Does an Arbitration Clause Printed on an Invoice Constitute an Agreement? - International Law Office

International Law Office

Litigation - India

Does an Arbitration Clause Printed on an Invoice Constitute an Agreement?

January 05 2010

Facts
Issue
Decision
Comment


Facts

Mikesh Corporation filed an appeal against the judgment of the single judge of the Bombay High Court.(1) The dispute between the parties pertained to a sum of Rs885,951 plus interest in respect of a balance owed for cloth allegedly supplied by Mikesh to Picotee Exports. The issue was referred to arbitration in accordance with the Mahajan Arbitration Rules and Regulations framed by the Mumbai textiles merchant Mahajan.

The arbitrator proceeded to give an award, despite resistance from Picotee that it was not bound to submit to the arbitration as it was not a member of the Mahajan Arbitration Rules and Regulations. The arbitration award was set aside on the grounds that the arbitrator gave no reasons to substantiate the same. Thereafter, the matter was reheard and the arbitrator concluded that Picotee was liable to pay the disputed amount. The arbitrator rejected Picotee's contention that there was no arbitration agreement and held that the arbitration agreement was printed on the invoices raised by Mikesh, based on which the goods were delivered to Picotee.

While hearing the challenge to the arbitral award under Section 34 of the Arbitration and Conciliation Act 1996, the single judge concluded that the arbitrator could not have inferred the existence of an arbitration agreement printed on the invoices without proof that the invoices had been exchanged with or delivered to Picotee. This formed the basis of Mikesh's challenge.

Issue

The issue for consideration was whether the existence of an arbitration agreement printed on the invoice could be inferred without proof that the invoices had been exchanged with or delivered to Picotee.

Decision

The court first analyzed whether the printed arbitration clause on the invoice constituted an arbitration agreement within the parameters of Section 7 of the Arbitration and Conciliation Act. Section 7 of the act reads as follows:

"Arbitration agreement. -

(1) In this Part, 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in –

(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."

Section 7 of the act provides that the arbitration agreement must be in writing and be contained in a document signed by the parties or in an exchange of (i) letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or (ii) statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

In the instant case there was no signed document purporting to be an arbitration agreement or proof that there was an exchange or delivery of invoices containing the arbitration agreement. The court upheld the single judge's findings that the existence of the arbitration clause could not be established as there was no evidence that Picotee had received the invoice.

Comment

This case reinforces the essence of what constitutes an 'arbitration agreement' (ie, in the words of Section 7 of the Arbitration and Conciliation Act, "an agreement by the parties to submit to arbitration"). The case re-emphasizes that an arbitration agreement need not be in a particular form, but the parties must have an 'intention' to submit to arbitration. This intention may be gathered from the correspondence exchanged between the parties and the surrounding circumstances.(2) In the present case the parties' intention could be gathered from whether the agreement was delivered to and accepted by the opposite party.

For further information on this topic please contact Nisha Harichandran or Jai Mohan at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500), fax (+ 91 11 2692 4900) or email (nisha.harichandran@amarchand.com or jai.mohan@amarchand.com).

Endnotes

(1) Mikesh Corporation v Picotee Exports, 2009 (3) AllMR 633.

(2) Nandan Biomatrix Limited v D-1 Oils Limited, (2009) 4 SCC 495.


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