2001CLC613 (PLP)

3.It was on 29‑4‑1986 when Habib‑ur‑Rehman and Ch. Munir Ahmad, S.E. Highway Circle, Gujranwala were appointed to act as arbitrators. While the matter was awaiting award of the arbitrators, defendants Nos.4 to 7 were deleted, on the statement of the plaintiff, by the Court on 21‑1‑1993. An application was filed by the appellants for removal of Ch. Munir Ahmad. There was another application by the respondents/ plaintiffs for the removal of Habib‑ur‑Rehman. By order, dated 21‑3‑1993, the application of the appellants defendants for removal of Ch. Munir Ahmad was rejected and the application of the plaintiffs/respondents for removal of Habib‑ur‑Rehman was granted, as a result thereof, Mr. Irshadullah Chaudhry, Advocate was appointed as arbitrator in place of Habib‑ur Rehrpatt. On 9‑12‑1993, award for Rs.60,16,392 was rendered by the above named arbitrators. Number of objections were filed by the appellants including that the reference to arbitration was illegal and that the award was invalid. The learned trial Court framed issues thereon. Evidence was produced by the parties in support of their respective pleas. It is the judgment, dated 30‑4‑1999, whereby the objections raised by the appellants were rejected, the award was made rule of the Court and the decree passed.

4. It is contended by the learned counsel for the appellants that the appointment of arbitrators, reference of dispute to them and the award rendered by the said arbitrators, is illegal and invalid in law being violative of section 21 of the Arbitration Act, 1940 inasmuch as no arbitrator could be appointed by the Court except by the consent of the parties or in terms of Condition No. 14 which envisages the appointment of a serving Superintending Engineer only as an arbitrator in the matter. It is contended that the appellant never concurred or consented to the appointment of the arbitrators who have rendered the‑award. It is thus, contended that the view taken by the trial Court on Issue No.2‑A is erroneous inasmuch as order of appointment of the arbitrators was not appealable and the appellants were not estopped to challenge the reference while raising objections to the award. It is further contended that it was a declaratory suit, which had been filed by respondent No.1 challenging orders dated 13‑2‑1984 and 21‑2‑1984 whereas the arbitrators have, in giving the award, acted beyond even the scope of the suit, i.e. by awarding exorbitant compensation for remote and farfetched alleged loss and damages. In support of his contention reliance has been placed on Abdul Mateen and 3 others v. Yousuf Bilal and 4 others PLD 1985 Kar. 422, Gopal Das v. Baij Nath and. others AIR 1926 All. 238, Messrs S.M. Qasim & Co. v. Messrs Sh. Azimuddin PLD 1962 (W.P.) Lah.

95. He has criticised the award item wise as also the judgment passed by the trial Court in maintaining and making the same as rule of Court.

5. The learned counsel for the contesting respondent has raised an objection as to the maintainability of this appeal and also supports the reference to arbitration, the award and the judgment passed by the trial Court. It is contended by him that the order appointing the arbitrators having not been challenged by the appellants and having participated in the proceedings before the arbitrators the appellants are estopped to challenge the reference or the award and that no prejudice had been caused to the appellants in the matter nor section 21 of the Arbitration Act, 1940 has in any way been violated. His objection to the appeal is that the trial Court has passed the judgment in term of award under section 17 of the Act and‑ since no appeal is competent against such judgment and decree except when the decree is in excess of or otherwise not in accordance with the award, therefore, according to him, the decree passed by the trial Court, does not fall within these exceptions, hence appeal is competent there against.

6. Adverting to the preliminary objection as to the maintainability of the present appeal a reference to section 39 of the Arbitration Act, 1940 may be appropriate which describes the orders appealable under the Act. According to subsection (1)(vi) an order "setting aside or refusing to set aside an award" is appealable. Since in the present case the objections, filed by the appellants to the award for setting aside of the same have been rejected by the trial Court, the order falls within the abovementioned clause. The appeal, prima facie, is thus, maintainable against such an order however, it will be considered in the latter part of the judgment as to on what grounds an award can be set aside by the appellate Court.

7. As mentioned earlier the respondents/plaintiffs were aggrieved of certain actions/orders of the appellants and filed suit seeking a declaration thereabout. The suit was contested by the appellants on various grounds, one of the objections was that there was an arbitration clause between the parties. The Court had framed issues arising out of the pleadings of the parties, whereafter, the respondents/plaintiffs made an application to the Court for appointment of arbitrator, nominating Mr. Habib‑ur‑Rehman as one of the arbitrators. It was on this application that the trial Court appointed Habib‑ur Rehman and Ch. Munir Ahmad as arbitrators in the matter. This, however, was not consistent with clause (14) of the additional conditions of the agreement which envisaged the appointment of a serving Superintending Engineer as arbitrator only. Since the matter was pending before the Court, the appointment could only be made with the agreement of the parties to the suit in view of section 21 of the Arbitration Act, 1940. The case of the appellants is that the appellants had never agreed for any such arbitration nor concurred or consented to the appointment as arbitrators, therefore, the reference by the Court was itself illegal and violative of section 21 (ibid), whereas, the contention of the other side is that the appellants having not challenged the appointment of the arbitrators and participated in the proceedings before them are estopped to raise this issue. Thus, it has been considered appropriate to first examine as to the validity of the reference to arbitration by the trial Court and the effect of participation by the appellants before the arbitrators in the proceedings.

8. It was Issue No.2‑A which had been framed by the trial Court:‑‑ "as to whether the appointment of the arbitrator is the violation of section 21 of the Arbitration Act and the proceedings of the arbitrators are null and void? OPR"

9. The abovementioned issue has been answered by the trial Court by taking the view that:‑‑ "As it is evident from the provisions of section 21 the parties must agree to refer the matter to the arbitrator and when the application of plaintiff was accepted to refer the matter to the arbitrator and the defendants did not prefer any appeal or revision against this order, means that they were agreed. Moreover, in these circumstances any person could be appointed as arbitrator, therefore, no violation has been committed of the section 21 of the Arbitration Act. The appointment of the arbitrators is quite legal and the award is also quite legal and lawful." It shows that the learned trial Court laboured under an impression that order passed by the trial Court appointing the arbitrators was an appealable order under the Act and since no appeal was filed, the legality of the said order could not be challenged. It is not so because such an order is not appealable under section 39 of the Act wherein the orders appealable have been listed.

10. The order appointing the arbitrators by the trial Court was of an interlocutory and intermediary nature which can be challenged before the Court of appeal when filed against a final order or decree in view of section 105 of the C.P.C. In Shah Jahan v. Inayat Shah and others AIR 1919 Lah. 38 it was observed that by complying with the directions or findings of an intermediate order a plaintiff is not deprived of the right to raise in final appeal the question of propriety of such order and to attack its correctness. In Divisional Superintendent, P.W., Lahore v. Muhammad Naseer‑ud‑Din PLD 1972 Lah. 301, it was held that failure to file appeal against an interim order does not preclude its challenge in appeal against the whole case. In Mst. Khurshid Begum v. Ahmad Bakhsh and another PLD 1985 SC 405 it was held that on an appeal filed against the ultimate decision of the Court the whole case including all interim orders passed therein get reopened and could be competently challenged before the Court of appeal. In Sewa v. Mst. Sand and others 1992 SCMR 1306, again, it was observed that:‑‑ "It was not disputed by the learned counsel for the respondents that the said order was not an appealable one. Apart from that, it was open to the appellant to postpone his challenge to the order of 11‑12‑1971 till a final order had been passed against him. This was exactly what he did. Under section 105(1), Code of Civil Procedure he could while preferring the appeal against the rejection of his plaint call in question the legality of the said order." Thus, it is beyond doubt that on filing of appeal against the ultimate decision of the Court below the whole matter gets reopened and the legality and propriety of any adverse interim order can also be examined by the Court of appeal. The contention of the learned counsel for the contesting respondent in view of the above precedents cannot prevail.

11. In the case of Gopal Das v. Baij Nath and others AIR 1926 All. 238 which had arisen out of an arbitration matter, the Court overruled certain objections and directed that decree be prepared in terms of the award. The question whether the legality of the reference to the arbitration could be challenged before the High Court came to be considered in that case. It was a suit filed before the Civil Court in which the plaintiff made an application for reference of the dispute to a named arbitrator. The defendants had not agreed to that, however, the Court made a reference to the arbitrator who gave an award. Objections raised by the defendant were rejected by the trial Court who challenged the same in the revision filed before the High Court. Before the High Court an objection was raised by the plaintiff/respondent that the validity of the reference to the arbitration could not be challenged which objection was overruled by the Division Bench and it was observed that:‑‑ "It could never had been in the contemplation of the Legislature to make an agreement for reference to arbitration by only one of the partners binding on all the other partners merely because the suit is against the firm as such. " It was further observed that the law did not entitle a partner to refer the entire dispute through arbitration without the agreement of the other partners. The reference made by the Court to arbitration on the request of one of the parties/partners was found as illegal and the decree passed on the strength of the award was set aside and it was ordered "that the case be restored to the original file and be disposed of according to law". In Abdul Mateen's case (supra), it was observed that where the reference is sought to be made of matter in dispute in a pending suit to arbitration, it is an essential requirement of law that all the parties interested must agree to submit differences to arbitration and apply in writing to the Court for an order of reference. In Abdul Qayyum Khan v. Government of Punjab through Secretary, Local Government and Rural Development Department and another PLD 1995 Lah. 205 a Full Bench of this Court had noted that the Arbitration Act, 1940 was a complete and exhaustive Code in itself for matters of arbitration which envisages written agreement of the parties for submission of their present or future differences to arbitration. It was observed that "according to the scheme of this Act there are three modes of arbitration which are as under:‑‑ (a) Arbitration with the intervention of the Court, where there is no suit pending (section 20). (b) Arbitration in a suit pending before the Court (section 21), and (c) Arbitration without the intervention of the Court." In the instant case, undisputedly, it was arbitration in a suit pending before the trial Court and to be governed by section 21 of the Act. It could only be possible by agreement of all the parties and not at the choice or option of a party. If the plaintiff/respondent had to resort to the arbitration in the matter, he could either make reference in terms of Condition No.14 of the additional conditions of the agreement before filing of the suit or if the Court had to refer the matter it could be possible with the consent and the agreement of all. What is evident from the proceedings of this case is that the plaintiff/respondent made an application for appointment of arbitration by nominating its own arbitrator whereupon despite the objection by the appellants/respondents, the Court proceeded to refer the matter to arbitrators. This was not permissible in view of section 21 of the Arbitration Act, 1940. The Court had no such power in view of section 21 to impose arbitration on an unwilling party. The importance of agreement of the parties p in arbitral matter was also highlighted in Director Housing, A.G.'s Branch, Rawalpindi, v. Messrs Makhdum Consultants Engineers and Architects 1997 SCMR 988.

12. The participation of the appellants/defendants before the arbitrators in the proceedings would not validate the reference. In Nand Kishore v. Mercantile Corporation (India) Ltd. AIR 1953 Cal. 415 it was held that where an order of reference was illegal, subsequent proceedings and participation of the parties could not make legal what was illegal. In paragraph No. 67 of the judgment relying upon Chhabbalal v. Kallu Lal AIR 1946 PC 72 it was held that "the reference being tainted with illegality at the root subsequent consent does not cure the defect. I, therefore, declare and adjudge that the award is invalid and a nullity. I also declare and adjudge that the order of reference was an in invalid and a nullity and I revoke it". Thus, no amount of acquiescence or participation by the appellants in the proceedings before the arbitrators could validate what was invalid from its inception. In Messrs Awan Industries Ltd. v. The Executive Engineer, Lined Channel Division and another 1992 SCMR 65 the appellants therein had filed a suit which remained pending before the Court for some time. On imposition of Martial Law in the year, 1977 they approached the Deputy Martial Law Administrator with a request to appoint a sole arbitrator in the case which request was acceded to by the Deputy Martial Law Administrator who appointed one Abu Saeed Khan, Director Highway, Hyderabad as arbitrator in the matter. The proceedings in pursuance of that appointment were taken by the arbitrator who gave an award later on. The award was filed before the Court who rejected the objections and made the award rule of the Court. The said judgment and order was challenged before the High Court by setting aside the judgment and decree of the trial Court. On an appeal before their Lordships of the Supreme Court, it was observed that:‑‑ "Where, therefore, an award is found to be nullity because of the invalidity of the arbitration agreement or, for any other reason, or the award is prima facie illegal and not fit to be maintained, the Court has power under section 17 of the Act to set it aside without waiting for an objection to award being filed or without considering any application for setting it aside, if there be any, and irrespective of the question whether or not any objection to the award was filed or whether the objection, if filed, was not within time. In such cases section 30, clause (c) of the Act is .also attracted. Another example can be where a party appoints a sole arbitrator without prior notice to the other party, the award would be prima facie illegal and may be set aside. See Abdul Khaleq v. Province of East Pakistan and another PLD 1964 Dacca 166 and Messrs S.M. Fasail and Company. v. Messrs Overseas Cotton PLD 1959 Kar.739. It was further held that:

Even otherwise while examining the award for the purposes of making it rule of the Court, the Court could consider whether there was a valid arbitration agreement or reference to arbitration pursuant to which the award was given or whether the award was in existence. It is correct that an award could be set aside only on the grounds mentioned in section 30 of the Act, but besides section 17, this section also contains clause (c), which provides the ground that the award was given by an Arbitrator appointed by the Deputy Martial Law Administrator, Zone ' C' and not by the parties and the Deputy Martial Law Administrator himself named the sole arbitrator. Although, subsequently respondent No. l and the appellants had executed an arbitration agreement but it was based on the order of the Deputy Martial Law Administrator." (underlined by us for emphasis) The appeal was accordingly dismissed maintaining the judgment of the High Court. It is thus, evident that even a subsequent agreement or participation in the proceedings when the initial reference is illegal does not cure the l illegality and the award given by the arbitrator can be set aside by invoking clause (c) of section 30 of the Act that the same was "otherwise invalid". Similar position obtains in the present case and we are persuaded to hold that reference to arbitration by the trial Court in the present case was not legal and was rather violative of section 21 of the Arbitration Act, 1940. The award given by the Arbitrators had no lawful basis which could be made rule of the Court by the trial Court. The findings recorded and the view taken by the trial Court as to Issue No.2‑A thus, are not sustainable in law. We have, however, refrained from embarking upon other matters touching the merits of the respective contentions of the parties.

13. In view of the above, the reference of the matter to arbitration by the trial Court and the award rendered on the basis thereof is held to be H illegal, as a result whereof, the judgment and decree, passed by the trial Court, is set aside. However, the suit filed by the respondents/plaintiffs will proceed before the trial Court from the stage the proceedings were interrupted by reference to arbitration. W e are mindful of the long pendency of the dispute and would thus, urge the trial Court to expedite the hearing of the suit and decide the same on its merits. This appeal is accordingly accepted with the above observations. No order as to costs. Q.M.H./M.A.K./P21/L Appeal allowed.