Court Refers Dispute to Arbitration in Case of Non-Payment for Supplies.


10 July 2024 Arbitration Law >> Business & Commercial Law  

In a recent ruling of M/s. Dhawan Box Sheet Containers Pvt Ltd v/s M/s. Sel Manufacturing Co Ltd, the Delhi High Court addressed a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve disputes arising from an unpaid invoice. The petitioner, a manufacturer and supplier of corrugated boxes and packaging materials, asserted that the respondent had failed to make full payments against invoices issued for supplies made between June 2021 and September 2023.

The petitioner highlighted that, despite sending a legal notice on November 6, 2023, requesting payment of ?1,25,80,425 due since September 15, 2023, the respondent contested the existence of an arbitration agreement. Following the notice, the petitioner proposed an arbitrator's name, prompting the current petition.

 
 

The court issued notice on January 8, 2024, and the respondent appeared through counsel on March 14, 2024, requesting time to file a reply. However, the respondent failed to appear in subsequent hearings, prompting the court to serve notice to the respondent at various addresses, including via email.

Despite attempts to ensure representation, the respondent remained unrepresented during the latest hearing on May 7, 2024, leading the court to consider the merits of the case without the respondent's input. The petitioner’s counsel cited two prior judgments—Swastik Pipe Ltd. v. Shri Ram Autotech Pvt. Ltd. and another from 2022—where the court upheld arbitration clauses in similar contexts, suggesting that these clauses could establish an arbitration agreement.

The court acknowledged that an arbitration clause in an invoice could indeed be deemed an arbitration agreement under Section 7 of the Act, as long as it was acted upon by both parties. Given that the respondent had not filed a counterclaim or appeared to contest the assertion of an existing arbitration agreement, the court was inclined to rule in favor of the petitioner.


Further, the court pointed out that the signature of the respondent's representative on the invoices could be interpreted as acceptance of the terms, including the arbitration clause. Although the respondent contended that their signature only acknowledged receipt of goods, the court noted that such a matter could not be conclusively resolved at this pre-reference stage.

In light of the established commercial dealings between the parties and the absence of a rebuttal from the respondent, the court found sufficient grounds to refer the dispute to arbitration. Consequently, the petition was granted, and Ms. Priya Kumar was appointed as the arbitrator to oversee the proceedings, which will be conducted under the aegis of the Delhi International Arbitration Centre (DIAC). The court emphasized that all rights and contentions of the parties, including the issue of the arbitration agreement's existence, remain open for adjudication by the arbitrator. This ruling underscores the judiciary's preference for arbitration as a dispute resolution mechanism, especially in cases where one party fails to engage in the legal process.

As a final note, the court clarified that the respondent would be duly served in accordance with the DIAC rules during the arbitration proceedings, ensuring that all parties have the opportunity to present their cases fully. The petition was disposed of with these directives, marking a significant step in the enforcement of arbitration agreements within commercial contracts.

  Arbitration and Conciliation Act, 1996    Indian Stamp Act, 1899