Karnataka High Court Upholds Award In Favour Of Hitachi Cash Management In ₹4.78 Crore ATM Theft Dispute

The Karnataka High Court has recently upheld an arbitral award absolving Hitachi Cash Management Private Limited (HCMPL) of liability for ₹4.78 crore misappropriated by its employees from a Bank of India ATM. It has also upheld the direction requiring Tata Communications Payment Solutions Limited (TSI) to pay HCMPL ₹3.42 crore towards unpaid service invoices, along with interest and costs.

A Division Bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha observed that HCMPL was only a temporary custodian of the cash. Its liability had to be determined in accordance with the terms of the service agreement.

“It is also relevant to bear in mind that the cash handed over by the concerned Bank to HCMPL remained the property of the concerned Bank. HCMPL was a temporary custodian of the same. Thus, subject to the terms of the Service Agreement, if HCMPL had taken adequate care as a prudent person would have, it cannot be held liable to make good the cash stolen from its custody.”

The dispute arose from cash management services provided for a Bank of India ATM in Surat, Gujarat. HCMPL's predecessor, Writer Safeguard Private Limited, had been entrusted with managing the ATM in September 2015. The cash management business was subsequently transferred to Writer Business Services Private Limited and later to HCMPL.

In July 2018, TSI informed HCMPL of discrepancies in cash balance reports for an ATM, covering the period from September 2013 to January 2018. The shortage was initially estimated at ₹5.01 crore, of which TSI sought to recover ₹4.78 crore from HCMPL.

An investigation found that three employees had manipulated the reports and stolen cash meant for replenishing the ATM. HCMPL recovered ₹41.90 lakh and filed a police complaint.

TSI withheld payments against HCMPL's invoices, arguing that the service provider was liable for losses caused by employee misconduct. HCMPL relied on a contractual clause requiring discrepancies to be reported within seven working days.

The arbitrator accepted HCMPL's interpretation, holding that TSI had missed the deadline. The arbitrator also found that TSI had failed to prove it actually suffered the claimed loss.

The High Court upheld the award, including the direction to pay HCMPL ₹3.42 crore in unpaid invoices, with interest and costs. It held that the arbitrator's interpretation of the agreement was a plausible one and did not warrant interference.

The court also found that TSI had failed to establish that it had actually suffered the loss it sought to recover. It had not produced its books of accounts or other cogent material showing that the misappropriated amount had been recovered from it by Mphasis or the concerned bank.

TSI had relied on credit notes to establish the alleged losses. However, the court observed that a credit note issued by a person only reflects that the recipient's account has been credited. It does not establish that the recipient had debited the issuer's account for the alleged loss.

The bench observed, “This is because, even if it is accepted that HCMPL is liable for the loss on account of misappropriation of cash by its employees, TSI would still have to prove that it had suffered such loss to sustain its counterclaim or resist HCMPL's claim.”

Holding that the arbitrator's interpretation of the service agreement was a possible view, the High Court found no ground to interfere with the award and dismissed TSI's appeal.

For Petitioner (Transaction Solution International (India) Private Limited): Senior Advocate Srinivasan Raghavan V. and Advocate Chinmay J. Mirji.

For Respondent (Hitachi Cash Management Private Limited): Senior Advocate Vikram A. Huilgol and Advocate Arjun.