Arbitration Agreement Inferred From Invoices & Conduct Despite No Clause In Purchase Orders: Bombay High Court

The Bombay High Court on 5 May held that an arbitration agreement can be inferred even in the absence of an express arbitration clause in the original purchase orders, where subsequent contractual documents and the conduct of the parties indicate a clear intention to arbitrate.

Justice Sandeep V. Marne allowed a Section 11 application by Hitesh Coal Traders and appointed Advocate Suyash Gadre as the sole arbitrator to adjudicate disputes with Indapur Dairy & Milk Products Ltd. arising from alleged unpaid dues of Rs 19,73,409 in coal supply transactions. He observed:

“mere absence of arbitration clause in Purchase Orders cannot be a reason for inferring that parties did not intend to resolve disputes through arbitration. By acknowledging the Delivery Challans and Tax Invoices and by making payments against the invoices containing arbitration clause the Respondent has agreed for resolution of disputes through the mechanism of arbitration. The intention of parties to arbitrate can thus easily be gathered in the facts of the present case."

The dispute arose from supply transactions of imported Indonesian coal between the parties carried out between 23 September 2019 and 3 April 2020. Hitesh Coal Traders, engaged in the business of distribution and sale of coal, issued quotations to Indapur Dairy & Milk Products through emails dated 18 September 2019, which contained a stipulation that disputes would be resolved through arbitration in Mumbai.

Based on these quotations, Indapur Dairy placed multiple purchase orders for supply of coal. These purchase orders, however, did not contain any arbitration clause.

Pursuant to the purchase orders, Hitesh Coal Traders supplied coal between 23 September 2019 and 3 April 2020. Each supply was accompanied by delivery challans and tax invoices, both containing arbitration clauses. Indapur Dairy acknowledged these documents and made payments against several invoices without raising any objection to the arbitration terms.

Disputes arose when Indapur Dairy issued debit notes on 11 November 2019, citing deductions on account of quality and moisture concerns. Hitesh Coal Traders disputed these deductions through emails dated 11 November 2019, 24 December 2019, and 24 February 2020.

Supply of coal ceased after 5 March 2020, and despite repeated demands, an amount of Rs 19,73,409 remained unpaid.

Hitesh Coal Traders invoked arbitration by notice dated 12 January 2023 proposing appointment of a sole arbitrator. Indapur Dairy & Milk Products Ltd., in its reply dated 25 January 2023, denied the existence of any arbitration agreement.

Thereafter, Hitesh Coal Traders filed the present application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator. It submitted that acceptance of delivery challans and tax invoices containing arbitration clauses, along with part payments without protest, established a binding agreement to arbitrate.

Indapur Dairy contended that the purchase orders constituted the governing contract between the parties and, in the absence of an arbitration clause therein, no agreement to arbitrate existed.

The Court examined the documentary record and the conduct of the parties, noting that arbitration clauses consistently appeared in quotations, delivery challans, and tax invoices. It further observed that Indapur Dairy accepted the supplies and made payments without objection, indicating acceptance of contractual terms including arbitration.

Relying on settled principles, the Court held that acceptance of invoices and delivery documents containing arbitration clauses, coupled with performance of the contract without protest, establishes a valid arbitration agreement.

It further held that absence of an arbitration clause in the purchase orders does not defeat the existence of an arbitration agreement when the overall conduct and contemporaneous documents demonstrate mutual intention to arbitrate.

Accordingly, the Court allowed the Section 11 application and appointed Advocate Suyash Gadre as the sole arbitrator, leaving all issues on merits open for determination by the arbitral tribunal.

Appearances for petitioner (Hitesh Coal Traders): Advocate Chinmay Mehta i/b RVJ Associates.

Appearances for respondent (Indapur Dairy & Milk Products Ltd.): Advocate Akanksha Helaskar.