The inclusion of Arbitration Clause in the terms and conditions on the Invoice relating to commercial transactions was under cloud as to whether the same constitutes a valid agreement for the purpose of invoking and referring the disputes to Arbitration. There had been debates and litigation on the question as to “whether the parties automatically bound by the arbitration clause simply by accepting or acting upon such invoice or by paying an invoice containing such clauses?”. Further, there had been continuous deliberation whether the unilateral condition as placed on the invoice by one party and not signed by the other party, satisfies the conditions of Section 7 of the Arbitration and Conciliation Act, 1996.
This issue has been dealt by the Hon’ble Supreme Court and High Courts in catena of judgements and the said issue is now no more res-integra that arbitration clause on the invoices constitutes a valid agreement to invoke and refer the disputes pertaining to such invoices having arbitration clause.
The said legal issue, as tested against the requirements of Section 7 of the Arbitration and Conciliation Act, 1996 has been examined and conclusively settled by the Hon’ble Supreme Court and High Courts in various cases:
In Caravel Shipping Services Private Limited Vs Premier Sea Foods Exim Private Limited (2019) 11 SCC 461 Judgement dated 29.10.2018 the Hon’ble Supreme Court negated the order of the High Court of Kerela wherein the High Court affirmed the reasoning that the arbitration clause printed on the bill of lading showed no intention to arbitrate and there was nothing to show that the clause was brought to the notice of the other party. The Hon’ble Supreme Court while setting aside the order of the High Court, held that the respondent therein has expressly agreed to be bound by the arbitration clause even though it is a printed condition annexed to the bill of lading. The bill of lading was not in dispute, and the Hon’ble Supreme Court specifically observed that since respondent had itself relied upon the Bill of Lading (though unsigned) as part of its cause of action in the suit, it cannot blow hot and cold and contend that, for the purpose of arbitration, the arbitration clause should be signed.
In Trimex International FZE Limited, Dubai Vs Vedanta Aluminium Limited, India (2010) 3 SCC 1 the Hon’ble Supreme Court of India dealt with a petition under Section 11(6) of the Act, wherein, appointment of an arbitrator was sought as per the arbitration agreement contained in a Commercial Offer (Purchase Order) and also in a formal agreement that was exchanged between the parties. The respondent therein contested the petition on the ground that there was no concluded contract, and there was no ad idem of various essential features of transaction. The Supreme Court, after examining voluminous communications, including e-mails placed on record forming part of the text of the judgment, concluded that basic and essential terms had been accepted by the Respondent. The parties had arrived at a concluded contract, and accordingly, referred them to arbitration. In the said case, the Court held that in the absence of a signed agreement between the parties, the existence of the arbitration agreement can be inferred from various documents duly approved and signed by the parties in the form of exchange of e-mails, letters, telex, telegrams and other means of telecommunication.
In Scholar Publishing House Pvt. Ltd. Vs Khanna Traders ILR (2013) V Delhi 3343 Judgement dated 19.07.2013 the division bench of Hon’ble High Court of Delhi while deciding an appeal against the order of a Single Judge deciding objections under Section 34 of the Act, dealt with the question of whether the award rendered on a dispute referred to arbitration by the Respondent/Claimant was legal and binding, inasmuch as, did the parties enter into an arbitration agreement. The arbitration clause was contained in the invoice. The Court, relying upon the decision of Bombay High Court in Lewis W. Fernadez v. Jivatlal Partapshi, MANU/MH/0176/1944 : AIR 1947 Bom 65 held that the conduct of the parties was the relevant and determinative test. It was noted that there is no strait-jacket formula to say whether condition on invoices can amount to binding arbitration clauses. An arbitration agreement could be inferred through a series of correspondences, or even on demur of one of the parties to an arbitration proceeding, who can otherwise object to it on the ground of absence of agreement. In other words, if such party does not urge the contention of non-existence of an arbitration agreement in its reply to the claim, then the arbitration agreement is deemed to exist.
In Swastik Pipe Ltd Vs Shri Ram Autotech Pvt Ltd (MANU/DE/1183/2021) Judgment dated 5th July 2021, the Hon’ble High Court of Delhi emphasized that from the commercial transactions between the parties, as reflected in the ledger and payments made, it can be demonstrated that parties would be ad idem and arbitration agreement could be safely inferred. The Hon’ble High Court appointed an arbitrator in the said matter which were based on arbitration clause mentioned in the invoices.
Consequently, in M/s Dhawan Box Sheet Containers Pvt Ltd Vs M/s SEL Manufacturing Co. Ltd (Delhi High Court) Order dated 10th July 2024, the Court followed the reasoning in Swastik Pipe Limited and upheld the principle that an arbitration agreement could be inferred from the conduct of the parties, leading to the appointment of an arbitrator.
Limited Scrutiny Under Section 11 of the Act
The Hon’ble Supreme Court in Vidya Drolia vs Durga Trading Corporation on 14 December, 2020 AIRONLINE 2020 SC 929 clarified that, at the stage of proceedings under Section 11 of the Arbitration Act, the Court is required only to form a prima facie view of the existence of the arbitration agreement, leaving a detailed examination to the Arbitral Tribunal. This principle has been reaffirmed in subsequent cases, including BSNL., NTPC Ltd., and discussions on the interplay between arbitration agreements under the Arbitration Act and the Indian Stamp Act, 1899. Consistently, these authorities emphasize that in cases of doubt, the default course is to refer the matter to arbitration, allowing the Tribunal to adjudicate the issue.
In the decision of the Hon’ble High Court of Delhi in Surya Processors Private Limited s. Shree Jai Gurudev Textile Agencies 2022 SCC OnLine Del 984, the Hon’ble Court held that at the stage of proceedings under Section 11 of the Arbitration Act, it is only required to form a prima facie view regarding the existence of an arbitration agreement. The Supreme Court in Vidya Drolia Supra reaffirmed this principle, emphasizing that the rule for the Court in such cases is “when in doubt, do refer.”
Similarly, in SRF Limited v. Jonson Rubber Industries Limited 2024 SCC OnLine Del 1819, the Hon’ble High Court of Delhi reiterated that under Sections 8 and 11 of the Arbitration Act, unless a party establishes a prima facie case of the non-existence of a valid arbitration agreement, the default course is to refer the matter to arbitration. The burden of proving the absence of a valid arbitration agreement lies with the party asserting its non-existence.
Conclusion
Conclusively, where the parties have acted upon the invoices and there was no denial of the invoices raised by the Claimant, the clause contained in the invoices which clearly stipulate a reference to arbitration, deserve to be construed as a valid arbitration clause.
The Arbitration clause ought to be clear and unambiguous, leaving no room for doubt about the parties’ intention to resolve disputes through arbitration. As discussed above the Hon’ble Courts have consistently while adjudicating petitions under Section 11 of the Arbitration and Conciliation Act, have adopted a less rigid approach concerning the validity of Arbitration agreements. The emphasis should be on facilitating the Arbitral process by appointing the Arbitrator, leaving the substantive determination of the validity or existence of the arbitration agreement to the tribunal itself. This approach reinforces the pro-arbitration stance of Indian jurisprudence and upholds the autonomy and efficiency of the arbitral process as envisioned under the Act.
In light of the observations, recently High Court of Delhi vide Judgement dated 17.02.2025 in ARB.P. 1828/2024 titled as MG Polyplast Industries Pvt. Ltd. v. Saneer Anand was pleased to appoint an Arbitrator to adjudicate the disputes between the parties upon a petition filed under section 11(6) of the Arbitration and conciliation Act, 1996, whereby the invoices issued by the Petitioner/Claimant explicitly contained the arbitration clause and part payment was made. The Hon’ble court thereby declared the binding nature of arbitration agreement between the contracting parties to resolve their disputes through Arbitration. The petitioner was represented by Gravitas Legal and the matter was lead and argued by Mr. Rajeev Aggarwal (Partner) Gravitas Legal.
Authored by: Rajeev Aggarwal (Partner – Gravitas Legal)
Assisted by/ Co Author: Mayank Kamra (Associate Advocate – Gravitas Legal)
The contents of this document do not constitute legal advice or a legal opinion. This document is provided solely for informational purposes and must not be relied upon for any commercial or professional decisions.
