Arbitration; M/s. Northern Coalfield Ltd. Vs. Heavy Engineering Corp. Ltd. [Supreme Court of India, 13-07-2016]

Arbitration and Conciliation Act, 1996 – Committee on Disputes (COD) – Permission of –  Suit between the two public sector undertakings – Whether the requirement of the clearance of COD could be insisted – Held, COD stands abrogated/dissolved and the orders directing constitution of such a Committee reversed – Since there is no COD at present there is no question of either obtaining or insisting upon any clearance from the same – the 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.

Committee on Disputes (COD)




July 13, 2016


[Arising out of Special Leave Petition (C) No.27646 of 2008]






1. Leave granted.

2. This is yet another case that brings to fore a sad state of affairs when it comes to resolving disputes between two Government owned corporations. What adds to the enigma of apathy towards realism in official circles is the fact that the respondent-corporation has with 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

The Facts:

3. Appellant – Northern Coalfield Ltd. issued a tender for construction of a Coal Handling Plant at Bina sometime in May, 1984. The construction work was meant to be carried out under two contracts: viz. (1) a Contract for works and services and (2) a Contract for equipment and spares. Both these contracts were awarded to the respondent – Heavy Energy Corporation Ltd. which is also a Government of India company. The contracts contained a Clause that provided for adjudication of disputes between the parties by way of arbitration. Disputes having actually arisen in relation to the two contracts, the same were referred for resolution in terms of the “permanent in-house administrative machinery” set up by the Government. Claims and counter claims were made by the two corporations against each other which finally culminated in the making of two awards both dated 28.02.1997 under which respondent No.1 was held entitled to a sum of 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 Government. While Appeal No.67 of 1998 filed before the Law Secretary pertained to the contract for supply of equipment, Appeal No.64 of 1999 pertained to the contract for execution of works and services.

4. During the pendency of the appeals aforementioned respondent No.2 – M/s. Rampur Engineering Company Ltd. filed Suit No.450 of 1999 before the High Court of Delhi against the two corporations in which the said respondent prayed for an injunction restraining respondent No.1 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 of the Terms of Contracts executed with the appellant, sublet the contracts in favour of respondent No.2 without prior consent of the former and that the said arrangement was of no legal consequence nor did it create any legal relationship between the appellant and the sub-contractor.

5. Appeal No.64 of 1999, arising out of the contract for works and services came to be disposed of first, wherein the appellate authority made an award on 13.11.1999 holding that a sum of Rs.15,84,50,000/- apart from Rs.3.73 crores due as interest was recoverable from the appellant. Appeal No.67 of 1998 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 of 2000 before the High Court of Delhi in which it claimed a declaration to the effect that respondent No.1 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.1 was not entitled to claim any relief under those contracts nor was respondent No.2 entitled to do so. The so called Arbitral award passed by the appellate authority was according to the appellant illegal and vitiated by errors apparent on the face of the record, hence, liable to be set aside.

6. The learned Single Judge of the High Court by an interim order dated 4.08.2000 passed in the suit restrained the implementation/execution of awards passed by the Appellate Authority. The appellant’s case is that it was at that stage that the defendant-respondents herein moved an application under

Order 7, Rule 11 (d) of the Code of Civil Procedure, 1908

(for short, “the CPC”) praying for rejection of the plaint in the suit filed by the appellant. The defendant claimed that the suit was barred in view of the existence of a specially prescribed procedure for resolving disputes in arbitration proceedings between the two Government corporations. It was contended that in the light of the said procedure, neither party to the dispute was entitled to take recourse to proceedings in any Court without the permission of the Committee on Disputes.

7. The appellant opposed the prayer for rejection of the plaint inter alia 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 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 clearance from the Committee on Disputes.

8. Aggrieved by the order passed by the Single Judge of High Court, the appellant filed RFA (OS) No.50 of 2007 before a Division Bench of the High Court of Delhi. The Division Bench has by an order dated 07.08.2008 dismissed 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.1, of course, says that no such breach has occurred. This then, is the dispute merely because the appellant feels that the breach committed by the first respondent has benefited a third party, will not change the nature of the dispute from being one between the appellant and Respondent No.1, 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 be set aside in a suit. It was further held that an arbitral award cannot be set aside in a suit. It was further held that once the parties have subjected themselves to permanent machinery for redressal of dispute between public sector undertakings, then the mechanism prescribed therein should be followed and, therefore, the suit in question could not have been filed without clearance of the Committee of Disputes. By merely noting the contention of the appellant that the root of the dispute is violation of Clause 3 of the terms of the contracts, it cannot be said that the learned Single Judge has decided disputed question of facts. It has merely taken note of the appellant’s own case in stating that the key players are the two public sector undertakings which have entered into the contract in question with each other, and therefore, the special procedure prescribed for such disputes should have been followed. Consequently, the learned Single Judge rightly held that the plaint was liable to be rejected, inter alia, for that reason.”

10. The present appeal calls in question the correctness of the above judgments and orders.

11. Appearing on behalf of the appellant, Mr. P.S. Patwalia, learned senior counsel argued that the view taken by the High Court was legally unsustainable. It was submitted that the High Court has proceeded on the assumption as though the award made by the 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 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 non-est the same having been scrapped by the Constitution Bench of this Court in