Board of Trustees of Chennai Port Trust Vs Ircon International - Sree Bhavani Builders (Joint Venture), Hon'ble Mr. Justice B.B. Jeevan Reddy Presiding Arbitrator, Hon'ble Mr. Justice Rathnavel Pandian Arbitrator and Hon'ble Mr. Justice Vaman Rao Arbitrator

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A. Kulasekaran, J.—The petitioner has come forward with this Writ petition praying for a Writ of Certiorarified Mandamus calling for the

records in the matter of Arbitration between M/s. Ircon International _ Sree Bhavani Builders and Chennai Port Trust and quash the order passed

on the said proceedings dated 16.04.2006 and consequently refer the dispute to the High Power Cabinet Committee as per the Supreme Court

Judgment stated supra and the Office Memo dated 31.12.1991 issued by the Government of India.

The petitioner is a public sector undertaking governed by Major Port Trusts Act, 1963 and is controlled by Ministry of Shipping, Road

Transport and Highways, Government of India. The first respondent is a joint venture, in which M/s. Ircon International is a public sector

undertaking owned by the Government of India and Sree Bhavani Builders, a Partnership firm. The petitioner invited tenders for the construction of

extension of container terminal berth at Bharathi Dock during June 1998 in which, 11 persons, including the first respondent participated and that

the first respondent was ""L3"". On the representation of the first respondent, the Ministry of Shipping, Road Transport and Highways issued a letter

dated 22.07.1998 requesting the tender committee of the petitioner to consider the first respondent as it is a Government of India undertaking. The

first respondent also sent a letter dated 20.07.1998 requesting the petitioner to consider its representation as per the Government policy circulated

by the Ministry of Industry, Department of Public Enterprises, New Delhi dated 31.10.1997 and the subsequent amendment dated 10.02.1998.

The petitioner issued a letter dated 18.08.1998 to the first respondent to match the lowest evaluated offer of ''L1"" which was agreed and the said

contract was awarded to it. The first respondent could not complete the work within the stipulated period but completed it after lapse of 14

months 3 weeks, hence, the petitioner deducted a sum of Rs. 1,89,56,740/- payable to it. The first respondent claimed Rs. 23,69,26,005/- from

the petitioner with interest at 18% and raised the present dispute before the arbitral tribunal consisting of respondents 2 to 4 for recovery of the

above said amount. The petitioner filed a memo dated 10.02.2006 before the arbitral tribunal that both the petitioner and M/s. Ircon International

are public sector undertakings, hence, the dispute to be referred to cabinet committee constituted by the Government of India as per the directions

of Hon''ble Supreme Court in Oil and Natural Gas Commission and Another Vs. Collector of Central Excise, as well as Official Memorandum

dated 31.12.1991 of Government of India praying it to refer the dispute to the high powered committee and keep the matter in abeyance till

clearance of the dispute by the said committee, which was dismissed by the arbitral tribunal on 16.04.2006. Challenging the said order, the present

writ petition has been filed.

Learned Counsel appearing for the petitioner submitted that the order of the arbitral tribunal is contrary to law and devoid of merits; that the

Honourable Supreme Court held clearly that whenever a dispute arose between two public sector undertakings, to be referred to a cabinet

committee so that unnecessary litigation be avoided, which was not considered by the arbitral tribunal; that the work was entrusted to the first

respondent as it is a public sector undertaking, hence, they are bound to go before the cabinet committee; that the judgment of arbitral tribunal is to

be enforced as a civil court decree and the tribunal is an alternative disputes redressal forum, that is, a substitute to regular court of law and its

judgment be enforced as a civil court decree, hence, the definition tribunal covers the arbitral tribunal also; that the observation of the arbitral

tribunal that it not comes under the definition of Tribunal is incorrect; In support of his contentions, the learned Counsel relied on the decision of the

Honourable Supreme Court reported in Oil and Natural Gas Commission Vs. Collector of Central Excise, , wherein in Para Nos. 2, 4 and 7, it

was held thus:

The relevant portion of the memo referred to in the course of this Courts order dated 11-10-19911 reads: (SCC p. 541, para 2)

It is in this context that the Cabinet Secretariat has issued instructions from time to time to all departments of the Government of India as well as to

public sector undertakings of the Central Government to the effect that all disputes, regardless of the type, should be resolved amicably by mutual

consultation or through the good offices of empowered agencies of the Government or through arbitration and recourse to litigation should be

eliminated.

There are some doubts and problems that have arisen in the working out of these arrangements, which require to be clarified and some creases

ironed out. Some doubts persists as to the precise import and implications of the words ""and recourse to litigation should be avoided"". It is clear

that the order of this Court is not to the effect that _ nor can that be done _ so far as the Union of India and its statutory corporations are

concerned, their statutory remedies are effaced. Indeed, the purpose of the constitution of the High-powered committee was not to take away

those remedies. The relevant portion of the order reads: (SCC pp.541-42, para 3)

We direct that the Government of India shall set up a 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 the Government of India, Ministry and Public sector

undertakings 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. The Government may include a

representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the committee. Senior officers only should be

nominated so that the Committee would function with status control and discipline.

It is abundantly clear that the machinery contemplated is only to ensure that no litigation comes to Court without the parties having had an

opportunity of conciliation before an in-house committee.

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)

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.

Relying on the above said decision of the Honourable Supreme Court, the learned Counsel for the petitioner submitted that no dispute between

ministry and a ministry of the government of India, a ministry and a public sector undertaking of the government of India and between public sector

undertakings themselves shall come to Court or to a Tribunal without the matter having been first examined by the high powered committee

constituted under the Chairmanship of Cabinet Secretary, based on the judgment of the Honourable Supreme Court, the Government of India also

issued OM dated 31.12.1991 to all departments and public sector undertakings regarding reference and settlement of disputes, hence, the

petitioner has filed the memo requesting the arbitral tribunal to refer the dispute to the high powered committee and keep the matter in abeyance till

clearance of the dispute by the said high power committee is granted, but the arbitral tribunal failed to consider the above said facts and rejected

the memo and prayed for quashing of the impugned order.

The learned Counsel appearing for the first respondent submitted that the writ petition is not at all maintainable; that the stakes in their joint

venture between M/s. Ircon International and Sri Bhavani Builders are in the proportion of 22:78, hence, the private party namely M/s. Sri Bhavani

Builders, cannot, by any stretch of imagination be said to be within the meaning of Public Sector Undertaking. The issues involved in the writ

petition relating to private disputes between the parties under a contract and are not in the realm of public law. The third and fourth respondents

have been appointed as arbitrators by the parties, following arbitration clause in the contract; that the respondents 3 and 4 in turn appointed the

second respondent as Presiding Arbitrator; that the writ petition has been filed against the decision of the arbitral Tribunal passed u/s 16 of the

Arbitration and Conciliation Act, 1996, (hereinafter referred to as ''the Act'') which is a complete code in itself and it sets out the procedures to be

followed; that Section 5 of the Act specifically prohibit interference by a court of law in matters governed by Part I of the Act except where so

provided in the said part. Section 16(5) of the Act specifically provides that where an arbitral tribunal takes a decision rejecting the plea it shall

continue with the arbitral proceeding and make an arbitral award; that Section 16(6) of the Act provides that a party aggrieved by such an arbitral

award may make an application for setting aside the same u/s 34 of the Act. Section 37(2) of the Act, which provides for appeals against orders

does not provide for an appeal against an order rejecting a plea u/s 16 of the Act, hence, the writ petition, challenging the order passed by the

arbitral tribunal u/s 16 is not at all maintainable; that arbitration clause is available in the agreement between the parties, hence, M/s. Ircon

International has appointed its arbitrator, thereafter, the petitioner had actively participated in the appointment process, appointed an arbitrator and

the matter was pending for constitution of arbitral tribunal for two years, but the petitioner not raised any objection nor relied on the Official

Memorandum, which was issued in the year 1991, thus, the petitioner submitted to the jurisdiction of the arbitral tribunal and that when once

arbitral tribunal takes a decision rejecting the plea, the arbitral tribunal continue, no appeal against the said decision u/s 37 is available and the only

remedy is to challenge the final award u/s 34 of the Act. In any event, the writ petition challenging the order passed u/s 16 of the Act is not

maintainable and prayed for dismissal of the writ petition. In support of this contention, the learned Counsel for the first respondent relied on the

below mentioned judgment of the Honourable Supreme Court:

i) (SBP & CO v. Patel Engineering Limited and Anr.) 2005 (8) SCC 618 wherein in Para-45 and 47, it was held thus:

45.

It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be

capable of being challenged under Article 226 or 227 of the Constitution. We see no warrant for such an approach. Section 37 makes certain

orders of the Arbitral Tribunal appealable. u/s 34, the aggrieved party has an avenue for ventilating its grievances against the award including any

in-between orders that might have been passed by the Arbitral Tribunal acting u/s 16 of the Act. The party aggrieved by any order of the Arbitral

Tribunal, unless has a right of appeal u/s 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the

Act. The Arbitral Tribunal is, after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises,

the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still

be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed

by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution. Such an intervention by the

High Courts is not permissible.

47...

... (vii) Once the matter reaches the Arbitral Tribunal or the sole Arbitrator, the High Court would not interfere with the orders passed by the

arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of

Section 37 of the Act or in terms of Section 34 of the Act.

ii) Paramjeet Singh Patheja Vs. ICDS Ltd., wherein in Para No. 43, 44 and 45, it was held thus:

43.

As already noticed, ""litigation"" has been held to mean ""a legal action, including all proceedings therein, initiated in a Court of law"". Obviously

therefore Parliament had in mind debts due to ""litigants"" i.e., debts due by reason of decrees of Courts. It is well settled that Courts, unlike

Arbitrators or Arbitral Tribunals, are the third great organ under the Constitution; legislative, executive and judicial. Courts are institutions set up by

the State in the exercise of the judicial power of the State will be seen from the cases mentioned hereinbelow:

The expression ''Court'' in the context (of Article 136) denotes a Tribunal constituted by the State as a part of the ordinary hierachy of Courts

which are invested with the State''s inherent judicial powers. A sovereign State discharges legislative, executive and judicial function and can

legitimately claim corresponding powers which are legislative, executive and judicial. Under our Constitution, the judicial functions and powers of

the State are primarily conferred on the ordinary courts which have been constituted under its relevant provisions. The constitution recognised a

hierachy of Court and to their adjudication are normally entrusted all disputes between citizens as well as between citizens and the State. These

Courts can be described as ordinary courts of civil judicature. They are governed by their prescribed rules of procedure and they deal with

questions of fact and law raised before them by adopting a process which is described as judicial process. The powers which these Courts are

judicial powers, the functions they discharge are judicial functions and the decisions they reach are and pronounce are judicial decisions.

In every State there are administrative bodies.... But the authority to reach decisions conferred on such administrative bodies is clearly distinct and

separate from the judicial power conferred on Courts, and the decisions pronounced by administrative bodies are similarly distinct and separate in

character from judicial decisions pronounced by Courts.

Tribunals occupy a special position of their own under the scheme of our Constitution. Special matters are entrusted to them and in that sense they

share with the Courts one common characteristic; both the Courts and the Tribunals are constituted by the State and are invested with judicial as

distinguished from purely administrative or executive functions''.... The basis and fundamental feature which is common to both the Courts and

Tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign State

By Courts'' is meant Courts of civil judicature and by ''Tribunals'' those bodies of men who are appointed to decide controversies arising under

certain special laws. Among the power of the State is the power to decide such controversies. This is undoubtedly one of the attributes of the

State, and is aptly called the judicial power of the State.

All Tribunals are not Courts, though all courts are Tribunals. The word ''Courts'' is used to designate those Tribunals which are set up in an

organised state for the administration of justice.

It is common knowledge that a ''Court'' is an agency created by the sovereign for the purpose of administering justice. It is a place where justice is

judicially administered. It is a legal entity.

44.

That litigation is therefore very different from arbitration is clear. The former is a legal action in a Court of law where judges are appointed by

the State; the latter is the resolution of a dispute between two contracting parties by persons chosen by them to be arbitrators. These persons need

not even necessarily be qualified trained judges or lawyers. This distinction is very old and was picturesquely expressed by Edmund Davies, J in

these words:

Many years age, a top-hatted gentleman used to parade outside these law Courts carrying a placade which bore a stirring injunction ""Arbitrate _

don''t litigate

45.

Moreover, the position that arbitrators are not Courts is quite obvious and this Court noted the position as under in two decisions:

But the fact that the arbitrator u/s 10-A is not exactly in the same position as a private arbitrator does not mean he is a Tribunal under Article 136.

Even if some of the trappings of the Court are present in his case, he lacks the basic, essential and fundamental requisite in that behalf because he is

not invested with the State''s judicial power... he is not a Tribunal because the State has not invested him with its inherent judicial power and the

power of adjudication which he exercises is derived by him from the agreement between parties The Engineering Mazdoor Sabha Representing

Workmen Employed Under the Hind Cycles Ltd. and Another Vs. The Hind Cycles Ltd., Bombay,

There was no dispute that the Arbitrator appointed u/s 19(1)(b) of the Defence of India Act, 1939 was not a Court Collector of Varanasi Vs.

Gauri Shankar Misra and Others,

This Court carefully considered the argument of the counsel on both sides. The Honourable Supreme Court in Oil and Natural Gas Commission

and Another Vs. Collector of Central Excise, (Order dated 11.10.1991) directed the Government of India to set up a 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 the Government of India, Ministry and Public sector undertakings 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 and may include a representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the

committee and nominate senior officers so that the Committee would function with status control and discipline. The Honourable Supreme Court

further observed that 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. The orders

of the Honourable Supreme Court dated 11.10.1991 was subsequently affirmed in the decisions reported in Mahanagar Telephone Nigam Ltd.

Vs. Chairman, Central Board, Direct Taxes and Another, and Oil and Natural Gas Commission Vs. Collector of Central Excise, and again

recently in Punjab and Sind Bank Vs. Allahabad Bank and Others, .

Pursuant to said Orders of the Honourable Supreme Court, Office Memorandum dated 31.12.1991 was issued by the Government of India

(Bharath Sarkar) Cabinet Secretariat (Mantrimandal Sachivalaya) wherein in Para Nos. 3, 4 and 5, it was stated thus:

Accordingly, it has been decided to constitute a committee consisting of:

Cabinet Secretary

Secretary, Department of Industrial Development

Secretary, Department of Public Enterprises

Secretary, Department of Legal Affairs

Finance Secretary

Secretary of the concerned Ministry/Department.

The instructions regarding settlement of disputes between one Government Department and another and one Government Department and a

public enterprise and between public enterprise themselves as contained in this Secretariat memo referred to in para 1 above need to be strictly

followed in all cases. If, however, no final decision can be arrived at following the said instructions, the concerned Ministry/Department or the

concerned Public Sector undertaking through their administrative Ministry/Department should refer such cases to the Cabinet Secretariat with a

self-contained note for placing before the above constituted committee for decision. Further, it has to be ensured that no litigation involving such

disputes is taken up in a Court or a Tribunal without the matter having been first examined by the above constituted Committee and the

committee''s clearance for litigation is obtained.

The foregoing instructions may be brought to the notice of all concerned for guidance and strict compliance.

Arguments were advanced by the counsel for the petitioner that both the petitioner and the first respondent are public sector undertakings and

the arbitral tribunal is also a Tribunal, hence, the present dispute cannot go on without first obtaining clearance of the said committee of Secretaries.

In this case, the first respondent is a joint venture, consisting of Sri Bhavani Builders, a partnership firm and M/s. Ircon International, a public

sector undertaking having stakes of 78% and 22% respectively. Hence, the contract between the petitioner and the first respondent cannot be

construed just between two public sector undertakings. The arbitral tribunal in its findings mentioned that ""In such a situation, it is not permissible

for us to split the dispute, suspend one part of it asking Ircon and the CPT to go before the committee of Secretaries for clearance while the

remainder of the dispute proceeds before us...."" The said finding of fact is exclusive domain of arbitral tribunal which cannot be interfered under

Article 226 of the Constitution of India. Considering the above facts, this Court is of the respectful opinion that the clearance of the committee of

secretaries does not arise in the case on hand.

The arbitral tribunal relied on Para-2 of the judgment of the Honourable Supreme Court reported in Oil and Natural Gas Commission Vs.

Collector of Central Excise, and also the portion of memo submitted by Union of India and extracted the same, which is as follows:

It is in this context that the Cabinet Secretariat has issued instructions from time to time to all departments of the Government of India as well as to

public sector undertakings of the Central Government to the effect that all disputes, regardless of the type, should be resolved amicably by mutual

consultation or through the good offices of empowered agencies of the Government or through arbitration and recourse to litigation should be

eliminated.

It is evident that resolution of disputes through arbitration is permitted along with other modes of ""mutual consultation"" or ""through the good offices

of empowered agencies of Government"" but restricted recourse to litigation. As rightly pointed out by the arbitral tribunal, the method of arbitration

was equated with amicable settlement and settlement through the good offices of empowered agencies of the Government. Hence, the adjudication

of disputes by way of arbitration cannot be treated as litigation. Litigation means, a legal action, including proceedings initiated in Court of Law or

Tribunal.

10.

The other plea of the petitioner is that the arbitral tribunal is also a tribunal, hence, the said plea is to be considered. The arbitral tribunal is not

constituted by law, but it is constituted by the parties and the power to decide the dispute between the parties, who appointed it is derived by it

from the agreement of the parties and from no other sources. The arbitral tribunal is not a tribunal because the State has not vested it with its

inherent judicial power and the power of adjudication which it exercises is derived by it from the agreement of the parties. Similarly, it cannot be

called as a Court since its appointment, once made by the parties, is recognised by the Arbitration and Conciliation Act and its appointment is

clothed with certain powers and has thus, no doubt, some of the trappings of a Court, does not mean that the power of adjudication, which it is

exercising is derived from the State and so. In this context, it is useful to refer to the decision of the Honourable Supreme Court reported in The

Engineering Mazdoor Sabha Representing Workmen Employed Under the Hind Cycles Ltd. and Another Vs. The Hind Cycles Ltd., Bombay,

wherein in Para-16 it was stated thus:

16...Even if some of the trappings of a Court are present in his case, he lacks the basic, the essential and the fundamental requisite in that behalf

because he is not invested with the State''s inherent judicial power. As we will presently point out, he is appointed by the parties and the power to

decide the dispute between the parties who appoint him is derived by him from the agreement of the parties and from no other source. The fact

that his appointment once made by the parties is recognised by Section 10A and after his appointment, he is clothed with certain powers and thus,

no doubt, some of the trappings of a court, does not mean that the power of adjudication which he is exercising is derived from the State and so,

the main test which this Court has evolved in determining the question about the character of an adjudicating body is not satisfied. He is not a

Tribunal because theState has not invested him with its inherent judicial power and the power of adjudicating which he exercises is derived by him

from the agreement of the parties. His position, thus, may be said to be higher than that of a private arbitrator and lower than that of a tribunal. A

statutory Tribunal is appointed under the relevant provisions of a statute which also compulsorily refers to its adjudication certain classified classes

of disputes. This is the essential feature of what is properly called statutory adjudication or arbitration. That is why we think the argument

strenuously urged before us by Mr. Pai that a writ of certiorari can lie against his award is of no assistance to the appellants when they contended

that such an arbitrator is a Tribunal under Article 136.

In Paramjeet Singh Patheja Vs. ICDS Ltd., the Honourable Supreme Court in Para No. 43 and 44 held thus: