# 5 S.C.R. 69 MIS. NORTHERN COALFIELD LTD v. HEAVY ENGINEERING CORP. LTD. & ANR

- **Citation:** [2016] 5 S.C.R. 69
- **Court:** Supreme Court of India
- **Decided:** 2016-07-13
- **Case number:** Civil Appeal No. 6296of2016
- **Bench:** T.S. Thakur, R. Banumathi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/5-s-c-r-69-mis-northern-coalfield-ltd-v-heavy-engineering-corp-ltd-anr-31482
- **Pages:** 23

## Headnote

Government Corporations: Government contracts - Redressal
of commercial disputes between public sector enterprises inter se as
well as between the public sector enterprises and the Government
departments - Procedure for settlement of disputes - In the instant
case, di~pute arose between two govern111ent owned corporations -
Referred to resolution in terms of the 'permanent in-house
administrative machinery' set up by the Govern11ient -
Arbitra/
award - Aggrieved by the award, appellant filed Suit - Defendant
claimed that suit was barred in view of the existence of specially
prescribed procedure for resolving disputes and in the light of said
procedure, neither party to the dispute was entitled to take recourse
to proceedings in any court without permission of the Co111111ittee on
Disputes (COD) - High Court rejected the plaint accepting the plea
of defendant - On appeal, held: In ONGC case, it was held that
permission of COD was necessary to proceed with the suit -
However, COD stood dissolved and the orders directing constitution
of COD is reversed and, therefore, requirement of clearance of COD
should not be insisted upon at this stage - In view thereof. there is
no question of either obtaining or insisting upon any clearance
from the same - Therefore, orders passed by High Court rejecting
the plaint on the ground that the same was not preceded by
permission from COD is unsustainable -
Right of the appellant to
de111and such an adjudication cannot be denied si111ply because it
happens to be a Govern111ent owned company for even when the
appellant is a govern111ent company, it has its legal character as an
entity separate from the Govern111ent -
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 - Matter referred to sole arbitrator for adjudication of all
outstanding disputes between the two corporations.
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SUPREME COURT REPORTS
[2016] 5 S.C.R.
Allowing the appeal, ~he Court
HELD: 1. 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 arbrtration by Government
Officers or good offices of empowered government agencies like
Bureau of Public Enterprises. Department of Legal Affairs
however submitted a note dated 8 .. May, 1987 on the subject
which was considered by a Committee of Secretaries in its meeting
held on 26'h 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 24'h 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 29'h March, 1989. The procedure for settlement_ of disputes
so devised was however

## Text

_Characters 0–39,586 of 52,406. This is a partial read: ask again with offset=39586 for what follows._

[2016) 5 S.C.R. 69
MIS. NORTHERN COALFIELD LTD.
v.
HEAVY ENGINEERING CORP. LTD. & ANR.
(Civil Appeal No. 6296of2016)
JULY 13, 2016
[T.S. THAKUR, CJI AND R. BANUMATHI, J.]
Government Corporations: Government contracts - Redressal
of commercial disputes between public sector enterprises inter se as
well as between the public sector enterprises and the Government
departments - Procedure for settlement of disputes - In the instant
case, di~pute arose between two govern111ent owned corporations -
Referred to resolution in terms of the 'permanent in-house
administrative machinery' set up by the Govern11ient -
Arbitra/
award - Aggrieved by the award, appellant filed Suit - Defendant
claimed that suit was barred in view of the existence of specially
prescribed procedure for resolving disputes and in the light of said
procedure, neither party to the dispute was entitled to take recourse
to proceedings in any court without permission of the Co111111ittee on
Disputes (COD) - High Court rejected the plaint accepting the plea
of defendant - On appeal, held: In ONGC case, it was held that
permission of COD was necessary to proceed with the suit -
However, COD stood dissolved and the orders directing constitution
of COD is reversed and, therefore, requirement of clearance of COD
should not be insisted upon at this stage - In view thereof. there is
no question of either obtaining or insisting upon any clearance
from the same - Therefore, orders passed by High Court rejecting
the plaint on the ground that the same was not preceded by
permission from COD is unsustainable -
Right of the appellant to
de111and such an adjudication cannot be denied si111ply because it
happens to be a Govern111ent owned company for even when the
appellant is a govern111ent company, it has its legal character as an
entity separate from the Govern111ent -
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 - Matter referred to sole arbitrator for adjudication of all
outstanding disputes between the two corporations.
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SUPREME COURT REPORTS
[2016] 5 S.C.R.
Allowing the appeal, ~he Court
HELD: 1. 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 arbrtration by Government
Officers or good offices of empowered government agencies like
Bureau of Public Enterprises. Department of Legal Affairs
however submitted a note dated 8 .. May, 1987 on the subject
which was considered by a Committee of Secretaries in its meeting
held on 26'h 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 24'h 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 29'h 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. iPara 14] [78-G-H; 79-A-E)
2 .. The disputes between t~e appellant and respondents
were referred for settlement in terms of the Permanent Machinery
for Arbitration as early as in the year 1993/1994_, As on the date
of the said reference the Committee on Disputes was already set
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
CORP. LTD. & ANR.
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; The award so
made was not accepted by' the appellants. The appellant filed a
suit challenging the arbitral award in which the appellant claimed
a declaration that the, contracts were rendered null and void on
account of 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. What was
restrained was further progress in the suit till such time permission
from the COD was obtained.
However, the requirement of the
clearance of COD should not be insisted upon at this stage,
because COD stands abrogated/dissolved and the orders directing
constitution of such a Committee is reversed. Since there is no
COD at present there is no question of either obtaining or insisting
upon any clearance from the same. Therefore, 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. [Paras 23, 24) (88-D-H; 89-A-E)
3. 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,
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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. [Para
25] (89-F-H]
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4. 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. The matter is referred· to 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 [Paras 25, 27) [90-B-E; 91-A-B)
Electronics Corporation of India Ltd. v. Union of India
(2011) 3 SCC 404 : 2011 (2) SCR 971; Oil and
G
Natural Gas Commission v. Collector of Central Excise
(2004) 6 SCC 437; Oil and Natural Gas Commission
and Am: v. Collector of Central Excise 1995 Supp (4)
SCC 541; Oil and Natural Gas Corporation Ltd. v. City
and Indus!. Dev. Corpn., Maharashtra and Ors. (2007)
7 SCC 39 : 2007 (8) SCR 429; Commissioner of Income
H
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
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CORP. LTD. & ANR.
Tax, Delhi-VI v. Oriental Insurance Co. Ltd. (2008) 9
A
SCC 349; Co111111issioner of Central Excise v. Bharat
Petroleum Corp. Ltd. (2010) 13 SCC 42; Electronics
Corporation of India Ltd. v. Union of India (2011) 3
SCC 404 : 2011 (2) SCR 971 - referred to.
Case Law Reference
2011 (2) SCR 971
referred to
Para 11
(2004) 6 sec 437
referred to
Para 11, 16
1995 Supp (4) SCC 541 referred to
Para 15
2007 (8) SCR 429
referred to
Para 17
(2008) 9 sec 349
referred to
Para 17
(2010) 13 sec 42
referred to
Para 18
2011 (2) SCR 971
referred to
Para 19
CIVJL APPELLATE JURISDICTION: Civil Appeal No. 6296
of2016.
From the Judgment and Order dated 07 .08.2008 of the High Court
of Delhi at New Delhi in RFA (OS) No. 50 of 2007.
P. S. Patwalia, ASG, Anip Sachthey, Ms. Anjali Chauhan, Advs.
for the Appellant.
Ranjit Kumar, SG, Binu Tamta, Dhruv Tamta, Ms. Nikita
Shrivastava, Advs. for the Respondents.
The Judgment of the Court was delivered by
T.S. THAKUR, CJI. I. Leave granted.
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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 circles is the fact that the respondent-corporation has with
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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.
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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. (I) 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. I 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 Gov.ernment. While Appeal No.67 of 1998
· filed before the Law Secretary pertained to the contract for supply of
equipment, Appeal No.64 of I 999 pertained to the contract for execution
of works and services.
4. During the pendency of the appeals aforementioned respondent
No.2 - Mis. 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. I 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 o'f the Terms of Contracts
executed with the appellant, sublet the contracts in favour of responcjent
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 I 999, arising out of the contract for works
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
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· CORP. LTD. & ANR. [T.S. THAKUR, CJ!]
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.67of1998 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 of2000 before the High Court of Delhi in which it claimed
a declaration to the effect that respondent No. I 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. l was not entitled to claim any relief under those
contracts nor was respondent No.2 entitled to do so. The SQ 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 a/ia 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
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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 Glearance
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.J, of course, says
that 110 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.l, 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
M/~). NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
CORP. LTD. & ANR. [T.S. THAKUR, CJI]
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~ 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.
Consequent!;~ 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.
I I .Appearing on behalfofthe 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
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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 11011-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 43 7 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 ~y 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
seas 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 oflegal affairs however
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
CORP. LTD. & ANR. [T.S. THAKUR, CJI]
submitted a note dated 81h May, 1987 on the subject which was considered
by a Committee of Secretaries in its meeting held on 261h 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 24'h 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 OPE 0.0. No. 15(9)/
86-BPE(Fin) dated 291h 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 (JO 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 jilrlher 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. "
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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 mu/ N(ltUr(I/
G"s Commission (Ind Anr. v. Collector of Ce11tral Excise 1995 Supp
(4) sec 541 in which this C:ourt 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 oflndia in terms of Cabinet Secretariat OM No.53/3/6/91Cabinet dated 31" December, 1991.
16. More than a decade after the setting up of the Committee
aforementioned this Court in Oil mul N"tur(lf G"s Commissio11 v.
Collector of Ce11tral 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 proble111s that have arisen
in the working out of these arrangements which require
to be clarified and so111e crease ironed out. Some doubts
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persist as to the precise i111port and i111plications 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 oUndia and its
statutory corporations are concerned. the statutory
re111edles are effaced. Indeed. the purpose of the
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Constitution of the High Power Committee was not to
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5. Accordinglv. there. should be no bar to the lodgment
of an a{2,peal or petition either by the Union oflndia or
the Public Sector Undertakings bef(ire 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.
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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
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Government of lnaia 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
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(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
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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
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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
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shall grant clearance [or the litigation."
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(emphasis supplied)
17. In Oil and Natural Gas Corporation Ltd. v. City and Imlust.
Dev. Corpn., Maliaraslttra and Ors. (2007) 7 SCC 39 this Cou11
ordered the constitution of another Committee to look into the disputes
between Central Government and State Government entities. Then came
Commissioner of Income Tax, De/Iii-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:
"JO. It needs to be emphasized that there was actually
no rigid time frame indicated by this Court. The
emphasis on one month '.s ti111e was to show urgency
needed. Merely because there is some delay in
approaching the Co111111ittee that does not make the
action illegal. The Committee is required tu deal with
the matter expeditiously so that there is no unnecessary
backlog of appeals which ultimately 111ay not be pursued.
Jn that sense, it is i111perative that the concerned
authorities take urgent action otherwise the intended
objective would be frustrated. There is 110 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. Jn 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.
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J 2. It is to be noted that where vermission has bee11
grallled by the Committee there is 110 impediment on the
Court to examine the matter and take a decision on
merits. But where there is no belated approach as noted
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above, the matter has. to be decided. Court has to decide
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whether because of unexplained delay and lethargic
action it would decline to entertain the matters. That
would depend on the (actual scenario in each case.
and no straight jacket formula can be adopted."
(emphasis supplied)
18. In Commissioner of Central Excise v. Bltarat Petroleum
Corp. Ltd. (2010) 13 SCC 42, this Court, held that working of the
·coo had failed as numerous difficulties had been experienced by the
COD which were expressed in the Cabinet Secretary's letter dated 91h
March, 2010. This Court observed
"./. Jn 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 ilf Jhe 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 Corpomtio11 of India Ltd. v. Union of India,
(2011) 3 SCC 404. This Court after noticing various flaws in the working
of the Committee ofDisputes ordered recall ofits 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 Am: 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
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handle the matter personally".
7. This was followed by the order dated 11.10.1991 in
ONGC-11 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-lll 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
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING
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is unexceptionable and laudatory, experience has shown
that despite best e[forts 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 lmvs in several cases there
could be overlapping of jurisdictions between, let us
say, SEB1 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
mechanisnl has outlived its utiliiy. Jn 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 sec 437 dated 7.1.1994 and (iii) (2007) 7
sec 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 sec 437 dated 7.1,1994
(iii) (2007) 7 sec 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 Ccrnrt regarding constitution of Committee on Disputes in terms
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of a circular issued by the Department of Pub I ic Enterprises vi de order
No. OPE O.M. No.DPE/4(10)/2001-PMA-GL-1 dated 22"d 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.