AF^ HIGH COURT OF CHHATTISGARH : BILASPUR WRIT PETITION N0.1398 OF 2002 PETITIONER ^ RESPONDENTS M/s Bharat Aluminium Company Ltd. ^ ^\ Versus Engineering Projects (India) Limited & Others And WRIT PETITION (C) N0.1781 OF 2007 PETITIONER Bharat Aluminium Company Ltd. .»• RESPONDENTS Versus Union of India & Others .^, Post for pronouncement of the orders on the _Wday of September, 2010 Sd/- Satish K. Judge ^ /•• QO HIGH COURT OF CHHATTISGARH : BILASPUR WRIT PETITION N0.1398 QF 2002 RE'riTIONER ESPONDENTS M/s Bharat Aluminium Company Ltd., P.0. BALCO Nagar, Korba - 495 684, Chhattisgarh, through Shri V.R. Kaul, Assistant General Manager (Improvement Project), BALCO. Versus Engineering Projects (India) Limitedi Core 3 Score Complex, 7, Lodi Road, New Delhi —110003, through its Managing Director Ministry of Heavy Industries & Public Enterprises (Department of Public Enterprises), CGO Complex, Lodi Road, New Delhi, through its Secretary. Shri N.C. Jain, Arbitrator, Joint Secretary & Legal Advisor, Roqm No.315, Block No.14, Public Enterprises Bhawan, CGO Complex, Lodi Road, New Delhi, through its Secretary. And WRIT_PETITION (C) N0.1781 OF 2007 PETIl-IONER -»• t^EQPONDENTS Bharat Aluminium Company Ltd., P.0, BALCO Nagar, Korba - 495 684, Chhattisgarh, through its Manager, Legal, duly constituted Attorney on behalf of the Company Versus Unjon of India, through Secretary, Ministry of Heavy Industries and Public Enterprises, Government of India, Department of Public Enterprises, 14, CGO Complex, Lodl Road, New D^lhi. Engineering Projects (India) Limited, Core III Score Complex, 7, Lodi Road, New Delhi - -110 003, through its Managing Director \J' ^\ ^ Yj- 3. Joint Secretary and Arbitrator, Ministry of Heavy Industries and Public Enterprises, Department of Public Enterprises, Room No.315, Block-14, Public Enterprises Bhavan, CGO Complex, Lodi Road, New Delhi - 110003. (Writ petitions underArticle 226 and 227 ofthe Constitution of India) Single Bench : Hon'ble Shri Satish K. Agnihotri, J. Present:- Shri Ratnanko Banerjee, Advocate with Shri Tarun Aich and Shri Ghanshyam Patel, Advocates for the petitioner. Shri Sunil Otwani, Advocate for the respondent - Engineering Projects (India) Limited. Ms. Fouzia Mirza, Assistant Solicitor General for the Union of India. ORDER (Delivered on this ^^ day of September, 2010) 1. W.P. No.1398 of 2002 (for short "the first petition") & W.P. (C) No. 1781 of 2007 (for short "the second petition"), involve the same question of law and common facts and as such they are being considered and disposed of by this eommon order. However, for the purpose of this order the facts, as mentioned in the first petition are being referred. 2. The indisputable facts, in nutshell, as projected by the petitioner - Bharat Aluminium Company Ltd. (for short "BALCO"}, are that vide invitation to tenders dated 6-11-1997 & 7-11-1997 (Annexures - P/1 & P/2, respectively to the first petition), BALCO invited tenders from the interested parties for civil and structural works for installation of New Cold Rolling Mills Project at Korba Aluminium Complex. Pursuant to the said tender notices, the respondent - Engineering Projects (India) Limited (for short I/'. .-<'. ^ <Q "EPIL") submitted itsofferto the aforesaid works on.23-12-1997 & 24-12-1997 (Annexures - P/3 & P/4, respectively to the first petition). On due consideration, vide letter of intents dated 16-7-1998 (Annexures - P/5 & P/6 to the first petition) BALCO placed the order in favour of EPIL. Thereafter, both the eompanies executed agreements on 7-1-1999 & 1-2-1999 (Annexures - P/7 & P/8, respectively to the first petition). Under elause 9.22.1 of the generat terms & conditions of the contract i.e. Schedule 9 ofthe contract agreement, they agreed to resolve the disputes and differences arising out of contract by way of arbitration (forshort "the arbitration agreement") (Annexure - P/9 to the first petition). '3. On 2-3-2001 Government of India divested 51% of its shareholding in BALCO in favpur ofSterlite Industries (India) Ltd. (for short "Sterlite") and accordingly the management of BALCO was transferred in favour of Sterlite. Therefrom BALCO has ceased to be a Public Sector Undertaking [for short "PSU"), and became joint venture. 4. Some disputes and differences arose between BALCO and EPIL. Accordingly, EPIL invoked the arbitration clause by way of letter dated 31-5-2001. Thereafter, the Government of India, Ministry of Mines vide its letter dated 23-7-2001 (Annexure - 'P/10 to the first petition) sought comments from BALCO with regard to the arbitration. BALCO vide its letter dated 9-8-2001 (Annexure - P/11 to the first petition) objected the arbitration to be conducted under the Permanent Machinery of Arbitration (for short "the PMA"), on the ground that BALCO did not remain a ^ ^ PSU after its disinvestment on 2-3-2001. However, BALCO agreed for the arbitration being conductedas per the procedure applicable for other than Public Sector Enterprises and Government Departments i.e. arbitration under the Indian Council ofArbitration. In spite ofthe aforesaid facts, BALCO received a communication dated 19-12-2001 from ShriN.C. Jain (respondent No.3 in the first petition) stating that he had been appointed as the Sole Arbltrator in the matter and had entered upon the reference under the PMA. Shri Jain further directed BALCO to file its statement of claim, reply and counter claim, if any, and fixed the matterfor 14-3-2002. Since BALCO has not received any response to its objection regarding the jurisdiction of the PMA, BALCO filed its reply and counter claim for an amount of Rs.45.20 crores. In the said reply and counter claim BALCO raised the preliminary objection questioning the jurisdiction of the arbitrator under the PMA and submitted that Vhe said reference was void ab initio on the ground that BALCO was not a PSU when the arbitration proceedings commenced or when the said clause was invoked by EPIL. EPIL filed its claim for an amount of Rs.5,67,20,522=56 for civil works and an amount of Rs,6,15,72,560=38 for structural works. On 14-3-2002, during thecourse of arguments, BALCO raised the aforesaid objection before the arbitrator, but the said contention was rejected by the arbitrator vide order dated 21-3-2002 (Annexure - P/15 to the first petition) and fixed the .•^ 'o # .'6-. matter for regular hearing on 22-5-2002. Thereafter, BALCO by its letter dated 6-5-2002 (Annexure - P/16 to the first petition) informed the arbitrator that they authorized M/s Kessar Dass & B. Associates, Advocates, Sollcitors & Consultants to represent BALCO in the arbitration proceedings. Thereafter, on 20-6-2002 (Annexure - P/17 to the first petition) the Advocate of BALCO moved an application before the arbitrator and stated that the venue of the arbitration would be at Korba and sought appropriate direction. EPIL filed an application vide Annexure - P/18 to the first petition opposing the appointment ofAdvocates by BALCO under the PMA Rules and sought a direction towards BALCO to represent through its officials only. 8. In view of the aforesaid objection raised by EPIL, M/s Kesar - Dass & B. Associates did not appear before the Arbitrator on 22-6-2002 and the matter was represented by the officials of BALCO. The arbitrator rejected the application of BALCO with regard to venue of arbitration proceedings and adjourned the matter to 25-7-2002 by order dated 22-5-2002 (Annexure - P/20 to the first petition). Thus, BALCO filed the first petition before thisCourton 12-7-2002. 9. This Court on 19-7-2002 passed an order in the first petition to the effect that "Meanw/i/fe, ifthe meefing, ifany, is held by the arbitrator, the decision thereof shall be subject to the orders to be passed by this Court". 10 During pendency of the first petition before this Court, the Ministry of Heavy Industriesand Public Enterprises, Govemment of India, issued an office memorandum (for short "OM") dated /• •^ ~A- 22-1-2004 (Annexure - P/21 to the first petition) directing that the procedure for settlement of disputes under the PMA will be applicable even to a Public Sector Enterprise, which has ceased to be the same, by reason of privatization due to disinvestment or otherwise. Thereafter, BALCO filed amendment application (I.A.No.1) in the first petition on 12-3-2007, which was allowed by this Court on 30-3-2007. Accordingly, the amended writ petition was filed by BALCO on 7-4-2007. 11. BALCO also filed the second petition {W.P (C) No.1781 of 2007} before this Court on 12-3-2007 in which it has been mentioned that BALCO was disinvested by the Government of India on 2-3-2001, as a result of which BALCO ceased to be a PSU. In the second petition, BALCO challenged the legality and validity ofthe OM dated 22-1-2004. 12. Shri Ratnanko Banerjee, learned counsel appearing with Shri Tarun Aich and Shri Ghanshyam Patel, learned Advocates for BALCO would submit that the PMA could resolve the disputes only when there is a dispute or difference between the PSUs and the Government Departments to avoid wastage of public money and time, as all the inter departmental controversies may be settled at the Government level only in the light of observations madeby the Supreme Court in O// and Natural Gas Commission and Another v. Collector of Central Excise and O// and Natural Gas Commission and Another v. Collector of Central Excise Accordingly, several OMs were issued by the Government of 11992Supp(2)SCC432 21995Supp(4)SCC541 ^ f •>s- India on 12-3-1985, 29-3-1989, 31-12-1991 & 24-1-1994 for setting up the PMA. 13 Shri Banerjee would' further submit that forum of the PMA may not have jurisdiction to deal with thesubject matter, as after ' disinvestment the Government loses control over the present BALCO and, as such, the PMA also loses its jurisdiction. Thus, jurisdiction of the PMA would not continue, as the present BALCO is not a PSU. Learned counsel placed his reliance upon the decision of the Supreme Court rendered in Jindal Vijayanagar Steel (JSW Steel Ltd.) v. Jindal Praxair Oxygen Co. Ltd. and upon the decisioh of the Bombay High Court rendered \n Fazlehussein Haiderbhoy Buxamusa and Others v. Yusufally Adamji and Others . 14. Shri Banerjee would next submit that the arbitration clauses 9.22.1 and 9.22.2 are unambiguous and need no further interpretation. The plain language of the arbitration clause clearly provides for dispute resolution by the PMA only when disputes and differences arose between the PSUs and the Government Departments. A dispute and difference arising • between a non-PSU and a PSU can beadjudicated bythe PMA under the first part of clause 9.22.1 of the contract. In support of his contention, Shri Banerjee relies on a decision ofthe Supreme Court rendered in Eastern Coalfields Limited v. Sanjay Transport Agency and Anothei^. 3(2aOO)11SCC521 4AIRia55Bombay55 6 (20061) 7 SCC 345 .-^- 15. Shri Banerjee would also submit that the Supreme Court in BALCO Employees' Union (Regd.) v. Union of India and Others at para 60, observed that as a result of disinvestment of 51%of the shares of the Company, the management and control, no doubt, has gone into priyate hands and, as such, by change of the status of BALCO, the employees would no longer be entitled to protection ofArticles 12, 14, 16 and 311 ofthe Constitution of India. Thus, likewise, in the case on hand, after disinvestment, the present BALCO became a private company and the forum of the PMAwould not be applicable. 16, Shri Banerjee would further submit that BALCO has also disclosed the shareholders agreement and share purchase agreement with the Government of India dated 2-3-2001 pursuant to which the shares were divested, in the application filed in the first petition on 3-9-2010 from which it will be evident that there is no clause with regard to BALCO being obliged to appear before the PI\4A for adjudication of disputes after disinvestment. In fact, clause 7.6 of the share purchase agreement which lists the pending suit, action, litigation or grbitration proceedings or claim pending against BALCO, there is no reference to the claim of EPIL in the particulars given in schedule 7.6. This clearly shows that the Government never " contemplated any pending arbitration bythe process ofthe PMA gs against BALCO, for the claim of EPIL. 17. Shri Banerjee would next contend that the PMA and the Government of India very well knew that a new agreement would (2002) 2 SCC 333 -•/ be required for method of arbitration and the same is evident from the orders dated 9-3-2010, 10-5-2010 and 26-7-2010 ofthe PMA. The PMAwanted BALCO to sign on the new agreement, as is evident from the application dated 21-6-2010 in the second petition. 18, The impugned OM dated 22-1-2004 is wholly withoutjurisdiction. The Government is only a minority shareholder in BALCO and, assuch, the 01\A dated 22-1-2004 would not be applicable whereby a unilateral change in the arbitration agreement was sought to be introduced without any authority of law between a PSU and a private undertaking i.e. BALCO. Thus, the OM dated 22-1-2004 is illegal, unjustified and without any authority of law. 19. Shri Banerjee would further submit that the office memorandum dated 22-1-2004 has been issued in an illegal and arbitrary manner without having jyrisdiction and against the principles of settled law. The Ministry of Heavy Industries and Public Enterprise cannot imposea settlement procedure of PMA on BALCO by issuing the office memorandum dated 22-1-2004. The said memorandum has been issued with ma/a fide intention and with some ulterior motive. 20 It is further contended by Shri Banerjee that by reason of subsequent events, it is well settled that even the Court may lose jurisdietion over the subject matter. EPIL very well knew the fact that in the event BALCO becomes a private under taking on ' account of any reasons may be disinvestment, the second part of the arbitration agreement would be applicable. BALCO has 10 6?' objected the jurisdiction of the PMA in its letter dated 9-8-2001 and even in the reply and counter claim filed by BALCO before the arbitrator there was a preliminary objection with regard to jurisdiction of the PMA, which was rejected by the PMA on 21-3-2002. 21 .On the other hand, Shri Sunil Otwani, Advocate appearing for EPIL, would submit that the disputes and differences arose between BALCO and EPIL prior to change of Management of ownership in BALCO and claims were lodged by EPIL before BALCO vide letters dated 7-10-2000, 16-11-2000 and 5-2-2001 (Annexure - R2/6, R2/7 & R2/8, respectively to the second petition). The said claims were rejeteted by BALCO on 3/5-2-2001 & 12-2-2001 (Annexure - R2/9 & R2/10, respectively, to the second petition). Therefore, the contract cannot be altered merely because one party to the contract subsequently became a joint venture company due to the change of management of the company and could not possible affect or nullify. BALCO has not approached this Court with clean hands and has made incorrect and misconceived averments in this petition. In fact, the OM was issued by the authorities by exercising their power properly, lawfullyand in the interest of public at targe. 22. Shri Otwani would further submit that admittedly the OM was issued on 22-1-2004 whereas BALCO challenged the same after lapse of more than three years and, as such, the petition may be dismissed on the ground of delay and laches. Even otherwise, BALCO has failed to make out any case in its favour. 11 d 23. Ms. Fouzia, Mirza, learned Assistant Solicitor General appearing , f<?r the Union of India, would submit that the Government of India has rightly and correctly issued the OM. There is no arbitrariness in issuing the OM dated 22-1-2004 and the Government of India is the only authority as per the law of the land to issue such guidelines. Ms. Mirza would further submit that as per the arbitration clause executed between the parties, the award of the arbitrator in the PMA shall be binding upon the partiesto the dispute. No legal right or vested right of BALCO is effected by the OM dated 22-1-2004. BALCO and its shareholders are bound by the obligation under the contract and terms & conditions thereof already entered into by BALCO prior to its disinvestment. 24. Ms. Mirza would next submit that since the initial agreement was singed between the then BALCO and EPIL (PSUs), on advice, it is submjtted that the arbitration agreement as signed earlier would be applicable to the present management of BALCO also. The present BALCO is not a private company, but it has become a joint venture on its disinvestment, as 51% of the shareholdings have gone in favour of Sterlite. The PMA has the jurisdiction to interpret the arbitration clause and to decide asto whether the present BALCO would be governed under the PMA. The OM dated 22-1-2004 was one of the several guidelines issued by the Government of India from time to time, which is not applicable to BALCO, but all the Enterprises wherein the PSUsafter their respective disinvestment have gone into the hands of the private parties. Thus, the Government of India is fully competent to issue the OM dated 22-1-2004. It is a policy matter and the same cannot be challenged before any Court. 25. I have heard learned counsel appearing for the parties, perused the pleadings and the documents appended thereto. 26. It is evident that to execute civil and structural works agreements were executed between the then BALCO and EPIL on 7-1-1999 & 1-2-1999. The Arbitration agreement provides for settling all the disputes and differences arising between the parties by the method, as specified therein. 27. Arbitration clauses 9.22.1 & 9.22.2 read as under: "9.22 ARBITRATION 9.22.1For Public Sector Entemrises and Govemment Deoartment In the event of any disputes or differences relating to the interpretation and application of tfie provisions of the contracts, such disputes or differences shall be referred by either party to the Arbitration of one of the Arbitrators in the Department of Public Enterprises to be nominated by the Secretary to the Government of India in charge or the Board of Public Enterprises. The Indian Arbitration and Conciliation Act, 1996 shall not be applicable to the arbitration underthis c/ause. The award of the Arbifrator 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 Secnstary, Department of Legal Affairs, Ministry of Lawand Justice, Government of India. Upon such reference the dispute shall be decided by fhe Law Secretary or the Special/Additional Secretary when so authorized by the Law Secretary, whose decision shall bind the parties finally and conclusively. The parties to the dispute will share equally the cost of arbitration as infimated by the "Arbitrator". For other than_ Public Sector Enterorises and Govemment Deoartment c 13 \J 28. All Disputes or differences, whatsoever, arising between the parties out of or in relation to the construction, meaning and operation or effect of this contract or breach there of shall be settled amicably. If, however, the parties are not able to resolve them amicably, the same shall be settled by arbitration in accordance with the 'Rules of Arbitration ofthe Indian Council of Arbitration and the award made in pursuance there of shall be binding on the parties. The Arbitrator/Arbitrators will give reasoned award. 9.22,2 Work under the contract shall be continued by thg Contractor during the arbitration proceedings unless otherwise directed in writing by the Purchaser or unless the matter is such that the works cannot possibly be continued until the decision of the arbitrators or ofthe Umpire, as the case may be, is obtained and save as those which are otherwise expressly provided in the contract, no paymentdue orpayable by the Purchaser shall be withheld on arbitration proceeding untess it is the subject matter or one of the subject matter thereof." EPIL raised a dispute on 31-5-2001 before the Secretary, Department of Public Enterprises. Thereafter, by letter dated 23-7-2001 (Annexure—P/10 to the first petition) BALCO was requested to furnish information/comments on the following jssues: ";) whether the said contract between EPIL & BALCO is still valid; ii) whether in BALCO's view, EPIL may invoke the said arbitration clause for the dispute pertQining to pre- disinvestment period; iii) would BALCO commit themselves to the arbitration; and iv) if so, what is BALCO's stand on the dispute raised by EPIL 14 29, BALCO, by its lefter dated 9-8-2001 (Annexure - P/1 1 to the first petition), responded that the resolution of disputes and -differences could be resolved only underthe second part ofthe Arbitration agreement under heading "Other than Public Sector Enterprises and Govemment departmenf, not under the PMA. The Government of India, without passing an order on the letter dated 9-8-20Q1 of BALCO, appointed Shri N.C. Jain, Joint Secretary, Legal Adviser as Sole Arbitrator. On 19-12-1001 the arbitrator ordered both the parties to appearfor hearing on 14-3- 2002 and further directed to flle their pleadings with documents including the statementof claim or the CSF/ counter claims. 30. Pursuant to the said order, BALCO filed its reply and counter claim with preliminary objection that EPIL is not entitled to invoke arbitration provisions of clause 9.22.1 under the heading "for Public Sectors Enterprises and Government Department". The objection of BALCO was rejected by the arbitrator on 21-3-2002 (Annexure - P/15 to the first petition) holding that the PMA has . jurisdiction to decide the arbitration case between BALCO and EPIL. Thus, the first petition was filed by BALCO before this Courton 12-7-2002. 31. In M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Limited and Others, the Supreme Court observed as under: "8.....1f the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, . it is immaterial whether or not the expression arbitration or 'arbitrator' or 'arbitrators' has been used in the agreement. It is also not 7 (1993)35cc 137 1 15 necessary that agreement to arbitration should appear in the docymenf containing the other terms of agreement between the parties. Law is well settled that arbitration c/ause may fae incorporated by reference to a specific document which is in existence and w/iose tenns are easily ascertainable. It is to be noted, however, that the quesfion whether or not the arbitration clause contained in another document is incorporated in the contract, is always a question of construction. It should also be noted that the arbitration c/ause f"s quite distinct from the other clauses of the contract. Other clauses of agreement impose obligation which the parties undertake towards each other. But arbitration c/ause does not impose on any of the parties any obligation in favour of the other party. Such arbitration agreement embodies an agreement between the parties that in case of a dispute, such dispute shall be settled by arbitrator, or umpire of their own constitution or by an arbitrator to be appointed by the Court in an appropnafe case. It is pertinent to menfion that there is a maferial difference in an arbitration agreement inasmuch as in an ordinary contract the obligation of the parties to eacfr other cannot, in general, be specifically enforced and breach of such terms of contract results only in damages. The arbitration clause however can be specifically enforced by the machinery of the Arbitration Act. The appropriate remedy for breach of an agreement to arbitrate is enforcement of the agreement to arbitrate and not to damages arising out of such breach. Moreover, there is a further significant difference between an ordinary agreement and an arbitration agreement. In an arbitration agreement, the courts have discretionary power of dispensation of a valid arbitration agreement but the courts have no syc/p power ofdispensation of other terms of contract entered between the parties. This very distinctive feature of an agreement for arbitration has been highlighted in the decision in Heyman v. Darwins Ltd. It has been held in North Western Rubber Company and Huttenbach & Co., Re (overruled in Produce Brokers Co. v. Olympia 0;7 and Cgke Co. on other points), that an arbitration agreement in no way classifies the right of the parties under the contract but it 16 32. 33. •^ re/ates wholly to the mode of determining the rights......" The Supreme Court in Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Mfg. Co. Ltd. and Others , has made it clear that the arbitration clause would perish in case where either there is a substitution