Karnataka High Court Sets Aside ₹179 Crore Arbitral Award in State EdTech Project

Introduction

In a landmark decision dated 18 September 2025, the Karnataka High Court, in State of Karnataka v. Siddharth Infotech Pvt. Ltd., set aside a massive arbitral award of ₹178.98 crore passed against the State in connection with an education technology initiative. The Division Bench of Justice Anu Sivaraman and Justice K. Manmadha Rao held that the proceedings were fundamentally flawed due to the non-joinder of Karnataka State Electronics Development Corporation Limited (KEONICS): the nodal agency through which the project was executed.

The Court ruled that the absence of this necessary party vitiated the entire arbitration, rendering the award patently illegal under Section 34(2A) of the Arbitration and Conciliation Act, 1996. This ruling, apart from annulling one of the state’s largest technology-related awards, offers critical lessons on party joinder, privity of contract, and procedural fairness in arbitral proceedings involving public contracts.

Legal Issues Before the Court

The judgment tackled core questions in arbitration jurisprudence, including:

1. Non-Joinder of Necessary Parties: Whether arbitral proceedings can validly continue in the absence of a party whose participation is essential to determine the rights and liabilities of others.
2. Doctrine of Privity of Contract: Whether Siddharth Infotech Pvt. Ltd., a consortium member, could claim against the State despite having no direct contractual nexus.
3. Patent Illegality and Jurisdiction: Whether the arbitral tribunal exceeded its jurisdiction by adjudicating claims beyond the contractual framework.
4. Standard of Judicial Review under Section 34 and 37: Whether the High Court could intervene on findings of law and procedure without reassessing merits.

These issues collectively examined how far Indian courts may go to preserve procedural integrity without undermining arbitration’s finality.

Arguments of the State (Appellant)

The State of Karnataka, represented by Additional Advocate General Kiran V. Ron and Government Advocate Aditya Vikram Bhat, argued that:

• The arbitration was unsustainable for lack of privity of contract between the State and Siddharth Infotech; the primary contract was executed solely between the State and KEONICS.
• Siddharth Infotech, being a consortium partner with KEONICS under a separate agreement, could not directly invoke arbitration against the State.
• The arbitral tribunal erred in awarding damages without adequate evidentiary support, including inflated claims for “loss of profit” and “survey expenses.”
• The award violated the principles of reasoned decision-making as laid down in ONGC v. Off-Shore Enterprises Inc., (2011) 14 SCC 147, and amounted to guesswork.
• The failure to implead KEONICS, despite it being the implementing agency, struck at the root of jurisdiction, making the entire award void ab initio.

Arguments of Siddharth Infotech (Respondent)

Represented by Advocate Chintan Chinnappa, Siddharth Infotech contended that:

• The High Court’s powers under Section 37 of the Arbitration Act were limited; courts could not re-appreciate evidence or revisit factual findings.
• Citing MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163, the respondent argued that judicial interference in arbitral awards must remain minimal.
• The consortium structure, although layered, established functional and financial relationships between the State and consortium members, thereby satisfying the composite transaction doctrine.
• KEONICS’ absence was not fatal since the dispute was already adjudicated based on documentary evidence establishing State supervision and payment control.

Judgment and Reasoning

The Division Bench made a meticulous examination of the contractual architecture of the project and the nature of KEONICS’ role. The Court held that:

• KEONICS was a necessary party, not a mere intermediary. The project was “conceived, tendered, contracted, and supervised” through KEONICS, which acted as the State’s nodal implementation agency.
• Any award rendered in its absence violated the basic tenets of natural justice and thus constituted patent illegality under Section 34(2A).
• The doctrine of privity of contract remained central, Siddharth Infotech’s rights arose only through KEONICS and not directly against the State.
• The Court reaffirmed that arbitral tribunals cannot expand jurisdiction beyond parties who are signatories to, or directly bound by, the arbitration agreement.
• On damages, the Bench found the tribunal’s quantification unsupported by credible proof, particularly regarding speculative loss of profits and survey costs.

Accordingly, the High Court set aside the arbitral award in its entirety, reinstating the primacy of procedural legitimacy over arbitral finality.

Critical Analysis: Arbitration, Consortiums, and Procedural Integrity

This judgment has broader implications for arbitration law, particularly in government-linked infrastructure and technology projects involving multiple stakeholders and layered contracts.

• Reinforcing Procedural Due Process: The ruling highlights that procedural compliance is not a mere technicality. Arbitration cannot stand where a necessary party, such as a nodal agency or consortium partner—is excluded.
• Clarifying Privity and Composite Transactions: Indian courts continue to draw a clear line between signatories and non-signatories, aligning with Supreme Court precedents such as Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. (2013) 1 SCC 641.
• Patent Illegality as a Check on Tribunal Overreach: The Court’s reliance on patent illegality grounds reflects a growing judicial trend to balance arbitral autonomy with fairness. Arbitrators must ensure both substantive accuracy and procedural completeness to avoid annulment.
• Impact on Public-Private Arbitration: For large-scale government projects, this decision highlights the need for comprehensive arbitration clauses explicitly defining the roles and obligations of consortium members. The ruling could drive structural reforms in public procurement and arbitration design.

Conclusion

The Karnataka High Court’s decision in State of Karnataka v. Siddharth Infotech Pvt. Ltd. reaffirms that no arbitral award can survive fundamental procedural infirmities. Even a well-reasoned award on merits will collapse if it fails to meet the standards of party joinder, jurisdictional propriety, and evidentiary discipline.

As India’s arbitration ecosystem continues to evolve under the Arbitration and Conciliation Act, 1996, this judgment serves as a cautionary precedent for both public authorities and private entities involved in multi-party contracts. Ensuring the presence of all necessary parties from the outset, maintaining clear contractual privity, and adhering to due process are now non-negotiable pillars of enforceable arbitration.