1980 PLP 394 (SCMR)

DORAB PATEL, J.‑The petitioner and the respondents were partners of a firm which carried on a business in cloth in a shop in Karachi. As they were unable to work harmoniously, they decided to dissolve the firm and referred their disputes to arbitration. They appointed one Mr. Mohammad Azim Farooqi, as their arbitrator, but according to Mr. Faizanul Haq, the reference to arbitration was solely for the purpose of settling the accounts of the firm and for dissolving the partnership. This reference to arbitration was executed on the 19th December, 1964 and the arbitrator who entered on the reference after considerable delay gave his award on 3rd August, 1965. In order to appreciate this award, it is necessary to point out that the firm had incurred liabilities about which the petitioner has kept the Courts below in the dark. However, the firm's tenancy of the shop in which it was carrying on business was a very valuable asset because of the location of the shop in the heart of Karachi's commercial area. Now, the second respondent had illegally purported to sell this shop to one Mohammad Ibrahim on 26th February, 1965. As this was after the reference of their disputes to arbitration, Mr. Faizanul Haq submitted that purported sale of the firm's lease hold rights by the second respondent was illegal. This submission would appear to be correct, but as the arbitrator in the exercise of the discretion confirmed this sale, ordered that all the debts of the firm should be discharged by the respondents and that the petitioner should only pay a sum of Rs. 15,000 to the respondents. The arbitrator who was an Advocate filed an application in the District Court, Karachi to make the award the rule of the Court, therefore, the petitioner filed objections under section 30 of the Arbitration Act. But, although the arbitrator had not given any reasons whatever for his findings in his award, the learned Civil Judge, who heard the case set aside the award. The respondents challenged his judgment in an appeal in the District Court, Karachi, which was dismissed by an Additional District Judge. Therefore, they filed a revision in the Sind High Court which was allowed by a learned Judge of th: High Court. Hence this petition for leave. The arbitrator has narrated the facts relevant to his appointment in his award and then stated :‑ "(l) The firm Nasim & Company is hereby dissolved, the shop premises alongwith fittings and furniture have been assigned to a third party before I entered into reference and the same shall remain assigned and none of the parties shall have any interest or title on the said shop. (2) Haji Mushtaq Ahmad shall pay Rs. 15,000 to‑Mst. Hajra Bi and Mohd. Ilyas. (3) Mst. Hajra Bi and Mohd. Ilyas shall pay ‑the creditors as per list filed by them and they shall not be entitled to recover this amount from Haji Mushtaq Ahmad. (4) ...................... .. (5) The petitioner has withheld the objections filed by him in the trial Court under section 30 of the Arbitration Act. But, Mr. Faizanul Haq submitted that the arbitrator's award was challenged on two grounds. The first was that there was an error apparent in the face of the award, and the second was that the arbitrator has committed misconduct. And, we will examine first the question whether the High Court was justified in holding that there was no error apparent in the award. The arbitrator has not given any reasons whatsoever for the payments ordered by him. As his silence about the reasons for his decision are like that of the sphinx, could any Court have read an error in the award much less an error on the face of the award? The question is of the meaning of the words "an error apparent on the face of the award" and we cannot do better than reproduce the classic observations of Lord Dunedin in Champsey Bhara & Company v. Jivraj Balloo Spinning do Weaving Company Ltd. (A I R 1925 P C 66) at page 69 : ‑ "An error in the law on the face of the award means in their Lord ships' view, that you can find in the award or a document, actual incorporated thereto, as for instance, a note appended by the, arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party, that opens the door t6 seeing first what that contention is, and then going to the contract or which the parties' rights depend to see if that contention is sound." We are in respectful agreement with these observations; which were approved by this High Court in Messrs A. Z. Company v. Messrs S. Maula Bakhsh Muhammad Bashir (I). Therefore, the petitioner can succeed only by showing that the award itself or a note attached to it contained some legal propositions which were erroneous. But, as the arbitrator has not given any reasons whatever for his findings it follows that this sphinx like award could not possibly be set aside on the ground of an error apparent and the view taken by the lower Courts was in flagrant disregard of the settled principles of law and the view taken by the High Court was, the only possible view. Mr. Faizanul Haq then submitted that the arbitrator had exceeded his jurisdiction by upholding the sale of the lease‑hold rights in the shop to Mohammad Ibrahim. And, both the lower Courts accepted this contention because they held that the reference to arbitration did not empower the arbitrator to dispose of the assets of the firm. We cannot only express our astonishment at the perverse view thus taken by the However Courts, because the reference to arbitration expressly empowered the arbitrator to "settle the accounts and dissolve the partnership". In order to dissolve the partnership, the arbitrator had to dispose of the lease‑hold rights of the firm either by transferring them to the petitioner or to the respondent or to a third party. He could, therefore, have entered into an agreement himself with the said Mohammad Ibrahim or approved of the agreement made by the second respondent with Mohammad ibrahim on 26th February 1965. Because he chose the latter course, it cannot possibly be contended that he had exceeded the powers conferred on him under the reference to arbitration. Therefore, the view taken by the two lower Courts is contrary to the power of dissolving the firm expressly conferred on the arbitrator. And, once again we have to observe that the view taken by the learned Judge was the only possible view and we have further to state with regret that the view taken by the lower Courts was based on a total misreading of the reference to arbitration. Turning now to the question of misconduct by the arbitrator, the finding against him by the lower Courts has reference to clause (P L D 1965 S C 505) of his award, and because the arbitrator directed that possession of the shop be given to Mohammad Ibrahim, and because the sale consideration for the sale of the shop to Mohammad Ibrahim was stated in the agreement of 26th February, 1965 to be Rs. 5,000, both the lower Courts were of the view that this sale was a dishonest sale, as the sale of the lease‑hold' rights should have fetched at least Rs. 40,

000. Therefore, both the lower Courts held that the arbitrator had given a collusive award in order to enrich the second respondent. The short answer to the involved reasons thus given by the lower Courts for setting aside the award is that the award does not contain any reference whatever to the sale agreement of 26th February, 1965, therefore, as rightly held by the learned Judge on the rule laid down by the Privy Council in Champsey Bhara & Company's case, both the lower Courts had usurped jurisdiction by setting aside the award on the basis of a document which they were not entitled to examine in their narrow powers under section 30 of the Arbitration Act. Additionally, even on the erroneous assumption that these Courts could have examined this sale agreement, we are unable to understand how they reached the conclusion that the arbitra tor had mishandled the proceedings by favouring the respondents. Even on the assumption that the respondents had obtained an advan tage under the sale agreement of 26th February, 1965, it is clear from the award that the firm had liabilities as well as assets, and, accordingly to the award all the debts of the firm had to be paid by the respondents. We, therefore, enquired about the liabilities which had thus been discharged by the respondents. But, although the award contains an express recital that the respondents "shall pay the creditors as per list filed" learned counsel he was not able to give any particulars about these debts. And, it is also clear that the lower Courts did not care to examine this list of the firm's debt's although it was a part of the award. Similarly, although this list is a part of the award, it has been withheld from us. In these circum‑ stances, there is absolutely no basis for the assumption that the arbitrator had mishandled the proceedings by benefiting the respondents at the expense of the petitioner. In the result, the award was set aside on grounds which can only be des cribed as perverse and contrary to the settled law, therefore, no exception can be taken to the judgment under appeal and the petition is dismissed. Petition dismissed.