Award of Rs.178 crores lost for Excluding a Necessary Party
Judgment dated 18.9.2025 of the High Court of Karnataka in Commercial Appeal No.403 of 203 of the State of Karnataka Vs. M/s. Siddharth Infotech Pvt Ltd and another
Award of Rs.178 crores lost to Procedure for Excluding a Necessary Party
Arbitral Award Without a Stakeholder as Party is illegal
Necessary Party, Necessary Justice – Karnataka HC Overturned Rs.178 crores Arbitral Award
This is a case of Arbitral Award without an arbitration agreement between the parties and therefore, without jurisdiction for non-joinder of M/s KEONICS, as unfolded in the following factual matrix –
The Department of Educational Research & Training of the Government of Karnataka had decided to implement the scheme of ICT through the Karnataka State Electronics Development Corporation (Corporation).
The nodal Agency of the Corporation had conceived the entire project, tendered, contracted and supervised.
Respondent No.2 – consortium of respondent no.1 and Ricoh India Ltd was given the tender as per the agreement dated 27.7.2011 between the Corporation and the Respondent no.2.
However, this was terminated vide letter dated 11.8.2016.
On the application of the respondent no.1, the High Court appointed Arbitrator. The Corporation was not made party to the arbitration proceedings.
One of the issues framed by the Arbitrator was – whether the State proves that there is no privity with the claimant and that the claim statement should be dismissed on that ground.
The Arbitrator held that the contract is composite and brings about a direct nexus between the consortium and the Government.
On 18.5.2022, the Arbitral Award for Rs.178.98 crores was passed against the State of Karnataka. This was confirmed vide judgment dated 31.7.2023.
HELD that the exclusion of the KEONICS has deprived the proceedings of the presence of one party whose role was indispensable and this is where the foundational defect arises. The claimant’s rights and liabilities were derived solely through the Corporation and in its absence, there was no direct contractual nexus with the State that could give rise an arbitrable dispute.
