Karnataka HC Upholds ₹3.42 Crore Award To ATM Cash Provider After TSI Failed To Prove Loss From Employees’ Theft

TSI’s predecessor entered into a service agreement with Writer Safeguard Private Limited, HCMPL’s predecessor, for ATM cash-replenishment services.

The agreement included a seven-day reporting procedure for discrepancies between cash-balance reports (CBRs) and bank switch data (Clause 4.3), and provisions governing the service provider’s liability for cash losses (Clause 13).

After HCMPL employees misappropriated cash and manipulated CBRs, TSI withheld HCMPL’s unpaid invoices, asserting a right to recover the resulting losses.

The arbitral tribunal awarded HCMPL ₹3,42,31,114, with interest and costs, and rejected TSI’s counterclaims, including its claim for misappropriated amounts, which it had not proved as a loss incurred by TSI.

The Commercial Court dismissed TSI’s Section 34 challenge. TSI appealed, arguing that the award misinterpreted the agreement and that the Commercial Court’s decision was unreasoned.

Under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, a court does not re-adjudicate the merits or substitute its interpretation of a contract for that of the arbitral tribunal.

An award may be set aside for patent illegality where, among other things, the tribunal’s interpretation is not one a reasonable person could adopt or effectively rewrites the contract; a plausible contractual interpretation is not ordinarily open to interference.

The Court relied on MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, on the distinction between an error within jurisdiction and a jurisdictional error; McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181, and SAIL Ltd. v. Gupta Brothers Steel Tube Ltd., (2009) 10 SCC 63, on the arbitrator’s authority to interpret the contract.

A party claiming loss must establish that it actually suffered that loss; contractual liability alone does not prove the claimant’s loss.

The tribunal had read Clause 4.3 as requiring timely notification of a CBR/switch-data discrepancy and as absolving HCMPL where the discrepancy was not reported within the stipulated period.

The High Court considered that interpretation plausible: a discrepancy caused by manipulated CBRs could constitute a CD loss, and timely reconciliation could have revealed the shortage earlier, but the agreement did not make the tribunal’s reading unreasonable or impermissible.

Further, TSI had not produced its books of account or other cogent evidence showing that it had itself borne the misappropriated amount; the tribunal’s rejection of TSI’s counterclaim therefore warranted no interference, irrespective of the interpretation of HCMPL’s contractual liability.

The Court also rejected the challenge to the Commercial Court’s reasoning after itself examining the award and finding no basis for setting it aside.

No ground for interference under Section 34 was established.

The appeal was dismissed, the arbitral award remained undisturbed, and the pending application was disposed of.