P L D 1978 Quetta 204 (PLP)

It was held that mere filing of application for adjournment to file reply to application for injunction does not, in circumstance, amount to taking "step in proceeding". A party cannot be said to have acquiesced in suit unless it knew about subject-matter of suit. Intention is a relevant considera tion". The next case on this point is Sansarchand Deshraj v. State of M. P. and others (A I R 1961 Madh. Prat 322). In this case the plaint was filed on 5-8-1959 and on the same day, an application for grant of temporary injunction against the defendants was also made. On 6-8-1959, ex parte temporary injunction restraining the defendants from attaching movable property was ordered to be issued but objection was raised by counsel of defendants Nos. 1 and 3 vakalatnama was filed on 1-9-1959. The counsel for defendants Nos. 1 to 3 stated on that day that he was prepared to file reply to the original application for temporary injunction but as on 1-9-1959 the plaintiff amended his previous application for temporary injunction, the Court ordered the reply to be filed to the amended application on 8-9-1959. It was held that the filing of a reply to the application of the plaintiff for securing temporary injunction and arguing the said application itself does not amount to "taking other steps in the proceedings" by the defendant within the meaning of section

34. In Messrs Prem Nath v. Amba Parshad (A I R 1961 Lah. 64) it was observed that the proceedings within the meaning of section 19 Arbitration Act 1899 (correspondence to section 34 of Act 1940) commences only when the defendant is supplied with a copy of the plaint and if time is then fixed for the preparation of the written statement, the time for this purpose is necessarily to be given by the court and it cannot be regarded in any sense as a step taken in the proceedings by the defendant. In Daulat Ram Rala Ram v. State of Punjab (A I R 1958 Pb. 19) it was laid down "A prayer for extension of time to put in a written-statement undoubtedly indicates a desire to contest the suit on merits in Court and an intention to abandon the right to have the matter disposed of by arbitration. No such intention is exhibited where the prayer is one for time to put in an application, for stay of the suit because of an arbitration clause in the agreement. In that case, the indications in fact are just the other way. It was further observed the true test for determining whether an act is a "step in the proceedings" is not so much the question as to whether, it is an application but whether the act displays an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. The fasts of the cases which can be cited in support of the proposition propounded by the counsel for the petitioners have been given in detail and they are self-explanatory. The cases need no detailed discussions. The facts of the cases are quite distinguishable. The rule laid down in those cases applied to particular circumstances of the cases and it cannot be extended as a broad proposition in every case. On the first date of hearing a prayer for seeking instruction from the Government or a prayer to file objection to the application for appointment of receiver, which was moved by the plaintiff only a day after the filing of the suit by no stretch of legal acumen can be held to be a step in proceedings when the other side had not even an iota of material before them. The authorities are therefore inapt. Now we advert to the case-law wherein the term "step in proceedings" has been discussed. The first case is Subal Chandra Bhur v. Muhammad Ibrahim and another (A I R 1943 Cal. 484). When the counsel for the defendant appears and applies for obtaining time to file his client's affidavit in opposition to the application for appointment of a receiver, and also applies for and obtains directions and leave from the Court to inspect the books of account and records. The conduct of the defendant clearly implies a statement to the affect that the defendant would proceed to defend the action and would not insist on the right to have the disputes disposed of by arbitration, by acting as he does he is taking a step in the proceedings. The fact that he was unaware of the arbitration agreement does not make his act any-the-less a step in the proceedings if in fact and in law it was a step. "The possibility of an arbitration in terms of the agreement becoming infructuous by itself must not in all circumstances and of necessity be a ground for refusing the stay. Such a possibility does not stand in the way of the Court in directing a stay of proceedings. But such a possibility should not be altogether overlooked in determining whether there is any sufficient reason why matters in dispute should not be referred to arbitration." The next case on the point is New Bengal Shipping Company v. Eric Lancaster Stump (P L D 1952 Dacca 22). The plaint is this suit was filed on 3rd February 1950, and on the next day an application was presented for the issue of a temporary injunction against the first respondent and Captain Mitchell not to remove the vessel from Chittagong Port or cause any damage to it in arty way, pending the trial of the suit. The Court granted an ad interim injunction and ordered notice to the respondent. On 7th February 1950, the Chief Engineer of the vessel appeared and prayed for time to file objections to the application for injunction; and on 14th February 1950, the petition of objections was filed. In the meantime summons issued in the suit had been served on 28th February 1950. Captain Mitchell appeared and applied for time to file written statement. Time was granted and on 14th March 1950, Captain Mitchell filed two applications, one for further time for filing written statement and another for staying the suit under section 34 of the Arbitration Act. It appears from the petition of objection filed by Captain Mitchell that the main idea in filing that petition was to get the order of ad Interim injunction vacated, and not to state that the respondent would insist on the arbitration clause in the contract being given effect to. This is clear from the fact that the objection was not confined to the question of jurisdiction. The petition on the other hand contains ground on the merits of the case. Subsequently, an application asking for time to file written statement, was filed. This application was without reservation. The application presented on 28th February 1950, amounts to a step in the proceedings. As for the intention of the party who ultimately files an application under section 34 of the Act it must be inferred from the particular act in question. Captain Mitchell in his first application raised the question of jurisdiction; but, as stated already, he did not stop with that objection. He stated grounds on the merits of the case. Even in his later application he asked for adjournment without any reservation, and on a subsequent occasion when he actually filed an application for stay, he still asked for time to file written statement. The next case is Birla Jute Manufac turing Co., Ltd. v. Dulichand Pratapmull (A I R 1953 Cal. 459). "When a jute contract is impugned as invalid on the ground that it was entered into in violation of the Ordinance, an arbitration agreement contained in the contract is not severable and capable of having independent effect and accordingly it cannot sustain a reference of the dispute to arbitrators". "An arbitration agreement regarding an unlawful jute contract would attract the ban imposed by section 23, Contract Act." Section 34 confers a discretion on the Court, but it is only a discretion to stay or not to stay the suit after the conditions laid down in the section are found to be satisfied but it is not a discretion to stay the suit even if one of the conditions may be unsatisfied. It is held in F. O. Murlimal Santra v: Messrs Banarsidas do Sons and another (A I R 1935 Sind 62) that an application made to the Court for the postponement of the hearing of the suit is a step in the proceedings. In the Printers (Mysore) Private Ltd. v. Pothun Joseph (A I R 1960 S C 1156) the following observations appeared in para. 7 of the judgment :

"Section 34 of the Act confers power on the Court to stay legal proceedings where there is an arbitration agreement subject to the conditions specified in the section. The conditions thus specified are satisfied in the present case, but the section clearly contemplates that, even though there is an arbitration agreement and the requisite condi tions specified by it are satisfied, the Court may nevertheless refuse to grant stay if it is satisfied that there are sufficient reasons why the matter should be referred in accordance with the arbitration agreement. In other words, the power to stay legal proceedings is discretionary, and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot by relying on the arbitration agreement claim the stay of legal proceedings instituted in a Court as a matter of right. It is, however, clear that the discretion vested in the Court must be properly and judicially exercised. Ordinarily where a dispute between the parties has by agreement between them to be referred to the decision of a domestic tribunal the Court would direct the parties to go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them. As in other matters of judicial discretion, so in the case of the discretion conferred on the Court by section 34 it would be difficult, and it is indeed inexpedient, to lay down any inflexible rule which should govern the exercise of the said discretion. No test can indeed be laid down the automatic application of which will help the solution of the problem of the exercise of judicial discretion." In P. Gannu Rao v. P. Thiagaraja Rao and another (A I R 1949 Mad. 582), it has been observed that under section 34 if something is done by the parties concerned which is in the nature of an application to Court it will necessarily come under the category of a step in the proceedings. The aforesaid dictum has been made in the following circumstances; A partnership contract between the plaintiff and the defendant contained an arbitration clause. In a suit for dissolution of partnership and for accounts filed on 27-2-1947, the plaintiff filed an interlocutory application praying for interim injunction pending disposal of the suit restraining defendant from drawing certain amount. On this application an ex parte order was made granting interim injunction. Due notice to the defendant of the order granting interim injunction was made returnable on 3-3-1947. On that date, the defendant applied for ten days time for filing counter affidavits and for modification of injunction. By the consent of the plaintiff this request was granted and the order of interim injunction was modified. On the adjourned date (14-3-1947) the defendant stated for the first time that he intended filing an application for referring the dispute to arbitration. In view of this he stated that he had not filed a counter affidavit. On application by defendant for stay of proceedings under section

34. It was held that the defendant did take step in proceedings within the meaning of section 34 both on 3-3-1947 and 14-3-1947 when the interlocutory application came on for hearing. In Kh. Abdul Latif v. Sethi Abdul-Haq (Law Notes 1968 Lab. 291), it has been held that some assertion in the written statement that there was agreement between the parties in case of difference the dispute could be referred to the Arbitration did not amount to an application within the meaning of section

34. In G. M. Pfaff A. G. v. Sartaj Engineering Co. Ltd. Lahore and 3 others (P L D 1974 Lab. 194). It was observed that the defendant to take advantage of an Arbitration clause must without ado and before submitting to the jurisdiction of the Court inform the Court in unequivocal terms that he is going to insist upon the implementation of the arbitration clause. In Muhammad 1dris and others v. Tobarak Hussain (P LD1965 Dacca 260), it has been held that an application for time for written statement amounts to taking step in proceedings. In Mst. Razia legion v. Khan Bahadur Allah Bukhsh Gobole (P L D 1961 Kar. 225) it is held "The applicant's negligent conduct amounted to waiver." Therefore, the proceedings were not stayed. I entirely agree with the principle laid down in these authorities and they can be safely relied upon in favour of the respondents. The examination of the case-law boils down to this position that the due weight must be given to an arbitration clause and the parties are bound by such an agreement. In a contract with the Government, as the case in hand, there is always an arbitration clause in the agreement. In the event of any dispute, the matter would be referred to the arbitration. Therefore, the parties entering into agreement with the Government cannot turn somersault unless Government/defendant did not elect to go before the arbitration or takes some steps in the proceedings which debar the defendant subsequently to move an application for staying the suit. It is always a question of facts whether a particular act of the defendant amounts to a step to the proceedings. No hard and fast rule can be made in this behalf but the following circumstances are relevant facts to determine the conduct of the B defendant in this behalf; (a) A party has before him information enabling him to elect between trial before a Court of law and trial between an arbitrator. (b) The defendant has full knowledge about the claim of the defendant, set out in the plaint and this knowledge can be deduced from the fact that defendant has received the copy of the plaint. After having fully conversant with the facts of the plaintiff's case, if the defendant did sot exercise his right of arbitration at the earliest and going on attending the Court though no progress has been made in the case and the case is being adjourned either at the instance of the parties or by the Court. (c) The delay caused due to the lethargic attitude of the defendant or his negligence are some of the facts showing that the defendant does not want to get rid of the arbitration clause. Coming to the facts of the present case it is clear that the Government Pleader had appeared on behalf of the appellants 1 to 4 on 18-12-1975. On 24-2-1976 when the case was taken up on transfer by the Civil Judge Mr. Latafit Ali Secretary Communication was present on behalf of the defendants Nos. 1 to

3. On 26-4-1976 the representative of the defendant No. 4 and his counsel were present. The defendants had not filed written statement and the case was adjourned to 10-6-1976 when the counsel for defendant No. 4 and the Government Pleader for defendants Nos. 1 to 3 were also present. The written statement was again not filed. The counsel for the plaintiff filed an application under Order VIII, rule 10 read with Order VIII, rule 1, C. P. C. praying that the decree be granted against the defendant as required by Order VIII, rule 10, C. P. C. The counsel for the defendant requested for adjournment to file the reply. The counsel for the defendants on the next date of hearing i.e. 24-6-1976 moved an application for setting aside ex psrte order against defendant No.

5. The counsel for the defendant had also filed reply to the application moved by the plaintiff's counsel under order VIII, rule 10 stating therein that the provisions of Order VIII, rule 10 are directory and the period of 90 days would commence from 10-6-1976. In the same application it was stated that the Court has no jurisdiction to proceed with the matter and there is arbitration clause in the agreement. The counsel for the defendants had moved two applications on the same day one application was under section 34 of the Arbitration Act stating that the matter be stayed and the reference of the dispute be made to the nominated arbitrator. The second application was under Order VII, rules 19, 20 and 21 of the C. P. C. According to this application the plaintiff had not complied with the provision of Order VII. The plaint is therefore defective and merits rejected. The aforesaid facts would show that the appellants had taken the steps in proceedings. No reason has been assigned as to what are the circumstances which prevented the appellants from moving the application at the earliest stage of the proceedings. It is not the case of the appellants that they had not received the copy of the plaint and they were unaware of the subject matter of the suit. In fact the application moved by the appellants under Order VI1, rule 19 etc. wherein they had submitted that the plaint of the respondents be rejected, to my mind is "a step further" in the proceedings. In fact appellants wanted the Court to reject the plaint of the plaintiffs as the provisions of Order VII had not been complied with. The learned counsel for the appellants has contended that the Government Pleader had no authority to appear in Court on behalf of appellants. But this was not the case of appellants either before the trial Court or before the First Appellate Court. Mr. Munawar Ahmad Mirza or the appellants had not challenged anywhere in the proceedings that the Government Pleader had no authority to appear in Court. In fact the Government Pleader used to appear in Court alongwith Mr. Mirza himself who represent only defendant No. 4 before the trial Court. The application moved by Mr. Munawar Ahmad Mirza under Order X, rule 7, C. P. C. in the Court of Civil Judge belies the contention that the Government Pleader was not empowered to appear in Court. Para. 2 of the aforesaid application stipulates "that the defendant No. 5 and the Department have engaged Mr. Munawar Ahmad Mirza, Advocate, alongwith the Government Pleader in any Court shall be the agent of the Government for the purpose of receiving processes against the Government issued by such Court. No stamped power of vakalatnama is required. The Government Pleader needs not file any vakalatnama under Order XXVII rule

2. The Government Pleaders are authorised to act for Government their recognised agent without any power of attorney. If an authority is needed a reference can be made to Messrs Nabi Bukhsh & Sons v. Pakistan through the Secretary, Ministry of Industries and Natural Resources (Industries Division), Karachi (P L D 1969 Kar. 566). In these circumstances the contention of the learned counsel for the appellants that a request for adjournment or the disposal of miscellaneous application do not amount to step in proceedings holds no water. In Halsbury's Law of England, Fourth Edition, page 290, paragraph

563. It is stated "the applicant must have taken no step in the proceedings after appearance. A step is taken in proceedings by a party notwithstanding is ignorance at the time of the existence of the arbitration clause." The reasonable conclusion from the above discussion is that the appellants had taken many steps in the proceedings. Apart from the fact that the steps in the proceedings had been take in this case, the language of section 34 of the Arbitration Act makes it clear that it is the discretion of the Court to stay the proceedings, and such a discretion must be exercised judicially and not in an arbitrary or whimsical) manner. The word "may" has been used in the section

1. As observed earlier the arbitration clause must be given effect to. It is held in Messrs Gabole Brothers v. Government of Pakistan (P L D 1972 Kar. 515) that "In these curiously coloured contracts, the contractor is bound by the terms and conditions of the contract." An identical view was taken in Bachna Ram v. The State of Punjab (A I R 1962 Pb. 85). But this general rule can be varied in exceptional circumstances, there the allegation of fraud has been made or there are other facts which would lead to show that it is doubtful if the arbitrator would act in a fair and impartial manner. It has been held in Andhra Co-operative Spinning Mills Ltd. Guntakal v. C. Srinivasan (A I R 1958 Andh. Pra. 158) that :

"A party to the arbitration agreement is not as of right entitled to the stay of proceedings and the question whether or not the Court shall exercise the power given to it under section 34 is entirely one of discretion though that discretion is undoubtedly to be exercised judicially. In doing so it will consider the question whether it should refuse stay in a case where allegations of fraud have been made and whether the party against whom they are made desires them to be investigated or enquired into in open Court." In Gauri Shankar & Sons v. Union of India (General Manager), E. I. Rly. (A I R 1953 All. 446):

"Section 34 does not make it obligatory on the Court to necessarily refer the dispute to arbitration. It gives the Court a discretion to stay the proceedings in Court if it is satisfied that there is no sufficient reason why the matter should not be referred to in accordance with the arbitration agreement. We are of the opinion that even if otherwise the case had been one which fell within the purview of the arbitration agreement we would have refrained from staying the proceedings in Court and referring it to arbitration." In the above referred case a claim for the recovery of rupees one lakh had been instituted against the Union of India and various allegations had been made against the responsible public servants. It was therefore observed "we are of the opinion that even if otherwise the case had been one which fell within the purview of the arbitration agreement we would have restrained from staying the proceedings in Court and referring it to arbitration. "In the present case, the suit filed by the plaintiff was for the recovery of Rs. 71,51265.25. Serious allegations have been made by the plaintiff against the officials in the plaint. According to the plaintiff the contract was initially given at a higher rate to some other contractors in order to favour them. The plaintiffs had to file writ petition against the granting of such contacts in the High Court of West Pakistan at Karachi. Thereafter the plaintiffs were awarded the contact at a lower rates. In para. 10 of the plaint the plaintiffs had charged the official of the respondent No. 1 with act of mala fide. These allegations are contained in pages 5 to 25 of the plaint. In view of the allegations of hostility levelled by the plaintiffs against the defendants and the circumstances of this particular case it would be fair and proper that the case must be tried by the Court therefore on this ground also the proceedings cannot be stayed. In the Halsbury's Laws of England Fourth Edition at page 291, it is laid down in paragraph 566 "An order to stay will be refused if it can be shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter, or that it is for some reason improper that he should arbitrate on the dispute." In conclusion there is no force in this petition. The same is consequently dismissed with no order as to costs. S. Q. Petition dismissed.