Kiran Raj

The Delhi High Court has appointed a sole arbitrator to adjudicate the disputes between Originet Technologies Ltd. and the Technology Development Board (TDB) under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court rejected the respondent’s objections regarding limitation, ruling that such matters should be determined by the arbitral tribunal. The dispute arises from a loan agreement and a deed of personal guarantee dated July 18, 2012, under which financial assistance of INR 960 lakhs was sanctioned for the development and commercialization of nuclear radiation monitoring systems.

The petition was filed by Originet Technologies Ltd. and others, seeking the appointment of an arbitrator due to disputes arising from a loan agreement executed on July 18, 2012. The agreement sanctioned a loan of INR 960 lakhs in four tranches:

• INR 300 lakhs (first tranche) disbursed on August 2, 2012

• INR 350 lakhs (second tranche) disbursed on October 24, 2013

• INR 260 lakhs (third tranche)

• INR 40 lakhs (fourth tranche)

To fulfill the conditions for the first tranche, petitioner nos. 2 and 3 executed a deed of personal guarantee in favor of TDB. A supplementary agreement dated October 18, 2013, extended certain deadlines. The dispute arose when the third tranche was not disbursed for 2.5 years, despite a favorable recommendation from the Project Monitoring Committee (PMC) following an inspection on July 26, 2014. The petitioners submitted multiple reminders, and after a re-inspection by a Review Committee, the funds were still withheld.

In response to the delays, the petitioners escalated the matter to the Minister of Science and Technology through a representation on August 10, 2015. The respondent, instead of addressing the concerns, demanded loan repayment through letters dated August 21, 2015, and October 26, 2015. Subsequently, a Dispute Resolution Committee (DRC) was constituted on November 23, 2015, which approved an extension of the project completion date and a moratorium on repayment. These changes were formalized in a supplementary agreement on March 28, 2016, after which the third tranche was disbursed on March 30, 2016. The fourth tranche was disbursed following another supplementary agreement dated October 19, 2016.

The petitioners argued that the 2.5-year delay in disbursing the third tranche caused severe financial distress, increased the project cost by INR 155 lakhs, and led to client attrition, resulting in a loss of projected sales amounting to INR 2,564 lakhs in the first two years. On December 18, 2019, the petitioners sought a loan restructuring under the TDB Rules, 1996. A Dispute Resolution Committee in August 2020 acknowledged the delay but provided limited repayment options. The petitioners opted for deferred payments, but in March 2021, an Expert Committee imposed additional conditions, delaying a final resolution.

Between June 2021 and September 2023, the respondent did not decide on the restructuring proposal. Repeated letters from the petitioners in October and November 2023 went unanswered. On February 12, 2024, the respondent rejected the proposal without considering the previous recommendations. On March 15, 2024, the respondent issued a notice invoking the personal guarantees of petitioner nos. 2 and 3. In response, the petitioners sent legal notices reiterating their financial losses and seeking damages amounting to INR 68 crores.

When the respondent did not address their claims, the petitioners invoked arbitration on May 22, 2024, and June 12, 2024, under Clause 11 of the loan agreement and Clause 21 of the deed of personal guarantee. The respondent, instead of initiating arbitration, issued demand notices under the Insolvency and Bankruptcy Code, 2016, to commence insolvency proceedings against the petitioners.

The respondent objected to the arbitration petition, arguing that the claims were time-barred under Article 137 of the Limitation Act, 1963, since they were based on losses due to a delayed loan disbursement reported by the PMC on July 26, 2014, while the claims were raised only in 2024. The respondent relied on Supreme Court judgments in B&T AG v. Ministry of Defence (2024) 5 SCC 358 and BSNL v. Nortel Networks (India) (P) Ltd. (2021) 5 SCC, which held that time-barred claims are not arbitrable.

The court rejected these objections, citing the Supreme Court’s ruling in SBI General Insurance Co. Ltd. v. Krish Spinning 2024 SCC OnLine SC 1754, which clarified that the role of the referral court under Section 11 of the Arbitration Act is limited to verifying the existence of an arbitration agreement. The court recorded, "The scope of the present proceedings is confined to ascertaining the existence of the arbitration agreement, as explicitly stated by the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning."

It further observed that "At the stage of appointing an arbitrator, courts must not engage in a detailed evidentiary inquiry to determine whether the claims are time-barred; such issues are to be left for determination by a duly constituted arbitral tribunal, in line with Section 11(6-A) of the Act."

The court also referred to Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020) 20 SCC 760 and TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC 377, holding that the arbitration agreement clause providing for arbitration by the Chairperson of TDB or their nominee was not a valid stipulation.

The Delhi High Court appointed Justice (Retd.) Hrishikesh Roy, Former Judge, Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the parties under the loan agreement and the deed of personal guarantee. The court directed that:

• The reference under both agreements shall be independent, though the same arbitrator has been appointed due to the common subject matter.

• The arbitrator may conduct common sittings and allow common evidence for convenience.

• The respondent may raise objections regarding limitation and jurisdiction before the arbitrator.

• The arbitrator shall proceed after furnishing the requisite disclosure under Section 12 of the Arbitration and Conciliation Act, 1996.

• The arbitrator shall fix fees in consultation with the parties.

The court recorded, "All rights and contentions of the parties in relation to the claims/counter-claims are kept open, to be decided by the learned arbitrator on their merits, in accordance with law."

The petition was accordingly disposed of.

Case Title: Originet Technologies Ltd. & Ors. v. Technology Development Board
Case Number: ARB.P. 1285/2024
Bench: Justice Sachin Datta

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