A Bengaluru commercial court has overturned an arbitral award exceeding ₹9 crore against Karnataka’s Department of State Education Research and Training (DSERT), holding that the arbitrator failed to address a crucial question: whether the contractor’s claims were filed within the legally prescribed time limit.
The ruling came in a dispute between DSERT and Puthur Infotech over payments for maintaining computer-related equipment in government and aided high schools across Karnataka.
The court found that the arbitrator’s failure to examine the State’s limitation defence amounted to patent illegality, striking at the foundation of the award.
“The omission to record a finding on limitation is a fundamental defect which goes to the root of the matter,” the court observed, noting that a key defence raised by the government had effectively gone unanswered.
How the dispute began
The matter traces back to a 2013 tender floated by DSERT for maintaining UPS systems, printers and LCD projectors in 4,396 schools — 1,763 government high schools and 2,633 aided high schools.
Puthur Infotech won the contract worth ₹7.19 crore, covering the period from April 2014 to April 2015.
Although the government released ₹5.07 crore, the company maintained that a substantial portion of its dues remained unpaid despite fulfilling its contractual responsibilities. After attempts at conciliation failed, the dispute was referred to arbitration through the Micro and Small Enterprises Facilitation Council.
In May 2023, the sole arbitrator, former Himachal Pradesh High Court Chief Justice L Narayana Swamy, directed the department to pay ₹7.75 crore, inclusive of interest, along with a further ₹1.27 crore and interest. The award also rejected the government’s counterclaim of ₹4.34 crore over alleged shortcomings in the services provided.
Court finds limitation defence was overlooked
The Karnataka government challenged the award, arguing that 16 of the 17 invoices relied upon by Puthur Infotech were already time-barred when the company initiated proceedings in 2018.
The commercial court accepted the objection. It noted that the payment deadlines for those invoices had passed more than three years before the company approached the Facilitation Council.
The court also rejected the contractor’s argument that repeated assurances from government officials had extended the limitation period.
In the court’s view, the arbitrator could not disregard the limitation issue and still uphold the claims without determining whether they were legally maintainable.
Government’s counterclaim also wrongly rejected
The court identified a separate flaw in the arbitral award concerning the State’s counterclaim.
The arbitrator had rejected the government’s demand for ₹4.34 crore on the ground that DSERT had not independently approached the MSME Facilitation Council. The commercial court disagreed, clarifying that a buyer need not initiate separate proceedings before the Council merely to raise a counterclaim in arbitration.
With the award combining claims that were time-barred with others that might have been maintainable, and without identifying the amounts attributable to each, the court concluded that the entire award had to go.
The arbitral award was therefore set aside in full, removing the direction requiring DSERT to pay Puthur Infotech more than ₹9 crore.
The judgment underscores the importance of addressing limitation objections and other substantive defences when deciding contractual disputes through arbitration.