On 16.11.2023, the Calcutta High Court, in the case R.P. Infosystems Pvt Ltd v. Redington (India) Limited (AP 626 of 2018), ruled that a party is bound by an arbitration clause included in a tax invoice if the terms and conditions outlined in the invoice are accepted and acted upon by the involved parties.
Facts
The petitioner supplied various information technology-related products to the respondent. Over the course of their business relationship, a dispute arose due to alleged delays in the supply of ordered components by the respondent, impacting payments.
On August 21, 2014, the respondent issued an arbitration notice to the petitioner, claiming an amount of INR 1,30,46,250 and nominating Sh. K. Balasubramanium as the arbitrator. The arbitrator, in turn, issued an award on May 25, 2018, instructing the petitioner to pay the respondent INR 1,06,01,817 along with interest at 18% per annum. In response, the petitioner filed an application challenging the arbitral award dated May 25, 2018, under Section 34 of the Act before the court denying the existence of the arbitration agreement.
The petitioners argued that invoices would not result in an arbitration agreement simply because the tax invoice was unsigned by the petitioner and it did not constitute a conclusive contract.
Held
The court determined that an arbitration clause included in a tax invoice becomes binding when the parties accept and act upon the terms and conditions specified therein. The court outlined certain conditions for the validity and enforceability of an arbitration clause in a tax invoice:
a. The terms, including the arbitration clause, must be prominently and clearly displayed in the invoice. If these terms are printed on the reverse side, there should be a declaration on the front of the invoice.
b. The buyer must explicitly consent to the arbitration clause. If there is any disagreement, the buyer should register their protest with the seller within a reasonable period.
c. Acceptance of goods without protesting against the arbitration clause implies consent unless a protest is registered within a reasonable time.
d. Even if the buyer does not sign the invoice, their consent can be inferred from whether the parties have acted upon the invoice’s terms.
The court emphasized that the form of an arbitration clause is flexible, as long as the parties’ intention to arbitrate is clear.
Conclusion
Section — 7 of the Indian Arbitration and Conciliation Act, 1996 (Act) defines ‘Arbitration Agreement.’ It states that the agreement must construe a clear intention of the parties to submit all or certain disputes that have arisen or may arise between them in respect of a defined relationship, whether contractual or not, to arbitration. An arbitration agreement may be in the form of an arbitration clause in a contract or it may exist in the form of a separate agreement, with the condition that it be in writing.
Therefore, the Court’s view clearly aligns with the definition provided under the Act.
The Bombay High Court also determined that a clause found in the invoices, explicitly indicating a reference to arbitration, should be interpreted as a valid arbitration clause in the case of Bennett Coleman & Co. Ltd Versus MAD (India) Pvt. Ltd.
