2012 PLP 12 (CLC)

JAMAL KHAN MANDOKHAIL, J.

Facts in brief are that, the appellant appointed the respondent No.1 to provide mobile service to PMCL's customers, pursuant to an agreement dated 27th July, 2003, on agreed terms and conditions. The appellant terminated the franchise agreement by issuing the notice dated 18th June, 2007 to the respondent No.1, which is reproduced hereinbelow:

"As you are well aware, PMCL is deeply disappointed by your conduct which not only amounts to a grave violation of the terms and conditions of the Franchise Agreement and is certain to have an extremely adverse effect upon the business, operation and reputation of PMCL; but has also resulted in complete erosion of our confidence in your ability to be part of the PMCL network of franchises. Accordingly, and without prejudice to PMCL's other rights (e.g. to pursue appropriate civil and criminal proceedings in respect of our conduct), we do hereby terminate the Franchise Agreement with immediate effect. Without prejudice to the aforesaid, to the extent the above termination may in any manner be deemed without justification, this letter shall be treated as termination by 15 days notice, as provided for in the Franchise Agreement."

2. Feeling aggrieved, the respondent No.1 filed a suit for declaration, injunction, recovery of commission, retention money, value of the unsold 5000 Jazz connections, as well as, damages to the tune of Rs.5,00,00,000/- (Rupees Five Crore), against the appellant and the respondents Nos.2 to 4.

3. The appellant preferred to file an application under section 34 of the Arbitration Act with a request to stay the suit. It is alleged that, the agreement contains an arbitration clause and it was agreed by the parties that all the disputes arising out of the agreement have to be referred to the arbitrator, therefore, the suit is required to be stayed. The application was contested by the respondent No.1 through his rejoinder. The trial Court, after hearing the parties, dismissed the application by means of the order dated 18-2-2010, hence this appeal.

4. The learned counsel for the appellant argued that, the franchise agreement has been terminated by invoking clause 15 of the agreement, and if the respondent/plaintiff has any grievance, he may approach the arbitrator in view of clause 17 of the Agreement. According to him, section 34 of the Arbitration Act gives power to the Court to stay the suit, because the parties have surrendered themselves to the jurisdiction of Arbitration Tribunal, therefore, the respondent/plaintiff is not entitled to file the suit.

5. On the other hand, the learned counsel for the respondent No.1 opposed the contention and stated that, the appellant-company itself terminated the franchise agreement, therefore, after its termination, the arbitration clause also deemed to be terminated. He argued that, since the agreement is not in existence, therefore, section 34 of the Arbitration Act cannot be invoked. He further argued that, the subject-matter of the suit is not a dispute arising out of the agreement, therefore, the arbitration clause cannot be invoked.

6. We have heard the learned counsel for the parties and have perused the record. Admittedly, the cause of action accrued to the respondent No.1/plaintiff on the basis of the notice for termination of the agreement, which contains the allegation that the respondent No.1 has violated the terms and conditions of the agreement. The appellant was dissatisfied from the performance of the respondent No.1 and alleged the violation of the terms and conditions of the agreement. Thus, it is evident that, the dispute alleged by the appellant is in respect of the matters pertaining to the terms and conditions of the agreement, which resulted into its termination. Clause 17 of the agreement pertains to the resolution of dispute, which is reproduced hereinbelow:

"If any question or difference or dispute regarding the terms of this agreement shall arise between the parties which cannot be settled amicably, then, and in all such cases, the same shall be referred to arbitration by one Arbitrator to be appointed by the mutual consent of the parties and failing such mutual consent, to be appointed by the court. The provision of the Arbitration Act, 1940 shall apply to such arbitration, which shall be held in Lahore. The award under such Arbitration shall be final and binding on the parties." The respondent No.1 does not dispute the execution of the agreement and its arbitration clause. Once, the parties agreed to decide their dispute in a particular manner, then, unless and until any strong and sufficient reason is shown, they must surrender themselves to the forum voluntary chosen by them with their freewill and consent. The appellant, being co-signatory with the respondent No.1 to the arbitration agreement, has the option to compel the respondent to abide by the arbitration clause before the commencement of the legal proceedings. The application under section 34 of the Arbitration Act filed by the appellant without taking any step of participating into the legal proceedings shows his intention to exercise his option to enforce the, arbitration agreement. The respondent No.1 has failed to show any sufficient reason as to why the matter should not be referred to the arbitrator. Admittedly, the termination of the agreement is a result of dissatisfaction of the appellant and he alleged violation of the terms and conditions of the agreement, therefore, the dispute is the outcome of the agreement, which ought to have been decided by invoking the arbitration clause.

8. Now considering the contention of the learned counsel for the respondent No.1 that, after the termination, the arbitration clause automatically comes to an end. Suffice it to observe here that, the termination of the agreement was on the basis of the alleged violation of the terms and conditions of the agreement. It is obvious that at the time of the execution of the agreement, there was no dispute between-the parties, so the intention of the parties to include the arbitration clause, was to specify the forum to resolve the future differences or dispute arising out of the agreement, including its termination. The arbitration clause is an independent agreement between the parties, which can be invoked, if a dispute or difference arises between the parties, therefore, the termination of the agreement would not supersede it. Irrespective of the non-existence of the agreement the arbitration clause still survives and the arbitrator still has the power to resolve the dispute.

9. The trial Court has come to a wrong conclusion, therefore, the order impugned is not sustainable. The appellant has already approached the competent Court of law by filing an application under section 20 of the Arbitration Act for the reference of the differences between the parties to the arbitrator in terms of clause 17 of the agreement, therefore, any claim alleged by the respondent No.1 in his plaint, could be agitated before the arbitrator. Under section 34 of the Arbitration Act, the trial Court has the jurisdiction to stay the proceedings till the resolution of the dispute between the parties through the arbitrator, but it has declined to do so, which act amounts to non-exercise of the jurisdiction, which is an illegality and irregularity.

10. Thus, in view of what has been stated and discussed hereinabove, we are inclined to accept the appeal, set aside the impugned order dated 18-2-2011, passed by the Civil Judge-II, Quetta. The application filed by the appellant/defendant under section 34 of the Arbitration Act is accepted and the proceedings pending before the Court of Civil Judge-II, Quetta, are stayed. The parties are directed to invoke the arbitration clause contained in the franchise agreement between them. On reference of the dispute, the arbitrator should try to dispose of the matter as early as possible. M.H./100/Q Appeal allowed.