The Supreme Court has held that the government cannot claim immunity from the application of law to a contract merely because one of the parties to it is the President of India.
Key points
- ‘The court held 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.
- Moreover, when tasked with the job to find an arbitrator, the state should ensure that the person it chooses is an “impartial and independent” adjudicator with no professional ties to it, past or present.
- The judgment came in a petition filed by Glock-Asia Pacific Limited against the Union regarding the appointment of an arbitrator to a dispute regarding a tender.
- Glock had appealed against an arbitration clause in the agreement which enabled the Home Secretary to appoint an officer in the Ministry of Law to be the sole arbitrator. Justice Narasimha, who authored the judgment, said the clause was a clear violation of Section 12(5) of the Arbitration Act.
- The provision mandates that any person with prior or existing relationship with any of the parties to the arbitration in the capacity of an employee, consultant, advisor or any other past or present business relationship, would be ineligible to be appointed as arbitrator.
- The Supreme Court said Article 299 (contracts made by the Union or State in the name of the President or Governor) of the Constitution does not give the government power to break the statutory law.
- When the party appointing an arbitrator is the State, the duty to appoint an impartial and independent adjudicator was even more onerous, the court responded.
