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Petitioner: AMANULLAH KHAN And Others VS Respondent: KOHAT CEMENT CO. And Other
Court Name: Lahore High Court Judge(s): Muhammad Aqil Mirza Title: AMANULLAH KHAN And Others vs KOHAT CEMENT CO. And Other Case No.: First Appeal from Order No. 92 of 1988 Date of Judgment:1997-01-26 Reported As: 1997 MLD 2419 Result: Appeal accepted
JUDGMENT
JUDGMENT This appeal filed under section 39 of the Arbitration Act impugns the order dated 9--3-1988 passed by the learned Senior Civil Judge, Lahore, whereby after setting aside the award he has held that the arbitration agreement has also come to an end. 2. The relevant facts leading to the filing 'of this appeal are like this. The appellant entered into contract of 11-6-1979 for construction of ancillary buildings at Kohat for the Cement Project of the respondent, at the cost of Rs.1,10,57, 055. The work was to be completed by 15-8-1980 but in fact it was completed on 20-10-1981. The appellant hereinafter referred to as the contractor, filed a claim for recovery of Rs.64,36,589 and in consequence of this claim the dispute was referred to the arbitration of Mian Abdul Qayyum, Superintending Engineer, Project Civil Circle, Pak. P.W.D., Lahore, who was appointed as sole arbitrator in accordance with the arbitration clause of the contract, without the intervention of the Court. The arbitrator entered upon the reference on 30-7-1983. Two extensions were granted by the Civil Court but the award was not announced till 30-11-1984. The contractor then moved an application on 17-2-1985 under sections 11 and 12 of the Arbitration Act, hereinafter referred to as the Act for removal of the arbitrator and to appoint some other arbitrator in his place. The prayer made in this application is reproduced below: "In view of the foregoing, it is, therefore, respectfully prayed that Mian Abdul Qayyum, the sole Arbitrator may kindly be removed and some other person may be appointed to act as sole Arbitrator in place of the abovementioned sole Arbitrator. The costs of this application may also be awarded." Another application under sections 14, 28, 33 and 38 of the Act was also moved on 12-1-1985 by the respondent-company, inter alia, for the relief that the arbitrator be directed to; file the award in the
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Court. The award dated 28-11-1985 was received in sealed cover which was opened in Court on 20- 3-1986. The operative part of the award reads as follows:-- "Having carefully considered all verbal and written submissions of the parties and keeping in view internationally accepted sound engineering practices, Arbitration Act and cannons of justice, I award (a) Claim one of the Contractors against K.C.C.L.Claim. Award. Rs.22,52,506 Nil (b) Claim two of the. Rs.39,98,263Rs.20,97,918 Less Rs. Already paid to the contractors i.e 3,74,289 17,23,128 (c) Claim three of the contractors against K. C. C. L.Rs.1,85,820Rs.1;85,820 (d) Claim one of K.C.C.L Rs.7,85,971Nil I, therefore, direct that:--- (a) Rs.19,08,948 be paid by K.C.C.L. To the contractors against his claim of Rs.64,36,589 in full and final settlement of all dispute pertaining to or/and arising out of contract agreement between them for the construction of Ancillary Buildings for K.C.C.L. At Kohat. (b) The amount of award mentioned in para. 17(a) be paid within one calendar month from the date of announcement of this award. " 3. The above award was rendered in the background of the controversy which is reflected by the following issues which were framed by the arbitrator with consent of the parties:-- (1) Whether the contractor is entitled to escalation of Rs.39,98,263? OP Contractor. (2) Whether the contractor is entitled to refund of Rs.22,52,506 recovered by K.C.C.L. From contractor's bills on account of steel supplied by K.C.C.L. To the Contractor? OP Contractor. (3) Whether the contractor is entitled to payment of additional Rs.1,85,820 for reinforcement `bars on the basis of laboratory standard weights? OP Contractor. (4) Whether contractor is entitled to extension of contract period up to October, 1981?OP Contractor. (5) Whether K.C.C.L. Is entitled to recover liquidated damages of Rs.11,05,705 from the contractor on account of delayed completion of works? OP K.C.C.L. 4. The respondent filed objections on 14-4-1986 with the following prayer:-- "It is, therefore, prayed that the award dated 28-11-1985 be set aside as void ab initio, illegal, invalid and of no legal effect. The applicant (KCCL) is ready and willing to furnish security to the satisfaction of this Honourable Court for the payment .Of the sums given in the Award. " The contractor in reply thereto prayed that the objection petition be dismissed and the award be made rule of the Court. 5. The learned Senior Civil Judge, Lahore came to the conclusion that the award was void ab initio because it had been made after the lapse of the time fixed for filing of the award. He found that the award was made on 28-11-1985, although it was required to be filed by 30-11-1984. Regarding the claim of escalation mentioned in issue No.1, the learned trial Court criticised the procedure adopted by the arbitrator in relying on certain documents and held that the arbitrator had committed legal misconduct and also mis-conducted the proceedings. He further criticised that Issue No.4 "whether the contractor is entitled to extension of the contract period up to October, 1981 " was not decided, although this issue was important to decide the question as to whether the contractor was entitled to the extension of contract period. He also found that claim No.3 was allowed by the Arbitrator by exceeding his jurisdiction against the specific clause of agreement. On the above findings, he not only set aside the award but further declared that the arbitration
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agreement had come to an end. The operative part of the impugned order passed by the trial Court is reproduced below:--- "In view of the above discussion, I hold that the award is void ab initio and even otherwise cannot be made rule of the Court as discussed above, therefore, it is hereby set aside. I further hold that in view of the peculiar circumstances of this case, the consumption of time and intricate question of law and facts it will be in the fitness of things that the controversy between the parties should be resolved by a forum fully equipped with legal knowledge and procedure, hence, by accepting the objections of the employer, I further declare that the Arbitration agreement has come to an end and is ceased to have effect and the party feeling himself aggrieved may avail the other legal remedies available under the law. There shall be no order as to costs." 6. The contractor has filed this appeal in which he has impugned the order relating to the setting aside the award on merit as also the declaration that the arbitration agreement has come to an end and ceased to have effect. The appeal was argued in motion on 26-2-1989. My learned brother Khalil-ur-Rehman Khan, J., admitted the appeal to regular hearing to consider the limited question, whether the arbitration agreement had come to an end. The contention in support of the challenge to the finding that the award was void ab inito and hence liable to be set aside was, however, repelled. The appellant feeling aggrieved by the order dated 26-2-1989 refusing to admit the appeal on the said question, filed petition for leave to appeal (C.P.S.L.A. No. 213-R/89) in the Hon'ble Supreme Court. By order dated 15-3-1990, the leave was refused by affirming the view of this Court that the award had become void. 7. It may, therefore, be seen that the question that the award has become void on account of its having been made after the prescribed time stands finally decided by the verdict of the Supreme Court. The only question which now requires to be decided in this appeal is, whether the Arbitration Agreement has also come to an end and ceased to have effect and the aggrieved' party should avail his legal remedies in other forum i.e. The Civil Court. 8. Mr. Jarriullah Khan, learned counsel for the appellant has raised the following contentions:-- (a) An agreement to arbitration cannot be said to have come to an end unless it is shown from the agreement itself that it will come to an end on the happening of a particular contingency. There being no clause in the arbitration agreement of this kind, it was not open to the learned trial Court to have held that the agreement has come to an end. (b) An agreement can also be said to have come to an end if on the motion of either party it is declared by the Court that the agreement was the result of fraud or coercion. However, neither party had pleaded that the agreement was fraudulent or otherwise suffered from any legal infirmity. Reference to arbitration had been made outside the Court and unless very strong grounds are shown, the arbitration agreement cannot be brought to an end. Merely because the award was given after the prescribed period, will not result into automatic cessation of the arbitration agreement. (c) Power of the Court under section 19 of the Arbitration Act to adjudge the arbitration agreement to have come to an end is discretionary in nature. This discretion can be exercised judiciously by giving cogent reasons. However, in the instant case the learned trial Court has acted arbitrarily in exercising this discretion by giving no plausible reasons. (d) Neither the respondent nor the appellant had pleaded or otherwise made oral request for superseding the arbitration agreement. This has been illegally done suo motu without a prayer from either party. (e) The power to order that the agreement shall cease to have effect is to be preceded by an order to supersede a reference. The learned trial Court has not ordered the supersession of the reference and yet directed that the arbitration agreement has come to an end.
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(f) Where the parties choose to resolve their disputes through the method of arbitration without the intervention of the Court, then the arbitration agreement should not be allowed to be avoided. If the arbitration agreement is not allowed to be operative, the result would be that the parties will be forced to file civil suits, which will consume much longer time and other technical difficulties resulting into miscarriage of justice. 9. Mr. Jarriullah Khan in support of the above submissions has placed reliance on the following precedents:- (1) Haji Soomar Haji Hajjan v. Muhammad Bashir Ltd. (1981 SCMR 129). (2) B. Subbarama Naidu v. B. Siddama Naidu and others (AIR 1962 SC 671). (3) Messrs A.Z. Company v. Messrs S. Maula Bukhsh Muhammad Bashir (PLD 1965 SC 505). (4) Sardar Abdul Halim Khan v. Chairman, Lahore Improvement Trust (PLD 1949 Lahore 278). (5) Union of India v. D.K. Gupta (AIR 1978 NOC 214 Delhi). (6) Rallis India Ltd v. Manickam Chetti & Co., Madras and another (AIR 1962 Madras 351). Based on the above submissions, learned counsel has prayer that the first award having been held to be void, fresh reference may be made to an arbitrator to be appointed by agreement of parties or by the Court itself. 10. Mr. Shahid Hamid, learned counsel for the respondent, on the other hand has argued that the learned trial Court has rightly superseded the agreement of arbitration. According to him, where the award is made by the arbitrator after the lapse of the prescribed period, it is always discretionary with the trial Court to supersede the agreement itself under section 19 of the Act, and in the instant case discretion has been properly exercised. In support of his submission he has placed reliance on the following judicial pronouncements: -- (i) A.Z. Company v. Messrs S. Maula Bukhsh Muhammad Bashir (PLD 1965 SC 505). (ii) Sardar Abdul Halim Khan v. Chairman, Lahore Improvement Trust (PLD 1949 Lahore 278). Placing reliance on Nawab Din v. Abdur Rashid (PLD 1954 Lahore 58) he also submitted that formal order superseding the reference need not be passed. He has further contended that, the appellant cannot be heard to say that instead of superseding the award the dispute may be referred to the arbitration of a new arbitrator because he has not made, an alternate prayer in the grounds of appeal for this relief. On this point he has sought support from Secretary to Government (West Pakistan) Now N.-W.F.P. Department of Agriculture, and Forests, Peshawar and 4 others v: Kazi Abdul Kafil (PLD 1978 SC 242), .Which lays down that the Court cannot grant relief larger than what' has been claimed. But true to his excellence and fairness at the Bar, Mr. Shahid Hamid has also cited the flexible view taken in:----- (i) Ghulam Dastgir (PO 1978 SC-220) which lays down that the Courts have inherent powers to mould the relief. (ii) Samar Gul v. Central Government and others (PLD 1986 SC 35) which declares that Court can grant reliefs according to justice and circumstances. (iii) Ghulam Hussain and another v. Faiz Muhammad and 7 others (PLD 1991 SC 218), which holds that technicalities should not be applied and the relief should be granted in a case, as required by the circumstances. 11. In the totality of his arguments, the case set up by the learned counsel for the respondent is that the learned lower Court has rightly exercised the discretion available under section 19 of the Act to declare that the arbitration agreement has come to an end and, the aggrieved party can approach the Civil Court before whom the respective, claims of the parties can be dealt with more exhaustively, in accordance with law. 12. Learned counsel for both the parties agree that power to supersede the reference and declare that an arbitration agreement has come to an end is available only under section 19 of the Act. I asked a specific question to them, as to what are the circumstances on the basis of which the
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Court while, superseding a reference should also supersede the arbitration agreement and refer the parties to take their dispute before the Civil Court. Both the learned counsel have candidly stated that there is no direct case-law on the point and this appears to be a question of first impression. 13. After considering the contentions raised and having gone through the case-law cited at the Bar, lam of the opinion that the following questions need to be addressed for the proper decision of this appeal:-- (i) Whether after setting aside the award it was necessary to declare that the arbitration agreement had also come to an end and the aggrieved party should seek his remedy by filing civil suit? (ii) If the answer is in the negative, whether this Court can, in the circumstances of this case, send the reference for fresh arbitration by a new arbitrator? 14. The settlement of disputes between the parties in the instant case is provided by para. 69 of the contract, which reads as under:-- "69. Settlement of disputes by Arbitration.-----If any dispute or difference or any kind Whatsoever shall arise between, the Employer and the Contractor in connection with or arising out of the contract or the carryingout of the work (whether during the progress of the works or after the completion and whether before or after termination abandonment or breach of the contract) it shall in the first place be referred to and settled by the Employer who shall give written notice of his decision to the Contractor. If the Employer has given written notice of his decision to the contractor and no claim to arbitration has beets communicated to the Employer 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 he may within thirty (30) days after, receiving notice of Employer's decision require that matters in dispute be referred to arbitration. The matter or matters shall then be referred to the award of a sole arbitrator agreed to by both the parties or falling such agreement to the award of two arbitrators one to be' nominated by the Contractor and one to be nominated by the Employer or in case of the said two arbitrators not agreeing between themselves then to the arbitrators in writing before proceedings on the reference. The decision of the sole arbitrator or as the case may be of two arbitrators or in the event of their not agreeing of the umpire so appointed by them shall be final and binding on the arties. The provisions of the Government of Pakistan Arbitration Act in force from time to time shall be deemed to apply to and be made a part of the contract. Reference to arbitration as provided therein shall be a condition precedent to any other action at law. Upon every and any such reference the assessm ent of costs incidental to the reference and award respectively shall be at the discretion of the sole arbitrator the two arbitrators or the umpire as the case may be." It was in pursuance of the above arbitration clause that the dispute was referred to the arbitration of Mian Abdul Qayyum. 15. Before discussing the matter further it will be fruitful to reproduce some of the provisions of the Arbitration Act, so that the legal controversy in hand may be properly understood. "Section 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. Section 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 mis-conducted himself or the proceedings.
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(3) Where an 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. Section 12. Power of Court where arbitrator is removed or his authority revoked.--(1) Where Court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators), the Court may, on the application of any party to the arbitration agreement, appoint persons to fill the vacancies. (2) Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the Court, or where the Court removes an umpire who has entered on the reference or a sole arbitrator or all the arbitrators, the Court may, on the application of any party to the arbitration agreement, either- - (a) appoint a person to act as sole arbitrator in the place of the person or persons displaced, or (b) order that the arbitration agreement shall cease to have effect with respect to the difference referred. (3) A person appointed under this section as an arbitrator or umpire shall have the like power to act in the reference and to make an award as if he had been appointed in accordance with the arbitration agreement. Section 19. Power to supersede arbitration where award becomes void or is set aside.--Where an award has become void under subsection (3) of section 16 or has been set aside, the Court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred. Section 25. Provisions applicable to arbitrations under this Chapter.---The provisions of the other Chapters shall, so far as they can be made applicable, apply to arbitrations under this Chapter: Provided that the Court may, in any of the circumstances mentioned in sections 8,10, 11 and 12, instead of filling up the vacancies or making the appointments, make an order superseding the arbitration and proceed with the suit, and where the Court makes an order superseding the arbitration under section 19, it shall proceed with the suit. Section 30. Grounds for setting aside award.--An award shall not be set aside except on one or more of the following grounds, namely-- (a) that an arbitrator or umpire has; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; (c) that an award has been improperly procured or is otherwise invalid. Section 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 title. 16. The case-law cited by learned counsel for the parties may now be considered. In the case of Rallis India Ltd (supra), a learned Division Bench of the Madras High Court has taken the view that supersession of an arbitration agreement should not normally be ordered. The relevant observations of the learned Bench are as follows:--
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"An order of supersession of an arbitration agreement ought not to be lightly passed. This is particularly so in a case in which arbitration had been resorted to without the intervention of the Court, there being no suit pending. For when a suit is pending no serious harm would be done to the parties if the arbitration agreement were to be superseded since the rights of the parties can be agitated in the suit itself. But where the arbitration was the result of a reference under section 20 of the Arbitration Act, supersession of the arbitration agreement would only compel the parties to resort to the ordinary Courts; questions of limitation would arise, and incalculable harm would be done to a party. Where it is found that there is no valid award in the form of a special case, the Court is not justified in superseding the arbitration agreement. " "Arbitration agreement is a contract between the parties under which they agree to refer their disputes to a domestic forum of their choice. Under the agreement the parties for better or worse agree to have their dispute settled through arbitration and make the arbitrator the final Judge in their dispute. Such a contract cannot be allowed to be evaded unless there are substantial grounds to relieve either of the parties of the obligations incurred by it under the contract. An arbitration agreement like any other agreement is binding on the parties unless it be shown that it is tainted with fraud, coercion, undue influence or that its terms are unconscionable. It is only on such grounds that an arbitration agreement can be avoided like any other agreement. No hard and fast rule can be laid down to suggest in what circumstances reference should be superseded, consequent to which the arbitration agreement shall cease to have effect. The approach in an application for superseding the reference has to be whether the refusal to grant leave would result in miscarriage of justice. " The Honourable Supreme Court in the case of Haji Soomar Haji Hajjan (supra), has held. That the parties contracting settlement of their disputes through arbitration should not normally be allowed to avoid the arbitration agreement. The relevant observations made in this behalf are reproduced below: We feel that wherever the parties to an agreement expressly chose, through an arbitration clause, a forum other than a Court of law, for the settlement of their dispute, neither of them should normally be allowed to avoid that forum. The sole purpose of the Arbitration Act is to curtail litigation in Courts and to promote the settlement of the dispute amicably through persons in whom both the parties repose their trust. Therefore, the course that the Courts should generally follow is to encourage the settlement of disputes by this method wherever the parties have themselves agreed to do so." The case of Sardar Haleem (supra) is the Lahore High Court case decided by Cornelius, J. (as his Lordship then was). The relevant facts of the precedent case were like this. The award made by the arbitrator was set aside by the Court on the ground that the award had been made after the expiry of the prescribed period. However, in terms of section 19 of the Arbitration Act, the trial Court after setting aside the award did not make a consequent order superseding the reference and declaring the arbitration agreement to have…
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