The Union of India cannot demand an immunity from the operation of pertinent legal provisions just because a contract is in the name of the President of India, the Supreme Court ruled on Friday.
A bench, comprising Chief Justice of India Dhananjaya Y Chandrachud and justices PS Narasimha and JB Pardiwala, interpreted Article 299 of the Constitution to hold that the central government, as a party to a contract, cannot wriggle out of statutory bars by arguing that the contract is in the name of the President of India.
Article 299 provides that all contracts 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, and all such contracts will be executed by a person duly authorized in that behalf.
“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,” held the judgment, authored by justice Narasimha.
The judgment came on an application filed for the appointment of a sole arbitrator by Glock Asia-Pacific Ltd which had a contract with the Union ministry of home affairs (MHA) for the supply of Glock Pistols. Invocation of performance bank guarantee by the MHA caused a rift between the two and the company issued a notice invoking arbitration in July 2022. It nominated a retired judge of the Delhi high court as the sole arbitrator and asked the MHA to accept the nomination. Instead, the MHA replied that a condition of the tender mandated that the dispute had to be referred to sole arbitration of an officer in the Union law ministry, who will be appointed by the secretary in MHA.
{{/usCountry}}The judgment came on an application filed for the appointment of a sole arbitrator by Glock Asia-Pacific Ltd which had a contract with the Union ministry of home affairs (MHA) for the supply of Glock Pistols. Invocation of performance bank guarantee by the MHA caused a rift between the two and the company issued a notice invoking arbitration in July 2022. It nominated a retired judge of the Delhi high court as the sole arbitrator and asked the MHA to accept the nomination. Instead, the MHA replied that a condition of the tender mandated that the dispute had to be referred to sole arbitration of an officer in the Union law ministry, who will be appointed by the secretary in MHA.
{{/usCountry}}Senior counsel R Viraraghavan, assisted by advocates Siddharth Bambha and Shyam D Nandan, argued that appointment of the sole arbitrator as per the MHA’s terms would be contrary to Section 12(5) of the Arbitration Act, which protect against conflict of interest of a party to a contract. The lawyers contended that the Union of India, being a party to the agreement, appointing its own employee in the law ministry as the sole arbitrator is a clear case of conflict of interest.
Defending the Centre, additional solicitor general Aishwarya Bhati argued 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.
The bench, however, rejected the ASG’s arguments, noting that Article 299 only lays down the formality that is necessary to bind the government with contractual liability and does not extend to 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,” said the bench, lamenting that 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.
“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,” said the court, as it appointed its former judge Indu Malhotra as the sole arbitrator to decide the dispute.