2013 PLP 522 (CLD)

SHAHID WAHEED, J.

The appellant, through this appeal under section 39 of the Arbitration Act, 1940 ("the Act") has called in question order dated 24-11-2004 passed by the learned Civil Judge 1st Class, Multan whereby an application filed by the appellant under section 34 of the Act for staying the proceedings of the suit was dismissed.

2. Briefly, the facts of the case are that the respondent on 7-1-2000 instituted a suit for recovery of Rs.3,744,695 against the appellant. In response to summons, the appellant entered appearance before the learned trial Court and filed an application under section 34 of the Act for staying the proceedings of the suit on the plea that parties to the suit through an agreement dated 27-1-2000 had decided to refer the matter in issue to arbitration. The respondent, despite availing opportunities, did not submit reply to the above said application. The learned trial Court vide order dated 25-5-2000 struck off the right of the respondent to submit written reply of the above said application. However, the respondent opposed this application during the course of arguments. The learned trial Court vide order dated 24-11-2004 dismissed the application filed under section 34 of the Act. Hence, this appeal.

3. Learned counsel for the appellant in support of this appeal submits that notwithstanding the pendency, of the suit it was open to, the parties to enter into an agreement to arbitrate privately, without leave of the court, and to proceed to have that private reference to arbitration or the resulting award converted into an independent decree of the Court.

4. I have heard the learned counsel for the appellant and perused the record.

5. The respondent on 7-1-2000 brought a suit against the appellant for recovery of Rs.3,744,695 which was subsequently referred by them to arbitration, without leave of the court, through an agreement dated 27-1-2000. Now a question arises as to whether on the basis of agreement dated 27-1-2000 the proceedings of the suit could be stayed under section 34 of the Act. In my view section 34 of the Act is restricted to cases in which the suit complained of has been instituted after the agreement to refer to arbitration. The procedure for making reference to arbitration in a pending suit is provided in the Act. If the parties want to get their suit decided through arbitration, they must resort to the provisions of sections 21 to 25 of the Act. Reference to arbitration and an award procured in a pending suit without intervention of the court, are nullity and such an award cannot be made rule of the court in accordance with the provisions of sections 14 and 17 of the Act. However, an award procured without recourse to the provisions of sections 21 to 25 of the Act are saved by section 47 of the Act from being altogether a nullity, provided the requirements of the proviso to section 47 are complied with. The proviso confers power on the court to take into consideration the award obtained, other than through the procedure prescribed in the Act as the compromise or adjustment of the suit, if all the parties to the award give consent thereto. There is no bar on the parties to get their case decided by mutual agreement at any time prior to the final adjudication. Under Order XXIII, Rule 3, C.P.C., if the parties enter into a lawful agreement or compromise adjusting their suits wholly or partly, and the court is satisfied of such adjustment, it is bound to record such compromise and pass a decree in accordance therewith. Thus, in case of a valid adjustment in a pending suit through compromise of the parties, the court cannot pass a decree except in accordance with the terms of the compromise. As per the language of Rule 3 of Order XXIII, C.P.C. existence of lawful agreement is one of the essential pre-requisite for applicability of this provision. An arbitration agreement without the orders of the court in a pending suit, being a departure from the mandatory provisions of sections 21 to 25 of the Act cannot be categorized as a lawful agreement. Such an agreement is not enforceable in law and, therefore, application under section 34 of the Act to stay the proceedings of the suit must fail. In this regard reference may be made to the case of Perttri Sttryanaravan & Co. v. Gullapudi China Narsingham and others (4 IC 133) and Vyankatesh Mahadev v. Ramachandara Krishna (27 IC 46).

6. In view of above, I find no illegality in the order passed by the learned trial Court and resultantly this appeal is dismissed with no order as to cost. KMZ/F-41/L Appeal dismissed.