Haryana Space Applic... v. Pan India Consultant..., Supreme Court Of India, Judgment, Law, casemine.com

Citation Codes

Neutral Citations

2021 INSC 33

Equivalent Citations

citation codes

Case Number

Civil Appeal No. 131 of 2021 (Arising out of Special Leave Petition (Civil) No. 13503 of 2020)

Attorney(S)

SANJAY KUMAR VISEN

Judges

Justice Indu Malhotra
Justice L. Nageswara Rao

Acts

Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule. Section 12(5) of the Arbitration Act, 1996
Section 29A(6) of the Arbitration and Conciliation Act, 1996
Section 10(1) of the Arbitration and Conciliation Act, 1996
SECTION 12 ARBITRATION AND CONCILIATION ACT 1996
ARBITRATION AND CONCILIATION ACT 1996
Section 29A(4) of the Arbitration Act

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Smart Summary

Factual and Procedural Background

The Haryana Space Applications Centre (HARSAC), a nodal agency of the Government of Haryana, issued a Request for Proposal in September 2010 for the modernisation of land records. Pursuant to this process, Pan India Consultants Pvt. Ltd. (“the Contractor”) was awarded part of the work by letter dated 28 February 2011 and a Service Level Agreement dated 29 March 2011 containing an arbitration clause (Clause 6.11) was executed.

According to HARSAC, the Contractor failed to complete the assigned work by the stipulated date (31 December 2011) despite extensions up to 31 December 2013, prompting HARSAC to invoke the performance bank guarantee on 18 March 2014. The Contractor challenged this action before the Delhi High Court, which restrained encashment of the guarantees pending amicable settlement or arbitration.

An arbitral tribunal comprising the Principal Secretary to the Government of Haryana (HARSAC’s nominee) and Justice Rajive Bhalla (Retd.) (Contractor’s nominee) was constituted on 14 September 2016. The tribunal reserved the matter for award on 3 August 2018 but did not pronounce it within the statutory period. The Director, Land Records, Haryana notified the tribunal on 7 January 2019 that its mandate had terminated.

The Contractor moved an application under Section 29A(4) of the Arbitration and Conciliation Act, 1996 (“the Act”) before the Additional District Judge, Chandigarh, seeking extension of time; HARSAC opposed the request. By order dated 8 November 2019, the District Judge granted a three-month extension. HARSAC challenged that order under Article 227 before the Punjab and Haryana High Court, which, citing the COVID-19 pandemic, granted a further four-month extension on 24 August 2020.

HARSAC filed the present Special Leave Petition (“SLP”) in the Supreme Court impugning the High Court’s order.

Legal Issues Presented

Whether the arbitral tribunal’s mandate had validly terminated under Section 29A of the Arbitration and Conciliation Act, 1996 due to expiry of time.
Whether the appointment of the Principal Secretary, Government of Haryana, as HARSAC’s nominee arbitrator was invalid under Section 12(5) read with the Seventh Schedule of the Act.
Whether, in the circumstances, the court should substitute the existing two-member tribunal with a new arbitrator under Section 29A(6) of the Act.

Arguments of the Parties

HARSAC (Appellant)

Opposed any further extension of time, contending that the tribunal’s mandate had already terminated under Section 29A because the award was not delivered within the statutory and extended periods.
Emphasised that more than 28 months had elapsed since constitution of the tribunal without an award being rendered.

Pan India Consultants Pvt. Ltd. (Respondent)

Applied for extension on the ground that the award was ready to be pronounced and that the Contractor had paid its share of arbitral fees, while HARSAC had not.
Submitted that the tribunal was willing “to pronounce the award forthwith” but was impeded by HARSAC’s stance.
During the Supreme Court hearing, consented to substitution of the existing tribunal by appointment of a sole arbitrator.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court first noted the prolonged delay: over four years had passed since constitution of the tribunal, despite recorded statements on 3 August 2018 and 8 February 2019 that the award was ready to be delivered. It then examined the composition of the tribunal in light of Section 12(5) of the Act, a “mandatory and non-derogable” provision rendering any person with a prescribed relationship to the parties ineligible to act as arbitrator.

Referring to Item 5 of the Seventh Schedule (“the arbitrator is … part of the management … in an affiliate of one of the parties”), the Court held that the Principal Secretary, Government of Haryana, exercised a controlling influence over HARSAC, a State-controlled entity, and was therefore ineligible to serve as arbitrator. Consequently, the existing tribunal’s composition was invalid.

Both parties having agreed to substitution, the Court invoked its power under Section 29A(6) to appoint a substitute arbitrator. It selected Justice Kurian Joseph (Retd.), former judge of the Supreme Court of India, as sole arbitrator to continue from the current stage, hear final arguments, and deliver an award within six months. The appointment is subject to the declarations required by Section 12 concerning independence, impartiality, and availability. Fees are to be fixed in accordance with the Fourth Schedule and shared equally by the parties. Proceedings may be conducted virtually or at the agreed seat in Haryana.

Holding and Implications

DISPOSED OF WITH SUBSTITUTION OF THE ARBITRAL TRIBUNAL.

The Supreme Court set aside continuation of the previous tribunal, declared the Principal Secretary’s appointment invalid under Section 12(5), and appointed Justice Kurian Joseph (Retd.) as sole arbitrator, directing him to render an award within six months. The decision ensures compliance with the mandatory neutrality requirements of the Arbitration and Conciliation Act, 1996 and provides a clear procedural path for conclusion of the long-pending dispute; no new legal precedent was expressly created beyond application of the statutory provisions.

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Haryana Space Application Centre (Harsac) And Another Apellants v. Pan India Consultants Pvt. Ltd. .

INDU MALHOTRA, J.

1. The Appellant No. 1 / HARSAC, Department of Science & Technology, Government of Haryana is the nodal agency for Geographic Information System (GIS) Application and Remote Sensing for the Government of Haryana. The Ministry of Rural Development, Department of Land Resources designated HARSAC as the nodal agency for the State of Haryana. HARSAC invited Request for Proposal in September 2010 from qualified vendors for the modernisation of Land Record (including digitisation of cadastral Maps, Integration with records and management of old revenue documents). HARSAC vide Letter dated 28.02.2011 awarded the contract to the Respondent Pan India Consultants Pvt. Ltd, and three other vendors for works specified in the allotment letter. In pursuance thereof, Service Level Agreements were executed between the parties. Clause 6.11 of the Service Level Agreement dated 29.03.2011 in the present case contains an arbitration clause, which reads as under : 6.11 Resolution of Dispute HARSAC, Haryana and the Vendor shall make every effort to resolve amicably, by direct informal negotiation, any disagreement or dispute arising between them under or in connection with the contract. If after, thirty days from the commencement of such informal negotiations, HARSAC, Haryana and the Vendor are unable to resolve amicably a contract dispute; either party may require that the dispute be referred for resolution by formal arbitration. All question, disputes or differences arising under and out of or in connection with the contract, shall be referred to two Arbitrators one arbitrator to be nominated by HARSAC, Haryana and the other two to be nominated by the Vendor. In the case of the said Arbitrators not agreeing, then the matter will be referred to an umpire to be appointed by the Arbitrators in writing before proceeding with the reference. The award of the arbitrators, and in the event of their not agreeing, the award of the Umpire appointed by them shall be final and binding on the parties. The arbitration and reconciliation act 1996 shall apply to the arbitration proceedings and the venue & jurisdiction of the arbitration shall be in the State of Haryana.

2. As per HARSAC, the Respondent failed to complete the work assigned within the period specified i.e. 31.12.2011, and was delaying the entire project. Even though two extensions were granted till 31.07.2012, and later extended upto 31.12.2013, the Respondent failed to complete the work. This led to the invocation of the Performance Bank Guarantee by HARSAC vide letter dated 18.03.2014.

3. The Respondent challenged this action by filing Civil Suit bearing CS (OS) No. 886 of 2014 before the Delhi High Court. The High Court disposed of the Suit, directing the RespondentContractor to keep the bank guarantees alive, and HARSAC was directed not to encash the bank guarantees, pending resolution of the disputes amicably or by an arbitral tribunal constituted by the parties.

4. HARSAC invoked the arbitration clause contained in the Service Level Agreement, and appointed Shri. Anurag Rastogi, IAS, Principal Secretary to Government of Haryana as their nominee arbitrator. The Respondent appointed Justice Rajive Bhalla (Retd.) as their nominee arbitrator on 14.09.2016. On 14.09.2016, the arbitral tribunal stood constituted.

5. The Respondent / Pan India Consultants filed an Application for appointment of the presiding arbitrator under Section 10(1) of the Arbitration and Conciliation Act, 1996 before the arbitral tribunal. The tribunal vide Order dated 22.05.2017 declined the request for appointment of the third arbitrator at this stage, and reserved its right to nominate the third arbitrator in case of disagreement between the two arbitrators.

6. On 03.08.2018, the arbitral tribunal in its 28 th sitting, recorded in the proceedings that the arguments were heard, and the matter was reserved for passing the Award.

7. The Appellant addressed letter dated 07.01.2019 to the arbitral tribunal wherein it was stated that the arbitration proceedings had been pending for more than 1 years since the date of first hearing on 07.11.2016. That vide Order dated 25.01.2018, the tribunal had extended the period of arbitration by

3 months. Since the proceedings were not completed even within the extended period, time was again extended on 15.05.2018 for a further period of 3 months. The extended period also expired on 15.08.2018. The tribunal had even then not pronounced the Award till date. Since, the arbitral proceedings were not completed within the statutory period of 1 year as prescribed by the Arbitration and Conciliation Act, 1996 or the extended period of 6 months, the mandate of the arbitral tribunal would stand terminated.

8. On 08.02.2019, Justice Rajive Bhalla (Retd.), one of the arbitrators, in a letter addressed to the Respondent stated that after arguments were concluded, the Award was in the process of preparation, when a letter dated 07.01.2019 was received from the Director Land Record, Haryana, Panchkula, stating that the mandate of the tribunal stood terminated. However, this letter did not make reference to the clarification sought by the Respondents regarding the fee of the tribunal. It was stated by the arbitrator that : The tribunal is ready to pronounce the award forthwith.

9. The Respondent / Contractor filed an Application under Section 29A(4) of the Arbitration Act being Arb. Case No. 431 of 2019 before the Additional District Judge, Chandigarh, wherein it was stated that the Award was ready to be pronounced, and the entire fee had been paid to the tribunal. It was contended that the Director Land Records had not paid their share of the fee, but were delaying the matter, and had erroneously claimed that the mandate of the tribunal stood terminated. It was prayed that the period for passing the arbitral award be extended.

10. The Appellant herein opposed the Application and submitted that the Application under Section 29A(4) be dismissed since sufficient cause for granting extension had not been made out.

11. The District Judge vide its Order dated 08.11.2019 granted an extension of time of 3 months to the tribunal to conclude the arbitration proceedings, and pronounce the Award.

12. The Appellant herein filed Civil Revision Petition under Article 227 of the Constitution before the Punjab and Haryana High Court for setting aside the Order dated 08.11.2019 passed by the Additional District Judge, whereby an extension of time had been granted for passing the Award. It was submitted that the extension of time had been mutually agreed by both parties upto 15.08.2018. However, the tribunal failed to pronounce the Award even within this extended period, and did not show any inclination of doing so even on 07.01.2019, when the letter terminating the mandate of the tribunal was sent. The tribunal failed to pronounce the Award in a period of over 28 months from the date of constitution of the tribunal.

13. The learned Single Judge of the High Court passed an Interim Order dated 31.07.2020 wherein it was observed that since the period of 3 months granted by the District Court had already elapsed, both parties were directed to obtain instructions for grant of a period of 3 months on account of the prevailing Pandemic. The tribunal would conduct the proceedings either virtually or physically.

14. The Petition was heard on 24.08.2020, when the learned Additional Advocate General, Haryana opposed the extension of time. The High Court, in light of the current Pandemic, granted an extension of 4 months to enable the parties to conclude their arguments within 3 months, and a period of 1 month for the tribunal to pass the Award.

15. Aggrieved by the said Order, HARSAC has filed the present Special Leave Petition. We have heard the learned Additional Advocate General appearing for HARSAC, and Mr. Angad Mehta for the Respondent- Contractor.

16. We find that even though a period of over 4 years has elapsed since the constitution of the tribunal on 14.09.2016, the Award has not been pronounced so far, even though the tribunal had on two occasions i.e. 03.08.2018 in its 28th sitting, and thereafter in the letter dated 08.02.2019 addressed by the arbitrators, recorded that the tribunal was ready to pronounce the Award forthwith.

17. We are of the view that the appointment of the Principal Secretary, Government of Haryana as the nominee arbitrator of HARSAC which is a Nodal Agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule. Section 12(5) of the Arbitration Act, 1996 (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel, falls within any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Item 5 of the Seventh Schedule of the Act reads as under :

Arbitrators relationship with the parties or counsel

5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.

(emphasis supplied) Section 12(5) read with the Seventh Schedule is a mandatory and non- derogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana would be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the Appellant Company being a nodal agency of the State.

18. The Counsel for both parties during the course of hearing have consented to the substitution of the existing tribunal, by the appointment of a Sole Arbitrator to complete the arbitral proceedings. In exercise of our power under Section 29A(6) of the Arbitration and Conciliation Act, 1996 (as amended), we hereby appoint Justice Kurian Joseph (Retd.), former judge of this Court, as the substitute arbitrator, who will conduct the proceedings in continuation from the stage arrived at, and pass the Award within a period of 6 months from the date of receipt of this Order. The Arbitrator may direct the parties to address final arguments and take him through the entire record of the case. The appointment of the Sole Arbitrator is subject to the declarations being made under Section 12 of the Arbitration and Conciliation Act, 1996 with respect to independence and impartiality, and the ability to devote sufficient time to complete the arbitration within the period of 6 months. The arbitrator will charge fees in accordance with the Fourth Schedule of the Arbitration and Conciliation Act, 1996. We direct both parties to equally share the fees payable to the Sole Arbitrator. The proceedings will be conducted either virtually, or at the seat of arbitration in the State of Haryana. The matter is disposed of accordingly. Pending applications, if any, stand disposed. .................................................J. (L. NAGESWARA RAO) .................................................J. (INDU MALHOTRA) .................................................J. (AJAY RASTOGI) New Delhi; January 20, 2021

Haryana Space Applic... v. Pan India Consultant...