Page 1

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

Page 2

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

2

Page 3

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

3

Page 4

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

4

Page 5

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

5

Page 6

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

6

Page 7

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

7

Page 8

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

8

Page 9

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

9

Page 10

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

10

Page 11

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

11

Page 12

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

12

Page 13

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.”

13

Page 14

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

14

Page 15

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

15

Page 16

High  Power  Committee  was  not  to  take  away those remedies.

Xxx

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.

Xxx

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

16

Page 17

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

17

Page 18

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.

Xxx

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

18

Page 19

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

19

Page 20

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

20

Page 21

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)

21

Page 22

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

22

Page 23

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.   

23

Page 24

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

24

Page 25

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

25

Page 26

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

26

Page 27

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

27

Page 28

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

28

Page 29

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

29

Page 30

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

30

Page 31

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

31

Page 32

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

32

Page 33

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

33