1994 PLP 2227 (MLD)

SYED HAIDER ALI PIRZADA, J.

This High Court Appeal arises out of an order, dated 20-;i-1991 paced by Mr. Justice Muhammad Hussain Adil Khatri, a Judge of this Court refusing to stay a suit under section 34 of the Arbitration Act, 1940. The learned Single Judge has recorded several points which were urged before him. He rested his decision on two points viz. that the appellants took steps in the proceedings and the appellants shall be deemed to have submitted to jurisdiction of the Court and waived their right to arbitration. He has also held that the appellants have not disclosed any dispute in the application nor in the affidavit. Accordingly he declined to exercise his discretion to order stay of the legal proceedings under section 34 of the Arbitration Act and dismissed the application. Therefore, t he defendants in the suit have come up before us by way of Inter-Court Appeal. The facts leading to the filing of the above appeal are that the defendant No.1/appellant No.1 is a private limited company incorporated under the Companies Ordinance, 1984. Deceased K.M. Danish at all relevant times has been the managing director of appellant No.1 and also the mortgagor. The appellants Nos.2 and 3 were sued in their capacity of being legal heirs/representatives of deceased K.M. Danish. 5ocnctime in September, 1988 the respondents negotiated to purchase from the appellant No.1 the entire production of cotton-ginned and fully pressed by tile appellant No.1 and their factory during the year 1988-89. cotton crop season. The case of the respondents as set out in the plaint, is that by an agreement dated 20-9-1988 executed between the respondents and the appellant No.1 at Karachi, the appellant No.1 agreed to supply to the respondents their entire production of cotton-ginned and fully pressed at their factory during the year 1988-89 cotton crop season on the terms and conditions contained therein. It is the case of the respondents that at the request of the appellants, the respondents granted an advance of a sum of Rs.10,00,000 to the appellant No.1 and paid the same to the appellant No.1 at Karachi. As security of the repayment of the said sum of Rs.10,00,000 and/or any amount that might at any time be found due and payable by the appellant No.1 to the respondents, the said deceased deposited with the respondents on 20-9-1988 his original title documents relating to his immovable property; bearing Plot Khata No.18/18, Khatooni Nos.36 and 37 measuring 540 Marlas or thereabouts and building and factory constructed and to be constructed thereon, situated at Pakka Laran Road, Teroza Tower, District Rahimyar Khan with intent to create equitable mortgage thereon in favour of the respondents. The said deceased also exerted a Memorandum of Deposit of title deeds dated 20-9-1988 confirming the deposit of the title deeds/documents with the respondents with intent to create equitable mortgage on aforesaid mortgaged property as security in favour of the respondents and vide his undertaking, declaration dated 21-9-1988 declared/contained inter alit that he is sole and competent owner of the property in question, It is the further case of the respondents that by way of acknowledgement and as security for the repayment of the said sum of Rs.10 lacs, the appellant No.1 through the said deceased, executed at Karachi, inter alia, a Demand Promissory Note dated 13-10-1988 for Rs.10,00,000 in favour of she respondents. The appellant No.1 also executed a receipt dated 13-10-1988 for Rs.10,00,wo at Karachi in respect of the amount received from ,the respondents. It is the further case of the respondents that under the agreement, the said advance of Rs.10,00,(M was to be adjusted against the supply of cotton by the appellants to the respondents latest by 31-1-1989 and in case of default to supply cotton to the respondents as per the agreement, the appellants were liable to refund/repay the entire, advance or the balance advance which remained unadjusted by 31-1-1989 together with mark-up at the rate Rp.0.43 per Rs.1,000 per day from 13-10-1988 till payment to the respondents. The appellants committed default as they neither supplied full quantity of cotton nor refunded,/ repaid the balance of the said advance and mark-up to the respondents. As a result of which a sum of Rs.7,64,342 and mark-up remained unadjusted/unpaid by the appellants. Despite repeated requests and demands by the respondents, the appellants failed/neglected to adjust,/refund/repay the balance sum of Rs.9,22,033 due as on 31-12-1989 together with mark-up thereon from 1-1-1990 to the respondents. The respondents through their advocates caused demand vide legal notice dated 29-1-1990 to be served on the appellants calling upon them to repay to the respondents the said balance sum of Rs.9,22,033 from 1-1-1990 within seven days from the date thereof failing which legal proceedings for recovery thereof and for sale of the mortgaged -.property will be instituted. The appellants, however, failed to comply therewith consequently the respondents filed the suit for realizing the amount of Rs.10,52,185 with mark-up at the rate of Re.0.43 per Rs.1,000 per day from 1-2-1991. till payment against the appellants jointly and severally. As soon as the summons were served on defendants/appellants in the said suit, Mr. Imran Ahmed filed Vakalatnama before the Additional Registrar (O.S.) on 8-5-1991. The appellants filed an application under section 148, C.P.C. read with section 151, C.P.C. seeking extension of time for filing written statement. The appellants filed an application under section 34 of the Arbitration Act on 7-8-1991. The appellant No.2 filed his own affidavit in support of application. The application for stay filed by the defendants/appellants was opposed by the plaintiffs/respondents in the suit on the ground that the claim in the suit is not a dispute arising out of the contract for supply of cotton; that the contract to supply cotton was not fully performed by the appellants; that the cause of action for the suit was based on the equitable mortgage and, therefore, the claim cannot be taken to arise out of the original contract to supply cotton. The appellants took steps in the proceedings. The application and the affidavit do not disclose any dispute. Mr. Mamnoon Hassan vehemently contended that the appeal is time barred. On the other hand, Mr. Imran submitted that the appeal is within time. In the instant case, the relevant dates are as follows:

(1) 20-8-1991 the date of order appealed from. (2) 24-8-1991 the date of application for obtaining copy of order. (3) 20-11-1991 the date when the fees was established (4) ??-11-1991 the date when fees deposited. (5) 25-11-1991 the date when the copy was made ready. (6) 18-2-1992 the date when the copy was supplied. (7) 7-3-1992 the date when the appeal was presented We have perused the application for obtaining certified copy. It appears that the Copying Branch had not notified the date when the copy would be ready. On an examination of the relevant dates, it appears that there is a delay in obtaining the certified copy. It also appears from the record that the copying Branch did not notify when the copy would be ready. It is well settled law that the party would not suffer for the act of the court. It has also come on record that the appeal was presented on 7-3-1991 as 6-3-1991 was Friday. In the facts and circumstances, we overrule the objection and hold that the appeal was presented within time. The first contention is that the appellants took steps in the proceedings. The resume of facts have already been given hereinabove. It is common ground that suit is filed under Rule 22 of the Sindh Chief Court Rules (O.S.) (hereinafter referred to as the Rules). Rule 21 provides that short causes shall be set down for final disposal on such day as the Judge sitting on the original side would appoint. Rule 22 describes what are short causes. Clause (5) of Rule 22 deals with mortgagee suits, rent suits on bonds or acknowledgments. Rule 227 provides that mortgage or mortgagor may takeout such summons. This Rule 227 is in Chapter XVI of the Rules. Rule 23 provides that any short cause which the Judge before whom it is set down for final disposal if does not think fit to try as a short cause, may transfer to the long cause suit. In Mst. Khatija Bibi and another v. Muslim Commercial Bank PLD 1978 SC 96, it was observed at page 101 as under:

"As all the types of suits listed in Chapter XVI are not such as can be disposed of on questions of law only, the rule-makers have in clause (5) of rule 22 specified the suits which in their assessment could be disposed of expeditiously. But the Judge has ample power under clause (7) of the rule to fix any suit including a suit on an originating summons as a short cause matter. Further, the power conferred by this clause is very wide and extends not only to "suits", but also to "matters". The word "matters" has been used deliberately and means something other than "suits". As the word has been used to enlarge the power conferred on the Judge under the rule to prevent dilatory tactics, the word must be given a liberal construction, and, it would cover the case of a suit in which a cause of action does not fall in terms under clauses (4) and (5) of the rule, whilst the other cause or causes of action in the suit fall in terms under these clauses." It is advantageous at this stage to reproduce the contents of application under section 148, C.P.C. read with section 151, C.P.C. which reads:

"It is prayed on behalf of the defendants that this Hon'ble Court be pleased to grant 'sufficient time for filing W.S. on the ground that defendants have engaged the undersigned yesterday and since they are residing at Lahore, require sufficient time to give the undersigned instructions and supply documents in defence. Application made in the interest of justice." At the outset it may be stated that the assertions made by the appellants as to the acts and circumstances precluding the filing of application under section 34 are not controverted. The crucial assertions that the learned counsel for the appellants was, not given any instructions and that he was not aware of the contents of the argument upon which the respondents had based their claim till such time tilt, appellants gave him the necessary instructions and the documents. With this background of facts, the question is now whether application for stay of the proceedings and for reference to arbitration under section ,4 was made before filing the written statement or taking any other step in the proceedings. Mr. Mamnoon contended that the appellants had sought adjournment specifically for filing written statement. As such they took steps in the proceedings. In support of his contention, the learned counsel placed reliance on the case of Rachappa Guruadappa, Bijapur v. Gurusiddappa Nuraniappa and others 1990 MLD 1383 decided by the Supreme Court of India wherein .i; page 1388 it was observed as follows:

"Each Court must find out from the context of each case whether this has happened or not. The Court further observed therein that "a step taken in the suit which would disentitle the party from obtaining stay of proceeding must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration." At page 1389 it was further observed as under:

"The expression `taking any other steps in the proceedings' does not mean that every step in the proceedings would come in the way of enforcement of the arbitration agreement. The step must be such as would clearly and unambiguously manifest the intention to waive the benefit of arbitration agreement." Again it was observed on the same page as follows:

"From the order-sheet in this case and as noted by the learned trial Judge, it appears that the counsel appearing for the petitioner had sought adjournment specifically for filing written statement and obtained time for more than one occasion for such purpose. It was not only the tune taken to consider whether written statement should be filed as a defence to the plaint to enter into an arena of controversy, but it was time taken to have the matter decided by the suit." The above7quoted observations of Supreme Court of India do not support the contention of Mr. Mamnoon. On the contrary, it clearly observed that each Court must find out from the context of each case whether this happened or not. It further observed that a step taken in the suit which would disentitle the party from obtaining stay of proceeding,, must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by the arbitration. Mr. Imran Ahmed invited our attention to the case of P.IA. v. Pak Saaf decided by the Supreme Court of Pakistan and reported in PLD 1981 SC

553. We can do no better than to reproduce here the conclusions of the Hon'ble Supreme Court of Pakistan in the above case appearing at page 564:

"Now, if the uncontroverted facts of the present case, which have already been summarised in the earlier part of the judgment are considered in the light of these principles, the conclusion become un-resistible that the initial presumption that is to be attached to an application for extension of time so as to file written statement is thoroughly dislodged. None of the acts of the appellant's counsel or the applications made by him can be considered as indicative of appellant's acquiescence to the method adopted by the respondent of having the dispute decided by the Court, or that the appellant had displayed submission to the jurisdiction of the Court, or had abdicated their claim to have the matter decided in the manner provided in the arbitration clause of the agreement:" The dictum laid down in the above case is applicable to the facts of the instant case. We hold that the appellants have not taken any step in the legal proceedings. It is not disputed by Mr. Mamnoon that the law laid down by the Supreme Court of Pakistan is binding on this Court. We accordingly hold that in view of legal position discussed above, the appellant have not taken any step in the proceedings The other aspect of the case is that the suit was filed specifically under Rule 22 of the Sindh Chief Court Rules (O.S.) as a short cause for final disposal. Rule 227 of the Sindh Chief Court Rules (O.S:) prescribes that any mortgagee or mortgagor may take out an original summons for such relief of the nature or kind following as may be by the summons be specified and as the circumstances of the case may require, that is to say, sale, foreclosure, delivery of Possession by or recovery of any deficiency from the mortgagor, redemption, conveyance and delivery of possession by the mortgagee. In order therefore, to void a preliminary decree, the defendant receiving such summons must cause appearance. Such appearance by the defendant would therefore, only prevent the Court from proceeding to pass an immediate preliminary decree. By causing such appearance, he becomes entitled to defend the suit. But such appearance is not indicative of any intention on his part to waive his right under the arbitration agreement. A reading of Rules 21, 22 and 227, in our opinion, makes the position clear. From the facts, as narrated above, it is clear that the appellants/defendants before taking any step in terms of Rule 227 had only caused appearance in answer to summons under Rule 22 and they only applied under section 34 of the Act for stay of the suit. We arc, therefore, of the opinion that the appellants had availed of their right to apply under section 34 of the Act before taking any step in the suit. The learned Single Judge has not considered this aspect. It was contended by Mr. Mamnoon that the appellants were not ready and willing to go to arbitration. The contention is that the facts and circumstances of this case are such that the Court should consider that the appellants were never ready and willing to go to arbitration at the commencement of the legal proceedings. Mr. Mamnoon referred to the legal notice annexed to the plaint and it is brought to our notice that no 'reply in connection therewith was sent on behalf of the appellants. Accordingly, Mr. Mamnoon wants us to hold that the appellants were never ready and willing to go to arbitration at the relevant point of time. A perusal of legal notice would show that the, respondents only demanded money and the respondents had not specifically asked for arbitration. In the facts and circumstances of the instant case, it cannot be considered that the appellants were not ready and willing to go to arbitration. The matter is quite simple. The party concerned might think that as and when an arbitration proceeding would be taken recourse to as agreed to between the parties they would take part in such proceedings and defend themselves therein. We, therefore; hold that the demand for money if not replied to, would be a case of mere inaction and would not he considered as went of readiness willingness on the part of the appellants. Under the circumstances, it could not be contended in this case that the appellants for stay were not ready and willing to go to arbitration after the intimation was given that the legal proceedings have been commenced herein, the appellants took steps and applied before this Court in the manner as provided under section 34, Arbitration Act, 1940. There is another point which has also been agitated both before the learned Single Judge and before us and that is that the application filed by the appellants does not disclose the dispute between the parties. The application states that there is an arbitration agreement between the parties, the suit may be stayed. In para. 4 of the affidavit filed in support of the application, the appellant stated that "disputes arose between the plaintiff and my father, the Managing Director of defendant No.1 in respect of terms and conditions of this agreement and as a result thereof supply of cotton could not be made in terms of agreement". Section 34 of the Arbitration Act, 1940 is in the following terms:

"

34. Power to stay legal...proceedings where there is an arbitration agreement.

Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or tag any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings. Unless the applicant for stay succeeds in establishing that the plaintiffs/respondent is party to an arbitration agreement and that the subject matter of dispute in the suit is a matter coming within the scope of such agreement, it cannot possibly ask the Court to order a stay of the proceedings under section 34 of the Arbitration Act. It is evident in the present case, that the appellants clearly disclosed in the affidavit that there is an agreement of arbitration between the parties and there were disputes between the respondents and the Managing Directors as a result thereof the cotton was not supplied to the respondent. The learned Single Judge overlooked this fact in the affidavit. The important question is whether the Court was justified in the: facts and circumstances of the case in exercising it discretion in favour of the respondents. It is well-settled that while the trial Court has a discretion in the matter, the appellate Court could not ordinarily substitute its discretion in place of discretion exercised by the trial Court. But it is equally well-settled that where the trial Court ignored the relevant evidence, side tracking the approach to be adopted in the matter and overlooking various relevant considerations, has exercised its discretion one way, the appellate Court keeping in view the fundamental principle can and ought to interfere because when it is said that a matter is within the discretion of the Court, it is to be exercised according to well-established judicial principles according to reason and fairplay, and not according to whim and caprice. Under these circumstances, it would not be contended in this case that the appellants have failed to state specifically and clearly disputes which have arisen between the parties. That being so, the point succeeds. In Novelty Cinema, Lyallpur v. Firdaus Films and another PLD 1958 (W.P.) Lah. 208, application for stay was filed under section 34 of the Act. The application was refused on the ground that the defendant had failed to mention on the dispute in the application. In Messrs Gill & Co., Karachi Ltd. v. Samad Aziz & Co. PLD 1961 (W.P.) Kar. 700, it was held that refusal to pay is a dispute within the meaning of section 334 of the Arbitration Act, 1940. It was held that there was a dispute between the parties. In Muhammad Yousuf Burney v. S. Muhammad Ali 1983 CLC 1498, it was held that person applying for stay of suit has to satisfy Court that there being agreement to refer and the suit relates to any matter agreed to be referred i.e. there is dispute between the parties covered by the agreement. In Messrs Cosmopolitan Development Company v. Messrs S.O. D.I.M.E. S.PA. and another 1987 MLD 2832, it was held that applicant in its application and affidavit accompanying therewith merely stating about contract and arbitration alone but failing to state specifically and clearly disputes which had arisen between the parties, held that such omission was sufficient for dismissal of said application. In the instant case the appellants have stated specifically in their affidavit that there were disputes between the respondents and the then Managing Director, as such the goods in question were not supplied. We hold that the appellants specifically took this ground in their affidavit. On this view of the case, this appeal must succeed and is allowed with the result that the order of the learned Single Judge is set aside and the appellants application under section 34 of the Arbitration Act is granted and accordingly proceedings in Suit No.370 of 1091 filed on the original side of this Court are stayed with the direction that the dispute in the case will now be referred to arbitration in accordance with the arbitration agreement between the parties and for the purpose, the file of the case shall be laid before the learned Single Judge for passing appropriate orders, in accordance with the law. AA./D-125/K Suit stayed.