The honours will prove controversial as both men are big Labour party donors and Mittal’s previous links with Tony Blair sparked a “cash-for-favours” row in 2001.

The ennobling of Mittal and Noon would follow that of other major Labour donors including Lord Sainsbury, Lord Drayson, Lord Hamlyn, Lord Paul and Lord Bhattacharrya. Government sources say it wants more successful Asian businessmen in the Lords to act as role models for disaffected youngsters from ethnic minorities.

The peerages would have to be approved by the Lords Appointments Commission.

A source said: “Mittal and Noon are on the list for the next round of peers. We are expecting criticism about the donations, but Mittal has risen from nothing to being one of the most successful entrepreneurs in the country — just the sort of person you want in the Lords.”

Last week, friends of Mittal, who runs the world’s biggest steel firm, said that he was very interested in becoming a peer. “He has aspirations to become a lord. His recent donation is an indication of his desire to become more involved in politics,” said a close friend.

Noon said he would be honoured to be in the Lords and has met Blair to discuss how to engage the Muslim community following the terrorist attacks.

A peerage would mark the latest achievement in Mittal’s meteoric rise since arriving in Britain a decade ago. He was born in 1950 in an Indian village without electricity before moving to Calcutta to join the family steel company. In 1976 he went to Indonesia and began building his fortune.

Following a string of takeovers, Mittal rose to run the world’s biggest steel company last year. His firm, Mittal Steel, employs 165,000 people worldwide and produced 60m tons of steel last year.

The Sunday Times Rich List calculates his wealth at £14.8 billion, surpassing Roman Abramovich and the Duke of Westminster. Globally, only Bill Gates and Warren Buffett have larger individual fortunes.

Despite being an Indian citizen, Mittal would still be eligible to sit in the Lords as India is in the Commonwealth.

Last year, Mittal paid a world record £70m for a house in west London that has garage space for 20 cars and was furnished using more than 9,000 sq ft of marble — much of it from the quarry used for the Taj Mahal.

He also threw Britain’s most lavish wedding, reportedly paying £30m for the six-day celebration in Paris with entertainment from Kylie Minogue.

He has been a long-standing Labour supporter and first donated £16,000 in April 1997. However, a gift of £125,000 in 2001 attracted controversy after it emerged that Blair had written to the Romanian prime minister following Mittal’s bid for a state-owned steel plant.

Last month, a week after the July 7 bombings, Labour took the unusual step of announcing it had just received a further £2m donation from Mittal.

Noon’s rise has been less controversial. He arrived from Bombay 35 years ago and started a firm importing Indian sweets. In the 1980s he diversified into providing ready-cooked curries sold in shops, including Sainsbury’s, and the Rich List now puts his wealth at £65m.

He was knighted in 2002 and has held positions on a number of official bodies, including Transport for London. He has given more than £200,000 to Labour.

Noon, a Muslim, has been consulted by the government over its response to the terrorist attacks. He said last week he backed Blair’s announcement to crack down on radical elements. “ If people want to live in this country they must follow the rules or it is right and proper for them to leave,” he said.

He added that he had not been approached about a peerage but would want to “give something back to the country”. A spokesman for Mittal said the billionaire had not been approached but would consider a peerage if asked.

Blair has a track record of giving peerages to key donors. Labour sources say wealthy people support the party with gifts but this should not disqualify them from peerages.

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