HARYANA SPACE APPLICATION CENTRE (HARSAC) & ANR.versusM/S PAN INDIA CONSULTANTS PVT. LTD.

282                        [2021]
                SUPREME COURT     1 S.C.R. 282
                               REPORTS                    [2021] 1 S.C.R.


A        HARYANA SPACE APPLICATION CENTRE (HARSAC) &
                            ANR.
                                       v.
                 M/S PAN INDIA CONSULTANTS PVT. LTD.
B                        (Civil Appeal No. 131 of 2021)
                              JANUARY 20, 2021
              [L. NAGESWARA RAO, INDU MALHOTRA AND
                         AJAY RASTOGI, JJ.]
             Arbitration and Conciliation Act, 1996 – s.12(5) r/w Seventh
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      Schedule – Appointment of Principal Secretary, Government of
      Haryana as nominee arbitrator of appellant-company (HARSAC),
      a Nodal Agency of Government of Haryana – Validity of – Held:
      s.12(5) of the Act (as amended by the 2015 Amendment Act) provides
      that notwithstanding any prior agreement to the contrary, any person
D     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 – s.12(5) read with the Seventh
      Schedule is a mandatory and non-derogable provision of the Act –
      Principal Secretary to the Government of Haryana would be
      ineligible to be appointed as an arbitrator, since he would have a
E
      controlling influence on the Appellant-company being a nodal
      agency of the State – In exercise of powers u/s.29A(6) of the Act
      (as amended), a former judge of Supreme Court, appointed as the
      substitute arbitrator, who shall conduct the proceedings in
      continuation from the stage arrived at, and pass award within 6
F     months.
              CIVIL APPELLATE JURISDICTION : Civil Appeal No. 131 of
      2021.
            From the Judgment and Order dated 24.08.2020 of the High Court
      of Punjab & Haryana at Chandigarh in CR No. 3 of 2020(O&M).
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            Hemant Gupta, AAG, Alok Sharma, Ms. Payal Gupta, Ms. Sunakshi
      Gupta, Tushar Sharma Sanjay Kumar Visen, Kaushik Laik, Angad Mehta
      Advs. for the appearing parties.


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                                      282
HARYANA SPACE APPLICATION CENTRE (HARSAC) v. M/S PAN INDIA                     283
                 CONSULTANTS PVT. LTD.


      The Order of the Court was passed by                                     A
      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,                      B
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                   C
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          D
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             E
          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.                       F
          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
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          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


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284             SUPREME COURT REPORTS                            [2021] 1 S.C.R.


A               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
B     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.
C            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 resolution of the disputes amicably or by an
      arbitral tribunal constituted by the parties.
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            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
E     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
F     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 28th sitting, recorded
      in the proceedings that the arguments were heard, and the matter was
G     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

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HARYANA SPACE APPLICATION CENTRE (HARSAC) v. M/S PAN INDIA                    285
       CONSULTANTS PVT. LTD. [INDU MALHOTRA, J. ]


07.11.2016. That vide Order dated 25.01.2018, the tribunal had extended       A
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
                                                                              B
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,        C
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   D
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         E
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         F
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.                                         G
       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

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286            SUPREME COURT REPORTS                           [2021] 1 S.C.R.


A     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
B
      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
C     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.
D     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
E     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
F     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
G     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



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HARYANA SPACE APPLICATION CENTRE (HARSAC) v. M/S PAN INDIA                      287
       CONSULTANTS PVT. LTD. [INDU MALHOTRA, J. ]


Act, 1996 (as amended by the 2015 Amendment Act) provides that                  A
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 :               B
       “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.”                                                      C

                                                       (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         D
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.
                                                                                E
       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
                                                                                F
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          G
devote sufficient time to complete the arbitration within the period of 6
months.


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288              SUPREME COURT REPORTS                           [2021] 1 S.C.R.


A            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.
B            The matter is disposed of accordingly. Pending applications, if
      any, stand disposed.

      Devika Gujral                                              Matters disposed of.


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