Mere Arbitration Clause In Invoices Insufficient, Express Or Implicit Acceptance Of Terms Of Invoices Necessary: Delhi High Court

The Delhi High Court bench of Justice C. Hari Shankar has held that simply including an arbitration clause in invoices does not constitute a valid arbitration agreement. The High Court held that since the applicant neither expressly nor implicitly accepted the terms of the invoices, it could not be deemed to be bound by any arbitration agreement. The bench held: “They do not contain the signature of the petitioner or anything to indicate that the petitioner had consented to the recitals in the invoices. Indeed, the invoices are practically unintelligible.” Brief Facts: The matter pertained to a petition filed under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 wherein Mohammad Eshrar Ahmed (Petitioner) sought the termination of the mandate of Vishwanath Pratap Singh who is currently acting as the sole arbitrator in the arbitration proceedings between the Petitioner and M/s Tyshaz Buildmart India Private Limited (Respondent). The Petitioner contended that certain circumstances have arisen which justify the termination of the arbitrator's mandate. The High Court issued notice of the petition to the Respondent, who was duly served both by speed post and email. The tracking report indicated that the speed post package was successfully delivered and the email was sent to an address that previously been used for communication between the Respondent and the Petitioner. Despite proper service of notice, the Respondent failed to file any response to the petition and didn't made an appearance in the court when the matter was called for hearing. Observations by the High Court: The High Court examined whether there was an arbitration agreement between the parties, as required by Section 7 of the Arbitration Act. The High Court first noted that Section 7 mandates an agreement between the parties to submit disputes to arbitration if they arise. Additionally, Section 7(3) requires such an agreement to be in writing, and Section 7(4) outlines the circumstances in which the arbitration agreement can be said to be in writing. The High Court held that none of the circumstances mentioned under Section 7(4) were applicable to the present case. The High Court found no document in which the Petitioner had either signed or expressed consent to resolving disputes by arbitration. It reviewed a notice dated May 31, 2023 issued by the Respondent which referred to various invoices and suggested the appointment of arbitrators. The notice, however, did not establish the existence of an arbitration agreement between the parties. Instead, it merely proposed the names of arbitrators to resolve a dispute arising from unpaid invoices. The High Court noted that these invoices were only received by the Petitioner around May 15, 2023, and that the Petitioner had not signed the invoices or agreed to the terms they contained. Therefore, even if the invoices referred to arbitration, the High Court held that they could not be considered binding on the Petitioner as there was no express or implied consent. The High Court went on to observe that the Respondent issued a follow-up notice on June 7, 2023 claiming that since the Petitioner had not responded to the earlier notice, it waived its right to appoint an arbitrator. The Respondent then unilaterally appointed Vishwanath Pratap Singh as the arbitrator. The High Court was unable to discern any valid arbitration agreement from these communications and held that the only reference to arbitration was in the invoices, which the Petitioner had neither signed nor agreed to. Relying on the judgment in NSK India Sales Company Pvt Ltd v. Proactive Universal Trading Company Pvt Ltd, the High Court reiterated that merely including an arbitration clause in invoices does not amount to a valid arbitration agreement. In the referred case, the High Court of Madras held that the absence of mutual consent, reflected by a lack of signatures or acceptance by the Respondent, rendered the arbitration clause ineffective. Even if an arbitration agreement were assumed to exist, the High Court further held that the appointment of the arbitrator was not in accordance with the law. It held that under the Arbitration Act one party cannot unilaterally appoint an arbitrator if the other party fails to respond. Instead, the party seeking arbitration must approach the Court under Section 11(5) or (6) to have an arbitrator appointed. The High Court held that unilateral appointment of an arbitrator is legally invalid, and an arbitrator so appointed is de jure incapable of acting. Consequently, the High Court held that the mandate of the arbitrator appointed by the Respondent stood terminated under Section 14(1)(a) of the Arbitration Act. It further noted that there is no automatic requirement to appoint a substitute arbitrator once the mandate of an existing arbitrator is terminated. Therefore, the High Court ...

Mere Arbitration Clause In Invoices Insufficient, Express Or Implicit Acceptance Of Terms Of Invoices Necessary: Delhi High Court

Rajesh Kumar

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