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."