Judges Name: Hon’ble Judges Dr. D.Y. Chandrachud, C.J.I., Pamidighantam Sri Narasimha and J.B. Pardiwala, JJ.

Order dated: 19.05.2023

Facts of the Case:  

1. The Ministry of Home Affairs (Procurement Division) had issued a tender for the supply of 31,756 Glock Pistols. The applicant (Glock Asia-Pacific Ltd.) was awarded the bid, and a Tender of Acceptance was issued by the Respondent on 31.03.2011. The Tender of Acceptance required the applicant to submit a performance bond of 10% of the contract value, which they complied on 24.08.2011. 
2. The Applicant fulfilled its contractual obligations and delivered the entire supply by 06.08.2012, and the Respondent accepted the consignment and made the payment by 11.11.2012. The performance bank guarantee (PBG) was extended from time to time and was valid until 2021. On 31.05.2021, the applicant informed the Respondent that the PBG would not be extended any further. 
3. In response, the Respondent invoked the PBG for an amount of INR 9,64,42,738/-, citing clauses 11 and 18(c) of Schedule II of the Acceptance of Tender relating to guarantee and warranty provisions. 
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 Arbitrator. The Respondent objected to the nomination, stating that it was contrary to Clause 28 of the Conditions of Tender, which specified that disputes are to be referred to arbitration by an officer in the Ministry of Law appointed by the Secretary of the Ministry of Home Affairs. 
5. The Applicant, being a foreign company, filed an application under Section 11(6) of the Act before the Court, seeking the appointment of a Sole Arbitrator.  The Applicant that the appointment of a sole arbitrator would be contrary to S. 12(5) of the Act relying on the judgement of Perkins Eastman Architects DPC and Anr. v. HSCC (India) Ltd. (2020) 20 SCC 760. 
6. The Respondent, relying on Indian Oil Corporation Ltd. and Ors. v. Raja Transport Pvt. Ltd. (2009) 8 SCC 520 stated that the contract in the present case in the name of the President of India is a clear point of distinction from the Perkins case.

Hon’ble Supreme Court Observed/ Held As Follows:

• The court observes that Art. 299 only lays down the formality necessary to bind the govt. with contractual liability. Thus, even though a contract may be formally valid under Art. 299, it may fail to bind the govt. if it is void or unenforceable under general provisions of law. 
• In re the Arbitration Clause S. 12(5), the arbitration Clause which authorises the Secretary to nominate an officer of the Ministry of Law and Justice to act as a Sole Arbitrator 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, the appointment of an officer of the Ministry of Law and Justice as an arbitrator cannot be given effect. The submission of the learned ASG in favour of such an appointment was therefore rejected. 
• With respect to the appointment of a retired employee as an arbitrator, 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. 
• For the reasons stated above, the application Under Section 11(6) of the Arbitration and Conciliation Act, 1996 was allowed. Ms. Justice Indu Malhotra, a former judge of this Court was appointed as the Sole Arbitrator to adjudicate upon the disputes.