The absence of a crucial party in arbitration proceedings can invalidate an award, as it affects the fundamental legality which courts must respect under the Arbitration and Conciliation Act.

CAV JUDGMENT

(PER: HON'BLE DR. JUSTICE K.MANMADHA RAO)

The current commercial appeal has been filed by the Appellants being aggrieved by the concurrent findings passed by the Hon’ble Arbitrator vide award dated 18.05.2022 and the judgment in challenge to the arbitration award under Section 34 of ARBITRATION AND CONCILIATION ACT, 1996 , dated 31.07.2023, in Com.A.P.No.79/2022 on the file of LXXXII Additional City Civil & Sessions Judge, Bengaluru (CCH.83) (herein after referred to as ‘the Commercial Court’ for short).

Facts leading to the filing of this appeal are as under:

2. The State Government decided to implement the Scheme of Government of India, known as Information and Communication Technologies (ICT), which was to cover 4396 schools and the total cost was Rs. 412 Crores. Accordingly, it was decided that the Department of Educational Research and Training (DSERT) would be implementing through Karnataka State Electronics Development Corporation (KEONICS) and agreement as at Ex.P9 was entered into between State Government and KEONICS on 22.07.2011. Accordingly, KEONICS invited tenders in which, respondent No.2 herein emerged as the successful bidder and an agreement as at Ex.P10 was entered into between respondent No.2 and KEONICS on 27.07.2011, pursuant to which respondent No.2 was to discharge its obligations and was accountable to M/s KEONICS. The respondent No.1 and Ricoh India Ltd., formed consortium with respondent No.2. Further, due to the delay caused for the implementation of Scheme, on account of request for cancellation and return of Bank Guarantees by respondent No.2, State issued termination letter as Ex.P51 dated 11.08.2016.

3. The respondent No.1 filed Civil Miscellaneous Petition No.9/2021, before this Court seeking appointment of Arbitrator in terms of Clause 37(4) of the agreement at Ex.P9 and this Court was allowed the petition and appointed the Arbitrator. Thereafter, the statement of claim was filed on behalf of the claimant as on 04.09.2021. The first meeting of Arbitration was held on 10.12.2021. The respondent – Government remained absent in spite of sufficient notice and was placed ex-parte. Thereafter, learned HCGP participated in the proceedings from second meeting of arbitration as on 23.12.2021. On steps being taken, order placing the respondent ex-parte, was recalled.

4. The Arbitrator after hearing both the sides, has framed the following points for determination :

(i) Whether the Respondent No-1 proves that there is no privity of contract between the claimant and the said Respondent and that the claim statement should be dismissed on that ground?

(ii) Whether the termination of the project, for the reasons assigned by the Respondent Government is unlawful, arbitrary and unfair?

(iii) Whether the claimant is entitled to damages from the Respondent-Government, if so, how much?

(iv) What Award?

5. The learned Arbitral Tribunal after considering the records placed and hearing both the sides, gave the following findings and ordered as under:-

“34. It is thus evident that the contract is composite and also makes express provisions for sub contractors and consortium partners. It significantly, brings about a direct nexus between the consortium and the respondent Government. It cannot be said that the State government would be in a position to sue the consortium and not vice-versa”

“37. In the above background it may not be tenable for government to contend that the Claimant and other consortium partners are strangers…..And Action on the part of the State Government, touching upon the project, particularly its termina