M/S GLOCK ASIA-PACIFIC LTD. versus UNION OF INDIA
[2023] 6 S.C.R. 717, Supreme Court of India, 2023
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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M/S GLOCK ASIA-PACIFIC LTD.
v.
UNION OF INDIA
(Arbitration Petition No. 51 of 2022)
MAY 19, 2023
[DR. DHANANJAYA Y CHANDRACHUD, CJI,
PAMIDIGHANTAM SRI NARASIMHA AND
J. B. PARDIWALA, JJ.]
Arbitration and Conciliation Act, 1996 – ss.11(6), 12(5) –
Ministry of Home Affairs floated tender – Applicant’s bid was
accepted as per the terms and conditions of the tender which
provided for arbitration clause which enabled the Secretary,
Ministry of Home Affairs to appoint an officer in the Ministry of
Law as the arbitrator – Applicant invoking arbitration, nominated
a retired Judge of the High Court as the Sole Arbitrator which as
per the respondent was contrary to the Conditions of Tender –
Application filed u/s.11(6) before Supreme Court, held:The
arbitration clause in the present case enables a serving employee
of the Union of India, a party to the contract, to nominate a serving
employee of the Union of India as the Sole Arbitrator – Such
arbitration clause clearly falls within the expressly ineligible category
provided in Paragraph 1 of Schedule VII, read with s.12(5) of the
Act – As the grounds of challenge to the appointment of an arbitrator
u/s.12(5) of the Act operate notwithstanding any prior agreement
to the contrary, the appointment of an officer of the Ministry of
Law and Justice as an arbitrator cannot be given effect to – There
is no immunity arising out of Article 299, to support the contention
that for contracts expressed
to be made by the President of India,
the ineligibility of appointment as an arbitrator as contemplated
u/s.12(5) of the Act, read with Schedule VII, will be inapplicable –
Application u/s.11(6) allowed – Constitution of India–Article 299.
Constitution of India– Article 299 – Purpose and object of –
Discussed–Arbitration and Conciliation Act, 1996.
Voestalpine  Schienen GmbH v. DMRC (2017) 4 SCC
665 : [2017] 1 SCR 798 – distinguished.
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Central Organisation  for Railway Electrification v.
M/s ECI-SPIC-SMO-MCML (JV) A Joint Venture
Company (2020) 14 SCC 712 : [2019] 16 SCR 1234 –
held inapplicable.
Perkins Eastman Architects DPC and Another v. HSCC
(India) Ltd.(2020) 20 SCC 760; Chatturbhuj Vithaldas
Jasani v. Moreshwar Parashram & Ors [1954] SCR
817 – relied on.
Indian Oil Corporation Ltd. and ors. v. Raja Transport
Pvt. Ltd. (2009) 8 SCC 520 : [2009] 13 SCR 510; K. P.
Chowdhry v. State of Madhya Pradesh. And Others
[1966] 3 SCR 919; Bhikraj Jaipuria v. Union of India
[1962] 2 SCR 880; Mulamchand v. State of Madhya
Pradesh (1968) 3 SCR 214; State of Assam and Ors. v.
Shri Kanak Chandra Dutta, [1967] 1 SCR 679; Union
of India v. M/s Tantia Constructions Ltd SLP (C) No.
12670/2020; JWS Steel Ltd v. Southwestern Railways
and Anr. SLP (C) No. 9462/2022– referred to.
Case Law Reference
(2020) 20 SCC 760
relied on
para 6
[2009] 13 SCR 510
referred to
para 7
[2019] 16 SCR 1234
held inapplicable
para 7
[1954] SCR 817
relied on
para 11
[1966] 3 SCR 919
referred to
para 12
[1962] 2 SCR 880
referred to
para 12
[1967] 1 SCR 679
referred to
para 15
[2017] 1 SCR 798
distinguished
para 20
CIVIL ORIGINAL JURISDICTION :  Arbitration Petition No.51
of 2022.
Appointment of Arbitrator u/s 11(6) of Arbitration & Conciliation
Act, 1996, in pursuance of Clause 24 of the General Conditions of Contract
applicable to Contracts placed by the Central Purchase Organisation of
the Government of India (Now Under Department of Commerce) Form
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No. D.G.S. & D.68 (Revised) executed between Petitioner and
Respondent]
Ramakrishnan Viraraghavan, Sr. Adv., Shyam D. Nandan,
Siddharth Bambha, Ankit Sahni, K. Krishna Kumar, Mrs. Kritika Sahni,
Ms. Sucharu Garg, Advs. for the Petitioner.
Mrs. Aishwarya Bhati, A.S.G., Rajat Nair, Ms. Deepabali Dutta,
Sourav Roy, Ms. Shivika Mehra, Ms. Manisha Chava, Nithin Pavuluri,
Arvind Kumar Sharma, Advs. for the Respondent.
The Judgment of the Court was delivered by
PAMIDIGHANTAM SRI NARASIMHA, J.
1. This is an application under Section 11(6) of the Arbitration and
Conciliation Act, 19961 for the appointment of a Sole Arbitrator by Glock
Asia-Pacific Ltd.2
2. Facts: The Ministry of Home Affairs (Procurement Division)3
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
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 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
1 Hereinafter referred as ‘the Act’
2 Hereinafter referred as ‘applicant’
3 Hereinafter referred as ‘respondent’.
4"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.”
5 Hereinafter referred as ‘PBG’.
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
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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) ofSchedule II of theAcceptance 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 personal free of cost at the site of
installation and repair of the equipment when necessary free
of cost during the warranty period.”
4. The applicant issued a notice invoking arbitration on 20.07.2022,
and nominated a retired Judge of the High Court of Delhi as the Sole
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Arbitrator. The respondent was called upon to accept the nomination
within 15 days. Replying to the notice invoking Arbitration, the respondent
by a letter dated 03.10.2022, stated that the nomination was contrary to
Clause 28 of the Conditions of Tender, as per which disputes are to be
referred to arbitration by an officer in the Ministry of Law, appointed by
the Secretary of Ministry of Home Affairs. Clause 28 is as under:
“28. ARBITRATION
In the event of any question, dispute or difference arising
under these conditions or any special conditions of contract,
or in connection with this contract (except as to any matters
the decision of which is specially provided for by these or the
special conditions) the same shall be referred to the sole
arbitration of an officer in the Min. of Law, appointed to be
the arbitrator by the Secretary, Ministry of Home Affairs. It
will be no objection that the arbitrator is a Government
Servant that he had to deal with the matters to which the
contract relates or that in the course of his duties as a
Government servant he has expressed views on all or any of
the matters in dispute or difference. The award of the
arbitrator shall be final and binding on the parties to this
contract…..”
(emphasis supplied)
5. It is in the above-referred context that the applicant, being a
foreign company, filed the present application under Section 11(6) of the
Act before this Court.
6. Submissions : Mr. Ramakrishnan Viraraghavan, learned
Senior
Advocate, along with Mr. Shayam D. Nandan, AOR appearing for the
applicant, submitted that appointment of the Sole Arbitrator as per the
respondent’s letter dated 03.10.2022 would be contrary to Section 12(5)
of the Act. For this purpose, he also relied on the judgment of this Court
in Perkins Eastman Architects DPC and Another v. HSCC (India)
Ltd.6 The objection is simply that the respondent, Union of India, being a
party to the agreement, appointing its own employee, an officer in the
Ministry of Law, as the Sole Arbitrator would conflict with the mandate
of Section 12(5) of the Act.
6 (2020) 20SCC 760.
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
[PAMIDIGHANTAM SRI NARASIMHA, J.]
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7. Ms. Aishwarya Bhati, learned Additional Solicitor General
appearing for the respondent, submitted that the judgment in Perkins
(supra) would have no application to the facts of the present case. She
would point out that the contract in the present case, unlike in Perkins
(supra), is in the name of the President of India, and that is a clear point
of distinction. The learned ASG also relied on Indian Oil Corporation
Ltd. and ors. v. Raja Transport Pvt. Ltd.7 to contend that once a party
enters into an agreement for the appointment of a person as an arbitrator,
it cannot simply opt-out of the arbitration clause. In the alternative, the
ASG also relied on the decision of this Court inCentral Organisation
for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) A joint
venture company8, where appointment of a panel of arbitrators by the
Ministry of Railways was held to be valid. She would, therefore, contend
that the power to nominate an officer in the Ministry of Law is not in
conflict with Section 12(5) of the Act.
8. Analysis : As the objection about appointment of the arbitrator
as per Clause 28 of the Conditions of Tender is based on the statutory
prohibition under Section 12(5) of the Act, we will reproduce relevant
part of the section for ready reference:
“12. Grounds of Challenge:…
(1) When a person is approached in connection with his
possible appointment as an arbitrator, he shall disclose in
writing any
circumstances, ––
...
(2)…
(3)…
(4)…
(5) Notwithstanding any prior agreement to the contrary, any
person whose relationship, with the parties or counsel or the
subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be
appointed as an arbitrator:
7 (2009) 8 SCC 520.
8 (2020) 14 SCC 712.
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Provided that parties may, subsequent to disputes having
arisen between them, waive the applicability of this sub-
section by an express agreement in writing”
(emphasis supplied)
9. The category of relationship relevant for our purposes as
provided in the Seventh Schedule to the Act is as under:
“The Seventh Schedule:
Arbitrator’s relationship with the parties or counsel;
1. The arbitrator is an employee, consultant, advisor or has
any other past or present business relationship with a party.”
Re: Submission regarding contracts expressed in the name
of the President of India.
10. We will first deal with the submission of learned ASG, Ms
Bhati that the contract in the present case stands on a different footing
as it is entered into in the name of the President of India. Article 299 of
the Constitution of India9 provides that all contracts made in exercise of
the executive power of the Union shall be expressed to be made in the
name of the President. The phrase ‘expressed to be made’ and the
word ‘executed’ are intended to mean that there must be a deed or
contract, in writing, and executed by a person duly authorized by the
President of the Governor in that behalf.
11.  The rationale of Article 299(1), as explained in Chatturbhuj
Vithaldas Jasaniv.Moreshwar Parashram & Ors10 is that there must
be a definite procedure according to which contracts must be made by
the agents of the government in order to bind the government, otherwise
9 “299. Contracts
 (1)
All contracts made in the exercise of the executive power of the Union or of a State
shall be expressed to be made by the President, or by the Governor of the State, as the
case may be, and all such contracts and all assurances of property made in the exercise
of that power shall be executed on behalf of the President or the Governor by such
persons and in such manner as he may direct or authorize.
(2) Neither the President nor the Governor shall be personally liable in respect of any
contract or assurance made or executed for the purposes of this Constitution, or for the
purposes of any enactment relating to the Government of India heretofore in force, nor
shall any person making or executing any such contract or assurance on behalf of any
of them be personally liable in respect thereof”
10(1954) SCR 817.
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
[PAMIDIGHANTAM SRI NARASIMHA, J.]
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public funds may deplete by unauthorized or illegitimate contracts. It
implies that contracts not couched in the particular form stipulated by
Article 299(1) of the Constitution cannot be enforced at the instance of
any contracting party.
12. It must be emphasized that Article 299 only lays down the
formality that is necessary to bind the government with contractual
liability. It is important to note that Article 299 does not lay down the
substantial law relating to the contractual liability of the Government,
which is to be found in the general laws of the land. It is for this reason
that, even though a contract may be formally valid under Article 299, it
may nevertheless fail to bind the Government if it is void or unenforceable
under the general provisions of law.11
13. Having considered the purpose and object of Article 299, we
are of the clear opinion that a contract entered into in the name of the
President of India, cannot and will not create an immunity against the
application of any statutory prescription imposing conditions on parties
to an agreement, when the Government chooses to enter into a contract.
We are unable to trace any immunity arising out of Article 299, to support
the contention that for contracts expressed to be made by the President
of India, the ineligibility of appointment as an arbitrator as contemplated
under Section 12(5) of the Act, read with Schedule VII, will be
inapplicable.
14. We
have no hesitation in rejecting the submission of the learned
ASG that the contracts entered into by the Union of India in the name of
the President of India are immune from provisions that protect against
conflict of interest of a party to a contract, under Section 12(5) of the
Act.
Re: Conflict of the Arbitration Clause with Section 12(5) read
with paragraph 1 of the Seventh Schedule of the Act.
15. The tender notice dated 02.02.2011 was issued by the
Government of India, Ministry of Home Affairs for the purchase of
Glock pistols. Applicant’s bid was accepted on 31.03.2011 as per the
11See Chatturbhuj Vithaldas Jasaniv. Moreshwar Parashram And Others (1954) SCR
817; K. P.C howdhry v. State of Madhya Pradesh. And Others (1966) 3 SCR 919;
Bhikraj Jaipuria v. Union of India (1962) 2 SCR 880; Mulamchand v. State of Madhya
Pradesh (1968) 3 SCR 214; Also see, DD Basu, Constitution of India (Vol 3),13601-
13619.
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Terms and Conditions contained in the Tender No. D/21013/30/3218/
2.11.2011/PW-3. The said Terms and Conditions specifically provided
for Arbitration as per Clause 28 of the Schedule appended to the Tender.
The Arbitration clause enables the Secretary, Ministry of Home Affairs,
to appoint an arbitrator for the resolution of disputes arising out of this
contract. The Ministry of Home Affairs is a party to the contract. The
arbitration clause enables the Secretary representing the Ministry to
appoint an officer in the Ministry of Law as the arbitrator. In other words,
the proposed arbitrator would be an employee of the Ministry of Law
and Justice, Government of India, and at the same time, the appointing
authority, the Secretary of the Ministry of Home Affairs, is also an
employee of the Government of India.12
16. In this very context, we can beneficially refer to the
recommendation of the 246th Law Commission Report which reflected
on the issue of contracts with State entities and observed that when the
party appointing an arbitrator is the State, the duty to appoint an impartial
and independent adjudicator is even more onerous. Their deliberations
and recommendations, which led to the introduction of Section 12(5)
with the Seventh Schedule in the Act, are extracted as follows:
“56. The limits of this provision has been tested in the Indian
Supreme Court in the context of contracts with State entities
naming particular persons/designations (associated with
that
entity) as a potential arbitrator. It appears to be settled by a
series of decisions of the Supreme Court (See Executive
Engineer, Irrigation Division, Puri v. Gangaram Chhapolia,
1984 (3) SCC 627; Secretary to Government Transport
Department, Madras v. Munusamy Mudaliar, 1988 (Supp)
SCC 651; International Authority of India v. K.D.Bali and
Anr, 1988 (2) SCC 360; S.Rajan v. State of Kerala, 1992 (3)
SCC 608; M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-
12In State of Assam and ors.v.Shri Kanak Chandra Dutta, (1967) 1 SCR 679, this Court
held that:
“9. ... A person holding a post under a State is a person serving or employed under the
State. See the marginal notes to Articles 309, 310 and 311. The heading and the sub-
heading of Part XIV and Chapter I emphasise the element of service. There is a
relationship of master and servant between the State and a person holding a post under
it. The existence of this relationship is indicated by the State’s right to select and appoint
the holder of the post, its right to suspend and dismiss him, its right to control the
manner and method of his doing the work and the payment by it of his wages or
remuneration...”
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
[PAMIDIGHANTAM SRI NARASIMHA, J.]
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Swiss Synthetics Germ Manufacturing Co.Ltd., 1996 (1) SCC
54; Union of India v. M.P.Gupta, (2004) 10 SCC 504; Ace
Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation
Ltd., 2007 (5) SCC 304) that arbitration agreements in
government contracts which provide for arbitration by a
serving employee of the department, are valid and
enforceable. While the Supreme Court, in Indian Oil Corp.
Ltd. v. Raja Transport (P) Ltd., 2009 8 SCC 520 carved out a
minor exception in situations when the arbitrator “was the
controlling or dealing authority in regard to the subject
contract or if he is a direct subordinate (as contrasted from
an officer of an inferior rank in some other department) to
the officer whose decision is the subject matter of the dispute”,
and this exception was used by the Supreme Court in Denel
Propreitory Ltd. v. Govt. of India, Ministry of Defence, AIR
2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat
Electronics Ltd., (2012) 6 SCC 384, to appoint an independent
arbitrator under section 11, this is not enough.
57. The balance between procedural fairness and binding
nature of these contracts, appears to have been tilted in
favour of the latter by the Supreme Court, and the Commission
believes the present position of law is far from satisfactory.
Since the principles of impartiality and independence cannot
be discarded at any stage of the proceedings, specifically at
the stage of constitution of the
arbitral tribunal, it would be
incongruous to say that party autonomy can be exercised in
complete disregard of these principles – even if the same has
been agreed prior to the disputes having arisen between the
parties. There are certain minimum levels of independence
and impartiality that should be required of the arbitral process
regardless of the parties’ apparent agreement. A sensible law
cannot, for instance, permit appointment of an arbitrator who
is himself a party to the dispute, or who is employed by (or
similarly dependent on) one party, even if this is what the
parties agreed. The Commission hastens to add that Mr. PK
Malhotra, the ex officio member of the Law Commission
suggested having an exception for the State, and allow State
parties to appoint employee arbitrators. The Commission is
of the opinion that, on this issue, there cannot be any
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distinction between State and non-State parties. The concept
of party autonomy cannot be stretched to a point where it
negates the very basis of having impartial and independent
adjudicators for resolution of disputes. In fact, when the party
appointing an adjudicator is the State, the duty to appoint an
impartial and independent adjudicator is that much more
onerous – and the right to natural justice cannot be said to
have been waived only on the basis of a “prior” agreement
between the parties at the time of the contract and before
arising of the disputes.”
(emphasis supplied)
17. Following the recommendation of the Law Commission, sub-
section (5) to Section 12 was inserted to the Act with effect from
23.10.2015. As the statutory mandate of Section 12(5) of the Act is to
apply “notwithstandingany prior agreement”, Clause 28 of the
Agreement (Conditions of Tender) falls foul of Paragraph 1 of the Seventh
Schedule to the Act.
18. In Perkins (supra), this Court held that any person who has
an interest in the outcome of the dispute would be ineligible to be an
arbitrator. Naturally, such a person should not have the power to appoint
a sole arbitrator. The relevant portion of this judgment is as under:
21. But, in our view that has to be the logical deduction
from TRF Ltd. Para 50 of the decision shows that this Court
was concerned with the issue, “whether the Managing
Director, after becoming ineligible by operation of law, is he
still eligible to nominate
an arbitrator” The ineligibility
referred to therein, was as a result of operation of law, in that
a person having an interest in the dispute or in the outcome
or decision thereof, must not only be ineligible to act as an
arbitrator but must also not be eligible to appoint anyone
else as an arbitrator and that such person cannot and should
not have any role in charting out any course to the dispute
resolution by having the power to appoint an arbitrator. The
next sentences in the paragraph, further show that cases
where both the parties could nominate respective arbitrators
of their choice were found to be completely a different
situation. The reason is clear that whatever advantage a party
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
[PAMIDIGHANTAM SRI NARASIMHA, J.]
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may derive by nominating an arbitrator of its choice would
get counter-balanced by equal power with the other party.
But, in a case where only one party has a right to appoint a
sole arbitrator, its choice will always have an element of
exclusivity in determining or charting the course for dispute
resolution. Naturally, the person who has an interest in the
outcome or decision of the dispute must not have the power
to appoint a sole arbitrator. That has to be taken as the
essence of the amendments brought in by the Arbitration and
Conciliation (Amendment) Act, 2015 (3 of 2016) and
recognised by the decision of this Court in TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377.
(emphasis supplied)
19. In conclusion, the arbitration clause which authorises the
Secretary, Ministry of Home Affairs, whose relationship with Union of
India is that of an employee, to nominate an officer of the Ministry of
Law and Justice to act as a Sole Arbitrator, clearly falls within the
expressly ineligible category provided in Paragraph 1 of Schedule VII,
read with Section 12(5) of the Act. As the grounds of challenge to the
appointment of an arbitrator under Section 12(5) of the Act operate
notwithstanding any prior agreement to the contrary, we cannot give
effect to the appointment of an officer of the Ministry of Law and Justice
as an arbitrator. The submission of the learned ASG in favour of such an
appointment is
therefore rejected.
Re: Reliance on the decision in Central Organisation of
Railway Electrifications
20.We will now deal with the last limb of the learned ASG’s
submissions, which relates to the precedent of Central Organisation
of Railway Electrifications (supra). In this case, Clause 64(3)(b)
provided for the constitution of an Arbitral Tribunal consisting of three
members. The appointment procedure contemplated was such that the
General Manager of the Appellant was required to nominate the panel
of four retired railway officers, out of which the respondent-Contractor
had to select twonames. The General Manager was required to appoint
at least one out of the selected officers as the contractor’snominee
arbitrator(s), and unilaterally appoint the remaining arbitrators as well as
the presiding officer to the tribunal. The decision of Perkins (supra)
was not applicable therein as the contract contemplated a three-member
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arbitral tribunal, while Perkins (supra) applies to cases of unilateral
appointment of Sole Arbitrators. Further, the Court noted that,
“absolutely, there is no bar under Section 12(5) of the Arbitration
and Conciliation (Amendment) Act, 2015 for appointment of a retired
employee to act as an arbitrator”13. The Court in Central
Organisation of Railway Electrifications (supra) also relied on the
principle elucidated in the case of Voestalpine Schienen GmbH v.
DMRC,14 wherein DMRC nominated a five-member panel comprising
names of employees of Railways, Central Public Works Department or
public sector undertakings and the Court upheld the nomination inter
alia noting that empaneling of such retired persons was intended to
utilise their technical expertise.15 In Central Organisation of Railway
Electrifications (supra) this Court relied on the aforementioned judgment
to state that:
“27. ... As held in Voestalpine Schienen GmbH [Voestalpine
Schienen GmbH v. DMRC, (2017) 4 SCC 665 : (2017) 2 SCC
13 (2020) 14 SCC 712, para 26.
14(2017) 4 SCC 665.
15ibid, Paras 24, 28:
“24. They cannot be treated as employee of consultant or adviser of the respondent
DMRC. If this contention of the petitioner is accepted, then no person who had earlier
worked in any capacity with the Central Government or other autonomous or public
sector undertakings would be eligible to act as an arbitrator even when he is not even
remotely connected with the party in question, like DMRC in this
case. The amended
provision puts an embargo on a person to act as an arbitrator, who is the employee of
the party to the dispute. It also deprives a person to act as an arbitrator if he had been
the consultant or the advisor or had any past or present business relationship with
DMRC. No such case is made out by the petitioner.”
“26. It cannot be said that simply because the person is a retired officer who retired
from the government or other statutory corporation or public sector undertaking and
had no connection with DMRC (the party in dispute), he would be treated as ineligible
to act as an arbitrator. Had this been the intention of the legislature, the Seventh
Schedule would have covered such persons as well. Bias or even real likelihood of bias
cannot beattributed to such highly qualified and experienced persons, simply on the
ground that they served the Central Government or PSUs, even when they had no
connection with DMRC. The very reason for empanelling these persons is to ensure
that technical aspects of the dispute are suitably resolved by utilising their expertise
when they act as arbitrators. It may also be mentioned herein that the 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.”
M/S GLOCK ASIA-PACIFIC LTD. v. UNION OF INDIA
[PAMIDIGHANTAM SRI NARASIMHA, J.]
A
B
C
D
E
F
G
H
730
SUPREME COURT REPORTS
[2023] 6 S.C.R.
(Civ) 607] , the very reason for empanelling the retired railway
officers is to ensure that the technical aspects of the dispute
are suitably resolved by utilising their expertise when they
act as arbitrators. Merely because the panel of the arbitrators
are the retired employees who have worked in the Railways,
it does not make them ineligible to act as the arbitrators.”
(emphasis supplied)
21. In contrast, the arbitration clause in the present case enables
a serving employee of the Union of India, a party to the contract, to
nominate a serving employee of the Union of India as the Sole Arbitrator.
Such an authorisation is clearly distinct from the arbitration clause in
Voestalpine Schienen GmbH (supra) and Central Organisation of
Railway Electrifications (supra), and is in conflict with Section 12(5)
of the Act. It was informed at the bar that the correctness of judgement
of Central Organisation of Railway Electrifications16 has been
challenged and referred to a larger bench in Union of India v. M/s
Tantia Constructions Ltd17 as well as JWS Steel Ltd v. Southwestern
Railways and Anr18. As we have noticed that the decision in Central
Organisation of Railway Electrifications (supra) is not applicable in
the present case, its reference to the larger Bench will have no bearing
on the outcome of the present case.
22. For the reasons stated above, the present application under
Section 11(6) of the Arbitration and
Conciliation Act, 1996 is allowed.
We hereby appoint Ms. Justice Indu Malhotra, a former judge of this
Court as the Sole Arbitrator to adjudicate upon the disputes arising under
and in connection with the Conditions of Tender entered into between
the parties, subject to the mandatory disclosures under the amended
Section 12 of the Arbitration and Conciliation Act, 1996.
Divya Pandey
Application allowed.
(Assisted by : Shevali Monga, LCRA)
16Ibid.
17 SLP (C) No. 12670/2020
18 SLP (C) No. 9462/2022