P L D 1969 Supreme Court 252 (PLP)

ABDUS SATTAR, J.‑

This appeal by special leave arises out of a suit instituted by the respondents against the appellant for cancellation of a deed of hypothecation dated the 6th September 1955, and four release orders two of which are dated the 12th September 1955, the third dated the 27th September 1955, and the last dated the 4th October 1955. The facts of the case, shortly stated, are as follows Respondents Muhammad Shafi and Abdur Rashid are real brothers and were partners in a firm known as ` Munawar & Co.,' along with one Ghulam Rasul. Respondent Muhammad Feroze was a partner in another firm called `Feroze & Co.' along with two other persons. These firms had dealings with the appellant Bank. Against the security of agricultural produce a loan up to the limit of Rs. 75,000 was sanctioned for the firm, `Munawar & Co.', and a loan up to the limit of Rs. 65,000 for the firm, ` Muhammad Feroze & Co. '. Munawar & Co. borrowed in all about Rs. 74,000 from September 1954 to July 1955 and Muhammad Feroze & Co. borrowed nearly Rs. 66,000 during the same period. A factory called ' Itifaq Rice & Oil Mills' was pledged as collateral security. On the 26th of August 1955, the Assistant Registrar Co‑operative Societies, Gujranwala, on inspection, found that there was a shortage of the pledged goods of the two firms in the godowns of the Bank. Earlier on the 29th July 1955, the Branch Manager of the Bank had served both the firms with notices to pay off their debts till the 31st of July 1955. In reply the respondents permitted the Manager to sell the pledged goods and adjust the sale proceeds against the debts. In consequence of the Assistant Registrar's inspection note, the Branch Manager lodged a report under section 406 and 420, P. P. C. with the police on the 31st August 1955, against the respondents wherein it was alleged that they had dis honestly removed the pledged goods from the godowns of the Bank. During the investigation of the case a settlement was arrived at between the parties in consequence of which the respondents, on the 6th of September 1955, executed a deed of hypothecation in favour of the Bank whereby land measuring 220 kanals 12 marlas and two trucks belonging to them were pledged for the discharge of their debt amounting to Rs. 1,49,891/6/6. In the criminal case the respondents were discharged on the 9th August 1956. The respondents, on the 2nd October 1956, instituted a suit against the Appellant Bank for the cancellation of the registered deed dated the 6th September 1955, and some other documents including the release orders mentioned earlier, on the allegation that these documents were without consideration and were executed by them under coercion. The Appellant Bank in their written statement, asserted inter alia that the suit was not properly valued for court‑fee and jurisdiction and it was bad for misjoinder of plaintiffs and causes of action. These objections were upheld by the Senior Civil Judge, Gujranwala and on the failure of the respondents to pay court‑fee and to make necessary amendment in the plaint, the plaint was rejected on the 27th of November 1956. The respondents filed an appeal against this order on the 3rd of January 1957. The appeal was accepted on the 5th of March 1957. The Trial Court's finding with regard to court‑fee was set aside but the finding with regard to misjoinder was ‑upheld. The ease, however, was remanded to the trial Court and the plaintiffs were permitted to retain in the suit " relief for cancellation of five documents signed by all the plaintiffs". It appears that after the rejection of the plaint by the trial Court the Registrar Co‑operative Societies, West Pakistan, appointed an arbitrator for settlement of the dispute between ‑the plaintiffs‑respondents and the Bank under rule 18 of the Rules framed by the Provincial Government under section 43(1) .of the Co‑operative Societies Act, 1912. The arbitrator gave his award on the 5th January 1957, by which he found the respondents liable to the Bank for Rs. 1,53,141‑11‑

9. After remand an amended plaint was filed on the 8th of April 1957. The Bank filed its written statement on the 4th of May 1957 in which the award was mentioned and it was pleaded that the suit was not cognizable by the Civil Court. The plaintiffs, in their application, challenged the validity of the reference to arbitration and the award. It was pleaded, inter alia that the reference and the award were hit by sections 34 and 35 of the Arbitration Act, 1940 and that the case did not fall within rule 18 under which the reference to arbitration was made. It was further asserted that the reference, the arbitration proceedings, and the award were mala fide. The learned Civil Judge came to the finding that the suit was cognizable by the Civil Court and there was no bar to the institution of the suit because of rule

18. The objection of the plaintiffs that the dispute did not fall within the purview of rule 18, however, was not accepted. On the merits it was found that the documents in question were obtained under undue pressure and during the pendency of the criminal case which had been falsely instituted against the plaintiffs‑res pondents. The suit was decreed. The appellant‑Bank preferred an appeal from the judgment and decree of the trial Court. This appeal was .accepted by the Additional District Judge, Gujranwala, who held, inter alia that the Civil Court had no jurisdiction to entertain the suit in view of rule

18. The suit was, therefore, dismissed. The respondents preferred a Second Appeal which was decided by a learned Single Judge of the High Court of West Pakistan, Lahore. The learned Judge did not accept the finding of the first appellate Court that rule 18 completely ousted the jurisdiction of the Civil Court. He found that as the respondents were "sureties for persons who are not members of the Society" in respect of the loan transactions, rule 18(a) "has no application in their case". He has also found that in view of section 46 of the Arbitration Act the provisions of the Arbitration Act applied to the arbitration in question. Support was taken in this connection from the decision of this Court in the case of Government of West Pakistan v. Wali Muhammad Habib (P L D 1961 S C 215). It was then found that as the arbitrator had notice of the present suit, the award made by him was invalid in view of section 35 of the Arbitration Act. The appeal, therefore, was allowed and the judgment and decree of the Additional District Judge was set aside and those of the Senior Civil Judge, Gujranwala, were upheld and confirmed. Leave to appeal was granted to consider the important questions of law involved in the case. Section 43 of the Co‑operative Societies Act, 1912, empowers the Provincial Government to make rules for the whole or any part of the Province and for any registered society or class of such societies to carry out the purposes of the Act. The relevant portion of the section reads as follows :‑ "43 (1). The Provincial Government may, for the whole or any part of the Province and for any registered society or class of such societies, make rules to carry out the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may‑ (1) Provide that any dispute touching the business of a society between members or past members of the society or persons claiming through a member or past member or between a member or past member or persons so claiming; and the committee or any officer shall be referred to the Registrar for decision or, if he so directs, to arbitration and prescribe the mode of appointing an arbitrator or arbitrators and the procedure to be followed in proceedings before the Registrar or such arbitrator or arbitrators, and the enforcement of the decision of the Registrar or the awards of arbitration." The Provincial Government made rules under the above section and rule 18 is in the following terms :‑ 18. (a) " Any dispute concerning the business of a co‑ operative society between members or past members of the society or persons claiming through them or between a member or past member or persons so claiming and the committee or any officer, shall be referred to the Registrar. Reference may be made by the committees or by the society by resolution in general, meeting on by any party to the dispute or if the dispute concerns a sum due from a member of the committee to the society, by any member of the society. (b) The Registrar may either decide the dispute himself, or appoint an arbitrator, or refer the dispute to three arbitrators, of whom one shall be nominated by each of the parties and the third shall be nominated by the Registrar and shall act as Chairman. (c) When a dispute is referred to three arbitrators, if any party to the dispute fails to nominate an arbitrator within 15 days, the Registrar may make the nomination instead. 1f an arbitrator nominated by one of the parties dies, or refuses or neglects to act, or by absence or otherwise, becomes incapable of acting, the Registrar, shall call upon the party concerned to nominate a fresh arbitrator within 15 days, and if no arbitrator is nominated accordingly he may nominate one himself and if such arbitrator was nominated by himself he shall nominate a fresh one in his place. (d) No legal practitioner may be nominated as arbitrator by any party to a dispute. (dd) The Registrar may of his own motion or on the application of any party to a dispute which has been referred to an arbitrator or arbitrators, remove any arbit rator who has misconducted himself or the proceedings or has failed to use all responsible dispatch .in entering an and proceeding with the reference. Where a sole arbitrator or all three arbitrators is or are so removed, the Registrar may proceed as provided in sub‑rule (b), as if the matters remaining undecided at the time of the removal had been referred to him under sub‑rule (a). Where the dispute was referred to three arbitrators, if the Chairman is removed, the Registrar shall nominate a person to succeed him, and if any of the other members is removed, the party by whom such member was nominated, may within 15 days of such removal nominate a person to replace him. If the party fails to nominate an arbitrator within this time, the Registrar may make the nomination instead. No person, who has been removed from the position of arbitrator under this sub‑rule, shall be reappointed as arbitrator in the same dispute. (e) In all arbitration proceedings under this rule the Registrar or arbitrators shall have power to administer oaths, to require the attendance of the parties and witnesses and to require the production of ill necessary books and documents by a summons delivered orally or sent by hand or by registered post, or through the nearest civil Court having jurisdiction in the area in which the society operates, and shall further have power to order the expenses incurred in determining the dispute to be paid either out of the funds of the society or by such party or parties to the dispute as he or they may think fit. Persons not attending in accordance with such summons or making any other default or refusing to give evidence or guilty or any contempt to an arbitrator during the investigation of the matter referred, shall be subject by order of the Registrar on the representation of the arbitrators, as the case may be, to such disadvantages, penalties and punishments as they would incur for the same offences if committed in suits tried before a civil Court . . .. . Amendment in rule 18‑

(i) in sub‑rule (i) and sub‑rule (j ) for the words `one month' wherever they occur the words `thirty days' shall be substituted ; and (ii) in sub‑rule (k) for the words `in the same manner as' the words `as if it were' shall be substituted. (f) The Registrar or arbitrator shall hear the evidence of the parties and witnesses who attend and upon that evidence and after consideration of any documentary evidence produced by either side a decision or award shall be given in accordance with justice, equity and good conscience and shall be reduced to writing, announced to the parties and filed in the office of the Registrar or in such subordinate office as he may direct. (g) In absence of any party duly summoned to attend, the dispute may be decided ex parte, (h) When three arbitrators are appointed, the opinion of the majority shall prevail. (i) Any party aggrieved by an award of an arbitrator may appeal to the Registrar in person or by agent within 30 days of the date of the award. (j) An arbitrator's award, if no appeal has been made within 30 days or a decision of the Registrar originally or in appeal, shall not, as between the parties to the dispute be liable to be called in question in any civil or revenue Court, and shall be in all respects final and conclusive, except on proof of the receipt of a corrupt gratification by the arbitrator. (k) A decision or award shall on application to any civil Court having jurisdiction in the area in which the society operates be enforced as if it were as a decree of such Court. (1) In proceedings before the Registrar or an arbitrator no party shall be represented by a legal practitioner." The question that falls for determination is whether in view of the above rule the Civil Court had jurisdiction to entertain the suit filed by the respondents in respect of the five documents referred to earlier. The rule requires that the dispute must relate to the business of a Co‑operative Society and it must be a dispute between members or past members of the Society or persons claiming through them or between a member or past member or persons so claiming and the committee or any officer of the society. It cannot be disputed that the dispute between the appellant Bank and the respondents is a dispute concerning "the business of a Co‑operative Society". The respondents were admittedly members of the Society and the dispute was between them and the society. The finding of the learned Single Judge of the High Court that since the respondents were merely sureties in respect of the loans in question the dispute between them and the society could not be said to be a dispute coming within the purview of rule 18 is, in our view, cannot be sustained. The learned counsel for the respondents has not advanced any such argument. His contention is that as the dispute of the respondents was not with the committee or any officer of the Bank rule 18(a) was not attracted. We are unable to accept this contention. "Committee" has been defined in section 2(b) of the Act. It means the governing body of a registered society to whom the management of its affairs is entrusted. Under section 2(d), "officer" includes a Chairman, Secretary, Treasurer, Member of committee or other persons empowered under the Rules or by laws to give directions in regard to the business of the Society. We do not understand how in view of these definitions it can be said that the dispute in question is not a dispute within the purview of rule 18(a). A dispute with the Committee of a society or one of its members regarding the business of the society is nothing but a B dispute with the society. The next question that needs consideration is whether .a dispute to which rule 18 is applicable can be agitated in the Civil Court or in other words whether the Civil Court's jurisdiction in regard to such a dispute is completely ousted. Rule 18 came up for consideration by a Division Bench of the High Court of Lahore in the case of The Zamindara Bank .etc. v. Suba (1). The relevant portion of the head‑note is as follows‑ By the substitutional remedy provided under rule 18 in the shape of a reference to the Registrar in the matter of a ‑dispute between a member and a society the common law remedy by an action in a Civil Court has by necessary implication been taken away. The object of the Act is to encourage thrift, self‑help and co‑operation among agriculturists, artisans and persons of limited means and it will be impossible to attain these objects if these people for the settlement of their disputes have necessarily to undergo all the troubles and worries of an expensive and protracted litigation. A learned Single Judge of that Court, however, in the case .of Muhammad Khan v. Co operative Society, Khawaspur (2), while construing rule 18, observed that "till a reference has been made to the arbitrator or to the Registrar the rule must be deemed to amount to an agreement between the society and the members etc., to refer all disputes of .the nature mentioned in the rule to arbitration, and if a party chooses to institute suit on such matter in a civil or revenue Court to proper procedure for the other party is to move that Court to stay its proceedings under clause 18, Schedule 2, Civil P. C. (Now section 34 of the Arbitration Act), " The learned Judge, however, followed the decision A I R 1924 Lah. 418 in spite of his dis‑agreement with it as being a Division Bench decision it was binding on him. A Division Bench of the High Court of West Pakistan at Lahore in the case of Noor Hussain and others v. Khalifa Muhammad Sultan and others (P L D 1956 Lah. 893), agreed with the view taken ‑in regard to rule 18 in A I R 1924 Lah.

418. The learned Single Judge of the High Court has referred to the decision of this Court in the case of Government of West Pakistan and another v. Wali Muhammad Habib and another (P L D 1961 S C 215). We have failed to understand how he derives support for the conclusion at which he arrived from this case. 1 he question that came up for consideration in this case was whether a dispute between a Society (Bank) under the Sind Co‑operative Societies Act, 1925 and a commission agent ginning and pressing the said Bank's cotton on commission basis through a member of the Bank was a dispute covered by section 54 of the said. Act which corresponds more or less to rule 18 with which we are concerned. It was held that the dispute regarding the business of ginning and pressing of cotton was not covered by the section. The position here is entirely different. The original loans were given to two firms of which the respondents were partners. The documents in question were executed by the respondents only who admittedly were members of the Bank. The deed of hypothecation was executed for money advanced by the Bank. Thus it is a dispute between the Bank and its members concerning the business of the latter. The dispute in this case is in regard to a debt claimed to be due to the Bank. The argument of the learned counsel for the appellant that rule 18 ousts the jurisdiction of Civil Courts in regard to disputes covered by it receives support from the following observation in the judgment in the case reported in P L D 1961 S C 215:‑ The provisions of the Co‑operative Societies Act seek to impose restrictions upon the rights vested under the general k law, to have recourse to ordinarily Civil Courts for the adjudication of civil disputes . . . . . . We are, therefore, of opinion that rule 18 ousts the jurisdic tion of civil Courts in regard to disputes covered by it and the present dispute comes within its purview. Section 46 of the Arbitration Act reads as follows:‑ "The provisions of this Act, except subsection (1) of section 6 and sections 7. 12, 36 and 37, shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as this Act is inconsistent with that other enactment or with any rules made thereunder." In our view the words "except in so far as this Act is inconsistent with that other enactment or with any rules made thereunder" clearly exclude from the operation of the Arbitration Act g an arbitration to which rule 18(a) applies. The reference made to sections 34 and 35 of the Arbitration Act by the learned Single Judge was not, therefore, opposite in the present case. The up‑shot of the above discussion is that the suit filed by the respondents was not cognizable by the civil Court and was therefore liable to be dismissed. The result, therefore, is that this appeal is allowed, the judgment and decree of the High Court are set aside and those of the Additional District Judge are restored. The appellant will get costs. K. B. A. Appeal accepted.