Arbitration Clause In Purchase Orders Enough to Appoint Arbitrator: Punjab & Haryana High Court

The Punjab and Haryana High Court on 19 March, held that an arbitration clause in purchase orders is sufficient under Section 11 of the Arbitration and Conciliation Act, 1996, to allow appointment of an arbitrator.

A Single Judge Bench of Justice Jasgurpreet Singh Puri allowed a petition by Aditya Birla Real Estate Limited and appointed Justice Ajay Tewari (Retd.) as the Sole Arbitrator in disputes arising out of 20 purchase orders issued by Orient Craft Limited for the supply of fabric. He noted:

“From a perusal of the note appended with Clause 12, it becomes very clear that there is a prima facie existence of an arbitration clause… both the essential conditions for appointment of an Arbitrator under Section 11 of the Act stand satisfied namely, prima facie existence of an arbitration clause and its invocation thereof by issuance of a notice.”

The petitioner contended that each purchase order contained an identical clause stating that in the event of a dispute, the jurisdiction for arbitration would be Gurugram, and that despite invoking the clause through notice, the respondent, Orient Craft, failed to act, necessitating the present petition.

The respondent, argued that Clause 12 did not constitute a valid arbitration clause, as it lacked a specific arbitration mechanism and did not reflect a clear intention to refer disputes to arbitration.

The Court examined the language of Clause 12, which provided that in case of dispute, the jurisdiction for arbitration would be Gurugram, and that the dispute may also be referred to a consumer forum at the buyer's discretion. It held that such wording indicates a prima facie arbitration clause, notwithstanding the absence of a detailed procedure.

Relying on judicial precedents, the Court observed that commercial documents must be interpreted to give effect to the parties' intention and that at the stage of Section 11, only the prima facie existence of an arbitration agreement is relevant.

The Bench also rejected the objection regarding the absence of signatures on the purchase orders, holding that under Section 7(4) of the Act, an arbitration agreement may be inferred from the conduct of parties and their communications. The purchase orders were acted upon, with supply of goods and partial payments, constituting concluded contracts.

The Court emphasised that at the stage of appointment of an arbitrator, it is not required to examine the validity of the agreement or adjudicate disputed questions of fact. Once an arbitration clause is prima facie established and invoked, the matter must be referred to arbitration.

Accordingly, the High Court allowed the petition, and appointed Justice Tewari (Retd.) as the Sole Arbitrator to adjudicate the dispute.