Glock vs India: President's signature can't bypass arbitration law

Glock delivered 31,756 pistols to India. Got paid. Then the government invoked a ₹9.64 crore bank guarantee. The contract said: your arbitrator must be a government officer. Glock said: that's like letting the other team pick the referee.

The Supreme Court had to answer one question. When the government signs a contract in the President's name, does that give it the right to appoint its own employee as the sole arbitrator? Or does the Arbitration Act's rule against biased arbitrators apply to the government just like it applies to everyone else?

When the pistols arrived but the guarantee stayed

In 2011, Glock Asia-Pacific Ltd. won a government tender. The deal: supply 31,756 pistols to India's Ministry of Home Affairs. By August 2012, every pistol had been delivered. By November 2012, the government had paid the full amount. The contract was complete.

But as part of the deal, Glock had submitted a performance bank guarantee (PBG) — a promise from a bank that Glock would meet its obligations. Even after the pistols were delivered, Glock kept renewing this guarantee. For nine years. Until May 2021, when Glock finally told the government it would not extend the guarantee any further.

The government's response was swift. It invoked the PBG — demanded the bank pay about ₹9.64 crores — citing warranty clauses. A dispute erupted. Glock wanted arbitration. But the contract's arbitration clause (Clause 28) said the arbitrator must be a serving officer of the Ministry of Law, appointed by the Secretary of the Ministry of Home Affairs.

The referee problem

Glock objected. Under Section 12(5) of the Arbitration and Conciliation Act, 1996 (a provision that disqualifies arbitrators who have a relationship with a party), read with Paragraph 1 of the Seventh Schedule (which lists specific relationships that make a person ineligible to be an arbitrator), a person who is an employee of a party cannot serve as an arbitrator. The government's own officer, appointed by the government itself, to decide a dispute between the government and Glock — that, Glock argued, was exactly the kind of bias the law was designed to prevent.

The government pushed back. Its argument: the contract was signed in the name of the President of India, under Article 299 of the Constitution (which governs how contracts are made on behalf of the government). This, the government claimed, gave the contract a special status — an immunity from the ordinary rules of arbitration.

Why the President's name didn't help

The Supreme Court rejected that argument outright. A bench of Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice Pamidighantam Sri Narasimha, and Justice J.B. Pardiwala held that Article 299 is a procedural provision — it tells you how to make a valid contract with the government. It does not create a shield against statutory law.

"A contract entered into in the name of the President of India under Article 299 of the Constitution does not create an immunity against the application of any statutory prescription imposing conditions on parties to an agreement," the Court said. In plain terms: the government cannot use the President's signature to bypass the Arbitration Act.

The government also relied on a previous Supreme Court decision — Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) — where the Court had allowed a panel of retired government employees to serve as arbitrators. But the Court distinguished that case. In the Railway Electrification case, the panel consisted of retired employees, not serving ones. Here, Clause 28 required a serving officer of the Ministry of Law. That made all the difference.

The line between serving and retired

The Court's reasoning turned on a critical distinction. Section 12(5) read with Paragraph 1 of the Seventh Schedule disqualifies a person who is "an employee" of a party. A serving government officer is an employee. A retired officer is not. The Railway Electrification case permitted retired employees on a panel, with a different mechanism for selection. But Clause 28 gave the government the sole power to appoint a serving officer as the sole arbitrator — a situation the Court had already struck down in Perkins Eastman Architects DPC v. HSCC (India) Ltd.

In Perkins Eastman, the Supreme Court had held that if one party has the exclusive right to appoint a sole arbitrator, that arbitrator is inherently biased. The same logic applied here. The government could not be both a party to the dispute and the sole selector of the person who would decide it.

What the court ordered

The Court allowed Glock's application under Section 11(6) of the Arbitration Act (the provision that allows a party to ask the court to appoint an arbitrator when the agreed mechanism fails). It appointed Justice Indu Malhotra, a retired Supreme Court judge, as the sole arbitrator to resolve the dispute between Glock and the Union of India.

The Court also made clear that its ruling did not bar retired government employees from serving as arbitrators. The problem was not that the arbitrator had once worked for the government. The problem was that the arbitrator was currently a government employee, appointed by the government itself, to decide a case against the government.

For practitioners, the message is straightforward: if your arbitration clause gives one party the power to appoint its own serving employee as the sole arbitrator, that clause is dead on arrival. The clause must be rewritten to ensure independence — either by using a neutral appointing authority, or by specifying that the arbitrator must be a retired employee, not a serving one.

THE PLAY: If your government contract's arbitration clause says "a serving government officer appointed by the government," strike it out and replace it with "a retired judge appointed by the Chief Justice of the High Court" before you sign.

The pistols were delivered. The money was paid. The guarantee was invoked. And a retired judge now holds the pen.