CAUSETITLE:
M/SGLOCK ASIA-PACIFIC LTD V UNION OF INDIA
DATE OF ORDER:
19-05-2023
JUDGE(S):
DrD.Y.Chandrachud, Pamidighantam Sri Narasimha, J.B. Pardiwala
SUBJECT
When the Government decides to enter into a contract, the Supreme Court has ruled that it does not give the President of India immunity from the application of any statutory prescription imposing conditions on parties to an agreement. This decision was made while the Supreme Court was deciding an application for the appointment of an arbitrator.
BRIEF FACTS
- 2011 saw the launch of a tender for the acquisition of Glock pistols by the Government of India's Ministry of Home Affairs (the "Ministry"). An arbitration clause in the terms of the tender required the Secretary of the Ministry of Home Affairs to nominate a representative of the Ministry of Law and Justice (Government of India) to serve as the only arbitrator.
- The Parties became embroiled in a dispute. The applicant sent a notice requesting arbitration on July 20, 2022, and named a former Delhi High Court judge as the only arbitrator. The Ministry objected to the appointment, claiming that an officer of the Ministry of Law nominated by the Secretary of the Ministry of Home Affairs was required by the Conditions of Tender to serve as an arbitrator.
- A request was made to the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") by the Applicant, a foreign corporation.
- The reasons for contesting the appointment of an arbitrator are listed in Section 12(5) of the Arbitration Act. The arbitrator is ineligible to be appointed as an arbitrator if he or she is a party's employee, consultant, or advisor, or has any other prior or present business relationship with that party.
- The decision in Perkins Eastman Architects DPC and Others v. HSCC (India) Ltd., (2020) 20 SCC 760, where it was determined that anyone with an interest in the resolution of the dispute would be unable to serve as an arbitrator, was cited by the applicant. It was argued that Section 12(5) of the Arbitration Act would be broken if the Union of India, a party to the Contract, chose one of its employees to serve as the only arbitrator.
SUPREME COURT VERDICT
- The Bench made the following observation: "It must be emphasized that Article 299 merely establishes the formality required to subject the government to contractual liability. It is significant to note that Article 299 does not establish the fundamental law governing the government's contractual liability, which can be found in the country's general laws. Because of this, even if a contract may be legally binding under Article 299, it may not bind the Government if it is void or unenforceable under other laws.
- The Bench made the following ruling regarding the question of whether a contract carried into in the name of the President would confer any immunity from the application of statutory prescription:
- It is important to note that Article 299 simply establishes the formalities required to subject the government to commercial liability. It is significant to note that Article 299 does not establish the fundamental law governing the government's contractual liability, which can be found in the country's general laws. Because of this, even if a contract may be legally binding under Article 299, it may not bind the Government if it is void or unenforceable under other laws.
- The Bench made the following ruling regarding the question of whether a contract carried into in the name of the President would confer any immunity from the application of statutory prescription:
- The Bench noted the following:A contract entered into in the name of the President of India cannot and will not create immunity against the application of any statutory prescription imposing conditions on parties to an agreement when the Government chooses to enter into a contract. This is because we have carefully considered the purpose and object of Article 299. We are unable to locate any immunity resulting from Article 299 to substantiate the claim that Schedule VII and Section 12(5) of the Act's prohibition on appointment as an arbitrator will not apply to contracts expressly made by the President of India.
- The Bench rejected the argument that contracts entered into by the Union of India in the name of the President of India are exempt from Section 12(5) of the Act clauses that protect against a party's conflict of interest.
- According to Schedule VII's ineligible categories and Section 12(5) of the Arbitration Act, the arbitrator proposed by the Union is disqualified.
- The Bench determined that the arbitrator chosen by the union, who works for the union, is ineligible to serve in that capacity under Paragraph 1 of Schedule VII taken together with Section 12(5) of the Arbitration Act.
- "In conclusion, the arbitration clause that permits the Secretary of the Ministry of Home Affairs, whose relationship with the Union of India is that of an employee, to designate a member of the Ministry of Law and Justice to serve as a sole arbitrator, clearly falls under the category of individuals who are expressly ineligible as described in Paragraph 1 of Schedule VII, read in conjunction with Section 12(5) of the Act. We cannot give effect to the appointment of an officer of the Ministry of Law and Justice as an arbitrator because the grounds for challenging the appointment of an arbitrator under Section 12(5) of the Act operate despite any prior agreements to the contrary.
- The former Supreme Court justice Justice Indu Malhotra (Retd.) has been appointed as the only arbitrator to decide any disputes resulting from the conditions of the tender after the Bench granted the application under Section 11(6) of the Arbitration Act, 1996.
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