M/S. TRANSACTION SOLUTION INTERNATIONAL (INDIA) PRIVATE LIMITED vs HITACHI CASH MANAGEMENT PRIVATE LIMITED
- Court
- Karnataka High Court
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COMAP No. 295 of 2026
TH
RESERVED ON 17 AUGUST 2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 6 DAY OF NOVEMBER, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
COMMERCIAL APPEAL NO. 295 OF 2026
BETWEEN:
1. M/S. TRANSACTION SOLUTION INTERNATIONAL (INDIA)
PRIVATE LIMITED
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
REPRESENTED BY ITS AUTHORIZED SIGNATORY
MR. AK JAIN
HAVING ITS REGISTERED OFFICE AT
DPT 316, DLF PRIME TOWERS
F-79-80, OKHLA INDUSTRIAL AREA
PHASE-1, SOUTH DELHI
NEW DELHI - 110 020
…APPELLANT
Digitally
signed by
AMBIKA H B
Location:
High Court
of Karnataka
(BY SRI SRINIVASAN RAGHAVAN V., SENIOR ADVOCATE FOR
SRI CHINMAY J. MIRJI, ADVOCATE)
AND:
1. HITACHI CASH MANAGEMENT PRIVATE LIMITED
(FORMERLY WRITER BUSINESS SERVICES
PRIVATE LIMITED)
REPRSENTED BY ITS MANAGING DIRCTOR
MR. ANUP NEOGI
S/O. NISHA NATH NEOGI
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COMAP No. 295 of 2026
AGED ABOUT 65 YEARS
HAVING ITS REGISTERED OFFICE AT LEVEL-2
MPL SILICON TOWERS
NO.23/1, VELACHERY TAMBARAM MAIN ROAD
CHENNAI - 600 100
…RESPONDENT
(BY SRI VIKRAM A. HUILGOL, SENIOR ADVOCATE FOR
SRI ARJUN, ADVOCATE FOR C/R-1 & R-2)
THIS COMMMERCIAL APPEAL IS FILED UNDER SECTION 13(1-
A) OF THE COMMERCIAL COURTS ACT, 2015 PRAYING TO ALLOW
THE PRESENT COMMERCIAL APPEAL AND SET ASIDE THE
IMPUGNED ORDER DATED 27.03.2026 PASSED BY THE LXXXII
ADDITIONAL CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL
COURT, BENGALURU (CCH-83), IN COM.A.P.NO.78/2024 & ETC.
THIS COMMERCIAL APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT
THIS DAY, JUDGMENT WAS PRONOUNCED AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
C.A.V. JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The appellant has filed the present appeal under Section
37(1)(c) of the Arbitration and Conciliation Act, 1996 [hereinafter
referred to as ‘A&C Act’ ] impugning a judgment dated 27.03.2026
[hereinafter referred to as 'the impugned judgment' ] passed by the
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COMAP No. 295 of 2026
learned LXXXII Additional City Civil & Sessions Judge, Commercial
Court at Bengaluru (CCH-83) [hereinafter referred to as 'the
Commercial Court' ] in Com. A.P. No.78/2024. The appellant had
filed the said petition under Section 34 of the A&C Act, assailing an
arbitral award dated 28.02.2024 [hereinafter referred to as ‘the
impugned award’ ] rendered by the learned Sole Arbitrator
[hereinafter referred to as ‘the Arbitral Tribunal’ ].
2. The Appellant, Transaction Solutions International (India)
Private Limited [hereinafter referred to as 'TSI' ], is a company
incorporated under the Companies Act, 1956, specialising in
developing and implementing transaction payment solutions for
banks, financial institutions, and utility companies. TSI also offers
solutions in ATM and Managed Services for banks, such as ATM
deployment, maintenance, support services. It took over the ATM
business, which was earlier carried on by Mphasis Limited
[ Mphasis ].
3. The Respondent, Hitachi Cash Management Private Limited
[hereinafter referred to as 'HCMPL' ] took over the Cash
Replenishment Agency division of Writer Business Services Private
Limited, comprising of ATM cash replenishment services, retail cash
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management services, operation of dedicated vans, vaulting and
distribution and cash processing services.
4. Before considering the challenge in the present appeal, it is
relevant to set out the context in which the controversy arises.
PREFATORY FACTS
5. Mphasis was awarded contracts by its clients for installation
and management of ATM sites. In respect of such contracts,
Mphasis entered into a Service Agreement dated 25.04.2013
[hereinafter referred to as 'the Service Agreement' ] with Writer
Safeguard Private Limited for the procurement of cash
replenishment and cash management services in respect of ATMs
of various banks. The Service Agreement was amended by two
addenda dated 23.04.2014 and 16.10.2015 respectively.
6. By a letter dated 31.03.2016, Mphasis intimated Writer
Safeguard Private Limited that it had appointed TSI as its
outsourcing partner in respect of the said ATM business, and
assigned all its rights and obligations under the Service Agreement
in favour of TSI, with effect from 01.04.2016.
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7. Writer Safeguard Private Limited thereafter entered into a
scheme of arrangement with Writer Business Services Private
Limited for the demerger of Writer Safeguard Private Limited and
the transfer of certain of its businesses. The said scheme of
arrangement was sanctioned by the National Company Law
Tribunal, Mumbai Bench, by an order dated 09.08.2018.
Consequent thereupon, Writer Safeguard Private Limited and Writer
Business Services Private Limited executed a Business Transfer
Agreement dated 07.03.2019, pursuant to which the rights and
liabilities pertaining to the cash management business stood
transferred to Writer Business Services Private Limited with effect
from 31.03.2019. During the pendency of the arbitral proceedings
referred to hereinafter, the cash management business of Writer
Business Services Private Limited was further transferred to
HCMPL with effect from 01.01.2024, under a Business Transfer
Agreement dated 21.07.2023. The arbitral proceedings, however,
culminated in the impugned award in the name of Writer Business
Services Private Limited, and HCMPL was substituted in its place in
the proceedings under Section 34 of the A&C Act, as noted
hereinafter.
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COMAP No. 295 of 2026
8. In this judgment, unless the context requires otherwise,
reference to HCMPL also includes reference to its predecessors in
interest, namely Writer Safeguard Private Limited and Writer
Business Services Private Limited.
9. On 14.09.2015, HCMPL was entrusted with the responsibility
of rendering cash management services in respect of an ATM of
Bank of India bearing ID No. GBA9041, situated at Surat, Gujarat
[hereinafter referred to as 'the said ATM' ]. On 16.05.2018, HCMPL
handed over responsibility for the said ATM to Logicash Solutions
Private Limited as part of a routine change in ATM allocation, at
₹
which point the said ATM reflected a cash balance of 24,24,100/-
10. Approximately two months thereafter, TSI, by its email dated
30.07.2018 addressed to HCMPL, pointed out discrepancies in the
Cash Balance Reports [hereinafter referred to as 'CBRs' ] submitted
in connection with the said ATM for the period between 06.09.2013
₹
and 20.01.2018, and intimated a cash shortage of 5,01,12,500/-.
By a further email dated 10.08.2018, TSI intimated that it would
₹
recover 4,74,44,800/- from HCMPL, being the amount attributable
to the period during which the said ATM had been under its charge.
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11. HCMPL investigated the matter but also clarified by its email
dated 09.10.2018 that such investigation was not to be construed as
an admission of liability. It thereafter contacted three of its former
employees who had been in charge of the said ATM during the
relevant period and obtained confession statements from them
admitting their involvement in manipulating the CBRs and
misappropriating the cash meant to be replenished. Based on these
confessions, HCMPL lodged a detailed police complaint at Surat on
23.10.2018, pursuant to which a criminal case was registered
against the said employees.
12. By a demand notice dated 06.12.2018, TSI called upon
₹
HCMPL to pay 4,78,62,200/-, being the total cash shortage
attributed to the discrepant CBRs submitted by the said employees
over the period from 2015 to 2018. HCMPL responded by a letter
dated 19.12.2018, denying its liability. It contended that the
offending acts of its employees were outside the scope of their
duties and constituted offences punishable under the Indian Penal
₹
Code, 1860 [ IPC ], and offered to remit the sum of 41,90,000/-
recovered from the said employees to TSI. TSI, however, called
upon HCMPL to deposit the said sum directly with the bank.
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13. Meanwhile, TSI withheld invoices raised by HCMPL for
services rendered from April 2018 onwards and made only a part
₹
payment of 31,42,035/- on 21.12.2018. HCMPL addressed
communications dated 02.01.2019, 14.01.2019 and 21.02.2019
calling upon TSI to release the outstanding dues, which as on
₹
02.01.2019 stood at 1,79,49,548/-, and cautioned that failure to do
so within a reasonable time may compel it to suspend or terminate
the Service Agreement. TSI neither released the outstanding dues
nor took any step to appoint an alternative service provider. By a
further communication dated 04.03.2019, HCMPL intimated that it
would be constrained to suspend its services with effect from
05.03.2019, and it did so accordingly.
14. Thereafter, TSI sent an email dated 11.03.2019, demanding
that HCMPL resume its operations and threatening HCMPL with
dire consequences if it failed to do so. Alternatively, TSI demanded
that HCMPL hand over the keys of all 629 ATMs to TSI within a
day’s time.
15. On 12.03.2019, HCMPL addressed an email stating that TSI
had illegally taken over 5 ATMs on 08.03.2019 itself. According to
HCMPL, TSI was not interested in continuing to avail its services
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and hence demanded that HCMPL hand over the charge of all the
ATMs. HCMPL expressed its willingness to hand over all 629 ATMs
within 48 hours. In this regard, it addressed an email dated
14.03.2019 to TSI.
16. On 04.07.2019, HCMPL addressed an email to TSI invoking
arbitration under the Service Agreement and proposing the names
of three persons for appointment as the arbitrator. HCMPL informed
TSI about the progress in the criminal proceedings initiated by it
against the errant employees vide email dated 10.07.2019. TSI, by
its email dated 23.08.2019, stated that it was waiting for the
outcome of the criminal proceedings to determine whether
arbitration would be necessary.
17. Hence, HCMPL addressed a letter dated 05.09.2019 to TSI
stating that, even if any amount was recovered from the sale of the
errant employees' assets, HCMPL would not be in a position to avail
of these recoveries.
18. Thereafter, by its email dated 30.09.2019, TSI disputed
HCMPL's claim for payment against its invoices. TSI asserted that it
was entitled to retain the payments against the disputed invoices on
account of HCMPL's failure to reimburse the lossand called upon
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₹
HCMPL to reimburse the entire amount of 4,78,62,200/-, apart
from other losses claimed by it. TSI also asserted that the
₹
appropriation of the sum of 41,90,000/-, recovered from the errant
employees, towards the amounts claimed by HCMPL was
unsustainable.
19. Subsequently, the parties explored the possibility of resolving
the disputes through conciliation. By an email dated 10.02.2020, TSI
₹
called upon HCMPL to release the sum of 41,90,000/- as a pre-
condition for commencement of the conciliation proceedings. By its
email dated 18.02.2020, HCMPL declined to accept the said
condition and informed TSI that it would proceed with arbitration.
20. Thereafter, by a communication dated 24.06.2021, TSI
proposed the names of three persons, including that of Mr. Justice
A.V. Chandrashekar, former Judge of this Court, for appointment as
the sole arbitrator. By its communication dated 29.06.2021, HCMPL
conveyed its acceptance of the said appointment. The Arbitral
Tribunal was thus constituted with the consent of the parties.
ARBITRAL PROCEEDINGS
21. HCMPL, as the claimant in the arbitration proceedings, filed
its statement of claim dated 01.09.2021. It contended that TSI was
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required to inform HCMPL of any discrepancy in the reports
submitted by it within 7 days of receipt of each such report. HCMPL
alleged that TSI had illegally withheld payments and such
withholding was in breach of the terms of the Service Agreement.
HCMPL also averred that it was not concerned in any manner with
the disputes between Mphasis/TSI and Bank of India and that the
disputes between the parties herein had arisen out of a separate
and distinct contract. HCMPL accordingly made the following
claims:
“ 77. CLAIM NO.1:
The Claimant submits that as per the provisions of
the Agreement, the Claimant was entitled to
payment for the services rendered to the
Respondent. In accordance therewith, and as per
the express approval of the Respondent, the
Claimant had raised monthly invoices for the
various services rendered by the Claimant.
However, the Respondent has failed and neglected
to make payment against a majority of the invoices
raised by the Claimant for services rendered from
April 2018 upto March 2019.
Admittedly, the sole reason for the Respondent to
withhold payments in respect of these services was
on account of the cash shortages that were
reported based upon the discrepant reports
submitted by the Claimant. The Claimant submits
that the Respondent has admittedly notified the
Claimant of any such discrepancies for the first time
on 30.07.2018. The Respondent had committed
material breaches of its obligations under the
Agreement, and consequently the Respondent was
not entitled to withhold the payments of the
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Claimant for services that had been rendered on
account of any such cash shortages. After
accounting for the various credit notes issued by
the Claimant, the Claimant submits that an amount
of Rs.3,93,40,872/- is due and payable to the
Claimant in respect of the services rendered by the
Claimant as per the details and particulars annexed
herewith as Annexure CA-2 . The Claimant's offer
to return the amount of Rs.41,90,000/- received
from the Errant Employees was not accepted by
the Respondent, and the same was ultimately
adjusted by the Claimant against its outstanding
dues. After accounting for the said amount of
Rs.41,90,000/-, the Claimant is entitled to payment
of the balance amount of Rs.3.51.50.872/- as per
the details and particulars annexed herewith as
Annexure CA-3 . The Claimant claims the aforesaid
amount of Rs.3,51,50,872/- on this account from
the Respondent, and prays that the Learned
Arbitrator may be pleased to award the same to be
paid to the Claimant by the Respondent.
78. CLAIM NO.2 :
The Claimant submits that as per the provisions of
the Agreement, the Respondent was required to
make payment against each invoice raised by the
Claimant within 30 days. The Respondent has
failed to make payment against any of the invoices,
the details and particulars of which are set out
under Annexure CA-2. The Claimant is therefore
entitled to ante-lite, pendente lite and future interest
on the amounts due and payable against each
unpaid invoice of the Claimant from the respective
due dates of payment of each invoice amount till
actual payment or realization @ 18% p.a. under the
provisions of law read with the provisions of Section
31(7) of the Arbitration and Conciliation Act, 1996.
The Claimant claims the said interest on this
account from the Respondent and prays that the
Learned Arbitrator may be pleased to award the
same to be paid to the Claimant.
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79. CLAIM NO. 3 :
The Claimant is entitled to all costs of arbitration
from the Respondent, the particulars of which will
be furnished at the final hearing to be held in the
matter. The Claimant claims the said costs on this
account from the Respondent and prays that the
Learned Arbitrator may be pleased to award the
same to be paid to the Claimant.”
22. TSI, as the Respondent in the arbitration proceedings, filed its
statement of defence and counterclaim dated 19.11.2021, and
raised a preliminary objection to the jurisdiction of the Arbitral
Tribunal, contending that HCMPL could not be permitted to maintain
claims under the Service Agreement so as to defeat its criminal
liability directly resulting from the acts of its employees in
misappropriating the cash. On the merits, TSI denied all allegations
of delay in submitting the reports. TSI contended that, under clause
13.2 read with clause 8.1(d)(iv) of the Service Agreement, the
Claimant alone would be liable to reimburse the misappropriated
amount to the bank, and that HCMPL had failed to do so. TSI further
contended that HCMPL’s suspension of services on 05.03.2019 was
a unilateral act and contrary to the provisions of the Service
Agreement and that the Claimant had committed breach of the
conditions of the Service Agreement. TSI accordingly preferred
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₹
counterclaims amounting to 7,69,62,978.30 and interest at the rate
of 18% per annum thereon. The counterclaims are set out below:
Sl. Claim Amount
No. (In Rs)
1. Misappropriated Amount Rs 96,44,632
2. Penalties imposed by the banks for Rs 12,53,543.27
prolonged downtime of ATMs
3. Cash out penalties imposed on the
Claimant under the Service
Agreement
Rs 1,79,33,500
4. Loss of Revenue for the month of Rs 3,04,14,586
March 2019
5. Expenses incurred to break open
and take over ATMs
Rs 8,35,137
6. Expenses incurred on account of
differential pricing of service provider
CMS Infosystems Limited
Rs 1,24,45,190
7. Operational Penalties Rs 44,36,390
8. Reputational Losses To be computed
at the end of the
final hearing
9. Cost of arbitration To be computed
at the end of the
final hearing
Total: Rs 7,69,62,978.3
23. HCMPL filed its reply to the counterclaim dated 17.12.2021,
denying the counterclaims. It is relevant to note that HCMPL
admitted that the operational penalties mutually agreed between the
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COMAP No. 295 of 2026
parties for the period from July 2018 to October 2018 amounted to
₹
6,85,800/-, and that it had accepted operational penalties
₹
aggregating 1,70,240/- for the period from November 2018 to
February 2019. HCMPL thus accepted that an amount of
₹
8,56,040/- could be set off against its claims.
24. On the basis of the pleadings, the Arbitral Tribunal framed the
following issues for determination:
“1. Whether the Hon’ble Tribunal has no
jurisdiction to entertain the claims made by the
claimant, as averred in para 75 of the
statement of defence?
2. Whether the Respondent was contractually
entitled to withhold the invoices of the
Claimant for services being rendered under
the Service Agreement dated 25.04.2013 in
view of the cash shortage in the Bank of India
Surat ATM bearing ID No. GBA9041?
3. Whether the Claimant is justified in
adjusting Rs. 41,90,000 on the ground that the
respondent was due to the claimant to this
extent?
4. Whether the Claimant was obligated to
indemnify the Respondent for Misappropriated
Amount?
5. Whether the Claimant is entitled for a sum
of Rs.3,51,50,872/- as per claim No.1 made in
the claim statement?
6. Whether the Claimant is entitled for interest
at 18% per annum from the date it fell due till
the date of filing of the claim statement, as
found in claim No.2 of the claimant?
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7. Whether there is any breach of the terms
and conditions of the service agreement and,
if so, who has committed the same?
8. Whether the Claimant was entitled to
suspend its services in March 2019?
9. Whether any of the counter claims of the
Respondent are maintainable and/or
arbitrable?
10. Whether all or any of the counter claims
raised by the respondent are barred by time?
11. Whether the Respondent is entitled to the
reliefs claimed in the counter claim prayer
column?
12. Whether the parties are entitled for interest
from the date of filing of the claim petition and
the counter claim, if so, what is the rate of
interest to be awarded, on which amount and
payable from which date?
13. Whether the parties are entitled for costs,
and if so, what is amount of the cost to be
awarded and from whom it is recoverable?
14. To what reliefs and award the parties are
entitled for?”
THE IMPUGNED AWARD
25. On Issue No.1, the Arbitral Tribunal held that the criminal
proceedings pending against HCMPL's employees had no bearing
on the adjudication of the contractual dispute between the parties. It
was further held that TSI had not raised its jurisdictional objection at
the stage of the arbitrator's appointment, and that the outcome of
the criminal proceedings would not, in any event, absolve TSI of its
contractual obligations. Issue No.1 was accordingly answered in the
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negative. The Arbitral Tribunal held that it had jurisdiction to
entertain the claims.
26. Issues Nos. 2, 3, 4 and 5 being interdependent, were
considered together by the Arbitral Tribunal. It was held that
Clauses 4.3 and 13 of the Service Agreement were required to be
read harmoniously, and that the obligation to intimate any
discrepancy in the CBRs within seven days of their submission,
under Clause 4.3, constituted a condition precedent for invoking the
liability contemplated under Clause 13. The Arbitral Tribunal further
held that the seven-day timeline under Clause 4.3 was intended to
enable reconciliation of the CBRs with the bank's switch data so as
to detect any suppressed shortage, and that TSI had failed to
discharge its own obligation of following up with the bank in this
regard. On this basis, the Arbitral Tribunal answered Issues Nos. 2
and 4 in the negative and held that TSI was not entitled to withhold
the Claimant's invoices and that the Claimant was not obligated to
indemnify TSI for the misappropriated amount. Issue No.3 was
answered holding that the Claimant was justified in adjusting
₹
41,90,000/- recovered from its employees, and Issue No.5 was
answered affirmatively in part, holding that, after deducting
th
₹ ₹
63,718/- towards the 7 invoice and 8,56,040/- towards admitted
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₹
operational penalties from the principal claim of 3,51,50,872/-, the
₹
Claimant was entitled to recover a sum of 3,42,31,114/- from TSI.
27. In regard to Issue No.8, the Arbitral Tribunal examined the
correspondence exchanged between the parties, including
HCMPL's communications dated 02.01.2019, 14.01.2019,
21.02.2019 and its final communication dated 04.03.2019, and held
that the suspension of services with effect from 05.03.2019 was
neither abrupt nor without notice. Issue No.8 was accordingly
answered in the affirmative, holding that HCMPL was entitled to
suspend its services. Correspondingly, in regard to Issue No.7, the
Arbitral Tribunal held that TSI had committed breach of terms and
conditions of the Service Agreement.
28. On Issues Nos. 9, 10 and 11, concerning TSI's Counterclaim
Nos. 1 to 8, the Arbitral Tribunal held that the counterclaims were
not barred by limitation, but rejected each counterclaim on merits for
want of proof, save for a partial admission under Counterclaim No.7.
Counterclaim No.1, for the balance misappropriated amount, was
rejected as a consequence of want of proof of actual loss and the
non-production of books of accounts; Counterclaim No.2, for ATM-
downtime penalties, was rejected for want of authenticated
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supporting correspondence; Counterclaim No.3, for 'cash-out'
penalties, was rejected as the underlying computation was
unsupported by electronic journals, general ledger or switch data;
Counterclaim No.4, for loss of revenue, was rejected for the lack of
legal or factual basis; Counterclaim No.5, towards the cost of
breaking open ATMs, was rejected for want of any nexus between
the invoices relied upon and TSI; Counterclaim No.6, for the
differential pricing, was rejected for want of proof that the revised
rates relied upon had in fact been agreed to or given effect;
Counterclaim No.7, for operational penalties, was allowed only to
₹
the extent of 8,56,040/-, being the amount already admitted by the
Claimant and adjusted in arriving at the sum found due under Issue
No.5; and Counterclaim No.8, for reputational loss, was rejected as
speculative and unsupported by evidence. Issues Nos. 9 and 10
were accordingly answered in the negative and Issue No.11 was
₹
answered in the affirmative only in part, to the extent of 8,56,040/-
under Counterclaim No.7.
29. On Issues Nos. 6 and 12, the Arbitral Tribunal, invoking the
discretion conferred under Section 31(7)(a) of the A&C Act, held
that interest at the rate of 12% per annum was just and reasonable
having regard to the commercial nature of the transaction, and that
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the Claimant's email dated 18.02.2020 declining the conditions
proposed by TSI on 10.02.2020 marked the date on which the
cause of action for arbitration arose; interest was accordingly
₹
awarded on 3,42,31,114/- at 12% per annum from 18.02.2020 till
realisation, and Issues Nos. 6 and 12 were answered affirmatively in
part. On Issue No.13, having regard to the costs incurred by the
Claimant, including the arbitrator's fee computed under Schedule IV
of the A&C Act, secretarial and venue charges, the Arbitral Tribunal
₹
awarded a sum of 25,00,000/- towards legal and miscellaneous
expenses under Section 31A of the A&C Act, and Issue No.13 was
answered affirmatively in part.
30. The dispositive portion of the impugned award is set out
below:
“(1) The claim petition is allowed in part, holding
that the claimant is entitled to recover a sum of
Rs.3,42,31,114/- (Rupees Three Crores Forty-
Two Lakhs Thirty-One Thousand One Hundred
and Fourteen Only) from the respondent with
interest at 12% per annum on Rs.3,42,31,114/-
only from 18.2.2020. till realization along with
Rs.25,00,000/- (Rupees Twenty-Five Lakhs Only)
being the Legal and Miscellaneous Expenses.
(2) Consequently, counterclaims raised by the
Respondent stand rejected.”
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THE IMPUGNED JUDGMENT
31. Aggrieved by the impugned award, TSI filed a petition under
Section 34 of the A&C Act before the Commercial Court, being
Com. A.P. No.78/2024. TSI contended that the Arbitral Tribunal had
failed to give effect to the overriding, non-obstante character of
Clause 13; that it had erroneously subordinated it to Clause 4.3, and
had thereby rendered Clause 13 otiose; that Clause 4.3 was
confined to clerical or arithmetical errors and had no application to
losses arising from deliberate manipulation of CBRs; and that the
Arbitral Tribunal had fastened an obligation on TSI to reconcile with
the bank even though the Service Agreement did not provide for any
such obligation.
32. By an order dated 30.05.2024, the Commercial Court stayed
the operation and execution of the impugned award, subject to TSI
₹
depositing 50% of the awarded amount of 3,42,31,114/-, that is,
₹
1,71,15,557/-, within a period of one month. TSI states that it
deposited the said amount with the Commercial Court on
20.06.2024.
33. During the pendency of the said petition, I.A. Nos. 2 and 3 of
2024 were filed under Section 151 of the Code of Civil Procedure,
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1908, seeking substitution of HCMPL in place of Writer Business
Services Private Limited. By an order dated 13.12.2024, the
Commercial Court allowed the substitution, and the petition
thereafter proceeded as between TSI and HCMPL.
34. The learned Commercial Court framed two points for
consideration: (i) “Whether Arbitration Petition Deserves to be
allowed and the Impugned Arbitral Award is liable to be set aside for
granting all the reliefs sought for by the claimant?”; and (ii) “What
Order?”.
35. The Commercial Court held that the impugned award was
within the jurisdiction of the Arbitral Tribunal; did not suffer from any
patent illegality; and was not against public policy in India.
Accordingly, the Commercial Court dismissed the petition filed
under Section 34 of the A&C Act, thereby upholding the impugned
award.
36. Aggrieved by the impugned judgment passed by the learned
Commercial Court, TSI has preferred the present appeal.
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RIVAL CONTENTIONS, REASONS & CONCLUSION
37. TSI assails the impugned award essentially on the ground
that it is contrary to the terms of the Service Agreement. It also
assails the impugned judgment on the ground that it is unreasoned
and has not addressed TSI’s challenge to the impugned award.
According to TSI, Clause 13 of the Service Agreement governs
HCMPL’s liability for any stolen currency or losses arising from
dishonesty, negligence or intentional acts by HCMPL’s employees.
Clause 13 is a non-obstante clause and, therefore, supersedes any
inconsistent provisions of the Service Agreement. TSI contends that
the Arbitral Tribunal’s interpretation of Clause 4.3 is misconceived,
as it does not pertain to losses arising from any dishonest conduct
or misconduct by HCMPL’s employees or misappropriation of funds.
It claims that Clause 4.3 pertains only to losses arising out of
discrepant CBRs, and that the Arbitral Tribunal erred in interpreting
the clause to cover TSI's claim. The Arbitral Tribunal's interpretation
of the Service Agreement is fundamentally flawed and constitutes
patent illegality apparent on the face of the impugned award. It
claims that the interpretation amounts to rewriting of the agreement
between the parties, which is impermissible. It also claims that TSI
has no obligation to secure the reconciliation from the concerned
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bank and the Arbitral Tribunal erred in proceeding on the basis that
TSI had any such obligation.
38. It is also contended on behalf of TSI that the impugned award
is perverse and no reasonable person could have arrived at the said
view.
39. It is well settled that the Arbitral Tribunal is the final
adjudicator of disputes between the parties, and interpretation of the
contract falls squarely within its jurisdiction. Any error within the
Arbitral Tribunal's jurisdiction would not warrant interference in
proceedings under Section 34 of the A&C Act. However, if the
Arbitral Tribunal's decision runs contrary to the terms of the contract
between the parties and effectively amounts to rewriting the
contract, the arbitral award would be liable to be set aside under
Section 34 of the A&C Act on the grounds of patent illegality, due to
it suffering from a jurisdictional error. This is because the Arbitral
Tribunal's jurisdiction is confined to adjudicating the claims within
the framework of the agreement between the parties.
40. The essential facts are not in dispute. There is no dispute that
HCMPL's employees had misappropriated funds to the extent of
₹
4,78,62,200/- (Rupees Four Crores Seventy Eight Lakh Sixty Two
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Thousand and Two Hundred only). HCMPL had recovered an
₹
amount of 41,90,000/- from the said employees. However, in its
reply dated 19.12.2018, HCMPL had claimed that it was not liable
for such misappropriation, as it was outside the terms of the Service
Agreement. According to HCMPL, it was an offence punishable
under the IPC, and HCMPL would not be accountable for the same.
HCMPL also claimed that any discrepancy in the cash replenished
had to be communicated within a maximum period of seven days,
failing which it would be absolved of any loss on account of the
discrepancy. The Arbitral Tribunal accepted HCMPL’s contention
and interpretation of Clause 4.3 of the Service Agreement.
41. It is also relevant to bear in mind that HCMPL’s claim related
to the services rendered, and there was no dispute that HCMPL had
rendered its services and had raised the invoices. TSI did not
seriously dispute the liability to pay the amount against the invoices
as raised. It withheld the payment of the invoices on the ground that
it was entitled to recover the losses it had suffered on account of
misappropriation of cash by HCMPL’s employees.
42. Before proceeding further, it would be relevantto refer to the
relevant clauses of the Service Agreement entered into between
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Mphasis and Writer Safeguard Private Limited (the predecessors in
interest of TSI and HCMPL, respectively). Clause 1.5 of the said
agreement defines the term ‘CD’ to mean cash dispensers deployed
by Mphasis or any sub-contractor of Mphasis. Clause 1.6 of the
Service Agreement defines the term “CD loss” as under:
“1.6 ‘CD Loss’ means a single occurrence of the
any loss of Valuables from a single CD directly
result from dishonesty, negligence or intentional act
by employees or representative of Service
Provider. The amount of a CD loss is the face value
of the currency, plus the reasonable cost of
reconstructing any negotiable instruments or other
items of value including but not limited to re-
issuance and stop payment fees, stolen, lost or
destroyed as a result of the occurrence from such
time when these services are provided by the
Service Provider. CD losses do not include any loss
of Valuables occurring outside the CD room,
including but not limited to losses occurring while
such Valuables are in transit. In the event of such
discrepancies, MphasiS shall provide the switch file
and the Service Provider shall resolve the same
through a verification of bill counter totals at the
switch and at the CD, along with the physical count
of cash in the CD.”
43. As is apparent from the above, CD loss will include loss of
any valuables from any single cash dispenser, which results from
dishonesty, negligence or intentional act by employees or
representatives of the service provider. The said loss includes not
only the face value of the currency, but also the reasonable cost of
reconstructing any negotiable instrument. These losses do not
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include any loss of valuables that occur outside the CD room,
including, but not limited to, losses that occur while such valuables
are in transit. Thus, by its very definition, CD loss is a loss confined
to the loss of currency from inside the CD room.
44. Clause 4 of the Service Agreement specified the scope of
services. Clause 4.2 obliged HCMPL to at the end of the day
generate a CBR and other reports in the format as provided and to
submit the same within a period of two days (T + 2 basis). If there
was any discrepancy between the CBR and the Bank's switch, the
Banks reconciliation team was required to communicate the same to
Mphasis (TSI) within 7 working days of the receipt of the CBR.
Mphasis (TSI) was required to inform the Service Provider (HCMPL)
of such discrepancy and the service provider was required to attend
the same within 3 working days of such difference or discrepancy
being reported.
45. Clauses 4.2 and 4.3 of the Service Agreement, which are
central to the dispute, are reproduced below:
“4.2 Service Provider shall perform end of day
(EOD) operation and generate Cash Balance
Report (CBR) and other reports in the format, and
containing such information, as provided in Exhibit
II, which shall be submitted to the MphasiS and the
Bank on T+2 basis.
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4.3 If any discrepancy is observed in the CBR and
Bank’s switch, the Bank’s reconciliation team will
intimate the same to MphasiS within 7 (seven)
working days of receipt of CBR and subsequently
MphasiS will inform the Service Provider. The
Service Provider shall attend the same within 3
(Three) working days of reporting the
difference/discrepancy in cash in CD(s). If the
th
Service Provider does not respond by the 4
working day, the difference/discrepancy amount will
th
be recovered from the Service Provider on the 6
working day. Any discrepancy in CBR reported after
7 days from the date of submission of report will not
be entertained and the Service Provider will not be
liable for any loss arising out of discrepant report.”
46. Clause 13 of the Service Agreement governs the liability of
the Service Provider. The said Clause is set out below:
“13. LIABILITY
13.1 The provisions of this clause govern the
liability of the Service Provider or its Personnel for
any claim of lost, missing, Counterfeit Currency or
stolen Currency and, with respect to such losses,
supersede any inconsistent provision in this
Agreement.
13.2 For the purpose of this Agreement, the
amounts of the following terms shall be:
• Transit Loss Liability Limit- at actual
• Vault Loss Liability Limit is at actual
• CD Loss Liability Limit is at actual
Parties may mutually consider increasing the above
limits on case to case basis in case of need.
13.3 Service Provider shall be liable for CD Loss,
Transit Loss or Vault Loss if such losses at actual
directly result from (a) kidnapping of employees /
representative of Service Provider (b) dishonesty,
negligence or intentional act by employees or
representative of Service Provider or (c) proven
damage to Bank’s Valuables caused by negligence
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or wilful misconduct of the employees or
representative of Service Provider.
13.4 Service Provider shall be liable for any actual
Vault Loss. The Service Provider’s liability under
this Agreement shall commence when Currency
has been delivered into a vault or other secured
facility owned, operated by, or under the control of
Service Provider, and shall terminate when they are
either (a) delivered to Bank or its designated
consignee or agent; or (b) placed in a vehicle
owned, operated by, or under the control of Service
Provider.
13.5 Service Provider shall be liable for any actual
Transit Loss. The Service Provider’s liability under
this section shall commence when Currencies have
been placed in Service Provider’s vehicle and shall
terminate when they are either (a) delivered to
Bank or its designated consignee or agent; or (b)
delivered to, and deposited in, an CD and Service
Provider has secured the CD vault and departed
from the room or immediate area where the CD is
located.
13.6 The Service Provider agrees to assist and
cooperate fully with each other relative to any claim
arising hereunder.
13.7 Supporting documentation is necessary to
process and investigate cash loss claims and the
same shall be furnished by the Service Provider or
MphasiS without any protest or demur. Reasonably
satisfactory proof of a claim for loss is required, and
includes but is not limited to:
i. Cash Replenishment report and CD counters for
the time period the variance was discovered and
the same report(s) for the previous and post
settlement periods as per Service Provider’s report;
and
ii. Copies of the suspect transactions report;”
47. Clause 13.3 of the Service Agreement provides that the
service provider would be liable for CD loss, Transit loss or Vault
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loss if such losses were incurred as a result of “dishonesty,
negligence or intentional act by employees or representative of
Service Provider”.
48. We may now examine the Arbitral Tribunal’s interpretation of
the relevant clauses. The Arbitral Tribunal examined the manner in
which cash was replenished at the ATMs of the Bank. The Arbitral
Tribunal also examined the modus operandi adopted by the
employees of HCMPL for misappropriation of cash from the ATM in
question.
49. Mphasis (TSI) would raise indents with HCMPL (service
provider) from time to time, setting out the quantum of cash to be
collected from the concerned bank and loaded into the specific
ATM. The indent was based on information relating to cash
balances at the ATM, and the concerned bank would provide it to
Mphasis/TSI. This in turn would be based on the switch data
obtained by the bank directly from the ATM. The Arbitral Tribunal
had noted that the switch is an electronic hub or a network gateway
of the ATM and it transmits signals regarding cash withdrawal
requests, approval and dispensation to the concerned bank.
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50. On the basis of the indents issued by Mphasis/TSI, HCMPL
would collect the requisite cash from the concerned Bank which
would be duly recorded in the books of the Bank. HCMPL would
then transfer the cash collected from the bank to the ATM and load
it into the ATM as per the indent. After loading the cash, HCMPL
would update the ATM counter balance to reflect the cash contained
in the ATM after each loading cycle. The Electronic Journal records
the cash details and captures all ATM activities, including manual
cash loading and customer attempts to withdraw cash. The switch
sends an update to the bank regarding the customer's request. The
customer's bank would then confirm the availability of the amount in
the customer's account to the ATM switch, and the ATM would
dispense cash from its cassette. After each event of cash
dispensation, a message would be sent to the concerned bank with
the details of the amounts dispensed and the details of the
customer. The bank would record this data in its ledger, ensuring
that the customer's ledger account and the bank's books are
updated. The switch data was also recorded in the Electronic
Journal of the ATM and the Arbitral Tribunal had noted that only the
bank and Mphasis had access to the Electronic Journal of the ATM.
HCMPL had no access to the said journal.
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51. The service provider was required to prepare a CBR
containing details of the cash loaded into the ATM on a particular
day, the amount dispensed by the ATM during the day, and the
cash available in the ATM at the end of the day. The Bank was
required to reconcile the said report with the information available
from the switch data. As noted above, the said data was captured in
the Bank’s General Ledger as well as the Electronic Journal at the
ATM. It is not disputed before us that reconciling this data would
determine whether there was any discrepancy between the CBR
and the switch data, which would identify whether there was any
shortage in cash.
52. The Arbitral Tribunal referred to Clause 4.3 of the Service
Agreement and observed that it had to be read in the context of
Clause 1.6, which defined the expression “CD loss”. The Arbitral
Tribunal observed that TSI had a duty to call upon the concerned
bank to furnish the switch details to compare them with the CBR
and determine whether there was any discrepancy. The Arbitral
Tribunal held that reconciliation is required to determine whether the
CBRwas correctly prepared and accurately reflected the cash
balance movements for that day. The comparison between the
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CBR and the switch data would reflect whether there were any cash
shortages, which were suppressed through the discrepant reports.
The Arbitral Tribunal held that a loss arising from a discrepant report
could fall into only three kinds of losses, as mentioned in clause
13.2 of the Service Agreement and clause 4.3 was required to be
read harmoniously with clause 13 of the Service Agreement.
53. The Arbitral Tribunal faulted TSI for not fulfilling its obligation
of intimating HCMPL of any discrepancy within the period of 7 days
from the date of submission of the CBR. The relevant extracts of
the impugned award are set out below:
“74. Whenever a clause exists in a contract signed
by the parties, with eyes wide open the same
cannot be ignored stating that it has absolutely no
relevance in the light of another clause which has a
overriding effect. Therefore, all the clauses in an
agreement of this nature, will have to be read
harmoniously. The obligation cast upon the
Respondent herein with regard to intimate the
claimant within 7 days form the date of the
submission of CBRs, is an important condition and
the compliance of the same is an absolute
necessity. The Respondent would be absolved of
its responsibility only it had complied with the
mandate found in the last sentence of clause 4.3.
xxx xxx xxx
78. It is to be seen that the Respondent had
already informed the claimant about the loss and
only then the Claimant filed a complaint after
conducting internal investigation. These clauses will
have to be read in the light of procedure stipulated
in Annexure D appended to the service agreement.
Point I(4) of annexure B states that the service
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provider shall perform EOD operation and generate
CBRs in the format provided in Exhibit II and the
said report be submitted to the Mphasis and the
bank on T+1 basis. It is also made clear that EOD
operation should be performed on the day on which
cash replenishment is done and sub-clause (5)
mandates that the service provider should perform
physical CD cash balancing on each occasion of
cash replenishment. Clause I(vi) of Annexure D is
nothing but reiteration of clause 4.3. This procedure
speaks about the mandatory time line also.”
54. The Arbitral Tribunal also examined the evidence on record,
including the testimony of witnesses, and found that Mphasis/TSI
had not taken any steps to follow up with the bank or check the
contents of the CBRs against the Electronic Journal in its
possession. The Arbitral Tribunal concluded that TSI had
“thoroughly failed to act with due diligence in fulfilling the above
obligation as mandated under Clause 4.3 of the Service
Agreement”. The Arbitral Tribunal also reasoned that TSI was
expected to forecast the cash position at the time of raising indents
and, for the purpose of forecasting the cash requirement, it was
bound to analyse the cash dispensation pattern and the cash
balance. This exercise was required to be done on the basis of
switch data available with the bank on a day-to-day basis. It was
TSI's case that the ATM in question did not have a switch. However,
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the Arbitral Tribunal rejected the said stand in view of RW1's
answers to the specific questions and held as under:
“86. The Respondent has taken a stand in para 115
(b) of SOD that the Respondent was forced to rely
upon the manipulated CBRs for raising indents on
the ground that the ATM did not have a switch. As
already discussed above, the answers given by
RW1 has utterly falsified the stand taken up by the
Respondent in the SOD that the ATM in question
did not have a switch. The Respondent has not
furnished any evidence for having written to the
bank on any occasion complaining that switch data
had not been provided to the Respondent and as a
result of the same, Respondent was not able to
raise indents in the manner required. No letter is
addressed by the Respondent to the bank stating
that the Respondent had to rely upon only the
CBRs provided by the Claimant for the purpose of
raising indents. The Learned Counsel for the
Claimant had asked RW1, vide Q39 as to whether it
was the case of the Respondent that in respect of
Surat ATM the Respondent raised indents on the
basis of CBRs because the Claimant had removed
the switch from the ATM. RW1 has denied the said
suggestion. Answers to subsequent questions 41
and 42 would make it clear that Surat ATM in
question had a switch at all times.
87. Comparing CBRs with the available EJs was
the important duty of the Respondent in order to
know whether there was any discrepancy. If, during
this exercise the Respondent had found out that
switch data was required, the Respondent should
have sought such switch details from the bank.
Having not done this very critical exercise, the
Respondent cannot turn round and say that it had
no obligation to conduct such an exercise and that
the obligation to conduct such exercise was with
the bank only. If the Respondent had not relied
upon the CBRs with regard to the cash balance
shown therein, the discrepancies in CBRs would
have been easily identified without any delay.
Therefore, not conducting such an exercise was a
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material breach on the part of the Respondent with
regard to the raising of indent by merely relying
upon the CBRs. This exercise was not done by the
Respondent for many years. RW1 has asserted in
his answer to Q46 that Claimant was expected to
identify discrepancies on the basis of CBRs, ATM
counter, switch counter and indents. This assertion
is completely incorrect. It was not possible for the
Claimant to have identified the discrepancies as the
Claimant had no access to switch data, EJ and GL.
In fact, this assertion is contrary to the stand taken
by the Respondent in para 115 (b) of SOD where
the Respondent has averred that it i.e., the
Respondent was incorrectly raising the indents
based on the CBRs. The Respondent was required
to rely upon the switch data without raising any
indent. RW1 has admitted that the ATM counters
had also been manipulated, vide answer to Q76.
This manipulation was for the period from
14.9.2015 up to Jan 2018. Therefore, comparison
of CBRs with ATM counters would be of no use.
Ultimately the bank took up the exercise of
reconciliation by comparing CBRs vis-à-vis the
switch data which is also reflected in GJ and EJs.
Then only, the bank was able to find out the
discrepancy. The respondent was in possession of
EJs and nothing came in its way to have insisted
the bank to furnish the switch data for comparing
CBRs. To find out discrepancy. This is evident from
the positive answer given by RW1 to q68 that ATM
GL will reflect the actual cash dispensed by the
ATM to the customers without any manipulation
since manipulation at ATM GL level is not possible.
Therefore, as admitted by RW1 in his answer to
Q43, the bank undertook the reconciliation exercise
of CBRs based on ATM GL and EJs.”
55. The Arbitral Tribunal found that the exercise of comparing the
CBRs with the General Ledger and the Electronic Journal was not
conducted for many years and, resultantly, the errant employees
had continued to systematically misappropriate the cash over the
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years and had manipulated the CBRs. The Arbitral Tribunal noted
₹
that as on 10.11.2015, the cash shortage was 1,35,900/- and
HCMPL had taken over the ATM on 14.09.2015. Thus, the Arbitral
Tribunal reasoned that the cash shortage would have been limited if
the reconciliation had been carried out, as the discrepancy would
have been found earlier.
56. Before examining whether the Arbitral Tribunal's interpretation
of Clause 4.3 and Clause 13 vitiates the impugned award on the
ground of patent illegality, it would be necessary to note that the
Arbitral Tribunal had, while rejecting Counterclaim No.1, found that
TSI had failed to establish that it had suffered losses on account of
the amounts misappropriated by HCMPL’s employees.
₹
57. TSI had raised a counterclaim for a sum of 96,44,632/-
(Counterclaim No.1) as the balance claimed to be recoverable from
₹
HCMPL after adjusting the amount of 3,83,04,850/- payable
₹
against HCMPL’s invoices against a sum of 4,79,49,482/-, which,
according to TSI, had been recovered from it on account of the
misappropriation. The Arbitral Tribunal found that TSI had not
₹
established that it suffered a loss of 4,79,49,482/- on account of
misappropriation of cash from the ATM in question.
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58. In terms of clause 13.3 – which is relied upon by TSI –HCMPL
would be liable for ‘CD loss’. However, to claim any amount against
said loss, TSI would need to establish that it had incurred such a
loss.
59. There appears to be no cavil that employees of HCMPL had
misappropriated the cash, which belonged to the concerned bank.
However, for TSI to sustain any claim for such amount, it would be
essential to establish that it had incurred a loss on account of
misappropriation of funds. However, the Arbitral Tribunal found that
TSI could not establish that it had incurred the said loss, as it had
not produced its books of accounts or any other cogent material to
show that the misappropriated amount had, in fact, been recovered
from it by Mphasis or the concerned bank.
60. The Arbitral Tribunal observed that TSI’s witness (RW2),
Shree Jeetram Sharma, Senior Finance Manager, stated during his
examination that the books of account did not directly reflect any
penalties that may have been levied by the customer banks. TSI
had produced credit notes; however, TSI could not establish that
they reflected the penalties TSI claimed it had suffered.
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61. It is also relevant to note that a credit note issued by a person
reflects that the person issuing the credit note has credited the
account of the persons to whom the note is issued. It does not
reflect that the person to whom the credit note is issued has debited
the account of the person issuing the credit note. Thus, if a penalty
had been imposed on TSI, the person imposing the penalty would
have issued a debit note to reflect that TSI’s account in its books
has been debited by that levy.
62. As observed earlier, the Arbitral Tribunal is the final
adjudicator of facts. In view of these findings, the Arbitral Tribunal’s
decision to allow HCMPL’s claim and reject Counterclaim No.1
warrants no interference in these proceedings.
63. In view of the above, the Arbitral Tribunal’s interpretation of
the relevant clauses regarding HCMPL’s liability may not be
dispositive of HCMPL’s claim and TSI’s Counterclaim No.1. This is
because, even if it is accepted that HCMPL is liable for the loss on
account of misappropriation of cash by its employees, TSI would still
have to prove that it had suffered such loss to sustain its
counterclaim or resist HCMPL’s claim.
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64. We may now examine whether the Arbitral Tribunal’s
interpretation of the Service Agreement vitiates the impugned award
on the ground of patent illegality.
65. The threshold question to be considered is whether Clause
4.3 of the Service Agreement covers CD loss. According to the
Arbitral Tribunal, a loss arising out of a discrepant report would
include a CD loss.
66. We note, at this stage, that it is not seriously disputed that if
CBR was reconciled with the bank switch and its records, the cash
shortage would have been found at the material time. This would
have enabled HCMPL to address it at that stage. TSI’s case is that
the cash shortage was discovered on reconciliation of the CBRs
with the Electronic Journal and the reconciliation vendor emailed the
Bank on 27.07.2018 regarding the discrepancies found during the
reconciliation process of the data relating to ATM ID GBA9041,
which was managed by the HCMPL. The reconciliation vendor
accordingly requested the Bank to take up the cash discrepancies
identified with the respective vendor, that is, TSI.
67. The Arbitral Tribunal had found that Clause 13 of the Service
Agreement also expressly provided that Service Provider would be
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liable for the CD loss, and there is no dispute that HCMPL would be
liable for any loss occasioned by misappropriation of cash. The
Arbitral Tribunal noted that HCMPL did not dispute its liability.
However, its defence was predicated on the language of Clause 4.3,
which would absolve it of liability if the loss arose from a discrepant
report but was not communicated within a period of 7 days from its
submission. The question of whether the expression “any loss
arising out of discrepant report” would cover the CD loss is a
contentious one.
68. Clause 1.6 of the Service Agreement defines CD Loss as a
loss which arises from dishonesty, negligence or intentional act of
the employees or representatives of the service provider. In the
present case, TSI claims loss on account of misappropriation of
cash by the employees of HCMPL. Thus, undisputedly, the said
loss would be covered under the definition of CD Loss within the
meaning of Clause 1.6 of the Service Agreement.
69. Clause 4 of the Service Agreement sets out the scope of the
service to be provided. Clause 4.3 of the Service Agreement
contemplates that the concerned bank’s reconciliation team would
intimate any discrepancy between the CBR and the Bank’s switch to
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Mphasis (TSI) within seven working days from the receipt of the
CBR. TSI/Mphasis was required to inform the service provider (i.e.,
HCMPL) of any such discrepancy intimated by the bank’s
reconciliation team. HCMPL, as the service provider, was required
to attend to the same within three working days of the reporting of
the difference/discrepancy in cash in the CD(s). If it failed to
respond by the fourth working day, the difference/discrepancy
amount would be recovered from the service provider on the sixth
working day. Any discrepancy in CBR reported after seven days will
not be entertained by the service provider, and it would not be liable
for any loss so arisen.
70. The language of Clause 4.3, which expressly provides that
“the difference/discrepancy amount” would be recovered from the
service provider is of some significance for addressing the dispute.
Prima facie, Clause 4.3 would cover the CD loss, as that would be
reflected as a discrepancy/difference in the amount in the CBR and
the switch data. As noted above, it is TSI’s case that the shortage in
cash was discovered by reconciliation of CBRs with the Electronic
Journal.
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71. Having stated the above, it is necessary to bear in mind that
this Court is not required to re-adjudicate the said question. The
scope of examination under Section 34 of the A&C Act is limited to
examining whether the Arbitral Tribunal’s view is a plausible one.
72. The Arbitral Tribunal’s view that the CD loss would be a direct
loss arising from a manipulated report which does not truly reflect
the cash balance, and that reconciliation would have resulted in the
discovery of misappropriation of cash, is clearly a plausible view.
Thus, this conclusion would be outside the scope of interference in
these proceedings.
73. The learned counsel appearing for TSI had laid much
emphasis on the language of Clause 13.1, which expressly provided
that the provisions of the said clause would override any other
inconsistent provisions of the agreement. The Arbitral Tribunal also
found that there was no dispute that HCMPL was liable for such
losses. However, under Clause 4.3, it would be absolved of liability
if the difference was not reported within the specified period. We
cannot accept that this view is not plausible.
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74. The learned counsel appearing for TSI also contended that
TSI had no obligation to reconcile the CBR and the Switch data.
The Arbitral Tribunal erred in imputing such obligations on TSI.
75. Undisputedly Clause 4.3 does not expressly provide that TSI
would reconcile CBR with the Switch data or ensure that such
reconciliation is done. However, it provides that if any discrepancy
between the Switch data and CBR is reported, HCMPL would be
informed. However, if no discrepancy is reported to HCMPL, it
would be absolved of its liability of making good any such
difference/discrepancy.
76. It is apparent from the reading of Clause 4.3 that it concerns
the liability of HCMPL to make good the discrepancy/difference
between the CBRs and switch data if communicated within the
specified period, failing which HCMPL would be absolved of its
liability.
77. It is also relevant to bear in mind that the cash handed over
by the concerned Bank to HCMPL remained the property of the
concerned Bank. HCMPL was a temporary custodian of the same.
Thus, subject to the terms of the Service Agreement, if HCMPL had
taken adequate care as a prudent person would have, it cannot be
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held liable to make good the cash stolen from its custody.In the
present case, TSI claims that HCMPL is liable by virtue of the
Service Agreement. However, the Arbitral Tribunal found that
HCMPL was absolved of its liability. The Arbitral Tribunal's decision
rests on the interpretation that clause 4.3 of the Service Agreement
absolved HCMPL of its obligation to pay the difference/discrepancy
amount, as it was not communicated within the stipulated period.
78. It is settled law that the Arbitral Tribunal’s decision on the
interpretation of a contract cannot be interfered with unless the court
finds that no reasonable person could accept such interpretation. In
1
MSK Projects (I) (JV) Ltd. v. State of Rajasthan , the Supreme
Court had held as under:
“17. If the arbitrator commits an error in the
construction of the contract, that is an error
within his jurisdiction. But if he wanders
outside the contract and deals with matters not
allotted to him, he commits a jurisdictional
error. Extrinsic evidence is admissible in such
cases because the dispute is not something
which arises under or in relation to the contract
or dependent on the construction of the
contract or to be determined within the award.
The ambiguity of the award can, in such
cases, be resolved by admitting extrinsic
evidence. The rationale of this rule is that the
nature of the dispute is something which has
1
(2011) 10 SCC 573
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COMAP No. 295 of 2026
to be determined outside and independent of
what appears in the award. Such a
jurisdictional error needs to be proved by
evidence extrinsic to the award.”
79. In McDermott International Inc. v. Burn Standard Co.
2
Ltd. , the Supreme Court had stated as under:
“112. It is trite that the terms of the contract
can be express or implied. The conduct of the
parties would also be a relevant factor in the
matter of construction of a contract. The
construction of the contract agreement is
within the jurisdiction of the arbitrators having
regard to the wide nature, scope and ambit of
the arbitration agreement and they cannot be
said to have misdirected themselves in
passing the award by taking into consideration
the conduct of the parties. It is also trite that
correspondences exchanged by the parties
are required to be taken into consideration for
the purpose of construction of a contract.
Interpretation of a contract is a matter for the
arbitrator to determine, even if it gives rise to
determination of a question of law.
113. Once, thus, it is held that the arbitrator
had the jurisdiction, no further question shall
be raised and the court will not exercise its
jurisdiction unless it is found that there exists
any bar on the face of the award.”
3
80. In SAIL Ltd. vs Gupta Brothers Steel Tube Limited , the
Supreme Court had observed as under:
2
(2006) 11 SCC 181
3
(2009) 10 SCC 63
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COMAP No. 295 of 2026
“18. ... ( ii ) An error relatable to interpretation of the
contract by an arbitrator is an error within his juris-
diction and such error is not amenable to correc-
tion by courts as such error is not an error on the
face of the award.”
81. We cannot accept that the Arbitral Tribunal’s view on the
interpretation of the terms of the Service Agreement is one that no
reasonable person would accept. It is a possible view. Thus, the
impugned award cannot be set aside on the ground of patent
illegality.
82. TSI’s challenge to the impugned judgment on the ground that
it is unreasoned is unpersuasive. The learned Commercial court had
examined the limited scope of interference under Section 34 of the
A&C Act. In any view, we have examined TSI’s challenge to the
impugned award on merits find that the Arbitral Tribunal’s view
cannot be stated to be ex facie erroneous and one that vitiates the
impugned award on patent illegality.
83. In view of the above, the impugned award could not be
interfered with in proceedings under Section 34 of the A&C Act.
84. HCMPL’s claim rested on the services rendered by it, and
there was no serious dispute regarding the same. TSI did not
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question the same before the Arbitral Tribunal. Even before us, no
serious dispute was raised as to the invoices raised by HCMPL.
TSI’s only defence was that it was entitled to withhold the said
payments for recovering the loss it had suffered on account of
HCMPL’s employees misappropriating the cash.
85. In view of the above, we find no ground to interfere with the
impugned award. The appeal is accordingly dismissed.
86. The pending application stands disposed of.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
AHB