Arbitration Clause Contained In The Tax Invoice Is Binding When The Terms And Conditions Of The Invoice Were Accepted And Acted Upon: Calcutta High Court
The High Court of Calcutta has held that an arbitration clause contained in a tax invoice would be binding on the parties when the terms and conditions contained therein were accepted and acted upon by the parties. The bench of Justice Shekhar B. Saraf held that when a party accepts an invoice incorporating a clearly visible arbitration clause and subsequently acts in accordance with...
The High Court of Calcutta has held that an arbitration clause contained in a tax invoice would be binding on the parties when the terms and conditions contained therein were accepted and acted upon by the parties.
The bench of Justice Shekhar B. Saraf held that when a party accepts an invoice incorporating a clearly visible arbitration clause and subsequently acts in accordance with it, the said party cannot later argue the absence of a valid arbitration clause. It also laid down conditions which an arbitration clause contained in a tax invoice has to fulfil for it to be considered valid and binding.
The Court also held that an arbitration clause need not be in any particular form, however, the intention of the parties to arbitrate must be clear and absolute. It held that an arbitration clause can be in myriad shapes and forms and it will be deemed valid as long as the intention of the parties is present. Further, it held that the words used in a clause must be the words of ‘choice’ and not of mere ‘possiblity’.
Facts
The petitioner, a company incorporated under the Companies Act, 1956, was involved in the production, sale, and distribution of desktops, laptops, and computer accessories. The respondent, in turn, approached the petitioner to supply various information technology-related products, and after negotiations, an agreement was reached for the respondent to act as the vendor, providing necessary components.
Throughout their business relationship, the petitioner placed orders amounting to INR 54,64,78,823.70. However, disputes arose due to alleged delays in the supply of ordered components by the respondent, impacting payments. Subsequently, on August 21, 2014, the respondent sent an arbitration notice to the petitioner, claiming an amount of INR 1,30,46,250 and nominating Sh. K. Balasubramanium as the arbitrator.
The arbitrator, on May 25, 2018, issued an award directing the petitioner to pay the respondent INR 1,06,01,817 along with interest at 18% per annum. In response, the petitioner filed an application challenging the arbitral award dated May 25, 2018, under Section 34 of the Act before the court.
Contention of the Parties
The petitioner challenged the award on the following grounds:
- That the award lacked jurisdiction as there was no valid arbitration agreement. An arbitration clause on the invoice's overleaf, unsigned by the petitioner, did not constitute a conclusive contract.
- That the arbitrator acted with material irregularity and patent illegality by deciding on the merits without addressing the arbitration agreement's validity.
- That the arbitrator acted unilaterally and in a biased manner, conflicting with public policy. The petitioner highlighted delay-related disputes and asserted that the arbitrator ignored valid objections.
- That the Section 21 notice lacked validity as it did not refer to the arbitration clause.
- That the arbitration clause on the backside of invoices was not valid, and jurisdiction was in Kolkata as per the purchase order.
The respondent made the following counter-arguments:
- That clause 19 in the invoices, consistent over the years, specified arbitration in Chennai with exclusive jurisdiction for all cases, therefore, the petition is not maintainable before the Court as it does not have the territorial jurisdiction to decide the dispute.
- That the arbitration clause in invoices, even without a formal agreement, constituted a valid arbitration agreement.
- That invoices, when accepted without dispute, become binding.
- That the unilateral appointment of the arbitrator was legal, relying on Perkins Eastman Architects DPC And Anr. -v- HSCC (India) Limited and Ellora Paper Mills Limited -v- State of Madhya Pradesh.
Analysis by the Court
The Court held that an arbitration clause contained in a tax invoice would be binding on the parties when the terms and conditions contained therein were accepted and acted upon by the parties.
The Court held that when a party accepts an invoice incorporating a clearly visible arbitration clause and subsequently acts in accordance with it, the said party cannot later argue the absence of a valid arbitration clause. It also laid down the following conditions which an arbitration clause contained in a tax invoice has to fulfil for it to be considered valid and binding:
“a. Terms and conditions contained in an invoice, including the arbitration clause, must be displayed in a prominent and intelligible format. If the said terms and conditions, including the arbitration clause, are printed on the overleaf of the invoice/sales receipt, there must be a declaration to that effect on front of the invoice/sales receipt.
b. The buyer, or the person receiving the tax invoice/sales receipt must explicitly consent to the arbitration clause. In case of any disagreement with the arbitration clause contained in the tax invoice/sales receipt, the buyer or the person receiving it must register their protest with the seller within a reasonable period of time.
c. If the buyer accepts the delivery of goods based on a tax invoice/sales receipt, without registering any protest against the arbitration clause contained within such a tax invoice/sales receipt within a reasonable period of time, then it could be inferred that the buyer has consented to the arbitration clause contained in the tax invoice/sales receipt.
d. In a case, where the invoice/sales receipt containing the arbitration clause does not bear the signature of the buyer, consent can also be gauged from the fact whether or not the parties have acted on such invoices or not. If the answer to said question is in affirmative, then parties will be bound by terms and conditions contained in the invoice/sales receipt.”
The Court also held that an arbitration clause need not be in any particular form, however, the intention of the parties to arbitrate must be clear and absolute. It held that an arbitration clause can be in myriad shapes and forms and it will be deemed valid as long as the intention of the parties is present.
Next, the Court dealt with the objection regarding the maintainability of the petition. The Court observed that Clause 19 of the invoice confers exclusive jurisdiction on the Courts at Chennai, moreover, the seat of arbitration is also declared to be Chennai.
The Court held that an exclusive jurisdiction clause within the arbitration agreement would override a generic jurisdiction clause contained in another agreement between the parties.
The Court held that the moment an arbitration clause confers exclusive jurisdiction on the Court at a particular place or the seat of arbitration is declared, it would mean that all other Courts would not have the jurisdiction to entertain any petition arising out of the arbitration agreement. Accordingly, the Court rejected the argument by the petitioner that since the purchase order conferred jurisdiction on the Courts at Kolkata, the Court would have jurisdiction. It held that by virtue of Section 19 of the tax invoice, the petition was not maintainable for want of territorial jurisdiction.
Case Title: R.P. Infosystems Pvt Ltd v. Redington (India) Limited, AP 626 of 2018
Date: 16.11.2023
Counsel for the Petitioner: Mr. Subhankar Bag, Adv. Mr. Dwaipayan Basu Mullick, Adv. Mr. Sk. Md. Wasim Akram, Adv.
Counsel for the Respondent: Mr. Sandip Kumar De, Adv. Mr. Abhijit Sarkar, Adv. Mr. Abhik Chitta Kundu, Adv