2016 (7) TMI 582 - SC - Indian Laws

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 directing constitution of such a Committee reversed. Since there is no COD at present there is no question of either obtaining or insisting upon any clearance from the same. The upshot of the above discussion is that the orders passed by the High Court rejecting the plaint on the ground that the same was not preceded or accompanied by permission from COD is unsustainable, are hence, liable to be set aside. Whether the matter remanded back to the Civil Court for adjudication - 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. 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. No prevention from making a suitable order of reference to a sole arbitrator for adjudication of all outstanding disputes between the two corporations especially because the alternative to such arbitration is a long drawn expensive and cumbersome trial of the suit filed by the appellant before a civil court and the difficulties that beset the execution of an award made under a non-statutory administrative mechanism. Both these courses are unattractive with no prospects of an early fruition even after the parties have fought each other for nearly twenty years. In the result we allow this appeal and set aside the judgment and order passed by the High Court. We further direct that all disputes relating to and arising out of the contracts executed between the appellant company and the respondent corporation shall stand referred for adjudication to Hon ble Mr. Justice K.G. Balakrishnan, Former Chief Justice of this Court, who is hereby appointed as Sole Arbitrator to adjudicate upon all claims and counter claims which the parties may choose to file before him.

Issues Involved:
1. Dispute resolution mechanism between two Government-owned corporations.
2. Validity and enforceability of an arbitral award under the Permanent Machinery of Arbitration.
3. Requirement of Committee on Disputes (COD) clearance.
4. Legal recourse available to the appellant.
5. Adjudication of disputes through arbitration.

Detailed Analysis:

1. Dispute Resolution Mechanism Between Two Government-Owned Corporations:
The case highlights the inefficacy and complexities involved in resolving disputes between government-owned corporations. The appellant, Northern Coalfield Ltd., issued a tender for constructing a Coal Handling Plant, which was awarded to the respondent, Heavy Energy Corporation Ltd. The contracts contained an arbitration clause, and disputes were referred to the "permanent in-house administrative machinery" set up by the Government. Both corporations made claims and counterclaims, resulting in two awards dated 28.02.1997. Both parties were dissatisfied and appealed to the Law Secretary, Department of Legal Affairs.

2. Validity and Enforceability of an Arbitral Award Under the Permanent Machinery of Arbitration:
The Permanent Machinery of Arbitration was established outside the statutory framework of the Arbitration Act, 1940. The awards made under this mechanism were not enforceable as decrees in a court of law. The Supreme Court noted that while the mechanism aimed to resolve disputes amicably, it did not substitute the proper adjudication under the Arbitration Act. The appellant filed a civil suit challenging the arbitral awards, claiming that the contracts were null and void due to breaches by the respondent.

3. Requirement of Committee on Disputes (COD) Clearance:
The High Court initially rejected the appellant's plaint, citing the absence of COD clearance, which was deemed necessary for proceeding with the suit. However, the Supreme Court clarified that while the COD clearance was required to proceed with the suit, its absence did not render the suit itself illegal. The COD mechanism, which aimed to avoid inter-governmental litigation, was eventually found unsatisfactory and was dissolved by a Constitution Bench in Electronics Corporation of India Ltd. v. Union of India (2011) 3 SCC 404.

4. Legal Recourse Available to the Appellant:
The Supreme Court held that the appellant's right to seek legal recourse could not be denied merely because it was a government-owned company. The appellant's participation in the Permanent Machinery of Arbitration did not estop it from seeking adjudication according to the law. The Court emphasized that the arbitral awards under the Permanent Machinery were not legally enforceable, and the appellant was entitled to challenge them in a civil suit.

5. Adjudication of Disputes Through Arbitration:
The Supreme Court decided that referring the disputes to a sole arbitrator under the Arbitration and Conciliation Act, 1996, would be more effective than a prolonged civil trial. Consequently, the Court appointed Hon’ble Mr. Justice K.G. Balakrishnan, Former Chief Justice of India, as the Sole Arbitrator to adjudicate all claims and counterclaims between the appellant and the respondent. The civil suit filed by the appellant was disposed of in light of this arbitration order.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's judgment, and directed that all disputes arising from the contracts be referred to arbitration by a sole arbitrator. This decision underscores the importance of effective dispute resolution mechanisms and clarifies the legal standing of arbitral awards under non-statutory administrative procedures.

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