Delhi High Court orders MTNL to deposit Rs 442 cr in connection with arbitral award [6.3.2023]

For 30 years, a dispute between Mahanagar Telephone Nigam Ltd (MTNL) and CanBank Financial Services Limited (CanFina) was going through several rounds of litigation, which is in stark contrast to the apex court push for expeditious disposal of arbitration matters.

MTNL had alleged fraud at play on the part of CanFina, a subsidiary of Canara Bank. Recently, the Delhi High Court stayed the arbitral award ordering MTNL to refund an amount of Rs 160 crore along with interest amounting to Rs 282.69 crore to CanFina subject to a condition that MTNL should deposit the entire award amount along with interest in a fixed deposit. The total amount effectively runs to around Rs 442.69 crore.

Last week, a single-judge bench of Justice Prateek Jalan passed the order on an application moved by the MTNL under Section 36(2) of the Arbitration and Conciliation Act, 1996. "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," said the court.

The court noted that 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 fraud, and I see no reason to disagree, at least at this stage of proceedings," said the court.

Senior advocate Chinmoy Pradeep Sharma represented the Canara Bank, senior advocate Santosh Paul represented CanFina, and Additional Solicitor General Balbir Singh represented MTNL.

According to MTNL, the transactions were affected by a wide-ranging scam in the Indian stock market and that the arbitral award should be stayed as there was fraud at play on the part of CanFina.

Singh submitted that the findings of the impugned award to the effect that the bank and CanFina had not been indicted for fraud, and that the securities were held by CanFina on behalf of MTNL, are ex facie erroneous. Sharma contested that no prima facie case of fraud or corruption has been made out.

Justice Jalan said: "Having regard to the facts of the present case, I do not consider this an appropriate case to record a prima facie finding of fraud having induced or effected the transactions."

In conclusion, he said: "I, therefore, do not accept MTNL's request for an unconditional stay of the award. The application is disposed of with the direction that enforcement of the impugned award will be stayed, subject to the following conditions: - MTNL depositing with the learned Registrar General of this court, an amount of Rs 160 crore and interest thereupon, at the awarded rate of 6 per cent per annum from October 20, 1993 until March 31, 2023. The deposit be made by April 15, 2023."

The bench further added that the amount deposited be kept in fixed deposit, initially for a period of one year, and extended from time to time during the pendency of the present petition under Section 34 of the Arbitration and Conciliation Act, 1996.

The bench added: "It is made clear that the observations contained in this judgment are prima facie observations for the purpose of disposal of the application. They are not intended to prejudice the rights and contentions of the parties at the final hearing of the Section 34 proceedings."

07 Mar 2023