Haryana Space Application Centre … vs M/S Pan India Consultants Pvt. … on 20 January, 2021


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Supreme Court of India

Haryana Space Application Centre … vs M/S Pan India Consultants Pvt. … on 20 January, 2021

Author: Hon’Ble Ms. Malhotra

Bench: L. Nageswara Rao, S. Abdul Nazeer, Hon’Ble Ms. Malhotra

                                                                   REPORTABLE

                      IN THE SUPREME COURT OF INDIA
                       CIVIL APPELLATE JURISDICTION
                       CIVIL APPEAL NO. 131        OF 2021
     (ARISING OUT OF SPECIAL LEAVE PETITION (Civil) No. 13503 of 2020)




HARYANA SPACE APPLICATION CENTRE (HARSAC) & ANR. … APELLANTS


                                      Versus

M/S PAN INDIA CONSULTANTS PVT. LTD.                            … RESPONDENT



                                    ORDER

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

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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 Respondent–Contractor to keep the bank guarantees

alive, and HARSAC was directed not to encash the bank guarantees, pending

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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 ½ 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

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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.

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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.

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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

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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 :

“Arbitrator’s 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

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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

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