Arbitration Clause In Tax Invoice Binding If Goods Accepted Without Protest: Allahabad High Court

The Allahabad High Court on 6 May held that an arbitration clause contained in the terms and conditions of a tax invoice constitutes a valid arbitration agreement when the receiving party accepts the goods supplied under the invoice without objection.

Justice Piyush Agrawal appointed former judge Justice Vivek Kumar Birla as the sole arbitrator in a dispute between Ganesha Ecosphere Limited and Goodcore Spintex Pvt. Limited after holding that the parties were bound by the arbitration clause contained in the tax invoices. He held:

“The tax invoice clearly contemplates that in case of dispute, the matter shall compulsorily referred to the Arbitrator under the provisions of Arbitration and Conciliation Act, 1996. The record further shows that the goods which were supplied were duly accepted and to discharge liability, part payment was also made which clearly demonstrates the acceptance of goods supplied and terms and conditions mentioned therein. In other words, the parties to the dispute were bind to a valid arbitration agreement as referred above.”

Goodcore Spintex Pvt. Limited had placed several purchase orders with Ganesha Ecosphere Limited for the supply of recycled polyester staple fibre of specified descriptions. The applicant supplied the goods through various tax invoices and challans. However, the respondent allegedly defaulted in making payments. The applicant contended that the tax invoices expressly incorporated an arbitration clause in their terms and conditions.

The applicant argued that the respondent accepted the goods without protest and also made part payment towards the outstanding liability. It submitted that the respondent, by accepting the invoices without objection, accepted the terms and conditions contained therein, including the arbitration clause. The respondent denied the existence of any arbitration agreement between the parties.

The Court held that once the respondent accepted the goods supplied under the tax invoices without objection, the arbitration clause contained in those invoices became binding on the parties. The Bench observed:

“In the facts of the present case, on prima facie basis, it has to be accepted that there exists an arbitration clause, between the parties. Also, it is clear that the parties have not been able to appoint consented arbitrator and therefore, the appointing authority has to be assumed by this Court upon the present application brought before it, within limitation.”

The Bench clarified that it had not examined the merits of the rival claims and left all issues open for adjudication before the arbitral tribunal.

Accordingly, the High Court appointed Justice Vivek Kumar Birla (Retd.) as the sole arbitrator to adjudicate the disputes between the parties.

Counsel for Applicant(s): Abhishek Bhushan

Counsel for Opposite Party(s): Sankalp Narain, Srivats Narain