Arbitration Clause Contained In A Tax Invoice Is Binding: Delhi High Court

Noting that the opposite party had earlier received similar tax invoices, against which it had made payments, the Single Bench of Justice V. Kameswar Rao ruled that the party could not disown the clear stipulation contained in the tax invoice with regard to any dispute being referred to arbitration.

Certain goods were purchased by the respondent Dimple Verma from the petitioner Swastik Pipe Ltd. on a running account basis. On the basis of tax invoices issued by the petitioner, part payments were subsequently made by the respondent. After the respondent failed to clear the dues, the petitioner invoked the arbitration clause contained in the terms and conditions of the tax invoice. The petitioner filed a petition before the Delhi High Court for appointment of a Sole Arbitrator.

The respondent Dimple Verma submitted before the High Court that there was no arbitration agreement, as provided under Section 7 of the Arbitration and Conciliation Act, 1996 (A&C Act), existing between the parties.

The respondent relied upon the judgment of the Bombay High Court in the case of Concrete Additives and Chemicals Pvt. Ltd. versus S.N. Engineering Services Pvt. Ltd. (2022) to contend that tax invoices cannot be construed as an agreement between the parties since the same were unilateral and were not signed by the respondent.

The petitioner Swastik Pipe Ltd. contended that since the tax invoices containing an arbitration clause were received by the respondent and since, under similar invoices payment was made by the respondent, therefore, the arbitration clause was binding between the parties.

The petitioner averred that in view of Section 7(4)(b) of the A&C Act, an arbitration agreement can be derived from exchange of letters, telex, telegram or other means of communication, including through electronic means.

The petitioner submitted that even though the other party may not have signed a formal contract, however, if it is shown that the parties are at ad idem, it cannot absolve the other party from the liability under the arbitration agreement.

The Court observed that the Bombay High Court in the case of Lewis W. Fernandes versus Jivatlal Partapashi & Ors. (1944) was dealing with the issue regarding the existence of an arbitration agreement contained in a contract note issued after the delivery of the goods. The Bombay High Court had held that it was the conduct of the parties that was relevant and determinative. The Court had observed that the plaintiff had received all the contract notes and the statements of accounts in the usual course at the address given by him to the defendant, and that the plaintiff had in effect accepted the contract notes which had been sent to him by the defendant. The Court had ruled that since the said contract notes containing the arbitration clause were in effect accepted by the plaintiff by his conduct, the said contract notes were arbitration agreements within the meaning of the Indian Arbitration Act, 1940.

The Court further noted that the Supreme Court in the case of MTNL versus Canara Bank (2019) had held that the arbitration agreement need not be in any particular form and what is required to be ascertained is the intention of the parties to settle their disputes through arbitration. The Supreme Court had ruled that if it can be prima facie shown that the parties are ad idem, then even though the other party may not have signed a formal contract, it cannot absolve him from the liability under the arbitration agreement.

The Court observed that the respondent had earlier received similar tax invoices from the petitioner against which she had made payments to the petitioner. The Court ruled that the respondent cannot disown the clear stipulation contained in the tax invoice with regard to any dispute being referred to arbitration.

The Court thus allowed the application, appointed a Sole Arbitrator, and referred the parties to arbitration.

Case Title: Swastik Pipe Ltd. versus Dimple Verma

Citation: 2022 LiveLaw (Del) 648

Dated: 06.07.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Sanjay Jain, Adv

Counsel for the Respondent: Mr. Alok Sharma, Adv.

Click Here To Read/Download Order