Arbitration Clause in Tax Invoices Amounts to Valid Arbitration Agreement, Rules Bombay High Court
- REEDLAW
- Aug 30
- 3 min read
Updated: Sep 1
REEDLAW Legal News Network reports: In a significant interpretation of arbitration law, the Bombay High Court has held that an arbitration clause embedded within tax invoices constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996, when such invoices are accepted and acted upon without objection. The Court ruled that this suffices to justify reference to arbitration under Section 11 of the Act.
The Bombay High Court Single-Judge Bench of Justice Somasekhar Sundaresan, while adjudicating a Commercial Arbitration Application along with a Commercial Arbitration Petition, held that an arbitration clause incorporated in tax invoices, which were accepted and acted upon without objection, amounts to a valid arbitration agreement under Section 7. The Court further observed that such acceptance by conduct provides a sufficient basis for referring the dispute to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996.
The Bombay High Court examined whether an arbitration agreement existed between the parties in the context of an application under Section 11 of the Arbitration and Conciliation Act, 1996, along with a Section 9 petition. The dispute arose from outdoor advertisement services provided by the applicant to the respondent, for which invoices containing an arbitration clause were raised between February 2018 and June 2019. The respondent contested the invocation of arbitration, arguing that an arbitration clause embedded in invoices could not constitute a valid arbitration agreement, as the invoices were issued after services were rendered and were received subject to verification.
The Court observed that the conduct of the parties demonstrated prima facie acceptance of the invoices, which included the arbitration clause. The respondent had made substantial payments without objecting to the clause, even after multiple opportunities to do so. The Court relied on the principles laid down in Bennett Coleman & Co. Ltd. v. MAD (India) Pvt. Ltd., holding that documents exchanged and acted upon without denial can constitute an arbitration agreement under Section 7 of the Act. It rejected the respondent’s objections, noting that questions of limitation and other factual disputes fell within the jurisdiction of the arbitral tribunal, not the Section 11 court.
In view of the settled law under Section 11(6A), the Court confined its role to ascertaining the existence of a valid arbitration agreement. Finding that the invoices formed part of the contractual framework and were acted upon, the Court referred the disputes to arbitration and appointed a sole arbitrator to adjudicate the matter. It further directed that the pending Section 9 petition be treated as an application under Section 17 before the arbitral tribunal, granting liberty to the applicant to amend the petition. Both proceedings were accordingly disposed of.
Mr. Nirman Sharma, a/w Mr. Krushang Kedia, i/b Mr. Girish Kedia, Advocates, represented the Applicant/Petitioner.
Mr. Dharam Jumani, a/w Mr. Suraj Iyer, Mr. Mihir Nerurkar, Ms. Gauri Joshi, i/b M/s Ganesh and Co., Advocates, appeared for the respondent.
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