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M/s. NORTHERN COALFIELDS LTD. Versus HEAVY ENGINEERING CORP. LTD. & ANR.

2016 (7) TMI 582 - SUPREME COURT

Arbitration - 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 High Court has rejected the plaint on the ground that permission from COD was not obtained.Held that:- The question that whether the requirement of the clearance of COD could be insisted upon even at this stage is in the negative. We say so because COD stands abrogated/dissolved and the orders direc .....

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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 .....

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w. 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 .....

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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 re .....

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ivil Appeal No.6296 of 2016 (Arising out of SLP(C) No(s). 27646 of 2008) - Dated:- 13-7-2016 - T.S. THAKUR, CJI AND R. BANUMATHI, J For Appellant(s) Mr. Anip Sachthey,Adv. For Respondent(s) Ms. Binu Tamta,Adv.Mr. Ghan Shyam Vasisht,Adv. JUDGEMENT T.S. THAKUR, CJI. 1. Leave granted. 2. This is yet another case that brings to fore a sad state of affairs when it comes to resolving disputes between two Government owned corporations. What adds to the enigma of apathy towards realism in official circl .....

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acts: 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 mach .....

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ustice 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 .....

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let 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 ₹ 15,84,50,000/- apart from ₹ 3.73 crores due as interest was recoverabl .....

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etween 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 .....

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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 permis .....

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t 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 .....

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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 th .....

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ther 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 Comm .....

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uld 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 Arb .....

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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 resolutio .....

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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 .....

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nforceable 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 .....

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, 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 Ar .....

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bitration 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 th .....

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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, insta .....

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au 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 .....

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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" .....

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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 be .....

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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 .....

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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 .....

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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. .....

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n 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 bu .....

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udge 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 .....

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ertakings 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 petit .....

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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 .....

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ed 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 jurisdictio .....

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orted 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 settleme .....

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ed 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 f .....

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on 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 s .....

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uired clearance from the Committee of Disputes. 22. The net effect of the above can be summarized as under: (i) The Permanent Machinery of Arbitration was put in place as early as in March, 1989, even before ONGC II was decided on 11th October, 1991. (ii) The Permanent Machinery of Arbitration was outside the statutory provision then regulating arbitrations in this country namely Arbitration Act, 1940 (10 of 1940). (iii) The award made in terms of the Permanent Machinery of Arbitration being out .....

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nment 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. (v) The time limit fixed for obtaining such permission was also only directory and did not render the suit and/ or proceedings illegal if permission was not produced within the stipulated period. (vi) The Committee on Disputes was required to grant perm .....

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nal 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; (viii) The Permanent Machinery of Arbitration was and continues to be outside the purview of Arbitration Act, 1940 now replaced by Arbitration and Conciliation Act, 1996. 23. Let us now see the case at han .....

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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 .....

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ut 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 referen .....

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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 .....

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spondent 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 t .....

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he 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 .....

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not 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 contr .....

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