Supreme Court Rules: No Immunity for President’s Contracts from Statutory Prescriptions, Appoints New Arbitrator in High-Profile Case

In a recent landmark decision, the Supreme Court of India has declared that contracts entered into in the name of the President of India do not grant immunity from statutory prescriptions. The ruling clarifies that such contracts are subject to applicable laws and regulations, including the ineligibility of certain individuals to serve as arbitrators. The decision came as the court adjudicated an appeal in the case of M/s Glock Asia-Pacific Ltd. v Union of India.

The case arose from a tender floated by the Ministry of Home Affairs in 2011 for the purchase of Glock pistols. The tender’s arbitration clause stipulated that the Secretary of the Ministry of Home Affairs should appoint an employee of the Ministry of Law and Justice as the sole arbitrator. When a dispute emerged between the parties, the applicant, a foreign company, nominated a retired judge of the Delhi High Court as the sole arbitrator. However, the Ministry objected, arguing that the appointment should be made according to the tender’s conditions, which required an officer of the Ministry of Law to act as the arbitrator.

The applicant sought the intervention of the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, which governs the appointment of arbitrators. The court examined Section 12(5) of the Act, which outlines the grounds for challenging the appointment of an arbitrator. It concluded that an arbitrator who is an employee or has a business relationship with one of the parties is ineligible. The applicant relied on the precedent set in the case of Perkins Eastman Architects DPC and Another v. HSCC (India) Ltd., where the court held that anyone with an interest in the outcome of the dispute is ineligible to be an arbitrator.

The Supreme Court, comprising Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice PS Narasimha, and Justice J. B. Pardiwala, unanimously decided that a contract made in the name of the President does not grant immunity against statutory prescriptions. They stressed that while Article 299 of the Constitution of India governs the formal requirements for binding the government to contractual liability, it does not exempt such contracts from complying with general laws of the land. Consequently, contracts made by the Union of India in the name of the President are not immune from provisions safeguarding against conflicts of interest, such as those stipulated in Section 12(5) of the Act.

The court further ruled that the arbitrator proposed by the Union, who is an employee of the Union, falls within the ineligible category outlined in Schedule VII, read with Section 12(5) of the Arbitration Act. As a result, the appointment was deemed invalid. The court proceeded to exercise its authority under Section 11(6) of the Arbitration Act and appointed Justice Indu Malhotra (Retd.), a former judge of the Supreme Court, as the sole arbitrator to handle the disputes arising from the tender’s conditions.

This significant judgment clarifies the legal framework surrounding contracts entered into by the President of India and upholds the principle that statutory prescriptions apply to such agreements. The ruling reinforces the integrity of the arbitration process and ensures that impartiality is maintained in high-profile cases involving government contracts.

Case Title: M/s Glock Asia-Pacific Ltd. v Union of India

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