1986 PLP 1660 (CLC)

"Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act." The learned counsel for the defendants proceeds to argue that in this case the parties resorted to arbitration and award was given. The award was filed in Court and has been set aside. It is contended that though the award has been set aside, the arbitration agreement has not been superceded. According to the learned counsel a fresh reference can still be made to Arbitration.

3. The parties have argued at length about the efficiency and legal consequence of existence of the arbitration agreements and awards. They have also relied on conflicting views expressed in the different rulings on the point whether an award can be used and relied upon as a complete defence in any action, even if it is not converted into a decree by the Court. Some courts have held that unless the award has been made a rule of the Court it has no value. Others have held that where the award has been filed in Court or not, it 'is a complete adjudication of the dispute between the parties and can be put up as defence in any action, even if it has not been confirmed by the Court and converted into a decree. These arguments seem to me to be totally irrelevant for the purposes of this application. For the present 1 have to see whether the plaint suffers from such disability or defect which would merit its rejection right away without allowing any further opportunity to the plaintiff to establish the contention raised by him it the plaint. The learned counsel for the defendants has initially addressed me on clause (a) of rule 11 also but later on dropped his argument on clause (a) and has confined himself to only the plea that the suit is barred by law within the meaning of clause (d) of rule 11 of Order VII. It is urged that the only forum available to the parties is the forum of arbitration and a suit cannot, be filed for adjudication of the same dispute which may arise between the parties in connection with the partnership business. The learned counsel contends that the parties having chosen a domestic forum of arbitration are precluded from coming to the Court for adjudication of their dispute. The learned counsel for the. plaintiff in reply to this argument has firstly contended that the scope of the Arbitration clause is limited. According to the learned counsel, the question of dissolution of the partnership is beyond the purview of the Arbitration clause. The present suit seeking a comprehensive relief of account as well as dissolution of the partnership falls beyond the purview and scope of the arbitration clause, so the learned counsel for the plaintiff has argued. For this purpose he has relied on some cases which go to show that the relief of dissolution is an independent relief from the relief of accounts of a dissolved partnership. Assuming for the sake of arguments that this submission of the learned counsel which is supported by some decisions is not well‑founded still I do not think that there is a bar for filing a suit in the presence of any arbitration agreement. In my humble opinion an aggrieved party even in presence of an arbitration agreement can come' to Court as a matter of right for adjudication of the dispute and for seeking a relief against the defendant. If the defendant wants to invoke the arbitration agreement, it will be open to him to pray for stay of the proceedings and seeking a direction from the Court that the party should be ordered to go to arbitration. In appropriate cases the Court in its discretion may stay proceedings in the suit to enable the parties to resort to arbitration. Even in such a situation the suit should merely be stayed and not dismissed. There may be cases in which defendant is armed with an award in his favour, whether the award has been confirmed by the Court or remains unconfirmed. Such a party may use the award as a weapon of defence to the action taken against him and may successfully urge that the adjudication of dispute has taken place and the plaintiff has no cause of action to come to Court. But in any case there does not seem to be any bar to any plaintiff filing a regular I suit for the adjudication of the dispute.

4. Learned counsel for the defendants relying on section 32, however, contends that this section creates a bar for any suit on the same cause of action which may be adjudicated before Arbitrator. A careful reading of this section would show that the prohibition to an action contained in this section is not to the original cause of action, but for challenging the arbitration agreement or an award. Before the enactment of the Act of 1940, parties used to challenge the validity of the arbitration agreement and also of the award by filing declaratory suits. This section seeks to prohibit any such action. Now no suit can be filed the "existence, effect or validity of an arbitration agreement: or award. Nor can an award be set aside, amended, modified or in any way affected otherwise than as provided in this Act". The alternative to the suit is provided in section 33 of Arbitration Act which gives right to the party to challenge the existence, effect or validity of an arbitration agreement. It must, however be kept in mind that to seek a relief on the original cause of action is one thing and to seek a relief on the arbitration agreement or the award is another. In the former the cause of action would originate from the original dispute. In the latter the cause of action would be on the existence and competency of the forum provided for adjudication of the dispute and the effect, legality and validity of the decision rendered by that forum, on the original cause of action. Section 32 bars an action by way of suit in the latter case and not in the former. The two should not be mixed up together. Unfortunately this distinction was not kept in view when a) case "Afaq Ahmed Ansari v. Zamir Hassan Ansari" reported in P L D 1955 Sind 282 was argued by two eminent counsels of this Court and decided by a learned single Judge of this Court. The learned counsel for the defendant has forcefully relied on this case to seek support for the interpretation of section 32 of the Arbitration Act. It was held in that case:‑ "It is now well‑settled that once the dispute between the parties relating to any matter has been referred to arbitration, the only remedy open to the party is under the Arbitration Act and not through any suit. This principle is embodied in section 32 of the Arbitration Act of 1940, which reads as under:‑ Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of any arbitration agreement or award, nor shall any arbitration agreement or award be amended, modified or in any way affected otherwise than as provided in this Act.' The words 'or in anyway affected otherwise than as provided in this Act' are very important. The object of the present suit is very obvious. The object of the present suit is to avoid the award by the present proceeding. On a clear reading of section 32 of the Arbitration Act of 1940, it cannot be argued or contended that the effect of the present suit is to avoid the award that has been made. The only remedy that is open to the plaintiff is to pursue his remedy which he has already started in the Lahore Court. Once an award has been made, the dispute between the parties relating to the subject‑matter of the reference are merged in the award and no suit can lie which can have the effect of avoiding award except under the provisions of the Arbitration Act of 1940. In the case of Lutfullah Khuda Bakhsh Khan and others v. Muhammad Siddiq Sobho Bhatti and others it was held that:‑ "A valid award operates to merge and extinguish all claims embraced in the submission, and after it has been made, the submission and award furnish the only basis by which the rights of the parties can be determined, and constitute a bar to any action ,on the original demand'."

5. Fully conscious of the fact that the case was argued by two emiment counsels and has been decided by a very learned Judge of this Court, I have not been able to persuade myself to adopt this interpretation of section 32 of the Arbitration Act. I cannot read section 32 to be a bar to any suit on the original cause of action where there is an arbitration clause in a contract.

6. Another case germane to the controversy is Deoki Nandan v. Basanti Lal decided by Lord Williams, J. on the original side of the Calcutta High Court reported in I L R Cal.

123. In this case parties agreed, under hedge contracts to buy/sell hessian gunny bags. Disputes and differences were to be referred to the Arbitration of the Bengal Chambers of Commerce under the rules of its Tribunal of Arbitration. A sum of Rs.17,100 became due and payable to the defendant by the plaintiff. On plaintiff's failure to pay this amount to the defendant, the defendant referred their claim to Arbitration in pursuance of the arbitration clause in the contract. The plaintiff appeard before the Arbitrator and filed written‑statement contesting the claim in suit.

7. The plaintiff then filed a suit for a declaration that the said contracts were wagering contracts and as such void and inoperative. The defendant applied to the Court to have the suit dismissed. The defendant's objection to the maintainability of the suit was based on the plea that the effect of the suit was to seek a declaration regarding the validity and effect of the contract which contained an Arbitration clause. As such the validity and affect of the Arbitration agreement itself was questioned. Consequently the suit was barred by section 32 of the Arbitration Act. William, J. dismissed the suit with the observations "having regard to the provisions of these sections this suit does not lie and must be dismissed". For this conclusion the reasons advanced by the learned Judge were; "The prosecution of the claims of the plaintiff will undoubtedly effect the arbitration agreement, and a decision in his favour would result in a declaration that the agreement did not exist, or a decree setting it aside".

8. With great respect to the learned Judge, I cannot help feeling that it would be a great confusion of thought if two independent causes of actions originating from two self‑contained and totally different agreements are bunched together and treated to be inseparable whole. In my humble view the two are so independent that the mortality of one would be revival of the other. If the contract of supply is fulfilled by the parties, there would be no dispute and consequently no occasion to invoke arbitration agreement. Conversely if the original contract is breached and a dispute crops up necessitating an adjudication, only then the search for a form of adjudication begins. It is at this stage that we come across the arbitration clause or arbitration agreement which by itself creates heirarchy parallel to a Court. This agreement creates domestic forum depending upon consent and will of the parties. It provides the qualifications of the Arbitrator or empire, the extent of powers conferred upon them, the time limit within which they should give their decision, the venue for conducting the proceedings, the regulatory rules to govern the proceedings before the Arbitrators. There may be occasions when the parties may differ on performance of the main contract but not on the arbitration agreement. Again there may be cases where the parties may at the time of reference of the disputes may interpret the arbitration clause in different ways. They may disagree with each other on the constitution of the Arbitration, Tribunal or on the award /adjudication produced by the Tribunal. All grievances relating to constitution of the Tribunal or exercise of power by the Tribunal are covered by the Arbitration agreement and all such grievances would fall within the orbit of sections 32 and 33 of the Arbitration Act. Nevertheless the original disputes regarding performance or breach originating from the original agreement /contract between the parties would stand aloof away from the shadow of the arbitration agreement and beyond orbit of sections 32 and 33 of the Arbitration Act. On the above reasoning s, with due deference to the learned Judge, I find myself unable to subscribe to the view expressed in the above case.

9. Before I part with the case I must refer to a D B decision of this Court Lutfullah Khuda Kakhsh v. Muhammad Siddiq Sobho Bhatti AIR 1946 Sind

117. This case has been relied upon in 1955 Sind

282. A careful reading of this case would show that ratio decidendi in this case is not at all relevant for the purposes of this case. This was a Ilnd Appeal against decree passed before the Arbitration Act of 1940 came into force. As such sections 32 and 33 of the Arbitration Act never came up for interpretation. I, however, respectfully agree with the view that an award if not challenged in a Court, can still be pleaded in defence of an action whether it is made a rule of the Court or has remained dormant /unconfirmed. Even in such a situation it can be used as a res judicata. It cannot be used as a legal bar to the filing of a suit meriting rejection of the plaint under clause (d) of rule 11 of Order VII, C.P.C. The effect of an award has been examined in the 2nd appeal in the following part of the judgment: "The fact that parties to the award have not carried out its terms is not in law sufficient to deprive the award of its binding effect. We are pressed by the learned Advocate for the respondent with 29 Bom. L R

301. There Shah, J. quoted with approval the rule stated in Russel on Arbitration: "In short the question is whether the award has replaced the original rights of the parties, in which case the award is of itself a good defence to an action based on those rights, or whether the award has merely ascertained and defined those rights, in which case not only the award, but also its performance must be established to complete the defence.' He proceeded to hold that as the award in question had not been acted upon and there was no clear indication that the award had replaced the original rights of the parties, the suit was not barred by the award. But it is to be observed that the award found Rs.18,623 due, laid down certain modes of payment to obtain remission, and then ordered that if the parties did not act according to the award, the whole sum claimed was payable by the referring party; then it was on this ground that Shah, J. held that as the parties did not act according to the award, they were really relegated to their original position. In a later case of the same High Court, 36 Bom. L R 174 it was held that the fact that the terms of the award had not been fully carried would not prevent it operating as an adjudication between the parties as to their respective rights. Similarly decisions of the Madras and Calcutta High Court, 19 Mad. 290 and 33 Cal. 881, support the normal rule that a valid award operates to merge and extinguish all claims embraced in the submission, and after it has been made; the submission and award, furnish the only basis by which the rights of the parties can be determined and constitute a bar to any action on the original demand. Authority for the rule is also contained in the decision of this Court in 5 S L R 240 cited above."

10. An old case Muhammad Nawaz Khan and another v. Alam Khan (1891) I L R Vol. XVIII p. 414 has been relied upon in 1955 Sind

282. A careful reading of the case would show that this case decided half a century before sections 32 and 33 became a part of the Arbitration Act. This case is not helpful in the decision of point involved in this application. As the headnote indicates the following point was decided:‑ "The refusal of an application for the filing of an award, under section 5 2 6 Civil Procedure Code. merely leave the award to have its own ordinary legal effect; and it cannot be contended that an award is not to be relied on as a defence in a suit relating to the subject‑matter dealt with by it only, because such an application has not been granted."

11. As stated in the preceding paras of this judgment the question whether an award can be set up in defence as res judicata is one thing and rejection of a plaint under Order VII, rule 11 of the C.P.C. on the assumption that section 32 of the Arbitration Act is a legal bar to the entertaining of a plaint on the same cause of action is another. For the present we are concerned with the second proposition and as stated by me earlier section 32 of the Arbitration Act is not legal bar to the filing of the suit on the original cause of action.

12. When the suit proceeds and if all the requirements of section 11, C.P.C. are fulfilled, the award, if any, may be pleaded as res judicata and the suit may be dismissed. The plaint cannot be rejected at this stage as urged by the learned counsel for the defendant or, the authority of the case Afaq Ahmad v . Zamir Hassan Ansari. This application under Order VII, rule 11, C.P.C. is consequently dismissed but as the point raised was not free from doubt, no costs are awarded against the defendants. A.A. Application dismissed.