Arbitration Clause In Invoices Can Be Binding On Parties When They Acted Upon The Invoices And No Objections Were Raised: Bombay HC

Background Facts and Issue

The Respondent had availed of services of the Petitioner for outdoor advertisements on hoardings. The Petitioner made a claim for outstanding payments owed by the Respondent for such services. The Petitioner invoked arbitration by a notice dated August 22, 2023.

The present application was filed for appointment of an arbitrator under Section 11, Arbitration and Conciliation Act, 1996 and a petition was filed under Section 9, Arbitration and Conciliation Act. The short question for the consideration of the court was whether the parties had executed an arbitration agreement.

Contentions

The Counsel for the Petitioner submitted that the arbitration agreement is contained in the invoices raised by the Petitioner on the Respondent. These invoices were raised by the Petitioner on the Respondent during the period between February 2018 and June 2019 and each of the invoices contained an arbitration clause.

The Petitioner submitted that invoices had been raised and acted upon because the services had been accepted; monies had been paid on the basis of the invoices; tax had been deducted at source on most of the invoices and each of the invoices bore an endorsement or seal of the Respondent.

The Counsel for the Respondent objected to such invocation on multiple grounds inter alia that the arbitration agreement did not exist and that an arbitration clause in an invoice could not constitute an arbitration agreement. It was further submitted that for each piece of service provided by the Petitioner, a letter of confirmation was issued and that document did not contain an arbitration clause.

The Respondent further contended that such a clause would at best be a unilateral reference to arbitration and the parties could not be said to be ad idem in referring their disputes to arbitration.

Observations

The Court observed that prima facie, the relationship between the parties was governed by exchange of correspondence and documentation ranging from letter of confirmation to the invoices. The invoices were accepted and partly paid for, without challenging the arbitration clause in them. The Court noted that the Respondent had multiple opportunities to raise objection to the arbitration clause but did not do so. Even if the invoices were received subject to verification, they were paid for without any protest about the arbitration agreement.

The Court observed that the invoices formed an integral part of the documentation executed by the parties and the fact that cheques were issued on these very invoices was prima facie an adequate indication of the invoices having been accepted. Such invoices containing arbitration clause would point to the condition relating to the arbitration being accepted. It was only later when the disputes emerged that the Respondent took a stance that there was no arbitration agreement in place.

The Court relied on its previous judgment in Bennett Coleman & Co. Ltd. v. MAD (India) Pvt. Ltd. – 2022 SCC OnLine Bom 7807, that where the parties had acted upon the invoices and there was no denial of invoices raised by the applicant, the clause contained in the invoices which clearly stipulated a reference to arbitration, deserved to be construed as an arbitration clause.

The Court observed that in view of the settled position of law with respect to the scope of inquiry under Section 11, its examination was limited to a prima facie existence of a formal arbitration agreement which was satisfied in the present case.

Accordingly, the Court appointed Mr. Cyrus Bharucha, Learned Advocate of the Bombay High Court as the sole arbitrator to adjudicate upon the disputes between the parties. The Court further directed that the Section 9 Petition shall be treated as an application under Section 17 by the arbitral tribunal appointed hereby.

Case Title: Sanjiv Mohan Gupta v. Sai Estate Consultants Chembur Pvt. Ltd. (Commercial Arbitration Application No. 458 of 2024 along with Commercial Arbitration Petition No. 29862 of 2023)

Citation: 2025 LiveLaw (Bom) 94

Appearance:

Petitioner - Mr. Nirman Sharma, a/w Krushang Kedia, i/b Girish Kedia, Advocates

Respondent - Mr. Dharam Jumani, a/w Suraj Iyer, Mr. Mihir Nerurkar, Gauri Joshi, i/b Ganesh & Co., Advocates

Click Here To Read/Download The Order