Arbitration and Government Contracts: Supreme Court Replaces Biased Tribunal in Haryana Dispute
The Supreme Court of India in Haryana Space Application Centre (HARSAC) & Another vs. M/S Pan India Consultants Pvt. Ltd. addressed key issues related to arbitration in government contracts. The Court ruled that the appointment of a government official as an arbitrator violated Section 12(5) of the Arbitration and Conciliation Act, 1996, and replaced the existing tribunal with a neutral arbitrator.
Background of the Case
The dispute arose from a contract awarded in 2011 by the Haryana Space Application Centre (HARSAC) to Pan India Consultants Pvt. Ltd. for the digitization of cadastral maps and modernization of land records. The work was not completed within the stipulated time, leading to the invocation of the performance bank guarantee by HARSAC on March 18, 2014.
Pan India Consultants challenged this action before the Delhi High Court, which directed that disputes be resolved through arbitration. The arbitration panel was constituted on September 14, 2016, comprising an arbitrator nominated by HARSAC, an arbitrator nominated by the contractor, and a third arbitrator (umpire) to be appointed in case of a deadlock.
The arbitration proceedings were delayed, and despite multiple extensions, the tribunal failed to pronounce its award. HARSAC eventually challenged the appointment of its own nominee arbitrator, arguing that he was ineligible under Section 12(5) of the Arbitration Act.
Key Legal Issues Addressed
1. Whether a Government Official Can Act as an Arbitrator
The Supreme Court examined the validity of appointing the Principal Secretary to the Government of Haryana as an arbitrator, given that HARSAC is a nodal agency of the state. Section 12(5) of the Arbitration and Conciliation Act, 1996, bars individuals with a “controlling influence” in a party from acting as an arbitrator.
2. Whether the Tribunal Had Lost Its Mandate Due to Delay
The Arbitration Act sets a one-year timeline for the completion of arbitration, extendable by six months. In this case, despite multiple extensions, the tribunal had failed to issue an award within four years. HARSAC argued that the mandate of the tribunal had automatically terminated.
3. Whether the Arbitration Should Be Restarted or Continued
HARSAC sought the termination of the existing tribunal and fresh proceedings, while Pan India Consultants argued that the process was nearly complete and should continue from the existing stage.
Findings of the Court
1. Government Official’s Appointment Was Invalid
The Supreme Court ruled that appointing the Principal Secretary of Haryana as an arbitrator was unlawful. The Court observed:
“Section 12(5) read with the Seventh Schedule makes it clear that a person having a controlling influence over a party to arbitration cannot act as an arbitrator. The appointment of the Principal Secretary, Government of Haryana, as the nominee arbitrator for HARSAC is thus invalid.”
2. The Arbitration Tribunal Had Lost Its Mandate
The Court noted that the tribunal had repeatedly failed to deliver its award despite claiming that proceedings were complete. It held:
“The mandate of the tribunal stands terminated due to inordinate delay, as provided under Section 29A of the Arbitration and Conciliation Act, 1996.”
3. Arbitration to Continue from the Existing Stage
The Court acknowledged that significant progress had been made in the case and ruled that a new arbitrator would continue the proceedings rather than starting afresh.
Supreme Court’s Verdict
- The existing arbitration tribunal was terminated.
- Justice Kurian Joseph (Retd.) was appointed as the new sole arbitrator.
- The new arbitrator was directed to continue the proceedings from where they had left off.
- The award was to be issued within six months.
Conclusion
This ruling reinforces key principles of arbitration law:
- Government officials with a conflict of interest cannot act as arbitrators.
- Arbitration proceedings must be completed within statutory timelines.
- Award delays can lead to the termination of a tribunal’s mandate.
- Substituting an arbitrator does not always require restarting proceedings.
The Supreme Court’s decision ensures that arbitration remains an efficient and impartial mechanism for resolving commercial disputes, particularly in government contracts.
Petitioner Name: Haryana Space Application Centre (HARSAC) & Another.Respondent Name: M/S Pan India Consultants Pvt. Ltd..Judgment By: Justice L. Nageswara Rao, Justice Indu Malhotra, Justice Ajay Rastogi.Place Of Incident: Haryana.Judgment Date: 20-01-2021.
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