“Where an Arbitration Clause Is Contained in an Invoice… the Same Binds Both Parties”: Delhi High Court Refers Commercial Dispute to Arbitration Based on Terms Printed in Tax Invoices
Sanchayita Lahkar
The Delhi High Court, Single Bench of Justice Manoj Kumar Ohri, cited in favour of referring a commercial dispute to arbitration based on an arbitration clause printed in tax invoices. The judgment was rendered in a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve a dispute between a supplier and its buyer.
The Court directed the appointment of a Sole Arbitrator under the aegis of the Delhi International Arbitration Centre, observing that the arbitration clause embedded in the invoices amounted to a valid arbitration agreement. The Court further recorded that the respondent, despite being served, remained unrepresented and did not file a reply.
The petitioner, Radico Khaitan Limited, approached the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of a Sole Arbitrator to adjudicate disputes that arose between the petitioner and the respondent, Harish Chouhan. It was submitted that the respondent and his son, Sumit Chauhan, had entered into business transactions with the petitioner, under which alcoholic beverages were supplied by the petitioner against various purchase orders.
Tax invoices dated 29.11.2020, 09.12.2020, 15.12.2020, 28.12.2020, and 22.01.2021 were issued either by the petitioner or its subsidiary, associated, or sister concerns. Each invoice contained printed Terms and Conditions, including an arbitration clause. Clause 5 of the invoices stipulated that any dispute arising from the transaction would be referred to arbitration, conducted by a sole arbitrator appointed by Radico Khaitan Limited. The clause also provided that the seat of arbitration would be Delhi.
The clause read as follows:
"Any dispute (whether contractual or otherwise) arising out of this transaction between the parties or arising out of or relating to or in connection with this invoice shall be referred for arbitration in terms of Arbitration and Conciliation Act, 1996 or any amendment thereof. The arbitration shall be conducted by a sole arbitrator to be appointed by Radico Khaitan Limited in its sole discretion. The seat of Arbitration shall be Delhi. This invoice shall be governed the laws of India and Court of Delhi shall have exclusive jurisdiction over matters arising from this transaction/invoice. The Buyer shall be deemed to have accepted all terms and conditions contained in the invoice including the arbitration agreement by accepting the goods delivered under this invoice."
It was argued on behalf of the petitioner that the business transactions were governed by the Terms and Conditions printed on the invoices. The respondent and his son accepted goods under these invoices and made part-payments on a running account basis towards partial discharge of their outstanding liability. Ledger records were maintained in the regular course of business.
In March 2022, the respondent's son approached the petitioner for resumption of business and committed to making payment of the pending outstanding amount. He issued a cheque dated 15.03.2022 for Rs. 18,16,155/-. However, the cheque was dishonoured with the remark 'funds insufficient'. A legal notice dated 18.06.2022 under Section 138(b) of the Negotiable Instruments Act, 1881 was issued, followed by a complaint under the same provision.
According to the petitioner, the outstanding liability of the respondent was Rs. 8,03,621/-. A notice invoking arbitration was sent under Section 21 of the Arbitration and Conciliation Act on 05.02.2024.
Petitioner contended that the respondent, by accepting goods and making part-payments without raising objections, had accepted the arbitration clause. Reliance was placed on a Coordinate Bench judgement in Swastik Pipe Ltd. v. Shri Ram Autotech Pvt. Ltd., 2021 SCC OnLine Del 3604, to support the enforceability of arbitration clauses in invoices.
The Court noted that notice of the present petition was issued on 04.10.2024 and served through speed post, as evidenced by an affidavit of service and accompanying tracking report. Despite being served, the respondent neither appeared nor filed a reply.
The key legal issue before the Court was whether an arbitration clause embedded in an invoice, unilaterally issued by one party, could constitute a valid arbitration agreement. Justice Ohri stated that this issue had been conclusively settled by the Supreme Court in Concrete Additives and Chemicals Pvt. Ltd. v. S.N. Engineering Services Pvt. Ltd., Civil Appeal No. 7858/2023, decided on 28.11.2023.
The Supreme Court held:
"In the invoices, terms and conditions have been incorporated. The invoices were issued by the appellant and acknowledgements of receipt of the invoices by the respondent also appear thereunder... Hence, we do not agree with the High Court that there was no arbitration clause."
Reference was also made to SRF Ltd. v. Jonson Rubber Industries Ltd., 2024 SCC OnLine Del 1819, wherein it was stated:
"Unless a party has established a prima facie case of non-existence of a valid arbitration agreement, the parties are to be referred to arbitration. Thus, onus is on the person alleging that there is no valid arbitration agreement."
Citing Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, the Court reiterated:
"The court, under Sections 8 and 11, has to refer a matter to arbitration... unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding."
The Court also referred to Dhawan Box Sheet Containers (P) Ltd. v. SEL Manufacturing Co. Ltd., 2024 SCC OnLine Del 4779, which discussed conduct of parties, such as maintaining a running account and making partial payments, as indicators of mutual assent to an arbitration clause in an invoice.
Justice Ohri recorded:
"From a perusal of the aforenoted legal position, it is evident that in cases where an arbitration clause is contained in an invoice generated by one of the parties to the dispute, the same binds both the parties as a valid arbitration agreement as long as the parties intend to be governed by it."
The Court concluded that the respondent had accepted the goods, made part-payments, and never objected to the arbitration clause. The conduct demonstrated intention to be bound by the terms printed in the invoices. Justice Ohri observed:
"Even if there exists a doubt as to the existence of the arbitration agreement, the Court must refer the matter to arbitration."
On finding that the petitioner had made out a prima facie case regarding existence of a valid arbitration agreement, the Court disposed of the petition with the following directions:
- "The disputes between the parties under the said agreement are referred to the Arbitral Tribunal."
- "Ms. Prema Priyadarshini, Advocate (Mob: 9818107970) is appointed as the Sole Arbitrator to adjudicate upon the disputes between the parties."
- "The arbitration will be held under the aegis of the Delhi International Arbitration Centre, Delhi High Court, Sher Shah Road, New Delhi."
- "The remuneration of the learned Arbitrator shall be in terms of DIAC (Administrative Cost and Arbitrators’ Fees) Rules, 2018 or as the parties may agree."
- "The learned Arbitrator shall furnish a declaration in terms of Section 12 of the A&C Act prior to entering into the reference."
- "All the rights and contentions of the parties, including on the existence and validity of the Arbitration agreement, arbitrability of any of the claim/counter claim, any other preliminary objection, need and legality of interim relief, as well as contentions on merits of the dispute by either of the parties, are left open for adjudication by the learned arbitrator."
- "The parties shall approach the learned Arbitrator within four weeks from today."
Advocates Representing the Parties
For the Petitioner: Mr. Kamal Garg, Advocate
Case Title: Radico Khaitan Limited v. Harish Chouhan
Neutral Citation: 2025: DHC:1767
Case Number: ARB.P. 1560/2024
Bench: Justice Manoj Kumar Ohri
[Read/Download order]
