P L D 1963 Azad J & K 1 (PLP)

FAYYAZ HASSAN SHAH, C. J.‑‑‑Brief facts leading to this Letters Patent Appeal against the judgment of learned single judge of this Court dated 4‑10‑1961 are stated as under :‑ By virtue of an agreement dated 29‑11‑1957, the petitioner was granted a lease of compartment No. 9, lot No. 2 (thinning), in Domel range of Muzaffarabad Division and the terms and conditions thereof were set out in the said agreement. Clause 43 of the said agreement lays down, that :‑ "Every dispute, difference or question which may at any time arise between the parties hereto or any person claiming under them, touching or arising out or in respect of this agree ment, or the subject‑matter thereof shall be referred to the Chief Conservator of Forests, Azad Jammu & Kashmir Govern ment whose decision shall be final." Clause 26 of the agreement lays down that the C. C. F. may impose a penalty not exceeding 10 times of a price of tree according to the standard rates in addition to charging the price of the trees at the lease rates in the event of the purchaser, his agents accidently, negligently or deliberately felling or damaging a tree or converting any timber to which he is not entitled in coin under working in compartments, sub‑compartment or part of compart ment or forest areas adjacent to the coup and if there are sufficient reasons to believe that the purchaser, his agents or servants have deliberately felled any tree to which he is not entitled in any compartment under his working the D. F. O. max temporarily suspend the work in that compartment pending full inquiry, and orders by the C. C. F. and C. F. and in such cases the lessors will not be responsible for any loss incurred by the purchaser from such suspension. On 8‑5‑61, the petitioner made an application under sec tion 20 of the Arbitration Act for filing the arbitration agreement and under section 5 of the Arbitration Act for reference of the dispute to an arbitrator other than the C. C. F. for the following reasons :‑ (1) That according to clause 26 of the agreement, the C. C. F. can, in the circumstances and the manner detailed therein, impose a penalty upon the lessee but not otherwise and arbitrarily but that the C. C. F. in manner not authorised by the agreement and without the existence of evidence and without any justification for such an action imposed upon the petitioner a penalty of Rs. 18,629‑6‑0 which the petitioner paid up under protest. (2) That for a considerable length of time under the pretext of accusation and inquiry, which was never held, the work of the petitioner was suspended and when the stipulated period of lease was about to expire, in this manner extension was granted upon the imposition of penalty. (3) That throughout the period of lease the petitioner was never allowed to remove the converted timber including the timber in respect of which a penalty had been imposed and recovered from the petitioner and finally without a legal justification the petitioner's lease was cancelled and illegal bills Nos. 2980/85‑C. VII. 105 and 2190/95.C.VII. 238 dated 25‑1‑61 and 16‑1‑61 for Rs. 1,000 each were also issued to the petitioner. (4) That there thus existed disputes between the petitioner and the respondent and the actions of the forest department had caused the petitioner a loss of approximately Rs. five lakhs in different shapes, It was, therefore, prayed that the agreement be filed and that the dispute referred to an arbitrator other than the arbitrator named in clause 43 of the agreement i.e. the C. C. F. for the reasons :‑ That though according to the said clause the dispute was to be referred to the C. C. F. but the petitioner had little confi dence in him as an arbitrator because he had by his order No. 2844‑49/C. VIII. 238 dated 3‑4‑61 already judged the matter against the petitioner and declared his verdict in his capacity as the Executive Head of the department and had thus rendered himself incompetent to adjudge the matter judicially as an arbitrator ; and that even previously on the application of the petitioner under sections 5 and 12(2) of the Arbitration Act the authority of the C. C. F. as an arbitrator had been revoked by the Court when a dispute had arisen between the petitioner and the respondent under a similar agreement in respect of the lease of compartment No. 17 in Keran Division and the District Judge, Muzaffarabad, was appointed an arbitrator. The allegations made by the petitioner were controverted by the respondent in the following manner :‑ (1) That Mr. Habib Khan, Ex‑C.C.F. did impose penalty on the petitioner but it was in strict confirmity with terms of the agreement. It was wrong that the action of the C.C.F. was without existence of evidence or justification. (2) That extension penalty was imposed as provided by the terms of the agreement and the bills Nos. 2980/85.C.VII. 105 and 2190/95.C. VII. 238 dated 25‑1‑61 and 16‑1‑61 pertain to the same penalty and not separate penalty and that whatever action was taken, was taken in strict compliance with the terms of the agreement and the lease had not been cancelled. (3) That no dispute between the parties existed which required a reference to arbitration and that, in fact, there was no dispute left after the C. C. F. had as a competent authority taken final action. (4) That in case of dispute C. C. F. was the authority to whom any dispute could be referred under clause 43 of the agreement. Further, it was submitted that the present C. C. F. had not judged any issue in any way which rendered him unfit to discharge the duties of an arbitrator. (5) That the petitioner knew it fully well that the C. C. F. would have to act as the Executive Head of the department and had yet willingly executed the clause 43 of the agreement ; and that, in fact, this clause was a part of the consideration for the department to enter into the contract and may not be brushed aside at the whims of the lessees. The learned Single Judge after examining the case came to the conclusion that disputes existed between the parties ; and that the C. C. F. was the proper person to arbitrate between the parties in view of the terms of clause 43 of the agreement on the ground that when the parties had entered into an agreement with their eyes open knowing fully well that the arbitrator agreed upon was an employee of one party and that as an Executive Head of the department he was likely to make certain orders they could not be allowed to resile from that agreement simply on to suspicion that the said officer would stick to his decision taken or opinion formed while acting as such an Executive Head. He, therefore, ordered the agreement dated 29‑11‑57 to be filed in the Court and referred the following points of dispute to the C. C. F. to arbitrate :‑ (1) Was the petitioner illegally imposed with the penalty of Rs. 18,629‑6‑0 and whether he is entitled to its return or any part thereof? (2) Was the petitioner illegally stopped from working the lease and whether he incurred any damages as a result thereof and in the event of any damages having been proved to have been suffered, whether the petitioner is entitled to recover such damages in the arbitration proceedings or should he have recourse to a separate suit? The arbitrator should also decide the amount of the damages, if the petitioner is held entitled to any. (3) Was the petitioner not allowed to remove the converted timber including the timber in respect of which a penalty had been imposed and recovered from the petitioner and whether illegal bills Nos. 2980/85.C.VIL 105 and 2190/95.C.VII.238 dated 25‑1‑61 and 16‑1‑61 for Rs. 1,000 each had been illegally issued to the petitioner. Again this order of the learned Single Judge, the petitioner has come up in appeal before us. Besides the preliminary poi t raised .by the learned counsel for the respondent that the appeal was not competent the only point which we have to decide in this appeal is whether the authority of the arbitrator (C. C. F.) named in the agreement should be revoked or not and whether a new arbitrator should be appointed. Regarding the preliminary point it was contended by the learned counsel on behalf of the respondent that an appeal was not competent in view of the provisions of section 39 Arbitration Act as the present case did not fall under any of the six orders made appeal-able thereby. In reply it was stated that the compe tency of appeal in this case was governed by clause 3 of section 13 of Azad J. & K. High Courts and Laws Code Act of 1949 which allows appeals to the High Court from a decision of a Judge in Single Bench. There are two Division Bench judgments of this High Court which have laid down that though the wording of clause (3) of section 13 on plain interpretation is wide in scope yet it cannot be taken to mean that every judgment or order of the Single Judge was appealable. In Farid Sons Ltd. v. Azad J. & K. Government (P L D 1953 Azad J & K19) the plaintiff was not given further time to adduce his evidence on a preliminary issue by the Single Judge and an appeal having been filed under clause (3), section 13, it was held that :‑ "Only those orders passed by a Judge in Single Bench are appealable to the High Court under clause (3) which decide anything material as to any issue though they may be in the nature of inter locutory orders and orders which merely endeavour to collect material necessary for the decision of any issue in the suit tried by a Judge in Single Bench are not appealable." In the un‑reported Division Bench judgment, Civil Appeal No. 7 of 1961 entitled-Sardar Baga Khan v. Sardar Muhammad Ismail Khan and others P L D 1953 Azad J & K 19 was followed and it was further observed that the nature‑ of appealable orders con templated in clause (3), section 13 appeared to be concomitant with nature of the orders that have been made appealable in the C. P. C. and no appeal would be competent from any other order. In view of the plain language of clause (3) section 13 and the two Division Bench judgments of our High Court one reported and the other unreported the position boils down to this. The plain language of clause (3) section 13 gives right to an aggrieved' party to come in appeal to the Division Bench of the High Court against the judgment or order of the Single Bench passed in an original civil suit. The two Division Bench rulings through concede this right have restricted it to the judgments and orders which decide anything material to the issue. This restriction was placed for the reason that if every order was made appealable the case would never come to an end because it would give the party which has in its interest to prolong the trial a handle to prolong it. We believe that reasonable restriction should be placed to serve as a check on those who file frivolous appeals simply to prolong the proceedings in the civil suit yet when an order of the Single Judge decides anything material to the issue the aggrieved party should not be deprived of its right to appeal which accrues to it under clause (3) section

13. In the present case the point whether the authority of the arbitrator be revoked or not, is in our opinion, a point very much material to the case particularly from the point of view of the petitioner, whose contention is that the C. C. F., the gentleman, named in the agreement between the parties to arbitrate in case of dispute, having already given his finding as an Executive Head is unfit to arbitrate. We, therefore, hold that the appeal in this case is competent. Regarding the second point, the learned Single Judge while coming to the conclusion that the Authority of the Arbitrator named in the agreement should not be revoked considered the following rulings for and against the petitioner :‑ A I R 1.934 Sind 200, 140 1 C 626, 19 I C 932 and 157 1 C

607. The authority quoted as A I R 1934 Sind 200 was the only authority produced by the petitioner before the learned Single Judge in this case besides quoting an unreported case of our own High Court entitled 'Muhammad Ishaque Qureshi v. State of Azad J & K Government decided on 6‑4‑61 by one of us. According to A I R 1934 Sind 200, it was held that although the Court was bound to start with a strong bias in favour of maintaining the special bargain between the parties, it must at the same time consider all the circumstances of the case with vigilance to see that it was not driving either of the party to a tribunal where there was a likelihood of his not getting substantial justice. The view taken in the unreported case of this Court for revoking the authority of the named arbitrator i.e., the C. C. F. was that there was reasonable ground for the apprehension that the C. C. F. would be biased and that a situation had arisen in the case which tended to produce a bias in the mind of even the present C. C. F. which might make him lean towards the decision of his predecessor. As against these authorities the view taken in the three authorities quoted by the respondent is that a submission is not valid merely because an arbitrator or an umpire is to sit in a judgment on his own acts, if parties with their eyes open chose to agree to a submission for a reference to such an arbitrator or umpire, unless it was shown that the arbitrator or umpire had made up his mind so as not to be open to change it upon arguments. A I R 1952 Cal. 294 which has been quoted before us by the petitioner was not quoted before the learned Single Judge. In this case the parties had entered into a contract and there was an arbitration clause to the following effect :‑ "All matters, questions, disputes, differences and or claims arising out of and or concerning and or in connection with and or in consequence of or relating to this contract whether or not the obligation of either or both parties under this contract be subsisting at the time of such disputes and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the Bengal Chamber of Commerce under the rules of its tribunal of arbitration for the time being in force and according to such rules the arbitration shall be conducted." An application was made for leave of the Court to revoke the authority of the arbitrator. His Lordship of the Calcutta High Court while disposing of this application dealt at length with the point involving bias of arbitrators. He quoted observations of Lord Atkinson from Bristol Corporation v. John Aird & Co. ((1913) A C 241 at p. 247) and of Lord Esher from Eckersely v. Mersey Docks & Harbour Board ((1894) 2 Q B 667 at p. 670), which are reproduced below for convenience and clarity :‑‑ Lord Atkinson's observations :‑ "My Lords, I do not think there is any dispute between the parties as to the law applicable to such a state of things. If a contractor chooses to enter into a contract binding him to submit the disputes which necessarily arise, to a great extent between him and the engineer of the persons with whom he contracts, to the arbitrament of that engineer, then he must be held to his contract. Whether it be wise or unwise, prudent or the contrary, he has stipulated that a person who is a servant of the person with whom he contracts shall be the Judge to decide upon matters upon which necessarily that arbitrator has himself formed opinions. But though the contractor is bound by that contract, still he has a right to demand that, notwithstanding those pre‑formed views of the engineer, that gentleman shall listen to argument and determine the matter submitted to him as fairly as he can as an honest man ; and if it be shown in fact that there is any reasonable prospect that he will be so biased as to be likely not to decide fairly upon those matters, then the contractor is allowed to escape from his bargain and to have the matter in dispute tried by one of the ordinary tribunals of the land. But I think he has more than that right. If, without any fault of his own, the engineer has put himself in such a position that it is not fitting or decorous or proper that he should act as arbitrator in any one or more of those disputes, the contractor has the right to appeal to the Court of law and they are entitled to say, in answer to an application to the Court to exercise the discretion which the 4th section of the Arbitration Act vests in them, we are not satisfied that there is some reason for not submitting this question to the arbitrator." Lord Esher's observations :‑ "In this case it is said on behalf of the plaintiff that there is sufficient reason for the Court to say that the disputes in the action should not be referred to the engineer of the board, because he might be biased. It is not a sufficient reason to say that he might be biased, if the Court should be of opinion that there is no ground for supposing that he would be biased. When the proposition sought to be established on behalf of the plaintiff is examined, it comes to this, that the disputes ought not to be referred to the engineer because he might be suspected of being biased, although in truth he would not be biased. It is an attempt to apply the doctrine which is applied to Judges, not merely of the Superior Courts, but to all Judges‑that, not only must they be not biased, but that, even though it be demonstrated that they would not be biased, they ought not to act as Judges in a matter where the circumstances are such that people‑not necessarily reasonable people, but many people‑would suspect them of being biased. Is that a rule which can be applied to such contracts as this where as between the contractor and his principal, both parties agree that the chief servant of one of them shall be the arbitrator ? If it was not for the agreement of the parties‑if the rule applicable to Judges were to be applied‑it is obvious that it would be impossible to say that the engineer under whose superintendence the work has to be done, could act as arbitra tor, because some persons would suspect him of being biased in favour of the parties whose servant he was. But that cannot be the case here, because both parties have agreed that the engi neer, though he might be so suspected, shall be the arbitrator. A stronger case than that must, therefore, be shown. It must, in my opinion be shown, if not that he would be biased, that at least there is a probability that he would be biased." His Lordship of the Calcutta High Court, after referring to the above‑mentioned observations of Lord Atkinson and Lord Esher made the following observations himself in paras. 94 and 95 of the judgment which run as under :‑ "An arbitrator who has an interest dependent upon his decision is disqualified if either party at the time of his appoint ment was ignorant of the fact that this would be so, and the interest is of such a nature that it ought to have been disclosed. But if the parties, with full knowledge of the facts, selected an arbitrator who was not an impartial person, are who had to perform other duties which would not permit of his being an impartial person, the Court would not release them from the bargain upon which they had agreed, and if a party to a con tract submitted to the jurisdiction of a tribunal which had an interest of its own in the decision the Court would not on that account release him from the bargain, however improvident it was considered to be, so long as the Court was satisfied that he was aware or ought to have been aware of the term of the bargain he had entered into. There are many English cases which enunciated the principle I have stated above. It seems that form a broader sense of justice in the English Arbitration Act, 1934, section 14(1) has been enacted which overrules these decisions in so far as they decide that because a party knew at the time when he made the agreement or ought to have known that the arbitrator named might not be impartial or had some interest in the subject‑matter he could not come afterwards to the Court and complain of the person to whose appointment he had agreed (Russell p. 387). In England, therefore, the Court at present will not refuse an application to revoke a submission or to stay an arbitration on the ground that a party knew or ought to have known that the arbitrator by reason of his relation towards any party to the agreement or his connection with the subject‑matter referred, might not be capable of impartiality. (Russell p. 31). There is no such section in our Act of 1940. Yet I think we can adopt the principle underlying the English section for the purpose of doing substantial justice. It is the most fundamental principle of justice that a Judge or a Tribunal should not decide a dispute if there is a probability that he would be biassed in the case." From this observation of His Lordship, it is clear that the view expressed in the judgments quoted by the respondent before the learned Single Judge was considered by His Lordship but adopted the principle underlying the English section for the purpose of doing substantial justice. In the un‑reported case of our High Court Muhammad Ishaque Qureshi v. Azad Government, of the State of J & K already mentioned above, a similar view was taken by one of us and we see no reason why we should depart from that view which meets the requirements of the basic principle of justice that a Judge or a tribunal should not decide a dispute if there is a probability that he would be biassed in the case. The question which now requires determination is whether the C. C. F. who was named by the parties in this case in clause 43 of the agreement to arbitrate in case of dispute between them was biassed and thus not fit to arbitrate. To determine this we have to refer to the pleadings. The allegation from which bias can be inferred is contained in para. 4 of the application of the petitioner and runs thus :‑ "The C. C. F. in manner not authorised by the agreement and without the existence of evidence and thus without any justifica tion for such an action, has imposed upon the petitioner a penalty of Rs. 18,629‑6‑

0. The action of the C. C. F. is outside the term of the agreement." In reply to this allegation the respondent stated that Mr. Habib Khan the Ex. C. C. F. did impose the penalty on the petitioner but it was in strict conformity with the terms of the agreement. Again in para. 8 of the written statement the respondent stated that no dispute existed between the parties which might require a reference to arbitration . . . . . in fact, there was no dispute left after the C. C. F., being the competent authority, had taken final action. It is thus clear that the respondent does not deny that Mr. Habib Khan did pass final orders and impose penalty on the petitioner amounting to Rs. 18,629‑6‑0 through he contends that in spite of the action taken by Mr. Habib Khan, the Exh.‑C.C.F., the C. C. F. was a competent authority to arbitrate between the parties in case it was held that a dispute existed between them. According to the respondent even Mr. Habib Khan would have been a competent person to arbitrate if he had not been transferred and his successor is all the more a competent person to arbitrate because he cannot be charged with any bias. In reply it was stated that even the successor of Mr. Habib Khan would be biased because he would be more inclined to uphold the action of his predecessor‑in‑office and a clear proof of this according to the petitioner were the contents of the written statement put in by the respondent who must have in all probability consulted him before drafting the written statement. We feel inclined to accept the arguments advanced .by the learned counsel on behalf of the petitioner. In normal course a successor generally upholds the actions of his predecessor‑in‑office and the fears of the petitioner in this case are, therefore, not unjustified if he thinks that even the present C. C. F. would probably do the same. A Judge. or an arbitrator should not only be impartial actually but should also appear to be impartial and any probability that he would not be so impartial would render him unfit to act as an arbitrator. In the case of the present petitioner it can be 'said without fear of contradiction that he does not have quite happy relations with the forest department. Previously too there was a litigation between them and exactly the same point was involved when the District Judge, Muzaffarabad, instead of the C. C. F. was nomina ted as an arbitrator by orders of the Court. In his case parti cularly his fears are justified. Whether the successor of Mr. Habib Khan was consulted by the respondent before filing the written statement in the Court is not very material now because he hag been succeeded by another C. C. F. recently. We have read the orders of Mr. Habib Khan whereby he imposed penalty on the petitioner. This order is on the file. After reading this order we feel all the more inclined to take the view that there is a probabi lity though it may not be actually so that the present C. C. F. may feel impressed and thus have leanings against the petitioner. Agreeing, therefore, with the authority A I R 1952 Cal. 294, quoted by the petitioner, we are constrained to disagree with the learned Single Judge and hold without casting any aspersion on the integrity of the present C.C.F., that he would not be a proper person to arbitrate in the circumstances of the present case. We, therefore, accepting the appeal set aside his order. Let another person be appointed as an arbitrator to arbitrate in the dispute between the parties. Costs to follow the event. Parties may be informed. K. B. A. Appeal accepted.