ORDER SHEET

HIGH   COURT   OF   SINDH  AT   KARACHI

 

 

SUIT NO.774 OF 2011

 

 

Trading Corporation of Pakistan.   …………….Plaintiff

 

Versus

 

 

M/s.Abdullah Sugar Mills Ltd. .………………Defendant

       

 

SUIT NO.798 OF 2011

 

 

Trading Corporation of Pakistan           …..….Plaintiff

 

Versus

 

M/s.Haseeb Waqas Sugar Mills Ltd.  ……………Defendant

 

 

SUIT NO.836  OF 2011

 

 

Trading Corporation of Pakistan.           …..….Plaintiff

 

Versus

 

M/s.Abdullah Sugar Mills Ltd.     .………………Defendant

 

1).CMA No.11345/2011 (Suit No.774 of 2011)

2).CMA No.11613/2011 (Suit No.798 of 2011)

3).CMA No.11497/2011 (Suit No.836 of 2011)

 

Date of hearing 17-10-2012

 

Syed Mamnoon Hassan, Advocate for the plaintiff.

Mr.Ali Sibtain Fazli, Advocate for the defendants.

               

***************

 

Muhammad Ali Mazhar, J:  The plaintiff has filed following suits for recovery of money against the defendants as under :-

 

 

(1) Suit No.774 of 2011 for recovery of Rs.64,776,238/-.

 

 

(2) Suit No.798 of 2011 for recovery of Rs.114,588,632/-

 

 

(3) Suit No.836 of 2011 for recovery of Rs.516,460,658/-

 

 

2. The defendants in all three suits have filed applications under Section 34 of the Arbitration Act for staying the suit on the ground that in view of Clause 13 of the Tender/Agreement any dispute arising out of the contract shall be referred to Arbitrator.  It is clarified that the Arbitration Clause in all three agreements is similar and identical, which is reproduced as under :-

 

“Any difference or dispute of whatsoever nature arising out of the contract or in any way relating to the contract or to its construction or fulfillment, shall be settled, as far as possible, amicably between the Buyer and Seller. Should the parties fail to come to an amicable settlement, the same shall be referred to the award of arbitrators to be nominated one each by the Seller and Buyer within fifteen (15) days of notice from either side, or in case of the said Arbitrators not agreeing to each other, to the award of an Umpire to be appointed by the Arbitrators in writing prior to proceeding with the arbitrator. The decision of the Arbitrators or the Umpire, as the case may be, shall be final and binding on both the parties. The arbitration shall take place at Karachi.”

 

 

3. The brief facts of the case are that the plaintiff is a Private Limited Company owned by Government of Pakistan and performs its functions including purchasing of white refined sugar from abroad and locally as per directives/instructions of Government of Pakistan. 

 

4. The defendants participated in the tender proceedings and their bids were accepted. On acceptance of their bids the defendants also submitted their different undertakings and complied with other formalities. The goods were to be supplied according to the terms and conditions of the contract on the specified date, but according to the plaintiff the defendants failed to honour their commitments and contractual obligations. According to the plaintiff the detail of sugar supplied and deficit quantity of sugar are as follows:-

 

(i)                  In Suit No.774/2011, the defendant only supplied 3,463 MT of sugar. The balance quantity of 3336 MT of sugar was not supplied.

 

(ii)                In Suit No.798/2011 the claim of plaintiff is that the defendant only supplied 1,487 MT sugar. The balance quantity of 5312 MT of sugar was not supplied.

 

(iii)              In Suit No.836/2011 the plaintiff claims that only 7,000 MT sugar was supplied against the delivery order, while 13,265 MT of the sugar was neither released nor replaced by the defendants in accordance with the undertaking.

 

5. It has been further averred in the plaint that the defendants on furnishing their undertaking that in case they will fail to replace or supply the purchase goods they will immediately refund to the plaintiff the entire amount along with markup @ 10% per annum with penalty of 25%. Since the defendants failed to fulfill their contractual obligations and also pay the amount as stated above, the plaintiff has filed these suits for recovery of amount.

 

6. Mr.Ali Sibtain Fazli, Advocate for the defendants in support of application moved under Section 34 of the Arbitration Act argued that these suits pertain to the contract for supply of white refined sugar in MT, through different tenders and all tenders/contracts provide for arbitration in case of any dispute between the parties. Learned counsel argued that Clause 13 of the agreement pertains to the arbitration in which it is inter alia provided that any difference or dispute of whatsoever nature arising out of the contract or in any way relating to the contract or to its construction or fulfillment shall be settled amicably and in case parties will fail to resolve their dispute amicably the same shall be referred to Arbitrator. Learned counsel further argued that the plaintiff has filed present suits without recourse to the arbitration proceedings. Learned counsel further argued that the defendants have neither filed any written statement nor taken any steps in proceedings except filing the instant applications for stay of proceedings. Learned counsel further argued that since the parties have mutually agreed to resolve their dispute through arbitration and  the right remedy was to invoke the Clause 13 of the agreement for the amicable resolution of dispute rather than filing suit directly for recovery, hence the suits are liable to be stayed  under Section 34 of the Arbitration Act. In support of his arguments learned counsel for the defendants relied upon the following case law:-

 

(1)    2010 YLR 3331 (Mrs.Rubby Hameedullah &  others v. Dr.Arif & others). In this  judgment authored by me, I held that if a person who has been a party to an arbitration agreement brings a suit ignoring that agreement, the defendant’s remedy, if he wants to rely on that agreement is to proceed under section 34 and to ask for stay of the suit. Section 34 creates an exception to the general law relating to procedure and empowers the Court which jurisdiction to decide the dispute or to refuse to do so in case of existence of an arbitration agreement. If in a contract there is a provision of resolution of dispute between the parties by way of arbitration and parties have agreed to such forum, then such forum is to be resorted to and given preference before filing a suit. The implication of section 34 stipulates that when the party to an arbitration agreement commences any legal proceedings against any other party to the agreement for a dispute agreed to be decided through arbitration, it cannot pursue remedy through legal proceedings and the Court has power to stay the suit for a dispute agreed to be resolved by the parties through arbitration.

 

 

(2) 2008 CLD 662 (Sqn. Ldr. (R.) Khurram Zaman v. Mrs.Afia Zafar & others). In this case the hon’ble Supreme Court has discussed  Section 34 of the Arbitration Act and keeping in view the clause available in the deed of partnership held that needless to emphasize that where a party to an arbitration agreement starts legal proceedings with respect to the subject matter of such agreement, the other party has a right to get such proceedings stayed so as to enable arbitration to proceed in terms of the agreement.

 

 

(3) PLD 2003 S.C. 808 (Dar Okaz Printing and Publishing Ltd. Liability Company v. Printing Corporation of Pakistan Private Ltd.). In this case it was held that the claim of the appellant is essentially founded on the terms and conditions of the contract and alleged breach thereof. On the face of the record, the arbitrator would be fully competent to adjudicate upon the questions of fact leading to the determination of rights and liabilities of the parties to the contract. On the contrary, it would be in the interest of justice and furtherance of the arbitration agreement that the dispute is resolved through arbitration as in the face of  a valid and lawful arbitration clause it would not be within the province of the Courts to enter upon such disputes. Director Housing, A.G.’s Branch v. Makhdum Consultants, Engineers and Architects (1997 SCMR 988), Province of Punjab v. Messrs.’ Irfan & Co. (PLD 1956 Lahore 442), A.M. Mair & Co. v. Gordhandas Sagarmull (AIR 1951 SC 9), Jubilee Chamber of Commerce v. Amrit Shah (AIR 1940 Lah. 180).

 

 

7. Learned counsel for the plaintiff argued that the applications under Section 34 of the Arbitration Act are not maintainable. The object of filing such applications is to cause unnecessary delay in disposal of the suits. The suits were instituted in January, 2011 and instead of filing written statement in the suits the defendants in order to drag the proceedings filed the application for staying the proceedings on the ground that the dispute is liable to be resolved through arbitration in view of Clause 13 of the contract. Learned counsel further argued that the defendants have completely failed to point out any difference or dispute in the application, which may warrant arbitration proceedings. All suits are based on the undertaking and admission of the defendants and in view thereof they are liable to refund the amount as well as the penalty according to Clause 8 (e) of the terms and condition of the contract documents which clearly manifests that in  case sugar mill fails to replace or deliver the purchase sugar as above, the mill shall immediately refund the entire payment along with markup @ 10% per annum and the penalty of 25% of the payment made. Learned counsel further argued that the matter can only be referred to for arbitration in case of any dispute between the parties but in the case in hand the defendants returned back the amount through postdated cheques, which was not accepted by the plaintiff and demand was made for immediate payment. The suits have been filed for the recovery and swift payment as the plaintiff did not agree to accept the postdated cheques, the defendants were called upon to immediately deposit the entire amount per tender terms and conditions. Learned counsel reiterated that since the defendants have failed point out any dispute for resolving through arbitration, therefore, the applications are liable to be dismissed. In support of his arguments learned counsel for the plaintiff relied upon the following case law:-

 

(1) PLD 1958 (W.P) Lahore 208 (Novelty Cinema, Layllpur v. Firdaus Films & another). It was held in this case that dispute must be specified in application under section 34. There seems to be a general impression that the dispute cannot possibly be specified in the application because the defendant is debarred from filing a written statement if he puts in an application for stay, and a statement as to what is the dispute will amount to the filing of a written statement. This is a misapprehension. When a person applies under Section 34, he has to satisfy the Court firstly that there is an agreement to refer and secondly that the suit relates to any matter agreed to be referred, and there is a dispute between the parties which is covered by the agreement, unless that is shown, the suit cannot be stayed. If a suit is filed on the basis of an agreement which contains an arbitration clause, the mere fact that the defendant is not prepared to pay the amount to which he is liable under the agreement, does not mean that there is a dispute between the parties.

 

 

(2) PLD 1968 Dacca 361 (Maganlal Jhawar & others v. M/s.M.R.Khan & Co. (Jute) Ltd.). In this judgment it was held that  pleadings in plaint and not statements in application to be looked into for determining whether Section 34 applicable. Contract between parties containing arbitration clause. Parties subsequently accepting settlement of differences given by third party. Suit not based on original contract but one for recovery of money payable under settlement accepted and acted upon by parties.

 

 

(3) 1988 CLC 1350 (Syed Arshad Ali v. Sarwat Ali Abbasi). In this case it was held that when in an application under Section 34 of Arbitration Act for stay for proceedings and its affidavit the applicant had not stated dispute between parties, but had made mere reference to arbitration clause, which is itself, was sufficient to cause dismissal of application.

 

 

(4) PLD 1993 S.C. 42 (M/s.Eckhardt & Co, Marine GmbH v. Muhammad Hanif). In this case it was held that under Section 34 of the Arbitration Act essentials consideration weighing with the Court in refusal on its satisfaction that there was no sufficient reason for making reference to arbitration and substantial miscarriage of justice would take place or inconvenience would be caused to parties if stay is granted. No hard and fast rule could be laid down or line of demarcation could be drawn to say in what cases refusal could be made. Grant or refusal of stay was dependent upon peculiar facts and circumstances of each case. Court can make objective assessment and come to conclusion whether stay of legal proceedings (suit) could be granted or refused.

 

 

8. Heard the arguments. No doubt Clause 13 of the agreement provides arbitration clause which deals with the mechanism to resolve the dispute between the parties. Though the defendants filed application under Section 34 of the Arbitration Act, but in their application they have completely failed to point out any dispute which they want to be resolved through arbitration proceedings under Clause 13 of the Arbitration Agreement, which provides that any difference or dispute of whatsoever nature arising  out of contact or in any way relating to the contract or its construction or fulfillment shall be settled through arbitration.

 

9. The principle underline in Section 34 of the Arbitration Act to force by an indirect method to resolve the dispute. The plaintiff has filed above suits for recovery of amount with breakup separately in each case. Section 34 enables a party to obtain stay of legal proceedings, but in order to invoke this provision it is necessary that there must be an arbitration agreement in existence, the legal proceedings must have been started after the agreement to refer, legal proceedings must have been started by a party to the agreement, the proceedings must be with respect to the matter agreed to be refer to arbitration, the application for stay must have been filed before filing the written statement or taking any step in the proceedings and the party asking for stay must be ready and willing to do all things necessary to the proper conduct of arbitration. The application under Section 34 of the Arbitration Act merits rejection when in the application there is no averment that the applicant was ready and willing to have the dispute settled through arbitration. This section does not make it obligatory on the court to necessarily refer the dispute to arbitration, but it gives the court discretion to stay the proceedings, if it is satisfied that there is no sufficient reason as to why the matter should not be referred to in accordance with the arbitration agreement. In Halsbury’s Laws of England (Pages 255-256, Fourth Edition, Volume 2)  “Meaning of Arbitration and Distinctions” has been explained as follows:-

 

“An arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction. The persons to whom a reference to arbitration is made are called arbitrators. Where provision is made that in the event of disagreement between the arbitrators (usually in such case two in number) the dispute is to be referred to the decision of another, or third, person, such person is called the umpire. The decision of the arbitrator or umpire is called the award. The term “arbitration” is used in several senses. It may refer either to a judicial process or to a non-judicial process. A judicial process is concerned with the ascertainment, declaration and enforcement of rights and liabilities as they exist, in accordance with some recognized system of law. The dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly.

 

10.   The legal proceedings which is sought to be stayed must be in respect of a matter which the parties have agreed to refer and same is within the terms of arbitration agreement. Before an order for staying of suit can be made under this section it must be established that the suit has been instituted in respect of the matter agreed to be referred. Where the suit has been commenced as to the matter which lay outside the submission the court is competent to refuse the stay. What happened in this case is that the plaintiff has not filed any suit for resolution of any dispute arising from the contract but it is a suit for recovery. The available correspondence clearly show that the defendants refused to supply or replaced the sugar stock and also issued cheque in favour of plaintiff and since few cheques were postdated, therefore, the plaintiff refused to accept the postdated cheques and demanded the amount. Even in the previous correspondence exchanged between the parties the defendants never took any plea that there is a substantial dispute between the parties, which can only be resolved through arbitration. On the contrary, the defendant in suit No.744/2011 vide letter dated 22.2.2010 informed the plaintiff that they could not replace the sugar as required under Clause 8(a) of tender document and request was made to the plaintiff to absolve the defendant from fulfilling the tender obligations. The defendant issued 07 cheques amounting to Rs.68,211,477/- with the breakup. This letter was replied by the plaintiff on 3.3.2010 informing the defendant that only one cheque was encashed and remaining 06 cheques were postdated and not acceptable to the plaintiff and same were accordingly returned back. The plaintiff again advised the defendant to deposit entire amount including 25% penalty and markup as per terms of tender. In Suit No.798/2011 also the defendant vide letter dated 22.2.2010 informed that they could not replace the sugar as required by Clause 8 (a) of tender document and requested that they may be absolved from tender obligations and they also issued 07 cheques with the same breakup showing the principal amount received less 5% retention, performance bond and sales tax. In similar fashion the defendant was replied by the plaintiff in which also only one cheque was found encashable and remaining 06 cheques were postdated. The plaintiff vide letter dated 26.8.2010 again informed the defendant that only principal amount has been paid while under the tender document 25% penalty was also liable to be paid and this correspondence was also followed by final notice of payment. In Suit No.836/2011 also the situation was not different. The defendant vide letter dated 22.2.2010 informed the plaintiff that they cannot replace the sugar as required under clause 8(a) of the tender and they also issued 07 cheques with the breakup of the principal amount received less 5% retention, performance bond and sales tax and also requested that they may be also absolved from contractual obligations. The plaintiff replied the letter in the same manner that one cheque is encashable while 06 cheques are postdated.

 

11.   From beginning to end, it is reflected that the defendants on their own will and volition issued the cheques. The available correspondence on record did not show that the defendant ever disputed the payment on the contrary they issued the cheques which were refused by the plaintiff on the ground that the same are postdated. Throughout, the defendant never took any plea that there is a dispute between the parties which comes within the ambit and scope of Clause 13 of agreement and should be referred to the arbitrator in terms of Clause 13 of the agreement but they clearly stated that they cannot replace the sugar in terms of clause 8 (a) of the tender document and also made a request that they may be absolved from tender obligations. They never took up the plea that due to any default of the plaintiff the agreement or its implementation was frustrated or exasperated. At the same time the defendants have failed to point out any dispute in the application which was agreed to be referred to the arbitrator.

12.   In the case of Novelty Cinema, supra, the learned court held that the dispute must be specified in the application and unless that is shown the suit cannot be stayed. In the case of Syed Arshad Ali supra, it was held that when an application under Section 34 of Arbitration Act and its affidavit the applicant failed to state the dispute between the parties, but only made reference to arbitration clause, the same was found sufficient to cause dismissal of application. The hon’ble Supreme Court in the case M/s.Eckhardt & Co, Marine GmbH while dilating upon Section 34 of the Arbitration Act, held that no hard and fast rule could be laid down or line of demarcation could be drawn to say in what cases refusal could be made.  Gant or refusal of stay was dependent upon peculiar facts and circumstances of each case. The court can make objective assessment and come to the conclusion whether stay of legal proceedings could be granted or refused.

 

13.   Learned counsel for the defendant relied upon my own judgment reported in 2010 YLR 3331 (Mrs.Rubby Hameedullah &  others v. Dr.Arif & others), in which it was held that Section 34 of Arbitration Act, creates an exception to the general law relating to procedure and empowers the Court to decide the dispute or to refuse to do so in case of existence of an arbitration agreement. The facts and circumstances of this case are entirely different as in the said case parties were already under arbitration to resolve their dispute and the matter was referred to the arbitration by the court in earlier suit and during pendency of arbitration proceedings one of the parties filed fresh suit in this court, which was stayed under the peculiar circumstances of the case. Learned counsel also referred to the case of Dar Okaz Printing and Publishing Ltd. in which the hon’ble Supreme Court has discussed Section 34 of the Arbitration Act and held that where a party to an arbitration agreement starts legal proceedings with respect to the subject matter of such agreement, the said party has a right to get such proceedings stayed. The facts and circumstances, of the case cited by counsel for the defendants are distinguishable. The learned counsel also refereed to 2008 CLD 662 which relates to a dispute in connection with partnership and under the deed of partnership it was provided that dispute if any shall be resolved through arbitration, the facts and circumstances of the cited case are also distinguishable as seemingly no dispute has been pointed out to be referred to the arbitrator.

 

14.   Under Section 34 of the Arbitration Act the court in its discretion can stay a suit and can also exercise its jurisdiction to entertain the suit for adjudication of claim of the parties containing the arbitration clause and can also consider whether the exercise of such discretion in particular case would be judicious and reasonable.

 

15.   As a result of above discussion, I do not feel it appropriate to stay the proceedings, consequently, all applications filed under Section 34 of the Arbitration Act are dismissed. However, the defendants are allowed to file their written statements within a period of one month.

 

 

 

Karachi:-                                                         Judge

Dated. 18.1.2013