Can an arbitration clause in a tax invoice be enforced if the purchase order does not contain one?

Yes, if the invoice is acknowledged and payments are made without objection, the Supreme Court in Concrete Additives and Chemicals has held that such conduct constitutes an arbitration agreement under Section 7(4)(b) of the Arbitration Act.

Does payment of an invoice with an arbitration clause amount to acceptance of that clause?

Yes. The Bombay High Court held that partial or full payment of invoices containing arbitration clauses, without protest, constitutes implied consent to arbitrate, as confirmed by the Supreme Court in Concrete Additives.

What if the invoice is signed only by a gatekeeper, not an authorized representative?

The Court held that the identity of the signatory is irrelevant if the party accepts delivery and makes payment. The conduct of the party, not the signature on the delivery challan, determines acceptance of terms.

Implied consent to arbitration Bombay HC

The Bombay High Court has clarified that an arbitration agreement can be formed through conduct, even in the absence of a clause in the initial purchase order, if the tax invoices containing such a clause are acknowledged and payments are made without objection. This ruling reinforces the principle that arbitration is a creature of consent, and consent may be inferred from consistent, unchallenged conduct.

Background & Facts

The Dispute

The dispute arises from the supply of imported Indonesian coal by Hitesh Coal Traders (Applicant) to Indapur Dairy & Milk Products Ltd. (Respondent). The Respondent placed multiple Purchase Orders for coal between September 2019 and March 2020. These Purchase Orders did not contain any arbitration clause. However, the Applicant raised Tax Invoices and Delivery Challans for each delivery, each of which contained a clause stipulating that disputes would be resolved through arbitration under the Arbitration and Conciliation Act, 1996, with jurisdiction vested in Mumbai courts.

Key Facts

The Applicant sent quotations via email dated 18 September 2019, which included a disclaimer: "Disputes and differences, if any will be referred to provisions of Arbitration and Conciliation Act, 2015 as amended to date and shall be subject to the courts having jurisdiction in Mumbai only."
The Respondent placed Purchase Orders based on these quotations. The Purchase Orders specified terms of delivery, including moisture and GCV deductions, but contained no arbitration clause.
The Applicant delivered coal and issued Delivery Challans and Tax Invoices for each shipment between 23 September 2019 and 3 April 2020.
Each Delivery Challan and Tax Invoice contained the following arbitration clause: "Disputes, if any, subject to provisions of Arbitration and Conciliation Act, 2015 as amended to date. Subject to Mumbai jurisdiction only."
The Respondent acknowledged and stamped Delivery Challans and Tax Invoices without protest.
The Respondent made partial payments against multiple invoices.
On 11 November 2019, the Respondent raised debit notes for quality and moisture deductions; the Applicant responded via emails dated 11 November 2019, 24 December 2019, and 24 February 2020.
The Applicant ceased supply after 5 March 2020.
On 12 January 2023, the Applicant invoked the arbitration clause via email, nominating a sole arbitrator.
On 25 January 2023, the Respondent rejected the invocation, asserting no arbitration agreement existed.
The Applicant filed the present application under Section 11 of the Arbitration Act on or about 23 January 2026.

Procedural History

18 September 2019: Quotations sent by Applicant with arbitration disclaimer
23 September 2019 to 3 April 2020: Period of coal supply, delivery challans and tax invoices issued
11 November 2019: Respondent raises debit notes for quality deductions
12 January 2023: Applicant invokes arbitration clause via email
25 January 2023: Respondent objects, denying existence of arbitration agreement
23 January 2026: Application filed under Section 11 of the Arbitration Act
20 April 2026: Judgment reserved
5 May 2026: Judgment pronounced

The Parties' Positions

Applicant’s Position: The arbitration clause in the Tax Invoices and Delivery Challans became part of the contract through conduct. The Respondent’s repeated acknowledgment of invoices, acceptance of goods, and partial payments constituted acceptance of the arbitration clause. The Supreme Court’s decision in Concrete Additives and Chemicals overruled prior Bombay HC precedent and established that invoice-based arbitration clauses are enforceable when acknowledged and acted upon.

Respondent’s Position: The Purchase Orders are the sole binding contract between the parties. Since they contain no arbitration clause, no agreement to arbitrate exists. The arbitration clause in invoices is unilateral and cannot be imposed without express consent. Reliance was placed on Parekh Plastichem, Alupro Building Systems, and TCI Infrastructure to argue that mere acceptance of goods or payment does not imply consent to arbitration.

Relief Sought

The Applicant seeks appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute over unpaid dues of Rs. 19,73,409/- and related claims arising from the Tax Invoices.

The Legal Issue

Can an arbitration agreement be inferred under Section 7 of the Arbitration and Conciliation Act, 1996 when the Purchase Order is silent on arbitration, but the subsequent Tax Invoices and Delivery Challans contain an arbitration clause, and the recipient acknowledges the documents and makes payments without objection?

Arguments Presented

For the Appellant

The Applicant relied on Bennett Coleman and Co. Ltd. v. MAD (India) Pvt. Ltd., Sanjiv Mahmohan Gupta v. Sai Estate Consultants, and the Supreme Court’s decision in Concrete Additives and Chemicals v. S.N. Engineering Services Pvt. Ltd. to argue that the conduct of the parties - acceptance of invoices, partial payment, and silence on the arbitration clause over a prolonged period - constitutes an implied agreement to arbitrate. The Applicant emphasized that the invoices were not merely commercial documents but integral to the contractual relationship, and the arbitration clause therein was not hidden or ambiguous. The Supreme Court’s reversal of the Bombay HC’s earlier view in Concrete Additives settled the law: acknowledgment and payment of invoices containing arbitration clauses create a binding arbitration agreement.

For the Respondent

The Respondent contended that arbitration is a matter of express consent and cannot be inferred from silence or conduct alone. Relying on Parekh Plastichem Distributors LLP v. Simplex Infrastructure Limited, Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd., and TCI Infrastructure Limited v. Kirbi Building Systems, the Respondent argued that the Purchase Order is the primary contract, and any subsequent document cannot unilaterally alter its terms. The Respondent distinguished Bennett Coleman on grounds that payments were made under protest or without full knowledge of the clause. It further argued that signatures on Delivery Challans were by gatekeepers, not authorized representatives, and thus could not constitute acceptance.

The Court's Analysis

The Court undertook a detailed review of conflicting precedents, particularly focusing on the Supreme Court’s intervention in Concrete Additives and Chemicals. The Court noted that while earlier Bombay HC judgments, including Concrete Additives, had held that invoices alone could not create arbitration agreements, the Supreme Court explicitly overturned this view. The Apex Court held that where invoices containing arbitration clauses are acknowledged and payments are made, the parties’ conduct demonstrates mutual consent under Section 7(4)(b) of the Arbitration Act, which recognizes arbitration agreements through exchange of communications providing a record of the agreement.

"We do not agree with the High Court that there was no arbitration clause. All issues canvassed by the respondent... can be always canvassed before the Arbitral Tribunal in accordance with law."

The Court emphasized that the Respondent had multiple opportunities to object to the arbitration clause - each time an invoice was received, each time a payment was made, and during the entire period of correspondence. The absence of any protest, coupled with the acceptance of goods and partial payments, amounted to acquiescence. The Court further held that the arbitration clause in the emails providing quotations, though not binding per se, provided context to the Respondent’s awareness of the Applicant’s standard terms.

The Court distinguished Alupro Building Systems and NSK India Sales, where the invoices were merely acknowledged for quantity and no payments were made. In contrast, here, payments were made, and no objection was raised for over three years. The Court concluded that the Respondent’s conduct amounted to a clear, implied acceptance of the arbitration clause.

The Court also rejected the Respondent’s reliance on TCI Infrastructure, which involved a unilateral proposal, not an invoice issued in the course of performance. The Court held that the invoices were not mere billing documents but part of the contractual record, and their acceptance was integral to the transaction.

The Verdict

The Applicant succeeded. The Court appointed Mr. Suyash Gadre, Advocate, as Sole Arbitrator to adjudicate the dispute arising from Tax Invoices dated 23 September 2019 to 3 April 2020. The Respondent’s objection to the existence of an arbitration agreement was rejected. The arbitration proceedings shall commence within the timelines prescribed, with the Arbitrator entitled to fees under the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018, to be borne equally by the parties. The Arbitrator must file a Statement of Disclosure within two weeks of receipt of the order. All merits issues, including limitation and quantum of claim, are reserved for the Arbitral Tribunal.

What This Means For Similar Cases

Arbitration Can Be Implied Through Conduct

Practitioners must now treat the acknowledgment and payment of commercial invoices containing arbitration clauses as binding, even if the initial purchase order is silent.
Silence over multiple invoices, coupled with payment, constitutes implied consent under Section 7(4)(b).
Legal notices challenging arbitration must be raised at the first invoice receipt; delay waives the objection.

Invoices Are Not Mere Billing Documents

Tax Invoices and Delivery Challans in commercial transactions are now recognized as integral parts of the contractual record.
Arbitration clauses embedded in such documents are enforceable if consistently accepted.
Parties cannot later deny arbitration by claiming the clause was "hidden" if they acted on the invoice without protest.

Precedent Now Favors Enforceability

The Concrete Additives ruling by the Supreme Court is binding and overrules prior Bombay HC decisions.
Courts will now favor enforcement of arbitration where conduct demonstrates mutual intent.
Practitioners should advise clients to explicitly object to arbitration clauses in invoices at the earliest opportunity to preserve rights.

Practical Takeaways

If you are a supplier: Ensure arbitration clauses are clearly printed on invoices and delivery notes.
If you are a buyer: Object to arbitration clauses in writing at the first invoice received; payment without protest may waive your right to challenge.
Always document objections to terms in writing; silence is no longer a safe strategy.

Limitation Period Clarified

The limitation period of three years under Article 137 of the Limitation Act commences from the date of invocation of the arbitration clause (here, 12 January 2023), not from the date of default.
Applications under Section 11 must be filed within three years of invocation.

The burden shifts to the party objecting to arbitration to prove lack of consent.
Mere absence of signature on the invoice does not invalidate the agreement if conduct shows acceptance.

Document Retention Critical

Maintain records of all invoices, acknowledgments, and payments.
Failure to retain such records may result in adverse inference in future arbitration applications.

Avoiding Future Disputes

Standardize terms across all documents: Purchase Order, Delivery Challan, and Invoice.
Include arbitration clauses in Purchase Orders to avoid litigation.
If arbitration is not desired, explicitly state in Purchase Orders: "Terms herein are exclusive and override all other communications."

Key Takeaway for Practitioners

This judgment transforms how commercial contracts are interpreted in India. Arbitration is no longer confined to signed agreements. Consent can be inferred from conduct - payment, silence, and acknowledgment. Practitioners must now treat every invoice as a potential arbitration agreement unless explicitly and timely objected to.

Implied Consent to Arbitration | Payment Against Tax Invoices with Arbitration Clause Binds Parties Under Section 11, Arbitration Act : Bombay HC