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Petitioner: Messrs Telecom Foundation VS Respondent: Messrs Asko Enterprises
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title: Messrs Telecom Foundation vs Messrs Asko Enterprises Case No.: F.A.O. No.12 of 2011 Date of Judgment:2020-06-08 Reported As: 2020 [M] C L R 1387, 2020 CLC 1605 Result: Appeal allowed
JUDGMENT
JUDGMENT MIANGUL HASSAN AURANGZEB, J.----Through the instant appeal under Section 39 of the Arbitration Act, 1940 ("the 1940 Act"), the appellant (Messrs Telecom Foundation) impugns the order and decree dated 02.12.2010 passed by the Court of the learned Additional District Judge, Islamabad, whereby objections to the arbitration award dated 30.05.2000 filed by the respondent (Messrs ASKO Enterprises (Pvt.) Ltd.) were allowed and the said award was set-aside. 2. The facts essential for the disposal of this appeal are that on 02.11.1993, two agreements were executed between the appellant and the respondent. One agreement was for manufacturing of tubular posts for supply to Pakistan Telecommunication Corporation ("P.T.C."), and the other one for the sale of the tubular posts for supply to P.T.C. The said agreements contained identical arbitration clauses providing for disputes and disagreements between the appellant and the respondent to be referred to the Managing Director of the appellant. 3. Under clause 7 of the agreement for the sale of tubular posts, the appellant was under an obligation to arrange an advance equal to 20% of the agreed sale price which was to be adjusted propo rtionately during the currency of the contract according to the supply of the tubes. 4. Vide letter dated 03.04.1995, the respondent requested the appellant to provide an advance of Rs.4 million so as to enable the respondent to undertake the remaining work without loss of time. On 09.04.1995, the appellant paid Rs.2 million to the respondent as an advance. Vide letter dated 12.04.1995, the respondent requested the appellant for financial help of an additional Rs.3 million. On 17.04.1995, the appellant paid a further amount of Rs.2 million to the respondent. In this way a total amount of Rs.4 million was paid as an advance by the appellant to the respondent. 5. Vide letter dated 13.06.1995, the appellant requested the respondent to refund the amount of Rs.4 million. The respondent, in its letter dated 16.09.1995, informed the appellant that the advance of Rs.4 million paid to the
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respondent had been adequately secured with immovable property and a person al guarantee. Furthermore, the respondent expressed hope that the said amount would be returned to the appellant by the end of November 1995. It may be mentioned that in the said letter , the position taken by the responden t was that the advance of Rs.4 million had been invested by the respondent "by way of security/earnest money for a project for supply of GI/MS pipes for quite some time to come." 6. Vide letter dated 21.09.1995, the appellant informed the respondent that it could not allow further time for the return of the advance. Furthermore, the respondent was requested to repay the advance along with mark-up by 30.09.1995. Vide letter dated 01.10.1995, the appellant once again requested the respondent to repay the advance with mark-up at the rate of 25% per annum. The respondent, for not repaying the advance in time, put recession in the market as an excuse. Vide letter dated 31.10.1995 the respondent sought further time for the repayment of the advance. 7. For partial repayment of the advance, the respondent gave cheque No.383266 88, dated 07.12.1995, for Rs.1 million to the appellant. This cheque was dishonoured on 18.12.1995 due to insuf ficient funds in the respondent's account. Vide letter dated 07.01.1996, the appellant informed the respondent as to the dishonour of the said cheque and called upon the latter to repay the advance along with mark-up within a period of seven days, failing which legal proceedings for the recovery of the said amount would be initiated. The respondent, in its letter dated 22.01.1996, expressed its regrets and tendered an apology for not repaying the advance. In the said letter , the respondent expressed its intention to pay back the advance along with mark-up. Interestingly , the respondent also requested the appellant to pray for an improvement in the former's financial position so as to enable it to repay the advance. 8. On 22.09.1996, the appellant filed a suit under Order XXXVII, C.P.C. for recovery of Rs.1 million along with mark-up before the Court of the learned District Judge, Islamabad. In the month of September , 1996, the respondent filed an application under Section 34 of the 1940 Act praying for the said suit to be dismissed. Vide order dated 10.12.1999, the learned trial Court stayed the proceedings in the suit and referred the dispute between the appellant and the respondent to the Managing Director of the appellant for arbitration. 9. It may also be mentioned that on 22.09.1997, the appellant filed another suit for recovery , of Rs.5,383,561/- before the learned Civil Court against the respondent as well as against the owners of the immovable property which had been given as security by the respondent for the repayment of the adva nce. The defendants in the said suit filed an application under Section 34 of the 1940 Act praying for the appointm ent of an arbitrator and for the proceedings in the suit to be stayed. Since the appellant did not oppose the praye r sought in the said application, the learned Civil Court vide order dated 26.03.1999 allowed the said application. 10. The appellant filed separate stateme nts of claim with respect to the two references. In addition to filing its defence, the respondent also filed a counter claim against the appellant. The order sheet maintained by the learned Arbitrator shows that on 30.05.2000, the references were decided and a consolidated award was made by the learned Arbitrator . Furthermore, it was ordered that notice of the award along with its copy be sent to the parties through courier service. 11. On 21.10.2000, the appellant filed an application under Section 14(2) of the 1940 Act before the Court of the learned Additional District Judge praying for a direction to be issued to the learned arbitrator to file the award in the Court, and for a judgment and decree to be passed in terms of the award. The respondent contested the said application by filing a written reply . Furthermore, on 23.11.2000 the respondent filed an application to restrain the learned Arbitrator from filing the award in the Court. This application was filed primarily on the ground that the award had become time barred. Perusal of the order dated 26.05.2001 passed by the learned Additional District Judge shows that the learned counsel for the contesting parties had requested for the entrustment of the case to the Civil Court for its trial as a regular suit. Accordingly , vide the said order , the matter was referred to the learned District Judge, Islamabad with a request to entrust the case to a Civil Court. The learned District Judge, in' its' order dated 16.06.2001, took the view that a matter arising from proceedings under Order XXXVII, C.P.C. could not be transferred to a Civil Court.
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12. The appellant's application for review of the above-mentioned order dated 26.05.2001 passed by the Court of the learned Additional District Judge, Islamabad, and its application to strike out the respondent's defence as well as the respondent's application under Order VII, Rule 11, C.P.C were decided by the Court of the learned Additional District Judge, vide judgment dated 30.07 .2001 wherein it was held that the appellant may file an application under Section,14(2) of the 1940 Act before the learned Civil Court for filing the arbitration award in the Court. It was also held that the appellant's suit under Order XXXVII, C.P.C. was not competent after an agreement had been made by the parties for reference to arbitration. The said judgment dated 30.07.2001 was assailed by the appellant in F.A.O.No.82/2001 before the Hon'ble Lahore High Court. Vide judgment dated 27.05.2003, the said appeal was allowed and the order dated 30.07.2001 was set-aside. Furthermore, it was held that the suit filed by the appellant as well as the applications arising out of the reference shall be deemed to be pending before the "learned Trial Court" i.e. the Court of the learned Additional District Judge, Islamabad. 13. In the post-remand proceedings, the respondent was proceeded against ex parte. Vide order dated 12.11.2003 passed by the Court of the learned Additional District Judge, Islamabad, the learned Arbitrator was directed to file the award by 20.11.2003. On 13.12.2003, the learned Arbitrator filed the award in the Court. On 10.02.2004, the order to proceed ex parte against the respondent was recalled, and on 10.03.2004 the respondent filed objections to the award. The appellant contested the respondent's objections to the award. Vide order dated 21.04.2004, the record of the arbitration proceedings was summoned by the Court. On 28.05.2004, the said record along with the arbitration award was filed in the Court. V ide order dated 26.06.2004, the Court framed the following issues:- "1. Whether award has been made beyond the statutory period of limitation? OP A 2. Whether the arbitrator has misconducted himself in conducting the proceedings of arbitration? OP A 3. Whether the award suffers from any legal infirmity/error on the face of award, rendering it invalid? OP A 4. Relief. " 14. The Court clerk/ahlmad of Civil Court appeared as CW.1 whereas the learned arbitrator appeared as CW.2. The Chief Executive Officer of the respondent gave evidence as OW.1. Vide consolidated judgment and decree dated 02.12.2010, the Court dismissed the appellant's application under Section 14(2) of the 1940 Act, and allowed the respondent's objections to the arbitration award. The said judgment and decree has been assailed by the appellant in the instant appeal. CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT :- 15. Learned counsel for the appellant, after narrating the facts leading to the filing of the instant appeal, submitted that at no material stage during the arbitration proceedings did the respondent object to the arbitration proceedings having been conducted beyond four months from the date of entering upon reference; that it is well settled that a party who does not object to the arbitrati on proceedings being completed beyond a period of four months cannot subsequently seek to set-aside an arbitra tion award on the said ground; that the order dated 21.04.2004 passed by the learned Trial Court to summon the record of the arbitration proceedings was not assailed by any party; that pursuant to the said order , the award was filed in the Court on 13.12.2003; that since the respondent had filed objections to the award, and since the award had already been filed in the Court, the said award could not have been set-aside on the ground that the appellant's application under Section 14(2) of the 1940 Act had been filed beyond the limitation period provided in Article 178 of the First Schedule to the Limitation Act, 1908; that a party's failure to file an application under Section 14(2) of the 1940 Act within the period of ninety days from the date of the service of the notice of the making of the award cannot result in the setting aside of the award by the Court; that at best the consequence of such a failure would be that a party's application for filing the award in the Court would be dismissed as time barred; that in the case at hand since the award had been filed in the Court before the respondent filed objections to the award, the learned Trial Court erred by setting aside the arbitration award on the ground that the respondent's application under Section 14(2) of the 1940 Act was time barred; that the learned arbitrator had rendered the award on 30.05.2000; that the learned arbitrator had appeared as CW.2 and had deposed that he had issued notice as to the making of the award to the parties within one week of rendering the award; and that the mere fact that the award was scribed on stamp paper issued on 01.07.2000 could not result in
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the award being set-aside. Learned counsel for the appellant prayed for the appeal to be allowed and for the arbitration award to be made a Rule of Court. CONTENTIONS OF THE LEARNED COUNSEL FOR THE RESPONDENT :- 16. On the other hand, learned counsel for the respondent submitted that under paragraph 3 of the First Schedule to the 1940 Act, the learned arbitrator was bound to make the award within four months from the date of entering upon reference; that the learned arbitrator entered upon reference on 25.06.2000 when he issued notices to the parties; that the learned arbitrator admittedly rendered the award after four months of entering upon reference; that this delay in rendering the award was sufficient to set-aside the award; that the learned arbitrator had not applied to the Court for an extension in time for completing the arbitration proceedings; that the learned arbitrator , in his evidence, had admitted that he had signed the award on. 30.05.2000 and had issued notice to the parties a week after that; that the learned arbitrator , after signing the award, could not have scribed the same on stamp paper issued about a month after signing the award; that the limitation period for filing an application under Section 14(2) of the 1940 Act is to be computed from the date when the respondent received notice as to the rendering of the award; that whether the arbitration award is considered to have been issued on 30.05.2000 or 01.07.2000, either way the appellant's application under Section 14(2) of the 1940 Act filed on 21.10.2000 was time bar ed having being filed beyond the limitation period of ninety days provided in Article 178 of the First Schedule of the Limitation Act, 1908; and that the impugned judgment and decree does not suffer from any legal infirmity . Learned counsel for the respondent prayed for the appeal to be dismissed. 17. The learned Amicus Curiae 'submitted a well prepared brief on the case supported by case law. In his written submissions, he has set out the grounds for an award to be m le a Rule of Court. 18. I have heard the contentions of the learned counsel for the contesting parties, and learned Amicus Curiae and have perused the record with their able assistance. The facts leading to the filing of the instant appeal have been set out in suf ficient detail in paragraphs 2 to 14 and need not be recapitulated. 19. The two grounds on which the respondent's objections to the award were allowed were (i) that the award was rendered beyond the period of four months from the date on which the learned arbitrator entered upon reference, and (ii) that the learned arbitrator committed misconduct by rendering the award on 30.05.2000 and affixing it on a stamp paper issued on 01.07.2000. The only ground on which the learned Trial Court dismissed the appellant's application under Section 14(2) of the 1940 Act was that the said application was filed beyond the limitation period provided in Article 178 of the First Schedule to the Limitation Act, 1908. WHETHER AN AWARD RENDERED FOUR MONTHS AFTER. THE ARBITRA TOR ENTERED ON THE REFERENCE IS INV ALID: - 20. The arbitration proceedings in questi on were with the intervention of the Court. The Cowl, while referring the matter to arbitration, vide order dated 10.12.1999, did not fix any time within which the learned arbitrator was required to render the award. The Court had referred the matter to arbitration and had adjourned the proceedings in the suit sine die. The Court that refers the matter , to arbitration is the Court where the award is to be filed. Therefore on 13.12.2003, the award was filed before the Court of the learned Additional District Judge, Islamabad. 21. Section 3 of the 1940 Act provides that an arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule to the 1940 Act insofar as they are applicable to the reference. The First Schedule to the 1940 Act sets out the implied conditions of arbitration agreements. Paragraph 3 of the First Schedule to the 1940 Act provides that the arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended period as the Court may allow . The words "entering upon the reference" have not been defined in the 1940 Act. An arbitrator enters on a reference when he first applies his mind to the dispute or the controversy before him and exercises any judicial function in furtherance of the work of arbitration. In the case of Muhammad Shaft v. Muhammad Sabir (PLD 1960 Lahore (W.P.) 591), it was held that the arbitrator enters on the reference when the parties are before him and he takes some definite step towards resolving the dispute referred to him for arbitration. Where an arbitrator holds a preliminary meeting and gives directions to the parties as to the progress of the arbitration proceedings before him, he assumes the office of an
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arbitrator and exercises the functions of an arbitrator . In the case at hand, the record is silent as to a written notice from the appellant or the respondent calling upon the learned arbitrator to act. On 25.06.2000 the learned arbitrator first issued notices to the contesting parties. Hence, it is my view that that the terminus a quo of the four-month period contemplated by paragraph 3 of the First Schedule to the 1940 Act would be that date when the parties appeared before the learned arbitrator in response to the said notices. 22. Section 28(1) of the 1940 Act provide s that "a Court may, if it thinks fit, whether the time for making the award has expired or not and whether the award has been made or not, enlarge from time to time the time for making the award." This Section confers a very wide power to enlarge time for making an award at any time. A Court can exercise that power even after the award has been made and filed during the hearing under Sections 14 and 17 of the 1940 Act. Although paragraph 3 of the First Schedule to the 1940 Act provides that the arbitrator must make the award within four months after the date of entering upon reference, this provision also unequivocally indicates that the arbitrator is entitled to make his awar d within such extended time as the Cour t may allow . The 1940 Act gives the power to extend the time for making the award and does not impose any obligation on a party to make a formal application in this behalf. In the case of J.K. Enterprises v. Win Medicare Ltd. (1998 (1) Arb LR 390), it was held that there is no restriction to grant an extension in time even suo motu . When the Court grants an extension in time without a formal application from a party that by itself cannot af fect the validity of the award. 23. The policy of law is that the award of the arbitrator is ordinarily final and conclusive and that the Court should approach the award with a desire to support it and that it would be consonant with justice to extend the time in the exercise of the Courts' discretionary power . The Courts have always favoured enlargement of time for making the award even when one of the parties to the arbitration expresses disinclination or opposes the extension, provided the party seeking such extension has not been guilty of unnecessarily protracting the arbitration proceedings by adopting dilatory tactics. 24. It is well settled that under the provisions of the 1.940 Act, an award made beyond the period of four months is neither invalid nor void merely on that account. Where after the expiry of four mont hs if a party had been appearing before the arbitrator without any protest or demur and had never taken the objection that the time for making the award had expired, he will be deemed to have waived the implied condition as to time. In such circumstances, the party would be estopped from challengin g the validity of the award on the ground of it having been made beyond time. 25, The power to extend time for making the award can also be exercised by an. appellate Court. An appellate Court is also a Court within the meaning of Section 28 of the 1940 Act and can therefore enlarge the time for making the award. Reference in this regard may be made to the law laid down in the case of Tejpal Jamunadas v. B. Nathmull & Co. (AIR 1920 Calcutta 115), State of Punjab v. Hardyal (AIR 1985 SC 1920) and Hindustan Steel Works v. Rajaasekhar Rao (1987 SCC (4) 93). In the said cases, it was also held that the Court including the appellate Court may extend time when parties took willing part in the arbitration proceedings held after expiry of the prescribed time limit. Although in the instant case, neither the appellant nor, the learned arbitrator filed an application seeking an extension in time for concluding the arbitration proceedings, this Court has the jurisdiction to extend the time suo motu by taking into consideration the conduct of the parties to such proceedings. 26. It is an admitted position that the award was not rendered within four mont hs from the date on which the learned arbitrator entered upon reference. It is also an admitted position that the respondent had raised no objection to the continuation of the arbitration proceedings beyond the said period of four months. The Chief Executive Officer of the respondent had appeared as OW.-1 but did not depose that such an objection had been taken on the respondent's behalf before the learned arbitrator . Even in the respondent's objections to the award, there is no objection as to the award having been rendered beyond a period of four months. The respondent having taken a willing part in the deliberations before the arbitrator after the expiry of four months without any objection is estopped from challenging the validity of the award on the ground of it having been made beyond time. Since no such objection was taken, it is my view that the respondent acquiesced to the continuation of the arbitration proceedings beyond a period of four months from the date on which the learned arbitrator entered upon reference. Had the respondent raised an objection to the continuation of the arbitration proceedings beyond four months, the
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appellant would have applied to the Court for enlargement of time for the conclusion of the arbitration proceedings. In such circumstances, the learned trial Court could not have set-aside the award on the ground the same had been rendered beyond a period of four months or in derogation of the requirement of paragraph 3 of the First Schedule to the 1940 Act. In holding so reliance is placed on the following case law:- (i) In the case of WAPDA v. Messrs Khanzada Muhammad Abdul Hague Khan Khattak & Co. (PLD 1990 SC 359), it was held as follows:- "Reading section 3, implied Condition No.3 in the First Schedule to the Arbitration Act and section 28 thereof together , the position of law appears to be clear that the parties are free to enlarge the time for making the award with their mutual consent as with the consent of all the parties, a term can be incorporated in the arbitration agreement giving powers to the arbitrator to enlarge the time for making the award. By Condition No. 3 in the First Schedule, statutorily an implied term is incorporated in the agreement that the award shall be made within four months after entering upon the reference . By this statutory provision, the term is to be taken as an integral part of the arbitration agreement and is subject to alteration with the consent of the parties like any other term of a contract. If that were not the intention of the legislature, section 28(2) would not make valid a provision in the arbitration agreement empowering the arbitrator or arbitrators to enlarge the time for making the award with the consent of the parties. If the parties after the expiry of the four months submit themselves to the jurisdiction of the arbitrator and take part in the proceedings enabling him to make an award, it cannot be said that the arbitrator acted without jurisdiction. In such a contingency , the principles of waiver and estoppel would apply with full force. It is now well-settled that where the party had all along submitted to the proceedi ngs of the arbitrator without any protest, he cannot turn round and object or insist that the award was made out of statutory period. In Province of Balochistan v. Malik Haji Gul Hasan PLD 1982 Quetta 52, Messrs Sindh Cotton Exporter v. Messrs A.B. Sadiq Brothers PLD 1955 Sindh 268 and Messrs Musa Ismail & Co. v. Amin Agencies Ltd. PLD 1955 Sindh 242, it was held by the High Courts of Baloch istan and Sindh respectively that the…
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