2003 PLP 1696 (YLR)

For the purpose of present controversy, the Application under section 34 of Arbitration Act may be reproduced:-- "It is humbly prayed on behalf of the defendant above named that this Hon'ble Court may be pleased to say the proceedings in the present suit since the arbitration agreement exists between the parties and the defendant is ready and willing to take steps necessary for arbitration. " Said application by consent was allowed in following terms:-- "By consent of Mr. Habib-ur-Rehman, C.M.A. No.2190 of 1988 is granted. It is ordered that the matter be referred to the Arbitrator in accordance with the agreement referred in the application. " It is to be noted that defendant merely requested the Court to stay off its hand from deciding the suit as they are willing to participate in arbitration proceedings. To such a proposal, the plaintiff had readily agreed. Accordingly, consent order referred to above was passed. It may be pertinent to note that section 34 of the Arbitration Act is not a barring provision on its own application, bar to adjudicate upon only come into play when one of the party to the suit, who is also a party to Arbitration Agreement seeks to enforce the arbitration clause then usually the Courts enforce such arbitration clause and stay their hands from the dispute, leaving it open to the arbitrator to decide it in accordance with the wishes of the parties. When a plaintiff who filed a suit agreed to a proposal made by the defendant to resolve the dispute through agreed medium of arbitration then it is up to the plaintiff either to make reference in respect of subject-matter of the suit to the arbitration or may make reference including all other claims or disputes as may be ripe for the purpose of making reference. In a case reported as Abdul Sattar Mandokhail v. Port Qasim Authority (2001 YLR 758) large number of cases were discussed and import and purport of Arbitration Agreement in terms of section 2(a) of the Arbitration Act was considered. It was observed as follows: Above referred definition postulates submission of present or future differences the plural use of "difference" clearly indicated that there can be more than one differences that may arise, if such is the case then each may be subject-matter of separate reference. It, however, depends on the nature of the contract. After discussing at length the implication of Order 2, rule 2, C.P.C. in light of the various case-laws at page 764, it was held as follows:-- "From what has been discussed above it is clear that it is only a dispute that had been referred to arbitration, whether an award was given or not, cannot be the subject-matter of a subsequent reference and to that extent such dispute may be hit by the principle of res judicata and not otherwise. Disputes, which could have been raised when making a reference but, were not raised, could not be said to be hit by the principle of constructive res judicata. There can be successive claims depending on nature of contract, maturing into a difference and at the option of party to the agreement, may be subject-matter of reference. The moment a party exercises its option to convert a dispute into a reference, other party is obliged to enter into the arbitration and subject to limitation, same cannot be resisted on the ground that it was not raised at a particular point time. " Argument of Mr. Akhtar Ali Mehmood, learned counsel for SMCL would have prevailed had the defendant remained contended and stepped into proceedings by filing reply to the plaint then of course the matter would have remained confined to the claim and relief sought in the suit. Once a party exercises the option to invoke arbitration clause in terms of section 34 of the Arbitration Act, which is manifestation of its readiness and willingness to do all things necessary to the proper conduct of the arbitration. It may be observed that readiness, and willingness to do all things necessary to the proper conduct of the arbitration, is one of the pivotal considerations for the Court to stay the proceedings at the motion of the party who seeks to invoke section 34 ibid. Once a plaintiff is driven to the arbitration, it does not lie in the mouth of the defendant to object to the authority or jurisdiction of the arbitrator to entertain the reference provided dispute urged before the arbitrator is covered by the Arbitration Clause. It was not disputed that the dispute urged before the Arbitrator were covered by the arbitration clause. The reference to the arbitrator that may confine to the claim in suit is postulates when such reference is made under section 21 of the Arbitration Act. In cases where reference is made to arbitrator either by invoking section 20 or section 34 of the Arbitration Act. Such limitation would not apply and party making a reference pursuant to section 20 and/or section 34 of the Arbitration Act may make reference covering dispute beyond claims made in suit, provided such dispute does not travel beyond disputes covered under the arbitration clause. Therefore, contention of Mr. Akhter Ali Mehmood, learned counsel that reference to the arbitrator in a pending suit stayed under section 34 of the Arbitration Act is confined to the extent of claim in suit cannot be sustained. In view of the foregoing discussion' the, reference to the Arbitrator could include all the claims as may be considered ripe for reference by a party to the agreement. Now adverting to the second objection which relates to the effect of minutes of meeting dated 21-7-1984. It was contended by the learned counsel for the defendant that learned Umpire mis-conducted himself while treating minutes of meeting dated 21-7-1984 as a binding contract. According to him, all the seven contracts were executed by duly authorized personnel and each agreement followed by the various addendas and corrigendum same were signed by the person duly authorized. According to him, the minutes of meeting cannot be treated to be a concluded contract, it is merely a proposal and the claim on the basis of such meeting cannot be allowed. Arguments appear to be persuasive. A contract means offer and acceptance of a proposal. Mr. Akhter Ali Mehmood, learned counsel for SMCL has mainly attacked the minutes of the meeting on the ground, inter alia, the same were not signed by the authorized person and secondly that it was not approved by the Board of Directors. According to him, it was merely a site meeting. The meeting dated 21-7-1984 in terms of its recital was held to resolve the pending dispute and controversy between the parties such recital reads as follows:-- "In order to resolve the outstanding issues with regard to various agreements with Messrs NESPAK, a meeting was held on 21-7-1984 under the Chairmanship of Director (Project), Pakistan Steel. The matters regarding payment of bills, finalization of agreements and the fees admissible for the services rendered by NESPAK, at various stages and deductions made by Pakistan Steel's Account Department were referred by them in their letter KR/108/84/SPC-654 dated 4-3-1984." Meeting was attended by Director (Project), General Manager (Audit), Project Incharge (Plant), Deputy Chief Engineer (Contract) and Deputy Chief Engineer (See Water Pump House) representing Pakistan Steel Mills Limited and the plaintiffs were represented by General Manager, General Manager (P&A), Resident Engineer and Chief Quantity Surveyor. Number of issues were discussed and it was agreed that actions in accordance with the decisions made are to be taken by concerned officials. To appreciate contention of Mr. Akhtar Ali Mehmood various items on agenda of the meeting and the conclusion drawn, excluding the lengthy discussion are summarized as follows. It may be pertinent to note that each item of agenda is separately signed by such Officers/Representatives of the defendant co-operation who were considered responsible to implement it: (I) Deductions: Stages II and IV: Construction Base:-- (a) Excess Recovery of Rs.46,778.34:-- This amount was agreed to be released after verification. (b) Designing and Redesigning of approach road of Rs.7,77,711.16.--and the decision arrived at was follows:-- "After discussion, it was agreed that the case should be reviewed afresh by Pakistan Steel and the Board may be requested to reconsider the matter. " (c) External Illumination Works of Rs.1,02,800.76.

Conclusion was amount after verification may be released as this has no connection with Board's decision regarding construction of link road. (d) Reimbursable direct cost of Rs.68,898.00.

This amount was to be released after verification and it also had no connection with' the Board's decision. (e) Un-loader and Conveyors excess amount of Rs.1,13,412.93.

It was decided that the deducted amount be released to the Nespak and in case any recovery stands against NESPAK, same should be made after the decision is taken. (II) Extension service during 1-1-1978 to 10-6-1978.

It was decided that the fixed monthly remuneration be determined by the Committee constituted therein. (III) Claim of Final Bill Stage III (Supervision) of Rs.12,76,137.00.

It was agreed that case should be reviewed, for the undisputed amounts under Stage III and should be released immediately. (IV) Schedule of Rates of Rs.4.15,273.00.

It approved the release of Rs.2,00,000.00 on account of payment against the 1st running bill and a Committee was constituted to check the schedule of rates and furnish the requirements to NESPAK in this regard. (V) Shop Drawings of Rs.77,000.00.-- The amount was directed to be paid after verification. (VI) Operational and Control Buildings. (a) [Fee for supervision].

It was agreed till finalization of Addendum an interim ad hoc payment be allowed to NESPAK on the basis of proposed Agreement. (b) [For additional works].

It was agreed that an interim payment may be made but no amount has been mentioned. (VII) Fee During Maintenance Period.

It was concluded after a great deal of discussion, Pakistan Steel offered to pay 1% fee on the cost of the completed works under the respective agreements with NESPAK. This will apply to all contracts supervised by NESPAK except for Construction Base Project ....This offer was accepted by NESPAK. This decision: however, was to apply after approval of Board. (VIII) See Water Pump louse and Forebay.

Under this head the Director (Project) advised CM (Audit) to release the amount admissible in respect of the fees for the work in the variation order. It will further be beneficial to refer to Article 12 of the Contract which is a common clause in all the seven (7) Contracts executed between the parties:-- "Article XII. Project Administration: 12-1 The Corporation shall appoint a Senior Manager of the Corporation who will fully represent the Corporation at all times in connection with the Project. Similarly the Consultants shall appoint a Project Manager who shall be fully designated and officially authorized representative to represent the consultants in all aspects, of the project. The Corporation's representative and the Project Manager of the consultants shall have full authority to represent their respective Organizations in the performance of the work. In carrying out all engineering services the consultants shall collaborate at all times with the designated representative of the corporation and all designs, plans, programme schedule, estimates for payment to contractors and other recommendations pertaining to the. technical matters shall be made in consultation with the designated representative of the Corporation. It is agreed that the Agreement mar be modified or amended from time to time by mutual agreement. A Corporate Body acts through its Directors and persons duly authorized under the Article of Association or by Board I, Resolution. Such person exercises delegated authority. In terms of Article XII reproduced above, it is evident that the defendant's Corporation agreed to appoint the Senior Manager of the Corporation, who will fully represent the Corporation at all times in connection with the Project. It was further agreed that the Agreement may be modified or amended from time to time by mutual agreement. Contention of Mr. Akhter Ali Mehmood, learned counsel for SMCL that the Officers representing the Pakistan Steel Mills Corporation Limited had no authority to bind the Corporation and the decision recorded in the minutes of meeting were merely a proposal. In order to appreciate, contentions of Mr. Akhter Ali Mehmood and to understand how contracts are made by a corporate entity, it will be advantageous to reproduce section 210 of the Companies Ordinance and Regulation 53 set out in Table 'A' to the 1st Schedule to the Ordinance, 1984:-- Section 210 "Form of Contract.

(1) 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; (ii) any contract which, if made between private persons, would by law be valid although made by parol only, and not reduced into writing, may be made by parol on behalf of the company by any person acting under its authority, express or implied, and may in the same manner be varied or discharged. (2) All contracts made according to subsection (1) shall be effectual in law and shall bind the company and its successors and all other parties thereto, their heirs, or legal representatives as the case may be." Regulation 53 of the Companies Ordinance, 1984, reads as follows:-- "The directors may delegate any of their powers not required to be exercised in their meeting to committees consisting of such member or members of their body as they think fit; any committee so formed shall, in the exercise of the powers so delegated, conform to any restrictions that may be imposed on them by the directors." A bare perusal of decision recorded in the minutes as reproduced above shows that certain issues were positively decided and some issues were left to be decided by duly constituted Committee while other issues were subject to approval of Board of Directors. From a bare reading of the above Regulation, it is clear that the Directors may delegate authority to Committee consisting of such member or members of their body as they may deem fit. In light of the Article XII of the Contract as reproduced above read together with Regulation 52 and section 210 of the Companies Ordinance, 1984. Plaintiffs are neither shareholders nor member of the defendant-Corporation. It is not to be expected of them to know internal affairs of defendants-Corporation. Third party dealing with a corporate entity is justified to assume that all the matters of internal affairs have been duly complied with and persons who have proximate relationship with the corporate entity is either authorized under the Charter of the company or has been delegated such authority thereunder. Any person dealing with a Company must bona fidely believe that the person with whom he is dealing has or could have been delegated such both under the Companies Ordinance, 1984 read with Regulation No.53 set out in 1st Schedule to the Companies Ordinance, 1984 together with Article XII of the Contract, one could honestly and bona fidely infer that the Committee comprises of senior officials is duly authorized to transit and negotiate on behalf of the Steel Mills Corporation as the business transacted appears to be in normal course of business, what transpired in the meeting was in relation to the subject-matter of contract. From the record, it is also evident that plaintiff through repeated reminders called upon the defendant to honour such commitment, same were not refuted nor it was ever asserted that such persons were not authorized. Such assertion for the first time was urged in the objections to the reference, such silence on the part or Objector in terms of section 197 of the Contract Act amounts to implied rectification of contract (one may see Sanaullah v. Muhammad Rafiq 2003 CLC 138). Company bound by commitment made by a person paving ostensible authority to represent the company. Object of section 210 of the companies Ordinance appears to protect third party/outsider, dealing with a corporate entity such person cannot be expected to be aware of the internal arrangement of corporate management. I may quote with vantage following passage penned down by Lord Denning, M.R. in the, case of Hely Hutchinson v. Brayhead Ltd. (1966) 2 All ER 14):- "Actual authority may be express or implied. It is given by, express words, such as when a Board of Directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the cases, such as when the Board of Directors appoint one of their number to be Managing Director. They thereby impliedly authorize him to do all such things as fall within the usual scope of that office. Actual authority express or implied is, binding as between the company and the agent and also as between the company and others, whether they are within the company or outside it. Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus when the Board appoints one of their number to be Managing Director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall with the usual scope of that office. Other people who see him acting as Managing Director are entitled to assume that he has usual authority of a Managing Director. But sometimes ostensible authority exceeds actual authority. For instance, when the Board appoint the Managing Director, they may expressly limit his authority by-saying he is not to order goods worth more than 500 without the sanction of the Board. In that case his actual authority is subject to the 500 limitation, but his ostensible authority includes all the usual authority of a Managing Director. The company is bound by his ostensible authority in his dealings with those who do not know of that limitation. " I was able to lay hand on a Division Bench Judgment rendered in a similar context viz. The Pakistan Employees Cooperative Housing Society Ltd., Karachi v. Mst. Anwar Sultana and others (PLD 1969 Karachi 474). A Division Bench of this Court in consideration of corresponding Regulation No.91 contained in Table 'A' of the 1st Schedule to the then Companies Act, 1913 extending doctrine of indoor management to the affairs of Cooperative Housing Society at page 489, it was held that:-- "Assuming, however, that either there was no delegation of the necessary powers in favour of Mr. Imam, or that the delegation was not valid on account of its inconsistency with any rule or by law of the Society, then the transaction appears to be saved by what is known as the doctrine of 'indoor management'. Broadly and briefly stated, this doctrine is to the effect that persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regularly one." Above dicta was followed by another Division Bench in case of Messrs Taj Construction Company v. Federation of Pakistan and 9 others (PLD 1982 Karachi 378). From the discussion made above, what is deductible is that a third party or stranger dealing with a company has to demonstrate:-- (1) That the relationship of a person acting C on behalf of the Company, prima facie, is so proximate that one may bona fide tend to believe that he possesses due authority either under the Charter of the Company or by way of delegation to transact such business. (2) Transaction must be bona fide, in good faith and in usual course of Company's business. (3) Transaction must be in relation to or incidental to the object/business of the corporate entity. (4) Company despite being aware of the transaction did not repudiate it nor disputed the authority of its agents. If a Corporate Body is allowed to disown the act of omission and commission of person who represent the Company then no sanctity could .be attached to any transaction that may be entered into by such Corporate Body running its day to day affairs through its Directors and Managers. The Memorandum and Articles of defendant -Corporation was not brought on record to demonstrate that no such delegation of authority was conferred on one of its negotiating directors or could have been made or conferred or the Committee which participated and decided issues incidental or arising out of the contract between the parties had any authority under the Articles of Association or could not have been delegated authority under its Charter to transact the business, as at least one of the persons [Brig, Raja Aziz-ur-Rehman, Director (Project)] was Director on the Board of Directors, who was also Incharge of all the Projects of PSML. Despite several representation and assertion made by the plaintiff seeking compliance with commitment made in the meeting no, denial was made by the Company nor it was refuted that such persons had no authority to transact on behalf of the Corporation. First tune such plea was raised before the Arbitrators, which was rightly rejected by the learned Umpire. In absence of any such evidence, opt conclusion was drawn by the learned Arbitrator that, "any unequivocal commitments made by the officers of the Corporation will have to be honoured as, otherwise, it would amount to deceiving the other side by making false promises. I also concur with the conclusion drawn by the learned Arbitrator that equity must prevail in arbitration proceedings unlike the process of the Court where the strict principles of law might hold sway. Therefore, the second objection, under the facts and circumstances, has no force which accordingly cannot sustain. The conclusion drawn by the learned Arbitrator is just and proper. Coming to the question of limitation, such question was also ably dealt with by the learned Arbitrator. In cases of arbitration also the limitation by virtue of section 37 of the Arbitration Act apply to arbitration as they apply to proceedings in Court. From the record, it appears that though the suit was filed by the plaintiff on 19-7-1987 in respect of the claim in the sum of Rs.20,914,746.19 arising out of the seven (7) contracts and final bills to each contract. The reference was made on 30-3-1988, the learned Umpire as can be seen from the Award has not allowed the entire claim. Learned Arbitrator out of three amounts claimed in the sum of Rs.7,77,711.16, (2) Rs.4,41,548.00 and (3) Rs,1,13,432.93. Learned Arbitrator allowed only claim in respect of amount of Rs.113,432.93 to be sustainable in terms of limitation. Learned Arbitrator also rejected the amount of Rs.12,50,000.00 under Claim A-2. Claim B-1 is in respect of three bills dated 2-6-1985. The suit was tiled on 19-7-1987 even the reference was made on 30-3-1988. The claim is within the limitation and was accordingly rightly allowed. Same holds good in respect of Item No.V being dated 16-6-1985 and the limitation of three years did not expire when the reference was made. Last claim Item No.VI are dated 15-8-1984 and 18-10-1984 in the sum of Rs.315,253.00 such claims were held to have become barred in August and October, 1987. Thus the Claim B-1 was allowed in the sum of Rs.1,04,59,459.61 out of the sum claim Rs.1,07 74,712.61. It may be observed that plaintiff repeatedly urged its claim which were in fact not altogether denied or refuted categorically, plaintiff was kept on hope. It is only when claim is repudiated. Limitation would begin to run and not otherwise. In view of the foregoing discussion, the question as to the limitation was aptly considered by the learned Arbitrator. Learned counsel was not able to persuade me to hold otherwise. Accordingly, the objections are dismissed and the Award is made rule of the Court. M. B. A./N-129/K Order accordingly.