Bench: Chief Justice D Y Chandrachud, Justice PS Narishma and Justice J.B. Pardiwala.
Citation: 2023 (3) Arb LR 182(SC), Arbitration Petition No. 51 of 2022
Relevant provision: section 11(6) of the Arbitration Act, 1966
In the present case of GLOCK ASIA PACIFIC LTD. versus UNION OF INDIA, Ministry of Home Affairs floated a single party tender on 02.02.20122 for supplying 31,756 Glock Pistols. The said bid was confirmed in the favour of the Applicant which was a foreign company and thereafter a Tender of Acceptance was issued by the Respondent to the Applicant. As per the Clauses of the Acceptance the Petitioner was mandated to submit a Performance Bank Guarantee(hereinafter referred as “PBG”) and the same was provided by the Petitioner. Thereafter the contract was completed and consignment was received. The aforementioned PBG were extended time to time during the subsistence of the contract till 2021. On 31.05.2021, the Applicant informed the Respondent that the PBG would not be extended further following which the Respondent invoked the PBG by citing Clauses of the Acceptance of Tender.
The Applicant issued a notice of invoking arbitration and nominated a retired Judge of the High Court as the Sole arbitrator to resolve the dispute. Replying to which the Respondent relied upon Clause 28 of the Conditions of the Tender which enumerated that the appointment of the arbitration by an officer in the Ministry of Law, is to be appointed by the Sect. of Ministry of Home Affairs.
The Applicant, a foreign company filed an Application under Section 11(6) of the Act wherein the counsels submitted that the appointment of the Sole Arbitrator is contrary to Section 12(5) of the Arbitration and Conciliation Act. The Applicant relied upon Perkins Eastman Architects DPC and Another v. HSCC (India) Ltd. and raised an objection that the Respondent, Union of India being a party to the agreement is appointing its own employee, an officer in the Ministry of Law as the sole arbitrator will be conflict with the mandate of Section 12(5) of the Act. The Respondent raised a contention towards the abovementioned judgement that since the contract was entered on the behalf of President of India and for that reason, the judgement was not applicable in the present case.
Decision of Supreme Court
Supreme Court on 19.05.2023, held that the contract entered on behalf and in the name of the President of India cannot and will not create any immunity against the application of any statutory prescription imposing conditions on parties to an agreement when the government has chosen to enter into a contract. The Apex Court in addition to this held that the appointing authority as well as the officer to be appointed as arbitrator, in terms of the arbitration clause are ineligible category provided in Para 1 of Schedule VII read with Section 12(5) of the Act, which applies notwithstanding any prior agreement to the contrary.
Hence, the Application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was allowed and Ms. Justice Indu Malhotra, a former judge of the Supreme Court was appointed as the Sole Arbitrator to adjudicate upon the disputes arising under and in connection with the Conditions of Tender entered between the parties.
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