Credit Card Use Can Amount To Acceptance Of Arbitration Clause Even Without Signature: Bombay High Court

The Bombay High Court has held that a credit cardholder's use of a credit card can amount to acceptance of the Cardholder Agreement, including its arbitration clause, even if the credit card application does not bear the cardholder's physical or digital signature.

Justice Amit Borkar was considering four applications filed by Kotak Mahindra Bank seeking reference of disputes with four credit cardholders to arbitration.

“...the court finds that there is prima facie material to show that the Respondent accepted the Cardholder Agreement by using the Credit Card. Therefore, the absence of a physical or digital signature on the application does not prevent the Bank from seeking reference of the dispute to arbitration,” the court held.

The bank's case was that the four cardholders had applied for credit card facilities through its digital application process and accepted the applicable terms and conditions, including the Most Important Terms and Conditions and the Cardholder Agreement. The cards were subsequently issued and used for personal transactions. However, the outstanding dues remained unpaid despite the bank regularly sending account statements.

The Bank relied on Clause 32 of the Cardholder Agreement, which contained an arbitration clause, to contend that disputes arising from the credit card facilities were required to be referred to arbitration. It also relied on an affidavit filed by its authorised representative stating that the respondents had obtained the credit card facilities digitally and accepted the applicable terms and conditions.

However, the Bank acknowledged that the original digital applications and electronic records evidencing the respondents' acceptance of the terms were not available with it, as the records were maintained by its former vendor. It stated that it was attempting to retrieve these records and reserved its right to produce them subsequently.

The Court observed that the absence of a physical or digital signature does not, by itself, establish that no arbitration agreement exists. However, it clarified that a bank cannot make an arbitration clause binding on a customer without producing material demonstrating that the customer accepted the agreement.

Referring to Clause 2.1 of the Cardholder Agreement, the Court noted that it expressly recognised several methods of acceptance, including applying online, applying through email, signing the reverse of the credit card or using the card.

“Thus, according to the terms prepared by the Bank, putting a physical or digital signature on the application is not the only way of accepting the terms. The Bank has stated that even use of the Card will mean acceptance of the Cardholder Agreement.” it noted

The Court further noted that Clause 32.2 of the Cardholder Agreement contained the arbitration clause, with Mumbai as the venue of arbitration.

Relying on the Supreme Court's decision in Govind Rubber Ltd v. Louis Dreyfus Commodities Asia (P) Ltd, the Court reiterated that an arbitration agreement need not be signed by all parties, provided there is a written record establishing their agreement to refer disputes to arbitration.

It also referred to the Supreme Court's decision in A.P. Power Generation Corporation Ltd v. Tecpro Systems Ltd, reiterating that the referral court's examination under Section 11 of the Arbitration Act is limited to determining the prima facie existence of an arbitration agreement.

Applying these principles, the Bench found that the Cardholder Agreement, statements of account and the affidavit of the authorised representative provided sufficient prima facie material to establish acceptance of the agreement.

The court clarified that the Bank's assertion that the respondent had used the credit card did not conclusively establish that every transaction was made or authorised by him. It left the respondent at liberty to raise before the Arbitral Tribunal objections concerning the card's issuance, delivery, use, unauthorized transactions, and applicability of the terms and conditions.

The bench, therefore, held that there was prima facie material to show that the respondent had accepted the Cardholder Agreement by using the credit card. It ruled that the absence of a physical or digital signature would not, by itself, prevent the Bank from referring the dispute to arbitration.

However, it clarified that the Bank would still have to establish its claims before the Arbitral Tribunal. It said that the Tribunal may direct the Bank to produce the original digital records, complete transaction history and proof of delivery and activation of the card, and consider the consequences if the Bank fails to do so.

Accordingly, the Court appointed Advocate Shadab Jan as the sole arbitrator to adjudicate the disputes arising out of the Cardholder Agreements in all four applications.

For Applicant: Advocate Bijal Gogri