P L D 1954 Sind 1 (PLP)

MUHAMMAD BAKHSH, J.‑This is an application under section 8 (2) of the Arbitration Act 1940 for appointment of an arbitrator. On 4‑6‑1953 the parties entered into an agreement for the sale of shares and all other property of the respondents, viz. The Pakistan Textile Mills Ltd., in favour of the petitioners. Mr. R. L. Trechot the Managing Director of the Respondent Company signed the agreement on behalf of his Company. It is very necessary to reproduce the entire agreement here. "

1. Roger Louis Trechot Esq., Managing Director of Pakistan Textile Mills Limited, acting personally and as representative duly authorised of all the shares of the said Pakistan Textile Mills Limited, amounting to Rupees Twenty Lakhs sells to Mr. Hoosen Brothers Ltd., Rambharti Street, Jodia Bazar, Karachi, who accepts, the totality of the said shares with all the rights attached to comprising the propriety of the Mill and the Stock (yarn and cloth) lying in the factory on the 4th June 1953.

2. The sale price of the totality of the shares and stock is definitely fixed at the lump sum of Rs. six lakhs for the Factory and Rupees Thirty-five thousand for the stock.

3. The Buyers have visited and surveyed the factory grounds, buildings, machinery and stock which they know and accept as they stand on 4th June 1953.

4. The Buyers are entitled to place a Chowkidar at the Mill premises as soon as the sum of Rupees fifty thousand is paid to the Seller and agreement signed and coming into force.

5. Against further remittance of Rupees eighty-five thousand to the sellers, the Buyer will be authorised to run the Mill as Licence and sell the manufactured cloth. This amount will be deducted of the final balance of Rs. 5,85,000.

6. Until the payment of the balance of the purchase price has been made the buyers shall occupy the factory as licencees only and they hereby agree to vacate the same forthwith upon the cancellation of this agreement for any reason whatsoever.

7. No goods of any sort except yarns and cloth will be allowed to be taken out by the licencees from the Mill until the complete payment is made.

8. The balance of Rs. 5,85,000 will be deposited formally for this purpose with the Netherland Trading Society who receives hereby the following irrevocable instructions from both parties.

9. The sum of Rs. 5,35,000 deposited by the buyer to the Netherland Trading Society Bank will be immediately paid to the seller against the only following documents. (1) the remittance of the shares with nominal transfer of same to the Buyers. (2) a certificate signed by the Seller in conformity with account books stating that the moment of the transfer of the shares Pakistan Textile Mills Limited has no liability except those accepted by the Buyers particularly the Pakistan Industrial Finance Co‑operation Loan, being understood furthermore that should arise any claim against Pakistan Textile Mills Limited dated before 4th June 1953, the sellers would take the entire responsibility to deal with such claims, if any. (3) a copy or photocopy of the site lease with Sind Industrial Trading Estates. (4) a copy or photocopy of the Registration of the Pakistan Textile Mills Ltd. with the Inspector of Factories and the Ministry of Industries.

10. The sum of Rupees fifty thousand will be kept as deposit as guarantee waiting for clearance certificate of Income‑tax and Sales‑tax. This sum of Rupees fifty thousand will be paid to the Seller against clearance 9f Income‑tax and Sales‑tax.

11. The Buyer undertakes to pay irrevocably in lieu of the Seller the loan of Rupees five lakhs with interest due to the Pakistan Industrial Finance Co‑operation according to the Pakistan Industrial Finance Co‑operation Bill.

12. Should any difference or difficulty arise in the execution of this agreement, reference will be made to a sole aribtrator Mr.

whose decisions will be final and conclusive, the arbitrator will have to make his award within three weeks from the date of the claim of either party against the other.

13. This agreement will come into force only from the moment when a sum of Rupees fifty thousand is handed to the Seller and the balance rupees five lakhs eighty-five thousand deposited as stated above in the Netherland Trading Society formally for the purpose, and upon acceptance by this bank to execute the instructions given to them by the present agreement and, any way, not later than Saturday 6th June 1953 before 12 noon. (Sd.) (Sd.) Pakistan Textile Mills Ltd. M/s Hoosen Brothers Ltd. Karachi Rambharti Street, Jodia Bazar, Karachi. (Note.‑The numbers of the paragraphs have been given by me for the sake of convenience in discussing the various aspects of the case. In the original agreement these numbers do not appear.) In pursuance of para. 4 of this agreement the petitioners paid Rupees fifty thousand to the respondents by a cheque dated 5‑6‑1953 and posted their Chowkidar at the Mill premises from that date. On the same day, the Director of the petitioners and Mr. Trechot went to the Manager, Netherland Trading Society for the purpose of depositing Rupees five lakhs and eighty-five thousand as stipulated by para. 8 of the agreement, but the Manager of the Netherland Trading Society refused to accept the deposit. It is alleged that after this refusal on the part of the Manager, Netherland Trading Society, to accept the deposit the petitioners' man and Mr. Trechot agreed to keep the deposit with the Eastern Bank Ltd. and for that purpose Mr. Trechot agreed to go to Eastern Bank on 6-6-1953 at 10‑30 a.m. After making arrange ments with the Eastern Bank the petitioner went to Mr. Trechot on 6‑6‑1953 at 10‑30 a.m. but there was no clue to the where abouts of Mr. Trechot. His secretary said he would be coming soon. The petitioners' Director, Manager and broker therefore waited for Mr. Trechot at the respondents' office when ultimately Mr. Trechot came up at 12‑30 p. m. and immediately declared that the agreement in question was at an end. The petitioners suspect ing foul play sent a telegraphic notice to Mr. Trechot the same day. This notice runs as follows :‑ " Reference agreement dated 4‑6‑53 cheque Rupees fifty thousand paid to you on 5‑6‑53 about balance to be deposited with Netherland Trading Society later did not agree in your presence same day and another party was to be considered for deposit we suggested deposit with Eastern Bank yesterday you agreed to it and fixed to meet again to‑day 10‑30 a. m. meantime we arranged with Eastern Bank for deposit came to your office at 10‑15 a. m. but you were not there your secretary said you will come shortly we waited till 12‑30 p. m. you heard us about deposit with Eastern Bank and then said time for deposit had expired and agreement at an end although we told you that Eastern Bank was prepared to keep the deposit and was possible to do so if you were available at 10‑30 a. m. note agreement is in force and you cannot avoid it fulfil your part of the agreement without delay"

Hoosen Brothers Limited." There was no reply to this from Mr. Trechot who removed the petitioners' Chowkidar from the Mills Premises. On 8‑6‑53, the petitioners' advocates sent a letter to Mr. Trechot confirming the telegraphic notice of 6th June and called upon him to refer the matter to arbitration as laid down in para. 12 of the agreement. This letter was sent by registered post. Mr. Trechot refused to accept the same. It has been produced in original along with the petition. On 9‑6‑53 Mr. Trechot's advocates sent a letter to the petitioners denying all allegations and stating that the agreement in question had never come in force. The cheque of Rupees fifty thousand was also returned to the petitioners. On 11‑6‑53 the petitioners' advocates sent a reply to Mr. Trechot clarifying the whole position. A true copy of the notice dated 8‑6‑53 which had been refused by Mr. Trechot was also enclosed and Mr. Trechot was again called upon to refer the matter to arbitration. The respondents took no notice of this and there fore after the expiry of 15 days the petitioners filed their present application under section 8 (2) of the Arbitration Act to appoint a sole arbitrator for the purpose of adjudicating upon the disputes between the parties. The application has been vehemently opposed by the respon dents on various grounds. Before I take up and deal with those objections, it is necessary to state some further facts of the case. In the evening of 6‑6‑53 Mr. Trechot entered into a similar agreement on behalf of himself and all other shareholders of the respondent company with one Gani Bhai Noor Mohamed as a result of which Gani Bhai paid Rs. fifty thousand to Mr. Trechot on 6‑6‑53 and Rupees six lakhs on 10‑6‑53 through the Grindlays Bank, Karachi. On the latter date Mr. Trechot delivered all the share certificates with their transfer forms duly signed to Gani Bhai. Then Mr. Trechot resigned as the Managing Director of the respondent Company and Gani Bhai was appointed as such in his place. Thus it will be seen that the entire concern was transferred to Gani Bhai and others for rupees fifteen thousand more than what the petitioners had agreed to pay for it. On 10‑6‑53 and the subsequent two days the following notice appeared in "DAWN" under the signature of Mr V. P. Sheikh advocate acting for Gani Bhai: "Public and persons concerned are informed that Roger Louis Trecbot Esq., Managing Director of Pakistan Textile Mills Ltd Mangho Pir. Karachi acting personally and as represen tative duly authorised of all the shares of the said Pakistan Textile Mills Ltd., has agreed to transfer all the shares and property of the said Mills to our clients under an agreement dated 6th June, 1953. Any person having any claim, interest or lien of any sort on the said Mills or any objection for the said transfer should prefer his claims to us within 3 days failing which it will be deemed that the claimants have foregone and waived their rights and transfer referred above shall be completed in our clients' favour." On 10‑6‑1953 the petitioners also sent a public notice through the same paper putting up their own claim. On 11th June petitioners' advocates wrote a letter to Mr. V. P. Sheikh clarifying the whole position. As nothing came out of these claims and cross claims the petitioners ultimately filed the present petition on 29‑6‑

53. I will now take up the objections raised by the respondents and deal with them one by one :‑ Objection No. 1.‑The first objection is that the application is not maintainable under section 8 of the Arbitration Act as it is not covered by any of the three clauses of sub‑section (1), subsection (2) being dependent on subsection (1). Clauses (b) and (c) have apparently no application to the facts of this case and therefore we have to see whether the present application can be covered by clause (a). The main argument of the learned advocate for the respondent in this behalf is that the arbitrator was not named by the parties in para. 12 of the agreement and the gap marked in dots after the word 'Mr. was not filled. This shows that the parties wanted to agree to the appointment of a particular person as an arbitrator but ultimately they did not agree to the 'same and there fore there was no agreement within the meaning of clause (a) of subsection (1). The agreement has got to be construed very strictly and therefore gap left by the parties should not be filled by the Court: As abundant authority was cited by the learned advocates of both the parties at every stage of each particular point, it will be necessary for me to refer to the same and decide the question of its application to the facts of this particular matter. The learned advocate for the respondent has referred to the case reported in A I R 1930 Sind 202 where it was held that (the arbitration clause must be construed strictly, because it bars the right at common law of a party to submission, to have his right determined by a Court of law. In A I R 1934 Sind 200 it was held that as a submission to arbitration deprives a party of the right accorded to him by common law to have the dispute decided by a Court of law. it must be strictly construed and before an stay is granted it must clearly appear from the terms of the submission that with reference to the points in issue in the suit the plaintiff has deprived himself of his right of having it decided by the Court. Similar is the trend of ruling reported in I L R 54 Mad.

198. In AIR 1938 Lab. 859, Din Mohammad J. following the same principle held that where the parties agree to refer their dispute to arbitra tors nominated by each party, but the agreement does not make any provision for the nomination of an arbitrator, in case any arbitrator already nominated refuses to act, and one of the nominated arbitrators refuses to act, the Court has no power to make the necessary appointment so as to make the agreement operative and effectual. The learned advocate has also relied on an English ruling reported in (1890) 25 Q B D 545 = 59 L J Q B 533 where it was held that where an agreement to refer disputes to arbitration provides for a reference to three arbitrators, one to be appointed by each of the parties and the third by the two so appointed, and one of the parties refuses to appoint an arbitrator. the Court has no power, either under or a part from the Arbitration Act 1889 to order him to do so. The learned advocate has in view of this law argued that there was no submission in this case as understood by the Arbitration Act, and therefore the Court cannot appoint the arbitrator now. As against this the learned advocate for the petitioners has first of all referred to the definition of "arbitration agreement" given in section 2 (a) of the Arbitration Act. It defines arbitration agreement as "written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not." Clause (a) of section 8 (1) reads as follows: "Where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen concur in the appointment or appointments ; " I have underlined the passages with a view that the point involved in this objection should be understood clearly. In view of the definition given in the Act itself there can be no doubt that the agreement in question is an arbitration agreement within the meaning of clause (a) above. It remains to be seen whether this agreement provides that the reference shall be to one or morel arbitrators to be appointed by consent of the parties. If it does, it follows that the agreement in question will be covered by clause (a). Now clause 12 of the agreement reads as follows :‑ "Should any difference or difficulty arise in the execution of this agreement, reference will be made to a sole arbitrator Mr............. whose decision will be final and conclusive, the arbitrator will have to make his award within three weeks from the date of the claim of either party against the other." It is quite clear from this that (i) reference was to be made to a sole arbitrator and (ii) the sole arbitrator was to be nominated by the parties themselves with their consent. The word and dots "Mr.

" can only mean this and nothing else that the intention of the parties at the time was that the sole arbitrator was to be appointed with their consent, but they did not actually consent to the name of the arbitrator at the time and therefore the agreement will clearly be covered by clause (a). Reading clause (a) of section 8 (1) with section 8 (2) we find the agreement in question is a fully concluded and completed agreement. In the case reported in A I R 1953 Cal. 488 it was held the consent of the parties is the very essence of arbitration. Where different arbitrators are not to be appointed by different parties and the intention is that all of them must concur in the appointment of the sole arbitrator or each of the arbitrators where there are more than one, it is not necessary to make any express provision in the agreement that the appointment or appointments are to be made by consent of the parties. An agreement which merely provides for reference to arbitration is not therefore invalid or ineffective for the reason that it does not expressly provide for the appointment of the arbitrator or arbitrators to be made by consent of the parties. The learned advocate has then relied on Halsbury's Laws of England, Vol. 1, page 664, para. 1094 which reads as follows "If there is a written agreement to refer, then if the arbitrator is not named, the parties may be called upon to name the arbitra tor. If they don't, the Court may appoint the arbitrator and that arbitrator will be in the same position as if be had been appointed by the parties." At page 24 of Construction of Deeds and Statutes by Sir Charles Odgers, (second edition) we find the following observations of the learned author :‑ "The law is anxious to save a deed if possible. This is some times expressed in the maxim ut res magis valeat guam pereat. If by any reasonable construction the intention of the parties can be arrived at and that intention carried out consistently with the rules of law, the Court will take that course. So anxiously is this intention sought, that if words are capable of more than one construction, the construction to be adopted in interpreting the document is to be that which is in accordance with the intention: "a deed shall never be void, where the words may apply to any intent to make it good", as was said in 1555. Also it follows from this that if a deed cannot take effect in the manner expressed by the parties owing to some rule of law, it will be construed if possible to carry the intention into effect in some other way. This is perhaps analogous to the cypres doctrine in trusts." In the case reported in A I R 1933 Lah. 18 it was held that it is immaterial whether the contract itself contains the name of the arbitrator or whether the contract merely contains a clause to refer to arbitration and the arbitrator is appointed by a subsequent agreement. In all cases it is a question merely of the intention and the matter is settled really by the decision of that question. In the case reported in I L R 43 Born. 809 we have a very important observation of Sir Basil Scott, C. J., who remarked that section 8 only applies to certain cases of failure to appoint jointly. Where choosers should but do not concur, the Court is enabled to assist them by the selection and appointment of an individual falling in one of the following categories‑an (i.e. one) arbitrator; an umpire; a third arbitrator in the special sense in which that term is used. The whole point has in fact been fully clarified by various authors in their commentaries on the Arbitration Act. At the bottom of page 101 of S. Rold's Arbitration Act (1953 Ed.) most of the rulings relied on by the learned Advocate for the respondent have been cited and they are shown to be no longer good law. The learned author observes that the true meaning of clauses (a) and (b) of section 8 is that where the parties will not appoint any arbitrator or any appointed arbitrator refuses to act or is incapable of acting or dies, and there is no machinery in the submission whereby an appointment can be obtained, then after following the procedure laid down in subsection (2) the judge may appoint arbitrator. Authority for this opinion is to be found in (1892) I O B

81. The learned author further says that section 8 (1) (a) applies where. one or more arbitrators are to be appointed by the parties jointly and there is a failure to make the original appointment. The scope of new section 8 of 1940 Act has been consider ably widened and the old decisions do not interpret the law in the amended form. Similar observations will be found at page 1126 of the Law of Arbitration by Singh (1952 Ed.) In view of all these reasons I have no doubt that the applica tion is maintainable under section 8 of the Arbitration Act. An alternative plea was also raised by the learned Advocate for the petitioners that if the Court comes to the conclusion that section 8 does not apply, then the application may be treated as one under section 20 of the Arbitration Act. As I have now held that the application is maintainable under section 8, this aspect of the case would seem to need further scrutiny. But since the point has been argued at some length by both the parties, it is but fair that I should consider this side of the question as well‑Reliance has been placed on Order 6, rule 2, C P C which reads as follows: "Every pleading shall contain, and contain only, a statement in a concise form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which they are to be proved, and shall, when necessary, be divided into paragraphs, numbered consecu tively. Dates, sums and numbers shall be expressed in figures. It is argued that the petitioners had to state only the facts of the matter and it was for the Court to decide what particular provision of law covered the case. Mulla's C P C (12th Ed. 1953) at p. 575 contains the following observations :‑ "Every pleading must state facts and not law ...A pleading must not set forth a public statute, for the Court is bound to take judicial notice of it. Nor should parties plead conclusions of law or of mixed law and fact : it is for the Court to declare the law arising upon the facts before it". In the Full Bench case reported in A I R 1951 Born. 210 at page 225, para 28 it was held that while in a case of urgency where an immediate order may be necessary, the Court may not‑ insist upon compliance with conditions similar to those laid down in section 46 Specific Relief Act, in ordinary cases the Court must insist upon compliance with those conditions. As against this the learned advocate for the respondents has argued that the proceedings under sections 8 and 20 are two separate things altogether and therefore the application under section 8 cannot be treated as an application under section

20. He has set out the following points of differences. (a) Section 8 appears in Chapter II while section 20 is the only section of Chapter III. (b) Under section 8 the relief sought is the appointment of arbitrator, while in section 20 it is the agreement which is sought to be filed. (c) Application under section 20 is to be numbered and regis tered as a suit; not so the application under section 8 which is to be treated as a miscellaneous application. (d) Under section 20 the Court is to give a notice to all parties ; no such notice is to be issued under section 8 (2). (e) Order under section 8 is not appeal-able while under section 20 it is. I have considered all these points and except in one point (e) I do not find anything substance in any other point; and in point (e) also if the application under section 8 were treated as an applica tion under section 20, it will put the respondents in a more advantageous position : i.e., they will have the right of appeal which under section 8 they do not possess. I will however discuss each of these points :‑ (a) It is argued that the petitioners had chosen to come under Chapter II and they cannot now come under Chapter Ill. Stress has been laid on the doctrine of election and reliance has been placed on the ruling reported in A I R 11935 Rangoon

397. The facts of that case however have no bearing on the facts of this case. In that case the plaintiff had filed a suit against two defendants for goods supplied and pleaded that one or in the alternative the other was liable. He did not contend the joint liability of the defendants even by a suggestion. Decree was granted for full amount against one. It was held that the plaintiff was precluded from asking for a decree against the other defendant. That is not at all the case here. In the case reported in A I R 1953 Cal. 488 it was held that section 20 (1) contemplate agreement to which the provisions of Chapter II would also apply. Chapters II and III both apply to arbitration where no suit is pending. Under Chapter II it is arbitration without intervention of the Court and under Chapter III it is arbitration with intervention of the Court. I do not see any material difference in the operation of sections 8 and 20. (b) Reliance is placed on Order 7, Rule 1, C P C where-under it was obligatory on the petitioners to ask for a specific relief. The reliefs under the two sections are different and since the petitioner has asked for the specific relief of appointment of arbitrator he cannot turn round now and ask for the relief of filing the agreement. I do not find any force in this objection. Same submissions and contentions could be made in both the cases and the relief in both the cases appears to be the same in substance. In fact the same submissions have actually been made in this case as will appear from this order. (c and d) It makes no difference at all whether the application is registered as a suit or as a miscellaneous application. In both the cases, the parties are heard before the order is passed. Application under section 20 after being numbered and registered as a suit does not become a suit. (e) This point I have already discussed above. The respon dent is arguing against himself where he says that he does not want to have right of appeal under section 20 which the law does not give him under section

8. I am therefore of opinion that the application could be treated as an application under section 20 though I have definitely held that it is perfectly maintainable under section

8. Objection No. 2.‑I will now go over to the second objection of the respondents. It is argued that even if the application is competent under section 8, the power is discretionary and the discretion should not be exercised in favour of the petitioners because intricate questions of law are involved in this matter and they should be dealt with not by the arbitrator but by the Court. Reliance has been placed on the ruling reported in 37 B L R 46 where their Lordships Beaumont, C. J., and Rangnekar J., held that where difficult questions of law are involved the matter should not be referred to arbitration. In that case an application had been made for stay of suit pending arbitration. The pertinent portion of the judgment runs as under:‑ "The agreement to refer to arbitration is between the plaintiff and the defendants, and not between the plaintiff and the assignees of the defendants or the receiver appointed by the Court. If the arbitrator proceeds as between the plaintiff and the defendants and the arbitrators find that something is due to the defendants, they cannot give effect to that finding and no order can be made for payment to the defendants because on this mortgage it appears that the defendants are not the persons entitled to receive the moneys. Therefore, it seems to me that in the event of the defendants succeeding in the arbitration, the award would be in effect a nullity. That view of the matter follows the decision of Mr. Justice Wright in Cotton Club Estate v. Woodside Estate Co., and the fact that that difficulty may arise in relation to the arbitration is one good reason for not staying the action and referring the disputes to arbitration." Apart from this there was another difficulty also which was expressed by their Lordships in the following manner :‑ "Then there is another difficulty. One of the arbitrators appointed by the East India Cotton Association is a gentleman named Mowji Bhimji. Now Mr. Mowji Bhimji is a director and a shareholder in a private company which is an assignee of the interest of one of the five persons to whom the defendants have mortgaged their claims against the plaintiff. So that it seems to me to be clear that Mr. Mowji Bhimji is an interested person since he is interested in the award being made in favour of the defendants. Of course it may be that he would not allow his own interest to affect his judgment, but that is not the point The fact that one of the arbitrators is disqualified from acting affords another good reason for not staying the suit and referring the matter to the arbitrament of that arbitrator." It will be seen from the above that the facts of that case have no application to the present matter and the difficulties that presented themselves to their Lordships' mind in that case are absent here. Besides the learned Advocate for the petitioners has relied g reported in A I R 1929 Bom. 119 where their Lordship Fawcett and Kemp JJ. held that the Courts should refer the parties to the forum of their deliberate choice and the onus is on the plaintiff to show why the stay should be refused. It was also held that the arbitrators could not only determine a point of law but could also determine a question of the construction of the agreement, and a mere allegation that a difficult point of law arises is no ground for refusal to stay. In the case reported in A I R 1942 Sind 57 it was held by this Court that it cannot be laid down as a principle that merely because a difficult point of law is raised, the judge must necessarily exercise his discretion in a particular manner and must refuse to stay the suit. Apart from this the discretion under section 8 is to be exercised judicially and in my opinion if all the requirements of section 8 are fulfilled it will be wrong to refuse to exercise that discretion. In this connection it would be found very instructive to read the following observations of some eminent judges as cited in the case reported in I L R 43 Bom. 809 :‑ At page 820 we find the following observation made by Sir Barnes Peacock in the case reported in (1877) L R 4 1 A 127 at p. 135 :‑ "There is no doubt that in some case the word 'must' or the word 'shall' may be substituted for the word 'may'; but that can be done only for the purpose of giving effect to the intention of the Legislature; but, in the absence of proof of such intention the word 'may' must be taken to be used in its natural, and, therefore in a permissive, and not in an obligatory sense." At the same page we get the following observation made by Cotton, L. J. in (1890) 44 Ch. D 262 at p. 270 :‑ "I think that great misconception is caused by saying that in some cases 'may' means 'must'. It never can mean 'must', so long as the English language retains its meaning; but it gives a power and then it may be a question in what cases, where a Judge has a power given him by the word 'may', it becomes his duty to exercise it." At page 821 we get the most important observation made by Lord Justice Kay in (1892) 1 Q B 138 :‑ "I desire, however, not to bind myself with regard to the question whether the word "may" in the section may not in certain cases give a discretion to the Court. I conceive that cases might arise where it would be necessary to exercise some discretion. I understand that in this case it is admitted that some of the matters in dispute were clearly such as came within and ought to be referred under the submission. In such case, I do not think that the Court would have a discretion to say that it would not entertain the application, assuming of course that all the necessary preliminary steps had been taken‑that is to say, that there had been a sufficient notice within the section, and no appointment had been made within the seven days. In such a case I do not think the Court ought to exercise any discretion, if it has any; its duty under such circumstances really becomes only ministerial. I, therefore, agree that for the purposes of this case the word 'may' must be treated as equivalent to 'must'. But I do not wish to hold that in every case may in this section is equivalent to `must'." At page 822 we also get the remarks made by Lord Esher and Lord justice Lopes under the head‑note:- "As a general rule, where the conditions exist under which the section is applicable, the Court or judge has no discretion to refuse to appoint an arbitrator." Lord Esher observed as follows :‑ " What under these circumstances does the section provide that the Court is to do? It says that the Court may appoint an arbitrator. It is argued that under this provision the Court may say in this case, where it is admitted and the Court has decided that there is a dispute within the submission, that it will not force the corporation to go to arbitration, but will leave the contractor to bring an action‑that is, that the Court has a discretion to say in such a case that, though one side had contracted to refer the matter to arbitration, they need not act according to their contract, and that the Court will relieve them from it, and the other side must bring their action. I do not think that that is so. I think that in such a case as this 'may' means 'must', and that the Court is bound to appoint an arbitrator. I cannot accede to the argument that the Court has a discretion in such a case as this, because there is discretion under section 4 in cases where the parties have proceeded quite differently, and, one party having brought his action, the other party applies to the Court to stay it. That is the converse of this case. Lord justice Lopes observed as follows:‑ " With regard to the language of the section, I think that in a case like the present, where there is a dispute clearly within the submission and a failure to concur in the appoint ment of an arbitrator, and the proper notice has been given, the word 'may' is equivalent to 'must'." At page 823 the following remarks of Martin, J. whose judgment was the subject of appeal in I L R 43 Bom. 809 appears: " The intervention of a Court in certain cases be necessary, but its object should be to assist the parties to carry out their agreement and not to thwart them and still less should it show any petty jealousy of arbitration." At page 824 we get the following observation of Lord Selborne in (1873) 8 Ch. App. 473 at pp. 479 and 480 :‑ " Then we are told that this is an arbitrary tribunal, final and without appeal, and so forth and that these are not fit questions to go before the arbitrator. But I think that the legislature and the Act of Parliament under which the Court is now asked to act have given the answers to that argument. If parties choose to determine for themselves that they will have a domestic forum instead of resorting to the ordinary courts then since that Act of Parliament was passed a prima facie duty is cast upon the Court to act upon such an agreement. The Parties here have made that agreement. They probably knew what were the reasons in favour of determining these questions by arbitration, and what were the reasons against it, and they made it part of their mutual contract that these questions should be so deter mined. The Plaintiffs cannot, therefore, be now heard to complain if that part of their contract is carried into effect." Such being the legal position it is clear that this objection of the respondents must also fail. Objection No. 3.‑The third objection raised on behalf of the respondents is that the agreement has not come into force and cannot therefore, be executed. This has reference to para 13 of the agreement which says " This agreement will come into force only from the moment when a sum of Rupees Fifty Thousand is handed over to the Seller and the balance Rupees Five Lacs eighty-five Thousand deposited as stated above in the Netherland Trading Society formally for the purpose, and upon acceptance by this bank to execute the instructions given to them by the present agreement and, any way, not later than Saturday 6th June 1953 before 12 noon." Rupees fifty thousand were undoubtedly paid to the respon dents on 5th June 1953, but the balance of rupees five lacs eighty five thousand was not deposited in Netherlands Trading Society which did not agree to execute the instructions. Therefore it is contended that the agreement never came into force. The contract was contingent within the meaning of section 31 Contract Act on the petitioners paying rupees fifty thousand to the seller and depositing rupees five lakhs odd in Netherland Trading Society and Netherlands Trading Society accepting to execute the instructions. Time for depositing money in Netherland Trading Society was limited to 12 noon on 6th June 1953. It was nowhere alleged that the Netherland Trading Society was acting in collusion with the respondents. The money was not deposited even in the Eastern Bank. Reliance is also placed on section 2 clause (b) and (i) and sections 31 and 52 of Contract Act. They read as follows: Section 2 (b) reads as under: "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise." Section 2 (i) reads as under "An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract." Section 31 reads :‑ "A 'contingent contract' is a contract to do or not to do something, if some event, collateral to such contract does or does not happen." Section 52 reads: "Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order:, and, where the order is not expressly fixed by the contract, they shall be performed in that order in which the nature of the transaction requires. In the support of his argument the learned Advocate for the respondents cited the English ruling in the case reported in 84 L J K B 640, which was followed in A I R 1922 Lah. 369 at p.

373. I have not been able to lay my hands on the English ruling but in the Lahore case it was held that the words "any dispute arising out of this agreement" cannot include a dispute as to factum or validity of the contract. The learned Advocate therefore contends that the matter cannot be referred to arbitration. It was also argued that the alleged agreement between the petitioners and Mr. Trechot was, if at all true, a Novatio and should therefore have been in writing. No such writing has been produced in the case and therefore the petitioners cannot plead it in his favour. It is argued on behalf of the petitioners that the facts and circumstances of the case clearly indicate a collusion between Mr. Trechot and Ganibhai to defeat the claims of the petitioner. Netherland Trading Society was apparently a selection of Mr. Trechot and the fact that ibis Society refused to accept the deposit without any rhyme or reason followed by two great facts, viz., that Mr. Trechot came upto his office half an hour after the stipulated time i.e., 12 noon and that on the very evening of 6th June 1953, a same kind of agreement was entered into with Ghanibhai who paid rupees fifteen thousand more to Mr. Trechot clearly indicates that the Netherland Trading Society also acted in collusion with and on the binding of Mr. Trechot. The petitioners sent a telegram on the very day to Mr. Trechot stating all these facts and he was still ready to deposit the sum with Eastern Bank with whom, it was alleged at the Bar, the petitioners had already a large amount in deposit. I do not think a Novatio was created by the agreement between the parties to the effect that the money be deposited in the Eastern Bank instead of Netherland Trading Society which had refused to accept the deposit. It was not the substitution of one contract by the other. The contract was the same. Section 63 of the Contract Act reads as under :‑ " Every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit." Apart from this if the respondents and their duly authorized Managing Director, Mr. Trechot, were honest there should have been no objection whatsoever to the acceptance of deposit in any other bank. Actually in the case of Ghanibhai they accepted the deposit with Grindlays Bank. They could accept this deposit not only on 6th June but at any reasonable time thereafter. After all, time was apparently not the essence of the contract in this case. It was no fault of the petitioners if the 'Netherland Trading Society did not accept the deposit. It is not alleged that the petitioners had no money. Apparently the petitioner bad the money and were prepared to deposit it, but because Mr. Trechot wanted to make rupees fifteen thousand more he wriggled out of the whole thing. Either the Netherland Trading Society was not consulted before the agreement or some other contrivance was resorted to with a view to sabotage the agreement. I am of course definitely of the opinion that the Netherland Trading Society was asked by Mr. Trechot not to accept the deposit in order to enable him to have his wangle with Ghanibhai. Otherwise there was no meaning of his disappearance between 10‑30 and 12‑30 and his dramatic appearance half an hour after the stipulated time. In case reported in I L R 40 Born. 289 it was held that section 55 of the Contract Act did not lay down any principle which differ from those that obtained as regards contract for sale of land by which equity in such a case looks, not at the letter, but at the substance of the agreement in order to ascertain whether the parties, notwithstanding that they named a specific time within which completion was to take place, really intended no more than that it should take within reasonable time. It was held therefore that there was nothing in the language of the agreement or the subject matter to displace the presumption that for the purpose of specific performance time was not the essence of the bargain. Apart from this, this is clearly a dispute in the execution of the agreement and has therefore to be referred to arbitration. The pertinent words of the agreement in question are Should any difference of difficulty arise in the execution of this agreement, reference will be made etc.' This is a difficulty in the execution of the agreement and should therefore be referred to the tribunal of the parties own appointment. The ruling reported in A I R 1922 Lah., p. 369 is not relevant for the consideration of this objection because the contract in this case is perfectly valid. Besides, much of what was laid down in the Lahore case has been over‑ruled by the subsequent Full Bench decisions of that Court in A I R 1946 Lah.

116. This objection must therefore be overruled. Objection No. 4.‑The fourth objection by the respondents is that the contract has been rescinded and has now become impossible of performance since the whole thing has been sold away to Ghanibhai and others. The arbitration clause in the agreement is therefore ineffective. Reliance has been placed on the Ruling in the case reported in (1926) Appeal Cases 497 where it was laid down that as the arbitrator was the judge, if at all, both of law and fact, the sole question is whether he had any jurisdiction to decide as he purported to do, between the parties. This depends on the question whether or not there was any submission and that again on the question whether at the time when it purported to be submitted to him, there was a dispute subsisting between the parties "under this character", that is, a contract then subsisting. That a person before whom a complaint is brought cannot invest himself with arbitral jurisdiction to decide it, is plain. His authority depends on the existence of some submission to him by the parties of the subject matter of the complaint. For this purpose, a contract that has determined is in the same position as one that has never been concluded at all. It founds no jurisdiction. Reference has also been made to the case reported in A I R 1943 Lah. 295 at p. 297 where it was held by A. Rehman J., that if the contract of sale is found to have been rescinded, the term in the contract to refer a dispute to arbitration cannot possibly be found to remain, so to say, in vacuo. It could have lived, and must be found to have died with original contract These rulings are no longer good law. A I R 1943 Lah. 295 has been overruled in A I R 1946 Lab. 116 which was decided by Full Bench consisting of five judges who held that if the contract containing arbitration clause is rescinded on the seller exercising right of resale, the arbitration clause is not wiped out and reference to arbitration can be made. The arbitration clause in a contract can be regarded as a thing apart from the main conditions of a contract and it is not a necessary clause in the contract. The same view was adopted in the English case reported in (1942) Vol. I, All England Reporter

337. The ruling reported in (1926) Appeal Case 497 has also been distinguished in this ruling. All this law again was thoroughly discussed in the single judge ruling of this Court reported in A I R 1947 Sind 57 where Constantine J. (at present C. J.) held that where a contract is repudiated, it survives for the purpose of measuring the claims arising out of the breach and arbitration clause contained in it survives for determining the mode of settlement of the claims. The repudiating party is not prevented from invoking the arbitration clause in the contract for the purpose of settling all questions to which his repudiation has given a rise. It is not correct to say that the arbitration clause will be given effect only if the contract comes' to an end by virtue of some clause' in the agreement but not when the contract is ended by something dehors the agreement. In view of all this law this objection cannot prevail. Objection No. 5.‑The fifth objection is regarding the non -registration of the agreement. The respondents, namely, The Pakistan Textile Mills Ltd. is carrying on its business on a piece or parcel of land measuring 7'7 acres which has been leased out to it by The Sind Industrial Trading Estates Ltd. for a period of 99 years at an annual rental of rupees five thousand odd. The learned Advocate for the respondent has argued that according to him the agreement in question related to the sale of shares only, but if at all it related to the sale of the undertaking as well then the agreement would mean to be an agreement to transfer the lease as well, which can only be done by registered deed. Section 2 (7) of the Registration Act defines lease to include an agreement to lease. Reliance has also been placed on the case reported in I L R 52 Cl. 695 where it was held that the terms contained in the two letters amounted to a present demise of the said premises and created an immediate interest therein; the two letters not being registered were not admissible in evidence under section 49 of the Registration Act. As against this the learned Advocate for the petitioners has relied on the ruling reported in I L R 37 Cal. 808, which says that a compromise by which no immediate interest in immovable property is created and whereby there has been no present demise, does not amount to a lease within the meaning of clause (d) of section 17 of the Registration Act and is merely an agreement to create a lease on a future day. Such a document falls within clause (h) of section 17 of the Registration Act and is admissible in evidence without registration. Clause (h) of the old Act of 1877 is now clause (v) of sub section (2) of section 17 in the present Act of 1910. In A I R 1931 All. 252 it was held that an agreement to lease must be a document which effects an actual demise to operate as a lease. In A I R 1933 Born. 381 it was held that the test to be applied in construing a document is to gather from it the intention of the parties and to see whether it contains words or terms which can be construed as a present demise. If the agreement of lease does not create present demise, it does not require registration and is admissible in evidence. In A I R 1930 Pat. 601 it was held that where the terms of the lease show that it is not a present demise, it does not require registration. There is no actual and present demise in this case. The petitioner was first to remain as a licencee after the payment of rupees fifty thousand and before the deposit of rupees five lakhs odd. In view of these rulings therefore this objection too must be dismissed. Objection No 6.‑The last objection is that the respondents company is not bound by this agreement which was entered into with petitioners by Mr. Trechot who was only a Managing Director of the Company with no authority either to sell the property of the Company or to enter into a reference of this kind. This objection is based on the legal position that the Company is altogether a separate and distinct entity in law and as such is not bound by the actions of its shareholders or directors. Ghosh on Company Law says at pp. 31 and 113 that a Company formed or registered under the Act is a distinct legal entity. It can own or deal with property, sue and be sued in its own name, contract on its own behalf and the members are not personally entitled to the benefits or liable for the burden arising there-from. Once the Company is incorporated it must be treated like any other independent person and the motives of those who promoted it are irrelevant. It is altogether a different person from the subscribers to the memorandum of association even if they consist of a family only one of whom holds all shares, the others holding one share each. Where a Company is duly incorporated the Court should start with the presumption that it is a separate entity from the individual although that individual may practically holds all the shares. A Company as soon as it is incorporated becomes a legal entity distinct from its members. It becomes a legal persons and not a mere aggregate of the shareholders. The same view is expressed in Palmers Company Law at pp. 41 and

42. In A I R 1937 P C 279 Their Lordships observed that the distinction should be clearly marked, observed and maintained between an incorporated Company's legal entity and its actions, assets, rights and liabilities on the one hand and the individual shareholders and their actions, assets, rights and liabilities on the other hand. If directors misuse their powers as directors for their own advantage, the transaction is as against the Company of no effect and the Court will not inquire whether the Company derived any benefit from the transaction. In 33 B L R 111 at p. 116 it was held that a Company incorporated under the Indian Companies Act is a corporate entity separate from its shareholders. In (1925) Appeal Cases 61.9, 626, 633 it was held that that no shareholder has any right to any item of property owned by the Company for he has no legal or equitable interest in it. He is entitled to a share in the profits while the Company continues to carry on business. The same view has been expressed in (1897) A C at pp . ...22, 33 and 34 ; (1895) 1 Chancery 674, 685 and 687 (1889) 22 Q B 470 at p. 476 and (1921) 2 K B 492 at pp. 507 and

513. In A I R 1927 Cal. 299 it was held that a person dealing with the company must take the articles to be such as appear at the office of the Registrar of Companies to be in force. If the directors propose to do something in excess of their powers there-under he is not entitled to assume that their powers have been extended by a special resolution for such a resolution if passed would be registered. Now, let us read the opening paragraph of the agreement in this case. It runs as follows: "Roger Louis Trechot Esq., Managing Director of Pakistan Textile Mills Limited, acting personally and as representative duly authorised of all the shares of the said Pakistan Textile Mills Limited, amounting to Rupees Twenty Lakhs sells to Mr. Hoosen Bros. Ltd Rambharati Street, Jodia Bazar, Karachi, who accepts the totality of the said shares with all the rights attached to comprising the propriety of the Mill and the stock (Yarn & Cloth) lying in the factory on the 4th June 1953". Now let us turn to the relevant Articles of Association of this Company. Article 98 reads as under:- "Mr. Roger L. Trechot shall be the first Managing Director of the Company and shall hold office until his death or resigna tion. On his death or resignation another Managing Director shall be appointed by the Company in general meeting for such period and upon such terms and conditions as the Company in general meeting shall determine". The Article 102 reads as follows :‑ "Subject to the provisions of section 87‑G of the Act the Directors may from time to time entrust to confer upon a Managing Director or a Managing Agent for the time being such of the powers exercisable under these presents by the, Directors as they may think fit and may confer such powers for such time and to be exercised for such objections and purposes and upon such terms and conditions and with such restriction as they think expedient and they may confer such powers either collaterally with or to the exclusion of and in substitution for all or any of the powers of the Directors in that behalf and may from time to time revoke, withdraw, alter or vary all or any of such powers". Then Article 110 reads as follows:- "The management of the business of the Company shall be vested in the Directors who in addition to the powers and authorities by these articles or otherwise expressly conferred upon them may exercise all such powers and do all such acts and things as may be exercised or done by the Company and are not hereby or by Act of the Legislature expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Acts of the Legislature and of these Articles and to any regulations from time to time made by the Company in general meeting, provided that no such regulations shall invalidate any prior act of the Directors which have been valid, if such regulations had not been made". Regulation 71 of the first Schedule to the Companies Act reads as follows:- "The business of the Company shall be managed by the Directors, who may pay all expenses incurred in getting up and registering the Company, and may exercise all such powers of the Company as are not, by the Companies Act, 1913, or any statutory modification thereof for the time being in force, or by these articles, required to be exercised by the Company in general meeting, subject nevertheless to any regulation of these articles, to the provisions of the said Act, and to such regulations being not inconsistent with the aforesaid regulations or pro visions, as may be prescribed by the company in general meeting ; but no regulation made by the Company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made". Applying the law quoted above to these provisions in the articles of the Association, it is argued by the learned Advocate for the respondent that Mr. Trechot the Managing Director had no authority to sell the property of the Company or to refer the matter to arbitration, Mr. Trechot must be distinguished from the Company and the agreement in question entered into with him cannot bind the respondent Company. Therefore the Court has not jurisdiction to appoint an arbitrator under section 8 of the Arbitration Act. In reply to this the learned Advocate for the petitioner has referred to an important ruling of the Privy Council in the case reported in A I R 1938 P C 159 at p. 163 wherein it was held that "Their Lordships are not of opinion that section 91 (B) would operate to deprive of the benefit of its contract with Company a third party who had no notice of the defect in the Directors authority. This would be contrary to principle : such a person would be entitled to assume that the internal management of the Company had been properly conducted", This case enunciates what was called by Lord Hatherley the doctrine of Indoor Management. In the case reported in (1896) Vol. 2 Chancery Division 93 at page 96 it was held that persons dealing bona fide with a managing director are entitled to assume that he has all such powers as he purports to exercise, if they are powers which according to the Constitution of the Company a managing director can have. In (1921) 1 K B 77 it was held that the managing director in drawing the bill on behalf of the Company was a `person acting under its authority' within the meaning of section 77 of the Companies (Consolidation) Act 1908, and that the Company was liable. As by the Constitution of the Company the managing director might have been authorized to draw the bill, a person taking the bill in due course was entitled to assume that he had authority in fact. In (1932) Vol. 2 K B 176 it was held that the plaintiffs were entitled to presume that the directors of the Company had autho rised N. P. to sign contracts on behalf of the Company, and that the Company was liable on the guarantee. In (1938) All England Law Reports 100 it was held (i) that there was a power under the Articles to authorise B to receive payments in case, and so far as the defendant was concerned it must be taken that B had in fact such authority ; (ii) that the payment to the agent B by cheque made payable to B or his order was after the cheque had been honoured, a payment in cash, and the defendant had discharged his obligation to the plaintiff Company. This was so even assuming that the defendant had received notice that all cheques were to be made payable to the company. In A I R 1932 All. 141, it was held that a person dealing bona fide with the managing director is entitled to assume that he has all such powers as he purports to exercise if such powers are not ultra vires. In A I R 1930 Cal. 782 judgment was delivered by Rankin, C. J. who observed that when an agreement on behalf of a company is entered into with a stranger by one of the Directors, then if it was possible under the Articles of the Association for authority of all the Directors to be delegated to one and stranger is aware of no facts to the contrary the agreement will bind the Company irrespective of whether such delegation of power has taken place or not. In A I R 1951 Supreme Court of India 9, it was held that as the question turned upon the true interpretation of the contract, and the parties had to take recourse to the contract to establish the claim, it was a dispute under or arising out of the contract, and thus within the jurisdiction of the abritrators. Once the dispute is found to be within the scope of the arbitration clause, the Court should not enter into the merits of the dispute. Section 88 (1) (i) of the Companies Act reads as follows:- "Contracts on behalf of a Company may be made as follows (That is to say) (i) Any contract which if made, between private persons would be by law required to be in writing, signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under its authority, express or implied, and may in the same manner be varied or discharged" The learned advocate has in view of all this a law argued and rightly that third parties could not be detrimentally affected if there was no specific delegation of authority to Mr. Trechot to enter into this kind of agreement which authority he could be,~ given under section 88 of the Act. In this connection I find it necessary to reproduce certain important passages from various authors. Palmer's Company Law pp. 32, 33 says:- "This rule is that where a Company is regulated by the act of Parliament, general or special, or by a deed of settlement or memorandum of Articles registered in some public office, persons dealing with the Company are bound to read the Act and registered documents and to see that the proposed dealing is not inconsistent therewith. But they are not bound to do more: they need not inquire into the regularity of the internal proceedings‑what Lord Hatherley called 'Indoor Management' They are entitled to assume that all is being done regularly. So a managing director who draws a bill on behalf of a company without any authority finds the company

The rule is based on principle of convenience, for business could not be carried on if a person dealing with the apparent agents of the company was compelled to call for evidence that all internal regulations have been duly observed. Thus where the Articles give power to borrow with the sanction of a general meeting, the lender who relies on this power need not inquire whether such sanction has in fact been obtained. He may assume that it has, and if he is acting bona fide he will, even though the sanction has not been obtained, stand in as good position as if it had been obtained

So, if there is a Managing Director and authority in the articles for the Directors to delegate their powers to him, a person dealing with him may assume that he has power to do what he purports to do, provided that it is within the ordinary duties of a Managing Director. All he has to do is to see that the Managing Director might have power to do what he purports to do." Buckly on the Companies Act (12th Ed.) at p. 375 remarks as follows:- "Outsiders are bound to know what Lord Hatherley called 'External position of the company' but are not bound to know its 'Indoor Management'. If persons are held out as, and act directors, and the shareholders do not prevent them from so doing, outsiders are entitled to assume that they are directors, and, as between the company and such outsiders, the acts of such directors de facto will bind the company. A stranger dealing with a company has a right to assume, as against the company, that all matters of internal management have been duly complied with". Several authorities have been quoted in support of this view. Chitty on Contracts (20th Ed.) at pp. 706 and 707 remarks as follows :‑ "How far is one contracting with a company through its agents bound to inquire as to or is fixed with notice of want of authority in those agents or the irregularity in their pro ceedings? The General rule appearing from the decision is that a stranger is entitled to assume that matters of internal management have been regularly carried out and that all formalities (if any) necessary to enable the company's directors and agents to exercise their powers have been duly executed, the onus being on the stranger to ascertain if those powers when exercised are intra wires the company. One who has notice that an agent for a company is contracting in excess of his authority cannot of course enforce that contract against the company

" Ghosh on the Indian Company Law (1951 Ed). at p. 848 remarks as follows:- "Persons dealing bona fide with a Managing Director are entitled to assume that he has all such powers as he purports to exercise, if they are powers which according to the consti tution of the company a managing director can have." Applying all this law to the facts of this case I have no doubt that the petitioners cannot be adversely affected in any manner. Mr. Trechot described himself as acting personally and as re presentative duly authorised of all share‑holders of the company and therefore the petitioners were not under a duty to inquire into the indoor management of this company. It is also significant to observe that by exactly a similar agreement only two days later i.e. 6‑6‑1953 the same Mr. Trechot conveyed the entire property including the shares to Ghanibhai and others, who are actually in possession of the shares of the company, the property of the company and the premises in which the same is lying. Mr. Trechot has actually thereafter been removed from the office of the Managing Director and Ghanibhai has been appointed in his place. In view of this conduct of the respondent company they are estopped from challenging the agreement in favour of the peti tioners on the ground that Mr. Trechot as the Managing Director had no such authority. I have therefore no doubt that this objection of the respondents must also fail. In view of all these reasons I allow the application under section 8, and under subsection (2) of the same section I appoint Mr. Waheduddin advocate as a arbitrator with powers to act on the reference and to make the award. I further direct that the respondents do bear the costs of the petitioners. K. M. A. Petition accepted.