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Disputes Between The Centre and State Government Departments

Dr. iur. Ajar Rab and Kirpen Dhaliwal


The past two decades have seen increased cooperation between central and state governments to facilitate the development of public utility projects, including infrastructure, telecommunication, highways, power generation and distribution. As cooperation increases, disputes inter se among government enterprises are also on the rise. These disputes become problematic as they distort the timelines of public projects and carry significant monetary and reputational losses. Since all public projects and government department disputes are public funds, the money used to resolve such disputes in court fees, legal fees, and other ancillary charges becomes a massive concern for the public exchequer.


Therefore, the Department of Public Enterprises (“DPE”), Ministry of Heavy Industries and Public Enterprises and the Department of Legal Affairs, Ministry of Law and Justice (“DoLA”) have attempted to create an institutional process to resolve intra-and inter-governmental disputes. While the attempt has been in the right direction and disputes between central government departments are to be resolved by an institutional process, there exists ambiguity about the application of such processes between central and state departments.


A. Permanent Machinery of Arbitration

The growing number of litigations before the Courts/Tribunals relating to commercial transactions between the Central Public Sector Enterprises (“CPSE”) inter se, or CPSEs and Government Departments, necessitated an institutionalized system of arbitration. To expedite the settlement of disputes and reduce avoidable expenditure the Government of India (“GoI”) created the Permanent Machinery of Arbitration (“PMA”) in the DPE in 1989. The objective of the PMA was to expedite the settlement of disputes relating to commercial contract(s) between CPSEs per se and also between CPSEs and government departments. Thus, after establishing the PMA, all disputes were to be settled through arbitration between the CPSEs and government departments.


The framework of the PMA was revised on 22.01.2004, and again in 2013, by the office memorandum dated 12.06.2013 issued by the DPE (“PMA Memo”). It is pertinent to note that the PMA Memo, for the first time, categorically made a distinction between State Level Public Enterprises (“SLPE”) and CPSE and stated that the PMA was primarily meant for Central Government Departments, organizations/ enterprises and will not be extended to disputes between State Government Departments/ organizations. It clarified that “if in a commercial contract between a CPSE and an SLPE, they agree for arbitration by the PMA for settling their dispute, the PMA guidelines will be applicable on same terms as applicable to CPSEs”. Thus, arbitration between CPSE and SLPE required explicit consent for resolution under the PMA.


Interestingly, the Circular dated 07.08.2014 (“Settlement Memo”) issued by the DoLA (and not the DPE) instructed that all disputes between government departments and public sector undertaking/enterprises “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”. While the Settlement Memo clearly encouraged curtailing litigation and encouraging settlement of disputes, it also created an ambiguity as it did not clarify whether the disputes between government departments would be resolved through the PMA or other mechanisms.


B. Administrative Mechanism for Resolution of CPSE Disputes

Following the issuance of the Settlement Memo, “to make the mechanism more effective and binding on the disputing parties” the DPE (and not the DoLA) through the Office Memorandum dated 22.05.2018 (“AMRCD Memo”) evolved a new mechanism called the Administrative Mechanism for Resolution of CPSEs Disputes (“AMRCD”) having a two-tiered structure “to replace the existing PMA mechanism which stands wound up from the date of issue of this OM”.


a) Disputes between CPSE and SLPE

Despite referring only to CPSE Disputes in its title, the AMRCD Memo provided that “at the first level… in case of a dispute between CPSE and State Government Department/ Organization, the Committee will comprise the Secretary of the Ministry/Department of the Union to which the CPSE belongs and Secretary- D/o Legal Affairs and a senior officer nominated by the Chief Secretary of the State concerned”. It also clarified that the concerned Principal Secretary of the State Government Department/ Organization would present the issues before the AMRCD.


Thus, the AMRCD Memo that replaced the PMA with AMRCD expressly distinguished between disputes between CPSEs and SLPEs. In case of a dispute between CPSE and SLPE, the Principal Secretary of the State Government Department was to represent the dispute before the AMRCD, clearly implying the ouster of any other form of litigation between CPSEs and SLPEs.


b) The Ambiguity

While it was apparent that disputes between CPSEs and SLPEs were subject to arbitration by explicit consent under the PMA, there was no such consent requirement under the AMRCD. The PMA and the AMRCD were intended to apply to both CPSEs and SLPEs. However, the AMRCD Memo in the cover letter states that all administrative Ministries/ Departments concerned with CPSEs/Port Trust etc. are requested to advise “CPSEs under their administrative control accordingly”. Hence, it was unclear whether the AMRCD Memo and the reference to the AMRCD were binding on State Departments/ Organizations, unlike the PMA Memo, where specific consent extended the application of the PMA to SLPEs.


Subsequently, the DPE through Office Memorandum dated 20.02.2020 (“DPE Extension Memo”) and the DoLA through Office Memorandum dated 28.02.2020 (“LA Extension Memo”) extended the application of the existing AMRCD to all Government Departments/Ministries for the resolution of disputes other than taxation. It is pertinent to note that the DPE Extension Memo not only clarified that the AMRCD should extend to all Ministries/Departments but also stated that the other provisions of the AMRCD guidelines dated 22.05.2018 remain unchanged. Hence, the guidelines continued to distinguish between applicability to (a) disputes amongst CPSEs, and (b) disputes between CPSEs and SLPEs.


C. Administrative Mechanism for Resolution of Disputes

Thereafter, the DoLA, through Office Memorandum dated 31.03.2020 (“AMRD Memo”), replaced the existing AMRCD with a new mechanism called the Administrative Mechanism for Resolution of Disputes (“AMRD”) and provided detailed guidelines and instructions for the settlement of commercial disputes other than those related to taxation, including the composition of the committees.


D. Reconciling the different Office Memorandums

Interestingly, the distinction between CPSE and SLPE is omitted in the AMRD Memo. Therefore, from a legal point of view, the omission of SLPEs in the AMRD Memo may result in either (a) an interpretation in favour of express intent that the AMRD exclusively applies to CPSEs, or (b) that the distinction as contained in the office memorandums relating to the PMA, as well as the AMRCD, continues to apply.


a) AMRD applies exclusively to CPSEs

If the former interpretation is adopted, the AMRD Memo would apply only to CPSEs and hence, will not apply to disputes between CPSEs and SLPEs. However, the office memorandum relating to the PMA clearly specified that disputes between CPSEs and SLPEs can only be referred to the PMA with express consent by the parties. Without such consent, parties would be entitled to pursue remedies under the commercial agreement or any other applicable law.


b) AMRD applies to CPSEs and SLPEs

However, it is pertinent to note that the DoLA has issued the Settlement Memo, the LA Extension Memo and the AMRD Memo, and all these office memorandums are silent on the distinction between CPSEs and SLPEs. The distinction between CPSEs and SLPEs is only made in the office memorandums issued by the DPE. Therefore, a reasonable view is that the office memorandums issued by the DoLA have a general application and would apply to disputes between CPSEs and SLPEs.


The above view is supported by the specific reference to resolving disputes through a senior officer nominated by the Chief Secretary of the State concerned in the AMRCD Memo, even though the DPE has issued the said office memorandum.


The need for the PMA, as outlined in the PMA Memo, indicates the intent to have a separate mechanism, such as the AMRD, to expedite the settlement of disputes and reduce avoidable expenditures. Since the AMRD Memo replaces the AMRCD with AMRD, and a specific reference was made to the nomination of a person by the Chief Secretary of the State in cases of disputes between CPSEs and SLPEs in the AMRCD Memo, it appears that the AMRD is the appropriate forum for the resolution of disputes between a CPSE and SLPE. Hence, it appears that the DPE Extension Memo and the LA Extension Memo extend the AMRCD to all Ministries/ Departments, and the AMRCD Memo categorically referenced disputes between CPSEs and SLPEs. Thus, the intent of the GoI appears to favour resolving disputes between CPSEs and SLPEs by the AMRD and all other forms of litigation or arbitration are impliedly ousted.

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