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Official Citation: 2025 LHC 5028
Court / Jurisdiction: Lahore High Court
Year of Decision: 2025
Decision Date: 2025-07-11
Parties: Bilal Siddique vs Muhammad Naeem
Ruling Summary: This decision was rendered by the Lahore High Court on 2025-07-11, officially reported as 2025 LHC 5028. In this matter between Bilal Siddique and Muhammad Naeem, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2025LHC5028
Court Name: Lahore High Court Judge(s): Anwaar Hussain Title: Bilal Siddique vs Muhammad Naeem Case No.: FAO No.46205 of 2024 Date of Judgment:2025-07-11 Reported As: 2025 LHC 5028 Result: Appeal Allowed
JUDGMENT
JUDGMENT Anwaar Hussain, J. The present appeal is directed against order dated 12.06.2024 passed by the Trial Court on an application filed by the respondent under Section 20 of the Arbitration Act, 1940 ("the Act 1940"). Through the impugned order, the Trial Court, converted the application under Section 20 of the Act into an application under Section 8 thereof and, proceeded to appoint an arbitrator with the direction to decide the matter and pass an award accordingly. 2. The appellant has challenged the impugned order, inter alia, on grounds of lack of jurisdiction and procedural irregularities. It has been noted that there are certain foundational aspects of the case, which are not in serious dispute. Admittedly, the appellant and the respondent, alongwith two others, were partners under a registered partnership deed executed on 30.01.1993. It is also admitted feature of the case that the partnership was for fixed period that stood expired in the year 2005. The respondent filed an application under Section 20 of the Act 1940 on the basis of the above-referred foundational facts, with an averment that the respondent continued as partner with the appellant under another agreement executed on 18.12.2010 (w.e.f. 01.07.2006--the Trial Court treated it as an agreement dated 01.07.2006), while the two other partners were forcefully ousted by the appellant; that the respondent was assured that the business will be carried out smoothly between the appellant and the respondent; that both the agreements contain an arbitration clause; and when the differences arose between the parties, the respondent sent a legal notice to the appellant to provide complete financial position of the firm and since the same has been denied, the matter be referred to the arbitration. Conversely, while admitting the existence of the earlier registered partnership between the parties, it is the case of the appellant
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that no partnership subsisted between the parties after expiry of the registered partnership agreement, in 2005, and the respondent was only engaged as an employee thereafter, which employment was, later on, terminated as well. 3. Mr. Wasif Majeed, Advocate, for the appellant, has vehemently argued that the Trial Court has erred in exercising its jurisdiction while entertaining the application of the respondent under Section 20 of the Act 1940 and while converting the said application into application under Section 8 of the Act 1940, has appointed arbitrator and referred the matter for arbitration, ignoring that the agreement on the strength of which the respondent pleaded his case, is dated 18.12.2010, which document is neither registered nor witnessed by any person and does not create any right. Contends that it was a fit case in which proceedings should have been conducted by the Trial Court in terms of Section 31(2) read with Section 33 of the Act 1940 and the respondent should have been directed to produce and file original agreement in Court but the needful has not been done. States that in such an eventuality, the application was liable to be dismissed as held by this Court in case reported as Province of Punjab through Secretary to Government of Punjab, Housing and Physical Planning Department, Lahore and another v. Sufi Abdul Hameed (2003 CLC 355). Further contends that even if the partnership between the parties is accepted, admittedly, the agreement thereof was not registered and on the strength of the same the application under Section 20 of the Act 1940 could not be filed by any partner in terms of Section 69(3) of the Partnership Act, 1932 ("the Act 1932") as held by a Full Bench of this Court in case reported as Ali Muhammad v. Mirza Muhammad Hussain Beg (PLD 1968 Lahore 712). It is submitted that no direction was issued by the Court for filing the arbitration agreement, which is material irregularity, moreso when the alleged document is itself a subject of challenge on grounds of forgery. It is further contended that where the very existence or validity of the arbitration agreement is disputed, it is for the Court, and not the arbitrator, to decide such question under Sections 31 read with 33 of the Act 1940. Reliance, in this regard, is placed on case reported as Muhammad Ashraf Tiwana and others v. Pakistan and others (2013 SCMR 1159). 4. Conversely, Mr. Babar Awan, Senior Advocate Supreme Court, for the respondent has raised a preliminary objection regarding the maintainability of the present appeal, on the ground that the impugned order is not appealable under Section 39 of the Act 1940. He also contends that factum of filing of a revision petition, before Addl. District Judge, Gujranwala, against the impugned order has been concealed; therefore, the appeal is liable to be dismissed on this ground alone. On merits, it is contended that the parties, by their conduct, acted upon the unregistered agreement, and the existence of a continuing partnership can be inferred from various documents, including records from the Trademark Registry and Intellectual Property Organization, Government of Pakistan. It is submitted that an arbitration clause, once acted upon, binds the parties, and the Trial Court rightly exercised its jurisdiction under Section 8 of the Act 1940. Further avers that even if forgery is alleged, the matter may still be referred to the arbitration. Learned Law Officer was also asked to assist the Court as to whether arbitration proceedings fall under the purview of Section 69(3) of the Act 1932. He submits that the application under the Act 1940 is maintainable as it falls under the clause (a) of sub-Section (3) of Section 69 of the Act 1932. 5. Arguments heard. Record perused. 6. The following legal questions arise for determination by this Court: (i) Whether a reference to arbitration is competent where the arbitration clause is contained in an unregistered partnership agreement, in view of the Section 69 of the Act 1932? (ii) Whether the Appeal against the impugned order is maintainable under Section 39 of the Act 1940? (iii) Whether the Trial Court could refer the matter to the arbitration without first deciding the appellant's plea that the agreement dated 01.07.2006 is forged and hence, non-existent?
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(iv) Whether the application filed under Section 20 of the Act 1940, could be lawfully treated as application under Section 8 of the Act 1940 and arbitrator could be appointed, in the absence of compliance with the statutory requirement of Section 20 of the Act 1940, including filing of the original arbitration agreement? 7. Before addressing the legal questions formulated hereinabove, I would like to address the question of purported concealment on part of the appellant. Admittedly, the appellant challenged the impugned order before the Additional District Judge, Gujranwala by way of filing a revision petition and obtained a status quo and during the pendency of the said revision petition, the present appeal has been preferred. This Court expects the parties, approaching it, to maintain utmost transparency and candour. If a party, by design or omission, suppresses relevant procedural history or misleads the forum on jurisdictional aspects, such conduct may result in adverse consequences. However, it has been noted that in ground "n" of the present appeal, the disclosure, of factum of filing revision petition before the Revisional Court below, has been made in the following terms: "n. That the Appellant under a mistaken advice had earlier filed a Civil Revision before the District Court, Gujranwala, which lacked the pecuniary jurisdiction to adjudicate the Civil Revision. However, the Application for withdrawing the said Civil Revision has already been filed by the Appellant." It has been noted that while disclosure of filing of revision petition was made, the copy of the said petition and order passed thereon by the Revisional Court below was not appended. When confronted, learned counsel for the appellant submits that the disclosure in itself indicates that there is no concealment or suppression of fact from this Court and the certified copy of the status quo order passed by the Revisional Court below could not be obtained due to paucity of time since the limitation against the impugned order for filing present appeal was about to expire. In this view of the matter, I am of the opinion that no deliberate suppression of material facts has been made in the present appeal as the factual position regarding the filing of revision petition before the Court below has come on record. 8. Adverting to the first legal question that no proceedings can be initiated, under the Act 1940, on the basis of an unregistered partnership agreement--by relying upon Section 69(3) of the Act 1932, I am of the opinion that such contention of the appellant side is misconceived. Section 69 of the Act 1932 does not bar recourse to the arbitration proceedings based on an arbitration clause contained in an unregistered partnership deed. This is primarily because the arbitration proceedings are neither, stricto sensu, a "suit," nor do they fall within the ambit of the phrase "other proceedings" within the meaning of Section 69(3) of the Act 1932, which reads as under: "69 Effect of non-registration.- (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. (3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect- (a) the enforcement of any right to use for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or (b) the powers of an official assignee, receiver or Court under the Insolvency Act, or the Provincial Insolvency Act, 1920, to realize the property of an insolvent partner. (Emphasis supplied)
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I am fortified in this view by the judgment of the Supreme Court of Pakistan in Sqn. Ldr. (R.) Khurram Zaman v. Mrs. Afia Zafar and others (2008 CLD 662), wherein it was held: "3. Leave was granted by this Court to examine in detail interpretation of section 69(3) of the Partnership Act, 1932. 4. Appearing on behalf of appellant, Khawaja Muhammad Farooq, Advocate, contended with vehemence that learned High Court has not correctly interpreted the provisions of section 69 of the Partnership Act, 1932, and allowed application for stay of proceedings for reasons not sustainable in law. Learned counsel reiterated that subsections (1) and (2) of section 69 of Partnership Act refer to suits to enforce a right arising from a contract, the provisions of subsection (3) extends the provisions of subsections (1) and (2) to claim of set off or other proceedings to enforce a right from a contract. The use of disjunctive 'or' indicates that there are two alternatives. Therefore, other proceedings occurring in subsection (3) cannot be interpreted as ejusdem generis with set off. A set off is a defence and it seldom arises out of a contract. Learned counsel submitted that an application for resort to arbitration in a suit against an unregistered firm was held to be barred under section 69(3) of Partnership Act by a Division Bench of Allahabad High Court in a case reported as Syed Wahid Hussain v. Maharajkumar Mahmud Hasan Khan and others (AIR 1961 Allahabad 409). A similar view was expressed in another case reported as Messrs Para Ram Darshan Lal v. Union of India and another (AIR 1979 Delhi 135). He contended that learned High Court has not considered in its true perspective the judgment reported as Ali Muhammad v. Mirza Muhammad Hussain Beg (PLD 1968 Lah. 712) which is a larger Bench judgment and has preferred to follow a single Bench judgment reported as Syed Naushab Ali v. Lt. Col. Mehmood Khan Durrani (PLD 1972 Lah. 766). To supplement the submissions reliance was placed on follow reported cases....... 5. Aforesaid contentions of learned appellant's counsel were opposed on the ground that the proceedings have been stayed in view of clause 15 of the agreement under reference which stipulates that, if a dispute arises between the parties, It shall be resolved through arbitration and respondents invoked the provisions of section 34 of the Act, which the trial Court rightly granted. Provisions of section 69(3) of Partnership Act, 1932 were stated to have been interpreted correctly. To augment the submission, reliance was placed on the case of Pakistan International Airlines Corporation v. Messrs Pak Saaf Dry Cleaners (PLD 1981 SC 53). 6. Having heard the arguments advanced by both sides in the light of the material on file, we find that the parties to the lis established an unregistered firm through partnership deed 20-12- 2005. Clause 15 of the said agreement provides mechanism for the partners of the firm to resolve their dispute with respect to the business of the firm through an arbitrator to be mutually appointed by all the partners. Before filing written statement in the suit filed by appellant, respondents moved an application under section 34 of the Arbitration Act, 1940, which was allowed by the Civil Judge, Rawalpindi, seized of the matter. An appeal was preferred thereagainst, which did not succeed. The same was dismissed by Additional District Judge, Rawalpindi. The civil revision preferred by appellant also met the same fate. Having considered the matter from angles, we are of the view that the civil revision preferred by appellant has been dismissed through a detailed and well reasoned order, which is not open to legitimate exception. There is no illegality or irregularity in the impugned order as well as in the concurrent findings of fact recorded by the two Courts below. Needless to emphasize that where a party to an arbitration agreement starts legal proceedings with respect to the subject-matter of such agreement, the other party has a right to get such proceedings stayed so as to enable arbitration to proceed in terms of the agreement. The case-law cited by learned counsel for the appellant is distinguishable and proceed on different facts. It does not advance appellant's cause." (Emphasis supplied)
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The judgment in case of Ram Lal Harnam Dass v. Bal Krishen and others reported as (AIR 1957 Punjab 159), from neighboring jurisdiction is also referred where the Court held that the term "other proceedings" in Section 69(3) of the Act 1932 must be read ejusdem generis with "set-off" and not in a wide or unrestricted manner. The Court held that the words 'or other proceeding' in section 69(3) relate to the proceedings of the nature of set off and nothing else and Section 69(3) does not relate to other proceedings as distinct from a suit. Suffice to observe that case of Ali Muhammad supra, was examined by the Supreme Court of Pakistan in case of Sqn. Ldr. (R.) Khurram Zaman supra and was held distinguishable. Therefore, this Court finds no merit in the argument that Section 69(3) of the Act 1932, bars the filing of application under Section 20 of the Act 1940 when the partnership agreement containing arbitration clause is unregistered. 9. Insofar as the objection as to the non-maintainability of the present appeal, under Section 39 of the Act 1940, is concerned, I am of the opinion that the said argument is also without substance. Section 39 of the Act 1940 governs the right of appeal against certain orders passed under the Act 1940 and reads as under: "39 Appealable orders.- (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorized by law to hear appeals from original decrees of the Court passing the order:- An order- (i) superseding an arbitration; (ii) on an award stated in the form of a special case; (iii) modifying or correcting an award; (iv) filing or refusing to file an arbitration agreement; (v) staying or refusing to stay legal proceedings where there is an arbitration agreement; (vi) setting aside or refusing to set aside an award: Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court. (2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court." (Emphasis supplied) A plain reading of the above provision makes it clear that an order either directing the filing of an arbitration agreement or refusing to do so is appealable in terms of Section 39(1)(iv) of the Act 1940. In the present case, admittedly the application under Section 20 of the Act 1940 was filed by the respondent, however, the Trial Court, instead of issuing a direction for filing of the agreement and then appoint the arbitrator, chose to treat the matter as one under Section 8 of the Act 1940 and proceeded to appoint an arbitrator with direction to record evidence and pass an award. In such a situation, the impugned order in essence falls within the scope of clause (iv) of sub-Section (1) of Section 39 of the Act 1940 as the Trial Court refused to pass order of filing of the agreement dated 01.07.2006 while deciding the objection of the appellant, qua existence of the said agreement, and is therefore, appealable. 10. Even otherwise, assuming for the sake of argument that the impugned order is to be treated solely as one appointing an arbitrator under Section 8 of the Act 1940, and no express right of appeal is provided against such an order under the Act 1940, in such situation, Section 41 of the Act will come into play, which contemplates that the Code of Civil Procedure, 1908 ("CPC") will be applicable on the arbitration process, and hence, a revision is competent against the impugned order under Section 115, CPC. Case reported as Messrs Tribal Friends Co. v. Province of Balochistan (2002 SCMR 1903) is referred. Suffice to state that this Court is vested with ample authority to treat and convert the instant appeal as a revision and in this regard, cases reported as Karamat Hussain and others v. Muhammad Zaman and others (PLD 1987 SC 139), Ali Muhammad alias Ali Ahmad and others v. Mahbub Ahmad and others (1987 SCMR 1263) and
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Muhammad Hanif and others v. Muhammad and others (PLD 1990 SC 859) are referred. Therefore, the objection regarding maintainability is misplaced, and any discussion in this regard would be purely an academic exercise, without affecting the merits of the case, which is not required. 11. The remaining two questions formulated hereinabove are intertwined and constitute the core points of determination. Therefore, before adverting to the nub of the matter as to whether the Trial Court was justified in treating the application under Section 20 of the Act 1940 as application under Section 8 thereof, and appoint the arbitrator, it is appropriate to analyze the scheme of the Act 1940, which contemplates three distinct procedural regimes. The first, governed by Chapter II (Sections 3 to 19), applies where the arbitration is conducted without the intervention of the Court. The second, under Chapter III (Section 20), deals with the situations where intervention of the Court is required before the arbitration can proceed. The third category arises under Chapter IV (Sections 21 to 25), which pertains to situations where a suit is already pending before a Civil Court and matter is referred to arbitration in the course of those proceedings. Each of these chapters of the Act 1940 constitutes a separate and self-contained code, with its own triggering conditions, procedural sequence, and the consequences. Notably, proceedings under Section 8 of the Act 1940 fall within Chapter II and are predicated upon a valid arbitration agreement where the parties choose to initiate the arbitration directly, with the Court's assistance confined to the appointment of an arbitrator in case of disagreement. Section 8 reads as under: "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 notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties." It is imperative to observe that once an arbitrator is appointed under Section 8 of the Act 1940, the Court becomes functus officio, and the arbitral process unfolds independently of further judicial control unless the award is filed as the Court performs the limited statutory function--such as appointing an arbitrator in aid of arbitration without the Court's intervention and it becomes functus officio in relation to that proceeding. Section 8 of the Act 1940 does not contemplate a reference by the Court nor retention of jurisdiction over the arbitral process; it merely enables the Court to assist the parties in setting the arbitration in motion where they are otherwise willing to proceed independently. Accordingly, once the appointment is made, the Court has no residual authority to supervise, monitor, or retain seisin over the matter. However, this does not preclude a party from approaching the Court afresh under other provisions of the Act 1940--such as Section 9 for change or removal of an arbitrator, or Section 30 of the Act 1940 to challenge the award--where the jurisdiction of the Court is re-invoked through a distinct and statutorily prescribed procedure.
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The functus officio principle, therefore, operates only in respect of the completed act under Section 8 of the Act 1940 and does not bar the exercise of the Court's jurisdiction under the broader scheme of the Act 1940, provided it is properly invoked. 12. In contrast, a petition under Section 20--falling within Chapter III--is initiated precisely because judicial intervention is necessary to commence the arbitration, moreso when one side is denying the existence of agreement or an arbitrable dispute. Section 20 of the Act 1940 reads as under: "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 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 proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in the 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…
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