Karnataka High Court
Bharat Sanchar Nigam Ltd vs M/S Bharat Heavy Electrical Ltd on 2 May, 2023
Author: N.S.Sanjay Gowda
Bench: N.S.Sanjay Gowda
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2nd DAY OF MAY, 2023
BEFORE
THE HON'BLE MR.JUSTICE N.S.SANJAY GOWDA
W.P.No.24028/2012 (GM-RES)
BETWEEN:
BHARAT SANCHAR NIGAM LTD.,
REPRESENTED BY ITS CHIEF GENERAL MANAGER,
OFFICE OF THE CGMT, KARNATAKA CIRCLE,
SWAMY VIVEKANANDA ROAD,
BENGALURU - 560 008. ... PETITIONER
(BY SRI. N.DEVHADASS, SENIOR COUNSEL FOR
SRI.AMARESH.N., ADVOCATE)
AND:
1. M/S BHARAT HEAVY ELECTRICAL LTD.,
P.B.No.2606, MYSORE ROAD,
BENGALURU-560 026.
2. THE JOINT SECRETARY & SOLE ARBITRATOR,
DEPARTMENT OF PUBLIC ENTERPRISES,
COMMITTEE ON DISPUTES (COD),
PERMANENT MACHINERY OF ARBITRATORS,
MINISTRY OF HEAVY INDUSTRIES &
PUBLIC ENTERPRISES, GOVERNMENT OF INDIA,
BLOCK No.14, ROOM No.314/315,
C.G.O COMPLEX, LODHI ROAD,
NEW DELHI-110 003.
3. THE LAW SECRETARY AND APPELLATE AUTHORITY
DEPARTMENT OF LEGAL AFFAIRS,
MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS,
ROOM No.404, "A" WING, SHASTRI BHAWAN,
2
NEW DELHI-110 001. ... RESPONDENTS
(BY SRI.S.R.SHIVAPRAKASH, ADVOCATE FOR R-1;
SRI.H.JAYAKARA SHETTY, CGC FOR R-2 & R-3)
THIS PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO CALL
FOR THE RECORDS PERTAINING TO THE NOTICE/ORDER IN
CASE No.PMA/DR/GR/24/10 DATED:07.12.2010 VIDE
ANNEXURE-A, CALL FOR THE RECORDS PERTAINING TO THE
ORDER IN ARBITRATION CASE No.PMA/DR.GR/24/10
DATED:10.10.2011 VIDE ANNEXURE-B AND CALL FOR THE
RECORDS PERTAINING TO ORDER IN APPEAL No.11/LS/2011
DATED:27.04.2012 VIDE ANNEXURE-C NOTICE,
ARBITRATION AWARD AND APPELLATE AWARD AND ON
PERUSAL SET ASIDE THE SAME AS ILLEGAL, VOID AND
UNENFORCEABLE.
THIS PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 18.04.2023, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE
FOLLOWING:
ORDER
1. This is a rather strange case in which Bharat Sanchar Nigam Limited (BSNL), a public sector undertaking, is challenging the award that has been passed by the Permanent Machinery of Arbitrators set up by the Union of India to resolve disputes between public sector undertakings, in respect of a dispute which it had with the 1st respondent - Bharat Heavy Electrical Limited 3 (BHEL), which was also a public sector undertaking, over a purchase order.
2. BSNL had placed a purchase order with BHEL for the purchase of ESM cards, V5.2 cards and ISDN Tubs having a value of Rs.66,73,760/-. This purchase order had a condition that the rates indicated were provisional and the final price would be lower of either approved rate in tender dated 01.03.2001 or approved rate in the tender for the year 2002-2003.
3. Pursuant to the purchase order, BHEL supplied items. Thereafter, BSNL addressed a communication dated 09.10.2003 stating that the firm rate for ESM cards and V5.2 cards would be Rs.20,806.99/- and Rs.1,29,264/- respectively, which were the finalised rates in the tender dated 12.11.2002 and 13.05.2003 respectively.
4. BHEL disputed this communication and stated that no tender had been floated by BSNL for 2002-2003 and 4 thus, the approved rates should be that of the tender of BSNL of the year 2001. BSNL, however, stated vide letter dated 28.10.2003 that it had been authorised to float a tender and in fact, a tender was floated by it and as a result, the total cost of the purchase order stood lowered from Rs.66,73,760.10/- to Rs.33,49,617.40/-. It was stated that by virtue of this fixation of rate, an excess payment of Rs.33,24,143/- had been made.
5. BSNL thereafter proceeded to recover a sum of Rs.17,53,303/- from pending bills and demanded the balance amount of Rs.15,70,840/-. BHEL thereafter disputed the reduction of the price. BSNL, however, replied that the old prices could not be given as the same was higher than the new tender rates.
6. BHEL basically contended that the price of the purchase order should be revised to Rs.74,15,289/- applying the rates approved by BSNL tender dated 01.03.2001. BHEL also requested that a joint committee be set up to settle the dispute. However, BSNL took up 5 the contention that it was not necessary since the matter had already been resolved as per the terms of the purchase order.
7. In view of this dispute, BHEL requested the matter to be referred to arbitration as per the guidelines framed by the Union of India on 22.10.2003.
8. However, BSNL refuted this contention and contended that the arbitration clause contained in Annexure-A to the purchase order has to be applied and not the guidelines of the Union of India.
9. The Arbitration clause contained in Annexure-A to the purchase order reads as follows:
"In the event of any question, dispute or difference arising under this agreement, or in connection therewith except as to matter the decision of which is specifically provided under this agreement, the same shall be referred to sole arbitration of the Chairman cum Managing Director, BSNL or in case his designation is changed or his office is abolished then in such 6 cases the sole arbitration of the officer for the time being entrusted whether in addition to the functions.... BSNL or by whatever designation such officers may be called then (hereinafter referred to as the said officer) and if the CMD of the said Officer is unable or unwilling to act as such to the sole arbitration or some other person appointed by the CMD or the said officer. There will be no objection to any such appointment that the arbitrator is a BSNL servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as BSNL servant he has expressed views on all or any of the matter is disputes or indifferences. The award of the arbitrator shall be final and binding on the parties. It is a term of the agreement that in the even of such arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reasons whatsoever, such CMD or the said officer shall appoint another person to act as arbitrator in accordance with terms of the agreement and the person so appointed shall be entitled to proceed with the reference from the stage at which it was left out by his predecessors."
10. BHEL, as already stated above, contended that the Union of India had issued an Office Memorandum (OM) 7 dated 22.01.2004 in respect of settlement of commercial disputes between the public sector enterprises and Government departments ought to be resolved through the Permanent Machinery of Arbitrators in the Department of Public Enterprises. It also contended that a Permanent Machinery of Arbitrators had been created under the OM in order to ensure that all the disputes between the Central Public Sector Enterprises were expeditiously settled through the means of a Permanent Machinery of Arbitrators and to ensure that Public Sector Undertakings did not approach Courts of law.
11. It is contended that as provided in the Official Memorandum, the BHEL had sought for reference to arbitration and the Government had appointed an Arbitrator as provided in the scheme of Permanent Machinery of Arbitrators and the Arbitrator had passed an award in favour of BHEL and the same was also confirmed by the Appellate Authority in terms of OM. 8
12. It is contended that the said OM also contained an arbitration clause which was to be construed as a directive from the Hon'ble President of India to be included in all the current and future contracts and therefore, the arbitration clause as provided under the OM would stand incorporated in respect of contracts and as a consequence, the arbitration conducted in terms of OM will have to prevail.
13. However, it is the case of BSNL that the arbitration, if any, would have to be in terms of arbitration clause annexed to the purchase order and the arbitration clause provided under the OM cannot ipso facto be applied. Reliance was sought to be placed on the fact that the Union Government itself had refused reference to arbitration on the ground that arbitration clause as required under the OM was required to be signed by BSNL and BHEL.
14. In the light of the arguments advanced, the only point that arises for consideration in this petition is: 9
Whether the BSNL was justified in contending that the arbitration clause as provided in the OM dated 22.01.2004 would be inapplicable and it was only the arbitration clause as found in the purchase order should be applicable?
15. The OM of the Union was issued with the objective of ensuring that disputes between public sector undertakings would be resolved through the Permanent Machinery of Arbitrators to be created under the OM. The Clauses I and II of OM dated 22.01.2004 states as follows regarding the intent behind the creation of Permanent Machinery of Arbitrators:
"I. CREATION OF PERMANENT MACHINERY
OF ARBITRATORS (PMA)
With a view to expedite the settlement of disputes relating to commercial contract(s) between Central Public Sector Enterprises (CPSEs) per se, and also between CPSEs and Government Departments, the Government of India created a Permanent Machinery of Arbitrators (PMA) in the Department of Public Enterprises in 1989. One Legal Adviser-cum- 10 Joint Secretary in the Department of Legal Affairs, nominated by the Law Secretary to function in the PMA is appointed by the Secretary in-charge of Department of Public Enterprises as sole Arbitrator in each case. II. NEED FOR PMA There had been growing number of litigations with the Court/Tribunals relating to commercial transactions between the Central Public Sector Enterprises (CPSEs) inter se, or CPSEs and Government Departments. The practice of disposal of these cases was not only expensive due to high fees charged by the advocates/lawyers for pleading the cases and other expenses incurred in this regard, but also time consuming. The other prevailing practice of conciliation, arbitration etc., were also ad hoc arrangement and not delivering the goods upto the expectations. With a view to expedite settlement of disputes and reduce avoidable expenditure in this regard, a need was felt to institutionalize the prevailing system of arbitration.
Commissions/Committees like Law Commission, Central Vigilance Commission, 11 Committee of Secretaries etc. had also examined this aspect and made certain recommendations/ suggestions which were carefully examined in consultation with the Ministry of Law. The Government after due consideration of all aspects, decided to set up the PMA in the Department of Public Enterprises."
16. The Clause-V(i) relating to reference reads as follows:
"V.REFERENCE
(i) As far as possible parties should try to resolve as many points of dispute as they could amicably by mutual consultation and only those points stating the amount involved be referred to the PMA that could not be settled mutually despite best efforts from both sides. To ensure prompt disposal of dispute(s) by the PMA, both the PSEs and the Government Departments shall refer the existing dispute(s) to the PMA at the earliest and not later than two months of arising of dispute. If any arbitrator has already been appointed in any dispute that should immediately be cancelled.
Both the parties will also ensure the inclusion of 12 an Arbitration Clause (if not already done so) in favour of PMA (as given in Annexure) in all the existing and the future contracts/ supply orders between the parties. PMA shall not entertain the disputes referred to it without the proper Arbitration Clause."
17. It may also be noticed that last clause of the OM contained a direction that the guidelines set forth in the OM should be brought to the notice of the Government organization for strict compliance and presidential directives as per the annexure should also be incorporated in the Articles of Association or other relevant regulations of concerned organizations. The said clause reads as follows:
"All the administrative Ministries/Departments concerned with management of Central Public Sector Enterprises/Banks/Port Trusts etc. are requested to bring these guidelines to the notice of all concerned organizations under their administrative control for strict compliance. It is also requested that they may ensure and monitor the implementation of the award of the Arbitrator by the parties as per 13 his directions. Presidential directives as per Annexure referred to in paragraph IV(i) above, may be issued to incorporate the provisions in the Articles of Association or other relevant regulations of concerned organization(s) at the earliest."
18. As noticed above, the annexure to the OM is a directive of the Hon'ble President of India, in respect of the arbitration clause set forth in the annexure, mandated the inclusion of the arbitration clause in the current and future contracts or agreements. Thus, even if there was a contract which contained a different arbitration clause, by virtue of the presidential directive, the arbitration clause as set forth in the annexure to the OM will have to be applied.
19. It is to be kept in mind that the ultimate objective of the Union was to ensure that disputes between public sector undertakings should be resolved through Permanent Machinery of Arbitrators and not in the manner in which it was being done hitherto. 14
20. Viewed in this background, it is clear that even if the purchase order contained an arbitration clause which was different from one prescribed under the OM, by virtue of the fact that the Union had stated that it was a presidential directive, the arbitration clause found in Annexure-A to the OM would automatically stand incorporated in all the existing contracts also. In this view of the matter, the reference of the dispute in terms of OM and the consequential awards passed by the Arbitrators cannot be held to be without jurisdiction.
21. As far as merits of the claim are concerned, the Arbitrators and the Appellate Authority have both considered the matter in great detail and have come to the conclusion that BHEL would be entitled to certain sums. The merits of this award cannot be the subject matter of challenge in a writ petition under Article 226 of the Constitution of India. Since it is held that the arbitration and the Appellate Authority have acted in terms of the OM dated 22.01.2004, the awards passed 15 by them are not liable to be interfered in exercise of the powers conferred under Art. 226 of the Constitution. Writ Petition is, therefore, dismissed.
Sd/-
JUDGE PKS