In the judgment of the case – Haryana Space Application Centre (HARSAC) & Another v. M/s Pan India Consultants Pvt. Ltd. delivered on January 20, 2021, Justices L. Nageswara Rao, Indu Malhotra and Ajay Rastogi have held at the Supreme Court that section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996 is mandatory and non-derogable (non-repealable) provision.
In the facts of the present case, the Principal Secretary to the Govt. of Haryana has been held ineligible to be appointed as an arbitrator, since he would have a controlling influence on the appellant-Company being a Nodal Agency of the State.
The factual matrix of the case is that the first appellant- HARSAC, Department of Science and Technology, Govt. of Haryana is the Nodal Agency for Geographic Information System (GIS) Application and Remote Sensing for the Govt. of Haryana.
HARSAC invited Request for Proposal in September 2010 from qualified vendors for the modernization of Land Record (including digitalization of cadastral Maps, integration with records and management of old revenue documents).
On February 28, 2011 HARSAC awarded the contract to the respondent-Pan India Consultants and 3 other vendors for works specified in the allotment letter. In pursuance thereof, Service Level Agreements were executed between the parties.
As per HARSAC, the respondent failed to complete the work assigned within the period till December31, 2011, and was delaying the entire project. Even though two extensions were granted till July31, 2012 and later extended up to December 31, 2013, the respondent failed to complete the work. This led to the invocation of the Performance Bank Guarantee by HARSAC through its letter on March 18, 2014.
The respondent challenged this action by filing civil suit 886/2014 before the Delhi High Court. The HC disposed of the suit, directing the respondent-contractor to keep the bank guarantees alive, and HARSAC was directed not to encash the bank guarantees, pending resolution of the disputes amicably or by an arbitral tribunal constituted by the parties.
HARSAC invoked the arbitration clause in the Service Level Agreement, and appointed the Haryana Govt. Principal Secretary, Anurag Rastogi as their nominee-arbitrator. The respondent appointed Justice Rajive Bhalla (retd.) as their nominee arbitrator on September 14, 2016 and thus, on the said date , the arbitral tribunal stood constituted.
The respondent filed an application for appointment of the presiding arbitrator under section10 (1) of the Act, before the tribunal. On May 22, 2017, the tribunal declined the request for appointing the third arbitrator at this stage, and reserved its right to nominate the third arbitrator in case of disagreement between the two arbitrators.
On August 3, 2018, the arbitral tribunal in its 28th sitting, recorded in the proceedings that the arguments were heard , and the matter was reserved for passing the Award.
The respondent –contractor filed an application under section 29 A (4) of the Act, before the A.D.J., Chandigarh, stating that the Award was ready to be pronounced. It was prayed that the period for passing the arbitral award be extended.
The appellant opposed the application and submitted that the application be dismissed since sufficient cause for extending the period was not made out. On November 8, 2019, the District Judge extended period the period by three months for the Tribunal to conclude the arbitration proceedings and pronounce the Award.
The appellant herein, filed the Civil Revision Application before the Punjab & Haryana HC for setting aside the DJ’s order, submitting that the extension of time was mutually agreed to by both parties up to August 15, 2018.Howeer, the tribunal failed to pronounce the Award even within this extended period, and did not show any inclination of doing so even on January 7, 2019, when the letter terminating the mandate of the Tribunal was sent. And till then, a period of over28 months from the date of constitution of the tribunal, had elapsed.
Though, Addl. Advocate General, Haryana opposed the extension of time , the HC, in light of the pandemic granted four months’ extension to the Tribunal, to enable the parties to conclude their arguments within 3 months and a period of one month to the Tribunal to pronounce the Award. Against this order, the HARSAC had moved the SC.
After hearing the lawyers of the parties the SC’s finding is that even though a period of four years has elapsed since the constitution of the tribunal on September 14, 2016, the Award has not been pronounced so far, despite the tribunal had on two occasions, on August 3, 2018 in its 28th sitting and thereafter in the letter of February 8, 2019, addressed by the arbitrators, recorded that the tribunal was ready to pronounce the Award forthwith.
The SC has stated that in its view, appointment of the Principal Secretary, Govt. of Haryana as the nominee arbitrator of HARSAC which is a Nodal Agency of the Govt. of Haryana, would be invalid under section 12(5) of the 1996 Act read with the VII Schedule (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, whose relationship with the parties, or counsel , falls within any of the categories specified in the VII Schedule , shall be ineligible to be appointed as an arbitrator.
Item 5 of the Seventh Schedule of the Act reads as under:
"Arbitrator’s relationship with the parties or counsel
"5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, if the affiliate is directly involved in the matters in dispute in the arbitration."
The counsel for both the parties, during the course of hearing, have consented to the substitution of the existing tribunal by the appointment of a Sole Arbitrator to complete the arbitral proceedings. In exercise of its power under section 29A(6) of the 1996 Act (as amended), the SC has appointed its former Judge, Justice Kurian Joseph , as the substitute arbitrator, to conduct the proceedings from the stage already reached , and pass the Award within six months from the date of receipt of this Order. The Arbitrator may direct the parties to address final arguments and take him through the entire record of the case.
The Court has made it clear that the appointment of Sole Arbitrator is subject to the declarations being made under section 12 of the Act with respect to independence and impartiality, and the ability to devote sufficient time to complete the arbitration within the period of six months. With these directions, the SC has disposed of the case.
