"Purchase Order Containing Arbitration Clause Will Supercede Tax Invoice Which Does Not Contain Arbitration Clause": Calcutta High Court

The Court held that the purchase order was the main contract which contained all the terms and conditions which the parties agreed to be bound by, including the arbitration clause. The tax invoice was issued later. It contained the description of goods sold and the payment to be received. The invoice did not contain any arbitration clause, although the main agreement contained the same. Thus, the intention of the parties to arbitrate was clear and the arbitrator should be appointed.

Facts

The Petitioner floated a tender inviting quotations for design, manufacture, supply, testing and commissioning of capacitor panels for its plant in Jamuria. The Respondent's proposal was approved and accordingly, a purchase order bearing no P119Y-00458 dated September 6, 2019, was issued in favour of the Respondent.

Upon the trial run of the aforementioned capacitor panels at the Petitioner's plant, various issues arose in respect of all the eight capacitor panels. Subsequently, the Petitioner tried to commence the operations of the said capacitor panels, but they were found to be malfunctioning. The issue was brought to the notice of the Respondent by the Petitioner and several meetings were held between the representatives of the parties between December 2, 2021 and September 16, 2022.

The grievance of the Petitioner was not solved till November, 2023 and no effort was made by the Respondent to replace the defective capacitor panels. Finding, no other alternative, the Petitioner terminated the purchase order by a termination letter issued via email dated December 14, 2023. The Petitioner demanded refund of the entire consideration sum paid, amounting to Rs. 1,97,06,000/- together with interest at the rate of 24% per annum from January 23, 2021 till date of actual payment. The Respondent denied the termination letter and made a demand for further sum of money.

Thus, differences arose between the parties and the Petitioner invoked the arbitration clause, by letter dated January 12, 2024. In reply to the Petitioner's letter, the Respondent by a letter dated February 20, 2024 raised various objections and sought to dispute the arbitration clause itself by relying on a jurisdiction clause contained in the tax invoice dated January 13, 2021 issued by the Respondent pursuant to the purchase order.

Thereafter, this application was filed for appointment of a sole arbitrator, in terms of the arbitration clause in the purchase order.

Contentions

The Counsel for the Petitioner submitted that the purchase order dated September 06, 2019 was forwarded to the Respondent, who acknowledged it without any objection. On the basis of the purchase order, several invoices were raised by the Respondent which were paid. The conduct of the parties would show that the entire purchase order, including the terms and conditions thereof, had been accepted by the parties and the parties were ad idem on the issue of reference of disputes arising out of the said purchase order, to arbitration.

The Counsel highlighted that proforma invoices were issued by the Respondent in furtherance to the steps taken under the purchase order. Only when the Petitioner invoked arbitration, a frivolous and arbitrary plea was taken by the Respondent with regard to non-existence of the arbitration clause in view of a jurisdiction clause in the tax invoice. The tax invoice was issued subsequently by the Respondent and allegedly accepted by the Petitioner.

The Counsel for the Petitioner further submitted that while the purchase order contained the commercial terms and conditions of the business, the invoice merely contained the description and price of goods. The purchase order, was a binding contract and the same would prevail over the invoice.

The Counsel for the Respondent opposed the application on the ground that a tax invoice had been judicially held to be a binding contract and the subsequent issuance of the tax invoices was an amendment to the purchase order. He further submitted that the tax invoice was accepted by the Petitioner and payments were made in accordance with the contents of the tax invoice. The tax invoice did not contain any arbitration clause and the jurisdiction of this court was ousted by the jurisdiction clause in the tax invoice. The clause provided that Courts at Satna would have jurisdiction.

It was further averred that the purchase order was a document generated by the Petitioner. The same was not signed by the Respondent. Thus, the consensus and meeting of minds of the parties was absent. The intention to refer the dispute to a sole arbitrator was thus absent.

Observations

The Court observed that the main issue for consideration was whether the Court should appoint a sole arbitrator, in terms of Clause 6 of the purchase order.

The Court highlighted Clause 6 of the purchase order which provides for reference of disputes to arbitration. It states that any dispute or difference whatsoever, arising between the parties out of or in relation to the work/supply of the work order/purchase order, or effect to dis-contract or breach thereafter, shall be settled amicably, and if the parties failed to resolve the disputes, the same shall be finalised by arbitration. The award made in pursuance thereof, shall be binding. Thus, the Court observed that the intention of the parties to refer the dispute to arbitration is clear.

The Court observed that the commercial terms and conditions and the general terms and conditions of the agreement for goods to be supplied by the Respondent, are all contained in the said purchase order. The law provides that consensus ad idem could also be inferred from the conduct of the parties. An agreement which is electronically exchanged between the parties will suffice the requirement of law for an arbitration agreement to be recorded in writing as required by Section 7, ACA as was the case here.

The Court further observed that the correspondences between the parties clearly indicate that the Respondent acknowledged receipt of the purchase order and acted in terms thereof. The Respondent did not raise any objection to the same.

The Court held that the purchase order was the principal agreement between the parties. The intention of the parties to refer the disputes and differences arising out of the purchase order to arbitration, is available from Clause 6 thereof. The tax invoice is a document of evidence for supply of goods or services and is also essential for the recipient to avail of input tax credit. The tax invoice provides the description of the goods with the specification code, quantum, total value, etc, without further specification or details. Therefore, the tax invoice was unilaterally raised by the Respondent after having acted in terms of the purchase order. Thus, the tax invoice was an ancillary document to the main agreement i.e. the purchase order.

In view of the above, the Court held that the terms and conditions of the purchase order including the arbitration agreement would prevail over and supersede the terms and conditions of the tax invoice. The Court noted that the tax invoice did not mention any arbitration agreement and only states that the courts at Satna will have jurisdiction.

Thus, the Court concluded that the arbitration clause in the purchase order would bind the parties as it is an all-encompassing agreement. The tax invoice does not contain an arbitration clause but it also does not mention that the purchase order has been superseded. Additionally, the tax invoice has been signed by the Respondent alone. In any event, the issue of novation of the purchase order will be decided by the Arbitrator who is competent to rule on his own jurisdiction and decide the arbitrability of the dispute.

Accordingly, the Court allowed the petition and appointed Mr. Amitesh Banerjee as the Sole Arbitrator to arbitrate upon the disputes between the parties.

Case Title – Super Smelters Limited v United Cables Limited

Case No. – AP-COM 470 OF 2024

Appearance-

For Petitioner - Mr. Kumarjit Banerjee, Adv; Ms. Sanchari Chakraborty, Adv.; Mr. Akanksha Chowdhury, Adv.; Mr. Samriddha Saha, Adv

For Respondent- Mr. Narendra Sharma Adv.; Mr. Deva Anand Misra, Adv.; Mr. Prashant Kr. Singh, Adv.

Date – 30.06.2025