M/S. NORTHERN COALFIELD LTD.versusHEAVY ENGINEERING CORP. LTD. & ANR.

                       [2016) 5 S.C.R. 69


                  MIS. NORTHERN COALFIELD LTD.                           A
                                     v.
             HEAVY ENGINEERING CORP. LTD. & ANR.
                      (Civil Appeal No. 6296of2016)
                              JULY 13, 2016                              B
           [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
                                                                         c
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       D
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
                                                                         E
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         F
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
                                                                         G
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.
                                                                         H
                               69
70             SUPREME COURT REPORTS                   ------[2016] 5 S.C.R.

A           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
B      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
c      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
D      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
E      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
F      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
G     ·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
H
 MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                           71
                 CORP. LTD. & ANR.

  up but no, permission for a reference was taken. That the                  A
 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
                                                                             B
 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          c
  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
                                                                             D
  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              E
   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
                                                                              F
   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)                          G
      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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72            SUPREME COURT REPORTS                         [2016] 5 S.C.R.



A    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]
            4. Remedies which are available to the Government on the
B    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
c    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
D    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
E
     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
F    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                               73
                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                                  B
      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            c
      (2008) 9 sec 349              referred to              Para 17
      (2010) 13 sec 42              referred to              Para 18
      2011 (2) SCR 971              referred to              Para 19
                                                                                D
     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.
                                                                                E
       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                                 F
      T.S. THAKUR, CJI. I. 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 circles is the fact that the respondent-corporation has with           G
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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74            SUPREME COURT REPORTS                          (2016] 5 S.C.R.



A          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
B   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
c 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/-.
D 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
E 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
F    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
G    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.

H          5. Appeal No.64 of I 999, arising out of the contract for works
   M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                            75
           · CORP. LTD. & ANR. [T.S. THAKUR, CJ!]

  and services came to be disposed of first, wherein the appellate authority A
  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
                                                                               B
  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 c
  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,
                                                                               D
  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,        E
  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,       F
  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     G
   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
                                                                                H
76              SUPREME COURT REPORTS                       [2016] 5 S.C.R.



A    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           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
c    disputes between Government Corporations having been effectuated
     and resorted to by the parties in terms of the judgments of this Court in
            s
     ONGC 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:
D           "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
E
            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
F           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
G
            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
H
M/~). NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                            77
             CORP. LTD. & ANR. [T.S. THAKUR, CJI]

      be set aside in a suit. It was further held that an arbitral            A
      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,
                                                                              B
      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 offacts. It has merely                    c
      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.
                                                                              D
      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.
                                                                              E
       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       F
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
                                                                              G
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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78            SUPREME COURT REPORTS                           [2016) 5 S.C.R.



A    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
B
     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
c    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
D    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
E    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
F    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
G    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
H    like Bureau of Public Enterprises. Department oflegal affairs however
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                             79
             CORP. LTD. & ANR. [T.S. THAKUR, CJI]

submitted a note dated 81hMay, 1987 on the subject which was considered       A
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
                                                                              B
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        c
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
                                                                              D
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 29 1h March, 1989. The procedure for settlement of
disputes so devised was however outside the framework of the Arbitration      E
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                 F
       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                     G
       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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80            SUPREME COURT REPORTS                         [2016] 5 S.C.R.


             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/
B
     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
c    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
D
     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.53/3/6/91-
E    Cabinet 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
F    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
G          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
H
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                  81
         CORP. LTD. & ANR. [T.S. THAKUR, CJI]

    Constitution of the High Power Committee was not to            A
    take awav those remedies.
    Xxx
    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            B
    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
                                                                   c
    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          D
    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 to nominate the Under Secretary                       E
    (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      F
    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           G
    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
                                                                   H
82            SUPREME COURT REPORTS                        [2016] 5 S.C.R.



A          shall grant clearance [or the litigation."
                                             (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
B    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
c    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
D          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.
E          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
F          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.
G
           Xxx
           J2. 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
H
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                          83
         CORP. LTD. & ANR. [T.S. THAKUR, CJ!]

      above, the matter has. to be decided. Court has to decide            A
      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)               B
       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                                          c
      "./. 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               D
      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                 E
      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      F
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            G
      (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
                                                                           H
84      SUPREME COURT REPORTS                         [2016] 5 S.C.R.



A    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
B    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
c    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
D    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
E    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.

F     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
G     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
H     principle and the object behind the aforestated Orders
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                             85
         CORP. LTD. & ANR. [T.S. THAKUR, CJI]

     is unexceptionable and laudatory, experience has shown                   A
     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
                                                                              B
     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,                    c
     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                    D
      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                  E
      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.                                                F
      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"
                                                                              G
                                                (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
                                                                              H
86            SUPREME COURT REPORTS                          [2016] 5 S.C.R.



A    of a circular issued by the Department of Pub Iic 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
B
     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 ofArbitration and Conciliation
c    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
D          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
E          applicable to arbitration under this clause. The airard
           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,
F          Department of Legal Affairs, Ministry of Laiv & Justice,
           Government of India. Upon such reference the di5pute
           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 lo the dispute will
G          share equally the cost of arbitration as intimated by the
           Arbitrator":
                                                  (emphasis supplied)
            21 . Reference may also be made to Office Memorandum dated
H
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                          87
            CORP. LTD. & ANR. [T.S. THAKUR, CJI]

12 1h June, 2013 issued by the Government oflndia, Ministry oflndustries   A
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          B
          as early as in March, 1989, even before ONGC II was
          decided on 11 '" October, 1991.
      (ii) The Permanent Machinery of Arbitration was outside
          the statutory provision then regulating arbitrations in this
          country namely Arbitration Act, 1940 ( 10of1940).                c
      (iii) 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          D
           be made a rule of the court to be enforceable as a decree
           lawfully passed against the judgment debtor.
      (iv) 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                     E
          depatiment 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 paiiy
          approaching the Court.                                            F
      (v) The time limit fixed for obtaining such permission was
          also only directory and did not render the suit and/ or
          proceedings illegal if pennission was not produced within
          the stipulated period.
      (vi) The Committee on Disputes was required to grant                 G
          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.
      (vii) The Committee on Disputes experience was found to
                                                                           H
88             SUPREME COURT REPORTS                            [2016] 5 S.C.R.



A              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
B
               has subsequent to the recal I 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
c              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
D    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
E    Law Secretary who made some alterations in the same is also admitted.
     That the award so made has not been accepted by tfie-appel lants 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
F    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
G    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
H    limitation. The High Court has, all the same, rejected the plaint on the
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                               89
             CORP. LTD. & ANR. [T.S. J:HAKUR, CJ!]

ground that permission from COD was not obtained. In doing so the               A
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
                                                                                B
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.                                  c
       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      D
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           E
the matter back to the Civil Court for adjudication and ifthat 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          F
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           G
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 oflaw. In fairness to
Mr. Ranj it Kumar, learned Additional Solicitor General, we must mention
                                                                                H
90             SUPREME COURT REPORTS                           [2016] 5 S.C.R.



A    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
B
     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
c    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
D
     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 pennanent 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
E    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-
F    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 ofrespondents 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.
G    Respondent No.2 shall accordingly stand deleted from the array of
     pa11ies.
            27. Mr. Ranj it 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
H
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING                                   91
         CORP. LTD. & ANR. [T.S. THAKUR, CJI]

Act, 1996. That diffidence does not prevent us from making a suitable               A
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
                                                                                    B
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         c
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             D
disposed of in terms of this order. The pa11ies shall appear before the
Arbitrator on 22"d of August, 2016 for further directions. The Arbitrator
shall be free to determine his own fee. No costs.


Dcvika Gujral                                                  l\pp<'al allowctl.   E