Safiya Malik

The High Court at Calcutta Commercial Division Single Bench of Justice Krishna Rao on September 11, 2025, referred the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, in a dispute over a ₹2 crore facility agreement executed with digital signatures. The plaintiffs had sought to declare the agreement void, alleging that their digital signatures were misused without consent. The Court observed that such allegations of fraud do not negate the existence of the arbitration agreement, and held that the claims fall within Clause 15.2, thereby dismissing the suit and directing arbitration.

The matter arose when the plaintiffs sought cancellation and declaration of a facility agreement dated 25 July 2023, contending that their digital signatures had been misused without their consent. The plaintiffs are related to one Bhagat Ram Gupta (deceased). Plaintiff no. 3 is one of his sons, plaintiff no. 2 is the wife of plaintiff no. 3, and plaintiff no. 1 is the wife of one of Bhagat Ram Gupta’s brothers. They had shifted their businesses to Hyderabad and Ghaziabad, while the defendant no. 3 was separately engaged in business operations.

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The plaintiffs alleged that the defendant no. 3, who historically assisted them in filing accounts, had misused their digital signatures by obtaining One Time Passwords (OTPs) ostensibly for filing purposes, and applied those signatures without consent on the loan facility agreement with defendant no. 1, UGRO Capital Limited. Upon being served with an application under Section 9 of the Arbitration and Conciliation Act, 1996 in December 2023, the plaintiffs claimed to have discovered their names being reflected as co-borrowers for a loan of Rs. 2,00,00,000/- sanctioned to defendant no. 3.

The plaintiffs contended that they had never signed any loan agreement, had no privity with the transaction, and were not beneficiaries of the loan. They alleged fraud, asserting that the defendants fabricated documents using their digital signatures without consent. They sought reliefs including a declaration that the agreement was null and void, an injunction against the defendants from portraying them as defaulters, and a direction upon CIBIL to remove their names from default listings.

On behalf of the plaintiffs, Mr. Chayan Gupta argued that the arbitration clause was not binding since they were not parties to the agreement. He submitted that “the plaintiffs have no privity with the alleged transaction and are not bound by the alleged document dated 25th July, 2023.” He further stated that the arbitration tribunal cannot declare the agreement null and void and that the involvement of CIBIL, a non-party to the arbitration agreement, prevented reference to arbitration.

In opposition, counsel for defendant no. 1, Mr. Swatarup Banerjee, maintained that the loan facility agreement was validly executed by all parties, including the plaintiffs, through digital signatures. He argued that the plaintiffs were co-applicants and bound by the arbitration clause in Clause 15 of the agreement. He submitted that “the allegations of fraud, which has been stated in the plaint clearly demonstrates that the plaintiffs do not dispute the agreement per se being invalid or not in existence but alleges that the plaintiff’s digital signatures have been obtained by fraud.” He further argued that the plaintiffs’ claims, including removal of their names from CIBIL records, could be adjudicated in arbitration.

Defendant no. 1 referred to the sanction letter of 25 July 2023, where the plaintiffs’ names were recorded as co-applicants, and to repayment documents filed by defendant no. 3 admitting partial repayment. Mr. Banerjee relied upon the Supreme Court judgement in Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited (2021) 4 SCC 713 to submit that mere allegations of fraud do not bar arbitration proceedings.

The plaintiffs, however, relied upon Vingro Developers Pvt. Ltd. v. Nitya Shree Developers Pvt. Ltd., 2024 SCC OnLine Del 486, contending that they were not beneficiaries of the loan and signatures obtained without consent could not make them parties to arbitration.

The Court recorded: “The contention raised by the plaintiffs that the plaintiffs have not executed any agreement but the defendant no.3 misused the OTP provided by the plaintiffs and used the digital signatures of the plaintiffs in the said agreement without the consent of the plaintiffs.”

The Court observed that the sanction letter dated 25 July 2023 included the plaintiffs’ names as co-applicants. It noted that in the earlier Section 9 proceedings, defendant no. 3 had admitted repayment of Rs. 2,00,00,000/-, though an amount of Rs. 99,44,000/- remained unpaid.

Citing Avitel Post Studioz, the Court stated: “Once there is an arbitration agreement between the parties, a judicial authority before whom an action is brought covering the subject-matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract.” The Court further recorded the principle that “a mere allegation of fraud will [not] exclude arbitrability. The burden must lie heavily on a party which avoids compliance with the obligation assumed by it to submit disputes to arbitration to establish the dispute is not arbitrable under the law for the time being in force.”

Justice Rao observed that the plaintiffs had not initiated criminal proceedings for fraud against the defendants, despite alleging unauthorized use of digital signatures. The Court noted: “The stand taken by the plaintiffs that the defendants have frequently and without the consent of the plaintiffs obtained the digital signatures of the plaintiffs and the plaintiffs are not the beneficiaries of the loan can be raised before the arbitrator.” On the issue of CIBIL being arrayed as defendant no. 2, the Court stated that any removal of names as defaulters could follow automatically upon a favorable arbitral award.

Accordingly, the Court held: “Considering the above, this Court finds that the disputes raised by the plaintiffs are duly covered under Clause 15.2 of the Facility Agreement.”

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Justice Krishna Rao directed: “Thus the parties to the suit are referred to arbitration for adjudication of dispute in terms of Clause 15.2 of the Facility Agreement dated 25th July, 2023.”

“G.A. (Com) No. 2 of 2025 is allowed. G.A. (Com) No. 1 of 2025 along with C.S. (Com) No. 55 of 2025 are accordingly dismissed.”

Advocates Representing the Parties

For the Plaintiffs: Mr. Chayan Gupta, Mr. Tanay Agarwal, Mr. Shivam Bhimsaria, Ms. Akansha Singhania

For the Defendants: Mr. Swatarup Baneerjee, Mr. Paritosh Sinha, Mr. K.K. Pandey, Mr. Zeeshan Haque, Ms. Pooja Sett, Ms. Sonia Nandy, Ms. Mallika Bothra

Case Title: Sunita Gupta and Ors. v. M/s. UGRO Capital Limited and Ors.
Case Number: C.S. (Com) No. 55 of 2025 with G.A. (Com) Nos. 1 and 2 of 2025
Bench: Justice Krishna Rao