Page 23 - Banking Finance December 2024

LEGAL UPDATE

SC: PSUs can't unilaterally

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pick arbitrators
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The Supreme Court (SC) ruled that Ô Ô Ô Ô Ô » »» »¹ ¹¹ ¹ ¿ ¿¿ ¿ ´ ´´ ´
clauses allowing public sector under-
takings (PSUs) to unilaterally appoint
arbitrators to resolve disputes with
private contractors are invalid. Ò»©­
As a result, PSUs will need to modify
their contracts to comply with the judg-
ment, which states that unilateral ap-
pointment clauses in public-private
contracts violate Article 14 of the Con-
stitution (right to equality).
The Constitution Bench, comprising
Chief Justice of India (CJI) D Y Kolkata & Bengal Police recover over Rs. 1 crore lost
Chandrachud, Justices Hrishikesh Roy, to cyber frauds
P S Narasimha, J B Pardiwala, and The Kolkata Police, along with Bengal Police, was able to return more than
Manoj Misra, said that while PSUs can Rs 1 crore lost in various cyber frauds in the state in the past two months.
maintain a panel of potential arbitra-
While the Bengal Police recovered around Rs 63 lakh, with Rs 33 lakh returned
tors, they cannot compel the other in the past couple of weeks, the rest was returned by Kolkata Police.
party to select its arbitrator from that
panel. Police sources said that in almost all cases, the recoveries were made pos-
sible due to the quick reporting of the crime. Though several arrests re-
The case involved the validity of an lated to these cases are pending, officers said that they were at least able
arbitration clause that stipulates the to block the money from reaching the cyber criminals.
appointment of an arbitrator from a
panel curated by one of the parties - Among the money returned was around Rs 1 lakh belonging to a senior South
typically a PSU in most cases. Eastern Railways officer. The officer said, two phishing attempts were made
on his account through a compromised credit card. The moment he re-
The court ruled that unilateral ap- ported the matter to the Port Cyber Cell, quick action was taken, and the
pointment clauses in public-private money was returned to his account within a few days.
contracts fail to ensure the minimum
level of integrity required for authori- In another incident, the Kolkata Police recovered another Rs 1 lakh of lost
ties performing quasi-judicial functions, money that was usurped from a Jadavpur division resident through digital
such as arbitral tribunals. arrest. The victim, who owns a firm in organic farming, lost a Rs 3.9 lakh
after being threatened in the name of CBI and the Narcotics Control Bu-
"Therefore, a unilateral appointment reau in April this year.
clause is against the principle of arbi-
tration, that is, impartial resolution of
disputes between parties. It also vio- PSUs in a bind on arbitra- The ruling by a constitution bench,
lates the nemo judex rule, which con- delivered, follows a finance ministry
stitutes the public policy of India in the tion powers push to cut PSU arbitration costs.
context of arbitration. Therefore, uni- The Supreme Court's move to slash the
lateral appointment clauses in public- powers of state-run companies to uni- It puts state-run firms in a bind-if they
private contracts are violative of Ar- laterally appoint arbitrators on Chief arbitrate disputes, they lose their ad-
ticle 14 of the Constitution for being Justice D. Y. Chandrachud's last day in vantage of appointing arbitrators; if
arbitrary, in addition to being violative office leaves the country's public sec- they do not arbitrate, India risks losing
of the equality principle under the Ar- tor units (PSUs) in a cloud of uncer- ground in its mission to become a glo-
bitration Act," the court held. tainty. bal arbitration hub.

BANKING FINANCE | DECEMBER | 2024 | 21