The Supreme Court while interpreting the provisions of Article 299 of the Constitution has observed that Government cannot seek immunity from legal provisions just because a contract has been entered in President's name.

The Bench of CJI DY Chandrachud, Justice PS Narasimha, and Justice JB Pardiwala observed, "Having considered the purpose and object of Article 299, we are of the clear opinion that a contract entered into in the name of the President of India, cannot and will not create an immunity against the application of any statutory prescription imposing conditions on parties to an agreement, when the Government chooses to enter into a contract."

The Court has appointed former apex court judge Indu Malhotra as the sole arbitrator to adjudicate disputes arising from the conditions of a tender floated in 2011 by the Ministry of Home Affairs for the supply of over 31,000 Glock pistols.

The Court rejected the submissions of the Centre's counsel that the contracts entered into by the Union of India in the name of the President are immune from provisions that protect against conflict of interest of a party to a contract under section 12(5) of the Arbitration and Conciliation Act, 1996.

The bench delivered its verdict on an application by M/s Glock Asia-Pacific Ltd. under section 11(6) of the Act for the appointment of a sole arbitrator.

"We hereby appoint Justice Indu Malhotra, a former judge of this court, as the sole arbitrator to adjudicate upon the disputes arising under and in connection with the conditions of tender entered into between the parties, subject to the mandatory disclosures under the amended section 12 of the Arbitration and Conciliation Act, 1996," the bench said while allowing the application.

The apex court noted that the Ministry of Home Affairs (Procurement Division) had floated a single-party tender in February 2011 for the supply of 31,756 Glock pistols. It said the bid was confirmed in favour of the applicant and a tender of acceptance was issued by the ministry in March 2011.

The bench also noted the applicant, which had furnished the performance bank guarantee (PBG) in August 2011, proceeded to perform its contractual obligations and by August 6, 2012, delivered the entire supply under the contract. It said the ministry accepted the consignment and paid the entire consideration by November 2012.

The apex court noted the PBG, which was issued in August 2011, was extended from time to time during the subsistence of the contract, and in May 2021, the applicant informed the ministry that the PBG will not be extended any further. The bench also noted that the ministry immediately invoked the PBG for Rs 9.64 crore, citing the clauses of the acceptance of tender which provided for guarantee and warranty.

Later, the firm issued a notice invoking arbitration in July 2022 and nominated a retired judge of the Delhi High Court as the sole arbitrator.

Senior Advocate Ramakrishnan Viraraghavan along with AOR Shayam D. Nandan appeared for the applicant while ASG Aishwarya Bhati appeared for the Union before the Court.

The bench said, replying to the notice invoking arbitration, the ministry in an October 2022 letter stated that the nomination was contrary to clause 28 of the conditions of tender as per which disputes are to be referred to arbitration by an officer in the Ministry of Law, appointed by the Secretary of Ministry of Home Affairs.

In its verdict, the bench dealt with the submission of the Centre's counsel that the contract in this case stands on a different footing as it was entered into in the name of the President of India.

"It must be emphasized that Article 299 (of the Constitution) only lays down the formality that is necessary to bind the government with contractual liability. It is important to note that Article 299 does not lay down the substantial law relating to the contractual liability of the Government, which is to be found in the general laws of the land," the bench said.

"We are unable to trace any immunity arising out of Article 299, to support the contention that for contracts expressed to be made by the President of India, the ineligibility of appointment as an arbitrator as contemplated under Section 12(5) of the Act, read with Schedule VII, will be inapplicable.Accordingly, the Court allowed the application," the Court held.

Accordingly, the Court allowed the application.

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

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With PTI Inputs