51 HIGH COURT OF CHHATTISGARH AT BILASPUR Writ Appeal No. 344 of 2010 APPELLANT PETITIONER Versus RESPONDENTS : Bharat Aluminium Company Ltd. M/s Engineering Projects (India) Ltd. and others And Writ Appeal No. 345 of 2010 APPELLANT PETITIONER RESPONDENTS Versus Bharat Aluminium Company Ltd. Union of India and others jyDGMENT FOR CONSIDERATION HON'BLESHRI R.N. CHANDRAKAR. J Sd/- JUDGE O M.2011 3 cuy^^- Sd/- R.N. Chandrakar Judge POST FOR JUDGMENT ON 2 ^ JANUARY. 2011 Sd/- Dhirendra Mishar Judge ^ HIGH COURT OF CHHATTISGARH AT BILASPUR 5^ DIVISION BENCH: HON. MR. DHIRENDRA MISHRA. & HON. MR. R.N. CHANDRAKAR. JJ Writ Appeal No. 344 of 2010 APPELLANT PETITIONER Versus RESPONDENTS 1 Bharat AIuminium Company Ltd. PO BALCO Nagar, Korba 495684, Chhattisgarh, through Sri VR Kaul.Assistant General Manager (Project) Now through duly constituted attorney on behalf of the Company. M/s Engineering Projects (India) Ltd. Core-3, Score Complex 7, Lodi Road, New Delhi - 110 003, through its Managing Director. Ministry of Heavy Industries & Public Enterprises, Department of Public Enterprises, CGO Complex, Lodi Road, New Delhi, through its Secretary. Sri NC Jain, Arbitrator, Joint Secretary and Legal Adviser, Room No.315, Block 14, Public Enterprises Bhavan, CGO Complex, Lodi Road, New Delhi, through its Secretary. And Writ Appeal No. 345 of 2010 APPELLANT PETITIONER Bharat Aluminium Company Ltd. PO BALCO Nagar, Korba 495684, Chhattisgarh, through its Manager Legal, duly constituted attorney on behalf of the Company. Versus ^ RESPONDENTS 1 Union of India, through the Secretary, Ministry of Heavy Industries and Public Enterprises, Government of India, Department of. Public Enterprises, 14, CGO Complex, Lodi Road, New Delhi. M/s Engineering Projects (India) Ltd. Core-111, Score Complex 7, Lodi Road, New Delhi - 110 003, through its Managing Director. Joint Secretary and Arbitrator, Ministry of Heavy tndustries & Public Enterprises, Department of Public Enterprises, Room No.315, Block 14, Public Enterprises Bhavan, CGO Complex, Lodi Road, New Delhi-110 003, through its Secretary. Present: Mr. Ratnanko Banerji with Mr. Tarun Aith, Mr. Abhishek Sinha and Mr. Ghanshyam Patel, counsel for the appellant-Bharat Aluminum Company Ltd. Mr. Sunil Otwani, counsel for respondent-M/s Engineering Projects (India) Ltd. Mrs. Fouzia Mirza, Assistant Solicitor General for respondent-Union of India. JUDGMENT (Delivered on yyl January, 2011) The following judgment of the Court was delivered by Dhirendra Mishra, J. 1. The above writ appeals are being disposed of by this common judgment, as both these appeals arise out of the order 22" September, 2010 passed by the learned Single Judge whereby Writ Petition 5if ^y ^^ss^' No.1398/2002 and Writ Petition(c) No.1781/2007 preferred by the appellant herein have been dismissed by a common order. 2. Briefly stated facts as projected in the impugned order are that the respondent - M/s Engineering Projects (India) Ltd. (in short "EPIL") particjpated in a tender process commenced by the appellant -Bharat Aluminum Company Ltd. (in short "BALCO") and submitted its offers. After due consideration, its offers for the works in responseto the tender notice dated 6.11.1997 and 7.11.1997 were accepted and Letter of Intents (Annexures P/5 and P/6 to the first petition) were placed in favour of EPIL and accordingly, Agreements on 7.1.1999 and 1.2.1999 (Annexures P/7 & P/8) were executed. Under Clause 9.22.1 of the general terms and conditions of the Contract Agreement i.e. Schedule 9 of the Contract Agreement, the parties agreed to resolve their disputes and differences arising out of the Contract Agreement by way of arbitration. 3. On 2nd March, 2001, the Government of India disinvested 51% of its share holding in BALCO in favour of Sterlite Industries (India) Ltd. (in short "Sterlite") and accordingly, the management of BALCO was transferred in favour of Sterlite and BALCO ceased to be a Public Sector Undertaking (for short "PSU") and became a joint venture. 4. EPIL vide its letter dated 31 May, 2001 invoked arbitration clause as some disputes arose with BALCO. The Government of India vide its letter dated 23 July, 2001 (Annexure P/10) sought comments from BALCO with regard to arbitration. BALCO vide its letter dated 9th August, 2001 raised an objection against arbitration by Permanent Machinery of ^-. 56 y -• / "s^.^£^^ Arbitration (in short "PMA") on the ground that BALCO ceases to be a PSU after its disinvestment on 2nd March, 2001, however, agreed for arbitration as per procedure applicable for other than Public Sector Enterprises (in short "PSE") and Government Departments i.e. arbitration underthe Indian Council ofArbitration. 5. The appellant was informed by respondent No.3 that he has been appointed as Sole Arbitrator in the matter and entered upon the reference under the PMA. The Sole Arbitrator called upon BALCO to file its statement of claim, reply and counter claim, if any. BALCO filed its reply and counterclaim and raised a preliminary objection questioning the jurisdiction of the Arbitrator under PMA and submitted fhat such reference was void ab initio on the ground that BALCO was not a PSU when the arbitration proceedings commenced or when the said CIause was invoked by EPIL. EPIL also filed its claim before the Sole Arbitrator. 6. The Arbitrator vide its order dated 21st March, 2002 (Annexure P/1§) rejected the preliminaryobjection of BALCO and fixed the matter for regular hearing on 22 May, 2002. BALCO had moved an application through its Advocateon 20th May, 2002 (Anriexure P/17) and stated that the venue of the arbitration would be at Korba, EPILvide its application of Annexure P/18 had opposed the appointment of Advocates by BALCO under PMA rules and sought direction that BALCO be represented through its officials. Thereafter, BALCO was represented by its officials on 22nd May, 2002 and the Sole Arbitrator rejected the application of BALCO with regard to venue of arbitration proceeding and adjourned the matter to 25.7.2002 by order dated 22.5.2002 (Annexure ^ P/20). In these circumstances, the first writ petition was filed by BALCO before this Court on 12.7.2002, in which an interim order to the effect that "Meanwhile, if the meeting, if any, is held by the arbitrator, the decision thereof shall be subject to the orders to be passed by this Court", was passed on 19.7.2002 7. During pendency of the first petition, the Ministry of Heavy Industries and Public Enterprises, Govt. of India, issued an Office Memorandum on 22.1.2004 (Annexure P/21) and directed that the procedure for settlement of disputes under PMA will be applicable even to a PSU, which has ceased to be the same by reasons of privatization due to disinvestment or otherwise. Thereafter, BALCO amended its petition as per Court's order dated 30th March, 2007. In the second writ petition, BALCO challenged the legality and validity of Office Memorandum (in short "OM") dated 22.1.2004. Submission on behalf of the appellant - BALCO by Mr. Ratnanko Banerji with Mr. Tarun Aith, Mr. Abhishek Sinha and Mr. GhanshyamPatel, Advocates 8. The Arbitration Clause (9.22) has two parts. The first part is "for PSE and Govt. Departments", and it provides for disputes and differences to be referred to arbitration ofthe Department of PSE. The Arbitratibn and Conciliation Act, 1996 (inshort "the Act, 1996") is held to be not applicabte to such arbitration. For setting aside any award, the party has to make a reference to the Law Secretary, Department of Legal Affairs, Ministry of Law & Justice, Govt. of India. The second part is "for other than PSEs and Govt, Departmenf. Under this Clause, the disputes and differences are to be referred for arbitration to Indian ff\ Council of Arbitration. Thus, the above two arbitration Clauses show that the choice of forum is dependent on the status of the entity as a PSE or other than a PSE. The forum of arbitration will be affected by the change of status of.a company at the time of reference of disputes to arbitration. 9. Reliance is placed on the decision of the High Court of Bombay in the matters of Fazlehussein Haiderbhoy Buxamusa and others Vs. Yusufally Adamji and others\ 10. It was further argued that the purpose of arbitration by PMA is to adjudicate upon the disputes between PSEs and Government Departments and to set at rest all inter departmental controversies at the level of the Government and not to bring such litigations in a Court of law as it entails wastage of public money and time. Thus, PMA can provide for an effective remedy only in the cases when dispute retates to between two entities, which are in the control of the Government and not otherwise. Clause for arbitration for reference to PMA does not provide for any right to the parties to take recourse under the Act, 1996 and the only remedy available to the parties is to approach the Secretary, Ministry of Law. Even the OM issued by the Government of India for setting up PMA underlines the same rationale. In view of the fact that there is change of status in BALCO due to disinvestmentof 51% of its share and its management and control has gone to the private hands, BALCO ceases to be a PSU. 'AIR1955Bombay55 ^b %'^- 11. Referring to Clause 7.12 of the Agreemept of Disinvestment dated 2 March, 2001, relied upon by the learned Single Judge, it was argued that the only exception to carrying on business by BALCO is the impact or consequences that arise due to BALCO, no longer being treated as a Government Company or a PSU. Further referring to CIause 7.6 and Schedule 7.6 of the Agreement of Disinvestment, annexed with the application dated 3.9.2010, it was argued that the Schedule did not provide for any claim or arbitration proceedings of EPIL. One of the consequences of disinvestment of BALCO is the non-applicability of the Clause for arbitration by PMA. 12. Relying upon the decision of the Supreme Court in the matter of M/s Eastern Coalfields Ltd. Vs. Sanjay Transport Agency and anothei2, it was argued that arbitration by PMA was not applicable when both the parties were not PSEs. Though the disputes and differences, which are sought to be referred to PMA arose between the parties before^ disinvestment, but the reference of dispute to arbitration was sought on 31 May, 2001 when BALCO ceased to be a Government Company. Even the Government at the instance ofthe Department of PSE sought confirmation from BALCO whether arbitration by PMA was applicable after disinvestment by the Government, and in response thereof, BALCO categorically rejected PMA arbitration and challenged the jurisdiction of PMA vide its letter dated 9 August, 2001. However, on the basis of opinion from the Ministry of Law, which is also an appellate authority for challenge to any decision from PMA, EPIL was allowed to commence arbitration before PMA and the preliminary objection of - BALCO regarding challenge to the jurisdiction of PMA was rejected. ; (2009) 7 SCC 345 ^ The fact that PMA has been insisting that BALCO should sign a new arbitration agreement conferring jurisdiction on PMA, goes to show that there is no subsisting agreement for arbitration between the parties by PMA. The OM dated 22.1.2004 is wholly without jurisdiction. The Government is only a minority share holder in BALCO and is a third party in the agreement between BALCO and EPIL and it cannot possibly, in law, impose or unilaterally change any contractual terms between BALCO and EPIL. The contention that BALCO has waived its right as it had accepted the jurisdiction of PMA by participating in the arbitration proceedings, is wholly erroneous. BALCO had challenged the jurisdiction of PMA, firstly by letter dated 9 August, 2001 and subsequently, by putting up a preliminary objection in the counter statement and by filing a writ petition before this Court. The ratio of law laid down in the case of Geo Group' Communications Inc. Vs. IOL Broadband Limited3 has no application to the facts of the present case as the cited judgment deals with the scheme of amalgamation under Sections 391 and 392 of the Companies Act, 1956, which statutorily provides that an amalgamated company is bound by the obligationsof previous company. Similarly, in para-8 of the decision of the House of Lords reported in (2007) UKhlL 40, relied upon in the impugned order, it has been held that "a properapproach to construction therefore requires the court to give effect, so far as language used by the parties will permit, to the commercial purpose of \. . '. • \the arbitration clause." Commercial purpose of the arbitration clause for 3 (2010)18cc 562 /ff ^ W-J '^1 \fl ^m^^ arbitration by PMA is to adjudicate upon the disputes between PSEs, inter se, or Govt. Department. Thus, BALCO should not be subjected to arbitration by PMA after its disinvestment. Submission onbehalfofEPILbyMr. Sunil Otwani, Advocate 13. The dispute between theparties has taken place prior to the date of disinvestment i.e. 2nd March, 2001 when an agreement was executed between the Govt. of India, Sterlite and BALCO. By the said agreement, the Sterlite was declared to be a strategic partner and BALCO was declared as Company. After the dispute was referred to PMA, BALCO wrote a letter to PMA and deposited an amount of Rs.s10,000/- and applied forcopy of statement of claim on 18.1.2002. Thereafter, BALCO was allowed time to submit its counter statement and counter claim and accordingly, BALCO submitted its reply and counter claim to the tune of Rs.45.20 crores before PMA on 14.2.2002. .^-•" ,.- Referring to the order dated 31 December, 2002 (Annexure A to the first petition & Annexure R-2/11 to the second petition), it was submitted that BALCO admitted its liability to pay only to EPIL and it has nothing to do with the claim of the petty contractors, and made a request to the decide the dispute expeditiously. BALCO made a categorical statement that it would be appropriate if the arbitration proceedings are finatized and the liabilities of both the parties are determined by the learned Arbitrator. 14. Relying upon the decision of the Supreme Court in the matter of Bharat \ Sanchar Nigam Ltd. and another Vs. Motorola India Pvt. Ltd. it was 2008 AIR SCW 7396 ^ 10 argued that objections pertaining to jurisdiction of the arbitrator should be raised prior to the hearing. After disinvestment, Sterlite has been declared as a strategic partner and BALCO was declared as Company. The arbitration clause peri:aining to reference to PMA would be binding upon the strategic partner and the strategic partner cannot challenge the terms of the agreement taken place prior to the date of disinvestment. It was further argued that the OM is not altering the terms and conditions of the agreement, it is merely clarificatory in nature. Referring to Clayse 7.12 of the Disinvestment Agreement, it was argued that neither the Company is closed nor the business standard of the Company is changed as the Company is carrying on the same business till date without any obstruction. Only the management and name of the Company goes out from the Government hands to PSU without touching the business operations, and as such, the interpretation of Clause 7.12 in the impugned order is proper and needs nq- interference. Submission on behalf of Union of India by Mrs. Fouzia Mirza, Assistant Solicitor General oflndia. 15. At the time when the Contract was executed between the parties, BALCO was a PSU and the change of ownership did not debar the Company of the obligations under the Agreement for resolution of the disputes through PMA, as agreed between the parties under the arbitration Clause in the Contract. The OM dated 22.1.2004 was issued in amalgamation/merger/revision of the guidelines issued from time to time since creation of PMA in 1989. It spells out the policy of the Govt. of India in regard to PSU and Government Departments. The Union of ^ E 11 India has issued guidelines under the policy of the Government of India and there is no any arbitrariness in issuing OM dated 22.1.2004 as the Central Government has issued comprehensive guidelines on policy matters considering the arbitration mechanism in PMA for settlement of dispute with classification on some legal and technical issues relating to arbitration clause for cohvenience and compliance for all. l6.We haye heard learned counsel for the parties and gone through the material available on record. 17. Indisputably, the Contract Agreement was executed between BALCO and EPIL on 7.1.1999 and 1.2.1999 for civil and contractual works at Korba Aluminum Complex. At the time of execution of the Contract Agreement, parties to the Agreement were PSEs. The Contract Agreement provided for resolution of the disputes or differences arising out of the Contract by way of arbitration as provided under Clause 9.22.1 of the general terms and conditions of the Contract i.e. Schedule 9 of the Contract Agreement. Some disputes arose between the partie? and claims were made by EPIL against BALCO prior to the date of disinvestment on 2nd March, 2001. However, reference ofthe dispute to the arbitration was made only on 31 May, 2001 i.e. after disinvestment. As per arbitration Clause, disputes between PSEs and Government Departments were to be referred to the Department of PSE and the provisions of the Act, 1996 are not applicable to such arbitration. For setting aside any award, a party had to make a reference to the Law Secretary, Department of Legal Affairs, Ministry of Law and Justice, Govt. of India. Whereas in cases where the dispute is between other ^s^^ -^^- //-^ 8 h 1 . jf 12 than PSEs and Government Departments, the dispute was to be referred to the IndianCouncil ofArbitration. 18. The main question arising in these writ appeals is - whether the learned Single Judge was legally justified in rejecting the contention of BALCO that mechanism of PMA is not binding on the present management of BALCO after it ceased to be PSU after disinvestment of 51% of its share by the Central Government on 2nd March, 2001 ? 19. At the time of execution of the Agreementof Annexures P/7 and P/8, BALCO and EPIL both were PSUs and they had agreed to resolve any dispute arising out of the Contract Agreement by referring the same to the arbitration as provided under Clause 9.22 of the Agreement. The question for our consideration is - whether the subsequentAgreement of Disinvestment of one of the parties i.e. BALCO in the year 2001 would be binding on EPIL, which is not a party to the said Agreement? 20. In Fazlehussein Haiderbhoy Buxamusa1, the Supreme Court, while considering the territorial jurisdiction to entertain the suit, observed that even if the Court had jurisdiction to entertain the suit as filed, if by reason of subsequent events the Court has lost jurisdiction to entertain or try the suit, the Court will not be justified in dealing with the suit with reference to circumstances as they existed at the date of the institution of the suit, but must proceed to decide the dispute on the footing that if the suit had been filed at the later date, the Court would have been incompetent to grant the reliefs in respect of the properties and of the persons who are not within the limits of the jurisdiction of the Court. Normally a Court must have regard to circumstances existing at the date ^ ri?^;-:!;^ /f^^ r &®». 13 when the issue of jurisdiction is tried and must decide it in the light of circumstances existing at that date. 2l.The ratio of law laid down by the Bombay hligh Court in the aforesaid judgment has been further affirmed in Jindal Vijaynagar Steel Vs. Jindal Praxair Oxygen Co. Ltd.5 and it has been observed that so far as territorial jurisdiction is concerned, relevant time to determine the jurisdiction is when the matter is heard. 22. However, the ratio of law laid down in the aforesaid judgments has no application in the facts of the present case as in the instant case, the parties to the Agreement had submitted themselves to the jurisdiction of PMA for resolving their disputes arising out of the Contract Agreement through arbitration and subsequent to execution of the Agreement, one of the parties to the Agreement i.e BALCO has unilaterally altered its position on account of disinvestment. 23. There is no quarrel that the purpose of arbitration agreement by PMA is basically to adjudicate upon the disputes between the PSEs and Government Departments and to set at rest all other departmental controversies at the level of the Government and not to bring such litigations in a Court of law as it entails wastage of public money and time, as observed in catena ofjudgments cited by learned counsel for the appellants, namely 1992 (Supp.) 2 SCC 432, 1995 (Supp.) 4 SCC 541 and 2003(3) SCC 472, Para-14, as also in the OM issued by the Government from time to time. However, the Contract Agreement as well as the arbitration agreement was duly signed by the then BALCO and EPIL and the first part of Clause 9.22 of the arbitration agreement ^ 5 (2006)118cc 521 14 ^ was applicable in respect of signatories to the arbitration agreement. On the date of execution of the Agreement, the present management of BALCO is successor in the interest of the then BALCO as the management of the then BALCO has gone into the hands of Sterlite due to disinvestment on 2nd March, 2001. Thus, it cannot be held that BALCO is not bound by the arbitration Clause as entered into between the then BALCO and EPIL. 24.The argument of learned counsel for the appellant that in the Disinvestment Agreement, there was a list of disputes and differences, which was transferred to the present management of BALCO, and there is no reference to the present dispute in that list, has been rightly rejected by the learned Single Judge with an observation that if there was no mention in the list of disputes, EPIL cannot be'deprived of its right of settling the disputes and differences in respect of the works performed by EPIL. We are in entire agreement with the observations in the impugned order that PMA mechanism was accepted by the parties by way of arbitration agreement when BALCO and EPIL were PSUs. Now after disinvestment, the management of BALCO has been transferred to the present management of BALCO on holding of 51% shares. Thus, there is no question of enforcement of PMA mechanism, but the method to resolve the disputes is derived from the agreement signed between the parties, which have come down in succession to the present management of BALCO. BALCO is admittedly a joint venture, it is not a private enterprise, wherein all shares are held by private parties. 25. So far as challenge to the validity of OM dated 22.1.2004 is concerned, the learned Single Judge has rightly observed that OM dated 22.1.2004 .4. ^- ^: »M ^ '^- 15 is not applicable or indisputable by itself. The OM has to be followed by an agreement and in the case on hand, there is no arbitration agreement between the parties following the OM dated 22.1.2004. Thus, the same would not have any effecton the relationship of the parties, which is derived from the arbitration agreement executed between BALCO and EPIL, and no any opinion has been expressed on the validity of the OM dated 22.1.2004. 26.After carefully considering the arguments advanced by the respective parties and after going through the impugned order, we do not find any substance in these writ appeals, the same deserve to be and are, accordingly, dismissed. Sd/- Dhirendra Mishar Judge Khan Sd/- R.N. Chandrakar Judge ^