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Petitioner: JS Global Capital Limited VS Respondent: Mrs. Raheela Yahya
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title: JS Global Capital Limited vs Mrs. Raheela Yahya Case No.: Civil Revision No.73 of 2014 Date of Judgment:2021-04-26 Reported As: 2022 [M] CLR 1357, 2021 CLC 1414, 2022 PCTLR 1076, PLJ 2021 Islamabad 307 Result: Revision allowed
JUDGMENT
JUDGMENT MIANGUL HASSAN AURANGZEB, J. Through the instant civil revision petition the petitioner, JS Global Capital Limited, impugns the order and decree dated 07.12.2013 passed by the Court of the learned Additional District Judge, Islamabad, whereby the petitioner's appeal against the order and decree dated 03.09.2013 passed by the Court of the learned Civil Judge, Islamabad, was dismissed. Vide the said order dated 03.09.2013, the learned Civil Court dismissed the application filed by the petitioner under Section 20 of the Arbitration Act, 1940 ("the 1940 Act") seeking the reference of the disputes between the petitioner and the respondent, Mrs. Raheela Yahya, to arbitration. 2. The record shows that the petitioner was a member of the Karachi Stock Exchange ("KSE") and is engaged in the business of brokerage in stocks, shares, securities, etc. The petitioner has been issued a license by the Securities and Exchange Commission of Pakistan ("S.E.C.P.") to operate as a broker under the Brokers' and Agents Registration Rules, 2001. 3. On 21.02.2007, the respondent signed and submitted an account opening form to the petitioner at the latter's office in Islamabad. The said form sets out the terms and conditions of the contractual relationship between the petitioner and the respondent. Clause 27 of the account opening form sets out the dispute resolution mechanism between the said parties. This clause is reproduced herein below:- "27. In the event of any disputes, differences or controversies arising out of the Agreement, including the Interpretation of the terms hereof ("Disputes"), the same shall be referred to the sitting Chairman of the Exchange for the time being in Office as the Sole Arbitrator. Once the Chairman enters upon reference, he will continue as the Sole Arbitrator for such Dispute(s), even after the expiry of his term as the Chairman of the Exchange.
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Provided further, if Mr. Jahangir Siddiqui or any other officer/director of the Broker is the Chairman of the Exchange at the time of such Dispute(s), then the Sole Arbitrator shall be the Vice Chairman of the Exchange for the time being in office, who after entering upon reference will continue as the Sole Arbitrator (for such Dispute(s) even after the expiry of his term). In case of any reason(s), the Stock Exchange and/or the Arbitration Committee thereof is/are unable to arbitrate upon the matter due to any legal infirmity, the matter shall then be referred to arbitration by two Arbitrators, one to be appointed by each party and on the lack of consensus between the two Arbitrators, the matter shall be referred to an Umpire, to be selected by the two Arbitrators before the commencement of the reference in accordance with the Arbitration Act, 1940 or any amendments thereof The decision of the Arbitration Committee of such Exchange or the Arbitrators or the Umpire, as the case may be, shall be final and binding upon both the parties. The Arbitration shall be held in accordance with Arbitration Act, 1940 as amended from time to time and the venue of Arbitration shall be Karachi." 4. Clause 6(i) of the account opening form provides that in the event the account holder fails to deposit additional cash or securities as margin within one business day of the margin call (in writing), the petitioner shall have absolute discretion to and, without further notice to the account holder, liquidate the account holder's outstanding position, including the securities purchased and carried in such account so that the margin is maintained at the required level. Clause 6(ii) of the said form empowered the petitioner to square off a transaction by selling the account holder's shares in case of non-payment by the account holder within the time stipulated in Clause 7(ii) of the said form. It is an admitted position that the parties had agreed to maintain 20% margin throughout the trading. 5. It is an admitted position that the respondent had purchased shares in listed companies including Javed Omar Vohra Company Ltd. ("J.O.V.C.") through the petitioner. Vide letter dated 15.01.2008, the petitioner requested the respondent to deposit an amount of Rs.398,768/- in order to maintain her outstanding position at margin or make a payment of Rs.879,656/- to take custody of 5,000 shares in J.O.V.C. purchased by the respondent. Having not received any response from the respondent, the petitioner sold 5,500 shares belonging to the respondent in J.O.V.C. on 21.07.2009 for an amount of Rs.76,662.28. There had been a sharp decline in the stock market during 2008- 2009. This sale resulted in liquidating the entire portfolio of the respondent. However, there still remained an outstanding amount of Rs.803,081.26 in the respondent's ledger account. 6. On 06.01.2012, the petitioner filed an application under section 20 of the 1940 Act before the learned Civil Court at Islamabad seeking the reference of the dispute between the petitioner and the respondent to be referred to arbitration in terms of Clause 27 of the account opening form. The respondent contested the said application by filing a written reply. The position taken by the respondent in her reply was that under Regulations 31 of the General Regulations of the Karachi Stock Exchange (Guarantee) Limited ("the General Regulations of KSE"), the Arbitrator could not take cognizance of any claim or dispute which was not referred to him within three months from the date it arose. 7. Vide order dated 03.09.2013, the learned Civil Court dismissed the petitioner's application under Section 20 of the 1940 Act primarily on the ground that the petitioner had failed to refer the disputes to the sitting Chairman of KSE, and that the process for the initiation of the arbitration had not been initiated within the stipulated time. It was also held that the parties had agreed for the venue of the arbitration to be Karachi. The petitioner's appeal against the said order dated 03.09.2013 was dismissed by the learned Appellate Court vide order dated 07.12.2013. The learned Appellate Court held that since the venue of arbitration had been agreed to be Karachi, the learned Civil Court at Islamabad did not have the jurisdiction to adjudicate upon the petitioner's application under Section 20 of the 1940 Act, and that the petitioner had failed to initiate the
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arbitration within a period of one year. The said concurrent orders have been assailed by the petitioner in the instant civil revision petition. 8. Learned counsel for the petitioner, after narrating the facts leading to the filing of the instant civil revision petition, submitted that through its application under Section 20 of the 1940 Act, the petitioner had sought a reference of its disputes with the respondent to arbitration in accordance with Clause 27 of the account opening form; that in view of the arbitration clause set out in Clause 27, the learned Civil Court could have referred the disputes to the sitting Chairman of the Stock Exchange; that the cause of action accrued to the petitioner when the respondent failed to clear her outstanding liabilities; that the cause of action was continuous and recurring; that the limitation period for filing an application under Section 20 of the 1940 Act is three years in terms of Article 181 of the First Schedule to the Limitation Act, 1908; that the application filed by the petitioner before the learned Civil Court was within the limitation period provided by law; and that the mere fact that the parties had agreed for the venue of arbitration to be Karachi did not prevent the learned Civil Court at Islamabad from referring the disputes to arbitration, which would be conducted at Karachi. Learned 'counsel for the petitioner prayed for the civil revision petition to be allowed and for the concurrent orders passed by the learned Courts below to be set-aside. 9. On the other hand, learned counsel for the respondent submitted that the General Regulations of KSE would override the arbitration clause set out in Clause 27 of the account opening form; that under Clause 26 of the General Regulations of KSE, the dispute between members of the Stock Exchange and their clients is to be referred to arbitration; that the procedure for initiating the arbitration proceedings is set out in the said Regulations; that Clause 31 of the said Regulations provides that the Arbitrator(s) shall not take cognizance of any claim or dispute which is not referred to him/them within three months from the date it arose; that since the application under Section 20 of the 1940 Act was filed with an inordinate delay, the learned Courts below did not commit any illegality in dismissing the said application; that the petitioner did not apply to the Court under Section 37(4) of the 1940 Act for the enlargement of time for filing an application under Section 20 of the said Act; that since the parties had agreed for the venue of arbitration to be Karachi, the learned Civil Court at Islamabad could not refer the disputes between the petitioner and the respondent to arbitration; and that the dispute between the parties would not have arisen if the petitioner had exercised its right of liquidating the respondent's outstanding liabilities by promptly selling her remaining shareholding in the petitioner's custody. Learned counsel for the respondent prayed for the civil revision petition to be dismissed. 10. 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 civil revision petition have been set out in sufficient detail in paragraphs 2 to 7 above and need not be recapitulated. 11. The account opening form provides inter alia that "all transactions of Securities between the parties" shall be subject to the Articles, Rules and Regulations of the relevant Exchange, revised policies, board directions and new regulations to be framed in pursuance of Section 34 of the Securities and Exchange Ordinance, 1969 ("the 1969 Ordinance"). The General Regulations of KSE are said to have been made by KSE in exercise of the powers under Section 34(1) of the 1969 Ordinance, which provides that a Stock Exchange may, subject to the previous approval of the S.E.C.P., make Regulations not inconsistent with the Rules to carry out the purposes of the said Ordinance. Section 34(3) of the 1969 Ordinance requires the Regulations to be published in the Official Gazette. Section 34(2) of the said Ordinance provides for inter alia the procedure for the settlement of claims or disputes, including arbitration. 12. The General Regulations of KSE, as amended on 26.11.2007, have been brought on record. Regulations 29 to 42 of the said Regulations provide a detailed mechanism for the settlement of
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disputes between a stockbroker, who is a member of KSE, and its clients through arbitration, and appeals from awards. Regulation 35 of the said Regulations provides that the Sole Arbitrator / Panel of Arbitrators shall not take cognizance of any claim or dispute which is not referred to him / them within three months from the date it arose. It is on the basis of Regulation 35 that the learned Courts below concurrently dismissed the petitioner's application under Section 20 of the 1940 Act. 13. Annexed to the General Regulations of KSE is the draft of the account opening form. Unlike the account opening form dated 21.02.2007 signed by the petitioner and the respondent, the draft of the account opening form annexed to the said Regulations does not contain an arbitration clause. The General. Regulations of KSE prior to their amendment on 26.11.2007 are not on the record. Assuming that the General Regulations of KSE in their un-amended form had also provided for an elaborate mechanism for arbitration which was different to the arbitration clause embodied in the account opening form dated 21.02.2007, the mechanism for arbitration provided in such General Regulations would, at best, have the force of an agreement between the parties. I say so because Section 46 of the 1940 Act provides that "the provisions of this Act, except subsection (1) of Section 6 and Sections 7, 12, 36 and 37, shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were in the arbitration agreement, except in so far as this Act is inconsistent with that other enactment or with any rules made thereunder." 14. By dint of the deeming provision in Section 46 ibid, the mechanism for arbitration embodied in the General Regulations of KSE would be treated as an arbitration agreement between the parties. Learned counsel for the petitioner did not dispute the fact that a mechanism for the settlement of disputes between a broker and a client through arbitration had been provided in the un-amended General Regulations of KSE. These Regulations are also said to provide that claims made beyond three months from the date they arose could not be taken cognizance of by the Arbitrator. Admittedly, these Regulations pre-date the agreement between the parties embodied in the account opening form dated 21.02.2007. The provisions of the account opening form do not give an overriding effect to the mechanism for arbitration in the said Regulations. Reference in the special terms and conditions of the account opening form to the applicability of the Regulations of the relevant Exchange is only with respect to "transactions of securities between the parties" and not, in my view, to the mechanism for the settlement of contractual disputes for which Clause 27 of the account opening form provides the avenue. The arbitration clause in Clause 27 of the account opening form provides an altogether different mechanism for initiating arbitration proceedings and does not in any manner bar a claimant from making a claim or raising disputes beyond a period of three months from the date when they arose. By signing the account opening form, the parties thereto agreed to settle their disputes through arbitration in the manner provided in Clause 27 thereof. The execution of the account opening form containing an arbitration clause would have the effect of overriding the mechanism for the settlement of disputes through arbitration set out in the General Regulations of KSE. An arbitration agreement like any other contract, can be amended either expressly or impliedly by the parties. By agreeing to the mechanism for the settlement of disputes in accordance with Clause 27 of the account opening form, the parties thereto impliedly agreed to override the provisions for arbitration in the General Regulations of KSE. Therefore, I am of the view that the arbitration clause embodied in Clause 27 of the account opening form signed by both the petitioner and the respondent would prevail over the General Regulations of KSE, and a claimant would not be debarred from raising a claim simply on the ground that it was raised beyond a period of three months from the date when it arose. 15. Since Clause 27 of the account opening form did not restrict the parties from raising claims beyond three months from the date when the cause for making the claims arose, the application
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under Section 20 of the 1940 Act could have been filed within a period of three years of the accrual of the cause of action as provided in Article 181 of the First Schedule to the Limitation Act, 1908. 16. Having said that, it is not uncommon for parties to arbitration agreements to agree to a time limit within which a party can make a claim against the other. In this regard paragraph 2-054 of Russell on Arbitration (21st Edition) reads thus:- "Some arbitration agreements state that arbitrations must be started within a certain time. Some provisions of this kind prevent a claim being brought by arbitration, and others prevent a claim being brought by any means. Each needs to be examined to see which interpretation it should bear. Where there is ambiguity, the courts prefer to treat these provisions as barring the claim by any means. In some circumstances application may be made to the court to extend a time limit." 17. Notwithstanding what I have held in paragraphs 14 and 15 above, and assuming for the sake of argument only that the provisions for arbitration in the General Regulations of KSE were applicable to the disputes between the parties, I shall now deal with the argument of the learned counsel for the respondent that since the petitioner never applied to the Court under Section 37(4) of the 1940 Act for the enlargement of time for filing an application under Section 20 of the said Act, and that since the application under Section 20 of the said Act was filed beyond the time fixed in the agreement for referring disputes to arbitration, the learned Courts below did not commit any illegality by dismissing the petitioner's application under Section 20 of the said Act. This argument proceeds on the assumption that the arbitration agreement between the parties did provide a time limit within which a claim could have been filed, and I shall deal with this argument assuming that the arbitration agreement between the parties does provide for such time limits. Section 37(4) of the 1940 Act reads thus:- "(4) Where the terms of an agreement to refer future differences to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement, and a difference arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper." 18. Although it is for the Court to decide whether an application under Section 20 of the 1940 Act has been filed within the limitation period provided by law, it is for the arbitrator and not the Court to deal with the question whether the claim of a party to the arbitration agreement is barred the law of limitation. Section 37(4) of the said Act does not apply to the time within which an application under Section 20 of the 1940 Act can be moved. The Court cannot refuse to refer matters to arbitration on the ground that because of a clause in the arbitration agreement (placing a time limit within which the party to such an agreement can raise claims against the other) the 'claims' are time-barred, as it is for the arbitrator to decide such questions. This causes me to hold that the learned Courts below erred by not appreciating that it is for the arbitrator and not the Court to decide whether the petitioner's claim against the respondent was barred by a provision in the arbitration agreement imposing time limits within which claims can be made in arbitration. 19. Where a party seeks a reference to arbitration so as to raise a claim beyond the period fixed by the parties, an application under Section 37(4) of the 1940 Act can be made before the Court for the enlargement of time for making such a claim. Such an application can be filed along with an application under Section 8 or 20 of the said Act, as the case may be, or even after the disputes are referred to arbitration or an arbitrator is appointed. Failure to make an application under Section 37(4) of the 1940 Act regarding claims beyond the period fixed by the parties cannot be a ground for rejecting an application under Section 8 or 20 of the 1940 Act. As mentioned above, it will be for the arbitrator to decide whether such claims are to be rejected on the ground that they were not
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raised or referred to arbitration within the time fixed by the parties. If the Court, while deciding an application under Section 8 or 20 of the 1940 Act, embarks on determining whether the claims that the applicant is seeking to make before the arbitrator would be barred under the law of limitation or under a provision in the arbitration agreement barring the parties to raise claims beyond the time fixed in such an agreement, it would amount to usurping the jurisdiction of the domestic tribunal. 20. Section 37(1) of the 1940 Act makes all the provisions of the Limitation Act, 1908 applicable to arbitration as they apply to proceedings in the Court. This provision gives authority to an arbitrator to consider and decide questions of limitation raised in arbitration proceedings. It obligates the arbitrator to determine whether a claim before him is within the period of limitation. In the same way, it is for the arbitrator to determine whether the claims made in the arbitration proceedings are barred on the ground that they have not been raised within the time limit fixed by the parties in the arbitration agreement. The limitation period for filing an application under Section 20 of the 1940 Act seeking a reference to arbitration ought not to be confused with the limitation period or the time limit within which a claim could be raised in arbitration proceedings. In the case of J.C. Budhraja V. Chairman, Orissa Mining Corporation Ltd. (AIR 2008 SC 1363), a notice issued by the appellant invoking the arbitration clause in the agreement was followed by an application under Section 8(2) of the 1940 Act for the appointment of an arbitrator. The said application was allowed and an arbitrator was appointed. The appellant, in its statement of claim, raised claims which were barred by the law of limitation. These claims were allowed by the arbitrator. The arbitrator had proceeded on the assumption that if the application filed by the applicant under Section 8(2) of the 1940 Act for the appointment of an arbitrator was within time, all claims made in the statement of claim filed before the arbitrator were also to be considered to be in time. This stance did not find favour with the Supreme Court of India which held that the arbitrator ought to have rejected the claims which were barred under the law of limitation. Paragraph 18 of the said report is reproduced herein below:- "18. The learned counsel for the appellant submitted that the limitation would begin to run from the date on which a difference arose between the parties, and in this case the difference arose only when OMC refused to comply with the notice dated 4.6.1980 seeking reference to arbitration. We are afraid, the contention is without merit. The appellant is obviously confusing the limitation for a petition under section 8(2) of the Arbitration Act, 1940 with the limitation for the claim itself The limitation for a suit is calculated as on the date of filing of the suit. In the case of arbitration, limitation for the claim is to be calculated on the date on which the arbitration is deemed to have commenced. Section 37(3) of the Act provides that for the purpose of Limitation Act, an arbitration is deemed to have been commenced when one party to the arbitration agreement serves on the other party thereto, a notice requiring the appointment of an arbitrator. Such a notice having been served on 4.6.1980, it has to be seen whether the claims were in time as on that date. If the claims were barred on 4.6.1980, it follows that the claims had to be rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of limitation for filing a petition under section 8(2) of the Act. Insofar as a petition under section 8(2), the cause of action would arise when the other party fails to comply with the notice invoking arbitration. Therefore, the period of limitation for filing a petition under section 8(2) seeking appointment of an arbitrator cannot be confused with the period of limitation for making a claim. The decisions of this Court in Inder Singh Rekhi v. Delhi Development Authority (1988) 2 SCC 338), Panchu Gopal Bose v. Board of Trustees for Port of Calcutta (1993) 4 SCC 338 and Utkal Commercial Corporation v. Central Coal Fields (1999) 2 SCC 571 also make this position clear." (Emphasis added)
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21. In the case of Jiwnani Engineering Works v. Union of India (AIR 1978 Calcutta 228), Justice Sabya Sachi Mukharji speaking for the Calcutta High Court held that the question whether a claim sought to be referred to arbitration is barred by limitation is not relevant for deciding an application under Section 20…
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