In a significant ruling, the Hon’ble Delhi High Court reaffirmed the principle that accepting goods under an invoice constitutes acceptance of its governing terms and conditions, including an arbitration clause.
The case of Radico Khaitan Limited v. Harish Chouhan [2025:DHC:1767] highlights the enforceability of arbitration agreements and the limited scope of judicial intervention in such matters where the arbitration clause is provided in an invoice issued by the service provider.
Background
The judgement stems from a petition filed by Radico Khaitan Ltd (‘Petitioner’) under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking the appointment of an arbitral tribunal to adjudicate the disputes between them and an individual – Mr. Harsih Chouhan (‘Respondent’). The Petitioner and Respondent were engaged in a business relationship wherein the Petitioner was supplying alcoholic beverages to the Respondent against purchase orders. In the course of these transactions, the Petitioner either directly or through its subsidiaries, associates, or sister concerns, issued several invoices in the Respondent’s name after supplying the agreed-upon goods. These invoices contained a section labeled “Terms & Conditions,” with Clause 5 explicitly providing that any dispute arising between the parties would be referred to arbitration by a sole arbitrator, with Delhi designated as the seat of arbitration.
The dispute arose when a cheque issued by the Respondent against the invoice, purportedly intended to fully discharge his outstanding liability toward the Petitioner, was dishonored. Consequently, the Petitioner issued a legal notice and initiated proceedings under Section 138(b) of the Negotiable Instruments Act, 1881. Subsequently, a dispute emerged regarding the respondent’s alleged outstanding liability. In response, the Petitioner invoked arbitration under Section 21 of the Arbitration and Conciliation Act, 1996, asserting that the dispute fell within the ambit of the arbitration agreement as contained in the tax invoices.
Contentions and the issue before the Court
The Petitioner contended that both parties had mutually agreed, at the inception of their commercial relationship, that all transactions would be governed by the terms and conditions printed on these invoices. It was further argued that Clause 5, being a part of these terms, constituted a binding arbitration agreement. The Petitioner also emphasized that the Respondent, having accepted and acted upon these invoices without protest, continued receiving supplies and making partial payments toward the outstanding liabilities in a running account maintained between the parties.
The central legal question before the Court was; whether an arbitration clause contained in an invoice, unilaterally issued by one of the parties, constitutes a valid and enforceable arbitration agreement between the parties?
Finding of the Court
The Court while reiterating the Supreme Court’s decision in Concrete Additives and Chemicals Pvt. Ltd. v. S.N. Engineering Services Pvt. Ltd. [Civil Appeal No.7858 of 2023] held that that while an invoice is typically a document unilaterally prepared by the seller, its terms can still be binding if the recipient, through conduct, demonstrates an intention to be governed by those terms. The Court in the present case observed that the conduct of the parties is a determinative factor in assessing the existence of a valid arbitration agreement.
In the case of the Petitioner, the Respondent and his sons had engaged in transactions with the Petitioner between 2020 and 2021 without raising any objections regarding the terms of the invoices. Furthermore, their partial payments toward outstanding liabilities evidenced an implicit acceptance of the invoice terms, including the arbitration clause.
The bench underscored the pro-arbitration stance adopted in Indian jurisprudence, wherein courts are mandated to refer disputes to arbitration even if there is a slight doubt regarding the existence or validity of the arbitration agreement. The Court while referring to the decision of the Supreme Court in Cox & Kings Ltd. v. SAP India (P) Ltd. [ (2024) 4 SCC 1] also reiterated that when dealing with a petition under Section 11 of the Arbitration and Conciliation Act, 1996 the court’s jurisdiction is limited to making prima facie opinion as to the existence of an arbitration agreement. It is within the power of the Arbitration tribunal to conduct a detailed examination and validate the existence of the agreement. If such an agreement is found to exist, even on a preliminary stage, the dispute must be referred to arbitration, leaving all further determinations to the arbitral tribunal.
Analysis and implication
Based on the above principle, and several precedents the bench held that a prima facie case had been made out in favor of the existence of an arbitration agreement between the parties. Consequently, it referred the dispute to arbitration in accordance with Clause 5 of the invoice terms.
The subject decision serves as a reaffirmation of the Indian judiciary’s pro-arbitration approach and its commitment to minimizing judicial interference in arbitration proceedings. By recognizing an arbitration clause contained within an invoice as enforceable, the judgment reinforces the principle that commercial parties must honor their contractual obligations, even when those obligations arise from standard business documents like invoices.
While Radico’s case is not the first case where the court has recognized the arbitration agreement which is issued by one party by way of an invoice, the issue is one that keeps coming up for consideration. The question that the court then has to check is how the other party has responded to the invoice. Where the parties have made part-payments or acted in furtherance of the invoices issued (which provide for an arbitration clause), the courts have been fairly consistent in upholding the existence of an arbitration agreement even though it may not have been signed by both parties. In some rare cases, the courts have taken a contrary stand like the one in Mr. Mohammad Eshrar Ahmed v. M/s Tyshaz Buildmart India Private Limited ;[2024 DHC 6809] where the Delhi High Court noted that there was no consent to the recitals of the agreement contained in the invoice which was sent only a few days before the arbitration notice was issued. Therefore, the conduct of the party receiving the invoice, upon receipt of the invoice becomes necessary to adjudicate whether there exists a valid arbitration agreement or not. This ruling is particularly significant for businesses that routinely conduct transactions based on invoices containing arbitration clauses. It underscores the importance of raising objections at the earliest opportunity if a party intends to dispute the applicability of such terms.
The views and opinions expressed in this Article are those of the author(s) alone and meant to provide the readers with understanding of the judgment passed in Radico Khaitan Limited v. Harish Chouhan [2025:DHC:1767]. The contents of the aforesaid Article do not necessarily reflect the official position of Saga Legal. The readers are suggested to obtain specific opinions/advise with respect to their individual case(s) from professional/experts and not to use this Article in place of expert legal advice
[1] Authored by Mr. Atul N Menon (Partner) and Ms. Bhairavi S N (Senior Associate) of Saga Legal
