Plea Against Misuse Of Digital Signature Does Not Amount To Denying Existence Of Arbitration Agreement: Calcutta High Court

The Calcutta High Court Bench of Justice Krishna Rao, while referring parties to arbitration, has observed that if the Plaintiff alleges that its digital signatures were used without its consent, such an allegation of fraud does not amount to a denial of the existence of the arbitration agreement. Facts The Plaintiffs had filed an application praying for an interim order, whereas the Defendants had filed an application praying that the parties be referred to arbitration. On 29.12.2023, the Plaintiffs were served with an application under Section 9, ACA, upon the receipt of which the Plaintiffs came to know that Defendant No. 1 had rendered a loan of Rs. 2,00,00,000 to Defendant No. 3 and the Plaintiffs were made co-borrowers of the purported loan. The Plaintiffs took the plea that they never signed any agreement for loan and merely remembered providing Defendant No.3, one-time passwords for the use of digital signature. The Plaintiffs contended that Defendant No.3 used such digital signature of the Plaintiffs on the alleged loan. Thus, no consent was obtained from the Plaintiffs by any of the Defendants for use of the digital signature on the alleged document. In this backdrop, the Defendants prayed for the dispute to be referred to arbitration. Contentions The Counsel for the Plaintiffs contended that the parties could not be referred to arbitration as the Plaintiffs were not parties to the agreement and signatures appearing in the agreement were not in any capacity. The Counsel further submitted that the Plaintiffs had filed the suit for cancellation and declaration of the agreement as null and void and the Arbitrator could not grant this relief. It was contended by the Plaintiff's Counsel that the agreement was only between two parties i.e. the 'lender' being Defendant No.1 and 'borrower' being Defendant No.3. Nowhere, in the said agreement, the names of the Plaintiffs appeared in any capacity to make them as party to the arbitration agreement. He submitted that merely because the signatures of the plaintiffs were obtained by Defendant No.1 by perpetrating fraud, the Plaintiffs could not be said to be 'parties' to the agreement. The Counsel for Defendant No.1 submitted that it was only after detailed verification and credit analysis of Defendant No.3 that the loan was sanctioned which was accepted by all the parties. The agreement was signed by all the parties including the Plaintiffs. Defendant No. 3 was the primary applicant and the Plaintiffs and other parties were co-applicants of the loan agreement. Defendant No. 1 had extended the credit facility vide agreement dated 25.07.2023 and all the parties had executed the agreement by affixing digital signatures. The Counsel for Defendant No. 1 submitted that while the Plaintiffs alleged that there was fraud, they did not dispute the agreement per se being invalid or not in existence. The allegation was simply that the Plaintiff's digital signatures were obtained by fraud. Since the agreement contained an arbitration clause, the parties were required to referred to arbitration and thus, no interim order could be passed in favour of the Plaintiffs. Observations The Court analysed the loan documents to assess the contention of the Plaintiff that their signatures were obtained by fraud and their digital signatures were used without their consent. The Court observed that in the sanction letter dated 25.07.2023, the name of the Plaintiffs appeared as co-applicants nos.3,4 and 5. In the schedule of term, Vedanta Limited was recorded as the principal borrower and the names of Defendant No.3 along with Plaintiffs was also mentioned. The Court observed that the Plaintiffs had only taken the ground of fraud that Defendant No.3 had misused the OTP provided by the Plaintiffs and the said OTP was used for digital signatures of the plaintiffs to which the Plaintiffs had never consented. Defendant No.3 was not denying the agreement. Defendant No.3 had paid an amount of Rs. 2,00,00,000/- during pendency of the application under Section 9, ACA. The agreement and other documents contained digital signatures of the Plaintiffs. The stand taken by the Plaintiffs that the Defendants had frequently and without the consent of the Plaintiffs obtained the digital signatures of the plaintiffs could be raised before the arbitrator. Considering the above, the Court held that the disputes raised by the Plaintiffs were duly covered under Clause 15.2 of the Facility Agreement. Thus, the parties to the suit were referred to arbitration for adjudication of dispute in terms of Clause 15.2 of the Facility Agreement dated 25.07.2023. Accordingly, the Plaintiffs application for interim order was rejected and the application by Defendants for referring the dispute to arbitration was allowed. Case Title – Sunita Gupta v Ms URGO Capital Limited & Ors. For Plaintiffs – Mr. Chayan...

Plea Against Misuse Of Digital Signature Does Not Amount To Denying Existence Of Arbitration Agreement: Calcutta High Court

Arpita Pande

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