Arbitrator Lacks Jurisdiction to Adjudicate or Grant Relief on Claims Expressly Withdrawn by Parties

The Appellants (allottees) purchased a commercial unit in the "Omaxe Novelty Mall" from the Respondent (developer) via an allotment letter dated 23.08.2007.

Simultaneously, an "Addendum" was executed wherein the Respondent promised to pay an Assured Monthly Return (AMR) of ₹1,05,788.80 until the offer of possession.

Construction was delayed due to ASI objections and force majeure claims.

While the allotment letter contained an arbitration clause, the Addendum did not.

The Appellants initially claimed unpaid AMR but subsequently withdrew that claim (Claim No. 1) with liberty to seek relief in another forum, specifically filing a petition before the NCLT for the same.

In the final award dated 19.09.2019, the Arbitrator directed the Respondent to pay the AMR and granted 10% interest thereon as compensation for delay.

The Single Judge set aside the award of AMR and interest, holding the Arbitrator exceeded jurisdiction.

1. Whether an Arbitral Tribunal has the jurisdiction to adjudicate and grant relief upon a claim that was expressly withdrawn by the claimant during the proceedings.

2. Whether the award of 10% interest on Assured Monthly Returns (AMR) stood as valid compensation or was patently illegal due to the withdrawal of the underlying claim.

The court applied the principle of "Minimal Judicial Interference" under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

It relied on the doctrine of "Patent Illegality," whereby an award can be set aside if the arbitrator acts beyond the scope of the reference or the contract.

The court applied Section 31(7) regarding the arbitrator’s power to award interest, while noting that such power is subservient to the contractual framework and the scope of claims submitted to the tribunal.

Once a claim is withdrawn with liberty to approach another forum (e.g., NCLT), the tribunal loses jurisdiction over that specific subject matter.

The Court observed that the "Addendum," which governed the AMR, did not contain an arbitration clause, leading the Appellants to consciously withdraw the AMR claim from the arbitral proceedings to pursue it before the NCLT.

The Court reasoned that once a claim is withdrawn, it is removed from the Arbitrator's "hands" and cannot be reintroduced through the "backdoor" by framing it as a compensatory mechanism.

The Arbitrator’s attempt to use the AMR as an "inbuilt mechanism" for compensation was deemed a violation of jurisdictional limits because the parties had already agreed that the terms of the Addendum were outside the scope of the arbitration.

The court found the Arbitrator’s logic contradictory: he held that no extra compensation could be granted beyond the AMR, yet he awarded an additional 10% interest on those very returns, which was not supported by the contract or the remaining claims.

The Court affirmed that while the direction to hand over possession and execute the sale deed remains valid, the monetary award concerning AMR and the 10% interest is non-est as it exceeded the tribunal's jurisdiction.

The High Court dismissed the appeal and upheld the Single Judge’s judgment.