Judgment Sheet
IN THE HIGH COURT OF SINDH AT KARACHI
High Court Appeal No. 15 of 1979
Before :
Mr. Justice Nadeem Akhtar
Mr. Justice Muhammad Iqbal Kalhoro
Appellant : M/S Trading Corporation of Pakistan Limited,
through Syed Ashfaq Hussain Rizvi, Advocate.
Respondent : M/S General Industrial Machines,
through Mr. A. H. Mirza, Advocate.
Dates of hearing : 05.12.2014, 19.12.2014 and 23.11.2015.
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J U D G M E N T
NADEEM AKHTAR, J. – The parties above named entered into a contract bearing No.74-75/35 at Karachi on 10.10.1974, whereby the respondent agreed to supply to the appellant 10,000 metric tons of pig iron (foundry grade) as per specifications of chemical composition specified in the contract. Various differences arose between them regarding demurrage liabilities in respect of two shipments, the validity of reduction in price from $ 224 to $ 187 per ton, reduction in shipment from 10,000 to 5,000 tons, and insurance. In terms of the arbitration clause provided in the contract, the dispute was referred to arbitration. The appellant nominated Mr. Yousuf Rafi advocate as their arbitrator and Vice Admiral (Retd.) A. R. Khan was nominated by the respondent as their arbitrator. The arbitrators unanimously appointed Mr. Justice (Retd.) Feroz Nana Ghulam Ali as umpire. On 30.03.1976, the arbitrators gave a unanimous award whereby the respondent was held to be entitled to receive from the appellant the amounts stated therein on account of demurrage in respect of the first two shipments, reduction in price of the second shipment, reimbursement of marine insurance effected by the respondent for the second shipment, interest on the amounts awarded by the arbitrators at the rate of 10% per annum from the date of the award until realization, and costs. The award was filed in this Court on 24.05.1976, which was registered as Suit No.380 of 1976. Upon service of notice, the appellant filed objections to the award to which counter affidavit was filed by the respondent. After hearing the learned counsel for the parties at length, the appellant’s objections were rejected by the learned Single Judge of this Court vide order dated 13.01.1979, and the award was made rule of the Court with the direction that there shall be a judgment in terms of the award and a decree shall follow accordingly.
2. Being aggrieved by the judgment and decree passed in pursuance of the aforesaid order of the learned Single Judge, this appeal was filed by the appellant on 21.02.1979. During the pendency of this appeal, the Arbitration Act, 1940, (‘the Act’) was amended on 11.05.1981 through the Arbitration (Amendment) Ordinance XV of 1981 (‘the Ordinance’), whereby the following new Section 26-A was inserted into the Act :
“26-A. Award to set out reasons – (1) The arbitrators or umpire shall state in the award the reasons for the award in sufficient detail to enable the Court to consider any question of law arising out of the award.
(2) Where the award does not state the reasons in sufficient detail, the Court shall remit the award to the arbitrators or umpire and fix the time within which the arbitrator or umpire shall submit the award together with the reasons in sufficient detail ;
Provided that any time so fixed may be extended by subsequent order of the Court.
(3) An award remitted under subsection (2) shall become void on the failure of the arbitrators or umpire to submit it in accordance with the direction of the Court.”
3. The following Section 3 was provided in the Ordinance in respect of matters pending at the time of commencement of the Ordinance :
“3. Power of Court to remit cases pending at commencement of Ordinance –
(1) If, in any case in which proceedings in relation to an award which has been filed in Court are pending in any Court immediately before the commencement of this Ordinance, the Court finds that the award does not, or does not in sufficient detail, state the reasons for the award, the Court may remit the award to the arbitrators or umpire with a direction to state the reasons for the award in sufficient detail.
(2) Where an award is remitted under subsection (1) the Court shall fix the time within which the arbitrator or umpire shall submit to the Court an award stating the reasons therefor in sufficient detail:
Provided that any time so fixed may be extended by subsequent order of the Court.
(3) Any award remitted under subsection (1) shall become void on the failure of the arbitrator or umpire to submit it in accordance with the direction of the Court.”
4. In view of Section 3 (supra), which came into force during the pendency of this appeal, an objection as to the validity of the award was raised on behalf of the appellant on the ground that the same was without any reasons. It was strongly urged on behalf of the appellant that in view of the said Section 3, the award was liable to be remitted to the arbitrators for assigning the reasons of their findings. This objection and the respondent’s submissions in reply thereto were heard at length in this appeal by a learned Division Bench on 06.03.1986, 10.03.1986 and 11.03.1986. It transpired during the hearing that one of the arbitrators Vice Admiral (Retd.) A. R. Khan, and the learned umpire Mr. Justice (Retd.) Feroz Nana Ghulam Ali had passed away after rendering the award ; whereas, the other arbitrator Mr. Yousuf Rafi advocate was alive. After hearing the learned counsel for the parties at length, a detailed order was passed in this appeal by the learned Division Bench on 08.04.1986, whereby the award was remitted back to Mr. Yousuf Rafi advocate for supplying reasons of the award in sufficient details within a period of three months.
5. The aforementioned order passed in this appeal was challenged by the respondent before the Hon’ble Supreme Court in Civil Appeal No. 56-K/1987, which was dismissed vide order dated 16.05.1991. By order dated 14.04.1992 passed in the present appeal, the office was directed to supply a copy of the order of the Hon’ble Supreme Court and the record of the case to Mr. Yousuf Rafi advocate. On 19.09.1994, Mr. Yousuf Rafi appeared in this appeal and sought time to file reasons. Time was granted to him on several dates, and lastly for five weeks on 07.11.1995. Before the expiration of the five weeks’ time granted to him, unfortunately Mr. Yousuf Rafi also passed away on 12.11.1995 without filing reasons of the award. Thereafter, in view of the statement made by the learned counsel for the parties that they wanted to proceed with the matter, office was directed on 23.04.1996 to place this appeal for hearing according to roster.
6. Syed Ashfaq Hussain Rizvi, learned counsel for the appellant, submitted that since the order directing the surviving arbitrator to submit reasons of the award could not be complied with and he passed away without filing reasons, the award has become void under Section 26-A(3) of the Act. In support of this submission, he relied upon Wazir Khan and 8 others V/S Sardar Ali and 25 others, 2001 SCMR 750. It was prayed by him that the impugned judgment and decree be set aside as the same were passed in pursuance of the award which became void upon the demise of Mr. Yousuf Rafi. He also placed reliance upon Muhammad Farooq Shah V/S Shakirullah, 2006 SCMR 1657. No other argument was advanced by the learned counsel.
7. On the other hand, Mr. A. H. Mirza, learned counsel for the respondent, contended that Section 26-A(3) of the Act is not attracted in this case as the same was not inserted for cases that were pending when the Ordinance was promulgated. Regarding Section 3 of the Ordinance relating to cases that were pending at the time of promulgation of the Ordinance, it was argued by him that after hearing and rejecting the appellant’s objections, the award was made rule of Court admittedly much prior to the introduction of Section 3 ibid, therefore, the subsequent new provision for remitting the award for reasons was not applicable to the present case. Without prejudice to his above contention, he submitted that as no time limit was given by the Hon’ble Supreme Court to the arbitrator to give reasons, the award, judgment and decree have not become void or ineffective on the ground that reasons could not be given by the arbitrator ; award was remitted to the arbitrator because he was alive at the relevant time ; had he not been alive, the Court would not have remitted the award to him for reasons ; and, after his demise, the matter reverted back to the position that was prevailing before the order of remitting the award was passed.
8. It was argued by Mr. A. H. Mirza that the provisions of Section 3 of the Ordinance are not mandatory in nature as the power of the Court to remit the award for reasons is discretionary in view of the word “may” used therein. He submitted that discretion should be exercised by the Court keeping in view the facts of the case, how the arbitrator or umpire proceeded, and in what manner and under what circumstances the award was given. In support of this submission, he relied upon Abdul Razzak V/S Mst. Qaiser Sultan and 2 others, 1984 MLD 147, Associated Constructors Ltd. V/S Karachi Municipal Corporation, 1987 CLC 383, and Messrs Abdullah Traders V/S Trading Corporation of Pakistan LTD. and 2 others, 1999 CLC 2047. It was contended by him that in the present case issues were settled by the arbitrators whereafter oral and documentary evidence was produced by the parties, and after taking into consideration the entire material on record and hearing the parties and also after due deliberation, a unanimous award was rendered. It was urged that discretion in this case should be exercised by the Court by treating the award as final in view of the above, and also because reasons cannot be obtained now in view of the impossible situation created due to the demise of both the arbitrators and the umpire, which situation is beyond the control of the parties. He relied upon Chelikani Venkata Rao and others V/S C. V. Rao and others, AIR 1958 Andhra Pradesh 740, in support of his last submission.
9. We have heard the learned counsel for the parties at length and have carefully examined the record with their able assistance as well as the law cited by them at the bar. The order passed in this appeal on 08.04.1986 as well as the order passed by the Hon’ble Supreme Court on 16.05.1991 in Civil Appeal No. 56-K/1987 have also been examined by us, which are extremely relevant and important at this stage in our humble opinion. In paragraph 21 at pages 15 and 16 of the said order dated 08.04.1986, it was held by the learned Division Bench as under :
“We have no intention of going into the merits of the submissions raised by the appellant’s counsel in respect of the merits of the award as we do not want to pre-empt the issues. But we are of the view that the submissions are of substantial sequence and, therefore, it would be apt and proper and in the interest of justice that the arbitrators should be required to give their reasons in sufficient details. It is correct that one of the arbitrators is dead but on that ground alone the award cannot be upheld but we are of the view that the questions of substantial importance, requiring reasons in sufficient details are required in respect of the award. In view of the fact that the award has been signed by two arbitrators, the reasons of the award can be given by the surviving arbitrator. ……….……… In this case Mr. Yousuf Rafi, who is an eminent counsel of this Court, was one of the arbitrators and he is present, and therefore, he can be asked to give sufficient detailed reasons for the award which had been made by him along with late Mr. A. R. Khan. And we have, therefore, come to the conclusion that the award should be remitted back to Mr. Rafi for supplying reasons in sufficient details about the award within a period of 3 months from the date when he receives notice of this Court. ………...”
(Emphasis added)
In paragraph 26 at pages 19 and 20 of the aforesaid order, the following direction was given by the learned Division Bench :
“Consequently, we direct the Arbitrator Mr. Yousuf Rafi to give, within 3 months, reasons of award in sufficient details as provided in section-3 of Ordinance-15 of 1981. This appeal should, therefore, be consigned to record and should be put up after the reasons of the award are submitted.”
(Emphasis added)
As noted earlier, the above mentioned order passed in this appeal was maintained by the Hon’ble Supreme Court vide order dated 16.05.1991 passed in Civil Appeal No. 56-K/1987, with the following observations and findings :
“….. The question before us is completely different which may be unparalleled in judicial history. The award is unanimous. The umpire and one of the arbitrators have died during the pendency of the proceedings in Court. Section 3 of Ordinance XV/81 was enforced during the pendency of the appeal and was made applicable to pending proceedings. One of the arbitrators is an eminent senior counsel equipped with all legal knowledge who must have discussed the reasoning with his Co-arbitrator. We can presume that Mr. Yousuf Rafi with his knowledge in law would have had a better understanding particularly the legal aspects resulting in the award to which both the arbitrators had agreed.” (pages 16 and 17)
“The reasons stated by one of the Judges or arbitrators in case of non-availability of the other will help the Court in hearing appeal or objections filed against the order or award. The reasons given by one of the arbitrators shall be placed before the learned Judges of the Division Bench who may use it in the manner as they deem fit. So far the effect of such reasons on the validity of the award is concerned the same has not been effectively raised or argued. We, therefore, keep this question open which may be considered by the Division Bench if raised before it.” (page 18)
(Emphasis added)
10. The above-quoted orders clearly show that it was conclusively decided in this appeal that the award should be remitted to the surviving arbitrator for supplying reasons despite the fact that the other arbitrator and the umpire were not available. Such decision was given by this Court on merits after hearing the parties at length, and particularly by exercising the discretion under Section 3 of the Ordinance. Thus, the discretion under Section 3 ibid has already been exercised by this Court in this very appeal by holding inter alia that though one of the arbitrators has passed away, but on that ground alone the award cannot be upheld as questions of substantial importance requiring reasons in sufficient details are required in respect of the award. This finding clearly indicates that the deficiency and need of the reasons in sufficient details regarding questions of substantial importance involved in the award, was felt by the Court while hearing this appeal and considering whether the award and the impugned judgment and decree passed in pursuance thereof should be maintained or not. It is important to note that the said decision attained finality on 16.05.1991 when it was upheld by the Hon’ble Supreme Court. It follows that the questions whether or not reasons are disclosed in the award in sufficient details, and in the absence of reasons,can the award be sustained or not, have attained finality up to the level of the Hon’ble Supreme Court. Therefore, with profound respect to the learned counsel for the respondent, the above questions cannot be reopened in this appeal nor can we give any finding in respect thereof, and for this reason, the cases relied upon by him are clearly distinguishable.
11. In our opinion, the only question that needs to be decided now is the effect of non-compliance of the orders passed by this Court and the Hon’ble Supreme Court regarding filing of reasons of the award in sufficient details in this appeal. With respect to the learned counsel for the appellant, we do not agree with him that the award has become void under Section 26-A(3) of the Act because reasons thereof were not filed by the surviving arbitrator despite directions by this Court and the Hon’ble Supreme Court. The first reason for disagreeing with the learned counsel is that this Court, as observed above, has already decided in this appeal that this case falls under Section 3 of the Ordinance, and the discretion under the said Section had also been exercised by this Court by remitting the award to the learned surviving arbitrator for reasons. The second reason is that the said Section 26-A(3) was inserted into the Act through the Ordinance, and simultaneously a new section was introduced, that is, Section 3 of the Ordinance. The former section was meant to be for the cases in which awards were to be given after promulgation of the Ordinance ; and, the said new Section 3 was specially introduced in respect of cases in which proceedings in relation to an award filed in Court were pending at the time of commencement of the Ordinance. Had this not been the intention of the law makers, there was no need to provide separate provisions by inserting a new section in the Act and simultaneously introducing another new section in the Ordinance. This is clear from the heading of Section 3 of the Ordinance itself, which reads “Power of Court to remit cases pending at commencement of Ordinance”.
12. After the above amendments in the Act, it is now well-settled that the civil Court which has to make the award the rule of Court is granted an opportunity and power to examine the reasons of adjudication of the subject matter in dispute by the arbitrator(s) by scrutinizing critically as to how and on what basis the arbitrator(s) had decided and made the award, and whether the award was based on whimsical grounds, without any foundation or reason or it was supported by and rendered on some basis, evidence and document. It is also well-settled that an award which is arbitrary, sketchy or which does not contain reasons in sufficient details has to be rejected and is not to be approved by the civil Court so as to make it rule of Court. If the award is given after commencement of the Ordinance or in any case in which proceedings in relation to an award which has been filed in Court are pending in any Court immediately before commencement of the Ordinance, the Court has the discretion and further power under Section 26-A of the Act or Section 3 of the Ordinance, as the case may be, to remit the award to the arbitrator(s) for assigning reasons in sufficient details if the same are found by the Court to be lacking therein. The present case has passed through the above stage, but the reasons of the award could not be filed due to the demise of the surviving arbitrator to whom the award was remitted specifically for such purpose. We are, therefore, confronted with an extremely unusual situation as the order of remitting the award for reasons had attained finality long ago, but the reasons cannot be obtained now under any circumstances.
13. In view of the peculiar circumstances of this case, we considered the option of appointing new arbitrators so that the dispute could be decided through a fresh award and the matter could be resolved once for all. However, when the record of this case was examined by us, it transpired that after the death of Mr. Yousuf Rafi advocate, the learned surviving arbitrator to whom the award was remitted for reasons, the appellant vide notice dated 28.02.1996 appointed Mr. S. A. Nizami as its arbitrator, and called upon the respondent to appoint an arbitrator within fifteen days failing which Mr. Nizami was to be deemed to be the sole arbitrator. In view of this development, the respondent filed CMA No.604/1996 in this appeal praying that the appellant be restrained from proceeding before its above named purported arbitrator. Vide order dated 18.06.1996 passed in this appeal, it was ordered that the said application will be heard with the main case, but till the appeal is heard and finally decided, status quo shall be maintained by the parties. During the course of hearing of this appeal, learned counsel for the parties made a statement on our query that the parties are not agreeable for appointment of new arbitrators or from going through the rigors of the arbitration proceedings once again. Learned counsel for the appellant reiterated his stance that the award has become void, and likewise, learned counsel for the respondent reiterated that the award should be treated as final on the basis of the material available on record. Thus, the above option considered by us is not possible in view of the deadlock between the parties.
14. A similar situation arose in the case of Muhammad Gulzar V/S Rana Abdul Jabbar and others, 2004 MLD 667, wherein the award had though become remittable to the arbitrator but could not be so remitted as the arbitrator had passed away. The parties were asked as to whether they would like to appoint an arbitrator to enter upon reference and to re-decide the dispute, but both the parties for their reasons declined. It was held in the cited case by Hon’ble Mr. Justice Muhammad Sair Ali, as his lordship then was, that the award thus cannot be re-sent to any arbitrator and in any case it could not be sustained, therefore, the only option available to the Court was to declare the award as void in exercise of powers akin to Sub-Section (3) of Section 3 of the Ordinance and Section 16(3) of the Act. It was further held that it was an apt case to invoke Section 19 of the Act and to declare that the reference be superseded and the arbitration agreement shall cease to have effect with respect to the reference referred therein to the deceased arbitrator.
15. Under Sub-Section (1) of Section 16 of the Act, the Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit. Under this Sub-Section, one of the grounds on which the award may be remitted is where an objection to the legality of the award is apparent on the face of it, as provided in clause (c) thereof. Sub-Section (3) of Section 16 ibid provides that an award remitted under Sub-Section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the stipulated period. Under Section 19 of the Act, where an award has become void under Sub-Section (3) ibid or has been set aside, the Court may by order supersede the reference and shall thereupon order that the arbitration agreement has ceased to have effect with respect to the difference referred.
16. In view of the legal position discussed above, we are of the view that the present case falls under clause (c) of Sub-Section (1) of Section 16 of the Act as the objection raised by the appellant to the legality of the award that it lacks reasons is not only apparent on the face of it, but such objection was also accepted by this Court when the award was remitted in this appeal to the surviving arbitrator for reasons in sufficient details which order was upheld by the Hon’ble Supreme Court. We are also of the view that since the learned surviving arbitrator failed to reconsider the award and to submit his decision and reasons in sufficient details within the stipulated period, the award has become void under Sub-Section (3) of Section 16 of the Act. Thus, the arbitration agreement between the parties has ceased to have effect with respect to the dispute referred thereunder, and as such the reference is liable to be superseded under Section 19 of the Act.
17. Since the parties are unwilling to appoint new arbitrators, and the award cannot be remitted to any other arbitrator for reasons in sufficient details, and also as we have held that the award has become void, the arbitration agreement between the parties cannot be given effect to, which has in fact become frustrated. Therefore, by invoking Section 19 of the Act, we hold that the reference stands superseded and the arbitration agreement has ceased to have effect with respect to the difference / dispute referred in pursuance thereof to the arbitrators and umpire. As the dispute between the parties is still unresolved, they will be at liberty to seek their respective remedies by filing civil Suit before the civil Court under Section 9 CPC for adjudication of their disputes, claims or counter claims in accordance with law. Since they are not responsible for the present situation, the period between the commencement of the arbitration proceedings and this judgment declaring the arbitration agreement having become ineffective, shall be excluded under Section 37(5) of the Act in computing the period prescribed under the Limitation Act, 1908.
18. As a result of our above findings, the impugned judgment and decree passed in pursuance of the award are set aside, and this appeal stands disposed of in the above terms along with C.M.A. No.604/1996 with no order as to costs.
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