Karnataka High Court
Iti Limited vs Hcl Infosystems Limited on 7 August, 2025
Author: S.Sunil Dutt Yadav
Bench: S.Sunil Dutt Yadav
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NC: 2025:KHC:30737
WP No. 18314 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 7TH DAY OF AUGUST, 2025
BEFORE
®
THE HON'BLE MR. JUSTICE S SUNIL DUTT YADAV
WRIT PETITION NO. 18314 OF 2025 (GM-RES)
BETWEEN:
ITI LIMITED
A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956
HAVING ITS REGISTERED ADDRESS AT: ITI BHAWAN,
DOORAVANINAGAR, BANGALORE-560 016.
REP. BY ITS AUTHORISED SIGNATORY, MR. SATISH KUMAR
ADDL. GENERAL MANAGER
...PETITIONER
(BY SRI. C.K. NANDAKUMAR, SENIOR COUNSEL FOR
SMT. VARSHA HITTINHALLI, ADVOCATE FOR PETITIONER)
AND:
HCL INFOSYSTEMS LIMITED
A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT 806, SIDDHARTHA,
96, NEHRU PLACE, NEW DELHI-110 019.
...RESPONDENT
Digitally signed by (BY SRI. K.G. RAGHVAN, SENIOR COUNSEL FOR VINAYAKA B V SMT. PRIYANKA AJJANNAVAR, ADVOCATE FOR CAVEATOR Location:
High Court of RESPONDENT) Karnataka, Dharwad Bench THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT, ORDER OR DIRECTION IN THE NATURE OF CERTIORARI OR ANY OTHER WRIT SETTING ASIDE THE IMPUGNED ORDER DATED 19.04.2025 PASSED ON I.A.NO.1 IN COM.A.P.NO.150/2024 PENDING ON THE FILE OF LXXXIII ADDL. CITY CIVIL AND SESSIONS JUDGE (CCH-88), COMMERCIAL COURT, AT BENGALURU IN SO FAR AS THE PRE-CONDITION OF DEPOSIT OF 75% OF THE AWARD AMOUNT IS ORDERED ON THE PETITIONER (ANNEXURE-A) & ETC.
THIS WRIT PETITION PERTAINING TO BENGALURU BENCH HAVING BEEN HEARD AND RESERVED ON 15.07.2025 AND COMING ON FOR PRONOUNCEMENT OF ORDER AT DHARWAD BENCH THROUGH VIDEO CONFERENCING, THIS DAY, THE COURT MADE THE FOLLOWING:
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR CORAM: THE HON'BLE MR. JUSTICE S.SUNIL DUTT YADAV CAV ORDER (PER: THE HON'BLE MR. JUSTICE S.SUNIL DUTT YADAV) This writ petition is filed questioning the legality of the order passed on I.A.No.1 in COM.AP No.150/2024 whereby the Trial Court has allowed the application filed under Section 36 (2) of the Arbitration & Conciliation Act, 1996, staying the award of the Arbitrator subject to condition that the petitioner was to deposit 75% of the award amount within sixty days from the date of the award. The order passed by the Trial Court was in the context of proceedings under Section 34 challenging the award before the Commercial Court.
2. The facts as made out are that the petitioner, a Public Sector Undertaking was awarded with a project and in this regard the respondent was engaged on a back to back contractual basis. The relationship was governed by contractual documents including a Memorandum of -3- NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR Understanding dated 08.03.2006, Master Agreement dated 23.04.2006 and subsequent addendum entered into under which the respondent-HCL Infosystems Ltd., had undertaken to absolve certain losses incurred by ITI Limited.
3. As disputes arose regarding the entitlement of the respondent, the respondent eventually initiated arbitration making claims. The Arbitrator was appointed under ICADR Rules and Arbitration proceedings were conducted in Arbitration Case No.56/2017.
4. The proceedings culminated into an award whereby the claim of M/s.HCL Infosystems came to be allowed while the counter-claim of ITI came to be rejected. As against such award, the petitioner herein had initiated proceedings under Section 34 challenging the award. It is in such proceedings that application was filed under Section 36 (2) r/w 34 of the Arbitration & Conciliation Act, -4- NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR 1996 seeking stay of the operation of the arbitral award dated 29.04.2024.
5. The Commercial Court after hearing both sides has disposed off the application staying the impugned award subject to deposit of 75% of the award amount.
6. Sri.C.K.Nanda Kumar, learned Senior Counsel appearing on behalf of Smt.Varsha Hittinhalli for petitioner has contended that; the condition imposed for deposit of 75% of the award amount was unreasonable, exorbitant, the principles of Order 41 Rule 5 of CPC were not considered, the exercise of judicial discretion was faulty, that unconditional stay ought to have been granted, that there are no sufficient reasons assigned for imposing conditional stay of 75%.
7. On the other hand, Sri K.G.Raghavan, learned Senior Counsel appearing on behalf of Smt.Priyanka Ajjannavar for the respondent would submit that the discretion exercised by the Commercial Court ought not to be -5- NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR interfered with as judicial discretion has been exercised and no grounds are made out to interfere with such judicial discretion, that only ground of interference may have been undue hardship which has not been adequately pleaded, that the award by the Arbitrator is detailed and even on merits calls for no interference, that condition of deposit could also be 100%.
8. It is necessary to notice the legal framework governing the aspect relating to grant of stay of award where application is filed under Section 36. The relevant extracts of the provisions are as follows:
"Sec. 36...
2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.-6-
NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR (3) Upon filing of an application under sub- section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.]"
9. It is clear that there is no automatic stay of the award in terms of Section 36 (2), which clarifies that mere filing of application under Section 34, will not render the award unenforceable and discretion is vested with the Court as reflected in the words "the Court may". Such judicial discretion is tempered with riders in the form of "...subject to such conditions as it may deem fit" as also the requirement of the Court to "... have due regard to the -7- NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR provisions for grant of stay of a money decree under the provisions of Code of Civil Procedure".
10. It is necessary to notice that the subsequent insertion of second proviso to Section 36 (3) would perhaps throw further clarity on exercise of judicial discretion.
The second proviso reads as follows:
"[Provided further that where the Court is satisfied that a prima facie case is made out that, -
(a) the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award."
The above proviso would indicate that there would be a stay of the award unconditionally where the arbitration agreement or contract which is the basis of the award or -8- NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR the making of the award "... was induced or effected by fraud or corruption...".
11. Accordingly it could be stated that conditional stay is the default legal position, unconditional stay is required to be granted where there is prima-facie case of fraud or corruption as detailed in the statutory provision.
12. In the present case, the Commercial Court in its order has considered the question as to whether direction is required to be passed to deposit the entire arbitral award amount or part of it. The Court has taken note of the necessity to consider the principles under Order 41 Rule 5 of CPC and has recognized the discretion vested to stay the award by imposing condition of deposit of the entire award amount or part of it. The Court has also recorded an observation that merits of the matter cannot be entirely gone into without a detailed hearing at the subsequent stage and that it would not be appropriate to express any opinion on its merits.
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR
13. It must be noticed that there could be no preferential treatment merely because the petitioner is a Public Sector Unit having financial constraints or requiring lenient approach in light of its status. This would flow from the principle embodied under Section 18 that parties shall be treated with equality. It is also a settled position that the position of a party being a Government Entity or statutory authority would not be of much relevance. The Apex Court in the case of International Seaport Dredging Pvt. Ltd. Vs. Kamarajar Port Limited reported in 2024 SCC Online SC 3112, while referring to the judgment in Pan Developments Pvt. Ltd. Vs. State of West Bengal reported in (2019) 8 SCC 112 has observed as follows:
"The Arbitration Act is a self-contained code - it does not distinguish between governmental and private entities. Hence, the decision of the Court cannot be influenced by the position of the party before it and whether it is a fly-by-night operator. Moreover, an assessment as to whether a party is reliable or trustworthy is
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR subjective. Many private entities, too, may rely on the size of their undertaking, its success, public image, or other factors to argue that they are not fly-by-night operators. In the absence of any provision of law in this regard, it would be inappropriate for courts to apply this standard while adjudicating the conditions upon which a stay of an award may be granted. Similarly, the form of security required to be furnished should not depend on whether a party is a statutory or other governmental body or a private entity. Governmental entities must be treated in a similar fashion to private parties insofar as proceedings under the Arbitration Act are concerned, except where otherwise indicated by law. This is because the parties have entered into commercial transactions with full awareness of the implications of compliance and non- compliance with the concerned contracts and the consequences which will visit them in law. Hence, the argument that the High Court was correct in directing the respondent to furnish bank guarantees in relation to the amount awarded because it is a statutory body is rejected".
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR
14. It is also necessary to notice the stand taken by the Apex Court in the case of Toyo Engineering Corporation & Another Vs. Indian Oil Corporation Limited reported in 2021 SCC Online SC 3455, and the observation at paragraph 3 is as follows:
"3. This Court repeatedly having held that Order XLI Rule 5 principles are to be followed in these cases, we find that largely because public corporations are involved, discretion continues to be exercised not on principles under Order XLI Rule 5 but only because large amounts exist and that Government Corporations have to pay these amounts under Arbitral Awards. Both these considerations are irrelevant, as has been pointed out by us earlier."
15. Having noted absence of preferential treatment it is also to be noticed that in many cases there has been a trend towards directing deposit of even 100%. As was ordered in the case of Toyo Engineering Corporation (supra), in the case of Manish Vs. Godavari Marathwada Irrigation Development Corporation
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR reported in 2018 SCC Online SC 3863 where the Apex Court noticing pendency of appeal under Section 37 had directed deposit of 100% of the award amount. While it cannot be stated that insistence of 100% deposit is to be as a matter of inflexible rule. The grant of stay subject to compliance with the condition of deposit of 75% appears to be reasonable condition.
16. The principle under Section 5 of the Arbitration Act needs to be kept in mind which is the statutory mandate of absence of judicial intervention "... except where so provided in this part." It is thus clear that judicial intervention is specifically limited to grounds permissible as defined.
17. In light of the statutory framework as noticed in paragraph Nos.8 to 10, the grant of stay is subject to conditions to be imposed keeping in mind principles of Order 41 Rule 5 of CPC. The Commercial Court having exercised such discretion at a preliminary stage of Section
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR 34 proceedings there is no warrant for interference in exercise of writ jurisdiction.
18. The grounds made out while attacking the validity of the award do not prima facie make out fraud or corruption warranting an unconditional stay in terms of the second Proviso to Section 36. If at all the grounds made out under paragraph nos. 62, 64, 65, 66, 67, 73, 74, 78, 79 and 86 are either on the ground of 'patently illegal' or 'against the public policy of India'. If that were to be so, the imposition of a condition while granting stay of payment of 75% of the award amount requires to be allowed to stand.
19. At this stage of the proceedings, it is impermissible for a detailed hearing as may be insisted. This would be the approach in light of comprehensive consideration of the dispute by the Arbitrator whether relating to existence of an arbitration agreement, repudiation by filing of civil proceedings, limitation based on acknowledgement of
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NC: 2025:KHC:30737 WP No. 18314 of 2025 HC-KAR liability, or disputes arising from billing review meetings, contractual terms. The award deals in detail and records finding supported by reasoning and reference to evidence. Whether there is an error warranting interference under Section 34 is an aspect that would come out in the substantive hearing and cannot be second guessed at this stage.
20. At this stage of Section 36(3) it would not be appropriate to hold a detailed enquiry. Rightly, the exercise of judicial discretion by the Tribunal does not call for interference on a prima-facie re-examination of contentions.
21. Accordingly, petition stands rejected.
Sd/-
(S.SUNIL DUTT YADAV) JUDGE Bvv/Np, CT:VP List No.: 8 Sl No.: 1