The Bombay High Court has reaffirmed that in arbitration proceedings, an alleged admission by a party cannot substitute for a specifically pleaded claim. The Court dismissed a Section 34 petition challenging an arbitral award, emphasizing that parties must consciously frame their claims and cannot later rely on extraneous correspondence to demand relief not formally asserted.
Background & Facts
The Dispute
The dispute arose from a complex real estate transaction involving land conveyance and construction. Kanti Builders Pvt. Ltd. (Petitioner) conveyed a plot reserved for educational use to Witty Enterprises Pvt. Ltd. (Respondent) via a registered Deed of Conveyance dated 22 December 2017. Subsequently, the parties entered into a Construction Contract dated 9 February 2018, under which Kanti Builders agreed to construct a school building for a contract value of Rs.23.40 crores plus GST, payable in stages linked to construction progress.
Procedural History
- 2017: Registered Deed of Conveyance executed
- 2018: Construction Contract signed; MCGM approved plans for FSI 1.00
- 2019: Revised plans approved for FSI 4.00; commencement certificate issued
- December 2020: Respondent took physical possession without occupation certificate
- May 2021: Petitioner invoked arbitration under Section 21
- August 2021: Respondent issued letter admitting liability for Rs.7.75 crores under Construction Contract
- December 2021: Two cheques issued for Rs.2 crores and Rs.4,36,42,078/-; latter dishonoured
- April 2022: Petitioner filed Statement of Claim claiming Rs.7,96,00,000/-
- August 2024: Arbitral Tribunal awarded net Rs.75,47,385/- to Petitioner after adjusting counterclaim
- September 2024: Tribunal modified award under Section 33, adjusting counterclaim to Rs.99,91,472/-
- January 2026: Bombay High Court dismissed Section 34 petition
Relief Sought
The Petitioner sought to set aside the arbitral award on grounds of patent illegality, alleging the Tribunal ignored a clear admission of liability for Rs.4,36,42,078/- and erred in rejecting the claim for that amount due to absence of an alternate prayer. The Petitioner also challenged the Tribunal’s allowance of the Respondent’s counterclaim for development charges.
The Legal Issue
The central question was whether an alleged admission of liability in a letter, unaccompanied by a specific prayer in the Statement of Claim, can compel an arbitral tribunal to award the admitted amount under Section 34 of the Arbitration and Conciliation Act, 1996.
Arguments Presented
For the Petitioner
The Petitioner contended that the letter dated 12 August 2021 and the subsequent undated letter constituted clear, unambiguous admissions of liability for Rs.7.75 crores, with Rs.4,36,42,078/- remaining unpaid after cheque dishonour. Reliance was placed on the principle that admissions are the best evidence and waive the need for proof. It argued that the Tribunal erred in rejecting the claim for Rs.4,36,42,078/- merely because it was not framed as an alternate prayer, citing judicial precedents that permit courts to grant relief for lesser amounts even without explicit prayer. Further, it contended that the Tribunal misread Clause 7.3 of the Construction Contract by attributing development cess liability to the Petitioner.
For the Respondent
The Respondent countered that the Petitioner never pleaded Rs.4,36,42,078/- as a standalone claim. The Statement of Claim consistently asserted a claim of Rs.7,96,00,000/- based on quantum of work performed, not on the admitted sum. The Respondent argued that the letters were merely part of settlement negotiations and did not override the contractual obligations. It further submitted that the Tribunal’s interpretation of Clauses 7.3 and 8.7, read with Annexure A, was plausible and within its exclusive domain. The Respondent emphasized that Section 34 does not permit re-appreciation of evidence or substitution of judicial opinion for arbitral findings.
The Court's Analysis
The Court examined the nature of admissions in arbitration and the limits of judicial review under Section 34. It held that while admissions are indeed powerful evidence, they cannot override the procedural requirement of specific pleading. The Petitioner’s Statement of Claim, including its detailed breakup of Rs.7,96,00,000/-, demonstrated a deliberate choice to base its claim on quantum of work, not on the admitted sum.
"The Petitioner made a conscious choice of not claiming former sum but claimed only the latter sum. Having done so, the Tribunal cannot be found fault with for having adjudicated the claim in the manner in which the same was presented before it."
The Court noted that the Arbitral Tribunal had correctly rejected the defence of forgery and coercion regarding the letters, yet still declined to award Rs.4,36,42,078/- because the claim was never formally pleaded as such. The Court affirmed that arbitral tribunals are not obligated to grant relief on unpleaded claims, even if supported by documentary evidence.
Regarding the counterclaim, the Court held that the Tribunal’s interpretation of Clauses 7.3 and 8.7 - which placed development cess and charges on the Petitioner - was a plausible construction of the contract. The Court reiterated that interpretation of contractual terms is the exclusive domain of the arbitral tribunal, and courts cannot interfere unless the interpretation is perverse or contrary to the plain language of the contract.
The Court further emphasized that the Tribunal conducted a detailed factual analysis of payments, work performed, and deductions, arriving at a conclusion supported by evidence. The mere existence of an alternative interpretation - based on the letters - does not render the arbitral award illegal or patently erroneous.
The Verdict
The Petitioner’s challenge failed. The Bombay High Court upheld the arbitral award, holding that an alleged admission cannot substitute for a specifically pleaded claim and that contractual interpretation by an arbitral tribunal is final unless perverse. The net award of Rs.75,47,385/- to the Petitioner was confirmed.
What This Means For Similar Cases
Pleadings Are Paramount in Arbitration
- Practitioners must explicitly plead every claim, including alternate or lesser claims, in the Statement of Claim
- Relying on admissions in correspondence without formal pleading risks forfeiture of entitlement
- Arbitral tribunals are not required to infer claims from letters, even if they contain clear acknowledgments
Admission Does Not Override Procedural Formalities
- An admission may be used as evidence, but cannot create a claim where none is pleaded
- Parties must choose their legal strategy early: either claim based on admission or on quantum of work - not both ambiguously
- Courts will not rescue parties who fail to frame their claims with precision
Contractual Interpretation Is Final Unless Perverse
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Arbitrators have wide latitude in interpreting contract clauses
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Courts will not interfere merely because a different interpretation is possible
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Only interpretations that are irrational, contrary to express terms, or legally untenable are subject to challenge under Section 34
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Always include alternate prayers in arbitration claims to preserve rights to lesser amounts
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When relying on admissions, file an amended Statement of Claim to incorporate the admitted sum as a distinct claim
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Document all contractual obligations with precision - ambiguous clauses invite adverse interpretation
