1. Application under Section 11(6) of the Arbitration and Conciliation Act for appointment of a sole arbitrator following a dispute over invocation of a performance bank guarantee. (Para 1 , 2 , 3 , 4 , 5 )
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2023 Supreme(SC) 554
SUPREME COURT OF INDIA
DHANANJAYA Y CHANDRACHUD, CJI., PAMIDIGHANTAM SRI NARASIMHA, J.B. PARDIWALA, JJ.
M/s Glock Asia-Pacific Ltd. - Petitioner
Versus
Union of India - Respondent
Arbitration Petition No. 51 of 2022
Decided On : 19-05-2023
Important Points
IMPORTANT POINT
Contract entered into in name of President of India, cannot and will not create immunity against application of any statutory prescription imposing conditions on parties to agreement when Government chooses to enter into contract.
Contract entered into in name of President of India, cannot and will not create immunity against application of any statutory prescription imposing conditions on parties to agreement when Government chooses to enter into contract.
Subject
Arbitration - Appointment of Arbitrator
Act Referred
Headnote
Arbitration and Conciliation Act, 1996 – Sections 11(6) and 12(5) – Constitution of India – Article 229 – Appointment of Arbitrator – Contract entered into in name of President of India, cannot and will not create immunity against application of any statutory prescription imposing conditions on parties to agreement when Government chooses to enter into contract – As grounds of challenge to appointment of an Arbitrator under Section 12(5) of Act operate notwithstanding any prior agreement to the contrary, Court cannot give effect to appointment of an officer of Ministry of Law and Justice as an Arbitrator – Former Judge of Supreme Court appointed as Sole Arbitrator to adjudicate upon disputes arising under and in connection with Conditions of Tender entered into between parties, subject to mandatory disclosures under amended Section 12 of Arbitration and Conciliation Act, 1996. (Paras 13, 19 and 22)
Facts of the case:
This is an application under Section 11(6) of Arbitration and Conciliation Act, 1996 for the appointment of a Sole Arbitrator.
Findings of Court:
Law Commission had proposed the incorporation of the Schedule which was drawn from the red and orange list of IBA guidelines on conflict of interest in international arbitration with the observation that the same would be treated as the guide to determine whether circumstances exist which give rise to such justifiable doubts. Such persons do not get covered by red or orange list of IBA guidelines either.
Result : Arbitration Application allowed.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. Shyam D. Nandan, AOR
For the Respondent(s): Mr. Tushar Mehta, Solicitor General Mrs. Aishwarya Bhati, A.S.G. Mr. Rajat Nair, Adv. Mr. Saurav Roy, Adv. Ms. Deepabali Dutta, Adv. Ms. Shivika Mehra, Adv. Mr. Arvind Kumar Sharma, AOR
For the Petitioner(s): Mr. Shyam D. Nandan, AOR
For the Respondent(s): Mr. Tushar Mehta, Solicitor General Mrs. Aishwarya Bhati, A.S.G. Mr. Rajat Nair, Adv. Mr. Saurav Roy, Adv. Ms. Deepabali Dutta, Adv. Ms. Shivika Mehra, Adv. Mr. Arvind Kumar Sharma, AOR
Table of Contents
2. Whether a clause allowing a government party to unilaterally appoint a serving employee as sole arbitrator violates the statutory prohibition against conflict of interest under Section 12(5). (Para 6 , 7 )
3. Contracts expressed in the name of the President do not grant immunity from Section 12(5); unilateral appointment of a serving employee as sole arbitrator is ineligible. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 20 , 21 )
4. A party with an interest in the dispute cannot unilaterally appoint a sole arbitrator who is an employee of that party, notwithstanding any prior agreement. (Para 17 , 18 , 19 )
5. Application allowed and a former judge of the Supreme Court appointed as the sole arbitrator. (Para 22 )
6. Does a contract executed in the name of the President of India provide immunity from Section 12(5) of the Arbitration and Conciliation Act?
No. Article 299 of the Constitution only specifies the formality required to bind the government to a contract; it does not create immunity from statutory prescriptions imposing conditions on parties, such as the conflict-of-interest prohibitions in Section 12(5). (Para 10 , 11 , 12 , 13 , 14 )
7. Is a clause allowing a government department to appoint a serving employee as a sole arbitrator valid?
No. Such an appointment falls under the ineligible category specified in Paragraph 1 of the Seventh Schedule to the Act, as the arbitrator is an employee of a party to the dispute. (Para 15 , 17 , 19 )
8. Can a person who has an interest in the outcome of a dispute appoint a sole arbitrator?
No. A person who is ineligible to act as an arbitrator due to a conflict of interest is also ineligible to nominate a sole arbitrator, as this would allow them to exclusively chart the course for dispute resolution. (Para 18 , 19 )
9. How does the appointment of retired employees differ from serving employees in arbitration eligibility?
The appointment of retired employees from a panel to utilize technical expertise does not necessarily trigger ineligibility under Section 12(5), unlike the unilateral appointment of a serving employee as a sole arbitrator. (Para 20 , 21 )
JUDGMENT :
PAMIDIGHANTAM SRI NARASIMHA, J.
1. This is an application under Section 11(6) of the Arbitration and Conciliation Act, 19961[Hereinafter referred as ‘the Act’] for the appointment of a Sole Arbitrator by Glock Asia-Pacific Ltd.2[Hereinafter referred as ‘applicant’]
2. Facts: The Ministry of Home Affairs (Procurement Division)3[Hereinafter referred as ‘respondent’.] floated a single party tender on 02.02.2011 for supply of 31,756 Glock Pistols. The bid was confirmed in favour of the applicant and a Tender of Acceptance was issued by the respondent on 31.03.2011. Clause 64[“6. Performance Security Deposit- You will submit performance bond of 10% of value of contract i.e. US$ 13,29,093/- (US dollars thirteen lakh twenty nine thousand and ninety three only) in the shape of bank guarantee in the required Performa in favour of Joint Secretary (Police Modernisation), Ministry of Home affairs, Jaisalmer House, New Delhi within 30 days here of i.e. by 30.04.2011. The Performance guarantee will remain valid till two months after the expiry of warranty period, which will be 18 months from the date of acceptance stores at the consignee location. If necessary, firm on their own will have to direct their bankers to extend the performance bond to remain valid till two months after warranty period. Where the performance bank guarantee is obtained from a foreign bank, it shall be got confirmed by a scheduled Indian Bank and will be governed by Indian Laws and be subject to the jurisdiction of Courts of the place of issue of acceptance of Tender (A/T), i.e Delhi.”] of the Tender of Acceptance, required the Petitioner to submit a performance bond of 10% of the value of the contract, being USD 13,29,093/-. Applicant furnished the performance bank guarantee5[Hereinafter referred as ‘PBG’.] on 24.08.2011 and proceeded to perform its contractual obligations and in fact, by 06.08.2012 delivered the entire supply under the contract. The respondent accepted the consignment and paid the entire consideration by 11.11.2012.
3. The PBG which was issued on 24.08.2011 was extended from time to time during the subsistence of the contract and also thereafter till 2021, i.e., for nine years after the completion of the delivery and final payment under the contract. On 31.05.2021, the applicant informed the respondent that the PBG will not be extended any further. The respondent immediately invoked the PBG for INR 9,64,42,738/-, citing Clauses 11 and 18(c) of Schedule II of the Acceptance of Tender. These clauses, which provide for Guarantee and Warranty, are as follows:
“Clause 11. Guarantee/Warranty: 40,000 rounds for pistol and ors. 18 months from the date of acceptance of EQPT/ Stores in good condition at consignee location in India.
Clause 18(c) Warranty: the supplier furnishes his warranty that the goods supplied under the contract on you, on use of the incorporate all recent improvement in design and material. The supplier shall for the warranty the goods supplied under this contract shall have no defect arising from design, material of workmanship or from any act or commission or the supplier normal use of the supplied goods in the condition obtained in the country of final destination. Warranty shall remain valid up to 40,000 rounds of pistol and 18 months from other items from the date of acceptance of stores. The consignee shall promptly notify the supplier in writing of any claim arising under this warranty. Upon receipt of such notice the supplier having been notified failed to remedy the defects within the warranty period prescribed in this clause, the purchaser may proceed to take such a medial action as may be necessary at the suppliers risk and expense and without prejudice to any other rights which the purchaser may have under the contract. The manufacturer will be required by the indenter on actual price basis. Warranty support will include installation and commissioning of equipment free of charge. Operational training of the users pers
