Citizens' Data Leak Ought To Be Probed, RTGS Rightly Withheld 1.4 Crores Payable To Software Company: Andhra Pradesh High Court

In a matter related to the citizens' data leak in 2019, the Andhra Pradesh High Court has set aside its single-judge bench order sanctioning the release of the withheld amount from Real Time Governance System (RTGS) to the software company named 'Code Tree'.

The State had alleged that Code Tree was behind the information breach since it was the exclusive contractor of the RTGS e-governance initiative, meant to address the grievances of its citizens efficiently.

The Division Bench of Chief Justice Dhiraj Singh Thakur and Justice R. Raghunandan Rao observed that the single judge bench erred in giving a direction to RTGS to pay the amount due to Code Tree. There was a specific clause in the contract to relegate disputes to arbitration, which made entertaining a writ petition regarding the same impossible, the court clarified:

“….this was not a case where a direction should have been issued to the appellant to make the payment, especially in light of the allegations made against the petitioner with regard to data breach and the relevant provisions of the agreement, which were invoked for purposes of withholding the amount.”

In November 2023, a single judge bench of the High Court allowed Code Tree's plea for directing the state to release Rs 1,40, 42,000/- withheld by RTGS, along with interest. RTGS preferred the current writ appeal against this order by alleging that the release of payment could not have been allowed in light of the allegations of data breach against Code Tree and the pending investigation.

The division bench of the court, in gist, ordered that the terms of the concluded contract between both parties justified withholding the amount due, and a writ petition could not have been preferred against the same.

Relying on the apex court's judgment in Management Co. Ltd v. Skypower Southeast Solar India (P) Limited, 2022 LiveLaw (SC) 966, the court went on to clarify the terms of the contract. In Skypower Southeast, the Supreme Court held that the existence of a provision for arbitration, which is a forum intended to quicken the pace of dispute resolution, is viewed as a near bar to the entertainment of a Writ Petition..

“…Ultimately, the issue may have to be considered and established before an appropriate forum, i.e., the arbitral tribunal, whether there was in fact a data breach and whether the same could be attributed to the petitioner. If the appellant fails to prove the same, the amount would be payable, and if not, then perhaps the action of the appellant may be justified”, the division bench added.

The agreement dated 01.04.2018 lays down Code Tree's obligations to RTGS; it included preserving the RTGS data and not using or publishing it without consent. Another clause in the agreement mentions one of the consequences for any future defaults would be the suspension of payments due from RTGS to Code Tree.

The agreement also included a clause that opts for arbitration as a mechanism for dispute resolution between the parties.

Before the High Court, RTGS contended that the data breach is likely to make it liable to third parties; it will impose a huge financial burden on it if found liable. If that's the probable scenario, the state was right to withhold the sum payable to Code Tree for breach of contractual obligations, the counsel added. When the police are yet to complete additional investigation against Code Tree, the single judge bench could not have ordered the release of the withheld amount, it was argued.

Background & Further Observations.

Code Tree entered into an agreement with the government-controlled RTGS to provide software-infrastructural development and support for two years. According to Code Tree, they have abided by the contractual terms to the satisfaction of RTGS. However, the dues for the time period between Septemeber 2020 to January 2021 were withheld by the state without any justification.

RTGS, however, justified the act of withholding the aforesaid sum of money by alleging the Code Tree had a hand in the citizens' data leak scam back in 2019. The entity was under investigation as the exclusive contractor for RTGS at the relevant time, the state had submitted. In 2022, after giving due consideration to the preliminary reports and hearings, in consonance with the terms and conditions of the contract governing their legal relationship. the amount was withheld for leakage of data.

Case Title: Real Time Governance Society v. Code Tree Solutions Pvt Ltd.

Case No: Writ Appeal No.72 of 2024

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