Introduction
In Shri Krishan Baldev Bansal v. Balbir Singh Tyagi & Ors. [2026:DHC:8629-DB], the Delhi High Court considered whether an arbitral award could be set aside because the sole arbitrator adjudicated only one monetary claim after the parties had stated that the award may be passed only in respect of that claim. The Delhi High Court also examined whether a claim by a partner seeking contribution from the other partners after discharging the partnership firm's bank liability fell outside the arbitration agreement merely because that partner had also stood as guarantor for the facility.
The Delhi High Court held that where the contemporaneous record of the arbitral proceedings showed that the parties had confined the adjudication to a particular claim, the sole arbitrator could not be faulted for not deciding other reliefs which had originally formed part of the pleadings.
The Delhi High Court further held that the capacity in which the bank proceeded against the appellant as guarantor did not, by itself, determine the character of his subsequent claim against the other partners. Since the underlying borrowing was that of the partnership firm, the payment was made towards the firm's dues and the relief sought concerned contribution among partners according to their partnership shares, the claim fell within the scope of the arbitration between the partners.
The judgment also reiterates that a court exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 cannot set aside an award merely because it would have appreciated the factual material differently where the arbitral tribunal's findings are supported by the record.
In this article, we navigate through the facts of the case and the findings rendered by the Delhi High Court.
Brief Facts
The dispute arose from a partnership constituted under a Partnership Deed dated 15 September 2004 (the "Partnership Deed") for carrying on the business of retailing electronic goods under the name M/s Nova Electro World (the "Firm"). The appellant was one of the partners. Two of the other partners together held 55% of the partnership share, while the appellant and his son together held the remaining 45%.
The Firm carried on business until September 2006. Disputes thereafter arose between the partners concerning dissolution of the Firm, rendition of accounts and settlement of their respective claims.
During the subsistence of the partnership, the Firm availed a cash-credit facility of INR 25 lakh from Union Bank of India (the "Bank"). The appellant, in addition to being a partner, stood as a guarantor for the facility and furnished security over his property.
The cash-credit liability remained outstanding. After receiving a demand from the Bank, the appellant paid INR 23.90 lakh from his own funds towards full and final settlement of the Bank's claim. The Bank issued a settlement certificate dated 28 April 2008 recording that the account was in the name of the Firm and that the appellant, described as a partner and guarantor, had paid the amount towards settlement of the Firm's dues.
The appellant thereafter claimed contribution from the other partners. After deducting his own 10% share from the amount paid to the Bank, he claimed INR 21.51 lakh from the remaining partners in accordance with their respective partnership shares.
The claim was contested in the arbitral proceedings. The respondents did not dispute that the Firm had availed the cash-credit facility or that the appellant had made the payment. Their case was that the payment was subject to the final settlement of the Firm's accounts and could not be independently recovered without determination of the overall accounts and liabilities of the Firm.
Evidence was led on the Bank liability and the payment. The sole arbitrator found that the Firm had availed the cash-credit facility, that the Bank had raised a demand and that the appellant had paid the amount from his own funds towards discharge of the Firm's liability. The sole arbitrator also found that the payment had not been made for the appellant's personal benefit.
At a later stage, an objection was raised that the appellant had made the payment in his capacity as guarantor and ought to have instituted separate proceedings for recovery. The sole arbitrator rejected the objection and proceeded to consider the claim as one arising from payment of a liability of the Firm by one of its partners.
On 11 December 2023, after arguments had been heard, the parties and their counsel stated before the sole arbitrator that the award may be passed only on the claim made by the appellant, who was Respondent No.3 in the arbitral proceedings. The sole arbitrator recorded the understanding that the claim to be adjudicated was the claim concerning the amount paid by the appellant to the Bank, and that the other claims were not required to be decided.
By an award dated 23 December 2023, the sole arbitrator confined the adjudication to the Bank-payment claim. After deducting the appellant's own 10% share, the balance amount of INR 21.51 lakh was apportioned among the other partners in accordance with their respective partnership shares. Interest at 18% per annum was also awarded from 28 April 2008 until payment.
Two of the partners challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (the "Arbitration Act"). The District Judge set aside the award principally on two grounds. First, the sole arbitrator had not adjudicated the other reliefs forming part of the appellant's original claim. Secondly, the claim relating to the amount paid to the Bank was treated as a personal claim arising from the appellant's position as guarantor and therefore as falling beyond the scope of the arbitration agreement.
Aggrieved by the order setting aside the award, the appellant approached the Delhi High Court.
Arguments from Both Sides
The appellant contended that the District Judge had erred in proceeding on the basis that the sole arbitrator was required to decide every relief originally forming part of the appellant's claim. It was submitted that the parties had themselves narrowed the scope of adjudication on 11 December 2023 and that the order-sheet had never been withdrawn or modified.
The appellant further submitted that the reliance on the general principle underlying Order XIV Rule 2 of the Code of Civil Procedure, 1908 was misplaced. Once the parties agreed that the award would be confined to the claim which remained pressed, the presence of additional reliefs in the original pleadings could not invalidate the award.
On the question of the arbitration agreement, the appellant argued that the claim was not a personal claim arising from his relationship with the Bank as guarantor. The amount had been paid towards the Firm's outstanding liability, and the settlement certificate expressly recorded that the payment was towards full and final settlement of the Firm's dues.
The appellant also relied on the manner in which the claim had been quantified. He had not sought the entire amount from the other partners. His own 10% share was first excluded and the balance was apportioned among the other partners according to their respective shares. It was therefore submitted that the claim concerned the inter se financial liabilities of the partners and fell within Clause 15 of the Partnership Deed.
The respondents, on the other hand, contended that the order-sheet dated 11 December 2023 merely recorded that the award may be passed on the "claim made by respondent No.3". According to them, this expression encompassed all the reliefs forming part of the appellant's original claim and did not amount to an agreement to abandon the remaining reliefs.
The respondents further submitted that, if the remaining reliefs were intended to be given up, an appropriate statement or application ought to have been placed on record. They argued that the sole arbitrator could not select one monetary component while leaving the remaining reliefs unanswered.
On arbitrability, the respondents contended that the claim arose from the appellant's independent relationship with the Bank as guarantor. They relied on the fact that the appellant had not consulted the other partners before making the payment and that there was no document showing prior authorisation by the Firm.
It was also submitted that the sole arbitrator had not properly adjudicated the objection concerning the scope of the arbitration agreement and that the claim therefore ought not to have been entertained in the arbitral proceedings.
Findings of the Delhi High Court
The Delhi High Court allowed the appeal, set aside the order passed under Section 34 and restored the arbitral award.
The Delhi High Court identified two distinct questions. The first concerned the scope of adjudication which remained before the sole arbitrator after the statement recorded on 11 December 2023. The second concerned the nature of the Bank-payment claim and whether it fell within the scope of the arbitration agreement between the partners.
On the first issue, the Delhi High Court treated the order-sheet dated 11 December 2023 as the starting point. The order-sheet recorded, after arguments had been heard, that the parties submitted that the award may be passed only on the claim made by Respondent No.3 in the arbitral proceedings.
The Delhi High Court then considered paragraph 55 of the arbitral award, where the sole arbitrator recorded his understanding that the parties and their counsel had confined the adjudication to the claim concerning the amount paid by the appellant to the Bank as guarantor and that the other claims were not required to be decided.
The Delhi High Court held that the absence of a separate application or statement on oath recording abandonment of the other reliefs did not efface the record of the arbitral proceedings. The scope of adjudication had to be determined from the record and the conduct of the parties before the arbitral tribunal.
The Delhi High Court clarified that the issue was not whether an arbitrator may ordinarily leave a relief undecided. The relevant question was whether the other reliefs continued to remain live for determination after the parties had narrowed the scope of adjudication. Once the parties had confined the proceedings to the Bank-payment claim, the sole arbitrator could not be faulted merely because the original pleadings contained additional reliefs.
The Delhi High Court therefore disagreed with the District Judge's conclusion that the sole arbitrator had committed a jurisdictional error by not adjudicating the other reliefs forming part of the appellant's original claim.
The Delhi High Court next examined whether the Bank-payment claim was within the scope of the arbitration agreement. It placed emphasis on the settlement certificate issued by the Bank, which recorded that the underlying account was that of the Firm and that the appellant had paid INR 23.90 lakh towards full and final settlement of the Firm's dues.
The Delhi High Court drew a distinction between the appellant's relationship with the Bank and his subsequent claim against the other partners. The Bank was entitled to proceed against the appellant because he had furnished a guarantee. The claim before the sole arbitrator, however, was not against the Bank and did not concern the validity or enforcement of the guarantee. It was a claim by one partner against the other partners for contribution after discharging a liability of the Firm.
The manner in which the sole arbitrator quantified the claim reinforced this distinction. The appellant's own 10% share was excluded and only the balance was apportioned among the remaining partners in accordance with their partnership shares. The award therefore proceeded on the basis of the partnership arrangement and the inter se incidence of the Firm's liability.
The Delhi High Court also considered Clause 15 of the Partnership Deed, which referred disputes in regard to the Partnership Deed or books of accounts to arbitration. The Bank-payment claim concerned a liability of the Firm, payment of that liability by one partner and the consequential adjustment of the respective shares of the partners. It therefore arose from the financial affairs of the partnership and was capable of adjudication in the arbitration between the partners.
The Delhi High Court rejected the view that the claim became personal to the appellant merely because he had also stood as guarantor. The relevant inquiry was the substance of the claim brought before the arbitral tribunal, not merely the capacity in which the Bank had proceeded against the appellant.
The Delhi High Court further held that the absence of prior consultation with, or authorisation from, the other partners did not answer the anterior question concerning the nature of the claim. Those matters could have a bearing on the merits if otherwise relevant, but they did not convert a dispute concerning payment of the Firm's liability into a dispute wholly unrelated to the partnership.
The Delhi High Court also rejected the conclusion that the sole arbitrator had failed to consider the objection to the scope of the arbitration agreement. The arbitral award recorded the objection, considered the position advanced against the claim and took a view on its maintainability. Whether that view was sustainable had to be examined within the limits of Section 34.
On the factual findings, the Delhi High Court observed that the sole arbitrator had considered the settlement certificate, the evidence of the parties and admissions made during cross-examination. The finding that the Firm had availed the cash-credit facility and that the appellant had paid the amount towards the outstanding liability was therefore supported by material before the arbitral tribunal.
The Delhi High Court held that the District Judge was entitled to examine whether a ground under Section 34 was made out, but a different appreciation of the payment could not, by itself, justify setting aside the award where the sole arbitrator's view was supported by the record.
Accordingly, the Delhi High Court held that the District Judge had erred both in treating the other originally pleaded reliefs as continuing to require adjudication and in treating the Bank-payment claim as a personal guarantor claim lying outside the arbitration agreement. The order setting aside the award was therefore reversed and the arbitral award dated 23 December 2023 was restored.
Comment
The judgment in Shri Krishan Baldev Bansal (supra) is a useful clarification on the ability of parties to narrow the scope of an ongoing arbitration and on the manner in which the scope of an arbitration agreement should be tested against the substance of the claim actually adjudicated.
The decision recognises that the universe of disputes originally pleaded need not necessarily remain unchanged until the award. Where the parties, at the conclusion of the proceedings, agree that only a particular claim requires adjudication, the arbitral tribunal may proceed on that basis. The existence of additional reliefs in the original pleadings does not, by itself, require their determination if they no longer remain live issues between the parties.
At the same time, the judgment shows the practical importance of a clear contemporaneous procedural record. The Delhi High Court relied materially on the order-sheet recording the parties' statement and on the manner in which the sole arbitrator recorded and acted upon that statement in the award. Parties seeking to narrow or abandon claims would therefore be well advised to ensure that the precise scope of the remaining adjudication is expressly recorded.
The judgment also draws an important distinction between the capacity in which a third-party creditor may proceed against a person and the legal character of that person's subsequent inter se claim against contractual or business counterparties. The fact that a partner had been proceeded against as guarantor did not make his claim against the other partners a claim under the guarantee where the payment discharged the Firm's liability and the relief sought was contribution according to partnership shares.
The decision is equally relevant to the limits of Section 34 review. Where an arbitral tribunal has reached a factual conclusion on the basis of documentary material, evidence and admissions, a court cannot set aside the award merely because it would characterise or appreciate the underlying transaction differently. The statutory grounds under Section 34 remain the controlling threshold.
Importantly, the Delhi High Court confined its decision to the Bank-payment claim actually adjudicated. It did not examine the other claims originally raised concerning dissolution, rendition of accounts, goodwill, tenancy or other reliefs. The judgment should therefore not be read as laying down a general rule that every claim by a guarantor-partner for recovery from co-partners will necessarily fall within an arbitration clause. The inquiry remains dependent on the arbitration agreement and the substance of the particular claim.
The judgment therefore reinforces two practical propositions: parties may shape the scope of the dispute that remains for arbitral determination, and questions concerning the scope of an arbitration agreement must be answered by examining the true nature of the claim rather than by attaching decisive weight to a single legal capacity in which one of the parties acted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
