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Petitioner: NATIONAL ENGINEERING SERVICES PAKISTAN (PVT.) LTD VS Respondent: STEEL MILL JUDGMENT
Court Name: Sindh High Court Judge(s): Mushir Alam Title:NATIONAL ENGINEERING SERVICES PAKISTAN (PVT.) LTD vs STEEL MILL
JUDGMENT
Reported As: 2003 YLR 1696 Result: Order accordingly Judgment JUDGMENT This award has come up for confirmation before this Court which has been filed by learned Umpire Mr. Justice (Retd.) K.M.A. Samdani and presented to this Court on 25-4-1998 in the matter of arbitration between National Engineering Services Pakistan (Pvt.) Limited (hereinafter referred to as ' NESPAK') and Pakistan Steel Mills Corporation Limited (hereinafter referred to as ' SMCL'). Objections to the award under sections 30 and 33 of the Arbitration Act, 1940 were filed by the defendant, SMCL, on 22-3-1999. Briefly stated the facts are that the plaintiff filed Suit No,70 of 1987 praying for a judgment and decree in the sum or Rs,20,914,746.19 with interest at the rate of 15% from the date of suit. The claimed amount pertains to purported dues recoverable tinder seven contracts entered into between the parties earliest being dated 19-4-1974 last in the series being dated 6-5-1979 detailed of the contract is listed in para. 2 of the suit. On registration of the suit the defendant moved a motion under section 34 of the Arbitration Act for stay of the suit and for reference of the dispute to the arbitration in terms of the arbitration agreement between the parties common to all the contracts. Consequently, the suit was stayed. Parties appointed Mr. S.A. Nizami and Mr. A.Q. Helapoto respectively as. Arbitrators who in turn appointed Mr. Justice (Retd.) K.M.A. Samdani. Both the arbitrators respectively delivered the award and since there was a difference of opinion the matter was referred to the learned Umpire for the decision. One of the Arbitrator Mr. A.Q. Helapoto concluded that all the claims filed by Messrs NESPAK were time-barred. Mr. S.A. Nizami held otherwise. Other controversy that came up before the Umpire was whether the claim in arbitration proceedings was to be confined to the claim set
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out in para. 8 of the plaint or other claims could also be entertained. The reason for such issue having come up for consideration was that the plaintiff, NESPAK, in the suit referred to above only made claim in respect of the seven (7) Annexures 'I' to 'O' in the sum of Rs,1,28,54,792; however, when finally claim in the form of reference was made it was in the sum of Rs,3,69,46,017. One of the learned Arbitrators was of the opinion that the amount claimed and supported by documents in suit could only be legitimately considered by the Arbitrators, whereas other Arbitrator was of the opinion that the Arbitrators were bound to adjudicate upon the reference as presented to them irrespective of the claim in suit. One of the Arbitrator rejected the entire claim, whereas the other allowed it. Mr. Akhter Ali Mehmood, learned counsel for PSMCL raised serious objections. His objections are summarized as follows:-- (1) The reference to arbitration was only restricted to the claim in Suit No,790 of 1987, therefore, the claim beyond the pleadings in suit is barred in terms of Order 2, rule 2 and could not have been sustained. (2) The minutes of meeting dated 21st July, 1984 do not constitute a binding contract and the PSMCL is not obliged to honour the purported agreement; (3) The Arbitrators considered the claim which were otherwise barred by limitation and award in respect of such claim cannot be sustained; Mr. Salman Talibuddin, learned counsel appearing for NESPAK before proceeding on merit seriously objected the consideration of objections to the award under sections 30 and 33 of the Arbitration Act. He vehemently contended that such objections cannot be looked into by the Court as same were not filed in accordance with law nor the same was supported by Affidavit, person who had signed the objection had no authority it was therefore, urged that objections are liable to be discarded. Beside being barred by Article 158 of the Limitation Act, it was further urged that such defects were pointed out through the counter-affidavit yet the Objector failed to remove the same. It was only as late as on,4-5-2001 alongwith Affidavit-in-Rejoinder, respondent placed on record the resolution dated August 20, 1996 whereby Mr. S.M. Aslam Zaidi appears to have been nominated to sign, verify, institute and all proceedings by or against the PSMCL and such objections were filed by said authorized person. In order to appreciate such contention it would be appropriate to reproduce the rule 284 of Sindh Chief Court Rules (Original Side) which runs as follows:-- "An application to modify, correct or set aside an award, or to remit an award to the arbitrators or umpire for reconsideration shall be made by a verified petition which shall set out the grounds on which the application (sic). Such petition shall be entitled in the suit in which it is filed. A notice of such petition shall be served on the opposite-party." The above referred rule speaks of the manner in which the application under section 33 of the Arbitration Act is to be entertained. Contention of Mr. Akhtar Ali Mehmood, learned counsel PSMCL that it was merely procedural defect that no resolution authorizing to Mr. S.M. Aslam Zaidi was placed on record but before the objections are heard, same were placed on record. He contended that when the defect was removed it will be too technical to knock out the objector on such count. No doubt the defendant was negligent as far as removing the defects, nonetheless, same were removed and the Board Resolution authorizing Mr. S.M. Aslam Zaidi was placed on record such resolution is dated much anterior even to the date of filing of the suit, the resolution otherwise has not been disputed. Therefore, in this context, the reliance made by Mr. Salman Talibuddin, learned counsel for NESPAK on Mr. A.K. Fazalul Quader Chaudhry v. Syed Shah Nawaz and others (PLD 1966 SC 108) is not of much avail the defect was rectified before the action could be heard and decided. No doubt Article 158 of the Limitation Act provides the period of limitation for filing objections to the award as 30 days. From the record, it appears that Vakalatnama on behalf of PSMCL was filed on
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22-3-1999, There is nothing on record to show that defendant was served earlier for all intent and practical purposes this date is taken to be the date of service of notice as required under the Arbitration Act and apparently the objections cannot be said to be beyond the limitation as there is no material to show that they were served otherwise on a date before the date of filing of Vakalatnama. Merely because the objections were not supported by affidavit will not ipso facto be sufficient to throw out the objections. I would now propose to examine the objections on merits. Adverting to the first submission that the claim under reference is to be restricted to the claim in suit. Any claim beyond such pleadings is hit by waiver or acquiscence. Contention of Mr. Akhter Ali Mehmood, learned counsel for PSMCL that the dispute referred to the arbitration in terms of section 34 of the Arbitration Act was subject-matter of the claim in suit and . nothing beyond. He further pointed out that Additional issues were framed on such objections and by consent following Additional issue was framed by the Arbitrators which is as follows:-- "Whether each claim is within the scope of reference, if not its effect?" Mr. Akhter Ali Mehmood, learned counsel for PSMCL vehemently contended that by virtue of section 41 of the Arbitration Act, Code of Civil Procedure is applicable to the Arbitration proceedings, therefore, principle enshrined under Order 2, rule 2, C.P.C. would be attracted to claims in reference which were not subject-matter of suit. The rigours of Civil Procedure Code and so also the intricacies of the Evidence Act could not be invoked by virtue of section 41 of the Arbitration Act. For reference one may refer to cases. of Ismail Brother v. S.M. Fazail & Co. (PLD 1958 (W.13) Karachi 158 (161) and Azad Government of the State of J&K v. Muhammad Aslam (PLD 1981 Azad J&K 71 and 77). For the purpose of present controversy, the Application under section 34 of Arbitration Act may be reproduced:-- "It is humbly prayed on behalf of the defendant above named that this Hon'ble Court may be pleased to say the proceedings in the present suit since the arbitration agreement exists between the parties and the defendant is ready and willing to take steps necessary for arbitration." Said application by consent was allowed in following terms:-- "By consent of Mr. Habib-ur-Rehman, C.M.A. No,2190 of 1988 is granted. It is ordered that the matter be referred to the Arbitrator in accordance with the agreement referred in the application." It is to be noted that defendant merely requested the Court to stay off its hand from deciding the suit as they are willing to participate in arbitration proceedings. To such a proposal, the plaintiff had readily agreed. Accordingly, consent order referred to above was passed. It may be pertinent to note that section 34 of the Arbitration Act is not a barring provision on its own application, bar to adjudicate upon only come into play when one of the party to the suit, who is also a party to Arbitration Agreement seeks to enforce the arbitration clause then usually the Courts enforce such arbitration clause and stay their hands from the dispute, leaving it open to the arbitrator to decide it in accordance with the wishes of the parties. When a plaintiff who filed a suit agreed to a proposal made by the defendant to resolve the dispute through agreed medium of arbitration then it is up to the plaintiff either to make reference in respect of subject-matter of the suit to the arbitration or may make reference including all other claims or disputes as may be ripe for the purpose of making reference. In a case reported as Abdul Sattar Mandokhail v. Port Qasim Authority (2001 YLR 758) large number of cases were discussed and import and purport of Arbitration Agreement in terms of section 2(a) of the Arbitration Act was considered.. It was observed as follows: Above referred definition postulates submission of present or future differences the plural use of "difference" clearly indicated that there can be more than one differences that may arise, if such is the case then each may be subject-matter of separate reference. It, however, depends on the nature of the contract. After discussing at length the implication of Order 2, rule 2, C.P.C. in light of the various case-laws at
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page 764, it was held as follows:-- "From what has been discussed above it is clear that it is only a dispute that had been referred to arbitration, whether an award was given or not, cannot be the subject-matter of a subsequent reference and to that extent such dispute may be hit by the principle of res judicata and not otherwise. Disputes, which could have been raised when making a reference but, were not raised, could not be said to be hit by the principle of constructive res judicata. There can be successive claims depending on nature-of contract, maturing into a difference and at the option of party to the agreement, may be subject-matter of reference. The moment a party exercises its option to' convert a dispute into a reference, other party is obliged to enter into the arbitration and subject to limitation, same cannot be resisted on the ground that it was not raised at a particular point of time." Argument of Mr. Akhtar Ali Mehmood, learned counsel for SMCL would have prevailed had the defendant remained contended and stepped into proceedings by filing reply to the plaint then of course the matter would have remained confined to the claim and relief sought in the suit. Once a party exercises the option to invoke arbitration clause in terms of section 34 of the Arbitration Act, which is manifestation of its readiness and willingness to do all things necessary to the proper conduct of the arbitration. It may be observed that readiness and willingness to do all things necessary to the proper conduct of the arbitration, is one of the pivotal considerations for the Court to stay the proceedings at the motion of the party who seeks to invoke section 34 ibid. Once a plaintiff is driven to the arbitration, it does not lie in the mouth of the defendant to object to the authority or jurisdiction of the arbitrator to entertain the reference provided dispute urged before the arbitrator is covered by the Arbitration Clause. It was not disputed that the dispute urged before the Arbitrator were covered by the arbitration clause. The reference to the arbitrator that may confine to the claim in suit is postulated when such reference is made under section 21 of the Arbitration Act. In cases where reference is made to arbitrator either by invoking section 20 or section 34 of the Arbitration Act. Such limitation would not apply and party making a reference pursuant to section 20 and/or section 34 of the Arbitration Act may make reference covering dispute beyond claims made in suit, provided such dispute does not travel beyond disputes 'covered under the arbitration clause. Therefore, contention of Mr. Akhter Ali Mehmood, learned counsel that reference to the arbitrator in a pending suit stayed under section 34 of the Arbitration Act is confined to the extent of claim in suit cannot be sustained. In view of the foregoing discussion the reference to the Arbitrator could include all the claims as may be considered ripe for reference by a party to the agreement. Now adverting to the second objection which relates to the effect of minutes of meeting dated 21- 7-1984. It was contended by the learned counsel for the defendant that learned Umpire misconducted himself while treating minutes of meeting dated 21-7-1984 as a binding contract. According to him, all the seven contracts were executed by duly authorized personnel and each agreement followed by the various addendas and corrigendum same were signed by the person duly authorized. According to him, the minutes of meeting cannot be treated to be a concluded contract, it is merely a proposal and the claim on the basis of such meeting cannot be allowed. Arguments appear to be persuasive. A contract means offer and acceptance of a proposal. Mr. Akhter Ali Mehmood, 'learned counsel for SMCL has mainly attacked the minutes of the meeting on the ground, inter alia, the same were not signed by the authorized person and secondly that it was not approved by the Board of Directors. According to him, it was merely a site meeting. The meeting dated 21-7-1984 in terms of its recital was held to resolve the pending dispute and controversy between the parties such recital reads as follows:-- "In order to resolve the outstanding issues with regard to various agreements with Messrs NESPAK, a meeting was held on 21-7-1984 under the Chairmanship of Director (Project), Pakistan Steel. The
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matters regarding payment of bills, finalization of agreements and the fees admissible for the services rendered by NESPAK, at various stages and deductions made by Pakistan Steel's Account Department were referred by them in their letter KR/108/84/SPC-654 dated 4-3-1984 . " Meeting was attended by Director (Project), General Manager (Audit), Project Incharge (Plant), Deputy Chief Engineer (Contract) and Deputy Chief Engineer (See Water Pump House) representing Pakistan Steel Mills Limited and the plaintiffs were represented by General Manager, General Manager (P&A), Resident Engineer and Chief Quantity Surveyor. Number of issues were discussed and it was agreed that actions in accordance with the decisions made are to be taken by concerned officials. To appreciate contention of Mr. Akhtar Ali Mehmood various items on agenda of the meeting and the conclusion drawn, excluding the lengthy discussion are summarized as follows. It may be pertinent to note that each item of agenda is separately signed by such Officers/Representatives of the defendant co-operation who were considered responsible to implement-it: (I) Deductions: Stages II and IV; Construction Base:-- (a) Excess Recovery of Rs,46,778.34:-- This amount was agreed to be released after verification. (b) Designing and Redesigning of approach road of Rs,7,77,711.16.--- and the decision arrived at was as follows:-- "After discussion, it was agreed that the case should be reviewed afresh by Pakistan Steel and the Board may be requested to reconsider the matter." (c) External Illumination Works of Rs,1,02,800.76.---Conclusion was amount after verification may be released as this has no connection with Board's decision regarding construction of link road. (d) Reimbursable direct cost of Rs,68 898.00.--T/his amount was to be released after verification and it also had no connection with the Board's decision. (e) Unloader and Conveyors excess amount of Rs,1,13,412.93.---It was decided that the deducted amount be released to the Nespak and in case any recovery stands against NESPAK, same should be made after the decision is taken. (II) Extension service during 1-1-1978 to 10-6-1978.---It was decided that the fixed monthly remuneration be determined by the Committee constituted therein. (III) Claim of Final Bill Stage III (Supervision) of Rs,12,76,137.00.---It was agreed that case should be reviewed, for the undisputed amounts under Stage III and should be released immediately. (IV) Schedule of Rates of Rs,4,15,273.00.---It approved the release of Rs,2,00,000.00 on account of payment against the 1st running bill and a Committee was constituted to check the schedule of rates and furnish the requirements to NESPAK in this regard. (V) Shop Drawings of Rs,77,000.00.--- The amount was directed to be paid after verification. (VI)Operational and Control Buildings (a) Fee for supervision]---It was agreed till finalization of Addendum an interim ad hoc payment be allowed to NESPAK on the basis of proposed Agreement. (b) [For additional works]---It was agreed that an interim payment may be made but no amount has been mentioned. (VII) Fee During Maintenance Period.---It was concluded after a great deal of discussion, Pakistan Steel offered to pay 1% fee on the cost of the completed works under the respective agreements with NESPAK. This will apply to all contracts supervised by NESPAK except for Construction Base Project....This offer was accepted by NESPAK. This decision: however, was to apply after approval of Board. (VIII) See Water Pump House and Forebay.---Under this head the Director (Project) advised CM (Audit) to release the amount admissible in respect of the fees for the work in the variation order. It will further be beneficial to refer to Article 12 of the Contract which is a common clause in all the seven (7) Contracts executed between the parties:--
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'Article XII. Project Administration:- 12-1. The Corporation shall appoint Senior Manager of the Corporation who will fully represent the Corporation at all times in connection with the Project. Similarly the Consultants shall appoint a Project Manager who shall be fully designated and officially authorized representative to represent the consultants in all aspects of the project. The Corporation's representative and the Project Manager of the consultants shall have full authority to represent their respective Organizations in the performance of the work. In carrying out all engineering services the consultants shall collaborate at all times with the designated representative of the corporation, and all designs, plans, programme schedule, estimates for payment to contractors and other recommendations pertaining to the technical matters shall be made in consultation with the designated representative of the Corporation. It is agreed that the Agreement may be modified or amended from time to time by mutual agreement. A Corporate Body acts through its Directors and persons duly authorized under the Article of Association or by Board Resolution. Such person exercises delegated authority. In terms of Article XII reproduced above, it is evident that the defendant's Corporation agreed to appoint the Senior Manager of the Corporation, who will fully represent the Corporation at all times in connection with the Project. It was further agreed that the Agreement may be modified or amended from time to time by mutual agreement. Contention of Mr. Akhter Ali Mehmood, learned counsel for SMCL that the Officers representing the Pakistan Steel Mills Corporation Limited had no authority to bind the Corporation and the decision recorded in the minutes of meeting were merely a proposal. In order to appreciate, contentions of Mr. Akliter All Mehmood and to understand how contracts are made by a corporate entity, it will be advantageous to reproduce section 210 of the Companies Ordinance and Regulation 53 set out in Table ' A' to the 1st Schedule to the. Ordinance, 1984:-- Section 210 "Form of Contract.---(1) Contracts on behalf of a company may be made as follows, that is to say,--- (i) any contract which, if made between private persons, would be by law required to be in writing, signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under its authority, express or implied, and may in the same manner be varied or discharged; (ii) any contract which, if made between private persons, would by law be valid although made by parol only, and not reduced into writing, may be made by parol on behalf of the company by any person .acting under its authority, express or implied, and may in the same manner be varied or discharged. (2) All contracts made according to subsection (1) shall be effectual in law and shall bind the company and its successors and all other parties thereto, their heirs, or legal representatives as the case may be." Regulation 53 of the Companies Ordinance, 1984, reads as follows:-- "The directors may delegate any of their powers not required to be exercised in their meeting to committees consisting of such member or members of their body as they think fit; any committee so formed shall, in the exercise of the powers so delegated, conform to any restrictions that may be imposed on them by the directors." A bare perusal of decision recorded in the minutes ,as reproduced above shows that certain issues were positively decided and some issues were left to be decided by duly constituted Committee while other issues were subject to approval of Board of Directors. From a bare reading of the above Regulation, it is clear that the Directors may delegate authority to Committee consisting of such member or members of their body as they may deem fit. In light of the Article XII of the Contract as reproduced above read together with Regulation 52 and, section
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210 of the. Companies Ordinance, 1984. Plaintiffs are neither shareholders nor member of the defendant-Corporation. It is not to be expected of them to know internal affairs of defendants- Corporation. Third party dealing with a corporate entity is justified to assume that all the matters of internal affairs have been duly complied with and persons who have proximate relationship with the corporate entity is either authorized under the. Charter of the company or has been delegated such authority thereunder. Any person dealing with a Company must bona fidely believe that the person with whom he is dealing has or could have been delegated such authority. In view of he above provision both under the Companies Ordinance, 1984 read with Regulation No,53 set out in 1st Schedule to the Companies Ordinance, 1984 together with Article XII of the Contract, one could honestly and bona fidely infer that the Committee comprises of senior officials is duly authorized to transit and negotiate on behalf of the Steel Mills Corporation as the business transacted appears to be in normal course of business, what transpired in the meeting was in relation to the subject- matter of contract. From the record, it is also evident that plaintiff through repeated reminders called upon the defendant to honour such commitment, same were not refuted nor it was ever asserted that such persons were not authorized. Such assertion for the first time was urged in the objections to the reference, such silence on the part of Objector in terms of section 197 of. the Contract Act amounts to implied rectification of contract (one may see Sanaullah v. Muhammad Rafiq 2003 CLC 138). Company is bound by commitment made by a person having ostensible authority to represent the Company. Object of section 210 of the Companies Ordinance appears to protect third party/outsider, dealing with a corporate entity as, such person cannot be expected to be aware of the internal arrangement of a corporate management. I may quote with advantage following passage penned down by Lord Denning,…
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