P L D 1952 Lahore 563 (PLP)

MUHAMMAD SHARIF, J.‑The sole question for deter mination in this first appeal against the order of the learned Senior Subordinate Judge, Multan, dated 5th of December 1949 is :‑ Whether an arbitration agreement became inoperative on the refusal of the arbitrators named therein to act, or could the Court make it effective under the Arbitration Act of 1940? This has arisen in the following manner. On 26th of May 1948 one Munshi Karim Bakhsh sold a house in Multan City for Rs. 5,225 to Yar Muhammad and Muhammad Nawaz, sons of Mian Khuda Bakhsh, caste Khoja. The neighbours, Khalifa Ghulam Sarwar and Yar Muhammad, sons of Khalifa Khair Muhammad, and Ghulam Shabbir, son of Khuda Bakhsh, claimed a right to pre‑empt on the ground of contiguity. On 6th of March 1949, the parties entered‑ into an agreement according to which the dispute was referred to the arbitra tion of Haji Faiz Bakhsh and Ghulam Mustafa of Multan City, who were required to assess the valuation of the portion of the house from thala kham to the extremity of the kotha. After the assessment so made, the first party, i.e., Yar Muhammad and Muhammad Nawaz, vendees, were to convey that property to the intending pre‑emptors, and a formal deed was to be executed and registered. On 23rd of March 1949, in violation of this agreement, a suit for pre‑emption was brought by Khalifa Ghulam Sarwar, etc., the neighbours. The vendees made an application under section 34 of the Act to stay legal proceedings as the matter had been agreed to be referred to arbitration. The suit was ordered to be stayed on 13th of June 1949. On 8th of September 1949, the arbitrators served notices upon the vendees intimating their unwillingness to act as arbitrators. On 27th of October 1949, the vendees presented an application under section 20 that the arbitration agreement be filed in Court. The respondent pre- emptors admitted the execution of the agreement of 6th of March 1949, but maintained that the dispute was referred to the arbitration of Haji Faiz Bakhsh and Ghulam Mustafa who had refused to arbitrate, and the essence of the agreement was that no body else should be permitted to act a s arbitrators: nor were the respondents willing to accept the arbitration of any other person. The trial Court framed the following issues :‑ (1) Was the arbitration agreement intended only for the specific arbitration of Faiz Bakhsh and Ghulam Mustafa on account of which the present petition is not competent? (2) If issue No. 1 be found against the respondent, is not the Court empowered to appoint arbitrators? (3) Relief? On issue No. 1 the trial Court held that the arbitrators had not appointed an umpire within one month as laid down in the First Schedule and had not given their award within four months. It was further held that a portion of the property sold was to be measured and its valuation made, and the matter, being of a technical nature, could not be entrusted to the arbitration of any other person. On these findings the Court refused to file the agreement. The decision on issue No. 2 was not given as it was considered unnecessary. The petition for filing the agreement was, therefore, dismissed. The vendees have now come up in appeal. Section 20 of the Arbitration Act of 1940 refers to "arbit ration with intervention of a Court where there is no suit pending." The relevant portion is reproduced below:‑ "(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. (5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable." This‑section reproduces paragraph 17 of Sch. II of the Code of Civil Procedure, 1908, with some verbal alterations which shall be presently noticed. It is substantially the same as in the old Code. Subsection (4) of section 20 is the subsection (4) of paragraph 17 of the Code and the words italicised above were added for the first time in the Act of 1940. Subsection (5) of section 20 is wholly new and did not exist in the Code. Under paragraph 17 of the old Code, the refusal or the death of the sole arbitrator or one of the arbitrators before the filing of an application, constituted a sufficient reason for file the agreement in Court. Mohan Lal v. Damodar Das 71 P R 1918, quoted with approval Brooke v. Surdyal (1872) 12 Beng. L R App. 13, where Pontifex, J., remarked:- "After an agreement such as now before me has been exe cuted any person who is a party to it is entitled to apply to the Court to have such agreement filed and no party to such an agreement could hope successfully to oppose such appli cation if all the arbitrators named in it were alive and willing to act. But it is quite a different thing when, upon making such an application, a party to the agreement is able to come in and show that before the application was made one of the arbitrators named in the deed had in fact died or as in this case had refused to act in the matter. In such a case I think the contention is right that the reference to the arbitration agreed upon between the parties no longer exists so as to enable the Court to direct that it should be filed and if it were filed, I do not think the Court could exercise the powers of appointing a .new arbitrator, because, the arbi trator, who has refused to act, refused before the order of reference, directed by section 326, was made by the Court."' This was under the old Code of 1859, but the language in the later Code of 1908 was not considered different. The same principle was affirmed in Sri Ram v. Sorabji 155 P R 1919. Exception was, however, made in the case of the agreements where a provision existed for the appointment of another arbitrator in place of one declining to act. In a Letters Patent Appeal, Salig Ram‑Bhagat Ram v. Kishen Singh‑Sant Ram A I R 1938 (Lah.) 859, it was held : If parties to an agree ment to refer a dispute to arbitration leave a contingency un-provided for, the Court will not be proceeding consistently with the agreement if it makes a provision for such contin gency. The lacuna, if any, is to be filled by parties themselves, and not by the Court. Where, therefore, parties agree to refer their dispute to arbitrators nominated by each party but the agreement does not make any provision for the nomination of an arbitrator in case any arbitrator already nominated refuses to act, and one of the nominated arbitrators refuses to act, the Court has no power to make the necessary appointment so as to make the agreement operative and effectual". It may, therefore, be taken to be established, so far as this Court is concerned, that where, before the agree ment has been filed in Court, an arbitrator has died or refused to act, the agreement shall become void and the Court shall not allow it to be filed. This was the position under paragraph 17 of the Code of Civil Procedure. Whether the position is the same or has altered would be decided with reference to the pharaseology of subsection (4) of section 20 of the Arbitration Act of 1940. The words "by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator, appointed by the Court" were added, as mentioned above, by the Act of 1940. The plain meaning of subsection (4) of section 20 is that in the absence of "a sufficient cause" the Court shall order the agreement to be filed and shall call upon the arbitrator 'mentioned in the agreement of the parties or otherwise agreed to by them, to decide the dispute, and if the parties cannot agree, then the Court shall have a right to appoint another arbitrator. The authority of the Court has thus been considerably widened. Previously the Court was not entitled to fill up the place of an arbitrator who had refused to act, but now if the arbitrator named in the agreement declined to act, the Court could ask the parties to agree to another person as arbitrator, and if the parties still could not come to an agreement, the Court could intervene. In other words, the omission or failure on the part of the arbitrator first appointed by the parties would not make the agreement wholly ineffectual, but the agreement could still be kept alive by the parties by agreement, and failing that, by the. Court itself. After that had been done, subsection (5) comes in and the arbitrator shall proceed in accordance with the other provisions of the Act. To this might be added section 57 of the Act of 1940. It is as follows :‑ "Subject to the provisions. of section 46, and save in so far as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitra tions and to all proceedings thereon". The phrase "and to all proceedings thereunder" would attract the other sections of the Act to an application for filing the agreement in Court under section

20. This would make it possible to have recourse to sections 8 and 9 of the Act, the, application of which shall not be confined to the proceedings k after the agreement under section 20 has been ordered to be filed. It would thus be clear that the refusal of an arbitrator named in the agreement to act would not put an end to the agreement itself, but would enable the Court in the last resort to supply the deficiency. Under section 8, subsection (1) clause (b) of the Act of 1940, it shall be presumed that it was intended that the vacancy shall be supplied, and the burden to shove otherwise shall rest on the person objecting to it. The only plea raised by the respondents against the filing of the agreement in Court was that the arbitrators had refused to act, and no other cause was urged. This has been found to be insufficient to make the agreement inoperative under the new Act. In the course of his statement, however, Ghulam Shabbir, respondent had urged that the agreement itself was torn, implying thereby that it had been revoked by .the consent of the parties. No such specific plea was ever taken, nor was it ever put into the form of an issue. This does appear to be correct, for the arbitrators had on 8th of September 1949, given a notice that they were not prepared to act, and this would have been unnecessary if the agreement had been cancelled by the parties themselves. The other ground upon which the Court had refused the application was that the subject‑matter of the dispute was of a technical nature and the intention of the parties appeared to be to accept‑ the arbitration of only the persons mentioned in the agreement. There is nothing to suggest that Haji Faiz Bakhsh and Ghulam Mustafa possessed any technical knowledge and were chosen for that reason. It is also doubtful whether the carrying out of measurements can be said to be a matter of a nature which could not be performed by any other person well‑reversed in the art of measurement. The failure to observe the requirements of the First Sche dule to the Act cannot be allowed to affect the validity of the agreement. The record does not show when were the arbi trators informed of their appointment, and the period of one month could commence only from the date of their knowledge and if they wanted to act. The period of four months referred to in para. 3 of the First Schedule could be reckoned only "after the entering on the reference or after having been called upon to act by notice in writing from any party to the arbi tration agreement". The arbitrators did not enter upon the reference nor was any notice served upon them, and the period specified in para. 3, therefore, could not start. The agreement under the new Act could not thus be rendered ineffective by not doing something within the period allowed. The Court had ample power to extend the period, if necessary. In other cases, a party to an agreement may be able to show "sufficient cause" against the filing of the agreement, but this has not been established in the present case. I would, therefore, accept this appeal with costs, set aside the order of the learned Senior Subordinate judge and direct him to file the agreement and continue the proceedings in accordance with law. The parties have been directed to appear before the lower Court on 20th of March 1950. K. M. A. Retrial ordered.