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P L D 2007 Lahore 335

Before Syed Zahid Hussain, J

Messrs ABDUL RAUF MUHAMMAD HANIF (PVT.) LTD. through Chief


Executive---Appellant

Versus

WAPDA through Chairman and another---Respondents

F.A.O. No.54 of 2004, decided on 12th January, 2007.

Arbitration Act (X of 1940)---

----S.20---Limitation Act (IX of 1908), Art.181---Civil Procedure Code (V of 1908),


O.VII, R.11---Arbitration agreement, filing in Court---Limitation---Non-framing of
issue---Plaintiff filed the suit in Court in 1997, later on in year, 2003, he filed application
for placing on record, the arbitration agreement which existed between the parties---Trial
Court rejected the application of plaintiff, being barred by limitation---Plea raised by
plaintiff was that limitation should be reckoned from the issuance of last notice and Trial
Court should have framed issue on the question of limitation---Validity---Appointment of
arbitrator was sought pursuant to a clause of contract, which provided for precise steps to
be taken specifying the stages and timing for reference and for settlement of dispute----
Plaintiff failed to adhere to the conditions and steps specified in the contract---Plaintiff
had taken up the matter in year, 1997, and after a long time in the year, 2003, rose up to
invoke the jurisdiction of the Court under S.20 of Arbitration Act, 1940, which was
clearly beyond time---Contention of plaintiff that the period should be reckoned from the
issuance of last notice was untenable---There was no use of either framing of issue or
keeping the matter pending for further proceedings before Court---Petition under S.20 of
Arbitration Act, 1940, was barred by time, which was rightly rejected by Trial Court---
Appeal was dismissed in circumstances.

Karachi Shipyard and Engineering Works Ltd v. Muhammad Aslam Khan PLD 1979 Kar.
635; Project Director, Balochistan Minor Irrigation and Agricultural Development
Project, Quetta Cantt v. Messrs Murad Ali and Company 1999 SCMR 121; Mian Asif
Islam v. Mian Muhammad Asif and others PLD 2001 SC 499; M. Imam-ud-Din Janjua v.
The Thal Development Authority through the Chairman, TDA Jauharabad PLD 1972 SC
123; Muhammad Nazir v. The Secretary, Cooperative Department and another 1989
MLD 1156 and Messrs Progressive Engineering Associates v. Pakistan Steel Mills
Corporation Ltd (1997 CLC 236 ref.

Riaz Karim Qureshi for Appellant.

Sh. Muhammad Ismail for Respondents.


Date of hearing: 12th January, 2007.

JUDGMENT

SYED ZAHID HUSSAIN, J.---A petition under section 20 of the Arbitration Act 1940
was filed by the appellant in which the respondents made an application under Order VII,
rule 11 of Code of Civil Procedure, 1908 for rejection thereof primarily on the ground
that the same was barred by time. The learned trial Judge has vide order dated 6-1-2004
rejected the appellant's petition (made under section 20 of, the Arbitration Act, 1940)
which has given rise to this appeal.

2. The learned counsels have been heard.

3. The main contention of the learned counsel for the appellant if that the trial Court has
acted illegally and erroneously in deciding the question of limitation without framing
issue and recording evidence thereabout. According to him such a question of limitation
was mixe question of law and fact which required recording of evidence. It is further
contended that the summary rejection of the petition (which is to be considered as a suit)
was not warranted as merely the contents of the plaint were only to be taken into
consideration by the trial court and no other material. He has made reference to Karachi
Shipyard and Engineering Works Ltd v. Muhammad Aslam Khan (PLD 1979 Karachi
635), Project Director, Balochistan Minor Irrigation and Agricultural Development
Project, Quetta Cantt. v. Messra Murad Ali and Company (1999 SCMR 121) and Mian
Asif Islam v. Mian Muhammad Asif and others (PLD 2001 SC 499).

4. The learned counsel for the respondents, on the other hand, in his endeavor to support
and justify the order passed by the trial court has made reference to the contents of the
petition particularly paragraphs 5 and 6 thereof and contends that since the petition per se
was barred by time, the court itself could even otherwise take notice of this aspect and
reject the petition. It is contended that in the circumstances there was no need of framing
of any issue or inviting the parties to lead evidence. He has cited M. Imam-ud-Din Janjua
v. The Thal Development Authority through the Chairman, TDA Jauharabad (PLD 1972
SC 123), Muhammad Nazir v. The Secretary, Cooperative Department and another (1989
MLD 1156) and Messrs Progressive Engineering Associates v. Pakistan Steel Mills
Corporation Ltd. (1997 CLC 236) to support the view taken by the trial court.

5. It is evident from the record and not disputed by any one that the appellant had been
awarded contract for construction of residential and non-residential building in Borotha
Colony in the year 1995. The contract value of the work was Rs.947,40,597 which
amount was paid on completion of the work. The appellant, however, averred in the
petition about his claim for:

"(a) Payment for the idle charges under sub-clause 6.4 and 42.2 claimed through
letter dated 9-5-1997 for an amount of Rs.41,42,735
(b) Payment for idle charges under sub-clause 69.4 and 53.1 with reference to
letter dated 6-12-1997 for an amount of Rs. 86,91748. "

It is so stated in paragraph 5 of his petition. In the succeeding paragraph of the petition


i.e. paragraph 6, the cause of action is mentioned as follows:

"6. That the cause of action accrued in favour of the petitioner against the
respondents firstly on 17-6-1995 when the letter of in-tent for the work in dispute
was issued, secondly on 6-12-1997 when the claim for idle days was submitted
under clause 67.1 to the Engineer, thirdly on 4-1-2001 when the defect liabilities
certificate was issued, fourthly on 23-10-2002 when the reminder was issued for
the settlement of claim to the Engineer, and lastly on 21-2-2003 when the notice
for the appointment of arbitrator on behalf of the respondents was issued and is
continuing."

Since the learned counsel for the parties are atone that Article 181 of the Limitation Act,
1908 was attracted, it is to be seen whether the petition was within limitation. The learned
trial Judge has come to the conclusion, with reference to clause 67.1 of the Contract and
the cause of action alleged to have made basis for the petition that the same was barred
by limitation. It may be observed that in M. Imam-ud-Din Janjua v. The Thal
Development Authority through the Chairman. T.D.A. Jauharabad (PLD 1972 SC 123),
the provisions of Article 181 of the Limitation Act, 1908 qua proceedings under section
20 of the Arbitration Act 1940 came to be considered by the Hon'ble Supreme Court of
Pakistan and it was held that the said Article 181 which is residuary in nature was
applicable. In that case, on application under section 20 of the Arbitration Act 1940,
arbitrator had been appointed by the court who rendered the award to which both the
parties filed their objections but during the pendency of those proceedings, the appellant
in that case applied for permission to withdraw his earlier application with liberty to file
fresh application for the same purpose. Such a course was even conceded by the
respondent side. The fresh application under section 20 of the Act was then filed to which
the respondent took objection that the same was time barred under Article 181 of the
Limitation Act, 1908. Notwithstanding the consent of the respondent at the time of
withdrawal of the earlier application, the fresh application was found to be barred by
limitation. The order of the trial court was reversed by the learned District Judge but on
revision petition the High Court set asides the order of the District Judge and took the
view that the fresh application was barred by time under Article 181 of the Limitation
Act, 1908. On examination of the matter, their lordships observed that "The point of the
time at which the right to apply under section 20 accrues is, therefore, the point of time at
which "a difference has arisen" and the difference arises when one party does not agree
with the other on any particular question covered by the Arbitration agreement." The
view taken by the High Court was thus, upheld by the Hon'ble Supreme Court of
Pakistan.

6. In the present case it is the case of the appellant himself as per paragraph 5 of the
petition that the arbitrators were to be appointed in terms of the conditions of agreement
for adjudicating the claim of the appellant made through letters dated 9-5-1997 and 6-12-
1997. Though there is also reference to clause 67.1 in the petition yet it was neither filed
nor reproduced in the petition. It appears to be a deliberate attempt to overcome the non-
compliance of various steps, which the appellant failed to follow. It reads as under:

"If a dispute of any kind whatsoever arises between the employer and the
contractor in connection with or arising out of the contract or execution of the
works. Whether during the execution of the work or after their completion and
whether before or after repudiation or other termination of the contract, including
any dispute as to any opinion, instruction, determination, certificate or valuation
of the Engineer with a copy to the other party. Such reference shall state that it is
made pursuant to this clause. Not later than the eighty fourth day after the day, on
which he received such reference, the Engineer shall give notice of his decision to
the Employer and the contractor. Such decision shall state that it is made pursuant
to this clause.

Unless the contract has already been repudiated or terminated, the contractor shall
in every case continue to proceed with the works with all due diligence and the
contractor and the employer shall give effect forthwith to every such decision of
the Engineer unless and until the same shall be revised as hereinafter provided, in
an amicable settlement or an arbitral award.

If either the employer or the contractor be dissatisfied with any decision of the
Engineer or if the Engineer fails to give notice of his decision on or before the
eighty forth day after day on which he received the reference then either the
employer or the contractor may on or before the seventieth day after the day on
which the said period of 84 days expired as the case may be give notice to the
other party, with a copy for information to the Engineer, of his intention to
commence arbitration, as hereinafter provided as to the matter in dispute. Such
notice shall establish the entitlement of the party giving the same to commence
arbitration, as hereinafter provided as to such dispute and subject to sub-clause
67.4 no arbitration in respect thereof may be commenced unless such notice is
given."

There cannot possibly be any dispute that the appointment of arbitrator was sought
pursuant to the said clause of the Contract. As is evident from its perusal it provided for
the precise steps to be taken specifying the stages and timing for reference and for
settlement of dispute. The appellant failed to adhere to these conditions and steps. He
admittedly had taken up the matter in the year 1997, and after a long time in the year,
2003 rose up to invoke the jurisdiction of the court under section 20 of the Arbitration
Act, 1940. His motion was clearly beyond tithe. The contention of the learned counsel
that the period should be reckoned from the issuance of last notice is untenable as held in
Karachi Shipyard and Engineering Works Ltd v. Muhammad Aslam Khan (1997 CLC
235) that "Article 181 of the Limitation Act, 1908 required that the period of three years
to file a petition will start running from the day when the right to apply accrues in other
words, when the cause of action accrues to the plaintiff. Therefore, in my view the time
limit would start running from the day when the dispute arose between the executants to
the agreement and not from the day when a legal notice or any other communication is
addressed by either party for the invoking of the arbitration clause. If the argument of the
learned counsel for the plaintiff is accepted, than there could not be an end for the time to
stop running under Article 181. Any party may issue a communication at any stage
calling upon the other party for appointment of arbitrator (even after passing of three
years) and then may set up a claim that such proceeding is maintainable as the time is to
be reckoned from the date of such notice or communication. In my humble view this will
frustrate the provision of Article 181 of the Limitation Act, 1908. "His reliance upon
Karachi Shipyard and Engineering Works Ltd v. Muhammad Aslam Khan (PLD 1979
Karachi 635) is also inapt which indeed reiterates the view taken by the Hon'ble Supreme
Court of Pakistan in M. Imam-ud-Din Janjua v. The Thal Development Authority through
the Chairman. T.D.A. Jauharabad (PLD 1972 SC 123) and the application in that case
was found to be well within time.

7. The other contention of the learned counsel for the appellant that only contents of the
plaint are to be kept in view by the - court and without framing of issue, the petition
could not be rejected as time barred is also untenable in the facts' and circumstances of
the case inasmuch as from the contents of the petition itself (i.e. paragraphs 5 and 6 in
particular) it is discernible that the petition filed on 6-3-2003 was barred by time. There
was, thus, no use of either framing issue or keeping the matter pending for further
proceedings before the court. The petition was clearly barred by time which has rightly
been rejected by the trial court.

As a result of the above, the appeal is without merit and is dismissed accordingly. No
order as to costs.

M.H./A-1/L Appeal dismissed


P L D 2007 Lahore 280

B efore Mian Saqib Nisar, J

PIONEER BUILDERS through Managing Partner---Petitioner

Versus

ADDITIONAL DEPUTY COMMISSIONER (G) and 2 others---Respondents

Civil Revision No.1361 of 2005, decided on 29th September, 2006.

Arbitration Act (X of 1940)---

----S. 20---Arbitration clause in contract---Rescission of contract---Application under


S.20 of Arbitration Act, 1940, before Civil Court---Scope---Non-availing of departmental
remedy---Petitioner's construction contract was rescinded by Authority---Petitioner, in
terms of arbitration clause in contract moved an application under S.20 of Arbitration
Act, 1940 before Civil Court for filing of arbitration agreement and for reference of
dispute between the parties in terms thereof---Civil Court rejected petitioner's application
on ground that he had failed to avail remedy of first approaching authority's official as
envisaged by arbitration clause in contract, before invoking provisions of S.20 of
Arbitration Act, 1940---Appeal filed thereagainst was also dismissed by Appellate
Court---Petitioner contended that rescission order had been passed by the Official and,
therefore, to re-approach him was a futile exercise---Validity---Government official had
expressed his mind and view about work and conduct of petitioner, therefore, to re-
approach him for simply fulfilling condition of availing departmental remedy was to be a
superfluous and illusionary exercise and against object of stipulation---Petitioner could
validly maintain application under S.20 of Arbitration Act, 1940 and he was not to be
non-suited on account of reason given by both the Courts below---Petition was allowed.

Waqqas Limited v. Province of Punjab NLR 1988 Civil 181 distinguished.

Riaz Karim Qureshi for Petitioners.

Ms. Seema Munawar, A.A.-G. for Respondents.

Date of hearing: 29th September, 2006.

JUDGMENT

MIAN SAQIB NISAR, J.---The parties entered into a Construction Contract, which
contained an arbitration clause No.25-A. The Additional Deputy Commissioner (General)
Gujrat, vide order dated 26-1-1988 conveyed to the petitioner as follows:
"On 24-1-1988, the Deputy Commissioner Gujrat inspected your site 2nd time
during the fortnight and found the work abandoned which reflects severe
negligence on your part, because of this state of affair, the Deputy Commissioner,
Gujrat directed for rescession of the work in the public interest."

On account of the above, the contract of the petitioner was rescinded. In terms of clause
25-A of the Contract, the petitioner moved an application under section 20 of the
Arbitration Act for the filing of the arbitration agreement and for the reference of the
dispute between the parties in terms thereof. The learned Civil Judge vide order dated 12-
2-2001 has rejected the application for the reasons that the petitioner has failed to avail
the remedy of first approaching the Deputy Commissioner as contemplated by the said
clause, before invoking the provisions of section 20 of the Arbitration Act. The petitioner
unsuccessfully challenged the above order through an appeal, which was dismissed on 5-
3-2005.

2. Learned counsel for the petitioner contends that the order of rescission in fact has been
passed by the Deputy Commissioner and, therefore, to re-approach him was a futile
exercise and thus, in the peculiar facts and circumstances of the case, the petitioner could
not have been compelled to seek the departmental remedy. When asked, the learned
counsel has not been able to cite any law in this behalf. However, the learned A.A.-G. by
relying upon Waqqas Limited v. Province of Punjab NLR 1988 Civil 181 states that the
petition under section 20 of the Arbitration Act was incompetent without first exhausting
the remedy contemplated by the agreement.

3. I have heard the learned counsel for the parties. It is settled law that no one can be a
judge in his own cause. It is clear from the letter dated 26-1-1988 that the rescission of
the contract had been made upon the direction of the Deputy Commissioner, who took the
conscious decision in this behalf after the site inspection. This order of the Deputy
Commissioner was only implemented and conveyed by the Additional Deputy
Commissioner through the letter dated 26-1-1988.

4. In the instant case, for all intents and purposes, the Deputy Commissioner had
expressed his mind and the view, about the work and conduct of the petitioner and
therefore, to re-approach him for simply fulfilling the condition of meeting the condition
of availing the departmental remedy, would be a superfluous and illusionary exercise and
also against the very object of the stipulation. It may be pertinent to mention here that the
clause in the arbitration agreement, enabling the contractor to avail the departmental
remedy, has a vivid, specific and rational object, that instead of rushing to the courts or
before the arbitrators, the matter, at the first instance, must be attempted to be resolved at
the departmental level, and the intention of the such stipulation is that the grievance of
the contractor is attended to and adjudged by an independent representative of the
department by adhering to the basic rules of justice and fairness. Obviously, for achieving
the above object, the parties never agreed or chose to re-approach the same person who
has taken the action, because the departmental remedy is not in the nature of review but is
a kind of the re-consideration by some independent representative of the department;
undoubtedly it cannot be before the same person who has taken the action, entitling him
to act as a Judge in his own cause, who may have a biased and prejudiced mind. As in the
instant case, the Deputy Commissioner had already expressed his mind by directing the
rescission of the contract, therefore, in such circumstances, it was not incumbent upon the
petitioner to have availed the stipulated remedy in the agreement. The petitioner thus,
could validly maintain the application under section 20 of the Arbitration Act and could
not have been non-suited on account of the reasons given by the two courts below. The
judgment quoted by the Court before and cited by the learned A.A.-G. is distinguishable
on its own facts.

In the light of above, this revision petition is allowed and the matter is remanded to the
learned trial Court with the direction to try and dispose of the same in accordance with
law.

S.M.B./P-28/L Case remanded.


2007 C L C 248

[Lahore]

Before Syed Asghar Haider, J

SPECIAL COMMUNICATION ORGANIZATION through Director-General,


Rawalpindi----Appellant

Versus

Messrs IBELL (PVT.) LTD., LAHORE----Respondent

F.A.O. No.270 of 2006, heard on 21st September, 2006.

Arbitration Act (X of 1940)---

----Ss. 20, 31 & 39---Application for filing of arbitration agreement in the Court---
Jurisdiction---Appeal against order---Appeal had been directed against order passed by
Civil Judge, "L" whereby application made by respondent under S.20 of Arbitration Act,
1940 for filing of arbitration agreement was allowed---Agreement in question was
executed between appellant and respondent at "R" and according to one of the clauses of
said agreement arbitration proceedings were to be held at "I"---No dispute existed qua the
holding of arbitration proceedings under the agreement and both parties concurred that
venue for that purpose was "I"---Core dispute between the parties related to the question
of exercise of jurisdiction by the Court---In contracts, jurisdiction normally, would, vest
with the Court where agreement was executed---Present agreement having been executed
at "R", jurisdiction would vest in the court at "R"---Proceedings were wrongly instituted
before the Court at "L"---Allowing appeal impugned order passed by Civil Judge, "L",
was set aside being without jurisdiction.

Rashid Ahmad v. The State PLD 1972 SC 271; Societe Generaled D Surveillance S.A. v.
Pakistan through Secretary, Ministry of Finance, Revenue Division, Islamabad 2002
SCMR 1694; Sultan Ali v. Khushi Muhammad PLD 1983 SC 243; Muhammad Sadiq
through his Legal Representatives v. Pakistan through Collector, Rawalpindi and 2 others
1988 CLC 123; Hitachi Limited and another v. Rupali Polyester and others 1998 SCMR
1681; Ravi Glass Mills Limited v. I.C.I. Pakistan Powergen Limited 2004 YLR 2503;
Pakistan National Shipping Corporation, P.N.S.C. Building Karachi v. Samsung Co. Ltd.
and 3 others 2001 CLC 1473; Messrs National Construction Ltd. v. Aiwan-e-Iqbal
Authority PLD 1994 SC 311; Messrs Nalanda Ceramic and Industries Ltd. v. Messrs N.S.
Choudhury & CO. (P.) Ltd. AIR 1977 SC 2142 and Food Corporation of India and
another v. Greet Eastern Shipping Co. Ltd. AIR 1988 SC 1198 ref. .

Miss Aaliya Neelam for Appellant.

Shahzad Rabbani and Sohail Raza for Respondent.


Date of hearing: 21st September, 2006.

JUDGMENT

SYED ASGHAR HAIDER, J.---This appeal is directed against the order, dated 18-7-
2006, passed by the Civil Judge, Lahore, whereby an application made by the respondent
Messrs Ibell (Pvt.) Ltd. under section 20 of the Arbitration Act, 1940, for filing of
Arbitration Agreement in Court, was allowed.

2. The backdrop of the controversy is, that an agreement dated 6-1-2003, was executed
inter se the appellant and respondent at Rawalpindi, it contained an Arbitration clause,
which is reproduced for ready reference:--

"Arbitration proceedings shall be held in Islamabad". Differences cropped up


between the parties, resultantly the respondent filed an application under section
20 of the Arbitration Act, 1940, before the Civil Court at Lahore, this application
after contest was allowed vide order, dated 18-7-2006, the parties were directed to
nominate one Arbitrator each and submit his name to the Court. The appellant is
aggrieved of this order and has filed the present appeal."

3. Learned counsel for the appellant contended that the impugned order is had in law,
according to the learned counsel pursuant to Clause 21.4 the venue of arbitration
proceedings is Islamabad, thus, under the provisions of section 31(3), (4) of the
Arbitration Act, 1940, the Courts 13 at Islamabad would deem to hold jurisdiction over
these proceedings, including the application under section 20 of the Arbitration Act, thus,
the proceedings were wrongly instituted before the Courts at Lahore, she also submitted
that the provisions of Contract Act had also not been adhered to and the proceedings are
without jurisdiction. The impugned order is also not in consonance with the following
precedents:--

(1) Rashid Ahmad v. The State PLD 1972 SC 271; (2) Societe Generated D
Surveillance S.A. v. Pakistan through Secretary, Ministry of' Finance, Revenue
Division, Islamabad 2002 SCMR 1694; (3) Sultan Ali v. Khushi Muhammad PLD
1983 SC 243; (4) Muhammad Sadiq through his Legal Representatives v. Pakistan
through Collector, Rawalpindi and 2 others 1988 CLC 123.

Learned counsel for the respondent contrarily argued that the stance taken by the
appellant is misconceived and is not sustainable in law, according to the learned counsel
the venue for holding arbitration proceedings is no doubt Islamabad, but jurisdiction has
not been deliberately bestowed upon the Courts of Islamabad for Court proceedings, he
adverted to sections 2-C, 3 and 31 of the Arbitration Act, 1940 and section 20, C.P.C. to
submit that Courts where cause of action arises can exercise jurisdiction, in the instant
case the Bank guarantee was executed at Lahore, monetary transactions were conducted
at Lahore, therefore, the Courts at Lahore are fully bestowed with jurisdiction, he relied
upon the following precedents:--
(1) Hitachi Limited and another v. Rupali Polyester and others 1998 SCMR 1681;
(2) Ravi Glass Mills Limited v. I.C.I. Pakistan Powergen Limited 2004 YLR
2503.

4. I have heard the learned counsel at length. The situation which emerges is that there is
no dispute qua the holding of arbitration proceedings under the agreement and both
parties concur that the venue for this purpose is Islamabad. However, the core dispute
between them relates to the question of exercise of jurisdiction by Court. The agreement
was executed on 6-1-2003, at Rawalpindi, Clause 21.4 reflects the intention of the parties
qua Arbitration, it is clear from record that venue for arbitration proceedings was agreed
but jurisdiction qua the Courts to oversee these proceedings was deliberately, omitted,
therefore, the agreement will be governed by the Arbitration ct, 1940. Section 2-C of the
Arbitration Act reads:--

""Court" means a Civil Court having jurisdiction to decide the question forming
the subject-matter of the reference if the same had been the subject-matter of a
suit, but does not except for the purpose of arbitration proceedings under section
21, include a Small Cause Court;"

5. The other section which will hold to determine the jurisdiction of the Court is section
31 of the Arbitration Act, 1940, according to which an award may be filed in any Court
having jurisdiction in the matter to which the reference relates. The words "in any Court
having jurisdiction in the matter to which reference relates" are significant and relevant, it
clearly means that the proceedings have to be filed with the Court, which is bestowed
jurisdiction and with no other Court, because proceedings filed in any other Court would
be without jurisdiction and have no legal sanctity. Section 31(4) of the Arbitration Act,
gives an overriding effect to the Act over any other law, thus, in case of conflict the
provisions of Arbitration Act would prevail, section 2(c) of the Arbitration Act reflects
that the subject-matter means subject-matter of reference, if the same had been subject-
matter of the suit, therefore, recourse will have to be made to section 20, C.P.C. as both
the provisions are in harmony with each other and relevant for the purpose of determining
the jurisdiction. Section 20, C.P.C. reads:--

"Other suits to be instituted where the defendants reside or cause of action


arises.--- Subject to the limitations aforesaid, every suit shall be instituted in a
Court within the local limits of whose jurisdiction---

(a) the defendant, or each of the defendants where there are more than one, at the
time of the commencement of the suit, actually and voluntarily resides, or carries
on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the
commencement of the suit, actually and voluntarily resides, or carries on business,
or personally works for gain, provided that in such case either the leave of the
Court is given, or the defendants who do not reside, or carry on business, or
personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises."

Therefore, in accordance with the spirit of section 20, C.P.C. the suit can be instituted
under section 20(a & c) where the defendant actually or voluntarily resides or personally
works for gain or where cause of action wholly or in part arises. Cause of action means
where a demand of right is made and if traversed and proved would give a right to
judgment to the plaintiff. Thus, it is in this background that the present agreement is to be
reviewed.

6. The respondent/Messrs Ibell filed an application under section 20 of the Arbitration


Act highlighting and referring to certain disputes and alleging violation by the petitioner,
in paragraph 23 of the application under section 20, Arbitration Act the
plaintiff/respondent itself adverted to cause of action, and stated that it firstly arose on 6-
1-2003, when the agreement was executed and secondly in April, 2003 when policy
extraneous to the contract was enforced and thirdly when it completed, ram up period,
in .July, 2003. In paragraph 24 it is stated that the cause of action accrued in Lahore
because Bank Guarantee was issued in Lahore, and payment was made in Lahore. The
events giving rise to cause of action have been elucidated and highlighted by the plaintiff
in paragraph 23, none of these happened in Lahore.

7. Section 20, C.P.C. has to be read as whole, clauses (a), (b) and (c) have to be read in
conjunction and not in isolation, the emphasis of the learned counsel for the respondent,
that part of cause of action accrued at Lahore is not based on sound reasoning. The events
which led to the present action are highlighted in paragraph 23 of the application under
section 20 of the Arbitration Act but they do not contain any recital to payment. Learned
counsel for the respondent submitted that as the bank guarantee was executed at Lahore,
therefore, part of cause of action has arisen at Lahore, he has adverted to paragraph 24 of
the application in this context. Bank guarantee is an independent contract, its impact,
import or performance or non-performance would hardly help the case of the respondent,
therefore, this would not constitute a part of cause of action for determining jurisdiction.
Reference is made to Pakistan National Shipping Corporation, P.N.S.C. Building Karachi
v. Samsung Co. Ltd. and 3 others 2001 CLC 1473 and Messrs National Construction Ltd.
v. Aiwan-e-Iqbal Authority PLD 1994 SC 311. In contracts jurisdiction normally, would
vest with the Court where the agreement was executed as the present agreement was
executed at Rawalpindi, and has been so accepted by both the parties, therefore, the
jurisdiction would vest in the Courts at Rawalpindi. I am fortified in my view by Messrs
Nalanda Ceramic and Industries Ltd. v. Messrs N.S. Choudhury & Co. (P.) Ltd. AIR 1977
SC 2142, according to this precedent the contract was made at Calcutta, therefore, the
Courts at Calcutta were possessed with the jurisdiction in this context. Likewise Food
Corporation of India and another v. Greet Eastern Shipping Co. Ltd. AIR 1988 SC 1198,
also affirm this position because the contract was made at Bombay, therefore, jurisdiction
would vest with the Courts at Bombay. Further the appellant/defendant works for gain in
Rawalpindi, the agreement was executed at Rawalpindi, the alleged breaches also
occurred at Rawalpindi, therefore, the Courts at Rawalpindi would hold .jurisdiction over
these proceedings on this account as well. The precedent cited by the learned counsel for
the respondent. Ravi Glass Mills Limited v. I.C.I. Pakistan Powergen Limited 2004 YLR
2503 relates to the territorial jurisdiction pertaining to fraction of cause of action or part
of cause of action but is distinguishable on facts as no cause of action has accrued at
Lahore, therefore, this precedent is of no help to the respondent. Hitachi Limited and
another v. Rupali Polyester and others 1998 SCMR 1618 relates to interpretation of
section 20, C.P.C., elucidates part of cause of action, this precedent again is
distinguishable on facts as in the instant matter no cause of action has accrued at Lahore.
Resultantly, this appeal is allowed and the order, dated 18-7-2006, passed by the Civil
Judge, Lahore, is set aside being without jurisdiction. No order as to costs.

H.B.T./S-185/L Appeal allowed.


2007 C L D 1324

[Karachi]

Before Khilji Arif Hussain, J

LIGHT INDUSTRIES (PVT.) LTD through Director---Plaintiff

Versus

Messrs ZSK STICKMASCHINEN GmbH and another---Defendants

Suit No.146, C. M.As. Nos.5848 and 2448 of 2006, decided on 23rd January, 2007.

(a) Contract---

----Exclusive jurisdiction clause in an agreement---Such clause in a contract is part of


consideration of the agreement between the parties on the basis of which parties enter
into a contract and such consideration should not be ignored lightly particularly merely at
the whims of one of the parties to the contract.

(b) Contract---

----Intention of parties---Determination of---Held, to discover the intention of parties to a


contract documents/agreement as a whole has to be read.

(c) Civil Procedure Code (V of 1908)--

----O. VII, Rr.10 & 11---Specific Relief Act (I of 1877), S.42---Agency contract between
a foreign principal and agent in Pakistan---Termination of such contract---Suit for
declaration and recovery---Application by defendant (foreign company) under O. VII,
Rr.10 & 11, C.P.C. for stay of the suit and to direct the plaintiff to file his claim for
adjudication before a foreign court on the basis of foreign jurisdiction clause in their
Agency. contract---Contentions of the defendant were that clause of the Agency contract,
conferring exclusive jurisdiction to a foreign Court (Germany) by treating like a foreign
arbitration clause, the suit was liable to be stayed; that claim of the plaintiff as per laws of
Pakistan was barred by time, however, in terms of the German laws was not hit by the
provisions of the Limitation Act, 1908 and that the plaintiff, if had any claim could get the
relief claimed from the court at Germany; that there was no reciprocal agreement between
Government of Pakistan and Germany and accordingly, if any decree was passed by the
Pakistan court, same could not be executed in Court of Germany and for the recovery of
the amount in decree, if any, the plaintiff would have to approach the court of Germany---
Plaintiff, on the other hand, contended that clause of exclusive jurisdiction was uncertain
and vague and accordingly the jurisdiction of the court on such vague clause could not be
ousted; that said clause of the Agency Contract was a void clause and proceedings could
not be stayed on the basis of such void clause under S.28, Contract Act, ,1872; that High
Court (Pakistan) .not only had jurisdiction, but in fact the appropriate court to adjudicate
the matter as regard the termination letter of the Agency and other correspondence were
in English and Courts in Pakistani were better experienced in dealing English language
and its interpretation than the German Courts. where German language was court
language; that Courts in Pakistan were more economical and cost effective than the
Courts in Germany and all evidence was available in Pakistan; that sales of defendant's
goods were procured in Pakistan and all expenses were incurred by plaintiff in Pakistan
and that Courts rarely disturb the plaintiffs choice of forum and would not do so unless the
balance of factors was strongly in favour of the defendant---Validity---Held, with the
advancement of science and technology the question of convenience and inconvenience
of parties was not so material to wriggle out from. the validly constituted agreement
between them---No reciprocal agreement between Germany and Pakistan being in
existence, as such even if any decree was passed by High Court of Pakistan same could
not be executed in the Court of .Germany as foreign judgment---Application guider
O.VII, Rr.10 & 11, C.P.C. by the defendant in circumstances, was granted and the
proceedings in the suit were stayed by the High Court with the observations that plaintiff,
if so advised, could approach for adjudication of his claim before the Court at Germany.

M.A. Chowdhury v. Messrs. Mitsui O.S.K. Lines Ltd. and 3 others PLD 1970 SC 373;
CGM (Companies General Maritime; v. Hussain Akbar 2002 CLD 1528; M/s Travel
Automation (Pvt.) Ltd. v. Abacus International (Pvt.) Ltd. and 2 others, 2006 CLD 497;
Spiliada Maritime Corporation v. Cansules Ltd. (The "Spiliada") (1987) 1 Lloyd's p.1;
Evans Marshall and Co, Ltd v. Bertola S.A. and another (1973) 1 WLR 349; Standard
Insurance Co. v. Pak Garments Ltd. .1998 SCMR 1239; State Life Insurance Corporation
v. Rana Muhammad Saleem 1987 SCMR 393 and New India Assurance Co. Ltd. and
others v. T. K. Nanjunda Setty and Sons and others AIR 1964 Mysore 147 ref.

Agha Zafar Ahmed for Plaintiff.

Jawwad Sarwana for Defendant No. 1.

Farhatullah for Defendant No.2.

ORDER

KHILJI ARIF HUSSAIN, J.---Brief facts for the purposes of deciding the application
under Order VII, rules 10 and 11 filed by defendant No.1 are that defendant No.1 is a
foreign company, incorporated under the laws of Germany, ,having its registered office in
Germany, entered into a contract dated 26-8-1992, whereby he appointed plaintiff as his
exclusive commercial agent and representative for the territory of Pakistan. The plaintiff
in terms of the agreement negotiated the sale of defendant No. 1's products and provided
services relating to the products, in turn whereof plaintiff was entitled to a commission at
the agreed rates. The amount of commission, as per averments in the memo. of plaint,
used to be paid by defendant No.1 to plaintiff quarterly. The plaintiff alleged that the
plaintiff through its own efforts and hardworking procured sale of equipment of around
Euro 5,843,694, against which defendant No. 1 paid a margin sum of Euro 109,172.83,
which is less than 10% commission to the plaintiff, which plaintiff was required to receive
under the contract. The plaintiff also claimed that on sale of spare parts amounting to Euro
161,274.89, he received only Euro 8,781.83 from his bills. The plaintiff stated that
defendant No.1 unlawfully deducted a sum of Euro 8,355.23 from his bills. An amount of
Euro 676,602 was also claimed by the plaintiff towards the expenses on creating goodwill
for the defendant No.1 company. On 28-6-2005, defendant No.1 terminated the contract
with effect from 30-6-2005 and appointed another company as an agent for Pakistan. The
plaintiff claimed total sum of Euro 1,180,572.45 from defendant No. 1 and filed the suit.
After service of notice/summons defendant No.1 filed listed application and prayed to
stay the suit and direct the plaintiff to file his claim for adjudication before the District
Court of Krefeld Germany on the basis of foreign jurisdiction clause in their Agency
Contract. The parties filed their counter-affidavits and affidavits-in-rejoinder.

Heard Mr. Agha Zafar Ahmed, learned counsel for the plaintiff, and Mr. Jawwad
Sarwana, learned counsel for defendant No.1.

Mr. Jawwad Sarwana, learned counsel for defendant No.1, in support of his contentions
to stay the proceeding drew my attention to clause 10(2) of the Agency Contract dated
10-8-1992/1-10-1992. I would like to reproduce clause 10 to appreciate the respective
contentions of the learned counsel for the parties:--

Clause 10

(1) Projects which have been negotiated by ZSK before signing this contract and
which can be concluded only after coming into force of this contract, are not
subject to the regulations of this contract.

(2) The contractual relation is subject to German law. The direct or respective
application of the obligatory determinations of the German Code for "Commercial
Representative" is excluded. .

(3) Place of fulfilment for all obligations of this contract and exclusive
jurisdiction is Krefeld. ZSK is also entitled to accuse the Agent at his competent
Court.

(4) All claims resulting from the contractual relation of the Agent with ZSK will
expire if they have not been claimed within a period of 6 months after being due.

Learned counsel for defendant No.1 vehemently argued that clause 10(2) of the Agency
Contract, confers exclusive jurisdiction to District Court Krefeld Germany, has been
treated like a foreign arbitration clause by the various Courts and on the basis of the
principle laid down in the said judgments, the suit i s liable to be stayed. It was further
contended by the learned counsel for defendant No. 1 that the claim of the plaintiff as per
laws of Pakistan is barred by time, however, in terms of the German laws is not hit by the
provisions of the Limitation Act and that the plaintiff, if has any claim, can get the relief
claimed from the Court at Krefeld same. It was next contended by Mr. Jawwad Sarwana,
learned counsel for defendant No. 1, that there is no' reciprocal agreement between
Government of Pakistan and Germany and accordingly if any decree is passed by the
Pakistani Court, same cannot be executed in Court of Germany and for the recovery of
the amount in decree, if any, the plaintiff has to approach to the Court at Germany. The
learned counsel in support of his contentions relied upon the cases of M.A. Chowdhury v.
Messrs Mitsui O.S.K. Lines Ltd. and 3 others PLD 1970 SC 373, CGM (Companies
General Maritime) v. Hussain Akbar 2002 CLD 1528 and M/s Travel Automation (Pvt.)
Ltd. v. Abacus International (Pvt.) Ltd. and 2 others 2006 CLD 497.

On the other hand, Mr. Agha Zafar Ahmed, learned counsel for the plaintiff, opposed the
application and argued that it is more convenient for the parties to pursue their remedies
before this Court, rather than the Courts at Germany where English language is not the
language of Courts. Learned counsel for the plaintiff argued that clause 10(3) of the
Agency Contract is uncertain and vague clause and accordingly the jurisdiction of the
Court on such vague clause cannot be ousted. Without prejudice to his contentions, the
learned counsel for the plaintiff argued that clause 10(3) of the Agency Contract is a void
clause and proceedings cannot be stayed on the basis of such void clause and relied upon
section 28 of the Contract Act. It was contended that this Court not only has jurisdiction,
but in fact appropriate Court to adjudicate .the matter as the termination letter and other
correspondence were in English and Pakistani Courts are experienced in dealing English
language and its interpretation than the German. Courts where German language is the
language of Courts. Another ground, on which learned counsel for the plaintiff opposed
the application, is that the Courts at Karachi have more economical and cost effective
than the District Court at Krefeld Germany and further all evidence is available at
Karachi. The sales of defendant No. 1's products were procured by the plaintiff at Karachi
and all expenses were incurred by the plaintiff at Karachi or other parts of Pakistan.
Learned counsel for the plaintiff argued that the Courts rarely disturb the plaintiff's choice
of forum and will not do so unless the balance of factors is strongly in favour of
defendant No.1. Learned counsel for the plaintiff in support of his contentions relied upon
the case of Spiliada Maritime Corporation v. Cansulex Ltd. (The "Spiliada"), (1987) 1
Lloyd's Report page 1 and Evans Marshall and Co. Ltd v. Bertola S.A. and another,
(1973) 1 WLR page 349.

I have taken into consideration respective arguments advanced by the learned counsel for
the parties and perused the record.

The plaintiff filed suit for .recovery of his alleged commission, which plaintiff is entitled
to receive in terms of Agency Contract between the plaintiff and defendant No.1. On
going through the memo. of plaint, it appears that though same is well drafted, but at the
same time so far as the amount claimed, the plaintiff failed to give any particulars that
how the amount has been calculated and for what period the same pertains to. Be it may
be the question .for the purpose of deciding listed application is whether this Court h a s
jurisdiction in the matter or not. Clause 10(2) and C l a u s e 1 0 ( 3 ) of the Agency
Agreement specifically provided that for the fulfilment of all .obligations of .the contract
the exclusive jurisdiction is at Krefeld and defendant also entitled to accuse the plaintiff
at his competent Court.
Before I would discuss various case-laws relied upon the respective parties, I would like
to say that exclusive jurisdiction clause in a contract in my humble opinion is part of
consideration of the agreement between the parties on the basis of which parties enter
into a contract and said consideration should not be ignored lightly particularly merely at
the whims of one of the parties to the contract.

Learned Advocate for the plaintiff opposed the application on the ground that (i) it is
more convenient and appropriate for the parties to pursue remedy before this Court than
District Court of Krefeld Germany, (ii) all evidence is available at Karachi, within the
jurisdiction of this Court, (iii) there is no valid exclusive clause in the Contract and (iv)
clause 10(3) of the Contract is not void under section 28 of the Contract Act.

As regards first two objections of learned Advocate for the plaintiff, due to the
advancement of science and travelling facilities within last couple of years the matter of
convenience and inconvenience is almost, in my humble view, has become insignificant.
It is now-a-days very easy to approach from one continent to another within a couple of
hours which few years back used to take much more time, the documents can be
dispatched to any part of the world within couple of minutes by fax or by email which
used to take various days in the past. For the purpose of recording evidence now it is not
necessary that witness should travel from one place to another as recording of evidence
by way of video conference has become common feature in developed countries and such
facilities in appropriate cases can be availed whereas in the instant case most of the
evidences in my tentative view is based upon documents.

Coming to .objection that there is no valid exclusive jurisdiction clause in the Contract
and Article 10(3) of the agreement is void under section 28 of the Contract Act. To
discover the intention of parties to a contract document/agreement as a whole has to be
read. By Agency Contract defendant No.1 appointed plaintiff as his agent exclusively
representing for the territory of Pakistan for the products manufactured by him viz.
Automobile Multi-Head Embroidery Machines, Card Studio, equipment for said
machines and their spare parts In terms of the agreement defendant was required to put at
the disposal of the plaintiff a sufficient quantity of leaflets, advertising material, details
which are important for sale business etc. and plaintiff was obliged to observe the
interests of defendant and was not authorized to conclude deals procured by him
without ,the written confirmation of defendants, and the plaintiff was entitled for fixed
commission on sale service and accessories.

Clause 10(2) specifying provided that the contractual relation was subject to German law
and by clause 10(3) parties agreed that for the fulfilment of all obligations of the contract
Krefeld has exclusive jurisdiction. In the Court affidavit to application plaintiff himself
stated that this Court is more convenient and appropriate than District Court of Krefeld
Germany made it clear that so far as exclusive jurisdiction agreed to be same was given
District Court of Krefeld Germany and there was ho ambiguity in .the mind of
contracting parties in this regard, nor it was the case set up by the plaintiff.
In the case of Standard Insurance Co. v. Pak Garments Ltd. 1998 SCMR 1239, the
Honourable Supreme Court" reproduced a quotation from the case of State Life Insurance
Corporation v. Rana Muhammad Saleem (1987 SCMR 393), which is as under:--

"We have considered the arguments of the learned counsel for the parties. Under
section 9 of the Code of Civil Procedure the Civil Court have jurisdiction to try all
suits of a civil nature excepting the suit of which their cognizance is either
expressly or impliedly barred. Under section 20 of the Code of Civil Procedure
every suit is to be instituted in a civil Court within the local limits of whose
jurisdiction the defendant resides or carries on business or where the cause of
action wholly or in part arose. Under section 28 of the Contract Act every
agreement by which any party thereto is restricted absolutely from enforcing the
rights under or in respect of any contract, by the usual legal proceedings in the
ordinary tribunals or which limits the time within which he may thus enforce his
rights, is void to that extent. It is evident from a plain reading of these provisions
that there is no absolute exclusion of jurisdiction under section 9 or section 10 of
the Code of Civil Procedure nor, there is any violation of the provisions of section
28 of the Contract Act when two or more Courts have jurisdiction to try a suit and
the parties mutually agree to choose or take their dispute to one of them. The civil
Courts exercise their jurisdiction under the Code of Civil Procedure. If they do not
possess such jurisdiction under the Code it cannot be conferred on them through a
mutual agreement of the parties to a dispute. But in a situation where two or more
Courts have jurisdiction to try a suit under the Code of Civil Procedure, then an
agreement between the parties that any dispute arising between them shall be tried
only by one of such Courts could not be considered contrary to public policy as it
would neither contravene the provisions laid down in section 28' of the Contract
Act nor would it violate in any manner the provisions of section 9 or section 20 of
the -Code of Civil Procedure."

In the case of New India Assurance Co. Ltd. and others v. T. K. Nanjurida Setty and Sons
and others (AIR 1964 Mysore 147), while considering a clause in agreement given
jurisdiction to a particular Court, it was held that what is rendered void by the first part of
section 28 is an agreement which restricts absolutely any party from enforcing, by the
usual legal proceedings in the ordinary tribunals, his right under or in respect of any
contract. It does not however, debar a party from agreeing to have its claim instituted and
settled in one only out of the two or more competent Courts having territorial jurisdiction
in respect of disputes.

In the case of M. A. Chowdhury v. M/s Mitsui O.S.K. Lines Ltd. and 3 others (PLD 1970
SC 373), while dealing with the clause which reads as under:--

"All actions under this contract of carriage shall be brought before the Court at
Rotterdam and no Court shall have jurisdiction with regard to any such action
unless the carrier appeals to another jurisdiction voluntarily submit himself
thereto."
After discussing number of ease-law on the subject the Honourable Supreme Court held
as under.--

"Having said this, however, I am of the. opinion that in order to preserve the
sanctity of contracts 1 ought also to hold, as was done in the earlier cases in Great
Britain that such foreign jurisdiction clauses, even when they purport to give
jurisdiction to a Court in a foreign country; are really in the nature of arbitration
clauses which come within the .exception to section 28 of the Contract Act and,
therefore, should be dealt with in the same manner as other arbitration clauses. In
the case of an arbitration it has to be remembered that the jurisdiction of the
Courts is not altogether ousted, for, the Courts merely stay their hands to allow
the parties to resort to the form of adjudication to which they have previously
agreed. By only staying the applications before them the Courts still retain
themselves the jurisdiction to resume the case if the arbitration, for any reason,
fails or the parties find it impossible to ~ comply with the form of adjudication to
which they had agreed. This was also the view taken in the case of Malik Ali
Akbar, which I approve."

In the case of CGM (Companies General Maritime) v. Hussain Akbar (2002 CLD 1528),
and M/s Travel Automation (Pvt.) Ltd v. Abacus International (Pvt.) Ltd. 2006 CLD 497,
it was held as under:--

A learned Division Bench of this Court relying upon the pronouncement of the
Honourable Supreme Court in the case of M. A. Chowdhury (supra) directed the
respondent to file his claim for adjudication before the Tribunal de Commerce in
Paris in accordance with clause 25 of the Bill of Lading.

Mr. Agha Zafar Ahmed, learned Advocate for the plaintiff, relied upon the case of [1987]
1 Lloyd's Rep.1, wherein it was held that, "on the facts and taking the convenience of the
parties and witnesses probably titled the scales towards British Columbia as the forum,
but certainly did not show that an English Court was distinctly more suitable for the ends
of justice". In the said judgment it was held that:-

"In order to justify a stay two conditions must be satisfied, one positive and the
other negative; (a) the defendant must satisfy the Court that there is another forum
to whose jurisdiction he is amenable in which justice can be done between the
parties at substantially less inconvenience or expense, and (b) the stay must not
deprive the plaintiff of a legitimate personal or juridical advantage which would
be available to him if he invoked the jurisdiction of the English Court".

Learned Judge further held that:--

"In my opinion; having regard to the authorities (including in particular the


Scottish authorities), the law at present be summarized as follows:--
(1) The basic principle is that a stay will only be granted on the ground of forum
non convenience where the Court is satisfied that there is some other available
forum, having competent jurisdiction, which is .the appropriate forum for the trial
of the action, i.e. in which the case may be tried amore suitably for the interests of
all parties and ends of justice."

The plaintiff has not disputed that the relief, as asked in this suit, cannot be granted by
District Court of Krefeld and will or may deprive him from some legitimate judicial
advantage.

In the case of Evans Marshall and Co. Ltd. v. Bertola S.A. and another (1 W.L.R. 349), it
was held:--

"I now turn to the first of the main paints with which this appeal is concerned. The
question is whether the Courts in this country should permit the continuance of
these proceedings against Bertola in view of clause (15) of .the agreement, which
provides for "law claims" to be submitted to the Barcelona Court of Justice. It
appears likely that at trial there may be a contest as to whether or not that clause is
an "exclusive jurisdiction clause": for the purposes of this appeal, however, it was
conceded. on behalf of the plaintiffs that it should be so regarded and that
accordingly the burden lying upon the plaintiffs when asserting that they can
successfully claim to continue proceedings here is heavier than it would be if the
jurisdiction given to the Barcelona Court had 'not been exclusive.

The authorities relating to this aspect of the case were cited in the first instance
judgment. Thereupon the Judge rightly decided to apply the most stringent of the
tests laid down in them. He referred to the judgment of Diplock Ltd. in
Mackendov. v. Feldia A. G. [1967] 2 Q.B. 590, 604, where he said, "I, should
require very strong reasons to induce me to permit one of them" i.e. the parties -
"to go back on his word", and of Lord Denning M.R. in YTC Universal Ltd.' v.
Trans Europa Compania de Aviaeron S.A. October 7, 1968, C.A.; Bar Library
Transcript No.366, where he said, "effect should usually be given to" the
"agreement, though there may be exceptional cases where a case may be allowed
to proceed in these Courts despite such agreement". The Judge went on to say
that, having taken all relevant matters into consideration, he nevertheless
concluded.

"without hesitation that for a number of reasons this is a proper case for the
exercise of jurisdiction under Ord. 11 in relation to both writs, because of the
special circumstances of this case."

In my judgment, too, this is plainly a case in which jurisdiction under Ord.11


should be exercised as regards both concurrent writs in favour of the plaintiffs.
The reasons for this course being adopted were fully set out in the judgment of
Ken J. (supra at pp. 363B - 364F) and can be summarized as follows by quoting
from the judgment,
First,

".. this is a case of which the substance is exclusively concerned with this country.
It is a battle about the proper marketing of sherry in the United Kingdom."

Secondly,

"Whatever may be the right view about all these allegations, all the essential
witnesses concerning these issues are here, and all these issues essentially relate
to the marketing conditions of sherry in this country and nowhere else."

Thirdly,

"Having chosen to give battle about the plaintiffs' marketing achievements in this
country, Bertola have not merely purported to terminate .the agreement but also to
appoint another distributor, I.S.I., in the place of Evans Marshall. In doing this
they must have known that it would be likely, if not certain, as happened, to
provoke a bitter conflict between Evans Marshall and I.S.I. in the sherry market of
the United Kingdom over this brand of sherry. Predictably, Evans Marshall have
then instituted proceedings against both I.S.I. and Bertola to restrain them from
continuing with this course and to claim damages. In these circumstances it seems
to me that it does not lie in the mouth of Bertola to say that the conflict between
Evans Marshall and Bertola should be separated from that between Evans
Marshall and I.S.I. but Evans Marshall's claims against I.S.I. which were
provoked by the actions of Bertola, have nothing to do with the Court at
Barcelona. It follows that Bertola are therefore not only a proper and necessary
party to Evans Marshall's proceedings against I.S.I. within Ord.11, but that
Bertola have brought this state of affairs about by their own actions in purporting
to terminate the agreement and to appoint I.S.I, instead. How then can Bertola be
heard to say that Evans Marshall must fight one battle here and the other in
Spain?

Fourthly,

"..It is clear from the evidence that Spanish law does not differ from English law
in the relevant respects to any substantial extent."

He had previously brought out the fact that in so far as Bertola seeks to establish
that the agreement is void as being in unreasonable restraint of trade they rely on
English law, which, I would add, involves difficult and controversial contentions.
He accordingly expressed the view that:-

"In all these circumstances I consider that it would be unjust if Bertola could on
the one hand take the course which they have taken in relation to the agency in
this country, but at the .same time avoid the jurisdiction of the Courts of this
country. I believe that the discretion which the English Courts have,
notwithstanding a foreign jurisdiction clause exclusive or otherwise is designed to
avoid unjust results such as those."

As I have held hereinabove that with the advancement of science and technology
the question of convenience and inconvenience of party is not so material to
wriggle out from the validly constituted agreement between them, I would also
like to mention here that there is no reciprocal agreement between the
Government of Pakistan and the Government of Germany anal as such even if any
decree is passed by this Court same cannot be executed in the Court of Germany
as foreign judgment.

For the foregoing reasons listed application is granted and the proceedings in the suit are
stayed. The plaintiff, if so advised, can approach for adjudication of his claim before the
Court at Krefeld, Germany.

M.B.A./L-13/K Application allowed.


2007 C L D 762

[Karachi]

Before Maqbool Baqar, J

Messrs TIME N VISIONS INTERNATIONAL (PVT.) LTD.-Plaintiff

Versus

DUBAI ISLAMIC BANK PAKISTAN LIMITED---Defendant

Suit No.862 of 2006, decided on 30th August, 2006.

(a) Contract Act (IX of 1872)---

----S. 202---Agency coupled with interest---Concept---Scope and applicability.

The concept of an `agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agent in the subject-matter of the agency which is sought to be
protected through creation of the agency and not `an interest arising therefrom. The
concept can be clearly comprehended through the illustration given in section 202 of the
Contract Act.

Where the agency is created by deed, or for valuable consideration, and the authority is
given to effectuate a security to secure the interest of the agent, the authority cannot be
revoked. Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the authority,
the authority is irrevocable on the ground that it is coupled with an interest. So, an
authority to sell in consideration of forbearance to sue for previous advances, an authority
to apply for share to be allotted on an underwriting agreement a commission being paid
for the underwriting, and an authority to receive rents until the principal and interest of a
loan have been paid off or to receive money from a third party in payment of a debt, have
been held to be irrevocable. On the other hand, an authority is not irrevocable merely
because the agent has a special property in or a lien upon goods to which the authority
relates, the authority not being given for the purpose of securing the claims of the agent.

Section 202, Contract Act, 1872 lays down an exception to the general rule. A contract of
agency by its very nature is personal to the parties and revocable at their volition subject
to agreed terms. It does not create eternal legal relations. Under this section in certain
exceptional circumstances, such contracts can be considered irrevocable, the most
common examples of such contracts are when the owner of certain goods appoints his
creditor as agent to sell the goods and recover the amount advanced or where the owner
of immovable property, having agreed to transfer such property appoints, before formal
title is passed, the vendee as his agent to manage the property or effect the final transfer
of title. In such cases interest in the property has already been created in favour of
another who is appointed agent primarily to secure such interest. The principal is
precluded from revoking the authority of such agent unless otherwise agreed, because the
main interest in the property is not retained by him but is passed on to the agent. The
interest of the agent, forming subject-matter of the agency, is to be some sort of an
adverse nature qua the principal. So, according to the true construction and scope of
section 202 the agency can be said to be coupled with interest where the authority of an
agent is given for the purpose of effectuating a security or of securing an interest of the
agent. This can be inferred from documents forming the basis of agency or from the
course of dealings between the parties and from the other surrounding circumstances.

Section 202 does not get attracted merely because the agent has acquired substantial
interest in the returns arising from the agency. A comparison between sections 202 and
206 may clarify the legal position. Under section 206 when the contract of agency does
not contain a specific stipulation as to termination, it may be terminated upon reasonable
notice. In the absence of such notice the damage resulting to one party must be made
good by the other. If the principal terminates the agency without notice, he must
compensate the agent. It follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an interest
in the continuance of an agency section 202 gets attracted. Section 202 applies only
where an agent has a special kind of interest i.e. pre-existing interest in the subject-matter
of the agency which is sought to be protected through creation of the agency and not an
interest arising therefrom.

Substantial investment in the business of agency would not make the agency irrevocable.

As regards the contention .that the agent had invested colossal amount of funds in setting
up of office and necessary infrastructure and so the agency was irrevocable, suffice it to
say that setting up of office and employment of necessary, staff was essential for carrying
on the business of the agency. These acts were not anterior to the contract. These were not
consideration to any right of agent. Under no circumstances they can be considered as
security for any interest of the agent under the agreement of agency.

Halsbury's Laws of England IVth Edn. Vol. I; p.2036; Messrs Business Computing
International (Pvt.) Ltd. v. IBM World Trade Corporation 1997 CLC 1903; World Wide
Trading Company v. Sanyo-Electric Trading Company Ltd. and another PLD 1986 Kar.
234; Messrs Farooq & Co. v. Federation of Pakistan and 3 others 1996 CLC 2030 and
Palani Vannan v. Krishnaswami Konar AIR 1946 Mad. 2036 fol.

Ghulam Ishaq Khan Institute of Engineering, Science and Technology and another v.
Messrs Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants 1998 CLC 485;
Manzoor Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984
CLC 3342; Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD
1622; M/s. Jamia industries Ltd. v. Messrs Pakistan Refinary Ltd., Karachi PLD 1976
Kar. 644; Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others 2002
MLD 784; Unreported judgment passed in Suit. No. 388 of 2002 between ACB (Pvt.)
Ltd. UPS Worldwide; Pak National Construction Co. v. State Bank of Pakistan PLD 1977
Kar. 838; Progressive Engineering Associates v. Pakistan Steel Mills Corporation Limited
1997 CLC 236; Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. 2005 CLD 1805; Huma
Enterprises v: S. Pir Ali Shah and others 1985 CLC 1522; World Wide Trading v. Sanyo
Electric Trading Co. Ltd. and another PLD 1986 Kar. 234; Farooq & Co. v. Federation of
Pakistan and others 1996 CLC 2030; Business Computing International v. IBM World
Trade Corporation 1997 CLC 1903; Philippine Airlines v. Paramount Aviation (Pvt.) Ltd.
and others PLD 1999 Kar. 227 and Muhammad Yousuf v. M/s. Urooj (Pvt.) Limited and
another PLD 2003 Kar. 16 ref.

(b) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), S.202---Agency agreement--Application to file in


court arbitration agreement---Powers conferred on the court under S.20, Arbitration Act,
1940---Scope.

Question as to whether, in the present case, in terms of the agency agreement, the agency
could be terminated by serving two months' advance notice, only after the initial two
years of the creation of the agency, would certainly require interpretation of the
agreement itself, and which question, in view of the clause of agreement, which provides
for a dispute resolution mechanism through arbitration in respect of every dispute,
difference or question which may at any time arise between the parties, touching or
arising out of or in respect of the agreement, can only be decided by the arbitrators. The
scope of the powers conferred on the Court under section 20 of the Arbitration Act, 1940
is merely limited to determination of the factum of real dispute and no more. It is not for
the Court to go into the question pertaining to the dispute raised or suggested, the manner
of decision thereof for that would amount to usurping the jurisdiction of the domestic
tribunal constituted under the arbitration agreement. Court, therefore would refrain from
delving into the controversy as to at what point of time the parties can exercise their
option to terminate the agency, which forms, a real dispute amenable to arbitration only.

Jamia Industries Limited v. Pakistan Refinery Ltd. PLD 1976 Kar. 644 and Manzoor
Construction Co. Ltd. v. University of Engineering and Technology Taxila 1984 CLC
3347 ref.

(c) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), Ss.201 & 202---Specific: Relief Act (I of 1877),
Ss.12, 42 & 55--Agency agreement---Termination of agency--Arbitration clause in
agency agreement---Application to file in court agreement and for grant of injunction---
Agency in question was not an agency coupled with interest--Such agency did not attract
exceptional status of irrevocability as provided by S.202, Contract Act, 1872--Provision
of S.201, Contract Act, 1872 provided for termination of an agency by the Principal
revoking his authority, an order restraining the principal from revoking the agency and
forcing the principal to continue with relationship would not be justified, as even if the
arbitrators come to the conclusion that the termination of the agency would, in terms of
the agreement, be premature for want of the requisite notice, the agent may be duly
compensated by awarding damages---Application for grant of injunction was dismissed
and defendant was directed to file the original arbitration agreement in court within
specified time---Principles.

Huma Enterprises and 3 others v. S. Pir Ali Shah and others 1985 CLC 1522; West
Pakistan Industrial Development Corporation, Karachi v. Aziz Qureshi 1973 SCMR 555
and Messrs Business Computing International (Pvt.) Ltd. v. IBM World Trade
Corporation 1997 CLC 1903 ref.

Abdul Hafeez Pirzada, Hasaamuddin and Abdul Sattar Pirzada for Plaintiff.

Rasheed A. Razvi and Mahmood Mandviwala for Defendant.

Dates of hearing: 24th and 30th August, 2006.

JUDGMENT

MAQBOOL BAQAR, J.---Through this order I propose to dispose of the main petition
under section 20 of the Arbitration Act, as well as the injunction application, being
.C.M.A. No.4941 of 2006 filed by the plaintiff.

The relevant facts of the case in brief are that under and in terms of an 'Advertising
Agency Agreement' executed between the parties on 15-10-2005, ('The agreement') the
plaintiff company, who are engaged in the business of advertising, and according to them,
are providing a range of advertising services to several entities, were appointed by the
defendant bank, as their exclusive advertising agent in Pakistan, for their brands and
other advertising work for the period from 15-10-2005 up to 14-10-2006, and agreed to
pay to the plaintiff a monthly retainer-ship fees of Rs.6,75,000 (Rupees Six hundred. and
Seventy Five Thousand only). In terms of clause 3 of the agreement, the relationship was
to be renewed automatically after the initial period ending on 14-10-2006, for one more
year i.e. up to 14-10-2007. It was further agreed that the agreement will continue to be
renewed by the parties for subsequent years and the relationship will remain in force till
such time as the agreement is revoked or terminated, as envisaged by clause 4 of the
agreement, which provides that the agreement can be terminated by either party only after
serving two (2) months prior/advance notice. In addition to the retainer fee, the plaintiff,
in terms of the agreement, is also entitled to commissions for the various services that the
plaintiff was required to provide under the agreement and as enumerated under clauses 5
and 6 thereof. Clause 17 of the agreement, by way of dispute, resolution, mechanism,
provides that every dispute, difference or question, which may anytime arise between the
parties thereto, or any person claiming under them, touching or arising out of or in
respect of the agreement shall be referred to the arbitrators named therein. Such
arbitration to be conducted in accordance with the Arbitration Act, 1940.

It is claimed by the plaintiff that under clause 3 of the Agency Agreement, the Agreement
is valid up to 14-10-2007 (i.e. two years from the date of its execution) and that after
such period of two years, the Agreement would continue to remain in force unless the
same is terminated by one of the parties by serving on the other party a two months prior
notice. It is further claimed that in view of the various clauses of the Agreement,
'particularly, clauses 2.6 and 8.1, the agency is of the nature of an agency coupled with
interest and cannot, therefore, in view of the bar as contemplated by section 202 of the
Contract Act, be terminated to the prejudice of such 'interest. It is then alleged that
despite the above and without any cause or reason, the representative of the defendant has
informed the plaintiff that the defendant is taking steps to terminate the Agency
Agreement. It is further stated that the compensation offered by the defendant for such
un-lawful breach of the Agreement, 'to say the least being paltry' is, not acceptable to the
plaintiff, as the proposed termination shall cause a tremendous and irreparable loss to the
plaintiff. It is claimed that the plaintiff has incurred substantial expenditure and put in
labour in fulfilment of its obligations under the Agreement, and in establishing a good-
will for the defendant among its potential customers in Pakistan, and was allured to
commit its capital on the assurances and guarantees of remuneration and fees embodied
in the Agency Agreement, the defendant cannot therefore terminate the relationship at
this stage. It is claimed that the plaintiff has been performing his obligations as an agent
to the complete satisfaction of the defendant. Neither has the plaintiff defaulted in
fulfilling any of its obligations under the Agreement, nor has there been any allegation of
default on the part of the plaintiff. On the contrary, the defendant on several occasions
commended the plaintiff performance. However, the defendant realizing its position of
advantage, has in the most unscrupulous manner decided to engage the services of
another entity and unlawfully discontinued its contractual relationship with the plaintiff.

Along with the main petition, the plaintiff have filed an application for restraining the
defendant from acting in contravention of the Agency Agreement and from entering into
an Agency Agreement with any other party. (C.M.A. No.4941/2006).

Through their counter affidavit, the defendants have opposed the grant of interim relief as
prayed for by the plaintiff. They have denied that the agency in question is coupled with
interest. It is contended that by its very nature the relationship between the parties as
created through the present agreement, does not create an agency coupled with interest. It
is averred that the application is barred by section 21 of the Specific Relief Act, as an
agreement of the nature as in question is incapable of specific performance as monetary
compensation is an adequate relief and also for the reason that the agreement is inherently
revocable. It is pointed out that the agreement provides for termination through clause 4,
which envisages its termination by either party by serving two months prior notice. It is
submitted that section 202 of the Contract Act applies only where an agent has a pre-
existing interest in the subject matter of the agency, which is sought to be protected
through the creation of the agency. It is further submitted that nature of an advertising
agency and specially with the rights and obligations as created under the agreement in
question can never create a proprietary interest sufficient enough to attract the provisions
of section 202 of the Contract Act. It is further submitted that admittedly the plaintiff is
providing advertising services to various entities which is violative of clause 5(iii) of the
Agreement. It is claimed that the defendant is a subsidiary of the first Islamic Bank of the
world, and has been recently established in Pakistan for providing and facilitating Islamic
mode of financing and the interim injunction granted in this case on 26-6-2006 is
effecting the entire marketing and business development of the defendant as a newly
established Islamic Bank. It is claimed that the defendant has neither intended nor entered
into any relationship of a permanent nature with the plaintiff. It is further claimed that in
the event the interim injunction is allowed to continue the future operations and
development of the defendant as a newly established Islamic. Bank will suffer immensely
and the defendant marketing and advertising will cease completely as marketing and
advertising plays a crucial role in the development of the banking products. It is alleged
that, owing to the unprofessional attitude of the plaintiff and by its attempt to forcibly
continue the relationship, the defendant is suffering huge financial losses.

In their rejoinder to the defendant's counter affidavit, the plaintiff have claimed to have
incurred huge expenditures, towards fulfilment of its obligations under the Agreement. It
is also claimed that the plaintiff, for the benefit of the defendant, has engaged the services
of several professionals with expertise in concept and creative development and client
servicing for a period of two years. The plaintiff has further claimed to have executed
several contracts with various parties for propagating the business of the plaintiff. It is
submitted that unless the interim injunction is confirmed, the plaintiff shall be faced with
multiplicity of proceedings and shall suffer irreparable losses. It is denied that the
plaintiff committed any breach of any of its obligations under the Agreement. It is alleged
that all the resources of the plaintiff have been diverted towards the furtherance of its
contractual obligations and for the development of the defendant's business to their
satisfaction.

Mr. Abdul Hafeez Pirzada, the learned counsel for the plaintiff in support of the plaintiffs
plea for referring the matter to the arbitrators, submitted that in terms of section 20 of the
Arbitration Act, all that is required for such referral is that there should be an arbitration
agreement between the parties and that a dispute has arisen between the parties and the
Court to which application was made has jurisdiction in the matter. He submitted that the
agency created under the agreement is in the nature of an agency coupled with interest, as
the plaintiff in pursuance of the agreement. has incurred heavy expenditure by employing
professionals to carry out their obligations in terms thereof. The learned counsel referred
to clauses 2, 6, 7 and 8.1, to show that the plaintiff is not only entitled to a monthly
retainership fee but is also entitled to. commissions for the various services that the
plaintiff has rendered, and is obliged to render to the defendant, and submitted that in
view of such financial interest also, the relationship cannot be denied its attribute of an
agency coupled with interest and thus in view of the bar, as envisaged by section 202 of
the Contract Act, the agency cannot be terminated at the whims of the defendants. He
submitted that in addition to the fact that the agency is coupled with interest and without
prejudice to his contention that the agreement cannot be terminated to the prejudice of
such interest, even in terms of the agreement itself, it cannot be terminated during the
period up to 14-10-2007. He 'referred to clause 3 of the agreement and submitted that
after the initial one year period, ending on 14-10-2006, the agreement will automatically
stand renewed for another term of one year up to 14-10-2007, and the parties may
thereafter continue the relationship for subsequent years. He contended that from the
language employed in clause 3 of the agreement, it is clear that even in terms thereof the
relationship is not terminable before 14-10-2007, and the termination through a two
months advance notice as envisaged therein is only in respect of any further renewal of
the agreement that the parties may agree to, However, the defendant in clear breach of the
terms and even without any notice .and/or justification, is admittedly contemplating
termination of the agency. The learned counsel submitted that the plaintiff has not only
employed several professionals in order to do the various jobs and provide various
services to the plaintiff in terms of the agreement, but have, in pursuance of the
agreement, entered into several agreements with various parties. He referred to sub-
clause (iv) of clause 5 of the Agency Agreement which envisages outsourcing
development of advertisement for the defendants, and submitted that in the event the
agency is terminated prematurely, the plaintiff shall face multiple litigation and shall
suffer irreparable loss. The learned counsel submitted that substantial amounts towards
the various services provided by the plaintiff to the defendant are still outstanding and in
the event of termination of the agency, the plaintiff shall also suffer loss of future
retainership fee and commissions and requested that the matter may be referred to the
arbitrators and the defendants may be restrained from terminating the agency till the
making of the award. In support of hiss argument, Mr. Pirzada referred to the following
cases:

(1) Ghulam Ishaq Khan Institute of Engineering, Science and Technology and
another v. M/s. Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants
1998 CLC 485.

(2) Manzoor Construction Co. Ltd. v. University of Engineering and Technology,


Taxila 1984 CLC 3342.

(3) Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD
1622.

(4) M/s. Jamia Industries Ltd. v. M/s. Pakistan Refinary Ltd., Karachi PLD 1976
Kar. 644.

(5) Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others
2002 MLD 784.

On the other hand, Mr. Rasheed A. Razvi, the learned counsel for the defendant submitted
that no cause of action has accrued to the plaintiff for filing the present suit as the
defendant have not terminated the Agency Agreement as yet. He further submitted that
even otherwise the plaintiff, in the facts and circumstances of the case is not entitled to a
declaration as they propose to seek through arbitration, as no perpetual relationship has
been created between the parties under or in terms of the Agreement and the relationship
between the parties does not attract the provisions of section 202 of the Contract Act, so
as to make it irrevocable. He submitted that section 202 of the Contract Act only applies
where an agent has a pre-existing interest in the subject matter of the agency, and the
agency, of the nature in question cannot, by any stretch of imagination, be deemed to be
an agency coupled with interest. He submitted that the two elements as claimed by the
plaintiff, namely expenses incurred by the plaintiff and the prospects of earning
commissions and retainership fee are not of such nature so as to create interest as
envisaged by section 202 of the Contract Act. He submitted that the Agency Agreement
itself provides for termination by serving two months advance notice as provided under
clause 4 of the agreement. Mr. Razvi relied on the following judgments:

(i) Un-reported judgment passed in Suit No. 388 of 2002 between ACB (Pvt.) Ltd.
UPS Worldwide.

(ii) Pak National Construction Co. v. State Bank of Pakistan (PLD 1977 Karachi
838).

(iii) Jamia Industries v. M/s. Pak Refinery Ltd. Karachi (PLD 1976 Karachi 644).

(iv) Progressive Engineering Associates v. Pakistan Steel Mills Corporation


Limited (1997 CLC 236).

(v) Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. (2005 ^LD 1805).

(vi) Huma Enterprises v. S. Pir Ali Shah & others (1985 CLC 1522).

(vii) World Wide Trading v. Sanyo Electric Trading Co. Ltd. & another (PLD
1986 Karachi 234).

(viii) Farooq & Co. v. Federation of Pakistan and, others (1996 CLC 2030).

(ix) Business Computing Int. v. IBM World Trade Corporation (1997 CLC 1903).

(x) Philippine Airlines v. Paramout Aviation (Pvt.) Ltd. & others (PLD 1999
Karachi 227).

(xi) Muhammad Yousuf v. M/s Urooj (Pvt.) Limited & another (PLD 2003
Karachi 16).

As regards the preliminary objection raised by Mr. Rasheed A. Razvi that since
the defendant agency has not been terminated by the defendants as yet, no cause of action
has accrued to the plaintiff for filing the present petition. It may be noted that the
defendants have not denied the fact that they are/were in the process of termination of the
agency. On the contrary they have submitted that they are being forced to continue their
relationship with the plaintiff, through interim injunction and thus it can be seen that the
termination of the agency is clearly in the offing. The dispute/controversy between the
parties as has now emerged is regarding (i) the nature of the agency, as to whether or not
the agency is coupled with interest, so as to attract the bar contained in section 202 of the
Contract Act. (ii)' As to whether, in terms of clause 3 of the agreement, the agency is
terminable by either party, through a two months advance notice, or as to whether such
termination is permissible only after a period of two years from its commencement i.e.
after 14-10-2007 only.
The plaintiffs have attempted to attribute to the agency in question, the status of an
agency coupled with interest, and thus claimed a bar to its termination, as contemplated
in terms of section 202 of the Contract Act, on the grounds that (i) they have made
substantial investment in order to provide to the defendant the various services they were
obliged to provide under and in terms of the agreement and towards fulfilling its
obligation thereunder and (ii) agreement promises to them financial rewards by way of
payments of retainership fee and commissions for the various services that they are
obliged to provide under the agreement. It is contended that by virtue of the above, the
plaintiffs acquired interest in the subject matter of the agency agreement.

The concept of an 'agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agency in the subject-matter of the agency which is sought to be
protected through creation of the agency and not an interest arising therefrom. The
concept can be clearly comprehended through the following illustration given in section
202 of the Contract Act:--

(a) A gives authority to B to sell A's land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority, nor can it
be terminated by his insanity or death.

(b) A consigns 1,000 bales of cotton to B, who has made advances to him on
such cotton, and desires B to sell the cotton, and to repay himself, out of the price,
the amount of his own advances, A cannot revoke this authority, nor is it
terminated by his insanity or death.

The concept has been well illustrated at page 2036 of Halsbury's Laws of England, IVth
Edn., Volume-I, in the following words:--

'868. Authority coupled with interest.---Where the agency is created by deed, or


for valuable consideration, and the authority is given to effectuate a security or to
security or to secure the interest of the agent, the authority cannot be revoked.
Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the
authority, the authority is irrevocable, on the ground that it is coupled with an
interest. So, an authority to sell in consideration of forbearance to sue for previous
advances, an authority to apply for share to be allotted on an underwriting
agreement a commission being paid for the underwriting, and an authority to
receive rents until the principal and interest of a loan have been paid off or to
receive money from a third party in payment of a debt, have been held to be
irrevocable. On the other hand, an authority is not irrevocable merely because the
agent has a special property in or a lien upon goods to which the authority relates,
the authority not being given for the purpose of securing the claims of the agent.'

In the case of M/s. Business Computing' International (Pvt.) Ltd. v. IBM World Trade
Corporation (1997 CLC 1903), Sabihuddin Ahmed, C.J. has dilated upon the scope and
applicability of the concept of an agency coupled with interest in the context of section
202 of Contract Act in the following words:- -

'9. In our legal system, this concept has been stated in section 202 of the Contract
Act which reads as under:-

Termination of agency where agent has an interest in subject matter.---Where the


agent has himself an interest in the property which forms the subject-matter of the
agency,. the agency cannot in the absence of an express contract, be terminated to
the prejudice of such interest.'

It may be seen that the above section lays down an exception to the general rules. A
contract of agency by its very nature is personal to the parties and revocable at their
volition subject to agreed terms. It does not create eternal legal relations. Under this
section in certain exceptional circumstances, such contracts can be considered
irrevocable, the most common examples of such contracts are when the owner of certain
goods appoints his creditor as agent to sell the goods and recover the amount advanced or
where the owner of immovable property, having agreed to transfer such property
appoints, before formal title is passed, the vendee as his agent to manage the property or
effect the final transfer of title. In such cases interest in the property has already been
created in favour of another who is appointed agent primarily to secure such interest. The
principal is precluded from revoking the authority of such agent unless otherwise agreed,
because the main interest in the property is not retained by him but passed on to the
agent. This concept has been lucidly explained by Tanzil-ur-Rehman, J., in the case of
World Wide Trading Company v. Santo Trading Company PLD 1986 Kar. 234 cited
above to the following effect:--

'The interest of the agent, forming subject-matter of the agency, is to be some sort
of an adverse nature qua the principal. So, according to the true construction and
scope of section 202 the agency can be said to be coupled with interest where the
authority of an agent is given for the purpose of effectuating a security or of
securing an interest of the agent. This can be inferred from documents forming the
basis of agency or from the course of dealings between the parties and from the
'other surrounding circumstances.'

And further that:

'I am unable to subscribe to the view that section 202 gets attracted merely
because the agent has acquired substantial interest in the returns arising from the
agency. Apart from the observations in the cases of World Wide Trading Co. (PLD
1986 Kar. 234) and Farooq and Co. (1996 CLC 2030) cited above, a comparison
between sections 202 and 206 may clarify the legal position. Under section 206
when the contract of agency does not contain a specific stipulation as to
termination, it may be terminated upon reasonable notice. In the absence of such
notice the damage resulting to one party must be made good by the other. If the
principal terminates the agency without notice, he must compensate the agent. It
obviously follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an
interest in the continuance of an agency section 202 gets attracted. I am, therefore,
clearly of the opinion that section 202 applies only where an agent has a special
kind of interest i.e. pre-existing interest in the subject-matter of the agency which
is sought to be protected through creation of the agency and not an interest arising
therefrom.'

His Lordship further held that substantial investment in the business of agency would not
make the agency irrevocable.

The contention that since the agent had invested colossal amount of funds in setting up of
office and necessary infrastructure, the agency was irrevocable, was rejected by Mian
Allah Nawaz, J in the case of M/s. Farooq and Co. v. Federation of Pakistan and 3 others
(1996 CLC 2030) in the following words:--

'As regards the contention that the petitioner had invested colossal amount of
funds in setting up of office and necessary infrastructure and so the agency was
irrevocable, suffice it to say that setting up of office and employment of necessary
staff was essential for carrying on the business of the agency. These acts were not
anterior to the contract. These were not consideration to any right of petitioner.
Under no circumstances they can hi be considered as security for any interest of
the agent under the agreement of agency. On this state of affairs it is quite clear to
me that the conditions postulated in section 202 of the Act are not attracted to the
facts and circumstances of the case in hand. Reference be profitably made to
Palani Vannan v. Krishnaswami Konar AIR 1946 Madras 2036.'

In view of the foregoing it is now abundantly clear that the plaintiff cannot seek
perpetuity of relationship on the ground that they have, made huge investment or have
incurred heavy expenditure or that continuity of the agency would earn them retainer fee
and commission, and moreso for the reasons that the Agreement itself provides for its
termination as envisaged therein. However, the question as to whether in terms of clause
(3) of the agreement, the agency could be terminated by serving two months' advance
notice, only after the initial two years of the creation of the agency i.e. after 14-10-2007,
would certainly require interpretation of the agreement itself, and which question, in view
of clause (17), which provides for a dispute resolution mechanism through arbitration in
respect of every dispute, difference of question which may at any time arise between the
parties, touching or arising out of or in respect of the agreement, can only be decided by
the arbitrations, as in the words of Zaffar Hussain Mirza, J (as he then was), the scope of
the powers conferred on the Court under section 20 of the Arbitration Act is merely
limited to determination of the factum of real dispute and no more. It is not for the Court
to go into the question pertaining to the dispute raised or suggest the manner of decision
thereof for that would amount to usurping the jurisdiction of the domestic tribunal
constituted under the arbitration agreement [Jamia Industries Limited v. Pakistan
Refinery Ltd. (PLD 1976 Kar. 644)]. Similar view has been expressed in Manzoor
Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC
3347. I would therefore refrain myself from dealing into the controversy as to at what
point in time the parties can exercise their option to terminate the agency, which forms, a
real dispute amenable to arbitration only.

However, having come to the conclusion that the agency in question is not an agency
coupled with interest and therefore does not attract exceptional status of irrevocability as
provided by section 202 of the Contract Act and in view of section 201 of the Contract
Act which provides for termination of an agency by the principal revoking his authority,
an order restraining the defendant from revoking the agency and forcing them to continue
with the relationship would not be justified, as even if the arbitrators come to the
conclusion that the termination of the agency would, in terms of the agreement, be
premature for want of the requisite notice, the plaintiffs may be duly compensated by
awarding damages.

I am fortified in my view by the judgments in the cases of Huma Enterprises and 3 others
v. S. Pir Ali Shah and others (1985 CLC 1522), wherein it was observed that even went,
termination notice is not given as provided in the agreement the plaintiff could only ask
for damages and not for declaration and permanent injunction, as such an agreement
cannot be specifically enforced.

A reference to the case of West Pakistan Industrial Development Corporation, Karachi v.


Aziz Qureshi (1973 SCMR 555) may also be beneficial in the present context, where the
Hon'ble Supreme Court held as follows:-

'Reading the three sections (203, 205 and 206 of the Contract Act) together it
seems to me evident that if the principal without sufficient cause revokes the
agency before the expiration of the period mentioned in the contract, he must
make compensation to the agent. Furthermore, that unless reasonable notice is
given of such revocation, the principal must make good the damage resulting to
the agent.'

In the case of M/s. Business Computing International (Pvt.) Ltd. (supra), Sabihuddin
Ahmed, C.J., whilst holding that making of substantial, investments in the business of
agency would not make the agency irrevocable, observed 'that, 'It is difficult to see how
an agent can tie down his principal into an eternal bond by making some investments
when a partner contributing a major part of the capital of a firm and tying down his assets
cannot do so. His Lordship further held that even if there has been a premature or illegal
termination of the contract of agency, it can be compensated in money terms. It would not
be just and equitable to force a relationship upon the defendant who might have to incur
further financial liabilities on account of the same, and dismissed the injunction
application.

In Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), where
the dealership/sales agreement was terminated by the principal purportedly acting in
terms 'of the agreement, under which at the most three months' notice was required to be
given. It was held that even if such notice was not given, at the most the plaintiff firm
could claim damages from the defendants and that by seeking declaration and permanent
injunction, the plaintiff was in fact seeking specific performance of the dealership/sales
agreement which agreement was not an agreement which could be got specifically
enforced through the Court and that if at all there was unlawful termination of the
sales/dealership agreement, the plaintiff firm could have only asked for damages.

The plaintiffs apprehension that since in pursuance of the agreement they have entered
into several contracts with third parties, the termination of the agency, at this stage, would
lend them into multifarious litigation is wholly un-founded and based on misconception
as clause 4 of the agreement clearly stipulates that in the event of termination of the
agency the contracts already made by the plaintiff with third parties on behalf of the
plaintiff and in respect `of all contracts that are on the books on the date of such
termination of the agreement, the parties shall perform the duties and observe the
covenant to be performed and absolved by them respectively, and therefore, the
defendants even in the case of termination of the agency would be bound to perform their
obligations in terms of such agreement provided the same have been entered into with the
consent of the defendant and in conformity with the various provisions of the agreement
in question.

In view of the foregoing, I allow the petition and direct the defendants to file the original
arbitration agreement in Court within three days from today. The case will be put up for
further orders in this behalf on 10-11-2006. The injunction application is dismissed.

M.B.A./T-6/K Order accordingly.


2007 C L D 762

[Karachi]

Before Maqbool Baqar, J

Messrs TIME N VISIONS INTERNATIONAL (PVT.) LTD.-Plaintiff

Versus

DUBAI ISLAMIC BANK PAKISTAN LIMITED---Defendant

Suit No.862 of 2006, decided on 30th August, 2006.

(a) Contract Act (IX of 1872)---

----S. 202---Agency coupled with interest---Concept---Scope and applicability.

The concept of an `agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agent in the subject-matter of the agency which is sought to be
protected through creation of the agency and not `an interest arising therefrom. The
concept can be clearly comprehended through the illustration given in section 202 of the
Contract Act.

Where the agency is created by deed, or for valuable consideration, and the authority is
given to effectuate a security to secure the interest of the agent, the authority cannot be
revoked. Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the authority,
the authority is irrevocable on the ground that it is coupled with an interest. So, an
authority to sell in consideration of forbearance to sue for previous advances, an authority
to apply for share to be allotted on an underwriting agreement a commission being paid
for the underwriting, and an authority to receive rents until the principal and interest of a
loan have been paid off or to receive money from a third party in payment of a debt, have
been held to be irrevocable. On the other hand, an authority is not irrevocable merely
because the agent has a special property in or a lien upon goods to which the authority
relates, the authority not being given for the purpose of securing the claims of the agent.

Section 202, Contract Act, 1872 lays down an exception to the general rule. A contract of
agency by its very nature is personal to the parties and revocable at their volition subject
to agreed terms. It does not create eternal legal relations. Under this section in certain
exceptional circumstances, such contracts can be considered irrevocable, the most
common examples of such contracts are when the owner of certain goods appoints his
creditor as agent to sell the goods and recover the amount advanced or where the owner
of immovable property, having agreed to transfer such property appoints, before formal
title is passed, the vendee as his agent to manage the property or effect the final transfer
of title. In such cases interest in the property has already been created in favour of
another who is appointed agent primarily to secure such interest. The principal is
precluded from revoking the authority of such agent unless otherwise agreed, because the
main interest in the property is not retained by him but is passed on to the agent. The
interest of the agent, forming subject-matter of the agency, is to be some sort of an
adverse nature qua the principal. So, according to the true construction and scope of
section 202 the agency can be said to be coupled with interest where the authority of an
agent is given for the purpose of effectuating a security or of securing an interest of the
agent. This can be inferred from documents forming the basis of agency or from the
course of dealings between the parties and from the other surrounding circumstances.

Section 202 does not get attracted merely because the agent has acquired substantial
interest in the returns arising from the agency. A comparison between sections 202 and
206 may clarify the legal position. Under section 206 when the contract of agency does
not contain a specific stipulation as to termination, it may be terminated upon reasonable
notice. In the absence of such notice the damage resulting to one party must be made
good by the other. If the principal terminates the agency without notice, he must
compensate the agent. It follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an interest
in the continuance of an agency section 202 gets attracted. Section 202 applies only
where an agent has a special kind of interest i.e. pre-existing interest in the subject-matter
of the agency which is sought to be protected through creation of the agency and not an
interest arising therefrom.

Substantial investment in the business of agency would not make the agency irrevocable.

As regards the contention .that the agent had invested colossal amount of funds in setting
up of office and necessary infrastructure and so the agency was irrevocable, suffice it to
say that setting up of office and employment of necessary, staff was essential for carrying
on the business of the agency. These acts were not anterior to the contract. These were not
consideration to any right of agent. Under no circumstances they can be considered as
security for any interest of the agent under the agreement of agency.

Halsbury's Laws of England IVth Edn. Vol. I; p.2036; Messrs Business Computing
International (Pvt.) Ltd. v. IBM World Trade Corporation 1997 CLC 1903; World Wide
Trading Company v. Sanyo-Electric Trading Company Ltd. and another PLD 1986 Kar.
234; Messrs Farooq & Co. v. Federation of Pakistan and 3 others 1996 CLC 2030 and
Palani Vannan v. Krishnaswami Konar AIR 1946 Mad. 2036 fol.

Ghulam Ishaq Khan Institute of Engineering, Science and Technology and another v.
Messrs Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants 1998 CLC 485;
Manzoor Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984
CLC 3342; Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD
1622; M/s. Jamia industries Ltd. v. Messrs Pakistan Refinary Ltd., Karachi PLD 1976
Kar. 644; Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others 2002
MLD 784; Unreported judgment passed in Suit. No. 388 of 2002 between ACB (Pvt.)
Ltd. UPS Worldwide; Pak National Construction Co. v. State Bank of Pakistan PLD 1977
Kar. 838; Progressive Engineering Associates v. Pakistan Steel Mills Corporation Limited
1997 CLC 236; Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. 2005 CLD 1805; Huma
Enterprises v: S. Pir Ali Shah and others 1985 CLC 1522; World Wide Trading v. Sanyo
Electric Trading Co. Ltd. and another PLD 1986 Kar. 234; Farooq & Co. v. Federation of
Pakistan and others 1996 CLC 2030; Business Computing International v. IBM World
Trade Corporation 1997 CLC 1903; Philippine Airlines v. Paramount Aviation (Pvt.) Ltd.
and others PLD 1999 Kar. 227 and Muhammad Yousuf v. M/s. Urooj (Pvt.) Limited and
another PLD 2003 Kar. 16 ref.

(b) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), S.202---Agency agreement--Application to file in


court arbitration agreement---Powers conferred on the court under S.20, Arbitration Act,
1940---Scope.

Question as to whether, in the present case, in terms of the agency agreement, the agency
could be terminated by serving two months' advance notice, only after the initial two
years of the creation of the agency, would certainly require interpretation of the
agreement itself, and which question, in view of the clause of agreement, which provides
for a dispute resolution mechanism through arbitration in respect of every dispute,
difference or question which may at any time arise between the parties, touching or
arising out of or in respect of the agreement, can only be decided by the arbitrators. The
scope of the powers conferred on the Court under section 20 of the Arbitration Act, 1940
is merely limited to determination of the factum of real dispute and no more. It is not for
the Court to go into the question pertaining to the dispute raised or suggested, the manner
of decision thereof for that would amount to usurping the jurisdiction of the domestic
tribunal constituted under the arbitration agreement. Court, therefore would refrain from
delving into the controversy as to at what point of time the parties can exercise their
option to terminate the agency, which forms, a real dispute amenable to arbitration only.

Jamia Industries Limited v. Pakistan Refinery Ltd. PLD 1976 Kar. 644 and Manzoor
Construction Co. Ltd. v. University of Engineering and Technology Taxila 1984 CLC
3347 ref.

(c) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), Ss.201 & 202---Specific: Relief Act (I of 1877),
Ss.12, 42 & 55--Agency agreement---Termination of agency--Arbitration clause in
agency agreement---Application to file in court agreement and for grant of injunction---
Agency in question was not an agency coupled with interest--Such agency did not attract
exceptional status of irrevocability as provided by S.202, Contract Act, 1872--Provision
of S.201, Contract Act, 1872 provided for termination of an agency by the Principal
revoking his authority, an order restraining the principal from revoking the agency and
forcing the principal to continue with relationship would not be justified, as even if the
arbitrators come to the conclusion that the termination of the agency would, in terms of
the agreement, be premature for want of the requisite notice, the agent may be duly
compensated by awarding damages---Application for grant of injunction was dismissed
and defendant was directed to file the original arbitration agreement in court within
specified time---Principles.

Huma Enterprises and 3 others v. S. Pir Ali Shah and others 1985 CLC 1522; West
Pakistan Industrial Development Corporation, Karachi v. Aziz Qureshi 1973 SCMR 555
and Messrs Business Computing International (Pvt.) Ltd. v. IBM World Trade
Corporation 1997 CLC 1903 ref.

Abdul Hafeez Pirzada, Hasaamuddin and Abdul Sattar Pirzada for Plaintiff.

Rasheed A. Razvi and Mahmood Mandviwala for Defendant.

Dates of hearing: 24th and 30th August, 2006.

JUDGMENT

MAQBOOL BAQAR, J.---Through this order I propose to dispose of the main petition
under section 20 of the Arbitration Act, as well as the injunction application, being
.C.M.A. No.4941 of 2006 filed by the plaintiff.

The relevant facts of the case in brief are that under and in terms of an 'Advertising
Agency Agreement' executed between the parties on 15-10-2005, ('The agreement') the
plaintiff company, who are engaged in the business of advertising, and according to them,
are providing a range of advertising services to several entities, were appointed by the
defendant bank, as their exclusive advertising agent in Pakistan, for their brands and
other advertising work for the period from 15-10-2005 up to 14-10-2006, and agreed to
pay to the plaintiff a monthly retainer-ship fees of Rs.6,75,000 (Rupees Six hundred. and
Seventy Five Thousand only). In terms of clause 3 of the agreement, the relationship was
to be renewed automatically after the initial period ending on 14-10-2006, for one more
year i.e. up to 14-10-2007. It was further agreed that the agreement will continue to be
renewed by the parties for subsequent years and the relationship will remain in force till
such time as the agreement is revoked or terminated, as envisaged by clause 4 of the
agreement, which provides that the agreement can be terminated by either party only after
serving two (2) months prior/advance notice. In addition to the retainer fee, the plaintiff,
in terms of the agreement, is also entitled to commissions for the various services that the
plaintiff was required to provide under the agreement and as enumerated under clauses 5
and 6 thereof. Clause 17 of the agreement, by way of dispute, resolution, mechanism,
provides that every dispute, difference or question, which may anytime arise between the
parties thereto, or any person claiming under them, touching or arising out of or in
respect of the agreement shall be referred to the arbitrators named therein. Such
arbitration to be conducted in accordance with the Arbitration Act, 1940.

It is claimed by the plaintiff that under clause 3 of the Agency Agreement, the Agreement
is valid up to 14-10-2007 (i.e. two years from the date of its execution) and that after
such period of two years, the Agreement would continue to remain in force unless the
same is terminated by one of the parties by serving on the other party a two months prior
notice. It is further claimed that in view of the various clauses of the Agreement,
'particularly, clauses 2.6 and 8.1, the agency is of the nature of an agency coupled with
interest and cannot, therefore, in view of the bar as contemplated by section 202 of the
Contract Act, be terminated to the prejudice of such 'interest. It is then alleged that
despite the above and without any cause or reason, the representative of the defendant has
informed the plaintiff that the defendant is taking steps to terminate the Agency
Agreement. It is further stated that the compensation offered by the defendant for such
un-lawful breach of the Agreement, 'to say the least being paltry' is, not acceptable to the
plaintiff, as the proposed termination shall cause a tremendous and irreparable loss to the
plaintiff. It is claimed that the plaintiff has incurred substantial expenditure and put in
labour in fulfilment of its obligations under the Agreement, and in establishing a good-
will for the defendant among its potential customers in Pakistan, and was allured to
commit its capital on the assurances and guarantees of remuneration and fees embodied
in the Agency Agreement, the defendant cannot therefore terminate the relationship at
this stage. It is claimed that the plaintiff has been performing his obligations as an agent
to the complete satisfaction of the defendant. Neither has the plaintiff defaulted in
fulfilling any of its obligations under the Agreement, nor has there been any allegation of
default on the part of the plaintiff. On the contrary, the defendant on several occasions
commended the plaintiff performance. However, the defendant realizing its position of
advantage, has in the most unscrupulous manner decided to engage the services of
another entity and unlawfully discontinued its contractual relationship with the plaintiff.

Along with the main petition, the plaintiff have filed an application for restraining the
defendant from acting in contravention of the Agency Agreement and from entering into
an Agency Agreement with any other party. (C.M.A. No.4941/2006).

Through their counter affidavit, the defendants have opposed the grant of interim relief as
prayed for by the plaintiff. They have denied that the agency in question is coupled with
interest. It is contended that by its very nature the relationship between the parties as
created through the present agreement, does not create an agency coupled with interest. It
is averred that the application is barred by section 21 of the Specific Relief Act, as an
agreement of the nature as in question is incapable of specific performance as monetary
compensation is an adequate relief and also for the reason that the agreement is inherently
revocable. It is pointed out that the agreement provides for termination through clause 4,
which envisages its termination by either party by serving two months prior notice. It is
submitted that section 202 of the Contract Act applies only where an agent has a pre-
existing interest in the subject matter of the agency, which is sought to be protected
through the creation of the agency. It is further submitted that nature of an advertising
agency and specially with the rights and obligations as created under the agreement in
question can never create a proprietary interest sufficient enough to attract the provisions
of section 202 of the Contract Act. It is further submitted that admittedly the plaintiff is
providing advertising services to various entities which is violative of clause 5(iii) of the
Agreement. It is claimed that the defendant is a subsidiary of the first Islamic Bank of the
world, and has been recently established in Pakistan for providing and facilitating Islamic
mode of financing and the interim injunction granted in this case on 26-6-2006 is
effecting the entire marketing and business development of the defendant as a newly
established Islamic Bank. It is claimed that the defendant has neither intended nor entered
into any relationship of a permanent nature with the plaintiff. It is further claimed that in
the event the interim injunction is allowed to continue the future operations and
development of the defendant as a newly established Islamic. Bank will suffer immensely
and the defendant marketing and advertising will cease completely as marketing and
advertising plays a crucial role in the development of the banking products. It is alleged
that, owing to the unprofessional attitude of the plaintiff and by its attempt to forcibly
continue the relationship, the defendant is suffering huge financial losses.

In their rejoinder to the defendant's counter affidavit, the plaintiff have claimed to have
incurred huge expenditures, towards fulfilment of its obligations under the Agreement. It
is also claimed that the plaintiff, for the benefit of the defendant, has engaged the services
of several professionals with expertise in concept and creative development and client
servicing for a period of two years. The plaintiff has further claimed to have executed
several contracts with various parties for propagating the business of the plaintiff. It is
submitted that unless the interim injunction is confirmed, the plaintiff shall be faced with
multiplicity of proceedings and shall suffer irreparable losses. It is denied that the
plaintiff committed any breach of any of its obligations under the Agreement. It is alleged
that all the resources of the plaintiff have been diverted towards the furtherance of its
contractual obligations and for the development of the defendant's business to their
satisfaction.

Mr. Abdul Hafeez Pirzada, the learned counsel for the plaintiff in support of the plaintiffs
plea for referring the matter to the arbitrators, submitted that in terms of section 20 of the
Arbitration Act, all that is required for such referral is that there should be an arbitration
agreement between the parties and that a dispute has arisen between the parties and the
Court to which application was made has jurisdiction in the matter. He submitted that the
agency created under the agreement is in the nature of an agency coupled with interest, as
the plaintiff in pursuance of the agreement. has incurred heavy expenditure by employing
professionals to carry out their obligations in terms thereof. The learned counsel referred
to clauses 2, 6, 7 and 8.1, to show that the plaintiff is not only entitled to a monthly
retainership fee but is also entitled to. commissions for the various services that the
plaintiff has rendered, and is obliged to render to the defendant, and submitted that in
view of such financial interest also, the relationship cannot be denied its attribute of an
agency coupled with interest and thus in view of the bar, as envisaged by section 202 of
the Contract Act, the agency cannot be terminated at the whims of the defendants. He
submitted that in addition to the fact that the agency is coupled with interest and without
prejudice to his contention that the agreement cannot be terminated to the prejudice of
such interest, even in terms of the agreement itself, it cannot be terminated during the
period up to 14-10-2007. He 'referred to clause 3 of the agreement and submitted that
after the initial one year period, ending on 14-10-2006, the agreement will automatically
stand renewed for another term of one year up to 14-10-2007, and the parties may
thereafter continue the relationship for subsequent years. He contended that from the
language employed in clause 3 of the agreement, it is clear that even in terms thereof the
relationship is not terminable before 14-10-2007, and the termination through a two
months advance notice as envisaged therein is only in respect of any further renewal of
the agreement that the parties may agree to, However, the defendant in clear breach of the
terms and even without any notice .and/or justification, is admittedly contemplating
termination of the agency. The learned counsel submitted that the plaintiff has not only
employed several professionals in order to do the various jobs and provide various
services to the plaintiff in terms of the agreement, but have, in pursuance of the
agreement, entered into several agreements with various parties. He referred to sub-
clause (iv) of clause 5 of the Agency Agreement which envisages outsourcing
development of advertisement for the defendants, and submitted that in the event the
agency is terminated prematurely, the plaintiff shall face multiple litigation and shall
suffer irreparable loss. The learned counsel submitted that substantial amounts towards
the various services provided by the plaintiff to the defendant are still outstanding and in
the event of termination of the agency, the plaintiff shall also suffer loss of future
retainership fee and commissions and requested that the matter may be referred to the
arbitrators and the defendants may be restrained from terminating the agency till the
making of the award. In support of hiss argument, Mr. Pirzada referred to the following
cases:

(1) Ghulam Ishaq Khan Institute of Engineering, Science and Technology and
another v. M/s. Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants
1998 CLC 485.

(2) Manzoor Construction Co. Ltd. v. University of Engineering and Technology,


Taxila 1984 CLC 3342.

(3) Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD
1622.

(4) M/s. Jamia Industries Ltd. v. M/s. Pakistan Refinary Ltd., Karachi PLD 1976
Kar. 644.

(5) Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others
2002 MLD 784.

On the other hand, Mr. Rasheed A. Razvi, the learned counsel for the defendant submitted
that no cause of action has accrued to the plaintiff for filing the present suit as the
defendant have not terminated the Agency Agreement as yet. He further submitted that
even otherwise the plaintiff, in the facts and circumstances of the case is not entitled to a
declaration as they propose to seek through arbitration, as no perpetual relationship has
been created between the parties under or in terms of the Agreement and the relationship
between the parties does not attract the provisions of section 202 of the Contract Act, so
as to make it irrevocable. He submitted that section 202 of the Contract Act only applies
where an agent has a pre-existing interest in the subject matter of the agency, and the
agency, of the nature in question cannot, by any stretch of imagination, be deemed to be
an agency coupled with interest. He submitted that the two elements as claimed by the
plaintiff, namely expenses incurred by the plaintiff and the prospects of earning
commissions and retainership fee are not of such nature so as to create interest as
envisaged by section 202 of the Contract Act. He submitted that the Agency Agreement
itself provides for termination by serving two months advance notice as provided under
clause 4 of the agreement. Mr. Razvi relied on the following judgments:

(i) Un-reported judgment passed in Suit No. 388 of 2002 between ACB (Pvt.) Ltd.
UPS Worldwide.

(ii) Pak National Construction Co. v. State Bank of Pakistan (PLD 1977 Karachi
838).

(iii) Jamia Industries v. M/s. Pak Refinery Ltd. Karachi (PLD 1976 Karachi 644).

(iv) Progressive Engineering Associates v. Pakistan Steel Mills Corporation


Limited (1997 CLC 236).

(v) Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. (2005 ^LD 1805).

(vi) Huma Enterprises v. S. Pir Ali Shah & others (1985 CLC 1522).

(vii) World Wide Trading v. Sanyo Electric Trading Co. Ltd. & another (PLD
1986 Karachi 234).

(viii) Farooq & Co. v. Federation of Pakistan and, others (1996 CLC 2030).

(ix) Business Computing Int. v. IBM World Trade Corporation (1997 CLC 1903).

(x) Philippine Airlines v. Paramout Aviation (Pvt.) Ltd. & others (PLD 1999
Karachi 227).

(xi) Muhammad Yousuf v. M/s Urooj (Pvt.) Limited & another (PLD 2003
Karachi 16).

As regards the preliminary objection raised by Mr. Rasheed A. Razvi that since
the defendant agency has not been terminated by the defendants as yet, no cause of action
has accrued to the plaintiff for filing the present petition. It may be noted that the
defendants have not denied the fact that they are/were in the process of termination of the
agency. On the contrary they have submitted that they are being forced to continue their
relationship with the plaintiff, through interim injunction and thus it can be seen that the
termination of the agency is clearly in the offing. The dispute/controversy between the
parties as has now emerged is regarding (i) the nature of the agency, as to whether or not
the agency is coupled with interest, so as to attract the bar contained in section 202 of the
Contract Act. (ii)' As to whether, in terms of clause 3 of the agreement, the agency is
terminable by either party, through a two months advance notice, or as to whether such
termination is permissible only after a period of two years from its commencement i.e.
after 14-10-2007 only.
The plaintiffs have attempted to attribute to the agency in question, the status of an
agency coupled with interest, and thus claimed a bar to its termination, as contemplated
in terms of section 202 of the Contract Act, on the grounds that (i) they have made
substantial investment in order to provide to the defendant the various services they were
obliged to provide under and in terms of the agreement and towards fulfilling its
obligation thereunder and (ii) agreement promises to them financial rewards by way of
payments of retainership fee and commissions for the various services that they are
obliged to provide under the agreement. It is contended that by virtue of the above, the
plaintiffs acquired interest in the subject matter of the agency agreement.

The concept of an 'agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agency in the subject-matter of the agency which is sought to be
protected through creation of the agency and not an interest arising therefrom. The
concept can be clearly comprehended through the following illustration given in section
202 of the Contract Act:--

(a) A gives authority to B to sell A's land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority, nor can it
be terminated by his insanity or death.

(b) A consigns 1,000 bales of cotton to B, who has made advances to him on
such cotton, and desires B to sell the cotton, and to repay himself, out of the price,
the amount of his own advances, A cannot revoke this authority, nor is it
terminated by his insanity or death.

The concept has been well illustrated at page 2036 of Halsbury's Laws of England, IVth
Edn., Volume-I, in the following words:--

'868. Authority coupled with interest.---Where the agency is created by deed, or


for valuable consideration, and the authority is given to effectuate a security or to
security or to secure the interest of the agent, the authority cannot be revoked.
Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the
authority, the authority is irrevocable, on the ground that it is coupled with an
interest. So, an authority to sell in consideration of forbearance to sue for previous
advances, an authority to apply for share to be allotted on an underwriting
agreement a commission being paid for the underwriting, and an authority to
receive rents until the principal and interest of a loan have been paid off or to
receive money from a third party in payment of a debt, have been held to be
irrevocable. On the other hand, an authority is not irrevocable merely because the
agent has a special property in or a lien upon goods to which the authority relates,
the authority not being given for the purpose of securing the claims of the agent.'

In the case of M/s. Business Computing' International (Pvt.) Ltd. v. IBM World Trade
Corporation (1997 CLC 1903), Sabihuddin Ahmed, C.J. has dilated upon the scope and
applicability of the concept of an agency coupled with interest in the context of section
202 of Contract Act in the following words:- -

'9. In our legal system, this concept has been stated in section 202 of the Contract
Act which reads as under:-

Termination of agency where agent has an interest in subject matter.---Where the


agent has himself an interest in the property which forms the subject-matter of the
agency,. the agency cannot in the absence of an express contract, be terminated to
the prejudice of such interest.'

It may be seen that the above section lays down an exception to the general rules. A
contract of agency by its very nature is personal to the parties and revocable at their
volition subject to agreed terms. It does not create eternal legal relations. Under this
section in certain exceptional circumstances, such contracts can be considered
irrevocable, the most common examples of such contracts are when the owner of certain
goods appoints his creditor as agent to sell the goods and recover the amount advanced or
where the owner of immovable property, having agreed to transfer such property
appoints, before formal title is passed, the vendee as his agent to manage the property or
effect the final transfer of title. In such cases interest in the property has already been
created in favour of another who is appointed agent primarily to secure such interest. The
principal is precluded from revoking the authority of such agent unless otherwise agreed,
because the main interest in the property is not retained by him but passed on to the
agent. This concept has been lucidly explained by Tanzil-ur-Rehman, J., in the case of
World Wide Trading Company v. Santo Trading Company PLD 1986 Kar. 234 cited
above to the following effect:--

'The interest of the agent, forming subject-matter of the agency, is to be some sort
of an adverse nature qua the principal. So, according to the true construction and
scope of section 202 the agency can be said to be coupled with interest where the
authority of an agent is given for the purpose of effectuating a security or of
securing an interest of the agent. This can be inferred from documents forming the
basis of agency or from the course of dealings between the parties and from the
'other surrounding circumstances.'

And further that:

'I am unable to subscribe to the view that section 202 gets attracted merely
because the agent has acquired substantial interest in the returns arising from the
agency. Apart from the observations in the cases of World Wide Trading Co. (PLD
1986 Kar. 234) and Farooq and Co. (1996 CLC 2030) cited above, a comparison
between sections 202 and 206 may clarify the legal position. Under section 206
when the contract of agency does not contain a specific stipulation as to
termination, it may be terminated upon reasonable notice. In the absence of such
notice the damage resulting to one party must be made good by the other. If the
principal terminates the agency without notice, he must compensate the agent. It
obviously follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an
interest in the continuance of an agency section 202 gets attracted. I am, therefore,
clearly of the opinion that section 202 applies only where an agent has a special
kind of interest i.e. pre-existing interest in the subject-matter of the agency which
is sought to be protected through creation of the agency and not an interest arising
therefrom.'

His Lordship further held that substantial investment in the business of agency would not
make the agency irrevocable.

The contention that since the agent had invested colossal amount of funds in setting up of
office and necessary infrastructure, the agency was irrevocable, was rejected by Mian
Allah Nawaz, J in the case of M/s. Farooq and Co. v. Federation of Pakistan and 3 others
(1996 CLC 2030) in the following words:--

'As regards the contention that the petitioner had invested colossal amount of
funds in setting up of office and necessary infrastructure and so the agency was
irrevocable, suffice it to say that setting up of office and employment of necessary
staff was essential for carrying on the business of the agency. These acts were not
anterior to the contract. These were not consideration to any right of petitioner.
Under no circumstances they can hi be considered as security for any interest of
the agent under the agreement of agency. On this state of affairs it is quite clear to
me that the conditions postulated in section 202 of the Act are not attracted to the
facts and circumstances of the case in hand. Reference be profitably made to
Palani Vannan v. Krishnaswami Konar AIR 1946 Madras 2036.'

In view of the foregoing it is now abundantly clear that the plaintiff cannot seek
perpetuity of relationship on the ground that they have, made huge investment or have
incurred heavy expenditure or that continuity of the agency would earn them retainer fee
and commission, and moreso for the reasons that the Agreement itself provides for its
termination as envisaged therein. However, the question as to whether in terms of clause
(3) of the agreement, the agency could be terminated by serving two months' advance
notice, only after the initial two years of the creation of the agency i.e. after 14-10-2007,
would certainly require interpretation of the agreement itself, and which question, in view
of clause (17), which provides for a dispute resolution mechanism through arbitration in
respect of every dispute, difference of question which may at any time arise between the
parties, touching or arising out of or in respect of the agreement, can only be decided by
the arbitrations, as in the words of Zaffar Hussain Mirza, J (as he then was), the scope of
the powers conferred on the Court under section 20 of the Arbitration Act is merely
limited to determination of the factum of real dispute and no more. It is not for the Court
to go into the question pertaining to the dispute raised or suggest the manner of decision
thereof for that would amount to usurping the jurisdiction of the domestic tribunal
constituted under the arbitration agreement [Jamia Industries Limited v. Pakistan
Refinery Ltd. (PLD 1976 Kar. 644)]. Similar view has been expressed in Manzoor
Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC
3347. I would therefore refrain myself from dealing into the controversy as to at what
point in time the parties can exercise their option to terminate the agency, which forms, a
real dispute amenable to arbitration only.

However, having come to the conclusion that the agency in question is not an agency
coupled with interest and therefore does not attract exceptional status of irrevocability as
provided by section 202 of the Contract Act and in view of section 201 of the Contract
Act which provides for termination of an agency by the principal revoking his authority,
an order restraining the defendant from revoking the agency and forcing them to continue
with the relationship would not be justified, as even if the arbitrators come to the
conclusion that the termination of the agency would, in terms of the agreement, be
premature for want of the requisite notice, the plaintiffs may be duly compensated by
awarding damages.

I am fortified in my view by the judgments in the cases of Huma Enterprises and 3 others
v. S. Pir Ali Shah and others (1985 CLC 1522), wherein it was observed that even went,
termination notice is not given as provided in the agreement the plaintiff could only ask
for damages and not for declaration and permanent injunction, as such an agreement
cannot be specifically enforced.

A reference to the case of West Pakistan Industrial Development Corporation, Karachi v.


Aziz Qureshi (1973 SCMR 555) may also be beneficial in the present context, where the
Hon'ble Supreme Court held as follows:-

'Reading the three sections (203, 205 and 206 of the Contract Act) together it
seems to me evident that if the principal without sufficient cause revokes the
agency before the expiration of the period mentioned in the contract, he must
make compensation to the agent. Furthermore, that unless reasonable notice is
given of such revocation, the principal must make good the damage resulting to
the agent.'

In the case of M/s. Business Computing International (Pvt.) Ltd. (supra), Sabihuddin
Ahmed, C.J., whilst holding that making of substantial, investments in the business of
agency would not make the agency irrevocable, observed 'that, 'It is difficult to see how
an agent can tie down his principal into an eternal bond by making some investments
when a partner contributing a major part of the capital of a firm and tying down his assets
cannot do so. His Lordship further held that even if there has been a premature or illegal
termination of the contract of agency, it can be compensated in money terms. It would not
be just and equitable to force a relationship upon the defendant who might have to incur
further financial liabilities on account of the same, and dismissed the injunction
application.

In Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), where
the dealership/sales agreement was terminated by the principal purportedly acting in
terms 'of the agreement, under which at the most three months' notice was required to be
given. It was held that even if such notice was not given, at the most the plaintiff firm
could claim damages from the defendants and that by seeking declaration and permanent
injunction, the plaintiff was in fact seeking specific performance of the dealership/sales
agreement which agreement was not an agreement which could be got specifically
enforced through the Court and that if at all there was unlawful termination of the
sales/dealership agreement, the plaintiff firm could have only asked for damages.

The plaintiffs apprehension that since in pursuance of the agreement they have entered
into several contracts with third parties, the termination of the agency, at this stage, would
lend them into multifarious litigation is wholly un-founded and based on misconception
as clause 4 of the agreement clearly stipulates that in the event of termination of the
agency the contracts already made by the plaintiff with third parties on behalf of the
plaintiff and in respect `of all contracts that are on the books on the date of such
termination of the agreement, the parties shall perform the duties and observe the
covenant to be performed and absolved by them respectively, and therefore, the
defendants even in the case of termination of the agency would be bound to perform their
obligations in terms of such agreement provided the same have been entered into with the
consent of the defendant and in conformity with the various provisions of the agreement
in question.

In view of the foregoing, I allow the petition and direct the defendants to file the original
arbitration agreement in Court within three days from today. The case will be put up for
further orders in this behalf on 10-11-2006. The injunction application is dismissed.

M.B.A./T-6/K Order accordingly.


P L D 2007 Karachi 278

Before Maqbool Baqar, J

Messrs TIME N VISIONS INTERNATIONAL (PVT.) LTD.-Plaintiff

Versus

DUBAI ISLAMIC BANK PAKISTAN LIMITED---Defendant

Suit No.862 of 2006, decided on 30th August, 2006.

(a) Contract Act (IX of 1872)---

----S. 202---Agency coupled with interest---Concept---Scope and applicability.

The concept of an `agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agent in the subject matter of the agency which is sought to be
protected through creation of the agency and not an interest arising therefrom. The
concept can be clearly comprehended through the illustration given in section 202 of the
Contract Act.

Where the agency is created by deed, or for valuable consideration, and the authority is
given to effectuate a security to secure the interest of the agent, the authority cannot be
revoked. Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the authority,
the authority is irrevocable on the ground that it is coupled with an interest. So, an
authority to sell in consideration of forbearance to sue for previous advances, an authority
to apply for share to be allotted on an underwriting agreement a commission being paid
for the underwriting, and an authority to receive rents until the principal and interest of a
loan have been paid off or to receive money from a third party in payment of a debt, have
been held to be irrevocable. On the other hand, an authority is not irrevocable merely
because the agent has a special property in or a lien upon goods to which the authority
relates, the authority not being given for the purpose of securing the claims of the agent.

Section 202, Contract Act, 1872 lays down an exception to the general rule. A contract of
agency by its very nature is personal to the parties and revocable at their volition subject
to agreed terms. It does not create eternal legal relations. Under this section in certain
exceptional circumstances, such contracts can be considered irrevocable, the most
common examples of such contracts are when the owner of certain goods appoints his
creditor as agent to sell the goods and recover the amount advanced or where the owner
of immovable property, having agreed to transfer such property appoints, before formal
title is passed, the vendee as his agent to manage the property or effect the final transfer
of title. In such cases interest in the property has already been created in favour of
another who is appointed agent primarily to secure such interest. The principal is
precluded from revoking the authority of such agent unless otherwise agreed, because the
main interest in the property is not retained by him but is passed on to the agent. The
interest of the agent, forming subject-matter of the agency, is to be some sort of an
adverse nature qua the principal. So, according to the true construction and scope of
section 202 the agency can be said to be coupled with interest where the authority of an
agent is given for the purpose of effectuating a security or of securing an interest of the
agent. This can be inferred from documents forming the basis of agency or from the
course of dealings between the parties and from the other surrounding circumstances.

Section 202 does not get attracted merely because the agent has acquired substantial
interest in the returns arising from the agency. A comparison between sections 202 and
206 may clarify the legal position. Under section 206 when the contract of agency does
not contain a specific stipulation as to termination, it may be terminated upon reasonable
notice. In the absence of such notice the damage resulting to one party must be made
good by the other. If the principal terminates the agency without notice, he must
compensate the agent. It follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an interest
in the continuance of an agency section 202 gets attracted. Section 202 applies only
where an agent has a special kind of interest i.e. pre-existing interest in the subject-matter
of the agency which is sought to be protected through creation of the agency and not an
interest arising therefrom.

Substantial investment in the business of agency would not make the agency irrevocable.

As regards the contention that the agent had invested colossal amount of funds in setting
up of office and necessary infrastructure and so the agency was irrevocable, suffice it to
say that setting up of office and employment of necessary staff was essential for carrying
on the business of the agency. These acts were not anterior to the contract. These were not
consideration to any right of agent. Under no circumstances they can be considered as
security for any interest of the agent under the agreement of agency.

Halsbury's Laws of England IVth Edn. Vol. I; p.2036; Messrs Business Computing
International (Pvt.) Ltd. v. IBM World Trade Corporation 1997 CLC 1903; World Wide
Trading Company v. Sanyo Electric Trading Company Ltd. and another PLD 1986 Kar.
234; Messrs Farooq & Co. v. Federation of Pakistan and 3 others 1996 CLC 2030 and
Palani Vannan v. Krishnaswami Konar AIR 1946 Mad. 2036 fol.

Ghulam Ishaq Khan Institute of Engineering, Science and Technology and another v. M/s.
Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants 1998 CLC 485; Manzoor
Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC
3342; Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD 1622;
M/s. Jamia Industries Ltd. v. M/s. Pakistan Refinery Ltd., Karachi PLD 1976 Kar. 644;
Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others 2002 MLD
784; Unreported judgment passed in Suit No. 388 of 2002 between ACB (Pvt. Ltd. UPS
Worldwide; Pak National Construction Co. v. State Bank of Pakistan PLD 1977 Kar. 838;
Progressive Engineering Associates v. Pakistan Steel Mills Corporation Limited 1997
CLC 236; Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. 2005 CLD 1805; Huma
Enterprises v. S. Pir Ali Shah and others 1985 CLC 1522; World Wide Trading v. Sanyo
Electric Trading Co. Ltd. and another PLD 1986 Kar. 234; Farooq & Co. v. Federation of
Pakistan and others 1996 CLC 2030; Business Computing International v. IBM World
Trade Corporation 1997 CLC 1903; Philippine Airlines v. Paramout Aviation (Pvt.) Ltd.
and others PLD 1999 Kar. 227 and Muhammad Yousuf v. M/s. Urooj (Pvt.) Limited and
another PLD 2003 Kar. 16 ref.

(b) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), S.202---Agency agreement--Application to file in


court arbitration agreement---Powers conferred on the court under S.20, Arbitration Act,
1940---Scope.

Question as to whether, in the present case, in terms of the agency agreement, the agency
could be terminated by serving two months' advance notice, only after the initial two
years of the creation of the agency, would certainly require interpretation of the
agreement itself, and which question, in view of the clause of agreement, which provides
for a dispute resolution mechanism through arbitration in respect of every dispute,
difference or question which may at any time arise between the parties, touching or
arising out of or in respect of the agreement, can only be decided by the arbitrators. The
scope of the powers conferred on the Court under section 20 of the Arbitration Act, 1940
is merely limited to determination of the factum of real dispute and no more. It is not for
the Court to go into the question pertaining to the dispute raised or suggested, the manner
of decision thereof for that would amount to usurping the jurisdiction of the domestic
tribunal constituted under the arbitration agreement Court, therefore would refrain from
delving into the controversy as to at what point of time the parties can exercise their
option to terminate the agency, which forms, a real dispute amenable to arbitration only.

Jamia Industries Limited v. Pakistan Refinery Ltd. PLD 1976 Kar. 644 and Manzoor
Construction Co. Ltd. v. University of Engineering and Technology Taxila 1984 CLC
3347 ref.

(c) Arbitration Act (X of 1940)---

----S. 20---Contract Act (IX of 1872), S.202---Specific Relief Act (I of 1877), Ss.12, 42 &
55---Agency agreement---Termination of agency---Arbitration clause in agency
agreement---Application to file in court agreement and for grant of injunction---Agency
in question was not an agency coupled with interest---Such agency did not attract
exceptional status of irrevocability as provided by S.202, Contract Act, 1872---Provision
of S.201, Contract Act, 1872 provided for termination of an agency by the Principal
revoking his authority, an order restraining the principal from revoking the agency and
forcing the principal to continue with relationship would not be justified, as even if the
arbitrators come to the conclusion that the termination of the agency would, in terms of
the agreement, be premature for want of the requisite notice, the agent may be duly
compensated by awarding damages-Application for grant of injunction was dismissed
and defendant was directed to file the original arbitration agreement in court within
specified time---Principles.

Huma Enterprises and 3 others v. S. Pir Ali Shah and others 1985 CLC 1522; West
Pakistan Industrial Development Corporation, Karachi v. Aziz Qureshi 1973 SCMR 555
'and Messrs Business Computing International (Pvt.) Ltd. v. IBM World Trade
Corporation 1997 CLC 1903 ref.

Abdul Hafeez Pirzada, Hasaamuddin and Abdul Sattar Pirzada for Plaintiff.

Rasheed A. Razvi and Mahmood Mandviwala for Defendant.

Dates of hearing: 24th and 30th August, 2006.

JUDGMENT

MAQBOOL BAQAR, J.---Through this order I propose to dispose of the main petition
under section 20 of the Arbitration Act, as well as the injunction application, being
C.M.A. No. 4941 of 2006 filed by the plaintiff.

The relevant facts of the case in brief are that under and in terms of an `Advertising
Agency Agreement' executed between the parties on 15-10-2005, ('The agreement') the
plaintiff company, who are engaged in the business of advertising, and according to them,
are providing a range of advertising services to several entities, were appointed by the
defendant bank, as their exclusive advertising agent in Pakistan, for their brands and
other advertising work for the period from 15-10-2005 up to 14-10-2006, and agreed to
pay to the plaintiff a monthly retainership fees of Rs.6,75,000 (Rupees Six hundred and
Seventy Five Thousand only). In terms of clause 3 of the agreement, the relationship was
to be renewed automatically after the initial period ending on 14-10-2006, for one more
year i.e. up to 14-10-2007. It was further agreed that the agreement will continue to be
renewed by the parties for subsequent years and the relationship will remain in force till
such time as the agreement is revoked or terminated, as envisaged by clause 4 of the
agreement, which provides that the agreement can be terminated by either party only after
serving two (2) months prior/advance notice. In addition to the retainer fee, the plaintiff,
in terms of the agreement, is also entitled to commissions for the various services that the
plaintiff was required to provide under the agreement and as enumerated under clauses 5
and 6 thereof. Clause 17 of the agreement, by way of dispute, resolution, mechanism,
provides that every dispute, difference or question, which may anytime arise between the
parties thereto, or any person claiming under them, touching or arising out of or in
respect of the agreement shall be referred to the arbitrators named therein. Such
arbitration to be conducted in accordance with the Arbitration Act, 1940.

It is claimed by the plaintiff that under clause 3 of the Agency Agreement, the Agreement
is valid up to 14-10-2007 (i.e. two years from the date of its execution) and that after such
period of two years, the Agreement would continue to remain in force unless the same is
terminated by one of the parties by serving on the other party a two months prior notice.
It is further claimed that in view of the various clauses of the Agreement, particularly,
clauses 2,6 and 8.1, the agency is of the nature of an agency coupled with interest and
cannot, therefore, in view of the bar as contemplated by section 202 of the Contract Act,
be terminated to the prejudice of such interest. It is then alleged that despite the above
and without any cause or reason, the representative of the defendant has informed the
plaintiff that the defendant is taking steps to terminate the Agency Agreement. It is further
stated that the compensation offered by the defendant for such un-lawful breach of the
Agreement, `to say the least being paltry' is, not acceptable to the plaintiff, as the
proposed termination shall cause a tremendous and irreparable loss to the plaintiff. It is
claimed that the plaintiff has incurred substantial expenditure and put in labour in
fulfilment of its obligations under the Agreement, and in establishing a good-will for the
defendant among its potential customers in Pakistan, and was allured to commit its
capital on the assurances and guarantees of remuneration and fees embodied in the
Agency Agreement, the defendant cannot therefore terminate the relationship at this
stage. It is claimed that the plaintiff has been performing his obligations as an agent to the
complete satisfaction of the defendant. Neither has the plaintiff defaulted in fulfilling any
of its obligations under the Agreement, nor has there been any allegation of default on the
part of the plaintiff. On the contrary, the defendant on several occasions commended the
plaintiff performance. However, the defendant realizing its position of advantage, has in
the most unscrupulous manner decided to engage the services of another entity and
unlawfully discontinued its contractual relationship with the plaintiff.

Along with the main petition, the plaintiff have filed an application for restraining the
defendant from acting in contravention of the Agency Agreement and from entering into
an Agency Agreement with any other party. (C.M.A. No.4941/2006).

Through their counter affidavit, the defendants have opposed the grant of interim relief as
prayed for by the plaintiff. They have denied that the agency in question is coupled with
interest. It is contended that by its very nature the relationship between the parties as
created through the present agreement, does not create an agency coupled with interest. It
is averred that the application is barred by section 21 of the Specific Relief Act, as an
agreement of the nature as in question is incapable of specific performance as monetary
compensation is an adequate relief and also for the reason that the agreement is inherently
revocable. It is pointed out that the agreement provides for termination through clause 4,
which envisages its termination by either party by serving two months prior notice. It is
submitted that section 202 of the Contract Act applies only where an agent has a pre-
existing interest in the subject matter of the agency, which is sought to be protected
through the creation of the agency. It is further submitted that nature of an advertising
agency and specially with the rights and obligations as created under the agreement in
question can never create a proprietary interest sufficient enough to attract the provisions
of section 202 of the Contract Act. It is further submitted that admittedly the plaintiff is
providing advertising services to various entities which is violative of clause 5(iii) of the
Agreement. It is claimed that the defendant is a subsidiary of the first Islamic Bank of the
world, and has been recently established in Pakistan for providing and facilitating Islamic
mode of financing and the interim injunction granted in this case on 26-6-2006 is
effecting the entire marketing and business development of the defendant as a newly
established Islamic Bank. It is claimed that the defendant has neither intended nor entered
into any relationship of a permanent nature with the plaintiff. It is further claimed that in
the event the interim injunction is allowed to continue the future operations and
development of the defendant as a newly established Islamic Bank will suffer immensely
and the defendant marketing and advertising will cease completely as marketing and
advertising plays a crucial role in the development of the banking products. It is alleged
that, owing to the unprofessional attitude of the plaintiff and by its attempt to forcibly
continue the relationship, the defendant is suffering huge financial losses.

In their rejoinder to the defendant's counter affidavit, the plaintiff have claimed to have
incurred huge expenditures, towards fulfilment of its obligations under the Agreement. It
is also claimed that the plaintiff, for the benefit of the defendant, has engaged the services
of several professionals with expertise in concept and creative development and client
servicing for a period of two years. The plaintiff has further claimed to have executed
several contracts with various parties for propagating the business of the plaintiff. It is
submitted that unless the interim injunction is confirmed, the plaintiff shall be faced with
multiplicity of proceedings and shall suffer irreparable losses. It is denied that the
plaintiff committed any breach of any of its obligations under the Agreement. It is alleged
that all the resources of the plaintiff have been diverted towards the furtherance of its,
contractual obligations and for the development of the defendant's business to their
satisfaction.

Mr. Abdul Hafeez Pirzada, the learned counsel for the plaintiff in support of the plaintiff's
plea for referring the matter to the arbitrators, submitted that in terms of section 20 of the
Arbitration Act, all that is required for such referral is that there should be an arbitration
agreement between the parties and that a dispute has arisen between the parties and the
Court to which application was made has jurisdiction in the matter. He submitted that the
agency created under the agreement is in the nature of an agency coupled with interest, as
the plaintiff in pursuance of the agreement, has incurred heavy expenditure by employing
professionals to carry out their obligations in terms thereof. The learned counsel referred
to clauses 2, 6, 7 and 8.1, to show that the plaintiff is not only entitled to a monthly
retainership fee but is also entitled to commissions for the various services that the
plaintiff has rendered, and is obliged to render to the defendant, and submitted that in
view of such financial interest also, the relationship cannot be denied its attribute of an
agency coupled with interest and thus in view of the bar, as envisaged by section 202 of
the Contract Act, the agency cannot be terminated at the whims of the defendants. He
submitted that in addition to the fact that the agency is coupled with interest and without
prejudice to his contention that the agreement cannot be terminated to the prejudice of
such interest, even in terms of the agreement itself, it cannot be terminated during the
period up to 14-10-2007. He referred to clause 3 of the agreement and submitted that
after the initial one year period, ending on 14-10-2006, the agreement will automatically
stand renewed for another term of one year up to 14-10-2007, and the parties may
thereafter continue the relationship for subsequent years. He contended that from the
language employed in clause 3 of the agreement, it is clear that even in terms thereof the
relationship is not terminable before 14-10-2007, and the termination through a two
months advance notice as envisaged therein is only in respect of any further renewal of
the agreement that the parties may agree to. However, the defendant in clear breach of the
terms and even without any notice and/or justification, is admittedly contemplating
termination of the agency. The learned counsel submitted that the plaintiff has not only
employed several professionals in order to do the various jobs and provide various
services to the plaintiff in terms of the agreement, but have, in pursuance of the
agreement, entered into several agreements with various parties. He referred to sub-
clause (iv) of clause 5 of the Agency Agreement which envisages outsourcing
development of advertisement for the defendants, and submitted that in the event the
agency is terminated prematurely, the plaintiff shall face multiple litigation and shall
suffer irreparable loss. The learned counsel submitted that substantial amounts towards
the various services provided by the plaintiff to the defendant are still outstanding and in
the event of termination of the agency, the plaintiff - shall also suffer loss of future
retainership fee and commissions and requested that the matter may be referred to the
arbitrators and the defendants may be restrained from terminating the agency till the
making of the award. In support of his argument, Mr. Pirzada referred to the following
cases:

(1) Ghulam. Ishaq Khan Institute of Engineering, Science and Technology and
another v. M/s. Hassan Construction Co. (Pvt.) Ltd. Engineer and Consultants
1998 CLC 485.

(2) Manzoor Construction Co. Ltd. v. University of Engineering and Technology,


Taxila 1984 CLC 3342.

(3) Muhammad Younus and 2 others v. Abdul Ghaffar and others 1998 MLD
1622.

(4) M/s. Jamia Industries Ltd. v. M/s. Pakistan Refinery Ltd., Karachi PLD 1976
Kar. 644.

(5) Mst. Neelam Nosheen and others v. Raja Muhammad Khaqaan and others
2002 MLD 784.

On the other hand, Mr. Rasheed A. Razvi, the learned counsel for the defendant submitted
that no cause of action has accrued to the plaintiff for filing the present suit as the
defendant have not terminated the Agency Agreement as yet. He further submitted that
even otherwise the plaintiff, in the facts and circumstances of the case is not entitled to a
declaration as they propose to seek through arbitration, as no perpetual relationship has
been created between the parties under or in terms of the Agreement and the relationship
between the parties does not attract the provisions of section 202 of the Contract Act, so
as to make it irrevocable. He submitted that section 202 of the Contract Act only applies
where an agent has a pre-existing interest in the subject matter of the agency, and the
agency, of the nature in question cannot, by any stretch of imagination, be deemed to be
an agency coupled with interest. He submitted that the two elements as claimed by the
plaintiff, namely expenses incurred by the plaintiff and the prospects of earning
commissions and retainership fee are not of such nature so as to create interest as
envisaged by section 202 of the Contract Act. He submitted that the Agency Agreement
itself provides for termination by serving two months advance notice as provided under
clause 4 of the agreement. Mr. Razvi relied on the following judgments:--

(i) Un-reported judgment passed in Suit No. 388 of 2002 between ACB (Pvt.) Ltd.
UPS Worldwide;

(ii) Pak National Construction Co. v. State Bank of Pakistan (PLD 1977 Karachi
838);

(iii) Jamia Industries v. M/s. Pak Refinery Ltd. Karachi (PLD 197. Karachi 644);

(iv) Progressive Engineering Associates v. Pakistan Steel Mills Corporation


Limited (1997 CLC 236);

(v) Roomi Ent. (Pvt.) Ltd. v. Stafford Miller Ltd. (2005 CLD 1805);

(vi) Huma Enterprises v. S. Pir Ali Shah & others (1985 CLC 1522);

(vii) World Wide Trading v. Sanyo Electric Trading Co. Ltd. & another (PLD
1986 Karachi 234);

(viii) Farooq & Co. v. Federation of Pakistan and others (1996 CLC 2030);

(ix) Business Computing Int. v. IBM World Trade Corporation (1997 CLC 1903);

(x) Philippine Airlines v. Paramout Aviation (Pvt.) Ltd. & others (PLD 1999
Karachi 227);

(xi) Muhammad Yousuf v. M/s. Urooj (Pvt.) Limited & another (PLD 2003
Karachi 16).

As regards the preliminary objection raised by Mr. Rasheed A. Razvi that since the
defendant agency has not been terminated by the defendants as yet, no cause of action has
accrued to the plaintiff for filing the present petition. It may be noted that the defendants
have not denied the fact that they are/were in the process of termination of the agency. On
the contrary they have submitted that they are being forced to continue their relationship
with the plaintiff, through interim injunction and thus it can be seen that the termination
of the agency is clearly in the offing. The dispute/controversy between the parties as has
now emerged is regarding (i) the nature of the agency, as to whether or not the agency is
coupled with interest, so as to attract the bar contained in section 202 of the Contract Act.
(ii) As to whether, in terms of clause 3 of the agreement, the agency is terminable by
either party, through a two months advance notice, or as to whether such termination is
permissible only after a period of two years from its commencement i.e. after 14-10-2007
only.
The plaintiffs have attempted to attribute to the agency in question, the status of an
agency coupled with interest, and thus claimed a bar to its termination, as contemplated
in terms of section 202 of the Contract Act, on the grounds that (i) they have made
substantial investment in order to provide to the defendant the various services they were
obliged to provide under and in terms of the agreement and towards fulfilling its
obligation thereunder and (ii) agreement promises to them financial rewards by way of
payments of retainership fee and commissions for the various services that they are
obliged to provide under the agreement. It is contended that by virtue of the above, the
plaintiffs acquired interest in the subject matter of the agency agreement.

The concept of an `agency coupled with interest' is a special concept. It envisages a pre-
existing interest of the agency in the subject-matter of the agency which is sought to be
protected through creation of the agency and not an interest arising therefrom. The
concept can be clearly comprehended through the following illustration given in section
202 of the Contract Act:--

(a) A gives authority to B to sell A's land, and to pay himself, out of the proceeds,
the debts due to him from A. A cannot revoke this authority, nor can it be
terminated by his insanity or death.

(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such
cotton, and desires B to sell the cotton, and to repay himself, out of the price, the
amount of his own advances, A cannot revoke this authority, nor is it terminated
by his insanity or death.

The concept has been well illustrated at page 2036 of Halsbury's Laws of England, IVth
Edn., Volume-I, in the following words:-

'868. Authority coupled with interest.-Where the agency is created by deed, or for
valuable consideration, and the authority is given to effectuate a security or to
security or to secure the interest of the agent, the authority cannot be revoked.
Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the
authority, the authority is irrevocable on the ground that it is coupled with an
interest. So, an authority to sell in consideration of forbearance to sue for previous
advances, an authority to apply for share to be allotted on an underwriting
agreement a commission being paid for the underwriting, and an authority to
receive rents until, the principal and interest of a loan have been paid off or to
receive money from a third party in payment of a debt, have been held to be
irrevocable. On the other hand, an authority is not irrevocable merely because the
agent has a special property in or a lien upon goods to which the authority relates,
the authority not being given for the purpose of securing the claims of the agent.'

In the case of M/s. Business Computing International (Pvt.) Ltd. v. IBM World Trade
Corporation (1997 CLC 1903), Sabihuddin Ahmed, C.J. has dilated upon the scope and
applicability of the concept of an agency coupled with interest in the context of section
202 of' Contract Act in the following words:-

'9. In our legal system, this concept has been stated in section 202 of the Contract
Act which reads as under:--

`Termination of agency where agent has an interest in subject matter.---Where the


agent has himself an interest in the property which forms the subject-matter of the
agency, the agency cannot in the absence of an express contract, be terminated to
the prejudice of such interest.'

It may be seen that the above section lays down an exception to the general rules. A
contract of agency by its very nature is personal to the parties and revocable at their
volition subject to agreed terms. It does not create eternal legal relations. Under this
section in certain exceptional circumstances, such contracts can be considered
irrevocable, the most common examples of such contracts are when the owner of certain
goods appoints his creditor as agent to sell the goods and recover the amount advanced or
where the owner of immovable property, having agreed to transfer such property
appoints, before formal title is passed, the vendee as his agent to manage the property or
effect the final transfer of title. In such cases interest in the property has already been
created in favour of another who is appointed agent primarily to secure such interest. The
principal is precluded from revoking the authority of such agent unless otherwise agreed,
because the main interest in the property is not retained by him but passed on to the
agent. This concept has been lucidly explained by Tanzil-ur-Rehman, J., in the case of
World Wide Trading Company v. Sanio Trading Company PLD 1986 Kar. 234 cited
above to the following effect:--

`The interest of the agent, forming subject-matter of the agency, is to be some sort
of an adverse nature qua the principal. So`, according to the true construction and
scope of section 202 the agency can be said to be coupled with interest where the
authority of an agent is given for the purpose of effectuating a security or of
securing an interest of the agent. This can be inferred from documents forming the
basis of agency or from the course of dealings between the parties and from the
other surrounding circumstances.'

And further that:--

'I am unable to subscribe to the view that section 202 gets attracted merely
because the agent has acquired substantial interest in the returns arising from the
agency. Apart from the observations in the cases of World Wide Trading Co. (PLD
1986 Kar. 234) and Farooq and Co. (1996 CLC 2030) cited above, a comparison
between sections 202 and 206 may clarify the legal position. Under section 206
when the contract of agency does not contain a specific stipulation as to
termination, it may be terminated upon reasonable notice. In the absence of such
notice the damage resulting to one party must be made good by the other. If the
principal terminates the agency without notice, he must compensate the agent. It
obviously follows that the agent must be having an interest which must be
compensated for. Therefore it is not possible to say that whenever an agent has an
interest in the continuance of an agency section 202 gets attracted. I am, therefore,
clearly of the opinion that section 202 applies only where an agent has a special
kind of interest i.e. pre-existing interest in the subject-matter of the agency which
is sought to be protected through creation of the agency and not an interest arising
therefrom.'

His Lordship further held that substantial investment in the business of agency would not
make the agency irrevocable.

The contention that since the agent had invested colossal amount of funds in setting up of
office and necessary infrastructure, the agency was irrevocable, was rejected by Mian
Allah Nawaz, J in the case of Mls. Farooq and Co. v. Federation of Pakistan and 3 others
(1996 CLC 2030) in the following words:--

'As regards the contention that the petitioner had invested colossal amount of
funds in setting up of office and necessary infrastructure and so the agency was
irrevocable, suffice it to say that setting up of office and employment of necessary
staff was essential for carrying on the business of the agency. These acts were not
anterior to the contract. These were not consideration to any right of petitioner.
Under no circumstances they can be considered as security for any interest of the
agent under the agreement of agency. On this state of affairs it is quite clear to me
that the conditions postulated in section 202 of the Act are not attracted to the
facts and circumstances of the case in hand. Reference be profitably made to
Palani Vannan v. Krishnaswami Konar AIR 1946 Madras 2036.

In view of the foregoing it is now abundantly clear that the plaintiff cannot seek
perpetuity of relationship on the ground that they have made huge investment or have
incurred heavy expenditure or that continuity of the agency would earn them retainer fee
and commission, and moreso for the reasons that the Agreement itself provides for its
termination as envisaged therein. However, the question as to whether in terms of clause
(3) of the agreement, the agency could be terminated by serving two months' advance
notice, only after the initial two years of the creation of the agency i.e. after 14-10-2007,
would certainly require interpretation of the agreement itself, and which question, in view
of clause (17), which provides for a dispute resolution mechanism through arbitration in
respect of every dispute, difference of question which may at any time arise between the
parties, touching or arising out of or in respect of the agreement, can only be decided by
the arbitrations, as in the words of Zaffar Hussain Mirza, J (as he then was), the scope of
the powers conferred on the Court under section 20 of the Arbitration Act is merely
limited to determination of the factum of real dispute and no more. It is not for the Court
to go into the question pertaining to the dispute raised or suggest the manner of decision
thereof for that would amount to usurping the jurisdiction of the domestic tribunal
constituted under the arbitration agreement [Jamia Industries Limited v. Pakistan
Refinery Ltd. (PLD 1976 Kar. 644)1. Similar view has been expressed in Manzoor
Construction Co. Ltd. v. University of Engineering and Technology, Taxila 1984 CLC
3347. I would therefore refrain myself from dealing into the controversy as to at what
point in time the parties can exercise their option to terminate the agency, which forms, a
real dispute amenable to arbitration only.

However, having come to the conclusion that the agency in question is not an agency
coupled with interest and therefore does not attract exceptional status of irrevocability as
provided by section 202 of the Contract Act and in view of section 201 of the Contract
Act which provides for termination of an agency by the principal revoking his authority,
an order restraining the defendant from revoking the agency and forcing them to continue
with the relationship would not be justified, as even if the arbitrators come to the
conclusion that the termination of the agency would, in terms of the agreement, be
premature for want of the requisite notice, the plaintiffs may be duly compensated by
awarding damages.

I am fortified in my view by the judgments in the cases of Huma Enterprises and 3 others
v. S. Pir Ali Shah and others (1985 CLC 1522), wherein it was observed that even where
termination notice is not given as provided in the agreement, the plaintiff could only ask
for damages and not for declaration and permanent injunction, as such an agreement
cannot be specifically enforced.

A reference to the case of West Pakistan Industrial Development Corporation, Karachi v.


Aziz Qureshi. (1973 SCMR 555) may also be beneficial in the present context, where the
Hon'ble Supreme Court held as follows:--

`Reading the three sections (203, 205 and 206 of the Contract Act) together it
seems to me evident that if the principal without sufficient cause revokes the
agency before the expiration of the period mentioned in the contract, he must
make compensation to the agent. Furthermore, that unless reasonable notice is
given of such revocation, the principal must make good the damage resulting to
the agent.'

In the case of M/s. Business Computing International (Pvt.) Ltd. (supra), Sabihuddin
Ahmed, C.J., whilst holding that making of substantial investments in the business of
agency would not make the agency irrevocable, observed that, `It is difficult to see how
an agent can tie down his principal into an eternal bond by making some investments
when a partner contributing a major part of the capital of a firm and tying down his assets
cannot do so. His Lordship further held that even if there has been a premature or illegal
termination of the contract of agency, it can be compensated in money terms. It would not
be just and equitable to force a relationship upon the defendant who might have to incur
further financial liabilities on account of the same, and dismissed the injunction
application.

In Huma Enterprises and 3 others v. S. Pir Ali Shah and others (1985 CLC 1522), where
the dealership/sales agreement was terminated by the principal purportedly acting in
terms of the agreement, under which at the most three months' notice was required to be
given. It was held that even if such notice was not given, at the most the plaintiff firm
could claim damages from the defendants and that by seeking declaration and permanent
injunction, the plaintiff was in fact seeking specific performance of the dealership/sales
agreement which agreement was not an agreement which could be got specifically
enforced through the Court and that if at all there was unlawful termination of the
sales/dealership agreement, the plaintiff firm could have only asked for damages.

The plaintiff's apprehension that since in pursuance of the agreement they have entered
into several contracts with third parties, the termination of the agency, at this stage, would
lend them into multifarious litigation is wholly un-founded and based on misconception
as clause 4 of the agreement clearly stipulates that in the event of termination of the
agency the contracts already made by the plaintiff with third parties on behalf of the
plaintiff and in respect of all contracts that are on the books on the date of such
termination of the agreement, the parties shall perform the duties and observe the
covenant to be performed and absolved by them respectively, and therefore, the
defendants even in the case of termination of the agency would be bound to perform their
obligations in terms of such agreement provided the same have been entered into with the
consent of the defendant and in conformity with the various provisions of the agreement
in question.

In view of the foregoing, I allow the petition and direct the defendants to file the original
arbitration agreement in Court within three days from today. The case will be put up for
further orders in this behalf on 10-11-2006. The injunction application is dismissed.

M.B.A./T-6/K Order accordingly.


2007 M L D 1520

[Karachi]

Before Atta-ur-Rehman, J

ACB (PVT.) LTD.---Plaintiff

Versus

UPS WORLDWIDE FORWARDING INC.---Defendant

C. M. As. Nos. 5274 and 5533 of 2003 in Suit No.1033 of 2003, decided on 27th April,
2004.

Arbitration Act (X of 1940)---

---Ss. 20 & 34---Application to file arbitration .agreement in Court---Stay of legal


proceedings where there is an arbitration agreement---Scope---Sections 20 and 34,
Arbitration Act, 1940 are independent of each other; findings on section 20 of the Act,
will not bar the application under S.34, Arbitration Act, 1940---Application under S.34 of
the Act is not subject to the findings, if any, on S.20 of the Act---All the facts and
circumstances of each case have to be examined---Parties should not lightly be released
from their bargain that follows from the sanctity which the Court affixes to the
contracts---Court before refusing to stay the proceedings should conclude that
enforcement of such arbitration clause would amount to forcing the plaintiff to honour a
different contract---If the plaintiff' appears to have been seeking procedural advantages
and avoiding a trial as per agreement, a judicious and reasonable exercise of jurisdiction
would be to allow the application of defendant and stay such proceedings---Principles.

Manzoor Textile v. Nichimen Corporation 2000 MLD 641; Eckhardt & Co. v.
Muhammad Hanif PLD 1993 SC 42 and Messrs Dhanrajamal Gobindram v. Messrs
Shamji Kalidas and Co. AIR .1961 SC 1285; 1293 and 1294 distinguished.

Uzin Export Foreign Trade Co. v. Mcdonald Layton & Co. 1996 SCMR 690; The
Echhardt (1969) 2 All E.R. 641; Michael Golodetz v. Serjauddin & Co. AIR 1963 SC
1044-1046; Aratra Potato Co. Ltd. and another v. Egyptian Navigation Co. (EL Amria)
Lloyd's Law Reports 1981 Vol. 2 at page 119 and The Fehmarn Ali England Law Reports
(1958) 1 at Page 333 ref.

Qazi Faez Isa for Plaintiff.

Mahmood Mandviwala for Defendant.

ORDER
ATTA-UR-REHMAN, J.---C.M.As. Nos.5274 and 5533 of 2003. This order will
dispose of two applications. One under Order XXXIX, Rules I and 2, C.P.C. moved by
the plaintiff for an order restraining the defendant from disputing the existing relationship
between the parties and terminating the agreement dated 9-7-1989 (the agreement) and /
of appointing any other persons) to carry out any of the functions carried out by the
plaintiff under the agreement. The other under section 34 of the Arbitration Act, 1940
(1940 Act) moved by the defendant to an order, staying the proceedings in the suit under
clause (9.3) of the agreement provides the resolution of dispute through Arbitration.

2. C.M.A. No.5533 of 2003. - I will take up first the application under section 34 of the
1940 Act. The facts as narrated in the plaint are that the defendant is a USA based
Company carrying on the business of courier service. The defendant and plaintiff entered
into the agreement whereby the plaintiff was appointed as contractor for the territory of
Pakistan for carrying out the defendant's aforesaid business. The copy of the agreement is
annexure A to the plaint. A dispute arose between the parties on account of payment of
bills etc. The plaintiff, therefore, filer a suit for declaration, injunction and recovery ofs
money and prayed for:--

(a) money decree of Rs.346, 292, 0404,

(b) money decree for all amounts given by the defendants to the plaintiff from 17-
8-2003 till payment of such amounts,

(c) interest/mark up on the amounts payable by the defendant to the plaintiff @ 16


% per annum until realization of the same,

(d) declare that the defendant cannot arbitrarily determine or effect the agreement
and/or the existing relationship between the parties,

(e) to grant permanent injunction restraining the defendant and ally person
claiming through or under it from disrupting the existing relationship between the
parties,

(f) to grant permanent injunction restraining the defendant and any person
claiming through or under it from disrupting the existing relationship between the
parties, maintain status quo, not to terminate the agreement and/or appoint any
other person(s) to carry out or any of the findings being carried out by the.
plaintiff under the agreement and or in respect of UPS, cost, and

(g) other reliefs as may deem fit.

3. After the service of summons the defendant filed an application under section 34 of
the 1940 Act. This application was based on the Clause 9.5 of the agreement, which is,
reproduced hereunder:--
"9.5 the parties agree that all questions as to the validity construction and
performance of this agreement shall be governed by the laws of the United States
of America and laws of the State of New York, applicable to contracts wholly to
be performed in said suit. The parties further agree that all disputes which may
arise under, out of or in connection with or in relation to this agreement, which
cannot be resolved by negotiations between the parties, shall be finally settled
under the rules of the Arbitration of the American Arbitration Associations by
three (3) Arbitrators appointed in accordance with those Rules in----city, New
York.

"The decision of such Tribunal shall be conclusive and binding upon the parties;
and the parties consent to the jurisdiction of the Supreme Court of the State of
New York and the United States District Courts for the Southern District of New
York for the enforcement of any such decision or award pursuant thereto, and
further consent and that any process or notice to any motion of other application
may be served by certified registered mail."

4. The defendant's case is that in view of the arbitration clause no proceedings under this
suit can take place and the same are to be stayed. The defendant also referred to the
earlier proceedings in Suit No.388 of 2002 filed by the plaintiff' under section 20 of the
1940 Act, wherein the plaintiff had prayed to:--

(i) "Permit the filing of the Service Agreement dated'9th July, 1989 (Annexure
"A" hereto) in this Honourable Court:

(ii) Refer the dispute of the compensation payable to the plaintiff by the defendant
to arbitration to be conducted at Karachi by a sole arbitrator or such number of
arbitrators as this Honourable Court may be pleased to direct;

(iii) -------------------------------------

(iv) -------------------------------------

(v) -------------------------------------

5. In these proceedings the prayer of the plaintiff was declined and he filed High Court
Appeal No.19 of' 2003 which was dismissed with the following order:--

"for reasons to be recorded later, we are of the view that the appellant's
application for conduct of arbitration proceedings at Karachi was not maintainable
and justifiably dismissed. This, however, will not prejudice the appellant's right to
seek adjudication of the dispute through a civil suit and in the event of the
respondent's applying 1'or stay of suit under section 34 ibid, it would be open for
the appellant to urge the proceedings before forum stipulated in Article 9.5 service
agreement would be futile or inconvenient and the suit should not be stayed. The
appeal stands disposed of in terms along with the listed application. "
6. The plaintiff filed counter affidavit and submitted that it was no more interested in
arbitration and wanted the matter to be decided on merits by this Court in the present suit
for the reasons mentioned therein. It was further stated that the Appellate Court in Appeal
No.19 of 2003 realizing the difficulty faced by the plaintiff allowed it to urge, that if
foreign arbitration is "futile or inconvenient" the suit may not be stayed under section 34
of the Arbitration Act.

7. The defendant filed affidavit-in-rejoinder stating that it was neither inconvenient nor
futile to refer the matter to Arbitration and further that the Court not allow the plaintiff to
be released from the terms of the agreement and that the sanctity of the contract be
maintained.

8. I have heard the counsel. Mr. Mandviwala for the defendants pleaded that the plaintiff's
earlier application under section 20 was on the similar grounds as that of the present suit
and that those have already been considered by the two Courts and subsequently rejected.
The plaintiff, therefore, may not be allowed to agitate the same points and grounds
enabling it to wriggle out from the Arbitration agreement. He relied upon the following
paragraph of the order appearing on typed page (11) of the order present in suit No.388 of
2002 and reproduced hereunder:--

"From the bare perusal of the above clause, it is evident that even the legislature
has saved the applicability of the Arbitration clause, it does not mean that the
Court is divested of the jurisdiction to decide the controversy if it is otherwise
competent to adjudicate. The Court merely stay off' their hands from deciding the
dispute between the parties in accordance with the normal procedure as laid down
in various laws applicable to particular case. The Arbitration proceedings are
resorted to avoid the complexity and rigors of the procedural law. It provides a
forum as may be agreed by the parties for resolution of the dispute. The
contention of Mr. Qazi Faez Isa, learned counsel that the arbitration at the city of
New York if enforced, it would amount to give the defendant advantage over the
plaintiff as the defendant will be enjoying best of both the words i.e. venue of his
choice and a domestic forum of its own place of business. Similar arguments with
full force would be available to the defendant in case the forum of arbitration was
at Karachi. As stated by the learned counsel for the defendants, American Citizens
are facing hostile sentiments in Pakistan and they are being advised by American
Government not to travel to Pakistan. The agreement containing arbitration clause
was entered into in 1989 and was being followed till date when the plaintiff chose
to invoke the arbitration clause but with variation. "

9. Mr. Mandviwala argued that after railing in the earlier round, under section 20 of 1940
Act, the plaintiff now abandoned the arbitration clause to get the matter decided in thin
suit thereby violating the arbitration clause as well as the order passed in Suit No.388 of
2002. He pleaded that the plaintiff was indirectly seeking to set aside the arbitration
agreement and such suit was barred by section 32 of 1940 Act. He submitted that the
grounds raised by the plaintiff were not sufficient to refuse the stay of the proceedings.
He relied upon Manzoor Textile v. Nichimen Corporation 2000 MLD 641 and referred to
paragraph (14) at page 646 where in the six conditions for stay of proceedings under
section 34 of the 1940 Act were enumerated. Mr. Mandviwala submitted that all the
above conditions were met in this case. He also referred to the observations in paras (22)
and (23) at page .650 (supra) which are reproduced hereunder:--

"I cannot be mindful or well establish principle that the Court should not lightly
release the parties from the bargain, that follows, from the sanctity which the
Courts attracts to contracts. In the present case a foreign firm is involved which
entered into the contract in question on the basis that in case of any dispute the
same would be adjudicated as per arbitration clause but the plaintiff wished to
defeat the above clause with the aid of this Court. In order to acquire a respectable
place in the community of nations not only the Government but even the
individuals are expected to honour their commitments. In my view a party having
entered into an agreement after having full knowledge of its consequences cannot
be allowed to defeat the arbitration clause:"

10. Mr. Mandviwala referred to the case of Eckhardt & Co. v. Muhammad Hanif PLD
1993 SC 42 and submitted that while agreeing with the conclusion drawn by the Court
Mr. Ajmal Mian as he then was had recorded a separate note. The Honourable Judge in
the note observed that while dealing with the application under section 34 ibid in relation
to a foreign arbitration clause, unless there are compelling reasons, an arbitration clause
should be honoured; in view of modern communication and transport system such an
arbitration clause is common nowadays; and that the Court should not lightly release the
parties from their bargain; the sanctity that the Court attaches to the contracts, must be
applied with more vigour to a contract containing a foreign arbitration clause. The
learned Judge proceeded to observe that the grounds that it would be difficult to carry
voluminous evidence or witnesses to foreign country or that it would be too expensive or
that the subject matter of the contract is in Pakistan or that the breach of the contract was
taken place in Pakistan cannot be a sound ground for refusal of stay a suit. The learned
Judge also observed that in order to deprive a foreign party to undertake arbitration in a
foreign country, the Court is to conclude; that the enforcement of such an arbitration
clause would be unconscionable or would amount to forcing the plaintiff to honour a
different contract. It is noted that in the referred case the single Judge of this Court had
refused the stay and dismissed the application under section. 34 ibid and the High Court
appeal preferred before a D.B. of this Court was also dismissed and it was concluded
that:--

"In any case we cannot substitute our view for the view of the learned single
Judge even if a different view of the matter was possible so long as we find that
the learned single Judge, has exercised his discretion on relevant consideration."

11. Mr. Mandviwala also referred to the following cases:.--


(i) of Messrs Dhanrajamal Gobindram v. Messrs Shamji Kalidas and Co. AIR
1961 SC 1285; 1293 and 1294 and relied upon the following at pages 1293 .and
1294, paragraph 26;---

"In the present case the parties by their agreement have placed the power of
selecting an Arbitrator or Arbitrators (in, it is included also the umpire) in the
hands of the Chairman of the Board of Directors of the East India Cotton
Association Limited, the Court certainly performs the ministerial act of sending
the agreement to him to be dealt with by him. Once the agreement riled in Court
is sent to the Chairman, the Bye-laws lay down the procedure for the Chairman
and the appointed arbitrator or arbitrators to follow and that procedure, if
inconsistent with the Arbitration Act prevails."

(ii) Charles Louis Dreyfus & Co. v. Gurditta Mall 1911 Indian Cases 655, while
dealing with section 141, Order II, Rule 3, Schedule II, Clause 17 of C.P.C. (Act
XIV) of 1882, section 532 the Court was pleased to .observe following at page
657:--

"Parties must adhere to contracts made by them with full understanding of all the
terms and must not be allowed to resile from agreements simply because they
subsequently find it to their interest to do so. The law is definite and leaves no
option to the Court. The Arbitrator must be appointed in accordance with the
provisions of the agreement."

12. Mr. Isa, the learned counsel for the plaintiff in his reply submitted that this Court is
the natural ox most appropriate forum for trying the dispute between the parties. He
relied upon the reasons mentioned by him in para (18) of plaintiff's counter affidavit,
which are enumerated hereunder:--

(i) The agreement was executed in Pakistan and for the territory of Pakistan.

(ii) All parcels are collected in Pakistan and signed for onward distribution.

(iii) All the amounts under the agreement are delivered in Pakistan.

(iv) The claim has arisen under the agreement in Pakistan.

(v) All documentary evidence and witnesses are in Pakistan.

(vi) It is less expensive to proceed with the claim in Pakistan before this Court.

(vii) The American counsel are expensive as compare the Pakistani Counsel

(viii) The establishment of the business is in Pakistan.

(ix) The plaintiffs are incorporated in Pakistan.


(x) Obtaining visas for United States after September 11th, 2001 has become
difficult etc.

13. He submitted that there had been no specific denial from the other side of the above
and therefore, it constitutes an admission as provided under Order VIII, Rules 3, 4 and 5,
C.P.C. He Argued that in the instant case only the plaintiff has a claim against the
defendant and not vice versa; the defendants had filed no counter claim or referred the
matter to Arbitration in Pakistan or in the U.S.A. He emphatically relied upon the
following case law:--

(i) Observation at pages 694 and 695 in Uzin Export Foreign Trade Co. v.
Mcdonald Layton & Co. 1996 SCMR 690, it was observed in the case supra that:-

At page 694

"By entering into an agreement and referring the dispute to an arbitration, the
jurisdiction of the Court is not ousted. The Court has the jurisdiction to entertain
suits for adjudication of claims of parties containing arbitration clause, but subject
to the provision of law that the Court in its discretion may stay such suits.
Therefore, the Court has to consider whether discretion should be exercised in a
particular case or not. Such discretion is to be exercised judiciously, reasonably
and taking into consideration all the facts and circumstances of the case."

And at page 695

"It is now judicially recognized that inter alia the facts that in what country the
evidence is situated or readily available, the balance of inconvenience to the party
causing denial of justice or that it would be unfair to stay the proceedings have
always been considered for exercise of discretion. Same view has been taken in
certain English cases referred in the above judgments and also by the Indian
Supreme Court in Michael Golodetz and others v. Serajuddin & Co. AIR 1963 SC
1044,"

(ii) Eckhardt & Co. supra wherein at page 51 it was observed that:--

"In such circumstances, whole evidence on this point has to come from Karachi
composed of documents and oral evidence and taking of such evidence to London
would be inconvenient to the parties and also would be expensive. For facts and
reasons so stated above, we find no merit in this appeal, which is hereby
dismissed. "

(iii) The Eleftheria (1969) 2 All E.R. 641, wherein at page 645 it was observed
that:.--
"In exercising its discretion, the Court should take into account all the
circumstances of the particular case. In particular, the following matters, where
they arise, may properly be regarded; (a) In what country the evidence on the
issues of fact is situated, or more readily available, and the effect of that on the
relative convenience and expense of trial as between the English and foreign
courts; (b) Whether the law of the foreign Court applies and, if so, whether it
differs from English law in any material respects; (c) With what country either
party is connected, and how closely; (d) Whether the defendants genuinely desire
trial in the foreign country, or are only seeking procedural advantages; (e)
Whether the plaintiffs would prejudiced by having to sue in the foreign Court
because they would (i) be deprived of security for that claim, (ii) be enable to
enforce any judgment obtained, (iii) be raced with a time-bar not applicable in
England, or (iv) for political, racial, religious or other reasons be unlikely to get a
fair trial . "

Michael Golodetz v. Serajuddin & Co. AIR 1963 SC 1044-1046 paragraph (4) which is
reproduced hereunder:--

"(4) The High Court had raised itself to the question, whether the pleas raised by
the respondents constituted sufficient reason within the meaning of Arbitration
Act and pointed out, and in our judgment it was right in so doing, that the
statement made in the affidavit of the respondents had remained practically
unchallenged, that all the evidence in the case relating to the dispute was in India
and that was on strong ground for not exercising the discretion in favour of the
appellant. It must be observed that having resolved to the severe restrictions
imposed in the matter of providing foreign exchange to individual citizens it
would be impossible for the respondents to take their witnesses to New York and
to attend before the Arbitrators at the Arbitration proceedings to defend the case
against them and the proceedings before the Arbitrators would in fact be ex parte.
That would result in injustice to the respondents. Undoubtedly the appellant
would be put to some inconvenience if they are required to defend the suit riled
against them in India, but the High Court has considered the balance of
inconvenience and other circumstances and has come to the conclusion, and in
our judgment that conclusion is right, that the facts established make out
"sufficient-reason" for not granting stay."

(v) Aratra Potato Co. Ltd. and another v. Egyptian Navigation Co. (EL Amria)
Lloyd's Law Reports 1981 Vol. 2 at page 119) and submitted that the English
Court has refused to stay the suit and at page 128 observed that:--

"------Two considerations, which I regard as dominant, have lead me to that


conclusion. The first is the tact that the evidence of surveyors and agronomists on
both sides, who examined the cargo during or alter discharge, and the evidence
concerned with the speed or slowness with which the ship was discharged, is all to
be found in England. The second is the fact that the plaintiff had on foot, as a
consequence of defendant's own allegation their parallel action against the Merse
Docks and Harbour Company and that it is essential, in order to avoid the risk of
different decisions on the same issues by two different countries that the two
actions should be tried to ether". (The underlined consolidation was not referred
by the counsel for the plaintiff).

(vi) At page 123 of Al Amria supra where the learned Judge once again followed
the test laid down in the Eleftueria supra.

(vii) The Fehmarn Ali England Law Reports (1958) 1 at page 333 wherein at page
335 it was observed that:--

"It has been said by counsel for the ship owners that this contract is governed by
Russian law and should be judged by the Russian Courts, who know that law, and
that the dispute may involve evidence from witnesses in Russian about the
condition of the goods on shipment. Then why, says counsel, should not it be
judged, in Russian as the condition says'? I do not regard the choice of lawful the
contract as decisive. I prefer to look to sec with what country the dispute is most
closely concerned. Here the Russian element in the dispute seems to be
comparatively small. The dispute is between the German owners of the ship and
the English owner as of the cargo. It depends on evidence here as to the condition
of the goods when they arrived here in London and on evidence of the ship, which
is a frequent visitor to Loudon. The correspondence leaves in my mind, just as it
did in the learned Judge's mind, the impression that the German owners did not
object to the dispute being decided in this country but wished to avoid the giving
of security.

The dispute is more closely connected with England than with Russia, and I agree
with the Judge that sufficient reason has been shown why the proceedings should
continue in these Courts and should not be stayed. I would therefore dismiss the
appeal."

14. Mr. Ira finally contended that the case of the present plaintiffs is on a higher footing
than the cases referred above. He argued that the plaintiff has no idea as to the American
law, which will be resorted to the arbitration proceedings at New Yark. Secondly the
proceeding in the New York will be governed by the law of United States which in fact
are meant for the contracts to be performed there whereas no part of the instant contract
was required nor performed in United States or any part thereof.

15. I have considered the submissions of the counsel. It is an admitted legal position that
by entering into the Contract and referring the dispute to the Arbitration the jurisdiction
of the Court is not ousted. The Court has jurisdiction to entertain the suits pertaining to
the claims of the parties containing an arbitration clause but it may stay the proceedings
of such suits exercising discretion judiciously and reasonably taking into consideration,
all the facts and circumstances of each case.
16. As to the contention of Mr. Mandviwala that once the Court under section 20 has
refused to the change of the arbitration venue, the plaintiff on similar grounds cannot seek
relief guider section 34, it is now thus necessary to examine the two sections and their
scope. The relevant portions of section 20 and section 34 are reproduced hereunder:-

S. 20 Application to file in Court Arbitration Agreement.

(1) Where any persons have entered into an Arbitration Agreement before the
institution of any suit with respect to the subject-matter of an agreement or any
part of it, and where a difference has arisen to which the agreement applies, they
or any of them, instead of proceeding under Chapter 11, may apply to a Court
having jurisdiction in the matter to which the agreement relates, that the
agreement be filed in Court.

(2) The application shall be in writing .

(3) On such application being made, the Court shall direct notice thereof to be
given to all parties……………..

(4) Where no sufficient cause is shown, the Court shall order the agreement to be
filed, and shall make an order of reference to the arbitrator appointed by the
parties, whether in the agreement or otherwise, or, where the parties cannot agree
upon a arbitrator, to an arbitrator appointed by the Court.

(5) Thereafter the arbitration shall proceed------------------.

S. 34: Power to stay legal proceedings where there is an arbitration agreement.---


Where any party to an arbitration agreement or any person claiming under him
commences any legal proceedings against any other party to the agreement or any
person claiming under him in respect of any matter agreed to be preferred, any
party to such legal proceedings, may at any time before filing a written statement
or taking any other steps in the proceedings, apply to the judicial authority before
which the proceedings are pending to stay the proceedings; and if satisfied that
there is no sufficient reason why the matter should not be referred in accordance
with the arbitration agreement and that the applicant was it the time when the
proceedings were commenced, and slit remains, ready and willing to do all things
necessary to the proper conduct of the arbitration, such authority may make an
order staying the proceedings.

17. Section 20 reveal that a person party to the arbitration agreement before the
institution of any suit with respect to the subject matter of the agreement incase of dispute
may apply for the arbitration agreement to be filed in Court; on receiving such
application the Court will call upon the parties to the agreement to show cause why the
agreement, should not be filed in Court; and if no sufficient cause is shown, the Court
will odor the agreement to be filed and refer the matter to the Arbitrator. Whereas section
34 provides that the proceedings may be stayed in case:--
(i) the proceedings must have been commenced by a party to an arbitration
agreement with any other party to the agreement,

(ii) the legal proceedings which are sought to be stayed must be in respect of a
matter agreed to be referred,

(iii) the application 1'or stay must be referred by party to legal proceedings,

(iv) the request must be before the filing the written statement,

(v) the applicant must have taken no steps in the proceedings after appearance,

(vi) the applicant is and was also at the commencement of the proceedings ready
and willing to do all things necessary to the proper conduct of the arbitration. (see
Manzoor Textile Mills Ltd. supra).

18. The perusal of the two sections show that they are independent of each other. Tree
finding on section 20 application, in my view, will not bar the application under section.
54. Even otherwise an application under section 34 is not subject to the findings, if any,
on section 20. The contentions of the learned counsel for the defendant are therefore, not
tenable.

19. In the case 'in hand, while considering the fact and circumstances, it is found that:--

(i) the plaintiff is a private limited company being managed by educated persons
and well advised legally.

(ii) the plaintiff has not alleged that either they were forced to enter in the
Arbitration Agreement or that enforcement thereof would be unconscionable or
amounting to force the plaintiff to honour a different contract.

(iii) there is nothing on record to substantiate that the evidence is so voluminous


which cannot be carried to New York. It is also not established that the proposed
evidence can only be produced in Pakistan and not in United States.

(iv) the case appears to be based on documentary evidence and perhaps the
physical production of witnesses would not be necessary for that purpose. Even
otherwise the plaintiff has not disclosed the number Hof witnesses or details
thereof to establish the expensiveness of their production in New York.

(v) the plaintiff tailed to show that there is any security risk or hardship for them
or their witnesses while travelling to United States.

(vi) the plaintiff has not placed any material to show that the laws of United States
defers from the Laws of Pakistan in material aspects and if the adjudication lakes
place at United States, they will not be able to enforce the judgment against
defendants.

(vii) the plaintiff has not placed any material to show that there is no likelihood of
getting fair trial in the United States.

(viii) the grounds of inconvenience have not been established by the plaintiff.

(ix) there are no counter cases between the parties pending in Pakistan and
therefore, there is no likelihood of conl7icting judgment if this suit is stayed.

(x) the suit is between the parties to the Arbitration Agreement and no third party
is involved therein.

(xi) the plaintiff's have not been able to substantiate with any plausible reason that
they could be relieved of a valid contract and be allowed to proceed in this suit:

20. The sum up of the case law referred by the parties is that the all facts and the
circumstances of each case have to be examined. The parties should not lightly be
released from their bargain that follows from the sanctity which the Court affixes to the
contracts. The Court before refusing to slay the proceedings should conclude that
enforcement of such arbitration clause would amount to forcing the plaintiff to honour a
different contract. In this case I do not find such a situation. With respect the case law
referred by the counsel for the plaintiff does not apply to the facts of the case in hand. On
the contrary the case law referred by the counsel for the defendant supports the view that
the suit be stayed under section 34 of the 1940 Act. The plaintiff in this matter appears to
have been seeking procedural advantages and avoiding a trial as per the agreement. I am
in agreement with the contention of the counsel for the defendant that the ground raised
by the plaintiff in the plaint as well as against the application under section 34 ibid are not
sufficient/sound enough for a refusal of stay.

21. The upshot of the above is that a judicious and reasonable exercise of jurisdiction
would be to allow the application and to stay proceedings.

In the circumstances, this application is allowed and the proceedings in the matter are
stayed.

22. C.M.A. No. 5274 of 2003, in view of the order passed herein above, no further orders
are required on this application and the same is disposed of accordingly.

M.B.A:/A-76/K Application accepted.


2007 C L C 1499

[Karachi]

Before Gulzar Ahmed, J

Messrs SARWAT ALI & SONS----Applicant

Versus

GENERAL MANAGER T&T, W.T.R. QUETTA and another----Respondents

J.M. No.9 of 1987, decided on 20th June, 2007.

(a) Arbitration Act (X of 1940)---

----Ss. 30, 33 & 20---Application under Ss.30 and 33, Arbitration Act, 1940 with prayer
to set aside the award---Consultant of the contract who seemed to have entered upon a
first arbitration, had, in material sense, discussed all matters of dispute between the
parties by formulating points and then proceeded to consider the documentary evidence
that was placed before him and thereafter gave his decision---Consultant had adorned
himself as first arbitrator and at many places in his decisions mentioned that if the party
was not satisfied with his decision, appeal to a functionary of the Government
Department was provided in the arbitration clause of the agreement---Such assumption
by the consultant would not change the character of the arbitration clause itself as he
(consultant) was not named to be an arbitrator but a forum where he could settle the
dispute between the parties---Consultant, apparently was not required to hear evidence or
arguments or to make an enquiry in the form of a judicial determination but was to
confine himself to hearing point of view of both the parties and bring them to a settlement
failing which, he was to give his decision not based upon enquiry or of the nature of
judicial determination---Decision of the consultant, in circumstances, could not be termed
to be an `award' which could be made, in terms of arbitration clause only by the
functionary of the Government Department or his nominee who was named as an
arbitrator in the arbitration clause of the agreement---High Court, converted the
application under Ss.30 and 33 of Arbitration Act, 1940 into a suit under S.20, Arbitration
Act, 1940 and referred the dispute for arbitration to the functionary of the Government or
his nominee who would give award in accordance with law.

New Jubilee Insurance Company Ltd. v. National Bank of Pakistan PLD 1999 SC 1126;
Government of N.-W.F.P. v. Hussain Ahmed Haroon 2003 SCMR 104; Rasheeda Begum
v. Ch. Muhammad Anwar FLD 2003 Lah. 522; Fazal Din v. Commissioner Peshawar

Division PLD 1968 Pesh. 30; Ch. Muhammad Saleem v. Muhammad Akram PLD 1971
SC 516 and Syed Ziauddin v. Syed Raze-ud-Din 1999 YLR 978 ref.

(b) Arbitration Act (X of 1940)---


----Ss. 30, 33 & 20---Application under Ss.30 & 33 of Arbitration Act, 1940 with prayer
to set aside award---Consultant having a direct pecuniary interest in the matter, could not
at all be a judge to give decision on his entitlement to his own supervisory expenses---
Such would be violation of Art.4 of the Constitution---Said consultant, though was not a
judge to make a judicial determination but the very fact that the arbitration clause in the
agreement made him a forum for making a decision on dispute between the parties
regarding his own supervisory expenses, he was not a person qualified to sit and make
decision and his decision would not be legal and could not remain final or binding on the
parties but void--- High Court, converted the application under Ss.30 & 33 of Arbitration
Act, 1940 to a suit under S.20, Arbitration Act, 1940 and referred the dispute for
arbitration to the functionary of the Government or his nominee who would give award in
accordance with law.

Federation of Pakistan v. Muhammad Akram Shaikh PLD 1989 SC 689 fol.

(c) Administration of justice---

----Any direct pecuniary interest, however small in the subject of enquiry, does disqualify
a person from acting as a judge in the matter.

Federation of Pakistan v. Muhammad Akram Shaikh PLD 1989 SC 689 fol.

H.A. Rehmani for Applicant.

Shabbir A. Shaikh for Respondent No.1.

Nemo for Respondent No.2.

Dates of hearing: 7th, 16th, 28th February and 7th March, 2007.

JUDGMENT

GULZAR AHMED, J.--- This is an application .under sections 30 and 33 of Arbitration


Act 1940 (the Act) with prayer to set aside the award dated 27-1-1987. The respondent
No.1 has filed its objections to which rejoinder is filed by the applicant.

Brief facts of the matter arc that the applicant is a sole proprietor firm engaged as Civil
Engineer and contractor. An agreement dated 25-1-1985 was made between the applicant
and the respondent No. 1 whereby respondent No. 1 awarded to the applicant a contract
for construction of Telecommunication Building and Staff Quarters at Turbat and Panjgur.
Clause 2 of the agreement provides that general conditions of the contract and special
conditions of the contract besides other documents mentioned therein shall be deemed to
form and be read as part of this agreement. As per clause 1(b) of the general conditions of
the contract Messrs Kalimuddin Consultant, the respondent No.2 was appointed as the
consultant. For certain reasons, the contracted work could not be completed and it is
alleged that the respondent No.2 unilaterally withdrew himself from supervision of the
site vide telegram dated 6-10-1986 which resulted into suspension of the contracted
work. The reason for withdrawing from supervision of the contract work by respondent
No.2 was that the applicant has committed breach of clause 16 of the special conditions
of contract. Inasmuch as the applicant did not pay to the consultant his supervision
expenses. The applicant gave notice dated 15-10-1986 to respondent No.1 in terms of
clause 66 of the general conditions of contract for referring the dispute relating to the
payment of supervision expenses of the consultant for decision by the Director-General
Telephone and Telegraph or his nominee. In this letter, the applicant took the stand that
though before the arbitration the matter was to be referred to the consultant but the
consultant through telegram dated 6-10-198.6 has already given his decision to stop
supervision of the contracted work. The respondent No.1 through its letter dated 23-11-
1986 referred the matter to the respondent No.2 the consultant for his decision. It appears
that the consultant gave notice to the applicant of making appearance before him but the
applicant chose not to appear before him and ultimately the consultant gave his ex parte
decision dated 27-1-1987, the operative part of which is as follows;--

"Decisions

After the detailed discussions and evaluation of the provisions of the contract
agreement, following decisions are pronounced:

Dispute-I

Payments of the details supervision- expenses -under the provisions of the clause
16 of the Special Conditions of the Contract Agreement, must be made by the
Contractors directly to the Consultants under intimation to the employer with
effect from 23-1-1986.

Dispute-II

Under the provisions of clauses 61 and 65 of the General Conditions of the


Contract Agreement and clause 23 of the conditions of particular application, the
employer has every right to deduct the due monies to be paid by the Contractors
under the provisions of clause 16 of the Special Conditions of Contract.

Dispute-III

The Consultants can act as First Arbitrator under the provisions of the clause 66 of
the General Conditions of the contract. The Contractors action to approach the
Director-General, Telegraph and Telephone, directly, is in contradiction with the
provisions of the Contract Agreement.

The above decisions are made and .recorded on January 27, 1987. The
Contractors, if disagree may file appeal with the Director-General Telegraph and
Telephone Islamabad, within 30 days from the date of receipt of this
pronouncement."

The applicant has alleged that this decision of the consultant was received by it on 29-1-
1987 pursuant to which this application was: Piled on 24-2-1987 with the prayer as noted
above.

Mr. H.A. Rehmani, learned counsel for the applicant in the first place has argued that the
reference of dispute by the respondent No.1 to the consultant was altogether wrong and
illegal, as the dispute was with regard to the payment of remuneration of the consultant
and he could not be a Judge in his own cause. In support of this submission, he has relied
upon the case of New Jubilee Insurance Company Ltd. v. National Bank of Pakistan PLD
1999 SC 1126, the case of Government of N.-W.F.P. v. Hussain Ahmed Haroon 2003
SCMR 104, the case of Rasheeda Begum v. Ch. Muhammad Anwar PLD 2003 Lah. 522
and the case of Fazal Din v. Commissioner Peshawar Division PLD 1968 Pesh. 30.

On the other hand, Mr. Shabbir A. Shaikh, learned counsel for respondent No.1 has taken
a preliminary objection that the decision of the consultant is not an award and that the
application under sections '30 and 33 of the Act is not maintainable. In support of his
submissions, he relied upon the case of Ch. Muhammad Saleem v. Muhammad Akram
PLD 1971 SC 516 and the case of Syed Ziauddin v. Syed Raze-ud-Din 1999 YLR 978.

These initial arguments, which the learned counsel for the parties have urged, are legal
questions and I propose to deal with them in the first place. Clause 66 of the general
conditions of contract provides for arbitration and it reads as under:--

"Settlement of disputes

Settlement of disputes Arbitration

If any dispute or difference of any kind whatsoever shall arise between the
employer and the contractor in connection with or arising out of the contract, or
the carrying out of the work (whether during the progress of the works or after
their completion and whether before or after termination, abandonment or breach
of the contact) it shall in the first place be referred to and settled by the consultant
who shall give written notice of his decision to the contractor.

If the consultant has given written notice of his decision to the contractor and no
claim to arbitration has been communicated to the Consultant by the Contractor
within a period of thirty (30) days from receipt of such notice, the said decision
shall remain final and binding upon the Contractor. If the Contractor be
dissatisfied with any such decision then the Contractor may within thirty (30)
days alter receiving no notice of Consultant's decision. The matter or matters shall
then be referred to the Director-General, Telephones and Telegraphs or his
nominee and the decision of the Director-General or his nominee shall be final
upon both the parties."
In the face of above clause, the question that arises for determination is whether the
decision of the consultant is an award within the meaning of the Act and at the same time
whether the respondent No.1 was justified in referring the matter to the consultant. On
reading of the arbitration clause, as setup above, it is apparent that the parties had agreed
in case of dispute to refer the matter in the first place for settlement by the consultant who
shall give written notice of his decision to the contractor and on giving of such notice, if
no claim to arbitration is communicated to the consultant by the contractor within a
period of 30 days from the receipt of such notice, the decision shall remain final and
binding upon the Contractor. If the Contractor be dissatisfied with any such decision then
he may within thirty days after receiving notice of Consultant's decision, the matter shall
then be referred to Director-General, Telephone and Telegraph or his nominee and
decision of Director-General or his nominee shall be final upon both the parties. Thus,
arbitration clause provides for .two forums for settlement of dispute. First by the decision
of consultant and the second through arbitration by the Director-General, Telephone and
Telegraph or his nominee. The first forum appears to be a preliminary forum where the
matter is to be settled by the decision of consultant and it' the contractor is not satisfied
with the decision of Consultant, he is entitled to invoke the second forum which seems to
be that of arbitration before the Director-General, Telephone and Telegraph or his
nominee.

Perusal of the decision of the consultant which comprises of 14 pages shows that he
seems to have entered upon a first arbitration and in material sense has discussed all
matters of dispute between the parties by formulating points and then proceeded to
consider the documentary evidence that was placed before him and thereafter gave his
decision. In the decision itself, consultant has adorned himself as first arbitrator and at
many places mentioned that if the contractor is not satisfied with his decision, appeal to
Director-General is provided in the arbitration clause. In my view, such assumption by
the consultant will not change the character of the arbitration clause itself: as he is not
named to be an arbitrator but a forum where he may settle dispute between the parties.
Apparently, the consultant was not required to hear evidence or arguments. or to make an
enquiry in the form of a judicial determination but was to confine himself to hearing
point of view of both the parties and bring them to a settlement failing which, he was to
give his decision not based upon enquiry or of nature of judicial determination. Thus, the
decision of the consultant could not be termed to be an award which could be made, in
terms of the arbitration clause, only by the Director-General, Telephone and Telegraph or
his nominee who is named as an arbitrator in the said clause.

The other question that now needs to be considered is whether the respondent No.1 was
justified in referring the dispute to the consultant in terms of arbitration clause. The
applicant has addressed his letter dated 15-10-1996 to the respondent No.1 which is a
notice for settlement of dispute by arbitration. In this letter, the applicant has taken stand
that the Consultant vide his telegram dated 6-10-1986 has unilaterally decided to stop
supervision w.e.f. 14-10-1986 which is his final decision and not acceptable to the
applicant and sought submission of dispute to the Director-General, Telephone and
Telegraph or his nominee. The telegram of the consultant dated 6-10-1986 which instated
to be his final decision needs to be reproduced as under:--

"Messrs Sarwat Ali & Sons Room No.25, Wazir Mansion Nicol Road, Karachi.

REPEAT

Messrs Project Engineering Co. Pvt. Ltd., 701/A, Sea Breeze Plaza, Karachi.

REPEAT

Messrs Sauai Associates, Arbab Karam Khan Road, Quetta.

REPEAT

General Manager, Pakistan T&T, WTR, Quetta.

REPEAT

Division Engineer (Dev), Pakistan T&T, WTR Quetta.

Dated 6-10-1986

No.K/T&T/Genl/86/(.) Non-payment of supervision expenses to the Consultants


under clause 16 of the Special Conditions of Contract Agreement is a breach of
contract(.) Since March, 1986 you have been reminded in writing and verbally a
number of times to meet your contractual obligations in which you have failed to
date(.) Because of the non-payments of supervision expenses, consultants are
unable to continue with the supervision of the works on your sites(.) You have
been already informed of the monthly supervision expenses due against you(.)
You are hereby notified that upto date dues must be cleared within seven days
from the date of this telegram(.) In case of non-payment the consultants as a result
of breach of contract at your end shall withdraw all their supervisory staff from
sites under your contract(.) After the expiry of this notice period none of the
works carried out in the absence of consultants supervisory staff shall be
measured or verified and none of the bills shall be entertained anal scrutinized(.)

Kalimuddin Consultants"

The reading of this telegram clearly shows that the consultant, on non-payment of his
supervision expenses, has labelled it as breach of contract by applicant and notified the
applicant to clear the dues within seven days and in case of non-payment shall withdraw
supervision from the site of applicant contract and none of the works carried out in the
absence of the consultant supervisory staff shall be measured and verified and none of the
bills shall be entertained and scrutinized. This communication by the consultant to the
applicant though is not strictly in terms of arbitration clause, but it did provide sufficient
reasons to the applicant, to believe that this is what his decision is and this is what his
decision is going to be and reference of dispute to him will be a futile exercise and it does
appear to me reasonable to have believed so. As a prudent person, one could not expect
the consultant to say any thing different in his decision from what he has stated in his
telegram which is a notice to the applicant to pay his dues based upon written as well as
verbal reminders of the monthly supervision expenses due against applicant of which he
has already been informed.

As regards the submission that the decision of the consultant is illegal, it is based upon
the fact that the dispute was of payment of supervisory expenses of the consultant himself
and he could not sit as a Judge in his own cause. In the cited judgment of New Jubilee
Insurance Co. (supra) the Honourable Supreme Court has laid down the rule, that one
cannot be a Judge in his own cause and breach of this principle would, in fact, be
violative of the right of access to justice as enshrined in Article 4 of the Constitution
which right is equally founded in the doctrine of due process of law. In the case of
Government of N.-W.F.P. (supra) the facts were that certain Doctors had protested and
observed strike against appointment of non-Doctor Secretary Health upon which the
Doctors were issued show-cause notice wherein they were directed to appear before the
Secretary Health as an authorized Officer. The Doctors made representation to the Chief
Secretary for change of Authorized Officer as their grievance was against his
appointment as Secretary Health and therefore, some other independent officer be
appointed as an Authorized Officer, Chief Secretary did not respond to the request of
Doctors and the Secretary Health proceeded to pass order dismissing the Doctors from
service. Honourable Supreme Court, after discussing the principle that no person should
be a Judge in his own cause, observed as under:--

"It is to be judged whether a reasonable person in the similar situation would


assume the possibility of bias in the mind of the deciding officer. It is always a
question of fact to be decided independently in each case. In the present case the
doctors community through their Association was agitating from the very
beginning against the posting of anon-technical person as Secretary Health. This
issue was going on for a considerable period. They were having some demands as
according to their assumption their career was at stake. In these circumstances it
could not be said that their apprehension for the change of Authorized Officer was
not reasonable when they all were voicing for the change. They were certainly
having apprehension that they would not get fair treatment which apparently was
not without any foundation."

The departmental action taken against the Doctors was set aside by the Service Tribunal
and it was maintained by the Honourable Supreme Court. In this very judgment,
reference was made to the case of Federation of Pakistan v. Muhammad Akram Shaikh
PLD 1989 SC 689 in which the Honourable Supreme Court has quoted Marshall on
Natural Justice who has summarized the principle that there is no doubt that any direct
pecuniary interest, however, small in the subject of enquiry does disqualify a person from
acting as a Judge in the matter. Based upon these high and lofty pronouncements, there
could not be any two views that a person having a direct pecuniary interest as the
consultant in the present case had, could at all be a Judge to give decision of his
entitlement to his own supervisory expenses. It is violation of Article 4 of the
Constitution. Though the consultant was not a Judge to make a judicial determination but
the very fact that the arbitration clause made him a forum for making a decision on
dispute between the applicant and respondent No.1 regarding his own supervisory
expenses, in my humble view, he was not a person qualified to sit and make decision and
his decision will not be legal and cannot remain final or binding on the applicant rather I
will hold it to be void.

The request of the applicant for referring the matter to arbitration to Director-General,
Telephone and Telegraph or his nominee was for valid and justifiable reasons and the
respondent No.1 ought to have acceded to. The dispute regarding the payment of
supervisory expenses of the consultant has to be referred in terms of the arbitration clause
to the arbitrator named therein. I, therefore, convert this application to a suit under
section 20 of the Act, and while the agreement between the parties is filed refer the
dispute for arbitration by the Director-General, Telephone and Telegraph or his nominee
who will give award in accordance with law.

Office is directed to register this application as a suit under section 20 of the Act which is
disposed of in the above terms.

M.B.A./S-47/K Order accordingly.


2007 C L C 462

[Karachi]

B efore Nadeem Azhar Siddiqi, J

TRADING CORPORATION OF PAKISTAN (PVT.) LIMITED----Plaintiff

Versus

Messrs NIDERA HANDELSCOMPAGNIE B.V. MEENT 94, P.O. BOX 676, 3000
AR ROTTERDAM THE NETHERLANDS and another----Respondents

Suit No.588 of 1991, decided on 16th January, 2007.

(a) Arbitration Act (X of 1940)---

----Ss. 32 & 33---Civil Procedure Code (V of 1908), S.9---Scope and extent of


application of Ss.32 & 33 of the Arbitration Act, 1940---Jurisdiction of civil court---
Scope---Suit with the prayer to restrain the defendants from seeking remedy by way of
arbitration and in alternate to declare that no binding contract had been concluded
between the parties---Maintainability---Contentions of the plaintiff were that defendants
having failed to submit an acceptable performance bond/bank guarantee, the plaintiff was
within its right to recall the conditional acceptance communicated to defendants; that
threatened arbitration proceedings by the defendants were wholly unauthorised as no
final binding contract between the parties had come into existence; that the main
agreement was challenged and was under attack wherein the arbitration clause was
included and that agreement could not be challenged by way of an application under S.33
of the Arbitration Act, 1940 and that S.32 of the Arbitration Act, 1940 would not bar suit
where existence, effect and validity of main contract was challenged wherein arbitration
clause was also included----Validity---Section 9, C.P.C. does not bar a suit where the
existence, effect or validity of a contract is questioned in which an arbitration clause is
also incidentally included---Such a broad contract cannot, as a whole, be challenged
under S.33, Arbitration Act, 1940 though the arbitration clause therein had been
separately mentioned---Plaintiff, in the present case, having not challenged the contract as
a whole the bar contained in S.32, Arbitration Act, 1940 would not come in its way and
the suit for relief that no binding contract was concluded between the parties, was
maintainable---Principles.

In the present case, the prayer clause shows that the plaintiff has challenged the entire
contract which includes the arbitration clause also on the plea that no binding contract
having been concluded between the parties. Section 32 of the Arbitration Act, 1940, bars
suit contesting arbitration agreement. Section 32 of the said Act has a limited application
and deals with the existence, effect or validity of arbitration agreement only. Sections 32
and 33 of the Arbitration Act, 1940 cannot be invoked to challenge the contract as a
whole. The existence and validity of the contract as a whole cannot be challenged by
pressing into service sections 32 and 33 of the Act. In the present suit independent relief
challenging the contract as a whole has been claimed and this cannot be done by filing
application under section 33 of the Act. The bar contained in section 32 of the Act can
only be invoked where the remedy is available under section 33 of the Act. The civil
court has jurisdiction to try all suits of civil nature unless expressly or impliedly barred.
There is also a general presumption in law that civil court has jurisdiction over all matters
of civil nature. Any law taking away the jurisdiction of civil court is to be strictly
construed.

Section 9 of the Code of Civil Procedure does not bar a suit where the existence, effect or
validity of a contract is questioned in which an arbitration clause is also incidentally
included. Indeed, such a broad contract cannot, as a whole, be challenged under section
33 of the Arbitration Act, though the arbitration clause therein separately may be.

An independent relief which does not involve determination of the existence of


arbitration agreement or an award or their effect, is not barred by section 32 of the
Arbitration Act, 1940.

If the intention of the Legislature were that all documents containing an arbitration clause
should come within the purview of sections 32 and 33, Arbitration Act, 1940 the
Legislature would have said so in appropriate words. Sections 32 & 33, Arbitration Act,
1940 have a very limited application, namely, where the existence of validity of an
arbitration agreement and not the contract containing the arbitration agreement is
challenged. Every person, has a right to bring a suit which was of a civil nature and the
court has jurisdiction to try all suits of civil nature under section 9 of the Civil Procedure
Code that right has not been taken away by section 32 of the Arbitration Act, 1940. Such
a right can only be taken away by express terms or by necessary implication. Section 32
of the Act does not have that effect.

Section 33 of the Arbitration Act, 1940 has nothing to- do with the other terms of the
contract which the parties have signed.

Since the plaintiff', in the present case, has challenged the contract as a whole the bar
contained in section 32 of the Arbitration Act, 1940 will not come in its way and the suit
for the relief that no binding contract was concluded between the parties, is maintainable.

Messrs Awan Industries Ltd. v. The Executive Engineer Lined Channel Division and
another 1992 SCMR 65; Hassan Ali & Co. Pvt. Ltd. v. Poly Cotton S.A. and others 1996
CLC 1812; Trading Corporation of Pakistan Pvt. Ltd. Karachi v. Messrs Nidera Handles
Compagnie B.V. and another 2001 SCMR 646; Port Qasim Authority, Karachi v. Al-
Ghurair Group of Companies and others PLD 1997 Kar. 636; Messrs Trading
Corporation of Pakistan (Pvt.) Ltd. v. Messrs Nidera Handles Compagnie B.V. and
another 1998 CLC 1610; Hafiz Abdul Muqtadir and another v. Mst. Mumtaz Begum and
others 1981 CLC 1271; Orient Transport Co. Gulabra and another v. Messrs Jaya Bharat
Credit and investment Co. Ltd. and another 1988 PSC 997; Messrs Badri Narayan
Agarwala v. Messrs Pak Jute Balers Ltd. PLD 1970 SC 43 and Shiva Jute Baling Limited
v. Hindley and Company Limited AIR 1959 SC 1357 ref.

(b) Contract Act (IX of 1872)---

----S. 4---Binding contract---Contract is complete only upon acceptance of offer which


acceptance should be absolute and unqualified; it is the communication of an offer and
intimation of its acceptance which creates a contract---Evidence, in the present case, had
established that for concluding the contract it was necessary that there should be a signed
contract; the performance bond should be on the prescribed pro forma and the letter of
credit was to be opened within two weeks after signing of the contract---Performance
bond was not submitted in accordance with the pro forma attached with the relevant
document, no formal agreement was signed and no letter of credit was
established/opened---No concluded and binding agreement between the parties took place
in circumstances.

Messrs Jamal Jute Baling & Co. v. Messrs M. Sarkies & Sons PLD 1971 SC 784 and
Pakistan Steel Products v. Indus Steel Pipe Ltd. 1996 CLC 118 ref.

(c) Pleadings---

----Party cannot lead evidence which is not supported by pleadings---Party can prove a
case which has been pleaded by it---No evidence can be led or looked into in support of a
plea which has not been taken in the pleadings---Party is required to plead facts necessary
to seek relief claimed and would be entitled to produce evidence to prove those pleas---
Variation in pleading and proof is not permissible in law.

Binyameen and others v. Chaudhry Hakim and another 1996 SCMR 336 ref.

Samiuddin Sami for Plaintiff.

S. Afsar Ali Abidi for Defendants.

Dates of hearing: 13th December, 2005, 18th and 31st May, 2006.

JUDGMENT

NADEEM AZHAR SIDDIQI, J.---The plaintiff has filed the suit with the prayer to
restrain the defendants from seeking remedy by way of arbitration before FOSFA* in
U.K. and in alternate to declare that no binding contract having been concluded between
the parties.

* Federation of Oil Seeds and Fats Association

The facts necessary for the disposal of the suit are that the plaintiff invited tenders for
purchase of Soyabeen Oil on deferred payment basis. The defendant No.1 through
defendant No.2 offered to sell Soyabeen Oil at the rate of US $ 562.50 per metric ton.
The plaintiff communicated a conditional acceptance by telex dated 10-3-1991 which
stipulates signing of formal agreement and that defendant No.1 will submit .an acceptable
performance bond for the due performance of the contract strictly in accordance with the
prescribed form. The letter of credit was to be opened by the plaintiff within fourteen (14)
days from the date of signing of contract which was subject to the receipt of the bank'
guarantee in the prescribed form. On 16th March, 1991 the defendant No.2 submitted on
its letterhead a signed contract form and performance bond. The bond was not in
accordance with the lender enquiry. The plaintiff recalled the conditional. acceptance
communicated on 10-3-1991 vide communication dated 31-3-1991 for reason that the
defendants have not submitted the performance bond in accordance with the pro forma
guarantee attached to the tender inquiry and the words "or 15th August 1991, whichever
date is the earliest" has been added. The defendants first held the plaintiff in breach
offered to sell commodity to the plaintiff and claim damages of US $ 1831250 and finally
communicated to the plaintiff a notice of arbitration by Federation of Oil Seeds and Fats
Association London. The plaintiff submitted that the defendants having failed to submit
an acceptable performance bond/bank guarantee the plaintiff was within their right to
recall the conditional acceptance communicated on 10-3-1991. The plaintiff further
submits that the threatened arbitration proceedings are wholly unauthorised as no final
binding contract between the parties were come into existence.

The defendant No.1 filed written statement in which it was stated that offer was
submitted through defendant No.2 and the plaintiff has accepted the offer by its telex,
dated 10-3-1991 and submitted the contract to the plaintiff duly signed and complied its
obligation, however, the plaintiff refused to sign the formal contract. It is stated in the
written statement that the signed contract was not the requirement and that the
requirement was for an acceptable performance bond and this requirement was duly
complied with. It was further stated that the guarantee furnished contained the added
words "on 15th August, 1991, whichever date is earlier". It was further clarified that the
contract required shipment during the period March, 20th to April, 15th, 1991. The
plaintiff had only required that the guarantee should be valid in force for ninety days after
completion of discharge which means to keep the guarantee alive upto the end of July or
early August, 1991. As against this a guarantee valid upto 15th August was submitted.
The guarantee furnished contained a clause by which the bank has agreed to extend it for
such further period as may be required by the buyers (plaintiff). It was further stated that
on acceptance of offer the defendant No.1 chartered a vessel and informed the plaintiff on
12-3-1991 and the performance bond was handed over to the plaintiff on 17-3-1991 and
that performance bond was accepted and bid bond was returned and the plaintiff
appointed Messrs Thionville Surveying Company, ISA, as Pre-shipment Inspectors. It
was further stated that the plaintiff changed its mind due to sharp downward movement
of International prices for soyabeen oil.

The defendant No.2 also filed written statement and submitted that the defendant No.2
acted as agent for the specific contract in suit and has no personal stake in the contract
between the plaintiff and the defendant No.1. The defendant No.2 states that in
accordance with the instructions of defendant No.1 the defendant No.2 for and on behalf
of the defendant No.1 participated in the tender. The plaintiff has accepted the offer of the
defendant No.1. The defendant No.2 further states that there it has no personal
involvement in preparation of contract and other documents and the defendant No.2 has
simply acted as agent for and on behalf of defendant No.1.

From the pleadings of the parties the following issues have been framed on 19-3-1997:--

(1) Whether there was a concluded contract between the parties? If so whether it
is binding upon them?

(2) Could arbitration clause be invoked in the circumstances of the case?

(3) Whether the suit is maintainable in its present form?

(4) Whether the plaintiff altered its stand because of a fall in the international
price?

(5) What should the decree be?

Zahid Ahmed, Deputy Manager of the plaintiff, was examined and produced documents
as Exh.6 to Exh.20. On behalf of the defendant Muhammad Atiq was examined, who
produced documents from Exh.21/1 to Exh.21/11.

I have heard the learned counsel for the parties and perused the records and the case-law
cited by the learned counsel. I will first take up Issue No.3 with regard to maintainability
of the suit:--

Issue No.3 The defendant No.1 in para. 14 of the written statement submitted that the suit
was framed is not maintainable in law. The learned counsel for the defendant submits that
the suit is barred under sections 32 and 33 of the Arbitration Act, 1940. The learned
counsel for the defendant submits that in terms of above sections the arbitration
agreement or award can be contested only by an application and not by a regular suit. The
learned counsel for the defendant has relied upon the following reported cases:--

(1) Messrs Awan Industries Ltd. v. The Executive Engineer, Lined Channel
Division and another 1992 SCMR 65, (2) Hassan Ali & Co. (Pvt.) Ltd. v. Poly
Cotton S.A. and others 1996 CLC 1812; (3) Messrs Badri Narayan Agarwala v.
Messrs Pak Jute Balers Limited PLD 1970 SC 43, (4) Trading Corporation of
Pakistan (Pvt.) Ltd. Karachi v. Messrs Nidera Handles Compagnie B.V. and
another 2001 SCMR 646; (5) Port Qasim Authority, Karachi v. Al-Ghurair Group
of Companies and others PLD 1997 Kar. 636.

On the other hand, the learned counsel for the plaintiff has submitted that the main
agreement was challenged and under attack wherein arbitration clause was included and
that agreement cannot be challenged by way of an application under section 33 of
Arbitration Act, 1940. He further submits that section 32 of the said Act would not bar
suit where existence, effect and validity of main contract was challenged wherein
arbitration clause was also included. The learned counsel for the plaintiff has relied upon
the following reported cases:--

(1) Messrs Trading Corporation of Pakistan (Pvt.) Ltd. v. Messrs Nidera Handles
Compagnie B.V. and another 1998 CLC 1610 and (2) Hafiz Abdul Muqtadir and
another v. Mst. Mumtaz Be gum and others 1981 CLC 1271.

In the prayer clause of the plaint the plaintiff has prayed as under:--

(1) In view of the above facts it is requested that this Honourable Court may be
pleased to restrain the defendants from seeking remedy by way of arbitration
threatened by him.

(2) In the alternative declare that no binding contract having been concluded
between the parties the defendants cannot seek and proceed with Arbitration
proceedings before Federation of Oil Seeds and Fats Association.

(3) Any relief more appropriate in the circumstances of the case.

(4) Cost of the suit.

The prayer clause (2) shows that the plaintiff has challenged the entire contract which
includes the arbitration clause also on the plea that no binding contract having been
concluded between the parties. Section 32 of the Arbitration Act, 1940, (hereinafter
referred to as the said Act) bar to suit contesting arbitration agreement. The section of the
said Act has a limited application and deals with the existence, effect or validity of
arbitration agreement only. These sections cannot be invoked to challenge the contract as
a whole. The existence and validity of the contract as a whole cannot be challenged by
pressing into service sections 32 and 33 of the said Act. In the suit independent relief
challenging the contract as a whole has been claimed and this cannot be done by filing
application under section 33 of the said Act. The bar contained in section 32 of the said
Act can only be invoked where the remedy is available under section 33 of the said Act.
The civil court has jurisdiction to try all suits of civil nature unless expressly or impliedly
barred. There is also a general presumption in law that civil courts have jurisdiction over
all matters of civil nature. Any law taking away the jurisdiction of civil courts is to be
strictly construed. In the matter in hand the learned Division Bench of this Court in the
case of Messrs Trading Corporation of Pakistan (Pvt.) Ltd. v. Messrs Nidera Handles
Compagnie B.V. and another 1998 CLC 1610 while dealing the appeal filed by the
plaintiff against the dismissal of its injunction application with regard to maintainability
of suit has observed as under:--

"What, therefore, emerges from the above discussion is that section 9 of the Code
of Civil Procedure does not bar a suit where the existence, effect or validity of a
contract is questioned in which contract an arbitration clause is also incidentally
included. Indeed, such a broad contract cannot, as a whole, be challenged under
section 33 of the Arbitration Act, though the arbitration clause therein separately
may."

In another reported case of Hafiz Abdul Muqtadir and another v. Mst. Mumtaz Begum
and others 1981 CLC 1271 the learned Single Judge of this Court has observed as under:-

"From the last para. of the plaint quoted hereinabove, it is evident that one of the
reliefs prayed for, namely, relating to the restoration of articles/goods of the
plaintiffs in marketable condition which were taken from their shops on 3-9-1975
allegedly valuing Rs.35,959, is an independent relief which does not involve
determination of the existence of arbitration agreement or an award or their effect,
and, therefore, prima facie it is not barred by aforesaid section 32 of the
Arbitration Act."

The Honourable Supreme Court of India in reported case of Orient Transport Co. Gulabra
and another v. Messrs Jaya Bharat Credit and Investment Co. Ltd. and another .1988 PSC
997 has observed as under:

"... The ease of the appellant was that there was no document containing any valid
arbitration agreement in existence. This fact was raised in the plaint and issue to
that effect was raised, in other words that the appellant/plaintiff in this case had
contended that the agreements described as hire purchase agreements were untrue
and void and procured fraudulently. The issues framed by the learned trial Judge
also included this specific point section 32 of the Act does not contemplate the
case suits challenging the validity of a contract because it contains an arbitration
clause. if the intention of the Legislature were that all documents containing an
arbitration clause should come within the purview of sections 32 and 33 the
Legislature would have said so in appropriate words. These sections have a very
limited application, namely, where the existence of validity of an arbitration
agreement and not the contract containing the arbitration agreement is challenged.
Every person, it has to be borne in mind, has a right to bring a suit which was of a
civil nature and the Court had jurisdiction to try all suits of civil nature under
section 9 of the Civil Procedure Code that right has not been taken away by
section 32 of the Act. Such a right can only be taken away by express terms or by
necessary implication. Section 32 of the Act does not have that effect."

The Honourable Supreme Court of Pakistan in the case of Messrs Badri Narayan
Agarwala v. Messrs Pak Jute Balers Ltd. PLD 1970 SC 43 relying upon the case reported
as Shiva Jute Baling Limited v. Hindley and Company Limited AIR 1959 SC 1357 has
held as under:--

"We respectfully agree with the above observations. The only point that could be
raised by the appellant under section 33 was whether the clause relating to the
arbitration agreement existed. Section 33 of the Act has nothing to do with the
other terms of the contract which the appellant is said to have signed. It is true
that the case of the appellant is that he never signed the agreement in question
which contained the arbitration clause. Nonetheless his right to challenge the term
relating to arbitration cannot be denied in view of the language of section 33 of
the Arbitration Act."

From the above discussion it is clear that since the plaintiff has challenged the contract as
a whole the bar contained in section 32 of the said Act will not come in its way and the
suit for the relief that no binding contract was concluded between the parties, is
maintainable.

Issue No.1. The defendant has claimed that there was a concluded contract between the
parties. The plaintiff has denied the same and submits that for want of signing of formal
agreement and for want of submission of performance bond in accordance with the
prescribed form no binding contract was concluded between the parties.

It is an admitted position that plaintiff has not signed the contract. It is also an admitted
position that defendant has to furnish performance bond in the prescribed format which
was attached with the tender form. It is also an admitted position that the words "15th
August, 1991" were added in the performance bond. The offer made by the defendant
was accepted by the plaintiff vide Exh.8, which apart from other details in Item No.7
provides as under:--

7. Other terms N conditions As per TCP's Enquiry No.IMP-I/1(22)/91 DD 19-2-1991


and Corrigendum DD' 28-2-1991 N Standard terms N
conditions attached thereto.

Para. 2 of the above Exh.8 read as under:

"Para. 2 PLS submit performance bond FR 3% of total CNF value within 10


working days FM acceptance of YR OFR(.) You are requested to formalize
contract immediately(.) L/C will be opened only on receipt of formal contract N
acceptable performance bond(.)"

From the reading or above it is clear that the acceptance of offer was subject to fulfilment
of the conditions stipulated in the acceptance letter. The plaintiff in his examination-in-
chief states that "the L.C. was to be established within 14 days after signing of the
contract. As the performance bond was not in accordance with the pro forma of the
plaintiff, the contract was never signed between the parties and, therefore, the question of
establishment of L.C. does not arise". The witness of the plaintiff has further confirmed
the above statement during cross-examination by saying that "it is incorrect to suggest
that TCP committed breach of contract by not opening of L.C. voluntarily says that it has
provided in the tender conditions that after the acceptance of tender, performance bond
will be signed followed by execution and signing of a contract whereafter the L.C. would
be established by T.C.P. and since no contract was signed, no L.C. was opened". From the
above piece of evidence which was gone unrebutted it is clear that signing of formal
agreement was necessary and within two weeks of the signing of the formal agreement
L.C. was to be opened. This was not done on the part of the plaintiff. The defendant
claims that since the bid bond was returned and Pre-shipment Inspector was appointed
the plaintiff has taken the decisive steps which amounts to fulfil the contract and its
obligations. The learned counsel for the defendant has pointed out from the cross-
examination of the witness of the plaintiff that this fact was admitted. No doubt, the
witness has admitted that decisive steps were taken but at the same time he clarified the
position by saying that all steps were taken by TCP in good faith and those are the
standard operational steps that are taken in advance. The witness of the defendant has
also admitted in his cross-examination that letter of credit was to be opened after the
acceptance of performance bond.

The learned counsel for the defendant has submitted that signing of agreement is not
necessary and the terms and conditions are to be inferred from the correspondence of the
parties. The learned counsel relied upon the case of Messrs Jamal Jute Baling & Co. v.
Messrs M. Sarkies & Sons PLD 1971 SC 784 wherein it has been held as under:

"The same view was expressed in the case of Banarsi Das. If the fact of the
present case is considered in the light of these principles, it is proved that the
agreement between the parties was reduced to writing. Both the parties accepted
its terms and have partially carried them out. In view of this the contract in
dispute is established between them and the respondents are entitled to enforce it.
Having regards to these facts, I am satisfied that there was a valid reference to
arbitration and the Arbitrators were competent to enter on the reference in order to
decide the dispute between the parties. I would, therefore, repel the contention of
the appellant in this behalf."

The learned counsel for the plaintiff has submitted that the acceptance contains
formalization of contract and signing of agreement is essential. He further submits that
when the acceptance is conditional upon execution of formal contract it will only come
into existence if the formal contract is signed. He relied upon the case of Pakistan Steel
Products v. Indus Steel Pipe Ltd. 1996 CLC 118.

From the evidence on record it is established that signing of the formal agreement is
necessary after acceptance of the performance bond and thereafter the L.C. was to be
opened within two weeks after the date of contract as provided at page 5 of Exh.20. The
acceptance letter Exh.8 also provides for formalization of contract. A contract is complete
only upon acceptance of offer which acceptance should be absolute and unqualified. It is
the communication of an offer and intimation of its acceptance which creates a contract.

From the evidence it is established that for concluding the contract it is necessary that
there should be a signed contract, the performance bond should be on prescribed pro
forma and the L.C. was to be opened within two weeks after signing of the contract. In
this matter admittedly performance bond was not in accordance with the pro forma
attached with the tender document, no formal agreement was signed and no L.C. was
established/opened. In view of the above there is no concluded and binding agreement
between the parties.
Issue No.2. In view of my finding on Issue No.1 since there is no concluded and binding
contract between the parties the arbitration clause cannot be invoked.

Issue No.4. There is no evidence available on record except the words of the defendant
with regard to fall in the international price of Soyabeen Oil. The burden is upon the
defendant to prove the fallen price. However, since I have held that there is no concluded
contract between the parties this issue has become redundant and no further findings are
required.

Apart from the issues involved in the suit Mr. Afsar Ali Abidi has also submitted as
under:

The suit has become infructuous as the arbitration clause was invoked and award has
been pronounced and has been filed in Court and is subject-matter of Suit No.1517 of
2000.

(a) The suit is also not maintainable for want of board resolution and that the
person appears as witness on behalf of the plaintiff was not duly authorised.

(b) Mr. Samiuddin Sami replying the above submission has referred to the
appellate judgment in the instant case and submitted that the Honourable Division
Bench while dismissing the appeal has observed that outcome of the arbitration
would abide the result of the suit. Regarding board resolution he submits that this
objection was not taken while filing written statement and that no issue was
framed and the questions asked in the cross-examination of the witness of the
plaintiff is liable to be ignored as the same are without support of pleadings.

I find force in the submission of Mr. Samiuddin Sami. In view of the judgment in H.C.A.
No.I87 of 1996 reported as Messrs Trading Corporation of Pakistan (Pvt.) Ltd. v. Messrs
Nidera Handles Compagnie B.V. and another 1998 CLC 1610 the learned Division Bench
of this Court while dismissing the appeal refusing to grant injunction held as under:--

"For such reasons even though we think that the learned Single Judge was not
entirely right in drawing the conclusion that he did, he was perfectly justified in
refusing to stay the arbitration proceedings. This appeal, therefore, fails but the
outcome of the arbitration would abide the result of the suit. The parties are left
free to nominate their respective Arbitrators."

From the above quotation it is clear that the suit has not become infructuous by
pronouncement of the award and the outcome of the arbitration proceeding is subject to
the result of this suit.

Regarding the other submission of Mr. Afsar Ali Abidi, written statement has been
perused and the contention of Mr. Samiuddin Sami appears to be correct. No party can be
taken by surprise. The questions asked from the witness were without support of
pleadings and cannot be considered. A party cannot lead evidence which is not supported
by pleadings. In this respect. In the case of Binyameen and others v. Chaudhry Hakim
and another 1996 SCMR 336 the Honourable Supreme Court has held as under:--

"... It is a well-settled principle of law that a party can prove a case which has
been pleaded by it. In support of his contention, the learned counsel for the
appellants referred to Government of Pakistan (now Punjab) through Collector,
Bahawalpur v. Haji Muhammad PLD 1976 SC 469. It is also a well-settled
principle that no evidence can be led or looked into in support of a plea which has
not been taken in the pleading. A party is required to plead facts necessary to seek
relief claimed and he would be entitled to produce evidence to prove those pleas.
Variation in pleading and proof is not permissible in law."

In view of above there appears no substance in the submission of Mr. Afsar Ali Abidi.

provisions of Personal Law---Conduct of the father or mother must also be considered


and choice of minor could not be taken lightly and must be given weight. Shafique-ur-
Rehman v. Mst. Fazeelat Begum 1995 SCR 136. overruled. [pp. 477, 478, 481, 482, 483]
A, B, C, D, E & F
Mst. Hurbai v. Usman PLD 1963 Kar. 888; Zahoor Ahmed v. Mst. Rukhsana Kausar and
4 others 2000 SCMR 707; Irshad Begum v. Mirza Muhammad Haleem and another 2003
YLR 3245; Bashir Bibi v. Ghulam Rasool and 2 others 2005 YLR 547; Mst. Feroze
Begum v. Lt.-Col. Muhammad Hussain 1978 SCMR 299; Mst. Rashida Bibi v.
Muhammad Ismail 1981 SCMR 744; Sultana Begum v. Mir Afzal and others PLD 1988
Kar. 252; Mst. Hamida Begum and another v. Ubedullah and others 1989 CLC 604; Mst.
Fazeelat Begum v. Public in General and another PLJ 1994 AJ&K 33; Muhammad
Ramzan v. Mst. Rukhsana Bi 1996 SCR 265; Bashir Bibi v. Ghulam Rasool and 2 others
2004 SCR 561; Mst. Hamida Begum and another v. Ubedullah and others 1989 CLC 204;
Tassadiq Hussain Shah v. Mst. Surraya Begum 1980 CLC 1802; Mst. Firdous Igbal v.
Shifaat Ali and others 2000 SCMR 838 and Mehmood Akhtar v. District Judge, Attock
and 2 others 2004 SCMR 1839 ref.
Shafique-ur-Rehman v. Mst. Fazeelat Begum 1995 SCR 136 overruled.
Mir Khalid Mehmood, Advocate for Appellant. Ch. Muhammad Afzal, Advocate for
Respondent. ORDER
KHAWAJA SHAHAD AHMED, J.--- The instant appeal, by leave of the Court, is
addressed against the judgment of the Shariat Court, dated 11-6-2005, whereby the
appeal of the appellant was dismissed and the order of Judge, Family Court/Guardian
Judge, Samahni, dated 5-3-2004 was maintained.
2. Brief facts of the case are that Mst. Sughra Bibi, appellant herein, was married with
Akhtar Hussain, respondent, but due to the strained relations between the spouses, their
marital tie ended and culminated into divorce. On 6-2-2003, respondent, herein, filed an
application for guardianship of his minor daughter namely Yasrah Bibi, who was in the
custody of the appellant and is still living with her. The main ground for the custody of
his daughter which the respondent took before the trial Court, was that as Sughra Bibi,
appellant herein, has contracted second marriage with another person, who is a stranger,
the welfare of the minor could only be guarded by him as a real father of the minor. He
also claimed custody on the grounds of his family and religious background, and that his
mother (the paternal-grandmother of the minor) could also look after the minor. The
Guardian Judge after relying upon a judgment of this Court reported as Shafique-ur-
Rehman v.

Issue No.5. In view of the above discussion the suit of the plaintiff is decreed to the
extent that no binding contract was concluded between the parties.

In view of the facts of the case the parties are left to bear their respective costs. The office
is directed to prepare the decree in the above terms.

M.B.A./T-1/K Suit decreed.


2006 Y L R 1312

[Lahore]

Before Muhammad Nawaz Bhatti, J

NAWAB KHAN---Petitioner

Versus

T.M.A. through T.M.O., Shujabad, District Multan and another---Respondents

Writ Petitions Nos.5665 and 7183 of 2005, heard on 14th February, 2006.

Punjab Local Government (Auctioning of Collection Rights) Rules, 2003---

----R. 24---Constitution of Pakistan (1973), Art.199---Constitutional petition---


Arbitration clause---Dispute between contractor and Local Government---Notices were
issued by Local Government to contractor for deposit of advance instalments and salaries
of employees--Instead of approaching arbitrator, contractor had come to High Court in
Constitutional jurisdiction against such notices---Validity---Constitutional petition did not
lie against such notices---Even otherwise neither the lease was cancelled nor 12% of the
bid money deposited by contractor had been forfeited, as such the petition was pre-
mature---Constitutional petition was dismissed in circumstances

Muhammad Hagnawaz Bhalli v. The Administrator, Zila Council, Narowal and 2 others
1997 CLC 673 ref.

Shagufta Begum v. The Income Tax Officer, Circle-XI, Zone-B, Lahore PLD 1989 SC
360 and Mir Nabi Baldish Khan Khoso v. Branch Manager, National Bank of Pakistan,
Jhatpat (Dera Allah Yar) Branch and 3 others 2000 SCMR 1017 rel.

Abdul Rasheed Sheikh for Petitioner.

Sh. Muhammad Yaseen along with Malik Rizwan Ahmad, T.M.O. and Ahmad Ali TO(F)
for Respondents.

Date of hearing: 14th February, 2006.

JUDGMENT

MUHAMMAD NAWAZ BHATTI, J.---This judgment shall dispose of W.Ps. Nos.5665


and 7183 of 2005 as common question of law and facts are involved therein.

2. Brief facts of these two writ petitions are as under:--


W.P. No.5665 of 2005

The respondent T.M.A., Shujabad made an advertisement in the daily 'Khabrain'


dated 28-8-2005 for the auction of the rights of collection of municipal tax
leviable on immovable property and the date of auction was fixed as 8-9-2005 at
11-00 a.m. The petitioner after depositing Rs.2,00,000 as call deposit, participated
in the auction and gave the highest bid which was accepted and the acceptance of
the bid was conveyed to him vide notice dated 8-9-2005, whereby he was directed
to deposit 12% of the bid money, with advance instalments of the months of July,
August and September and also the salaries of the employees for the months of
July and August amounting to Rs.15,000. He deposited Rs.8,00,000 on 13-9-2005
as 12 per cent of the bid money but raised protest before the respondents against
the advance instalments of the months of July, August and September and the
salaries of the employees for the months of July and August amounting to
Rs.15,000.

W.P. No.7183 of 2005

First of all it is necessary to mention here that during the pendency of the earlier
writ petition this writ petition was filed, challenging the notice dated 19-12-2005
for the deposit of the amount of lease instalments and salaries of the employees
for the further period of months of September, October, November and December,
2005 prior to the issuance of the notice dated 19-12-2005 the facts are the same as
in W.P. No.5665 of 2005.

3. Learned counsel for the petitioner has contended that prior and subsequent to the date
of auction, the demand of the respondents for the deposit of instalments of July, August,
September, October, November and December, 2005 is highly unjust and illegal because
neither an agreement has been executed in favour of the petitioner nor the charge has
been given to the petitioner. In this regard, reliance is placed upon Muhammad Haqnawaz
Bhalli v. The Administrator, Zila Council, Narowal and 2 others (1997 CLC 673).

4. On the other hand, learned counsel for the respondent T.M.A. has supported the
impugned notices and the parawise comments submitted by the respondent T.M.A. and
submitted that as the petitioner signed the bid sheet being the highest bidder after reading
the terms and conditions of the auction, as such the demand of the instalments and
salaries of the employees is legal and fair.

5. Arguments heard. Record perused.

6. It is an admitted fact that the petitioner being the successful bidder, deposited
Rs.8,00,000 as 12 per cent of the bid money, meaning thereby that he had accepted the
impugned notice dated 8-9-2005 because one of the demands written in the said notice
had been fulfilled.
7. As far as the contention of learned counsel that prior and subsequent to the date of
auction, the demand of the respondents for the deposit of instalments of July, August,
September, October, November and December, 2005 is highly unjust and illegal because
neither any agreement is executed in favour of the petitioner nor the charge has been
given to the petitioner is concerned, suffice it to say that as the petitioner had accepted the
conditions of the auction after signing the same, there is no question of denying the
demands made by the respondents through the impugned notices dated 8-9-2005 and 19-
12-2005. According to the impugned notice dated 19-12-2005, the respondent did not
make demand regarding the months of July and August rather the petitioner was required
to execute the contract from the month of September, 2005. It is not denying of fact that
according to notice dated 8-9-2005, the contractor was required to execute the contract
with the T.M.A. within three days. Even otherwise when the petitioner was required to
execute the agreement and take charge from the period of September, 2005, the non-
compliance of the same on behalf of the petitioner is not understandable. In support of
this proposition, rule 17, of the Punjab Local Government (Auctioning of Collection
Rights) Rules, 2003 is reproduced below:-

"17. DUES AND DEPOSITS.---(1) After receipt of communication of


acceptance of bid or offer from the Local Government the contractor shall
immediately deposit at least one tenth of the amount of offer or bid in the funds of
respective Local Government and enter into written agreement with the respective
Local Government within three days.

(2) The remaining amount of offer or bid shall be paid by the contractor to the
Local Government in such equal monthly instalments that the whole amount be
recovered at least one month earlier of the completion of contract.

(3) The instalments shall be paid by the contractor in advance by the fifth day of
each month".

8. A bare perusal of clause 11 of the conditions of the auction reveals that the petitioner
should approach the Arbitrator appointed under Arbitration Act, 1940. In support of the
said clause the Secretary Local Government and Rural Development Department Lahore
had issued a Notification No.SOTAX(LG)2-253/97 dated 26th February, 2005 whereby
he appointed D.C.O. of the concerned District as Arbitrator in case of contracts exceeding
Rs.25.00 lacs. In support of the said proposition, rule 24 of the said Rules is as under:

"DISPUTES.---(1) In case of any dispute arising between the contractor and


Local Government regarding contract or any other matter arising out of contract,
the contractor and the Local Government shall have a right to resolve the dispute
through arbitration under the Arbitration Act, 1940".

As instead of approaching the arbitrator the petitioner has come to this Court, these writ
petitions do not lie against the impugned notices. Reliance in this behalf is placed upon
Shagufta Begum v. The Income Tax Officer, Circle-XI, Zone-B, Lahore (PLD 1989 SC
360). Even otherwise neither the lease has been cancelled nor 12% of the bid money
deposited by the petitioner has been forfeited, as such these writ petitions are pre-mature.
Reliance in this behalf is placed upon Mir Nabi Bakhsh Khan Khoso v. Branch Manager,
National Bank of Pakistan, Jhatpat (Dera Allah Yar) Branch and 3 others (2000 SCMR
1017).

9. In view of the above discussion, I do not find any substance in these two petitions and
dismiss the same.

M.H./N-18/L Petitions dismissed.


2006 Y L R 1253

[Lahore]

Before Mian Saqib Nisar, J

PASSCO EMPLOYEES COOPERATIVE HOUSING SOCIETY through


President---Appellant

Versus

Messrs SEEWELL CORPORATION through Managing Partner---Respondent

F.A.O. No.174 of 2004, decided on 20th December, 2005.

Arbitration Act (X of 1940)---

----S. 20--Contract Act (IX of 1872), S.2(h)---Contract---Dispute arising out of contract


to be referred to Secretary and thereafter to President of the Society---Respondent's
application under S.20, Arbitration Act, 1940, before Trial Court seeking direction for
the filing of arbitration agreement in Court and for appointment of arbitrator was
allowed--Contention of appellant was that respondent had not fulfilled the prerequisites
of arbitration clause in the agreement---Validity---Record had proved that respondent in
terms of agreement, had approached the Secretary of the Society, in the first instance
and thereafter the President of the Society but both refused to entertain the claim of
respondent and he was left with no other option except to invoke the jurisdiction of
Court---Appeal having no merit, was dismissed by High Court.

Muhammad Akram Khawaja for Appellant.

Riaz Karim Qureshi for Respondent.

ORDER

MIAN SAQIB NISAR, J.---The present appeal as also F.A.O. No.174 of 2004, are being
disposed of together, as both involve common questions of law and facts.

2. Admittedly, the respondent was awarded some construction work by the appellant and
in terms of the agreement between the parties, if a dispute arose between them, it could
be settled through the arbitration. However, before invoking the arbitration clause, the
contractor respondent was obliged to approach the Secretary of the Society, in the first
instance and thereafter the President. According to the respondent, these steps were taken
and being unsuccessful, he moved an application under section 20 of the Arbitration Act,
which has been contested by the appellant and has been allowed by the learned trial Court
vide order dated 25-5-2004.
2-A. Learned counsel for the appellant by relying upon the cases reported as Board of
Intermediate and Secondary Education Multan v. Fine Star & Company Engineers &
Contractors (1993 SCMR 530), states that without complying the prerequisites of
applying to the Secretary and the President of the Society, the arbitration clause could not
be invoked.

3. The record has been requisitioned and perused. Both the above steps have been taken
by the respondent, he approached the Secretary vide letter dated 9-12-1998, who refused
to entertain the claim of the respondent; thereafter the President was approached but
without any success. Obviously, in such circumstances the respondent was left with no
other option except to invoke the jurisdiction of the Court.

4. When questioned today, as to whether the appellant is prepared to nominate the


arbitrator within the contemplation of the clause, no specific answer has been given. Be
that as it may, I do not find any merit in these appeals, which are hereby dismissed.

F.B./P-2/L Appeal dismissed.


2006 Y L R 1027

[Lahore]

Before Mian Saqib Nisar, J

LAHORE DEVELOPMENT AUTHORITY through Director-General---


Appellant

Versus

TAUSEEF CORPORATION (PVT.) LTD. and 2 others---Respondents

F.A.O. No.303 of 2004, heard on 14th February, 2006.

Arbitration Act (X of 1940)---

----S. 20---Dispute between parties covered by arbitration clause of contract---Filing


agreement in Court for referring matter to arbitration---Repudiation of contract---
Findings of trial Court in respect of issues on agreements that they were valid and could
not be cancelled as same were authorizedly executed on behalf of Development
Authority were not sustainable because such matters were to be conclusively decided
by arbitrators and Court while rendering its decision upon an application under S.20 of
Arbitration Act, 1940, could not adjudicate the disputes between parties falling within
the domain of arbitration---Impugned findings were set aside however conclusion of
Court below that matter should be referred to arbitration according to the agreement,
was affirmed.

Union of India v. Messrs Chaman Lal Loona & Co. PLD 1958 SC (India) I; Pakistan
Chrome Mines Ltd. Karachi v. Phibro Asia Ltd., New York and 3 others PLD 1975
Kar 861; Manzoor Construction Co. Ltd. v. University of Engineering & Technology,
Taxila 1984 CLC 3347 and Project Director, Balochistan Minor Irrigation and
Agricultural Development Project, Quetta Cantt. v. Messrs Murad Ali & Company
1999 SCMR 121 ref.

Muhammad Ghani for Appellant.

Abid Hassan Minto for Respondents.

Date of hearing: 14th February, 2006.

JUDGMENT

MIAN SAQIB NISAR, J.--Respondent No.1/Tauseef Corporation (Pvt.) Limited,


moved an application under section 20 of the Arbitration Act, 1940, claiming that
there are tripartite agreements, dated 14-9-1995, between itself and the LDA, and a
dispute in terms thereof has been arisen between the parties, therefore, such
agreement be directed to be filed and the matter be referred to the arbitration, as per
the arbitration clause 28 contained therein. This application has been resisted by the
appellant, on the ground that the agreements regarding which the relief has been
sought under section 20 of the Arbitration Act, since have been cancelled by the LDA,
resultantly, the reference cannot be made. It was also pleaded, that the agreements
have been unauthorizedly signed on behalf of the LDA, because the LDA has
authorized some of its officials to execute the agreements, but had never empowered
any representative of the TEPA, to enter into the agreements as to bind the LDA under
the same. The learned Civil Judge, framed the following issues:

(1) Whether the agreement dated 18-7-1994 is void ab initio? OPR

(2) Whether Tauseef Corporation has waived his right to file this application? OPR

(2-A) Whether the applicant has no cause of action to bring this application? OPR

(2-B) Whether the applicant has not approached this Court with clean hands? OPR

(2-C) Whether the agreement was cancelled between the parties on 20-2-1997? OPR

(2-D) Whether after completion of project in question and recision of agreement, the
instant application is not competent? OPR

(2.E) Whether under Clause 28 of disputed agreement, the instant application is not
proceedable? OPR

(3) Whether the application under section 20 of the Arbitration Act is liable to be
accepted on the ground mentioned in the application? OPA

(4) Relief.

The parties produced their evidence. The respondent Tauseef Corporation, inter alia,
brought on the record Exh.A6, one of the tripartite agreements, and it is its claim, that
all other agreements regarding which the reference was sought, are identical
containing the same stipulations and also the arbitration clause. The learned Civil
Judge, on the conclusion of the trial has decided the issues against the appellant. It is
submitted by the appellant's counsel, that the findings on the issues are absolutely
erroneous, as the learned Court below has transgressed its jurisdiction by assuming
the role of the arbitrator and giving decision upon those questions, which were to be
decided and sorted out by the arbitrators; it is also contended, that the learned trial
Court, in fact has based its entire decision on the agreements dated 18-7-1994 and 18-
1-2004, which were not even those for which the arbitration was sought by respondent
No.1; these documents have not been tendered in evidence by the respondent,
therefore, the reference to the arbitration on the basis of some extraneous agreements
is not sustainable.
2. Learned counsel for the appellant has further submitted, that the trial Court while
deciding the matter has given findings upon the proposition by concluding that the
agreements are valid; those could not be cancelled as pleaded by the LDA; the
agreements were authorizedly executed on behalf of the LDA, which findings are
absolutely extraneous and illegal, because such dispute envisaged by Issues Nos.1, 2-
C, 2-D and 2-E, could exclusively be decided by the arbitrators and the Court while
rendering its decision upon an application under section 20 of the Arbitration Act,
could not adjudicate the disputes between the parties, falling within the domain of the
arbitration. In support of his contentions, reliance has been placed upon the judgments
reported as Union of India v. Messrs Chaman Lal Loona & Co. (PLD 1958 SC (India)
1), Pakistan Chrome Mines Ltd. Karachi v. Phibro Asia Ltd., New York and 3 others
(PLD 1975 Karachi 861), Manzoor Construction Co. Ltd. v. University of
Engineering & Technology, Taxila (1984 CLC 3347) and Project Director,
Balochistan Minor Irrigation and Agricultural Development Project, Quetta Cantt. v.
Messrs Murad Ali & Company (1999 SCMR 121).

3. Learned counsel for the respondent, when confronted with the above plea, has
expressed no objection, if the findings of the learned trial Court, on Issues Nos.1, 2-C,
and 2-E, and/or any other issues, the determination of which falls within the
jurisdiction of the arbitrators are set aside and left for the adjudication by the
arbitration, because according to him, his client is only interested in seeking the
resolution between the parties in terms of the arbitration clause. It is also stated that in
the application under section 20, the respondent has asked for the filing of the
arbitration agreements between the parties dated 14-9-1995 and the reference to the
arbitrators in accord therewith; the other agreements to which Court has mentioned in
the impugned order, are almost akin and also contain an identical arbitration clause.
But the respondent shall confine its cause to the said agreement and has no objection
if any error committed by the Court below in this behalf is corrected.

4. In the light of the above, the findings of the Court below on the Issues Nos.1, 2-C,
2-D and 2-E, are set aside, and by affirming the conclusion of the Court below that
the matter should be referred to the arbitration, however, according to the agreement
dated 14-9-1995, the appeal is disposed of, with the direction to the parties to appear
before the learned trial Court, on 27-2-2006, for the nomination of their respective
arbitrators, and the matter shall be accordingly referred to the arbitrators by the Court,
within two months. If the Court below has been abolished, as apprehended by the
learned counsel for the appellant, the parties shall appear before the learned District
Judge, on the aforesaid date, for assigning the matter to any other Court of competent
jurisdiction.

Before parting it may however be observed, that as the third arbitrator named in the
agreement has died, and no substitute has been provided in the agreement, therefore,
in the case of divergent awards by the arbitrators, nominated by the parties, I appoint
Mr. Justice (Retd.) Rashid Aziz Khan, former Chief Justice of the Lahore High Court,
to act as an umpire in the matter. The fee of the umpire shall be determined by this
Court, upon a miscellaneous application filed by either of the parties or the umpire.

F.M./L-1/L Appeal disposed of.


P L D 2006 Karachi 664

B efore Munib Ahmed Khan, J

METROPOLITAN STEEL CORPORATION LTD.---Plaintiff

Versus

MACSTEEL INTERNATIONAL U.K. LTD.---Defendant

Suit No.1369 of 2004, decided on 7th March, 2006.

(a) Civil Procedure Code (V of 1908)---

----O. VII, R. 2 & S.151---Electronic Transaction Ordinance (LI of 2002), Ss.3 & 4---
Arbitration (Protocol & Convention) Act (VI of 1937), S.3---Arbitration Act (X of 1940),
S.34---Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral
Awards) Ordinance (XX of 2005), S. 4--Qanun-e-Shahadat (10 of 1984), Art.2(e)---Suit
for recovery of amount---Defendant, according to sales contract, was to supply 1,600
M.T. steel rods, but it supplied only 500 M.T. of steel rods---Plaintiff filed suit claiming
damages against defendant in respect of balance 1,100 M.T. of steel rods--Defendant filed
application for stay of plaintiff's suit seeking direction from the Court to order plaintiff to
refer the dispute to arbitration as the parties by the very said contract had agreed to settle
all disputes by arbitration---Claim of plaintiff was that sale transaction was based on pro
forma invoice, purchase order and correspondence by faxes and E.mails and that plaintiff
had never entered into any sales contract containing an agreement to arbitration---
Counsel for plaintiff had argued that there was no document to show that there was
arbitration agreement between the parties---Validity---Defendant's counsel had rightly
contended that to wriggle out of arbitration agreement, plaintiff had attached documents
prior to the sales contract and not the sales contract itself which contained arbitration
agreement, terms of which were accepted by plaintiff by opening a letter of credit
favouring defendant in terms thereof---Plaintiff could not accept some of the terms of
said contract and denied others, such as arbitration clause; plaintiff could not be allowed
to blow hot and cold in the same breath---Agreement to arbitration, could also be inferred
from the conduct of the parties based on exchange of correspondence---From the
exchange of correspondence between parties, an agreement to refer dispute to arbitration
could easily be inferred, from which plaintiff could not extricate itself---Suit was stayed
and plaintiff was directed to resort to terms of sales contract for settlement of its dispute
with defendant by arbitration as agreed between the parties.

2002 SCMR 1903, 1977 SCMR 409; 1986 CLC 312; Zambia Steel's case [1986] 2
Lloyds Law Report 225 and Hitachi Limited v. Rupali Polyester 1998 SCMR 1618 ref.

(b) Administration of justice---


----Omission to mention a provision or mentioning of a wrong provision of law, would
not render an application invalid or make it fatal to the grant of relief, if it was available
under the law to an aggrieved party.

1982 SCMR 673 and 1994 SCMR 1555 ref.

Noorullah Manji and Nasir Mehmood for Plaintiff.

Jawad Sarwana for Defendant.

ORDER

MUNIB AHMED KHAN, J.---The brief facts of the case are that the plaintiff and the
defendant entered into a sales contract for supply of 1,600MT of steel rods. The
defendant supplied 500MT of steel rods to the plaintiff which arrived in Karachi in the
month of January, 2004. However, a dispute arose in respect of the balance unperformed
part of the Sales Contract, which bargain of the Sales Contract was allegedly not
performed and consequently on 28-10-2004 the plaintiff filed the present suit claiming
damages against the defendant in respect of the balance 1,100MT of steel rods. On 1-3-
2005 the defendant filed an application under section 34 of the Arbitration Act read with
section 3 of the Arbitration (Protocol and Convention) Act, 1937 read with section 151,
C.P.C. for stay of plaintiff's suit seeking direction from the Court to order the plaintiff to
refer the dispute to arbitration as the parties by the very said contract under which the
plaintiff is seeking relief had agreed to settle all disputes by arbitration in terms of the
said contract.

Mr. Jawad Sarwana, learned counsel for the Defendant has agreed that the Plaintiff is
bound by the terms and conditions of the Sales Contract, which includes a provision for
referring disputes to arbitration in London under the auspices of the London Court of
International Arbitration (LCIA), which was sent to the Plaintiff by e-mail and agreed by
it by opening a fully workable letter of Credit in 'terms of the Sales Contract and by its
subsequent conduct and therefore this Suit is liable to be stayed on the basis of the
agreement to arbitrate between the parties.

The learned counsel for the Defendant pointed out that the Sales Contract between the
parties, among other terms, contained the following arbitration clause:

"Arbitration clause:

Any dispute arising out of or in connection with this agreement, including any
question regarding its existence, validity or termination, shall be referred to and
finally resolved by arbitration under the rules of the London Court of International
Arbitration ("LCIA"). The number of Arbitrators shall be three. One to be
nominated by each party and the third (Chairman) to be of a Nationality
Independent of the parties and to be nominated by the other two Arbitrators,
failing which by the LCIA. The place of the Arbitration shall be London."
3. The learned counsel for the Defendant has also pointed out that the legal notices issued
by the Plaintiff, which creates nexus in between L.C. as well as the Sales Contract,
contains the number of L.C. and the Sales Contract and that all the correspondence
through faxes and e-mails, of which notices can be taken under sections 3 and 4 of the
Electronic Transactions Ordinance, 2002, contain a reference and establish that the
Plaintiff accepted the terms of the Sales Contract, which includes the arbitration clause as
well. Further, on the basis of this exchange of communication by e-mail and faxes, an
agreement to arbitrate is also established. The learned counsel for the Defendant argued
that the parties had agreed to arbitrate in accordance with the terms of the Sales Contract
and this provision should be respected even otherwise such international arbitration
clauses are very common nowadays.

4. On the other hand, the learned counsel for the Plaintiff have contended that the sales
transaction is based on the pro forma Invoice, Purchase Order and correspondence by
faxes and e-mails. The Plaintiff has further contended that the Plaintiff never entered into
any Sales Contract containing an agreement to arbitrate and referred to the documents
filed with the Plaint which, among others, included an incomplete copy of the Letter of
Credit No.142201550163 D/A dated October, 3, 2003 (L.C.). He added that even if the
Court comes to the conclusion that there is such a Sales Contract, then the said contract
has not been signed by the Plaintiff nor has it been attested under the Law of Qanun-e-
Shahadat hence unenforceable. The learned counsel for the Plaintiffs also stressed on the
issue that such type of so-called arbitration agreements cannot be enforced as they are
against the public policy and one cannot venture upon this task which will be very
expensive and contrary to the trade practices.

5. The matter was argued by Mr. Noorullah Manji, Advocagte for the Plaintiff on 16-1-
2006, and again on 26-1-2006 when he denied the existence of the Sales Contract and the
arbitration clause contained therein Mr. Manji argued that there was no document to show
that there was an arbitration agreement between the parties. On 26-1-2006, in reply, Mr.
Jawad Sarwana the learned counsel for the Defendant pointed out that the Plaintiff had
not filed a complete copy of the L.C. and he referred to the complete copy of the Letter of
Credit which he had filed along with his application. The learned counsel for the
Defendant referred to the wordings of the Sales Contract transmitted by e-mail and the
wordings of the L.C. which showed that the L.C. opened by the Plaintiff was based on the
terms of the Sales Contract containing the arbitration clause and not the Pro forma
Invoice or the Purchase Order. In rebuttal Mr. Manji refused to accept the complete copy
of the L.C. filed by the Defendant whereupon the Court granted him time to verify the
same from the plaintiff's banker and adjourned the case to 14-2-2006.

6. In the meantime, the Defendant obtained a copy of the said Letter of Credit from its
Banker, the Standard Chartered Bank, London. The L.C. is certified under the Banker's
Books Evidence Act, 1891 and being an electronic document is also verified by the Bank
Manager for authenticity under the Electronic Transaction Ordinance, 2002. When the
matter came up for hearing on 14-2-2006.Mr. Nasir Mehmood, Advocate an associate of
Mr. Noorullah Manji, Advocate appeared on behalf of the Plaintiff and sought time to file
power on behalf of the Plaintiff and argue the matter. On his request the hearing was
adjourned to 1-3-2006. On 1-3-2006, Mr. Nasir Mehmood, learned counsel for the
Plaintiff repeated the arguments advanced by Mr. Manji and again sought time to obtain a
complete duplicate of the L.C. from the Plaintiff's Banker, namely, Muslim Commercial
Bank, which had opened the Letter of Credit on his request case was adjourned to 7-3-
2006 for further arguments. It transpires that Mr. Nasir Mehmood filed in the Suit
Branch, a statement dated 4 March, 2006 attaching a duly certified copy of the Letter of
Credit.

7. On perusal of the documents it is apparent that the complete Letter of Credit filed by
the Defendant certified by Standard Chartered Bank and the Letter of Credit now filed by
the Plaintiff certified by Muslim Commercial Bank are identical. A comparison of the two
Letters of Credit on the record with the Sales Contract shows that the terms contained in
the Letter of Credit are the same as those contained in the Sales Contract which includes
the arbitration clause.

8. On 26-1-2006, the learned counsel for the Defendant had invited the Court's attention
to the missing pages of the Letter of Credit annexed with the plaint, which establish the
performance of the Sales Contract which contains the arbitration agreement. On
examination of these documents the following facts emerge, which are necessary for
perusal to correlate the Pro forma Invoice. L.C. and the sales contract.

(i) On 23 September, 2003, Defendant issued a Pro forma Invoice indicating


under the heading "PAYMENT" that the L.C. to be opened by the Plaintiff
favouring the Defendant should state shipment of 500 MT to "ALLOW LATEST
SHIPMENT 31-12-2003." Thus, at this stage the parties contemplated the
Plaintiff to open an L.C. for shipment of wire rods latest by "31-12-2003".

(ii) On 29 September, 2003, plaintiff placed a Purchase Order with Defendant. In


its purchase order, under the heading "Payment" Plaintiff made a counter-proposal
and asked Defendant to accept the new terms of payment to let Plaintiff open a
Letter of Credit. There was no specific "LATEST DATE OF SHIPMENT"
mentioned in the Letter of Credit proposed to be opened by the Plaintiff.

(iii) Upon receipt of this purchase order from the Plaintiff, the defendant prepared
the final terms and conditions of the transaction and included the same in the Sale
Contract No.7619-S. Under the heading "Payment" in the Sales Contract the, the
Defendant agreed to open an L.C. stating "ALLOW LATEST SHIPMENT" as
"31-11-2003". Thus whereas the `LATEST SHIPMENT" date under the heading
"PAYMENT" in the Pro forma Invoice was "30-12-2003"; in contrast in the sales
contract dated 30-9-2003 the `LATEST SHIPMENT" date given under the
Heading "PAYMENT" in the Sales Contract was"30-11-2003". The Letter of
Credit to be opened by the Plaintiff was to show the "LATEST DATE OF
SHIPMENT" as given in the sales Contract as "30-11-2003".
(iv) Thereafter, on 30 September, 2003, Defendant signed the Sales Contract,
scanned the document and sent it to the Plaintiff by e-mail on the same date. The
Plaintiff accepted all the terms of the Sales Contract transmitted by e-mail by
incorporating the same in the L.C., including the "LATEST DATE OF
SHIPMENT" as "30-11-2003" and the amount "200MT" and opened the L.C. in
the said terms.

(v) It is clear that the `LATEST SHIPMENT DATE" is the same as the one
mentioned in the Sales Contract and not the one stated in the Pro forma Invoice or
the Purchase Order.

(vi) The L.C. thus incorporates the terms of the Sales Contract, wherein one of the
terms is also the arbitration clause. This Sales Contract was also partly performed
by the Defendant who supplied 500 MT of steel rods to the Plaintiff on receipt of
price from the Plaintiff through the L.C.'

9. It seems that the Plaintiff tried to conceal this factual position as they neither filed the
Sales Contract nor the complete copy of the L.C. with ' the plaint. Apparently,, this may
be because the Sales Contract contained an arbitration clause which requires all disputes
to be settled by arbitration and plaintiff knew that the Sales Contract together with the
L.C. evidenced that they had agreed to refer all disputes to arbitration. The Defendant's
Advocate contention has weight that to wriggle out of the arbitration agreement the
Plaintiff attached documents prior to the Sales Contract, i.e. the Pro forma Invoice and
the Purchase Order and not the Sales Contract itself which contains the arbitration
agreement. The terms of the Sales Contract were accepted by the Plaintiff by opening a
Letter of Credit favouring the defendant in terms thereof. The Plaintiff cannot accept
some of the terms of the Contract and deny the others, such as the arbitration clause. He
cannot be allowed to blow hot and cold in the same breath.

10. The learned counsel for the Plaintiff has also argued that the Sales Contract has not
been signed and therefore is not enforceable. As discussed above, the Defendant has
established that the Sales Contract was electronically sent to the Plaintiff who acted on
the same and opened a Letter of Credit in accordance with its terms and conditions,
which also contained an arbitration clause. The submissions of the learned Advocate for
the Plaintiff have no force in view of the provisions of the electronic Transaction
Ordinance, 2002 (Ordinance LI of 2002). Sections 3 and 4 of the Ordinance LI of 2002
read as follows:--

"Section 3 Legal recognition of electronic forms.--No document, record,


information, communication or transaction shall be denied legal recognition,
admissibility, effect, validity, proof or enforceability, on the ground that it is in
electronic form and has not been attested by any witness.

Section 4. Requirements for writing.--The requirement under any law for any
document, record, information, communication or transaction to be in written
form shall be deemed satisfied where the document, record, information,
communication or transactions in electronic form, if the same is accessible so as
to be usable for subsequent reference."

It is further to be pointed out that after promulgation of Electronic Transactions


Ordinance, 2002, the Qanun-e-Shahadat, 1984 (P.O. 10 of 1984) stand amended in terms
of section 29 of the Ordinance, 2002, which read as follows:---

"Section 29. Amendment of Presidential Order No. X of 1984.--for the purposes


of this Ordinance, the Qanun-e-Shahadat, 1984 (P.O. No.10 of 1984) shall be read
subject the amendments specified in the Schedule of this Ordinance."

By the said amendments various definitions of the Qanun-e-Shahadat Order have been
changed and specifically by addition of section 2(e) in the said Order all the documents
produced or generated through modern devices have been given evidentiary value and
importance section 2(e), for convenience is reproduced as under:--

"2(e) the expression, "automated", "electronic", "information", "information


system", "electronic documents", "electronic signature", "advanced electronic
signature", and "security procedure" shall bear the meanings given in the
Electronic Transactions Ordinance, 2002."

11. In view of the aforesaid provisions of the Electronic Transactions Ordinance, 2002, as
well as. amendment in the Qanun-e-Shahadat Order, it appears that it is no longer
necessary for electronically transmitted documents, which include commercial/banking
contracts, to be manually signed or for the same to be attested by any witnesses.

12. Notwithstanding the foregoing, an agreement to arbitrate may also be deduced by


conduct of the parties. In the present case, the Plaintiff on his own showing has filed a-
mails exchanged between the parties marked as Annexure "H", "I" and "J" along with the
plaint which refer to the Sales Contract in the subject header of the said e-mails. The
Plaintiff has not denied these a-mails which refer to the Sales Contract which, among
other terms, contain the arbitration agreement. The learned Counsel for the Defendant has
pointed out that in several reported judgment of the Superior Courts of Pakistan
including, 2002 SCMR 1903, 1977 SCMR 409 and 1986 CLC 312 and the Judgment of
the English Courts in Zambia Steel Case reported in [1986] 2 Lloyds Law Report 225, the
Courts have held that an agreement to arbitrate may also be inferred from the conduct of
the parties based on the exchange of correspondence. In the instant case from the
exchange of correspondence between the parties an agreement to refer dispute to
arbitration is easily inferred from which the Plaintiff cannot extricate itself.

13. The Defendant has filed an application for stay of suit under the Arbitration Act, 1940
and the Arbitration (Protocol and Convention) Act, 1937. While the former Act applies to
domestic arbitrations, the latter statute stands repealed by the Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005
(Ordinance XX of 2005). It is well-established law that omission to mention a provision
or mentioning of a wrong provision of law does not render an application invalid or
makes it fatal to the grant of relief if it is otherwise available under the law to an
aggrieved party 1982 SCMR 673 and 1994 SCMR 1555. Therefore, the omission to
mention the relevant provision of the Ordinance XX of 2005, would not deprive the
Defendant of the relief available to it under the law. I have examined in detail the
provisions of Ordinance XX of 2005 which is the primary law applicable to the dispute
between the parties in the instant case. The relevant sections 1(3), 3 and 4 and Article II
of the said Ordinance, read as follows:

"Section 1(3). It (Ordinance XX of 2005) shall apply to arbitration agreements


made before , on or after the 14th day of July, 2005 on which the Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance,
2005 (VIII of 2005) came into force...."

Section 3. Jurisdiction of Court.--(1) Notwithstanding anything contained in any


other law for the time being in force, the Court shall exercise exclusive
jurisdiction to adjudicate and settle matters related to or arising from this
Ordinance.

(2) An application to stay legal proceedings pursuant to the provisions of Article


II of the Convention may be filed in the Court in which the legal proceedings are
pending-------"

"4. Enforcement of arbitration agreements.---(1) A party to an arbitration


agreement against whom legal proceedings have been brought in respect of a
matter which is covered by the arbitration agreement may, upon notice to the
other party to the proceedings, apply to the Court in which the proceedings have
been brought to stay the proceedings insofar as they concern that matter.

(2) On an application under subsection (1), the Court shall refer the parties to
arbitration, unless it finds that the arbitration agreement is null and void
inoperative or incapable of being performed."

"Article II

(1) Each Contracting State shall recognize an agreement in writing under which
the parties undertake to submit to arbitration all or any differences which have
arisen or which may arise between them in respect of defined legal relationship,
whether contractual or not concerning a subject-matter capable of settlement by
arbitration.

(2) The term "agreement in writing" shall include an arbitral clause in a contract
or an arbitration agreement, signed by the parties or contained in an exchange of
letters or telegrams.

(3) The Court of a Contracting State, when seized of an action in a matter in


respect of which the parties have made an agreement within the meaning of this
article shall, at the request of one of the parties, refer the parties to arbitration
unless it finds that the said agreement is null and void, inoperative or incapable of
being performed."

14. The term "agreement in writing" has been discussed by the Supreme Court of
Pakistan in 2002 SCMR 1903 and 1977 SCMR 409 in the context of arbitration
agreements. In the present case, learned counsel for the Plaintiff have argued that a
contract containing an arbitration agreement which has not been signed by the parties is
not enforceable. Based on the bare-reading of Article II(2) of Ordinance XX of 2005 and
the Authorities cited above, it .is clear that an arbitration agreement does not necessarily
require signature of both parties to be enforceable in law.

15. Reverting to Mr. Manji's argument that the arbitration clause is against public policy
and very expensive. I rely upon the observations of Mr. Justice Ajmal Mian (as he then
was) of the Supreme Court of Pakistan in Hitachi Limited v. Rupali Polyester, 1998
SCMR 1618 at pages 1686 and 1687, which states as follows:

"I may observe that while dealing with an application under section 34 of the
Arbitration Act in relation to a foreign arbitration clause like the one in issue, the
Court's approach should be dynamic and it should bear in mind that unless there
are some compelling reasons, such an arbitration clause should be honoured as
generally the other party to such an arbitration clause is a foreign party. With the
development and growth of International Trade and Commerce and due to
modernization of Communication/Transport systems in the World, the contracts
containing such an arbitration clause are very common nowadays. The bargain,
that follows from the sanctity which the Court attaches to contracts, must be
applied with more vigour to a contract containing a foreign arbitration clause. We
should not overlook the fact that any breach of a term of such a contract to which
a foreign company or person is a party, will tarnish the image of Pakistan in the
comity of nations. A ground which could be a contemplation of party at the time
of entering into the contract as a prudent man of business cannot furnish basis for
refusal to stay the suit under section 34 of the Act. So the ground like, that it
would be difficult to carry the voluminous evidence or numerous witnesses to a
foreign country for arbitration proceedings or that it would be too expensive or
that the subject-matter of the contract is in Pakistan or that the breach of the
contract has taken place in Pakistan in my view cannot be a sound ground for
refusal to stay a suit filed in Pakistan in breach of a foreign arbitration clause
contained in contract of the nature referred to hereinabove. In order to deprive a
foreign party to have arbitration in a foreign country in the manner provided for in
the contract, the Court should come to the conclusion that the enforcement of such
an arbitration clause would be unconscionable or would amount to forcing the
Plaintiff to honour a different contract, which was not in contemplation of the
parties and which could not have been in their contemplation as a prudent man of
business."
16. Mr. Manji's arguments regarding public policy and expensiveness of the arbitration
taking place in London as ground for stay of suit are no longer tenable in light of the
observations of the Supreme Court of Pakistan in the Hitachi case, the Ordinance XX of
2005 and the liberal investment policy of the Government of Pakistan. There is no doubt
some expense is involved in litigation but that is true anywhere in the world. In the
present suit, the plaintiff has filed a suit for more than US$ 1 million, and it is reasonable
to expect to incur some expense in the event of a dispute. Further, there is no restriction
.imposed by the State Bank of Pakistan on remittance of foreign exchange for any lawful
purpose at any time and with the availability of modern devices such as teleconferencing
facilities, evidence may be recorded easily anywhere in the World under the supervision
of the arbitral body:

17. On reading sections 1(3), (3), (4) with Article II of the Ordinance XX of 2005, it is
also clear that on filing of an application by any party to the proceeding, the Court has no
discretion and it is obliged to stay the proceeding unless it finds that the agreement is null
and void or inoperative or incapable of being performed. The Plaintiff has failed to satisfy
the Court that either one of the three ingredients for refusal of stay of suit are applicable
in the present circumstances.

18. Additionally, I have also gone through the documents involved in the matter and have
come to the conclusion that all the documents are related to each other and all the faxes,
pro forma invoice, L.C. as well as Sales Contract are part of one deal and that the matter
should be decided as per the terms of the Sales Contract agreed between the parties which
includes the arbitration agreement.

In light of the above, I stay the suit and direct the Plaintiff to resort to the terms of the
Sales Contract for settlement of its dispute with the Defendant by arbitration as agreed
between the parties.

H.B.T./M-101/K Order accordingly.


[Karachi]

Before Munib Ahmed Khan, J

METROPOLITAN STEEL CORPORATION LTD. ---Plaintiff

Versus

MACSTEEL INTERNATIONAL U.K. LTD.---Defendant

Suit No.1369 of 2004 and C.M.A. No.1299 of 2005, decided on 7th March,. 2006,

(a) Civil Procedure Code (V of 1908)---

----O. VII, R. 2 & S.151---Electronic Transactions Ordinance (LI of 2002), Ss.3 & 4---
Arbitration (Protocol and Convention) Act (VI of 1937), S.3---Arbitration Act (X of
1940), S.34---Recognition and Enforcement (Arbitration Agreements and Foreign
Arbitral Awards) Ordinance (XX of 2005). S. 4---Qanune-Shahadat (10 of 1984),
Art.2(e)---Suit for recovery of amount---Defendant, according to sales contract, was to
supply 1,600 M.T. steel rods, but it supplied only 500 M.T. of steel rods---Plaintiff filed
suit claiming damages against defendant in respect of balance 1,100 M.T. of steel rods---
Defendant filed application for stay of plaintiffs suit seeking direction from the Court to
order plaintiff to refer the dispute to arbitration as the parties by the very said contract
had agreed to settle all disputes by arbitration---Claim of plaintiff was that sate
transaction was based on pro forma invoice, purchase order and correspondence by faxes
and E, mails and that plaintiff had never entered into any sales contract containing an
agreement to arbitration---Counsel for plaintiff had argued that there was no document to
show that there was arbitration agreement between the parties---Validity---Defendant's
counsel had rightly contended that to wriggle out of arbitration agreement, plaintiff had
attached documents prior to the sates contract and not the sates contract itself which
contained arbitration agreement, terms of which were accepted by plaintiff by opening a
letter of credit favouring defendant in terms thereof---Plaintiff could not accept some of
the terms of said contract and denied others, such as arbitration clause; plaintiff could not
be allowed to blow hot and cold in the same breath---Agreement to arbitration, could also
be inferred from the conduct of the parties based on exchange of correspondence---From
the exchange of correspondence between parties, art agreement to refer dispute to
arbitration could easily be inferred, from which plaintiff could not extricate itself---Suit
was stayed and plaintiff was directed to resort to terms of sales contract for settlement of
its dispute with defendant by arbitration as agreed between the parties.

2002 SCMR 1903; 1977 SCMR 409; 1986 CLC 312; Zambia Steel's case [1986] 2 Lloyds
Law Report 225 and Hitachi Limited v. Rupali Polyester 1998 SCMR 1618 ref.

(b) Administration of justice---


----Omission to mention a provision or mentioning of a wrong provision of law, would not
render an application invalid or make it fatal to the grant of relief, if it was available under
the law to an aggrieved party.

1982 SCMR 673 and 1994 SCMR 1555 ref.

Noorullah Manji and Nasir Mehmood for Plaintiff.

Jawad Sarwana for Defendant.

ORDER

MUNIB AHMED KHAN, J.---The brief facts of the case are that the plaintiff and the
defendant entered into a sales contract for supply of 1,600MT of steel rods. The
defendant supplied 500MT of steel rods to the plaintiff which arrived in Karachi in the
month of January, 2004. However, a dispute arose in respect of the balance unperformed
part of the Sales Contract, which bargain of the Sales Contract was allegedly not
performed and consequently on 28-10-2004 the plaintiff filed the present suit claiming
damages against the defendant in respect of the balance 1,100MT of steel rods. On 1-3-
2005 the defendant filed an application under section 34 of the Arbitration Act read with
section 3 of the Arbitration (Protocol and Convention) Act, 1937 read with section 151,
C.P.C. for stay of plaintiffs suit seeking direction from the Court to order the plaintiff to
refer the dispute to arbitration as the parties by A the very said contract under which the
plaintiff is seeking relief had agreed to settle all disputes by arbitration in terms of the
said contract.

2. Mr. Jawad Sarwana, learned counsel for the Defendant has agreed that the Plaintiff is
bound by the terms and conditions of the Sales Contract, which includes a provision for
referring disputes to arbitration. in London under the auspices of the London Court of
International Arbitration (LCIA), which was sent to the Plaintiff by e-mail and agreed by
it by opening a fully workable letter of Credit in terms of the Sales Contract and by its
subsequent conduct and therefore this Suit is liable to be stayed on the basis of the
agreement to arbitrate between the parties.

The learned counsel for the Defendant pointed out that the Sales Contract between the
parties, among other terms, contained the following arbitration clause:--

"Arbitration clause:

Any dispute arising out of or in connection with this agreement, including any question
regarding its existence, validity or termination, shall be referred to and finally resolved by
arbitration under the rules of the London Court of International Arbitration ("LCIA"). The
number of Arbitrators shall be three. One to be nominated by each party. And the third
(Chairman) to be of a Nationality Independent of the parties and to be nominated by the
other two Arbitrators, failing which by the LCIA. The place of the Arbitration shall be
London."
3. The learned counsel for the Defendant has also pointed out that the legal notices issued
by the Plaintiff, which creates nexus in between L.C. as well as the Sales Contract,
contains the number of L.C. and the Sales Contract and that all the correspondence
through faxes and e-mails, of which notices can be taken under sections 3 and 4 of the
Electronic Transactions B Ordinance, 2002, contain a reference and establish that the
Plaintiff accepted the terms of the Sales Contract, which includes the arbitration clause as
well. Further, on the basis of this exchange of communication by e-mail and faxes, an
agreement to arbitrate is also established. The learned counsel for the Defendant argued
that the parties had agreed to arbitrate in accordance with the terms of the Sales Contract
and this provision should be respected even otherwise such international arbitration
clauses are very common nowadays.

4. On the other hand, the learned counsel for the Plaintiff have contended that the sales
transaction is based on the pro forma Invoice, Purchase Order and correspondence by
faxes and e-mails. The Plaintiff has further contended that the Plaintiff never entered into
any Sales Contract containing an agreement to arbitrate and referred to the documents
filed with the Plaint which, among others, included an incomplete copy of the Letter of
Credit No. 142201550163 D/A dated October, 3, 2003 (L.C.). He added that even if the
Court comes to the conclusion that there is such a Sales Contract, then the said contract
has not been signed by the Plaintiff nor has it been attested under the Law of Qanun-e-
Shahadat, hence unenforceable. The learned counsel for the Plaintiffs also stressed on the
issue that such type of so-called arbitration agreements cannot be enforced as they are
against the public policy and one cannot venture upon this task which will be very
expensive and contrary to the trade practices.

5. The matter was argued by Mr. Noorullah Manji, Advocate for the Plaintiff on 16-1-
2006, and again on 26-1-2006 when he denied the existence of the Sales Contract and the
arbitration clause contained therein. Mr. Manji argued that there was no document to
show that there was an arbitration agreement between the parties. On 26-1-2006, in reply,
Mr. Jawad Sarwana the learned counsel for the Defendant pointed out that the Plaintiff
had not filed a complete copy of the L.C. and he referred to the complete copy of the
Letter of Credit which he had filed along with his application. The learned counsel for the
Defendant referred to the wordings of the Sales Contract transmitted by e-mail and the
wordings of the L.C. which showed that the L.C. opened by the Plaintiff was based on the
terms of the Sales Contract containing the. arbitration clause and not the Pro forma
Invoice or the Purchase Order. In rebuttal Mr. Manji refused to accept the complete copy
of the L.C. filed by the Defendant whereupon the Court granted him time to verify the
same from the plaintiff's banker and adjourned the case to 14-2-2006.

6. In the meantime, the Defendant obtained a copy of the said Letter of Credit from its
Banker, the Standard Chartered Bank, London. The L.C. is certified under the Banker's
Books Evidence Act, 1891 and being an electronic document is also verified by the Bank
Manager for authenticity under the Electronic Transaction Ordinance, 2002. When the
matter came up for hearing on 14-2-2006, Mr. Nasir Mehmood, Advocate an associate of
Mr. Noorullah Manji, Advocate appeared on behalf of the Plaintiff and sought time to file
power on behalf of the Plaintiff and argue the matter. On his request the hearing was
adjourned to 1-3-2006. On 1-3-2006, Mr. Nasir Mehmood, learned counsel for the
Plaintiff repeated the arguments advanced by Mr. Manji and again sought time to obtain a
complete duplicate of the LC. from the Plaintiffs Banker, namely, Muslim Commercial
Bank, which had opened the Letter of Credit, on his request case was adjourned to 7-3-
2006 for further arguments. It transpires that Mr. Nasir Mehmood filed in the Suit
Branch, a statement dated 4 March, 2006 attaching a duly certified copy of the Letter of
Credit.

7. On perusal of the documents it is apparent that the complete Letter of Credit filed by
the Defendant certified by Standard Chartered Bank and the Letter of Credit now filed by
the Plaintiff certified by Muslim Commercial Bank are identical. A comparison of the two
Letters of Credit on the record with the Sales Contract shows that the terms contained in
the Letter of Credit are the same as those contained in the Sales Contract which includes
the arbitration clause.

8. On 26-1-2006, the learned counsel for the Defendant had invited the Court's attention
to the missing pages of the Letter of Credit annexed with the plaint, which establish the
performance of the Sales Contract which contains the arbitration agreement. On
examination of these documents the following facts emerge, which are necessary for
perusal to correlate the Pro forma Invoice, L.C. and the sales contract:

(i) On 23 September, 2003, Defendant issued a Pro forma Invoice indicating under the
heading "PAYMENT' that the L.C. to be opened by the Plaintiff favouring the Defendant
should state shipment of 500 MT to "ALLOW LATEST SHIPMENT 31-12-2003." Thus,
at this stage the parties contemplated the Plaintiff to open an L.C. for shipment of tire
rods latest by "31-12-2003".

(ii) On 29 September, 2003, plaintiff placed a Purchase Order with defendant. In its
purchase order, under the heading "Payment" Plaintiff made a counter-proposal and asked
Defendant to accept the new terms of payment to let Plaintiff open a Letter of Credit.
There was no specific "LATEST DATE OF SHIPMENT' mentioned in the Letter of
Credit proposed to be opened by the Plaintiff.

(iii) Upon receipt of this purchase order from the plaintiff, the defendant prepared the
final terms and conditions of the transaction and included the same in the Sales Contract
No.7619-S. Under the heading "Payment" in the Sales Contract the, Defendant agreed to
open an L.C. stating "ALLOW LATEST SHIPMENT' as "31-11-2003". Thus whereas the
"LATEST SHIPMENT' date under the heading "PAYMENT' in the Pro forma Invoice
was "30-12-2003"; in contrast in the sales contract dated 30-9-2003 the "LATEST
SHIPMENT" date given under the Heading "PAYMENT' in the Sales Contract was"30-
11-2003". The Letter of Credit to be opened by the plaintiff was to show the "LATEST
DATE OF SHIPMENT' as given in the sales Contract as "30-11-2003",

(iv) Thereafter, on 30 September, 2003, Defendant signed the Sales Contract, scanned the
document and sent it to the plaintiff by e-mail on the same date. The plaintiff accepted all
the terms of the Sales Contract transmitted by e-mail by incorporating the same in the
L.C., including the "LATEST DAZE OF SHIPMENT' as "30-11-2003" and the amount
"200MT' and opened the L.C. in the said terms.

(v) It is clear that the "LATEST SHIPMENT DATE" is the same as the one mentioned in
the Sales Contract and not the one stated in the Pro forma Invoice or the Purchase Order.

(vi) The L.C. thus incorporates the terms of the Sales Contract, wherein one of the terms
is also the arbitration clause. This Sales Contract was also partly performed by the
Defendant who supplied 500 MT of steel rods to the plaintiff on receipt of price from the
plaintiff through the LC.

9. It seems that the Plaintiff tried to conceal this factual position as they neither filed the
Sales Contract nor the complete copy of the L.C. with the plaint. Apparently, this may be
because the Sales Contract contained an arbitration clause which requires all disputes to
be settled by arbitration and plaintiff knew that the Sales Contract together with the L.C.
evidenced that they had agreed to refer all disputes to arbitration. The Defendant's
Advocate contention has weight that to wriggle out of the arbitration agreement the
Plaintiff attached documents prior to the Sales Contract, i.e. the Pro forma Invoice and
the Purchase Order and not the Sales Contract itself which contains the 'arbitration
agreement. The terms of the Sales Contract were accepted by the Plaintiff by opening a
Letter of Credit favouring the defendant in terms thereof. The Plaintiff cannot accept
some of the terms of the Contract and deny the others, such as the arbitration clause. He
cannot be allowed to blow hot and cold in the same breath.

10. The learned counsel for the Plaintiff has also argued that the Sales Contract has not
been signed and therefore is not enforceable. As discussed above, the Defendant has
established that the Sales Contract was electronically sent to the plaintiff who acted on
the same and opened a Letter of Credit in accordance with its terms and conditions,
which also contained an arbitration clause. The submissions of the learned Advocate for
the Plaintiff have no force in view of the provisions of the

Electronic Transaction Ordinance, 2002 (Ordinance LI of 2002). Sections 3 and 4 of the


Ordinance LI of 2002 read as follows:

"Section 3 Legal recognition of electronic founts.--No document, record,


information, communication or transaction shall be denied legal recognition,
admissibility, effect, validity, proof or enforceability, on the ground that it is in
electronic form and has not been attested by any witness."

"Section 4. Requirements for writing.--The requirement under any law for any
document, record, information, communication or transaction to be in written form
shall be deemed satisfied where the document, record, information,
communication or transaction is in electronic form, if the same is accessible so as
to be usable for subsequent reference."
It is further to be pointed out that after promulgation of Electronic Transactions
Ordinance, 2002, the Qanun-e-Shahadat Order, 1984 (P.O. 10 of 1984) stand amended in
terms of section 29 of the Ordinance, 2002, which read as follows:---

"Section 29. Amendment of Presidential Order No.10 of 1984.---For the purposes


of this Ordinance, the Qanun-e-Shahadat Order, 1984 (P.O. No.10 of 1984) shall be
read subject to the amendments specified in the Schedule of this Ordinance."

By the said amendments various definitions of the Qanun-e-Shahadat Order have been
changed and specifically by addition of section 2(e) in the said Order all the documents
produced or generated through modern devices have been given evidentiary value and
importance. Section 2(e), for convenience is reproduced as under:-

"2(e) the expression "automated", "electronic", "information", "information


system", "electronic documents", "electronic signature", "advanced electronic
signature" and "security procedure" shall bear the meanings given in the
Electronic Transactions Ordinance, 2002."

11. In view of the aforesaid provisions of the Electronic Transactions Ordinance, 2002, as
well as amendment in the Qanun-e-Shahadat Order, it appears that it is no longer
necessary for electronically transmitted documents, which include commercial/banking
contracts, to be manually signed or for the same to be attested by any witnesses.

12. Notwithstanding the foregoing, an agreement to arbitrate may also be deduced by


conduct of the parties. In the present case, the plaintiff on his own showing has filed e-
mails exchanged between the parties marked as Annexure "H", "1" and "J" along with the
plaint which refer to the Sales Contract in the subject header. of the said e-mails. The
Plaintiff has not denied these e-mails which refer to the Sales Contract which, among
other terms, contain the arbitration agreement. The learned Counsel for the Defendant has
pointed out that in several reported judgments of the Superior Courts of Pakistan
including, 2002 SCMR 1903, 1977 SCMR 409 and 1986 CLC 312 and the judgment of
the English Courts in Zambia Steel Case reported in [1986] 2 Lloyds Law Report 225, the
Courts have held that an agreement to arbitrate may also be inferred from the conduct of
the parties based on the exchange of correspondence. In the instant case from the
exchange of correspondence between the parties an agreement to refer dispute to
arbitration is easily inferred from which the plaintiff cannot extricate itself.

13. The defendant has filed an application for stay of suit under the Arbitration Act, 1940
and the Arbitration (Protocol and Convention) Act, 1937. While the former Act applies to
domestic arbitrations, the latter statute stands repealed by the Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005
(Ordinance XX of 2005). It is well-established law that omission to mention a provision
or mentioning of a wrong provision of law does not render an application invalid or
makes it fatal to the grant of relief if it is otherwise available under the law to an
aggrieved party 1982 SCMR 673 and 1994 SCMR 1555. Therefore, the omission to
mention the relevant provision of the Ordinance XX of 2005, would not deprive the
Defendant of the relief available to it under the law. 1 have examined in detail the
provisions of Ordinance XX of 2005 which is the primary law applicable to the dispute
between the parties in the instant case. The relevant sections 1(3), 3 and 4 and Article II
of the said Ordinance, read as follows:--

"Section 1(3).---It (Ordinance XX of 2005) shall apply to arbitration agreements


made before, on or after the 14th day of July, 2005 on which the Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005
(VIII of 2005) came into force...."

"Section 3. Jurisdiction of Court.---(1) Notwithstanding anything contained in any


other law for the time being in force, the Court shall exercise exclusive
jurisdiction to adjudicate and settle matters related to or arising from this
Ordinance.

(2) An application to stay legal proceedings pursuant to the provisions of Article


11 of the Convention may be filed in the Court in which the legal proceedings are
pending-------"

"4. Enforcement of arbitration agreements.---(1) A party to an arbitration


agreement against whom legal proceedings have been brought in respect of a matter
which is covered by the arbitration agreement may, upon notice to the other party
to the proceedings, apply to the Court in which the proceedings have been brought
to stay the proceedings insofar as they concern that matter.

(2) On an application under subsection (1), the Court shall refer the parties to
arbitration, unless it finds that the arbitration agreement is null and void, inoperative or
incapable of being performed."

"Article II

(1) Each Contracting State shall recognize an agreement in writing under which
the parties undertake to submit to arbitration all or any differences which have arisen
or which may arise between them in respect of defined legal relationship, whether
contractual or not concerning a subject-matter capable of settlement by arbitration.

(2) The term "agreement in writing" shall include an arbitral clause in a contract
or an arbitration agreement, signed by the parties or contained in an exchange of letters
or telegrams.

(3) The Court of a Contracting State, when seized of an action in a matter in


respect of which the parties have made an agreement within the meaning of this Article
shall, at the request of one of the parties, refer the parties to arbitration unless it finds
that the said agreement is null and void, inoperative or incapable of being
performed."
14. The term -agreement in writing" has been discussed by the Supreme Court of
Pakistan in 2002 SCMR 1903 and 1977 SCMR 409 in the context of arbitration
agreements. In the present case, learned counsel for the Plaintiff have argued that a
contract containing an arbitration agreement which has not been signed by the parties is
not enforceable. Based on the bare-reading of Article 11(2) of Ordinance XX of 2005 and
the authorities cited above, it is clear that an arbitration agreement does not necessarily
require signature of both parties to be enforceable in law.

15. Reverting to Mr. Manji's argument that the arbitration clause is against public policy
and very expensive. I rely upon the observations of Mr. Justice Ajmal Mian (as he then
was) of the Supreme Court of Pakistan in Hitachi Limited v. Rupali Polyester, 1998
SCMR 1618 at pages 1686 and 1687, which states as follows:--

"I may observe that while dealing with an application under section 34 of the
Arbitration Act in relation to a foreign arbitration clause like the one in issue, the
Court's approach should be dynamic and it should bear in mind that unless there are
some compelling reasons, such an arbitration clause should be honoured as generally the
other party to such an arbitration clause is a foreign party. With the development and
growth of International Trade and Commerce and due to modernization of
Communication/Transport systems in the World, the contracts containing such an
arbitration clause are very common nowadays. The bargain, that follows from the
sanctity which the Court attaches to contracts, must be applied with more vigour to a
contract containing a foreign arbitration clause. We should not overlook the fact
that any breach of a term of such a contract to which a foreign company or person is a
party, will tarnish the image of Pakistan in the comity of nations. A ground which
could be a contemplation of party at the time of entering into the contract as a
prudent man of business cannot furnish basis for refusal to stay the suit tinder section 34
of the Act. So the ground like, that it would be difficult to carry the voluminous
evidence or numerous witnesses to a foreign country for arbitration proceedings
or that it would be too expensive or that the subject-matter of the contract is in Pakistan
or that the breach of the contract has taken place in Pakistan in my view cannot be a
sound ground for refusal to stay a suit filed in Pakistan in breach of a foreign
arbitration clause contained in contract of the nature referred to hereinabove. In order
to deprive a foreign party to have arbitration in a foreign country in the manner
provided for in the contract, the Court should come to the conclusion that the
enforcement of such an arbitration clause would be unconscionable or would amount to
forcing the Plaintiff to honour a different contract, which was not in contemplation of
the parties and which could not have been in their contemplation as a prudent man of
business."

16. Mr. Manji's arguments regarding public policy and expensiveness of the arbitration
taking place in London as ground for stay of suit are no longer tenable in light of the
observations of the Supreme Court of Pakistan in the Hitachi case, the Ordinance XX of
2005 and the liberal investment policy of the Government of Pakistan. There is no doubt
some expense is involved in litigation but that is true anywhere in the world. In the
present suit, the plaintiff has filed a suit for more than US$ 1 million, and it is reasonable
to expect to incur some expense in the event of a dispute. Further, there is no restriction
imposed by the State Bank of Pakistan on remittance of foreign exchange for any lawful
purpose at any time and with the availability of modern devices such as teleconferencing
facilities, evidence may be recorded easily anywhere in the World under the supervision
of the arbitral body.

17. On reading section 1(3), (3), (4) with Article 11 of the Ordinance XX of 2005, it is
also clear that on filing of an application by any party to the proceeding, the Court has no
discretion and it is obliged to stay the proceeding unless it finds that the agreement is null
and void or inoperative or incapable of being performed. The Plaintiff has failed to satisfy
the Court that either one of the three ingredients for refusal of stay of suit are applicable
in the present circumstances.

18. Additionally, I have also gone through the documents involved in the matter and have
come to the conclusion that all the documents are related to each other and all the faxes,
pro forma invoice, L.C. as well as Sales Contract are part of one deal and that the matter
should be decided as per the terms of the Sales Contract agreed between the parties which
includes the arbitration agreement.

19. In light of the above, I stay the suit and direct the plaintiff to resort to the terms of the
Sales Contract for settlement of its dispute with the defendant by arbitration as agreed
between the parties.

H.B.T. /M-101/K Order accordingl


2006 C L D 497

[Karachi]

Before Khilji Arif Hussain, J

Messrs TRAVEL AUTOMATION (PVT.) LTD. through Managing Director---


Plaintiff

Versus

ABACUS INTERNATIONAL (PVT.) LTD. through President and Chief Executive


and 2 others---Defendants

Suit No.1318 of 2004, decided on 14th February, 2006.

(a) Recognition and Enforcement of (Arbitration Agreements and Foreign Arbitral


Awards) Ordinance (XX of 2005)---

----Ss. 3 & 4---Arbitration Act (X of 1940), S.3---Arbitration (Protocol & Convention)


Act (VI of 1937), S.3---Contract Act (IX of 1872), Ss.20 & 56---United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 1958---
Discretion of Court under S.34, Arbitration Act, 1940 to stay or not to stay legal
proceedings despite arbitration clause between the parties---Scope---Effect of
Recognition and Enforcement of (Arbitration Agreements and Foreign Arbitral Awards)
Ordinance, 2005, elucidated---Comparison of S.4(1) of the Recognition and Enforcement
of (Arbitration Agreements and Foreign Awards) Ordinance, 2005 with S.34, Arbitration
Act, 1940---Provision of S.4(2) of the Ordinance has taken away discretion of the court
whether or not to stay the proceedings in terms of arbitration agreement, even on the
ground of inconvenience etc. except where the arbitration agreement itself is null and
void, inoperative or incapable of being performed---Principles.

In terms of section 34 of the Arbitration Act, 1940 where any party to arbitration
agreement or any person claiming under him commenced any legal proceedings against
any other party to the agreement or person claiming under him in respect of any matter
agreed to be referred, any party to such legal proceedings may, at any time before filing a
written statement or taking any other step in the proceedings, can apply to the court
before which the proceedings are pending to stay the proceedings, and the court if
satisfied that there is no sufficient reason why the matter should not be referred to in
accordance with arbitration agreement, may make an order staying file proceedings.
Discretion has been given under section 34 of Arbitration Act. 1940 to court to stay or not
to stay legal proceedings that is to say that the proceedings, despite arbitration clause
between the parties, court on its satisfaction that there was no satisfactory reason for
making an arbitration and substantial miscarriage of justice would take place or
inconvenience would be caused to the parties, if stay was granted, can refuse to refer the
matter for arbitration in terms of arbitration clause agreed by the parties.
While dealing with the matter under Recognition and Enforcement of (Arbitration
Agreements and Foreign Arbitral Awards) Ordinance, 2005, such discretion is not
available with the court. Subsection (1) of section 4 provided that a party to arbitration
agreement against whom legal proceedings have been brought in respect of the matter
which is covered by the arbitration agreement may, upon notice to the other party to the
proceedings, apply to the court to stay the proceedings insofar as it concerned the matter.

On comparing subsection (1) of section 4 with section 34 of the Arbitration Act, 1940 one
can see that under section 34 of the Arbitration Act, 1940 any party to arbitration
agreement or person claiming under hire in any legal proceedings commenced against
any other party to the agreement in respect of the matter agreed to refer, before filing of
the written statement or taking any other step in the proceeding, can apply to the court.
and if court is satisfied that there is no sufficient reason why matter should not be referred
in accordance with arbitration agreement, may make order staying the proceedings
whereas under subsection (1) of section 4 of Ordinance, 2005 a party to arbitration
agreement against whom legal proceeding has been brought in respect of the matter
which is covered by the arbitration agreement, upon notice to the other party to the
proceedings can apply to the court in which proceedings have been brought to stay the
proceedings insofar as it concerned the matter. In other words a suit can be partly stayed
to the extent of the relief which is covered by the arbitration clause and/or to which
relation to party to a suit applied for stay of the proceedings.

Subsection (2) of section 4 of the Ordinance, 2005 has taken away discretion of the court
whether or not to stay the proceeding in terms of the Arbitration Agreement, even on the
ground of inconvenience etc except where the arbitration agreement by itself is null and
void, inoperative or incapable of being performed.

In the matter under Ordinance XX of 2005, court has no discretion but to stay the
proceedings under sari arbitration agreement between the parties except where the
arbitration agreement is null and void, inoperative, and/or incapable of being performed.

After the enforcement of Ordinance XX of 2005 radical changes have been made in law
and discretion of court which was available under section 34 of the Arbitration Act, 1940
apparently is no more available to court. The question on which earlier, while exercising
discretion under section 34 of the Arbitration Act about convenience or inconvenience of
the parties, availability of evidence on a place other than the place of arbitration, whether
to stay proceedings or not, was within the discretion of the court. However, while dealing
with the matter under section 4 of the Ordinance XX of 2005 court has no such discretion
except where cases fall within exception categories mentioned in the section itself. It is
interesting to note that section 3 of the Ordinance, 2005 opens with the non obstante
clause that notwithstanding anything contained in any other law for the time being in
force the court shall have exclusive jurisdiction to adjudicate and settle matter related to
or arising from the Ordinance. On reading subsection (2) of section 4 with Article II of
United Nations Convention, it is clear that on filing of an application by any party to the
proceeding the court has to stay the proceeding unless it finds that the agreement is null
and void or inoperative or incapable of being performed.

In the present case clause of arbitration agreement provided that all disputes arising out of
or in connect ion with this agreement including any question regarding its existence, or
termination, shall be referred to and to be finally resolved by arbitration in Singapore in
accordance with Arbitration Rules of Singapore International Arbitration Centres. The
said clause is widely worded. The plaintiff by this suit questioned the termination of the
agreement, or its validity. Plaint ill has asked for declaration that the agreement is still
operative acid further mandatory injunction in the form to direct the defendant to restore
the agreement i.e. to say to declare termination notice is unlawful. Such dispute is fully
covered under the arbitration clause and arbitrators have exclusive jurisdiction to decide
the same and contention of the plaintiff that arbitration clause is inoperative because there
is no dispute or incapable of being performed is without any force.

From perusal of the record it appears that the plaintiff also questioned the arbitration
clause on the ground that on 16-5-1997, the date of agreement there was no coded law of
arbitration in Singapore and that arbitration clause is also silent as to the law of the
country to be applied to the proceedings. The defendant through his rejoinder affidavit
placed on record legal opinion of the law forming in Singapore wherein it is specifically
stated that Singapore have coded law of arbitration on 16-5-1997 and International Act
Chapter 143E has been enforced in Singapore since 27-1-1996 and the law of Singapore
being the governing law of distributorship agreement applicable to arbitration agreement.
The plaintiff has not denied the contention of the defendant nor placed on record any
document in rebuttal.

Objection of the Plaintiff that defendants Nos.2 and 3 are not party to the arbitration
agreement and as such application for stay of the proceedings cannot be granted. From
the perusal of the record it appears that the plaintiff is not asking any relief against
defendants Nos.2 and 3 and the only relief asked is that distributorship agreement dated
16-5-1997 executed between the plaintiff a n d defendant No.1 is valid binding and fully
operative and enforceable agreement against defendant No.1 and is irrevocable coupled
with interest and defendant No.1 cannot revoke or assign or grant by defendant No.1 to
any person including defendant No.2 adverse to the interest of or the prejudice of the
Plaintiff.

Under section 4(2) of the Ordinance, 2005 pre-condition for refusing stay, the proceeding
is that arbitration agreement is null and void inoperative or incapable of being performed.

On reading section 20 of Contract Act (Agreement void where both parties are under
mistake as to matter of facts) along with section 56 of the Contract Act, one can say that
in case when at the time of execution of the Arbitration Agreement same was void or
became void subsequently by some reason or some event such as by an act of the
Government, the performance of a contract becomes impossible or by change of law
contract becomes incapable of being performed, in that event, Court can refuse stay of the
proceedings.
Plaintiff has failed to bring the case within the exceptions provided under subsection (2)
of section 4 of the Recognition and Enforcement (Arbitration Agreements and Foreign
Arbitral Awards) Ordinance, 2005, so as to refuse to stay the proceedings.

Svenska Handelsbanken and others v. Messrs Indian Charge Chrome and others AIR
(1994) 2 SC Cases 155; 'Messrs Srivenkateswara Construction and others v. The Union of
India AIR 1974 Andhra Pradesh 278; Muhammad Hanif v. Eckhard & Co. PLD 1983
Kar. 613; Eckhardt & Co. v. Muhammad Hanif PLD 1986 Kar. 1398; Eckhardt & Co. v.
Muhammad Hanif PLD 1993 SC 42; Muhammad Amin and Muhammad Bashir v.
PAS+R and others 2002 CLD 671; Muhammad Hanif v. Messrs Eckhard & Co. Marine
GmbH and two others PLD 1983 Kar. 613; PLD 1986 Kar. 138; Gas Authority of India
Ltd. v. SPIE CAPAG, S.A. and others AIR 1994 Delhi 75; Messrs Manzoor Textile Mills
Ltd. v. Nichimen Corporation and two others 2000 MLD Kar. 641 and Roomi Enterprises
(Pvt.) Ltd. v. Stafford Miller Limited and others, I ICA No.242 of 2002 ref.

(b) Recognition and Enforcement of (Arbitration Agreements and Foreign Arbitral


Awards) Ordinance (XX of 2005)---

----S. 4(2)---Stay of proceedings---Precondition for refusing stay, under S.4(2),


Recognition and Enforcement of (Arbitration Agreements and Arbitral Awards)
Ordinance, 2005 is that arbitration agreement is null and void, inoperative or incapable of
being performed---Words "null and void and inoperative or incapable of being
performed" have to be read keeping in view the rule of ejusdum generis i.e. when a
particular word pertaining to class, category or genus is followed by general words, the
general words are construed as limited to things of the same kind as those specified.

(c) Recognition and Enforcement of (Arbitration Agreements and Foreign Arbitral


Awards) Ordinance (XX of 2005)---

----Ss. 3 & 4---Contract Act (IX of 1872). Ss.20 & 56---Stay of proceedings---Court can
refuse stay of the proceedings if at the time of execution of the arbitration agreement
same was void or becomes void subsequently, by some reason or some event such as by
an act of the Government the performance of the contract became impossible or by
change of law contract became incapable of being performed.

(d) Arbitration---

----Party to proceedings cannot be allowed to defeat arbitration clause by way of joining a


party not a party to arbitration agreement---When any party does so, court while dealing
with such matter, has to see whether arty retie/' has been asked against such defendant or
not.

(e) Contract Act (IX of 1872)---


----S. 202---'Termination of agency---When the agreement itself was for a fixed period of
time and provided stipulation for the cancellation and termination of the same, S.202,
Contract Act, 1872 was not applicable---Principles.

Roomi Enterprises (Pvt.) Ltd. v. Stafford Miller Limited and others, HCA No.242 of 2002
ref.

Jawed Ahmed Siddiqui and Abid Shirazi for Plaintiff.

Sajid Zahid along with Taha Alizai for Defendants Nos.1 and 3.

Muhammad Tasneem for Defendant No.2.

Dates of hearing: 23rd December, 2005, 18th, 24th January and 1st February. 2006.

ORDER

KHILJI ARIF HUSSAIN, J.---The plaintiff filed suit for declaration, permanent and
mandatory injunction and damages against the defendants. After service of the notice
without taking any step in the proceeding, defendant No.1 filed application for stay of the
proceeding.

Brief facts for the purpose of deciding the application under section 34 of the Arbitration
Act, 1940, read with section 3 of the Arbitration (Protocol and Convention) Act, 1937
filed by defendant No.1, are that the plaintiff entered into a Memorandum of
Understanding with defendant No.1 on 28-2-1997 and thereafter plaintiff was appointed
as exclusive general sales distributor of the defendant No.1 to market and distribute the
defendant's "Abacus System" and "Abacus Service" in the territory of Pakistan on the
terms and conditions mentioned in the Distributor Agreement dated 16-5-1997. The
"Abacus Service" was defined as computerized reservations services, which perform
flight, hotel, car rental and other travel related products or services, reservations and
ticket issuance functions and such other services as may from time to time be offered by
Abacus through the Abacus System. In terms of the agreement, plaintiff %vas required to
provide all necessary services and supporting infrastructure to perform the business. It is
alleged that in consideration of the appointment as distributor by the defendant No.1,
plaintiff from their own funds and resources and at the instance of defendant No.1
constructed RCC sales/after sales, offices of appropriate standard, equipped with modern
equipments, furniture, etc., maintenance rooms, workshop so as to effectively carry out
its operation in its sale territory and to enhance reputation of defendant No.1 Abacus
System and Services and appointed trustworthy and competent employees for entire
territory. The plaintiff incurred huge expenses in this regard. The plaintiff claimed that the
plaintiff have acquired vested rights in the distributorship. The initial agreement after
expiry of three years was renewed by a Supplementary Distributor Agreement, whereby
the period of distributorship of the plaintiff was extended for another three years. Vide
letter dated 26-10-2004, defendant No.1, unilaterally without disclosing of reasons
terminated distributorship of the plaintiff from the territory covered by the agreement.
The plaintiff alleged that the plaintiff have acquired interest in the distributorship and
their interest stand legally protected and cannot be assailed in such unilateral, arbitrary
ignoring their- services. Plaintiff also alleged that defendant No.1 coaxed and persuaded
the plaintiff to do away with the business of distributorship with renowned German
Company known as Star Holding GMBH Marketing. The plaintiff also claimed that due
to illegal, unilateral act of the defendant No. 1 the plaintiff has suffered heavy financial
losses on account of loss of business as well as their goodwill and reputation in market,
mental torture, for which defendants are liable in law and claimed following amounts:--

"S.No. Description Details of


expenditure in
Pak Rupees

1. Construction and purchase of Rs.50 Million


Offices/buildings in various
Localities

2. Maintenance and repairs Rs.3 Million

3. Furniture and Fixtures Rs. 10 Million

4. Tools/equipments Rs. 15 Million

5. Advertisements Rs.5 Million

6. Transport/vehicles Rs.3 Million

7. Loss of reputation of Company Rs.10 Million

8. Loss of distributorship at the rate Rs.54 Million


of $ 25000 per month for three
years

9. Loss of maintaining various Rs.5 Million


Offices

10. Damage for mental torture Rs.100 Million

11. Loss of commission, income with Rs.90 Million


Amadeus

Total: Rs.345 Million"

The plaintiff filed the suit seeking declaration that the Distributor Agreement dated 16-5-
1997 between the plaintiff and defendant No.1 is valid, binding and fully operative and
enforceable against the defendant No.1 and are in the circumstances irrevocable, coupled
with interest, duly acted upon by conduct of the parties over the years since they are
executed in relation to the business of "Abacus System and Services" and that the said
agreements and rights thereunder cannot be revoked or assigned or given or granted by
defendant No.1 to any person/corporation including defendant No.2, adverse to the rights
of the plaintiff and the plaintiff is entitled to enjoy all rights of distributorship and
benefits thereunder. The plaintiff also prayed for permanent and mandatory injunction
directing the defendants that the Distributor Agreements are distributorship coupled with
interest in the subject-matter of distributorship and the same cannot be revoked and shall
be kept in force and operation in the entire territory of the plaintiff as per agreement with
the direction to the defendant No. 1 to restore the same in favour of the plaintiff. The
plaintiff also prayed for preliminary decree for accounts, for recovery of such sums as are
found to be due and payable to the plaintiff by the defendant No.1 and final decree be
passed thereafter. The plaintiff further claimed without prejudice to the relief of
declaration, etc. to grant a decree for damages in the sum of Rs.350,000,000 with
additional US $ 25,000 per month until the restoration of Distributor Agreement.

After service of notice, defendant No.1 filed application under section 34 of the
Arbitration Act, 1940 read with section 3 of the Arbitration (Protocol and Convention)
Act, 1937 and prayed to stay the proceedings of suit so that the matter may be referred by
the parties for arbitration in terms of Arbitration clause 18 of the Distributor Agreement.

Heard Mr. Sajid Zahid, learned counsel for defendant No.1 and Mr. Jawed Atoned
Siddiqui, learned counsel for the plaintiff.

Mr. Sajid Zahid, learned counsel for defendant No.1 orally requested that the application
may be read as an application under section 34 of the Arbitration Act read with sections 3
and 4 of the Ordinance, 2005 and argued that Distributor Agreement dated 16-5-1997 was
executed between the plaintiff and defendant No.1 for a fixed period of time. Clause 18
of the said agreement provided that all disputes arising out of or in connection with the
agreement including any question regarding its existence, validity or termination has to
be referred to and finally resolved by arbitration in Singapore in accordance with the
arbitration rules of Singapore International Arbitration Centre. The learned counsel
contended that disputes in the matter are fully covered by the arbitration clause and the
suit ought to have been stayed and parties be directed to refer the matter for arbitration at
the venue agreed between them. The learned counsel drew my attention to clause 12.1 of
the Agreement, and argued that the plaintiff have right to terminate the agreement without
assigning any reason. The learned counsel took me to various correspondence exchanged
between the parties after the termination notices and argued that the plaintiff himself has
admitted termination and the present suit has been filed mala fidely. The learned counsel
heavily relied upon tine opinion given by a Singapore based Advocate that the dispute
between the parties can be resolved by arbitration at Singapore and argued that Pakistan
is one of the signatories to the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958 and by Ordinance XX of 2005, i.e. The
Recognition and Enforcement. (Arbitration Agreements and Foreign Arbitral Awards)
Ordinance. Pakistan has accepted to enforce agreements in which parties agreed to refer-
their disputes for arbitration at a venue other than Pakistan. Learned Advocate in support
of his argument relied upon the case of Svenska Handelsbanken and others v. Messrs
Indian Charge Chrome and others AIR (1994) 2 Supreme Court Cases 155 and Messrs
Srivenkateswara Construction and others v. The Union of India AIR 1974 Andhra
Pradesh 278.

Mr. Jawed Ahmed Siddiqui, learned counsel for the plaintiff, in reply argued that
defendant No.1 unilaterally without any default or breach of Agreement between the
parties illegally, unlawfully and mala fidely terminated agreements of distributorship in
which plaintiff acquired interest and said agreement cannot be revoked unilaterally by the
defendants. The defendants' act of cancellation is without lawful authority and he entered
into an agreement with the defendant No.2 much prior to cancellation of agreement in
question. The learned counsel argued that the agreement in question was executed in
Pakistan entire evidence is available in Pakistan and it would not be in the interest of any
party that the matter be referred for arbitration at Singapore. It is contended that on 16-5-
1997, there was no coded law of arbitration in Singapore and further that the arbitration
clause is also silent as to the law of the country of institution, i.e. to apply to the present
proceedings. The learned counsel argued that in the circumstances of the case the foreign
arbitration will not be safe or convenient forum for the decision and the cost of
arbitration, to be held at Singapore, will be so disproportionately high and in forcing the
plaintiff to go for the arbitration will be amount to denial of justice. It is contended that
the plaintiff has sought decree jointly and severally against defendants Nos.2 and 3, who
arc not party to Arbitration Agreement and relief claimed by the plaintiff against
defendants Nos.2 and 3 does not cover by the said Agreement. The Court even in
presence of the arbitration agreement is equally competent to try the case and decide the
same.

Mr. Jawed Ahmed Siddiqui, learned counsel for the plaintiff argued that subsection (2) of
section 4 of the Ordinance, 2005 provided that in case if arbitration clause is inoperative
or is incapable of being performed, Court can refuse the stay of proceedings. Learned
counsel for the plaintiff argued that arbitration clause in the agreement between the
parties is inoperative because there is no dispute so far as to the contents of agreement are
concerned and further argued that Arbitration Agreement "is incapable of being
performed" because defendants Nos.2 and 3 are not parties to the arbitration agreement
and they are necessary party in the suit and accordingly proceedings of the suit cannot be
stayed. He further contended that if there is any smell of "fraud" in the matter then
application under section 34 of the Arbitration Act has to be dismissed. It is further
contended by the learned counsel that the agreement it a question was executed in
Pakistan, entire evidence is available in Pakistan and it would be inconvenient for the
parties to appear before the Arbitrator at Singapore. The learned counsel in support of his
contention relied upon the case of (1) Muhammad Hanif v. Eckhard & Co. PLD 1983
Karachi 613; (2) Eckhardt & Co. v. Muhammad Hanif PLD 1986 Karachi 1398; (3)
Eckhardt & Co. v. Muhammad Hanif PLD 1993 SC 42 and Muhammad Amin and
Muhammad Bashir v. PAS+R and others 2002 CLD 671.

Mr. Muhammad Tasneem learned counsel for the defendant. No.2 argued that except
sonic allegations have been made in para.3 of the plaint against the defendant No.2 the
plaintiff has not claimed any relief against: defendant No.2 and defendant No.2 has been
joined in the proceedings just to avoid arbitration proceedings in terms of the agreement
executed between plaintiff and defendant No. 1.

I have taken into consideration respective arguments advanced by the learned counsel for
the parties and perused the record. In order to appreciate the respective contentions of the
learned counsel for the parties, it would be useful to reproduce sonic relevant clauses of
the Distributor Agreement dated 16-5-1997, which read as Follows:

"Clause 2.1:---Abacus hereby appoints Distributors during the continuance of this


Agreement as the exclusive distributor of the Business in the Territory only, and
Distributor accepts such appointment and hereby undertake to act as such in accordance
with the terms and conditions set forth herein.

12. Term and condition

12.1:- This agreement shall be for a fixed term of three (3) years and shall continue
thereafter, for a fixed period of three (3) years unless earlier terminated as provided in
this Agreement. Notwithstanding this, either party to this Agreement may terminate the
Agreement upon three (3) years calendar months written notice given to the other party,
such notice not be given earlier than twelve (12) months from the date of execution of
this Agreement.

13. Consequence of events of default

13.1 Without prejudice to any other rights and remedies which any party may have, if
Distributor commits a breach of any of its undertakings under section 3, then Distributor
shall he liable to pay Abacus forthwith, as liquidated damages and not as penalty, a sum
to be calculated at the rate of:--

Total amount received in previous year or projected to be received in current year (if this
Agreement has been in force for less than one year at the date of breach) by Distributor
under section 9 of this Agreement times three.

17. Governing Law and Lion-English Version

17.1 This agreement and any dispute arising under or in connection with this Agreement
shall be governed by the law of the Republic of Singapore and subject to the non-
exclusive jurisdiction of the Courts of Singapore.

17.2 If any non-English interpretative versions of this Agreement are created then, in the
event of a conflict between this English version and any non-English version, this English
version will prevail.

18. Arbitration
17.3 All disputes arising out of or inn connection with this Agreement, including any
question regarding its existence, validity or termination, shall be referred to and finally
resolved by arbitration in Singapore in accordance with the Arbitration Rules of the
Singapore International Arbitration Center ("SIAC Rules") for the time being in force
which rules are deemed to be incorporated by reference into this clause. The law of
arbitration shall be the international Arbitration Act Cap, 143A.

17.4 The tribunal shall consist of 2 arbitrator(s) to be appointed by the Chairman of


SIAC.

17.5 Awards shall be expressed in Singapore Dollars and the Arbitrator may award that
simple or compound interest shall be paid by any party concerned on any sum which is
the subject matter of the reference at such rates as the arbitrators determine to be
appropriate, without being bound by legal rates of interest, in respect of any period which
the award is complied with. The parties may agree to comply with an award.

17.6 The arbitrators shall have the power to rule on objections that they have no
jurisdiction, including any objections with respect to the existence of validity of this
arbitration clause, or this Agreement. The arbitrators may make final awards on different
issues at different times, each of which award shall be enforceable.

17.7 The award rendered by the arbitration shall be final and binding on the parties and
may include costs, including a reasonable allowance for attorney's fees and judgment
thereon may be entered in any Court having competent jurisdiction."

Before I proceed further and discuss the contentions of parties, 1 would like to discuss the
case of Muhammad Hanif v. Messrs Eckhardt & Co. Marine GmbH and two others PLD
1983 Karachi 613, wherein learned Single Judge dismissed the application under section
34 of the Arbitration Act. The order was upheld by the Division Bench, and reported in
PLD 1986 Kar. 138. The defendant filed the appeal before the Honourable Supreme
Court against the said order of Division Bench which too was dismissed and reported in
PLD 1993 SC 42.

Brief facts of the case are that Messrs Eckhardt & Co. Marine GmbH (supra) a foreign
company with registered office in Hamburg, West German, through their agent namely
Ecomar (Pakistan) Limited entered into an agreement dated 12-4-1983 with respondent
Muhammad Hanif for sale of the motor-vessel to be delivered at Karachi which time was
extended up to 7-6-1983. Vessel could not be delivered within the extended time for
reason that there was congestion and strike in Karachi Port, hence buyer cancelled
contract as contemplated by clause 4 of the agreement but he claimed that seller was
intentionally delaying in discharging of cargo so that vessel could not be delivered within
the stipulated time. Claiming damages on the basis of difference in the market price and
the contract price of the vessel and further sum expenses to be incurred for purchase of
similar vessel for the purpose of scrap, buyer filed Suit No.347 of 1983 in the High Court
of Sindh on original side for decree jointly and severally against seller and their agents at
Karachi. Similarly defendants Nos. 1 and 2 filed application under section 34 of the
Arbitration Act, 1940 for stay of the suit proceedings on the ground that there is an
arbitration clause in the contract executed between the parties providing for arbitration to
be taken place at London in the manner as prescribed in clause 8. The application was
resisted by the buyer on the ground that reference to a foreign Tribunal was opposed to
public policy and laws relating to the contract and arbitration in Pakistan and further the
whole evidence to be required would be available at Karachi, hence it would be
convenient to proceed with the suit at Karachi. Application under section 34 of
Arbitration Act was dismissed by the learned Single Judge vide order dated 10-7-1983.
Concluding para. thereof wills assessment of material and reasons is reproduced
hereunder:--

"As stated above in the present case the contract was entered into at Karachi
where defendant's agents reside and carry on their business permanently. The
delivery of the vessel was to be made at Karachi, letter of credit was opened at
Karachi and all other formalities were to be completed at Karachi. The reasons
given for rescinding the contract are the circumstances beyond the control of the
defendants which include congestion and strike at Port of Karachi and other local
conditions due to which the goods could not be discharged from the vessel. It is
therefore, clear that the entire evidence of both the parties is at Karachi. In these
circumstances to carry the entire burden of this litigation to London before the
arbitrators will be most inconvenient and expensive for bolls the parties. One of
the factors which has impressed is that the defendant No.1 has its agent at
Karachi, who is permanently stationed here and looks after its business and
further it has been joined as defendant No.2 against whom the plaintiff has sought
decree jointly and severally. This defendant No.2 is not a party to the arbitration
agreement. In view of the relationship between defendant No.1 and defendant
No.2 this may not by itself be a strong ground for refusing to stay, but the fact
remains that in the circumstances of the case the foreign arbitrators would not be a
safe or convenient forum for the decision. To compel the plaintiff to seek his
remedy at that forum may lead to denial of justice."

The Honourable Supreme Court by upholding order passed by the learned Single
Judge held that:--

"There is no cavil about the propositions that under section 34 of the Arbitration
Act, stay can be refused by the Court if it is satisfied that there is no sufficient
reason for making reference to arbitration and substantial miscarriage of justice
would take place or inconvenience would be caused to the parties if stay is
granted. No hard and fast rule can be laid down or line of demarcation can be
drawn to say in what cases refusal can be made. Each case has different facts and
grant or refusal of stay is dependent upon peculiar facts and circumstances of each
case. The Court can snake objection assessment and come to the conclusion
whether stay of legal proceedings can be granted or refused.

Considering legal position stated above, we are of the view that in the instant case no
interference is warranted for the reason that discretion is exercised by the Court ill
refusing stay on cogent grounds and additionally, we are of the view that lion-
performance of the contract for reason of congestion and strike at Karachi Port was
beyond contemplation of the parties at the time of contract. In such circumstances, whole
evidence on this point has to come from Karachi composed of documents and oral
evidence and taking of such evidence to London would be inconvenient to the parties and
also would be expensive. For the facts and reasons so stated above, we find no merit in
this appeal, which is hereby dismissed with no order as to cost."

While agreeing with the conclusion Mr. Justice Ajmal Mian appended separate note on
the ground that two Courts below have exercised jurisdiction under section 34 of the
Arbitration Act against the appellant by refusing to stay the suit and since the above
exercise of discretion cannot be said to be perverse or arbitrary or capricious, this Court
cannot interfere with the same even if it would have taken a different view in the matter,
which I would like to reproduce:--

"I may observe while dealing with an application under section 34 of the Arbitration Act
in relation to a foreign arbitration clause like the one in issues, the Court's approach
should be dynamic and it should bear in mind that unless there are some compelling
reasons, such an arbitration clause should be honoured as generally the other party to
such an arbitration clause is a foreign party. With the development and growth of
International Trade and Commerce and clue to modernization of
Communication/Transport systems in the world, the contracts containing such an
arbitration clause are very common nowadays. The rule that the Court should not lightly
release the parties from their bargain, that follows from the sanctity which the Court
attaches to contracts, must be applied with more vigour to a contract containing a foreign
arbitration clause. We should riot overlook the fact that any breach of a term of such a
contract to which a foreign company or person is a party, will tarnish the image of
Pakistan in the comity of nations. A ground which could be in contemplation of the party
at the time of entering into the contract as a prudent man of business, cannot furnish basis
for refusal to stay the suit under section 34 of the Act. So the ground like, that it would be
difficult to early the voluminous evidence or numerous witnesses to a foreign country for
arbitration proceedings or that it would be too expensive or that the subject-matter of the
contract is in Pakistan or that tire breach of the contract has taken place in Pakistan, in my
view, cannot be a sound ground for refusal to stay a suit filed in Pakistan in breach of a
foreign arbitration clause contained in contract of the nature referred to hereinabove. In
order to deprive a foreign party to have arbitration in a foreign country in the manner
provided for in the contract, the Court should come to the conclusion that the
enforcement of such an arbitration clause would be unconscionable or would amount to
forcing the plaintiff to honour a different contract, which was not in contemplation of the
parties and which could not have been in their contemplation as a prudent imam of
business."

From the judgment of the Honourable Supreme Court, it appears that Honourable
Supreme Court refused to interfere with the discretion exercised by the two Courts below
as same was not perverse, even if it would have different views.
Mr. Jawed Ahmed Siddiqui learned counsel for the plaintiff also relied upon the case of
Muhammad Amin and Muhammad Bashir v. PAS+R and others 2002 CLD 671: in
support of his, contention that defendant is not entitled for stay in the proceedings. 1 am
afraid that the principle laid down in the case of Muhammad Amin and Muhammad
Bashir (supra) does not attract to the facts of this case as the said matter learned Single
Judge has not discussed the effects of sections 3 and 4 of Ordinance XX of 2005.

Keeping in view the principle laid down in the case of Messrs Eckhardt & Co. Marine
GmbH (supra), now I would like to examine present case.

Mr. Jawed Ahmed Siddiqui, learned Advocate for the plaintiff, questioned the
maintainability of application on the ground (a) inconvenience of parties, as every
evidence is in Pakistan, (b) arbitration agreement is inoperative and (c) incapable of
performance as, the defendant Nos.2 and 3 are not parties to tire arbitration agreement,
(d) the agreement between the plaintiff and defendant No.1 was coupled with interest and
defendant No. 1 cannot unilaterally cancel the same.

In order to appreciate the first question, it would be useful to reproduce section 34 of the
Arbitration Act, 1940, preamble of Ordinance XX of 2005, sections 3, and 4 of the
Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards)
Ordinance, 2005:--

"Section 34. Power to stay legal proceedings where there is an arbitration


agreement:---Where any party to an arbitration or any person claiming under him
commences any legal proceedings against any other party to the agreement or any
person claiming under him in respect of any matter agreed to be referred, any
party to such legal proceedings may, at any time before filing a written statement
or taking any other steps in the proceedings, apply to the judicial authority before
which the proceedings are pending to stay the proceedings; and if satisfied that
there is no sufficient reason why the matter should not be referred in accordance
with the arbitration agreement and that the applicant was, at the time when the
proceedings were commenced, and still remains, ready and willing to do all things
necessary to the proper conduct of the arbitration, such authority may make an
order staying the proceedings."

"Jurisdiction of Court:--

(1) Notwithstanding anything contained in any other law for the time being in force, the
Court shall exercise exclusive jurisdiction to adjudicate and settle matters related to or
arising from this Ordinance.

(2) An application to stay legal proceedings pursuance to the provisions of Article 11 of


the Convention may be filed in the Court, in which the legal proceedings are pending.

(3) in the exercise of its jurisdiction, the Court shall:--


(a) Follow the procedure, as nearly as may be provided in the Code of Civil Procedure,
1908 (Act V of 1908) as amended from time to time; and

(b) have all the powers vested in a civil Court under the Code of Civil Procedure, 1908
(Act V of 1908) as amended from time to time:--

(4) Enforcement of arbitration agreement:--

(1) A party to an arbitration agreement against whom legal proceedings have been
brought in respect of a matter which is covered by the arbitration agreement may, upon
notice to the other party to the proceedings, apply to the Court in which the proceedings
have been brought to stay the proceedings insofar as they concern that matter.

(2) On the application under subsection (1), the Court shall refer the parties to arbitration,
unless it finds that the arbitration agreement is null and void in operative or incapable of
being reformed."

In terms of section 34 of the Arbitration Act where any party to arbitration agreement or
any person claiming under him commenced any legal proceedings against any other party
to the agreement or person claiming under hire in respect of ally e alter agreed to be
referred, any party to such legal proceedings may, at' any time before filing a written
statement or taking any other steps in the proceedings, can apply to the court before
which the proceedings are pending to stay the proceedings, and the' court if satisfied that
there is sufficient reason why the matter should not be referred to in accordance with
arbitration agreement, may make an order staying the proceedings. Discretion has been
given under section 34 of Arbitration Act, 1940 to court to stay or not to stay legal
proceedings that is to say that the proceedings, despite arbitration clause between the
parties, Court on its satisfaction that there was no satisfactory reason for making an
arbitration and substantial miscarriage of justice would take place or inconvenience
would be caused to the parties, if stay was granted, can refuse to refer the matter for
arbitration in terms of arbitration clause agreed by the parties.

While dealing with the matter under Kecognition and Enforcement of (Arbitration
Agreements and Foreign Arbitral Awards) Ordinance 2005, such discretion is not
available with the court. Subsection (1) of section 4 provided that a party to arbitration
agreement against whom legal proceedings has been brought in respect of the matter
which is covered by the arbitration agreement may, upon notice to the other party to the
proceedings, apply to the court to stay the proceedings in so far as it concerned matter.

On comparing subsection (1) of section 4 with section 34 of the Arbitration Act, 1940 one
can see that under section 34 of the Arbitration Act, 1940 any party to arbitration
agreement or person claiming under trite commenced any legal proceedings against any
other party to the agreement in respect of the matter agreed to refer, before filing of the
written statement or taking any other step in the proceeding, can apply to the Court, and if
Court is satisfied that there is a sufficient reason why matter should not be referred in
accordance with arbitration agreement, may make order staying the proceedings whereas
under subsection (1) of section 4 of Ordinance. 2005 a party to arbitration agreement
against whom legal proceeding has been brought in respect of the matter which is
covered by the arbitration agreement, upon notice to the other party to the proceedings,
can apply to the court in which proceedings have been brought to stay the proceedings
insofar as it concerned matter. In other words a suit can be partly stayed to the extent of
the relief which is covered by the arbitration clause and or to which relation to party to a
suit applied for stay of the proceedings.

Subsection (2) of section 4 of the Ordinance, 2005 has taken away discretion of the court
whether or not to stay the proceeding in terms of the Arbitration Agreement, even on the
ground of inconvenience etc. except where the arbitration agreement by itself is null and
void, inoperative or incapable of being performed.

Article II of United Nations Convention on the Recognition and Enforcement of Foreign


Arbitral Awards, 1958 reads as under:--

"(1) Each Contracting State shall recognize an agreement in writing under which the
parties undertake to submit to arbitration all or any difference which have arisen or which
may arise between them iii respect of defined legal relationship, whether contractual or
not, concerning a subject-matter capable of settlement by arbitration.

(2) The terms "agreement in writing" shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letter or
telegrams.

(3) The Court of a Contracting State, when seized of an action in a matter in respect of
which the parties have made an agreement within the meaning of this Article shall, at the
request of one of the parties, refer the parties to arbitration, unless it finds that the said
agreement is null and void, inoperative or incapable of being performed."

As has been held hereinabove that in the matter under Ordinance XX of 2005, Court has
no discretion but to stay the proceedings under an arbitration agreement between the
parties except where the arbitration agreement is null and void, inoperative, and or
incapable of being performed.

In the case of Svenska Handelsbanken and others v. Messrs Indian Charge Chrome and
others AIR (1994) 2 SC Cases 155, in case where High Court of India refused to stay the
proceedings against defendant on the ground that Plaint does not make severeable
allegations against different defendants who are parties to the different contracts with
different arbitration agreement and the allegations made by the plaintiff against different
defendants are such that they cannot be separated from other and since arbitration
proceeding between plaintiff and different defendants may have to go to different
arbitrators also the arbitration clause must be treated as being inoperative, the Honourable
Supreme Court of India held that as totally erroneous" and held that "plaintiff by merely
entering into other contract with different parties cannot prejudice or defeat the right of
different parties under different contracts particularly when foreign arbitration has been
provided by the parliament as an indispensable right which Court does not have any kind
of discretion".

In the case of Gas Authority of India Ltd. v. SPIE CAPAG, S.A. and others AIR 1994
Delhi 75, it has been held that: --

"Under section 3 of Foreign Awards (Recognition and Enforcement) Act (1961)


and Article 11 (3) of New York Convention referred to the arbitration is
mandatory as these provisions do not leave any discretion in the Court, once all
the conditions for referral are fulfilled, i.e., the Court does not find the arbitration
agreement to be null and void, inoperative and incapable of being performed. The
effect of section 3 of the FARE and Article II (3) of the Convention is to deprive
the Court of any discretion in the matter when the aforesaid limitations are not
present. This mandatory character of the referral is uniformly applicable to the
convention States."

After the enforcement of Ordinance XX of 2005 radical changes have been made in law
and discretion of court which was available under section 34 of the Arbitration Act, 1940
apparently is no more available to court. The question on which earlier, while exercising
discretion under section 34 of the Arbitration Act about convenience or inconvenience of
the parties, availability of evidence on a place other than the place of arbitration, whether
to stay proceedings or riot, was within the discretion of the court. However, while dealing
with the matter under section 4 of the Ordinance XX of 2005 court has no such discretion
except where cases fall within exception categories mentioned in the section itself. It is
interesting to note that section 3 of the Ordinance, 2005 opens with the non obstante
clause that notwithstanding anything contained in any other law for the time being in
force the court shall have exclusive jurisdiction to adjudicate and settle matter related to
or arising from the Ordinance. On reading subsection (2) of section 4 with Article II of
United Nations Convention, it is clear that on filing of an application by any party to the
proceeding the court has to stay the proceeding unless it finds that the agreement is null
and void or inoperative or incapable of being performed. So far as the agreement iii
question is concerned it is not the case of the plaintiff that the said agreement is void
agreement and in fact plaintiff has sought declaration, that the said agreement is valid,
binding and fully operative and enforceable against the defendant and in these
circumstances irrevocable coupled with interest, and for mandatory injunction restoring
the same in favour of the plaintiff.

Now I will deal with the question whether the arbitration agreement is inoperative or
incapable of being performed. Mr. Jawed Ahmed Siddiqui, learned counsel for the
plaintiff argued that there is no dispute so far as the contents of the agreement are
concerned, and accordingly Arbitration Agreement is inoperative and incapable of being
performed. Learned counsel for the plaintiff argued that since defendants Nos.2 and 3 are
not party to arbitration agreement suit cannot be stayed.

Clause 18 of arbitration agreement provided that all disputes arising out of or in


connection with this agreement including any question regarding its existence, or
termination shall be referred to and to be finally resolved by arbitration in Singapore in
accordance with Arbitration Rules of Singapore International Arbitration Centres. The
said clause is widely worded. The plaintiff by this suit questioned the termination of the
agreement, or its validity. Plaintiff has asked for declaration that the agreement is still
operative and further mandatory injunction in the form to direct the defendant to restore
the agreement i.e. to say to declare termination notice is unlawful. Such dispute is fully
covered under the arbitration clause and arbitrators have exclusive jurisdiction to decide
the same and contention of the plaintiff that arbitration clause is inoperative because there
is no dispute or incapable of being performed is without any force.

From perusal of the record it appears that the plaintiff also questioned the arbitration
clause on the ground that on 16-5-1997, the date of agreement, there was no coded law of
arbitration in Singapore and that arbitration clause is also silent as to the law of the
country to be applied to the proceedings. The defendant through his rejoinder affidavit
placed on record Annexure-D legal opinion of the law forming in Singapore wherein it is
specifically stated that Singapore have coded law of arbitration on 16-5-1997 and
International Act Chapter 143E has been enforced in Singapore since 27-1-1996 and the
law of Singapore being the governing law of distributorship agreement applicable to
arbitration agreement. The plaintiff has not denied the contention of the defendant nor
placed on record any document in rebuttal.

Now I will deal with the ground that Arbitration Agreement is inoperative, incapable of
performance. Objection of the plaintiffs that defendants Nos.2 and 3 are not party to the
arbitration agreement and as such application for stay of the proceedings cannot be
granted. From the perusal of the record it appears that the plaintiff is not asking any relief
against defendants Nos.2 and 3 and the only relief asked is that distributorship agreement
dated 16-5-1997 executed between the Plaintiff and defendant No.1 is valid binding and
fully operative and enforceable agreement against defendant No.1 and is irrevocable
coupled with the interest and defendant No.1 cannot revoke or assign or grant by
defendant No.1 to any person including defendant No.2 adverse to the interest of or the
prejudice of the plaintiff.

Under section 4(2) of the Ordinance, 2005 pre-condition for refusing stay, the proceeding
is that arbitration agreement is null and void inoperative or incapable of being performed.

The words null and void and inoperative or incapable of being performed should be read
keeping in view the rule of ejusdem generic i.e. when a particular word pertaining to
class, category or genus are followed by general words, the general words are construed
as limited to things of the same kind as those specified.

On reading section 20 of Contract Act (Agreement void where both parties are under
mistake as to matter of facts) along with section 56 of the Contract Act, one can say that
in case when at the time of execution of the Arbitration Agreement same was void or
become void subsequently by some mason or some event such as by an act of the
Government, the performance of a contract become impossible or by change of law
contract become incapable of being performed, in that event, court can refuse stay of the
proceedings.

Mr. Muhammad Tasneem learned counsel for defendant No.2 rightly stated that no relief
has been asked for against defendant No.2. A party to proceeding cannot be allowed to
defeat arbitration clause by way of joining a party not a party to arbitration agreement as
defendant No.2 who is not a party to the arbitration agreement and while dealing with
such matter Court has to see whether any relief has been asked against such defendant or
not? Reliance can be placed on the cases of Messrs Srivenkateswara Construction and
others v. The Union of India AIR 1974 Andhra Pradesh 278, and Messrs Manzoor Textile
Mills Ltd. v. Nichimen Corporation and two others 2000 MLD Karachi 641.

In the case of Messrs Srivenkateswara Construction and others v. The Union of India AIR
1974 Andhra Pradesh 278, the Honourable Supreme Court held as under:--

I t often happens that in order to circumvent an arbitration clause a plaintiff adds


some unnecessary parties to the suit and in such cases it has been held that. the
Court can grant stay of proceedings. In Cekop v. Asian Refractories Ltd. (1969)
73 Cal WN 191) it was laid down that a party to an arbitration agreement cannot
defeat the agreement between the parties merely by joining a third party in the suit
against whom no relief is claimed. Following the said decision, a Bench of this
Court of which one of us (Krishnarao, J) was a member in C.M.A. No.467 of
1966 dated 18-12-1969 (And. Pra.) held that though the plaintiff added a prayer as
against an unnecessary defendant who was not a party to the agreement it was
nevertheless a case for granting stay."

In the case of Messrs Manzoor Textile Mills Ltd. v. Nichimen Corporation and 2 others
2000 MLD 641, learned Single Judge of this Court while dealing with the Arbitration
(Protocol and Convention) Act, 1937 held:--

"I cannot be unmindful of well-established principle that the Court should not
lightly release the parties from their bargain, that follows from the sanctity which
the Court attracts to contracts. In the present case a foreign firm is involved,
which entered into the contract in question on the basis that in case of any dispute
the same would be adjudicated upon as per arbitration clause but the plaintiff wish
to defeat the above clause with the aid of this Court. In order to acquire a
respectable place in the community or nations, not only the Government, but even
the individuals are expected to honour their commitments."

In my view a party having entered into an agreement after having full knowledge
of its consequences cannot be allowed to defeat the arbitration clause."

Coming to the last contention of the learned counsel for the plaintiff that agreement of
distributorship between the plaintiff and defendant No.1 was coupled with the interest
and defendant No. 1 cannot unilaterally cancel the same. It is an admitted position that
distributorship agreement entered into between the parties from time to time was for a
specified period of time. Clause 12.1 provided that agreement shall be for a fixed period
of three years and to be continued thereafter for a fixed period of three years unless
earlier terminated as provided in the agreement. The said clause further provided that
notwithstanding this, either party to this agreement may terminate the agreement upon
three calendar months written notice given to the other party, such' notice not to be given
earlier than twelve months from the date of execution of the Agreement. Clause 12.2
provided events of default on which defendant can terminate the agreement and all
licences and, permissions immediately. Likewise clause 12.3 provided that plaintiff can
terminate the agreement by written notice to Abacus on event of default provided in this
clause. Clause 12.4 provided that upon termination of the agreement for any cause, all
rights of the distributor shall be terminated and distributor shall immediately cease to use
the trade mark, service mark and other intellectual property belonging to Abacus and
shall return forthwith all existing copies of the standard agreements, manuals, publicity
material and all other materials of every nature etc. The plaintiff's case is that the plaintiff
has not violated any of the stipulations mentioned in clause 12 of time agreement dated 1-
5-1997 and that plaintiff has acquired vested right in the said distributorship and their
interest stands legally protected and cannot be assailed much less taken away in such a
unilateral, arbitrary unreasonable manner ignoring their services. sacrifices, investments
which have all gone waste in view of the illegal and mala fide termination of their
distributorship. Be that as it may, since agreement itself was for a fixed period of time
provided stipulation for the cancellation and termination of it. Reliance upon section 202
of the Contract Act has no application to the facts of the present case for more than one
reasons. I will not like to discuss this issue in detail as the same is of no relevance for the
purpose of deciding the application for stay of the proceedings and further any finding on
this issue may adversely affect the interest of the plaintiff in the arbitration proceedings,
however, since learned counsel for the plaintiff raised objection, I would like to
reproduce the quotation from the unreported judgment in the case of Roomi Enterprises
(Pvt.) Ltd. v. Stafford Miller Limited and others, HCA No.242 of 2002, which reads as
under:--

"....Reliance has been placed upon section 202 of the Contract Act which, in our
opinion, has no application to the facts of the present case for more than one
reason. The Agreement dated 1-11-1997 provided stipulation for the cancellation
and termination of it. The phrase "in the absence of any express contract" used in
section 202 of the Contract Act has a great significance and even if an agency, due
to any reason creates an interest in the property which forms the subject-matter I
of the agency, if agreement itself provided for termination and cancellation of
such Agreement of Agency then section 202 of the Contract Act cannot be
invoked. Section 205 of the Contract Act further stipulated that even where there
is an agency for any period of time and if it is terminated before the expiry of the
period so stipulated in the Agreement, compensation is to be paid for the loss
suffered, if any, by him due to such termination by the principal or agent, as the
case may be, if such termination was without sufficient cause.

In the case of Messrs Burnis Computing International (Pvt.) Ltd. v. IBM World
Trade Corporation 1997 CLC 1903, one of us (namely Sabihuddin Ahmed, J.)
while dealing with the question of agency coupled with interest, held that making
of substantial investments in business of agency does not make the agency
irrevocable and reproduce the passage from the case of Worldwide Trading
Company v. Sanyo Trading Company PLD 1986 Kar. 234 that interest of the
agent, forming subject matter of the agency, is to be some sort of an adverse
nature qua the principle.

In the recent case of Bolan Beverages (Pvt.) Limited v. Pepsicola PLD 2005 SC
860 = 2005 CLD 1530 Honourable Supreme Court held that section 202 of the
Contract Act is split up into two parts. The first portion of the section is clearly
indicative of the fact that either the agent must have an interest pre-existing in the
property or creation of such interest should be the direct result of the agreement
itself and any interest either not pre-existing or not forming subject-matter of the
agreement but created subsequent to the agreement in I any matter, would not be
called as the creation of interest of the agent. It was further held by the
Honourable Supreme Court that only that agency is irrevocable which is created
with adequate consideration and is designed to serve as security for some interest
of the agent. Any expenditure in setting up office and necessary infrastructure for
carrying on business of agency does not tantamount to the creation of interest of
agent in the subject-matter."

For the foregoing reasons I am of the view that the plaintiff has failed to bring the case
within the exceptions provided under subsection (2) of section 4 of the Recognition and
Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2005, so
as to refuse to stay the proceedings. The listed application is granted and the proceeding
of the suit is stayed. It is further ordered that the disputes between the plaintiff and
defendant No. 1 be referred to arbitration in term of Arbitration Clause. I would like to
make it clear that any observation made hereinabove are tentative in nature, and arbitrator
while deciding the matter will not influence from it.

M.B.A./T-4/K Order accordingly.


2006 Y L R 2501

[Karachi]

Before S. A. Rabbani, J

SHIPYARD K. DAMEN INTERNATIONAL---Petitioner

Versus

KARACHI SHIPYARD AND ENGINEERING WORKS LTD.---Respondent

Suit No.1435 and C.Ms. Nos. 7893, 8472 of 2001, decided on 22nd January, 2002.

Arbitration Act (X of 1940)---

----S. 20---Civil Procedure Code (V of 1908), O.XXXIX, Rr.1, 2 & 4---Specific Relief
Act (I of 1877), S.12---Application to file arbitration agreement in Court---Suit for
specific performance of contract---Ad interim order, vacation of---Contract arrived at
between parties contained an arbitration clause and provision of Bank guarantee---
Dispute having arisen between parties in respect of supplies of material, application
under S.20 of Arbitration Act, 1940 had been filed with a prayer for filing of agreement in
the Court with a prayer that defendant be restrained from encashing Bank-guarantee till
the matter was decided in arbitration---Ad interim order was passed restraining
defendant from encashing Bank-guarantee---Defendant applied for vacation of that
order---Validity---Two questions, in circumstances, were involved in the case, one
relating to a reference to arbitration and the other relating to encashment of Bank
guarantee---Contract contained a clause for reference to arbitration in case of dispute and
when there was dispute between parties, reference to arbitration was natural and legal
course, so far as question of encashment of Bank guarantee was concerned, guarantee
itself mentioned that it was unconditional---Buyer/defendant in the case, was the sole
Judge for deciding whether seller/plaintiff had performed purchase contract and fulfilled
terms and conditions, in view of such provision in the guarantee, there was no legal
justification for restraining defendant from encashing the Bank guarantee---Only reason
that dispute was to be decided and the claim and liability were to be determined in
arbitration, was not sufficient to interfere with the agreed term about defendant being sole
Judge of performance---Main application filed under S.20 of Arbitration Act, 1940 was
allowed to the extent of filing of agreement in the Court.

Arif Khan for Plaintiff.

Aziz A. Shaikh for Defendant.

ORDER
S.A. RABBANI, J.---The parties entered into a contract for purchase and supply of
material mentioned in the contract that is needed by the defendant for preparation of
Tugs. The contract contains an arbitration clause and provisions of bank guarantee.
Dispute arose in respect of the supplies and therefore, this application under section
20 of the Arbitration Act, 1940, has been filed with a prayer for filing of the
agreement. It has also been prayed that the defendant be restrained from encashing the
bank guarantee till the matter is decided in arbitration. On notice under section 20(3) of
the Arbitration Act, the defendant filed objections in the form of counter affidavit to the
injunction application. Since ad interim order was passed restraining the defendant from
encashing the bank guarantee C.M.A. No.8472 of 2001 has been filed by the defendant
for vacation of that order.

Mr. Arif Khan, learned counsel for the plaintiff, submitted that bank guarantee was
furnished in compliance with clause 2.7 of the agreement and the plaintiff made supplies
in accordance with the agreement and the material was used in preparation of tugs by the
defendant and the tugs are under operation by Pakistan Navy. He submitted that the
defendant was satisfied by the supplies and therefore, they issued a letter to the plaintiff
on 29-5-2001, for a proposal with regard to another tug. He referred to the provisions in
the agreement with regard to the reference of the matter to arbitration. With regard to
encashment of the bank guarantee, he submitted that it may be postponed till the dispute
is decide by arbitration.

Mr. Aziz A. Shaikh, learned counsel for the defendant submitted that the
performance of the plaintiff was not satisfactory. He submitted that Pakistan Navy has
refused to accept the tugs for the deficiencies caused by the material supplied by the
plaintiff. With regard to encashment of the bank guarantee Mr. Aziz A. Shaikh submitted
that the defendant has been recognized as sole Judge for deciding whether seller has
performed purchase contract and fulfilled the terms and conditions of the contract.

Now, in this case, there are two questions, one relating to a reference to arbitration
and the other relating to encashment of bank guarantee. With regard to the first question,
it was for the defendant to show-cause as to why the agreement should not be filed. It is
not disputed that there is an agreement between the parties which contains a clause for
reference to arbitration in case of a dispute. It is the case of the defendant in the counter
affidavit filed on their behalf that the plaintiff has not supplied the material of exact
description specified in the contract and the defendant put the plaintiff on notice pointing
out the defects in performance of the contract, where there is a clause in the contract for
reference to arbitration in case of dispute and where there is a dispute between the parties,
a reference to arbitration is natural and legal course.

As far the question of encashment of bank guarantee is concerned, the guarantee


itself mentions that it is unconditional and the buyer i.e., the defendant in this case, is the
sole Judge for deciding whether the seller, the present plaintiff has performed the
purchase contract and fulfilled the terms and conditions. In view of this provision in the
guarantee there is no legal justification for restraining the defendant from encashing the
bank guarantee. The only reason that the dispute is to be decided and the claim and
liability are to be determined in arbitration is not sufficient to interfere with the agreed
term about the defendant being the sole Judge of the performance. In case a decree is
passed in favour of the plaintiff and against the defendant ultimately, the plaintiff shall be
compensated by execution of the decree and the defendant, being an organization under
the Government of Pakistan, there is no likelihood that the decree would be inexecutable
for want of adequate assets of the defendant. The prayer for restraining the defendant
from encashing the bank guarantee cannot therefore, be allowed. The C.M.A. filed by the
plaintiff is therefore, dismissed and consequently C.M.A. filed by the defendant is
allowed. Since no sufficient cause has been shown by the defendant as to why the
agreement should not be filed, main application under section 20 of the c Arbitration Act
is allowed to the extent of filing of the agreement. Let the agreement be filed.

H.B.T./S-51/K Application allowed.


2006 C L C 1060

[Karachi]

Before Anwar Zaheer Jamali and Muhammad Athar Saeed, JJ

KARACHI DOCK LABOUR BOARD----Appellant

Versus

Messrs QUALITY BUILDERS LIMITED----Respondent

High Court Appeal No.18 of 2005, decided on 16th March, 2006.

Arbitration Act (X of 1940)---

----Ss. 5, 8, 9, 11, 20, 30 & 39---High Court appeal---Reappraisal of evidence---


Appellate Court, jurisdiction of---Appointment of arbitrator---Failure to raise any
objection---On the basis of arbitration clause in the contract between the parties,
respondent appointed his arbitrator but appellant did not appoint any arbitrator on his
behalf---Arbitrator appointed by respondent issued notices but appellant challenged
his jurisdiction to conduct arbitration proceedings---Sole arbitrator after deciding the
point of his jurisdiction passed an award which was made rule of the Court---
Validity---Appellant was not able to show that he had acted with due diligence
because instead of taking steps under Ss.5 & 11 of Arbitration Act, 1940, to approach
the Court to cancel the appointment of arbitrator or stay arbitration proceedings, the
appellant only attended by sending letters from time to time to the arbitrator agitating
the same plea---While entertaining an appeal against order making award, delivered
under Arbitration Act, 1940, the rule of the Court, Appellate Court could not sit as a
court of appeal against the judgment and decree passed in the suit, therefore,
reappraisal of evidence forming another opinion contrary to the material placed on
record before the arbitrator was not permissible---Arbitration tribunal was properly
constituted and had the jurisdiction to decide the dispute between the parties---
Judgment of High Court to the effect that appellant was not able to show in what
manner arbitrator misconducted himself and for that matter award was improperly
procured, was based on cogent reasons and was unexceptionable--- High Court
declined to interfere in the award in High Court Appeal, made rule of the Court---
Appeal was dismissed in circumstances.

Abdul Hamid V. H.M. Qureshi PLD 1957 SC 145; Sh. Saleem Ali v. Sh. Akhtar Ali
and 7 others PLD 2004 Lah. 404; Muhammad Azam Muhammad Fazil & Co., Karachi
v. Messrs N.A. Industries, Karachi PLD 1977 Kar. 21; Board of Trustees of Port of
Karachi v. Messrs National Construction Co., (Pakistan) Ltd. and another PLD 1981
Kar. 377; Rizwan Hussain v. The State 1999 SCMR 131; Messrs Commodities
Trading International Corporation v. Trading Corporation of Pakistan Ltd. and others
1987 CLC 2063; Abdul Khanum Jan and others v. Begum Khanum Jan and others
1989 MLD 1304; Messrs Joint Venture KG/Rist v. Federation of Pakistan PLD 1996
SC 108; Project Director, Balochistan Minor Irrigation and Agricultural Development
Project, Quetta Cantt. v. Messrs Murad Ali & Company 1999 SCMR 121; M.Y.
Corporation (Private) Ltd. v. Messrs Erum Developers and 2 others PLD 2003 Kar.
522; AIR 1964 Madhya Pradesh 268; Pakistan Steel Mills Corporation Karachi v.
Mustafa Sons (Pvt.) Ltd. PLD 2003 SC 301; Waheed Brothers (Pak.) Ltd. v. Izhar
(Pvt.) Ltd. Lahore 2002 SCMR 366; Messrs Tribal Friends v. Province of Balochistan
2002 SCMR 1903; The Premier Insurance Co. v. K.M.C. 1981 CLC 311 and Messrs
Ibad & Co. v. Province of Sind' PLD 1980 Kar. 207 ref.

Arshad Tayabally for Appellant.

Muhammad Masood Khan for Respondent.

Dates of hearing: 19th January, and 16th March, 2006.

JUDGMENT

MUHAMMAD ATHER SAEED, J.---This High Court appeal has been tiled against
the judgment dated 24-11-2004 passed by the learned Single Judge in Suit No.72 of
1998 by which he had made the award of the learned sole Arbitrator delivered on 20-
12-1997, rule of the Court.

2. Brief facts of the case are that the present appellant had entered into a contract with
the respondent, who was the successful bidder for award of contract for the
construction of hospital at Keamari, Karachi, vide formal contract signed on 8-10-
1989. This contract also contained arbitration clause 131. Since the controversy in this
appeal revolves round this arbitration clause, it will be pertinent to reproduce the
above clause for the sake of convenience:--

131. Settlement of disputes/arbitration

If any dispute or difference of any kind whatsoever shall arise between the employer
and the Contractor or the consultants and the Contractor in connection with, or arising
out of the contract, or the execution of the works, whether during the progress of the
works or after their completion and whether before or after the termination,
abandonment or breach of the contract, it shall in the first place, be referred to and
settled by the Consultants who shall within a period of ninety (90) days after being
requested by either party to do so give written notice of his decision to the Employer
and the Contractor. Such decision in respect of every matter so referred shall be
binding upon the Employer and the Contractor who shall proceed with the execution
of the works with all due diligence whether he or the Employer requires arbitration. If
the consultant has given written notice of his decision to the Employer and the
Contractor and no claim to arbitration has been communicated to him by either the
Employer or the Contractor within a period of thirty (30) days from receipt of such
notice, the said decision shall remain final and binding upon the Employer and the
Contractor.

If the Consultant shall fail to give notice of his decision, as aforesaid, within a period
of ninety (90) days after being requested as aforesaid or if either the Employer or the
Contractor be dissatisfied with any such decision, then in any such case either the
Employer or the Contractor within ninety (90) days after receiving notice of such
decision,. or within ninety (90) days after the expiration of the first named period of
thirty (30) days, as the case may be required that the matter or matters in dispute be
referred for pre-consideration then only in that case the matter shall be referred to the
Arbitrator(s) and/or the Umpire as the case may be within the meaning of Arbitration
Act, 1940, whose decision shall be final and binding upon the parties."

3. During the validity of the subject contract, other supplementary agreements were
also executed between the parties to cater to newly-created circumstances and
conditions. A review of the supplementary agreements makes it clear that the
arbitration clause and other clauses of the main contract which are not inconsistent
with the supplementary agreement were retained. On the basis of arbitration clause it
was suggested by the respondent that Arbitrator be appointed for the resolution of the
dispute between the parties. The respondent also suggested some names of the
Arbitrators in the referred letters. However, on failure of the appellant to agree to any
name, plaintiff appointed Mr. S.A. Nizami Additional Federal Law Secretary as their
Arbitrator and requested the appellant to suggest the name of their Arbitrator.
However, the appellant refrained from doing so. The appellant's objection was that the
arbitration clause had abated and had lost its efficacy because according to the
appellant on the execution of supplementary agreements, arbitration clause was
superseded and was no more in existence and, therefore, no resort to the arbitration
clause could be made. The appellant maintained such position when the Arbitrator
issued notices. The appellant also challenged the jurisdiction of the Arbitrator to
conduct arbitration proceedings.

4. The sole Arbitrator, after issuing number of notices to the appellant, had noted that
the appellant, had refrained from attending any proceedings and had resorted to
challenging the jurisdiction. He first decided the point of jurisdiction and held that the
Arbitration Tribunal duly constituted in accordance with terms of contract between
the parties and the law of arbitration had jurisdiction to investigate their dispute and
differences arising out of and in connection with the performance of the contract, and
went on to arbitrate on the claims of the respondent and finalise the award.

5. The award was filed in the Court on 19-1-1998 and was registered as Suit No.72 of
1998.

6. The learned Single Judge, after hearing the learned counsel for the parties, made
the award rule of the Court by holding that the present appellant had not been able to
show that in what manner the Arbitrator misconducted himself and further that the
award was improperly procured by merely stating that settled procedures of
convenience were bypassed as this, according to the learned Single Judge, will not
make the award faulty.

7. We have heard Mr. Arshad Tayyebaly the learned counsel for the appellant and Mr.
Muhammad Masood Khan learned counsel for the respondent.

8. The contentions of the learned counsel of the appellant are threefold. His first
contention is that the supplementary agreement settled all the disputes between the
parties, therefore, there was no basis for resort to arbitration. In this connection he
drew our attention to clause 3 of the supplementary agreement dated 1st March, 1995,
which reads as under:--

(3) Payment

The employer undertakes to allow the following payments to the contractor to enable
them to complete and hand over the project as per above schedule of handing over.

(a) Retention money amounting to Rs.20,00,000 (Rupees two million) shall be


released on signing the Agreement against an Insurance Bond to be forwarded by the
Contractor before receipt of the payment.

(b) Balance Retention amount Rs.2,127,507,71 (Rupees twenty-one lacs twenty-seven


thousand five hundred seven and Paisas seventy-one) shall be' released immediately
on handing over possession of Main Hospital Building against an Insurance Bond to
be separately furnished by the Contractor before receipt of payment.

(c) The final bill at its contractual value amounting Rs.3,709,856.56 as certified by
the Consultants to be billed as final bill after completion of the remaining work is
shown in the enclosed statement which shall stay as full and fixed for final payment
subject to recovery of Income Tax and advance if any.

(d) After handing over of the complete project in all respects the final bill shall be
paid to the contractor within 15 days from its submission by the contractor, after due
scrutiny and verification by the consultants.

9. He specifically referred to clause "e" of para.3 which provides that the final bill
amounting to Rs.37,09,856.56 shall constitute the full and fixed amount for final
payment subject to recovery of income tax and advance fee, if any. His contention
was that once the respondent had agreed to receive the above amount as full and final
settlement of his bill there was no basis on which the arbitration clause 131 of the
final agreement could be resorted to and, therefore, it had become redundant.
However, in response to our query as to how he will interpret para.5 of this
agreement, which reads as under:--

(5) Claims by both parties if unresolved shall be adjudicated as per terms of contract
after handing over the entire project to the employer according to this agreement.
He modified his arguments that although the arbitration clause had not become
redundant, but once the respondent had agreed to the final payment he could not make
any claim before the Arbitrator in this respect and the Arbitrator had no jurisdiction to
arbitrate on any such alleged claim.

10. The second ground urged by the learned counsel for the appellant was that there
was prerequisite condition for the reference of case to the Arbitrator that the parties
had to initially refer the dispute to the consultants who were required to give written
notice of the decision to the employer and the contractor within a period of ninety
days after being requested by either party to do so. The contention of the learned
counsel was that the respondent had appointed the Arbitrator and proceeded on with
the arbitration without meeting this prerequisite condition. This ground was also taken
before the learned Single Judge and the learned Single Judge after examining the facts
of the case had drawn the conclusion that this contention was not substantiated from
record and also that the present respondent had adhered to the provisions of clause
131 and followed the requirement of approaching the consultant before invoking the
arbitration clause. The appellant has not been able to place any material on record to
dislodge this finding of the learned Single Judge.

11. The third ground taken up by the learned counsel for the appellant was that the
arbitration clause specified that the matter shall be referred to Arbitrator/s and/or
Umpire as the case may be within the meaning of Arbitration Act, 1940. He stated that
the case would fall under section 8 of the Arbitration Act, 1940 and not under section
9 of the said Act. According to him since clause 131 of the contract provided for
appointment of more than one Arbitrator and since the appellant was not appointing
an Arbitrator as the appellant was of the view that arbitration could not be resorted to,
therefore, it was mandatory upon the respondents to approach the Court under the
provisions of section 8 of the Arbitration Act, 1940 and request them to appoint
Arbitrators to conduct the arbitration. He also argued that since the parties had entered
into more than one agreement and there was difference as to which agreement was to
apply the respondents should have applied to the Court under section 20 of the
Arbitration Act for determining as to which agreement applies. In support of his
arguments, the learned counsel for the appellant relied on the following case-laws:--

(1) Abdul Hamid v. H.M. Qureshi PLD 1957 SC 145; (2) Sh. Saleem Ali v. Sh. Akhtar
Ali and 7 others PLD 2004 Lah. 404; (3) Muhammad Azam Muhammad Fazil & Co.,
Karachi v. Messrs N.A. Industries, Karachi PLD 1977 Kar. 21; (4) Board of Trustees
of Port of Karachi v. Messrs National Construction Co., (Pakistan) Ltd. and another
PLD 1981 Kar. 377.

12. Mr. Muhammad Masood Khan, learned counsel for the respondents supported the
order of the learned Single Judge and stated that the learned Single Judge after
examining complete facts of the case and law on the subject had arrived at the
conclusion that the appellant had failed to prove as to how the learned arbitrator
misconducted himself or for that matter in what manner the award was improperly
procured. He, therefore, submitted that the reasoning adopted by the learned Single
Judge in the impugned order is unexceptionable and the appeal is misconceived and
deserves to be dismissed. Replying to the first ground taken up by the learned counsel
for the appellant he stated that the respondents vide their letter, dated 5th June, 1996,
a copy whereof was also endorsed to the appellant, had specifically forwarded their
claims to the consultant S.M. Naqvi to which the consultant had called for certain
queries, which were responded to, but the consultant failed to deliver decision on the
unresolved claims and it was almost more than six months after failure of consultant
to deliver the decision on unresolved claims that suggestion was made by the
respondent to the appellant that Arbitrator might be appointed for the resolution of
their disputes. He, therefore, submitted that although his contention was that there
was no mandatory condition for invoking the arbitration clause, but without prejudice
to the above contention the respondent had complied with the condition of seeking the
decision of the consultant on the unresolved claims.

13. Replying to the other contention of the learned counsel for the appellant that in
accordance with para. 3(c) of the supplementary agreement dated 1st March, 1995
when the respondent had agreed that the final bill amounting to Rs.37,09,856.56 shall
constitute full and fix amount of final payment against the subject contract, they were
barred from making any further claims after payment of this bill. He stated that the
appellant had prescribed this condition for the payment of the bill and the respondent
had no option but to agree to this condition. He further relied upon clause No.5 of the
supplementary agreement, which has also been reproduced above. According to him
when these two clauses are read together, it becomes apparent that the arbitration
clause does not become redundant, and despite provisions of clause 3(c) the
respondent could not be barred from making any further claim before the Arbitrator.
On this point he also relied upon the judgment of the Honourable Supreme Court of
Pakistan in the case of Rizwan Hussain v. The State 1999 SCMR 131.

14. In reply to the last ground taken by the learned counsel for the appellant that the
case would not fall under section 8 of the Arbitration Act, but under section 9 of the
Arbitration Act and that the respondent should have approached the Court under
section 20 of the Arbitration Act, he submitted that this point was not raised before
the learned Single Judge.

15. Without prejudice to the above, he further argued that the respondent's case fell
within the clause (b) of section 9 of the Arbitration Act, which clearly provides that if
one party fails to appoint an Arbitrator within fifteen days after the service by the
other party of a notice in writing to make the appointment, such other party having
already appointed his Arbitrator on giving the notice may appoint his Arbitrator to act
as sole Arbitrator in the matter and his award shall be binding on both the parties as if
he has been appointed by consent. He said that in view of this clear cut provision the
respondent was not required to approach the Court under section 8 of the Arbitration
Act as none of the conditions provided in that section apply to the circumstances of
the case as there was no difference in the appointment of Arbitrators but the major
objection of the appellant at that point of time was that the arbitration clause had
abated in view of the clause 3(c) of the final supplementary agreement. He also stated
that the arbitration clause did not provide arbitration with the intervention of the
Court, therefore, there was no need for the respondent to file an application under
section 20 of the Arbitration Act. Even otherwise, had he opted to file application
under section 20, which falls under Chapter III of the Arbitration Act, 1940, he could
not have proceeded under Chapter II after opting for intervention under Chapter III as
provided under section 20. Learned counsel for the respondent then submitted that the
appellant had opted to remain away from the arbitration proceedings and despite
issuance of at least thirteen notices by the Arbitrator he had not attended the
proceedings but only sent letters challenging the jurisdiction of the Arbitrator and the
validity of the arbitration proceedings. He said that by their conduct the appellant are
estopped from challenging the award as there were various remedies available to the
appellant under the provisions of the Arbitration Act, to approach the Court under
section 5 of the Arbitration Act or under section 11 of the Arbitration Act, but the
appellant decided to keep mum and did not approach the Court under any of these
provisions of law for removal of the Arbitrator. In support of his contentions he relied
on the following case-laws:--

(1) Messrs Commodities Trading International Corporation v. Trading Corporation of


Pakistan Ltd. and others 1987 CLC 2063; (2), Abdul Khanum Jan and others v.
Begum Khanum Jan and others 1989 MLD 1304; (3) Messrs Joint Venture KG/Rist v.
Federation of Pakistan PLD 1996 SC 108; (4) Project Director, Balochistan Minor
Irrigation and Agricultural Development Project, Quetta Cantt. v. Messrs Murad Ali &
Company 1999 SCMR 121; (5) M.Y. Corporation (Private) Ltd. v. Messrs Erum
Developers and 2 others PLD 2003 Kar. 522.

16. We have examined the case in the light of the arguments of the learned counsel,
the judgments relied on by them the impugned order of the learned Single Judge, the
arbitration award, the relevant provisions of the Arbitration Act, and the records of the
case. Since various sections of Arbitration Act, 1940 have been relied by the learned
counsel, it would be useful to reproduce sections 5, 8, 9, 11 and 20 of the Arbitration
Act, which read as under:--

"5. Authority of appointed arbitrator or umpire irrevocable except by leave of


Court.---The authority of an appointed arbitrator or umpire shall not be revocable
except with the leave of the Court, unless a contrary intention is expressed in the
arbitration . agreement.

8. Power of Court to appoint Arbitrator or Umpire.--- (1) In any of the following


cases:--

(a) Where an arbitration agreement provides that the reference shall be to one or more
arbitrators to be appointed by consent of the parties, and all the parties do not, after
differences have arisen, concur in the appointment or appointments; or
(b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of
acting, or dies, and the arbitration agreement does not show that it was intended that
the vacancy should not be supplied, and the parties or the arbitrators; as the case may
be, do not supply the vacancy; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not
appoint him;

any party may serve the other parties or the Arbitrators, as the case may be, with a
written notice to concur in the appointment or appointments or in supplying the
vacancy.

(2) If the appointment is not made within fifteen clear days after the service of the
said notice, the Court may, on the application of the party who gave the notice and
after giving the other partiers an opportunity of being heard, appoint an Arbitrator or
Arbitrators or reference and to make an award as if he or they had been appointed by
consent of all parties.

9. Power to party to appoint new Arbitrator, or in certain cases, a sole Arbitrator.---


Where an Arbitration agreement provides that a reference shall be to two Arbitrators,
one to be appointed by each party then, unless a different intention is expressed in the
agreement:--

(a) if either of the appointed arbitrators neglect or refuses to act, or is incapable of


acting, or dies the party who appointed him may appoint a new Arbitrator in his place;

(b) if one party fails to appoint an Arbitrator, either originally or by way of


substitution as aforesaid for fifteen clear days after the service by the other party of a
notice in writing to make the appointment, such other party having appointed his
arbitrator before giving the notice, the party who has appointed an arbitrator may
appoint that arbitrator to act as sole arbitrator in the reference and his award shall be
binding on both the parties as if he had been appointed by consent:

Provided that the Court may set aside any appointment as sole arbitrator made under
clause (b) and either, on sufficient cause being shown, allow further time to the
defaulting party to appoint an arbitrator or pass such other order as it thinks fit.

11. Power of Court to remove Arbitrators or Umpire in certain circumstances,--- (1)


The Court may, on the application of any party to reference, remove an Arbitrator or
umpire who fails to use all reasonable dispatch in entering on and proceeding with the
reference and making an award.

(2) The Court may remove an Arbitrator or umpire who has misconducted himself or
the proceedings.
(3) Where Arbitrator or umpire is removed under this section, he shall not be entitled
to receive any remuneration in respect of his service.

(4) For the purpose of this section the expression "proceeding with the reference"
includes, in a case where reference to the umpire becomes necessary, giving notice of
that fact to the parties and to the umpire.

20. Applicant to file in Court arbitration agreement.--- (1) Where any persons, have
entered into an arbitration agreement before the institution of any suit with respect to
the subject-matter of the agreement or any part of it, and where a difference has arisen
to which the agreement applies, they or any of them, instead of proceedings under
Chapter II, may apply to a Court having jurisdiction in the matter to which the
agreement relates, that the agreement be filed in Court.

(2) The application shall be in writing and shall be numbered and registered as a suit
between one or more of the parties interested or claiming to be interested as plaintiff
or plaintiffs and the remainder as defendant or defendants, if the application has been
presented by all the parties, or, if otherwise, between the applicant as plaintiff and the
other parties as defendants.

(3) On such application being made, the Court shall direct notice thereof to be given
to all parties to the agreement other than the applicants, requiring them to show cause
within the time specified in the notice why the agreement should not be filed.

(4) Where no sufficient cause is shown, the Court shall order the agreement to be
filed, and shall make an order of reference to the Arbitrator appointed by the parties,
whether in the agreement or otherwise, or where the parties cannot agree upon an
Arbitrator to an Arbitrator appointed by the Court.

(5) Thereafter the arbitration shall proceed in accordance with and shall be governed
by the other provisions of this Act so far as they can be made applicable.

17. Taking up the first argument of the learned counsel for the appellant, it is our
considered view that the respondents were not bound by paragraph 3(c) of the
supplementary agreement dated 1st March, 1995 in which they had accepted that the
bill amounting to Rs.3,709,856.56 will be considered full and final payment of the
contract. This view is strengthened when we read paragraph 3(c) of the supplementary
agreement along with paragraph 5, therefore there is no force in the arguments of the
learned counsel for the appellant that clause 131 of the contract i.e. arbitration clause
had become redundant and after the execution of the supplementary agreement, no
action could be taken on the basis of this clause. Here we would also like to observe
that the learned counsel for the appellant did not seriously press this argument before
us. In our opinion, the judgment of the Honourable Supreme Court of Pakistan in the
case of Project Director, Balochistan Minor Irrigation and Agricultural Development
Project, Quetta Cantt. v. Messrs Murad Ali and Company 1999 SCMR 121 relied on
by the learned counsel for the respondent, also supports his arguments that despite the
provisions of paragraph 3(c), the matter could be referred to and decided by the
Arbitrator.

18. The second argument of the learned counsel for the appellant regarding the
fulfilment of prerequisite condition for the reference of the case to the Arbitrator has
already been set at rest by the learned Single Judge after examining the facts of the
case and the learned counsel for the appellant has not been able to place any material
on record before us to dislodge this finding of the learned Single Judge.

19. The learned counsel for the appellant has relied on a number of cases quoted
above in support of his contention that the case does not fall under section 9 of the
Arbitration Act reproduced above. We would take up these cases one by one.

20. In the case of Abdul Hamid v. H.M. Qureshi PLD 1957 SC 145; the Honourable
Supreme Court held as under:

"Held, therefore, that the intention was to appoint three Arbitrators of whom one was
to be a Surpanch or Chairman, rather than that the person to be appointed, either by
parties or by the two Arbitrators should be regarded as an umpire.

Hence, section 9, Arbitration Act, which spoke of reference to two Arbitrators had no
application to the case and an award by a "sole" Arbitrator, upon failure of the other
party to appoint his Arbitrator, was invalid."

However, the facts of the case are distinguishable as in that case a minimum of three
Arbitrators had to be appointed whereas in the present case the relevant clause
provides reference either to a single Arbitrator or more that one Arbitrator appointed
under the provisions of the Arbitration Act.

21. In the case of Sh. Saleem Ali v. Sh. Akhtar Ali and 7 others PLD 2004 Lah. 404,
which was relied by the learned counsel for the appellant in support of his contention
that he had not participated at all in the arbitration proceedings after objecting that the
dispute could knot have been referred to arbitration, a Division Bench of Lahore High
Court held as under:

"A representation, in order to attract the rule of estoppel, need not always be a
representation of a physical fact, but may as well be the representation of an attitude
or a state of mind. As has been pithily observed, the state of a man's mind is as much
a matter of fact as the state of his digestion. The general principle that where a Court
inherently lacks jurisdiction, mere consent of parties cannot confer the jurisdiction,
has no application to arbitration proceedings where the arbitrator is a person
appointed by agreement between the parties. The principle of estoppel and
acquiescence will be aptly attracted where a party having consented to arbitration by a
person and participated in the proceedings before him subsequently attempted to
challenge the jurisdiction of the arbitrator. The principle is based on the oft-quoted
expression that where a man has been silent when in conscience he ought to have
spoken, he shall be debarred from speaking when conscience requires him to be silent.
We are, therefore, clearly of the view that since Sh. Murtaza Ali, having full
knowledge of the facts, stood by and took his chance of an award in his favour and
when it has gone against him, cannot be permitted, in law, to have it set aside on an
objection which he never took before the learned Arbitrators. The position would have
been different if he had participated in the proceedings under protest which is not the
case here."

We are of the opinion that this judgment will also not help the appellant case unless
he proves that the Arbitrator had misconducted himself and this contention was
neither substantiated before us nor before the learned Single Judge.

22. In the third case from Indian jurisdiction, reported in AIR 1964 Madhya Pradesh
268. The Madhya Pradesh High Court held as under:

(14) The essence of arbitration is confidence of each of the parties. In fact, an


Arbitrator derives his authority from this confidence and any step calculating to
reduce it is against the spirit of arbitration. Section 9(b) is an exceptional provision
and is in effect a penalty on the defaulting Arbitrator (sic party?) for his failure to
make the appointment on getting notice and caution from the other side. If by
obstruction, evasion or gross negligence he deserves it, he must be visited with the
penalty. But all very wide discretion is given to the Court to get aside the
appointment. The moment the defaulting party satisfies the Court that he has not been
obstructive or evasive and has acted with due diligence, the appointment of sole
Arbitrator should be set aside. The other party may be entitled to costs to compensate
him for any inconvenience resulting from the defaulter's failure to appoint in time.
But he cannot try to take an advantage which would be unconscionable except in the
three social circumstances already mentioned. Nor need the Court test it by the
closeness with which it would test an application for condonation of delay, and ask for
an explanation for the delay of each single day."

The learned counsel has not been able to satisfy us that the appellant acted with due
diligence because instead of taking steps under sections 5 and 11 of the Arbitration
Act, 1940 to approach the Court to cancel the appointment of the Arbitrator or stay
the arbitration proceedings, the appellant only attended by sending letters from time
to time to the Arbitrator agitating the same plea.

23. It is settled law that while entertaining an appeal against an order making an
award delivered under Arbitration Act, 1940 the rule of the Court, this Court does not
sit as a Court of appeal against the judgment and decree passed in the suit, therefore,
reappraisal of evidence and forming of another opinion contrary to the material placed
on record before the Arbitrator is not permissible. There is plethora of case-laws on
this point. Reference can be safely made to the following case-laws:--

(a) Pakistan Steel Mills Corporation Karachi v. Mustafa Sons (Pvt.) Ltd. PLD 2003
SC 301; (b) Waheed Brothers (Pak.) Ltd. v. Izhar (Pvt.) Ltd. Lahore 2002 SCMR 366;
(c) Messrs Tribal Friends v. Province of Balochistan 2002 SCMR 1903; (d) Joint
Venture KG/RIST v. Federation of Pakistan PLD 1996 SC 108; (e) The Premier
Insurance Co. v. K.M.C. 1981 CLC 311 (Karachi) and (f) Messrs Ibad & Co. v.
Province of Sindh PLD 1980 Kar. 207.

24. In the case of Pakistan Steel Mills, it was held that Arbitrator is the final Judge on
the law and facts and it is not open to a party to challenge the decision of the
Arbitrator, on the plea that different view was possible if the facts would have been
appreciated from different angle. Further, even, if there was wrong interpretation of a
clause in a contract, in such cases, an Arbitrator is not bound to give specific findings
on each and every issue nor he is, required to state reasons for his conclusion, if the
findings are otherwise within the parameters of submission made before him.

25. In the case of Waheed Brothers (Pak) Ltd., it was held that primarily vowed object
of dispute settled through arbitration is to bypass lengthy procedure invoked in civil
cases. In fact, it is domestic Tribunal controlled by chosen representatives/Arbitrators
of the parties, who are imbibed with the spirit of doing complete justice between the
parties as early as possible without getting themselves unnecessarily in technicalities
embodied in procedural law. The role of the Courts under Arbitration Act, 1940,
principally is of supervisory nature and not that of appellate power under C.P.C.

26. In the case of Messrs Tribal Friends Co. examining the limited scope of objections
to award, it was observed that while examining the validity of award under the
Arbitration Act, 1940, one has to find out error apparent from the face of award and
the documents relied upon or referred to in the award. In such cases one cannot travel
beyond the award and make inquiry and investigation in the proceedings and
documents, which do not form part of the award.

27. In the case of Joint Venture KG/Rist, the Honourable Supreme Court, visualizing
the limited jurisdiction of the Court in entertaining objections to award held that the
Court while examining the validity of an award does not act as a Court of appeal.
Therefore, a Court hearing the objection to the award cannot undertake reappraisal of
evidence recorded by the Arbitrator in order to discover the error and infirmity in the
award. The error or infirmity in the award which would render the award invalid,
must appear on the face of the award and should be discoverable by reading the award
itself. Further, if the reasons recorded by the Arbitrator are challenged as perverse, the
perversity in the reasoning has to be established with reference to the material
considered by the Arbitrator in the award and not beyond that.

28. In the case of the Premier Insurance Co., learned Division Bench of this Court
held that a Court while examining legality of the award, under section 33 of the
Arbitration Act cannot substitute its own finding on appreciation of evidence, in place
of one given by Arbitrators or Umpire, even if Court reaches to a different conclusion
on evidence. Proceedings before the Arbitrators or Umpire are in the nature of
proceedings before the domestic Tribunal and strict compliance of procedural law or
law of evidence cannot be insisted upon such proceedings. Repelling the contention of
the learned counsel and dilating upon the concept of error apparent from the face of
record it was further held that such error must be apparent in the award itself. The
word "apparent on the face of record" have been subject of interpretation in a large
number of cases and it is by now a well-settled law that to hold a particular error is
apparent from the face of the record such error must be discoverable by reading of
award itself and not by reference to other material even the record of proceedings
before the Arbitrator.

29. In the case of Messrs Ibad & Co. learned Single Judge of this Court making
reference to several earlier decisions on the subject of award observed that it is well-
settled principle of law that insufficiency of evidence or the fact that this Court would
have taken a different view on the basis of the evidence on the record of the
arbitration proceedings, would not warrant any interference with award by the Court.

30. We have also noted that the learned Arbitrator had specifically first decided the
question of his jurisdiction before proceeding with the arbitration in the following
manner:

"13. The Sole Arbitrator after considering the point and proper investigation and close
examination recorded the following findings on the point:

My conclusions are that the position obtaining in law in that behalf is that an
agreement for arbitration is the very foundation on, which jurisdiction of the
Arbitrator to act rests and which confers jurisdiction on the Arbitrator to hear and
decide a dispute "arising out of" and "in connection with" the contract in the case.

Whether a given dispute comes within the scope of and purview in, the arbitration
clause, is a question what the parties intended to provide and what language they
employed in the arbitration clause.

The expression "in connection with" or "arising out of" the contract are of the widest
amplitude and context and include even a question as to the existence, validity, effect
and scope of the agreement is very widely worded, as in the instant case, then it is for
Arbitrator and not for the Court to determine effect thereof and decide issue of
arbitrarily of the claim preferred by the parties. Once the Arbitrator(s) decide they
have jurisdiction to arbitrate then their decision is final and binding and the
jurisdiction of the Court in respect thereof cannot be invoked.

If a party has to have recourse to the contract that dispute is a dispute under the
contract (Arbitration Clause) and as such within the jurisdiction of the Arbitration
(1942 AC 356, and AIR 1951 SC 9).

The test for determining if the point on which the parties are in dispute or difference
is whether recourse to the contract by which the parties are bound is necessary, then
the matter must come within the scope of the Arbitrator's jurisdiction AIR 1952 SC
119 and AIR 1985 Del. 370.
That the word "difference" in the Arbitration Clause is wider in operation then the
word "dispute". The word "difference" embraces within its fold all matters pertaining
to the contract concerned. It does not make any difference where a party says that no
damage or loss occasioned or caused at all to the other party or that they are not liable
for any damages or compensation. That very assertion by a party is a "dispute" or
"difference" falling within the scope of Arbitration Clause.

From the above exposition of law, it is abundantly clear that there is a difference or
dispute between the Quality Builders Ltd. and KDLB "arising out" of or "in
connection with" the contract containing Arbitration Clause which is of very wide
import as discussed above. If KDLB asserts that they have paid full payments to the
Contractors (Quality Builders Ltd.) who question and dispute the same assertion and
lodged the claim against the KDLB, and the KDLB deny that claim then that is a
"dispute" or "difference" within the meaning of Clause 131 of the Arbitration Clause
in the conditions of contract executed between the parties.

Therefore, I would hold that the claim filed by the Quality Builders Ltd., is within the
purview and scope of the Arbitration Clause (Clause 131) of the contract and as such
this Arbitration Tribunal duly constituted in accordance with the terms of the Contract
between the parties and the law of Arbitration, has jurisdiction to investigate that
"dispute" and "difference" "arising out of" and "in connection with" the performance
of the contract."

30-A. We are, therefore, of the considered view that the Arbitration Tribunal was
properly constituted and had the jurisdiction to decide the dispute between the parties
and the judgment of the learned Single Judge to the effect that the present appellant
was not able to show in what manner the Arbitrator misconducted himself and for that
matter the award was improperly procured, is based on cogent reasons and is
unexceptionable. As a consequence thereof this appeal being devoid of merits is
hereby dismissed.

M.H./K-18/K Appeal dismissed.


2005 S C M R 1782

[Supreme Court of Pakistan]

Present: Nazim Hussain Siddiqui, C.J., Javed Iqbal and Abdul Hameed Dogar, JJ

S.M. HASHIM HUSSAIN---Petitioner

Versus

PAKISTAN DEFENCE OFFICER'S HOUSING AUTHORITY---Respondent

Civil Petition No.1021-K, decided on 28th December, 2004.

(On appeal from the judgment, dated 14-5-2002 of the High Court of Sindh, Karachi, in
H.C.A. No. 19 of 2002).

Contract---

----Dispute between the parties---Arbitration clause in the agreement---Effect---


Conditions of the work agreement provided that dispute between the parties could be
referred to the consultants---Contention of the contractor was that for non-compliance of
said clause of the agreement by the authorities, recommendations of the consultants on
the reference attained finality---Validity---Such point had been elaborately discussed by
the High Court in the impugned judgment and had been rightly held that those
recommendations could not be deemed to be final decision within the meaning of
arbitration clause subsequently added to the said agreement in terms of which it was
obligatory upon the parties to refer the dispute arising between them to arbitrator for its
resolution---Only option available to the contractor, in circumstances, was to avail
remedy under the said arbitration clause of the agreement---Judgment of the High Court
was based on valid and sound reasons and was entirely in consonance with the law---
Neither there was misreading and non-reading of material evidence, nor misconstruction
of facts and law in the judgment---Petition for leave to appeal against the judgment of the
High Court being devoid of merit was dismissed---Constitution of Pakistan (1973), Art.
185(3).

Petitioner in person.

Ch. Muharmmad Jamil, Advocate Supreme Court and Raja Sher Muhammad Khan,
Advocate-on-Record for Respondent.

Date of hearing: 28th December, 2004.

JUDGMENT
ABDUL HAMEED DOGAR, J.--- Petitioner seeks leave to appeal against the judgment
dated 4-12-2001 passed by a learned Division Bench of the High Court of Sindh Karachi,
whereby H.C.A. No. 19 of 2002 filed by respondent was allowed.

2. Briefly, stated, the facts of the case are that on 25-5-1996, respondent invited tenders
for the work of sewerage Stage-I in Phase VIII Defence Housing Authority at Karachi.
Tenders were opened on 1-6-1996 and the aforesaid work was awarded to the petitioner.
On 22-7-1996 an agreement between the petitioner and respondent was executed and
during the execution of the work, some disputes arose between them. On 17-3-1999,
petitioner made a reference to the Consultants/Engineer Messrs S.I. Engineering
Associates in view of clause 26 of the Arbitration Clause contained in the general
conditions of the contract. The consultants recommended for payment of the amount of
claim to petitioner but the respondent did not agree with the recommendations and the
same were sent back to the Consultants for reconsideration. On 27-5-2000 the
Consultants confirmed their earlier recommendations but respondent did not comply with
the said recommendations, therefore, on 26-3-2001, petitioner filed Suit No.363 of 2001
before learned High Court of Sindh at Karachi, for recovery of an amount of Rs.70
million. On 3-5-2001, the matter was fixed before the Additional Registrar, who allowed
four weeks time to respondent to file written statement. On 19-9-2001, the case came up
before The Additional Registrar again who allowed two weeks more time to the
respondent to file written statement. In spite of service, no one was present on behalf of
respondent on both aforesaid dates. On 30-7-2001, petitioner moved application under
Order VIII, rules 1 and 10, C.P.C. for striking off the defence of respondent. When the
application came up for hearing before the Court on 10-8-2001, learned counsel for
respondent for the first time appeared in the Court and prayed for time to file written
reply to the said application. On 22-8-2001 learned counsel for respondent moved
C.M.A. No.6203 of 2001 under section 34 of the Arbitration Act for referring the matter
to the Arbitrator. Petitioner also filed objections through C.M.A. No.7592 of 2001 under
section 33 of the Act to contest the arbitration agreement and for orders that the
arbitration option was neither available to the respondent nor required under
circumstances of the case and that there was a specific bar of 28 days as provided under
clause 27 of the agreement for aggrieved party to invoke the arbitration against the
decision of Consultant. The learned Single Judge vide order, dated 4-12-2001 rejected
C.M.A. No.6203 of 2001 filed by respondent whereas allowed C.M.A. No.7592 of 2001
of the petitioner. Feeling aggrieved, respondent filed H.C.A. No.19 of 2002 which was
allowed vide impugned judgment.

3. We have heard petitioner S.M. Hashim Hussain in person and Ch. Muhammad Jamil,
learned Advocate Supreme Court for respondent and have gone through the record and
the proceedings of the case in minute particulars.

4. Petitioner mainly contended that at the initial stage, he made reference under clause 26
of the Arbitration Agreement to Consultant who vide order, dated 17-3-1997
recommended his claim for the payment of amount which was later on confirmed on 27-
5-2000 on the reference made by respondent for reconsideration. In view of clause 27 of
the Arbitration Agreement, there is clear cut bar of .28 days for referring the matter for
arbitration which in the instant case has not been done by respondent, as such, application
under section 34 of the Act was not maintainable, which was rightly rejected by the
learned Judge in Chambers. According to him, dispute with regard to rate has been
decided by the Consultant and confirmed on 27-5-2000, hence referring the matter to
Arbitrator is not justified.

5. On the other hand, learned counsel for respondent controverted the above contentions
and supported the impugned judgment which according to him, is well-reasoned wherein
every aspect of the matter has been thoroughly dilated upon.

6. There is no denial of existence of clause 18 in the subsequent agreement executed


between the parties on 22-7-1996. The wording whereof is as follows:--

"18. ARBITRATION: All disputes between the parties to this contract, arising out
of the contract, other than those for which decision of the Accepting Officer or
any other person is by contract expressed to be final and conclusive, shall, after
written notice by either party to the Contract, be referred to the sole arbitration of
the Arbitrator appointed by the Executive Board, Pakistan Defence Officers
Housing Authority, Karachi. Decision of the Arbitrator, so appointed shall be
final, binding and conclusive for both the parties."

7. The main contention of the petitioner that for non-compliance of clauses 26 and 27 of
the Arbitration Agreement, recommendations of the Consultant attained finality, has been
elaborately discussed by the learned Division Bench in the impugned judgment and has
rightly held that those recommendations could not be deemed to be the final decision
within the meaning of above clauses of the agreement. In terms of clause 18 of the
condition of agreement, it is obligatory upon the parties to refer the dispute arising in
between them to Arbitrator for its resolution. In such circumstances, the only option
available to the petitioner was to avail remedy under clause 18 of the conditions of the
agreement.

8. For what has been discussed above, we are of the considered opinion that the
impugned judgment is based on valid and sound reasons and is entirely in consonance
with the law laid down by this Court. Neither, there is misreading, nor non-reading of
material evidence, or misconstruction of facts and law. Resultantly the petition being
devoid of merit is dismissed and leave to appeal refused.

M.B.A./5-127/S Petition dismissed.


P L D 2005 Karachi 670

Before Rahmat Hussain Jafferi, J

CHINA INTERNATIONAL WATER---Plaintiff

Versus

PAKISTAN WATER AND POWER DEVELOPMENT AUTHORITY---Defendant

Suit No. 1325 of 1999, decided on 1st June, 2005.

(a) Arbitration Act (X of 1940)---

----S. 14---Not necessary for the arbitrator to frame issues or to give finding on each issue
and if some omission is made it does not invalidate the award.

Messrs. Alpine Construction Co. Ltd. V. University of Karachi NLR 1991 CLJ 546; Ibad
& Co. v. Government of Sindh and others PLD 1981 Karachi 236; Trading Corporation
of Pakistan Limited . Aslam Saeed and Co. PLD 1973 Kar. 65 ref.

(b) Arbitration Act (X of 1940)---

----S. 23---Reference to arbitration---Valid and legal reference is the pre-condition to give


jurisdiction to Arbitrator to decide the dispute--If the reference is invalid or illegal then
through that reference no jurisdiction can be conferred upon the Arbitrator to decide the
dispute.

Chhabba Lal v. Kallu Lal AIR 1946 PC 72 fol.

The State of Pakistan v. Mehrajuddin PLD 1959 SC (Pak) 147 ref.

(c) Arbitration Act (X of 1940)---

----Ss. 23 & 17---Reference to arbitration---Invalid reference---Effect---With properly


invoking the arbitration clause of the contract, no contrary finding could be given, and
consequently no reference could have been made to the Arbitrator---Reference made to
the Arbitrator by the Court, in circumstances, was an invalid reference and arbitrator had
no jurisdiction to decide the dispute and award given on invalid reference was required to
be set aside and could not be made the rule of the Court.

Board of Intermediate and Secondary Education v. Fine Star and Company Engineers and
Contractors 1993 SCMR 30 ref.

(d) Arbitration Act (X of 1940)---


----S. 14---Award---Detailed discussion by the arbitrator on the issues showed no
apparent mistake of facts and law---Jurisdiction of Court, in such matters even otherwise,
was supervisory and not of appellate nature and it was not the requirement of law to
reject the finding of the Arbitrator on the ground that different conclusion could be drawn
from the evidence and examination of record---Award was not to be lightly interfered
with on insufficiency, non-consideration and failure. to take into account the evidence by
the Arbitrator.

Bilal A Khawaja along with Muhammad Masood Khan for Plaintiff.

Badar Alam for Defendant.

Date of hearing: 19th May, 2005.

JUDGMENT

RAHMAT HUSSAIN JAFFERI, J.---On the basis of tender floated by Pakistan Water
and Power Development Authority (hereinafter referred to as "the respondents") for the
construction of Ratodero Pump Station contract R.T. D-I, (hereinafter referred as "the
project"). The bid of China International Water and Electric Corporation (hereinafter
referred to as "claimants") was accepted, therefore, an agreement was executed between
the parties on 26-5-1996. The contract price was Rs. 108,668,8000 and the contract
period was 15 months from 28th June, 1996 up to 28th September, 1997. The claimants
furnished the performance guarantee of 15% of the contract amount. The claimants
mobilized to the site of work and commenced the execution of the project. In December
1996 the claimants submitted four ruining bills Nos. 1 to 4 but the bills were paid late.
However, it was alleged that due to change in the Government there were changes in
priorities of the respondents. Suddenly the funds became unavailable and respondents
started facing acute cash flow problems because of inability of respondents to make
payment against running bills in time. The delayed payment was admitted by NESPAK
Ltd. consultant of the project in their letters. For the smooth execution of project 10
numbers of pumps costing more than Rs.12 Million were required, therefore, such letter
was sent to the consultant of the respondents. The correspondence were exchanged
between them. The claimants vide letter dated 25-4-1997 notified the consultant that the
pumps were ready for inspection and testing with the manufacturer and the same may be
inspected on 2-5-1997. The consultant inspected the same and found them to be in order,
therefore, a request was made that pending payments may be released to enable the
claimants to procure all the delivery of the said pumps. The Engineer of the respondents
vide letter 25-6-1997 relied upon some technicalities, therefore, refused to meet the
request of the payment for early procurement of the pumps in question.

2. The claimants submitted running bill No.5 on 31-1-1997. The running bill was verified
by the Engineer on 8-3-1997 but the payment was not made within the required period, as
such, the claimants issued notice of termination of contract under clause 69 of C.O.C. on
the ground of failure of the respondents to pay the certified dues against running bill
No.5. By another letter the claimant identified all outstanding dues which were unpaid as
on that date amounting to Rs.58,686,903. The respondents replied the notice on 21-6-
1997 by enclosing a copy of letter dated 20-6-1997 in which it was alleged that a cheque
for a sum of Rs.6,448,925 had been forwarded to the claimants through Courier Service.
It was further alleged that the cheque was sept within due time, therefore, the respondents
were not in default under clause 69, C.O.C.

3. On 28-6-1997 the respondents referred the matter to the Engineer seeking its decision
under clause 67 of C.O.C. on the following issues:

"(1) Whether or not the employer has paid to the contractor the amount due to him under
the engineer Certificate No.AIP-5 in terms of clause 69(a) of C.O.C. within 60 days after
the same has become due? And

(2) Whether the contractor notice dated 21st June, 1997 to terminate the contract R.T.D.-1
of C.O.C.'s valid?"

4. On 2-7-1997, the claimants responded to the representation made by the respondent


giving the entire background and supporting documents in favour of their claims.

5. On 4-7-1997 the claimants filed an application under section 20 of the Arbitration Act,
1940 before this Court which was treated as Suit No.875/1997 with the following prayer:

"In view of the above it is most respectfully prayed that this Hon'ble Court may
very graciously be pleased to direct the defendant No.1 to file the Arbitration
Agreement in this Hon'ble Court and thereafter refer the various disputes to
arbitration under the Arbitration Act, 1940 in accordance with the Arbitration
Agreement. "

6. In the said suit the respondent filed the written statement in which they filed the letter
of Engineer dated 9th July, 1997 showing that the Engineer had to decide the matter
under clause 67 of the contract. The Court considered all these documents and allowed
the application vide order dated 21-10-1997 by appointing Mr. Justice (Red.) Saleem
Akhtar as sole Arbitrator and referred the matter to him.

7. The Sole Arbitrator proceeded with the matter. The claimants filed their claims before
the Arbitrator. The respondents also filed their objections. The learned Sole Arbitrator
framed the following consent issues:

(i) Whether the statement of claim as filed in these proceedings is covered by the
reference made to the Sole Arbitrator and if so, to what extent?

(ii) Whether the statement of claim as filed is maintainable particularly in view of


clause 67 of the C.O.C. and if so, to what extent?

(iii) Whether the claimants were justified in invoking clause 69 of the C.O.C. and if
so, to what extent and effect?
(iv) Whether the claimants' notice dated 21st June, 1997 terminating the contract
R.T.D.-I is contractually valid under the provision of clause 69(I) of C.O.C.?

(v) Whether the claimants are entitled to the sum of Rs.8,48,79,270 as damages or
any other amount due under the contract?

(vi) What the award should be?

8. Learned Sole Arbitrator decided the issues Nos. 1 to 5, in favour of the claimants.
Under Issue No.6, the claimants submitted claim containing 12 parts. The decision of the
Arbitrator on the said claims is as under:--

ITEMS CLAIM AWARD


PART I Retention money, amount due under IPC Rs.42,11,784 Disallowed
No.8 and escalation charges.
PART II Uncovered cost of mobilization Rs.30,98,247 Rs.225,000
PART III De-mobilization Rs.7,37,000 Disallowed
PART IV Dewatering due to revised drawing Rs.4,83,261
PART V Constriction of Staff Quarters Rs.12,50,000 Rs.600,000
PART VI Work of removal of existing embankment Rs.4,55,831 Disallowed
and other earth work
PART Ten items enumerated at page 86 of Rs.47,77,839 Disallowed
VII volume I
PART Interest on delayed payment Rs.5,91,234 Rs.3,49,240
VIII
PART IX Cost of pumps and motors Rs.25,322,630 Rs.21,62,000
Subject to such
adjustment as
may appear to
be necessary
after joint
inspection. If
respondents
refused to
accept the
motors, the
difference
between
auction price
and the cost as
stated above.
PART X Cost of electric equipment Rs.10,541,450 Rs.91,43,000
In case of
improper
refusal by the
respondents,
then difference
between cost
price and
auction price.
PART XI Cost of 34" discharge Pipe Rs.35,81,179 Disallowed
PART Loss of overheads and profits on account Rs.25,629,394 Rs.80,09,185
XII of termination of contract with costs of
Rs.2,00,000

9. The Sole Arbitrator has sent the award, which was received by this Court on 16-9-
1999. The parties have filed objections to the award.

10. I have heard the parties' Advocates and perused the record very carefully.

11. The learned Advocate for the respondents has challenged the findings of the
Arbitrator under issues Nos. 1 and 2 on the ground that the claims filed by the claimants
before the Arbitrator was not referred to Engineer as provided under Clause 67 of the
C.O.C. therefore, the Arbitrator had no jurisdiction to consider the said claims.

12. This Court while granting the application under section 20 of the Arbitration Act in
Suit No.875/1997 passed the following order:

"That the plaintiff has been able to establish existence of Arbitration Agreement
between itself and defendant No.1 and a dispute thereunder. The application under
section 20 of the Arbitration Act in the circumstances is granted and is referred to
the Sole Arbitrator Mr. Justice (Reid.) Saleem Akhtar."

13. The respondents raised objection before the Arbitrator that the said order did not
cover the claims filed before him. The Arbitrator took the view that all disputes were
referred to him, therefore, he was competent to decide the matter. However, the parties
were advised to obtain clarification from the Court. The respondents filed application
before this Court to clarify the order dated 21-10-1997. This Court passed the following
order:

"In the present case plaintiff has confined its claim before the learned Arbitrator to
the matters referred to in the application under section 20 of the Arbitration Act
and the order dated 21-10-1997 indeed had permitted all the disputes, mentioned
in the application under section 20 of the Arbitration Act to be considered by the
learned Arbitrator. The observations made by the learned Arbitrator in his order
dated 18-3-1998 on an application similar to the present application are in
consonance with the order dated 21-10-1997. No exception can be taken thereto."

14. Thus from the above two orders of the Court it is clear that all the disputes were
referred to the Arbitrator to decide the same.
15. It is an admitted position that before filing the application under section 20 of the
Arbitration Act in suit No.875/1997, the respondents had sent the dispute to the Engineer
on the following questions:

"(1) Whether or not the employer has paid to the contractor the amount due to him under
the Engineer Certificate No.AIP-5 in terms of clause 69(a) of C.O.C. within 60 days after
the same has become due? And

(2) Whether the contractor notice dated 21s June, 1997 to terminate the Contract R.T.D.-
I of C.O.C's valid?"

16. Thus the main disputes were referred to the Engineer. The claims filed before the
Arbitrator are consequential relief to the termination of contract after the contract was
found to be validly terminated by the claimants. Thus there is no fault in the finding of
the Sole Arbitrator.

17. However, the learned Advocate for the respondents has stated that the Arbitrator has
not given finding on issue No.2, therefore, the award is invalid. It is settled principle of
law that it is not necessary for the Arbitrator to frame issues or to give finding on each
issue and if some omission is made it does not invalidate the award. Reference is invited
to the cases of Messrs. Alpine Construction Co. Ltd. v. University of Karachi NLR 1991
CLJ 546; Ibad and Co. v. Government of Sindh and others PLD 1981 Karachi 236;
Trading Corporation of Pakistan Limited v. Aslam Saeed and Co. PLD 1973 Kar. 65.

18. The basic question on which the learned Advocate for the respondents has stressed
upon is that the Arbitrator had no jurisdiction to decide the matter as the conditions
mentioned in clause 67 of C.O.C. were not fulfilled. Conversely the learned Advocate for
the claimants has stated that all the requirements of clause 67 of C.O.C. were fulfilled as
the respondents had referred the disputes to the Engineer for decision and then the matter
was referred to the Arbitrator.

19. The question revolves around clause 67 of C.O.C. In order to understand the correct
position it will be advantageous to reproduce the said clause which reads as under:--

"67. Settlement of disputes.--If any dispute or difference of any kind whatsoever shall
arise between the Employer and the Contractor or the Engineer and the Contractor in
connection with, or arising out of the Contract, or the execution of the Works, whether
during the progress of the Works or after their completion and whether before or after the
termination, abandonment or breach of the contract, it shall, in the first place, be referred
to and settled by the Engineer who shall, within a period of ninety days after being
requested by either party to do so, give written notice of his decision to the Employer and
the Contractor. Save as hereinafter provided such decision in respect of every matter so
referred shall be final and binding upon the Employer and the Contractor and shall
forthwith be given effect to by the Employer and by the contractor, who shall proceed
with the execution of the Works with all due diligence whether he or the Employer
requires arbitration as hereinafter provide, or not. If the Engineer has given written notice
of his decision to the Employer and the Contractor and no claim to arbitration has been
communicated to him by either the Employer or the Contractor within a period of ninety
days from receipt of such notice, the said decision shall remain final and binding upon the
Employer and the Contractor. If the Engineer shall fail Ito give notice of his decision, as
aforesaid, within a period of ninety days after being requested as aforesaid, or if either the
Employer or the Contractor be dissatisfied with any such decision, then and in any such
case either the Employer or the Contractor may within ninety days after receiving notice
of such decision, or within ninety days after the expiration of the first-named period of
ninety days, as the case may be require that the matter or matters in dispute be referred to
arbitration as hereinafter provided. All disputes or differences in respect of which the
decision, if any, of the Engineer has not become final and binding as aforesaid shall be
finally settled under the rules and provisions of Pakistan Arbitration Act of 1940 by one
or more Arbitrators appointed under such rules. The said arbitrator/s shall have full power
to open up, revise and review any decision, opinion, direction, certificate or valuation of
the Engineer. Neither party shall be limited in the proceedings before such arbitrator/s to
the evidence or arguments put before the Engineer for the purpose of obtaining his said
decision. No decision given by the Engineer in accordance with foregoing provisions
shall disqualify him from being called as a witness and giving evidence before the
arbitrator/s on any matter whatsoever relevant to the dispute or difference referred to the
arbitrator/s as aforesaid. The reference to arbitration may proceed notwithstanding that
the Works shall not then be or be called to be complete, provided always that the
obligations of the Employer, the Engineer and the Contractor shall not be altered by
reason of arbitration being conducted during the progress of the Works."

20. Perusal of above clause reveals that the parties had agreed to dual arbitration in the
contract in case of any dispute arises between them.

21. It was agreed between the parties that in the first instance the dispute would be
referred to the Engineer, who was required to decide the dispute within a required period.
If any party is aggrieved from the decision of the Engineer or the Engineer did not decide
the dispute a within the required period then the said dispute can be referred to the
Arbitrator.

22. Thus the parties may refer the dispute to the Arbitrator on their own reference or
through a reference made by the Court. As such, in the both cases the Arbitrator would
assume the jurisdiction on the reference. Thus a valid and legal reference is the pre-
condition to give jurisdiction to the Arbitrator to decide the dispute. If the reference is
invalid or illegal then through that reference no jurisdiction can be conferred upon the
Arbitrator to decide the dispute. A similar question was considered by the Privy Council
in a case Chhabba Lal v. Kallu Lal AIR 1946 PC72 and at page 75 it has been observed as
under:

"In their opinion all the powers conferred upon the Court in relation to an award
on a reference made in a suit presuppose a valid reference on which an award has
been made which may be C open to question. If there is no valid reference, the
purported award is a nullity, and can be challenged in any appropriate
proceeding."

23. Until the decision of Privy Council is modified, by the Supreme Court the same will
be binding upon the Court, as held in the case of The State of Pakistan v. Mehrajuddin
PLD 1959 SC (Pak.) 147. The relevant portion appearing at page 165 is as under:

"The law laid clown by the Federal Court and the Privy Council should be
binding upon all the Courts of the sub-continent of India, and after 1947 that law
remained applicable to the Courts in Pakistan. "

24. In the present case on 28-6-1997, the respondents referred two above mentioned
disputes to the Engineer. He started the proceedings on 2-7-1997. The claimants filed
reply before the Engineer showing entire background of the matter. Before the Engineer
could decide the dispute, on 4-7-1997 the claimants filed application under section 20 of
Arbitration Act before this Court, which was converted into Suit bearing No.875/1997.
The respondents filed a written statement in which they produced a letter dated 9-7-1997
of the Engineer. The Court after considering the said letter referred the disputes to the
Arbitrator. I have perused the record of this case and Suit No.875/1997. There is nothing
on the record to show that the Engineer had ever decided the dispute referred to him by
the respondents on 28-6-1997 except his letter dated 9-7-1997. On the contrary, the order
dated 21-10-1997 shows that the Engineer did not pass any order because of Suit
No.875/1997, However, the letter dated 9-7-1997 of the Engineer is as follows:

"The Site Agent

China International Water & Electric Corporation,


H.No.12, Block A, New Housing Colony, Larkana.

LOWER INDUS RIGHT BANK AND IRRIGATION DRAINAGE PROJECT


(STAGE-1) PRIORITY WORKS CONTRACT RTD-I-CONSTRUCTION OF
RATODERO PUMP STATION.

Sir,

The Employer through his letter No. GM (WS)/RTD- 1-2887 dated June 21, 1997 did not
accept your Notice of Termination dated June 21, 1997 through your letter No.
CWE/RTD- 1 /97-057 as contractually valid, claiming that he had paid the amount due to
you under Engineer's Contract. The employer's letter No. GM(WS)/LIRBP-02/2893 dated
June 23, 1997 & GM(WS)/ RTD-1 /3030 dated July 1, 1997 may also be referred.

You however through your letter No. CWE/RTD- 1/97-061 dated June 23, 1997 &
CWE/RTD-1/97-062 dated June 24, 1997 insisted that you have not paid the amount due
to you under Engineer's Certificate No. AIP-5 within the sixty (60) days after the same
had become due and contended that your Notice dated June 21, 1997 to terminate the
contract RTD-1, is valid as per provisions of the Contract.
The contractual dispute therefore, had arisen between the Employer and you which was
referred by the Employer for settlement by the Engineer, under clause 67 of COC through
his letter No. GM(WS)/LIRBP-021/2997 dated June 28, 1997, copies of which were
endorsed to your Karachi office as well as delivered to you at site on July 3, 1997 through
CRE's letter No. SKR/1596/RTD-I/97/978 dated June 30, 1997.

Since a contractual dispute has arisen between the Employer and you and has been
referred to the Engineer for settlement, the Contractor is not to stop the execution of the
Contract RTD-I and proceed and continue with the Works and fulfils his contractual
obligations till the Engineer's decision is notified.

The Chief Resident Engineer (CRE) through his letter No.SKR/1596/RTD-1/97/980


dated June 30, 1997 which was delivered to you at the site on July 3, 1997, also advised
you that in view of the dispute between the employer and you which has been referred to
the Engineer for settlement under clause 67 of COC, the contract shall remain operative
and in the meantime you should proceed with the Works under Contract RTD-1 with due
diligence and expedition.

Inspite of the foregoing development, advice and instructions you had again through your
letter No.CWE/RTD-1/97-078 dated July 5, 1997 notified the Employer that your
fourteen (14) days period had expired and your employment under this Contract is
terminated, which is not contractually proper and tenable.

You had also completely started suspended your work's activities on the site of Contract
RTD-1 since July 5, 1997 and stated demobilization of Plant, Equipment and Machinery
without the written consent of the Engineer. You did not stop the demobilization process
despite our Resident Engineer's instruction through his letter No.1-RK/1596/RTD-
1/97/1473 dated July 5, 1997. During your meeting at the site with our Chief Resident
Engineer, on the afternoon of July 6, 1997, you verbally informed that notwithstanding
his instructions dated June 30, 1997 you are proceeding with complete demobilization
from the Site of Works under Contract RTD-1. Our latest report from the Site is that you
have virtually abandoned the Site of Contract RTD-1 on the afternoon of July 7,1997.

Your action as above tantamounts to the abandonment of the Contract under Clause 63(1)
(a) of COC and hence default under the Contract.

You are therefore, directed to please follow proper contractual procedure in settlement of
dispute and continue with the works in the meantime and proceed with the works under
the contract RTD-1, with due diligence.

You are further directed to immediately (i) bring back all your Plant and Equipment
unauthorisedly removed from the Site, (ii) remobilize your staff and workers, and (iii)
recommence the Works in fulfilment of your contractual obligations under the Contract.
Failing to comply with these directions will render you liable for appropriate contractual
action and you will be fully responsible for all the consequences resulting from such
action.

Yours faithfully,

For National Engineering Services Pakistan (Pvt) Ltd.

(Sd.)

(Z. M. PIRZADA)

The Engineer/Vice-President
W&A Division:"

25. From the bare reading of the letter of the Engineer, it is clear that pending decision of
the dispute, he gave certain interim directions to the claimants. It is not necessary to
examine, whether or not the Engineer was competent to give such directions. The
question is whether or not the Engineer had decided the dispute through that letter. The
letter itself speaks that the Engineer had not decided the matter, when the letter was
issued but he simply issued interim directions or passed interim orders pending decision
of the dispute. Thus the Engineer through the letter did not decide the dispute.

26. It is pertinent to point out that the respondents referred the dispute to the Engineer on
28-6-1.997, on 2-7-1997 the claimants filed reply before the Engineer. On 4-7-1997 the
claimants filed the application under section 20 of Arbitration Act, before the Engineer
decided the dispute. Even on 9-7-1997, the Engineer, did not decide the said dispute. The
Engineer appears to have stopped the proceedings because of Suit No.875/1997. The
arguments in the suit were heard on 24-9-1997 and the Court gave the decision on 21-10-
1997. As such till the date of hearing of arguments the required period of 90 days from
the date of reference of the dispute to the Engineer by the respondents for giving decision
by the Engineer had not expired. In such a situation the reference to the Arbitrator
through order dated 21-10-1997 was in violation of clause 67 of COC. The Hon'ble
Supreme Court of Pakistan in the case of Board of Intermediate and Secondary
Education, v. Fine Star & Company, Engineers and Contractors (1993 SCMR 530) has
observed as under:

"It cannot therefore be said that the respondent had fulfilled the requirement of the
arbitration clause by referring the disputes in the first instance to the Chairman for
decision before applying to the Court for filing of the arbitration agreement. The
learned Single Judge was clearly in error in recording a finding to the contrary. "

27. Thus without fulfilling or properly invoking the clause 67 of COC, no finding
contrary could have been given. Consequently, no reference could have been made to the
Arbitrator, as such, the reference made to the Arbitrator through order dated 21-10-1997
was a invalid reference, therefore, the Arbitrator had no d reference is required decide the
dispute. Hence, award passed on invalid reference is required to be set aside.
28. As regards the findings of Arbitrator on issues Nos.3, 4 and 5 being interconnected
the learned Advocate for the respondents has argued that, the Arbitrator was not justified
in taking cut of date for termination of contract as 20-6-1997 and took the date of
payment Cheque dated 20-6-1997 as 24th June 1997.

29. On these issues the dispute is with regard to the running Bill No.5 which was
submitted by the claimants to the consultant on 11-1-1997 and was verified by him on 8-
3-1997.

30. The case of the claimants is that the respondents were required to make the payment
of the said bill on or before 21-4-1997 as per clause 60(5)-1 of COC, and as the payment
was not made on or before 21-4-1997, therefore, the claimants were entitled under
clauses 60, 69(1)(a) of COC to terminate the agreement. Whereas the case of the
respondents is that the computation of 45 days and 60 days as required under clauses 60
and 69 (1)(a) of COC was incorrect as the period of 60 days was to begin from 23-4-1997
ending on 21-6-1997. The learned advocate for the respondent contended that 21-6-1997
was holiday being Shah Abdul Latif Bhitai day and 22-6-1997 was Sunday, therefore, the
payment of IPC-5 could not be made up to 23-6-1997. He further contended that the
respondent had issued the cheque on 20-6-1997 and delivered to OCS Courier on the
same day, therefore, the date of payment shall be taken from the date of issuance of the
cheque and not when the cheque was received or encahsed.

31. The cases of the parties were fully considered by the Arbitrator, in a detailed finding
on issue No.3. He took all the aspects of the case into consideration including the legal;
factual and evidence available on the record. He formed the opinion that the practice
between the parties while computing such period was that the opening date was not
excluded and if that practice is taken into consideration then the payment was made late.
He further observed that the cheque was issued on 20-4-1997 but it was dispatched on the
next date. He took into consideration the receipts of Courier Service and oral evidence of
DW-3. He formed the opinion that the receipt created a doubt as it did not bear the
signature of shipper as stated by DW-3 who deposed that it was obtained on the next date
i.e. 21-4-1997. The Arbitrator also took serious note of the non-examination of witness of
Courier Service to prove the receipt, which also did not bear the stamp of Courier
Service. On the said point the Arbitrator also considered the WAPDA Accounting
Manual, as it was contended before him that, according to the said manual, the date of
payment of cheque should be the date of issuance of the cheque. provided it is dispatched
on the same day. The learned Arbitrator formed opinion that said manual contains rules
and regulations about the internal working of WAPDA. It is not binding upon third party
nor there was agreement between the parties that the said manual would be applicable in
respect of payments through cheques. The learned Arbitrator also took into consideration
the case law on the subject on the interpretation of payment and formed the opinion that
the payment would mean when,the amount is received. In this case the cheque was
received on 23-6-1997. The cheque was encahsed and amount was received by the
claimants on 24-6-1997., therefore, he formed the opinion that the claimants were entitled
to invoke the clause 69 and terminated the agreement validly.
32. I have considered the detailed discussion of the Arbitrator on the issues Nos.3 to 5
and find that there is no apparent mistake of facts and law. Even otherwise the
jurisdiction of the Court in this respect is a supervisory and not appellate. Furthermore it
is not the requirement of law to reject the finding of the Arbitrator on the ground that
different conclusion can be drawn from the evidence and examination of record. It is
well-settled that the award is not to be lightly interfered with on insufficiency, non-
consideration and failure to take into account the evidence by the Arbitrator. As such, the
findings of the Arbitrator on the above issues do not require any interference.

33. As regards Issue No. 6, the learned Arbitrator has considered various claims of the
Claimants. Out of them some were rejected and some were allowed with modification as
mentioned in the earlier part of the judgment. The said findings do not require any
interference.

34. After considering the material available on the record I am of the considered view that
the objections raised by the respondents on merits and law on the award are without any
force.

35. As regards the objections raised by the claimants, during the course of arguments the
learned Advocate for the claimants has not touched the grounds mentioned in the
objections filed in the matters, as such, it appears that the learned Advocate for the
claimants has abandoned the said objections.

36. In the light what has been discussed above the findings of the Arbitrator on merits of
the disputes referred to him do not require any interference. However, the award was
passed on an invalid reference dated 21-10-1997, therefore, the Arbitrator had no
jurisdiction to decide the disputes and pass the award, as such, the award cannot be made
the rule of the Court, hence it is set aside.

M.B.A./C-35/K Order accordingly.


2004 S C M R 1154
[Supreme Court of Pakistan]
Present: Tanvir Ahmed Khan and Khalil-ur-Rahman Ramday, JJ
Messrs MOLASSES EXPORT CO. (PVT.) LTD. ---Petitioner
Versus
RAZA MUHAMMAD KHAN and others---Respondents
Civil Petition for Leave to Appeal No. 2495-L of 2000, decided on 24th April, 2003.
(On appeal from the judgment, dated 12-4-2000 passed by the Lahore High Court,
Multan Bench in Writ Petition No. 11645 of 1999).
Punjab Zila Councils (Goods Exit Tax) Rules, 1990-----
----Preamble---Constitution of Pakistan (1973), Art. 185(3)---Supreme Court Rules, 1980,
O.XIII, R.1---Collection of Exit Tax on goods meant for export from country---Refund of
such tax demanded from contractor of Zila Council as such goods were exempt from levy
of Exit Tax---High Court accepted Constitutional petition of contractor and declared such
demand as illegal---Contention of payee of such tax was that such demand of refund from
contractor was legal; that Constitutional petition was not maintainable in view of
arbitration clause and availability of remedy of appeal to contractor under law; that High
Court had earlier dismissed similar Constitutional petition filed against Zila Council on
ground of arbitration clause and availability of remedy of appeal, which judgment had
attained finality as appeal arising therefrom had been dismissed by Supreme Court for
non-prosecution, thus, two contradictory judgments of High Court on similar set of facts
involving similar question of law were holding the field---Supreme Court granted leave
to appeal to consider the questions including question of condonation of delay of 114
days.
Dr. M. Mohy-ud-Din Qazi, Advocate Supreme Court for Petitioner.
Nemo for Respondent.
Date of hearing: 24th April, 2003.
ORDER
KHALIL-UR-RAHMAN RAMDAY.---This petition is directed against a judgment,
dated 12-4-2000 passed by the Lahore High Court, Lahore in Writ Petition No. 11645 of
1999 of Multan Bench.
2. The first respondent secured a contract from the respondent Zila Council of
Muzaffargarh for the collection of Goods Exit Tax for the period commencing from
16-10-1998 and ending on 30-6-1999. After expiry of the said period of contract i.e. on
22-11-1999 the respondent Zila Council issued a letter to the respondent-contractor
requiring the said contractor to refund an amount of Rs.9,22,110 on the ground that the
said amount of money had been illegally collected by the respondent contractor because
the goods in respect of which the said money had been received by the said contractor
were meant for export from the country and as such the same were exempted from
payment of Goods Exit Tax levied by the Zila Council. The respondent-contractor
impugned the said demand through Writ Petition No. 11645 of 1999 filed at the Multan
Bench of the Lahore High Court. Through the abovementioned judgment, dated
12-4-2000, now being impugned before us, the Hon'ble Lahore High Court accepted the
said petition and declared that the impugned demand being raised through the
above-mentioned letter, dated 22-11-1999 was illegal and was of no legal effect.
3. Hence this petition by Messrs Molasses Export Co. questioning the said judgment of
the Lahore High Court as they were the ones from whom the respondent-contractor had
received payment on account of Goods Exit Tax in spite of the fact that the said goods
were meant for export out of Pakistan.
4. Confronted with the fact that this petition had been filed 114 days beyond the
prescribed period of limitation, the learned counsel submitted that the impugned
judgment had been passed in the absence of the petitioner and without notice to it and
further that the petitioner came to know of the passing of the impugned judgment through
a letter bearing No.34450, dated 15-8-2000 issued by the Assistant Registrar (J.) of the
Multan Bench of Lahore High Court through which the petitioner was notified of the
passing of the said judgment and that computing the period of limitation from the said
date of knowledge, this petition was well within time. The learned counsel added that
there was a definite possibility of the judgment in question having been passed in a
connected matter i.e. Writ Petition No.7646 of 1999 and of a mistaken mentioning of
Writ Petition No. 11645 of 1999 on the opening part of the impugned judgment.

5. On the merits of the case, learned counsel for the petitioner submitted that the writ
petition filed by the respondent-contractor was not maintainable because rules and the
law relating to the grant of contract in question envisaged arbitration between the parties
in case of any dispute and even a remedy of appeal was available to the said contractor
under the relevant law. The learned counsel further submitted that a similar writ petition
bearing Writ Petition No. 10221 of 1998 filed against the same Zila Council of
Muzaffargarh had been dismissed by the Lahore High Court through a judgment, dated
25-11-1998 on the ground that the same was not competent in view of the arbitration
clause and also because of the fact that a remedy by way of appeal was available to the
contractor which remedies had not been exhausted. We were further informed that against
this judgment of the Multan Bench of the Lahore High Court passed in Writ Petition No.
10221 of 1998 involving similar and identical questions of law, the contractor approached
this Court through C.P. No. 1581 of 1998 which petition had been allowed through an
order of this Court, dated 31-12-1998 and leave had consequently been granted. On our
inquiry the office informed us that` the appeal arising out of the said C.P. No. 1581 of
1998 had since been dismissed for non-prosecution in the month of February, 2002 at
which the learned counsel for the petitioner contended that this being so the judgment,
dated 25-11-1998 passed in Writ Petition No. 10221 of 1998 had attained finality and this
was then a case where two contradictory) judgments of the Lahore High Court now hold
the filed on the similar set of facts involving a similar question of law which warrant
grant of leave in the present petition to resolve this contradiction.
6. The learned counsel also argued that the goods being taken out from the District for the
purpose of export out of Pakistan had been C rightly exempted from the payment of
Goods Exit Tax and the respondent-contractor was justifiably asked to refund the amount
of the said illegally deducted tax.
7. Having heard the learned counsel for the petitioner and having examined all aspects of
the matter we find that the above-noticed questions do deserve deeper consideration.
8. Consequently this petition is allowed and leave is granted to consider the above
questions and others. The question of condonation of delay in the filing of this petition
shall also be decided at the time of the hearing of appeal.
S.A.K/M-903/S Leave granted.
P L D 2004 Lahore 404
Before Syed Jamshed Ali and Muhammad Ghani, JJ
Sh. SALEEM ALI ---Appellant
versus
Sh. AKHTAR ALI and 7 others---Respondents
I.C.A. No.2-C of 1997 in C.O.No. 2-C of 1986, decided on 8th March, 2004.
(a) Law Reforms Ordinance (XII of 1972)---
----S.3(1)---Arbitration Act (X of 1940), Ss.14(2) & 41---Intra-Court
appeal---Maintainability---Conditions--.-Contention was that an Intra-Court appeal was
competent only if a decree was passed or a final order was made by Single Judge of High
Court in exercise of "original civil jurisdiction", while impugned order in the present case
was passed under the provisions of Arbitration Act, 1940 and appeal against an order
setting aside an award being competent under S.39(1)(iv) of the Arbitration Act, 1940,
Intra-Court appeal was not maintainable-Validity---Held, application under S.14(2) of
Arbitration Act in the present case, was originally filed in the Court of Senior Civil Judge
but was transferred to the original side of the High Court---Proceedings commencing on
an application under S.14(2) were in the nature of civil proceedings, and by virtue of $.4I
of the Arbitration Act, 1940 the provisions of C.P.C. had been made applicable, not only
to the proceedings before the Court, but also to an appeal under the said -Act---Upon
transfer of the application under S.14(2), Single Judge of High Court, while dealing with
the matter, exercised "civil original jurisdiction" and therefore, intra-Court appeal was
competent.
(b) Administration of justice---
---- Party cannot be non-suited on the ground that the provision of law under which the
proceedings have been instituted has been inadvertently misquoted.
(c) Arbitration Act (X of 1940)---
----S. 3(a)---Arbitration agreement---Such agreement need not necessarily be
'incorporated in a formal document, it can be included by incorporating a clause in a
contract---Arbitration agreement may be spelt out from correspondence or letters
exchanged between the parties or on the basis of their statements, or even those of their
counsel---Such an agreement need not be signed by the parties.
Abdul Aziz Cotton Ginning Factory v. Ali Muhammad Abdullah and Co. PLD 1966
(W.P.) Kar. 197; Province of Punjab and another v. Messrs Industrial Machine Pool,
Lahore PLD 1978 Lah. 829; Shamim Akhtar v. Najma Baqai PLD 1977 SC 644;
Muhammad Hussain v. Ghulam Rasool 1983 SCMR 231 and Messrs Tribal Friends Co.
v.. Province of Balochistan 2002 SCMR 1903 ref.
(d) Arbitration---
---- Party having submitted to the jurisdiction of the arbitrators and having allowed them
to deal with the matter, taking a chance of the decision being favourable to him, had
acquiesced in the arbitrators proceedings---Such party could not be permitted to lie by
and participate in the arbitration proceedings, and if the final determination/award would
go against hint, he should attack the very authority of the arbitrators to arbitrate on an
objection which he never took before the arbitrators---Position of course, would have
been different if he had participated in the proceedings under protest which was not the
position in the present case---Contention of the said party that oral protest was made,
could not be given effect to in the absence of anything on record to show that any such
protest was made.
Matson v. Trower (1824) Ry & Mood 17:. 171 ER 927; Cairncross v. Lorimer (1860) 3
Macq. 827: 7 Jur NS 149; Chowdhri Murtaza Hossein v. Mussammat Bibi Bechunnissa
(1876) 3 Ind App 209; Donald Compbell & Co. v. Jeshraj Girdhari Lal AIR 1920 PC 123;
Abdul Shakur v. Muhammad Yousaf AIR 1921 Allah. 64; Okland Metal Co. Ltd. v. D.
Benian & Co. Ltd. (1953) 2 Q.B. 261; State of Orissa v. Messrs Consolidated
Construction Company AIR 1981 Orissa 166 and Muhammad Rafique v.Qamar Ali 2003
MLD 52 ref.
(e) Estoppel, rule of---
----Representation, in order to attract the rule of estoppel, need not always be a
representation of a physical fact, but may as well be the representation of an attitude or a
state of mind---State of a man's mind was as much a matter of fact as the state of his
digestion.
(f) Arbitration---
---- Objection to award---General principle that where a Court inherently lacked
jurisdiction, mere consent of parties could not confer the jurisdiction, had no application
to arbitration proceedings where the arbitrator was a person appointed by agreement
between the parties.
Matson v. Trower (1824) Ry & Mood 17: 171 ER 927; Cairncross v. Lorimer (1860) 3
Macq. 827: 7 Jur NS-149; Chowdhri Murtaza Hossein v. Mussammat Bibi Bechunnissa
(1876) 3 Ind App 209; Donald Compbell & Co. v. Jeshraj Girdhari Lal AIR 1920 PC 123;
Abdul-Shakur v. Muhammad Yousaf AIR 1921 Allah. 64; Okland Metal Co. Ltd. v. D.
Benian & Co. Ltd. (1953) 2 Q. B. 261; State of Orissa v. Messrs Consolidated
Construction Company AIR 1981 Orissa 166 and Muhammad Rafique v. Qamar Ali 2003
MLD 52 ref.
(g) Arbitration---
---- Objection to award ---Estoppel and acquiescence, principle of--Applicability---
Scope---Principle of estoppel and acquiescence would be aptly attracted where a party
having consented to arbitration by a person and having participated in the proceedings
before him subsequently attempted to challenge his jurisdiction as an arbitrator--When a
man had been silent when in conscience be ought to have spoken, he shall be debarred
from speaking when conscience required him to be silent.
Matson v. Trower (1824) Ry & Mood 17: 171 ER 927; Cairncross v. Lorimcr (1860) 3
Macq. 827: 7 Jur NS 149; Chowdhri Murtaza Hossein v. Mussammat Bibi Bechunnissa
(1876) 3 Ind App 209; Donald Compbell & Co: v. Jeshraj Girdhari Lal AIR 1920 PC 123;
Abdul Shakur v. Muhammad Yousaf AIR 1921 Allah. 64; Okland Metal Co. Ltd. v. D.
Benian & Co. Ltd. (1953) 2 Q.B. 261; State of Orissa v. Messrs Consolidated
Construction Company AIR 1981 Orissa 166 and Muhammad Rafique v. Qamar Ali 2003
MLD 52 ref.
(h) Arbitration Act (X of 1940)---
----S. 35---Applicability of S.35, Arbitration Act, 1940---Prerequisites enumerated---If all
the prerequisites were fulfilled, further proceedings in a pending reference would be
rendered invalid---Where, in a case, the subject-matter of the civil suit did not cover all
the items of dispute referred to the arbitration and clearly reflected in the arbitration
agreement and parties to the arbitration agreement and properties involved were distinct
and different, provision of S.35, Arbitration Act, 1940 would not be attracted.
The prerequisites for application of section 35 of the Arbitration Act, 1940 are (1) that the
whole of the subject-matter of the reference should also be subject-matter of the suit; (2)
that the parties should be the same and (3) that a notice of the filing of the suit has been
given to the Arbitrator. If all these prerequisites are fulfilled, further proceedings in a
pending reference would be rendered invalid. So far as the present case was concerned,
the subject-matter of the civil suit did not cover all the items of dispute referred to
arbitration and clearly reflected in the Arbitration Agreement.
The parties to the arbitration agreement and the civil suit were distinct and different, and
so was the property.
Contentions that the expression "when legal proceedings upon the whole of the
subject-matter of the reference have been commenced" meant that whole of the
subject-matter should be "identical", could not be accepted on plain reading of section 35
of the Act. In the ordinary dictionary, the word "whole" means entire, complete, not less
than, a thing complete in itself. Therefore, in order to attract the provisions of section 35,
it was necessary that the subject-matter of the suit should be exactly the same as in the'
dispute before-the Arbitrator.
(i) Arbitration Act (X of 1940)---
----S.35---Effect of legal proceedings on arbitration---Expression "when legal
proceedings upon the whole of the subject-matter of the reference have been
commenced"---Meanings---Word "whole" means entire, complete, not less than, a thing
complete in itself.
(i) Arbitration Act (X of 1940)---
----S. 30---Setting aside of award---Misconduct; kinds of---"Legal misconduct" and
"moral misconduct"---Meanings---What constitutes misconduct---Award is not a Divine
word; it is neither impregnable nor exempt from judicial scrutiny---Award can be
nullified and set aside in view of S.30(a), Arbitration Act. 1940 if an arbitrator has "mis-
conducted himself or the proceedings "---When a person is appointed by two parties to
exercise judicial duties, there has to be uberrima fides on the part of all the parties
concerned in relation to his selection and appointment---Every disclosure which might in
the least affect the minds of those who are proposing to submit their disputes to the
arbitrament of any particular individual ought to be made, so that each party may have
every opportunity of considering whether or not to make a reference to him---If an
arbitrator is indebted to one of the parties at the time of the reference or becomes so
indebted after the reference, and in either case does not disclose the fact to the other
party, such party would be entitled to revoke the reference upon discovery of fact, and
any award made by such arbitrator would be invalid on the ground of judicial
misconduct---Known interest, however, does not disqualify a person from acting as
arbitrator, and if the parties, with full knowledge of the facts, select a person as arbitrator
who is not an impartial person, the Court will not release them from the bargain upon
which they agreed, however, improvident it may consider it, so long as the Court is
satisfied that he knew or should have known what kind of bargain he was entering into.
An Award is not a Divine word. It is neither impregnable nor exempt from judicial
scrutiny.
An award can be nullified and set aside in view of the statutory provision contained in
clause (a) of section 30, Arbitration Act, 1940 if an Arbitrator has "mis-conducted himself
or the proceedings". "Misconduct" contemplated by section 30(a) is thus of two kinds,
legal and/or moral.
"Legal misconduct" means misconduct in the judicial sense of the word, for
example, some honest, though erroneous, breach of duty causing miscarriage of
justice; failure to perform the essential duties which are cast on an arbitrator; and
any irregularity of action which is not consistent with general principles of equity
and good conscience. Though not bound by the technical rules of evidence, but it
an arbitrator acts arbitrarily or unreasonably, the award will be invalid. If the
procedure adopted by any arbitrator is opposed to natural justice, inasmuch as he
does not hear both the parties fairly, or records evidence in the absence of either
party, the Award will be a nullity in the eye of law. If the award suffers from
ambiguity, or the arbitrator does not determine all the matters referred to him for
arbitration, then too the award cannot be sustained. If the arbitrator has ignored
important evidence, or has returned a verdict which is in conflict with the
evidence on record, the award will be set aside. An error of law apparent on the
face of the award, relevant and material to the decision of the dispute, is also a
ground to scrap the same. If irregularities in Procedure can be proved, which
would amount to no proper hearing of the matter in dispute, that would be
misconduct sufficient to vitiate the award, without any imputation on honesty or
impartiality of the arbitrator. And, if there is an indication of gross negligence or
recklessness on the face of the award that might also amount to a form of
misconduct on the part of the arbitrator, because that might, by itself, be sufficient
to show that there was no proper hearing of the matter. To sum up, an arbitrator
misconducts the proceedings when (i) there is a defect in the Procedure followed
by him; (ii) commits breach and neglect of duty and responsibility; (iii) acts
contrary to the principles of equity and good conscience; (iv) acts without
jurisdiction or exceeds it; (v) acts beyond the reference; (vi) proceeds on
extraneous circumstances; (vii) ignores material documents; and (viii) bases the
award on no evidence. These are some of the omissions and commissions which
constitute legal L misconduct or, in other words, that an arbitrator has mis-
conducted the proceedings within meaning of clause (a) of section 30 of the
Arbitration, Act, 1940.
It is difficult to define exhaustively and exactly what amounts to "misconduct" on the part
of an arbitrator. The expression is of wide import, and it means that which is misconduct
by any standard. In a case of arbitration where the parties entrust their fate into the hands
of an arbitrator, he becomes a Judge in the case. Therefore, it is essential that there must
be abundant good faith, and the arbitrator must be absolutely disinterested and impartial,
as he is bound to act with scrupulous regard to the ends of justice An arbitrator must be a
person who stands indifferent between the parties. If an arbitrator is related to one of the
parties which fact is not disclosed to the other party at the time the agreement is entered
into, the award can successfully be challenged as invalid on the ground of misconduct of
the arbitrator. An arbitrator should in no sense consider himself to be the advocate of the.
cause of party appointing him, nor is such party deemed to be his client. He should
refrain from identifying himself with the interest of such party and from looking forward
to further employment as arbitrator, an office which carries emoluments. Where an
arbitrator does an act in disregard of propriety and cause of proportion, it is not merely
misconduct in the legal or technical sense but is grossly improper and inconsistent with
the plain duty of an arbitrator seriously disposed to settle a dispute referred to him for
arbitration. He should have no interest, direct or remote, in the subject-matter of the
controversy. It is imperative that an arbitrator should always scrupulously avoid any
course of action which even remotely bears the complexion of his having put himself into
a position where it might be said against him that he had received a pecuniary
inducement which might have had some effect on his determination of the matters
submitted to his adjudication as this is a matter of so tender a nature that even the
appearance of evil in it is to be avoided. An arbitrator, being in loco judicis has to act
honestly and legally throughout the, proceedings. There is universal agreement amongst
jurists of all countries that it is of the first importance that judicial tribunals should be
honest, impartial and disinterested. This rule applies in full force to arbitral to tribunals,
subject only to this exception, that the parties who are free to choose their own tribunal
may, provided they act with full knowledge though this exception in its turn is subject to
a statutory exception which gives parties who have so chosen a locus poenitentiae in
certain circumstances. But apart from this exception, arbitrators who are in all other
respects suitably qualified are disqualified by dishonesty, partiality or interest.
Therefore, where a person is appointed by two parties to exercise judicial duties, there
should be uberrima fides on the part of all the parties concerned in relation to his
selection and appointment and every disclosure which might in the least affect the minds
of those who are proposing to submit their disputes to the arbitrament of any particular
individual ought to be made, so that each party may have every opportunity of
considering whether or not to make a reference to him. Further, if an arbitrator is indebted
to one of parties at the time of the reference or becomes so indebted after the reference,
and in either case does not disclose the fact to the other party, such party would be
entitled to revoke the reference upon discovery of fact, and any award made by such
arbitrator would be invalid on the ground of judicial misconduct. However, a known
interest does not disqualify a person from acting as arbitrator, and if the parties, with full
knowledge of the facts, select an arbitrator who is not an impartial person, the Court will
not release them from the bargain upon which they agreed, howsoever, improvident it
may consider it, so long as the Court is satisfied that he knew or should have known what
kind of bargain he was entering into. These principles are so well-engrafted in the judicial
precedents that there can be no two opinions about the same.
(k) Arbitration Act (X of 1940)---
----S. 9---Parties, in the present case, had executed a formal arbitration agreement that in
the event of any party had cause of grievance against the decision of their mediator, the
matter shall be referred to the arbitration of the arbitrators---Appointment of arbitrators,
thus, was kept alive, and parties being not satisfied with the decision rendered by the
mediator, arbitrators were approached to, arbitrate in. the matter--Nothing, therefore, was
objectionable if the arbitrators had conducted some proceedings consequent upon the
verbal agreement between the parties which was, later on, affirmed through a formal
written arbitration agreement.
Habib & Sons v. Virak Co. PLD 1957 (W.P.) Kar. 245 ref.
(l ) Arbitration Act (X of 1940)---
----S.30---Setting aside of award---Misconduct---Contention of one of the parties was
that one arbitrator sold his property to one of the contesting parties in the dispute, which,
recoiled adversely on the impartiality of the said arbitrator and amounted to
misconduct--Validity---Transaction of sale purchase of the property had not preceded the
pronouncement of the award, but took place about a year and a half thereafter---Award in
question, in circumstances, was not vitiated by reason of the alleged
misconduct---Arbitrator, therefore, could not at all, be attributed misconduct, so as to
render the award shorn of efficacy, nor the same could be set aside.
(m) Arbitration Act (X of 1940)--
----S.30---Setting aside of an award on the ground of misconduct--Principles.
An arbitrator should not exhibit a behaviour, even after pronouncement of Award, which
might give a cause of apprehension to anyone of the parties to the reference that he was
in collusion with the other party, or his opponent. There must be purity in the
administration of justice, as well as in administration of quasi-justice as are involved in
the adjudicatory process before the arbitrators. Once an arbitrator enters in an arbitration,
he must not be guilty of any act which can possibly be construed as indicative of
partiality, unfairness or bias. Bias, signifies a real likelihood of an operative prejudice,
whether conscious or unconscious. Once it is established that the arbitrator was actually
biased, the award has to be set aside. Likewise, the fact that the arbitrator has any
dealing with one of the parties does afford a real likelihood of an operative prejudice on
his part, and the existence of such relationship with one of the parties, unknown to the
other, may induce the Court to set aside the award. If the arbitrator has an undisclosed or
concealed personal interest in either of the parties then that can be a ground for setting
aside the award, provided the fact of the arbitrator having such interest or bias is
established. But once misconduct is pleaded by a party, he has got to give particulars
thereof and merely a vague and bald statement cannot be a substitute for proof. The facts
which constitute the misconduct must be specifically stated. The burden of establishing
misconduct is on the party alleging it. Where partiality or wrong doing is alleged against
an arbitrator, it has got to be established beyond doubt, the presumption always being in
favour of the award. It is not the function of the Court, at least not of the Appellate Court,
to resort to a combing process as this would tantamount to impeachment of the Award by
the Court itself which function the Court need not arrogate to itself. Moreover, the Court
is not entitled to make a roving and sifting investigation of the record and proceedings
before the arbitrator and constitute itself a regular Court of Appeal from the Award. The
Courts are always extremely slow in finding faults with an Award. In the present case, the
mere suspicion or whims of a party could neither be a good reason nor constituted a valid
ground to ascribe lack of judicial detachment and impartiality to the two former Chief
Justices of two High Courts of the country. Doubtless, a party may not be required to
prove a cast-iron case in order to bring home the charge of misconduct, but the facts and
circumstances should be such as to convince the conscience of a reasonable person that
the fountain of justice has not remained unsullied and unpolluted. Also, there must be
reasonable evidence of a real likelihood of bias but certainly mere flimsy
ground-elusively generated and morbid suspicions cannot be permitted to form a ground
of attack. The apprehension must be judged from a healthy, reasonable and average point
of view, and only the apprehension of an average honest man can be taken note of. Vague
suspicions of whimsical, capricious and unreasonable people cannot be made the standard
to regulate the Court's vision.
Kh. Saeed-uz-Zafar assisted by Nasrullha Khan Babar for Appellant.
Dr. Sohail Akhtar for Respondent No. 1.
Sh. Murtaza Ali Respondent No.2 (in person).
Respondents Nos. 3, 4, 6 and 7: Ex parte.
Ghulam Murtaza Bhatti, for Respondent No.8.
Dates of hearing: 9th, 11th, 15th December, 2003; 12th to 15th; 19th to 22nd and 26th
January, 2004.
JUDGMENT
MUHAMMAD GHANI, J.---This appeal filed by Sh. Saleem Ali is directed against the
decision, dated the 15th of January, 1997 rendered by a learned Single Judge of this Court
whereby an application ,registered as C.O. No.2 of 1986 filed on the 20th of November,
1985 by Sh. Akhtar Ali, respondent No. l seeking direction as envisaged by subsection (2)
of section 14 of the Arbitration Act 1940 against Chief Justice (Retired) Khan
Bashiruddin Ahmad and Maulvi Mushtaq Hussain to file in Court an Award pronounced
by them on the 11th of November, 1985, for being made a rule of the Court, and another
application filed on the 7th of December, 1985 under sections 17 and 18 of the
Arbitration Act by Sh. Shuakat Ali, a former Judge of this Court, respondent No.5 (now
represented by his widow Chirista Ali and two daughters namely, Saima Ali and Asma
Ali) for making as rule of the Court the said Award, were rejected, whereas objections
filed on the 19th (the correct date is 20th) of January, 1986 to the validity of the said
Award, as well as an application, dated the 4th of May, 1986 filed by Sh. Murtaza Ali,
respondent No.2 under sections 33 and 35 of the Arbitration Act assailing legality of the
same on the ground of having been pronounced during the pendency of a suit for
administration, through partition, filed by him, were accepted, and as a consequence
thereof the entire proceedings conducted by the said two learned Arbitrators and the
resultant Awards were scrapped and declared to be void, allowing the suit by Sh. Murtaza
Ali to proceed in accordance with law, subject, of course, to the following inhibition:-
"Through order dated 13-1-1990 the compromise entered between Sh. Saleem Ali,
Sh. Akhtar Ali and Sh. Shaukat Ali in respect of their rights in the companies and
properties mentioned in paragraphs 25 and 26 of the award was accepted and it
was made clear that in case ultimately the proceedings are restored Sh. Saleem Ali
and Sh. Akhtar Ali who had taken over the interest of Sh. Shaukat Ali in the said
companies would step into the shoes of Sh. Shaukat Ali and in case Sh. Shaukat
Ali is found to be not entitled to or any of the rights taken by the others in the
proceedings they shall get the same subject to the said decision, therefore, for the
purpose of further proceedings in the suit Sh. Akhtar Ali and Sh. Saleem Ali may
defend the rights of Sh. Shaukat Ali to maintain with them whatever they got from
Sh. Shaukat Ali through the said compromise and if Sh. Shaukat Ali is found to be
not entitled to all or any of them they would not claim any right on the basis of the
said order against the others but may pursue further remedy against such
determination in accordance with law. There will be no order as to costs."
2. The parties to this litigation are offspring of one Sh. Ghulam Mustafa, who originally
hailed from Jalapur Jattan, a town of Gujrat District; had been an Honourary Magistrate
at Lahore; had business undertakings of manufacture of Oil Expellers and Oil Engines at
Brandreth Road, Lahore, Re-rolling of steel at Karachi, and, being in affluent
circumstances, enjoyed the luxury of having more wives than one, the first in point of
time being Mst. Ghulam Fatima who produced two sons named Muhammad Nawaz and
Muhammad Riaz, both of them having died since long have left behind even no troubles
of this transitory life; she was followed by Mst. Sardar Begum who gave birth to four
sons by the names of Sh. Akhtar Ali, (respondent No.l) Sh.Shaukat Ali (respondent No.5),
Sh. Saleem Ali (appellant) and Sh. Murtaza Ali (respondent No.2 herein), besides two
daughters Mst. Razia Begum and Mst. Ijaz Amanullah, whereas his last known wife was
Mst. Taj Begum, predecessor-in-interest of Sh. Mumtaz Ali and Mst. Mazhar Khanum,
respondents 6 and 8, respectively. The business undertakings, immovable properties and
liquid assets gave rise to disputes between his progeny. Stripped off unnecessary details,
the disputes between the parties having been referred to the two learned Arbitrators,
named above, the same were resolved by means of the afore-mentioned Award, date the
11th of November 1985, though as per Sh. Ghulam Murtaza, there was no valid
reference. Be that as it may on the 20th of November, 1985, Sh. Akhtar Ali filed an
application under section 14(2) of the Arbitration Act 1940, in the Court of the learned
Senior Civil Judge, Lahore, with the prayer that the two learned Arbitrators be asked to
file the Award dated the 11th of November, 1985 so that the same was made rule of the
Court. The learned Arbitrators filed the Award in Court through Syed Muzammil Ali
Akram, Advocate, on the 22nd of December, 1985. On the 7th of December, 1985, Sh.
Shaukat Ali filed an application under sections 17 and 18 with the prayer that in case the
Award was objected to, its parts vis-a-vis Sh. Akhtar Ali and Sh. Saleem Ali be made a
rule of Court and decree passed accordingly. Sh. Saleem Ali (appellant) filed on the 18th
of January, 1986, an application seeking modification of the Award in certain aspects,
whereas obiections were filed on the 13th of January, 1986 by Mst. Muzhar Khanum
(respondent No.8), on the 18th of January, 1986 by Mr. Javed Shafi and Mrs. Razia Shafi
(respondents ' and 4) and on the Murtaza Ali (respondent No.2) for setting aside the
Award. As mentioned above, the learned Single Judge, while rejecting the application of
Sh. Akhtar Ali, accepted Objections of Sh Murtaza Ali and passed the impugned order,
dated the 15th of January, 1997. Hence this Intra-Court Appeal by Sh. Saleem Ali.
3. We have heard the learned counsel for the parties and have perused the record.
4. At the outset, Sh. Murtaza Ali, respondent No.2 raised objection to the maintainability
of this Intra-Court Appeal by submitting that the same having been filed, as it is "under
section 3(1) of the Law Reforms Amendment Act 1972 (Act No.VIII of 1972)" is
incompetent. His precise argument is that an Intra-Court Appeal is competent only if a
decree is passed or a final order is made by a learned Single Judge of this Court in the
exercise of "original civil jurisdiction". According to him, the impugned order, dated the
15th of January, 1997 was passed under the provisions of the Arbitration Act, and an
appeal against an order setting aside an Award is competent under section 39(1)(vi) of the
Arbitration Act. It is not denied that the application under section 14(2) was originally
filed in the Court of the learned Senior Civil Judge, Lahore, but was transferred to the
original side of this Court. Proceedings commenced on an application under section 14(2)
are in the nature of civil proceedings, and by virtue of section 41 of the Arbitration Act,
the provisions of the Code of the Civil Procedure 1908 have been made applicable to not
only to the proceedings before the Court, but also to appeals under the said Act.
Therefore, upon transfer of the application under section 14 (2), as aforementioned, the
learned Single Judge of this Court while dealing with the matters, exercised "civil
original jurisdiction". Section 3 (1) of the Law Reforms Ordinance (No.XII) or the 1972,
as amended by Law Reforms (Amendment) Act (No. VIII) or, 1972 reads as follows:--
"3. Anneal to High Court in certain cases.--(1) An appeal shall lie to a Bench of
two or more Judges, of a High Court from a decree passed or final order made by
a Single Judge of that Court in the exercise of its original civil jurisdiction. "
Upon plain reading of afore-quoted section 3(1), we are clearly of the view that the
learned Single Judge passed the impugned order, dated the 15th of January, 1997 in the
exercise of his civil jurisdiction and, therefore, this Intra Court appeal, being otherwise
not barred by subsections (2) and (3) of section 3 ibid is competent. Even otherwise, vide
the impugned order, dated the 15th of January, 1997, the learned Single Judge had set
aside the Award, dated the 11th of November, 1985, and appeal is competent under
section 39 (1) (vi) of the Arbitration Act, 1940. It is settled law that a party cannot be
non-suited on the ground that the provision of law under which the proceedings have
been instituted has been inadvertently misquoted. The preliminary objection is, therefore,
not tenable and is overruled.
5. In view of the diverse nature of the pleas of the parties, the learned Single Judge had
framed the following Issues on the 19th of November 1986:--
(1) Whether the award under agreement dated 24th May, 1984, as filed is hit by the
provisions of section 35 of the Arbitration Act? OPR 1-3.
(2) Whether there is validly executed arbitration agreement between the parties? OP
applicant.
(3) Whether the arbitration agreement dated 24th May, 1984 is not a valid agreement?
OPR 1-3.
(4) What is the effect of the participation of respondent No.1 and others in the very
proceedings of arbitration? OPR 1-3.
(5) Whether the arbitrators have misconducted themselves during the proceeding and in
making the award? OPR 1-3.
(6) Whether the award has been given beyond the prescribed time? OPR 1-3.
(7) What is the status of respondent No.4 under the arbitration agreement dated 24th May,
1984? OPR-4.
(8) What is the impact of the award given by respondent No.4 on the next arbitration by
the Chief Justice (Rtd.) Khan Bashiruddin Ahmad and the Chief Justice (Rtd.) Maulvi
Mushtaq Hussain? OPR 1-3.
(9) Whether the proceedings held by the Chief Justice (Rtd.) Khan Bashiruddin Ahmad
and the Chief Justice (Rtd.) Maulvi Mushtaq Hussain, are de novo proceedings pursuant
to the agreement dated 24th May, 1984? OP Applicant.
(10) Whether the award as made suffers from patent illegalities which have the effect of
vitiating the award? OPR 1-3.
(11) Whether the documents tendered in evidence by respondent No. l have not been
brought on to the record and whether the same have been returned to respondent No.5
without exhibiting? OPR 1-3.
(12) Whether the arbitrators have acted beyond the reference? If so, what is its effect?
OPR 1-3.
(13) Whether the arbitrators have misdirected themselves as to the property in dispute,
the very subject-matter of the reference? OPR 1-3.
(14) Whether the award has been improperly procured? OPR 1-3.
(15) Whether the award as it is, is opposed to the natural justice?.
(16) Whether the arbitrators have acted in excess of their power under the reference, qua
250 shares belonging to respondent No.5 in Vulcan Arms Company Ltd. by giving the
same to the applicant? OPR 5.
(17) Whether the arbitrators are competent to award interest on the sum to be given to
respondent No.4? OPR 5.
(18) Whether there have been Arithmetical errors in the award in working out the
accounts? OPR 4.
(19) Whether the arbitrators have acted in excess of their power by transferring the shares
of respondent No. l in the Vulcan Arms Company Ltd. Ally Brothers and Capital Flour
Mill to the applicant and respondent No. 5? OPR 1.
(20) Whether the part of the award which is not being contested by the parties can be
made as, a Rule of the Court in case the parts of the award under contest are otherwise
decided as not valid? OPR 4-7.
(21) Relief.
The learned Judge has not dealt with each Issue separately. However, after recording
some evidence and hearing learned counsel for the parties, the Award was set aside vide
impugned decision, dated the 15th of January, 1997, and the reasons for the said decision
took the following form:--
(a) That "there was no concluded and valid arbitration agreement executed by and
binding on all the parties, interested in the disputes for referring the matter to Mr. Justice
(Retd.) Bashiruddin Ahmad and Mr. Justice (Retd.) Maulvi Mushtaq Hussain, as such, all
the arbitration proceedings initiated by the said two Arbitrators were nullity in the eye of
law and as a consequence thereof the Award delivered by them on the 11th of November,
1985 is also void ab initio and of no legal effect".
(b)That "no arbitration in the matter could take place after 16-1-1985 when Sh. Murtaza
Ali, respondent No.1 filed a suit for administration of partition of the properties in which
the application made by Sh. Saleem Ali under section 34 of the Arbitration Act, for stay
of proceedings had been rejected as under section 21 of the Arbitration Act, no reference
could be made for arbitration in respect of any matter which was subject-matter of a civil
suit except through Court in which the same was pending, therefore, the arbitration
proceedings after 16-1-1985 were also void".
(c) That the learned Arbitrators were guilty of "misconduct" inasmuch as before their
formal appointment as Arbitrators, they had been issuing directions to the Mediator
regarding four matters mentioned in the Note of Sh. Shaukat Ali, dated the 14th of May,
1984 to proceed in a particular manner and.
(d). "That Mr. Justice (Retd.) Mushtaq Hussain sold his property to Sh. Akhtar Ali one of
the contesting parties in the dispute" which; in the opinion of the learned Judge, recoiled
adversely on the impartiality of the said learned Arbitrator, and amounted to
"misconduct" as "none of the arbitrators could act in that manner as they were required to
decide the disputes between the parties impartially which should have been maintained
up to the date of delivery of the award".
6. So far as the first reason for setting aside the Award is concerned, the grounds which
can be spelt out from a rather lengthy discussion, spread over about 20 pages, may be
summarized as follows:-
(a) Though according to the parties, except Sh. Murtaza Ali who was respondent No. l
before the learned Single Judge, the arbitration agreement was allegedly executed on the
24th of May, 1984, but in paragraph 9 of the Award the learned Arbitrators had relied
upon arbitration agreement, dated the 25th of May, 1984.
(b) The agreement appended with the Award was not a formal agreement but merely a
Memorandum of the discussion held in a meeting attended by the learned Arbitrators,
besides the parties; that this document revealed that the parties had agreed that the
learned Arbitrators should give their award concerning 33 items of dispute tabulated
therein, and that in the event of disagreement between the learned Arbitrators, the matter
was to be referred to Chief Justice (Retd.) Anwarul Haq as Umpire; that the meeting
dispersed with the understanding that formal arbitration agreement would be signed on
the next day; that.
On the next day, viz. the 14th of May, 1984, instead of executing a formal arbitration
agreement, the parties assented to the arrangement that instead of referring all the
disputes straightaway to the two proposed Arbitrators, 33 items of dispute should first be
gone into by former Justice Shaukat Ali as a mediator, who even otherwise was a member
of the family anti a party to the dispute, and that if the parties did not accept his
mediation, then that matter only be referred to the decision of the Arbitrators.
(c) On the unstamped Memorandum, Sh. Saleem Ali and Sh. Akhtar Ali put their
signatures at the end of item No.4 on the 25th of May, 1984 whereas under the remaining
items Nos. 5 and 6, Sh.Shaukat Ali put his signatures as mediator/Arbitrator, and
signatures of Mr. Murtaza Ali, Sh. Mumtaz Ali and Mr. Javed Ali are also present; that
under the signatures of Sh. Javed Ali, the date indicated is "1-6-1984"; that at the end ' of
the document, there are signatures of Sh. Akhtar All but without any date; that on a bare
perusal of the document, it is apparent that so far as Sh. Akhtar Ali.and Sh. Saleem Ali
are concerned, they had agreed to the mediation/arbitration of Sh. Shaukat Ali only in
respect of the four items, below which they had put their signatures on the 25th of May,
1984 whereas Mr. Murtaza Ali. Sh. Mumtaz Ali and Sh. Javed Ali signed this document
on the 1st of June, 1984; that Mrs. Ejaz Amanullah, though shown as party through Mr.
Sohail Akhtar, but the document contained neither the signatures of Mrs. Ejaz Amanullah
nor of Mr. Sohail Akhtar, and since the document was admitted in the evidence on the
10th of May, 1985, it clearly meant that Sh. Saleem Ali and Mr. Javed Ali were made to
put their signatures on the same on the said date viz. the 10th of May, 1985.
(d) In the statements of Sh. Murtaza Ali, Sh. Saleem Ali and Sh.Akhtar Ali recorded by
the learned Arbitrators on the 25th of May, 1984, all the three had clarified that they had
agreed to the mediation of Sh. Shaukat Ali only in respect of items Nos. 1 to 4.
(e) The afore-mentioned statements, were wrongly taken by the learned Arbitrators to be
an arbitration agreement on the basis of which they initiated proceedings and delivered.
the impugned Award, dated the 11th of November, 1985.
(f) The agreement wherein 34 items of dispute between the parties were mentioned,
appeared to have been prepared pursuant to the meeting held on the 13th of the May,
1984 which decision was modified in the next day's (14th May, 1984) meeting to the
extent that the parties would first get the decision from Sh.Shaukat Ali as a Mediator, and
that as clarified in the statements of 25th of May, 1984, the mediation was restricted only
to first four items mentioned in the Memorandum.
(g) As per Sh. Shaukat Ali's Letter, dated the 6th of April, 1985 (C. Ws.3/5) an arbitration
agreement was drawn up and was signed by Sh. Saleem Ali, but -the agreement dated the
24th of May, 1984 did not bear signatures of Sh. Saleem Ali as well as of Mst. Razia
Shafi Beg and Mr. Ijaz Amanullah, the latter being out of country.
(h) Pursuant to the stamped agreement, dated the 26th of May, 1984, bearing signatures
of Sh. Saleem Ali, Sh. Akhtar Ali, Mr.Mumtaz Ali and Javed Ali, but not of Sh, Murtaza
Ali, Mst.Razia Shafi, Beg and Mrs. Ijaz Amanullah, Sh. Shaukat Ali proceeded in the
matter as a Mediator and delivered his decision/award, dated the 12th of June, 1984
which having been challenged by Sh. Saleem Ali and Sh. Akhtar Ali before the learned
Arbitrators, an order was passed on the 31st of January 1985 by Chief Justice (Reed.)
Khan Bashiruddin Ahmad adjourning the proceedings sine die on the ground that he had
become functus officio.
(j) In his letter, dated 28th of June, 1984 (C. W.4/2), Sh. Akhtar Ali had taken up a
specific stand that through agreement, dated the 26th of June, 1984, all previous
arrangements, and the agreement, dated the 24th of May, 1984 had been superseded, but
no such agreement, dated .26th of June, 1984 was in existence.
(k) The agreement, dated the 24th of May, 1984 lost its efficacy and was nullified by the
subsequent agreement, dated the 26th of May, 1984, which position was accepted by Sh.
Shaukat Ali in his letters, dated the 6th of-April, 1985 (C.Ws.3[5) and the 28th of June,
1984 (C.W.4/2).
(m) The agreement, dated the 26th of May, 1984 was not executed by Sh. Murtaza Ali "as
he did not put his signatures on it on the 25th of May, 1984" and that in his statement
(Annex ' B') he had clarified that he had only consented to the mediation of Sh.Shaukat
Ali and that too in regard to only items 1 to 4 and not about others; that if any of the
parties was dissatisfied with the decision of the said mediator about any of the four items
of dispute, the learned Arbitrators were to be approached through a formal
reference/agreement duly signed by all the parties, with regard thereto, and that the
jurisdiction of the learned Arbitrators could not extend to any other item.
(n) Even if there was some sort of arbitration agreement in respect of some of the matters,
i.e. four items, the same was not tantamount to bringing about a valid and concluded
arbitration agreement between all the parties about any dispute as all of them had not
signed, and those who signed the same were labouring under acute misconception and
confusion as to its true nature and scope.
7. In clause (a) of section 2 of the Arbitration Act 1940 "arbitration agreement" has been
defined to mean "a written agreement to submit present or future differences to
arbitration, whether an Arbitrator is named therein or not". While interpreting the said
definition of arbitration agreement, it was held in Abdul Aziz Cotton Ginning Factory v.
Ali Muhammad Abdullah & Co. (PLD 1966 (W.P.) Karachi 197) that “any writing or
writings attributable to the parties which unmistakably prove their intention to refer their
disputes to arbitration are satisfactory in terms of the provisions of law". It was further
held that even the signatures of the parties on such writings are not necessary. Again in
Province of Punjab and another v. Messrs Industrial Machine Pool, Lahore (PLD 1978
Lahore 829) it was observed as follows:--
"Though the Act requires the agreement to be in writing, it does not require that it
should be contained in a formal document. It may be in any form attributable to
the parties in accordance with law. It may be by correspondence between the
parties or by a statement made by their counsel and recorded by the Court
"
In Shamim Akhtar v. Najma Baqai (PLD 1977 SC 644), there was no bilateral instrument
executed inter se the parties for appointment of Arbitrators named by the parties and
reference of the dispute to their arbitration. There was, however, exchange of
correspondence between the parties. Their lordships of the Supreme Court held that the
"letters unilaterally written by the respective parties addressed to the Martial Law
Authorities read together constituted a valid "arbitration agreement" within the meanings
of section 2(a) of the Arbitration Act, 1940 for the purpose of the reference of the dispute
to the arbitration of the two arbitrators appointed by them." In Muhammad Hussain v.
Ghualm Rasool (1983 SCMR 231), by agreement of the counsel of the parties expressed
in the order of the Court an Arbitrator was appointed to decide the controversial question
of title and possession. The contention that there being no valid agreement between the
parties was repelled by their lordships of the Supreme Court by observing as follows:--
"We find that the counsel representing the parties had agreed to the reference of
the dispute to arbitration. Their statement was recorded by the Court and given
effect to. It has not been shown that the learned counsel representing the parties
particularly the petitioners were in any way incompetent in the matter of making
such a statement or referring the matter to arbitration. The requirements of law
were substantially satisfied."
The same question arose in Messrs Tribal Friends Co. v. Province of Balochistan (2002
SCMR 1903), where none of the parties had filed the contract before the trial Court and
only a photostatic copy was filed by the respondent in the High Court with its revision
application, which too did not contain all the pages. Further in reply to the appellant's
application, the respondent- admitted that the contract contained arbitration clause but no
Arbitrator was named therein. On yet another application made by the applicant for
submission of dispute, the concerned Minister had nominated the, sole Arbitrator to
decide all disputes between the parties. On the basis of the afore-mentioned documents,
their Lordships of the Supreme Court held that an arbitration agreement could be spelt
out from the said documents. By referring to the decisions hereinbefore mentioned, it was
authoritatively laid down as follows:--
" …..An Arbitration Agreement should be in writing and need not to be signed by
both the parties. If the intention to refer the dispute to the Arbitration is manifest
from the documents it amounts to an Arbitration Agreement ...."
" .. The parties had thus agreed to refer the dispute to the Arbitrator whose
authority was never challenged and the respondents participated in the proceeding
without any objection. The respondent, therefore, cannot challenge the validity or
existence of the Arbitration Agreement ….."
From above, it is thus clear that the Arbitration Agreement need not necessarily be
incorporated in a formal document, it can be by incorporating a clause in a contract. An
arbitration agreement may be spelt out from correspondence or letters exchanged
between the parties or on the basis of their statements, or even those of their counsel.
Such an agreement need not be signed by the parties.
8. It is now to be seen whether in the instant case there was an arbitration agreement
within the parameters laid down in the aforementioned authorities. Needless to mention
that except Sh. Murtaza Ali, respondent No.2, none of the other parties had challenged
the authority of the learned Arbitrators to arbitrate. In paragraph 1 of the Note, dated the
14th of May, 1984 prepared by Sh. Shaukat Ali, Mediator/Arbitrator, which indisputably
bears the signatures of Sh. Murtaza Ali it vas mentioned as follows:--
"A meeting was held on the 13th of May, 1984, at 14-White House Lane, it 6 p.m.
which was attended by (Retd.) Chief Justice Bashiruddin Ahmed, Retired Chief
Justice Mushtaq Hussain, and Sheikh Akhtar Ali, Sheikh Saleem Ali, Sheikh
Shaukat Ali, Sheikh Mumtaz Ali, Sheikh Murtaza Ali and Sheikh Sohail Akhtar
on behalf of Ejaz Amanullah. In that meeting the disputes between the parties
were tabulated which are 33 in number. On that day, it was agreed between the
parties that the two Arbitrators, namely Mr. Justice (Retd.) Bashiruddin Ahmed
and Mr. Justice (Retd.) Mushtaq Hussain, will go into the disputes and will give
their award. In case of disagreement between the two Arbitrators, it was agreed
that the matter would be referred to Sheikh Anwarul Haq, Retired Chief Justice of
the Supreme Court of Pakistan as Umpire. With that understanding, the meeting
dispersed and the agreement for arbitration was to be signed on the next day."
From the afore-quoted portion of the Note duly signed by Sh. Murtaza Ali, it is
indubitably clear that in the meeting held on the 13th of May, 1984, it was at least
verbally agreed between the parties to refer their thirty-three disputes to the arbitration of
Chief Justice (Retd.) Khan Bashirddin Ahmad and Chief Justice (Retd.) Maulvi Mushtaq
Hussain and in the event of disagreement amongst them, Chief Justice (Retd.) S.Anwarul
Haq was to be the Umpire. Formal arbitration agreement was to be signed on the next
following day, but when the parties, except Sh.Saleem Ali, again got together on the 14th
of May, 1984, they decided that instead of directly referring the disputes to the said
nominated learned Arbitrators, the matters in dispute should first be gone into as a
Mediator by Sh. Shaukat Ali, a former Judge of this Court, and a real brother of Sh.
Murtaza Ali, and in case the pa, ties did not accept his mediation, only then the matter be
referred to the decision of the learned Arbitrators. It is also mentioned in the said Note
that with the advice of the learned Arbitrators, the Mediator had taken up all the disputes
for resolving the same amongst the parties. The "decisions" taken by the learned
arbitrators on the 14th of May, 1984 and to be implemented by the Mediator were also
reflected in the said Note. Once again, in the statement of Sh. Murtaza Ali which had
been recorded by Sh. Shaukat Ali on the 25th of May, 1984, bearing the, signatures of Sh.
Murtaza Ali it is inter alia stated that the Note, dated the 14th of May, 1984 had been
prepared by Sh. Shaukat Ali with the consultation of the above-named two learned
Arbitrators; that the deponent (Sh. Murtaza Ali) was prepared to surrender himself to
items 1 to 4 (should be (i) to (iv)] which should be gone into by Sh. Shaukat Ali as
Mediator/Arbitrator, and he also undertook not to challenge his decision in any Court of
law, except before the two learned Arbitrators whose decision/award, if unanimous, was
to operate as final, but in the event of the two Arbitrators being at variance, the final
decision was to be that of Chief Justice (Retd.) S.Anwarul Haq, in his capacity as
Umpire. Then, the Agreement bearing the date as "24th day of May, 1984" appointing Sh.
Shaukat Ali as "Arbitrator" also bears signatures of Sh. Murtaza Ali. In the said
Agreement, it was again reiterated by the parties that whereas the decision to be rendered
by Sh. Shaukat Ali was to be final, in case any of the patties to the dispute had any
grievance to make against his award, "the matter shall be referred to Chief Justice (Retd.)
Bashiruddin Ahmed and Chief Justice (Recd.) Maulvi Mushtaq Hussain for their final
decision and award and their decision shall prevail and it shall not be challenged in any
Court of law or through any procedure whatsoever".
9. There is yet another Agreement, dated the 26th of May 1984, wherein while reiterating
the appointment of Sh. Shaukat Ali as "Arbitrator" it was mentioned that in case any of
the parties to the dispute had any grievance to make against his award, the matter shall be
referred to the Chief Justice (Retd.) Khan Bashiruddin Ahmad and Chief Justice (Retd.)
Maulvi Mushtaq Hussain and in case they failed to arrive at a unanimous decision, the
matter shall be referred for final judgment and decision by Chief Justice (Retd.) S.
Anwarul Haq. It was further mentioned that the Arbitration Agreement shall extend to all
the properties, i.e. business, houses, Industrial concerns, cash and Bank accounts owned
in the name of six business undertakings mentioned therein. The arbitrator was conferred
all-pervading power, i.e., to determine the matters right from formation of the Companies
onwards. The said Agreement bears signatures of Sh. Saleem Ali, Sh. Akhtar Ali, Sh.
Shaukat Ali, Sh. Mumtaz Ali and Mr. Javed Ali. It, however, does not bear signatures of
Sh. Murtaza Ali, Mrs. Ijaz Amanullah and Mrs.Razia Shafi. It is common ground between
the parties that Sh. Shaukat Ali, after recording some evidence of the parties, gave his
decision on the 12th of June, 1984 which was not accepted by the parties. Consequently,
the matter was taken up by the learned Arbitrators who entered upon the reference with
effect from the 15th of April, 1985 and notices were issued to the parties for the 22nd of
May, 1985, as is apparent from the proceedings of arbitration. When the matter next came
up before one of the learned Arbitrators (Chief Justice (Retd.) Bashiruddin Ahmad, the
other learned Arbitrator was not able to participate in the proceedings on that day) on the
2nd of May, 1985. Sh. Murtaza Ali entered appearance and presented a copy of the plaint
in his suit for administration, through partition of the properties filed by him in the Civil
Court at Lahore, which was ordered to be placed on the record. In the proceedings of the
2nd of May, 1985, it was further recorded inter alia as follows:
"He (Sh. Murtaza Ali) has urged that a fresh award may be made in respect of
each item of dispute separately. He has been asked to clarify his position and
place his view-point in writing within this week. He has agreed to do so."
On the next date of hearing. viz. 10th of May, 1985, Sh. Murtaza Ali again appeared
before the learned Arbitrators. It is in the proceedings of the said date, that the learned
Arbitrators observed in the following terms:--
"This arbitration is being proceeded with in pursuance of the arbitration
agreement dated 24th May, 1984 which has been marked as Exh. "A" and initialed
by. one of the arbitrators today." .
As mentioned earlier, in the Arbitration Agreement, dated the 24th of May, 1984 while
appointing Sh. Shaukat Ali as Arbitrator, the parties, including Sh. Murtaza Ali, had
unequivocally agreed that if any of the parties to the dispute had any grievance to make
against the award of Sh.Shaukat Ali, "the matter shall be referred to Chief Justice (Retd.)
Bashiruddin Ahmad and Chief Justice (Retd.) Mushtaq Hussain for their final decision
and award …..". It was in this context, that the learned Arbitrators observed that the
source of their authority emanated from the Arbitration Agreement, dated the 24th of
May, 1984. Needless to mention, at this stage, that the objection of Sh. Murtaza Ali
before the learned Arbitrators on the 10th of May, 1985 was not that they had not been
nominated as Arbitrators. His stance, as recorded in the proceedings of that date, took the
following form:--
"Mr. Murtaza Ali has submitted a letter addressed to one of us. He has asked for
the execution of separate arbitration agreements for each item of dispute. This is a
proposition which does not have the support of any law in force in this country. In
any case, an arbitration agreement signed by Mr. Murtaza Ali as well is already on
the record, and, as indicated above, this arbitration agreement. This
letter/application be kept on the record to be dealt with in the end. The
submissions made in the various other paragraphs will be taken into consideration
at the appropriate time."
Sh. Murtaza Ali then filed his Statement of Claim on the 17th of May, 1985 and an
Additional Statement of Claim on the 24th of May, 1985. Thereafter, he is shown to have
participated in the proceedings of 31st of May, 1985 when Rejoinders to the Claims were
filed and Issues were framed. Sh. Murtaza Ali had also consented in writing, to the
Award, dated the 17th of June, 1985 made by the learned Arbitrators in respect of some
of the matters to which the parties volunteered to give their consent. Sh. Murtaza Ali filed
on the same day an application for admission and denial of documents by the other
parties. He was the first person to be examined on oath and whereas his deposition
commenced on the 7th of June, 1985, it was completed on the 19th of June, 1985. His
statement is spread over more than sixty pages a also produced evidence in support of his
claim. Not only that, joint applications, duly singed by the parties, including Sh Murtaza
Ali, for extension of time had been filed from time to time, Record further reveals that
Sh.Murtaza Ali had been represented by Mr. Saeed Ansari, Advocate, and he had
advanced arguments on numerous dates commencing from 18th of August, 1985, and
continuously remained in attendance till the 10th of September, 1985 when the arguments
of all the parties concluded. In paragraph 2 (a) of C.M. No.140-C of 1987 filed, during
pendency of proceedings in this Court, to be exact on the- 13th of January, 1987, by Sh.
Murtaza Ali himself, it was inter alia averred as follows:--
"Vide Memorandum dated 24-5-1984, Mr. Justice (Retd.) Bashiruddin Ahmad and
Mr. Justice (Retd.) Mushtaq Hussain were appointed arbitrators to give their
Award on 33 tabulated disputes. In case of disagreement between the arbitrators,
(Recd.) Chief Justice Mr. Justice S. Anwarul-Haq was to act as Umpire. The said
arbitrators also took certain decisions to be implemented by the so-called
mediator Sh. Shaukat Ali."
Reference has already been made to the Note dated the 14th of May, 1984, and the
Arbitration Agreement, dated the 24th of May, 1984 both bearing signatures of Sh.
Murtaza Ali as well as his own statement, dated the 25th of March, 1984. We are,
therefore, clearly of the view that the parties had agreed to refer their disputes to the said
two Arbitrators and for the foregoing reasons, we further hold that Sh.Murtaza Ali
respondent No.2 being a party to the Arbitration Agreement, dated 24th of May, 1984,
and in view of his subsequent conduct as portrayed above could not be allowed to have
turned round with volte-face, when the Award went against him, to say that there was no
valid agreement and that the Arbitrators lacked jurisdiction to arbitrate.
9-A. There is yet another aspect of the matter. The record conspicuously omits any
objection having been raised by or on behalf of Sh. Murtaza Ali, at any time before the
learned Arbitrators, to the effect that there was no formal written arbitration agreement
and. therefore, the proceedings being conducted by them were coram non judice. All the
parties had participated in the proceedings throughout and had filed their Statements of
Claims as well as Rejoinders to each other's Claims. The parties were also represented by
their learned counsel before the Arbitrators. They have been filing joint applications
before the learned Arbitrators. The proceedings had not revealed that anyone of them had
ever objected to arbitration conducted by the learned two Arbitrators. Doubtless, the
learned Single Judge has held that "mere participation in the proceedings which were
void ab initio for want of valid, concluded and binding arbitration agreement and
reference based on that" could not be "equated with such an agreement" but we have
already held that there was an arbitration agreement between the parties. It is also clear
from the Agreement, dated the 24th of May, 1984 that it pertained to as many as 34
disputed items and was not restricted only to four items, as mentioned in the impugned
order. Sh. Murtaza Ali is a law knowing person. He did submit to the jurisdiction of the
Arbitrators and allowed them to deal with the matter, taking a chance of the decision
being favourable to him. He had acquiesced in the arbitrators proceeding with the
arbitration. Having never raised any protest, he waived his right. It is settled law that a
party cannot be permitted to lie by and participate in the arbitration proceedings, and if
the final determination/award goes against him, he should attack the very authority of the
Arbitrators to arbitrate. The story of alleged oral protest cannot be given effect to in the
absence of anything on record to show that any such protest was made.
In the old case of Matson v. Trower (1824) Ry & Mood 17:171 ER 927) the award was
by an umpire appointed by the arbitrators who had no authority to appoint an umpire. The
award was challenged by one of the parties on the ground that it was made without
jurisdiction. The contention was overruled by, inter alia, observing as follows:--
"The parties have recognized the authority of the umpire by submitting to be
examined by him, as the matters in dispute."
Their lordships thought that having submitted to the jurisdiction of the umpire, none of
the parties could have the right to question the award made by him, although the
appointment of the umpire might have been without jurisdiction. That was a case of an
absolute want of authority in the umpire who had made the award. The principle was very
lucidly expressed by the House of Lords in the case of Cairncross v. Lorimer [(1860) 3
Macq. 827:7 Jur NS 149] as will be seen from the following observations:--
"The doctrine will apply which is to be found, I believe, in the law of all civilized
nations, that if a .man either by word or by conduct, as intimated that he consents
to an act which has been done, and that he will offer no opposition to it, although
it could not have been lawfully done without his consent, and he thereby induces
to other to do that from which they otherwise might have abstained, he cannot
question the legality of the act he had so sanctioned, to the prejudice of those who
have so given faith to his words, or to the fair inference to be drawn from his
conduct."
"I am of opinion that, generally speaking, if a party has an interest to prevent an
act being done and acquiesces in it, so as to induce a reasonable belief 'that he
consents to it and the position of others is altered by their giving credit to his
sincerity, he has no more right to challenge the act to their prejudice than he .
would have had if it had been done by his previous licence."
In Chowdhri Murtaza Hossein v. Mussammat Bibi Bechunnissa [(1876) 3 Ind App 209]
their lordships of the Privy Council are reported at page 220 to have observed that the
petitioner "having a clear knowledge of the circumstances on which he might have
founded an objection to the arbitrators proceeding to make their award, did submit to the
arbitration going on; that he allowed the arbitrators to deal with the case as it stood before
them, taking his chance of the decision being more or less favourable to himself and that
it is too late for him, after the award has been made, and on the application to file the
award, to insist on this objection to the filing of the award" here, from being made a rule
of the Court. Similarly, in Donald Campbell & Co. Jeshraj Girdhari Lal (AIR 1920 PC ,
123) it was held that if a person, knowingly that there was defect in the appointment of an
arbitrator, submits to his jurisdiction, he is deemed to have waived the objection. In
Abdul Shakur v. Muhammad Yousaf (AIR 1921 Allahabad 64) the principle of
acquiescence was applied to arbitration proceedings. Okland Metal Co. Ltd. v. D. Benian
& Co. Ltd. [(1953) 2 Q.B. 261] was a case where the arbitration agreement provided for
two arbitrators possessed of certain qualifications, one to be nominated by each party, and
one of the parties nominated a person who did not possess the requisite qualifications.
When the award went against him, he contended that the arbitrator nominated by him was
not competent to act as an arbitrator at all, but the contention was repelled on the ground
that whether or not his own nominee possessed the requisite qualifications was a matter
known to him and not known to his opponent and, therefore, by nominating the person
concerned, he had made a representation to his opponent that his nominee did possess the
qualifications required. Having made that representation and having induced his
opponent to act on its faith, he was estopped from contending, after the award had gone
against him, that in fact his nominee did not possess the requisite qualifications. In State
of Orissa v M/s Consolidated Construction Company (AIR 1981 Orissa 166) where both
the parties participated in deliberations; they jointly applied for extension of time; and no
objection at all was raised about want of jurisdiction of the arbitrator, the objection
regarding jurisdiction of the arbitrators to arbitrate was not entertained. In Muhammad
Rafique v. Qamar Ali (2003 MLD 52) a Division Bench of this Court has held that "a
party who submitted to the jurisdiction of an Authority has no right to wriggle out from
this position that the authority/Court has no jurisdiction to take the- cognizance on the
well-known principle of estoppel and waiver." A representation, in order to attract the rule
of estoppel, need not always be a representation of a physical fact, but may as well be the
representation of an attitude or a state of mind. As has been pithily observed, the state of
a man's mind is as much a matter of fact as the state of his digestion. The general
principle that where a Court inherently lacks jurisdiction, mere consent of parties cannot
confer the jurisdiction, has no application to arbitration proceedings where the arbitrator
is a person appointed by agreement between the parties. The principle of estoppel and
acquiescence will be aptly attracted where a party having consented to arbitration by a
person and participated in the proceedings before him subsequently attempted to
challenge the jurisdiction of the arbitrator. The principle is based on the oft-quoted
expression that where a man has been silent when in conscience he ought to have spoken,
he shall be debarred from speaking when conscience requires him to be silent. We are,
therefore, clearly of the view that since Sh. Murtaza Ali, having full knowledge of the
facts, stood by and took his chance of an award in his favour and when it has gone
against him, cannot be permitted, in law, to have it set aside on an objection which he
never took before the learned Arbitrators. The position would have been different if he
had participated in the proceedings under protest which is not the case here.
12. The second ground on the basis of which the learned Single Judge has struck down
the Award is that Sh. Murtaza Ali, respondent No. 2 had filed, on the 16th of January,
1985, a suit for administration of properties, through partition, before the Civil Court at
Lahore; that Sh.Saleem Ali and Sh. Shaukat Ali had filed application under section 34 of
the Arbitration Act for stay of the proceedings on the ground that the matter had been
referred to the said two Arbitrators; that the application filed by Sh. Shaukat Ali was not
pressed by his legal representatives and the same was dismissed as withdrawn, and that
the application filed by Sh. Saleem Ali was rejected by the learned trial Judge vide order,
dated the 14th of October, 1992. The finding was obviously based on section 35 of the
Arbitration Act, 1940, which reads as follows:--
"35. Effect of legal proceedings on arbitration.--(1) No reference nor award, shall
be rendered invalid by reason only of the commencement of legal proceedings
upon the subject-matter of the reference, but when legal proceedings upon the
whole of the subject-matter of the reference have been commenced between all
the parties to the reference and a notice thereof has been given to the arbitrators or
umpire, all further proceedings in a pending reference shall, unless a stay of
proceedings is granted under section 34, be invalid.
(2) In this section the expression "parties to the reference" includes any persons
claiming under any of the parties and litigating under the same title."
The prerequisites for application of section 35 of the Arbitration Act are (1) that the
whole of the subject-matter of the reference should also be subject-matter of the suit; (2)
that the parties should be the same and (3) that a notice of the filing of the suit has been
given to the Arbitrator. If all these prerequisites are fulfilled, further proceedings in a
pending reference would be rendered invalid. So far as the instant case is concerned, the
subject-matter of the civil suit did not cover all the items of dispute referred to arbitration
of the two learned Arbitrators and clearly reflected in the Arbitration Agreement dated the
24th of May. 1984, as will be seen from the following statements filed by Dr. Sohail
Akthar, Advocate who represents respondent No. l -and legal heirs of respondent No.5:---
Sr.No. Arbitration Agreement (24-5-84) Civil Suit
1 (1) Vulcan Co. Ltd. Vulcan Co. converted into Vulcan Co. Ltd.
in 1957.
2 (2) Vulcan Arms Ltd . -----------------------
3 (3) Ally Bros. Ltd. (k.i) Ally Brother & Co (Pak.) Ltd., 63., The
Mall, Lahore.
4 (4) Saleem Ali.& Co. (k).iv). Sheikh Saleem Ali & Co. Ltd.
5 (5) Piccadilly Cinema Ltd. (Ai). Piccadilly Cinema Ltd.-- Sanction.
6 Capital Flour Mills Ltd. (k-v). Capital Flour Mills Ltd.
7 1. Ancestral property left by the---------------------------
parents, namely Sh. Ghulam Mustafa
and Mst. Sardar Begum should be
distributed amongst the legal heirs.
The property shall include all
property movable and immovable,
jewellery and the cash.
8 2. property situated at 75-Brandreth---------------------------
Road, Lahore measuring' about 8
Mls. comprised of three storeyed
building including shops.
9 3. Property situated in 'Faiz Bagh,(b). House No.7-E-IV, Issa Street, Main
Sardar Street, comprising three shops Bazar, Faiz Bagh, Lahore:
and a two storeyed building.
10 4. Agricultural and urban land
measuring about 22 or 22 Kanals near
Gau Shale on G.T. Road, Lahore.
11 5. House situated in Tezab Ihata, (c). House located in Muhammadi Kucha,
Lahore, measuring about 2-1/2 Tezab Ihata, Lahore.
Marlas
12 6. Land measuring about 25 Kanals (c). House in Jalalpur Jattan including a
including orchard and five house Garden.
situated in Rounti Mohalla, Jalaldur
Jattan, District Gujrat.
13 7. Evacuee property which was in(Di) House of Brandreth Road, Lahore in
possession of the family at the time of the name of defendant No.2.
partition i.e. house at 64 Brandreth
Road, Lahore, which wars allotted
and transferred on the name of Mr.
Shaukat Ali
14 8. Plot of land at Brandreth Road, (Ci) Garage on back of Brandreth Road,
Lahore, comprising one marla Lahore in name of Defendant No. 1.
(garage) transferred to Mr. Akhtar Ali.
15 9. Plot of land (workshop) -----------------------------
measuring 1-1/2 Marlas on Brandreth
Road, Lahore transferred to Sheikh
Akhter Ali.
16 10. Vulcan Co. Ltd. and its formation.(j) Vulcan Co. converted inito Vulcan Co.
The name Vulcan Co. was given by Ltd: in 1957.
the deceased father who also left a
Factory alongwith this Company.
Firstly, it was a Eira thereafter it was
converted into a private limited Co.
and its shares were allotted to various
shareholders, namely, Sh. Akhtar Ali,
Sh. Shaukat Ali, Sh. Murtaza Ali and
Sh. Mumtaz Ali. The accounts are to
be gone into from its inception till the
date of the award and the profits and
liabilities accrued from this Co. are to
be distributed amongst its
shareholders. The question of transfer
of ,shares, benami or otherwise, is
also to be gone into.
17 11. Formation of Messrs Ally(k-i) Ally Brother & Co. (Pak.) Ltd. 63 The
Brothers, allocation of its shares to Mall, Lahore with balance in Karachi,
different shareholders, determination and Rawalpindi.
of the persons who are benamidars
and otherwise and the accounts
profits and liabilities to be gone into
from the, date of its inception till the
date of the award.
18 12. Formation of Messrs Capital (k-v) Capital Flour Mills Ltd.
Flour Mills, allocation of its shares,
determinations of shares of
shareholders, who are benamidars or
genuine shareholders, the accounts
assets and liabilities or this Co. to be
gone into from the date of its
inception till the date of its
functioning and the claim which the
Capital Flour Mills secured from the
Insurance Co. and the litigation which
is going on between the Insurance Co.
and the Flour Mills alongwith its
liabilities.
19 13. Formation of Sh. Saleem Ali & (z). Shop at SE 9 R 82 Brandreth Road, sold
Co. determination of its shares, who by Sheikh Salim for Rs.10,00,000.
are genuine or benamidar
shareholders, accounts and liabilities
of this Co. to be gone into.
20 14. Formation of Vulcan Pakistan Co.-----------------------
Ltd. Rawalpindi which was
subsequently liquidated privately and
converted into M/s. Ally Bros. Ltd. its
assets liabilities, if any.
21 15. Formation of Vulcan Ice Factory(k.ii) Vulcan Ice Factory.
which was liquidated. Its accounts to
be gone into.
22 16. Formation of Metropole Cinema(k.iiii) Metropole Cinema.
Ltd. at Abbott Road, Lahore.
23 17. Piccadilly Cinema Ltd., which I (Ai). Piccadilly Cinema Ltd. Sanction.
was formed but implemented. It
had a sanction for a cinema at 88
Ferozepur Road, Lahore.
24 18. Formation of Vulcan Arms Co.,- -- -- -- -- -- -- -
mode of its transfer, how and under
what circumstances it was transferred
to Sh. Murtaza Ali, determination of
its shares and its accounts, profits and
liabilities.
25. 19. Urban land measuring 8 or 9(1) 88-Ferozepur Road. Lahore, site for
Kanals at Ferozepur Road, Lahore. Piccadilly Cinema. 9 Kanals.
26 20. Plots situated in Model Town,(p) Plots situated in Model Town, Lahore in
Lahore. the name of son and daughter of
defendant No. 1.
27. 21. Agricultural land measuring four(q) Agricultural land measuring four
squares and commercial land at G.T. squares and commercial land at 35
Road, Lahore. Two buildings on that Km G.T. Road, near Lahore.
site or Vulcan Ice Factory and Vulcan
Co. Ltd., exist on it apart from the
building of Capital Flour Mills,
situated at a distance of 21 miles from
Lahore, on the G.T. Road.
28. 22. House at 13 and 14 Sunder Dass(s). 13-14, White House Lane, Sunder Dass
Road, White House Lane Lahore. Road, Lahore.
29. 23. House at 49-T, Gulberg-II,(t) House at 49-T, Gulberg-II, Lahore.
Lahore.
30. 24. Bungalow at 101, The Mall,(u). Bungalow at 101, The Mall, Lahore.
Lahore.
31. 25. One and a half square of landv). Agricultural land at village Sundar on
(agricultural) at village Sundar on Multan Road, Lahore.
Multan Road, Lahore.
32. 26. Four. squares of land at village - -- -- -- -- -- -- --
Maujoki on the name of Mst. Mah
Jabeen, wife of Sheikh Mumtaz Ali.
33. 27. 22 Acres of land on the name of (w) 22 Acres of land at village Maujoki on
Mst. Mussarrat Afza, wife of Sh. the name of Mst. Mussarat Afza, wife
Akhtar Ali. of defendant No. 1.
34. 28. The premises of Ally Brothers(x) premises of Ally Brothers Ltd. Karachi.
Ltd., at Karachi.
35. 29. House at 5 Stanntore Road,-------------------
Birmingham, England.
36. 30. House situated at 33-L,
Gulberg-III, Lahore.
37. 31. Plot of land in the name of Sh.(y). Plot of land at Karachi on Drig Road.
Saleem Ali, at Karachi, Drig Road.
38. 32. Shop at Brandreth Road, sold for--------------------
Rs.7,00,000 by Mr. Saleem Ali
39. 33. Maintenance allowance provided-----------------------
to Mr. Murtaza Ali in London from
1960 to 1980 and the purchase of
some car by him out of the funds
provided by Vulcan Co. and Ally
Brothers.
40. Car lying at Custom House imported(a). Katti to Muhammad agar comprising of
by Mr. Murtaza Ali. six houses sold by defendants for Rs.35,000.
(d). Agricultural land measuring 52 Kanals
in Jia Musa, District Lahore.
(e) Katri and Plots of land in Ambala.
(g) Vulcan Machine Co. stocks sold
after--plaintiff's father:--
(i)
(ii) Messrs Navaindass Rama and Dass and
Company, The Mall, Lahore.
(iii) Messrs Mills Stores Co., Brandreth
Road, Lahore.
(h) Cash Balance with mother Rs.1,00,000
(i) Income from Agricultural land in Lahore
and Gujrat.
Income received up to 1956 Rs.90,000.
(k) Thereafter other companies were created
out of the funds from Vulcan, namely:
(iv) Shiekh Salim Ali and Co. Ltd.
(m). Land at Jail Road.
(n). Shares in the name of defendant No.3 in
Vulcan Co. Ltd.
(o). Share in the mane of defendant
No.3 in-Ally Brothers and Co. (Pak.) Ltd.
(r) Three Buildings at 35 km G.T. Road,
Lahore.
(Bi) Plot of land and workshop, Karachi I
machinery Store, Standing on SE9R-84,
Brandreth Road, Lahore in the name of I'
defendant No. 1.
(Ei) Large quantity of gold, jewellery and
cash in possession of Defendant No.1 and
defendant No.2, No.3, No.7, No. 8, No.9,
No.10, No.11, No 12 No. 13, No. 14, No.
15, No. 16 and No.17
(Fi) About 2 crore of rupees transferred in
account No. BICC Bank, London-
(Gi) And other hidden movable properties in
the name of defendant No. 1 to No. 17.

In reply to the above statement, Sh. Murtaza Ali had entered caveat by filing a reply
Wherein it is hater alia mentioned as follows:--
"There are certain items in the arbitration agreement which are not included in the
Civil Suit i.e.:--
(1) Car lying in Customs House (Item 34 of arbitration agreement).
(2) Maintenance allowance provided to Sheikh Murtaza Ali in London from 1960 to
1980.
(3) House situated at 33 Gulberg, Lahore (Item No.30).
(4) House at Stanmore Road, Birmingham (Item No.29).
(5) Four Squares of Land in Village Maujoki in the name of Mst.Mah Jabeen (Item
No.26).
(6) Vulcan Arms Ltd.
(7) Sheikh Saleem Ali & Co.,
(8) 75-Brandreth Road, Lahore (ancestral property)
It would thus be evident that the parties to the arbitration agreement and the civil suit are
distinct and different, and so is the property."
The averment of Sh. Murtaza Ali that the expression "when legal proceedings upon the
whole of the subject-matter of the reference have been commenced" means that whole of
the subject-matter should be "identical" cannot be accepted on plain reading of section 35
of the Act. In the ordinary dictionary, the word "whole" means entire, complete, not less
than, a thing complete in itself. Therefore, we are of the opinion that in order to attract the
provisions of section 35, it is necessary that the subject-matter of the suit should be
exactly the same as is the dispute before the Arbitrator. Having examined the Arbitration
Agreement, dated 24th of lay, 1984 and the suit for administration of properties, through
partition, in juxtaposition, we are of the view that the civil suit filed by Sh. Murtaza Ali
did not include the whole of the subject-matter of the reference and, therefore, the
provisions of section 35 were not attracted. Whereas, Sh. Murtaza Ali had indisputably
produced on the 2nd of May, 1985, a copy of the plaint of his suit before one of the
Arbitrators, namely, Chief Justice (Retd.) Khan Bashiruddin Ahmed, the record
conspicuously omits that he had taken any steps in the said civil suit to have the
Arbitrators served with a notice of filing thereof. It is also not the case of respondent
No.2 that the applications filed by Sh.Shaukat Ali and Sh. Saleem Ali were dismissed at
any time prior to the pronouncement of the Award. On the other hand, it is mentioned in
the impugned order itself that the application filed by Sh. Shaukat Ali was not pressed by
his legal representatives and was dismissed as withdrawn, meaning thereby that at the
time when the Award was given the application was still pending, 'because Sh. Shaukat
Ali was still alive when the award was pronounced. Similarly, the application filed by
Sh.Saleem Ali was rejected only on the 14th of October, 1992. In this view of the matter,
the impugned order of the learned Single Judge to the effect that no arbitration, in the
matter could take place after the 16th .of January, 1985 when Sh. Murtaza Ali filed suit
for administration of properties, through partition, in which the application made by
Sh.Saleem Ali under section 34 of the Arbitration Act for stay of proceedings had been
rejected as, according to him, under section 21 of the Arbitration Act, no reference could
be made for arbitration in respect of any matter which was subject-matter of civil suit
except through the Court in which the same .was pending and that, therefore, the
arbitration proceedings after the 16th of January, 1985 were void, cannot be sustained and
we hereby set aside the same.
13. Next comes the most important, rather an unpleasant, aspect of the matter. For
attributing misconduct to both, the learned Arbitrators generally, and to Chief Justice
(Retd.) Maulvi Mushtaq Hussain in particular, the learned Judge has observed as.
follows:--
"As regards misconduct it may be pointed out that as is evident from the minutes
of the deliberation dated 13-5-1984, the proposed two arbitrators had been issuing
directions before their formal appointment as such to the Mediator to proceed
regarding the said four items in a particular manner and it has also come in
evidence that Mr. Justice (Retd.) Maulvi Mushtaq Hussain sold his property to Sh.
Akhtar Ali, one of the contesting parties in the dispute. This in my view amounts
to misconduct. None of the arbitrators could act in that manner as they were
required to decide the disputes between the parties impartially which should have
been maintained up to the date of delivery of the award.''
In the same context, the following views were expressed:--
"The two learned arbitrators before their formal appointment as Arbitrators took
part in the parleys held on 13-5-1984, as they attended the said meeting, which in
my view was not proper on their part as the parties should have been left to decide
with the own free will as to whether they wanted to refer the dispute, if any,
identifying the same through formal agreement of arbitration which in this case
they did not execute as required by law."
Learned counsel for the appellant, supported by learned counsel for respondents, except
Sh. Murtaza Ali challenged the above finding of the learned Judge on twin grounds,
firstly that the learned Judge has gravely erred in holding that the property of the said
learned Arbitration was purchased by Sh. Akhtar Ali whereas it was, in fact, purchased by
Mrs.Akhtar Ali who was a working lady: that she was in affluent circumstances and
purchased the property from her own earnings, and secondly, that whereas the award was
given on the 11th of November, 1985, the property was purchased in the yew 1987,
pursuant to an advertisement given by the late vendor, and purchased in the newspaper.
According to Dr. Sohail Akhtar, Advocate, the date of the sale Deed was either 12th or
13th of May, 1987. Surprisingly cope of the sale-deed has not been placed on the record
to demonstrate as to who was the actual vendee, how much was the price settled and who
had, in fact, paid the amount of consideration, which factors were not only, relevant, but
were most important for arriving at a just decision. Be that as it may, an Award is not a
Divine word. It is neither impregnable nor exempt from judicial scrutiny. Sh. Murtaza
Ali, respondent No.2, who has argued the case himself cited a long catena of decisions
from foreign as well as from domestic jurisdictions, besides relying on section 30 of the
Arbitration Act, 1940, to support the above findings of the learned Single Judge. An
award can be nullified and set aside in view of the statutory provision contained in clause
(a) of section 30 ibid, if an Arbitrator has "mis-conducted himself or the proceedings".
"Misconduct" contemplated by section 30(a) is thus of two kinds, legal and/or moral.
From the precedents, cited by respondent No.2 the following principles emerge:
Legal Misconduct:
14. "Legal misconduct" means misconduct in the judicial sense of the word,, for example,
some honest, though erroneous, breach of duty causing miscarriage of justice; failure to
perform the essential duties which are cast on an arbitrator; and any irregularity of action
which is not consistent with general principles of equity and good conscience. Though
not bound by the technical rules of evidence, but if an arbitrator acts arbitrarily or
unreasonably, the award will be invalid. If the procedure adopted by any arbitrator is
opposed to natural justice, inasmuch as he does not hear both the parties fairly, or records
evidence in the absence of either party, the Award will be a nullity in the eye of law. If the
award suffers from ambiguity, or the arbitrator does not determine all the matters referred
to him for arbitration, then too the award cannot be sustained. If the arbitrator has ignored
important evidence, or has returned a verdict which is in conflict with the evidence on
record, the award will be set aside. An error of law apparent on the face of the award,
relevant and material to the decision of the dispute, is also a ground to scrap the same. 'If
irregularities in procedure can be proved, which would amount to no proper hearing of
the matter in dispute, that would be misconduct sufficient to vitiate the award, without
any imputation on honesty or impartiality of the arbitrator. And, if there is an indication
of gross negligence or recklessness on the face of the award that might also amount to a
form of misconduct on the part of the arbitrator, because that might, by itself, be
sufficient to show that there was no proper hearing of the matter. To sum up, an arbitrator
misconducts the proceedings when (i) there is a defect in the procedure followed by him;
(ii) commits breach and neglect of duty and responsibility (iii) acts contrary to the
principles of equity and good conscience; (iv) acts without jurisdiction or exceeds it; (v)
acts beyond the reference; (vi) proceeds on extraneous circumstances; (vii) ignores
material documents; and (viii) bases the award on no evidence. These are some of the
omissions and commissions which constitute legal misconduct or, in other words, that an
arbitrator has mis-conducted the proceedings within meaning of clause (a) of section 30
of the Arbitration Act, 1940.
Moral Misconduct:
15. It is difficult to define exhaustively and exactly what amounts to "misconduct" on the
part of an arbitrator. The expression is of wide import, and it means that which is
misconduct by any standard. In a case of arbitration where the parties entrust their fate
into the hands of an arbitrator, he becomes a Judge in the case. Therefore, it is essential
that there must be abundant good faith, and the arbitrator must be absolutely disinterested
and impartial, as he is bound to act with scrupulous regard to the ends of justice. An
arbitrator must be a person who stands indifferent between the parties. If an arbitrator is
related to one of the parties which fact is not disclosed to the other party at the time the
agreement, is entered into, the award can successfully be challenged as invalid on the
ground of misconduct of the arbitrator. An arbitrator should in no sense consider himself
to be the advocate of the cause of party appointing him, nor is such party deemed to be
his client. He should„refrain from identifying himself with the interest of such party and
from looking forward to further employment as arbitrator, an office which carries
emoluments. Where an arbitrator does an act in disregard of propriety and cause of
proportion, it is not merely misconduct in the legal or technical sense but is grossly
improper and inconsistent with the plain duty of an arbitrator seriously disposed to settle
a dispute referred to him for arbitration. He should have no interest, direct or remote, in
the subject-matter of the controversy. It is imperative that an arbitrator should always
scrupulously avoid any course of action which even remotely bears the complexion of his
having put himself into a position where it might be said against him that he had received
a pecuniary inducement which might have had some effect on his determination of the
matters submitted, to his adjudication as this is a matter of so tender a nature that even the
appearance of evil in it is to be avoided. An arbitrator, being in loco judicis has to act
honestly and legally throughout the proceedings. The following statement of law
appearing, in Russell on Arbitration, 20th Edition, page 110 is worth special notice in this
behalf.
"There is universal agreement amongst jurists of all countries that it is of the first
importance that judicial tribunals should be honest, impartial and disinterested.
This rule applies in full force to arbitral to tribunals, subject only to this
exception, that the parties who are free to choose their own .tribunal may,
provided they act with full knowledge though this exception in its turn is subject
to a statutory exception which gives parties who-have so chosen a locus
poenitentiae in certain circumstances. But apart from this exception, arbitrators
who are in all other respects suitably qualified are disqualified by dishonesty,
partiality or interest."
Therefore, where a person is appointed by two parties to exercise judicial duties, there
should be uberrima fides on the part of all the parties concerned in relation to his
selection and appointment and every disclosure which might in the least affect the minds
of those who are proposing to submit their disputes to the arbitrament of any particular
individual ought to be made, so that each party may have every opportunity of
considering whether, or not to make a reference to him. Further, if an arbitrator is
indebted to one of parties at the time of the reference or becomes so indebted after the
reference, and in either case does not disclose the fact to the other party, such party would
be entitled to revoke the reference upon discovery of fact, and any award made by l such
arbitrator would be invalid on the ground of judicial misconduct. However, a known
interest does not disqualify a person from acting as arbitrator, and if the parties, with full
knowledge of the facts, select an arbitrator who is not an impartial person, the Court will
not release them from the bargain upon which they agreed, howsoever, improvident it
may consider it, so long as the Court is satisfied that he knew or should have known what
kind of bargain he was entering into. These principles are so well engrafted in the judicial
precedents that there can be no two opinions about the same.
16. Keeping in view the above principles, we now proceed to examine whether the award
in question was liable to be set aside on the established facts. So far as the finding that the
conduct of the learned Arbitrators, in having participated in the so-called "parleys" and
their having issued directions, before their formal appointment, to Sh. Shaukat Ali,
Mediator to proceed in a particular manner with certain matters entrusted to his care "was
not proper" is concerned, it appears, the parties had verbally agreed to the appointment of
the two learned Arbitrators even before the 13th of May, 1984 on which date, as per
available record, the parties had met for the first time with a view to resolving their
dispute,,; This view is fortified by the Note, dated the 14th of May, 1984 recorded by Sh.
Shaukat Ali and bearing signatures, amongst others, of Sh. Murtaza Ali, wherein, besides
the presence of the parties, it is mentioned that the learned two Arbitrators had also
participated in the meeting held on the 13th of May, 1984. The following statement
contained in the said Note establishes beyond doubt that the parties had agreed, if not
before, at least on the 13th of May, 1984 to get their disputes resolved by referring the
same to the said two learned Arbitrators:--
"In that meeting (of 13th May, 1984) the disputes between the parties were
tabulated, which are 33 in number. On that day, it was agreed between the parties
that the two arbitrators, namely Mr. Justice (Retd.) Bashiruddin Ahmed and Mr.
Justice (Retd.) Maulvi Mushtaq Hussain, will go into the disputes and will give
their award. "
As per the said Note, formal arbitration agreement was to be signed on the next day.
However, on, the next date viz. the 14th of May, 1984, the parties, including Sh. Murtaza
Ali, resolved that instead of directly referring the disputes to the Arbitrators, the matter
might first be gone into as Mediator by former justice. Shaukat Ali, who was one of the
members of the family, and that in case the parties failed to accept his mediation then that
matter only be referred to the decision of the two learned Arbitrators. This subsequent
posture was adopted by the parties presumably with a view to short-listing their disputes.
In this context, the following statement in the Note is also of some significance:--
"All the parties have assented to this arrangement and with the advice of both-the
Arbitrators the Mediator has taken up all the disputes for resolving the same
amongst the parties."
The nomination of the learned Arbitrators was not terminated. It was, however, in this
background that the two learned Arbitrators gave directions to the Mediator as contained
in the Note of the Mediator, as preparatory measures to the Logical determination of the
disputes between the parties. In Habib & Sons v. Virak Co. (PLD 1957 (W.P.) Karachi
245) D.B. though originally an oral arbitration agreement, which was subsequently
confirmed in writing, was held to be valid. As mentioned above, the parties herein had
also executed formal arbitration agreement on the 24th of May, 1984, wherein it was also
mentioned that in the event any party had cause of grievance against the decision of Sh.
Shaukat Ali, Mediator, the matter shall be referred to the arbitration of the learned two
Arbitrators. Thus, their appointment was kept alive, and since the parties did not feel
satisfied with the decision rendered by Sh. Shaukat Ali, the learned Arbitrators were
approached to arbitrate in the matter. Therefore, we find nothing objectionable if the
learned Arbitrators had conducted some proceedings consequent upon the verbal
agreement between the parties which was, later on, affirmed through a formal written
arbitration agreement, dated the 24th of May, 1984.
17. The record reveals that Sh. Akhtar Ali, respondent No.1 herein had filed on the 20th
of November, 1985 an application under section 14(2) of the Arbitration Act, 1940 before
the learned Senior. Civil Judge, Lahore, for filing of the Award, dated the 11th of
November, 1985 made by Chief Justice (Retd.) Khan Bashiruddin Ahmed and Chief
Justice (Retd.) Maulvi Mushtaq Hussian so that the same was made rule of the Court. The
application was entrusted to Mr. K.M. Sohail, the then learned Civil Judge, Lahore. In
response to the notice issued to the learned Arbitrators, they filed the award in Court on
the 22nd of December, 1985. Originally, objections to the award were filed by Sh.Saleem
Ali, Mr. Javed Ali, Mst. Razia Shafi, Sh. Murtaza Ali and Mst. Mazhar Khanum. So far as
Sh. Murtaza Ali is concerned, his plea was that whereas the learned Arbitrators were
personal friends of Sh.Akhtar Ali and Sh. Saleem Ali because of Sh. Shaukat Ali, but the
said relationship, was concealed purposely and intentionally from him.
The objection, founded on the sale by late Chief Justice Maulvi Mushtaq Hussain of his
property and purchase thereof by Sh. Akhtar Ali, or for the matter of that, by his wife,
was not made a ground of attack in the objection Petition, dated the 20th of January,
1986. Be that as it may, the parties had submitted replies to the objections filed by their
opponents before the learned Civil Judge. However, before any decision could be taken,
the case was transferred to the original side of the High Court and was registered as
C.O.No.2-C of 1986. Needless to mention that on the 4th of May, 1986, Sh. Murtaza Ali,
respondent No.2, had filed another application under sections 33 and 35 of the Arbitration
Act for setting aside the award on the ground that the same had been rendered during the
pendency of the civil suit for administration, through partition of the properties, filed by
him. It appears, during evidence of Court-witness the question of the transaction of sale
aforementioned was highlighted. The plea of Sh. Murtaza Ali as ascertainable from his
cross-examination of Mr. Muhammad Afzal (C.W.3) and Sh. Akhtar Ali (C.W.4) that
originally the property was purchased by one Mr. Tiwana who backed out and thereafter
it was purchased by Sh. Akthar Ali. However, he could not set up a definite case, resting
on any sure ground, as will be seen from the following cross-examination of the
above-named two witnesses:--
Mr. Muhammad Afzal (C.W.3).
"……….About one and half year ago from today Sh.Akhtar Ali purchased the
property of Maulvi Mushtaq Hussain. I do not know as to when negotiations
started for the sale of this property. (Volunteered). Before the purchase of this
property by Sh. Akhtar Ali this property was purchased by one Mr. Tiwana who
backed out and thereafter Sh. Akthar Ali purchased it. I 'do not know if there had
been any advertisement issued by Sh.Shaukat Ali that if anybody was to negotiate
about the purchase of this property or to convert the same, into flats, he should
contact Sh. Shaukat Ali. It is wrong to suggest that the negotiations for the sale of
this property to Sh. Akhtar Ali started during arbitration proceedings."
Sh. Akhtar Ali (C.W.4)
"………My wife has purchased property of Maulvi Mushtaq Hussain which is
situated near Katchi Abadi, in 1987. It was purchased through registered sale-deed
and prior to the sale-deed there was no agreement executed. Negotiations for
purchase of this property were started seven days before the execution of the
sale-deed. I settled the bargain with Maulvi Mushtaq Hussain directly. I purchased
this property for an amount of Rs.25,00,000 (Rs.Twenty-five lacy. It is wrong to
suggest that I purchased this property from Maulvi Mushtaq Hussain as a favour
because he had delivered award in my favour. I have seen an advertisement
appearing in the daily Pakistan Times dated 21-2-1986 and repudiate that this
advertisement is in respect of this very property which has been purchased by me
from Maulvi Mushtaq Hussain (C.W.4/3). I did not know that prior to sale of this
property by me, Maulvi Mushtaq Hussain had already stuck bargain for sale of
this property with one Mr.Tiwana. It is absolutely wrong to suggest that Maulvi
Mushtaq Hussain used to say that for the sake of friends he could go to every
extent to help them. It is also wrong to say that Maulvi Mushtaq Hussain used to
say that if he was against anybody he would not spare him. It is also wrong to
suggest that these words were used by Maulvi.Mushtaq Hussain in respect of Sh.
Murtaza Ali; rather he was very kind to Sh. Murtaza Ali..."
".... It is wrong to suggest that the bargain about the purchase of the property of
Maulvi Mushtaq Hussain was struck through the good offices of Sh Shaukat Ali.
It is wrong to suggest that the actual price fixed was Rs.50,00,000 but instead
Rs.25,00,000 was shown to have been paid. I 0do not know that Maulvi Mushtaq
Hussain confiscated any amount of Rs.50,000 which he allegedly received as
earnest money from Mr. Tiwana..."
" .. I obtained from Maulvi Mushtaq Hussain the previous documents of
ownership of Maulvi Mushtaq Hussain regarding property which I purchased
from him. This was an evacuee property which was transferred to Maulvi
Mushtaq Hussain under settlement laws, therefore, the documents of ownership of
Maulvi Mushtaq Hussain were those which were issued by the Settlement
Department..."
"....It is correct that the property which was purchased from Maulvi Mushtaq
Hussain (Retd.) Chief justice was purchased during the pendency of these
proceedings. Actually my wife purchased the property of Maulvi Mushtaq
Hussian (Retd.) Chief justice. My wife has her own source of income. It is wrong
to suggest that the bargain about the sale of this property was settled during the
pendency of the arbitration proceedings before the Arbitrators...".
That is the entire cross-examination qua the transaction of sale/purchase of the property
of the above-named learned Arbitrator. From the above cross-examination, it will be seen
that on the one hand, Sh. Murtaza Ali attempted to prove by cross-examining Mr.
Muhammad Afzal (C.W.3) that negotiations between Chief Justice (Retd.) Maulvi
Mushtaq Hussian and Sh. Akhtar Ali had started during arbitration, and that the bargain
about the sale/purchase of the property was also settled during the pendency of the
proceedings before the arbitrators and, on the other, he himself suggested to Sh. Akhtar
Ali that he had purchased this property from Maulvi Mushtaq Hussain as a favour
because he had delivered award in his favour. Not only that, the witness was confronted
with the following advertisement in the Daily "THE PAKISTAN TIMES" dated the 21st
of February, 1986 (Exh.C.W.4/3):--
Fh FAIR HOUSE (PRIVATE)
LTD.
Developers Industrial Promoters,
Traders and Constructors.
Registered Office 12-P, A.F. MARKET LAHORE CANTT. 13 (PAKISTAN) PHONE
372571.
BEAT
THIS!
WOULD YOU LIKE TO LIVE ADJACENT TO PEARL CONTINENETAL HOTEL,
LAHORE? IN A 3 BED LUXURY APARTMENT Price starting from 436,900)
.
IF SO CONTACT
FAIRHOUSES (PRIVATE) LTD.
1-2-PAF MARKET LAHORE CANTT
PHONE: 372571
(Office will remain open on Friday)
Restricted booking opens for
Selected Clients, Plans approved
Title to property may be verified
From
SHAUKAT LAW ASSOCIATES, LAHORE PHONE: 66174
The above extracted advertisement in the newspaper was relied upon obviously to
conjure up a link between late Chief Justice (Retd.) Maulvi Miftshtaq Hussain and Sh.
Shaukiat Ali, and attention of the witness (Sh.Akhtar Ali) was drawn to the same to bring
out, inter alia that Sh.Akhtar Ali had purchased the property pursuant to the same,
meaning thereby that the purchase of the property was after the 21st of February, 1986,
because if the property had been purchased by Sh. Akhtar Ali during the arbitration
proceedings, which ended with the Award, dated the 11th of November, 1985, there could
be no justification for issuing the advertisement thereafter. The suggestions given by Sh.
Muraza Ali, in this behalf, were destructive of each other. It appears, Sh. Murtaza Ali had
been proceeding on conjectural hypothesis, benefit of certainty. If the transaction of
sale/purchase had, in fact, taken place during the arbitration proceedings and Sh. Murtaza
Ali had knowledge thereof, he would not have missed the opportunity to make it a ground
of attack to the award when he filed the Objection Petition on the 20th of January 1986,
which conspicuously omits any such allegation.
18. There is yet another aspect of the matter. Sh. Murtaza Ali, respondent, attempted to
establish that the property purchased by Sh.Akhtar Ali was the same which was
advertised through the proclamation which had appeared in the press on the 21st of
February, 1986, and wherein it was mentioned:
"Title to property may be verified
From
SHAUKAT LAW ASSOCIATES, LAHORE
PHONE: 66174"
The advertisement was not given by Shaukat Law Associates of which Sh. Shaukat Ali
was undeniably the Senior Partner, but it was got published by "FAIRHOUSE
(PRIVATE) LTD. 1-2-PAF Market, Lahore Cantt". Moreover, in the advertisement, the
name of the owner does not find mention. When suggested to Sh. Akhtar Ali (C.W.4) that
the property purchased by him was the same which was advertised as aforementioned, his
reply was to the following effect:--
"I have seen an advertisement appearing in the Daily Pakistan Times dated
21-2-1986 and repudiate that this advertisement is in respect of this very property
which has been purchased by me from Maulvi Mushtaq Hussain (C.W.4/3)."
From the available record, it is absolutely impossible to connect the property
subject-matter of the sale with the one mentioned in the advertisement. Even the Sale
Deed had been brought on the record. Assuming for the sake of argument that the
property subject-matter of the sale was the same which was advertised on the 21st of
February, 1986, then too there is no evidence that the advertisement was, in fact, given by
Shaukat Law Associates and the name of M/s. Fairhouse (Private) Limited was only used.
The possibility of M/s. Fairhouse (Private) Limited being brokers and utilizing expertise
of Shaukat Law Associates, well-known Law Firm, as their Legal consultants/Advisers
cannot be ruled out altogether. Moreover, there could be a possibility of Chief Justice
(Retd.) Maulvi Mushtaq Hussain having approached Messrs Fairhouse (Private) Ltd., for
sale of his property, and having handed over Title Deeds (or copies thereof) of them who,
in turn, might have made over the same to Shaukat Law Associates.
19. Doubtless, it was suggested to Sh. Akhtar Ali (C.W.4) that the bargain about the
purchase of the property of Chief Justice (Retd.) Maulvi Mushtaq Hussain was struck
through the good offices of Sh.Shaukat Ali, and that the actual price paid, was
Rs.50,00,000 but instead Rs.25,00,000 were shown to have been paid, but the witnesses
gave a lie to both the suggestions. Except the bare suggestion, no evidence was led to
show that the amount of Rs.50,00,000 was, in fact, paid by Sh. Akhtar Ali to Chief Justice
(Retd.) Maulvi Mushtaq Hussain. Further, assuming that the amount paid was
Rs.50,00,000, then too there is no evidence on record to show that the property was not
worth the price paid to him. The bald suggestion given to Sh. Akhtar Ali (C.W.4), without
there being any other piece of evidence to show that the denial of the suggestion was
conceived out of male fides, with a view to concealing the actual value of the property
and the price paid therefor, cannot take the place of legal evidence; at times truth is
stranger than fiction.
20. Referring then to the sale of the property by Chief Justice (Retd.) Maulvi Mushtaq
Hussain in favour of Sh. Akhtar Ali, the learned Judge has held: "This in my view
amounts to misconduct". The learned Judge proceeded to base this finding on the
reasoning that the learned Arbitrators should have maintained "impartiality" "up to the
date of delivery of the award". Suffice it to say in this behalf, has escaped notice of the
learned Judge that the Award was given on the 11th of November 1985 and, according to
Sh. Akhtar Ali (C.W.4) the property was purchased by him in the year 1987. As already
mentioned when questioned during arguments about the exact date of the transaction, Dr.
Sohail Akhtar, learned counsel for respondent No.1 and for legal heirs of respondent
No.5, stated that it was either 12th or 13th of May, 1987. Even otherwise, there is nothing
on record to belie. Sh. Akhtar Ali in this behalf. Be that as it may, the fact remains that
the transaction of sale/purchase of the property had not preceded the pronouncement of
the Award, but took place about a year and a half thereafter. In these circumstances, we
are of the considered view that late Chief Justice Maulvi Mushhtaq Hussain could not, at
all, be attributed misconduct, so as to render the Award shorn of efficacy, nor the same
could be set aside for reasons given by the learned Single Judge. We are not unmindful of
the fact that an arbitrator should not exhibit a behaviour, even after pronouncement of
Award, which might give a cause of apprehension to any one of the parties to the
reference that he was in collusion with the other party, or his opponent. It is well-settled
that there must be purity in the administration of justice, as well as in administration of
quasi justice' as are involved in the adjudicatory process before the arbitrators. Once an
arbitrator enters in an arbitration, he must not be guilty of any act which can possibly be
construed as indicative of partiality, unfairness or bias. By bias, we understand a real
likelihood of an operative prejudice, whether conscious or unconscious. Once it is
established that the arbitrator was actually biased, the award has to be set aside. Likewise,
the fact that the arbitrator has any dealing with one of the parties does afford a real
likelihood of an operative prejudice on his part, and the existence of such relationship
with one of the parties, unknown to the other, may induce the Court to set aside the
award. It is also settled that if the arbitrator has an undisclosed or concealed personal
interest in either of the parties then that can be a ground for setting aside the award,
-provided the fact of the arbitrator having such interest or bias is' established. But once
misconduct is pleaded by a party, he has got to give particulars thereof and merely a
vague and bald statement cannot be a substitute for proof. The facts which constitute the
misconduct must be specifically stated. The burden of establishing misconduct is on the
party alleging it. Where partiality or wrong doing is alleged against an arbitrator, it has
got to be established beyond doubt, the presumption always being in favour of the award.
It is not the function of the Court, at least not of the Appellate Court, to resort to a
combing process as this would tantamount to impeachment of the Award by the Court
itself which function the Court need not arrogate to itself. Moreover, the Court is not
entitled to make a roving and sifting investigation of the record and proceedings before
the arbitrator and constitute itself a regular Court of Appeal from the Award. The Courts
are always extremely slow in finding faults with an Award. In the instant case, the mere
suspicion or whims of a party could neither be a good reason nor constituted a valid
ground to ascribe lack of judicial detachment and impartiality to the two former Chief
Justices of the High Courts of the country. Doubtless, a party may not be required to
prove a cast-iron case in order to bring home the charge of misconduct, but the facts and
circumstances should be such as to convince the conscience of a reasonable person that
the fountain of justice has not remained unsullied and unpolluted. Also, there must, in our
opinion, be reasonable evidence of a real likelihood of bias but certainly mere flimsy
ground elusively generated and morbid suspicions cannot be permitted to form a ground
of attack. The apprehension must be judged from a healthy, reasonable and average point
of view, and only the apprehension of an average honest man can be taken note of. Vague
suspicions of whimsical, capricious and unreasonable people cannot be made the standard
to regulate the Court's vision. Having given our anxious thought to all the facts and
circumstances of the case, and despite the fact that we hold the learned Single Judge in
high esteem, we have not been able to persuade ourselves to agree with his conclusion on
the question of misconduct. We are of the considered opinion that the facts relied upon by
him do not satisfactory prove that the late Chief Justice had conspired, or was acting in
concert and collusion with Sh.Akhtar Ali or Sh. Shaukat Ali, and, therefore, the charge of
misconduct fails. Accordingly, we would hold S that the Award in question was not
vitiated by reason of the alleged misconduct.
21. Beforeus, Sh. Murtaza Ali, respondent No.2, has relied on the letter, dated the 27th of
1986 (Exh.CW-3/6) written on letter-head of Shaukat Law Associates by Mr. Javed Iqbal,
Advocate addressed to Mrs. Razia Shafi and Mrs. Ijaz Amanullah. On the letter-head is
printed the name of "Mr. Justice (Retd.) Khan Bashiruddin Ahmad" alongwith other
names of Advocates, whether Partners of Associates of "Shaukat Law Associates". When
confronted with this letter, Ch. Muhammad Afzal (C.W.3), in his cross-examination,
stated as follows:--
"Exh.C.W.3/6 is a letter-head of Shaukat Law Associates. I know English very
well and can read and write also. It is correct that on this letter-head the first name
which appears is that of Mr. Justice (Retd.) Bashiruddin Ahmad. I joined Shaukat
Law Associates in the year 1983 and since then the name of Mr. Justice (Retd.)
Bashiruddin Ahmad is being printed on the letter-head of Shaukat Law
Associates."
Surprisingly, the witness was not further examined whether Mr. Justice (Retd.) Khan
Bashiruddin Ahmad was a Partner or an Associate of Shaukat Law Associates. May be he
had only lent his name which was being used by Shaukat Law Associates for their own
credibility, without active participation of Chief Justice (Retd.) Khan Bashiruddin Ahmad
either as a Partner or an Associate. Sh. Murtaza Ali is a real brother of Sh. Shaukat Ali. It
is beyond one's comprehension that Sh. Murtaza Ali was unaware of the status of Chief
Justice (Retd.) Khan Bashiruddin Ahmad qua Shaukat Law Associates. Moreover, as per
C.W.3, his name was being printed on letter-heads of Shaukat Law Associates at least
from 1983 when the witness had statedly joined the said Law Firm. Therefore, nothing
was kept secret or concealed from Sh. Murtaza Ali. Moreover, there is nothing on record
to show that Chief Justice (Retd.) Khan Bashiruddin Ahmad had any personal interest in
Shaukat Law Associates. We area therefore, of the opinion that the learned Single Judge
has rightly ignored and left out of consideration this aspect of the matter.
22. As mentioned above, besides Sh. Murtaza Ali (respondent No.2), Mr. Javed Shafi,
Mrs. Razia Shafi and Mst. Mazhar Khanum had also filed objections to the Award in
question whereas Sh. Saleem Ali, appellant sought its modification. The learned Single
Judge had framed as many as 21 Issues. Except the objections filed by Sh. Murtaza Ali,
he has not dealt with the objection filed by the other persons. No findings on individual
issues were recorded. Before, us, learned counsel for the appellant as well as those
representing the other respondents except Mr.Ghulam Murtaza Bhatti, who represented
Mst. Mazhar Khanum, respondent No.8 and had shown reservation with regard to the
findings in the Award because of her claim to the property located at Brandreth Road,
Lahore, have supported the Award, but a perusal of the record reveals that they had not
withdrawn the objections at any times. In the result, allowing this appeal we would set
aside the impugned order, dated the 15th of January, 1997 passed by the learned Single
Judge and would remand the case to him for decision of the matter afresh by disposing of
the objections filed by the parties other than Sh. Murtaza Ali. There shall be no order as
to the costs.
M.B.A./S-38/L Case remanded.
2004 C L D 334
[Karachi]
Before Mushir Alam, J
Messrs HASAN ALI RICE EXPORT CO. through Sole Proprietor---Plaintiff
Versus
FLAME MARITIME LIMITED and another---Defendants
Suit No. 1051 of 1999, decided on 20th May, 2003.
(a) Contract Act (IX of 1872)---
----S.28, Exception 2---Arbitration Act (X of 1940), S.2(a)--Arbitration agreement is
exception to general rule that any agreement in restraint of legal proceedings is void.
(b) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Contract Act. (IX of 1872), S.28, Exception 1--Charter Party agreement
containing foreign arbitration clause is saved and protected by Exception 1 of S.28 of
Contract Act, 1872.
(c) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Stay of legal proceedings---Powers of Court
under S.3 of Arbitration (Protocol and Convention) Act, 1937 and S.34 of Arbitration Act,
1940---Distinction---Obligatory on Court to stay suit under S.3 of Arbitration (Protocol
and Convention) Act, 1937, while under S.34 of Arbitration Act, 1940, same is merely
discretionary power of Court resting on condition laid down therein.
Messrs Manzoor Textile Mills Ltd. through Director v. Nichimen Corporation and 2
others 2000 MLD 641 fol.
(d) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Civil Procedure Code (V of 1908), Ss. 10 &
11---Specific Relief Act (I of 1877), Ss.21, proviso, 42 & 54---Award made by arbitral
Tribunal at London during pendency of, suit at Karachi seeking injunctive relief against
enforcement of arbitration clause--Validity---Arbitration proceedings had commenced
much prior to filing of suit---Plaintiff had defended claim before arbitrator by raising all
issues including issue as to validity of arbitration clause as raised in the suit---Existence
of contract providing for reference of subject-matter of suit to arbitration would bar such
suit to the extent of matter covered by arbitration clause---Seat of arbitration was at
London, thus, its proceedings to all intents and purposes would be controlled and
regulated by (English) Arbitration Act, 1996----Proceedings in suit subsequent to award
would be hit by doctrine of res sub judice enshrined in S.10, C.P.C.---Findings recorded
in earlier proceedings culminating into award during pendency of suit would be hit by
doctrine of res judicata---Award had been registered as suit and defendant had filed
objections thereto, thus, such suit was covered by Expln. I of S.11, C.P.C. --Conclusive
award having been delivered in respect of subject-matter of suit, trial of suit would be
exercise in futility ---High Court dismissed the suit.

Messrs Mitsue Bussan Kaisha Ltd., Karachi v. Messrs Tataram Bhagwandas and another
AIR 1924 Sind 146; Firm Ghansham Dass and another v. Tek Chand AIR 1935 Lah. 916;
Doleman & Sons v. Ossett Corporation 3 KBD 257; East and West Steamship Co.,
Georgetown, Madras v. S.K. Ramalingam Chettiar AIR 1960 SC 1058; G. M. Pfaff A.G.
v. Sartaj Engineering Co. Ltd., Lah. and 3 others PLD 1970 Lah. 184; A. Merdith Janes
Co. Ltd. v. Crescent Board Ltd. 1999 CLC 437; Arbitration between Dampskibsselskabet
Nordon Aktieselskale v. Ahmed Shipping Lines Limited, Wallace Road, Karachi PLD
1983 Kar. 247; Petrocon (Pvt.) Ltd. v. Hyderabad Development Authority, Hyderabad
1990 MLD 1675; Messrs European Grain and Shipping Ltd. v. Messrs Polychem
Company Ltd. PLD 1990 Kar. 254 and Oriental Maritime v. Hassan Ali Company Cotton
(Pvt.) Ltd. Suit No. 1681 of 1998 ref.
(e) Specific Relief Act (I of 1877)---
----S.21, proviso ---Pendency of suit and arbitration proceedings in respect of same
subject-matter ---Validity--Continuation of parallel proceedings at the same time
respecting same subject-matter is neither intended nor contemplated by law.
(f) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---High Court of West Pakistan (Establishment) Order (XIX of 1955), Art.
5---Arbitration proceedings commenced in foreign country---Such proceedings would be
regulated and controlled by law applicable at the seat or venue of arbitration---Karachi
High Court in exercise of its original civil jurisdiction could have no control or domain
over such foreign arbitration proceedings.
(g) Civil Procedure Code (V of 1908)---
----S.11---Proceedings before parallel forums in respect of same subject-
matter---Principle of res judicata--Applicability---When proceedings for any reason, were
allowed to continue in parallel forum, then the proceeding, which, culminated deciding
controversy one way or the other, would operate as res judicata.
(h) Civil Procedure Code (V of 1908)---
----S.11---Arbitration Act (X of 1940), S.14---Award made earlier in time would come in
way of pending suit---Finding recorded in earlier proceedings culminating into award
during pendency of suit would attract the doctrine of res judicata.
(i) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Matter agitated before Court was properly
referred to arbitration by a party to suit and arbitration agreement---Arbitrator in all
fairness alone would be seized of such matter---Assumption of jurisdiction by Court,
thus, would be improper, unless conditions laid down in S.34 of Arbitration Act, 1940 or
S.3 of Arbitration (Protocol and Convention) Act, 1937 were attracted.
(j) Civil Procedure Code (V of 1908)---
----S.11---Principle of res judicata---Applicable to pending suit as well as other
proceedings including arbitration.
(k) Civil Procedure Code (V of 1908)---
----S.11---Arbitration Act (X of 1940), S.2(a)---Controversy covered by arbitration clause
heard and decided---Effect---Such controversy between the same parties could not be
adjudicated upon by Court in a suit pending adjudication as same would be hit by res
judicata.
(l) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S. 7(3)---Foreign award---Remedy---Such award could be challenged at the seat of
arbitration in accordance with law applicable thereto.
Moulvi Yousaf for Plaintiff.
Khalid Rehman for Defendants.
Date of hearing: 20th January, 2003.
ORDER
This matter has come up for hearing of Preliminary Objections as to the maintainability
of the suit. The controversy during pendency of suit has already been decided in
arbitration proceedings. Award, rendered has been registered as a separate Suit No.272 of
2000 pending hearing of objection to the confirmation of award.
Brief facts as may be relevant for deciding the objections as to maintainability of instant
suit preliminary are that the plaintiff, a proprietorship concern, exported 9,000 Metric
Tons of bagged rice loaded on "m. v. Junior M", entered into a charter party agreement
with the defendant No.1. Port of discharge was agreed to be 1-2 Safe Berth, Antsiranana,
Morni, Mahajanga or Anjoun. It appears that on account of the trouble at the port of
Morni, the vessel could not berth. The plaintiff advised the agent of the defendant No. 1
at the request of foreign buyer to discharge the cargo at the ports in Madagasca. Such
request appears to have been declined being in violation of charter party agreement;
however, the defendants agreed to discharge the goods as per request of the plaintiffs
subject to further condition as stipulated in the terms of the revised financial obligations
under an addenda. The case of the plaintiffs as set out in para. 7 of the plaint is that terms
under addenda were agreed under duress, therefore, Addenda dated 29-1-1999 to the
Charter Party is not binding and cannot be enforced. Consequently, instant suit has been
filed seeking declaration together with claim of damages and injunctive relief against the
enforcement of the Addendum. It is also stated in the plaint in para. 20 that on refusal of
the plaintiff to accede to the demand of the defendants a notice dated 15-3-1999 for
arbitration was served and arbitration was set into motion.
Plaintiff filed the instant suit on 31-7-1999 alongwith an application under Rule 76 of the
Sindh Chief Court Rules (O.S.) read with Order 39, rules 1 and 2, C.P.C., inter alia,
praying for temporary injunction restraining the defendants from taking any action or
initiating any proceedings or coercive measures directly or indirectly for or recovering
any amount in any manner whatsoever on the basis of or, in pursuance of the Addendum
No.1 to the Charter Party Agreement dated 29-1-1999. It further appears that, after
service, the defendants before stepping into proceeding, by filing written statement,
moved an application under section 34 of the Arbitration Act on 23-8-1999. However,
before either of the application could be heard and decided on merits the Award was
delivered on 21-12-1999. The award filed in this Court was registered as Suit No.272 of
2000. Enforcement thereof is sought in terms of sections 4, 5 and 6 of the Arbitration
(Protocol and Convention) Act, 1937. Consequently, when both the applications under
rule 76, S.C.C. Rules filed by the plaintiff and application under section 34 of the
Arbitration Act filed by the defendant in Suit No.1051 of 1999 came up for hearing on
16-12-2002 it was though observed that for all intents and practical purposes the suit has
become infructuous, listed applications for injunctive relief as well as for stay of the
proceedings were dismissed having become infructuous.
Learned counsel for the plaintiffs, Mr. Yousuf Moulvi, contended that once the suit was
pending, no stay in terms 'of section 34 of the Arbitration Act was granted, the matter
should not have proceeded before the Arbitrator. The Award rendered during pendency of
suit would not affect the merits of the suit which is to be decided on its own merits.
According to him, the Award rendered during pendency of suit is nullity in the eye of law.
In support of his contention, he has relied upon the case-laws reported as (1) Messrs
Mitsue Bussan Kaisha, Ltd., Karachi v. Messrs Tataram Bhagwandas and another AIR
1924 Sind 146; (2) Firm Ghansham Dass and another v. Tek Chand AIR 1935 Lahore
916; (3) Doleman & Sons v. Ossett Corporation 3 King's Bench Division 257.
As against above, Mr. Khalid Rehman, learned counsel for the defendants contended that
the arbitration agreement exits between the parties. The case is governed under the
Arbitration (Protocol and Convention) Act, 1937 which is based on International
Convention. Such being the position this Court cannot control the proceedings of
arbitration conducted in the Court of foreign jurisdiction. Arbitration proceedings are
governed in terms agreed by the parties as per law of seat of arbitration. He further
contended that the plaintiffs, in fact, participated in the arbitration proceedings, therefore,
is estopped from objecting to such arbitration proceedings in separate suit. He urged that
the objections to the award, if any, could be considered when the award is taken up for
confirmation or otherwise. According to him, once foreign award is delivered it could
only be challenged in terms of section 7 of the Arbitration. (Protocol and Convention.)
Act, 1937. He further urged that the award rendered in United Kingdom has since
attained finality. No appeal was preferred under the English Arbitration Act, 1996. In
support of his contention, he has relied upon the case-laws reported as (1) East and West
Steamship Co., Georgetown, Madras v. S.K. Ramalingam Chettiar AIR 1960 SC 1058;
(2) G. M. Pfaff A.G. v. Sartaj Engineering Co. Ltd., Lahore and 3 others PLD 1970 Lah.
184; (3) A. Merdith Janes Co. Ltd. v. Crescent Board Ltd. 1999 CLC Lahore 437; (4)
Arbitration between Dampskibsselskabet Nordon Aktieselskale v. Ahmed Shipping Lines
Limited, Wallace Road, Karachi PLD 1983 Karachi 247; (51 Petrocon (Pvt.) Ltd. v.
Hyderabad Development Authority, Hyderabad 1990 MLD Karachi 1675; (6) Messrs
European Grain and Shipping Ltd. v. Messrs Polychem Company Ltd. PLD 1990 Kar.
254 and (7) an unreported judgment passed in Suit No.1681 of 1998 titled as Oriental
Maritime v. Hassan Ali Company Cotton (Pvt.) Ltd.
After having heard the arguments advanced by learned counsel for the parties, we
perused the material available on record and case-laws cited at bar.
In the case of Doleman & Sons (1912) 3 KB 257, action commenced upon a contract
containing arbitration agreement. The defendant stepped into proceeding and at the same
time invoked arbitration, without notice either to the plaintiff or any application for stay
of the action in Court. The award, rendered during the pendency of action was held to be
invalid. In the instant case, plaintiffs themselves have admitted that before they could
bring an action in Court, the defendant had already invoked the foreign arbitration clause,
in fact, plaintiff also participated in the arbitration proceedings. The defendant's instant
suit, before taking any step into the proceedings filed the application for stay of
proceedings. Said case was followed in AIR 1935 Lahore 916. In the case of Messrs
Mitsue Bussan Kaisha Ltd., Karachi AIR 1924 Sind 146 (supra) a contrary view was
taken by a Division Bench. In said case, suit was filed before the arbitration commenced,
award was made during pendency of the suit and the stay of suit was not obtained. It was
held that the award will not be rendered invalid but remains suspended till stay
application is disposed of. Indeed, irrespective of arbitration agreement neither of the
party to arbitration agreement is precluded to seek resolution of dispute by bringing
action in Court but once a party opts for arbitration, the other party may not be easily
released from the bargain entered before the commencement of a legal proceedings. More
particularly, in case where a contract contains foreign arbitration clause. Generally any
agreement in restraint of legal proceeding is void. However, arbitration agreements are an
exception to this general principle (See Exception No. 1 to section 28 of the Contract
Act). Therefore, where Charter Party Agreement provides for submission to arbitration in
U.K. such clause is saved and protected by Exception No. 1 to section 28 of Contract Act.
In terms of section 3 of the Arbitration (Protocol and Convention) Act, 1937, it is
obligatory on the part of the Court to stay the suit, whereas, in terms of section 34 of
Arbitration Act such is merely a discretionary power of the Court resting on condition
laid down therein, [For reference one may see Messrs Manzoor Textile Mills Ltd. through
Director v. Nichimen Corporation and 2 others 2000 MLD Karachi 641].
As noted above in the narrative, the arbitration proceedings commenced much before the
institution of the suit. Even the plaintiff entered and defended the claim before the
arbitration in London. However, before the applications both by the plaintiff as well as by
defendant, could be heard, the award was delivered. It may further be pointed out that in
terms of the proviso to section 21 of the Specific Relief Act, 1877, a suit in respect of any
subject-matter which was agreed to be referred to the arbitration, the existence of such
contract bars the suit to the extent of matter covered by Arbitration Clause. For ready
reference the said proviso is reproduced as follows:--
"Save as provided by the Arbitration Act, 1940, no contract to refer present or
future differences to arbitration shall be specifically enforced; but if any person
who has made such a contract other than an arbitration agreement to which the
provisions of the said Act apply and has refused to perform it sues in respect of
any subject which he has contracted to refer, the existence of such contract shall
bar the suit."
Even otherwise, it is neither the intention nor within the contemplation of the law that
parallel proceedings in respect of the same subject-matter may continue at the same time.
In the instant case, the plaintiff had also filed an application under rule 76 of the Sind
Chief Court Rules read with Order 39, rules 1 and 2 and section 151, C.P.C. seeking
restraining orders against the defendant from initiating any proceedings or adopting
coercive measures directly or indirectly for the recovery of the amount in any manner
whatsoever on the basis of or in pursuance of the Addendum No.1 to the Charter Party
Agreement dated 29-1-1999. Plaintiff did not pursue this application to obtain any
injunctive order against the pending arbitration proceedings on the contrary participated
in the arbitration proceedings. Plaintiff is estopped to challenge such arbitration. Even
otherwise, once arbitration proceedings are commenced in a foreign country then such
arbitration proceedings are regulated and controlled by the law at the seat or venue of
arbitration and this Court in exercise of its Original Civil Jurisdiction cannot have control
or domain over such foreign arbitration proceedings. In the instant case, the seat of
arbitration admittedly was at London, such arbitration proceedings for all intent and
purpose were controlled and regulated by the law of country in whose territory arbitration
took place i.e. (English) Arbitration Act, 1996.
Subsequent proceedings may be hit by the doctrine of res sub judice enshrined in section
10 of Civil Procedure Code. However, in any case if the proceedings for any reason are
allowed to continue in parallel forum then, if one proceeding culminate deciding the
controversy one way or the other then, it operates as res judciata. On such count also, the
finding recorded in earlier proceedings which culminated into an Award during pendency
of instant suit would be hit by doctrine of res judicata. When certain matters agitated
before the Court are properly referred to the arbitration by any of the party to the suit who
is also a party to Arbitration Agreement, in all fairness the arbitrator alone are seized of
the matter. Such being, the position, it will be improper for the Court to assume the
jurisdiction to decide the point in controversy. Unless of course the condition laid down
in section 34 of the Arbitration Act or section 3 of Arbitration (Protocol and Convention)
Act are attracted to assume the jurisdiction by the Court.
In the instant case as noted above, the award was delivered by the Arbitral Tribunal at
London, during the pendency of this suit at Karachi. The principle of res judicata as
embodied in section 11 of Civil Procedure Code are not only applicable to the pending
suit but are also attracted in cases of other proceedings including arbitration. Where a
controversy covered by the arbitration clause was heard and decided, then same
controversy between the same parties could not be adjudicated upon by the Court in a suit
pending adjudication as it would be hit, by res judicata. The decision/award rendered by
an Arbitrator has been registered as a Suit being No.277 of 2000. From the record, it
appears that the defendant has also filed objections to the award. Therefore, in my
humble opinion, the instant suit is covered by Explanation No.1 of section 11 of Civil
Procedure Code, which reads as follows:--
"Explanation I.---The expression `former suit' shall denote a suit which has been
decided prior to the suit in question whether or not it was instituted prior thereto."
Even otherwise the arbitration proceedings were set into motion prior to filing of suit as
admitted in paragraphs Nos. 12 and 20 of the plaint, fact that the plaintiff participated and
defended the arbitration proceedings, all issues raised in suit including the issue as to the
validity of the arbitration clause were raised, considered and decided in the arbitration
award. Accordingly, the suit being hit by res judicata otherwise is not maintainable. [For
reference one may see Muhammad Anwar v. Messrs Associated Trading Co. Ltd. and
others 1989 MLD Lahore 4750 and Abdul Karim v. Haji Ilyas and 4 others 1986 CLC
1660]. In respect of the last mentioned case-law, it may be observed that it was held that
an award may be pleaded as res judicata and the suit may be dismissed. However, for the
purpose of instant proceedings, no doubt remains that, the conclusive award has been
delivered in respect of the subject-matter of the suit, such award which is earlier in time
come in way of the plaintiff's suit, therefore, trial of the suit under the facts and
circumstances would be exercised in futility. Before parting, this judgment, it may not be
out of place to mention here that remedy against a foreign award is provided for under the
Arbitration (Protocol and Convention) Act, 1937. Award could be challenged at the seat
of arbitration in accordance with the law applicable thereto [see section 7(3), Arbitration
(Protocol and Convention) Act, 1937]. As far as the remedy against the foreign award
within the jurisdiction of this Court is concerned, such remedy is provided for under
section 7 of the Arbitration (Protocol and Convention) Act, 1937. It seems that the
plaintiff has already filed its objections, same shall be heard and decided on its own
merits.
The upshot of foregoing discussion, instant suit is dismissed; however, with no order as
to costs.
S.A.K./H-111/K Suit dismissed.
2004 C L D 334
[Karachi]
Before Mushir Alam, J
Messrs HASAN ALI RICE EXPORT CO. through Sole Proprietor---Plaintiff
Versus
FLAME MARITIME LIMITED and another---Defendants
Suit No. 1051 of 1999, decided on 20th May, 2003.
(a) Contract Act (IX of 1872)---
----S.28, Exception 2---Arbitration Act (X of 1940), S.2(a)--Arbitration agreement is
exception to general rule that any agreement in restraint of legal proceedings is void.
(b) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Contract Act. (IX of 1872), S.28, Exception 1--Charter Party agreement
containing foreign arbitration clause is saved and protected by Exception 1 of S.28 of
Contract Act, 1872.
(c) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Stay of legal proceedings---Powers of Court
under S.3 of Arbitration (Protocol and Convention) Act, 1937 and S.34 of Arbitration Act,
1940---Distinction---Obligatory on Court to stay suit under S.3 of Arbitration (Protocol
and Convention) Act, 1937, while under S.34 of Arbitration Act, 1940, same is merely
discretionary power of Court resting on condition laid down therein.
Messrs Manzoor Textile Mills Ltd. through Director v. Nichimen Corporation and 2
others 2000 MLD 641 fol.
(d) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Civil Procedure Code (V of 1908), Ss. 10 &
11---Specific Relief Act (I of 1877), Ss.21, proviso, 42 & 54---Award made by arbitral
Tribunal at London during pendency of, suit at Karachi seeking injunctive relief against
enforcement of arbitration clause--Validity---Arbitration proceedings had commenced
much prior to filing of suit---Plaintiff had defended claim before arbitrator by raising all
issues including issue as to validity of arbitration clause as raised in the suit---Existence
of contract providing for reference of subject-matter of suit to arbitration would bar such
suit to the extent of matter covered by arbitration clause---Seat of arbitration was at
London, thus, its proceedings to all intents and purposes would be controlled and
regulated by (English) Arbitration Act, 1996----Proceedings in suit subsequent to award
would be hit by doctrine of res sub judice enshrined in S.10, C.P.C.---Findings recorded
in earlier proceedings culminating into award during pendency of suit would be hit by
doctrine of res judicata---Award had been registered as suit and defendant had filed
objections thereto, thus, such suit was covered by Expln. I of S.11, C.P.C. --Conclusive
award having been delivered in respect of subject-matter of suit, trial of suit would be
exercise in futility ---High Court dismissed the suit.

Messrs Mitsue Bussan Kaisha Ltd., Karachi v. Messrs Tataram Bhagwandas and another
AIR 1924 Sind 146; Firm Ghansham Dass and another v. Tek Chand AIR 1935 Lah. 916;
Doleman & Sons v. Ossett Corporation 3 KBD 257; East and West Steamship Co.,
Georgetown, Madras v. S.K. Ramalingam Chettiar AIR 1960 SC 1058; G. M. Pfaff A.G.
v. Sartaj Engineering Co. Ltd., Lah. and 3 others PLD 1970 Lah. 184; A. Merdith Janes
Co. Ltd. v. Crescent Board Ltd. 1999 CLC 437; Arbitration between Dampskibsselskabet
Nordon Aktieselskale v. Ahmed Shipping Lines Limited, Wallace Road, Karachi PLD
1983 Kar. 247; Petrocon (Pvt.) Ltd. v. Hyderabad Development Authority, Hyderabad
1990 MLD 1675; Messrs European Grain and Shipping Ltd. v. Messrs Polychem
Company Ltd. PLD 1990 Kar. 254 and Oriental Maritime v. Hassan Ali Company Cotton
(Pvt.) Ltd. Suit No. 1681 of 1998 ref.
(e) Specific Relief Act (I of 1877)---
----S.21, proviso ---Pendency of suit and arbitration proceedings in respect of same
subject-matter ---Validity--Continuation of parallel proceedings at the same time
respecting same subject-matter is neither intended nor contemplated by law.
(f) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---High Court of West Pakistan (Establishment) Order (XIX of 1955), Art.
5---Arbitration proceedings commenced in foreign country---Such proceedings would be
regulated and controlled by law applicable at the seat or venue of arbitration---Karachi
High Court in exercise of its original civil jurisdiction could have no control or domain
over such foreign arbitration proceedings.
(g) Civil Procedure Code (V of 1908)---
----S.11---Proceedings before parallel forums in respect of same subject-
matter---Principle of res judicata--Applicability---When proceedings for any reason, were
allowed to continue in parallel forum, then the proceeding, which, culminated deciding
controversy one way or the other, would operate as res judicata.
(h) Civil Procedure Code (V of 1908)---
----S.11---Arbitration Act (X of 1940), S.14---Award made earlier in time would come in
way of pending suit---Finding recorded in earlier proceedings culminating into award
during pendency of suit would attract the doctrine of res judicata.
(i) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S.3---Arbitration Act (X of 1940), S.34---Matter agitated before Court was properly
referred to arbitration by a party to suit and arbitration agreement---Arbitrator in all
fairness alone would be seized of such matter---Assumption of jurisdiction by Court,
thus, would be improper, unless conditions laid down in S.34 of Arbitration Act, 1940 or
S.3 of Arbitration (Protocol and Convention) Act, 1937 were attracted.
(j) Civil Procedure Code (V of 1908)---
----S.11---Principle of res judicata---Applicable to pending suit as well as other
proceedings including arbitration.
(k) Civil Procedure Code (V of 1908)---
----S.11---Arbitration Act (X of 1940), S.2(a)---Controversy covered by arbitration clause
heard and decided---Effect---Such controversy between the same parties could not be
adjudicated upon by Court in a suit pending adjudication as same would be hit by res
judicata.
(l) Arbitration (Protocol and Convention) Act (VI of 1937)---
----S. 7(3)---Foreign award---Remedy---Such award could be challenged at the seat of
arbitration in accordance with law applicable thereto.
Moulvi Yousaf for Plaintiff.
Khalid Rehman for Defendants.
Date of hearing: 20th January, 2003.
ORDER
This matter has come up for hearing of Preliminary Objections as to the maintainability
of the suit. The controversy during pendency of suit has already been decided in
arbitration proceedings. Award, rendered has been registered as a separate Suit No.272 of
2000 pending hearing of objection to the confirmation of award.
Brief facts as may be relevant for deciding the objections as to maintainability of instant
suit preliminary are that the plaintiff, a proprietorship concern, exported 9,000 Metric
Tons of bagged rice loaded on "m. v. Junior M", entered into a charter party agreement
with the defendant No.1. Port of discharge was agreed to be 1-2 Safe Berth, Antsiranana,
Morni, Mahajanga or Anjoun. It appears that on account of the trouble at the port of
Morni, the vessel could not berth. The plaintiff advised the agent of the defendant No. 1
at the request of foreign buyer to discharge the cargo at the ports in Madagasca. Such
request appears to have been declined being in violation of charter party agreement;
however, the defendants agreed to discharge the goods as per request of the plaintiffs
subject to further condition as stipulated in the terms of the revised financial obligations
under an addenda. The case of the plaintiffs as set out in para. 7 of the plaint is that terms
under addenda were agreed under duress, therefore, Addenda dated 29-1-1999 to the
Charter Party is not binding and cannot be enforced. Consequently, instant suit has been
filed seeking declaration together with claim of damages and injunctive relief against the
enforcement of the Addendum. It is also stated in the plaint in para. 20 that on refusal of
the plaintiff to accede to the demand of the defendants a notice dated 15-3-1999 for
arbitration was served and arbitration was set into motion.
Plaintiff filed the instant suit on 31-7-1999 alongwith an application under Rule 76 of the
Sindh Chief Court Rules (O.S.) read with Order 39, rules 1 and 2, C.P.C., inter alia,
praying for temporary injunction restraining the defendants from taking any action or
initiating any proceedings or coercive measures directly or indirectly for or recovering
any amount in any manner whatsoever on the basis of or, in pursuance of the Addendum
No.1 to the Charter Party Agreement dated 29-1-1999. It further appears that, after
service, the defendants before stepping into proceeding, by filing written statement,
moved an application under section 34 of the Arbitration Act on 23-8-1999. However,
before either of the application could be heard and decided on merits the Award was
delivered on 21-12-1999. The award filed in this Court was registered as Suit No.272 of
2000. Enforcement thereof is sought in terms of sections 4, 5 and 6 of the Arbitration
(Protocol and Convention) Act, 1937. Consequently, when both the applications under
rule 76, S.C.C. Rules filed by the plaintiff and application under section 34 of the
Arbitration Act filed by the defendant in Suit No.1051 of 1999 came up for hearing on
16-12-2002 it was though observed that for all intents and practical purposes the suit has
become infructuous, listed applications for injunctive relief as well as for stay of the
proceedings were dismissed having become infructuous.
Learned counsel for the plaintiffs, Mr. Yousuf Moulvi, contended that once the suit was
pending, no stay in terms 'of section 34 of the Arbitration Act was granted, the matter
should not have proceeded before the Arbitrator. The Award rendered during pendency of
suit would not affect the merits of the suit which is to be decided on its own merits.
According to him, the Award rendered during pendency of suit is nullity in the eye of law.
In support of his contention, he has relied upon the case-laws reported as (1) Messrs
Mitsue Bussan Kaisha, Ltd., Karachi v. Messrs Tataram Bhagwandas and another AIR
1924 Sind 146; (2) Firm Ghansham Dass and another v. Tek Chand AIR 1935 Lahore
916; (3) Doleman & Sons v. Ossett Corporation 3 King's Bench Division 257.
As against above, Mr. Khalid Rehman, learned counsel for the defendants contended that
the arbitration agreement exits between the parties. The case is governed under the
Arbitration (Protocol and Convention) Act, 1937 which is based on International
Convention. Such being the position this Court cannot control the proceedings of
arbitration conducted in the Court of foreign jurisdiction. Arbitration proceedings are
governed in terms agreed by the parties as per law of seat of arbitration. He further
contended that the plaintiffs, in fact, participated in the arbitration proceedings, therefore,
is estopped from objecting to such arbitration proceedings in separate suit. He urged that
the objections to the award, if any, could be considered when the award is taken up for
confirmation or otherwise. According to him, once foreign award is delivered it could
only be challenged in terms of section 7 of the Arbitration. (Protocol and Convention.)
Act, 1937. He further urged that the award rendered in United Kingdom has since
attained finality. No appeal was preferred under the English Arbitration Act, 1996. In
support of his contention, he has relied upon the case-laws reported as (1) East and West
Steamship Co., Georgetown, Madras v. S.K. Ramalingam Chettiar AIR 1960 SC 1058;
(2) G. M. Pfaff A.G. v. Sartaj Engineering Co. Ltd., Lahore and 3 others PLD 1970 Lah.
184; (3) A. Merdith Janes Co. Ltd. v. Crescent Board Ltd. 1999 CLC Lahore 437; (4)
Arbitration between Dampskibsselskabet Nordon Aktieselskale v. Ahmed Shipping Lines
Limited, Wallace Road, Karachi PLD 1983 Karachi 247; (51 Petrocon (Pvt.) Ltd. v.
Hyderabad Development Authority, Hyderabad 1990 MLD Karachi 1675; (6) Messrs
European Grain and Shipping Ltd. v. Messrs Polychem Company Ltd. PLD 1990 Kar.
254 and (7) an unreported judgment passed in Suit No.1681 of 1998 titled as Oriental
Maritime v. Hassan Ali Company Cotton (Pvt.) Ltd.
After having heard the arguments advanced by learned counsel for the parties, we
perused the material available on record and case-laws cited at bar.
In the case of Doleman & Sons (1912) 3 KB 257, action commenced upon a contract
containing arbitration agreement. The defendant stepped into proceeding and at the same
time invoked arbitration, without notice either to the plaintiff or any application for stay
of the action in Court. The award, rendered during the pendency of action was held to be
invalid. In the instant case, plaintiffs themselves have admitted that before they could
bring an action in Court, the defendant had already invoked the foreign arbitration clause,
in fact, plaintiff also participated in the arbitration proceedings. The defendant's instant
suit, before taking any step into the proceedings filed the application for stay of
proceedings. Said case was followed in AIR 1935 Lahore 916. In the case of Messrs
Mitsue Bussan Kaisha Ltd., Karachi AIR 1924 Sind 146 (supra) a contrary view was
taken by a Division Bench. In said case, suit was filed before the arbitration commenced,
award was made during pendency of the suit and the stay of suit was not obtained. It was
held that the award will not be rendered invalid but remains suspended till stay
application is disposed of. Indeed, irrespective of arbitration agreement neither of the
party to arbitration agreement is precluded to seek resolution of dispute by bringing
action in Court but once a party opts for arbitration, the other party may not be easily
released from the bargain entered before the commencement of a legal proceedings. More
particularly, in case where a contract contains foreign arbitration clause. Generally any
agreement in restraint of legal proceeding is void. However, arbitration agreements are an
exception to this general principle (See Exception No. 1 to section 28 of the Contract
Act). Therefore, where Charter Party Agreement provides for submission to arbitration in
U.K. such clause is saved and protected by Exception No. 1 to section 28 of Contract Act.
In terms of section 3 of the Arbitration (Protocol and Convention) Act, 1937, it is
obligatory on the part of the Court to stay the suit, whereas, in terms of section 34 of
Arbitration Act such is merely a discretionary power of the Court resting on condition
laid down therein, [For reference one may see Messrs Manzoor Textile Mills Ltd. through
Director v. Nichimen Corporation and 2 others 2000 MLD Karachi 641].
As noted above in the narrative, the arbitration proceedings commenced much before the
institution of the suit. Even the plaintiff entered and defended the claim before the
arbitration in London. However, before the applications both by the plaintiff as well as by
defendant, could be heard, the award was delivered. It may further be pointed out that in
terms of the proviso to section 21 of the Specific Relief Act, 1877, a suit in respect of any
subject-matter which was agreed to be referred to the arbitration, the existence of such
contract bars the suit to the extent of matter covered by Arbitration Clause. For ready
reference the said proviso is reproduced as follows:--
"Save as provided by the Arbitration Act, 1940, no contract to refer present or
future differences to arbitration shall be specifically enforced; but if any person
who has made such a contract other than an arbitration agreement to which the
provisions of the said Act apply and has refused to perform it sues in respect of
any subject which he has contracted to refer, the existence of such contract shall
bar the suit."
Even otherwise, it is neither the intention nor within the contemplation of the law that
parallel proceedings in respect of the same subject-matter may continue at the same time.
In the instant case, the plaintiff had also filed an application under rule 76 of the Sind
Chief Court Rules read with Order 39, rules 1 and 2 and section 151, C.P.C. seeking
restraining orders against the defendant from initiating any proceedings or adopting
coercive measures directly or indirectly for the recovery of the amount in any manner
whatsoever on the basis of or in pursuance of the Addendum No.1 to the Charter Party
Agreement dated 29-1-1999. Plaintiff did not pursue this application to obtain any
injunctive order against the pending arbitration proceedings on the contrary participated
in the arbitration proceedings. Plaintiff is estopped to challenge such arbitration. Even
otherwise, once arbitration proceedings are commenced in a foreign country then such
arbitration proceedings are regulated and controlled by the law at the seat or venue of
arbitration and this Court in exercise of its Original Civil Jurisdiction cannot have control
or domain over such foreign arbitration proceedings. In the instant case, the seat of
arbitration admittedly was at London, such arbitration proceedings for all intent and
purpose were controlled and regulated by the law of country in whose territory arbitration
took place i.e. (English) Arbitration Act, 1996.
Subsequent proceedings may be hit by the doctrine of res sub judice enshrined in section
10 of Civil Procedure Code. However, in any case if the proceedings for any reason are
allowed to continue in parallel forum then, if one proceeding culminate deciding the
controversy one way or the other then, it operates as res judciata. On such count also, the
finding recorded in earlier proceedings which culminated into an Award during pendency
of instant suit would be hit by doctrine of res judicata. When certain matters agitated
before the Court are properly referred to the arbitration by any of the party to the suit who
is also a party to Arbitration Agreement, in all fairness the arbitrator alone are seized of
the matter. Such being, the position, it will be improper for the Court to assume the
jurisdiction to decide the point in controversy. Unless of course the condition laid down
in section 34 of the Arbitration Act or section 3 of Arbitration (Protocol and Convention)
Act are attracted to assume the jurisdiction by the Court.
In the instant case as noted above, the award was delivered by the Arbitral Tribunal at
London, during the pendency of this suit at Karachi. The principle of res judicata as
embodied in section 11 of Civil Procedure Code are not only applicable to the pending
suit but are also attracted in cases of other proceedings including arbitration. Where a
controversy covered by the arbitration clause was heard and decided, then same
controversy between the same parties could not be adjudicated upon by the Court in a suit
pending adjudication as it would be hit, by res judicata. The decision/award rendered by
an Arbitrator has been registered as a Suit being No.277 of 2000. From the record, it
appears that the defendant has also filed objections to the award. Therefore, in my
humble opinion, the instant suit is covered by Explanation No.1 of section 11 of Civil
Procedure Code, which reads as follows:--
"Explanation I.---The expression `former suit' shall denote a suit which has been
decided prior to the suit in question whether or not it was instituted prior thereto."
Even otherwise the arbitration proceedings were set into motion prior to filing of suit as
admitted in paragraphs Nos. 12 and 20 of the plaint, fact that the plaintiff participated and
defended the arbitration proceedings, all issues raised in suit including the issue as to the
validity of the arbitration clause were raised, considered and decided in the arbitration
award. Accordingly, the suit being hit by res judicata otherwise is not maintainable. [For
reference one may see Muhammad Anwar v. Messrs Associated Trading Co. Ltd. and
others 1989 MLD Lahore 4750 and Abdul Karim v. Haji Ilyas and 4 others 1986 CLC
1660]. In respect of the last mentioned case-law, it may be observed that it was held that
an award may be pleaded as res judicata and the suit may be dismissed. However, for the
purpose of instant proceedings, no doubt remains that, the conclusive award has been
delivered in respect of the subject-matter of the suit, such award which is earlier in time
come in way of the plaintiff's suit, therefore, trial of the suit under the facts and
circumstances would be exercised in futility. Before parting, this judgment, it may not be
out of place to mention here that remedy against a foreign award is provided for under the
Arbitration (Protocol and Convention) Act, 1937. Award could be challenged at the seat
of arbitration in accordance with the law applicable thereto [see section 7(3), Arbitration
(Protocol and Convention) Act, 1937]. As far as the remedy against the foreign award
within the jurisdiction of this Court is concerned, such remedy is provided for under
section 7 of the Arbitration (Protocol and Convention) Act, 1937. It seems that the
plaintiff has already filed its objections, same shall be heard and decided on its own
merits.
The upshot of foregoing discussion, instant suit is dismissed; however, with no order as
to costs.
S.A.K./H-111/K Suit dismissed.
P L D 2003 Supreme Court 295
Present: Nazim Hussain Siddiqui, Hamid Ali Mirza, and Tanvir Ahmed Khan, JJ
HEAVY MECHANICAL COMPLEX (PVT.) LTD., TAXILA---Appellant
Versus
ATTOCK INDUSTRIAL PRODUCTS LTD. RAWALPINDI ---Respondent
Civil Appeal No. 1861 of 1998, decided on 29th November, 2002.
(On appeal from the judgment dated 25-6-1998 of Lahore High Court, Rawalpindi Bench
passed in C.R. No. 171 of 1997).
(a) Contract Act (IX of 1872)---
----S. 126---Arbitration Act (X of 1940), S.41 & Second Sched., Cl.(4)--Constitution of
Pakistan (1973), Art. 185(3)---Leave to appeal was granted to consider the points that
when the Bank guarantee had formed part of the principal contract covered by the
arbitration clause therein, could such a guarantee be encashed without recourse to
arbitration and that when the contract project had already been completed of which
respondent was taking full advantage, was that equitable, in any case; on the part of the
respondent to encash the Bank guarantee.
(b) Contract Act (IX of 1872)----
----S. 126---Arbitration Act (X of 1940), S.41 & Second Sched., Cl.(4)--"Contract of
guarantee" and "mobilization advance guarantee" ---Distinct natures- --Rights and
liabilities of the parties in case of contract of guarantee---Determination---Such rights are
strictly determined with reference to terms and conditions of the guarantee without
recourse to any other instrument or document executed by the parties for any other
different purpose---Mobilization advance guarantee is on different footing than
guarantees of other nature, in such a case, the liability of surety would be the entire
amount of mobilization advance and it would not be restricted to actual amount due from
principal-debtor---Principal-debtor in such cases normally receives consideration in
advance from the owner/creditors, which he is liable to return in case of any revocation,
termination or completion of contract---Bank guarantee being a distinct contract not
controlled by the primary contract between the parties, contention that in view of various
terms of the primary contract it would be more appropriate if the Court ordered to
maintain status quo till the dispute was finally decided in terms of arbitration clause to
which the parties had agreed, was repelled for such order would for all practical purposes
nullify the contract of guarantee, which was an independent contract.
Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority PLD 1994 SC 311 and
National Grid Company PLC v. Government of Pakistan, Private Power and
Infrastructure Board, Ministry of Water and Power through Managing Director and 5
others 1999 SCMR 2367 ref.
K.M.A. Samdani, Advocate Supreme Court and Mehr Khan Malik, Advocate-on-Record
for Appellant.
Ali Sibtain Fazli, Advocate Supreme Court and Ejaz Muhammad Khan, Advocate-on-
Record for Respondents.
Miss Saadia Abbasi, One of the Liquidator.
Date of hearing: 29th November, 2002.
JUDGMENT
NAZIM HUSSAIN SIDDIQUI, J.---This appeal by leave of this Court is directed
against the judgment dated 25-6-1998, whereby Civil Revision No. 171 of 1997 was
allowed, and Civil Revision No. 175 of 1997 was dismissed.
2. The facts relevant for decision of this matter are that the appellant, Heavy Mechanical
Complex (Pvt.) Ltd. and the respondent, Attock Industrial Products Limited, entered into
a Turnkey Contract dated 16-9-1993 for setting up a Basic Chromium Sulphate
Manufacturing Plant for producing Sodium Dichromate, Basic Chromium Sulphate and
its bye products and intermediates thereof from Chromate Ore. The contract price was
US$ 499,200 plus Rs.209,507,000. It was claimed that in terms of contract, the
respondent allowed mobilisation advance and periodical payments, while the appellant
placed at the disposal of the respondent four bank guarantees/performance bonds
namely:--
(a) Bank Guarantees No.388/94 dated 12-5-1994 issued by National Bank of Pakistan
("NBP") HMC Branch, Taxila.
(b) Bank Guarantee No.389 of 1994 dated 12-5-1994 issued by National Bank of
Pakistan ("NBP") HMC Branch, Taxila.
(c) Performance Bond No.NDFC/LG/077, dated 22-9-1993 National Development
Finance Corporation ("NDFC"), Islamabad.
(d) Performance Bond No.NDFC/LG/076, dated 12-4-1994 issued National Development
Finance Corporation ("NDFC") Islamabad.
3. The respondent claimed that the appellant failed to complete the project within a
stipulated time and at the request of the appellant certain extensions were allowed. It is
alleged that despite extension in time the appellant failed to set up and complete the plant,
as per specification, which resulted in default and breach of contract. The respondent
issued notice of termination of contract dated 19-2-1997 from 6-3-1997 and raised a
demand with the bank and the Corporation for encashment of bank guarantees and
performance bonds, which were valid up to 31-3-1997.
4. The appellant sought indulgence of Civil Court by filing a petition under section 20
read with section 8 of Arbitration Act, 1940, wherein it was claimed that the dispute had
arisen in terms of the contract, which required settlement and adjudication through
arbitration in terms of Article 23 of the Agreement. An application under section 41 of
Arbitration Act read with para. 4 of Second Schedule to the Arbitration Act and Order
XXXIX, rules 1 and 2, C.P.C., was moved to restrain the respondent from encashment of
bank guarantees and performance bonds.
5. Learned Civil Judge First Class, Rawalpindi initially issued an ad interim injunctive
order to restrain encashment of bank gurantees/bonds but after hearing the parties, vide
order dated 16-4-1997, held that the appellant was nor entitled to injunction and
dismissed the application holding at the same time that the respondent was entitled to
encash bank guarantee up to Rupees fifty lacs.
6. Both the appellant and respondent were dissatisfied with the above order. The appellant
filed Revision No. 175 of 1997 for the annulment of the above order in toto and for
acceptance of the application for the grant of temporary injunction, while the respondent
filed Civil Revision No. 171 of 1997. Learned High Court by impugned judgment
modified the order dated 16-14-1997 of learned Civil Judge and the restriction imposed
in the order against encashment of bank guarantee exceeding Rupees fifty lass was set
aside and the appellant's application under section 41 of the Arbitration Act read with
Clause (4) of Second Schedule of the Arbitration Act and Order XXXIX, rules 1 and 2 of
C.P.C., was dismissed. The operative part of the Bank Guarantees is as follows:--
(a) Our obligation to pay in accordance with the terms of this Mobilization Advance
Guarantee Bond shall remain in full force and effect notwithstanding the winding
up or dissolution of HMC or any change in its status, function, control or
ownership.
(b) This Mobilization Advance Guarantee Bond constitutes a primary obligation on
our parts to pay in accordance with its terms and accordingly AIPL shall not be
obliged before making any demand obtain judgment against HMC in any Court or
Tribunal or arbitrator or to make or file any claim for the winding up or
dissolution or insolvency of HMC.
(c) We shall not be released from any liability under this Mobilization Advance
Guarantee Bond and our obligation hereunder shall not in any way be discharged
or impaired by the alteration in the terms of the contract or in the extent or nature
of the works to be carried out completed and maintained by the contract or by any
allowance of time by or on behalf of AIPL for the performance of any act under
the contract or, by 'any forbearance or forgiveness on the part of AIPL or on
AIPL's behalf in or in respect of any matter or thing concerning the contract."
7. Vide order dated 30-11-1998, leave to appeal is granted to consider the
following:--
(i) When the bank guarantee had formed part of the principal contract covered by
the arbitration clause therein, can such a guarantee be encashed without recourse
to arbitration?
(ii) When the Contract project having already been completed of A which
respondent was taking full advantage, is it equitable, in any case, on the part of
the respondent to encash the bank guarantee?
8. It is contended on behalf of the appellant that the respondent was not entitled to encash
the guarantees, as the liability of the appellant is, yet, to be finally determined. Learned
counsel also argued if the guarantees were encashed a large number of the persons
working in the appellant's company will have to be retrenched, besides the appellant may
itself go into liquidation for the reason that not only a huge amount is involved in this
matter but also a large sum is due and payable to the appellant by the respondent. Learned
counsel laid down great emphasis on the fact that the bank guarantees in this case were
not independent contracts but were linked with the dispute, which is yet to be decided on
merits.
9. As against above Mr. Ali Sibtain Fazli, learned counsel for the respondent strenuously
argued that bank guarantees were distinct contracts and the same were not controlled by
the primary contract between the parties. He submitted that the order of High Court is
perfectly in accordance with law and no interference is warranted.
10. The rights and liabilities of the parties, in case of a contract of guarantee, are
determined strictly with reference to terms and conditions of the guarantee without
recourse to any other instrument or document executed by the parties, for any other
different purpose. Mobilization advance guarantee is on different footings than
guarantees of other nature. In such a case, the liability of surety would be entire amount
of mobilization advance and it would not be restricted to actual amount due from
principal debtor. This is for the reason that principal debtor in such cases normally in
advance receives consideration from the owner/creditors, which he is liable to return in
case of any revocation, termination or completion of contract.
11. Perusal of the terms of the guarantees, unequivocally postulates that mobilization
advance guarantee bond was a primary obligation on the part of the appellant and it could
not be discharged/impaired in terms of clause (c) of Bank Guarantee, quoted earlier.
12. In the case reported as M/s. National Construction Ltd. v. Aiwan-e-Iqbal Authority
(PLD 1994 SC 311), this Court almost under the identical circumstances, while dealing
with the scope of the Bank Guarantee at page 313 held as follows:--
"...The contention of the learned counsel for the appellants that in the event, the
appellants succeeded in the arbitration proceedings they will not be able to
recover the amount is beyond the point in issue. In the instant case, therefore, the
bank guarantees furnished by the appellants contain categorical undertaking and
impose absolute obligations on the banks to pay the aunt, irrespective of any
dispute which may arise between the parties regarding the breach of contract. In
our view the Courts must give effect to the covenants of the bank guarantees, the
performance guarantees, for the smooth performance of the contracts. Those
guarantees are independent contracts and the bank authorities must construe them,
independent of the primary contracts. They should encash them notwithstanding
any dispute arising out of the original contract between the parties. In the instant
case, therefore, the encashment of the bank guarantees cannot be postponed
pending decision of the arbitration proceedings, which may take years to
conclude."
In the case reported as National Grid Company PLC v. Government of Pakistan, Private
Power and Infrastructure Board, Ministry of Water and Power through Managing
Director and 5 others (1999 SCMR 2367), this Court while dealing with similar
contentions as raised in this particular case, laid down the following dictum:--
"A perusal of the above terms makes it clear that the undertaking for payment of
the amount of guarantee is unconditional and its enforcement cannot be, objected
to, obstructed or delayed by reference to many other agreement, instrument or
document, as its encashment becomes mandatory the moment demand is placed
by the beneficiary. The terms grant sole discretion for taking a decision as to the
fault or failure of performance of the obligations by the sponsor and once a
demand is placed upon its Guarantor for payment of the amount secured, the
Guarantor cannot question the decision of the beneficiary by making reference to
any other instrument or document."
13. Mr.K.M.A. Samdani, learned Advocate Supreme Court appearing for the appellant
though made .a passing reference to the pleas noted in para. 8 of the judgment but
vehemently pressed the only plea that the bank guarantees were a part of the principal
contract, and the same were governed by arbitration clause, as such, the bank guarantees
could not be treated as a separate contract. As discussed above and ruled in above-cited
cases of this Court, it is evident that the bank guarantees were distinct contracts and were
not controlled by the primary contract between the parties. Mr.Samadani also referred to
various terms of the primary contract to show that it would be more appropriate to
maintain status quo till the dispute is finally decided in terms of the arbitration clause to
which the parties had agreed. Suffice it to say that this would for all practical purposes
nullify the contract of guarantees, which are independent contracts.
14. In consequence, the appeal is dismissed with costs.
M.B.A./H-75/S Appeal dismissed.
P L D 2003 Supreme Court 295
Present: Nazim Hussain Siddiqui, Hamid Ali Mirza, and Tanvir Ahmed Khan, JJ
HEAVY MECHANICAL COMPLEX (PVT.) LTD., TAXILA---Appellant
Versus
ATTOCK INDUSTRIAL PRODUCTS LTD. RAWALPINDI ---Respondent
Civil Appeal No. 1861 of 1998, decided on 29th November, 2002.
(On appeal from the judgment dated 25-6-1998 of Lahore High Court, Rawalpindi Bench
passed in C.R. No. 171 of 1997).
(a) Contract Act (IX of 1872)---
----S. 126---Arbitration Act (X of 1940), S.41 & Second Sched., Cl.(4)--Constitution of
Pakistan (1973), Art. 185(3)---Leave to appeal was granted to consider the points that
when the Bank guarantee had formed part of the principal contract covered by the
arbitration clause therein, could such a guarantee be encashed without recourse to
arbitration and that when the contract project had already been completed of which
respondent was taking full advantage, was that equitable, in any case; on the part of the
respondent to encash the Bank guarantee.
(b) Contract Act (IX of 1872)----
----S. 126---Arbitration Act (X of 1940), S.41 & Second Sched., Cl.(4)--"Contract of
guarantee" and "mobilization advance guarantee" ---Distinct natures- --Rights and
liabilities of the parties in case of contract of guarantee---Determination---Such rights are
strictly determined with reference to terms and conditions of the guarantee without
recourse to any other instrument or document executed by the parties for any other
different purpose---Mobilization advance guarantee is on different footing than
guarantees of other nature, in such a case, the liability of surety would be the entire
amount of mobilization advance and it would not be restricted to actual amount due from
principal-debtor---Principal-debtor in such cases normally receives consideration in
advance from the owner/creditors, which he is liable to return in case of any revocation,
termination or completion of contract---Bank guarantee being a distinct contract not
controlled by the primary contract between the parties, contention that in view of various
terms of the primary contract it would be more appropriate if the Court ordered to
maintain status quo till the dispute was finally decided in terms of arbitration clause to
which the parties had agreed, was repelled for such order would for all practical purposes
nullify the contract of guarantee, which was an independent contract.
Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority PLD 1994 SC 311 and
National Grid Company PLC v. Government of Pakistan, Private Power and
Infrastructure Board, Ministry of Water and Power through Managing Director and 5
others 1999 SCMR 2367 ref.
K.M.A. Samdani, Advocate Supreme Court and Mehr Khan Malik, Advocate-on-Record
for Appellant.
Ali Sibtain Fazli, Advocate Supreme Court and Ejaz Muhammad Khan, Advocate-on-
Record for Respondents.
Miss Saadia Abbasi, One of the Liquidator.
Date of hearing: 29th November, 2002.
JUDGMENT
NAZIM HUSSAIN SIDDIQUI, J.---This appeal by leave of this Court is directed
against the judgment dated 25-6-1998, whereby Civil Revision No. 171 of 1997 was
allowed, and Civil Revision No. 175 of 1997 was dismissed.
2. The facts relevant for decision of this matter are that the appellant, Heavy Mechanical
Complex (Pvt.) Ltd. and the respondent, Attock Industrial Products Limited, entered into
a Turnkey Contract dated 16-9-1993 for setting up a Basic Chromium Sulphate
Manufacturing Plant for producing Sodium Dichromate, Basic Chromium Sulphate and
its bye products and intermediates thereof from Chromate Ore. The contract price was
US$ 499,200 plus Rs.209,507,000. It was claimed that in terms of contract, the
respondent allowed mobilisation advance and periodical payments, while the appellant
placed at the disposal of the respondent four bank guarantees/performance bonds
namely:--
(a) Bank Guarantees No.388/94 dated 12-5-1994 issued by National Bank of Pakistan
("NBP") HMC Branch, Taxila.
(b) Bank Guarantee No.389 of 1994 dated 12-5-1994 issued by National Bank of
Pakistan ("NBP") HMC Branch, Taxila.
(c) Performance Bond No.NDFC/LG/077, dated 22-9-1993 National Development
Finance Corporation ("NDFC"), Islamabad.
(d) Performance Bond No.NDFC/LG/076, dated 12-4-1994 issued National Development
Finance Corporation ("NDFC") Islamabad.
3. The respondent claimed that the appellant failed to complete the project within a
stipulated time and at the request of the appellant certain extensions were allowed. It is
alleged that despite extension in time the appellant failed to set up and complete the plant,
as per specification, which resulted in default and breach of contract. The respondent
issued notice of termination of contract dated 19-2-1997 from 6-3-1997 and raised a
demand with the bank and the Corporation for encashment of bank guarantees and
performance bonds, which were valid up to 31-3-1997.
4. The appellant sought indulgence of Civil Court by filing a petition under section 20
read with section 8 of Arbitration Act, 1940, wherein it was claimed that the dispute had
arisen in terms of the contract, which required settlement and adjudication through
arbitration in terms of Article 23 of the Agreement. An application under section 41 of
Arbitration Act read with para. 4 of Second Schedule to the Arbitration Act and Order
XXXIX, rules 1 and 2, C.P.C., was moved to restrain the respondent from encashment of
bank guarantees and performance bonds.
5. Learned Civil Judge First Class, Rawalpindi initially issued an ad interim injunctive
order to restrain encashment of bank gurantees/bonds but after hearing the parties, vide
order dated 16-4-1997, held that the appellant was nor entitled to injunction and
dismissed the application holding at the same time that the respondent was entitled to
encash bank guarantee up to Rupees fifty lacs.
6. Both the appellant and respondent were dissatisfied with the above order. The appellant
filed Revision No. 175 of 1997 for the annulment of the above order in toto and for
acceptance of the application for the grant of temporary injunction, while the respondent
filed Civil Revision No. 171 of 1997. Learned High Court by impugned judgment
modified the order dated 16-14-1997 of learned Civil Judge and the restriction imposed
in the order against encashment of bank guarantee exceeding Rupees fifty lass was set
aside and the appellant's application under section 41 of the Arbitration Act read with
Clause (4) of Second Schedule of the Arbitration Act and Order XXXIX, rules 1 and 2 of
C.P.C., was dismissed. The operative part of the Bank Guarantees is as follows:--
(a) Our obligation to pay in accordance with the terms of this Mobilization Advance
Guarantee Bond shall remain in full force and effect notwithstanding the winding
up or dissolution of HMC or any change in its status, function, control or
ownership.
(b) This Mobilization Advance Guarantee Bond constitutes a primary obligation on
our parts to pay in accordance with its terms and accordingly AIPL shall not be
obliged before making any demand obtain judgment against HMC in any Court or
Tribunal or arbitrator or to make or file any claim for the winding up or
dissolution or insolvency of HMC.
(c) We shall not be released from any liability under this Mobilization Advance
Guarantee Bond and our obligation hereunder shall not in any way be discharged
or impaired by the alteration in the terms of the contract or in the extent or nature
of the works to be carried out completed and maintained by the contract or by any
allowance of time by or on behalf of AIPL for the performance of any act under
the contract or, by 'any forbearance or forgiveness on the part of AIPL or on
AIPL's behalf in or in respect of any matter or thing concerning the contract."
7. Vide order dated 30-11-1998, leave to appeal is granted to consider the
following:--
(i) When the bank guarantee had formed part of the principal contract covered by
the arbitration clause therein, can such a guarantee be encashed without recourse
to arbitration?
(ii) When the Contract project having already been completed of A which
respondent was taking full advantage, is it equitable, in any case, on the part of
the respondent to encash the bank guarantee?
8. It is contended on behalf of the appellant that the respondent was not entitled to encash
the guarantees, as the liability of the appellant is, yet, to be finally determined. Learned
counsel also argued if the guarantees were encashed a large number of the persons
working in the appellant's company will have to be retrenched, besides the appellant may
itself go into liquidation for the reason that not only a huge amount is involved in this
matter but also a large sum is due and payable to the appellant by the respondent. Learned
counsel laid down great emphasis on the fact that the bank guarantees in this case were
not independent contracts but were linked with the dispute, which is yet to be decided on
merits.
9. As against above Mr. Ali Sibtain Fazli, learned counsel for the respondent strenuously
argued that bank guarantees were distinct contracts and the same were not controlled by
the primary contract between the parties. He submitted that the order of High Court is
perfectly in accordance with law and no interference is warranted.
10. The rights and liabilities of the parties, in case of a contract of guarantee, are
determined strictly with reference to terms and conditions of the guarantee without
recourse to any other instrument or document executed by the parties, for any other
different purpose. Mobilization advance guarantee is on different footings than
guarantees of other nature. In such a case, the liability of surety would be entire amount
of mobilization advance and it would not be restricted to actual amount due from
principal debtor. This is for the reason that principal debtor in such cases normally in
advance receives consideration from the owner/creditors, which he is liable to return in
case of any revocation, termination or completion of contract.
11. Perusal of the terms of the guarantees, unequivocally postulates that mobilization
advance guarantee bond was a primary obligation on the part of the appellant and it could
not be discharged/impaired in terms of clause (c) of Bank Guarantee, quoted earlier.
12. In the case reported as M/s. National Construction Ltd. v. Aiwan-e-Iqbal Authority
(PLD 1994 SC 311), this Court almost under the identical circumstances, while dealing
with the scope of the Bank Guarantee at page 313 held as follows:--
"...The contention of the learned counsel for the appellants that in the event, the
appellants succeeded in the arbitration proceedings they will not be able to
recover the amount is beyond the point in issue. In the instant case, therefore, the
bank guarantees furnished by the appellants contain categorical undertaking and
impose absolute obligations on the banks to pay the aunt, irrespective of any
dispute which may arise between the parties regarding the breach of contract. In
our view the Courts must give effect to the covenants of the bank guarantees, the
performance guarantees, for the smooth performance of the contracts. Those
guarantees are independent contracts and the bank authorities must construe them,
independent of the primary contracts. They should encash them notwithstanding
any dispute arising out of the original contract between the parties. In the instant
case, therefore, the encashment of the bank guarantees cannot be postponed
pending decision of the arbitration proceedings, which may take years to
conclude."
In the case reported as National Grid Company PLC v. Government of Pakistan, Private
Power and Infrastructure Board, Ministry of Water and Power through Managing
Director and 5 others (1999 SCMR 2367), this Court while dealing with similar
contentions as raised in this particular case, laid down the following dictum:--
"A perusal of the above terms makes it clear that the undertaking for payment of
the amount of guarantee is unconditional and its enforcement cannot be, objected
to, obstructed or delayed by reference to many other agreement, instrument or
document, as its encashment becomes mandatory the moment demand is placed
by the beneficiary. The terms grant sole discretion for taking a decision as to the
fault or failure of performance of the obligations by the sponsor and once a
demand is placed upon its Guarantor for payment of the amount secured, the
Guarantor cannot question the decision of the beneficiary by making reference to
any other instrument or document."
13. Mr.K.M.A. Samdani, learned Advocate Supreme Court appearing for the appellant
though made .a passing reference to the pleas noted in para. 8 of the judgment but
vehemently pressed the only plea that the bank guarantees were a part of the principal
contract, and the same were governed by arbitration clause, as such, the bank guarantees
could not be treated as a separate contract. As discussed above and ruled in above-cited
cases of this Court, it is evident that the bank guarantees were distinct contracts and were
not controlled by the primary contract between the parties. Mr.Samadani also referred to
various terms of the primary contract to show that it would be more appropriate to
maintain status quo till the dispute is finally decided in terms of the arbitration clause to
which the parties had agreed. Suffice it to say that this would for all practical purposes
nullify the contract of guarantees, which are independent contracts.
14. In consequence, the appeal is dismissed with costs.
M.B.A./H-75/S Appeal dismissed.
P L D 2003 Supreme Court 808
Present: Iftikhar Muhammad Chaudhry, Rana Bhagwandas and Faqir Muhammad
Khokhar, JJ
DAR OKAZ PRINTING AND PUBLISHING LIMITED LIABILITY COMPANY---
Appellant
Versus
PRINTING CORPORATION OF PAKISTAN PRIVATE LIMITED---Respondent
Civil Appeal No.379 of 2001, decided on 12th June, 2003.
(On appeal from judgment of Lahore High Court, Rawalpindi Bench, Rawalpindi dated
10-4-2000 passed in F.A.O. No.24 of 2000).
(a) Arbitration Act (X of 1940)---
----S. 34---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was granted by
the Supreme Court to consider the contentions that under S.34, Arbitration Act, 1940, the
Trial Court being vested with the discretion to decline the stay of proceedings and
discretion having been exercised by the Trial Court for cogent reasons, whether the High
Court could have interfered with the same and that whether the arbitration clause
authorizing the Managing Director of the respondent-Corporation as final Judge to
interpret any clause of the agreement against which the appellant was debarred from
having recourse either to arbitration or through Court of law, was against the law having
the effect of debarring the appellant from seeking remedies in accordance with law.
(b) Arbitration Act (X of 1940)---
----Ss.2(a) & 34---Contract Act (IX of 1872), S.23---Arbitration agreement-Expression
"arbitration agreement" within the contemplation of S.2(a), Arbitration Act, 1940 means a
written agreement to submit present or future differences to arbitration whether an
arbitrator is named therein or not--Terms employed in the arbitration clause expressly
reflected mutual intention of the parties to resolve all the disputes concerning the
implementation and execution of the contract through the nominated arbitrator jointly
agreed upon without any duress or coercion---Mere fact that the chosen arbitrator
happened to be the Chief Executive of the respondent-Corporation would not render the
same illegal and against public policy---Consideration of facts and circumstances leading
to the execution of contract between the parties and the phraseology employed in the
arbitration clause of the agreement the agreement was not violative of principles of
natural justice or the statute and thus was not void, invalid or of no legal effect.
Lahore Stock Exchange Limited v. Fredrick J. Whyte Group PLD 1990 SC 48 and
Director Housing, A.G.'s Branch v. Makhdum Consultants Engineers and Architects 1997
SCMR 988 ref.
(c) Arbitration Act (X of 1940)---
----S. 34---Constitution of Pakistan (1973), Art.185---Appeal to Supreme Court---
Appellant had not challenged the authority of the Managing Director of the respondent-
Corporation, a limited company, to enter into arbitration agreement or to act as sole
arbitrator in relation to any dispute arising out of the contract before lower forums---
Supreme Court declined to enter into indepth discussion of such aspect of the case since
the Court would not allow the raising of an issue involving disputed factual enquiry for
the first time before Supreme Court unless agitated before the lower forums---Appellant
having voluntarily and of his own volition, entered into contract with the respondent-
Corporation and having accepted arbitration clause stipulating the sole arbitration of the
Managing Director, Supreme Court declined to adjudicate upon the competence or
otherwise of the Managing Director to enter into the contract between the parties---
Matter, in the present case, on the face of it related to the doctrine of indoor management
of a limited company and this was not open to the appellant to raise such question in
collateral proceedings.
Uzin Export and Import Enterprises v. M. Iftikhar & Co. 1993 SCMR 866; House
Building Finance Corporation v. Shahinshah Humayun Cooperative House Building
Society 1992 SCMR 19; Hohnson and Phillips (Pakistan) Ltd. v. Muhammad Ayaz 1997
CLC 1177; Conforce Limited v: K.U. Naseem Malik 1983 CLC 1005: Union of India v.
Messrs Narayan Cold Storage AIR 1958 Punj. 24; Union of India v. Din Dayal AIR 1952
Punj. 368; Governor-General v. Simla Banking and Industrial Co. AIR 1947 Lah. 215 and
Hormusji v. Local Board, Karachi AIR 1934 Sindh 200 distinguished.
(d) Arbitration Act (X of 1940)---
----S. 34---Arbitration agreement---Valid and lawful arbitration clause in the agreement
of arbitration---Adjudication on dispute arising from such agreement by Court---Scope---
Contention of the appellant was that since intricate questions of law were involved in the
suit, trial Court had rightly exercised the discretion by not referring the dispute to the
arbitration--Validity---Claim of the appellant in the present case, was essentially founded
on the terms and conditions of the contract and alleged breach thereof--Arbitrator, in
circumstances, was not handicapped but was fully competent to adjudicate upon the
questions of fact leading to the determination of rights and liabilities of the parties to the
contract and in resolving the dispute in terms of the contract in accordance with law
applicable in the light of respective contentions of the parties---No likelihood of failure of
justice existed if the arbitration was allowed to proceed rather it would be in the interest
of justice and furtherance of the arbitration agreement that the dispute was resolved
through arbitration as in the face of a .valid and lawful arbitration clause it would not be
within the province of the Courts to enter upon such dispute.
Director Housing, A.G.'s Branch v. Makhdum Consultants, Engineers and Architects
1997 SCMR, 988; Province of the Punjab v. Messrs Irfan & Co. PLD 1956 Lah, 442;
A.M. Mair & Co. v. Gordhandas Sagarmull AIR 1951 SC 9 and Jublee Chamber of
Commerce v. Amrit Shah AIR 1940 Lah. 180 ref.
(e) Arbitration Act (X of 1940)---
----S. 34---Reference to arbitration---Contention was that parties having participated in
the proceedings in the suit, it would not be a proper stage for reference of the dispute to
arbitration ---Validity---Proceedings in the suit were allowed to continue on account of an
interim order of Supreme Court and not because of any voluntary act of the respondent
submitting to the jurisdiction of the Court---Prayer for stay of proceedings in the suit,
indeed, was made before the commencement of proceedings at the earliest possible stage
and respondent had invoked the jurisdiction of Court under S.34 of the Arbitration Act,
1940 and refrained from conceding to the jurisdiction of the Court, no exception could be
taken to subsequent developments---No person would suffer on account of act of Court
and an order passed by the Court shall cause no prejudice to any of the parties---No legal
impediment thus existed in staying further proceedings of the suit and referring the
dispute to the arbitrator, which would only advance the cause of justice, fair play and
equity as in view of a valid and lawful arbitration clause in the agreement, it would only
be lit and proper to allow the law to take its own course rather than to frustrate the object
of law by dragging the parties to cumbersome procedure of suit; appeal etc:---Trial Court,
,therefore, had exercised its discretion by not staying the proceedings of the suit in a
manner not warranted by law while the High Court was right in reversing the order and
staying the proceedings of the suit for valid and convincing reasons, which could not be
said to be contradictory to the settled principles of law.
Sajawal Khan v. Wali Muhammad 2002 SCMR 134; Fida Hussain v. The State PLD 2002
SC 46; Ghulam Hussain v. Jamshaid Ali 2001 SCMR 1001; Imran Ashrat v. The State
2001 SCMR 424; State v. Asif Adil 1997 SCMR 209; Iftikhar Baig v. Muhammad Azam
1996 SCMR 762; Sherin v. Fazal Mehmood 1995 SCMR 584; Abdur Rashid v. Abdul
Salam 1991 SCMR 2012: Fateh Khan v. Bozemir PLD 1991 S.C 782; Muhammad Hanif
v. Muhammad PLD 1990 SC 859; Rashad Ehsan v. Bashir Ahmed PLD 1989 SC 146;
Ghulam Haider v. Raj Bharri. PLD 1988 SC 20 ant Abdul Ghani v. Rasool PLD 1977 SC
102 ref.
(f) Act of Court---
---- No person should suffer on account of act of Court and an order passed by the Court
shall cause no prejudice to any of the parties.
Sajawal Khan v. Wali Muhammad 2002 SCMR 134; Fida Hussain v. the State PLD 2002
SC 46; Ghulam Hussain v. Jamshaid Ali 2001 SCMR 1001; Imran Ashraf v. The State
2001 SCMR 424; State v. Asif Adil 1997 SCMR 209; Iftikhar Baig v. Muhammad Azam
1996 SCMR 762; Sherin v. Fazal Mehmood 1995 SCMR 584; Abdur Rashid v. Abdul
Salam 1991 SCMR 2012; Fateh Khan v. Bozemir PLD 1991 SC 782; Muhammad Hanif
v. Muhammad PLD 1990 SC 859; Rashad Ehsan v. Bashir Ahmed PLD 1989 SC 146;
Ghulam Haider v. Raj Bharri PLD 1988 SC 20 and Abdul Ghani v. Rasool PLD 1977 SC
102 ref.
Muhammad Akram Sheikh, Senior Advocate Supreme Court and M.A. Zaidi, Advocate-
on-Record for Appellant.
Raja Muhammad Ibrahim Satti, Advocate Supreme Court and M.S. Khattak, Advocate-
on-Record for Respondent.
Dates of hearing: 28th and 30th May, 2003.
JUDGMENT
RANA BHAGWANDAS, J.---This is an appeal by leave of this Court from the judgment
dated 10-4-2000 of the Lahore High Court, Rawalpindi Bench in F.A.O. No.24 of 2000
reversing an order passed by the Senior Civil Judge, Islamabad whereby he dismissed
respondents' prayer for stay of the proceedings of the suit under section 34 of the
Arbitration Act 1940 (hereinafter referred as the Act 1940).
2. Appellant filed a suit for recovery of damages against the respondent on the basis of
contract dated 23-11-1993 for publication of 1996 issue of telephone directories for
Karachi and Lahore Region. It was stipulated in the contract that the respondent would
make 30% of the payment to the appellant within 30 days of signing the agreement;
another 30% would be paid within 30 days of the first payment, third payment of 30%
would be payable at the time of shipment of the directories whereas the final payment of
10% was payable within ten days of delivery of the directories. It appears that despite
shipment of directories by the appellant, requisite payment was not made by the
respondent-Corporation and there arose some dispute as to the liability for payment of
sales tax imposed by the Government of Pakistan, leading to the institution of the suit for
recovery of Rs.150,336,253.20:
3. Before a written statement could be filed respondent moved an application under
section 34 of the Act, 1940 for stay of the suit and reference of the dispute to the
arbitration in terms of the arbitration clause contained in clause 51 of the Contract
stipulating that the Managing Director of the respondent-Corporation will be the sole
arbitrator in case any dispute or difference arose between the parties with regard to
construction meaning and effect of the contract or any part thereof or any matter relating
thereto or arising from the contract. This prayer was resisted on the premises that clause
51 of the contract did not record any agreement of the parties to the effect that any
dispute present or future in relation to the contract would be submitted to arbitration; that
the said clause was not only contradictory in terms but also void being violative of
section 23 of the Contract Act to the extent of debarring the appellant from having
recourse to Courts of law as well as the arbitration. Another ground agitated by the
appellant appears to be that since validity of the agreement had been challenged,
complicated questions of law could not be referred to the arbitrator. Appellant also took
serious exception to the forum for arbitration as according to it reference to the Managing
Director as arbitrator was negation of the principles of natural justice because the
Managing Director being competent to accept or reject the claim of the appellant would
be acting as a Judge in his own cause. Last ground raised by the appellant appears to be
that its claim and the subject-matter of the suit was substantially and wholly not covered
by the so-called arbitration agreement between the parties, which was vague, unspecific
and uncertain as to the nature of the dispute. Learned trial Court, upon interpretation of
clause 51 of the contract rejected the prayer for stay of the suit for the reasons, inter alias
that arbitration clause was against the principles of natural justice as Managing Director
being one of the parties was nominated as sole arbitrator and competent to accept or
reject the claim of the appellant; that discretion to stay the proceedings could not be
exercised against the principles of natural justice; that intricate questions of law being
involved in the suit could not be settled impartially by the arbitrator and that in view of
challenge to the validity of arbitration agreement, there was strong apprehension of
failure of justice. This order was assailed in appeal before the High Court, which has been
allowed, setting aside the order of the trial Court leading to this appeal.
4. Leave to appeal was granted to consider the contentions firstly, that under section 34 of
the Act 1940, the trial Court being vested with the discretion to decline the stay of
proceedings and discretion having been exercised by the trial Court for cogent reasons
whether the High Court could have interfered with it and secondly, whether the
arbitration clause authorising the respondent-Corporation as final judge to interpret any
clause of the agreement against which the appellant was debarred from having recourse
either to arbitration or through Court of law was against the law having the effect of
debarring the appellant from seeking remedies in accordance with law?
5. While granting leave, on the application for interim relief, it was ordered that operation
of the impugned judgment of the High Court shall remain suspended but proceedings of
the suit shall continue and be finalized with the exception that judgment shall not be
announced till further order of this Court. It is stated at the Bar that by now, proceedings
before the trial Court having been concluded but the judgment is withheld by reason of
interim order passed by this Court.
6. We have heard Sheikh Muhammad Akram, learned Senior Advocate Supreme Court
for the appellant and Raja Muhammad Ibrahim Satti, learned Advocate Supreme Court
for the respondent and, with their assistance, scanned the record. Learned counsel for the
appellant has raised the following contentions:
(i) That clause 51 of the contract between the parties is self-contradictory, invalid,
unconscionable and against public policy and consequently there is no valid
arbitration agreement between the parties.
(ii) That assuming, without conceding, there was an arbitration clause in the
contract, under the Memorandum and Articles of Association of the respondent-
Corporation, Managing Director was not competent, to enter into an arbitration
agreement and also to act as sole arbitrator for resolution of the dispute.
(iii) That intricate and complicated questions of law arising in the suit the
discretion for not referring the dispute to the arbitration was rightly exercised by
the trial Court, which could not be legally interfered with by the High Court.
(iv) That the proceedings in the suit before the trial Court having been concluded,
there would be no occasion for stay of the proceedings and reference of the
dispute to the arbitration at this stage.
7. Conversely; learned counsel for the respondent wholeheartedly supported the judgment
of the High Court and in rebuttal canvassed that the appellant having voluntarily entered
into a lawful contract is bound by the valid and lawful arbitration clause accepting the
Managing Director of the respondent-Corporation as sole arbitrator for resolution of any
dispute arising out of the terms of the contract and any dispute relating to its meaning,
interpretation and construction. Learned counsel is of the view that arbitration clause is
not only clear, specific and express but also strictly according to law and constitutes a
valid agreement for reference of any dispute between the parties concerning the contract
to arbitration and that so-called intricate questions of law were neither identified by the
appellant before the trial Court nor were such as could not be determined by the
arbitrator, who is a high ranking public servant appointed by the Government of Pakistan
and fully capable of doing complete justice to the parties. Lastly, learned counsel clarified
that the respondent did not submit to the jurisdiction of the Court voluntarily and
participated in the proceedings only because of interim order of this Court, which would
not operate to the prejudice of the respondent for stay of the proceedings and reference of
the dispute to the arbitration.
8. In order to fully comprehend the nature of dispute and to interpret the phraseology
used in clause 51 of the contract, it would be appropriate if the relevant arbitration clause
is quoted here, which reads as follows:--
"The supplier agrees that PCP is fully competent to interpret any clause of this
agreement and such an interpretation as may be made by PCP will be accepted by
the Supplier without recourse either to arbitration or through the Court of law.
Managing Director PCP shall be the sole arbitrator in case any dispute or
difference arises between the two parties with regard to the construction, meaning
and effect of this contract or any part thereof or any matter relating thereto or
arising from this contract."
The expression "arbitration agreement" within the contemplation of section 2(a) of Act
1940 means a written agreement to submit present or future differences, to arbitration
whether an arbitrator is named, therein or not. A glance at clause 51 of the contract
reproduced hereinabove clearly suggests that appellant voluntarily agreed that
respondent-Corporation would be fully competent to interpret any clause of the
agreement and such interpretation as may be made by the Corporation would be
acceptable to and binding on the appellant. Second part of the clause lays emphasis on the
plain intention of the parties that Managing Director of the respondent-Corporation shall
be the sole arbitrator in the event of any dispute or difference arising between the parties
with regard to the construction, meaning and effect of the contract or any part thereof or
any matter relating thereto or arising therefrom. No doubt, second part of the clause is
preceded by the terms debarring the appellant to have recourse either to arbitration or to a
Court of law but in the face of clear and candid agreement accepting the interpretation
and construction as made by the Corporation and appointment of Managing Director as
sole arbitrator, part of the agreement barring remedy to Court of law or arbitration is
rendered redundant, in inconsequential and of no legal effect. Since execution of the
contract between the parties is not in dispute and in the suit the appellant itself founded
its claim on the said contract, the question for consideration would be whether the
arbitration clause is against section 23 of the Contract Act, 1872 as contended? On a
careful consideration of the facts and circumstances leading to the execution of contract
between the parties and the phraseology employed in this particular clause, it is difficult
to subscribe to the submission of the leered counsel that the agreement is violative of
principle of natural justice or the statute. In our view the terms employed in the
arbitration clause expressly reflect mutual intention of the parties to resolve all disputes
concerning the implementation and execution of the contract through the nominates
arbitrator jointly agreed upon without any duress or coercion. At any rate mere fact that
the chosen arbitrator happens to be the Chief Executive of the respondent-Corporation
would not render it illegal and against public policy. Indeed it may be a case of bad
drafting when it says that the appellant cannot have recourse to arbitration or a Court of
law. This part of the clause thus can be conveniently ignored which is even otherwise un-
necessary.
9. It is common ground that the respondent-Corporation was incorporated as a Private
Limited Company as far back as 1-1-1969 under the provisions of Companies Act, 1913
and after the promulgation of Companies Ordinance, 1984 registered under the provisions
of the Ordinance. It is equally not disputed that Managing Director is invariably
appointed by Cabinet Division of the Government of Pakistan as the Corporation is
wholly managed and controlled by the Federal Government. Managing Director or the
Corporation is, thus, expected to be a highly qualified person not only in corporate affairs
but also the law of the land including contractual liabilities of the parties, fiscal aspects,
administrative and management skill as well as sense of propriety, equity and justice. For
carrying out the terms and conditions of the contract between the parties, in the event of a
difference arising between the parties, Managing Director could not be expected to be
partisan or unfair in deciding the controversy without any fear or favour. It would,
therefore, be unreasonable to contend that by nominating Managing Director of the
Corporation as sole arbitrator the agreement would be hit by the principles of natural
justice or violative of public policy. The question has been satisfactorily answered in
Lahore Stock Exchange Limited v. Fredrick J. Whyte Group (PLD 1990 SC 48). There
has been longstanding practice since times immemorial that in relation to contracts
between the Government departments or Corporations and the individuals, invariably
persons with reasonable technical knowledge of the terms and conditions of the contract
are mutually agreed upon to act as sole arbitrator Whose award is always subject to
judicial scrutiny under the provisions of the Act 1940. We are, therefore, least impressed
by oft-repeated argument that the titration clause on the face of it is, void, invalid or of no
legal effect. Refer Lahore Stock Exchange Limited (supra) and Director Housing, A.G's
Branch v. Makhdum Consultants Engineers and Architects (1997 SCMR 988).
10. It may not be out of context to mention that during the hearing of his appeal, at the
suggestion of this Court, the respondent was obliged to submit Memorandum and Articles
of Association of the respondent Corporation, which, inter alia, provides for a Board of
Directors as well as the office of Managing Director to run the affairs of the Corporation
incorporated as a Limited Company. As the appellant did not challenge the authority of
the Managing Director to enter into arbitration agreement or to act as sole arbitrator in
relation to any dispute arising out of the contract before lower forums, we are not inclined
to enter into in-depth discussion or this aspect of the case. It is the consistent practice of
this Court not to permit raising of an issue involving disputed factual enquiry for the first
time before this Court unless agitated before the lower forums. However, suffice it to say
written statement in the suit was filed by the Managing Director of the Corporation on
behalf of the respondent and it was stated at the Bar as well that the office of Managing
Director is still intact, who also performs the duties and functions of the Chief Executive
of the Company. Be that as it may, the appellant having voluntarily and of his own
volition entered into contract with the respondent-Corporation and accepted arbitration
clause stipulating the sole arbitration of the Managing Director, we are not inclined to
adjudicate upon his competence or otherwise to enter into the contract between the
parties. Even otherwise, the argument on the face of it relates to the doctrine of indoor
management of a limited company and, thus, it may not be open to the appellant to raise
this question in collateral proceedings. Reliance on Uzin Export and Import Enterprises v.
M. Iftikhar & Co. (1993 SCMR 866), House Building Finance Corporation v. Shahinshah
Humayun Cooperative House Building Society (1992 SCMR 19), Hohnson and Phillips
(Pakistan) Ltd. v. Muhammad Ayaz (1997 CLC 1177), Conforce Limited v. K.U. Naseem
Malik (1983 CLC 1005), Union of India v. Messrs Narayan Cold Storage (AIR 1958
Punjab 24), Union of India v. Din Dayal (AIR 1952 Punjab 368), Governor-General v.
Simla Banking and Industrial Co. (AIR 1947 Lahore 215) and Hormusji v. Local Board,
Karachi (AIR 1934 Sindh 200) does not advance the cause of the appellant in view of
entirely different and distinguishable facts.
11. Adverting to the submission of the learned counsel for the appellant that since
intricate questions of law were involved in the suit, trial Court had rightly exercised the
discretion by not referring the dispute to the arbitration, we are of the considered view
that the claim of the appellant is essentially founded on the terms and conditions of the
contract and alleged breach thereof. On the face of the record, we feel that the arbitrator
would be fully competent to adjudicate, upon the questions of fact leading to the
determination of rights and liabilities of the parties to the contract. We are in no manner
of doubt that the Managing Director of the Corporation should not be handicapped in
resolving the dispute in terms of the contract and in accordance with the law applicable in
the light of the respective contentions of the parties. In our view, there is no likelihood of
failure of justice if the arbitration is allowed to proceed. On the contrary, it would be in
the interest of justice and furtherance of the arbitration agreement that the dispute is
resolved through arbitration as in the face of a valid and lawful arbitration clause it would
not be within the province of the Courts to enter upon such disputes. Learned counsel for
respondent has rightly referred to Director Housing, A.G.'s Branch v. Makhdum
Consultants, Engineers and Architects (1997 SCMR 988), Province of the Punjab v.
Messrs Irfan & Co. (PLD 1956 Lahore 442), A.M. Mair & Co. v. Gordhandas Sagarmull
(AIR 1951 SC 9), Jublee Chamber of Commerce v. Amrit Shah (AIR 1940 Lah. 180).
12. Lastly, a word about learned counsel's submission that as the parties have participated
in the proceedings, it would not be a proper stage for reference of the dispute to
arbitration. As observed hereinabove, it was on account of interim order of this Court that
the proceedings in the suit were allowed to continue and not because of any voluntary act
of respondent submitting to the jurisdiction of the Court. Indeed prayer for stay of
proceedings of suit was made before the commencement of proceedings at the earliest
possible stage. Since the respondent had invoked the jurisdiction of Court under section
34 of the Act 1940 and refrained from conceding to the jurisdiction of the Court, no
exception can be taken to subsequent developments. Suffice it to observe, no person shall
suffer on account of act of Court and an order passed by the Court shall cause no
prejudice to any of the parties. Refer Sajawal Khan v. Wali Muhammad (2002 SCMR
134), Fida Hussain v. the State (PLD 2002 SC 46), Ghulam Hussain v. Jamshaid Ali
(2001 SCMR 1001), Imran Ashraf v. The State (2001 SCMR 424), State v. Asif Adil
(1997 SCMR 209), Iftikhar Baig v. Muhammad Azam (1996 SCMR 762), Sherin v. Fazal
Mehmood (1995 SCMR 584), Abdur Rashid v. Abdul Salam (1991 SCMR 2012), Fateh
Khan v. Bozemir PLD 1991 SC 782, Muhammad Hanif v. Muhammad (PLD 1990 SC
859), Rashad Ehsan v. Bashir Ahmed (PLD 19&9 SC 146), Ghulam Haider v. Raj Bharri
(PLD 1988 SC 20) and Abdul Ghani v. Rasool (PLD 1977 SC 102). There is, thus no
legal impediment in staying further proceedings of the suit and referring the dispute to the
arbitrator, which would only advance the cause of justice, fairplay and equity. There is no
gain observing that in view of valid and lawful arbitration clause in the contract, it would
only be fit and proper to allow the law to take its own course rather than to frustrate the
object of law by dragging the parties to cumbersome procedure of suit, appeal etc.
13. For the aforesaid facts, reasons and circumstances, we are firmly of the view that the
trial Court exercised its discretion by not staying the proceedings of the suit in a manner
not warranted by law while learned Judge in Chambers was right in reversing the order
and staying the proceedings of the suit for valid and convincing reasons, which cannot be
said to be contradictory to the settled principles of law. Resultantly, this appeal fails and
is hereby dismissed. Impugned order of the High Court is upheld and that of the trial
Court set aside.
M.B.A./D-37/S Appeal dismissed.
P L D 2003 Supreme Court 808
Present: Iftikhar Muhammad Chaudhry, Rana Bhagwandas and Faqir Muhammad
Khokhar, JJ
DAR OKAZ PRINTING AND PUBLISHING LIMITED LIABILITY COMPANY---
Appellant
Versus
PRINTING CORPORATION OF PAKISTAN PRIVATE LIMITED---Respondent
Civil Appeal No.379 of 2001, decided on 12th June, 2003.
(On appeal from judgment of Lahore High Court, Rawalpindi Bench, Rawalpindi dated
10-4-2000 passed in F.A.O. No.24 of 2000).
(a) Arbitration Act (X of 1940)---
----S. 34---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was granted by
the Supreme Court to consider the contentions that under S.34, Arbitration Act, 1940, the
Trial Court being vested with the discretion to decline the stay of proceedings and
discretion having been exercised by the Trial Court for cogent reasons, whether the High
Court could have interfered with the same and that whether the arbitration clause
authorizing the Managing Director of the respondent-Corporation as final Judge to
interpret any clause of the agreement against which the appellant was debarred from
having recourse either to arbitration or through Court of law, was against the law having
the effect of debarring the appellant from seeking remedies in accordance with law.
(b) Arbitration Act (X of 1940)---
----Ss.2(a) & 34---Contract Act (IX of 1872), S.23---Arbitration agreement-Expression
"arbitration agreement" within the contemplation of S.2(a), Arbitration Act, 1940 means a
written agreement to submit present or future differences to arbitration whether an
arbitrator is named therein or not--Terms employed in the arbitration clause expressly
reflected mutual intention of the parties to resolve all the disputes concerning the
implementation and execution of the contract through the nominated arbitrator jointly
agreed upon without any duress or coercion---Mere fact that the chosen arbitrator
happened to be the Chief Executive of the respondent-Corporation would not render the
same illegal and against public policy---Consideration of facts and circumstances leading
to the execution of contract between the parties and the phraseology employed in the
arbitration clause of the agreement the agreement was not violative of principles of
natural justice or the statute and thus was not void, invalid or of no legal effect.
Lahore Stock Exchange Limited v. Fredrick J. Whyte Group PLD 1990 SC 48 and
Director Housing, A.G.'s Branch v. Makhdum Consultants Engineers and Architects 1997
SCMR 988 ref.
(c) Arbitration Act (X of 1940)---
----S. 34---Constitution of Pakistan (1973), Art.185---Appeal to Supreme Court---
Appellant had not challenged the authority of the Managing Director of the respondent-
Corporation, a limited company, to enter into arbitration agreement or to act as sole
arbitrator in relation to any dispute arising out of the contract before lower forums---
Supreme Court declined to enter into indepth discussion of such aspect of the case since
the Court would not allow the raising of an issue involving disputed factual enquiry for
the first time before Supreme Court unless agitated before the lower forums---Appellant
having voluntarily and of his own volition, entered into contract with the respondent-
Corporation and having accepted arbitration clause stipulating the sole arbitration of the
Managing Director, Supreme Court declined to adjudicate upon the competence or
otherwise of the Managing Director to enter into the contract between the parties---
Matter, in the present case, on the face of it related to the doctrine of indoor management
of a limited company and this was not open to the appellant to raise such question in
collateral proceedings.
Uzin Export and Import Enterprises v. M. Iftikhar & Co. 1993 SCMR 866; House
Building Finance Corporation v. Shahinshah Humayun Cooperative House Building
Society 1992 SCMR 19; Hohnson and Phillips (Pakistan) Ltd. v. Muhammad Ayaz 1997
CLC 1177; Conforce Limited v: K.U. Naseem Malik 1983 CLC 1005: Union of India v.
Messrs Narayan Cold Storage AIR 1958 Punj. 24; Union of India v. Din Dayal AIR 1952
Punj. 368; Governor-General v. Simla Banking and Industrial Co. AIR 1947 Lah. 215 and
Hormusji v. Local Board, Karachi AIR 1934 Sindh 200 distinguished.
(d) Arbitration Act (X of 1940)---
----S. 34---Arbitration agreement---Valid and lawful arbitration clause in the agreement
of arbitration---Adjudication on dispute arising from such agreement by Court---Scope---
Contention of the appellant was that since intricate questions of law were involved in the
suit, trial Court had rightly exercised the discretion by not referring the dispute to the
arbitration--Validity---Claim of the appellant in the present case, was essentially founded
on the terms and conditions of the contract and alleged breach thereof--Arbitrator, in
circumstances, was not handicapped but was fully competent to adjudicate upon the
questions of fact leading to the determination of rights and liabilities of the parties to the
contract and in resolving the dispute in terms of the contract in accordance with law
applicable in the light of respective contentions of the parties---No likelihood of failure of
justice existed if the arbitration was allowed to proceed rather it would be in the interest
of justice and furtherance of the arbitration agreement that the dispute was resolved
through arbitration as in the face of a .valid and lawful arbitration clause it would not be
within the province of the Courts to enter upon such dispute.
Director Housing, A.G.'s Branch v. Makhdum Consultants, Engineers and Architects
1997 SCMR, 988; Province of the Punjab v. Messrs Irfan & Co. PLD 1956 Lah, 442;
A.M. Mair & Co. v. Gordhandas Sagarmull AIR 1951 SC 9 and Jublee Chamber of
Commerce v. Amrit Shah AIR 1940 Lah. 180 ref.
(e) Arbitration Act (X of 1940)---
----S. 34---Reference to arbitration---Contention was that parties having participated in
the proceedings in the suit, it would not be a proper stage for reference of the dispute to
arbitration ---Validity---Proceedings in the suit were allowed to continue on account of an
interim order of Supreme Court and not because of any voluntary act of the respondent
submitting to the jurisdiction of the Court---Prayer for stay of proceedings in the suit,
indeed, was made before the commencement of proceedings at the earliest possible stage
and respondent had invoked the jurisdiction of Court under S.34 of the Arbitration Act,
1940 and refrained from conceding to the jurisdiction of the Court, no exception could be
taken to subsequent developments---No person would suffer on account of act of Court
and an order passed by the Court shall cause no prejudice to any of the parties---No legal
impediment thus existed in staying further proceedings of the suit and referring the
dispute to the arbitrator, which would only advance the cause of justice, fair play and
equity as in view of a valid and lawful arbitration clause in the agreement, it would only
be lit and proper to allow the law to take its own course rather than to frustrate the object
of law by dragging the parties to cumbersome procedure of suit; appeal etc:---Trial Court,
,therefore, had exercised its discretion by not staying the proceedings of the suit in a
manner not warranted by law while the High Court was right in reversing the order and
staying the proceedings of the suit for valid and convincing reasons, which could not be
said to be contradictory to the settled principles of law.
Sajawal Khan v. Wali Muhammad 2002 SCMR 134; Fida Hussain v. The State PLD 2002
SC 46; Ghulam Hussain v. Jamshaid Ali 2001 SCMR 1001; Imran Ashrat v. The State
2001 SCMR 424; State v. Asif Adil 1997 SCMR 209; Iftikhar Baig v. Muhammad Azam
1996 SCMR 762; Sherin v. Fazal Mehmood 1995 SCMR 584; Abdur Rashid v. Abdul
Salam 1991 SCMR 2012: Fateh Khan v. Bozemir PLD 1991 S.C 782; Muhammad Hanif
v. Muhammad PLD 1990 SC 859; Rashad Ehsan v. Bashir Ahmed PLD 1989 SC 146;
Ghulam Haider v. Raj Bharri. PLD 1988 SC 20 ant Abdul Ghani v. Rasool PLD 1977 SC
102 ref.
(f) Act of Court---
---- No person should suffer on account of act of Court and an order passed by the Court
shall cause no prejudice to any of the parties.
Sajawal Khan v. Wali Muhammad 2002 SCMR 134; Fida Hussain v. the State PLD 2002
SC 46; Ghulam Hussain v. Jamshaid Ali 2001 SCMR 1001; Imran Ashraf v. The State
2001 SCMR 424; State v. Asif Adil 1997 SCMR 209; Iftikhar Baig v. Muhammad Azam
1996 SCMR 762; Sherin v. Fazal Mehmood 1995 SCMR 584; Abdur Rashid v. Abdul
Salam 1991 SCMR 2012; Fateh Khan v. Bozemir PLD 1991 SC 782; Muhammad Hanif
v. Muhammad PLD 1990 SC 859; Rashad Ehsan v. Bashir Ahmed PLD 1989 SC 146;
Ghulam Haider v. Raj Bharri PLD 1988 SC 20 and Abdul Ghani v. Rasool PLD 1977 SC
102 ref.
Muhammad Akram Sheikh, Senior Advocate Supreme Court and M.A. Zaidi, Advocate-
on-Record for Appellant.
Raja Muhammad Ibrahim Satti, Advocate Supreme Court and M.S. Khattak, Advocate-
on-Record for Respondent.
Dates of hearing: 28th and 30th May, 2003.
JUDGMENT
RANA BHAGWANDAS, J.---This is an appeal by leave of this Court from the judgment
dated 10-4-2000 of the Lahore High Court, Rawalpindi Bench in F.A.O. No.24 of 2000
reversing an order passed by the Senior Civil Judge, Islamabad whereby he dismissed
respondents' prayer for stay of the proceedings of the suit under section 34 of the
Arbitration Act 1940 (hereinafter referred as the Act 1940).
2. Appellant filed a suit for recovery of damages against the respondent on the basis of
contract dated 23-11-1993 for publication of 1996 issue of telephone directories for
Karachi and Lahore Region. It was stipulated in the contract that the respondent would
make 30% of the payment to the appellant within 30 days of signing the agreement;
another 30% would be paid within 30 days of the first payment, third payment of 30%
would be payable at the time of shipment of the directories whereas the final payment of
10% was payable within ten days of delivery of the directories. It appears that despite
shipment of directories by the appellant, requisite payment was not made by the
respondent-Corporation and there arose some dispute as to the liability for payment of
sales tax imposed by the Government of Pakistan, leading to the institution of the suit for
recovery of Rs.150,336,253.20:
3. Before a written statement could be filed respondent moved an application under
section 34 of the Act, 1940 for stay of the suit and reference of the dispute to the
arbitration in terms of the arbitration clause contained in clause 51 of the Contract
stipulating that the Managing Director of the respondent-Corporation will be the sole
arbitrator in case any dispute or difference arose between the parties with regard to
construction meaning and effect of the contract or any part thereof or any matter relating
thereto or arising from the contract. This prayer was resisted on the premises that clause
51 of the contract did not record any agreement of the parties to the effect that any
dispute present or future in relation to the contract would be submitted to arbitration; that
the said clause was not only contradictory in terms but also void being violative of
section 23 of the Contract Act to the extent of debarring the appellant from having
recourse to Courts of law as well as the arbitration. Another ground agitated by the
appellant appears to be that since validity of the agreement had been challenged,
complicated questions of law could not be referred to the arbitrator. Appellant also took
serious exception to the forum for arbitration as according to it reference to the Managing
Director as arbitrator was negation of the principles of natural justice because the
Managing Director being competent to accept or reject the claim of the appellant would
be acting as a Judge in his own cause. Last ground raised by the appellant appears to be
that its claim and the subject-matter of the suit was substantially and wholly not covered
by the so-called arbitration agreement between the parties, which was vague, unspecific
and uncertain as to the nature of the dispute. Learned trial Court, upon interpretation of
clause 51 of the contract rejected the prayer for stay of the suit for the reasons, inter alias
that arbitration clause was against the principles of natural justice as Managing Director
being one of the parties was nominated as sole arbitrator and competent to accept or
reject the claim of the appellant; that discretion to stay the proceedings could not be
exercised against the principles of natural justice; that intricate questions of law being
involved in the suit could not be settled impartially by the arbitrator and that in view of
challenge to the validity of arbitration agreement, there was strong apprehension of
failure of justice. This order was assailed in appeal before the High Court, which has been
allowed, setting aside the order of the trial Court leading to this appeal.
4. Leave to appeal was granted to consider the contentions firstly, that under section 34 of
the Act 1940, the trial Court being vested with the discretion to decline the stay of
proceedings and discretion having been exercised by the trial Court for cogent reasons
whether the High Court could have interfered with it and secondly, whether the
arbitration clause authorising the respondent-Corporation as final judge to interpret any
clause of the agreement against which the appellant was debarred from having recourse
either to arbitration or through Court of law was against the law having the effect of
debarring the appellant from seeking remedies in accordance with law?
5. While granting leave, on the application for interim relief, it was ordered that operation
of the impugned judgment of the High Court shall remain suspended but proceedings of
the suit shall continue and be finalized with the exception that judgment shall not be
announced till further order of this Court. It is stated at the Bar that by now, proceedings
before the trial Court having been concluded but the judgment is withheld by reason of
interim order passed by this Court.
6. We have heard Sheikh Muhammad Akram, learned Senior Advocate Supreme Court
for the appellant and Raja Muhammad Ibrahim Satti, learned Advocate Supreme Court
for the respondent and, with their assistance, scanned the record. Learned counsel for the
appellant has raised the following contentions:
(i) That clause 51 of the contract between the parties is self-contradictory, invalid,
unconscionable and against public policy and consequently there is no valid
arbitration agreement between the parties.
(ii) That assuming, without conceding, there was an arbitration clause in the
contract, under the Memorandum and Articles of Association of the respondent-
Corporation, Managing Director was not competent, to enter into an arbitration
agreement and also to act as sole arbitrator for resolution of the dispute.
(iii) That intricate and complicated questions of law arising in the suit the
discretion for not referring the dispute to the arbitration was rightly exercised by
the trial Court, which could not be legally interfered with by the High Court.
(iv) That the proceedings in the suit before the trial Court having been concluded,
there would be no occasion for stay of the proceedings and reference of the
dispute to the arbitration at this stage.
7. Conversely; learned counsel for the respondent wholeheartedly supported the judgment
of the High Court and in rebuttal canvassed that the appellant having voluntarily entered
into a lawful contract is bound by the valid and lawful arbitration clause accepting the
Managing Director of the respondent-Corporation as sole arbitrator for resolution of any
dispute arising out of the terms of the contract and any dispute relating to its meaning,
interpretation and construction. Learned counsel is of the view that arbitration clause is
not only clear, specific and express but also strictly according to law and constitutes a
valid agreement for reference of any dispute between the parties concerning the contract
to arbitration and that so-called intricate questions of law were neither identified by the
appellant before the trial Court nor were such as could not be determined by the
arbitrator, who is a high ranking public servant appointed by the Government of Pakistan
and fully capable of doing complete justice to the parties. Lastly, learned counsel clarified
that the respondent did not submit to the jurisdiction of the Court voluntarily and
participated in the proceedings only because of interim order of this Court, which would
not operate to the prejudice of the respondent for stay of the proceedings and reference of
the dispute to the arbitration.
8. In order to fully comprehend the nature of dispute and to interpret the phraseology
used in clause 51 of the contract, it would be appropriate if the relevant arbitration clause
is quoted here, which reads as follows:--
"The supplier agrees that PCP is fully competent to interpret any clause of this
agreement and such an interpretation as may be made by PCP will be accepted by
the Supplier without recourse either to arbitration or through the Court of law.
Managing Director PCP shall be the sole arbitrator in case any dispute or
difference arises between the two parties with regard to the construction, meaning
and effect of this contract or any part thereof or any matter relating thereto or
arising from this contract."
The expression "arbitration agreement" within the contemplation of section 2(a) of Act
1940 means a written agreement to submit present or future differences, to arbitration
whether an arbitrator is named, therein or not. A glance at clause 51 of the contract
reproduced hereinabove clearly suggests that appellant voluntarily agreed that
respondent-Corporation would be fully competent to interpret any clause of the
agreement and such interpretation as may be made by the Corporation would be
acceptable to and binding on the appellant. Second part of the clause lays emphasis on the
plain intention of the parties that Managing Director of the respondent-Corporation shall
be the sole arbitrator in the event of any dispute or difference arising between the parties
with regard to the construction, meaning and effect of the contract or any part thereof or
any matter relating thereto or arising therefrom. No doubt, second part of the clause is
preceded by the terms debarring the appellant to have recourse either to arbitration or to a
Court of law but in the face of clear and candid agreement accepting the interpretation
and construction as made by the Corporation and appointment of Managing Director as
sole arbitrator, part of the agreement barring remedy to Court of law or arbitration is
rendered redundant, in inconsequential and of no legal effect. Since execution of the
contract between the parties is not in dispute and in the suit the appellant itself founded
its claim on the said contract, the question for consideration would be whether the
arbitration clause is against section 23 of the Contract Act, 1872 as contended? On a
careful consideration of the facts and circumstances leading to the execution of contract
between the parties and the phraseology employed in this particular clause, it is difficult
to subscribe to the submission of the leered counsel that the agreement is violative of
principle of natural justice or the statute. In our view the terms employed in the
arbitration clause expressly reflect mutual intention of the parties to resolve all disputes
concerning the implementation and execution of the contract through the nominates
arbitrator jointly agreed upon without any duress or coercion. At any rate mere fact that
the chosen arbitrator happens to be the Chief Executive of the respondent-Corporation
would not render it illegal and against public policy. Indeed it may be a case of bad
drafting when it says that the appellant cannot have recourse to arbitration or a Court of
law. This part of the clause thus can be conveniently ignored which is even otherwise un-
necessary.
9. It is common ground that the respondent-Corporation was incorporated as a Private
Limited Company as far back as 1-1-1969 under the provisions of Companies Act, 1913
and after the promulgation of Companies Ordinance, 1984 registered under the provisions
of the Ordinance. It is equally not disputed that Managing Director is invariably
appointed by Cabinet Division of the Government of Pakistan as the Corporation is
wholly managed and controlled by the Federal Government. Managing Director or the
Corporation is, thus, expected to be a highly qualified person not only in corporate affairs
but also the law of the land including contractual liabilities of the parties, fiscal aspects,
administrative and management skill as well as sense of propriety, equity and justice. For
carrying out the terms and conditions of the contract between the parties, in the event of a
difference arising between the parties, Managing Director could not be expected to be
partisan or unfair in deciding the controversy without any fear or favour. It would,
therefore, be unreasonable to contend that by nominating Managing Director of the
Corporation as sole arbitrator the agreement would be hit by the principles of natural
justice or violative of public policy. The question has been satisfactorily answered in
Lahore Stock Exchange Limited v. Fredrick J. Whyte Group (PLD 1990 SC 48). There
has been longstanding practice since times immemorial that in relation to contracts
between the Government departments or Corporations and the individuals, invariably
persons with reasonable technical knowledge of the terms and conditions of the contract
are mutually agreed upon to act as sole arbitrator Whose award is always subject to
judicial scrutiny under the provisions of the Act 1940. We are, therefore, least impressed
by oft-repeated argument that the titration clause on the face of it is, void, invalid or of no
legal effect. Refer Lahore Stock Exchange Limited (supra) and Director Housing, A.G's
Branch v. Makhdum Consultants Engineers and Architects (1997 SCMR 988).
10. It may not be out of context to mention that during the hearing of his appeal, at the
suggestion of this Court, the respondent was obliged to submit Memorandum and Articles
of Association of the respondent Corporation, which, inter alia, provides for a Board of
Directors as well as the office of Managing Director to run the affairs of the Corporation
incorporated as a Limited Company. As the appellant did not challenge the authority of
the Managing Director to enter into arbitration agreement or to act as sole arbitrator in
relation to any dispute arising out of the contract before lower forums, we are not inclined
to enter into in-depth discussion or this aspect of the case. It is the consistent practice of
this Court not to permit raising of an issue involving disputed factual enquiry for the first
time before this Court unless agitated before the lower forums. However, suffice it to say
written statement in the suit was filed by the Managing Director of the Corporation on
behalf of the respondent and it was stated at the Bar as well that the office of Managing
Director is still intact, who also performs the duties and functions of the Chief Executive
of the Company. Be that as it may, the appellant having voluntarily and of his own
volition entered into contract with the respondent-Corporation and accepted arbitration
clause stipulating the sole arbitration of the Managing Director, we are not inclined to
adjudicate upon his competence or otherwise to enter into the contract between the
parties. Even otherwise, the argument on the face of it relates to the doctrine of indoor
management of a limited company and, thus, it may not be open to the appellant to raise
this question in collateral proceedings. Reliance on Uzin Export and Import Enterprises v.
M. Iftikhar & Co. (1993 SCMR 866), House Building Finance Corporation v. Shahinshah
Humayun Cooperative House Building Society (1992 SCMR 19), Hohnson and Phillips
(Pakistan) Ltd. v. Muhammad Ayaz (1997 CLC 1177), Conforce Limited v. K.U. Naseem
Malik (1983 CLC 1005), Union of India v. Messrs Narayan Cold Storage (AIR 1958
Punjab 24), Union of India v. Din Dayal (AIR 1952 Punjab 368), Governor-General v.
Simla Banking and Industrial Co. (AIR 1947 Lahore 215) and Hormusji v. Local Board,
Karachi (AIR 1934 Sindh 200) does not advance the cause of the appellant in view of
entirely different and distinguishable facts.
11. Adverting to the submission of the learned counsel for the appellant that since
intricate questions of law were involved in the suit, trial Court had rightly exercised the
discretion by not referring the dispute to the arbitration, we are of the considered view
that the claim of the appellant is essentially founded on the terms and conditions of the
contract and alleged breach thereof. On the face of the record, we feel that the arbitrator
would be fully competent to adjudicate, upon the questions of fact leading to the
determination of rights and liabilities of the parties to the contract. We are in no manner
of doubt that the Managing Director of the Corporation should not be handicapped in
resolving the dispute in terms of the contract and in accordance with the law applicable in
the light of the respective contentions of the parties. In our view, there is no likelihood of
failure of justice if the arbitration is allowed to proceed. On the contrary, it would be in
the interest of justice and furtherance of the arbitration agreement that the dispute is
resolved through arbitration as in the face of a valid and lawful arbitration clause it would
not be within the province of the Courts to enter upon such disputes. Learned counsel for
respondent has rightly referred to Director Housing, A.G.'s Branch v. Makhdum
Consultants, Engineers and Architects (1997 SCMR 988), Province of the Punjab v.
Messrs Irfan & Co. (PLD 1956 Lahore 442), A.M. Mair & Co. v. Gordhandas Sagarmull
(AIR 1951 SC 9), Jublee Chamber of Commerce v. Amrit Shah (AIR 1940 Lah. 180).
12. Lastly, a word about learned counsel's submission that as the parties have participated
in the proceedings, it would not be a proper stage for reference of the dispute to
arbitration. As observed hereinabove, it was on account of interim order of this Court that
the proceedings in the suit were allowed to continue and not because of any voluntary act
of respondent submitting to the jurisdiction of the Court. Indeed prayer for stay of
proceedings of suit was made before the commencement of proceedings at the earliest
possible stage. Since the respondent had invoked the jurisdiction of Court under section
34 of the Act 1940 and refrained from conceding to the jurisdiction of the Court, no
exception can be taken to subsequent developments. Suffice it to observe, no person shall
suffer on account of act of Court and an order passed by the Court shall cause no
prejudice to any of the parties. Refer Sajawal Khan v. Wali Muhammad (2002 SCMR
134), Fida Hussain v. the State (PLD 2002 SC 46), Ghulam Hussain v. Jamshaid Ali
(2001 SCMR 1001), Imran Ashraf v. The State (2001 SCMR 424), State v. Asif Adil
(1997 SCMR 209), Iftikhar Baig v. Muhammad Azam (1996 SCMR 762), Sherin v. Fazal
Mehmood (1995 SCMR 584), Abdur Rashid v. Abdul Salam (1991 SCMR 2012), Fateh
Khan v. Bozemir PLD 1991 SC 782, Muhammad Hanif v. Muhammad (PLD 1990 SC
859), Rashad Ehsan v. Bashir Ahmed (PLD 19&9 SC 146), Ghulam Haider v. Raj Bharri
(PLD 1988 SC 20) and Abdul Ghani v. Rasool (PLD 1977 SC 102). There is, thus no
legal impediment in staying further proceedings of the suit and referring the dispute to the
arbitrator, which would only advance the cause of justice, fairplay and equity. There is no
gain observing that in view of valid and lawful arbitration clause in the contract, it would
only be fit and proper to allow the law to take its own course rather than to frustrate the
object of law by dragging the parties to cumbersome procedure of suit, appeal etc.
13. For the aforesaid facts, reasons and circumstances, we are firmly of the view that the
trial Court exercised its discretion by not staying the proceedings of the suit in a manner
not warranted by law while learned Judge in Chambers was right in reversing the order
and staying the proceedings of the suit for valid and convincing reasons, which cannot be
said to be contradictory to the settled principles of law. Resultantly, this appeal fails and
is hereby dismissed. Impugned order of the High Court is upheld and that of the trial
Court set aside.
M.B.A./D-37/S Appeal dismissed.
P L D 2003 Lahore 714
Before Muhammad Sayeed Akhtar, J
HYUNDAI-HIDCO-HAKAS JOINT VENTURE---Petitioner
Versus
WATER AND POWER DEVELOPMENT AUTHORITY---Respondent
Writ Petition No. 21289 of 2002, decided on 2nd June, 2003.
(a) Constitution of Pakistan (1973)---
----Art. 199---Constitutional petition---Contract for construction of civil works---
Arbitration clause---Contractor (petitioner) sought release of security
documents/guarantees after substantial performance of contract and completion of
works---Employer disputed decisions of "Engineer" (appointed for purposes of contract)
regarding certification and payment of money against contractor's claim---Validity---
Factual controversy existed between parties, which could not be resolved by High, Court
in exercise of Constitutional jurisdiction---Dispute between employer and contractor in
connection with or arising out of contract of execution of works according to conditions
of contract would be referred to and settled by "Engineer" and subject to arbitration, his
decision would be final --- Employer had not accepted decision of Engineer and had
invoked arbitration clause of the contract---Despite satisfaction, approval or certification
by engineer, employer could show that work was not in accordance with contract---
Employer could not become a Judge in his own cause without recourse to arbitration and
ask for encashment of Bank guarantees, which would amount to forfeiture of contractor's
property without getting dispute adjudicated first---Contractor had to make colossal
payment to Bank after notice of encashment of Bank guarantees by employer---Such
unlawful pressure exerted on contractor was not a normal commercial or permissible
pressure, but same had constituted improper threat and conduct in coercing him to make
disputed payment to employer and keep guarantees intact---Right of employer to encash
Bank guarantees not disputed, but employer had not acted fairly and reasonably- in such ,
case---Such fact could not be decided in Constitutional petition, which was dismissed by
High Court.
Messrs Gadoon Textile Mills and 814 others v. WAPDA and others 1997 SCMR 641;
Murree Brewery Co. Ltd. v. Pakistan through Secretary to Government of Pakistan,
Works Division and 2 others PLD 1972 SC 279; Federation of Pakistan through the
Secretary, Establishment Division, Government of Pakistan, Rawalpindi v. Saeed Ahmad
Khan and others PLD 1974 SC 151; Messrs Airport Support Services v. The Airport
Manager, Quaid-e-Azam International Airport, Karachi and others 1998 SCMR 2268;
Anjuman-e-Ahmadiya, Sardodha v. Deputv Commissioner, Sargodha and another PLD
1966 SC 639; Shaukat Ali v. Secretary, Industries and Mineral Development,
Government of Punjab, Lahore and 3 others 1995 MLD 123; Asif Iqbal v. Karachi
Metropolitan Corporation and 2 others PLD 1994 Kar. 60; Federal Government
Employees Housing Foundation through Director General, Islamabad v. Muhammad
Akram Alizai, Deputy Controller, PBC, Islamabad PLD 2002 SC 1079; Abdul Rauf and
others v. Capital Development Authority, Islamabad 1988 MLD 1523 Nizam Din and
others v. Civil Aviation Authority 1999 SCMR 467; Daewoo Corporation v. NHA 2000
MLD 1745; Bavindir Insaat v. Pakistan PLD 2001 Lah. 426 and Amin Fabrics Limited,
Karachi v. Pakistan Agricultural Storage and Services Corporation Ltd. (PASSCO),
Lahore and another PLD 1999 Lah. 313 ref.
(b) Constitution of Pakistan (1973)---
----Art. 199---Factual controversy---Could not be resolved by High Court in exercise of
Constitutional jurisdiction.
(e) Constitution of Pakistan (1973)-----
----Art. 199---National Accountability Ordinance (XVIII of 1999), S.9--Loss to public
exchequer caused by public functionaries---Observation of High Court---Contract for
construction of Chashma Hydropower Electric Project---Delay of 1129 days in
completion of project due to mis-management and inefficiency of WAPDA. and
,concerned Authorities--Original evaluated cost of project was Rs.10,557 million, which
had increased to Rs.17,822 million on account of such delay---Citizens of country had
been made to incur and suffer an extra cost of Rs.7265 million---Neither responsibilities
had been fixed nor any action had been taken against guilty nor National Accountability
Bureau had initiated any inquiry.
Raza Kazim for Petitioner:
Tariq Kamal Qazi for Respondent.
Dates of hearing: 6th May and 2nd June, 2003.
JUDGMENT
Chashma Hydropower Electric Project was conceived as an economical source of energy.
It was approved by ECNEC on June 22, 1994. The contract for construction of civil
works was awarded to the petitioner. The letter of intent was given on 5-12-1994 by the
respondent and parties entered into a formal contract on 14-12-1994. The petitioner
entered the site on July, 5, 1995. The contract price was Rs.3,264,679,290. Chashma
Group of Consultants were appointed by the respondent as "Engineer" for the purposes of
the contract. The petitioner furnished the following guarantees for the performance of the
contract:--
(1) Performance Guarantee ' No.ACB/06/99/06 dated 8-3-1999 for Rs.313,256,029 from
Askari Commercial Bank Limited (ACBL);
(2) Guarantee No.LG 1410/1997/0037 dated 29-1-1997 for US$ 895,185 from ANZ
Grindlay's Bank Limited (ANZ);
(3) Guarantee No.LG 1410/1997/0038 dated 29-1-1997 for Rs.16,958,207 from ANZ.
The contract was delayed for 1129 days. The petitioner-Contractor was granted four
extensions of time; the first in February, 1998 for 212 days; the second in January, 1999
for 420 days; the third in January, 2000 for 397 days; and the fourth in July, 2000 for
100days and the completion date was extended to November, 2000 by the respondent.
The engineer vide his letter dated 18-8-2000 to the respondent recommended certain
amounts to be paid to the contractor as an on-account payment of his claim for additional
costs arising from delays. The respondent accorded the approval for on account payments
to the petitioner up to a maximum of US$ 5.5 million and the engineer was advised to
include on-account payment against claims in 'Interim Payment Certificate (IP 79) in
order to fully utilize the remaining Asian Development Bank Loan. The respondent-
employer thus paid US$ 5.485 million to the petitioner as on-account payment. The
petitioner submitted claim as additional costs incurred owing to the delay of 1129 days
caused by the respondent vide letter dated 4-8-2000 and 4-12-2000 for Rs.466,237,174
(local currency) and Rs.907,823,398 equivalent to US$ 36,608,733. Before awaiting for
the decision of the engineer, the respondent vide its letter dated 25-10-2001 informed the
engineer that on account payment of US$ 5.485 made to the Contractor against claims
under IPC 79 and IPC 80 was to be adjusted against his future payments of all kinds. The
engineer was required to review his certification for the principal amounts as well as
interest on late payments. The Contractor wrote to the Askari Commercial Bank Ltd and
ANZ Grindlay's Bank on 28-11-2001 for encashment of the bank guarantees to the tune
of Rs.313,256,029 and US$ 895,185.00 and Rs.16,958,027. A suit was filed against the
respondent and ad interim relief was granted restraining the respondent from encashing
the bank guarantees. However, the said notices were withdrawn and the suit was
dismissed on 4-12-2002. Vide letter dated 11-2-2002 the respondent's CE/PD (Chief
Engineer/Project Director) informed the engineer:--
"That Chairman, WAPDA has decided to recover the balance amount of on-
account payment immediately from the Contractor's securities/outstanding sum
like performance bond, retention money or any other amount of the Contractor
held by WAPDA in accordance with WAPDA Rules and Regulations (to which
10% interest on the amount paid etc.)."
You are requested to implement the decision of Chairman, WAPDA in the letter
and spirit. "
After two days of the issuance of the above mentioned letter dated 11-2-2002 vide its
letters dated 13-2-2002 the respondent asked the Askari. Commercial Bank Ltd. and ANZ
Grindlay's Bank Ltd. to encash the bank guarantees to the tune of Rs.313,256,029
(Rupees three hundred and thirteen million two hundred and fifty-six thousand twenty-
nine only) and US$ 895,185 (US$ eight hundred ninety-five thousand one hundred and
eighty five only) and Rs.16,958,207 respectively. From here, the dispute between the
parties aggravated. However, sanity prevailed and vide letter dated 26-2-2002, the letters
for encashment of bank guarantees were withdrawn second time. Vide letter dated 11-3-
2002 the petitioner was again served a notice under clause 10.3 of the conditions of
contract to recover a sum of US$ 4,310,437.66 from their guarantors. A letter was written
third time to Askari Commercial Bank Ltd. for encashment of the guarantees for
Rs.313,256,029. The same were again withdrawn vide letter dated 13-3-2002 and 16-3-
2002. The engineer recommended the petitioner's claim for additional costs to the tune of
Rs.62,911,860 (local currency) and US$ 5,155,321 (foreign currency). At the same time it
was pointed out that the total aforesaid two sums was in excess of US$ 5.485 million
already paid to the petitioner under IPC 79 and IPC 80.
The respondent withheld its approval to the issuance of TOC (Taking Over Certificate)
under clause 2.1(b)6 of the conditions of contract despite engineer's confirmation in his
letter dated 13-11-2000 that the works had been substantially completed (99.2'%) as per
clause 48.1 of the contract. The respondent however, fixed 13-2-2001 instead of 8-11-
2001 as the date of substantial completion of the works. Due to non-issuance of TOC the
Defects Liability Certificate (DLC) could not be issued even after the petitioner had
removed all defects as per its letter dated 31-1-2002.
2. Learned counsel for the petitioner contended that:--
That the documents mentioned in paras. 29 to 31 of the petition clearly establish
that--
(1) the substantial completion of the whole of the works was achieved on 8-11-2000;
(2) the TOC was due for issuance within 21 days from 8-11-2000;
(3) the Defects Liability Period expired on 31-1-2002.
(4) the Defects Liability Certificate was due for issuance on 28-2-2002;
(5) the Performance Guarantee mentioned above was due for release 28 days after
the issuance of DLC by 28-2-2002 i.e, on 28-3-2002;
(6) the Bank guarantees were due for release three months after expiration of the
Defects Liability Period i.e., on 30-4-2002;
(7) the respondent has acted mala fide and in excess of its authority in withholding
the issuance of the TOC and the DLC in order to ensure that the Bank guarantee.
mentioned above are not released and continue to be available to the respondent
for wrongful encashment and coercing the petitioner to surrender his legal rights
and remedies in favour of the respondent.
Todate the respondent has also withheld Petitioner's Payments of Rs.127,229,244
equivalent to US$ 4,506,718 under IPC Nos. 82 to 98. The engineer has verified
petitioner's claims for about US$ 18 million for additional costs arising from respondent
caused 1129 days delay for the completion of civil works.
He further submitted that payments made to the petitioner cannot be recovered by the
respondent under WAPDA Rules and Regulations and in fact, there are none. The sole
object of the respondent's decision is to recover the payments made to the petitioner for
its time-related claim through encashment of its Bank guarantees and to compel the
petitioner to give up its valid claims of more than US$ 36 million out of which about US$
18 million have been verified by the engineer. Learned counsel urged that WAPDA is
proceeding against the properties of the petitioner which are no longer securities.
Respondent holds the securities in trust for petitioner. Withholding of the same is the
violation of Articles 4, 24 and 260 of the Constitution of Islamic Republic of Pakistan.
WAPDA as a Public Authority, is bound to act reasonably and fairly. He referred to
sections 21 and 24-A of the General Clauses Act. WAPDA acts are motivated by malice.
Learned counsel urged that the presence of arbitration clause in the contract does not
debar the Constitutional remedy. The respondent is bound to release the bank guarantees.
Reliance was placed on Messrs Gadoon Textile Mills and 814 others v. WAPDA and
others (1997 SCMR 641), Murree Brewery Co. Ltd. v. Pakistan through Secretary to
Government of Pakistan, Works Division and 2 others (PLD 1972 SC 279; The
Federation of Pakistan through the Secretary, Establishment Division, Government of
Pakistan, Rawalpindi v. Saeed Ahmad Khan and others (PLD 1974 SC 151), Messrs
Airport Support Services v. The Manager, Quaid-e-Azam International Airport, Karachi
and others (1998 SCMR 2268), Anjuman-e-Ahmadiyya, Sargodha v. Deputy
Commissioner, Sargodha and another (PLD 1966 SC 639), Shaukat Ali v. Secretary,
Industries and Mineral Development, Government of Punjab, Lahore and 3 others (1995
MLD 123), Asif Iqbal v. Karachi Metropolitan Corporation and 2 others (PLD 1994
Karachi 60), Federal Government Employees Housing Foundation through Director
General, Islamabad v. Muhammad Akram Alizai, Deputy Controller, PBC, Islamabad
(PLD 2002 SC 1079) and Abdul Rauf and others v. Capital Development Authority,
Islamabad (1988 MLD 1523).
Conversely the learned counsel for the respondent submitted that the dispute between the
parties involves factual controversy. He has referred to different dates alleged by both the
parties and which are at variance for issuance of (1) DLC (Defect Liability Certificate),
(ii) TOC (Taking Over Certificate), (iii) On-Account Payment, (iv) Claim Submission
No.6, Section A, general expenses. Learned counsel vehemently contended that the
Constitutional petition was not maintainable. He further submitted that the Engineer's
decision regarding DLC. TOC and On-Account Payment as well as Claim Submission
No.6 has been seriously disputed by the respondent. It has invoked clause 67-A of the
contract for referring the matter to arbitration for the resolution of the dispute. Learned
counsel has submitted a long list of the case-law to urge that the Constitutional petition is
not maintainable for enforcement or breach of contract, some of which are Messrs Airport
Support Services v. The Airport Manager, Quaid-e-Azam International Airport, Karachi
and others (1988 SCMR 2268). Nizam Din and others v. Civil Aviation Authority (1999
SCMR 467), Daewoo Corporation v. NHA (2000 MLD 1745) and Bayindir Insaat v.
Pakistan (PLD 2001 Lahore 426).
In rebuttal the learned counsel for the petitioner submitted that no evidence is to be
recorded. All the documentary evidence was before this Court. The facts were admitted
by the parties and require no further evidence as such this Court could proceed further in
its Constitutional jurisdiction. The arbitration was not an adequate remedy in the
particular circumstances of the case.
3. I, have considered the arguments of the learned counsel for the parties and perused the
voluminous record attached with the petition. In my view the contention of the learned
counsel for the petitioner that the works have been completed and the contract has been
substantially performed as such the security documents/guarantees are liable to be
returned to the petitioner, is devoid of any force. The respondent has seriously disputed
the decisions of the engineer. Respondent vide letter stated 4-6-2002 disagreed with the
engineer's decision regarding certification and payment of US$ 5,485,381.48 against
Contractor's claim and replied as under:--
"Subject: Civil Works Contract--Engineer's decisions in accordance with Clause
67-A Certification and Payment of US$ 5,548,381.48 against Contractor's claims.
Reference is made to CGC Letter No.3242-26136 dated May 29, 2002 conveying
the Engineer's decisions on the subject-matter.
WAPDA does not agree with this Engineer's decisions and has opted for
arbitration in accordance with contract provisions.
This is for your information, record and further necessary action. if any, please."
The letter dated 4-6-2002 by the respondent reads as under:
"Subject: Civil Works Contract--Engineer's Decisions in accordance with Clause
67.A
Clause 48.1--Date of Substantial Completion of the whole of the Works
Clause 60.4B--Non-payment of first 50% f.c. Retention Money
Clause 60.4B--Non-payment of final 25% of f.c. and f.c. Retention Money.
Reference is made to CGC Letter No.3242-26087 dated May 29, 2002 conveying
the Engineer's decision on the subject-matter.
WAPDA does not agree with this Engineer's decisions and has opted for
arbitration in accordance with contract provisions.
This is for your information, record and further necessary action, if any, please."
Similarly letter dated 31-7-2002 provides:-:
"Civil Works Contract--Engineer's Decision in accordance with Clause 67. A.
Clause 62.1--Approval and Issuance of Defects Liability Certificate.
Clause 10.1.17 and 60.4.C--Additional Cost of the Continuing Provisions of
Contract Securities.
Reference is made to your Letter No.3242-26199 dated June 11, 2002 conveying
the Engineer's decision on the subject-matter.
WAPDA does not agree with the subject cited Engineer's decision and has opted
for Arbitration in accordance with Clause 67 of Conditions of Civil Works
Contract Part-11.
This is for your information record and further necessary action, if any, please.".
Again vide letter dated 2-9-2002 it was stated as under:--
Subject: Civil Works Contract--Engineer's decisions in accordance with Clause
67.A
Employers Rejection of Engineer's Interim Evaluation Report for Section A--
General Expenses.
Reference is made to CGC Letter No.3242-26258 dated June 21, 2002 conveying
the Engineer's decisions on the subject-matter.
WAPDA does not agree with this Engineer's decisions and has opted for
arbitration in accordance with Contract Provisions.
This is for your information, record and further necessary action, if any, please."
Learned counsel for the respondent has placed on record a chart of the dispute about the
factual controversy between the parties which is reproduced as under:
DISPUTES BETWEEN THE PARTIES
1. DLC (DEFECT LIABILITY CERTIFICATE)
28-2-2002 Proper date according to contractor.
13-2-2002 WAPDA's claim regarding correct date.
16-4-2002 Contractor sought Engineer's decision under clause 67.A.
11-6-2002 Decision
31-7-2002 Arbitration Notice.
2. TOC (TAKING OVER CERTIFICATE)
Substantial Completion Refund of 50% Retention Money (FCY) and 25 % Retention
Money LCY + FCY.
8-11-2000 According to Contractor [+Engineer]
13-2-2001 According to WAPDA.
Approved with 97 days LDs.
21-3-2002 Contractor sought Engineer's decision pursuant to clause 67-A
29-8-2002 Engineer's decision
4-6-2002 Notice of Arbitration by WAPDA
50% Unpaid RM was adjusted against on account of payment of USD
5,485,3781.48 50%RM=USD 1,790,370.
3. ON A/C PAYMENT USD 5,485,381.48.
21-3-2002 Contractor sought Engineer's decision under 67-A.
29-5-2002 Decision of Deputy Engineer
4-9-2002 Arbitration Notice by WAPDA
After adjustments against payment for Works and Retention Money.
USD 2,505,463.28 Principal, and
USD 601,408.34 Interest.
USD 3,106,871.62 Paid in excess.
4. CLAIM SUBMISSION NO. 6, SECTION A—GENERAL EXPENSES.
18-5-2002 Claim rejected for Rs.62,911,860. $5,155,321.
30-5-2002 Contractor sought Engineer's decision under Clause 67-A
21-6-2002 Decision of Engineer
22-8-2002 2-9-2002 Arbitration Notice by WAPDA.
The letter of the respondent dated July 7, 2000 reads as under:--
"However on-account payment duly recommended by CGC would be made to
M/s. Hyundai/Hidco-Kakas JV after approval of WAPDA Authority. If
subsequently CGC consider that M/s. Hyundai/Hidco-Hakas JV were not entitled
to such payment, then WAPDA would reserve the right to recover such on-
account payment from M/s. Hyundai/Hidco-Hakas JV."
This leaves not a scintilla of doubt in my mind that the factual controversy does exist
between the parties which cannot be resolved in the exercise of 8 Constitutional
jurisdiction by this Court.
The Hon'ble Supreme Court of Pakistan in the case of Messrs Airport Support Services v.
The Airport Manager, Quaid-e-Azam International Airport, Karachi and others (supra)
has stated as under:--
"It has consistently been held that while routine contractual disputes between
private parties and public functionaries are not open to scrutiny under the
Constitutional jurisdiction, breaches of such contracts, which do not entail inquiry
into or examination, of minute or controversial questions of fact, if committed by
Government, semi-Government or Local Authorities or like controversies if
involving dereliction of obligations, flowing from a statute, rules or instructions
can adequately be addressed for relief under that jurisdiction. Further a contract,
carrying elements of public interest, concluded by functionaries of the State, has
to be just, fair, transparent, reasonable and free of any taint of mala fides, all such
aspects remaining open for judicial review. The rule is founded on the premises
that public functionaries, deriving authority from or under law, are obligated to act
justly, fairly, equitably, reasonably, without any element of discrimination and
squarely 'within the parameters of law, as applicable in a given situation.
Deviations if of substance, can be corrected through appropriate orders under
Article 199 of the Constitution. In such behalf even where a contract, pure and
simple, is involved, provided always that public element presents itself and the
dispute does not entail evidentiary facts of a disputed nature, redress may be
provided. "
In the case of Amin Fabrics Limited, Karachi v. Pakistan Agricultural Storage and
Services Corporation Ltd. (PASSCO), Lahore and another (PLD 1999 Lahore 313),
Karamat Nazir Bhandari, J., as he then was, observed as under:--
"As noted by me, in the case of N.T.M., not much difficulty arises in cases where
contract is rooted in some statutory provisions/rules/instructions. Cases of leases
and contracts under the Punjab Local Government Ordinance, 1979, Petroleum
Act, 1934 Mining Concession Rules, leases under Colonization of Government
Lands Act, 1912 and host of schemes claims framed thereunder can be referred to
as the cases falling in this category. The difficulty arises in cases of pure and
simple commercial and mercantile contracts, free from any constraints of
statutory provisions/rules. "
Under clause 67.A of the conditions of contract the dispute between the Employer and the
Contractor in connection with, or arising out of the contract, or the execution of the
works whether during the progress of the works or after their completion shall be referred
to and settled by the engineer. Subject to arbitration his decisions in respect of every
matter so referred shall be final and binding upon the Employer and the Contractor. The
respondent has invoked the arbitration clause 67.A and rightly so. In my view if the
Employer can show, despite the satisfaction approval or certification by the engineer that
the work nevertheless is not in accordance with the contract, he is not precluded from
invoking the arbitration clause. It is yet to be seen that the certificate or satisfaction of the
engineer is final and binding on the Employer and the Contractor. In view of the above
discussion I do not consider it necessary to examine the rest of plethora of case-law cited
by both the parties.
4. There is another aspect of the matter that though the respondent has not accepted the
decisions of the engineer and has invoked the Arbitration clause 67.A of the conditions of
contract, yet has not acted fairly in calling upon the banks to encash the bank guarantees.
Learned counsel for the respondent admitted that there are no WAPDA Rules and
Regulations for forfeiture of the Contractor's securities. He stated at the bar that WAPDA
has decided to go to arbitration and will not invoke the clause authorising encashment of
bank guarantees before the resolution of the dispute through arbitration.
Clause 67.A of the contract clearly states that the dispute between the Employer and the
Contractor in connection with or arising out of contract, or the execution of work shall in
the first place be referred to and settled by the engineer who shall within a period of 90
days, after being requested by cither party to do so give written notice of his decision to
the employer and the Contractor. Subject to Arbitration the decision of the Engineer shall
be final and binding upon the Employer and the Contractor and shall forthwith be given
effect to by the Employer and the Contractor.
The respondent-Employer has not agreed with the decisions of the engineer and has
chosen to go to arbitration under the aforementioned clause. Without having recourse to
arbitration, the Employer could not become a judge in his own cause and ask for
encashment of the bank guarantees which would have amounted to forfeiture of the
property of the petitioner without getting the dispute adjudicated first. The petitioner has
placed on record a document showing that he had to pay US$ 7.4 million to the banks
after the notice of encashment of the bank guarantees by the respondent. The petitioner
appears to have suffered immensely in its credit rating before its guarantors. It had to
make colossal payment. The disposition made by the respondent, towards the petitioner
put him under a great financial risk. In my view unlawful pressure was exerted on him.
This in fact amounted to economic coercion. The respondent acted like a gunman who
actually helps himself to his victim's wallet. The coercive nature of the threat, though it
was withdrawn thrice, was so powerful that the petitioner had to deposit $ 7.4 million
with its guarantors. In my judgment it constituted an improper threat and conduct in
coercing the petitioner for making the disputed payments to the respondent and keep the
guarantees intact. It does not appear normal commercial pressure or permissible pressure
to exert. I am not disputing the right of the respondent to encash the bank guarantees but
in all fairness the respondent has not acted fairly and reasonably in the particular
circumstances of the case. Unfortunately, this fact again cannot be decided in this
Constitutional petition.
Lastly I would like to observe that according to the record placed before this Court it
transpires that original evaluated cost of the project was Rs.10,557 million. There is a
delay of 1129 days (three years and thirty four days) in the completion of the project. The
price of the project was increased to Rs.17822 million, thus costing the exchequer extra
Rs.7265 million. The project clearly reflects inefficiency of WAPDA and the authorities
concerned. The country has suffered a colossal loss of Rs.7265 million. ex facie the
contract speaks volumes for the mismanagement and inefficiency of the authorities
concerned in the implementation of the project. The responsibilities have not been fixed
nor any action has been taken against the guilty. Even NAB has not initiated any inquiry.
Every body seems to be complacent. The citizens of this country have been made to incur
and suffer an extra cost as aforementioned. No body seems to be responsible.
5. The upshot of the above discussion is that this petition has no merit and is dismissed
leaving the parties to bear their own costs.
S.A.K./H-151/L Petition dismissed.
2002 C L D 706
[Lahore]
Before Mian Saqib Nisar, J
Mst. ZEESHAN NADEEM---Appellant
versus
OMER AZIZ---Respondent
Civil Revisions Nos.2409 and 2410 of 2001, decided on 23rd January, 2002.
(a) Trade Marks Act (V of 1940)---
----S.20---Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2-- Interim injunction,
grant of---Passing off, rule of ---Applicability--- Dispute was with regard to the name of
two private schools one named `The Lahore Lyceum' and the other named `The
Lyceum'---Former school was established earlier in time by the defendants and the
plaintiff was running branches of the school under franchise agreement---Plaintiff
rescinded the franchise contract and changed the name of her schools to `The
Lyceum'---`The Lyceum' was the key name under which the family had established the
business of schools in Lahore, and had earned a goodwill and reputation in the
educational spheres---Schools set-up under the name necessarily were deemed,
understood and taken by the general public to be those, which had been established by the
family of the defendants---With a view to protect the name, the family had also got a firm
registered-- Plaintiff on the contrary had not independently attained any goodwill qua the
name `The Lyceum' and the services attached thereto---Plaintiff at the best was running
the schools on the basis of a franchise conferred upon her by the defendant company, but
the franchise agreements had been unilaterally rescinded by her---Contention of the
plaintiff was that the rule of "passing off" was not applicable---Validity---Where the
plaintiff had herself rescinded the agreement and continued to use the key name, i.e. `The
Lyceum' for her business, the same amounted :to representing to the public that her
business or services had nexus to the family concern of the defendants as such the same
would definitely be an unfair trade practice and unfair competition covered by the rule of
passing off and thus, would be actionable under the law of torts by the defendants--
Appellate Court had rightly restrained the plaintiff from conducting her business or
rendering educational service under the name and style of `The Lyceum'---Interim
injunction was not granted in circumstances.
(b) Trade Marks Act (V of 1940)---
----S.73---Civil Procedure Code (V of 1908), S.9---Passing off action---Jurisdiction of
Civil Court---Scope---Where from the averments of the plaint it was clear that the claim
was based simpliciter on passing off action and not on the infringement of trade mark,
Civil Courts had jurisdiction in the matter.
Messrs Tabaq Restaurant v. Messrs Tabaq Restaurant 1987 SCMR 1090 fol.
(c) Trade Marks Act (V of 1940)---
----S.20(2)---Contention that passing off action 7uas only confined to goods and to
services---Validity---When the action is based simpliciter under the law of torts, services
are duly covered by the definition of passing off" and an action can be duly maintained.
Torts by Street, Sixth Edn., p.365 ref.
(d) Specifc Relief Act (1 of 1877)---
----S.54---Arbitration Act (X of 1940), S.34---Civil Procedure Code (V of 1908),
O.XXXIX, Rr. 1 & 2---Interim injunction, grant of---Interference in
business---Arbitration between the parties-- Dispute was with regard to the name of two
private schools one named `The Lahore Lyceum' and the other named `The Lyceum'--
Former school was established earlier in time by the defendants and the plaintiff was
running branches of the school under franchise agreement---Plaintiff rescinded the
franchise contract and changed the name of her .schools to `The Lyceum'---Plea of the
plaintiff was that the defendants be restrained from interfering in the business of the
plaintiff there was arbitration clause present in the agreement, without getting the matter
resolved through the arbitration, the defendants or any other member of `The Lahore
Lyceum' management, had no authority to illegally and unlawfully interferein the affairs/
business of the plaintiff conducted at the schools in dispute---Plaintiff was entitled to the
relief of protection qua her possession over the schools in dispute and the management
affairs---Interim injunction was granted accordingly.
Ahmer Bilal Soofi for Petitioner.
Syed Ijaz Ali Akbar Sabzwari for Respondent.
ORDER
Both these petitions i.e. Civil Revision No.2409 of 2001 and Civil Revision No.2410 of
2001, are being disposed of together, as these involve the common questions of law and
facts.
2. Through single order, dated 24-7-2001, the learned Civil Judge, disposed of three
applications filed by the petitioner and the "The Lyceum" under Order 39, rules 1 and 2,
C.P.C. and one under section 34 of the Arbitration Act, filed by Umer Aziz. The petitioner
feeling aggrieved of the said order, filed two appeals, whereas one appeal was filed by the
"The Lyceum" through Azra Umer. The appeals of the petitioner were dismissed, but that
of "The Lyceum" has been accepted by the learned Additional District Judge, Lahore,
through the impugned order, hence these petitions.
3. Briefly stated the facts of the case are that, Mst. Zeeshan Nadeem (the petitioner) filed
a suit for permanent injunction claiming that the "Lahore Lyceum" a private limited
company through Umer Aziz had entered into various agreements with her on the basis of
which, she was entitled tc establish and run schools with the name "The Lahore Lyceum".
First school was established at 64/65 Main Sammanabad, Lahore; two other schools were
further established. at Allama Iqbal Town and Riwaz Garden, Lahore. Subsequently, in
view of the dispute between her and the "Lahore Lyceum" (Umer Aziz), she had
terminated those agreements and by changing the name of the schools from "The Lahore
Lyceum" to "The Lyceum", she is conducting her own independent business with which,
Umer Aziz (defendant), has no concern, but he is threatening and attempting to interfere
in the management etc. of the petitioner, by using force, thus be restrained in that regard.
Alongwith the suit, an application for the grant of temporary injunction was also moved,
with the following prayer:--
"In view of the above submissions, it is most respectfully prayed that the application may
be accepted and the respondent may kindly be restrained from disturbing, interfering, or
dispossessing in the lawful and peaceful business at the premises of 64/65 Sammanabad,
132 Iqbal Town, 319/320 Riwaz Garden, of the petitioner till the final decision of the
case."
In this suit, Umer Aziz moved an application under section 34 of the Arbitration Act,
asserting an arbitration agreement between the parties and praying for the reference to the
arbitrators, in the light thereof.
4. Another suit was filed by "The Lyceum" (the firm) a registered partnership firm
through Mst. Azra Umer, seeking restraint against the petitioner to use the name of the
firm, in conducting the school business by her. The learned trial Court without there
being any request on behalf of the parties, suo motu consolidated these two suits and
disposed of the above three applications by a single order, dated 24-7-2001.
5. As per the order, the application under section 34 filed by Umer Aziz has been
accepted and the parties in both the suits were required to give names of their respective
arbitrators, whereas on the other two applications under Order 39, rules 1 and 2, C.P.C.,
moved by the petitioner and the firm, a status quo has been passed in the following
terms:--
"Both the parties are allowed to run their schools in the name with which they are
running at the date of institution of two suits or the firm The Lyceum' with its own name
till the award is filed into the Court and matter is finally adjudicated upon on the basis of
award."
Aggrieved of the above order, the petitioner filed two appeals, through which, she
challenged the consolidation of the suits and, reference to the arbitrators, whereas "The
Lyceum" also filed an appeal impugning the above aspect and also the maintenance of
status quo order. These appeals have been disposed of through a single order, dated
3-11-2001 by the learned Additional District Judge, Lahore.
6. While arguing these petitions, the learned counsel for the parties agreed that the order
of the Court of appeal, setting aside the consolidation of the two suits and confining the
arbitration matter only to the suit filed by the petitioner is valid. Anyhow, the grievance
of the petitioner is that by accepting the appeal of the respondent "The Lyceum", the
status quo order granted by the trial Court has been illegally and erroneously set aside.
The petitioner was entitled to use the name of "The Lyceum" notwithstanding the fact
that the firm by the name of "The Lyceum" had been registered. It is also submitted that
the Civil Courts had no jurisdiction to entertain and decide the suit of "The Lyceum", as it
pertains to the infringement of the trade mark/trade name and in this behalf, as per the
provisions of section 73 of the Trade Marks Act, 1940, the jurisdiction exclusively vested
with the learned District Judge. It is also submitted that the plaintiff/firm had failed to
make out a case for the "passing off an action", because, under the provisions of section
20 of the Act (ibid), such action only relates to the goods 'and not to the services.
7. 1 have heard the learned counsel for the parties and perused the record. Certain facts
are not 'in dispute between the parties. Such as, the "THE LAHORE LYCEUM" is a
private limited company„ which is running the business of schools in Lahore; the
petitioner obtained the franchise rights under various agreements to use the name of the
said company and had established the schools in different parts of the city. It is also
admitted fact that "THE LYCEUM" is a registered firm and is conducting the business of
running schools under the said name. However, the petitioner's case is that though she
obtained the franchise rights to establish schools by the name of "THE LAHORE
LYCEUM" but subsequently rescinded the agreements and by changing the name of her
school to "THE LYCEUM" is presently conducting her independent business with the
exclusive right of management and control over the schools; Umer Aziz thus has no right
to interfere in her business.
8. Anyhow, from the record of the two cases, it emerges that the private limited company
and the firm are the family concern of Umer Aziz and Azra Aziz; "The Lyceum" is the
key name under which the family has established the business of schools- in Lahore, and
have earned a goodwill and reputation in the educational spheres. The schools set up
under this name necessarily are deemed, understood and taken by the general public to be
those, which have been established by the family of the respondents. With a view to
protect this name, the family has also got a firm registered. Contrarily, the petitioner
independently has not attained any goodwill qua the name "The Lyceum" and the services
attached thereto. She at the best was A running the schools on the basis of a franchise
conferred upon her by the company, but according to her own case, the franchise
agreements have been unilaterally rescinded by her. Having herself done so, but she
continued, to use the key name, i.e. "THE LYCEUM" for her business, which would,
amount to representing to the public that her business or services have nexus to the
family concern of the respondents. This would definitely be an unfair trade practice and
unfair competition covered by the rule of "passing off" and thus, would be actionable
under the law of torts by the respondents,' particularly the firm. Therefore, the learned
Additional District Judge has rightly restrained the petitioner from conducting her
business or rendering educational services under the name and style of "The Lyceum".
9. Now attending to the question of jurisdiction, in such cases as is in hand, the point has
been examined by the Honourable Supreme Court in case reported as Messrs Tabaq
Restaurant v. Messrs Tabaq Restaurant (1987 SCMR 1090), and it has been held as
follows:--
"It is well-settled that `passing off' actions are designed to protect the property in the
goods on account of its reputation and not in the trade mark and that `passing off actions
are essentially actions in tort and are filed in contradiction to suits filed for infringement
of trade marks, where invasion takes place in one's rights in the property, for instance
when some one imitates the goods of another. Hence if the suit filed by the respondent
was a suit simpliciter for `passing off' and no infringement of the trade marks was
involved therein, the suit undoubtedly lay before the Court of first instance, namely, the
Court of the Civil Judge."
From the averments of the plaint in suit filed by the firm, it is clear that the claim is based
simpliciter on passing off action B and not of the infringing trade mark. Therefore,
following the above dictum, it is held that Civil Court had jurisdiction in the matter.
10. The other argument of the petitioner counsel that according to section 20(2) of the
Trade Marks Act, 1940, the "passing off" action is only confined to the goods and not the
services, suffice it to say that this subsection is in fact a proviso to the main section and
has to be constructed in the light thereof, however, ever considering it to be a proviso to
the Act as a whole, but its true meaning and constructions in no way debars a person to
maintain an action under the general law of torts, which permits an individual to initiate
the proceedings for the passing off, the services as well. In this behalf, the following
paragraph of the Street on Torts, Sixth Edition, page 365, can be reproduced, which reads
as follows:--
"A person is liable for this tort if in the course of selling or offering for sale his goods or
services in an area where he and the plaintiff are business competitors he represents them
as being those of the plaintiff in a manner calculated to deceive members of the public
into thinking that the goods or services are those of the plaintiff or of a group to which
the plaintiff belongs."
In view of the above, thus, when the action is based simpliciter under the law of torts,
services are duly covered by the abovementioned definition and an action can be duly
maintained. The contention of the petitioner's counsel is, I therefore, repelled.
11. As regards the question, whether Umer Aziz or the management of "The Lahore
Lyceum" can be allowed to interfere in the business conducted by the petitioner, it may
be held that without getting the matter resolved through the arbitration, as has been itself
required by Umer Aziz through application under section 34 of the Arbitration Act, the
respondent i.e. Umer Aziz or any other member of "The Lahore Lyceum" management,
has no authority to illegally and unlawfully interfere in the affairs/ business of the
petitioner conducted at the three schools in dispute. To this extent, the petitioner is
entitled to the relief of, protection qua her possession over the schools and the
managemental affairs.
In view of the above, the respondents or any other member of the "The Lahore Lyceum"
private limited company, are restrained from interfering in the business and
managemental affairs of the petitioner qua the schools in question till the matter is finally
decided by the arbitrator, but at the same time, the petitioner shall not be entitled to use
the name i.e. "The Lyceum" for conducting the business of her schools. She is, therefore,
directed to change the said name to some other within a period of one month from today.
Both these petitions are accordingly dismissed. No order as to the costs.
Q. M. H. / M.A. K. / Z-91 / L Order accordingly
2002 C L D 1528
[Karachi]
Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ
CGM (COMPAGNIE GENERAL MARITIME)---Appellant
versus
HUSSAIN AKBAR---Respondent
High Court Appeal No. 107 of 1992, decided on 28th August, 1998.
(a) Carriage of Goods by Sea Act (XXXI of 1925)---
----S.3---Bill of Lading is a contract between Shipper and Carrier,
which is binding on both the parties.
(b) Carriage of Goods by Sea Act (XXXI of 1925)---
----S.3---Contract Act (IX of 1872), Ss.28 & 73---Arbitration Act (X of
1940). S.34---Civil Procedure Code (V of 1908), O. VII, R. 10---Suit
for damages by cargo-owner for breach of contract in respect of Bill of
Lading---Objection of ship-owner as to institution of suit at Karachi
contending that same should have been filed before Tribunal in Paris
according to jurisdiction clause in the Bill of Lading---Refusal of Court
to return the plaint---Validity---Court should preserve the sanctity of
contract between the parties and treat the jurisdiction clause in the same
manner as an arbitration clause, stay the action pending before it and
allow the parties to resort to the forum of adjudication to which they
had agreed---Court by staying the action before it would still retain to
itself the jurisdiction to resume the case if the adjudication agreed to
between the parties for any reason failed or the parties found it
impossible to comply with the form of adjudication in the forum to
which they had agreed- --Jurisdiction clause of Bill of Lading in the
present case could not oust the jurisdiction of Pakistan Court--Refusal
of Court below to return the plaint was not justified.
(c) Contract Act (IX of 1872)---
----S.28---Arbitration Act (X of 1940), S.34---Foreign jurisdiction
clause in a contract---Burden to satisfy Court as to justification for
staying its proceedings lies on person, seeking stay of proceedings and
reference of dispute to foreign forum.
(d) Carriage of Goods by Sea Act (XXXI of 1925)---
----S.3---Contract Act (IX of 1872), Ss.28 & 73---Civil Procedure Code
(V of 1908), Ss.20, 151 & OXII, R.10--Arbitration Act (X of 1940),
S.34---Suit for damages by cargo-owner for breach of contract in
respect of Bill of Lading---Stay of proceedings---Ship-owner and his
agent objected to institution of suit at Karachi contending that same
should have been filed before Tribunal de Commerce in Paris according
to jurisdiction clause in Bill of Lading --Refusal of Court to stay
suit---Validity---Ship-owner or his agent had not given any reason for
the stay of proceedings in Karachi Court---Court in such state of affairs
had to make its own assessment to exercise its discretion to stay the
proceedings---Goods were loaded at Karachi Port, and a part of cause
of action had arisen there, thus, suit had been filed properly---Port of
destination was Monrovia, where consignment was delivered to Port
Authorities and thereafter were destroyed or looted in civil war that
erupted there---Choice was between Tribunal in Paris or Pakistan,
where present suit had been filed---Dispute would be governed by law
of France on the basis of jurisdiction clause---Law of France on the
subject would have to be proved by production of expert witnesses in
Karachi, which would entail additional expense and
inconvenience---French Tribunal would be less inconvenient and better
placed to decide the dispute under French law---Sanctity of contract had
to be maintained and enforced---Court below had not exercised its
discretion in accordance with law---Appellate Court accepted the
appeal, set aside impugned order and stayed the proceedings with
direction to plaintiff/cargo-owner to refer his dispute for decision by
Tribunal de Commerce in Paris as contemplated by Bill of Lading---If
the action filed by plaintiff before Tribunal at Paris could not
commence or was barred by limitation or for any reason failed, then he
would be at liberty to move an application before Court below for
revival of proceedings.
M. A. Chowdhry v. Mitsui OSK Lines PLD 1970 SC 373 and Eckhardt
& Co. Marine GmbH v. Muhammad Hanif PLD 1993 SC 42 ref.
(e) Carriage of Goods by Sea Act (XXXI of 1925)---
----S.3---Contract Act (IX of 1872), Ss.28 & 73---Civil Procedure Code
(V of 1908), OXII, R.10 & S.151--Arbitration Act (X of 1940),
S.34---Sindh Chief Court Rules (O.S.), R.111---Suit for damages for
breach of contract in respect of Bill of Lading containing foreign
jurisdiction clause---Defendants' application under O. VII, R.10 read
with S.15.1, C.P.C. for return of plaint---Defendants orally requested
the Court to treat such exclusive jurisdiction clause as an arbitration
clause, stay the proceedings and direct the plaintiff to resort to agreed
forum for settlement of dispute---Refusal of Court to accept such oral
request--Validity---Relief sought by defendants could be granted by
Court below on the basis of Supreme Court Judgment in Mitsui's case
reported as PLD 1973 SC 373---Reference to O.VII, R.10, C.P.C. in the
application was immaterial as defendants had - also mentioned therein
S. I 51, C. P. C. , whereunder Court below had inherent jurisdiction to
make such order necessary for ends of justice---Court below should
have granted relief claimed under inherent powers of Court available
under S.151, C.P.C.---Rule III of Sindh Chief Court (O.S.) Rules, inter
alia, provided that motions might be made orally in matters of routine
or in matters wholly within the discretion of Court---Oral request made
before the Court was based on indisputable facts and documents and no
further information or evidence was required---Court should have
exercised its discretion and granted the relief on oral request--Court had
not exercised its discretion in accordance with law---Appellate Court
accepted the appeal and set aside impugned order and allowed the relief
claimed by defendants.
M. A. Chowdhry v. Mitsui OSK Lines PLD 1970 SC 373 fol.
(f) Limitation Act (IX of 1908)---
----S.5---Condonation of delay---No formal application---Mere oral
application/request---Validity---Court was competent to consider oral
application for condonation of delay.
Sh. Ghulam Muhammad v. The Bank of Bahawalpur 1971 SCMR 148
fol.
(g) Administration of justice---
---- Omission to mention a provision of law or mentioning a wrong
provision of law would not render an application invalid or make same
fatal to grant of relief, if it was otherwise available under the law to an
aggrieved party.
Imtiaz Ahmed v. Ghulam Ali and others PLD 1963 SC 382: 1982
SCMR 673 and 1994 SCMR 1555 ref.
M. H. Kazmi for Appellant.
Muhammad Naeem for Respondent.
Date of hearing: 12th August, 1998.
JUDGMENT
S. AHMED SARWANA, J.---Mr. Hussain Akbar (respondent herein) is
a resident of Monorvoia, Liberia, while Compagnie General Maritime
(Ship-owner/appellant No. l) is a French Company engaged in the
carriage of goods and Delta Shipping Company (appellant No. 2) is the
local Agent of appellant No. 1 in Pakistan. In March, 1991 respondent
filed a claim in the High Court being Suit NO-375 of 1991 against the
appellants for recovery of Rs.56,93,113 (equal to US $ 64,200) with
interest thereon for breach of contract in respect of two Bills of Lading
in the following circumstances as contained in the plaint.
Respondent imported two consignments/ containers each consisting of
200 Bales of printed cotton clothes from Karachi. The shipper/seller
delivered the said consignments to appellant No. 2 for carriage from
Karachi to Le Havre, Monrovia. Appellant No. 2 acting as Agent of
appellant No. 1 issued two "Shipped on Board" Bills of Lading, dated
26th March, 1991 evidencing the contract of carriage. On or about
21-5-1990 respondent, on coming to know that appellant had failed to
deliver the consignments/ containers at the port of destination, made
inquiries from appellant No. 2 and also came to Karachi on three
different occasions and personally visited the office of appellant No. 2
and requested them to deliver the said two containers in accordance
with the Bills of Lading or indicate their whereabouts but did not
receive any satisfactory response. Thereafter, on 12-3-1991 he issued a
legal notice to appellant No. 2 alleging that the two containers had been
misappropriated by appellant No. 1 and asked them to deliver the said
containers or pay him a sum of US $ 2,64,200 being the landed cost of
the goods together with interest thereon but in vain. Consequently, he
filed the above suit against the ship-owner (appellant No. 1) and its
local agent (appellant No. 2).
Appellant No. l filed an application under Order 7, rule, 10 read with
section 151, C.P.C. (C.M.A. No. 878 of 1992) for return of the plaint to
the plaintiff (respondent herein) on the ground that the Bill of Lading
contained an exclusive jurisdiction clause and accordingly the suit was
not maintainable at Karachi. The affidavit-in-support of the application
stated the fact of jurisdiction clause in the Bill of Lading. In the Court
affidavit, the respondent asserted that the suit was maintainable and that
the jurisdiction of the High Court was not ousted by virtue of the
alleged clause in the Bill of Lading. Appellant No. 2 also filed an
application under Order 7, rule 10 read with section 151, C.P.C.
(C.M.A. No. 4582 of 1992) asking the Court to return the plaint on the
same ground of exclusive jurisdiction in the Bill of Lading and in the
affidavit-in-support thereof stated further that appellant No 2 was not
liable as it had acted as an agent of disclosed principal, had nothing to
do with the transport of the goods and also repeated the exclusive
jurisdiction clause in the Bill of Lading. In the rejoinder-affidavit
appellant No. 2 pointed out that from paragraphs Nos. 4 to 6 and 8 of
the plaint it was evident that the goods had been shipped on board of a
foreign vessel owned by a foreigner which was to be delivered at a
foreign port in terms of the Bill of Lading and that the plaintiff
(respondent herein) had himself alleged that the goods had been
misappropriated by appellant No-2 and as such they were not
responsible for any loss caused to the respondent.
After hearing the arguments of the learned counsel of both parties, the
learned Single Judge, by order dated 11-5-1992 rejected both the
applications and held that the suit shall proceed in Karachi Court.
Being aggrieved by the aforesaid order, appellants Nos. l and 2 have
filed this H.C.A., inter alia, on the ground that the order is contradictory
to the principle laid down by the Supreme Court in the case of M.A.
Chowdhry v. Messrs Mitsui OSK Lines, PLD 1970 SC 373 (hereinafter
referred to as "the Mitsui's case").
We have heard Mr. M. H. Kazmi, learned counsel for the appellants and
Mr. Muhammad Naeem, learned counsel for the respondent in support
and against the impugned order. On consideration of the arguments
advanced and law cited by them, our conclusion on the various points
raised by them are as follows:
The application under Order 7, rule 11, C.P.C. read with section 151,
C.P.C. were filed by the appellants on the basis of the jurisdiction clause
25 of the Bill of Lading issued by the Carrier which reads as follows:--
"Law and jurisdiction.---(1) Applicable Law: Insofar as anything has
not been dealt with by the provisions of this Bill of Lading, any claim
or dispute shall be governed by the law of France.
(2) Jurisdiction. All actions under this contract of carriage shall be
brought before the Tribunal de Commerce in Paris to the exclusion of
the jurisdiction of a Court of any other country, unless the carrier
appeals to another jurisdiction or voluntarily submits himself thereto."
The Bill of Lading is a contract between the shipper and the carrier
which is binding on both parties. The effect and validity of the
jurisdiction clause in a Bill of Lading was considered by the Supreme
Court of Pakistan in the Mitsui's case reported in PLD 1970 SC 373
referred to above and after discussing the various judgments cited by
the parties at length the Hon'ble Supreme Court of Pakistan upheld the
validity of the said clause and observed as follows:--
"I am of the opinion that in order to preserve the sanctity of contracts, I
ought also to hold, as was done in the earlier cases in Great Britain that
such foreign jurisdiction clauses, even when they purport to give
jurisdiction to a Court in a foreign country, are really in the nature of
arbitration clauses which come within the exceptions to section 28 of
the Contract Act and, therefore, should be dealt with in the same
manner as other arbitration clauses. In the case of an arbitration it has to
be remembered that the jurisdiction of the Courts is not altogether
ousted, for, the Courts merely stay their hands to allow the parties to
resort to the form of adjudication to which they have previously agreed.
By only staying the actions before them the Courts still retain to
themselves the jurisdiction to resume the case if the arbitration, for any
reason, fails or the parties find it impossible to comply."
The above judgment is still good law and is cited as an authority both in
Pakistan and other countries of the World.
It would be advantageous to reproduce here the observations of Mr.
Justice Ajmal Mian (as he then was) on the sanctity of Foreign
Arbitration clauses in contracts in the case of Eckhardt & Co, Marine
GmbH v. Muhammad Hanif PLD 1993 Supreme Court 42 at page 52
which are as follows : --
"I may observe that while dealing with an application under section 34
of the Arbitration Act in relation to a foreign arbitration clause like the
one in issue, the Court's approach should be dynamic and it should bear
in mind that unless there are some compelling reasons, such an
arbitration clause should be honoured as generally the other party to
such an arbitration clause is a foreign party. With the development and
growth of International Trade and Commerce and due to modernization
of Communication /Transport systems in the world, the contracts
containing such an arbitration clause are very common nowadays. The
rule that the Court should not lightly release the parties from their
bargain, that follows from the sanctity which the Court attaches to
contracts, must be applied with more vigour to a contract containing a
foreign arbitration clause. We should not overlook the fact that any
breach of a term of such a contract to which a foreign Company or
person is a party will tarnish the image of Pakistan in the comity of
nations. A ground which could be in contemplation of party at the time
of entering into the contract as a prudent man of business cannot furnish
basis for refusal to stay the suit under section 34 of the Act. So, the
ground like, that it would be difficult to carry the voluminous evidence
or numerous witnesses to a foreign country for arbitration proceedings
or that it would be too expensive or that the subject-matter of the
contract is in Pakistan or that the breach of the contract has taken place
in Pakistan, in my view, cannot be 'a sound ground for refusal to stay a
suit filed in Pakistan in breach of a foreign arbitration clause contained
in contract of the nature referred to hereinabove. In order to deprive a
foreign party to have arbitration in a foreign country in the manner
provided for in the contract, the Court should come to the conclusion
that the enforcement of such an arbitration clause would be
unconscionable or would amount to forcing the plaintiff to honour a
different contract, which was not in contemplation of the parties and
which could not have been in their contemplation as a prudent man of
business."
How the jurisdiction clause in the Bill of Lading referred to above requires that "all
actions under this contract of carriage shall be brought before the Tribunal de Commerce
in Paris to the exclusion of the jurisdiction of a Court of any other country, unless the
carrier appeals to another jurisdiction or voluntarily submits himself hereto". In the
instant case the ship-owner/appellant No. l objected to the assumption of jurisdiction by
this Court by pointing out that the action by the respondent is not maintainable at Karachi
and that the respondent should file his claim before the Tribunal de Commerce in Paris.
In light of the judgment of the Hon'ble Supreme Court of Pakistan in the Mitsui's case,
this Court should preserve the sanctity of the contract between the parties and treat the
jurisdiction clause in the same manner as an arbitration clause, stay the action pending
before it and allow the parties to resort to the forum of adjudication to which they have
agreed. By staying the action before it, the Court would still retain to itself the
jurisdiction to resume the case if the adjudication agreed to between the parties for any
reason fails or the parties find it impossible to comply with the form of adjudication in
the forum to which they had agreed. The observations of the learned Single Judge that the
findings of the Hon'ble Supreme Court in the Mitsui case that the jurisdiction clause 25 of
the Bill of Lading cannot oust the jurisdiction of the Pakistani Court is correct; however,
the conclusion that the application for return of the plaint under Order 7, rule 10, C.P.C.
Is misconceived and is liable to rejection is not borne out by the said judgment. While
deciding the Mitsui case the Supreme Court also discussed the various factors that the
Court should consider for exercising the discretion to stay the proceedings and direct the
plaintiff to refer the claim to the agreed forum mentioned in the contract of carriage. The
factors highlighted by the Supreme Court include, inter alia, as to in which country the
evidence on the issues of fact is situated or more readily available; relative convenience
and expense of trial between the Pakistan and the foreign Court; whether the law of
foreign Court applies and, if so, whether it differs from Pakistan law in any material
respect; with what country either party is connected and how closely; and whether the
plaintiff would be prejudiced by having to sue in the foreign Court because he would be
deprived of security for the claim, be faced with a time bar not applicable locally; unable
to enforce any judgment obtained etc. He also held that the burden to satisfy the Court as
to the justification for staying its proceedings should be on the person who seeks the stay
of proceedings and reference of the dispute to the foreign forum. Consequently, in light of
these observations the Hon'ble Supreme Court of Pakistan remanded the cases to the trial
Court to consider, in accordance with the law laid down by the Supreme Court, as to
whether the suits filed before it should or should not be stayed. In the instant case,
appellant No.1 (ship-owner) has only referred to the exclusive jurisdiction clause and has
not mentioned or elaborated the various factors highlighted by the Hon'ble Supreme
Court for stay of the proceedings in this Court. Similarly respondent (Cargo-owner) has
also not given any reason for not staying the proceedings and asking him to approach the
forum mentioned in the Bill of Lading except that the goods were loaded on the vessel in
Karachi and appellant No.2 (Ship-owner's agent) had executed and delivered a bond
under section 55 of the Pakistan Customs Act, 1969. In view of this state of affairs the
Court has to make its own assessment to exercise its discretion to stay the proceedings
looking at the circumstances of the case. As the goods were loaded at Karachi Port, a part
of the cause of action arose here and accordingly the suit has been filed properly in
accordance with the provisions of the Civil Procedure Code. However, the Bill of Lading
contains a jurisdiction clause which requires the cargo-owner to file his claim before
Tribunal de Commerce in Paris. A copy of the written statement filed by the appellant No.
1 has not been filed with this appeal; however, the learned Single Judge on the basis of
the-appellant's written statement has made the following observations:--
"As to the fate of the consignment, it was stated that it duly arrived at the port of
destination (Monrovia) on or about 17th June, 1990 and was delivered to the Port
Authorities of Monrovia for subsequent delivery to the consignee, in accordance with the
normal practice, but was destroyed or looted in the civil war that engulged the town
shortly after the arrival of consignment and therefore, the responsibility of the shippers
(sic) had come to an end and they were not responsible for the loss of the consignment."
Assuming this to be correct, the proper place to decide the dispute would be Monrovia,
the port of destination where the consignment was delivered to the Port Authorities and
thereafter destroyed or looted in the civil war that erupted there but under the exclusive
jurisdiction clause the dispute cannot be referred to Monrovia. The choice is between
Tribunal de Commerce in Paris or Karachi where the present suit has been filed. Both
parties will have to bring their witnesses either to Karachi or Paris and incur expenditure
in doing so. It is difficult to say which place would be less inconvenient and more
expensive. It is, however, clear that the dispute shall be governed by the law of France on
the basis of the jurisdiction clause. The law of France on the subject will have to be
proved by production of expert witness in Karachi which would entail additional expense
and inconvenience. A French Tribunal would be less inconvenient and better placed to
decide the dispute under French Law. The sanctity of the contract has also to be
maintained and enforced as laid down by the two Supreme Court judgments referred
above. In these circumstances we are of the view that it would be proper to ask the
respondent to refer his dispute for decision by Tribunal de Commerce in Paris as
contemplated by the Bill or Lading.
The learned Single Judge, also observed that the prayer in the application under Order 7,
rule 10 read with section 151. C.P.C. filed by the appellants was for return of the plaint to
the respondent/Cargo-owner and therefore, the oral request by the appellants to treat the
exclusive jurisdiction clause as an arbitration clause, stay the proceedings and ask the
respondent to resort to the agreed forum for settlement of his dispute could not be
allowed.
Mr. Justice B. Z. Kaikaus, an eminent jurist of this country, in the case of Imtiaz Ahmed
v. Ghulam Ali and others PLD 1963 SC 382 at page 400 observed as follows:--
" ....the proper place of procedure in any system of administration of justice is to help and
not to thwart the grant to the people of their rights. All technicalities have to be avoided
unless it be essential to comply, with them on grounds of public policy ....Any system
which by giving effect to the form and not the substance defeats substantiative rights is
defective to that extent."
It is also an established law that omission to mention a provision or mentioning of a
wrong provision of law does not render an application invalid or makes it fatal to the
grant of relief if it is otherwise available under the law to an aggrieved party (1982
SCMR 673 and 1994 SCMR 1555). The reference to Order 7, rule 10, C.P.C. in the
application is immaterial. The relief sought by the appellants could be granted by the
learned Single Judge on the basis of the Mitsui's case. In any case, the appellants had
mentioned section 151, C.P.C. which unequivocally states that the Court has inherent
power to make such order as may be necessary for the ends of justice. The learned Single
Judge, in our opinion, should have granted the claimed relief under the inherent powers
of the Court available under section 151, C.P.C. The learned Single Judge also observed
that an oral request at the stage of arguments could not be allowed. Rule 111 of Sindh
Chief Court Rules, inter alia, provides that motions may be made orally in matters of
routine or in matters wholly within the discretion of the Judge. In the case of Sh. Ghulam
Muhammad v. The Bank of Bahawalpur 1971 SCMR 148, the Supreme Court of Pakistan
held that the High Court was competent to consider an oral application for condonation of
delay. In the instant case, the oral request was made on the basis of the indisputable facts
and documents before the Court and no further information or evidence was required. In
our humble opinion, it was a proper case where the learned Single Judge should have
exercised his discretion and granted the relief on oral motion.
On the basis of the above discussion we are of the considered opinion that the learned
Single Judge did not exercise his discretion in accordance with law; accordingly we allow
the appeal set aside the impugned order dated 11-5-1992 passed by the learned Single
Judge on C. M.As. Nos. 4582 of 1991 and 878 of 1992 and order as follows: --
(i) The proceedings in Suit No. 375 of 1991 are stayed.
(ii) The respondent is directed to file his claim for adjudication before the Tribunal de
Commerce in Paris in accordance with clause 25 of the Bill of Lading; and
(iii) In case the action filed by the respondent before the Tribunal de Commerce at Paris
cannot be commenced, is barred by limitation or for any reason fails he shall be at liberty
to move an application before this Court for revival of the proceedings.
The parties will bear their own costs.
S.A.K./C-49/K Appeal accepted.
P L D 2006 Supreme Court 196

Present: Rana Bhagwandas Actg. C.J. and Hamid Ali Mirza, J

MUHAMMAD FAROOQ---Appellant

Versus

NAZIR AHMAD and others---Respondents

Civil Appeal No.988 of 2000, decided on 30th November, 2005.

(On appeal from the judgment dated 23-12-1999 in C.R.No.1998 of 1999 passed by the
Lahore High Court, Lahore).

(a) Arbitration Act (X of 1940)---

---S. 34---Constitution of Pakistan (1973), Art. 185(3)---Words "taking any other steps in
the proceedings" as used in S.34 of Arbitration Act, 1940---Import---Supreme Court
granted leave to appeal to consider the true import and significance of such words.

(b) Arbitration Act (X of 1940)---

--S. 34---Stay of proceedings in suit---Filing of application under S.34 of Arbitration Act,


1940 by defendant after having availed several adjournments for filing written statement,
contested application for interim injunction and applied for rejection of plaint---
Validity---Plea of referring matter to arbitrator should be raised promptly at the very first
opportunity and delay on any pretext would estop party from seeking stay of proceedings
in the suit---Such act of defendant would show his intention to participate and defend suit
before Court-Frequent requests for adjournment for filing written statement would fall
within ambit of phrase "taking any other steps in the proceedings" as used in S.34 of
Arbitration Act, 1940---Defendant had taken positive steps for furtherance of proceedings
in suit---Application for stay of' proceedings in suit was dismissed in circumstances.

Pakistan International Airlines Corporation v. Messrs Pak Saaf Dry Clearners PLD 1981
SC 553; New Bengal Shipping Company v. Eric Lancaster Stump PLD, 1952 Dacca 22;
Nuruddin Abdulhusein v.Abu Ahmed Abdul Jalli AIR (37) 1950 Bomby 127; Subal
Chandra Bhur v. Md. Ibrahim and another AIR (30) 1943 Cal. 484 and Badsha Meah
Sowdagar v. Nuraul Haq and others PLD 1967 Dacca 250 rel.

(c) Arbitration Act (X of 1940)---

----Ss. 28, 34 & Sched. I, para. 3---Stay of proceedings in suit---Arbitration agreement


between parties---Non-fixation of time in agreement for making award by arbitrator---
Non-issuance of notice by parties to arbitrator for entering upon reference--Denial of
execution of agreement by defendant---Withholding of original agreement from Court,
but filing of only copy thereof--Such agreement, if any having been made between
parties, stood revoked---No such agreement existed, thus, no reliance could be placed
thereon for purpose of staying proceedings in suit.

Appellant in person.

Respondent No.1 in person.

Respondents Nos. 2 and 4: Ex parte.

Respondent No.3: Pro forma.

Date of hearing: 30th November, 2005.

JUDGMENT

HAMID ALI MIRZA, J.---This civil appeal with leave of this Court, dated 18 July,
2000 is directed against the order dated 23-12-1989 in Civil Revision No. 1998 of 1999
passed by learned Single Judge of the Lahore High Court, Lahore, whereby the said civil
revision was dismissed in limine thereby order dated 17-11-1999 passed by learned
Additional District Judge, Faisalabad was maintained and learned Civil Judge was
directed to proceed with the suit in accordance with law.

2. Brief facts of the case are that respondent Nazir Ahmad filed suit for partition and
rendition of accounts. Suit was registered and notices were issued to the
appellant/defendant. Appellant appeared and made an application under section 34 of the
Arbitration Act for stay of proceedings which was resisted by the respondent/plaintiff.
The Trial Court after hearing arguments accepted the application made under section 34
of the Arbitration Act, 1940, vide order dated 8-12-1998 which order was assailed by the
respondent/plaintiff in appeal and was heard by learned Additional District Judge,
Faisalabad who allowed the appeal vide judgment dated 17-11-1999 consequently
application under section 34 of the Arbitration Act was dismissed. The
appellant/defendant preferred Civil Revision No.1998 of 1999 before the Lahore High
Court, Lahore which civil revision was dismissed in limine maintaining the order of
learned Additional District Judge.

3. We have heard the parties in person and perused the impugned judgments and the
record minutely.

4. Leave was granted by this Court to consider the true import and significance of the
words "taking any other steps in the proceedings" in section 34 of the Arbitration Act and
to find out whether the alleged acts of the appellant can be classified as "steps in the
proceedings" as envisaged by the said section of Arbitration Act. The appellant/defendant
has referred to so called Iqrar Nama for Arbitration at page 66 of the A Paper Book and
submitted that in terms of the said agreement, the respondent/plaintiff was bound to refer
the matter for decision to sole Arbitrator Ch. Muhammad Siddique Randhawa, Advocate,
consequently in terms of section 34 of the Arbitration Act, learned Civil Judge could not
proceed with the suit in view of the bar contained in the said provision of law.

5. The appellant in person submitted that learned Single Judge of the .High Court and
first appellate Court have committed material irregularity in rejecting the application filed
under section 34 of the Arbitration Act considering that the respondent/plaintiff had
entered the arbitration arrangement to refer the matter to Arbitrator who in the reply
impliedly admitted the execution of agreement. He further submitted that the appellant
cannot be said to have taken steps in the proceedings of the suit as envisaged under
section 34 of the Arbitration Act by filing adjournment application considering that no
written statement was ever filed indeed he moved an application for stay of proceedings
of suit as soon as Presiding Officer was found to be in the Court. He has placed reliance
upon Pakistan International Airlines Corporation v. M/s Pak Saaf Dry Cleaners PLD 1981
SC 553.

6. Respondent/plaintiff submitted that in fact the alleged Iqrar Nama to refer the dispute
to Arbitrator is a forged and fabricated document and as such not binding upon him. He
submitted that learned Single Judge, of the High Court and the first Appellate Court have
rightly and in accordance with law decided the matter which requires no interference by
this Court.

7. We do not find any merit and substance in the contentions of the appellant.

8. The admitted position is that the appellant/defendant for the first time appeared in the
Court on 28th of March, 1998 when the same was adjourned to 17-4-1998 for submission
of the written statement and filing power of attorney. The written statement was not filed
as such suit was adjourned to 30-4-1998 when the learned Presiding Officer was on leave.
The suit was accordingly adjourned to 13-5-1998 yet on the said date written statement
was not filed. Learned counsel for the appellant/defendant requested for adjournment to
file written statement which was allowed and suit was adjourned to 18-5-1998 but as the
Presiding Officer was on leave, therefore the suit was again adjourned to 30-5-1998 when
application under section 34 of the Arbitration Act was moved. From the above
proceedings in the Court it would be clear that the appellant even after the receipt of
notice of the plaint got three clear dates for filing written statement but the application
under section 34 of the Act was moved on the fourth date. Above acts of the appellant on
number of dates stated above would show that he intended to participate and defend the
suit before the Court. In this process he engaged a counsel and filed adjournment
application or requested for adjournment on the above dates. We may also observe that
test for determining whether an act is a step in the proceedings or not, this Court in the
case of Pakistan International Airlines Corporation v. M/s. Pak Saaf Dry Cleaners PLD
1981 SC 553 at page 559 in the last para. has observed:---

"As would be seen from above, the mere existence of a clause providing for
arbitration does not bar a suit or other legal proceeding in Court. It only entitles a
party to have the legal proceedings stayed. In order that a stay may be granted
under the provisions of this section, certain conditions must be fulfilled. The party
must take the objection and apply for stay proceedings before taking any step, for
example, the filing 'of the written statement, that is, before he placed his cards on
the table. The provisions of the section, further imply that the Court should, first
of all, examine whether the arbitration clause applies to the dispute, and if it does,
whether the nature of the dispute is such that the ends of justice will be better met
by the decision of the Court than by that of private forum chosen and agreed
upon, and to which the parties had made themselves bound to adhere and adopt in
case that type of dispute arose between them. The Legislature has, of course,
clearly implied in the language used in the section that the arbitration clause
should be respected, but has also made it abundantly clear that the party seeking
to avail of the provision of stay under this section must clarify his position at the
earliest possible opportunity, so as to leave no manner of doubt that he wishes to
have resort to arbitration proceeding. If he hesitates in this regard, or allows the
suit to proceed in any manner, that conduct would indicate that he has abdicated
his claim to have the dispute decided under - the arbitration clause, and to have
thereby forfeited his right to claim stay of the proceedings in the Court."

In para. 3 at page 564 of the above cited decision this Court has observed:--

"In my opinion, the true test for determining whether an act is a step in the
proceedings is not so much the question as to whether the party sought an
adjournment for filing the written statement although of course that would be a
satisfactory test in many cases but whether taking into consideration the contents
of the application as well as all the surrounding circumstances that led the party to
make the application display an unequivocal intention to proceed with the suit,
and to give up the right to have the matter disposed of by arbitration. An
application of such nature, therefore, should prima facie be construed as a step in
the proceedings within the meaning of section 34 and the whole burden should be
upon the party to establish why effect should not be given to the prima facie
meaning of the application."

9. In the instant case it would appear that the appellant/defendant has been obtaining
adjournments on the ground that he intended to file written statement and power of
attorney. On all the three dates he made such request for postponement for filing written
statement which clearly c indicated that he had intention to contest the suit and not to
resort to so called Iqrarnama for arbitration. Frequent requests for adjournment for filing
written statement would fall within the purview/ambit of the phrase "taking any other
steps in the proceedings" within the meaning of section 34 of the Arbitration Act.

10. It may also be observed that on perusal of the so-called arbitration agreement which is
dated 30-9-1996 no time period is fixed and in terms of para. 3 of Schedule 1 to
Arbitration Act which reads as follows:--

"3. The arbitrators shall make their award within four months after entering on 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 Court may
allow."

11. This alleged agreement for arbitration being without the intervention of the Court
wherein no time period has been fixed within which award is to be made, the arbitrator
has to make award within four months from the date of entering of the reference or where
the arbitrators are required to act as such by notice, within four months from the date of
such notice. In the instant case it is not the case of the respondent/plaintiff that anyone of
the parties was to give notice to arbitrator named in the so-called agreement for entering
upon the reference. In terms of the agreement none of the parties having given any notice
or Arbitrator not taking any initiative would lead to a conclusion that the parties had
given up to have the dispute resolved through the Arbitrator. Arbitrator has also not
produced any extension of time having been granted by the Court under section 28 of the
Arbitration Act. This will lead to a conclusion that authority of arbitrator was revoked as
such the said agreement for arbitration, if any, having been made stood revoked and came
to an end. Indeed it and was not subsisting to place reliance for the purpose of staying the
proceedings of the suit. It may further be observed that respondent/plaintiff has denied
the execution of agreement for arbitration. In fact nothing has been produced and we do
not find anything on record that there existed any such agreement between the parties
considering that only a photocopy has been placed on record and original has withheld
from all the Courts below. Provision of section 34 of the Arbitration Act would indicate
that the party has to promptly act raising the plea of referring the hatter to the arbitrator at
the very first opportunity and delay on any pretext in raising the plea would estop the
party from raising the said plea of staying all proceedings. It may be observed that the
appellant/defendant made the aforesaid application after about six months of service of
summons of the suit and during the said period he went on seeking adjournment twice for
filing written statement. He had even contested the application for interim injunction and
had also applied for rejection of plaint and thus the appellant/defendant had taken
positive steps for furtherance of the proceedings in the suit. Consequently application for
stay of suit under the aforesaid provision of law was rightly rejected by the first appellate
Court and affirmed by the learned Single Judge.

11-A. We may also observe that the appellant is real brother of the respondent. Both
parties were present today with their father when the later stated before us that he being
the father had gifted the property in equal shares to both of his sons whereas the appellant
has declined to give the share of his brother, respondent/plaintiff; even latter's share in
monthly amount of rent of Rs.37,000 which is being received by the appellant only.
Learned Single Judge in the impugned order after making reference to (i) New Bengal
Shipping Company v. Eric Lancaster Stump (PLD 1952 Dacca 22), (ii) Nuruddin
Abdulhusein v.Abu Ahmed Abdul Jalli (AIR (37) 1950 Bomby 127), (iii) Subal Chandra
Bhur v. Md. Ibrahim and another (AIR (30) 1943 Calcutta 484), (iv) Badsha Meah
Sowdagar v. Nuraul Haq and others (PLD 1967 Dacca 250) in para. 4 has observed as
follows:-

"4. It is clear that the condition precedent is that this application should be moved
before filing the written statement or taking any other steps in the proceedings. In
the present case as already noted above the written statement was not filed but
petitioner was given time to file written statement and on 13-5-1998 specific
request was made on his behalf for the grant of time to file the written statement.
This clearly amounted to taking steps and acquiescence in the proceedings. If this
test is applied then the petitioner has taken steps in the proceedings before filing
the application, therefore, the same was liable to be dismissed. Learned counsel
has relied on the judgment in the case of P.I.A. supra. The facts in that case are
clearly distinguishable."

12. In view of aforesaid reasoning we do not find any merit and substance in this appeal
which is consequently dismissed with costs.

S.A.K./M-2/S Appeal dismissed.