Si3D Systems Pvt. Ltd. And Anr vs Technology Development Board ...
2016 Latest Caselaw 5628 Del

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*    IN THE HIGH COURT OF DELHI AT NEW DELHI
+    O.M.P. (COMM) 395/2016
     SI3D SYSTEMS PVT. LTD. AND ANR             ..... Petitioner
                    Through: Mr Gaurav Ghosh, Advocate.
                    versus
     TECHNOLOGY DEVELOPMENT BOARD
     (TDB)                                           ..... Respondent
                    Through: Mr Neeraj Jain, Advocate for
                               TDB/respondent.
                               Mr Jasmeet Singh, CGSC with Ms
                               Gayatri Aryan, Advocate for UOI.
     CORAM:
     HON'BLE MR. JUSTICE VIBHU BAKHRU
                    ORDER

     %              29.08.2016
VIBHU BAKHRU, J
IA No.10396/2016 (exemption)
1.    Allowed, subject to all just exceptions.
O.M.P. (COMM) 395/2016 & IA No.10395/2016(stay)

2. The petitioners have filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter 'the Act'), inter alia, impugning the award dated 20.05.2016 (hereafter 'the impugned award') passed by Justice M A Khan (Retd.), the sole arbitrator.

3. The petitioner no.1, Si3d Systems Pvt. Ltd. (hereafter 'SSPL'), is a private company engaged in the business of designing and manufacturing of Converged Communications Appliances which converge major IT requirements of multi-user offices, residential buildings, etc. into a single system. The respondent, Technology Development Board (hereafter 'TDB'), is a body incorporated and constituted under the Technology Development

Board Act, 1995 for assisting and disbursing loans to the companies and organizations engaged in development and commercialization of indigenous technologies and adaptation of imported technologies for wider domestic applications.

4. SSPL entered into a Loan Agreement dated 29.10.2013 with TDB for availing loan for part financing of the project titled 'Commercialization of Converged Enterprise Communication System for Small and Medium Enterprises (SME)' (hereinafter 'the Project'). In terms of the said Loan Agreement, TDB agreed to provide financial assistance of ` 4.00 Crore for setting up the project. The loan was to be provided in four instalments, as specified in the said agreement. Thereafter, the said parties entered into a Supplementary Agreement on 02.01.2014 whereby the sanctioned amount of ` 4.00 Crore was reduced to ` 3.00 Crore and consequently, the repayment schedule was restructured.

5. Thereafter, pursuant to the Supplementary Agreement, the first instalment of the aforesaid loan of a sum of ` 1.20 Crore was disbursed by TDB to SSPL. SSPL applied for enhancement of the loan amount from Rs. 3.00 Crores to 5.00 Crores and a Project Evaluation and Monitoring Committee (hereafter 'PEMC') was constituted to evaluate the proposal. It is stated that despite PEMC's recommendation dated 14.04.2014 qua the said project being on stream, no amounts were further disbursed to SSPL.

6. TDB issued a Show Cause Notice dated 02.01.2015 followed by a letter dated 01.04.2015 seeking confirmation of outstanding loan. Apparently, there were certain issues regarding utilisation of funds; it was

alleged that the TIN numbers on certain invoices for the expenditure were not genuine and the parties from whom purchases were alleged to have been made had not disclosed the same. SSPL replied to the Show Cause Notice by a letter dated 16.03.2015. Thereafter, SSPL approached this Court by way of a Writ Petition (W.P.(C) No.5018/2015), inter alia, praying that TDB be directed to disburse the entire loan as per the Supplementary Agreement dated 02.01.2014. The said petition was disposed of by directing TDB to consider the reply to the Show Cause Notice.

7. TDB considered the reply furnished by SSPL and sent a letter dated 15.06.2015 terminating the agreements and called upon SSPL to pay a sum of ` 1,28,58,082/- including interest amounting to ` 8,58,082/- due as on 15.06.2015.

8. Since, the disputes had arisen in relation to the said agreements, TDB invoked the arbitration clause by its letter dated 07.08.2015 and appointed the arbitrator. TDB filed the claim seeking recovery of ` 1,30,83,288/- towards principal and interest. TDB further claimed pendente lite and future interest.

9. SSPL also filed counter claim, inter alia, claiming loss on account of non-disbursal of the loan amount, as agreed. In the meantime, SSPL also filed another writ petition (W.P.(C) No. 6096/2015), which was disposed of on 04.04.2016, keeping all rights and contentions of the parties open.

10. The arbitrator considered the rival claims and passed the impugned award for a sum of ` 1,30,83,288/- in favour of TDB along with interest at the rate of 10 per cent per annum from the date of the award till realisation.

The arbitrator also awarded cost of ` 50,000/- in favour of TDB.

11. Mr Gaurav Ghosh, the learned counsel appearing on behalf of SSPL urged that the impugned award is liable to be set aside mainly on two grounds. First, the disputes adjudicated by the arbitrator were not arbitrable; and second, that the impugned award is perverse as it proceeds on a patently erroneous finding that SSPL has admittedly diverted a sum of ` 37.50 Lacs out of the sum of `1.20 crores disbursed by TDB for purposes other than for which the amount was disbursed.

12. In so far as the first ground is concerned, the learned counsel relied on clause 4.5 of the Loan Agreement which provides that the decision of the monitoring committee regarding successful completion or failure of the project shall be final and binding upon the borrower. He submitted that in the present case, PEMC had submitted the report to the TDB recommending the disbursal of further loan amount. The learned counsel submitted that the aforesaid decision was binding in terms of the Loan Agreement and further also one of the excepted matters which was outside the scope of the arbitration clause.

13. Next, he submitted that the impugned award was perverse as the arbitrator had proceeded on the assumption that SSPL had admitted to diverting a sum of ` 37.50 Lacs out of the total sum of ` 1.20 Crore disbursed by TDB to Indian Overseas Bank (hereafter 'IOB') for regularisation of its account, which had been classified as a Non-performing asset (NPA); and, therefore, had held that SSPL had diverted a part of the loan amount for purposes other than the project and thereby breached the

terms of the Loan Agreement. The learned counsel submitted that the finding of the arbitrator was patently erroneous as SSPL had never diverted the sum of ` 37.50 Lacs, as held by the arbitrator.

14. Mr Jasmeet Singh, learned counsel appearing on behalf of TDB, countered the submissions advanced by Mr Ghosh. He referred to the Statement of Defence (hereafter 'the SOD') filed by SSPL before the arbitrator and drew the attention of this Court to paragraph no.10.1 sub-para 15 thereof. In the said paragraph, SSPL had averred that since further disbursal of the loan had not been made by TDB, the project had been delayed and consequently, SSPL was unable to pay its dues to IOB. He also referred to paragraph no. 10.1 sub-para 11 of the SOD wherein SSPL stated that it had paid a sum of ` 37.50 Lacs to IOB to regularise its account. He stated that the allegations that SSPL had diverted ` 37.50 Lacs out of the loan disbursed by TDB for payment to IOB was never disputed by SSPL before the arbitrator.

15. I have heard the learned counsels for the parties.

16. In order to address the controversy as to whether the disputes raised by TDB were arbitrable - it is necessary to refer to the arbitration clause, the relevant extract of which reads as under:-

"11.1 If any dispute or difference arises between the Parties hereto as to the rights or liabilities or any claim or demand of any Party against other or to the construction, interpretation, effect and implication of any provision of this Agreement or in regard to any matter under these presents but excluding any matters, decisions or determination of which is expressly provided for in this Agreement, such disputes or differences shall be referred to the sole

arbitration of the Chairperson, Technology Development Board or that of his nominee and the decision of such arbitrator shall be conclusive and binding on the Parties hereto. ....."

17. It is apparent from the above that any matter, the determination of which is expressly provided for under the Loan Agreement would be outside the scope of arbitration. Thus, the issue to be addressed is whether the Loan Agreement provides for determination of the matters relating to the disbursement of the loan and/or recalling of the loan; and whether in terms of the Loan Agreement, such determination is final and binding on the parties. According to SSPL, the said disputes are within the scope of the determination by the monitoring committee - in this case PEMC - in terms of clause 4.5 of the Loan Agreement. The said clause reads as under:-

"4.5 The decision of the Monitoring Committee/Board regarding successful completion or failure of the project shall be final and binding on the Borrower.

18. In my view, the contention that the disputes raised by TDB were covered under the aforesaid clause (clause No.4.5 of the Loan Agreement) is devoid of any merits. First of all, the report dated 14.04.2014 submitted by PEMC is a report as to the evaluation of the project and the same cannot be read as a decision regarding successful completion or failure of the project as contemplated under clause 4.5 of the Loan Agreement. Secondly, PEMC had merely made a recommendation as to the further disbursal of loan and it was for TDB to take a decision on it; the said report is in the nature of a recommendation and not a decision. More importantly, it is not within the scope of powers of the monitoring committee to disburse or recall loans.

19. Insofar as the issue regarding diversion of part of the loan is concerned, it is relevant to note that SSPL does not dispute that utilisation of funds disbursed by TDB for payment of its dues to IOB, would amount to diversion of the funds for the purposes other than for the project and would be a breach of clause 5.1(c) of the Loan Agreement, which expressly provides that the amount of the loan assistance will be used strictly for the purpose of the project and not for any other purpose. During the course of arguments, this was clarifed by Mr. Ghosh on being pointedly asked to do so. Thus, the only question to be considered is whether, in fact, SSPL had paid a sum of ` 37.50 lacs out of the loan disbursed by TDP, to IOB.

20. The finding of the arbitrator that a sum of ` 37.50 Lacs out of the total sum of ` 1.20 Crore disbursed by TDB, was diverted as repayment of the dues to IOB is a finding of fact. And, it is well settled that unless such findings are perverse or not supported by any material at all, the same cannot be interfered with in proceedings under Section 34 of the Act (see Associated Builders v. Delhi Development Authority : (2015) 3 SCC 49).

21. SSPL is correct in its contention that although the arbitrator has proceeded on the basis that SSPL had admittedly diverted a sum of ` 37.50 Lacs, SSPL had not made an unequivocal admission to that effect in its SOD. Notwithstanding the same, it is apparent that before the arbitrator, SSPL had also not disputed TDP's allegation to the aforesaid effect; on the contrary - as pointed out by the learned counsel for TDB - the averments made by SSPL in its SOD does give an impression that at least a part of the loan availed from TDB was utilised in repaying the dues of IOB.

22. More importantly, SSPL had also not produced any material before the arbitrator - nor has it done so in these proceedings - which would indicate that the aforesaid finding is wrong. SSPL could have produced the bank statements which would clearly indicate the utilisation of ` 1.20 Crore as disbursed by TDB. However, SSPL has not produced any document or material, which would indicate that the finding of the arbitrator that a part of the funds disbursed by TDB had been diverted to repay the dues owed to IOB, is erroneous.

23. At this stage, it is also necessary to state that the scope of interference under Section 34 of the Act is limited and in the given circumstances, I am unable to accept that the impugned award is liable to be set aside as being in conflict with the public policy of India or deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or the subject-matter of the dispute is not capable of settlement by arbitration.

24. The petition and miscellaneous application is accordingly dismissed.

VIBHU BAKHRU, J AUGUST 29, 2016 M