Arbitration clause in tax invoices forms valid agreement even if purchase orders are silent, rules Bombay High Court

Bombay High Court Affirms Validity of Arbitration Clauses in Tax Invoices as Binding Agreements, Regardless of Silent Purchase Orders.

Hitesh Coal Traders v. Indapur Dairy and Milk Products Ltd. | Commercial Arbitration Application No. 93 of 2026 | Bombay High Court | May 5, 2026

In a significant ruling on the existence of arbitration agreements in commercial transactions, the Bombay High Court has held that an arbitration clause printed on tax invoices and delivery challans, which are acknowledged and partly paid for by the buyer, constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The absence of an arbitration clause in the purchase orders does not nullify this agreement. Justice Sandeep V. Marne allowed the application under Section 11 of the Act and appointed a sole arbitrator to adjudicate the dispute.

Background

Hitesh Coal Traders, a distributor of imported Indonesian coal, supplied coal to Indapur Dairy and Milk Products Ltd. pursuant to purchase orders placed by the latter over a period from September 2019 to April 2020. The purchase orders placed by Indapur did not contain any arbitration clause.

However, the quotation emails sent by the applicant contained a stipulation that disputes would be referred to arbitration under the Arbitration and Conciliation Act and would be subject to the jurisdiction of Mumbai courts. Additionally, each delivery challan and each tax invoice raised by the applicant carried a printed clause referring disputes to arbitration under the Act, subject to Mumbai jurisdiction.

Indapur acknowledged the delivery challans and tax invoices, made payments against most of the invoices, and at no point during the course of the transaction raised any objection to the arbitration clause. Disputes eventually arose over the quality of coal and unpaid amounts of approximately Rs. 19.73 lakh. The applicant invoked arbitration in January 2023, and the respondent denied the existence of any arbitration agreement. The present application was filed in January 2026.

The Core Question

The central issue before the Court was whether the absence of an arbitration clause in the purchase orders, which the respondent characterised as the primary contract, would override the arbitration clause printed on the delivery challans and tax invoices.

The respondent relied on earlier decisions of the Bombay High Court, including Parekh Plastichem Distributors LLP v. Simplex Infrastructure Limited and TCI Infrastructure Limited v. Kirbi Building Systems, to argue that the purchase order constitutes the main contract and that a clause unilaterally placed in an invoice cannot create an arbitration agreement. It was further contended that consensus ad idem is essential for arbitration and was absent here.

Court's Analysis

The Court examined the evolution of the legal position on this question in detail, including the earlier judgment of the Bombay High Court in Concrete Additives and Chemicals, which had taken the view that purchase orders constitute the primary contract and that invoices alone cannot create an arbitration agreement.

Crucially, the Court noted that the Supreme Court had set aside the judgment in Concrete Additives and Chemicals by order dated November 28, 2023, holding that acknowledged invoices bearing an arbitration clause do constitute an arbitration agreement. The Court also relied on the Bombay High Court's own judgment in Bennett Coleman and Co. Ltd. v. MAD (India) Pvt. Ltd., which held that where parties act on invoices and there is no denial of the invoices, the arbitration clause contained in them deserves to be construed as an arbitration agreement. The judgment in Sanjiv Mahmohan Gupta v. Sai Estate Consultants, decided by a Single Judge of this Court, was also referred to for the principle that invoices accepted and partly paid for, without any challenge to the arbitration clause, amount to an accepted arbitration agreement.

The Court noted the specific facts of the present case: the arbitration condition appeared first in the quotation emails, was then repeated in every delivery challan and every tax invoice, all of which were acknowledged by the respondent. Payments were also made against most invoices. At no stage did the respondent raise any objection to the arbitration clause throughout the transaction period. In such circumstances, the Court held that the respondent had, by its conduct, agreed to resolve disputes through arbitration.

Order

The Court held that there was a valid arbitration agreement between the parties and that the application was within limitation. Mr. Suyash Gadre, Advocate, was appointed as Sole Arbitrator to adjudicate the disputes between the parties. All issues on merits were kept open before the Arbitral Tribunal.