When family ties and commercial ventures interact, contractual boundaries can easily blur. Yet Indian arbitration law leaves little room for such ambiguity: regardless of the informality of parties’ day-to-day dealings, an arbitral award cannot stray beyond the confines of the agreement governing the dispute. Section 28(3) of the Arbitration and Conciliation Act, 1996, draws this statutory boundary by requiring an arbitral tribunal to decide disputes in accordance with the terms of the contract under which the arbitration is conducted.
In Sandeep Dixit v. Rekha Dixit & Ors1., the Bombay High Court weighed into a bitter family fallout to re-examine the broad scope of an arbitrator’s jurisdiction.
The issue began within a family-run partnership firm, where Rekha Dixit extended a substantial financial lifeline by injecting ₹5 crore as a loan into the business. Over time, personal and professional friction eroded trust among the partners. As relations soured beyond repair, the parties turned to arbitration to untangle their joint enterprise; by seeking to settle accounts, formalize Rekha Dixit’s retirement, and recover her financial contributions.
During the arbitral proceedings, Rekha Dixit sought the return of her ₹5 crore loan along with a 9% interest, the additional interest claim specifically supported by WhatsApp chats between the partners. And when the sole arbitrator rendered the award, Rekha Dixit secured a complete victory on paper. The tribunal accepted her argument, ordering the firm and Sandeep Dixit along with the remaining partners to refund the ₹5 crore principal alongside a substantial 9% annual interest based on those WhatsApp chats.
Dissatisfied with the outcome, Sandeep Dixit mounted a challenge under Section 34 of the Act, taking the fight to the Bombay High Court.
Contractual Limits vs. Digital Evidence:
The Court confronted two pivotal questions:
- Can an arbitrator construct a fresh financial obligation out of casual WhatsApp messages when the core agreement remains silent?
- And if an arbitrator stumbles into patent illegality on interest, must the entire award fall, or can the court surgically sever the bad from the good?
The plaintiff here argued that entire arbitration was anchored to, and born out of, the partnership deed. And because that document contained no provision for 9% interest, the arbitrator had crossed a line as he pronounced an award for the same, effectively rewriting the terms of their business. Moreover, he pointed out a basic procedural flaw: the defendant had never even pleaded the existence of an independent “WhatsApp contract” in her formal statement of claim for such an award to be granted so. Rekha Dixit, on the other hand, argued that arbitrators enjoy broad discretion to evaluate real-time evidence; including WhatsApp messages, to discern the true commercial intent and ongoing understandings between partners in a family-run business.
While the Bombay High Court upheld the principal ₹5 crore refund, it held that granting 9% interest constituted patent illegality. Because the foundational partnership deed was entirely silent on partner loan interest and no separate agreement was pleaded in the statement of claim, the tribunal breached Section 28(3) by treating casual text messages as an independent, binding contract. Emphasizing that an arbitrator’s duty is to interpret existing terms rather than manufacture new ones, the Court applied the doctrine of severability under Section 34. Treating the unsupportable interest component as standalone, the High Court surgically excised only that direction while leaving the core award, including the principal repayment and retirement orders, fully intact.
Conclusion
This Bombay High Court ruling reinforces vital safeguards for commercial and family arbitrations alike. First, informal digital exchanges like WhatsApp messages cannot override formal agreements; arbitrators cannot bypass express terms or inject unagreed financial liabilities unless such communications constitute a legally pleaded modification. Second, pleadings remain paramount; in the sense that a tribunal has no authority to manufacture a contract or legal theory that a party never raised in its statement of claim. Finally, the judgment highlights the judicial preference for surgical precision under Section 34. Rather than dismantling a sound arbitral award in its entirety, Indian courts can carve away distinct, impermissible errors such as an invalid interest grant, while keeping the valid core intact.
Citations
Expositor(s): Adv. Megha S Pillai
