Court Affirms Arbitration Based on Purchase Order's GCC Reference, Appoints Former CJ as Arbitrator

Chennai, Tamil Nadu – The Madras High Court, in a significant ruling, has held that an arbitration clause contained within General Conditions of Contract (GCC) can be binding even if the GCC itself is not formally signed, provided it is clearly incorporated by reference in Purchase Orders (POs) that the parties have acted upon. Justice Krishnan Ramasamy allowed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, appointing Hon'ble Mr. Justice Sanjay V. Gangapurwala , Former Chief Justice of the Madras High Court, as the sole arbitrator to adjudicate disputes exceeding Rs. 116 Crores between a water infrastructure company and its pipe supplier.

The court emphasized that the conduct of parties and the commercial understanding of their agreements are paramount in determining the existence of an arbitration agreement, which can prevail over conflicting unilateral terms in subsequent documents like invoices.

Case Background: A Dispute Over Pipes and Payments

The petitioner, a public limited company engaged in global water infrastructure projects, had issued Letters of Intent (LoIs) and subsequently 22 Purchase Orders to the respondent for the supply of High-Density Polyethylene (HDPE) pipes. Each PO contained a note stating it "shall be governed by the 'General Conditions of Contract for procurement of Materials/Equipment' untill unless specified" (GCC).

A dispute arose when the petitioner alleged the supply of poor-quality pipes, claiming Rs. 116.33 Crores. The respondent, in turn, raised counter-claims concerning termination payments, outstanding dues, and damages. Despite attempts at amicable settlement and initial communications where the respondent suggested the appointment of an independent arbitrator by the High Court, the respondent later contested the existence of a valid arbitration agreement based on the GCC, leading the petitioner to file the present petition.

Arguments Presented

Petitioner's Stance: Represented by Mr. Anirudh Krishnan, the petitioner argued: * The POs, acted upon by the respondent, explicitly incorporated the GCC, which contained an arbitration clause (Clause 28). * The respondent was aware of the GCC, accessible via the petitioner's web portal, and had even downloaded the POs. * The respondent's letters dated March 18, 21, and 23, 2024, indicated an agreement to refer disputes to an arbitrator appointed by the High Court. * An arbitration agreement doesn't necessarily require signatures if parties are ad idem (of one mind), citing Mahanagar Telephone Nigam Limited (MTNL) v. Canara Bank . * A jurisdiction clause in the respondent's invoices cannot override the pre-existing arbitration agreement in the GCC, referencing Parekh Platichem Distributors LLP v. Simplex Infrastructure Limited .

Respondent's Counter-Arguments: Mr. Arun C. Mohan, counsel for the respondent, contended: * The GCC was not binding as it was never signed by either party, as allegedly required by Clause 30.7 of the GCC itself, and was not provided with the POs. * There was no consensus ad idem on the GCC's terms, including the arbitration clause. * The "Note" in the POs was a general reference and did not specifically incorporate the arbitration clause. * The signed LoIs did not mention the GCC. * The Madras High Court lacked territorial jurisdiction, as the respondent's invoices stipulated "subject to Burhanpur Jurisdiction," and no part of the cause of action arose in Tamil Nadu. * The petitioner suppressed the invoices. * Key precedents cited included NBCC (India) Limited v. Zillion Infraprojects Pvt.Ltd. on the need for consent and Padia Timber Company Private Limited v. Board of Trustees of Vishakapatnam Port on acceptance with new conditions.

Court's Analysis: Purchase Orders Prevail, Conduct Indicates Agreement

Justice Krishnan Ramasamy undertook a detailed analysis, focusing on the intention of the parties as per Section 7 of the Arbitration Act.

Primacy of Purchase Orders over Invoices: The Court observed that the respondent had countersigned the LoIs, which explicitly stated that formal POs with detailed terms would follow. The POs, issued from Chennai, contained the crucial "Note" referencing the GCC. The judgment highlighted:

"It is not in dispute that the Letters of Intent have been counter signed and sent by the respondent and pursuant to which, the petitioner issued Purchase Orders... The purchase orders contain the 'Note' which reads as under: 'Note: The Purchase Order shall be governed by the "General Conditions of Contract for procurement of Materials/Equipment" until unless specified.'"

The Court found that the respondent, by raising invoices that specifically referred to these POs and by not raising any queries regarding the PO terms (despite a provision in the PO Note inviting clarifications), had "virtually agreed to the terms and conditions mentioned in the Purchase Orders which specifically refers that the Purchase Orders shall be governed by the 'General Conditions of Contract' (GCC)."

The Court reasoned that this conduct established that the parties were ad idem , making the POs the main agreement. The argument that the GCC was unsigned (Clause 30.7) was deemed "hyper technical," especially since the respondent simultaneously denied the GCC's applicability while relying on one of its clauses. The jurisdiction clause in the respondent's invoices was considered "unilateral" and could not supersede the terms of the POs.

Interpretation of Arbitration Agreement and Precedents: The Court leaned on the Supreme Court's decision in MTNL v. Canara Bank , stating:

"The arbitration agreement need not be in any particular form. What is required to be ascertained is the intention of the parties to settle their disputes through arbitration... If it can prima facie be shown that parties are ad idem, even though the other party may not have signed a formal contract, it cannot absolve him from the liability under the agreement."

The Court distinguished its own prior ruling in Aviagen India Poultry Breeding Company Private Limited v. R.Geetha Ranjani , where an invoice's arbitration clause was upheld because the purchase order in that case did not contain an arbitration clause. In the present case, the POs, through the GCC, did.

Respondent's Conduct Post-Dispute: Crucially, the Court noted the respondent's correspondence:

"Therefore, we would advise you to get an independent Arbitrator appointed by the Hon'ble High Court under the provisions of Section 11(6) of the Arbitration & Conciliation Act, 1996." (Respondent's letter dated 18.03.2024) And, "...our client agrees to refer all the disputes pertaining to all the projects on pan India to an Independent Arbitrator to be appointed by Hon'ble High Court..." (Respondent's letter dated 23.03.2024)

The Court viewed this as the respondent, "though disputing the existence of the GCC, ... expressed their intention to get the dispute resolved through an independent Arbitrator," with the only apprehension being the unilateral appointment from the petitioner's panel.

Jurisdictional Aspect: Given that the POs (incorporating the GCC, which specified Chennai as the venue/seat and jurisdiction under Clauses 28.2.6 and 29.2) were deemed the main agreement, the Court found it had the jurisdiction to entertain the petition. The respondent's failure to raise the Burhanpur jurisdiction argument in initial correspondence was also noted.

Final Decision and Implications

The Court concluded that the petitioner had successfully made out a case for the appointment of an arbitrator.

"In the light of the above discussion, this Court is of the considered view that the petitioner has made out a case for appointment of the Arbitrator for adjudication of the dispute between the parties."

Accordingly, Hon'ble Mr. Justice Sanjay V. Gangapurwala , Former Chief Justice of the Madras High Court, was appointed as the sole arbitrator. The arbitrator was directed to pass an award expeditiously, preferably within six months, and to decide the matter uninfluenced by the Court's observations in the present order. Fees are to be borne equally by the parties.

This judgment underscores the judiciary's pragmatic approach to interpreting commercial contracts and arbitration agreements, prioritizing the manifest intention and conduct of parties over strict formalities like signatures, especially when a clear chain of contractual documentation incorporating an arbitration clause exists and has been acted upon. It also serves as a reminder that subsequent, unilateral terms in documents like invoices may not easily override established contractual terms.