PO, Though Not Having Arbitartion Clause, Intrinsically Linked To Main Agreement, Dispute Arbitrable: Delhi High Court

The bench of Justice Mini Pushkarna held that the purchase order was not independent of the Contract and that the parties clearly intended the Contract to be the main agreement. Thus, the Court concluded that the parties would be governed by the arbitration clause contained in the Contract, even though an arbitration clause was not specifically incorporated in the purchase order.

The respondent- Vivid Solaire Energy Pvt. Ltd, issued a purchase order to the petitioner- Sanghvi Movers Ltd, for supply of certain equipment on hire basis. Thereafter, the parties executed a Contract containing an arbitration clause. After the respondent failed to pay the hire charges, the petitioner invoked the arbitration clause and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, seeking appointment of an Arbitrator.

Disputing the maintainability of the petition, the respondent- Vivid Solaire Energy, submitted before the High Court that the relationship between the parties arose out of and was governed by the purchase orders issued and executed between them. Since no arbitration clause was contained in the said purchase orders, the respondent argued that the dispute cannot be referred to arbitration.

The respondent added that even though the parties had subsequently executed a separate Contract for hiring, the parties intended to continue performing their obligations on the basis of the purchase orders. It averred that even the amended purchase orders issued after the execution of the Contract, did not contain any mention of the said Contract containing the arbitration clause. Thus, it contended that the dispute raised by the petitioner arose solely out of the purchase orders and not from the Contract.

Referring to the Contract executed between the parties and the purchase orders issued by the respondent, the bench noted that while the Contract prescribed the general agreement between the parties, the purchase orders gave specific description of the quantity of equipment to be let on hire.

Thus, while holding that the Contract and the purchase orders related to the same purpose and were executed between the same parties, the Court concluded that they were intrinsically intertwined with each other and were connected to the same transaction.

The Court reckoned that though the relevant equipment was to be let on hire as per the purchase orders, the petitioner’s claim for hire charges arose due to the respondent’s failure to make available a clear ‘right of way’, which it was obliged to do under the Contract. Therefore, the bench concluded that the dispute between the parties was directly relatable to the Contract, which contained an arbitration clause.

Referring to the correspondence between the parties, the Court took note that the parties had agreed to execute a detailed contract between them for the purpose of stipulating detailed terms and conditions.

Therefore, the bench concluded that even though the first purchase order was issued prior to the Contract, it was not independent of the Contract and that the parties clearly intended the Contract to be the main agreement.

While ruling that the parties may choose to enter into two different contracts covering the same transaction at different points of time, the Court held that the purchase orders were clearly connected and linked to the Contract between the parties, and that they did not supersede the Contract.

Thus, the bench held that the parties would be governed by the arbitration clause as contained in the Contract, even though an arbitration clause was not specifically incorporated in the purchase orders.

The Court referred to the decision of the Apex Court in Balasore Alloys Ltd. versus Medima LLC, (2020), where the Supreme Court had ruled that while the purchase order is issued for the limited purpose of supply of goods with no specific details, the contract between the parties is a comprehensive document encompassing all terms of the transaction. The Supreme Court had thus held, that the parties were bound by the arbitration clause contained in the contract and not the relevant clause contained in the purchase order.

In view of the arbitration clause contained in the main contract, the High Court said the parties must be referred to arbitration. The Court thus allowed the petition and appointed a Sole Arbitrator.

Case Title: Sanghvi Movers Ltd. versus Vivid Solaire Energy Pvt. Ltd.

Citation: 2023 LiveLaw (Del) 5 

Counsel for the Petitioner: Mr. Sandeep P. Agarwal, Senior Advocate with Ms. Niyati Kohli, Mr. Pratham Vir Agarwal and Ms. Tanya, Advocates

Counsel for the Respondent: Ms. Aanchal, Advocate

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