M/S.NORTHERN COALFIELDS LTD. Vs HEAVY ENGINEERING CORP.LTD.
Bench: T.S. THAKUR,R. BANUMATHI
Case number: C.A. No.-006296-006296 / 2016
Diary number: 28909 / 2008
Advocates: ANIP SACHTHEY Vs
GAGAN GUPTA
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6296 OF 2016 [Arising out of Special Leave Petition (C) No.27646 of 2008]
M/S. NORTHERN COALFIELD LTD. …APPELLANT
VERSUS
HEAVY ENGINEERING CORP. LTD. & ANR. …RESPONDENTS
J U D G E M E N T
T.S. THAKUR, CJI.
1. Leave granted.
2. This is yet another case that brings to fore a sad state
of affairs when it comes to resolving disputes between two
Government owned corporations. What adds to the enigma
of apathy towards realism in official circles is the fact that
the respondent-corporation has with considerable tenacity
opposed the move aimed at a quick and effective resolution
of the conflict and resultant quietus to the controversy by a 1
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reference of the disputes to arbitration in terms of the
Arbitration and Conciliation Act, 1996.
The Facts:
3. Appellant – Northern Coalfield Ltd. issued a tender for
construction of a Coal Handling Plant at Bina sometime in
May, 1984. The construction work was meant to be carried
out under two contracts: viz. (1) a Contract for works and
services and (2) a Contract for equipment and spares. Both
these contracts were awarded to the respondent – Heavy
Energy Corporation Ltd. which is also a Government of India
company. The contracts contained a Clause that provided for
adjudication of disputes between the parties by way of
arbitration. Disputes having actually arisen in relation to the
two contracts, the same were referred for resolution in
terms of the “permanent in-house administrative machinery”
set up by the Government. Claims and counter claims were
made by the two corporations against each other which
finally culminated in the making of two awards both dated
28.02.1997 under which respondent No.1 was held entitled
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to a sum of Rs.16,87,61,981.11/-, while the appellant was
awarded Rs.56,05,000/-. Both the parties were, however,
dissatisfied with the awards which they challenged in
appeals filed before the Law Secretary, Department of Legal
Affairs, Ministry of Law and Justice in terms of the in-house
mechanism provided by the Government. While Appeal
No.67 of 1998 filed before the Law Secretary pertained to
the contract for supply of equipment, Appeal No.64 of 1999
pertained to the contract for execution of works and
services.
4. During the pendency of the appeals aforementioned
respondent No.2 – M/s. Rampur Engineering Company Ltd.
filed Suit No.450 of 1999 before the High Court of Delhi
against the two corporations in which the said respondent
prayed for an injunction restraining respondent No.1 from
settling the disputes with the appellant. The appellant’s case
is that it came to know about the role of Respondent No.2 in
the execution of contracts only after the filing of the said suit
in which by an interim order, the High Court restrained the
parties from implementing any award made by the appellate
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authority. The appellant’s further case is that respondent
No.1 had, contrary to Clause 3 of the Terms of Contracts
executed with the appellant, sublet the contracts in favour of
respondent No.2 without prior consent of the former and
that the said arrangement was of no legal consequence nor
did it create any legal relationship between the appellant
and the sub-contractor.
5. Appeal No.64 of 1999, arising out of the contract for
works and services came to be disposed of first, wherein the
appellate authority made an award on 13.11.1999 holding
that a sum of Rs.15,84,50,000/- apart from Rs.3.73 crores
due as interest was recoverable from the appellant. Appeal
No.67 of 1998 filed by the first respondent was disposed of
by the appellate authority on 01.12.1999 remanding the
matter back to the Arbitrator for reconsideration. Aggrieved
by the awards made by the Arbitrator and the appellate
authority, the appellant-herein filed Civil Suit No.1709 of
2000 before the High Court of Delhi in which it claimed a
declaration to the effect that respondent No.1 had
committed a breach of Clause 3 of the terms of the
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Contracts executed between the two Corporations by
sub-letting the contract to respondent No.2 thereby
rendering the contracts between the appellants and the first
respondents null and void. The appellant further prayed for a
declaration to the effect that respondent No.1 was not
entitled to claim any relief under those contracts nor was
respondent No.2 entitled to do so. The so called Arbitral
award passed by the appellate authority was according to
the appellant illegal and vitiated by errors apparent on the
face of the record, hence, liable to be set aside.
6. The learned Single Judge of the High Court by an
interim order dated 4.08.2000 passed in the suit restrained
the implementation/execution of awards passed by the
Appellate Authority. The appellant’s case is that it was at
that stage that the defendant-respondents herein moved an
application under Order 7, Rule 11 (d) of the Code of Civil
Procedure, 1908 (for short, “the CPC”) praying for
rejection of the plaint in the suit filed by the appellant. The
defendant claimed that the suit was barred in view of the
existence of a specially prescribed procedure for resolving
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disputes in arbitration proceedings between the two
Government corporations. It was contended that in the light
of the said procedure, neither party to the dispute was
entitled to take recourse to proceedings in any Court without
the permission of the Committee on Disputes.
7. The appellant opposed the prayer for rejection of the
plaint inter alia on the ground that no permission to file a
suit or other proceedings was required as the subject
dispute also involved respondent No.2 who was not a party
to the arbitration agreement or the proceedings. By an
order dated 10.07.2007 a learned Single Judge of the High
Court allowed the application filed by the
defendants-respondents and rejected the plaint filed by the
appellant. The learned Single Judge held that the arbitral
award made pursuant to the proceedings conducted in terms
of the special mechanism could not be set aside in a suit.
The learned Single Judge also held that there was no privity
of contract between the appellant-corporation and
respondent No.2 and that the suit between the two public
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sector undertakings could not be filed without clearance
from the Committee on Disputes.
8. Aggrieved by the order passed by the Single Judge of
High Court, the appellant filed RFA (OS) No.50 of 2007
before a Division Bench of the High Court of Delhi. The
Division Bench has by an order dated 07.08.2008 dismissed
the said appeal and affirmed the rejection of the plaint by
the learned Single Judge primarily on the ground that since
the special procedure prescribed by the Government for
adjudication of disputes between Government Corporations
having been effectuated and resorted to by the parties in
terms of the judgments of this Court in ONGC’s Cases, the
appellant was not entitled to seek a declaration that the
awards so made were illegal or liable to be set aside.
9. The High Court observed:
“Before us, the appellant, which is admittedly a government undertaking, is claiming that the first respondent, also a government undertaking, has violated and breached a contract between them. In particular, Clause 3 of the said contract is stated to have been breached. Respondent No.1, of course, says that no such breach has occurred. This then, is the dispute merely because the appellant feels that the breach committed by the first respondent has
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benefited a third party, will not change the nature of the dispute from being one between the appellant and Respondent No.1, i.e., the two contracting parties. Since both of them are government undertakings, therefore, the permanent machinery provided for resolving disputes between public sector undertakings ought to have been followed.”
By the impugned order, the learned Single Judge has examined the question whether the appellant is entitled to seek a declaration that the appellant awards are illegal and liable to be set aside by way of a suit or whether the same is barred by any law. The learned Single Judge has held that the arbitral award cannot be set aside in a suit. It was further held that an arbitral award cannot be set aside in a suit. It was further held that once the parties have subjected themselves to permanent machinery for redressal of dispute between public sector undertakings, then the mechanism prescribed therein should be followed and, therefore, the suit in question could not have been filed without clearance of the Committee of Disputes. By merely noting the contention of the appellant that the root of the dispute is violation of Clause 3 of the terms of the contracts, it cannot be said that the learned Single Judge has decided disputed question of facts. It has merely taken note of the appellant’s own case in stating that the key players are the two public sector undertakings which have entered into the contract in question with each other, and therefore, the special procedure prescribed for such disputes should have been followed. Consequently, the learned Single Judge rightly held that the plaint was liable to be rejected, inter alia, for that reason.”
10. The present appeal calls in question the correctness of
the above judgments and orders.
11. Appearing on behalf of the appellant, Mr. P.S. Patwalia,
learned senior counsel argued that the view taken by the
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High Court was legally unsustainable. It was submitted that
the High Court has proceeded on the assumption as though
the award made by the Arbitrator under the special procedure
prescribed by the Government is an arbitral award within the
comprehension of the Arbitration Act, 1940 or Arbitration and
Conciliation Act, 1966. He urged that the High Court had
overlooked the genesis of the administrative arrangement, in
as much as the object behind the setting up of the special
procedure for resolution of disputes between Government
corporations was not meant to prescribe a mechanism
recognized by the old or the new Arbitration Act nor was the
special procedure meant to be a substitute for a proper
adjudication under the said two enactments. It was
contended that in as much as the Arbitrator under the special
procedure had determined the issue referred to him to the
prejudice of the appellant company, it was open to the latter
to assail the adjudication in a proper civil action which action
was not barred by any law nor could the same be thrown out
merely because a purely administrative procedure for a
possible amicable resolution of the conflict had been adopted
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no matter without the sanction of law. It was urged that the
mechanism provided for under the decisions of this Court in
ONGC matters was in any case non-est the same having been
scrapped by the Constitution Bench of this Court in
Electronics Corporation of India Ltd. v. Union of India,
(2011) 3 SCC 404. Reliance was also placed by Mr. Patwalia
upon the decision of this Court in Oil and Natural Gas
Commission v. Collector of Central Excise, (2004) 6
SCC 437 to urge that no suit filed by the parties to the
dispute and covered by the administrative machinery could be
dismissed as untenable. All that could be done was to give to
the plaintiff an opportunity to obtain permission of the
Committee on Disputes to proceed with the same.
12. On behalf of the respondent, Mr. Ranjit Kumar, learned
Solicitor General strenuously argued that High Court was
justified in rejecting the plaint as the very purpose of
providing a special mechanism for adjudication of the
disputes would be defeated if any such adjudication could be
questioned in any civil action as was sought to be done by the
appellant-herein. It was contended by Shri Kumar that the
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arbitral proceedings conducted by the Arbitrator under the
special mechanism may be outside the statutory framework
of the two enactments, yet the efficacy of the adjudication
could not be doubted. He urged that even when the
adjudication by the Arbitrator under the special mechanism
did not tantamount to a decree enforceable in a Court of law,
the fact that both the corporations were owned by the
Government was sufficient by itself to facilitate recovery of
the amount payable to one by the other and thereby
effectuate the execution of the award by way of
administrative action.
13. We have given our anxious consideration to the
submissions made at the Bar. Before we deal with the
contentions urged at the Bar, we need to advert to the
historical backdrop in which the special mechanism came to
be prescribed by the Government.
14. Commercial disputes between public sector enterprises
inter se as well as between the public sector enterprises and
the Government departments were in the ordinary course
settled through arbitration by Government Officers or good
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offices of empowered government agencies like Bureau of
Public Enterprises. Department of legal affairs however
submitted a note dated 8th May, 1987 on the subject which
was considered by a Committee of Secretaries in its meeting
held on 26th June, 1987. The Committee of Secretaries
suggested that a permanent machinery for arbitration should
be set up in the Department of Public Enterprises to settle all
commercial disputes between PSE inter se and between PSE
and Government department excluding disputes concerning
income tax, customs and excise. The Committee also
suggested that there should be a contractual clause binding
the parties to the commercial contracts to refer all their
disputes for settlement to the Permanent Machinery of
Arbitrators. The Committee of Secretaries proposed that
Bureau of Public Enterprises should bring a note for
consideration of the Cabinet in that regard which note was
prepared and upon submission to the Cabinet was approved
in its meeting held on 24th February, 1989. The Cabinet
decision envisaged that all Public Sector Enterprises include a
contractual clause in their future and current commercial
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contracts regarding settlement of disputes by arbitration by
resorting to Permanent Machinery of Arbitration and that
administrative Ministries shall issue necessary directives to
the PSEs under the relevant clause of the Articles of
Association. The directives and draft outline of procedure to
be followed by the Permanent Machinery of Arbitrators in the
Bureau of Public Enterprises was accordingly issued in terms
of DPE D.O. No. 15(9)/86-BPE(Fin) dated 29th March, 1989.
The procedure for settlement of disputes so devised was
however outside the framework of the Arbitration Act, 1940
which then held the field. This is evident from Para 2 of the
draft outline of the procedure which reads as under:
“2. The Arbitration Act, 1940 (10 of 1940) shall not be applicable to the arbitration under this clause. The award of the sole arbitrator shall be binding upon the parties to the dispute. Provided, however, any party aggrieved by such award may make a further reference for setting aside or revision of the award to the Law Secretary, Department of Legal Affairs, Ministry of Law & Justice, Government of India. Upon such further reference, the dispute shall be decided by the Law Secretary or the Special Secretary/ Additional Secretary when so authorised by the Law Secretary, whose decision shall bind the parties finally and conclusively.”
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15. While the Permanent Machinery of Arbitration was put in
place in terms of the above order and while instructions to
the public sector undertakings and public sector enterprises
to take resort to the said procedure also remained in force,
instances of public sector undertakings resorting to legal
proceedings instead of complying with those instructions
came to the notice of this Court in Oil and Natural Gas
Commission and Anr. v. Collector of Central Excise
1995 Supp (4) SCC 541 in which this Court taking note of
such legal proceedings at considerable public expense
resulting in waste of valuable Court time directed
Government of India to set up a Committee consisting of
representatives from the Ministry of Industry and Commerce,
Bureau of Public Enterprises and the Ministry of Law to
monitor disputes inter se Public Sector Undertakings and with
the Government to ensure that no litigation came to the
Courts and Tribunals without the matter having being first
examined by the Committee for grant or refusal of clearance
for litigation. This Court made it obligatory for every Court
and every Tribunal where such a dispute is raised to demand
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a clearance from the Committee in case it has not been so
pleaded, and also directed that in the absence of such a
clearance the proceedings would not be carried forward. It
was pursuant to the said directions that a Committee of
Disputes headed by the Cabinet Secretary was constituted by
the Government of India in terms of Cabinet Secretariat OM
No.53/3/6/91-Cabinet dated 31st December, 1991.
16. More than a decade after the setting up of the
Committee aforementioned this Court in Oil and Natural
Gas Commission v. Collector of Central Excise, (2004)
6 SCC 437 clarified the previous order to say that in the
absence of a clearance from the Committee, the Courts would
not proceed with the case but a suit could be instituted by a
Public Sector Undertaking to save limitation. This Court
observed:
“ 4. There are some doubts and problems that have arisen in the working out of these arrangements which require to be clarified and some crease ironed out. Some doubts persist as to the precise import and implications of the words and "recourse to litigation should be avoided". It is clear that order of this court is not to effect that -- nor can that be done-- so far as Union of India and its statutory corporations are concerned, the statutory remedies are effaced. Indeed, the purpose of the Constitution of the
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High Power Committee was not to take away those remedies.
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5. Accordingly, there, should be no bar to the lodgment of an appeal or petition either by the Union of India or the Public Sector Undertakings before any court or tribunal so as to save limitation. But, before such filing every endeavor should be made to have the clearance of the High Power Committee.
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6. Wherever appeals, petitions etc. are filed without the clearance of the High Power Committee, so as to save limitation, the appellant or the petitioner as the case may be, shall within a month from such filing, refer the matter to the High Power Committee with prior notice to the Designated Authority in Cabinet Secretariat of Government of India authorised to receive notices in that behalf. Sri. K.T.S. Tulsi, learned Additional Solicitor General, stated that in order to coordinate these references of the High Power Committee the Government proposes to nominate the Under Secretary (Coordination) in the Cabinet Secretariat as the nodal authority to coordinate these references. The reference shall be deemed to have been made and become effective only after a notice of the reference is lodged with the said nodal authority. The reference shall be deemed to be valid if made in the case of the Union of India by its Secretary, Ministry of Finance Department of Revenue, and in the case of Public Sector Undertakings by its Chairman, Managing Director or chief Executive, as the case may be. It is only after such reference to the High Power Committee is made in the manner indicated that the operation of the order or proceedings under challenge shall be suspended till the High Power Committee resolves the dispute or gives clearance to the litigation. If the High Power Committee is unable
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to resolve the matter for reasons to be recorded by it, it shall grant clearance for the litigation.”
(emphasis supplied)
17. In Oil and Natural Gas Corporation Ltd. v. City and
Indust. Dev. Corpn., Maharashtra and Ors. (2007) 7
SCC 39 this Court ordered the constitution of another
Committee to look into the disputes between Central
Government and State Government entities. Then came
Commissioner of Income Tax, Delhi-VI v. Oriental
Insurance Co. Ltd. (2008) 9 SCC 349 in which this Court
while clarifying its earlier order in Oil and Natural Gas
Commission v. Collector of Central Excise, (2004) 6
SCC 437 observed that there was no rigid time frame
prescribed by the Court and that merely because there was
some delay in approaching the Committee did not mean that
the action was illegal. The following passage is in this regard
apposite:
“10. It needs to be emphasized that there was actually no rigid time frame indicated by this Court. The emphasis on one month's time was to show urgency needed. Merely because there is some delay in approaching the Committee that does not make the action illegal. The Committee is required to deal with the matter expeditiously so that there is no unnecessary backlog of appeals which ultimately may not be pursued. In
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that sense, it is imperative that the concerned authorities take urgent action otherwise the intended objective would be frustrated. There is no scope for lethargy. It is to be tested by the Court as to whether there was any indifference and lethargy and in appropriate cases refuse to interfere. In these cases factual position is not that. Therefore, we set aside the order of the High Court in each case and direct consideration of the question of desirability to proceed in the matter before it on receipt of the report from the concerned Committee.
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12. It is to be noted that where permission has been granted by the Committee there is no impediment on the Court to examine the matter and take a decision on merits. But where there is no belated approach as noted above, the matter has to be decided. Court has to decide whether because of unexplained delay and lethargic action it would decline to entertain the matters. That would depend on the factual scenario in each case, and no straight jacket formula can be adopted.”
(emphasis supplied)
18. In Commissioner of Central Excise v. Bharat
Petroleum Corp. Ltd. (2010) 13 SCC 42, this Court, held
that working of the COD had failed as numerous difficulties
had been experienced by the COD which were expressed in
the Cabinet Secretary’s letter dated 9th March, 2010. This
Court observed
“4. In our experience, the working of the COD has failed. Numerous difficulties are experienced
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by the COD which are expressed in the letter of the Cabinet Secretary, dated 9th March, 2010. Apart from the said letter, we find in numerous matters concerning public sector companies that different views are expressed by COD which results not only in delay in filing of matters but also results into further litigation. In the circumstances, we find merit in the submission advanced before us by learned Attorney General that time has come to revisit the orders passed by the three Judge Bench of this Court in the case of Oil & Natural Gas Commission v. Collector of Central Excise (supra).”
19. The matter was accordingly referred to a larger bench to
reconsider the earlier decisions directing constitution of the
COD. The matter was eventually heard and decided by a Five
Judge Bench of this Court in Electronics Corporation of
India Ltd. v. Union of India, (2011) 3 SCC 404. This
Court after noticing various flaws in the working of the
Committee of Disputes ordered recall of its previous orders
passed by it in the following words:
“6……By Order dated 11.9.1991, reported in 1992 Supp (2) SCC 432 (ONGC and Anr. v. CCE), this Court noted that "Public Sector Undertakings of Central Government and the Union of India should not fight their litigations in Court". Consequently, the Cabinet Secretary, Government of India was "called upon to handle the matter personally".
7. This was followed by the order dated 11.10.1991 in ONGC-II case (supra) where this
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Court directed the Government of India "to set up a Committee consisting of representatives from the Ministry of Industry, Bureau of Public Enterprises and Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings between themselves, to ensure that no litigation comes to Court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation".
8. Thereafter, in ONGC-III case (supra), this Court directed that in the absence of clearance from the "Committee of Secretaries" (CoS), any legal proceeding will not be proceeded with. This was subject to the rider that appeals and petitions filed without such clearance could be filed to save limitation. It was, however, directed that the needful should be done within one month from such filing, failing which the matter would not be proceeded with. By another order dated 20.7.2007 (ONGC-IVth case) this Court extended the concept of Dispute Resolution by High-Powered Committee to amicably resolve the disputes involving the State Governments and their Instrumentalities.
9. The idea behind setting up of this Committee, initially, called a "High-Powered Committee" (HPC), later on called as "Committee of Secretaries" (CoS) and finally termed as "Committee on Disputes" (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD. The machinery contemplated was only to ensure that no litigation comes to Court without the parties having had an opportunity of conciliation before an in-house committee. [see: para 3 of the order dated 7.1.1994 (supra)] Whilst the principle and the
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object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation. We have already given two examples hereinabove. They indicate that on same set of facts, clearance is given in one case and refused in the other. This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court in its various Orders reported as 1995 Supp (4) SCC 541 dated 11.10.1991, (ii) (2004) 6 SCC 437 dated 7.1.1994 and (iii) (2007) 7 SCC 39 dated 20.7.2007.
10. In the circumstances, we hereby recall the following Orders reported in: (i) 1995 Supp (4) SCC 541 dated 11.10.1991 (ii) (2004) 6 SCC 437 dated 7.1.1994 (iii) (2007) 7 SCC 39 dated 20.7.2007”
(emphasis supplied)
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20. The Government of India had, in the intervening period,
consolidated into a single set of guidelines the Permanent
Machinery of Arbitration for settlement of commercial
disputes and the directives issued by this Court regarding
constitution of Committee on Disputes in terms of a circular
issued by the Department of Public Enterprises vide order No.
DPE O.M. No.DPE/4(10)/2001-PMA-GL-I dated 22nd January,
2004 which inter alia provided for creation of Permanent
Machinery of Arbitrators (PMA), stated the need for creation
of such a machinery, indicated the entitlement of
departments/ PSEs, CPSC, banks etc. to take resort to the
said machinery, fixed monetary limits, stipulated fees payable
towards arbitration, provided for an appeal against the award
and also provided for clearance from the Committee on
Disputes. The instructions issued to PSES, CPSEs, banks etc.
stipulated the incorporation of a clause in current and future
contracts/ agreements which specifically excluded the
application of Arbitration and Conciliation Act, 1996 to
arbitrations conducted under the Permanent Machinery of
Arbitration. The arbitration clause recommended for inclusion
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in the current and future contracts/ agreement was to be in
the following words:
“In the event of any dispute or difference relating to the interpretation and application of the provisions of the contracts, such dispute or difference shall be referred by either party for Arbitration to the sole Arbitrator in the Department of Public Enterprises to be nominated by the Secretary to the Government of India in-charge of the Department of Public Enterprises. The Arbitration and Conciliation Act, 1996 shall not be applicable to arbitration under this clause. The award of the Arbitrator shall be binding upon the parties to the dispute, provided, however, any party aggrieved by such award may make a further reference for setting aside or revision of the award to the Law Secretary, Department of Legal Affairs, Ministry of Law & Justice, Government of India. Upon such reference the dispute shall be decided by the Law Secretary or the Special Secretary/Additional Secretary, when so authorized by the Law Secretary, whose decision shall bind the Parties finally and conclusively. The Parties to the dispute will share equally the cost of arbitration as intimated by the Arbitrator”.
(emphasis supplied)
21. Reference may also be made to Office Memorandum
dated 12th June, 2013 issued by the Government of India,
Ministry of Industries and Public Enterprises, Department of
Public Enterprises revising the guidelines further and deleting
from the earlier guidelines Para 13 that required clearance
from the Committee of Disputes.
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22. The net effect of the above can be summarized as
under:
(i) The Permanent Machinery of Arbitration was put in place
as early as in March, 1989, even before ONGC II was
decided on 11th October, 1991.
(ii) The Permanent Machinery of Arbitration was outside the
statutory provision then regulating arbitrations in this
country namely Arbitration Act, 1940 (10 of 1940).
(iii) The award made in terms of the Permanent Machinery of
Arbitration being outside the provisions of the Arbitration
Act, 1940 would not constitute an award under the said
legislation and would therefore neither be amenable to
be set aside under the said statute nor be made a rule
of the court to be enforceable as a decree lawfully
passed against the judgment debtor.
(iv) The Committee on disputes set up under the orders of
this Court in the series of orders passed in ONGC cases
did not prevent filing of a suit or proceedings by one
PSE/PSU against another or by one Government
department against another. The only restriction was
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that even when such suit or proceedings was instituted
the same shall not be proceeded with till such time the
Committee on Disputes granted permission to the party
approaching the Court.
(v) The time limit fixed for obtaining such permission was
also only directory and did not render the suit and/ or
proceedings illegal if permission was not produced within
the stipulated period.
(vi) The Committee on Disputes was required to grant
permission for instituting or pursing the proceedings. If
the High Power Committee (COD) was unable to resolve
the dispute for reasons to be recorded by it, it was
required to grant clearance for litigation.
(vii)The Committee on Disputes experience was found to be
unsatisfactory and the directives issued by the Court
regarding its constitution and matters incidental thereto
were recalled by the Constitution Bench of this Court
thereby removing the impediment which was placed
upon the Court’s/Tribunal’s powers to proceed with the
suit/ legal proceedings. The Department of Public
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Enterprises has subsequent to the recall of the orders in
the ONGC line of cases modified its guidelines deleting
the requirements for a COD clearance for resorting to
the Permanent Machinery of Arbitration and;
(viii) The Permanent Machinery of Arbitration was and
continues to be outside the purview of Arbitration Act,
1940 now replaced by Arbitration and Conciliation Act,
1996.
23. Let us now see the case at hand in the light of the above
propositions. It is true that the disputes between the
appellant and respondents were referred for settlement in
terms of the Permanent Machinery for Arbitration as early as
in the year 1993/1994. It is also not in dispute that as on the
date of the said reference the Committee on Disputes was
already set up but no permission for a reference was taken.
That the Arbitrator made an award under the Permanent
Machinery of Arbitration which was questioned in appeals
before the Law Secretary who made some alterations in the
same is also admitted. That the award so made has not been
accepted by the appellants is also common ground in as
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much as the appellant has filed a suit challenging an arbitral
award in Civil Suit No.1709 of 2000 in which the appellant
claimed a declaration that the contracts were rendered null
and void on account on the breach of Clause 3 thereof. The
appellant also sought a declaration that the respondent
company was not entitled to claim any relief under the said
contract nor was respondent No.2 entitled to do so and that
the so called arbitral award was vitiated on the face of record
hence liable to be set aside. That such a suit could be filed
but could not be proceeded with till such time the COD
granted permission is also beyond dispute as on the date of
the institution of the suit the direction of this Court in ONGC
group of cases still held the field. Such permission could be
obtained within 30 days which was not sacrosanct but the
institution of the suit itself could not be faulted as a litigant
was in terms of the direction of this Court entitled to institute
the proceedings to save limitation. The High Court has, all the
same, rejected the plaint on the ground that permission from
COD was not obtained. In doing so the High Court obviously
understood the direction of this Court to mean as though
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absence of such permission was a fatal defect which it was
not. The orders of this Court to which we have made a
reference earlier unequivocally make it clear that filing of the
suit in itself was not barred. What was restrained was further
progress in the suit till such time permission from the COD
was obtained. In as much as the High Court considered the
absence of permission from COD to be a mandatory legal
requirement for the institution of the suit it committed a
mistake. No such legal requirement could be read into the
judgment of this Court nor has any such requirement been
pointed out by Mr. Ranjit Kumar, learned Solicitor General
appearing before us.
24. The question then is whether the requirement of the
clearance of COD could be insisted upon even at this stage.
Our answer is in the negative. We say so because COD stands
abrogated/dissolved and the orders directing constitution of
such a Committee reversed. Since there is no COD at
present there is no question of either obtaining or insisting
upon any clearance from the same. The upshot of the above
discussion is that the orders passed by the High Court
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rejecting the plaint on the ground that the same was not
preceded or accompanied by permission from COD is
unsustainable, are hence, liable to be set aside.
25. That brings us to the question whether we ought to
remand the matter back to the Civil Court for adjudication
and if that were not a desirable course of action whether
adjudication of the matters in dispute by way of arbitration
would be a better option. It was argued by Mr. Ranjit Kumar,
learned Solicitor General that the respondent has an award in
its favour made in terms of the Permanent Machinery of
Arbitration and that so long as that award stands there is no
need for any fresh or further arbitration on the claims already
adjudicated upon under the said mechanism. The argument
appears to be attractive at first blush but does not survive a
closer scrutiny. That is so because an arbitral award under
the Permanent Machinery of Arbitration may give quietus to
the controversy if the same is accepted by the parties to the
dispute. In cases, however, a party does not accept the
award, as is the position in the case at hand, the arbitral
award may not put an end to the controversy. Such an award
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being outside the framework of the law governing arbitration
will not be legally enforceable in a court of law. In fairness to
Mr. Ranjit Kumar, learned Additional Solicitor General, we
must mention that he did not dispute that the award made by
the arbitrator under the Permanent Machinery of Arbitration
was outside the statute regulating arbitration in this country
and was not, therefore, executable in law. What he argued
was that since both sides to the disputes were government
corporations the Government could adopt administrative
mechanism for recovering the amount held payable to the
respondent. That does not, in our opinion, answer the
question. Remedies which are available to the Government on
the administrative side cannot substitute remedies that are
available to a losing party according to the law of the land.
The appellant has lost before the arbitrators in terms of the
Permanent Machinery of Arbitration and is stoutly disputing
its liability on several grounds. The dispute regarding liability
of the appellant under the contract, therefore, continues to
loom large so long as it is not resolved finally and effectually
in accordance with law. No such effective adjudication
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recognized by law has so far taken place. That being so, the
right of the appellant to demand such an adjudication cannot
be denied simply because it happens to be a Government
owned company for even when the appellant is a government
company, it has its legal character as an entity separate from
the Government. Just because it had resorted to the
permanent procedure or taken part in the proceedings there
can be no estoppel against its seeking redress in accordance
with law. That is precisely what it did when it filed a suit for
declaration that the award was bad for a variety of reasons
and also that the contract stood annulled on account of the
breach committed by the respondents.
26. Having said that, Mr. Patwalia made a candid statement
after instructions that the appellant would have no difficulty
in having all the claims and counter-claims of the appellants
and the respondent-corporation referred to adjudication in
accordance with law to a sole arbitrator to be nominated by
this Court. To facilitate such a reference Mr. Patwalia has on
instructions sought deletion of respondent No.2 from the
array of respondents which prayer we see no reason to
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decline especially because the dispute is between the two
corporations which alone ought to be referred to adjudication
in accordance with law. Respondent No.2 shall accordingly
stand deleted from the array of parties.
27. Mr. Ranjit Kumar was, however, somewhat diffident in
making a concession that the claim could be referred for a
fresh round of arbitration in accordance with provisions of
Arbitration and Conciliation Act, 1996. That diffidence does
not prevent us from making a suitable order of reference to a
sole arbitrator for adjudication of all outstanding disputes
between the two corporations especially because the
alternative to such arbitration is a long drawn expensive and
cumbersome trial of the suit filed by the appellant before a
civil court and the difficulties that beset the execution of an
award made under a non-statutory administrative
mechanism. Both these courses are unattractive with no
prospects of an early fruition even after the parties have
fought each other for nearly twenty years.
28. In the result we allow this appeal and set aside the
judgment and order passed by the High Court. We further
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direct that all disputes relating to and arising out of the
contracts executed between the appellant company and the
respondent corporation shall stand referred for adjudication
to Hon’ble Mr. Justice K.G. Balakrishnan, Former Chief Justice
of this Court, who is hereby appointed as Sole Arbitrator to
adjudicate upon all claims and counter claims which the
parties may choose to file before him. Civil Suit (OS)
No.1709/2000 shall also stand disposed of in terms of this
order. The parties shall appear before the Arbitrator on 22nd
of August, 2016 for further directions. The Arbitrator shall be
free to determine his own fee. No costs.
..............................CJI. (T.S. THAKUR)
.................................J. (R. BANUMATHI)
New Delhi July 13, 2016
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