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Official Citation: 2024 CLD 909 |2024 ILR 251
Court / Jurisdiction: Islamabad High Court
Parties: M/s Blue Zone International Pvt. Ltd. vs Pakistan State Oil Co. Ltd. through M.D.
Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2024 CLD 909 |2024 ILR 251. In this matter between M/s Blue Zone International Pvt. Ltd. and Pakistan State Oil Co. Ltd. through M.D., 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.
COURT: Islamabad High Court (Honourable Mr. Justice Miangul Hassan Aurangzeb) AUTHOR JUDGE: Honourable Mr. Justice Miangul Hassan Aurangzeb DECISION DATE: 29-APR-2024 CASE NO: Writ Petition-4100-2022 CITATION: 2024 CLD 909 |2024 ILR 251 PARTIES: M/s Blue Zone International Pvt. Ltd. VS Pakistan State Oil Co. Ltd. through M.D. LAW / SECTION: under S.20, 30,33 and 39 of Arbitration Act, 1940 ' under the provisions of the Trade Organizations Act, 2013 ' under Order VI, Rule 17 C.P.C. SUBJECT: Miscelleneous, Other REMARKS: petitioner seeks direction against impugned judgement and decree dated 24.02.2018 (Converted from RSA 04-2018 into instant Writ Petition) ============================================================ JUDGMENT SHEET IN THE ISLAMABAD HIGH COURT, ISLAMABAD JUDICIAL DEPARTMENT
W.P.No.4100 of 2022 Blue Zone International (Pvt.) Limited and others Versus Pakistan State Oil Company Limited
Date of Hearing: 03.04.2024 Petitioners by: Mr. Asad Ladha and Malik Ghulam Sabir , Advocates. Respondent by: Sheikh Naveed Anwaar and Rai Azhar Iqbal Kharal, Advocates. _____________________________________________________________________
MIANGUL HASSAN AURANGZEB, J :- Through the instant writ petition, the petitioner s impugn the judgment and decree dated 24.02.2018 passed by the Court of the learned Additional District Judge, Islamabad dismissing their appeal filed under Section 39 of the Arbitration Act, 1940 ( “the 1940 Act” ) against the judgment and decree dated 15.06.2017 passed by the Court of the learned Civil Judge, Islamabad, whereby the objections filed by the respondent, Pakistan State Oil Company Limited (“PSO”) under Sections 30 and 33 of the 1940 Act to the arbitration award date d 10.08.2015 were allowed and the said award was set-aside. 2. The facts essential for the disposal of the instant petition are that the petitioners, who have been granted marketin g licences by the Oil and Gas Regulatory Authority ( “OGRA”) to operate Compr essed Natural Gas ( “CNG”) filli ng stations, were granted licenc es by PSO to conduct CNG filling operations at designated spaces at PSO’s filling stations. Under Article 4 of licences, the petitioners were liable to pay a franchise fee to PSO for using the designated spaces at PSO’s filling stations to conduct CNG filling operations. All these licenc es were granted prior to 2008. 3. In 2008, the Ministry of Petroleum and Natural Resources (“Ministry of P&NR” ) and the Ministry of Finance consulted with the A ll Pakistan CNG Association ( “APCNGA”) and CNG marketing companies to address the issue regarding the 2 W.P. No.4100/2022
increase in the cost of CNG that was being charged from consumers. These consultations led to the execution of a Memorandum of Understanding ( “MoU”) dated 25.08.2008 between APCNGA and the Government of Pakistan whereby the maximum price of the different components of the price of CNG, including the franchise fee (albeit called “Rental / OMC Margins”), was agreed upon. The MoU set out the maximum price at which the CNG could be sold to consumers until 31.12.2008. 4. After the execution of the MoU, the Federal Government, in exercise of its powers under Section 2 of the Regulation of Mines, Oil Fields and Mineral Development (Government Control) Act, 1948 am ended the CNG (Production and Marketing) Rules, 1992 through notification dated 13.03.2009. This empowered OGRA to notify from time to time the maximum price of CNG which a CNG operator could charge from the consumer. The notification dated 31.07.2009 issu ed by OGRA fixed a maximum price of CNG. In this notification, OGRA gave a breakup of the price of CNG, which included payment of Rs.2.59 per kilogram of CNG as Rental / OMC Margins. 5. It is the petitioners’ case that the Rental / OMC Margins replaced th e franchise fee payab le under Article 4 of the licences granted by PSO to CNG operators. Through subsequent notifications issued by OGRA, the sale price of CNG was increased and so was the component of Rental / OMC Margins. The petitioners’ stance was that it could not pay the franchise fee under Article 4 of the licenc es as well as the Rental / OMC Margins, as both were paid for the same purpose. The petitioners took the position that the inclusion of the Rental / OMC Margins in the maximum sale price fixe d by OGRA would result in m odifying Article 4 of the licenc es. The petitioners also asserted that it was unfeasible for the CNG operators to continue their operations as their profit margins had slimmed considerably. This, according to the petitioners, was ample justification for the CNG operators not to accede to PSO’s demand for the payment of franchise fee as well as the Rental / OMC Margins. On 07.04.2010 , the CNG 3 W.P. No.4100/2022
operators issue d a legal notice to PSO seeking a satisfactory settlement of the dispute fa iling which the dispute would be referred to arbitration. This notice contains a list of the CNG operators on whose behalf the said notice was issued. 6. Article 17 of the licenc es provided for the disputes and differences arising from and re lated to the terms of the licenc es to be discussed mutually so as to arrive at an amicable settlement failing which the disputes could be referred to arbitration by Director General (Gas), Ministry of P&NR or his nominee to act as the sole arbitrator. 7. On 09.07.2010, APCNGA issued a notice to the Director General (Gas), Ministry of P&NR requesting him to act or appoint his nominee as a sole arbitrator to resolve the disputes between the parties to the licenc es. The Director General (Gas), Ministry of P&NR nominated M asood Ahmed Javed, Deputy Director (F&P), Ministry of P&NR as the sole arbitrator, who entered upon reference and conducted the arbitration proceedings. These proceedings culminated in the award dated 17.09.2010. 8. APCNGA applied to the Court for the sai d award to be made a rule of Court, whereas PSO is said to have filed objections to the same. Vide order dated 17.04.2015, this Court set-aside the award and remitted the matter to the arbitrator for reconsideration. Thereafter, the arbitrator rendered awa rd dated 10.08.2015 . In the said award, the arbitrator directed the parties to reconcile their payable / receivable position and settle their dues within a period of three months from the date of the award bearing in mind the earlier award dated 17.09.2010 . Again PSO filed objections to the said award, whereas APCNGA applied to the Court for the said award to be made a rule of Court. Vide judgment and decree dated 15.06.2017, the learned Civil Court allowed PSO’s objections and set -aside the said award. 9. The appeal preferred by APCNGA under Section 39 of the 1940 Act against the said judgment and decree dated 15.06.2017 was dismissed by the learned Appellate Court vide judgment and 4 W.P. No.4100/2022
decree dated 24.02.2018. The said concurrent judgments and decrees passed by the learned Courts below have been assailed by the petitioners / CNG operators in the instant writ petition. 10. Learned counsel for the petitioners, after narrating the facts leading to the filing of the instant petition, submitted that PSO could not e xpect to recover from the petitioners franchise fees under Article 4 of the licenc es as well as the Rental / OMC Margins under the notifications for the maximum sale price of CNG fixed by OGRA through notifications issued from time to time; that the franch ise fee and the Rental / OMC Margins cover the same component of the CNG price, and PSO’s demand for franchise fee and the Rental / OMC Margins separately is most unreasonable; and that there are accounts that are yet to be rationalized between the petitioners and PSO. 11. Learned counsel for the petitioners further submitted that the petitioners had nominated APCNGA as their duly authorized representative to represent them in the arbitration proceedings through letters dated 07.04.2010 and 09.07.2010; that each CNG operator had authorized Mr. Ghiyas Abdullah Paracha, the Chairman of APCNGA , to act on their behalf by commencing arbitration proceedings; that APCNGA, vide letter dated 09.07.2010, had requested the Director General (Gas), Ministry of P&NR to a ct as an arbitrator or to nominate an arbitrator; that in the arbitration proceedings, notices were issued to the CNG operators independently and they were represented by APCNGA; that the petitioners had also appeared before the arbitrator through their at torney; that the CNG operators had also submitted an application to be impleaded as a party before the learned appellate Court but the same was rejected on the technical ground that the applicants were not parties in the proceedings before the learned tria l Court; and that since the arbitrator had not misconducted the proceedings, the learned Courts below erred in concurrently setting aside the award. Learned counsel for the petitioners prayed for the writ petition to be allowed and for the concurrent judgm ents and decrees dated 5 W.P. No.4100/2022
24.02.2018 and 15.06.2017 passed by the learned Courts below to be set-aside. 12. On the other hand, learned counsel for PSO submitted that the petitioners had avoided paying either franchise fee or the Rental / OMC Margins since mor e than a decade; that the petitioners referred to the pendency of the instant petition as an excuse for not paying either the franchise fee or the Rental / OMC Margins; that the licenc es / agreements were executed between PSO and the CNG operators individu ally; that APC NGA is a stranger to such licenc es; that after an amicable settlement could not be arrived at between PSO and the CNG operators, none of the parties to the licenc es / agreements invoked the arbitration clause embedded therein; that in the arb itration proceedings, the statement of claim dated 11.08.2010 was filed by APCNGA and not by the CNG operators; that there is no document on the record to show that the petitioners had validly authorized APCNGA and / or its Chairman either to initiate the arbitration proceedings or file an application to make the award a rule of Court; that Article 17 of the licences requires the parties to continue performing their contractual obligations regardless of the pendency of the arbitration proceedings; that desp ite the same, the CNG operators have neither paid the franchise fee nor the Rental / OMC Margins to PSO; that the CNG operators are earning huge profit s without paying any amount as franchise fee or Rental / OMC Margins to PSO; that the Rental / OMC Margin s fixed by OGRA is in the amount greater than the franchise f ee under Article 4 of the licences; that the Hon’ble Supreme Court in the case reported as PLD 2013 SC 224 had declared the fixation of the maximum price of CNG by OGRA on the basis of an MoU to be illegal; that after the said judgment, OGRA has stopped fixing the Rental / OMC Margins while determining the maximum sale price of CNG; and that the findings of the learned Courts below that the arbitrator had misconducted himself by interfering with a concluded agreement between the parties does not suffer from 6 W.P. No.4100/2022
any legal infirmity. Learned counsel for PSO prayed for the writ petition to be dismissed. 13. I have heard the contentions of the learned counsel for the contesting parties and have perused the record with their able assistance. The facts leading to the filing of the instant petition have been set out in sufficient detail in paragraphs 2 to 9 above and need not be recapitulated. 14. APCNGA is a trade organization having been licenc ed by the Fede ral Government under the provisions of the Trade Organizations Act, 2013 to inter alia protect the interests of CNG operators. It is a company incorporated on 01.09.2005 under the provisions of the erstwhile Companies Ordinance, 1984 and has a legal person ality of its own which is distinct from that of its members. The licenc es / agreements were executed between PSO and CNG operators individually. APCNGA is no t a party to any of these licences / agreements. There is no legal impediment in APCNGA representin g its members / CNG operators in arbitration proceedings. But it is the CNG ope rators, as parties to the licenc es / agreements , who could initiate the arbitration proceedings. And where the award is in their favour, it is only they and not APCNGA who could file an application for the award to be made a rule of Court. 15. In the case at hand, although it was on behalf of 23 CNG operators that legal notice dated 07.04.2010 had been issued to PSO seeking an amicable settlement of the dispute regarding PSO’s demand for the payment of franchise fee under Article 4 of the licenc es / agreements, such CNG operators at no material stage instituted arbitration proceedings with or without the intervention of the Court. The arbitration proceedings that were conducted by the nominee of the Director General (Gas), Ministry of P&NR, were initiated on the basis of notice dated 09.07.2010 which was not issued by any of the petitioners and / or CNG operators but by APCNGA, wh ich is not a party to the licenc es / agreements con taining the arbitration clause. It is not disputed that the statement of claim in the arbitration proceedings was 7 W.P. No.4100/2022
also filed by APCNGA and not the petitioners and / or CNG operators. 16. After the award dated 10.08.2015 was rendered by the sole arbitrator, PSO filed objections to the same inter alia under Section 30 of the 1940 Act praying for the said award to be set - aside. In paragraph 4.2, PSO had specifically pleaded that APCNGA could not have invoked the arbitration clause in the licences / agreements . One of the grounds on which the learned Civil Court allowed PSO’s objections by setting aside the award was that no cause of action had accrued in favour of APCNGA to file an application to make the award a rule of Court. Furthermore, it was held that the award does not confer any right or impose obligations on APCNGA and therefore if such an award is made a rule of Court, it cannot be executed against APCNGA. As mentioned above, the learned Civil Court vide judgment and decree dated 15.06. 2017 set-aside the award dated 10.08.2015. 17. The petitioners / CNG operators did not even file an appeal against the said judgment and decree dated 15.06. 2017. After the appeal was filed by APCNGA the petitioners, in order to overcome the ground on which the learned C ivil Court had set - aside the award, file d an application under Order VI , Rule 17 C.P.C. for filing an amended memorandum of appeal in which the petitioners / CNG operators are impleaded as appellants. This application was filed on 14.09.2017 and dismissed through the impugned judgment dated 24.02.2018 on the ground that since the applicants were not parties in the proceedings before the learned Civil Court, their application for impleadment could not be entertained by the appellate Court . The instant petiti on has been filed by the petitioners / CNG operators who were neither parties to the proceedings before the learned Civil Court or the learned appellate Court nor were in the arbitration proceedings instituted at their instance. 18. The notice for arbitrat ion dated 09.07.2010, the statement of claim, the application to make the award d ated 10.08.2015 a 8 W.P. No.4100/2022
rule of Court, and the appeal under Section 39 of the 1940 Act against the judgment and decree dated 15.06.2017 passed by the learned Civil Court were all fi led by APCNGA in its own name. Since APCN GA was not a party to the licenc es / agreements, it could neither have invoked the arbitration clause embedded therein, nor file d the above referred application or appeal. Therefore, I have no reason to interfere wi th the concurrent findings of the learned Courts below that APC NGA was a stranger to the licenc es / agreements and the proceedings. In the case of K&N International Vs. Motorway Operations and Rehabilitation Engineering (Private) Limited (2019 CLC 1613) , this Court held as follows:- “19. True, the respondent had addressed letters dated 03.07.2015 and 18.09.2015 to the petitioner and not to K&N (Pvt.) Ltd. However, for the present purposes, what needs to be determined is whether a person could enforce an arbitration agreement to which he is not a party. It is well settled that only the parties to an agreement could enforce the arbitration clause contained therein by filing an application under section 20 of the 1940 Act. Section 20(1) of the 1940 Act reads t hus:- “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 Court.” 20. Section 20(1) of the 1940 Act makes it clear that a person who has not ente red into an arbitration agreement cannot enforce it by instituting arbitration proceedings with the intervention of the Court. It is not the petitioner's case that it is a successor in interest of K&N (Pvt.) Ltd. Since the petitioner/K&N International was not a party to the M.O.U. containing an arbitration clause, it was not competent to file an application under section 20 of the 1940 Act. The right to arbitrate is a contractual right and it cannot be enforced by anyone who is not a party to the contract c ontaining the arbitration clause. In the case of Inayatullah Khan v. Obaidullah (1999 SCMR 2702), the arbitrators to whom a dispute had been referred had rendered an award, wherein they proposed partition of a property between the parties to the arbitratio n agreement and also other co -sharers who had not signed the arbitration agreement and had not joined the reference. Such a reference and award was declared to be ineffective and void. In the case of Pakistan through Secretary, Ministry of Religious Affair s v. Dallah Real Estate and Tourism holding company (2013 CLC 1411), it has been held inter alia that a person who was not a party to an 9 W.P. No.4100/2022
arbitration agreement could not be proceeded against under such an agreement. Additionally, in the case of Ali Khan v. Barat Khan (PLD 2005 Lahore 340), it has been held that arbitrators derive their jurisdiction to undertake dispute resolution from the consent of the parties as recorded in the arbitration agreement, and that the arbitrators lack jurisdiction to adjudicate upon the rights of a person who is not a party to the arbitration agreement. By the same analogy, it can safely be held that a person who is not a party to an arbitration agreement cannot enforce the same by filing an application under section 20 of the 1 940 Act.”
19. Although the learned counsel for the petitioners referred to the notifications for the maximum sale price of CNG issued by OGRA to demonstrate that the Rental / OMC Margins was one of the components of such maximum sale price, but he could n ot refer to any document to show that ever since the dispute arose between the CNG operators and PSO, the former had paid to the latter either franchise f ee under Article 4 of the licenc es / agreements or the Rental / OMC Margins at any material stage. He could also not point out to any document to show that the CNG operators had been relieved of their contractual obligation of paying the franchis e fee under Article 4 of licenc es / agreements as well as the Rental / OMC Margins. 20. Learned counsel for PSO clarified that PSO has no intention of charging the franchise fee under Article 4 of licenc es / agreements separately or in addition to the Rental / OMC Margins. Even though the notifications for the maximum sale price of CNG issued by OGRA could not opera te to interfere with the contractual obligations between PSO and the CNG operato rs under the terms of the licenc es / agreements, it is not either party’s case that the Rental / OMC Margins fixed in the notifications issued by OGRA was in the amount less th an the amount payable as franchise fee. Even otherwise , the notifications issued by OGRA have not interfered with the contractual obligations between PSO and the CNG operato rs under the terms of the licences / agreements. 21. Since I do not find any juris dictional infirmity or irregularity in the current judgments and decrees passed by the learned 10 W.P. No.4100/2022
Courts below, the instant writ petition is dismissed. The petitioners shall bear the respondent’s costs.
(MIANGUL HASSAN AURANGZEB) JUDGE ANNOUNCED IN AN OPEN COURT ON 29.04.2024.
(JUDGE) APPROVED FOR REPORTING Qamar Khan*