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Petitioner: ISLAND TEXTILE MILLS LTD., KARACHI VS Respondent: V/O TECHNOEXPERT AND ANOTHER
Court Name: Sindh High Court Judge(s): Ajmal Mian Title: ISLAND TEXTILE MILLS LTD., KARACHI vs V/O TECHNOEXPERT AND ANOTHER Case No.: Suit No, 598 of 1978 Date of Judgment:1979-05-14 Reported As: 1979 CLC 307 Result: Application granted
Judgment ORDER ' This is an application under section :74 of the Arbitration Act, for staying of the above suit and for referring the matter to arbitration in terms of Article XII of the Contract (Annexure B-1 to the plaint) filed by the defendant No, 1. The facts leading to filing of the present application are that the defendant No, 1 entered into an agreement dated 8-8-1968 (Annexure WI) to the Plaint), with the plaintiffs to supply a complete textile plant. Before the contracted machinery was supplied the plaintiffs furnished an unconditional bank guarantee through the defendant No, 2 for ensuring the payment of the price of the machinery in pounds sterling in six monthly 14 equal instalments as per clause VI of the agreement. It has been averred in the plaint that the plaintiffs started production in 1972, but the plant supplied failed to give guaranteed production. Thereupon, the parties entered into long correspondence, which did not bring any result. The plaintiffs have filed the present suit inter alia for the recovery of Rs, 4,07,57,053 (Rupees four crores, seven lacs fifty-seven thousand and fifty-three). ' In opposition to the above application the plaintiffs have filed a counter-affidavit inter alia averring therein that the application is liable to be dismissed for the reason stated therein. 2. Mr. Mansoor Ahmed Khan, the learned counsel for the plaintiffs has urged the following points in opposition to the above application :- "(i) That Article XII of the contract does not exclude the jurisdiction of this Court to try the above suit. (ii) That the subject-matter of the suit is not covered by the Arbitration Clause. (iii) That the defendant No, 1 has taken steps in the proceedings dis-entitling them to apply for the stay of the suit.
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(iv) That since the plaintiffs have averred that the defendant No, 1 has committed fraud and made misrepresentation, the questions are fit to be tried by a civil Court and not by an arbitration tribunal. (v) That the parties, witnesses and the subject-matter of the dispute namely, the machinery supplied by the defendant No, 1 are at Karachi and, therefore, it will be convenient to the parties to have the disputes adjudicated upon at Karachi through the above suit instead of Arbitration Tribunal in Moscow. (vi) That as there are two defendants to the above suit and as the defendant No, 2 is not a party to arbitration agreement the suit cannot be stayed." 3. (a) In support of the first contention that the arbitration clause does not exclude the jurisdiction of this Court Mr. Mansoor Ahmed Khan has referred to the Article XII of the Contract. In order to appreciate the above contention, it will be advantageous to reproduce herein below the aforesaid Article XII of the contract, which reads as follows :- "The parties shall take all measures to settle amicably all disputes or differences which may arise out of this Contract or in connection with it. In case the parties are unable to arrive at an amicable settlement, all disputes and differences which may arise out of this Contract are to be submitted with the exception of recourse of Legal Courts to Arbitration by the Arbitration Commission to the Rules as follows :- (a) If the suppliers, are a respondent in such a dispute, it is submitted for settlement to the Foreign Trade Arbitration Commission for the Chamber of Commerce in Moscow, in accordance with the Rules of Procedure of the said Commission. (b) If the BUYERS are a respondent in such a dispute or disco tract the dispute is submitted for settlement to the Federation of Pakistan, Chamber of Commerce and Industries, Pakistan. The Arbitration Award shall be final and binding on both the parties. (c) If the Buyers and Suppliers both lodge claims against each other with their respective Chamber of Commerce in Pakistan and Moscow, then both Chambers of Commerce will be requested by both parties to evolve a joint formula for the settlement of dispute. In this connection all necessary practical steps will be taken by both Chambers to meet each other through their appointed Representatives at a place and date mutually agreed upon to have a joint session for finale arbitration. This arbitration will be preferably held in Pakistan subject to approval of Techno expert and the Government of USSR." (d) Mr. Mansoor Ahmed Khan, in support of his above contention has relied upon the following words used in para. 2 of the above clause : "With the exception of recourse of legal Courts." The contention of Mr. Mansoor Ahmed Khan was that the above sub-para. (2) which relates to arbitration expressly provides that the Court jurisdiction will remain intact. In my view, the above contention is untenable inasmuch as the aforesaid sub-para. (2) is to be read as a whole, it will become clear that the intention was to exclude the jurisdiction of the Court. A plain reading of the above clause indicates that in case the parties are unable to arrive at an amicable settlement in respect of their disputes and differences as contemplated under sub-para. (I) of the above clause, the same are to be submitted to arbitration with the exclusion of legal Courts Mr. Liaquat Merchant the learned counsel for defendant No, 1 has urge that whenever the word "Except" or "Exception" is used it means exclusion and not inclusion. He has invited my attention to the definition of the word "Exception" given in Black's Law Dictionary, IV Edition, which inter alia includes "to exclude from enumeration, the scope of statement of enactment, to leave out of action or consideration". In my view if they contention of the learned counsel for the plaintiffs Is to be accepted, I would render the above arbitration clause nugatory and redundant. The use of the words "with the exception of recourse of legal Courts" clearly intended to exclude Court's jurisdiction rather than to keep it intact.
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4. (a) Reverting to the second contention of Mr. Mansoor Ahmed Khan, the learned counsel for the plaintiffs, that the subject-matter is not covered by the arbitration clause, it may be observed that the learned counsel for the plaintiffs has urged that in sub-para. (1) of the clause which provides settlement of all disputes and differences amicably covers all disputes or differences arising out of the contract or in connection with it, but whereas in sub-para. (2) of the clause which relates to arbitration the words "in connection with it" have been omitted. His submission was that the above omission in sub-para. (2) clearly indicates that the parties intended to restrict the scope of the arbitration clause. Whereas Mr. Liaquat Merchant the learned counsel for defendant No, 1 has urged that sub-clause (2) of the clause is in continuation of its sub-clause (1) and, therefore, all disputes and differences arising out of the contract or in connection with it are covered by the arbitration. (b) It was also urged by Mr. Mansoor Ahmed Khan, that there are certain matters which are cutside the contract and were agreed to subsequent to the conclusion of the contract, and, therefore, the same cannot be the subject-matter of arbitration. In support of his above contention he has referred to the photostat copy of the Memorandum dated 25-3-1970 signed by the plaintiff and the defendant No, 1 (Annexure 'F' to the plaint) providing that to balance and achieve better efficiency as per guarantee of 6 5 oz. Yarn per spindle per shift of three hours for 20/S English Pound to be achieved, the defendant No, 1 agreed to supply "free of cost" two drawing frames mentioned therein during six months from the date of the signing of the above Memorandum. It was urged by the learned counsel for the plaintiffs that this was outside the contract, and therefore, this could not be subject-matter of the arbitration. Mr. Liaquat Merchant, the learned counsel for defendant No, 1 has drawn my attention to the para. II of the above Memorandum which provides that all other terms and conditions of contract No, 1861 not mentioned in the said Memorandum would remain unchanged and in force. Since it has been expressly provided in the above "Memorandum that all the terms and conditions of the main contract will remain in force which also include the arbitrations clause and, therefore, any dispute arising on account of non-fulfilment of the above commitment by the, defendant No, 1 would be within the ambit of the arbitration clause. (c) In my view, the distinction sought to be made by the learned counsel for the plaintiffs on the basis of the language employed in sub-paras. (1) and (2) D of the arbitration clause referred to hereinabove is not material as prima facie the plaintiffs' claims arise out of the contract. 5. (a) Reverting to the third contention of the learned counsel for the plaintiffs that the defendant No, 1 had taken steps in the proceedings within the meaning of section 34 of the Arbitration Act, and, therefore, their application is liable to be dismissed, it may be pertinent to mention that the defendant No, 1 had filed the present application on 5-12-1978 for staying of the above suit, and whereas they had filed on 31-1-1979 a counter-affidavit dated 30-1-1979 to the plaintiff's application for injunction for restraining Messrs Bank Limited (i,e, the defendant No, 2) from making any further payment or instalment under the guarantee ,B including the instalments due for payment on 30-6- 1978. It may be observed that originally when the plaint of the above suit was presented on 6-8- 1978 Messrs Habib Bank Limited was not a party to the suit, but they were impleaded as the defendant No, 2 to the suit by an order dated 8-8-1978. ' It was urged by Mr. Mansoor Ahmed Khan, the learned counsel for the plaintiffs that since the defendant No, 1 has contested the above injunction application inasmuch as they got the injunction vacated by an order dated 7-4-1979, this amounted to taking of steps in the proceeding. On the other hand, Mr. Liaquat Merchant, the learned counsel for the defendant No, 1 has urged that the defendant No, 1 had first filed the application in question under section 34 of the Arbitration Act on 5-12-1978 and whereas they had filed their counter-affidavit to the injunction application on 31- 1-19791 and that too without prejudice to the present application. (b) In support of his above contention Mr. Mansoor Ahmed Khan, the learned counsel for the plaintiffs, has referred to the case of Amrftraj Kothari v. Golacha Financiers, the case of Subal1
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Chandra Bhur v. Muhammad Ibrahim and another, the case of Sadhan Kumar Bhattacherjee v. Sumail Kumar Bhattacherjee and others, the case of Deluxe Film Distributors Ltd. v. Sukumar Kumar, the case of Messrs Dadri Cement Company and another v. Messrs Bird & Compauy P. V. T. Limited, the case of P. Gannu Rao v. P. Thaugaraja Rao and another, the case of Messrs Brothers S. A. By Agents South India Corporation Agencies Private Limited v. Astronic Companies Naviers S. A. By Power of Attorney Agent Shaw Wallace Co. Ltd. and the case of Union of India v. Surjeet Singh Atwal. On the other hand Mr. Liaquat Merchant, the learned counsel for the defendant No, 1 has relied upon the case of Badsha Meah Sowda;ar v. Noorul Haq and others and the case of Md. Esack v. Raja Miah and another. (c) Reverting to 1966 Calcutta case, it may be observed that in the aforesaid case the plaintiffs instituted a suit in breach of arbitration agreement and obtained an injunction against the defendant and subsequently applied for extension of injunction. The defendant contested the application for the extension of injunction before filing any application under section 34 of the Arbitration Act. It was held that the aforesaid action on the part of the defendant to contest the application for extension of injunction amounted to taking of steps in the proceedings. It was further held that the defendant instead of contesting the application for extension of injunction should have filed an application under section 41 (b) of the Arbitration Act read with Schedule II to the Act. In my view the above ruling is distinguishable inasmuch as in the instant case section 34 of the Arbitration Act's application was filed first and the counter-affidavit to the injunction application was filed without prejudice to the defendant No, l's aforesaid application. (d) Referring to 1943 Calcutta case, it may be observed that in the aforesaid case the plaintiff had applied for appointment of a receiver. The defendant's counsel appeared and applied for time to file an affidavit in opposition to the application for appointment of receiver and also applied for a direction and leave from the Court to inspect the books of accounts and records. It was held that the above conduct of the defendant clearly implied a statement to the effect that the defendant would proceed to defend the action and would not insist on the right to have the disputes disposed of by arbitration. It was further held that the fact that the defendant was unaware to the arbitration clause did not make his act anytheless a step in the proceedings. The above case is also distinguishable from the present case as pointed out hereinabove that the defendant No, 1 in the present case first filed an application for arbitration. (e) Reverting to 1948 Cal. 59, it may be stated that in the above case it was held that applying for time to file written-statement is a step in the proceedings within the meaning of section 34 of the Arbitration Act. In the instant case no such application for time for filing written statement has been made and, therefore, the present case is distinguishable. (f) As regards 1960 Cal. 206, it may be observed that in the above case the plaintiffs applied for a decree on admission under Order XII, rule 6, C. P. C. The defendant filed an application for extension of time to file affidavit in opposition to the above application. It was held that the application for extension of time amounted to taking steps in the proceedings so as to disentitle the defendant from making an application for a stay under section 34 of the Arbitration Act. It may be noticed that to oppose an application for a decree on admission, in fact amounts to participation in the suit on merits and, therefore, it was rightly held that it amounted to a step in the proceeding, no such eventuality had risen in the instant case, and, therefore, the present case is distinguishable. (g) Reverting to 1974 Delhi, it may be, stated that in the aforesaid case the defendant filed a reply to the injunction application and gave the detail of the circumstances under which the agreement came to be written, it was held that the conduct on the pan of the defendant amounted to taking steps in the proceedings disentitling him to file an application for stay. It may be noticed that in the above-cited case the defendant intended even to rely upon the written statement which was to be filed by him to contest the aforesaid injunction application, and that the application under section2 3 4 5 6 7 4 9 10
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34 was filed after more than two months from the filing of a reply to the injunction application. In view of the aforesaid peculiar facts, it was held that the defendant's application under section 34 of the Arbitration Act was not competent. The above case cannot be equated with the instant case. (h) Reverting to 1949 Mad. It may be observed that in the above case the defendant applied for adjournment to file counter-affidavit to the injunction and for modification of the order of the injunction, the defendant's above application was granted however, on the adjourned date the defendant did not file the affidavit but stated that he intended to file an application to refer the dispute to arbitration. It was held that if something was done by the party concerned which was in the nature of an application to the Court, it would necessarily come under the category of a step in the proceedings. As in the present case no such application has been made, the above-cited case is also distinguishable from the instant case. (i) Reverting to 1970 Mad. It may be stated that in the above case the plaintiff filed a suit for the recovery of Rs, 1,63,282.12 in respect of the use of their vessel and obtained an injunction for restraining the defendant from removing their tanker from the Madras Harbour. The defendant applied for vacation of the aforesaid injunction order successfully. After that they filed an application under section 34 of the Arbitration Act, it was held that filing of an application by the defendant to get the interim injunction vacated Is a step in the proceedings disentitling him to ask for stay of the suit under the arbitration agreement. The above-cited case is also distinguishable from the instant case inasmuch as the defendant No, 1 had filed their present application on 5-12- 1978 and a counter-affidavit to injunction application on 31-1-1979 without prejudice to the present application. (j) Reverting to AIR 1970 SC, it may be observed that in the above case it was held that an application under section 34 of the Arbitration Act cannot be treated an application in a reference under section 31(4) of the Arbitration Act. In my view, the point involved in the instant case is not covered by the above-cited case of the Indian Supreme Court and, therefore, is not relevant. (k) Referring to- 1967 Dacca case, it may be observed that in the above case the facts were that a suit was filed for the dissolution of partnership and for accounts. On the following day of the filing of the suit, the plaintiff filed an application for appointment of a receiver. ' Thereupon, the defendant made a prayer for time to file objections to the above application. On the next date fixed for show cause to the aforesaid application for the appointment of a receiver the defendant filed a petition under section 34 of the Arbitration Act. It was urged by the plaintiff that the defendant had taken steps in the proceedings by asking for time to file objections to the receiver's application. It was held that the above act of the defendant did not amount to acquiescence in the proceedings and the suit itself, particularly in view of the fact that the plaintiff was not even aware of the contents of the plaint. It was also observed that the primary duty of a Court is to look into the facts of the case fairly and then to decide whether the conduct of the applicant is such as would amount to participation in the suit itself or an indication of acquiescence in the proceedings so as to disentitle him to file an application under section 34 of the Arbitration Act. It was further observed that a mere prayer for time to file objections to the application for the appointment of a receiver cannot amount to the acquiescence in the proceedings. This case to some extent supports the defendant No, l's present application. (I) Referring to 1969 Dacca 719, it may be stated that the plaintiff in the suit filed an application for an interlocutory injunction, the defendant was called upon to show cause against the aforesaid prayer for injunction but neither was served with a copy of the petition for temporary injunction nor a plaint in suit. The defendant in response to the above injunction application filed an application under section 34 of the Arbitration Act and also filed another application for time to file objections to the prayer for grant of temporary injunction. It was urged by the plaintiff that the defendant had taken steps in the proceedings by asking for time to file objections to the injunction application but
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the above contention was repelled inter alia on the ground that the defendant was not even aware of the contents of the plaint and, therefore, he could not have acquiesced to the filing of the suit. 6. In my view the question as to whether a defendant has taken steps in the proceedings will depend on the facts of each case and it will vary from case to case. If from the conduct of the defendant it appears that he has acquiesced to the suit and intended to contest the suit on merits before the Court, he cannot thereafter file or press an application under section 34 of the Arbitration Act. However, if a defendant makes his stand clear at the earliest opportunity that he wishes that the disputes/differences be referred to arbitration as per arbitration agreement, in such a case the mere fact that the defendant has contested an application for injunction or for the appointment of a receiver will not constitute a step in the proceedings. It may be observed that section 41(b) of the Arbitration Act provides that the Court shall have for the purpose o and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the second Schedule to the Act as it is for the purpose of, and in relation to, the proceedings before the Court. It also provides that nothing in the aforesaid clause (h) shall be taken to prejudice any power which may be vested in an arbitrator o umpire for making order with respect to any such matters. The Second Schedule to the Arbitration Act inter alia empowers the Court to grant interim injunction or to appoint a receiver etc. It is, therefore, clear that the Arbitration Tribunal in the instant case does not have the power to deal with the grant of an ad interim injunction which was prayed for by the plaintiffs in the present suit and, therefore, this Court was to deal with the injunction application even if the suit would have been stayed under section 34 of the Act. In the instant case as pointed out hereinabove the defendant No, 1 filed the application in question on 5-12-1978, and whereas filed a counter-affidavit to the injunction application on 31-1-1979, which is in para. 9 it has been clearly stated that the suit is also liable to be stayed under section 34 of the Arbitration Act and that the counter-affidavit is being filed without prejudice to the application under section 34 of the Arbitration Act, 1940. Since the application for injunction was prior in time, it was listed as Application No, 1 on 7-4-1979 when I disposed of the same by an order of even date. As there were about 100 cases on my cause list on the above date (which was a miscellaneous day) I did not dispose of the present application. In my view, since the defendant No 1 contested the above injunction application without prejudice to their present application, it cannot be urged that the aforesaid defendant has taken any steps in the proceedings within the meaning of section 34 of the Arbitration Act as to disentitle them to press their present application. 7. Reverting to the fourth contention of Mr. Mansoor Ahmed Khan that since fraud and misrepresentation have been pleaded, it is a fit case for trial by a civil Court. On the other hand, Mr. Liaquat Merchant, the learned counsel for the defendant No, 1 has contended that the plaintiffs have come out with the allegation of fraud and misrepresentation first time in the above suit and that the plaintiffs have not produced any document written by them prior to the filing of the suit in which any such allegation was made. It was urged that the above plea in frivolous. Since any observation on the above plea on merits may prejudice the parties, I have refrained from making any comment upon the same. Even otherwise the above contention can be disposed of without examining the merits of the same. Mr. Mansoor Ahmed Khan in support of his above contention has relied upon Basu on Arbitration, VIIth Edition at pages 732 which contains an observation to the effect that a person charged with fraud is entitled to insist upon that the above charge should be investigated by a civil Court and not by a private tribunal. There is no allegation of fraud against the plaintiffs and therefore, the above observation does not advance the plaintiff's case. The defendant No, 1 has been charged with alleged fraud and misrepresentation and, therefore, the above observation L in the Basu's aforesaid book might have helped the above defendant
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Furthermore, there is no legal prohibition or embargo, to the effect that an arbitration tribunal cannot try the question of fraud and/or misrepresentation. 8. (a) Reverting to the 5th contention of Mr. Mansoor Ahmed Khan that as the parties, witnesses and the subject-matter of the dispute, namely, the machinery supplied by the defendant No, 1 are at Karachi, it will be convenient to the parties to have the disputes adjudicated upon at Karachi through the above suit instead of arbitration tribunal in Moscow, it may be observed that the learned…
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