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Petitioner: PARACHA TEXTILE MILLS LTD., KARACHI VS Respondent: NANIKRAM SHAMANDAS
Court Name: Sindh High Court Judge(s): Zaffar Hussain Mirza Title: PARACHA TEXTILE MILLS LTD., KARACHI vs NANIKRAM SHAMANDAS Case No.: Suit No, 162 of 1973 Suit No, 255 of 1971 Date of Judgment:1976-09-22 Reported As: PLD 1977 Karachi 37 Result: Application dismissed
JUDGMENT
JUDGMENT ' By award dated 24-2-1973 Messrs A. Rashid and Naseerul Hassan, Arbitrators decided the dispute between the parties to this suit whereby they granted a sum of Rs, 64,800 to the plaintiffs Paracha Textile Mills Ltd. Against the defendant Nanikram Shamdas with interest at 9% per annum until payment by way of damages for breach of contract. 2. The brief facts leading to the award are that the plaintiffs Paracha Textile Mills Ltd. Agreed to purchase and defendant Nanikram Shamdas agreed to sell 500 bales of N.T.R.G. Cotton. The claim of the plaintiffs was that the defendant failed to perform the contract and thereby committed breach of contract. The plaintiffs thereupon purchased the goods from the market and claimed Rs, 64,800 being the difference of price between the contract price and market price. 3. In terms of the arbitration agreement the plaintiffs appointed Mr. Naseerul Hassan as their arbitrator and requested the defendant to appoint his arbitrator within 15 days. On the failure of the latter to appoint his arbitrator in spite of written promise, the plaintiffs appointed Mr. A. Rashid as arbitrator on his (defendant's) behalf. The two arbitrators then appointed Mr. Basharat Ahmed to act as the umpire. 4. On 16-2-1973 the arbitrators entered upon the reference when the representative of the plaintiffs was present but none appeared on behalf of the defendant. After examining Mr. Kundamal a licenced broker of the Karachi Cotton Association who acted as the common broker of the parties for the bargain, and considering the evidence produced by the plaintiffs the arbitrators passed the award as stated above. 5. The defendant objected to this award in the Court by filing application dated 7-11-1973 under sections 30 and 33 of the Arbitration Act, 1940 to which the plaintiffs filed their reply on 11-4-1974.
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6. Learned counsel for the defendant first challenged the existence of a valid arbitration agreement which could legally sustain a submission. The submission was that the agreement evidencing the contract containing the arbitration clause was not signed and executed by either party, with the result the only evidence of the transaction was the oral statement of the broker. On these premises it was contended that an unsigned writing cannot constitute a valid submission in law. The relevant document in this behalf is the broker's confirmation note (document No, 5 with the award), which is on a printed form with the columns written in hand. In order to appreciate the argument of the learned counsel, it will be advantageous to re-produce the material contents of document No, 5 which are as under: - "KUNDAMAL & CO., KARACHI, 11-11-1972 COTTON BROKERS MIS. PARACHA TEXTILE MILLS IMITED. ' (Torn) confirm having BOUGHT/SOLD/FIXED this day done the following transaction through you on behalf of our clients in accordance with Rules, Regulations and By-laws of K. C. A. Ltd. ' Quantity 500 ' Quality NTRG ' Station TDA ' Rate 130.00 ' Delivery Nov. ' Buyers Paracha Textile Mills Ltd. ' Sellers Nanickram Shamdas. (1) Delivery upto 30th Nov., 1972. (2) 90% against R. R. Goods passed at Mills and delivery to Mills, Karachi. (Blank) (Buyers/Brokers/Signatures. (Blank) ' Sellers/Brokers/Signatures." 7. Learned counsel for the plaintiffs, in reply, submitted that in absence of any allegation of fraud or denial of the contract for sale of the goods in question, it will have to be taken that the parties did enter into the contract. Consequently, document No, 5 mentioned above stands proved. Once the contract is proved, the counsel contended the by-laws of Karachi Cotton Association will be read as incorporated in the document. In this connection, counsel referred to the express reference made to the by-laws of the K. C. A. Ltd. In the contract. As re-produced above, the transaction in question was expressly made in "accordance with the rules, regulations and by-laws of K. C. A. Ltd.". Counsel for the plaintiffs has produced before me the by-laws of the K. C. A. Ltd. As amended up to 30th October, 1973. Two by-laws in this connection are relevant namely: Bye-Law No, 13(a) and No, 39-1(a) which are in the following terms:- "13(a).-Every contract which shall be made subject to the by-laws of the Association, whether it be entered into by two members or by a member and a non-member or by two non-members, shall be deemed to provide as one of the terms thereof that any difference of any nature whatsoever arising out of such contract shall be referred to arbitration in accordance with the by-laws of the Association and that holding of such an arbitration and the obtaining of an award thereunder shall be a condition precedent to the right of any party to such contract to commence legal proceedings against the other party in respect of any such difference as aforesaid, and that neither party under such contract shall have any right of action against the other touching upon or arising out of such contract, except to enforce the award in such arbitration. 39-I(a).-Any dispute arising out of a ready transaction or out of a forward contract other than on the question of class and/or staple of the cotton tenders but including the constructions of the official forward contract forms shall be referred to the arbitration of any two disinterested members from the Panel of Arbitrators referred to in by-law 39-1(0 one to be appointed by each pally. If one of the parties to the contract fails to appoint an arbitrator, after having received fifteen clear days' notice from the other party to do so, the party who has appointed an arbitrator shall
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have power to appoint the second arbitrator, both of whom shall then proceed to deal with the question at issue. In case the two arbitrators are unable to agree the matter shall then be referred to an umpire, who shall be nominated by the two arbitrators from among the Panel of Arbitrators. In the event of the two arbitrators being unable to agree as to the name of the umpire, the Board shalt appoint an umpire from among the Panel of Arbitrators. The decision of the arbitrators or umpire shall be final and binding on the parties to the contract." ' On the basis of the above submissions, counsel contended that by virtue of those by-laws which must be deemed to be embodied in the contract, it was clearly established that there was an arbitration agreement between the parties. It cannot be disputed that agreement to refer may arise by incorporation of one document containing the arbitration clause in another under which the dispute arises. Examples of this may be the membership application in an Association whose Rules contain arbitration clause or Articles of Association of a company. But as stated above the submission on behalf of the defendant was that the arbitration agreement before it can be enforceable under the Arbitration Act must be signed by the contracting parties. To this the learned counsel for the plaintiff replied that the law does not require arbitration agreement for its validity to be signed. Section 2(a) of th Arbit ration Act, defines the arbitration agreement to mean "a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not." In Abdul Aziz Cotton Ginning Factory v. All Mohammed Ablullah Company (1) Qadeeruddin, J. (as he then was) while interpreting the aforesaid provisions contained in section 2(a) of the Arbitration Act, observed as under:- "The words 'Written Agreement' have been interpreted to mean any writing whether it be correspondence directly embodying the agreement to refer differences to arbitration or an application for the membership of an organization necessarily implying such an agreement. Moreover, the interpretations have gone to the point of laying down that the signatures of the parties on such writings are not necessary . .... The sense in which these views can be unhesitatingly accepted is that any writing or writings attributable to the parties which unmistakably prove their intention to refer their disputes to arbitration are satisfatory in terms of the provision of law." ' The Indian Supreme Court in Jugal Kishore v. Gool Bai (2) also expressed similar view observing that it is settled law that to constitute an arbitration agreemen't in writing it is not necessary that it should be signed by the (1) PLD 1966 Kar. 197 (2) AIR 1955 SC 812 ' parties, and it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established. Respectfully agreeing with these views I hold that in the present case the absence of signatures on the confirmation letter of Kundomal & Co., Cotton Broker dated 11-11-1972 (document No, 5) would not materially detract from the effect of the agreement to constitute the arbitration agreement between the parties, if it is otherwise established that the parties entered into the contract referred to in the said document. 8. Learned counsel for the plaintiff pointed out that besides the primary evidence of the contract as contained in the broker's note, there was other testimony to corroborate the transaction. In this connection reference was made to copy of the Daily Cotton Market Report of Karachi Cotton Association dated 13-11-1972 (document No, 6) wherein the contract in question is shown as business reported for 11/13-11-1972. Additionally the plaintiffs rely on document No, 12 attached with award which purports to be a letter dated 26-12-1972 addressed to the plaintiffs by the defendant on his letter-head in response to letter dated 21-12-1972 by the plaintiffs appointing arbitrator on their behalf. The defendant in this letter has expressed his willingness to go to arbitration and appoint his arbitrator within 15 days. Learned counsel for the defendant objected to the genuineness of this document on the ground that it is a carbon copy and the original has not been
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produced although the letter purports to have been addressed to the plaintiffs. Even if this document is excluded from consideration, I am of the opinion that having regard to the fact that the main transaction is not denied, there is no reason to believe that other documents must have been fabricated. These other documents attached to the award are all copies of the correspondence carried on by the plaintiffs with the defendant relating to the contract in question and the reference to arbitration, copies of which have been invariably sent to the K. C. A. Ltd. Taking into consideration all these documents, therefore, I have come to conclusion that the parties entered into the contract, terms whereof are mentioned in the document No, 5 which contained the arbitration clause. The objection therefore, has no merit. 9. It was next contended on behalf of the defendant that the arbitration proceedings and the award based thereon were bad in law as the arbitrators could not act upon the agreement of arbitration contrary to the bar contained in section 35 of the Stamp Act. The submission of the counsel was that the arbitration agreement in this case was unstamped and required to be stamped in accordance with section 3 read with Article 5(c) of Schedule I of the Stamp Act. Counsel relied on Pakistan Cement Industry Limited v. Teekayef Trading Company (1) and Najma Baqai and others v. Shamim Akiaar (2). 10. Learned counsel for the plaintiff refuted this contention by submitting that Article 5(c) of the Schedule to the Stamp Act is attracted only in case where the subject of the agreement is principally for reference of a dispute to arbitration and not when the arbitration agreement forms part of an agreement as one of the terms of the contract. Reliance for this proposition of law was placed on Mouhammad Amin Muhammad Bashir v. Zaffar Cotton Ginners (3) and a case reported in I L R 15 Mad. 150. 11. Article 5, Schedule I of the Stamp Act in clause (c) provides for stamp duty chargeable on an agreement or a memorandum of an agreement (1) PLD 1971 Lab. 522 (2) P L 1) 1974 Note 62 at p. 102 (3) PLD 1974 Note 4 at p. 30 ' not otherwise provided for, but expressly exempts from duty an agreement or memorandum of agreement for or relating to the purchase or sale of goods or merchandise exclusively. Therefore, the agreement in this cas relating as it does to a mercantile contract would normally be exempt from B payment of stamp duty. But the submission of the learned counsel for the defendant seems to be that the clause relating to submission not being an essential part of a contract for sale of goods would be required to be stamped, as an independent agreement under the charging part of Article 5. 12. This precise question came up for consideration in this Court in Suit No, 255/1971 and Fakhruddin, J. Repelling the contention held that contracts for the purchase and sale of goods exclusively, did not require to be stamped merely because they included a term relating to arbitration, as such contracts primarily related to the sale of goods and the clause relating to arbitration was only a collateral and subsidiary incident thereof. This is the decision reported in PLD 1974 Note 4 at p. 30 relied upon by the learned counsel for the plaintiff. In a more recent case reported as Pakistan Chrome Mines Ltd. v. Phibro Asia Ltd. (1), the same learned Judge considered the question in greater detail copiously reviewing the case law touching the point and re-affirmed his previous view, holding that in a case where arbitration clause is contained in a contract for the sale and purchase of goods as a clause of the agreement between the parties and was not a separate transaction but merely ancillary to the main object, such contract did not require to be stamped under Article 5 but falls within the purview of the exemption contained in clause (a) of Article 5 of the Stamp Act. So far as the cases relied upon by learned counsel for the defendant, the first case namely Pakistan Cement Industry Ltd. v. Teekayef Trading Company, in my opinion, is not an
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authority for the proposition advanced by the learned counsel, as the facts in that case were clearly distinguishable in as much as the agreement in that case was solely for the purpose of reference to arbitration. Whether a mercantile contract for the sale of goods containing as one of its terms a clause for arbitration, would require to be stamped, did not arise and was not under consideration in that case. The second case relied upon being reported in PLD 1974 Note 62 at p. 102 does not give the facts of the case in detail but it is evident that that decision has followed the above referred Lahore case. In absence of the full judgment, however, it is not possible to ascertain the ratio of the decision. 13. I have therefore, come to the conclusion that the objection raised on the ground of want of stamp has no merit and is accordingly rejected. 14. The next ground of attack on the award was that neither the arbitrators nor the plaintiff supplied the particulars of the claim to the defendant which vitiated the arbitration proceedings as well as the award. Counsel also questioned the decision of the arbitrators to proceed ex parte against the defendant. Reliance in this behalf was placed on Allah Buksh Cabole v. Razia Begum (2). In reply to this, as regards the failure to supply particulars of the claim learned counsel for the plaintiff placing reliance on two decisions of this Court namely Muhammad Amin's case mentioned above and Muhammad Saeed v, Muhammad Tufail and Company (3), (1) p L D 1975 Kar. 861 (2) PLD 1960 Kar. 455 (3) P L 1) 1969 Kar. 523 ' submitted that the nature of the dispute was brought to the notice of the defendant through correspondence before the matter was submitted to the arbitrators for decision. Regarding the ex parte proceedings held by the arbitrators, counsel submitted that notice issued by the arbitrators calling upon the parties to appear before them was addressed to the defendant by registered post but was refused by him. In the circumstances, counsel contended that the arbitrators were justified to proceed against the defendant ex parte. 15. There can be no cavil against the proposition of law that an arbitrator has to adhere to the principles of natural justice in spite of the latitude in the matter of procedure allowed to him at the hearing. The basic norms of fair adjudication contained in the rule of natural justice are inherent in the adjudication of a dispute by any domestic Tribunal. Accordingly, if the c Court finds that at no stage in the history of the dispute and its eventuat adjudication by the arbitrator, the adverse party is informed about the claim of the party seeking decision of the dispute, the award must necessarily be struck down. This is the principle enunciated in the case of Allah Bukhsh Gabole mentioned above. However, in the two decision relied upon by the counsel for the plaintiff, it was found as a fact that the party complaining had in fact been fully made aware of the nature of the dispute by the other party before the matter was submitted under the reference. Therefore, no fault was found with the awards. In the light of these principles 1 shall now examine the present case to ascertain whether the defendant was at any stage informed about the nature of dispute or claim raised by the plaintiff. A significant feature of this case is that admittedly at no stage the defendant responded to the alleged communications through letters by the plaintiff except one letter. The plaintiff has placed reliance in this connection on seven letters addressed to the defendant which were produced before the arbitrators and are on the record of this case as documents accompanying the award. One of these documents is a closed-cover alongwith acknowledgment receipt addressed to the defendant which is endorsed by the postal authorities as having been refused by the addressee. The remaining six are copies of letters alleged to have been addressed by the plaintiff to the defendant at various stages touching the question of performance of contract, alleging breach of contract, claiming damages and requesting for reference to arbitration. In an attempt to prove the delivery of these letters, the plaintiff produced their peon- book which shows initials of some one in token of receipt of letters dated 6-12-1972, 12-12-1972 and
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15-12-1972. There is also an entry in this Peon-Book showing letter dated 21-12-72, as having been sent by registered post. The remaining two documents are copies of letter dated 13-1-1973, addressed by the plaintiffs to the defendant, copy of which was sent to the arbitrators, which says that by his letter dated 26-12-72, the defendant had agreed to go to arbitration and had promised to appoint his arbitrator but since he had failed to do so, the plaintiffs thereby appointed Mr. A. Rashid as arbitrator on behalf of the defendant. Letter dated 26-12-72 purports to be written for defendant by his manager on the letterhead in the name of defendant addressed to the plaintiff, to the effect that the defendant agrees to appoint his arbitrator within 15 days. The last mentioned two letters do not contain any indication as to the particulars of the dispute and are therefore, not relevant for the present purposes. 16. That leaves only four letters alleged to have been served by hand-delivery and one registered letter not received as mentioned above. 17. ' The defendant in his application for setting aside the award and his affidavit in rebuttal to the replies filed thereto by the plaintiffs, has categorically denied the receipt of the four letters and the allegation that he refused to receive the registered letter. In order to succeed in establishing that the particulars of the claim were indicated to the defendant, it was incumbent upon the plaintiff to prove the receipt of these letters. ~ So far as the registered cover is conerned, I have opened the same and have found it to contain letter dared 13-1-1973 written by the plaintiff to the defendant intimating to him that in consequence of his failure to appoint his arbitrator, the plaintffs had appointed Mr. A. Rashid as his arbitrator for him. This letter therefore, is, not material for the purpose of this question. However, no attempt was made to prove the delivery of the afore-mentioned four letters except the production of the Peon-Book. The Peon-Book does not prove itself by mere production and it was for the plaintiffs to adduce evidence on the issue of service by affidavit or evidence of the employee who actually delivered the letters or by the proof of the signatures made in token of receipt. In absence of such evidence I am constrained to bold that the receipt of these letters by the defendant has not been established. 18. However, the law does not require a party seeking adjudication of dispute by arbitration to necessarily give notice to the other party regarding D the nature of the claim or particulars of dispute. The judgments cited at the bar do not postulate any such proposition of law, but merely lay down that it is legally obligatory on the arbitrator to communicate to the parties the nature and particulars of the dispute or claim. Tbis therefore, brings me to the next question whether in the facts and the circumstances of this case the arbitrators were under a duty to give notice of the particulars of the claim to the defendant before proceeding ex parte. 19. The documents annexed to the award show that a notice dated 6-2-1973 was addressed to both parties whereby arbitrators had called upon them to appear before them on 16-2-1973 at 3- 30 p.m. At the office of Roberts Cotton Associates Limited, Second Floor, Cotton Exchange Building, Karachi, for the purpose of hearing the case. This notice was addressed to the defendant by registered post A/D at his office address at 4th Floor, Al-Yous Chambers, Frere Road, Karachi. The envelope shows an endorsement by the postal authorities as "Refused". The defendant in his written objection has pleaded that no notice from the arbitrators of the claim made by the plaintiff was delivered or offered to or refused by him. On the other hand the plaintiff's contention in his reply filed in this Court is that notice of the proceedings was duly sent to defendant at his proper address by registered post but the same was returned marked as "Refused". In the circumstances, the question is whether the notice issued by the arbitartors has been duly served or not. In Bashir Ahmad v. Mumtaz Khan (1) S. A. Mahmood, J. (as he then was), while considering a similar question with regard to the service of notice by post under section 30 of the Displaced Persons (Compensation and Rehabilitation) Act, 1958, by a transferee to the tenant, after elaborately reviewing the case law on the subject came to the conclusion that by the combined effect of
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section 114 of the Evidence Act and section 27 of the General Clauses Act, a letter which is properly addressed must be deemed to be proved to have been received by the addressee unless proved to the contrary. In that case besides the mere denial of the addressee, no other evidence was produced and as a result it was held that the service of the notice had been proved to be effected. In the present case also except for the mere denial of the defendant, no other evidence has been adduced! (1) P L 1) 1965 Lab. 126 to displace the presumption under the law that the letter was received or offered or delivered by the postal authorities to the defendant. In view of this discussion, I have come to the conclusion that the defendant was duly served with notice of the proceedings by the arbitrators. In spite of notice being refused by the defendant, can he plead that the award has been vitiated for want of notice to him of the particulars of the claim by the other party? There is no warrant of such an argument that in all eventualities, even if the party refuses to accept notice issued by the arbitrators for procuring his presence before them, the arbitrators would be bound in law to communicate to him the claim. Even in a Court of Law if a defendant is duly served and defaults in appearing in Court, the Court is not required to wait for him but may proceed to hear the suit ex parte. The rule of natural justice cannot be stretched so as to make it incumbent for a domestic tribunal to do more than to give notice of the proceedings to the party. If the defendant had H appeared before the arbitrators, they would have called upon the plaintiff to state his case and give opportunity to defendant to reply to the claim. For his inability to…
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