TMI Blog2023 (5) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with paragraph 1 of the Seventh Schedule of the Act - HELD THAT:- In Perkins [ 2019 (11) TMI 1154 - SUPREME COURT ], 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 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. Reliance on the decision in Central Organisation of Railway Electrifications - HELD THAT:- In Central Organisation of Railway Electrifications this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odernisation), 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 guarantee 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: 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 India 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3), 13601-13619 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 completel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not applicable therein as the contract contemplated a three-member 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 (2020) 14 SCC 712, para 26 . The Court in Central Organisation of Railway Electrifications (supra) also relied on the principle elucidated in the case of Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665 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. ibid, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles 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 Electrifications Ibid. has been challenged and referred to a larger bench in Union of India v. M/s Tantia Constructions Ltd SLP (C) No. 12670/2020 as well as JWS Steel Ltd v. Southwestern Railways and Anr SLP (C) No. 9462/2022 . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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