ITI to pay US firm Rs 169 cr, HC tells authorities to check backdoor entry of foreign cos

The Karnataka High Court dismissed a petition by ITI Ltd challenging an arbitration order directing it to pay over Rs 169 crore to an US based company, and gave a direction to the authorities to check the backdoor entry of foreign companies in securing government quota contracts. ITI had signed a technical collaboration agreement (TCA) with Alphion Corporation in October 2007. The two participated in a bid for BSNL’s tenders for Next Generation Playing Network (GPON) equipment in 2008.

Though they were the third lowest bidders, as ITI was eligible for the Reservation Quota (RQ) and Tender Quantity (TQ) since it was a public sector undertaking, it won the bid. Subsequently, Alphion claiming a share of 34.30 per cent of the invoice demanded payment from ITI. But, ITI did not pay up apparently because BSNL had not paid it. The matter reached arbitration. All along ITI wanted BSNL to be a party to the arbitration but since there was no arbitration clause in any of their agreement with BSNL, it was not included. On October 7, 2021 the Arbitration Tribunal ordered ITI to pay Alphion Corporation Rs 130.95 crore plus Rs 38.67 crore in interest and an additional Rs 1.12 crore as costs of the arbitration.

ITI challenged the arbitration order in the High Court. Justice Suraj Govindaraj delivered his judgement on the plea on September 9. The court noted that ”the contention of ITI being that since BSNL has not paid monies, ITI would not make payment of monies to Alphion under the contract entered into by Aphion with ITI.”

However, the HC rejected this submission saying, ”The said submission and/or contention is completely malafide inasmuch as ITI has neither produced before the arbitral Tribunal nor before this court any material to show any action taken by ITI against BSNL for recovery of the monies due, but, has been promising to make payment of monies to Alphion on receipt of monies by BSNL.”

Dismissing ITI’s petition, the HC also imposed a cost of Rs.5 lakh on it because ”the present proceedings are frivolous in nature. Most of the arguments being on the basis of BSNL being a party or not which is a hogwash.” In the same judgement, the high court directed the authorities to check the misuse of government quotas and reservations meant for public sector companies.

”The RQ and TQ which is made available is only to encourage a public sector undertaking. This encouragement has been misused by ITI and Alphion with Alphion indulging in a backdoor entry by entering into a TCA with ITI. Without Alphion, ITI could not have bid, without ITI, Alphion would not have got RQ and TQ. This is a matter which is required to be considered by the authorities concerned and necessary action taken.”