Acceptance Of Goods Does Not Constitute Acceptance To Arbitration Clause, Unilaterally Included In Delivery Challan: Delhi High Court

The bench of Justices Vibhu Bakhru and Amit Mahajan held that in order to constitute an arbitration agreement, there must be a consensus between the parties. Therefore, the Court ruled that an arbitration agreement cannot come into existence by a party unilaterally issuing a Delivery Challan and the opposite party accepting delivery of the goods.

The appellant-M/s Hetampuria Tax Fab, supplied goods to the respondent- M/s Daksh Enterprises. The appellant issued invoices to the respondent, who allegedly failed to clear the outstanding dues against the goods supplied to it. Thereafter, the appellant invoked arbitration proceedings and an arbitral award was passed by the Arbitral Tribunal in favour of the appellant. Against this, the respondent filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Commercial Court, contending that there was no arbitration agreement between the parties. The Commercial Court allowed the application and set aside the arbitral award. Against the order of the Commercial Court, the appellant filed an appeal under Section 37 of the A&C Act before the Delhi High Court.

The appellant M/s Hetampuria Tax Fab submitted before the High Court that the invoices issued by the appellant as well as the delivery of goods receipt, i.e., the Delivery Challan, expressly provided that the dispute between the parties shall be resolved by arbitration. Thus, it argued that an arbitration agreement existed between the parties.

Referring to the Delivery Challan issued by the appellant to the respondent, the Court observed that the said Challan included a statement specifying that any dispute arising between the parties would be settled as per the rules of the Delhi Hindustani Mercantile Association Delhi, and that the award of the arbitrator appointed by the said association would be final and binding upon the parties. The Court further noted that the said clause was followed by a statement providing that the goods had been received by the respondent in good condition, which was signed by the respondent.

Rejecting the contention raised by the appellant that since the respondent had signed the Delivery Challan, he had also accepted the arbitration clause, the Court held that the signatures made by the respondent only related to the certification that the goods were received by it in good condition.

Holding that the relevant clause contained in the Delivery Challan did not constitute an arbitration agreement between the parties, the Court ruled that a unilateral document issued by a party cannot be construed as a binding arbitration agreement.

Further, the Court added that the notation included in the invoices issued by the appellant, containing the statement, "Subject to DELHI HINDUSTANI MERCANTILE ASSOCIATION delhi jurisdiction", did not constitute an arbitration clause.

"There is no statement that the parties had agreed that the disputes would be referred to arbitration, or to accept that the arbitral award as final and binding. The statement, "subject to Delhi Hindustani Mercantile Association delhi jurisdiction" cannot be construed an agreement to refer the disputes to arbitration", the Court said.

The bench referred to the provisions of Section 7(3) of the A&C Act, which expressly provides that an arbitration agreement shall be in writing. The Court ruled that though the relevant clause contained in the Delivery Challan was set out in writing, it cannot be held that the same was agreed to by the respondent. It added that in order to constitute an agreement, there must be a consensus between the parties. Therefore, the Court ruled that an arbitration agreement cannot come into existence by the appellant unilaterally issuing a Delivery Challan and the respondent accepting delivery of the goods.

Thus, the Court laid down that though the respondent had accepted the goods and had signed the Delivery Challan indicating such acceptance, however, it cannot be said that by doing so, the respondent had affixed signatures to the arbitration agreement or had agreed to the arbitration clause as set out in the Delivery Challan.

The Court ruled that as per Section 7(4) of the A&C Act, an arbitration agreement may also be contained in exchange of letters or other means of telecommunication, and that it can also be discerned from an exchange of the statement of claims and defence in which the arbitration clause is asserted by one party and not denied by the other. However, the Court added that it is essential for the Court to find out whether the parties were ad idem for referring the disputes to arbitration.

"In the present case, there is no contemporaneous material to indicate that the parties had agreed that the disputes would be referred to arbitration. The appellant merely relies on the invoices and the Delivery Challan. As stated above, the invoice does not record any arbitration agreement. The Delivery Challan is a unilateral document, which is issued for the purposes of recording the delivery of goods. As an instrument, it does not embody the terms of the contract between the parties. Thus, unilaterally including a clause in the printed Delivery Challan would not constitute an agreement between the parties merely because the counter party had accepted the delivery of the goods."

Therefore, the Court concluded that unilaterally including a clause in the Delivery Challan would not constitute an arbitration agreement between the parties merely because the opposite party had accepted the delivery of goods and had signed the Delivery Challan certifying the acceptance of goods. The Court added that it cannot be said that the respondent had agreed to be bound by the said clause by accepting the delivery of goods.

While holding that the issue whether the parties had agreed to refer the dispute to arbitration would have to be determined as per the facts of each case, the bench ruled that the conduct of the parties is also relevant. It noted that the appellant had raised invoices against the respondent on the basis of the price of the goods supplied, however, the said invoices did not include any such stipulation to the effect that the dispute between them would be referred to arbitration. Therefore, the Court held that the respondent was not bound by the arbitration clause contained in the pre-printed Delivery Challan.

Therefore, reiterating that merely because delivery of the goods had been accepted by the respondent, it would not imply that the respondent had agreed to the arbitration clause stated in the Delivery Challan, the Court upheld the order of the Commercial Court and dismissed the appeal.

Case Title: M/s Hetampuria Tax Fab versus M/s Daksh Enterprises

Citation: 2022 LiveLaw (Del) 1097

Dated: 15.11.2022 (Delhi High Court)

Counsel for the Appellant: Mr. Sanjeev Goyal and Mr. Chaitannya Poonia, Advocates

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