To grant an unconditional stay of an arbitral award, a prima facie case of fraud must be established.

JUDGMENT

Prateek Jalan, J.

I.A. 14319/2022 [Application on behalf of the petitioner under Section 36(2) of the Arbitration and Conciliation Act, 1996 seeking stay of the impugned award dated 03.03.2022]

1. This application has been filed by the petitioner-Mahanagar Telephone Nigam Limited [hereinafter, "MTNL"] for stay of enforcement of an arbitral award dated 03.03.2022, which is under challenge in O.M.P.(COMM) 312/2022.

2. The transactions between the parties relate back to the period 1991-92. Pursuant to guidelines issued by the Government of India regarding flotation of bonds issued by Public Sector Undertakings [hereinafter, "PSUs"] in the telecommunications and power sectors, MTNL was granted permission for issuance of bonds on 17.12.1991.

3. MTNL and CanBank Financial Services Ltd. [respondent No. 2, hereinafter "CanFina"] entered into a Memorandum of Understanding dated 10.02.1992, under which Letters of Allotment ["LoAs"] were to be issued and CanFina was to subscribe to bonds issued by MTNL. It was provided that the consideration would not be paid by CanFina to MTNL immediately, but be invested with CanFina. The dispute between the parties revolves around the nature of the investment.

4. LoAs were accordingly issued by MTNL to CanFina for bonds to the tune of Rs.200 crores. MTNL thereafter took a separate loan of Rs.200 crores from the Industrial Development Bank of India [hereinafter, "IDBI"], which it assigned to Can Fina, to be paid directly to IDBI from the proceeds of the amounts payable to it. The first instalment was paid by CanFina to IDBI on 11.05.1992.

5. According to MTNL, the transactions were thereafter affected by a wide-ranging securities scam in the Indian stock market, which came to light in April-May 1992. Canara Bank Ltd. [respondent No. 1, hereinafter "the Bank"], which was the holding company of CanFina, took a transfer of the LoAs from CanFina and sought registration of the bonds and payment of interest by MTNL. By a communication dated 14.10.1992, MTNL disputed the transaction and thereafter asserted that CanFina was liable to pay in terms of the arrangement between the parties, to IDBI and the balance amount to MTNL. By a communication dated 09.02.1993, CanFina expressed its inability to do so. Therefore, MTNL cancelled the LoAs on 20.10.1993, which led to considerable correspondence between the parties, including efforts to resolve the matter administratively. Writ proceedings were instituted by the Bank in this Court [W.P.(C) 560/1995], wherein this Court ultimately referred the parties to arbitration by an order dated 21.10.2011.¹[Order dated 21.10.2011 in W.P.(C) 560/1995.] The impugned award dated 03.03.2022 is the culmination of those proceedings.

6. The learned arbitrator has allowed the claims of the Bank and granted a declaration that the cancellation of the bonds by MTNL was illegal. MTNL was consequently directed to refund a sum of Rs.160 crores to the Bank with interest @ 6% per annum from 20.10.1993 until realisation. Costs were also assessed against MTNL.

7. While the validity of the impugned award remains to be examined in the proceedings filed by MTNL under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter, "the Act"], the question for determination at this stage is whether MTNL is entitled to an unconditional stay on enforcement of the impugned award.

8. I have heard Mr. Balbir Singh, learned Additional Solicitor General, on behalf of MTNL, Mr. Chinmoy Pradeep Sharma, learned Senior Counsel for the Bank, and Mr. Santosh Paul, learned Senior Counsel for CanFina.

9. Learned Senior Counsel have advanced their arguments on this application in the context of Section 36(3) of the Act which provides as follows:

"36. Enforcement:

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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 reason