P L D 1996 Lahore 667 (PLP)

This appeal arises out of an application under section 34 A the Arbitration Act, 1940 which has been allowed by the trial Court on 16‑11‑1995 with the result that the proceedings in the suit filed by the appellant against the respondent was ordered to be stayed.

2. The admitted facts are that on 9‑1‑1993 an agreement was entered into between the parties whereby the respondent undertook to carry out construction of a house on Plot No.478‑Z, Phase 111, Lahore Cantt. Cooperative. Housing Society, Lahore Cantt. on the terms and conditions mentioned therein. The agreement inter alia provides for reference to arbitration of any dispute between the parties arising out of the said contract.

3. According to the case of the appellant the respondent failed to complete the construction within the stipulated period and as such a dispute arose between the parties. Several efforts were made by the appellant for referring the matter to the arbitration having filed a suit for recovery of damages for breach of contract was filed by him.

4. On receipt of summons the respondent moved an application under section 34 of the Arbitration Act, 1940 praying that in view of the arbitration agreement between the parties the proceedings in the suit be stayed. The trial Court found force in the said application and allowed it vide its order dated 16‑11‑1995 which has been assailed in this appeal.

5. The appellant who has appeared in person has contended that the trial Court has acted mechanically while passing the impugned order and staying proceedings under section 34 of the Arbitration Act, 1940 without being aware that the power to stay proceedings was discretionary and could not have been exercised in favour of the respondent for various reasons explained by him.

6. The learned counsel for the respondent, on the other hand, defended the impugned order and has argued that the respondent has all along been ready and willing to have the dispute settled through arbitration. Relying on M/s. Gabole Brothers v. Government of Pakistan PLD 1972 Kar. 515 the learned counsel maintained that the willingness to refer to arbitration should only be at the time of filing of the. suit and not at point of time prior thereto.

7. There is no dispute that by virtue of a clause in the contract the parties had agreed to settle the disputes and differences arising between them through arbitration. The question which arises is as to whether in the facts and circumstances of the case the respondent could ask for stay of proceedings in the suit by invoking ‑this arbitration clause. Section 34 of the Arbitration Act, 1940 reads as under:‑‑ "Power to stay legal proceedings where there is an _arbitration agreement. ‑‑‑Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the Judicial Authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time. when the proceedings were commenced. and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, such Authority may make an order staying the proceedings." 8, Undoubtedly, power to stay proceedings under section 34 of the Arbitration Act, 1940 is discretionary. This discretion like all other matters has to be exercised in a judicious -manner keeping in view the facts and circumstances of each case. It is true that generally the Courts should bound down the parties to abide by the agreement between them to have the dispute settled through arbitration and should not lightly refuse to stay the proceedings of the suit. However, from a reading of section 34 of the Act it is evident that its applicability is not dependent solely upon the existence of arbitration agreement but certain other conditions prescribed therein should also be satisfied. It is, for the person relying upon the agreement not only to prove its existence but also inter alia to show that he was ready and willing at the time when the suit was filed as also at the time when the application was being made by him for the proper conduct of arbitration.

9. Having heard the learned counsel for the parties at length and perused the record it becomes obvious that the last-mentioned requirement has not been made by the respondent in the present case and as .such the application for stay of proceedings merited rejection. There is sufficient material on the record to show that after the dispute had arisen between the parties, the appellant has been time and again asking the respondent to have the matter settled through arbitration. The first document to which reference may be made is letter dated 8-3-1995 in which the appellant suggested that the parties: should resort to arbitration in terms of the arbitration agreement and that the name of the arbitrator and the proceedings to be taken may be settled. This was followed by another letter dated 9-3-1995 in which the intention for referring the matter to arbitration was reiterated. It was also stated that in case of non-cooperation the appellant would be forced to file a suit against the respondent. These letters did not receive any response by the respondent and the appellant sent two other letters to the respondents on 21-3-1995 and 29-3-1995. Some meetings appear to have been held between the parties. Ultimately a legal notice was served by a counsel on appellant's behalf on the respondent. This clearly shows that the appellant has always been ready and willing to decide the dispute through arbitration. On the other hand, there are two replies which the respondent sent, firstly on 9-3-1995 and the other through his counsel on 27-6-1995. It is evident that the respondent was not willing to have the dispute decided through arbitration but as a matter of fact took up the stance that going to arbitration would be an exercise in futility. The last reply in this respect was sent on 27-6-1995 while the suit was filed on 18-7-1995.

10. So far as the legal position is concerned it is undoubtedly true that an applicant under section 34 is not, required to show that he was even, before the suit was filed, willing to have the dispute settled through arbitration. There is also - no cavil with the principle enunciated in M/s. Gabole Brothers v. Government of Pakistan PLD 1972 Kar. 515, the judgment cited by the learned counsel for the respondent, that mere silence of an applicant before the suit is filed in response to a notice served upon him, cannot be construed as his unwillingness to resort to arbitration. However, the position is different when in response to the notice by, the opposite-party to have the dispute settled through arbitration the other party refuses or fails to do so. In the present case according to the arbitration clause the arbitrators were to be appointed by mutual consent. The appellant in his letter referred to above has been time and again called upon the respondent to mutually agree to arbitration. In the two replies made by the respondent, the respondent had clearly indicated its unwillingness to have the dispute settled through arbitration. In face of this conduct it cannot he held that the respondent was, at the time when the suit was filed, ready and willing to do all things for proper conduct of arbitration.

11. In Messrs Macdonald Lyyton & Company. Ltd. v. Messrs Airports Development Agency Ltd. PLD 1979 Kar. 444 it was observed that one of the essential conditions provided in section 34 of the Arbitration Act, 1940 for stay or proceedings was that the applicant/defendant should have been ready and willing to go to arbitration at the time when the suit was filed and as the applicant had failed to respond to the notice for arbitration given by the opposite side he could subsequently turn around and claim that the suit be stayed in view of the arbitration clause. Messrs Gabole Brothers' case (supra) was noted by the learned Judge and was distinguished on the ground that none of the parties in that case had asked for arbitration. As already observed, in the present case the appellant had specifically asked for arbitration which was refused by ,the respondent. Again in Gulf Iran Co. and another v. Pakistan Refinery Ltd. and others PLD 1976 Karachi 1060 a Division Bench of Karachi High Court observed that readiness and willingness to go to arbitration is not conclusively determined by mere filing of an application under section 34 and in case the Court comes to the conclusion that the defendant's own conduct indicates contrary intention, proceedings in the suit should not be stayed. Reference may also be made to a decision of the Indian Supreme Court which is reported as Food Corporation of India v. M/s. Thakur Shipping Co. and others AIR 1975 SC 469 wherein the Indian Supreme Court ruled that though it was true that when a party to an arbitration chooses to maintain silence in the face of repeated requests by the other party to take steps for arbitration, the case is not one of "mere inaction" and failing to act when a party is called upon to do so is a positive gesture signifying unwillingness or want of readiness to go to arbitration.

12. Another thing to be noticed in this behalf is that even in the application moved by the respondent for seeking stay of proceedings there was no averment that he had been ready and willing to have the dispute settled through: arbitration. This aspect of the matter has been totally ignored from consideration' by the trial Court which had committed an error of law by observing that as the; plaintiff/appellant had not started arbitration proceedings he could not have filed: suit straightaway and that the mere service of legal notice calling upon the' respondent to agree to arbitration was not sufficient. As already indicated above in law it is for the party applying for stay of proceedings to satisfy the Court about its readiness and willingness to have the dispute decided through arbitration which the respondent miserably fails to do in the present case. It was the bounden duty of the respondent to have placed some material on the record to prove his readiness. In Srish Chandra Guha v. The Food Corporation of India AIR 1975 Caluctta 215 it was observed that at least an affidavit in support of this fact must be filed in order to satisfy this condition. From the above it follows that the respondent was not willing to invoke the arbitration clause and seeks stay of proceedings in the suit as he was not ready on account of his own conduct and has failed to show demonstrative willingness to have the dispute settled through arbitration at the time of filing of the suit. As a consequence of above, this appeal succeeds, the impugned order is set aside and the application under section 34 of the Arbitration Act, 1940 moved by the respondent is dismissed leaving the parties to bear their own costs. A.A./M‑139/L Appeal accepted.