This newsletter discusses in detail, the Karnataka High Court order which holds that sub-contractors, though not parties to main contract, are entitled to invoke arbitration.

Brief Facts

The Hon’ble Karnataka High Court has passed a common order in proceedings where M/s Siddharth Infotech Pvt. Ltd. (“Petitioner No. 1”) and Everonn Education Ltd. (“Petitioner No. 2”) in separate Writ Petitions had challenged the arbitrary rescission of the contract dated 22 July 2011 (“Agreement”), whereby the Government of India, State of Karnataka and six other Respondents violated Article 14 of the Constitution.

The Agreement was between Government of Karnataka through Commissioner for Public Instructions and M/s Karnataka State Electronics Development Corporation (“KEONICS”) for modernising computer infrastructure in schools under a scheme approved by the Government of Karnataka (“GoK”). The Agreement expressly permitted KEONICS to appoint sub-contractors and consortium partners. Petitioner No. 2 formed a consortium which became the subcontractor of KEONICS for supply and maintenance of computer hardware and materials. Both Agreements had arbitration clauses. The Petitioners furnished Performance Bank Guarantees to the GoK to secure advance payment, however such payment was never made for two years. Petitioner No. 1 entered the consortium in 2015. Thereafter, the GoK passed order dated 5 July 2016 (“Order”) terminating the project on grounds of delay, and directing return of the Petitioners’ Bank Guarantees.

Contributed by: Siddhartha Datta, Partner; Surabhi Binani, Associate

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