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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WP No. 18314 of 2025
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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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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
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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,
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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
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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.
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(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
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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
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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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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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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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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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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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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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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