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
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
