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Petitioner: Messrs V/O TECHMASH-EXPORT VS Respondent: Messrs AKBAR COTTON MILLS LTD. and JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Zahoor-ul-Haq, Syed Sajjad Ali Shah Title:Messrs V/O TECHMASH-EXPORT vs Messrs AKBAR COTTON MILLS LTD. and
JUDGMENT
Reported As: 1987 MLD 600 Result: Appeal dismissed Judgment JUDGMENT ' MUHAMMAD ZAHOORUL HAQ, J.--The appellant had felt aggrieved by the order of a Single Judge of this Court passed in Suit No,479/1979 on 6-2-4984, whereby the application made under section 34 of the Arbitration Act, 1940, by the appellant, was dismissed. 2. The relevant facts are that on 7-8-1970 a contract had been entered into between the appellant -and M/S. Sabena Textile Mills, the predecessor of the present respondent No,1 for the supply of a spinning unit by the appellant under a scheme known as "pay as you earn scheme". The price of the machinery was settled at 16,48,891 U.S.Dollars. There was an arbitration clause in the said contract providing for reference of disputes to arbitration at Moscow in case the defendant was the appellant or arbitration at Karachi in case the defendant was the respondent No,1. 3. Differences arose in respect of quality of machinery supplied by the appellant and respondent No,1 claimed that it was a defective machinery, which had caused losses to them. Some Correspondence was exchanged between the parties. The respondent No,1 filed Suit No,1755/75 for cancellation of documents and permanent injunction. Same was allowed to lapse. On 29-5-1979, the Respondent No,1 filed suit for recovery of Rs,4,42,33,555 against the appellant on account of the defective machinery supplied by the appellant. Permanent Injunction was also sought restraining the U.B.L. From paying the guaranteed amount of instalment to the appellant. It may be stated here that the injunction was granted, but eventually it was vacated and on that account the appellant is not at all aggrieved. 3-A On 2-6-1979 an application was filed by the appellant under section 34 of the Arbitration Act, 1940 for the stay of the suit on account of the Arbitration Clause in the agreement. In the supporting
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affidavit it. Was also requested that action under section 3 of Arbitration (Protocol & Convention) Act VI of 1937 be also taken. The Respondent No,1 resisted the said application and filed the counter affidavit. 3-B After hearing the parties the learned Single Judge dismissed the application under section 34 of the Arbitration Act on 6-2-1984 and hence this appeal. The last pare of the impugned order giving the reasons is reproduced as follows:- "In the case beforeFme the Plaintiff categorically stated in sub-paras. 3 and 4 of paragraph 3 of their counter affidavit that the entire plant and machinery supplied by defendant No,1 are installed in Karachi, the relevant record which will be truckloads, is all at Karachi. The engineers, technicians, supervisors and workers, who are relevant witnesses to depose about the operation of the machinery are all in Karachi and so also the workers who have worked thereon. That these witnesses in large number reside in Karachi and if arbitration proceedings before the foreign tribunal takes place all these evidence cannot be taken to Moscow both for reasons of impracticability as well as on account of restrictions of foreign exchange and involvement of heavy expenditure. These allegations in the counter affidavit of the plaintiff have gone absolutely unchallenged as no rejoinder affidavit in rebuttal was filed by defendant No,1. It is also not disputed before me that the Defendant No,1, is engaged in extensive commercial activities in Pakistan and have their permanent representation here, besides their representation through U.S.S.R. Trade Representative in Pakistan. In consideration of above circumstances, I am of the view that it is a fit case in which stay of legal proceedings should be refused by the Court under section_ 34 of the Arbitration Act. I accordingly reject the application of Defendant No,1 under section 34 of the Arbitration Act but grant two months time to them to file their written statement. There will be no order as to costs." 4. The learned Single Judge also took note of the submission of the appellant that by reasons of section 3 of Act VI of 1937 the Court should stay the proceedings in the suit in view of the Arbitration Clause as the word "shall" in section 3 was of mandatory effect. ' The learned Single Judge did not give his decision whether the word "shall" in section 3 of Act VI of 1937 can be treated as "may", but he took the view that section 3 of Act VI of 1937 could be attracted in the case only if there had been an actual submission to arbitration in pursuance of the agreement and since there was no actual submission to arbitration in this case before the filing of the suit by the respondent No,1, therefore, the suit could not be stayed under section 3 of the said Act VI of 1937. 5. Mr.Khalid Farooq Qureshi, learned counsel for the appellant urged: (i) that section 3 of the Arbitration (Protocol & Convention) Act, 1937 (Act VI of 1937) is applicable in the case and since it provides for a mandatory stay of the legal proceedings in Court, therefore, the suit of the respondent should have been stayed. He further submitted that the word 'submission' used in the said section means an agreement to refer and not actual submission to the arbitration. (ii) Even as regards section 34 of the Arbitration Act the discretion in not staying the suit was not correctly exercised as the Court had no jurisdiction to deal with the suit. (iii) There is a treaty between U.S.S.R. And Pakistan for the constitution of Arbitral tribunals and reference thereto and the refusal to stay defeats the provisions of the treaty. (iv) The discretion in not staying the suit was not exercised in accord with the Islamic principles which enjoins the adherence to the promise. (v) The inconvenience in respect of production of evidence in respect of malfunctioning of machinery to be at Karachi was known to the respondent and hence they knew the situation in advance and yet they had agreed to have the arbitration at Moscow in their correspondence and, therefore, the suit should have been stayed and the arbitration should have been allowed to proceed.
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' Mr.Mansoor Ahmad Khan on the other hand replied that the discretion if exercised by the Court in not staying the arbitration proceedings is not open to interference by the Appellate Court unless it was exercised arbitrarily, perversely, contrary to legal principles and on basis of assumption not borne out by the record which was not the case in the present appeal. He relied upon PLD 1986 Karachi page 138. He further contended that section 3 of the Act VI of 1937 should not be applied in this case as there was not an actual submission to arbitrators of the dispute involved in this case by the parties and mere agreement to refer is not covered by the said section. His main emphasis was that the section should be interpreted literally by the Court and there was no ambiguity which could justify the use of other aids such as the preamble, or first schedule of the Act, in order to interpret the word 'submission'. He also submitted that the word 'shall' in section 3 of Act VI of 1937 should be construed as 'may' and, therefore, the Court has the discretion to stay the suit or not and once the discretion is exercised, then the same should not be interfered with. ' The appellant's counsel drew our attention to the preamble of Act VI of 1937 which provides as under:- "WHEREAS Pakistan was a State signatory to the Protocol on Arbitration Clauses set forth in the First Schedule and to the Convention on the Execution of Foreign Arbitral Awards set forth in the Second Schedule, subject in each case to a reservation of the right to limit its obligations in respect thereof to contracts which are considered as commercial under the law in force in Pakistan; ' AND WHEREAS it is expedient, for the purpose of giving effect to the said Protocol and of enabling the said convention to become operative in Pakistan to make certain further provisions respecting the law of arbitration: it is hereby enacted as follows." ' He also referred to section 3 of the said Act which is reproduced hereunder:- (3) Stay of proceedings in respect of matters to be referred to arbitration. "Notwithstanding anything contained in the (Arbitration Act, 1940), or in the Code of Civil Procedure, 1908, if any party to a submission made in pursuance of an agreement to which the protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission or any person claiming through or under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings apply to the Court to stay the proceedings; and the Court, unless satisfied that the agreement or arbitration has become inoperative or cannot proceed, or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings." (Underlining is mine). ' His submission was that the word 'submission' used in section 3 should be interpreted as meaning the agreement of arbitration or otherwise the very purpose of enacting Act VI of 1937 would be frustrated. He elaborated that the purpose of the Act was to give effect to the protocol or arbitration clauses to which India had been a party and since the First Schedule of Act VI of 1937 has produced the protocol which referred to arbitration clauses, therefore the said protocol should be used for the purpose of interpretation of section 3 of the said Act, if the word 'submission' requires interpretation. Clause (1) of the First Schedule is reproduced below:- "1. Each of the Contracting States recognises the validity of an agreement whether relating to existing or future differences between parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit the arbitration all or any differences that may arise in connection with such contract relating to commercial matters whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject."
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' The submission in actual effect is that section 3 clearly provides a mandatory stay of the proceedings in Court where any party to a submission made in pursuance of an agreement to which the protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person who was a party to that agreement has commenced any legal proceedings in any Court in respect of any matter agreed to be referred. According to him the word 'submission' should be interpreted as meaning an agreement to submit present or future differences to arbitration whether arbitrator is named therein or not. He emphasised that the marginal note of this very section provides for stay of proceedings in respect of matters to be referred to the arbitration and, therefore, the word 'submission' should be treated as meaning as agreement to refer the disputes to arbitration. He sought support from the definition of the word 'submission' as contained in section 4(b) of Indian Arbitration Act IX of 1899 which had provided as under:- "'submission' means a written agreement to submit present or future differences to arbitration whether an arbitrator is appointed or not." ' The Indian Arbitration Act IX of 1899 had continued to hold field upto 1937 although the procedure in regard to arbitration was provided in Code of Civil Procedure of 1908. The argument of the counsel appears to be attractive if literal construction was not resorted to and aids were applied to interpret the word "submission". Act IX of 1899 was an existing law in India in 1937 and Act VI of 1937 is an Act which is nearly at par with the purposes of Indian Arbitration Act, 1899 and hence the word "submission" used in Act VI of 1937 could, in case there was any ambiguity, be interpreted in the light of the word "submission" contained in then existing Act IX of 1899. There word "submission" clearly included an agreement to submit present or future differences to the arbitration. Therefore, argument is that in this light section 3 of Act VI of 1937 could not be interpreted in a manner to exclude the future differences and confined to those cases alone where actual submission of a dispute to an arbitrator has Already taken place. But the difficulty is that literal interpretation of a word is the rule and this rule can be departed from only if there is found any ambiguity in construing a word and not otherwise. Moreover we cannot lose sight of the fact that the definition of the word "submission" A in Act IX of 1899 was subject to the context and, therefore, even in those cases which were covered by Act IX of 1899 if the word "submission" was found to be used in the- context of meaning an actual submission of a dispute to arbitrator then the definition of Act IX of 1899 would give way to meanings suggested by the context. ' The interpretation put forward by the appellant's counsel on the word "submission" in section 3 of Act VI of 1937 finds support from the minority view expressed by Remaswami J. In AIR 1971 SC 1 at page 17 where the learned Judge observed as under:- ....The expression "submission made in pursuance of an agreement" in section 3 of the Act must be construed in its historical setting. The word "submission" must, therefore, be interpreted to mean the arbitral clause itself and the word "agreement" as the commercial or the business agreement which includes or embodies that clause. In other words the word "submission" in the opening words of the section means an agreement to refer to arbitration and the words "the agreement to which the Convention set forth in the schedule applies" mean the business agreement or contract containing the arbitral clause." ' This opinion was based upon the view of Scarman J. In (1965) 2 WLR 250 at pages 262-263 in the 'Merak' case. Reference was also made in the above case to opinion of Dicey & Morris in the Conflict of Laws, 8th Edition page 1075 where the phrase "a submission made in pursuance of the agreement to which the said protocol applies" was treated to be meaning that the parties have agreed to submit their present or future disputes to the arbitration and the word "submission" was
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explained as including an agreement to refer. Mr.Justice Ramaswami had also observed at page 16 of the said judgment as under:- "....The expression "arbitration agreement" and the word "submission" are synonymous and connote the same idea." ' The learned Judge refused to construe the words submission" and "agreement" in their natural and grammatical meaning on the ground that taking a literal interpretation is not always the best method for ascertaining the intention of the parliament and the better interpretation is that statute should be so construed as to prevent the mischief and advance remedy for true intent of the makers of the statute. At page 19 of the said judgment it was observed as under:- "When there is ambiguity in the language of the section, it is the duty of the Court to adopt that construction which will effectuate the object of the Act and not nullify the intention of Parliament and make the provision devoid of all meaning." ' However, the opinion of the majority judges in the above case i.e, AIR 1971 SC 1 is quite contrary to the opinion of Ramaswa mi J. The majority opinion was expressed. By Grover J. For himself and Shah J. The para 16 and onwards of that judgment are quite relevant for the purpose of this appeal. Halsbury's Laws of England Vol. 36 page 414 has been quoted therein to the effect that there is presumption that the parliament does not assert or assume jurisdiction which goes beyond the limits established by the common consent of nations and statutes are to be interpreted, provided that their language permits, so as not to be inconsistent with the comity of nations or with the established principles of international Law. But this principle applies only where there is an ambiguity and must give way before a clearly expressed intention. If statutory enactments are clear in meaning, they must be construed according to their meaning even though they are contrary to the comity of nations of International Law. It was further observed as under:- "Once, the Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations." ' In the majority opinion in the above quoted judgment reference was made to Barras v. Aberdeen Steam Trawling and Fishing Co. Ltd. 1933 A C 402 to the effect that where an Act had been passed to give effect to the convention which was scheduled to it, the words employed in the Act had to be interpreted in the well established sense which they had in municipal law. ' Mr.Justice Grover further observed as under:- "If 'submission' means 'agreement to refer' or an 'arbitral clause' in a commercial contract, it makes the entire set of words unintelligible and completely ambiguous. ' It was also observed in the above case by the majority judges as under:- "If section 3 cannot be so read as to permit the meaning of the word 'submission' to be taken as an arbitral clause or an agreement to refer, the Courts would not be justified in so straining the language of the section as to ascribe the meaning which cannot be warranted by the words employed by the legislature. We are aware of no rule of interpretation by which rank ambiguity can be first introduced by giving certain expressions a particular meaning and then an attempt can be made to emerge out of semantic confusion and obscurity by having resort to the presumed intention of the legislature to give effect to international obligations." ' In para. 28 the majority opinion is expressed as under:- "23. Whatever way section 3 of the Act is looked at, it is difficult to reach the conclusion that 'submission' means an agreement to refer or an arbitral clause and does not mean an actual submission or completed reference, and that the word "agreement" means a commercial contract and not an agreement to refer or an arbitral clause." It would also be useful for the purpose of this appeal to reproduce hereinbelow paragraphs 29 and 30 of the majority opinion in AIR 1971 SC 1 (12):-
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"29 Ordinarily, a party, which has entered into a contract of which an arbitral clause forms an integral part, should not receive the assistance of the Court when it seeks to resile from it. But in the present case a suit is being tried in the Courts of this country which, for the reasons already stated, cannot be stayed under section 3 of the Act in the absence of an actual submission of the disputes to the arbitral tribunal at Moscow prior to the institution of the suit. The only proper course to follow is to restrain the Russian Firm which has gone to the Moscow Tribunal for adjudication of the disputes from getting the matter decided by the tribunal so long as the suit here is pending and has not been disposed of." "30 In this context, we cannot also ignore what has been represented during the arguments. The current restrictions imposed by the Government of India on the availability of foreign exchange of which judicial notice can be taken will make it virtually impossible for the Indian Firm to take its witnesses to Moscow for examination before the Arbitral tribunal and to otherwise properly conduct the proceedings there. Thus the proceedings before that tribunal are likely to be in effect ex parte. The High Court was, therefore, right in exercising discretion in the matter of granting an interim injunction in favour of the Indian Firm." Let us now ourselves consider whether there is ambiguity in construing the meanings of section 3 of Act VI of 1937. If there is ambiguity, then the external aids of the preamble of the Act or marginal note of the said section or clause I of the 1st Schedule of the said Act or the definition of the word "submission" as contained in section S ) of Act IX of 1899 would be useful and relevant guides to ascertain the intention of the legislature in respect of the meanings of section 3 of Act VI of 1937. But if there is no ambiguity in the meanings and the intention of the legislature is clear then no foreign aids should be employed to ascertain the meanings. Because if the language of the section is clear and conveys a particular meaning then the Court is not justified to adopt another meaning which would be more appropriate in the view of the Court or more in consonance with any treaty or the purpose of the Act. If language is clear then the intention of the legislation is clearly, ascertainable and it is not open to us to start speculating about the real intention of the legislature and start finding external means to give the section a meaning which the Court considers more akin to the purposes of the Act. ' The language of section 3 in the first instance negates the provisions of the Arbitration Act 1940 and the Civil Procedure Code as far as this section is concerned. Then comes the relevant clause which is the centre of this controversy namely, "If-any party to a submission made in pursuance of an agreement to which the protocol as set forth in the first schedule applies". If the word "submission" was to be construed literally then it would mean "reference to a decision or judgment by a third party"; or "referring a matter to arbitration" as explained in Oxford Universal Dictionary p.1713. Even Law Lexicon by 1947 edition at p.1227 explains "submission" as 'that act by which parties refer any matter in dispute between them to the decision of a third person'. Thus, if literally construed, it means actual reference of dispute to the arbitrator. There is no difficulty at all and meanings are clear. But if "submission" was given the artificial or modified meaning of "an agreement to refer present or future disputes to arbitration or an arbitral clause only, then the difficulty starts and the words "made in pursuance of an agreement" start staring one in . The face and the word agreement appears to be surplus or redundant. But since no redundancy can be attributed to legislature as held in PLD 1962 SC 90, therefore, the addition of the words "made in pursuance of an agreement" after the word "submission" had to be given some meaning as those words cannot be regarded as superflious or meaningless. ' We cannot read 'submission' as mere arbitral clause as there is no warrant for the same as no such meaning is found in any dictionary or in any definition and hence its meaning as mere arbitral clause has to be rejected.. If we read the word "submission" in this clause of section 3 as interpreted by the appellant's counsel, then the clause will read like this "if any party to an
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agreement to refer present or future disputes to arbitration, made in pursuance of an agreement to which the protocol set forth in the first schedule applies". But it does not make a coherent reading and the word "agreement" appearing second time would be mere duplication and will be completely useless. The judges who took the view that "submission" does not mean actual reference of the dispute to arbitration, took the stand that the word "agreement" in section 3 refers to agreement relating to commercial matters and the word "submission" means the arbitral clause in the said agreement. Why should we do this and why not allow the words to be interpreted literally as they exist. If the original words are interpreted and the word "submission" is read in it's ordinary dictionary meaning to mean "actual reference of a dispute to arbitration, then every word in the phrase becomes meaningful and the whole phrase reads as meaning "actual reference to arbitration made in pursuance of an agreement to which the protocol applies." Moreover, some meaning has to be assigned to the words "made in pursuance of". Word 'pursuance' gives an idea of sequence in time and not merely a sequence in the number of clauses of the same agreement. ' Moreover the word "agreement" used in the first part of section 3 of Act VI of 1937 cannot be merely restricted to "an agreement relating to commercial matters" as interpreted by Scarman J. Or Ramaswa my J. As referred to earlier. They have done so by reference to clause I. Of the protocol. But with respect to them, they have referred only to a…
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