HARYANA SPACE APPLICATION CENTRE (HARSAC) & ANR. versus M/S PAN INDIA CONSULTANTS PVT. LTD. on 20 January 2021

1. The Appellant No. 1 / HARSAC, Department of Science &Technology, Government of Haryana is the nodal agency for GeographicInformation System (“GIS”) Application and Remote Sensing for theGovernment of Haryana. The Ministry of Rural Development,Department of Land Resources designated HARSAC as the nodal agencyfor the State of Haryana. HARSAC invited Request for Proposal inSeptember 2010 from qualified vendors for the modernisation of LandRecord (including digitisation of cadastral Maps, Integration with recordsand management of old revenue documents). HARSAC vide Letterdated 28.02.2011 awarded the contract to the Respondent – Pan IndiaConsultants Pvt. Ltd, and three other vendors for works specified in theallotment letter. In pursuance thereof, Service Level Agreements wereexecuted between the parties.

Clause 6.11 of the Service Level Agreement dated 29.03.2011 inthe present case contains an arbitration clause, which reads as under :

“6.11 Resolution of Dispute

HARSAC, Haryana and the Vendor shall make every effortto resolve amicably, by direct informal negotiation, anydisagreement or dispute arising between them under or inconnection with the contract. If after, thirty days from thecommencement of such informal negotiations, HARSAC,Haryana and the Vendor are unable to resolve amicably acontract dispute; either party may require that the dispute bereferred for resolution by formal arbitration.

All question, disputes or differences arising under and out ofor in connection with the contract, shall be referred to twoArbitrators one arbitrator to be nominated by HARSAC,Haryana and the other two to be nominated by the Vendor. Inthe case of the said Arbitrators not agreeing, then the matterwill be referred to an umpire to be appointed by the Arbitratorsin writing before proceeding with the reference. The award ofthe arbitrators, and in the event of their not agreeing, the award A

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of the Umpire appointed by them shall be final and binding onthe parties. The arbitration and reconciliation act 1996 shallapply to the arbitration proceedings and the venue & jurisdictionof the arbitration shall be in the State of Haryana.”

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2. As per HARSAC, the Respondent failed to complete the workBassigned within the period specified i.e. 31.12.2011, and was delayingthe entire project. Even though two extensions were granted till31.07.2012, and later extended upto 31.12.2013, the Respondent failedto complete the work. This led to the invocation of the PerformanceBank Guarantee by HARSAC vide letter dated 18.03.2014.

C3. The Respondent challenged this action by filing Civil Suit bearingCS (OS) No. 886 of 2014 before the Delhi High Court. The High Courtdisposed of the Suit, directing the Respondent–Contractor to keep thebank guarantees alive, and HARSAC was directed not to encash thebank guarantees, pending resolution of the disputes amicably or by anarbitral tribunal constituted by the parties.D

4. HARSAC invoked the arbitration clause contained in the ServiceLevel Agreement, and appointed Shri. Anurag Rastogi, IAS, PrincipalSecretary to Government of Haryana as their nominee arbitrator.The Respondent appointed Justice Rajive Bhalla (Retd.) as theirnominee arbitrator on 14.09.2016.E

On 14.09.2016, the arbitral tribunal stood constituted.

5. The Respondent / Pan India Consultants filed an Applicationfor appointment of the presiding arbitrator under Section 10(1) of theArbitration and Conciliation Act, 1996 before the arbitral tribunal. TheFtribunal vide Order dated 22.05.2017 declined the request for appointmentof the third arbitrator at this stage, and reserved its right to nominate thethird arbitrator in case of disagreement between the two arbitrators.

6. On 03.08.2018, the arbitral tribunal in its 28[th] sitting, recordedin the proceedings that the arguments were heard, and the matter wasGreserved for passing the Award.

7. The Appellant addressed letter dated 07.01.2019 to the arbitraltribunal wherein it was stated that the arbitration proceedings had beenpending for more than 1 ½ years since the date of first hearing on H

07.11.2016. That vide Order dated 25.01.2018, the tribunal had extendedthe period of arbitration by 3 months. Since the proceedings were notcompleted even within the extended period, time was again extended on15.05.2018 for a further period of 3 months. The extended period alsoexpired on 15.08.2018. The tribunal had even then not pronounced theAward till date. Since, the arbitral proceedings were not completed withinthe statutory period of 1 year as prescribed by the Arbitration andConciliation Act, 1996 or the extended period of 6 months, the mandateof the arbitral tribunal would stand terminated.

8. On 08.02.2019, Justice Rajive Bhalla (Retd.), one of thearbitrators, in a letter addressed to the Respondent stated that afterarguments were concluded, the Award was in the process of preparation,when a letter dated 07.01.2019 was received from the Director LandRecord, Haryana, Panchkula, stating that the mandate of the tribunalstood terminated. However, this letter did not make reference to theclarification sought by the Respondents regarding the fee of the tribunal.It was stated by the arbitrator that : “ The tribunal is ready to pronouncethe award forthwith.”

9. The Respondent / Contractor filed an Application under Section29A(4) of the Arbitration Act being Arb. Case No. 431 of 2019 beforethe Additional District Judge, Chandigarh, wherein it was stated that theAward was ready to be pronounced, and the entire fee had been paid tothe tribunal. It was contended that the Director Land Records had notpaid their share of the fee, but were delaying the matter, and haderroneously claimed that the mandate of the tribunal stood terminated. Itwas prayed that the period for passing the arbitral award be extended.

10. The Appellant herein opposed the Application and submittedthat the Application under Section 29A(4) be dismissed since sufficientcause for granting extension had not been made out.

11. The District Judge vide its Order dated 08.11.2019 granted anextension of time of 3 months to the tribunal to conclude the arbitrationproceedings, and pronounce the Award.

12. The Appellant herein filed Civil Revision Petition under Article227 of the Constitution before the Punjab and Haryana High Court forsetting aside the Order dated 08.11.2019 passed by the Additional District AB

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AJudge, whereby an extension of time had been granted for passing theAward. It was submitted that the extension of time had been mutuallyagreed by both parties upto 15.08.2018. However, the tribunal failed topronounce the Award even within this extended period, and did not showany inclination of doing so even on 07.01.2019, when the letter terminatingthe mandate of the tribunal was sent. The tribunal failed to pronounceBthe Award in a period of over 28 months from the date of constitution ofthe tribunal.

13. The learned Single Judge of the High Court passed an InterimOrder dated 31.07.2020 wherein it was observed that since the periodof 3 months granted by the District Court had already elapsed, bothCparties were directed to obtain instructions for grant of a period of 3months on account of the prevailing Pandemic. The tribunal wouldconduct the proceedings either virtually or physically.

14. The Petition was heard on 24.08.2020, when the learnedAdditional Advocate General, Haryana opposed the extension of time.DThe High Court, in light of the current Pandemic, granted an extensionof 4 months to enable the parties to conclude their arguments within 3months, and a period of 1 month for the tribunal to pass the Award.

15. Aggrieved by the said Order, HARSAC has filed the presentSpecial Leave Petition. We have heard the learned Additional AdvocateEGeneral appearing for HARSAC, and Mr. Angad Mehta for theRespondent- Contractor.

16. We find that even though a period of over 4 years has elapsedsince the constitution of the tribunal on 14.09.2016, the Award has notbeen pronounced so far, even though the tribunal had on two occasionsFi.e. 03.08.2018 in its 28[th] sitting, and thereafter in the letter dated08.02.2019 addressed by the arbitrators, recorded that the tribunal wasready to pronounce the Award forthwith.

17. We are of the view that the appointment of the PrincipalSecretary, Government of Haryana as the nominee arbitrator ofGHARSAC which is a Nodal Agency of the Government of Haryana,would be invalid under Section 12(5) of the Arbitration and ConciliationAct, 1996 read with the Seventh Schedule. Section 12(5) of the Arbitration Act, 1996 (as amended by the 2015 Amendment Act) provides thatnotwithstanding any prior agreement to the contrary, any person whoserelationship with the parties, or counsel, falls within any of the categoriesspecified in the Seventh Schedule, shall be ineligible to be appointed asan arbitrator.

Item 5 of the Seventh Schedule of the Act reads as under :

“Arbitrator’s relationship with the parties or counsel

5. The arbitratoris a manager, director or part of the management,or has a similar controlling influence, in an affiliate of one of theparties if the affiliate is directly involved in the matters in disputein the arbitration.”

(emphasis supplied)

Section 12(5) read with the Seventh Schedule is a mandatory andnon-derogable provision of the Act. In the facts of the present case, thePrincipal Secretary to the Government of Haryana would be ineligible tobe appointed as an arbitrator, since he would have a controlling influenceon the Appellant Company being a nodal agency of the State.

18. The Counsel for both parties during the course of hearinghave consented to the substitution of the existing tribunal, by theappointment of a Sole Arbitrator to complete the arbitral proceedings.

In exercise of our power under Section 29A(6) of the Arbitrationand Conciliation Act, 1996 (as amended), we hereby appoint JusticeKurian Joseph (Retd.), former judge of this Court, as the substitutearbitrator, who will conduct the proceedings in continuation from thestage arrived at, and pass the Award within a period of 6 months fromthe date of receipt of this Order. The Arbitrator may direct the parties toaddress final arguments and take him through the entire record of thecase.

The appointment of the Sole Arbitrator is subject to the declarationsbeing made under Section 12 of the Arbitration and Conciliation Act,1996 with respect to independence and impartiality, and the ability todevote sufficient time to complete the arbitration within the period of 6months.

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AThe arbitrator will charge fees in accordance with the FourthSchedule of the Arbitration and Conciliation Act, 1996. We direct bothparties to equally share the fees payable to the Sole Arbitrator. Theproceedings will be conducted either virtually, or at the seat of arbitrationin the State of Haryana.

BThe matter is disposed of accordingly. Pending applications, ifany, stand disposed.

Devika Gujral

Matters disposed of.

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