Delhi District Court
Mtnl vs Pecon Software Ltd on 11 August, 2025
IN THE COURT OF SH. PULASTYA PRAMCHALA,
DISTRICT JUDGE (COMMERCIAL COURT-01), PATIALA
HOUSE COURTS, NEW DELHI
OMP (COMM) 236/2019
In the matter of: -
M/s MTNL
3rd Floor (BSS, ES), 9 CGO complex,
Lodhi Road, New Delhi-110003
...Petitioner
Versus
M/s Pecon Software Ltd.
Pecon Tower, Premises No. 04-315,
Plot No. DH6/38, AH-1D, New Town,
Rajarhat, 24-Parganas (North), Kolkata-700156
...Respondent
Date of institution : 21.12.2019
Date of reserving judgment : 25.07.2025
Date of pronouncement : 11.08.2025
JUDGMENT
1. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 has been filed by the petitioners for setting aside the Award dated 31.08.2019 passed by ld. Sole Arbitrator Sh. Naveen Kumar Manglur.
2. Briefly stated the facts of the case are that the petitioner company is government organization duly incorporated under Companies Act and the respondent was to supply manpower to the petitioner for the maintenance and running business of the petitioner. The statutory dues payable to the employees of the respondent were not paid by the respondent and therefore, the petitioner withheld Digitally signed OMP (COMM) 236/2019 by PULASTYA (Pulastya Pramachala) PULASTYA PRAMACHALA PRAMACHALA Date: District Judge (Commercial Court)-01, Page 1 of 15 2025.08.11 Patiala House Court, New Delhi 19:01:45 +0530 the payments of the respondent. Since, the respondent did not pay dues to its workmen inducted in the units of the petitioner numerous complaints came to be filed against the petitioner by the workmen of the respondent. The respondent defaulted in adherence to the terms of tender and contract as well as the statutory provisions of labour laws, and on account of various breaches of terms and contract/tender and labour laws. Thus, the respondent preferred a claim before the ld. Arbitrator arising out of Tender No. T.E. No. MM/WS/Call Center 2015-2016/01. Ld. Sole Arbitrator Sh. Naveen Kumar Manglur was appointed and passed the award on 19.09.2019 and the majority claims of the respondent were accepted by ld. Arbitrator. Being aggrieved by the award, present objection petition was filed by the petitioner mainly on following grounds: -
i. The impugned award is bad in law as the same has not been adjudicated within the time prescribed under Section 29A of the Arbitration Act. Ld. Arbitrator became oblivious to the facts that he had entered upon the reference on 22.07.2017 and the award was passed on 31.08.2019.
ii. Neither the petitioner nor the respondent itself has given their consent to ld. Arbitrator as envisaged under Section 29A (3) of the Arbitration and Conciliation Act. On the contrary it is the petitioner, who vide letter dated 02.03.2019 has consented to proceed with and dispose of the case within the time as stipulated under the clause 29B of the Arbitration & Conciliation Act.
iii. Petitioner and respondent were duly agreed to get the arbitration case disposed of within the time as stipulated under Section 29B OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 2 of 15 Patiala House Court, New Delhi of the Arbitration and Conciliation Act and the award was passed by the ld. Arbitrator on 31.08.2019 i.e. much beyond the period of his entering upon the reference on 22.07.2017.
iv. Ld. Arbitrator failed to appreciate that the respondent was liable to pay the minimum wages, EPF, ESI to its workmen, as per terms and conditions of the tender/contract and was bound to follow the labour laws in this regard. Ld. Arbitrator himself has noted in the award that the minimum wages were not paid to the workmen of the respondent, despite that ld. Arbitrator has given an illegal findings in favour of respondent and against the petitioner.
v. Ld. Arbitrator did not supply, or submit his disclosure as provided in the Sixth Schedule of Arbitration & Conciliation Act, 1996, in writing or any other circumstances as provided in Section 12(a) and (b) of the arbitration act on this ground alone the award is liable to be set aside. Ld. Arbitrator even during the course of the proceedings did not follow the guidelines as provided under section 12(2) of the Arbitration Act.
vi. Ld. Sole Arbitrator passed the award has been passed in a great haste. There is no liability on the petitioner in the clauses of the special conditions of the contract to make the payment of salaries, including basic wages, HRA, bonus to the personnel employed by the petitioner and the workmen would be the employees of the respondent only as far as payments of their wages and other ancillary benefits.
vii. Ld. Arbitrator did not allow an opportunity to petitioner to hear and ld. Arbitrator on his own has dealt the application U/s 23(3) OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 3 of 15 Patiala House Court, New Delhi of arbitration act dated 24.05.2019, at the back of the petitioner without issuing any notice or giving any opportunity to petitioner which itself renders the award as nullity in the eyes of law.
viii.Ld. Arbitrator did not sign on each page of the impugned award, which itself casts cloud of doubts on the sanctity over the contents of the impugned award and on this ground alone the award is liable to set aside.
ix. Ld. Arbitrator has himself some blanks in the impugned award, which itself shoes and reflect that the impugned award has been passed in a great haste and without there being in complete know of the facts, and acted illegally and biasedly against the petitioner.
3. Reply to the petition was filed by the respondent, denying the averments made in the petition. It is averred that the grounds raised by the claimant/petitioner in the present objection petition are all misconceived and untenable and the same do not fall within the purview and scope of Section 34 of the Arbitration and Conciliation Act. Respondent denied the averments and grounds raised in the petition. Respondent averred that the grounds of the plaintiff as the ld. Arbitrator passed the award beyond the time prescribed in the statute since the Arbitrator was appointed on 22.07.2017 and he passed award on 31.08.2019 (as adumbrated in Grounds A,B,C and D), is utterly baseless as the petitioner has not brought any material to prove that the letter dated 22.07.2017 was received by the arbitrator. The petitioner participated in the hearing held in March 2019 which proved that the Arbitrator was not appointed in the year 2017 as alleged or at OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 4 of 15 Patiala House Court, New Delhi all. The Sole arbitrator has stated in the Award that he received the letter of appointment in April 2018. The pleadings got completed in November 2018, since the Tribunal was appointed in April 2018. Thus, the Arbitrator could pass award in the year 2019 and in view of the matter the award is well within time. It is further averred that in terms of Section 29A (3) of the Arbitration act, the very fact that parties gave to the arbitrator the letter to proceed on 02.03.2019, which indicates that the parties intended that the Arbitrator should complete the reference within a period of 6 months from the date 02.03.2019. Such period of six months would have lapsed on 02.09.2019 and the award dated 31.08.2019 is well within that period. It is averred that impugned award is a fairly detailed award backed by reasoning, logic and evidence and the contention of the petitioner with respect to non- consideration of documents/evidence stands no ground for interference by this court.
4. I have heard ld. counsels for both the parties and perused the record. Both ld. counsels made their arguments on the lines of plea taken by them in their respective pleadings and written submissions.
5. Ld. counsel for petitioner contended that the impugned arbitral award was passed without affording the petitioner an opportunity of being heard, thereby violating the principles of natural justice. The challenge to the award has been made under Section 34(2)(a)
(iii) of the Arbitration & Conciliation Act, 1996, on the ground that the award suffers from patent illegality and is liable to be set aside. Counsel further argued that even recourse to Section 34(4) OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 5 of 15 Patiala House Court, New Delhi of the Act could not have cured the fundamental defects in the award, as the same went to the root of the matter and rendered the award perverse., which is impermissible in law. It was further pointed out that the arbitrator failed to conclude the proceedings within the stipulated time. The date of reference was 22.07.2017, and as per the provisions of the Act, the proceedings ought to have been concluded within 12 months i.e. by 22.07.2018. Same was extendable by an additional six months with the consent of the parties. Even considering such extension, the proceedings should have been completed by January 2019 but arbitrator passed the award on 31.08.2019 while the arbitration proceedings were concluded on 30.03.2019. Thus, the arbitrator continued beyond the permissible period without appropriate consent or extension.
6. It was further argued that the award fundamentally altered the terms and conditions of the contract, particularly with respect to the obligations of the respondent towards payment of statutory dues such as ESI and PF of its employees, which was contrary to the contractual understanding.
7. It was further argued that under Section 34(4) of the Act, court had allowed to rectify curable mistakes only. Thus, the patent illegality and allowing the claim of the claimant on the basis of subsequent application moved after 30.03.2019, could not be cured by the Arbitrator. Ld. Arbitrator did not make any disclosure under Section 12 of Arbitration and Conciliation Act. Ld. counsel submitted that all such defects were incurable and hence, the award suffers from patent illegality.
OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 6 of 15 Patiala House Court, New Delhi
8. On the contrary, ld. counsel for respondent argued that the Ld. Arbitrator was appointed by MTNL i.e. petitioner itself vide letter dated 22.07.2017, but the same was received by Arbitrator on 28.04.2018. Furthermore, paragraph 2 of the award records that on 02.03.2019, both parties mutually agreed to extend the arbitral proceedings for a further period of six months. It was further contended that, as evident from the email correspondence placed on record, the Arbitral Tribunal had repeatedly requested the petitioner to furnish details of the respondent, and communication continued between the petitioner and the Tribunal without the respondent's participation. The date on which the Arbitral Tribunal enters upon the reference, is the date when the Arbitrator receives the letter of appointment, which was 28.04.2018.
9. Paragraph 7 of the award deals with the subsequent developments. Issue 5 and 6 deal with enhanced claim. Ld. Arbitrator mentioned that respondent/claimant had given advance notice of his subsequent application, to the petitioner. Only then Arbitrator dealt with such application. The petitioner had invoked the bank guarantee on the pretext of disbursing payments to the labourers engaged by the respondent, although no such payments were actually made. That was the reason to move the subsequent application seeking to enhance the claim. Ld. counsel submitted that even if the part of enhanced claim is found to be irregularly accepted, still that part of the award can be segregated and set aside. For such reasons, there is no ground to set aside the whole award. In this respect, ld. counsel for respondent relied upon judgment in Gayatri Balasamy v. M/s OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 7 of 15 Patiala House Court, New Delhi ISG Novasoft Technologies Limited [2025 INSC 605].
Appreciation of Facts, Evidence and Law
10. Under Section 34(2)(a): For setting aside an Award, a party must establish one of the following: -
1. Incapacity of a party or invalid arbitration agreement.
2. Lack of proper notice or inability to present case.
3. Award dealing with disputes beyond scope of submission.
4. Improper composition of tribunal or procedure.
11. Under Section 34(2)(b): Court may set aside an Award, if:
1. Subject matter of the dispute is not arbitrable (e.g. excepted matter).
2. Award in conflict with public policy of India.
12. The 2015 Amendment narrowed the definition of " public policy of India" to include: -
1. Fraud or corruption in making of the award.
2. Violation of sections 75 and 81 of the Act.
3. Contravention of fundamental policy of Indian law.
4. Conflict with basic notions of morality or justice.
13. In the case of Ssangyong Engg. & Const. Co Ltd. v. NHAI (2019) 15 SCC 131 - Hon'ble Supreme Court clarified the scope of "patent illegality" and "public policy" in the following manner: -
"39. To elucidate, para 42.1 of Associate Builders, namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders, however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act that would certainly amount to a patent illegality on the face of the award.
OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 8 of 15 Patiala House Court, New Delhi
40. The change made in Section 28 (3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders, while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore, would also have to be characterised as perverse."
14. Before I proceed further to deal with the rival contentions of the parties, it is worth to refer to an important development taken place during pendency of this petition before the court. Petitioner had raised grounds in the objection inter alia that the each page of the award was not signed by the Arbitrator; the stamp duty was not paid in the award as per law; ld. Arbitrator had left blank spaces in the impugned award. After appearance before the court, respondent herein moved application u/s. 34 (4) of the Act with prayer to defer the proceedings before this court and to remand back the matter to the sole arbitrator for rectifying the errors made in the impugned award. Vide order dated 05.10.2021, my ld. Predecessor allowed aforesaid application and deferred the proceedings on the present petition. Matter was referred back to OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 9 of 15 Patiala House Court, New Delhi ld. Sole Arbitrator to resume the arbitral proceedings and to take suitable steps to eliminate the ground for setting aside the arbitral award. Thereafter, ld. Arbitrator conducted further arbitration proceedings and gave his report in that respect to this court as well. He had sent back the arbitral proceedings record with fresh copy of award without any blank space left therein and with his signature on all the pages. He had subsequently also issued a disclosure u/s. 12 of the Act before conducting extended arbitration proceedings. He also gave notice to the petitioner herein to submit his reply/written submissions in respect of application moved by the respondent herein with his enhanced claim. However, petitioner herein did not opt to reply to that application rather it took stand that having already passed order on that application, there was no scope of passing fresh order on that application.
15. Now I shall take up the objections of the petitioner. First of all I shall deal with the objection that rectification of the award as done u/s 34 (4) of the Act does not change the nature of award to be invalid. According to ld. Counsel for petitioner, the fact would remain that the Arbitrator had passed award with blank spaces left therein and without signature on each page. In my opinion, this argument cannot be accepted. This court had applied its judicial mind and had passed aforesaid order to refer back the matter to ld. Arbitrator. Not signing every page of award or leaving blank spaces therein, could be on account of ignorance, or clerical omissions. Petitioner herein did not assail the order dated 05.10.2021 and hence, that order attained finality. At the same time, I do agree with the petitioner herein that inherent OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 10 of 15 Patiala House Court, New Delhi illegality could not be rectified and that will be subject matter for this court to look into.
16. The next issue relates to non-completion of arbitration proceedings within stipulated time period. I have already referred to the factual contentions of the petitioner. Petitioner has counted the period from 22.07.2017 which is the date of letter vide which the sole Arbitrator was appointed by CGM, Delhi, MTNL. However, that date cannot be counted for the purpose of Section 29A as applicable at the relevant time period. It had to be the date when letter of appointment was received by ld. Arbitrator. In the record of arbitral proceedings, I find letter of appointment with endorsement of Arbitrator with the date of 22.04.2018. Ld. Arbitrator in his award mentioned that he had received the letter of appointment on or about 28.04.2018. In the arbitral proceedings record, I can also find certain emails showing that Arbitrator was not provided correct address/email ID of the claimant by the department of MTNL. It was only when the correct particular were provided that the ld. Arbitrator could communicate with the claimant, thereby seeking to file Statement of Claim. Petitioner herein has not pointed out to any such record, which could show that the aforesaid letter dated 22.07.2017 was actually delivered to the Arbitrator prior to 22.04.2018. Therefore, the date of reference has to be counted from 22.04.2018 and 12 months could have been over on 22.04.2019 only. Ld. counsel for petitioner did not dispute the fact that an extension of six months was consented even by petitioner. At the same time, it was pleaded that the consent was given u/s. 29B of the Act. It must be appreciated that the consent OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 11 of 15 Patiala House Court, New Delhi mentioning Section 29B of the Act could be a case of mentioning wrong provision. Because at the relevant time, when this consent was given on 02.03.2019, it had to be with intention for further extension of arbitration proceedings at that time, rather than to fast-track the procedure. On the date of 02.03.2019 there was no relevance for fast-track procedure. If period of six months is counted from 02.03.2019, then the award had to be passed up to 02.09.2019. Award was admittedly passed on 31.08.2019. Hence, I do not find any merit in the given objection of the petitioner.
17. The next point relates to objection regarding non-disclosure u/s. 12 of the Act. I find that this objection has been taken merely to get away from the mandate of the Award, because it cannot be the petitioner who could have been prejudiced by appointment of the Sole Arbitrator unilaterally. The Sole Arbitrator was appointed by the department of petitioner itself and if anyone had to have grievance for such unilateral appointment, it could be the respondent herein only. Petitioner herein cannot be accorded a benefit for its own act. Petitioner otherwise kept participating in this arbitration proceeding, after appointing the Sole Arbitrator and when it could not find favour in the award, it has raised such objection, which has to be rejected.
18. The next material argument was that award was passed in breach of the contractual terms and without any reasons. I have gone through the award in question. I could find that ld. Arbitrator has dealt with rival contentions qua each issue as framed in the arbitration proceedings. Ld. Arbitrator has also given his reasons OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 12 of 15 Patiala House Court, New Delhi lucidly enough, to show the basis for reaching a particular conclusion. In that process, he has also given some conclusions which did not favour the respondent herein as well. My attention was not taken to any such contractual term and the particular part of the finding given by ld. Arbitrator, which could establish that ld. Arbitrator has given his findings in blatantly in disregard to the contractual terms. In that situation, I cannot agree with such plea taken by the petitioner that the sole arbitrator did not give any reasons or gave findings in disregard to the contractual terms.
19. The last relevant objection on behalf of petitioner is that the Sole Arbitrator allowed application of respondent herein, which was moved by respondent after 30.03.2019 and after conclusion of the hearing on 30.03.2019. Respondent had sought to enhance the claim by adding the amount of bank guarantees which were encashed by the petitioner herein during pendency of the arbitral proceedings. It is admitted situation that ld. Arbitrator did not issue any notice to the petitioner herein on receipt of such application from the respondent. Ld. Arbitrator relied upon the alleged advance notice of that application being given to the petitioner by respondent and went on to decide that application with additional claim, in absence of the respondent.
20. In my opinion there was a procedural lapse on the part of ld. Arbitrator in not issuing notice of that application to the petitioner herein. Ld. Arbitrator should not have simply relied upon the advance notice claimed to be given by the respondent. Such procedural lapse breached the basic notion of natural OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 13 of 15 Patiala House Court, New Delhi justice, wherein a reasonable opportunity had to be given to the petitioner to respond to aforesaid enhanced claim of the respondent. It would have been a different matter if despite service of the notice, petitioner would not have appeared before the arbitrator. But in absence of giving notice by the Arbitrator before entertaining afore-said application of the respondent, I do find that same was an instance of breach of the public policy as well.
21. Now the question is that can the award be set aside in part after segregating the portion which is found to be based on breach of principles of natural justice. Ld. counsel for the petitioner drew my attention to paragraph 33 of the decision in Gayatri Balasamy v. M/s ISG Novasoft Technologies Limited [2025 INSC 605], wherein the Hon'ble Supreme Court clarified as under: -
"33. We hold that the power conferred under the proviso to Section 34(2)(a)(iv) is clarificatory in nature. The authority to sever the 'invalid' portion of an arbitral award from the 'valid' portion, while remaining within the narrow confines of Section 34, is inherent in the Court's jurisdiction when setting aside an award."
22. On the other hand, learned counsel for the respondent also placed reliance on the same pronouncement in Gayatri Balasamy (supra), wherein the Hon'ble Supreme Court further stated: -
"85. Accordingly, the questions of law referred to in Gayatri Balasamy (supra) are answered by stating that the Court has a limited power under Sections 34 and 37 of the 1996 Act to modify the arbitral award. This limited power may be exercised under the following circumstances: -
I. when the award is severable, by severing the 'invalid' portion from the 'valid' portion of the award, as held in Part II of our Analysis;
OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 14 of 15 Patiala House Court, New Delhi II. by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record, as held in Parts IV and V of our Analysis;
III. post-award interest may be modified in some circumstances, as held in Part IX of our Analysis."
23. In the present case, I find that the part of the award dealing with additional claim of the respondent (Relief-E of the Award) is clearly severable from the other part of the award. The relief granted in para A, B, C and D are based on well reasoned findings given by ld. Arbitrator and the petitioner herein had due opportunity to put his stand before ld. Arbitrator regarding those claims. It is the relief at serial no.E, which was based on additional application of the respondent herein. In my opinion, that can be severed. Accordingly, petition is allowed partially to set aside the relief granted in the impugned award for recovery of Rs.16,61,600/- towards the refund of encahsed Bank Guarantee with interest at the rate of 12% thereon. Award is upheld in respect of other part of the same and petition is rejected in respect of other objections.
Digitally signed by PULASTYAPULASTYA PRAMACHALA PRAMACHALA Date:
2025.08.11 19:01:56 +0530 Pronounced in the (PULASTYA PRAMACHALA) Open Court on this District Judge (Commercial Court)-01, th 11 day of August, 2025 Patiala House Court, New Delhi OMP (COMM) 236/2019 (Pulastya Pramachala) District Judge (Commercial Court)-01, Page 15 of 15 Patiala House Court, New Delhi