Arbitration Clause in Tax Invoices Can Bind Parties if Accepted Through Conduct: Allahabad High Court

The Allahabad High Court has reiterated that an arbitration clause contained in tax invoices can constitute a binding arbitration agreement where the parties intended to be governed by it, while appointing a sole arbitrator to resolve a payment dispute arising from the supply of recycled polyester staple fiber.

Justice Piyush Agrawal passed the order on an application filed by Ganesha Ecosphere seeking appointment of an arbitrator in a dispute arising from the supply of recycled polyester staple fibre.

The company contended that Goodcore Spintex accepted goods supplied under multiple tax invoices, made part-payments towards its liability, but failed to clear the outstanding dues.

Relying on the Delhi High Court's decision in Radico Khaitan Limited v. Harish Chouhan and the Supreme Court's decisions in Concrete Additives And Chemicals Private Limited v. S N Engineering Services Pvt. Ltd. and Caravel Shipping Services Private Limited v. Premier Sea Foods Exim Private Limited, the Court observed:

“The law is clear on the subject that if the intent of the parties is agreed even on the basis of invoice which contemplates reference to the Arbitrator as per the Arbitration and Conciliation Act, the same is binding.”

According to Ganesha Ecosphere, Goodcore Spintex placed multiple purchase orders for the supply of recycled polyester staple fibre of specified descriptions, which were accepted and executed by the applicant. The applicant stated that it raised multiple tax invoices and dispatched the goods through authorised transporters, following which the goods were delivered and accepted by the respondent.

Ganesha Ecosphere submitted that Goodcore Spintex utilised the goods supplied but failed to make payment within the stipulated time. It argued that the tax invoices specifically contained terms and conditions, including a clause providing that disputes would be compulsorily referred to arbitration.

It further contended that Goodcore accepted the goods supplied under those invoices, made part-payments towards its liability and never objected to the terms and conditions contained in the invoices, including the arbitration clause.

Goodcore opposed the application, arguing that there was no agreement between the parties containing an arbitration clause and that the application could not be entertained in the absence of a written contract. It contended that a term printed on a tax invoice could not by itself bind the parties to arbitration.

The Court examined the invoices placed on record and noted that one of the conditions printed on them provided that disputes would be compulsorily referred to arbitration under the Arbitration and Conciliation Act, 1996. The Court further noted that the goods supplied under those invoices had been accepted by the respondent and that part-payments had been made towards the liability arising from those transactions.

“In other words, the parties to the dispute were bind to a valid arbitration agreement as referred above. The said fact is fortified. The applicant raised the bill as the goods were accepted by the respondent without any complaint or counter claim and also made part payment to discharge part liability arising out of said transaction. Such conduct of the parties clearly shows the intent to be governed of the said invoice.”

The Court observed that these facts had not been disputed by the respondent in its counter affidavit or during arguments. Referring to decisions of the Delhi High Court and the Supreme Court, it held that a signed arbitration agreement was not necessary where the conduct of the parties demonstrated an intention to be governed by an arbitration clause contained in invoices.

The Court also reiterated that, at the stage of considering an application for appointment of an arbitrator, it was required only to examine the prima facie existence of an arbitration agreement and not the merits of the dispute.

Holding that an arbitration clause prima facie existed between the parties and that they had failed to appoint an arbitrator by consent, the Court appointed former Allahabad High Court judge Justice Vivek Kumar Birla as the sole arbitrator to resolve the disputes between them, subject to his consent.

For Applicant(s): Abhishek Bhushan

For Respondent(s): Sankalp Narain, Srivats Narain