ARBITRATION UPDATE | SIGNIFICANCE OF AN ARBITRATION CLAUSE IN A TAX INVOICE
In a recent judgment passed by the Bombay High Court in the matter of Bennett Coleman & Co Limited vs MAD (India) Private Limited it has been held that any document in writing (tax invoice in the present case) exchanged between the parties which provide a record of the agreement and in respect of which there is no denial by the other side, would squarely fall within the ambit of Section 7 (i.e., Arbitration agreement) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) and would amount to an arbitration clause. This legal update briefly analyses this judgment of the Bombay High Court.
Facts: Bennett Coleman & Co Limited (Bennett Coleman) is a news media company engaged in news publishing, television, the internet, radio, and outdoor media. MAD (India) Private Limited (Agency) is an advertising agency which had approached Bennett Coleman to place advertisements in their newspapers, channels, radio, and other outdoor publications through a release order process. Bennett Coleman would then publish the required advertisement on various media platforms, both physical and virtual, based on the release orders obtained from the Agency, and provide an invoice for payment toward the issuing of such advertisement. The payment was to be made within 120 days from the receipt of the invoices, failing which an interest of 18% p.a. would be charged.
On the basis of the release orders issued by the Agency between July 2017 to April 2019, various advertisements were put in the print and non-print media by Bennett Coleman and corresponding to this, invoices were raised upon the Agency for the work done. Agency defaulted and an amount of Rs 11,49,23,640/- was due and payable till 30 April 2022. As a result, Bennett Coleman invoked the arbitration on 11 July 2022, seeking appointment of the sole arbitrator as contemplated in the Dispute Resolution Clause, which was a part of the tax invoice.
The Clause in question which was mentioned in the tax invoice-
``(F) All disputes and differences arising out of or in relation to a contract or order or advertisements, bill in connection therewith or otherwise, or breach thereof shall be referred to the sole arbitration in accordance with the Arbitration and Conciliation Act, 1996 for any modifications thereof, BENNETT, COLEMAN & CO.LTD, shall have the right to nominate such arbitrator. The award made in pursuance thereof shall be final and binding on both parties``
Whether a clause contemplating reference of disputes and differences arising out of, or in relation to a contract or order of advertisement, bill or otherwise breach thereof, to be referred to Sole Arbitrator, printed at the back of the tax invoice would amount to an arbitration clause?
Contention of the parties:
It was contended by Bennett Coleman that there was no denial of the existence of the arbitration clause in the tax invoice by Agency thus, the clause is mutually agreed and it binds both the parties irrespective of the wording used in the clause. It was also submitted that the notice was issued clearly indicating that legal proceedings could be instituted if the Agency fails to deliver the amount. Agency failed to respond to the notice. The advocate for the Agency submitted that there was no conscious agreement between the parties to refer disputes for adjudication. He further submitted merely on the basis on the tax invoice of the purchase orders which had a clause of arbitration, a reference to arbitration cannot be made. Accordingly, Agency denied the existence of the arbitration agreement.
Bombay High Court after relying on several judgments observed that the parties have acted upon the invoices and there was no denial of invoices raised by Bennett Coleman. It was decided that the clause in the invoices, which expressly mentions arbitration, should be interpreted as an arbitration clause. A formal format is not specified as to what would contemplate an arbitration agreement, but the essentials of it are by now well-established. The Court while describing the requirement as to what constitutes an arbitration agreement observed that although no specific form is required to create an arbitration agreement, the words "must unequivocally", reflect the parties' consent to refer the dispute to arbitration, regardless of the wording they choose to use. It was decided that MAD India cannot disown the clear stipulation in the tax invoice regarding any dispute being referred to arbitration, and an arbitrator was appointed in the present case.
MHCO Comment: It is well settled that in cases where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration in terms of the arbitration agreement. This judgment gives an utmost clarity about reference to arbitration from an arbitration clause mentioned in a tax invoice.
Author: Bhushan Shah - Partner | Shreya Dalal - Senior Associate | Daksha Kasekar - Associate
This update was released on 08 Feb 2023.
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