Delhi High Court orders MTNL to deposit ₹160 crore arbitral award amount with interest in FD as condition to stay arbitral award

The Delhi High Court recently stayed an arbitral award ordering Mahanagar Telephone Nigam Limited (MTNL) to refund ₹ 160 crores along with interest to CanBank Financial Services Limited (CanFina), subject to the condition that MTNL deposit security covering the entire refund amount, which effectively runs to around ₹ 442.69 crores, in a Fixed Deposit. [Mahanagar Telephone Nigam Limited v. Canara Bank and anr].Justice Prateek Jalan passed the order on an application moved by MTNL under Section 36 (2) of the Arbitration Act and Conciliation Act, 1996..The State-owned telecom provider had contended that the arbitral award should be stayed as there was fraud at play on the part of CanFina, which is a subsidiary of Canara Bank. In this regard, reference was made to certain reports submitted by committees that were tasked to inquire into the 1992 securities scam..The Court, however, was not convinced of MTNL’s contentions on this aspect. As such, it rejected MTNL’s plea for an unconditional stay of the arbitral award..“Having heard learned Senior Counsel for the parties, I am not persuaded that MTNL is entitled to an unconditional stay of the award. MTNL has not been able to demonstrate prima facie that the contract which is the basis of the award, was induced by fraud or corruption. Certain observations have undoubtedly been made in the committee reports relied upon by MTNL, which support its allegation of irregularities in CanFina’s transaction at the relevant time. However, the contemporaneous correspondence does not establish a case of fraud or that MTNL was not aware of the nature of the transactions. The learned arbitrator drew upon some of this correspondence to arrive at a conclusion that the transactions were not vitiated by fraud15 , and I see no reason to disagree, at least at this stage of proceedings”, the Court said..At the same time, Justice Jalan noted that in several cases, Courts had directed the deposit of security covering the entire arbitral award amount as a condition to stay arbitral awards when the balance of convenience was in favour of the person in whose favour the award was passed.Such directions were issued invoking Section 36 (3) of the Arbitration Act. Relying on the same provision, the Court has issued a stay on the enforcement of the arbitral award, subject to the condition that MTNL deposit the arbitral award amount in a fixed deposit account until the plea moved by it under Section 34 of the Arbitration Act to set aside the arbitral award is decided..The Court has also directed the payment of further interest over time, if the dispute remains pending for long..The directions issued by the Court are as follows:MTNL is to deposit with the learned Registrar General of the High Court, an amount of ₹160 crores and interest at 6% per annum from October 20, 1993 until March 31, 2023. The deposit is to be made by April 15, 2023. The amount deposited is to be kept in fixed deposit, initially for one year, and extended from time to time during the pendency of the petition under Section 34 of the Act. MTNL is further directed to deposit further interest accrued in terms of the award every six months thereafter. The first supplementary deposit will cover the interest liability under the award for the period from April 1, 2023 to September 30, 2023, and must be made by October 15, 2023. Subsequent deposits are to be made by April 15 and October 15 of each succeeding year. .The case has its genesis in CanFina’s subscription of ₹200 crores worth of bonds floated by MTNL in 1992. As per an agreement between the two parties, CanFina was to invest a part of the subscription amount in itself..However, the 1992 securities scam and the subsequent collapse of the securities market were later blamed for disrupting the proposed transactions. .Amid disagreements between the two over payment obligations, MTNL cancelled the letters of allotment in 1993. The dispute reached the Delhi High Court in 1995, and was referred to arbitration in 2011..The arbitral tribunal ruled in favour of Canara Bank in 2022 and declared that the cancellation of the bonds by MTNL was illegal. As such, the arbitral tribunal also ordered MTNL to refund ₹160 crores with 6% interest from October 20, 1993 (when the bonds were cancelled) till realisation to CanFina, apart from imposing costs on MTNL..This arbitral order has now been challenged by MTNL, which has obtained a stay subject to making the deposit outlined above..While ordering the stay, the Court also made it clear that the observations made in this judgment are prima facie observations and not intended to prejudice the rights or contentions of the parties at the final hearing of the Section 34 proceedings..Additional Solicitor General Balbir Singh and advocates Sameer Jain, Rashmi Malhotra, Suvigya Awasthy, Amit Meharia, Jayashree Parihar, Vivek Joshi, Rohan Gulati, Abhishek Agarwal, Anu Sura and Vidushi Tripathi appeared for MTNL.Senior Advocate Chinmoy Sharma, along with advocates Amish Ram Dabas, Shreya S Dabas, Irfan Hasieb, Krishnajyoti Deka and Rishabh Munjal appeared for Canara BankSenior Advocate Santosh Paul along with advocates Anil Kumar Chandel and Mathreya Shetty appeared for CanFina..[Read Judgment]