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TMI Blog2016 (7) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 16,87,61,981.11/-, while the appellant was awarded ₹ 56, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claration 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairs, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: (i) The Permanent Machinery of Arbitration was put in place as early as in March, 1989, even before ONGC II was decided on 11th October, 1991. (ii) The Permanent Machinery of Arbitration was outside the statutory provision then regulating arbitrations in this country namely Arbitration Act, 1940 (10 of 1940). (iii) The award made in terms of the Permanent Machinery of Arbitration being outside the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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