M/S. NORTHERN COALFIELD LTD. versus HEAVY ENGINEERING CORP. LTD. & ANR.
[2016] 5 S.C.R. 69, Supreme Court of India, 2016
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
[2016) 5 S.C.R. 69 
MIS. NORTHERN COALFIELD LTD. 
v. 
HEAVY ENGINEERING CORP. LTD. & ANR. 
(Civil Appeal No. 6296of2016) 
JULY 13, 2016 
[T.S. THAKUR, CJI AND R. BANUMATHI, J.] 
Government Corporations: Government contracts - Redressal 
of commercial disputes between public sector enterprises inter se as 
well as between the public sector enterprises and the Government 
departments - Procedure for settlement of disputes - In the instant 
case, di~pute arose between two govern111ent owned corporations -
Referred to resolution in terms of the 'permanent in-house 
administrative machinery' set up by the Govern11ient -
Arbitra/ 
award - Aggrieved by the award, appellant filed Suit - Defendant 
claimed that suit was barred in view of the existence of specially 
prescribed procedure for resolving disputes and in the light of said 
procedure, neither party to the dispute was entitled to take recourse 
to proceedings in any court without permission of the Co111111ittee on 
Disputes (COD) - High Court rejected the plaint accepting the plea 
of defendant - On appeal, held: In ONGC case, it was held that 
permission of COD was necessary to proceed with the suit -
However, COD stood dissolved and the orders directing constitution 
of COD is reversed and, therefore, requirement of clearance of COD 
should not be insisted upon at this stage - In view thereof. there is 
no question of either obtaining or insisting upon any clearance 
from the same - Therefore, orders passed by High Court
rejecting 
the plaint on the ground that the same was not preceded by 
permission from COD is unsustainable -
Right of the appellant to 
de111and such an adjudication cannot be denied si111ply because it 
happens to be a Govern111ent owned company for even when the 
appellant is a govern111ent company, it has its legal character as an 
entity separate from the Govern111ent -
Just because it had resorted 
to the permanent procedure or taken part in the proceedings there 
can be no estoppel against its seeking redress in accordance with 
law - Matter referred to sole arbitrator for adjudication of all 
outstanding disputes between the two corporations. 
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SUPREME COURT REPORTS 
[2016] 5 S.C.R. 
Allowing the appeal, ~he Court 
HELD: 1. Commercial disputes between public sector 
enterprises inter se as well as between the public sector 
enterprises and the Government departments were in the 
ordinary course settled through arbrtration by Government 
Officers or good offices of empowered government agencies like 
Bureau of Public Enterprises. Department of Legal Affairs 
however submitted a note dated 8 .. May, 1987 on the subject 
which was considered by a Committee of Secretaries in its meeting 
held on 26'h June, 1987. The Committee of Secretaries 
suggested that a permanent machinery for arbitration should be 
set up in the Department of Public Enterprises to settle all 
commercial disputes between PSE inter se and between PSE and 
Government department excluding disputes concerning income 
tax, customs and excise. The Committee also suggested that there 
should be a contractual clause binding the parties to the 
commercial contracts to refer all their disputes for settlement to 
the Permanent Machinery of Arbitrators. The Committee of 
.. Secretaries proposed that Bureau of Public Enterprises should 
bring a note for consideration of the Cabinet in that regard which 
note was prepared and upon submission to the Cabinet was 
approved in its meeting held on 24'h February, 1989. The Cabinet 
decision envisaged that all Public Sector Enterprises include a 
contractual clause in their future
and current commercial contracts 
regarding settlement of disputes by arbitration by resorting to 
Permanent Machinery of Arbitration and that administrative 
Ministries shall issue necessary directives to the PSEs under 
the relevant clause of the Articles of Association. The directives 
and draft outline of procedure to be .followed by the Permanent 
Machinery of Arbitrators in the Bureau of Public Enterprises was 
accordingly issued in terms of DPE D.O. No. 15(9)/86-BPE(Fin) 
dated 29'h March, 1989. The procedure for settlement_ of disputes 
so devised was however outside the framework of the Arbitration 
·Act, 1940 which then held the field. iPara 14] [78-G-H; 79-A-E) 
2 .. The disputes between t~e appellant and respondents 
were referred for settlement in terms of the Permanent Machinery 
for Arbitration as early as in the year 1993/1994_, As on the date 
of the said reference the Committee on Disputes was already set
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. 
up but no, permission for a reference was taken. That the 
Arbitrator made an award under the Permanent Machinery of 
Arbitration which was questioned in appeals before the Law 
Secretary who made some alterations in the same; The award so 
made was not accepted by' the appellants. The appellant filed a 
suit challenging the arbitral award in which the appellant claimed 
a declaration that the, contracts were rendered null and void on 
account of the breach of Clause 3 thereof. The appellant also 
sought a declaration that the respondent company was not entitled 
to claim any relief under the said contract nor was respondent 
No.2 entitled to do so and that the so called arbitral award was 
vitiated on the face of record hence liable to be set aside. That 
such a suit could be filed but could not be proceeded with till 
such time the COD granted permission is also beyond dispute as 
on the date of the institution of the suit the direction of this Court 
in ONGC group of cases still held the field. Such permission could 
be obtained within 30 days which was not sacrosanct but the 
institution of the suit itself could not be faulted as a litigant was in 
terms of the direction of this Court entitled to institute the 
proceedings to save limitation. The High Court has, all the same, 
rejected the plaint on the ground that permission from COD was 
. not obtained. In doing so the High Court obviously understood
the direction of this Court to mean as though absence of such 
permission was a fatal defect which it was not. What was 
restrained was further progress in the suit till such time permission 
from the COD was obtained. 
However, the requirement of the 
clearance of COD should not be insisted upon at this stage, 
because COD stands abrogated/dissolved and the orders directing 
constitution of such a Committee is reversed. Since there is no 
COD at present there is no question of either obtaining or insisting 
upon any clearance from the same. Therefore, the orders passed 
by the High Court rejecting the plaint on the ground that the 
same was not preceded or accompanied by permission from COD 
is unsustainable. [Paras 23, 24) (88-D-H; 89-A-E) 
3. An arbitral award under the Permanent Machinery of 
Arbitration may give quietus to the controversy if the same is 
accepted by the parties to the dispute. In cases, however, a party 
does not accept the award, as is the position in the case at hand, 
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the arbitral award may not put an end to the controversy. Such an 
award being outside the framework of the law governing 
arbitration will not be legally enforceable in a court of law. [Para 
25] (89-F-H] 
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4. Remedies which are available to the Government on the 
administrative side cannot substitute remedies that are available 
to a losing party according to the law of the land. The appellant 
has lost before the arbitrators in terms of the Permanent 
Machinery of Arbitration and is stoutly disputing its liability on 
several grounds. The dispute regarding liability of the appellant 
under the contract, therefore, continues to loom large so long as 
it is not resolved finally and effectually in accordance with law. 
No such effective adjudication recognized by law has so far taken 
place. That being so, the right of the appellant to demand such an 
adjudication cannot be denied simply because it happens to be a 
Government owned company for even when the appellant is a 
government company, it has its legal character as an entity 
separate from the Government. Just because it had resorted to 
the permanent procedure or taken part in the proceedings there 
can be no estoppel against its seeking redress in accordance 
with law. That is precisely what it did when it filed a suit for 
declaration that the award was bad for a variety of reasons and 
also that the contract stood annulled on account of the breach
committed by the respondents. The matter is referred· to sole 
arbitrator for adjudication of all outstanding disputes between 
the two corporations especially because the alternative to such 
arbitration is a long drawn expensive and cumbersome trial of 
the suit filed by the appellant before a civil court and the difficulties 
that beset the execution of an award made under a non-statutory 
administrative mechanism [Paras 25, 27) [90-B-E; 91-A-B) 
Electronics Corporation of India Ltd. v. Union of India 
(2011) 3 SCC 404 : 2011 (2) SCR 971; Oil and 
G 
Natural Gas Commission v. Collector of Central Excise 
(2004) 6 SCC 437; Oil and Natural Gas Commission 
and Am: v. Collector of Central Excise 1995 Supp (4) 
SCC 541; Oil and Natural Gas Corporation Ltd. v. City 
and Indus!. Dev. Corpn., Maharashtra and Ors. (2007) 
7 SCC 39 : 2007 (8) SCR 429; Commissioner of Income 
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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 
2011 (2) SCR 971 
referred to 
Para 11 
(2004) 6 sec 437 
referred to 
Para 11, 16 
1995 Supp (4) SCC 541 referred to 
Para 15 
2007 (8) SCR 429 
referred to 
Para 17 
(2008) 9 sec 349 
referred to 
Para 17 
(2010) 13 sec 42 
referred to 
Para 18 
2011 (2) SCR 971 
referred to 
Para 19 
CIVJL APPELLATE JURISDICTION: Civil Appeal No. 6296 
of2016. 
From the Judgment and Order dated 07 .08.2008 of the High Court 
of Delhi at New Delhi in RFA (OS) No. 50 of 2007. 
P. S. Patwalia, ASG, Anip Sachthey, Ms. Anjali Chauhan, Advs. 
for the Appellant. 
Ranjit Kumar, SG, Binu Tamta, Dhruv Tamta, Ms. Nikita 
Shrivastava, Advs. for the Respondents. 
The Judgment of the Court was delivered by 
T.S. THAKUR, CJI. I. Leave granted. 
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2. This is yet another case that brings to fore a sad state of affairs 
when it comes to resolving disputes between two Government owned 
corporations. What adds to the enigma of apathy towards realism in 
official circles is the fact that the respondent-corporation has with 
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considerable tenacity opposed the move aimed at a quick and effective 
resolution of the conflict and resultant quietus to
the controversy by a 
reference of the disputes to arbitration in terms of the Arbitration and 
Conciliation Act, 1996. 
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The Facts: 
3. Appellant - Northern Coalfield Ltd. issued a tender for 
construction of a Coal Handling Plant at Bina sometime in May, 1984. 
The construction work was meant to be carried out under two contracts: 
viz. (I) a Contract for works and services and (2) a Contract for 
equipment and spares. Both these contracts were awarded to the 
respondent- Heavy Energy Corporation Ltd. which is also a Government 
of India company. The contracts contained a Clause that provided for 
adjudication of disputes between the parties by way of arbitration. 
Disputes having actually arisen in relation to the two contracts, the same 
were referred for resolution in terms of the "permanent in-house 
administrative machinery" set up by the Government. Claims and counter 
claims were made by the two corporations against each other which 
finally culminated in the making of two awards both dated 28.02.1997 
under which respondent No. I was held entitled to a sum of 
Rs.16,87 ,61,981.11/-, while the appellant was awarded Rs.56,05,000/-. 
Both the parties were, however, dissatisfied with the awards which they 
challenged in appeals filed before the Law Secretary, Department of 
Legal Affairs, Ministry of Law and Justice in terms of the in-house 
mechanism provided by the Gov.ernment. While Appeal No.67 of 1998 
· filed before the Law Secretary pertained to the contract for supply of 
equipment, Appeal No.64 of I 999 pertained
to the contract for execution 
of works and services. 
4. During the pendency of the appeals aforementioned respondent 
No.2 - Mis. Rampur Engineering Company Ltd. filed Suit No.450 of 
1999 before the High Court of Delhi against the two corporations in 
which the said respondent prayed for an injunction restraining respondent 
No. I from settling the disputes with the appellant. The appellant's case 
is that it came to know about the role of Respondent No.2 in the execution 
of contracts only after the filing of the said suit in which by an interim 
order, the High Court restrained the parties from implementing any award 
made by the appellate authority. The appellant's further case is that 
respondent No.1 had, contrary to Clause 3 o'f the Terms of Contracts 
executed with the appellant, sublet the contracts in favour of responcjent 
No.2 without prior consent of the former and that the said arrangement 
was of no legal consequence nor did it create any legal relationship 
between the appellant and the sub-contractor. 
5. Appeal No.64 of I 999, arising out of the contract for works
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
75 
· CORP. LTD. & ANR. [T.S. THAKUR, CJ!] 
and services came to be disposed of first, wherein the appellate authority 
made an award on 13.11.1999 holding that a sum of Rs.15,84,50,000/- ' 
apart from Rs.3.73 crores due as interest was recoverable from the 
' appellant. Appeal No.67of1998 filed by the first respondent was disposed 
of by the appellate authority on 01.12.1999 remanding the matter back 
to the Arbitrator for reconsideration. Aggrieved by the awards made by 
the Arbitrator and the appellate authority, the appellant-herein filed Civil 
Suit No.1709 of2000 before the High Court of Delhi in which it claimed 
a declaration to the effect that respondent No. I had committed a breach 
of Clause 3 of the terms of the Contracts executed between the two 
Corporations by sub-letting the contract to respondent No.2 thereby 
rendering the contracts between the appellants and the first respondents 
null and void. The appellant further prayed for a declaration to the effect 
that respondent No. l was not entitled to claim any relief under those 
contracts nor was respondent No.2 entitled to do so. The SQ called Arbitral 
award passed by the appellate authority was according to the appellant 
illegal and vitiated by errors apparent-On the face of the: record, hence, 
liable to be set aside. 
6. The learned Single Judge of the High Court by an interim order 
dated 4.08.2000 passed in the suit restrained the
implementation/execution 
of awards passed by the Appellate Authority. The appellant's case is 
that it was at that stage that the defendant-respondents herein moved an 
application under Order 7, Rule 11 (d) of the Code of Civil Procedure, 
1908 (for short, "the CPC") praying for rejection of the plaint in the 
suit filed by the appellant. The defendant claimed that the suit was barred 
in view of the existence of a specially prescribed procedure for resolving 
disputes in arbitration proceedings between the two Government 
corporations. It was contended that in the light of the said procedure, 
neither party to the dispute was entitled to take recourse to proceedings 
in any Court without the permission of the Committee on Disputes. 
7. The appellant opposed the prayer for rejection of the plaint 
inter a/ia on the ground that no permission to file a suit or other 
proceedings was required as the subject dispute also involved respondent 
No.2 who was not a party to the arbitration agreement or the proceedings. 
By an order dated 10.07.2007 a learned Single Judge of the High Court 
allowed the application filed by the defendants-respondents and rejected 
the plaint filed by the appellant. The learned Single Judge held that the 
arbitral award made pursuant to the proceedings conducted in terms of 
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the special mechanism could not be set aside in a suit. The learned 
Single Judge also held that there was no privity of contract between the 
appellant-corporation and respondent No.2 and that the suit between 
the two public sector undertakings could not be filed without Glearance 
from the Committee on Disputes. 
8. Aggrieved by the order passed by the Single Judge of High 
Court, the appellant filed RFA (OS) No.50 of 2007 before a Division 
Bench of the High Court of Delhi. The Division Bench has by an order 
dated 07 .08.2008 dismissed the said appeal and affirmed the rejection of 
the plaint by the learned Single Judge primarily on the ground that since 
the special procedure prescribed by the Government for adjudication of 
disputes between Government Corporations having been effectuated 
and resorted to by the parties in terms of the judgments of this Court in 
ONGC s Cases, the appellant was not entitled to seek a declaration that 
the awards so made were illegal or liable to be set aside. 
9. The High Court observed: 
"Before us, the appellant, which is admittedly a 
government undertaking, is claiming that the first 
respondent, also a government undertaking, has 
violated and breached a contract between them. In 
particular, Clause 3 of the said contract is stated to 
have been breached. Respondent No.J, of course, says 
that 110 such breach has occurred. This then, is the 
dispute merely because
the appellant feels that the 
breach committed by the first respondent has benefited 
a third party, will not change the nature of the dispute 
from being one between the appellant and Respondent 
No.l, i.e., the two contracting parties. Since both of 
them are government undertakings, therefore, the 
·permanent machinery provided for resolving disputes 
between public sector undertakings ought to have been 
followed. " 
By the impugned order, the learned Single Judge has 
examined the question whether the appellant is entitled 
to seek a declaration that the appellant awards are 
illegal and liable to be set aside by way of a suit or 
whether the same is barred by any law. The learned 
Single Judge has held that the arbitral award cannot
M/~). NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. [T.S. THAKUR, CJI] 
be set aside in a suit. It was further held that an arbitral 
award cannot be set aside in a suit. It was further held 
that once the parties have subjected themselves to 
permanent machinery for redressal of dispute between 
public sector undertakings. then the mechanism 
prescribed therein should be followed and, therefore, 
the suit in question could not have been filed without 
clearance of the Committee of Disputes. By merely 
noting the contention of the appellant that the root of 
the dispute is violation of Clause 3 of the terms of the 
contracts, it cannot be said that the learned Single Judge 
has decided disputed question of facts. It has merely 
taken note of the appellant~ own case in stating that 
the key players are the two public sector undertakings 
which have entered into the contract in question with 
each other, and therefore, the special procedure 
prescribed for such disputes should have been followed. 
Consequent!;~ the learned Single Judge rightly held that 
the plaint was liable to be rejected, inter alia, for that 
reason." 
10. The present appeal calls in question the correctness of the 
above judgments and orders. 
I I .Appearing on behalfofthe appellant, Mr. P.S. Patwalia, learned 
senior counsel argued that the view taken by the High Court was legally 
unsustainable. It was submitted that the High Court has proceeded on 
the assumption as though the award
made by the Arbitrator under the 
special procedure prescribed by the Government is an arbitral award 
within the comprehension of the Arbitration Act, 1940 or Arbitration and 
Conciliation Act, 1966. He urged that the High Court had overlooked 
the genesis of the administrative arrangement, in as much as the object 
behind the setting up of the special procedure for resolution of disputes 
between Government corporations was not meant to prescribe a 
mechanism recognized by the old or the new Arbitration Act nor was 
the special procedure meant to be a substitute for a proper adjudication 
under the said two enactments. It was contended that in as much as the 
Arbitrator under the special procedure had determined the issue referred 
to him to the prejudice of the appellant company, it was open to the latter 
to assail the adjudication in a proper civil action which action was not 
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barred by any law nor could the same be thrown out merely because a 
purely administrative procedure for a possible amicable resolution of the 
conflict had been adopted no matter without the sanction of law. It was 
urged that the mechanism provided for under the decisions of this Court 
in ONGC matters was in any case 11011-est the same having been 
scrapped by the Constitution Bench of this __ Court in· Electronics 
Corporation of India Ltd. v. Union of India, (2011) 3 SCC 404. 
Reliance was also placed by Mr. Patwalia upon the decision of this 
Court in Oil and Natural Gas Commission v. Collector of Central 
Excise, (2004) 6 SCC 43 7 to urge that no suit filed by the parties to the 
dispute and covered by the administrative machinery could be dismissed 
as untenable. All that could be done was to give to the plaintiff an 
opportunity to obtain permission of the Committee on Disputes to proceed 
with the same. 
12. On behalf of the respondent, Mr. Ranjit Kumar, learned Solicitor 
General strenuously argued that High Court was justified in rejecting the 
plaint as the very purpose of providing a special mechanism for 
adjudication of the disputes would be defeated if any such adjudication 
could be questioned in any civil action as was sought to be done by the 
appellant-herein. It was contended ~y Shri Kumar that the arbitral 
proceedings conducted by the Arbitrator under the special mechanism 
may be
outside the statutory framework of the two enactments, yet the 
efficacy of the adjudication could not be doubted. He urged that ·even 
when the adjudication by the Arbitrator under the special mechanism did 
not tantamount to a decree enforceable in a Court of law, the fact that 
both the corporations were owned by the Government was sufficient by 
itself to facilitate recovery of the amount payable to one by the other 
and thereby effectuate the execution of the award by way of 
administrative action. 
13. We have given our anxious consideration to the submissions 
made at the Bar. Before we deal with the contentions urged at the Bar, 
we need to advert to the historical backdrop in which the special 
mechanism came to be prescribed by the Government. 
14. Commercial disputes between public sector enterprises inter 
seas well as between the public sector enterprises and the Government 
departments were in the ordinary course settled through arbitration by 
Government Officers or good offices of empowered government agencies 
like Bureau of Public Enterprises. Department oflegal affairs however
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. [T.S. THAKUR, CJI] 
submitted a note dated 81h May, 1987 on the subject which was considered 
by a Committee of Secretaries in its meeting held on 261h June, 1987. 
The Committee of Secretaries suggested that a permanent machinery 
for arbitration should be set up in the Department of Public Enterprises 
to settle all commercial disputes between PSE inter se and between 
PSE and Government department excluding disputes concerning income 
tax, customs and excise. The Committee also suggested that there should 
be a contractual clause binding the parties to the commercial contracts 
to refer all their disputes for settlement to the Permanent Machinery of 
Arbitrators. The Committee of Secretaries proposed that Bureau of 
Public Enterprises should bring a note for consideration of the Cabinet in 
that regard which note was prepared and upon submission to the Cabinet 
was approved in its meeting held on 24'h February, 1989. The Cabinet 
decision envisaged that all Public Sector Enterprises include a contractual 
clause in their future and current commercial contracts regarding 
settlement of disputes by arbitration by resorting to Permanent Machinery 
of Arbitration and that administrative Ministries shall issue necessary 
directives to the PSEs under the relevant clause of the Articles of 
Association. The directives and draft outline of procedure to be followed 
by the Permanent Machinery of Arbitrators in
the Bureau of Public 
Enterprises was accordingly issued in terms of OPE 0.0. No. 15(9)/ 
86-BPE(Fin) dated 291h March, 1989. The procedure for settlement of 
disputes so devised was however outside the framework of the Arbitration 
Act, 1940 which then held the field. This is evident from Para 2 of the 
draft outline of the procedure which reads as under: 
"2. The Arbitration Act, 1940 (JO of 1940) shall not be 
applicable to the arbitration under this clause. The 
award of the sole arbitrator shall be binding upon the 
parties to the dispute. Provided, however, any party 
aggrieved by such award may make a jilrlher reference 
for setting aside or revision of the award to the Law 
Secretary, Department of Legal Affairs, Ministry of Law 
& Justice, Government of India. Upon such further 
reference, the dispute shall be decided by the Law 
Secretary or the Special Secretary/ Additional Secretary 
when so authorised by the Law Secretary, whose 
decision shall bind the parties finally and conclusively. " 
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15. While the Permanent Machinery of Arbitration was put in 
place in terms of the above order and while instructions to the public 
sector undertakings and public sector enterprises to take resort to the 
said procedure also remained in force, instances of public sector 
undertakings resorting to legal proceedings instead of complying with 
those instructions came to the notice of this Court in Oil mu/ N(ltUr(I/ 
G"s Commission (Ind Anr. v. Collector of Ce11tral Excise 1995 Supp 
(4) sec 541 in which this C:ourt taking note of such legal proceedings 
at considerable public expense resulting in waste of valuable Court time 
directed Government of India to set up a Committee consisting of 
representatives from-the Ministry of Industry and Commerce, Bureau 
of Public Enterprises and the Ministry of Law to monitor disputes inter 
se Public Sector Undertakings and with the Government to ensure that 
no litigation came to the Courts and Tribunals without the matter having 
being first examined by the Committee for grant or refusal of clearance 
for litigation. This Court made it obligatory for every Court and every 
Tribunal where such a dispute is raised to demand a clearance from the 
Committee in case it has not been so pleaded, and also directed that in 
the absence of such a clearance the proceedings would not be carried 
forward. It was pursuant to the said directions that a Committee of 
Disputes headed by the
Cabinet Secretary was constituted by the 
Government oflndia in terms of Cabinet Secretariat OM No.53/3/6/91-
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 
Courts would not proceed with the case but a suit could be instituted by 
a Public Sector Undertaking to save limitation. This Court observed: 
'"4. There are some doubts and proble111s that have arisen 
in the working out of these arrangements which require 
to be clarified and so111e crease ironed out. Some doubts 
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persist as to the precise i111port and i111plications of the 
words and "recourse to litigation should be avoided". 
It is clear that order of this court is not to effect that -
nor can that be done- so far as Union oUndia and its 
statutory corporations are concerned. the statutory 
re111edles are effaced. Indeed. the purpose of the 
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81 
CORP. LTD. & ANR. [T.S. THAKUR, CJI] 
Constitution of the High Power Committee was not to 
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5. Accordinglv. there. should be no bar to the lodgment 
of an a{2,peal or petition either by the Union oflndia or 
the Public Sector Undertakings bef(ire any court or 
tribunal so as to save limitation. But. before such filing 
every endeavor should be made to have the clearance 
of the High Power Committee. 
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6. Wherever appeals. petitions etc. are filed without the 
clearance of the High Power Committee. so as to save 
limitation. the appellant or the petitioner as the case 
may be, shall within a month from such filing. refer the 
matter to the High Power Committee with prior notice 
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to the Designated Authority in Cabinet Secretariat of 
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Government of lnaia authorised to receive notices in 
that behalf Sri. K. T.S. Tulsi, learned Additional Solicitor 
General, stated that in order to coordinate these 
references of the High Power Committee the Government 
proposes 
to 
nominate the 
Under 
Secretary 
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(Coordination) in the Cabinet Secretariat as the nodal 
authority to coordinate these references. The reference 
shall be deemed to have been made and become effective 
only after a notice of the reference is lodged with the 
said nodal authority. The reference shall be deemed to 
be valid if made in the case of the Union of India by its 
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Secretary, Ministry of Finance
Department of Revenue, 
and in the case of Public Sector Undertakings by its 
Chairman, Managing Director or chief Executive, as 
the case may be. It is only after such reference to the 
High Power Committee is made in the manner indicated 
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that the operation of the order or proceedings under 
challenge shall be suspended till the High Power 
Committee resolves the dispute or gives clearance to 
the litigation. If the High Power Committee is unable to 
resolve the matter for reasons to be recorded by it. it 
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[2016] 5 S.C.R. 
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shall grant clearance [or the litigation." 
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(emphasis supplied) 
17. In Oil and Natural Gas Corporation Ltd. v. City and Imlust. 
Dev. Corpn., Maliaraslttra and Ors. (2007) 7 SCC 39 this Cou11 
ordered the constitution of another Committee to look into the disputes 
between Central Government and State Government entities. Then came 
Commissioner of Income Tax, De/Iii-VI v. Oriental Insurance Co. 
Ltd. (2008) 9 SCC 349 in which this Court while clarifying its earlier 
order in Oil and Natural Gas Commission v. Collector of Central 
Excise, (2004) 6 SCC 437 observed that there was no rigid time frame 
prescribed by the Court and that merely because there was some delay 
in approaching the Committee did not mean that the action was illegal. 
The following passage is in this regard apposite: 
"JO. It needs to be emphasized that there was actually 
no rigid time frame indicated by this Court. The 
emphasis on one month '.s ti111e was to show urgency 
needed. Merely because there is some delay in 
approaching the Co111111ittee that does not make the 
action illegal. The Committee is required tu deal with 
the matter expeditiously so that there is no unnecessary 
backlog of appeals which ultimately 111ay not be pursued. 
Jn that sense, it is i111perative that the concerned 
authorities take urgent action otherwise the intended 
objective would be frustrated. There is 110 scope for 
lethargy. It is to be tested by
the Court as to whether 
there was any indifference and lethargy and in 
appropriate cases refuse to interfere. Jn these cases 
factual position is not that. Therefore, we set aside the 
order of the High Court in each case and direct 
consideration of the question of desirability to proceed 
in the matter before it on receipt of the report from the 
concerned Committee. 
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J 2. It is to be noted that where vermission has bee11 
grallled by the Committee there is 110 impediment on the 
Court to examine the matter and take a decision on 
merits. But where there is no belated approach as noted
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
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above, the matter has. to be decided. Court has to decide 
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whether because of unexplained delay and lethargic 
action it would decline to entertain the matters. That 
would depend on the (actual scenario in each case. 
and no straight jacket formula can be adopted." 
(emphasis supplied) 
18. In Commissioner of Central Excise v. Bltarat Petroleum 
Corp. Ltd. (2010) 13 SCC 42, this Court, held that working of the 
·coo had failed as numerous difficulties had been experienced by the 
COD which were expressed in the Cabinet Secretary's letter dated 91h 
March, 2010. This Court observed 
"./. Jn our experience, the working of the COD has 
failed. Numerous difficulties are experienced by the 
COD which are expressed in the letter of the Cabinet 
Secretary, dated 9th March, 2010. Apart from the said 
letter, we .find in numerous matters concerning public 
sector companies that different views are expressed by 
COD which results not only in delay in filing of matters 
but also results into further litigation. In the 
circumstances, we find merit in the submission advanced 
before us by learned Attorney General that time has 
come to revisit the orders passed by the three Judge 
Bench of this Court ilf Jhe case of Oil & Natural Gas 
Commission v. Collector of Central Excise (supra)." 
19. The matter was accordingly referred to a larger bench to 
reconsider the earlier decisions directing
constitution of the COD. The 
matter was eventually heard and decided by a Five Judge Bench of this 
Court in Electronics Corpomtio11 of India Ltd. v. Union of India, 
(2011) 3 SCC 404. This Court after noticing various flaws in the working 
of the Committee ofDisputes ordered recall ofits previous orders passed 
by it in the following words: 
"6 ...... By Order dated 11.9.1991, reported in 1992 Supp 
(2) SCC 432 (ONGC and Am: v. CCE), this Court noted 
that "Public Sector Undertakings of Central 
Government and the Union of India should not fight 
their litigations in Court". Consequently, the Cabinet 
Secretary, Government of India was "called upon to 
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handle the matter personally". 
7. This was followed by the order dated 11.10.1991 in 
ONGC-11 case (supra) where this Court directed the 
Government of India "to set up a Committee consisting 
of representatives from the Ministry of Industry, Bureau 
of Public Enterprises and Ministry of Law, to monitor 
disputes between Ministry and Ministry of Government 
of India, Ministry and public sector undertakings of 
the Government of India and public sector undertakings 
betWeen themselves, to ensure that no litigation comes 
to Court or to a Tribunal without the matter having been 
first examined by the Committee and its clearance for 
litigation". 
8. Thereafter, in ONGC-lll case (supra), this Court 
directed that in the absence of clearance from the 
"Committee of Secretaries" (CoS), any legal proceeding 
will not be proceeded with. This was subject to the rider 
that appeals and petitions filed without such clearance 
could be filed to save limitation. It was, however, 
directed that the needful should be done within one 
month from such filing, failing which the matter would 
not be proceeded with. By another order dated 
20. 7.2007 (ONGC-IVth case) this Court extended the 
concept of Dispute Resolution by High-Powered 
Committee to amicably resolve the disputes involving 
the State Governments and their Instrumentalities. 
9. The idea behind setting up of this Committee, initially, 
called a "High-Powered
Committee" (HPC), later on 
called as "Committee of Secretaries" (CoS) and finally 
termed as "Committee on Disputes." (CoD) was to ensure 
that resources of the State are not frittered away in inter 
se litigations between entities of the State, which could 
be best resolved, by an empowered CoD. The machinery 
contemplated was only to ensure that no litigation comes 
·to Court without the parties having had an opportunity 
of conciliation before an in-house committee. [see: para 
3 of'the order dated 7.1.1994 (supra)} Whilst the 
principle and the object behind the aforestated Orders
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. [T.S. THAKUR, CJI] 
is unexceptionable and laudatory, experience has shown 
that despite best e[forts of the CoD. the mechanism has 
'not achieved the results for which it was constituted 
and has in fact led to delays in litigation. We have 
already given two examples hereinabove. They indicate 
that on same set of facts. clearance is given in one case 
and refused in the other. This has led a PSU to institute 
a SLP in this Court on the ground of discrimination. We 
need not multiply such illustrations. The mechanism was 
set up with a laudatory object. However. the mechanism 
has led to delay in filing of civil appeals causing loss 
of revenue. For example, in many cases of exemptions, 
the Industry Department gives exemption, while the same 
is denied by the Revenue Department. Similarly, with 
the enactment of regulatory lmvs in several cases there 
could be overlapping of jurisdictions between, let us 
say, SEB1 and insurance regulators. Civil appeals lie to 
this Court. Stakes in such cases are huge. One cannot 
possibly expect timely clearance by CoD. In such cases, 
grant of clearance to one and not to the other may result 
in generation of more and more litigation. The 
mechanisnl has outlived its utiliiy. Jn the changed 
scenario indicated above, we are of the view that time 
has come under the above circumstances to recall the 
directions of this Court in its various Orders reported 
as 1995
Supp (4) SCC 541 dated 11.10.1991. {ii) 
(2004) 6 sec 437 dated 7.1.1994 and (iii) (2007) 7 
sec 39 dated 20. 7.2007. 
10. In the circumstances, we hereby recall the following 
Orders reported in: 
(i) 1995 Supp (4) SCC 541 dated 11.10.1991 
(ii) (2004) 6 sec 437 dated 7.1,1994 
(iii) (2007) 7 sec 39 dated 20. 7.2007" 
(emphasis supplied) 
20. The Government of India had, in the intervening period, 
consolidated into a single set of guidelines the Permanent Machinery of 
Arbitration for settlement of commercial disputes and the directives issued 
by this Ccrnrt regarding constitution of Committee on Disputes in terms 
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of a circular issued by the Department of Pub I ic Enterprises vi de order 
No. OPE O.M. No.DPE/4(10)/2001-PMA-GL-1 dated 22"d January, 
2004 which inter alia provided for creation of Permanent Machinery of 
Arbitrators (PMA), stated the need for creation of such a machinery, 
indicated the entitlement of departments/ PSEs, CPSC, banks etc. to 
take resort to the said machinery, fixed monetary limits, stipulated fees 
payable towards arbitration, provided for an appeal against the award 
and also provided for clearance from the Committee on Disputes. The 
instructions issued to PSES, CPSEs, banks etc. stipulated the 
incorporation of a clause in current and future contracts/ agreements 
which specifically excluded the application of Arbitration and Conciliation 
Act, 1996 to arbitrations conducted under the Permanent Machinery of 
Arbitration. 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 
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
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, 
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 
share equally the cost of arbitration as intimated by the 
Arbitrator": 
(emphasis supplied) 
21 . Reference may also be made to Office Memorandum dated
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
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121h June, 2013 issued by the Government oflndia, Ministry oflndustries 
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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 
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). 
(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 
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 
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. 
(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 
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 
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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 
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 
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 
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 
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 
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 
beyond dispute as on the date of the institution of the suit the direction of 
this Court in ONGC group of cases still held the field. Such permission 
could be obtained within 30 days which was not sacrosanct but the 
institution of the suit itself could not be faulted as a litigant was in terms 
of the direction of this Court entitled to institute the proceedings to save 
limitation. The High Court has, all the same, rejected the plaint on the
MIS. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. [T.S. J:HAKUR, CJ!] 
ground that permission from COD was not obtained. In doing so the 
High Court obviously understood the direction of this Court to mean as 
though absence of such permission was a fatal defect which it was not. 
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 
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. 
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 
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 
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 
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 
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 
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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 
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 
grounds. The dispute regarding liability of the appellant under the contract, 
therefore, continues to loom large so long as it is not resolved finally and 
effectually in accordance with law. No such effective adjudication 
recognized by law has so far taken place. That being so, the right of the 
appellant to demand such an adjudication cannot be denied simply 
because it happens to be a Government owned company for even when 
the appellant is a government company, it has its legal character as an 
entity separate from the Government. Just because it had resorted to 
the 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 
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-
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. 
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
M/S. NORTHERN COALFIELD LTD. v. HEAVY ENGINEERING 
CORP. LTD. & ANR. [T.S. THAKUR, CJI] 
Act, 1996. That diffidence does not prevent us from making a suitable 
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 
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 
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 
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. 
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