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2010 DIGILAW 600 (AP)

MMTC Ltd. v. Rashtriya Ispat Nigam Limited

2010-07-12

B.SESHASAYANA REDDY

body2010
JUDGMENT : 1. This Arbitration Application has been taken out under Section 11 (5) & (6) of the Arbitration and Conciliation Act, 1996 (for short, "the Act") read with Scheme for Appointment of Arbitrators, 2006, seeking for constitution of a panel of three arbitrators in terms of Clause 13.2.2 of the agreement dated 06.02.2004 for adjudicating the disputes between the parties. 2. The case of the applicant, in brief, is as follows: MMTC-the applicant entered into an agreement No. PUR 3.66.043/007, dated 06.02.2004 with Rashtriya Ispat Nigam Limited-the respondent for sale of Low Ash Metallurgical (LAM) Coke. The applicant sold 2,39,951 M.Ts. of LAM Coke to the respondent between October, 2004 and August, 2006. Clause 7 of the agreement deals with the charges and payments. The price consists of two components viz., variable cost of Rs.5856 + fixed conversion cost including a margin @ Rs.1244/-, thus making it a total of Rs.7,100/- per M.T. Some disputes cropped up between the parties with regard to conversion factor. According to the applicant, the respondent has to pay Rs.24.03 Crores, of which Rs.18.94 Crores is on account of erroneous application of conversion factor. The applicant also claimed further sums under the following heads: a) Applicant Commission on Coal: Rs.4.98 crores b) On account of difference in coal mix: Rs.0.47 crores c) Due to difference in Exchange rate: Rs.0.26 crores for coal purchase d) Interest @ 18% per annum on the above sums from October, 2004 till payment The applicant demanded the respondent to pay the amounts due through several letters. There was no response from the respondent and therefore, the applicant took up the matter at the ministry level. The efforts made by the applicant to get the matter settled at the ministry level with the respondent did not yield any fruitful result. The applicant under letter dated 05.06.2008 sought the consent of the respondent for referring the dispute to Permanent Machinery of Arbitration as per the guidelines issued by the Department of Public Enterprise. The respondent under letter dated 05.07.2008 sought for the details of Permanent Machinery of Arbitration. The respondent took the stand under letter No.PUR 3.66.0043/9350, dated 23.09.2008 that all payments admissible as per the terms of the agreement for the supplies made were released and that no amounts were withheld. Thereby disputes arose between the parties. The respondent under letter dated 05.07.2008 sought for the details of Permanent Machinery of Arbitration. The respondent took the stand under letter No.PUR 3.66.0043/9350, dated 23.09.2008 that all payments admissible as per the terms of the agreement for the supplies made were released and that no amounts were withheld. Thereby disputes arose between the parties. The applicant invoked arbitration clause in the agreement by nominating its arbitrator under letter dated 11.12.2008 and further called upon the respondent to appoint its arbitrator as per Clause 13.2.2 of the agreement. The respondent expressed its inability to appoint its arbitrator under letter No.PUR.3.66.043, dated 03.02.2009 citing the Office Memorandum No.53/3/10/94-Cab, dated 24.01.1994 and Office Memorandum No.53/3/10/94-Cab (CL), dated 21.03.1995 and 27.03.1995. According to the applicant, the said Office Memoranda are not part of the contract and they have been issued only on the administrative side so as to resolve the disputes between the PSEs amicably and to avoid litigation expenses. The said Memoranda do not in any way place an absolute embargo or curtail the right of the applicant in seeking to enforce the arbitration clause in the agreement. Hence, this application under subsections (5) & (6) of Section 11 of the Act r/w. the scheme for appointment of arbitrators, 2006, with the prayer stayed supra. 3. Notice to the respondent came to be ordered on 17.11.2009. The respondent entered appearance through a counsel and filed counter-affidavit. 4. The counter-affidavit of the respondent in brief is as follows: The respondent Company has made all the payments against the supplies of LAM Coke in terms of the pricing method prescribed in the agreement. Existence of arbitration clause in the agreement dated 06.02.2004 is not disputed. The applicant and the respondent are public sector enterprises established by the Government of India. The Government of India issued Office Memorandum No.No.53/3/6/91-Cab, dated 31.12.1991, pursuant to the observations made by the Supreme Court, constituting a High Power Committee of Secretaries for resolution of disputes between the Public Sector Enterprises and also Government Departments and Public Sector Enterprises inter se. Subsequent thereto, by the Office Memorandum No.3/5/93-PMA, dated 30.06.1993, the Government of India directed all the PSEs to resolve internal disputes by approaching Permanent Machinery of Arbitrators set up in the Department of Public Enterprises. Subsequent thereto, by the Office Memorandum No.3/5/93-PMA, dated 30.06.1993, the Government of India directed all the PSEs to resolve internal disputes by approaching Permanent Machinery of Arbitrators set up in the Department of Public Enterprises. By another Office Memorandum No.53/3/10/94-Cab, dated 24.01.1994, the Government of India issued directives dealing with situations where PSEs are compelled to approach Court of Law to save limitation without reference to the dispute pending before the High Power Committee. The Government directed that the PSEs concerned shall approach the High Power Committee through Cabinet Secretariat within one month of filing of the case before the Court of Law. On such reference, till it is resolved by the High Power Committee, the preceding or order under challenge shall remain suspended. If the High Power Committee is unable to resolve the matter, it shall grant clearance for litigation. In view of the directions of the Government of India, it is obligatory for the applicant to exhaust the dispute resolution process prescribed therein. Para.11 of the counter-affidavit needs to be noted and it is thus: "11. It is submitted that the applicant completed the LAM Coke supply by September, 2006 and thereafter raised the above said claim. In the course of correspondence between the parties the applicant by its letter dated 5.6.2008 requested for consent of the respondent to refer the disputes to Permanent Machinery of Arbitrators. On receipt of the said request, the respondent by its letter dated 5.6.2008 asked for details relating to the Permanent Machinery of Arbitration. Accordingly, the Applicant vide its letter dated 30.7.2008 made available copies of the office memorandum dated 30.06.1993. Having thought it appropriate to get the dispute resolved by approaching the Permanent Machinery of Arbitrators constituted by the Department of Public Enterprises, Government of India, the applicant erroneously invoked Cl.13.1 of agreement dated 6.2.2004 vide its letter dated 11.12.2008. On receipt of the said communication invoking the arbitration clause in the agreement, the respondent by its letter dated 03.02.2009 reminded the applicant that it would not be appropriate to refer a dispute to any court or tribunal without exhausting the remedy by approaching the committee constituted in terms of the Govt. of India Office Memorandum dated 3.12.1991 and 24.1.1994. Thereafter the applicant approached the Union Cabinet Secretary on 22.7.2009 for resolution of dispute by the High Power Committee in terms of Govt. of India Office Memorandum, dated 24.1.1994. of India Office Memorandum dated 3.12.1991 and 24.1.1994. Thereafter the applicant approached the Union Cabinet Secretary on 22.7.2009 for resolution of dispute by the High Power Committee in terms of Govt. of India Office Memorandum, dated 24.1.1994. The Cabinet Secretariat, in turn, sent a notice dated 23.7.2009 calling for comments by the respondent. The Respondent submitted its comments on 07.10.2009 and the matter is now pending before High Power Committee. Copies of the application submitted to Cabinet Secretariat by the Applicant, notices received from Cabinet Secretariat and the comments of the respondent are filed herewith as R4 to R7." 5. Heard learned counsel appearing for the applicant and learned counsel appearing for the respondent. 6. Learned counsel appearing for the applicant submits that as per Clause 13.2 of the Agreement for sale and purchase of Low Ash Metallurgical (LAM) Coke, disputes between the parties are required to be resolved by way of arbitration and as the disputes arose between the parties with respect to conversion factor etc., the same are required to be resolved by way of arbitration and in which case, the application filed by the applicant deserves to be allowed. Much emphasis has been laid on Clause 13.2 of the agreement dated 06.02.2004, which reads as hereunder: "13.2 ARBITRATION: 13.2.1. In the event that the parties are unable to resolve any difference or dispute or controversy or claim relating to or arising out of this agreement, such dispute, controversy or claim shall be finally settled by a panel of arbitrators in accordance with the Arbitration and Conciliation Act, 1996. 13.2.2. The Arbitral Tribunal shall consist of three arbitrators. The SUPPLIER/SELLER shall appoint one arbitrator and the PURCHASER shall appoint one arbitrator. The two arbitrators so appointed shall appoint a third arbitrator who will be the presiding arbitrator and the arbitration proceedings shall be conducted in accordance with the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal shall give a reasoned award. 13.2.3. The award by the Arbitral Tribunal shall be binding on the parties. The venue of arbitration shall be at Visakhapatnam." 7. Learned counsel appearing for the respondent submits that the parties being Public Sector Enterprises, an endower should be made by the parties to get the disputes settled by taking recourse to the machinery created by the Government pursuant to the judgment passed by the Supreme Court in Oil and Natural Gas Commission v. C.C.E.1. Learned counsel appearing for the respondent submits that the parties being Public Sector Enterprises, an endower should be made by the parties to get the disputes settled by taking recourse to the machinery created by the Government pursuant to the judgment passed by the Supreme Court in Oil and Natural Gas Commission v. C.C.E.1. A further submission has been made that the applicant has already approached the Union Cabinet Secretariat on 22.07.2007 for resolution of the disputes by the High Power Committee in terms of the Government of India Office Memorandum dated 24.01.1994 and in which case proceedings are to be kept in abeyance in this Arbitration Application pending adjudication of the disputes by the High Power Committee. In support of his submissions, reliance has been placed on the following decisions of the Supreme Court in: 1) Oil and Natural Gas Commission v. CCE ((1995 Supp (4) S.C.C. 541) supra) 2) Oil and Natural Gas Commission v. CCE ( (2004) 6 S.C.C. 437 ) 3) Chief Conservator of Forests v. Collector ( (2003) 3 S.C.C. 472 ) 4) Mahanagar Telephone Nigam Ltd. v. Chairman, Central Board, Direct Taxes ( (2004) 6 S.C.C. 431 ) 5) Punjab & Sind Bank v. Allahabad Bank ( (2006) 4 S.C.C. 780 ) 6) Oil & Natural Gas Corpn. Ltd. v. City & Industrial Development Corporation, Maharashtra Ltd ( (2007) 7 S.C.C. 39 ). 7) CIT v. Oriental Insurance Co. Ltd. ( (2008) 9 S.C.C. 349 ) 8. In Oil and Natural Gas Commission v. CCE (2 supra), the Supreme Court observed as follows: "5. It is also clarified that even the pending matters before any court or tribunal should also be the subject matter of the deliberations of the High-Powered Committee. All the matters pending as of today either instituted by the Union of India or any of the Public Sector Undertakings shall within one month from today be referred by the appellant or the petitioner, as the case may be, to the High Powered Committee. The High-Powered Committee will deal with these matters most expeditiously and endeavour to resolve the matters. 6. Accordingly, there should be no bar to the lodgment of an appeal or petition either by the Union of India or the Public Sector Undertakings before any court or tribunal so as to save limitation. The High-Powered Committee will deal with these matters most expeditiously and endeavour to resolve the matters. 6. Accordingly, there should be no bar to the lodgment of an appeal or petition either by the Union of India or the Public Sector Undertakings before 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. 7. However, as to what the court or tribunal should do if such judicial remedies are sought before such a court or tribunal, the order of 11/10/1991 clarifies (SCC p.542, para.4): "4. It shall be the obligation of every court and every tribunal where such a dispute is raised hereafter to demand a clearance from the Committee in case it has not been so pleaded and in the absence of the clearance, the proceedings would not be proceeded with." 8. Wherever appeals, petitionsetc. are filed without the clearance of the High- Powered 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-Powered Committee, with prior notice to the designated authority in Cabinet Secretariat of Government of India 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-Powered Committee the Government proposes to nominate the Under Secretary (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 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-Powered Committee is made in the manner indicated that the operation of the order or proceedings under challenge shall be suspended till the High-Powered Committee resolves the dispute or gives clearance to the litigation. If the High-Powered Committee is unable to resolve the matter for reasons to be recorded by it, it shall grant clearance for the litigation." 9. If the High-Powered Committee is unable to resolve the matter for reasons to be recorded by it, it shall grant clearance for the litigation." 9. In Chief Conservator of Forests v. Collector (3rd supra), the Supreme Court observed that the States/union Territories must evolve a mechanism for resolving inter departmental controversies. In Mahanagar Telephone Nigam Ltd. (4 supra), the Supreme Court reiterated the direction given in Oil and Natural Gas Commission v. CCE and Chief Conservator of Forests v. Collector (1 and 3 supra) with regard to resolution of disputes between Union of India and public sector undertakings. Paragraph 8 of the cited judgment needs to be noted and it is thus:- "UNDOUBTEDLY, the right to enforce a right in a Court of law cannot be effaced. However, it must be remembered that Courts are overburdened with a large number of cases. The majority of such cases pertain to Government Departments and/or Public Sector Undertakings. As is stated in Chief Conservator of Forests' case (supra) it was not contemplated by the framers of the Constitution or C. P. C. that two departments of a State or Union of india and/or a department of the Government and a Public Sector Undertaking fight a litigation in a Court of law. Such a course is detrimental to public interest as it entails avoidable wastage of public money and time. These are all limbs of the Government and must act in co-ordination and not confrontation. The mechanism set up by this Court is not as suggested by Mr. Andhyarujina only to conciliate between the Government Departments. It is also set up for purposes of ensuring that frivolous disputes do not come before Courts without clearance from the High Powered Committee. If it can, the High Powered Committee will resolve the dispute. If the dispute is not resolved the Committee would undoubtedly give clearance. However there could also be frivolous litigation proposed by a department of the government or a Public Sector Undertaking. This could be prevented by the High Powered committee. In such cases there is no question of resolving the dispute. The Committee only has to refuse permission to litigate. No right of the Department/public Sector Undertaking is affected in such a case. The litigation being of a frivolous nature must not be brought to Court. This could be prevented by the High Powered committee. In such cases there is no question of resolving the dispute. The Committee only has to refuse permission to litigate. No right of the Department/public Sector Undertaking is affected in such a case. The litigation being of a frivolous nature must not be brought to Court. To be remembered that in almost all cases one or the other party will not be happy with the decision of the High Powered Committee. The dissatisfied party will always claim that its rights are affected, when in fact, no right is affected. The Committee is constituted of highly placed officers of the Government, who do not have an interest in the dispute, it is thus expected that their decision will be fair and honest. Even if the Department/public Sector Undertaking finds the decision unpalatable, discipline requires that they abide by it. Otherwise the whole purpose of this exercise will be lost and every party against whom the decision is given will claim that they have been wronged and that their rights are affected. This should not be allowed to be done." 10. In Punjab & Sind Bank v. Allahabad Bank (5 supra), the Supreme Court reiterated the directions given in Oil and Natural Gas Commission v. CCE (1 and 2 supra) to the central government to set up Committee consisting of representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of government of India; Ministry and Public Sector Undertaking of the government of India and Public Sector Undertakings in 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. 11. In Oil & Natural Gas Corpn. Ltd. v. City & Industrial Development Corporation, Maharashtra Ltd (6 supra), the proposition of law laid down in Oil and Natural Gas Commission v. CCE (1 and 2 supra) has been quoted with approval. In CIT v. Oriental Insurance Co. Ltd. (7 supra), the Supreme Court emphasized the need to set up a committee to resolve the disputes between the State Government and the public sector undertakings and the public sector undertakings inter se to deal with the matter expeditiously so that there is no unnecessary backlog of appeals which ultimately may not be pursued. Ltd. (7 supra), the Supreme Court emphasized the need to set up a committee to resolve the disputes between the State Government and the public sector undertakings and the public sector undertakings inter se to deal with the matter expeditiously so that there is no unnecessary backlog of appeals which ultimately may not be pursued. Paragraphs 11 and 12 of the cited judgment need to be noted and they are thus: "IT needs to be emphasized that there was actually no rigid time frame indicated by this Court. The emphasis on one month's time was to show urgency needed. Merely because there is some delay in approaching the Committee that does not make the action illegal. The Committee is required to deal with the matter expeditiously so that there is no unnecessary backlog of appeals which ultimately may not be pursued. In that sense, it is imperative that the concerned authorities take urgent action otherwise the intended objective would be frustrated. There is no 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. In 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. (11) LEARNED counsel for the appellant submitted that even if the Committee has declined to grant permission it is still open to raise the issues in appropriate proceedings. We express no opinion in that regard. But where the Committee has declined to deal with the matter on the ground of belated approach, the same cannot be sustained in view of our present order. The committee has to consider the matter on merits". 12. It is clear from the above referred cases that in case of disputes between states interse and Government undertakings interse, they are required to be examined by High power committee and it is only after clearance of the high power committee, the aggrieved party can invoke the jurisdiction of the Court. Since the applicant has already made a request to the High Power committee to resolve the dispute, the applicant has to await the outcome of alternative dispute resolution mechanism before initiating proceedings in a Court of law. Since the applicant has already made a request to the High Power committee to resolve the dispute, the applicant has to await the outcome of alternative dispute resolution mechanism before initiating proceedings in a Court of law. Therefore, I am of the view that the instant application is premature and accordingly, the same is hereby dismissed.