P L D 1957 Supreme Court (Pak (PLP)

CORNELIUS, J.‑‑-This appeal by special leave raises a question of considerable importance in relation to arbitration agreements. The parties are Abdul Hamid, appellant and H. M. Qureshi, respondent, who were partners in a shop dealing in automobile spare parts. The deed of partnership was executed on the 7th September 1948, and contained 12 clauses of which the tenth, embodying the agreement to refer disputes to arbitration reads as under:‑ "Tenthly. In case of a dispute or a difference arising between both the parties, each of the parties shall appoint an arbitrator, and with the consent of both the parties or with the consent of the two arbitrators, a Surpanch shall be appointed, who shall bring about a mutual settlement and their decision shall be binding on both the parties." A dispute having arisen, H. M. Qureshi sent notices on the 23rd April, the 16th May and the 30th May 1949 to, Abdul Hamid. The first notice set out the complaints which H. M. Qureshi had against the conduct of Abdul Hamid, and concluded as follows:‑-- "In accordance therefore with the terms of the deed referred to above I am to call upon you to nominate one arbitrator on your own behalf and my client will nominate one on his own behalf and their award shall be final." This was not strictly in accordance with the agreement to refer. It appears that Abdul Hamid in his reply raised inter alia a question that the parties had already agreed that one Mr. Fazal Elahi should be arbitrator between them. In the second notice, H. M. Qureshi denied all the allegations made against him by Abdul Hamid, as well as the allegation that there was any agreement that Mr. Fazal Elahi should be the arbitrator. It will be convenient to state here that the point regarding Mr. Fazal Elahi was placed in issue between the parties in the Court proceedings to which I shall presently refer, and was found against Abdul Hamid. It was only in the third notice of the 30th May 1949, that H. M. Qureshi nominated his arbitrator, namely, Mr. G. H. Lodhi. The terms of the notice were that H. M. Qureshi had appointed Mr. Lodhi as his arbitrator and called upon Abdul Hamid to appoint his arbitrator within seven clear days of receipt of the notice, failing which H. M. Qureshi would "be constrained to appoint Mr. G. H. Lodhi, Cooper Road, Lahore as the sole arbitrator." Further notices to the same effect were sent by telegram as well as by post on the 29th June 1949. It appears that with the exception of the first notice of the 23rd April 1949, none of these notices was replied to by Abdul Hamid. The date on which Mr. Lodhi entered upon the reference is not clear, but his award shows that he sent notice to Abdul Hamid for hearings firstly on the 27th of August and secondly on the 23rd of October 1949. On each occasion, Abdul Hamid was absent, and having commenced his inquiries on the 29th October 1949, Mr. Lodhi gave his award on the 31st October 1949, by which he held Abdul Hamid liable to pay the sum of about Rs. 23,500 including costs, and in addition awarded to H. M. Qureshi the goodwill of the shop and the "allottee rights" of the premises. It should be mention ed that the shop was evacuee property which had been allotted to the two partners in the present case by the Rehabilitation Authorities. When the matter came to Court, the learned Civil Judge found it impossible to support the award of the allottee rights by the arbitrator to H. M. Qureshi. He held that to this extent the award was ultra vires, but the validity of the whole award was not affected thereby since this part was sever able from the rest of the award. When H. M. Qureshi moved the Court on the 9th November 1949, to file the award, and to obtain a judgment against Abdul Hamid in terms thereof, he was met with strong resistance. For this and other reasons, the decision in the matter was not reached until the 21st January 1953. The learned Civil Judge held that the partnership had not been dissolved as alleged by Abdul Hamid, and that therefore, the arbitration clause was valid. The other conclusions which are relevant for the purposes of the present discussion were recorded in relation to the sixth issue which was in the following terms:‑ "Is the award invalid for any of the reasons given in the objections? If so, what is its effect?" The following passage contains the relevant conclusions: "Although there was no objection to the reference, it was argued for the applicant that the case was covered by section 9 of the Arbitration Act as the respondent had failed to appoint his arbitrator in spite of the anxious and earnest requests to the respondent contained in Exhs. R‑I, R‑2, R‑3 and R‑4 and A‑

7. From the respondent's side the replies are Exh. R‑5 and Exh. A‑

4. The mere fact that the respondent was given seven days to make the appointment, cannot take the case out of section 9 of the Arbitration Act, as no time limit was necessary to be given to the respondent and anything that is unnecessary cannot vitiate the appointment of Mr. Lodhi as the sole arbitrator. All that is required under section 9 is that the appointing party should wait for 15 days after the service of notice on the defaulting party. In my opinion no objection has been made out against the award." The point concerning the application of section 9 of the Arbitration Act was decided without being discussed. It appeared very clearly in an issue framed by the Court on the 23rd June 1950, which was later cancelled, and which reads as follows:‑ "Was the applicant competent to appoint the sole arbitrator under section 9 of the Arbitration Act, notwithstanding also the fact that according to the agreement a Surpanch also was to be appointed." (p. 10 of the Paper‑Book). A decree having been made in terms of the award, an appeal was preferred in the High Court by Abdul Hamid. The first three grounds in the grounds of appeal are relevant to the present discussion. They raise the following questions viz., (1) that the appointment by H. M. Qureshi of a sole arbitrator contravened the tenth clause of the partnership agreement which provided that "the parties were to appoint an arbitrator each and the arbitrators so appointed or the parties themselves had to appoint an umpire," (2) that section 9 of the Arbitration Act did not in terms apply to the case, and (3) that the notice to Abdul Hamid to appoint his arbitrator within seven days was illegal. The case was heard by a learned Single Judge before whom the arguments presented were as follows. In support of the contention that section 9 of the Arbitration Act had no application, it was argued that the arbitration clause not only provided for the appointment of two arbitrators but also for the appointment of an "umpire" either by the partners or by the arbitrators by mutual consent. The relevant pro vision in section 9 only mentions references to two arbitrators, one to be appointed by each party, and goes on to lay down that if one party has appointed his arbitrator and then given notice to the other party to appoint his own arbitrator, if such other party fails to appoint his arbitrator for fifteen clear days after the service of such notice, the arbitrator appointed by the party first mentioned may be appointed to act as sole arbitrator and his award shall bind both parties. It was contended that the arbitration agreement in the case provided for reference to three persons, whether the third be regarded as a third arbitrator or an umpire, and therefore, did not fall within section

9. The learned Single Judge repelled the contention. He pointed out that section 9 does not concern itself with the appointment of an umpire, and went on to say that the tenth clause in the partnership deed was "not repugnant to the pro visions of section 9 or any other provision of the Arbitration Act." He then proceeded to discuss the question of appoint ment of an umpire, and in this connection he referred to Article 2 of Schedule 1 to the Arbitration Act which lays down that where the reference is to an even number of arbitrators, the arbitrators shall appoint an umpire. (Article 4 of the same Schedule provides that the umpire shall "enter on the reference in lieu of the arbitrators" in two specified contingencies viz., (1) the arbitrators not having made their award within time or (2) the arbitrators having declared their inability to agree.) The learned Single Judge found it unnecessary to examine the question further, as he was satisfied that the tenth clause of the partnership agreement did not render section 9 of the Arbitration Act inapplicable to the case. On the point of validity of the notice, the learned Single Judge said that while it was true that each of the notices allowed only seven days for nomination of an arbitrator by Abdul Hamid, yet Mr. Lodhi had been appointed the sole arbitrator "long after" the last notice was given. Abdul Hamid could have ignored the reduced period mentioned in the notices, and could have complied with the law by appoin ting his arbitrator within fifteen days of service of the first notice. In the view of the learned Single Judge, he did not do so because he never intended to abide by the arbitration agreement. On these grounds, the appeal was dismissed, and having failed in an appeal to the High Court under the Letters Patent, as well as in an effort to obtain a certificate for appeal to the then Federal Court. Abdul Hamid obtained special leave to appeal from this Court for consideration of the question "whether, upon a true construction of the arbi tration agreement, the case falls within section 9 of the Arbitration Act, or any other provision of law relating to the enforcement of such agreements". It is apparent from the above narration of proceedings before the Civil Judge and in the High Court that the precise purport of the tenth clause in the partnership agreement has not been ascertained at any previous stage of the case. Some confusion has clearly been caused by the statements, made on more than one occasion on behalf of Abdul Hamid, that this agreement provided for appointment of an "umpire". In fact it provided for appointment of a Surpanch, and it is very doubtful indeed whether a Surpanch, as the term is understood in this country, can be thought to occupy a position equivalent to that of an umpire in the law relating to arbitration. For an umpire, in arbitration law, is a person appointed to take over the reference from arbitrators who are unable to agree among themselves, or who have exceeded the time allowed by law for making their award. Under the Arbitration Act, 1940, the umpire acts, not with the arbitrators, but in lieu of the arbitrators. On the other hand, a Surpanch as the expres sion indicates, is a Punch, or member of the board, like the other members but is invested with the duty of sitting with the board as its chairman. Reference may usefully be made in this connection to the judgment delivered in the Oudh Judicial Commissioner's Court in the case Lala Abdus Samad (17 IC 320). There the agreement of reference to arbitration gave the names of three persons, two of whom were described as Punches and the third as the Surpanch and provided that, whatever decision was arrived at by the Punches and the Surpanch named therein would be binding on the parties. It was not said that the Surpanch was only to act in case of difference between the Punches. The learned Judge came to the conclusion that the mere use of the word Surpanch in the agreement to refer did not necessarily imply that the Surpanch was to act only in case of difference of opinion among the other arbitrators. In the present case the tenth clause contains the words which indicate clearly that the decision, which was to be binding upon the parties, was the decision reached after the two arbitrators and the Surpanch had brought about a mutual settlement or under standing. The words employed do not serve to support in any way the conclusion that the function of the Surpanch was to be restricted in the same fashion as is the function of an umpire under the Arbitration Act. The true construction of the tenth clause, therefore, leads to the conclusion that the intention of the parties was that there should be not two arbitrators and an umpire, but three arbitrators, one of whom should be the chairman or Surpanch. If the position be otherwise, however, namely that the words of the tenth clause might either carry the meaning indicated above, or might mean that the Surpanch was to act as umpire in the manner of the Arbitration Act, 1940, the result would inevitably be to import a degree of ambiguity into the submission such as would justify the Court in refusing to enforce any‑ award made or purporting to be made under the submission. In the Ninth Edition of the well known Treatise on the Power and Duty of an Arbitrator by Russell, at page 161 there will be found citation of cases in support of the following statement:‑ "Thus, where a cause was referred to two arbitrators and such third person as they should nominate as their umpire, and the parties agreed to perform the award to be made by the two and their umpire, the Court refused to enforce by attachment performance of an award made by the two arbitrators alone, considering it a doubtful point whether the award was not intended to be the joint act of the three." In the present case, only one arbitrator, who may be described as the arbitrator for H. M. Qureshi, was appointed and his award which was based upon an inquiry in which Abdul Hamid took no part, has been made the basis of a decree for a large sum in favour of H. M. Qureshi. It cannot be denied that the aspect of one‑sidedness appears most prominently. It is sought to be justified by reference to clause (b) of section 9 of the Arbitration Act, 1940. The question goes to the competency of the arbitrator nominated by one of the parties, to give an award which shall be binding upon both parties. In order that the award should qualify, within the context of law for being made a rule of Court, it should be the act of a tribunal validly invested with authority to investigate and pronounce upon the rights of the parties to the submission. The Court will, of necessity, examine the power which such person or persons appear to exercise, with the care necessary for the purpose of ensuring that the decree which it proposes to make in relation to the rights of the parties, does not rest upon a conclusion reached by a private tribunal which was itself not competent in law to deal with the matter in the light of the agreement between the parties, and the relevant law. The question of the competency of Mr. G. H. Lodhi's appointment was not raised in the terms indicated above at any earlier stage of this case, but that is not a circumstance which need stand in the way of this Court undertaking the duty of examining the point. The question of jurisdiction was frequently allowed to be raised in the Privy Council even though it had not been raised in the grounds of appeal to the judicial Committee, and had been overlooked in the earlier stages of the case. Ramlal Hargopal v. Kishanchand (51 I A 72) is a case where an objection to the jurisdiction of a District Judge had not been insisted upon in the lower Court and had not been expressly raised before the Privy Council. Their Lordships, however, allowed the point to be raised in the following words:‑ "If it was any other point except a point of jurisdiction, their Lordships would pay no attention to it; but they are bound to take notice of an objection,. to the jurisdiction, however, late in the day it may be raised, if it be that on the facts admitted or proved it is manifest that there is a defect of jurisdiction; and their Lordships find this defect in the present case." In a more recent case from West Africa, the Judicial Committee made the following observations of general application:‑ "If it appears to an Appellate Court that an order against which an appeal is brought has been made without jurisdic tion, it can never be too late to admit and give effect to the plea that the order is a nullity." Chief Kwame Asante v. Chief Kwame Tawla (AIR 1949PC171=PLD 1949PC45). The relevant provisions of section 9 of the Arbitration Act, 1940, are contained in the following words:‑ "

9. Where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party, then, unless a different intention is expressed in the agreement,‑ (a) .. (b) if one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent." In examining the terms of the tenth clause of the partnership agreement, it has been seen that the words serve more clearly to support the view that the intention was to appoint three arbitrators of whom one was to be a Surpanch or chairman then the conclusion that the person to be appointed, either by parties or by the two arbitrators should be an umpire. The first subsection of section 10 of the Act lays down that where an arbitration agreement provides for a reference to three arbitrators, one to be appointed by each party and the third by two appointed arbitrators, the agreement is to have effect as if it provided for the appointment of an umpire. This effect shall follow, despite an intention to the contrary appearing from the agreement itself. So much may be gathered from the circumstance that no saving clause such as that contained in section 9 in the words "unless a different intention is expressed in the agreement" is to be found in subsection (1) of section 10, although such a clause appears in the two remaining subsections of this section. But the provision in the 10th clause is for the appointment of the Surpanch by the parties themselves or by the appointed arbitrators, and this is a clear variation from the precise conditions which are requi site before the absolute rule laid down in subsection (1) of section 10 can come into play. For this reason, it is preferable to regard the 10th clause as falling within the second subsection of section 10, which relates to references to three arbitrators "to be appointed otherwise than as mentioned in subsec tion (1)"; in such a case, the award of the majority prevails, unless the arbitration agreement otherwise provides. Upon the view that the 10th clause of the partnership agreement constitutes an arbitration agreement for reference to "three arbitrators to be appointed otherwise than mentioned in subsection (1)" of section 10 it is perfectly clear that section 9 which speaks of reference to two arbitrators has no application to the present case It was urged that where an arbitration agreement provides for a reference to two arbitra tors, whether the appointment be by the parties jointly or whether they be appointed one by each party, it is the duty of the appointed arbitrators to appoint an umpire within a specified time, and the result will be no different from that produced by implementation of the 10th clause on the suppo sition that the Surpanch was appointed by the two arbitrators. But such a supposition does not include the whole effect of the clause. Moreover, the 10th clause expressly provides for reference to three persons and not to two arbitrators. Particularly where what is sought to be enforced through a Court decree is an award given by a single arbitrator, appointed by one of the parties, and therefore of necessity bearing some taint of partisanship, it is necessary that the conditions should be in strict accordance with the statute upon which reliance is placed for producing such a result. Section 9 refers to two C arbitrators, and in the present case it would seem that there: must be three, or at any rate two arbitrators and an umpire. The view of the learned Single Judge that the matter fell within section 9, unless the 10th clause could be held repug nant to the provisions of that section or any other provision o. the Arbitration Act is not one which, in the circumstances oil the present case, can be supported. A case which is practically on all fours is that of Gumm v. Hallett (L R 14 Equity Cases 555). There the contract between the parties provided that disputes between them should be referred to three per sons, one to be appointed by each of the parties and the third by the two so chosen. A dispute having arisen one party appointed its arbitrator and gave notice to the other party of such appointment. The law applicable to the case required that if the other party failed to appoint its arbitrator within seven days after service of the notice, the first party could appoint its arbitrator to act as sole arbitrator, whose award would be binding upon both parties. This was provided by section 13 of the Common Law Procedure Act, 1854, and is to much the same effect as the provisions of section 9 of the Arbitration Act, 1940 which are applicable to the present case. An award having been given by the arbitrator appointed by the first party as the sole arbitrator, the question of its validity as against the other party was raised and the decision of Bacon V. C. Was that the provisions of section 13 of the Common Law Procedure Act, 1854 did not apply where the contract between the parties was that matters in dispute should be referred to three arbitrators. A contrary view is however expressed in N. N. Strcar's Law of Arbitration in British India at page

116. Discussing the provisions of section 9 of the Arbitration Act, 1940, the learned author observes as follows:‑- "Is it a case of "two arbitrators" where the agreement provides for a reference to two arbitrators with the addition of the provision that "if necessary the two arbitrators will appoint a third". It can legitimately be contended that this will not be a case of "two arbitrators", but the contrary view was accepted in S. S. Den of Airlie Co. v. Mitsui & Co. ((1912) 106 L T 451). The decision was under section 6 of the English Arbitration Act of 1889, of which the language was not different from that in section 9 of the Arbitration Acts of 1899 and 1940." The eminence of the learned commentator, who was at one time Law Member in the Executive Council of the Governor General of India requires that this view should be examined with care. The report to which reference is made shows that the arbitration agreement was that disputes should be settled by arbitrators, one to be appointed by each of the two parties, and the further agreement was as follows:‑ "If necessary the two arbitrators will appoint a third, whose decision shall be final and binding upon both parties to the agreement." This clause was contained in a charter‑party, and the charterers, Mitsui & Co. had put forward a claim for short delivery against the owners, the S. S. Den of Airlie Company, which being rejected, the charterers proceeded to arbitration. When the owners failed to appoint their arbitrator, the charterers nominated their arbitrator, as the sole arbitrator, purporting to act under section 6 of the Arbitration Act, 1889. The relevant provisions of this statute are similar to those of section 9 (b) of the (Pakistan) Arbitration Act, 1940. It should be mentioned that while the voyage was still in progress, the charterers had endorsed over their rights to a third party. During the pendency of the arbitration, the owners filed a suit claiming the amount short‑paid to them on account of freight by the charterers, and as respects the arbitration, seeking‑ (1) a declaration that the charterers had no subsisting rights under the charter‑party, which had passed in toto to the endorsees; (2) a declaration that the notice sent to them to appoint their own arbitrator was void; and (3) an injunction to restrain the arbitration proceedings. Interim relief was sought by means of a subsidiary application for an interim injunction staying the arbitration, and, in the alternative, seeking either‑ (1) leave to revoke the submission; or (2) an order setting aside the appointment of the sole arbitrator and allowing the owners to appoint their arbitrator. The reported decision of the Court of Appeal relates to the latter application, and is confined to the prayer for an interim injunction, and the first alternative prayer, viz., for leave to revoke the submission. It is necessary to point out that by section 4 of the Arbitration Act, 1889, which applied to the case, provision was made for stay of "legal proceedings in any Court", where any party satisfied the Court that a matter was involved which had been agreed between the parties to be referred to arbitra tion, that such party was ready and willing to participate in an arbitration; and that there was no sufficient reason why the matter should not be referred. It was unlikely, therefore, that an attempt to stay a pending arbitration proceeding, by reason of legal proceedings commenced in relation to the same matters, could be made with any prospect of success. In the Court of Appeal, the three Lords Justices were unanimous in holding that they had absolutely no jurisdiction to stay the arbitration by injunction. As to the second prayer, viz., the grant of leave to revoke the submission, it was said that the matter was within the discretion of the Court, and, upon the objection submitted by the plaintiff, leave to revoke should not be given. The precise objection taken by the plaintiff was that by having endorsed their rights under the contract (viz., the charter‑party) to a third party, the opponents had lost all their rights under that contract, and therefore there was no dispute which they could refer to arbitration. Vaughan Williams L. J. dealt with the objection as follows:‑

"Under these circumstances, I am of opinion in the present case that, although the ground upon which it was sought to say that the submission to arbitration in the charter‑party had no application, it is an arguable ground, and more than that, it raised a question which ultimately, either in this case or another case, must be decided; yet, prima facie, having read the judgment of Bray, J. I feel that there is most cogent ground for saying that the submission to arbitration would apply to such a case as this in which the holder of the bill of lading comes to be concerned. Under these circumstances, in the exercise of our discre tion in this case, I think that we ought not to give leave or make an order for the revocation of this submission . . . ." The same view was taken by the other two members of the Bench. Farewell L. J. said‑ "In my opinion, having regard to the cases referred to by the President, it world be wrong for us to exercise our dis cretion by cutting short a matter of this sort which is certainly open to serious question, and cutting short the arbitration and saying it shall not go simply because there may be a question whether, when the person who obtains the award comes to sue upon it, it may be a defence that the matter of the award was outside the arbitrator's jurisdiction. and Kennedy L. J. said‑ ". . . to say the least, therefore, it is a case in which there is no strong probability of the alleged excess beyond the jurisdiction of the submission being likely to take place. And as a member of the Court that has to exercise the discretion, I say most certainly that there is no ground shown for the exercise of such discretion . . . . . ." It is clear that no point was raised as to the competency of the sole arbitrator appointed by one of the parties to make an award in the circumstances of the case. It is not clear whether the point could have been taken in Court, or whether it was not a question to be properly raised as a matter of defence, when and if suit were brought upon an award obtained. It is therefore without force to suggest that this objection would necessarily have been raised before the Court. The fact that it was not raised does not show that it was not available, at any rate in a proceeding under the Arbitration Act, 1889. It is sufficient, for the purposes of the present discussion that such an objection was not presented to the Court, and was not examined suo moto by the Court, in the S. S. Den of Airlie case. It is therefore clear, though it must be said with respect to the learned author, Sir N. N. Sircar, that the commentary reproduced above does not represent the purport of the case "S. S. Den of Airlie v. Mitsui & Co." correctly. The view which in my opinion is the more correct is that where a reference is to three arbitrators, or to two arbitrators who are to appoint a third arbitrator (who by virtue of section 10 must be an umpire to act when necessary in lieu of the arbitrators), the provisions of section 9 (b) are not appli cable. Therefore, I am clearly of the view that in this case, H. M. Qureshi was not competent to appoint Mr. G. H. Lodh' as the sole arbitrator, that Mr. G. H. Lodhi was not competent to make an award in the case, and that the proceedings before him, and the award which he made are futile. It becomes unnecessary by reason of this conclusion to consider the second question raised in the appeal, viz., whether the notice calling upon Abdul Hamid to appoint his arbitrator was, by reason of the terms adopted, bad in law. It is a matter for regret that a dispute of a commercial nature will, as a consequence of the above conclusion, remain undecided despite seven years of proceedings, firstly before an arbitrator and thereafter before the Courts. It can, however, still be brought before the Courts, through the combined operation of section 37 of the Arbitration Act, 1940, and section 14 of the Limitation Act, 1908. In the result, I would allow this appeal with costs, and setting aside the judgments of the Courts below, I would dismiss the petition of H. M. Qureshi for filing the award and pronouncing judgment thereon, with costs throughout. MUHAMMAD MUNIR, C. J.‑

I agree. SHAHABUDDIN, J.‑

I agree. M. MUHAMMAD SHARIF, J.‑

I agree. AMIRUDDIN AHMAD, J.‑

I agree. A.H. Appeal allowed.