections 34 and 37, Court Finds Arbitrator Acted Outside Jurisdiction

The Court carefully dissected the arbitrator’s reasoning, observing that the findings were based on “extraneous circumstances” rather than any valid evidence or categorical findings on fabrication. It observed:

“Though not specifically stating that the plea of the appellant that he had signed on blank papers on which Retirement Deed was printed later, the Arbitrator seems to have accepted the same… then went on to discuss other extraneous circumstances… The same, in our view, was extraneous to the claim of the appellant.”

Relying on settled law, the Court held that: “An award may be set aside if the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality goes to the root of the matter.”

The Bench referred to binding precedents including MMTC Ltd. v. Vedanta Ltd. (2019), Delhi Metro v. DAMEPL (2024), and Associate Builders v. DDA (2015) to stress that a domestic arbitral award can be interfered with where it suffers from patent illegality, particularly when “findings are based on no evidence or ignore vital evidence.”

Clause Requiring Notice Applied to Dissolution, Not Retirement – Arbitrator Misread Contractual Clause

Another key finding of the Court pertained to the Arbitrator’s interpretation of Clause 3 of the Partnership Deed. The arbitrator held that a three-month notice was required before a partner could be treated as retired. The High Court categorically overruled this view:

“The clause requiring three months’ notice applied to dissolution of the partnership at will, not to consensual retirement through a Retirement Deed. The arbitrator’s finding was contrary to the express terms of the contract.”

This misinterpretation of the contract further reinforced the Court’s finding of patent illegality.

Signature on Retirement Documents Admitted, Yet No Finding on Fraud or Duress

The appellant had admitted signing the Retirement Deed and Form V. Yet the arbitrator, without finding any fraud, coercion, or vitiating element, chose to discard the documents based on conjecture and inferences from ancillary facts such as delay in filing financial statements or informing DDA.

The Court noted: “The Retirement Deed was printed on stamp paper purchased on the date of execution. Form V is a statutory pre-printed document. There was no visible feature to suggest fabrication or manipulation.”

The appellant, being previously involved in litigation against the same partners, could not plausibly argue that he blindly signed blank documents:

“The Arbitrator himself accepted that a person in litigation with others would not sign blank documents. Having done so, the Arbitrator ought to have held the Retirement Deed valid.”

Appeal Dismissed, Arbitral Award Invalidated for Ignoring Admitted Evidence and Misapplying Law

Upholding the Single Judge’s decision, the Division Bench concluded: “The learned Arbitrator had completely misdirected himself. The Impugned Order [of the Single Judge] is entitled to be sustained. The appeal, along with pending applications, is dismissed.”

No costs were imposed.

When Arbitrators Ignore Signed Evidence and Rely on Speculation, Courts Will Intervene

This ruling reinforces the principle that arbitral awards must be reasoned, evidence-based, and in conformity with law. A finding based on conjecture, especially when it contradicts admitted documents and lacks proof of vitiating circumstances, will not pass judicial scrutiny.

The Delhi High Court has thus drawn a firm boundary around arbitral discretion, ensuring it does not become a licence for arbitral adventurism.

Date of Decision: 22 December 2025