Arbitration In IndiaArbitration Clause in a Purchase Order supersedes the Arbitration Clause in Invoice

The Bombay High Court in Parekh Plastichem Distributors LLP vs. Simplex Infrastructure Limited, [Arbitration Application No. 250 OF 2021 decided on 14.09.2023] held that Arbitration Clause contained in purchase orders would prevail over the Arbitration Clause envisaged in the invoices. The purchase order is considered to be main agreement and hence, would prevail over other documents in the absence of any other document.

FACTS

Simplex Infrastructure Ltd (hereinafter referred to as the “Respondent”) had approached Parekh Plastichem Distributors LLP ( hereinafter referred to as the “Applicant”) for procuring a product called “micro silica” (hereinafter referred to as the “goods”)for its Wadala and BKC site.

The Applicant used to supply the goods based on the purchase orders received from the Respondent. The Applicant had issued a total of 11 invoices raising a sum of Rs.24,53,220/- against the Respondent. Further, an amount of Rs.21,78,910/- is due and payable by the Respondent, pursuant to which the Applicant had sent several reminders for the same.

The Applicant issued a legal notice on 13.01.2021, regarding the payment of the pending amount of Rs.21,78,910/-, failing to which appropriate legal actions would be taken against the Respondent.

Further, on 15.07.2021, the Applicant sent a notice invoking the arbitration clause as envisaged under Clause No.3&4 of the invoices. The Clause No.3&4 of the invoices clearly stated that in case of dispute, the matter shall be referred to Arbitration and the venue shall be Mumbai and The Applicant nominated Mr. Santosh Shetty to act as a sole arbitrator to resolve the disputes between the parties.

The Respondent did not respond to the notice dated 15.07.2021, hence, the Applicant has filed the present application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”).

 ISSUE BEFORE THE HIGH COURT

1. Whether the parties intended to be bound by the Arbitration Clause contained in the purchase orders as issued by the Respondent or the invoices as issued by the Applicant?

CONTENTIONS OF THE PARTIES

The Applicant contended that the Arbitration Clause contained in the invoices raised would prevail and hence, the Mumbai Courts would have the jurisdiction to appoint an Arbitrator.  It was argued that the Arbitration Clause in the invoices would supersede the Arbitration Clause contained in the purchase orders issued by the Respondent. Therefore, the courts of Mumbai would have exclusive jurisdiction in the matter.

It was also asserted that the Respondents had accepted the terms and conditions of the invoice and hence, the invoices would supersede the purchase order. Moreover, the “other terms” in the purchase order also gives jurisdiction to the courts in Mumbai.

The Respondent contended that the purchase orders comprised the main agreement and therefore, the purchase order shall prevail over the invoices. Hence, venue of Arbitration shall be Kolkata as envisaged in the purchase order.  Thus, the courts of Kolkata would have the jurisdiction to appoint an Arbitrator. It was argued that the Applicant had unilaterally included an Arbitration Clause in the invoices issued, therefore,  invoices cannot supersede the purchase order.  .

DECISION AND FINDINGS

The Bombay High Court observed the Arbitration Clause as set out in Clause 23 of the Purchase Order and Clause 3 of the invoice. It was further observed that the purchase orders were more comprehensive and were also the main agreement between the parties and hence, it cannot be disputed.

It was also held that there was no specific agreement between the parties consenting that the Arbitration Clause in the invoices would supersede the Arbitration Clause in the purchase order.

The High Court relied on Balasore Alloys Limited v. Medima LLC [MANU/SC/0691/2020] and held that the details in the purchase orders were comprehensive and were the main agreement and hence, the Purchase orders would supersede the invoices.

The High Court further relied on M. K. Abraham & Co. Vs. State of Kerala & Anr. [MANU/SC/1146/2009] and held that although the “other terms” of the purchase order gives jurisdiction to courts of Mumbai, the application under Section 11 of the A&C Act can be entertained only when the venue of Arbitration is Mumbai.

The Bombay High Court also relied on Indus Mobile Distribution Pvt. Ltd. V/s Datawind Innovations Pvt. Ltd. And Ors. [(2017) 7 SCC 678] that as the purchase order specifically provides venue and seat of Arbitration to be Kolkata, the courts of Kolkata would have the jurisdiction to entertain application under Section 11 of the A&C Act. Hence, dismissed the present application.

AMLEGALS REMARKS

The Bombay High Court in the present case has upheld the idea of consensus ad idem as a mandate for the validity of an Arbitration Clause. It was held that in case when an Arbitration Clause is present in the purchase orders as well as invoices, the Arbitration Clause in the purchase order supersedes. The purchase order is a comprehensive document and hence, in absence of any other agreement to the contrary, the main agreement will prevail.

– Team AMLEGALS assisted by Ms. Mishri Patel (Intern)