A Bengaluru commercial court has set aside a Rs 9 crore arbitral award against the Karnataka Education Department, holding that the arbitrator never decided the State’s plea that most claims were time-barred.
Bengaluru: The Exclusive Commercial Court at Bengaluru has set aside an arbitral award directing the Karnataka Department of State Education Research and Training (DSERT) to pay over Rs 9 crore to Puthur Infotech Private Limited, holding that the arbitrator committed patent illegality by failing to decide the State’s defence of limitation [Department of State Education Research and Training v. Puthur Infotech Private Limited and Another].
Judge Vijaya Kumar Rai, LXXXVIII Additional City Civil and Sessions Judge, allowed the petition under Section 34 of the Arbitration and Conciliation Act, 1996 in a judgment dated October 1, 2026, and set aside the award dated May 26, 2023 and the additional award dated June 12, 2023 in their entirety.
How the dispute arose
The dispute began with a 2013 tender issued by DSERT for the maintenance of UPS systems, printers and LCD projectors in 1,763 government high schools and 2,633 aided high schools across Karnataka, 4,396 schools in all. Puthur Infotech secured the Rs 7.19 crore contract for April 2014 to April 2015. The government paid Rs 5.07 crore, and the company claimed that the balance was not released despite satisfactory completion of its work.
The company went to the MSME Council, which referred the dispute to arbitration after conciliation failed. In May 2023, the sole arbitrator, former Himachal Pradesh High Court Chief Justice L. Narayana Swamy, awarded the company Rs 7.75 crore including interest, and another Rs 1.27 crore with interest. He rejected DSERT’s counterclaim of Rs 4.34 crore for alleged deficiencies in service.
The limitation defence
The State argued that 16 of the 17 invoices behind the claim were time-barred when proceedings began in 2018. The Court held that the defence had been adequately pleaded and that the tribunal, though aware of it, never ruled on it:
“the Arbitral Tribunal was conscious of the defence of limitation raised by the respondent, yet it failed to consider the same and record any finding thereon”
The Court described the omission as a fundamental defect:
“The omission to record a finding on limitation is a fundamental defect which goes to the root of the matter and renders the award patently illegal for non-consideration of the defence raised by the respondent.”
On the merits of limitation, the Court found that payments under those invoices had fallen due more than three years before the first claim was made on July 31, 2018, and held that 16 of the 17 invoices were barred. It rejected the company’s argument that repeated assurances from government authorities extended the period, holding that mere non-denial of liability cannot by itself extend limitation, and that assurances that a claim would be considered are not an acknowledgment of debt under Section 18 of the Limitation Act. Only one invoice was within time.
The counterclaim
The Court also held that the arbitrator was wrong to reject the State’s counterclaim merely because DSERT had not first approached the MSME Council. Section 17 of the Micro, Small and Medium Enterprises Development Act covers only claims by suppliers, not counterclaims by buyers, so a buyer is not required to start separate proceedings before the Council to maintain a counterclaim in arbitration.
The tribunal also did not decide the two counterclaim issues framed on February 13, 2023. The Court observed that the finding “goes to the very maintainability of the counter-claim” and set it aside. It did not interfere on the ground of the company’s MSME status, since that status had not been challenged in the statement of defence.
Why the award fell in full
Although one invoice was within time, the Court held that the award could not be saved in part, because it was a lump sum covering both time-barred and potentially maintainable claims without separately determining the amounts, and the claims could not be severed. It stated:
“It is well settled that non-consideration of a material defence amounts to patent illegality”
Why the judgment matters
The judgment shows how a Section 34 court treats an award that is silent on a pleaded limitation defence: the silence is treated as a failure to consider a material defence, and therefore as patent illegality and a breach of natural justice, rather than as a gap the court can fill. It also clarifies that repeated official assurances do not stop the limitation clock, and that a buyer need not approach the MSME Council before raising a counterclaim in the arbitration.
Case Title: Department of State Education Research and Training (DSERT) v. M/s Puthur Infotech Private Limited and Another [Com.A.P. No. 103/2023, arising from Arbitration Case No. 4/2022]
Bench: Judge Vijaya Kumar Rai, LXXXVIII Additional City Civil and Sessions Judge (Exclusive Commercial Court), Bengaluru
Date of Judgment: October 1, 2026
Appearances: Additional Advocate General Aditya Vikram Bhat for DSERT; Advocates Adinath Narde and Revathy Adinath Narde for Puthur Infotech