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Synopsis

The Delhi High Court recently stayed an arbitral award ordering Mahanagar Telephone Nigam Limited (MTNL) to refund Rs. 160 crores along with interest to CanBank Financial Services Limited (CanFina), with subject to the condition, that MTNL deposits security covering the entire refund amount, which is approximately Rs. 442.69 crores, in a Fixed Deposit.

Justice Prateek Jalan passed the order on an application moved by MTNL under Section 36(2) of the Arbitration and Conciliation Act, 1996.

According to MTNL, the transactions were affected by a wide-ranging scams in the Indian Stock Market and that the arbitral award should be stayed as there was a fraud at play on the part of CanFina, a subsidiary of Canara Bank. There were many submissions made to support the arguments but the court was not convinced.

The court stated that it was not convinced of the contentions of MTNL and rejected its plea for an unconditional stay. “Having regard to these judgments, and 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,” the court said.

The application for an unconditional stay was disposed of subject to the condition that MTNL deposits the arbitral award amount in a fixed deposit account until the plea moved by it under Section 34 of the Arbitration Act is decided. The directions of the court are given as follows:

• MTNL has to deposit an amount of Rs. 160 crores and interest rate of 6% per annum from October 20, 1993, until March 31, 2023 with the Registrar General of the High Court by April 15, 2023.
• The amount deposited has to be kept in fixed deposit for the first 1 year, and be extended from time to time during the pendency of the petition under Section 34 of the Act.
• MTNL has been further directed to deposit further interest accrued in terms of the award every six months thereafter. The first supplementary deposit will cover the interest liability under the award for the period from April 1, 2023, to September 30, 2023 and must be made by April 15 and October 15 of each succeeding year.

“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,” the court clarified.

Case Title: Mahanagar Telephone Nigam Limited v. Canara Bank and anr