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Thursday, July 14, 2016

whether the suit challenging the award in the year 2000 is bad for want of permission of COD of ONGC - 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. -That the award so made has not been accepted by the appellants is also common ground in as 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 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 ; 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 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.; 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 - 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 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.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 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. 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. In the result we allow this appeal and set aside the judgment and order passed by the High Court. We further 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.

                                                                  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.

Leave granted.

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  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 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  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  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
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
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 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  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 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  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 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  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.”


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  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 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 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  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 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 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   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)
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 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.

22.   The net effect of the above can be summarized as under:
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.
The Permanent Machinery of Arbitration was outside the  statutory  provision
then regulating arbitrations in this country namely  Arbitration  Act,  1940
(10 of 1940).
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.
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  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.
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.
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.
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 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;
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 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 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 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  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 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 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  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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