39
No.
19)1)/2002-Legal
Dated:Jan.15,2005
CIRCULAR
NO. 01/05
Sub:
Settlement of Commercial Disputes between Public
A copy of Office Memorandum No. DPE/4(10)/2001-PMA-GLI Dated 22/01.04 received from the G.O.I. M/o Heavy Industries and Public Enterprises, Department of Public Enterprises is annexed herewith for references and guidance.
(GEORGE KURIAKOSE)
DEPUTY MANAGER (LEGAL)
Encl:a.a
DISTRIBUTION:
1. Ps to CMD
2. PAs to all Eds
3. All ZMs
4. All SRMs
5. All Law Officers
6. All Head of Divn. FCI Hqrs.
7. Guard File.
Lodi Road, New Delhi-110003
Dated the 22nd January, 2004
OFFICE
MEMORANDUM
Subject: Settlement of
commercial disputes between Public
The undersigned is directed to invite attention towards various guidelines issued from time to time by the Department of Public Enterprises (DPE) on the above mentioned subject and to say that a need was being felt for quite some time to revise wherever necessary, amalgamate/merge/consolidate these guidelines into a single one. After due consideration and superceding the existing guidelines on the subject, the new dispensation is as under:
1.
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 Govt. Departments, the Govt. of India created a Permanent Machinery of Arbitrators (PMA) in the Department of Public Enterprises in 1989. One Legal Adviser-cum-Joint Secretary to function in the PMA is appointed by the Secretary in=charge of Deptt. of Public Enterprises as sole Arbitrator in each case.
2. NEED FOR PMA
There had been growing number of litigations with the Courts-Tribunals relating to commercial transaction 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/Committee of Secretaries etc. had also examined this aspect and made certain recommendations / suggestions which were carefully examined in consolation 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.
3.
ENTITLEMENT
(i) In the event of any dispute or difference relating to the interpretation and application of the provisions of commercial contract(s) between CPSEs, Banks, Port trusts etc. or CPSE and the Government Department (s) hereto (except a dispute or difference concerning the Railways, Income Tax, Customs and Excise duties), such dispute or difference shall be referred by either party for arbitration to the PMA in the Department of Public Enterprises through the Secretary to the Govt. of India in-charge of the DPE.
(ii) The mechanism of PMA is primarily meant for Central Government Departments/organizations enterprises. Therefore, the disputes between States. Govt. Departments/organizations will a Central Govt. Department /Organization with any State Govt. Department/Organization and both the parties have signed Arbitration Clause in favour of PMA as per annexure referred to in subsequent paragraph V (i), in such a situation the PMA shall entertain such disputes (s) for arbitration, if any such reference is received. In case of dispute (s) with a CPSE, which has been privatized due to disinvestments or otherwise, it shall also be entertained by the PMA if the same relates to the contract (s) entered into by the parties before privatization, as merely change of ownership of a PSE would not debar the company from the obligation of following PMA procedure.
III
MONLTARY LIMIT
There is no monetary limit as such for making reference of disputes to the PMA. However, it would be advisable if the parties exercise their own discretion in this regard as both the parties are to equally pay an initial cost of Rs. 20,000 each for making reference of dispute to the PMA which is non-refundable in any case but will be adjusted with final cost to be fixed by the Arbitrator as per the rates stipulated in a subsequent paragraph. There shall not be much advantage in referring disputes of a small amount of the value of less than Rs. 50,000/- to PMA and such disputes may be settled by the parties by mutual consultation.
IV
REFERENCE
(i) As far as possible parties should try to resole 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 Govt. 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 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.
(ii) After entering upon the
reference, the Arbitrator will call for the papers, comments/statements from the
parties and will hear the parties in person as and when he deems necessary. The
Arbitrator shall ordinarily fir the meeting in
(iii) The Arbitrator will also submit a quarterly report to the Secretary (DPE) on the number of cases registered, awards published, fee received and general progress of cases.
V
FEES
(i) The Arbitration cost in respect of commercial dispute settled through the PMA is required to be shared equally by the concerned disputing parties. In this connection each of the parties to a dispute will be required to make an initial deposit or Rs. 20,000/- when a prima-facie case of dispute is established and the same is approved for referring to the Arbitrator of PMA for settlement. This initial cost will be adjusted in the final cost of Arbitration. The Arbitrator will work out the final cost of Arbitration based on the amount of dispute as per the following formula:
(a) Rs. 40,000 or 1% of the disputed amount upto Rs. 50,00,000, whichever is higher, to be equally shared by the parties.
(b) Rs. 50,000 + ½ % of the disputed amount of above Rs. 50,00,000 but upto Rs. 5core to be eually shared by parties.
(c) Rs. 2.5 lakh + ¼ % of the disputed amount beyond Rs. 5 crore to be equally shared by the parties.
(ii) The Arbitrator in the PMA
will intimate the parties the estimated amount of Arbitration fee to be borne
equally by them and paid within a month of intimation to the parities or within
such time as may be allowed by the Arbitrator. All payments should be made to
the Govt. of India through Demand Draft in favour of D.D.O., Deptt. of Public
Enterprises, payable at
(iii) The Arbitrator in the PMA, if he considers appropriate; may allow fee concession upto 10% of the total fee worked out based on the laid down formula for the sick and continuously loss making CPSEs subject to arranging payment within one month of the order of the order of the Arbitrator in the PMA.
(iv) The party, who fail to pay the arbitration fee within the stipulated period, will have to pay an additional interest on the late fee, which may or may not be waived by the Secretary (DPE). The interest on late fee will be charged at the rate of 10% of the final cost for delay upto one month and 15% for subsequent delay upto six months. If any of the parties further fails to make payment of the arbitration fee within six months of the intimation given by the Arbitration in PMA, the publication of the award may be cancelled and the initial deposit will be forfeited. It will also be the responsibility of the concerned party or by them who will arrange the funds and enable the defaulting party to make payment of the arbitration fee without delay.
(v) In case any of the parties has made full payment of the fee and another has failed despite continuous follow up and as a result of which publication of award is cancelled, the fee in addition to the initial deposit may be refunded to the party concerned. However, Govt. will not pay any interest on a such amount.
VII
COMPROMISE
In case both the parties decide to settle the dispute mutually before the Award is published, they can be allowed to do so. In such case, the initial cost (Rs. 20,000 paid as deposit by each of the parties) shall be foreited and the case will be finally closed on receipt of details of the settlement arrived at by the parties in waiting. In case the parties do not provide requisite details, the Arbitrator may decide to publish the Award and in such a situation the parties will be required to pay the arbitration fee worked out by the Arbitrator.
VIII NATURE OF AWARD
The Arbitrator shall made his award within six months after entering upon the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the parties may allow. The Arbitrator shall make a speaking award. The Award may be published on plain paper. The Arbitrator may also, if he thinks fit, make an interim award.
IX
EXPERT AWARD
The Arbitrator shall make his Award ex-party when a party (ies) fail to furnish the particulars required from them, and/or do not appear in person in spite of being given two chances to do so. Even in that case, the parties shall be bound to meet the cost of arbitration equally.
X
APPEAL
The Award of the sole Arbitrator under the PMA 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 Legal Affairs, Ministry of Law & Justice, Govt. of Secretary shall decide the dispute. The decision of the Law Secretary/Special Secretary/Additional Secretary shall bind the parties finally and conclusively. The aggrieved party may file an appeal before the law Secretary within the period as recorded by the Arbitrator in the Award for implementation. This time limit may be kept in view while filing an appeal before the Law Secretary. The Law Secretary, after giving an award on the appeal, will return the records of the case to the PMA. The however, there shall be no appeal to the Law Secretary against the interim award and both the parties are to await the final award by the Arbitrator.
XI
CHANGE OF ARBITRATOR
In the event of the sole Arbitrator dying, neglecting or refusing to act or being unable to act for any reason, it shall be lawful for the Secretary to the Govt. of India in-charge of the DPE, to appoint another person in place of the outgoing Arbitrator to act as sole Arbitrator. The new Arbitrator so appointed shall as far as practicable proceed from the stage where it was left by the outgoing arbitrator.
XII BANK GUARANTEE
In commercial sometimes a PSE has to stand Bank Guarantee. An incidence occurred in a dispute where the bank guarantee holder PSE approached the guaranteeing bank for encashment of the bank guarantee. Such action creates an embarrassing situation to the Government, which in its turn has DPE and it was decided that all SPEs should effect encashment of bank guarantee only as a last resort when efforts to resolve the differences/dispute fail and that too, after giving due notice/information to the concerned public sector enterprise. In such situations, all the PSEs should refer the dispute to this Department and cooperate with the Arbitrator of PMA for early settlement.
XIII CLEARANCE FORM COMMITTEE ON DISPUTES
It has to be ensured that no litigation involving such disputes is taken up in a Court or Tribunal without the matter having been first examined and given permission/clearance by the High Power Committee generally known as Committee on Disputes (COD) set up in the cabinet Secretariat on the directions of the Supreme Court in Civil Appeals Nos.2058 – 59 of 1988 between ONGC and the collector of Central Excise, Mumbai. In case, litigation in Court/Tribunal becomes absolutely necessary, the aggrieved party (ics) will seek the permission of the COD for which the concerned Ministry/Department or the concerned PSE/Band/Port Trust through their administrative Ministry/Department or directly may make a reference with a self-contained note in the prescribed format to the designated authority in the Cabinet Secretariat (Under Secretary-Coordination) for placing the same before the aforesaid Committee for decision.
All the administrative Ministries/Departments concerned with Management of Central Public Sector Enterprises/Banks/Port 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 as per Annexure referred to in paragraph IV (a) above, may be issued to incorporate the provisions in the Articles of Association or other relevant regulations of concerned organization (s) at the earliest.
(A.K.RATH)
JOINT SECRETARY TO THE GOVT. OF INIDA
To the Secretaries of all Ministries/Departments of the Govt. of India
Copies to:
1. Shir B.L. Nishad, the Arbitrator of PMA with the request to act as per the new guidelines.
2. The Chief Executives of all Central Public Sector Enterprises for information and necessary compliance.
Copies are also forwarded for information to:
1.
The Prime Minster’s Office, South Block,
2.
The Cabinet Secretariat, Rashtrapati
Bhawan,
3.
PS to the Minster (HI&PE), Udyog Bhawan,
4.
PS to the MOS (HIPE), Udyog Bhawan,
5.
PS to Secretary (HI&PE), Udyog Bhawan,
6.
PS to Finance Secretary, North Block,
7.
PS to Law Secretary, Shastri Bhawan,
8. PS to JS (PE)
9. All officers in DPE
Arbitration Clause to be included
in all the commercial contracts entered into by the Public
Enterprises/Government Departments etc.
In exercise of the powers
conferred by Article………………. Of the Articles of Association of the
(name of the CPSE/Bank/Port Trust etc.)/Section………….of the
……………. Act of setting President of India is pleased to direct that all
disputes relating to all commercial agreements (except income tax name of
Company/Corporation/Bank/Port Trust) and (name another Public Sector Under
taking/Government Department/Bank/Port trust etc.) shall be referred to the
Permanent Machinery of Arbitrators (PMA) set up in the Department of Public
Enterprises. The President is further pleased to direct that the following
Arbitration Clause shall be included in all current and future
contracts/agreements etc. and that in respect of ongoing contracts they should
be suitably amended to include such a clause:
“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 decided by 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 award 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 a side or revision of the award to the Law the Law
Secretary, Department of Legal Affairs, Ministry of Law & Justice,
Government of India. Upon such reference the dispute shall be decided by the Law
Secretary or the Special Secretary/Additional Secretary, when so authorized by
the Law Secretaly, whose decision shall bind the Parties finally and
conclusively. The Parties to the dispute will share equally the cost of
arbitration as intimated by the Arbitrator”.
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