Bengaluru court sets aside ₹9 crore arbitral award against Karnataka Education Department

A Bengaluru commercial court recently set aside an arbitral award directing the Karnataka Department of State Education Research and Training (DSERT) to pay over ₹9 crore to Puthur Infotech in a dispute concerning maintenance services provided to 4,396 schools across the State. [DESERT v. Puthur Info]

Judge Vijaya Kumar Rai held that the arbitrator had committed patent illegality by failing to consider the State government's objection that the company's claims were barred by limitation.

"The omission to record a finding on limitation is a fundamental defect which goes to the root of the matter and renders the award patently illegal for non-consideration of the defence raised by the respondent," the Court observed.

The dispute arose from a 2013 tender issued by DSERT for maintenance of UPS systems, printers and LCD projectors in 1,763 government high schools and 2,633 aided high schools across Karnataka. Puthur Infotech secured the ₹7.19 crore contract for the period between April 2014 and April 2015.

While the government paid ₹5.07 crore, the company alleged that outstanding payments had not been released despite satisfactory completion of its contractual obligations. The company subsequently approached the MSME Council, which referred the dispute to arbitration after conciliation failed.

In May 2023, the sole arbitrator, former Himachal Pradesh High Court Chief Justice L Narayana Swamy, awarded the company ₹7.75 crore, including interest, besides another ₹1.27 crore with interest. The arbitrator also rejected the government's counterclaim seeking ₹4.34 crore for alleged deficiencies in services.

Challenging the award, the State argued that 16 of the 17 invoices underlying the company's claim were time-barred when proceedings were initiated in 2018.

The commercial court agreed, noting that payments under these invoices had become due more than three years before the company approached the MSME Council. It rejected the company's contention that repeated assurances from government authorities extended the limitation period.

The Court further held that the arbitrator had wrongly rejected the government's counterclaim merely because it had not first approached the MSME Council. It clarified that buyers were not required to initiate independent proceedings before the Council to maintain counterclaims in arbitration.

Since the award covered both time-barred and potentially maintainable claims without separately determining the amounts, the Court set aside the award in its entirety.

Additional Advocate General Aditya Vikram Bhat appeared for DSERT.

Advocates Adinath Narde and Revathy Adinath Narde represented Puthur Infotech.

[Read Judgment]