Tax Invoices Stating Arbitration Clause Binds Parties To Arbitration: Delhi High Court Refers Parties To Arbitration

“In the present case, the parties have a running account which is not in dispute. Two purchase orders may have been placed by the Respondent and various invoices may have been issued by the Petitioner. These invoices clearly state that the terms and conditions listed at the back are applicable. Considering that the parties are in regular business dealings with each other, it cannot be said prima facie that the rear of the invoice was not supplied to the Respondent.”

Brief Facts:

The Petitioner approached the Delhi High Court (“High Court”) under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the appointment of a sole arbitrator to resolve disputes with the Respondent, M/s Jonson Rubber Industries Ltd. This recourse to arbitration stemmed from the terms and conditions outlined in purchase orders dated 26th December, 2019, and 27th December, 2019, where clause 22 specifically provided for arbitration.

The Petitioner asserted that it sold 'Belting Fabric Material' to the Respondent based on the mentioned purchase orders, issuing seven separate invoices in February 2020 amounting to Rs. 50,71,455.26/-, along with an additional Rs. 86,428/- for accrued interest and GST liabilities. After issuing a legal demand notice on 15th June, 2022, the Petitioner invoked the arbitration clause under Section 21 of the Arbitration Act on 2nd May, 2023, as per the stipulations of clause 22 in the invoices.

On the other hand, Respondent contended that a valid arbitration agreement does not exist between the parties. The Respondent's objection was based on the jurisdiction clause within the purchase orders, specifying Delhi courts as the sole jurisdiction for dispute resolution. According to the Respondent, consensus ad idem exists only concerning this jurisdiction clause, not the arbitration clause in the invoices. Additionally, the Respondent claimed that the invoices, containing the arbitration clause on their reverse side, were not properly received, and the purchase orders take precedence over subsequently raised invoices.

Furthermore, the Respondent argued that the invoices do not bear any indication of terms and conditions on their reverse side, as evidenced by the presence of 'Page 1 of 1' on the invoices. The absence of the Respondent's signature on the alleged 'general terms and conditions of sales' supported the contention that no agreement was reached on the arbitration clause. The Respondent denied agreeing to any terms beyond those explicitly outlined in the purchase orders.

The Respondent further challenged the validity of the invoices, highlighting discrepancies in the Petitioner's adherence to its own stipulated terms and conditions. Specifically, the Respondent disputed the levying of interest charges by the Petitioner, arguing that they deviate from the agreed-upon terms outlined in the invoices.

In response, Petitioner emphasized that all terms and conditions, including the arbitration clause, were contained within the invoices themselves. The phrase 'general terms and conditions given overleaf' indicated that all relevant terms, including arbitration, were included in the invoice.

Observations of the High Court:

The High Court analyzed the provisions of the Arbitration Act, particularly Section 2(1)(b), which defines an arbitration agreement, emphasizing that it must stem from a consensus between the parties to submit disputes to arbitration. Moreover, the High Court noted the requirements outlined in Sections 7(2) and (3) regarding the form and content of arbitration agreements, emphasizing that the agreement must be in writing and contained in a document signed by the parties or through other means of communication providing a record of the agreement. However, the Arbitration Act does not prescribe a specific format for the arbitration clause, focusing instead on the parties' agreement to arbitrate.

The High Court referred to the precedent set by the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1], highlighting that unless a party demonstrates a prima facie case of the non-existence of a valid arbitration agreement, disputes are to be referred to arbitration under Sections 8 and 11 of the Arbitration Act. Thus, the burden lies on the party alleging the absence of a valid arbitration agreement to establish a strong case against its existence.

Drawing from previous judgments like Swastik Pipe Ltd. v. Shri Ram Autotech Pvt. Ltd. and Swastik Pipe Ltd. v. Dimple Verma, the High Court emphasized that the acceptance of invoices containing arbitration clauses without dispute binds parties legally to arbitration.

The High Court noted the ongoing business relationship between the parties, including a running account and the issuance of various invoices. It highlighted that the invoices explicitly stated the applicability of terms and conditions listed on their reverse side. Moreover, the purchase orders contained a jurisdiction clause under the heading 'Jurisdiction for Arbitration/Dispute,' indicating an intention to arbitrate disputes, albeit with Delhi as the specified jurisdiction.

Given these circumstances, the High Court found the objections raised by the Respondent untenable. Consequently, the matter was referred to the Delhi International Arbitration Centre (DIAC) for the appointment of an arbitrator in accordance with applicable rules.

Case Title: Srf Limited Vs Jonson Rubber Industries Limited.

Citation: 2024 LiveLaw (Del) 343

Case Number: ARB.P. 854/2023.

Advocate for the Petitioner: Mr Surendra Kumar, Advocate.

Advocate for the Respondent: Mr. Rahul Kripalani, Mr. Aditya Pratap Singh Chauhan, Advs.