Invoices Containing Arbitration Clauses Which Show Mutual Acceptance Are Prima Facie Arbitration Agreement: Delhi High Court

Brief Facts:

M/s Dhawan Box Sheet Containers Pvt Ltd (Petitioner), a manufacturer and supplier of corrugated boxes and packaging materials, argued that despite supplying goods under invoice terms, M/s SEL Manufacturing Co Ltd (Respondent) has defaulted on full payment. In response to a legal notice, demanding payment of Rs. 1,25,80,425/- and invoked arbitration. Thereafter, the Petitioner nominated an arbitrator for resolution.

In contestation, the Respondent disputed the existence of a valid arbitration agreement. Consequently, the Petitioner approached the Delhi High Court for appointment of arbitrator.

Observations by the High Court:

The High Court deliberated on whether an arbitration clause contained within an invoice could satisfy the requirements under Section 7 of the Arbitration and Conciliation Act. Counsel for the petitioner, Mr. Malhotra, relied on two precedents from this Court—and Swastik Pipe Ltd. v. Ms. Dimple Verma. In both instances, arbitrators were appointed based on similar invoice clauses.

The High Court referred to the decision of the Supreme Court in Swastik Pipe Ltd. v. Shri Ram Autotech Pvt. Ltd. ("Swastik Pipe -1") where it was held that if the invoices with arbitration clauses were acted upon, demonstrating mutual acceptance, an arbitration agreement could be inferred. However, the Supreme Court noted that it has limited jurisdiction under Section 11 of the Arbitration Act which makes it necessary to do prima facie determination of the arbitration agreement's existence.

The High Court also referred to Vidya Drolia v. Durga Trading Corpn. and reiterated that in cases of doubt regarding the arbitration agreement's existence, the default is to refer the matter to arbitration.

The High Court noted that the invoices issued by the Petitioner between June 2021 and September 2023 included terms specifying arbitration in Delhi. These invoices were signed by representatives of both parties. While the Respondent argued that its signature merely acknowledged receipt of goods and not agreement to the terms, the High Court found this contention unsuitable for summary judgement.

Therefore, the High Court appointed Ms. Priya Kumar as arbitrator to resolve disputes between the parties.

Case Title: M/S Dhawan Box Sheet Containers Pvt Ltd Vs M/S Sel Manufacturing Co Ltd

Citation: 2024 LiveLaw (Del) 781

Case Number: ARB.P. 26/2024

Advocate for the Petitioner: Mr. Aayush Malhotra and Mr. Shobhit Garg

Advocate for the Respondent: None

Date of Judgment: 10.07.2024

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