9/8/23, 1:20 PM 2016 M L D 897

2016 M L D 897

[Sindh]

Before Nadeem Akhtar and Muhammad Iqbal Kalhoro, JJ

Messrs TRADING CORPORATION OF PAKISTAN LTD.---Appellant

Versus

Messrs GENERAL INDUSTRIAL MACHINES---Respondent

High Court Appeal No.15 of 1979, decided on 22nd December, 2015.

Arbitration Act (X of 1940)---

----Ss.3, 16, 26-A & 30 [as inserted by Arbitration (Amendment) Ordinance (XV of
1981)]---Law Reforms Ordinance (XII of 1972), S. 3---Arbitration---Intra-court
appeal---Objection to award---Remission of case---Reasons not stated---Parties
referred their dispute to arbitrator who unanimously appointed umpire and a
unanimous award was given---Arbitrators filed the award in court and despite
objections filed by appellant, single Judge of High Court made it rule of the Court---
Appellant sought dismissal of award on the plea that arbitrators did not give reasons of
award and after their death parties were not willing to appoint new arbitrator---
Validity---Case fell under S. 16 (1)(c) of Arbitration Act, 1940, as objection raised by
appellant to legality of award that it lacked reasons was apparent on the face of it---
Such objection was also accepted by High Court when the matter was remitted to
surviving arbitrator for reasons in sufficient details which order was upheld by
Supreme Court---Surviving arbitrator failed to reconsider the award and to submit his
decision and reasons in sufficient details within the stipulated period---Such award had
become void under S. 16(3) of Arbitration Act, 1940---Arbitration agreement between
parties ceased to have effect with respect to dispute referred thereunder and such
reference was liable to be superseded under S. 19 of Arbitration Act, 1940---Parties
were unwilling to appoint new arbitrators and the award could not be remitted to any
other arbitrator---Award had become void and arbitration agreement between parties
could not be given effect to and the same had become frustrated---Reference was
superseded under S. 19 of Arbitration Act, 1940 and the arbitration agreement ceased
to have effect with respect to differences/dispute referred in pursuance thereof to
arbitrators and umpire---Division Bench of High Court set aside judgment and decree
passed by single Judge of High Court resultantly award was set aside---Appeal was
allowed accordingly.

Wazir Khan and 8 others v. Sardar Ali and 25 otherse 2001 SCMR 750; Muhammad
Farooq Shah v. Shakirullah 2006 SCMR 1657; Abdul Razzak v. Mst. Qaiser Sultan and
2 others 1984 MLD 147; Associated Constructors Ltd. v. Karachi Municipal
Corporation 1987 CLC 383; Messrs Abdullah Traders v. Trading Corporation of

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Pakistan LTD. and 2 others 1999 CLC 2047 and Chelikani Venkata Rao and others v.
C. V. Rao and others, AIR 1958 Andhra Pradesh 740 ref.

Muhammad Gulzar v. Rana Abdul Jabbar and others 2005 MLD 667 rel.

Syed Ashfaq Hussain Rizvi for Appellant.

A. H. Mirza for Respondent.

Dates of hearing: 5th, 19th December, 2014 and 23rd November, 2015.

JUDGMENT

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.

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(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.

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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. 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. 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. Mst.
Qaiser Sultan and 2 others, 1984 MLD 147, Associated Constructors Ltd. v. Karachi
Municipal Corporation, 1987 CLC 383, and Messrs Abdullah Traders v. Trading

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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. 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.

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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

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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

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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. 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 subsection (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 subsection (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 subsection, 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. Subsection (3)
of Section 16 ibid provides that an award remitted under subsection (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 subsection (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 subsection (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 subsection (3) of Section 16 of the Act. Thus, the arbitration
agreement between the parties has ceased to have effect with respect to the dispute

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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, C.P.C. 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.

MH/T-3/Sindh Order accordingly.

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