2015 C L D 1743
[Baluchistan]
Before Muhammad Ejaz Swati and Jamal Khan Mandokhail, JJ
GOVERNMENT OF BALOCHISTAN through Additional Chief Secretary, Planning and
Development Department ---Appellant/Petitioner
Versus
Messrs ENTERPRISE AND DEVELOPMENT CONSULTING (PVT.) LTD. ---Respondent
Civil Miscellaneous Appeal No.7 and Civil Revision No.219 of 2006, decided on 26th May,
2015.
Arbitration Act (X of 1940) ---
----S. 20---Agreement between department of Provincial Government and Private Limited
Company ---Appointment of arbitrator ---Arbitration clause in the agreement ---Scope---Trial
Court appointed arbitrator who filed award which was made rule of court ---Trial Court was
bound to consider whether arbitration agreement should be filed in the court or not ---Arbitrator
could be appointed by the court if parties were agreed for the same ---Mode, manner and
mechanism for selection of arbitrator had to be adhered from the agreement if arbitration clause
did not name an arbitrator ---Trial Court, in the present case, without considering the dispute
between the parties, and arbitration clause of the agreement, had unilaterally appointed arbitrator
thus had conducted the proceedings without adhering to the clause of contract/agreement ---Trial
Court w as required to have first determined its competency/jurisdiction over the dispute prior to
appointment of arbitrator which had not been done ---Award given by the such arbitrator was
void ab initio---Parties must stick to the agreement/contract entered into between them in case of
arbitration with intervention of court ---If arbitration clause had named an arbitrator and had
provided for the manner in which the arbitrator was to be chosen and appointed, parties were
bound to act accordingly ---Primary duty of arbitrator under the deed of reference was to
determine whether he had jurisdiction with regard to dispute arising out of an agreement ---Trial
Court was bound to consider whether arbitrator had exceeded his jurisdiction or he had
jurisdiction to adjudicate upon the matter --- Trial Court had decided the question of competency
of reference as well as appointment of arbitrator without reference to the agreement ---Impugned
order passed by the Trial Court was set aside and award was rejected ---Case was remanded to the
Trial Court with the direction to first decide as to whether under the clause of agreement it had
jurisdiction to appoint an arbitrator other than provided in the clause of said agreement and then
decide the matter within a specific period ---Appeal was accepted accordingly.
Farooq Sarwar, Assistant Advocate -General for Applicant.
H. Shakil Ahmed for Respondent.
Date of hearing: 26th February, 2015.
JUDGMENT
MUHAMMAD EJAZ SWATI: J. ---Through the instant Civil Miscellaneous Appeal No. 7 and
Civil Revision Petition No. 219 of 2006, the appellant/petitioner has challenged the validity of
the order dated 10th May, 2006 (hereinafter the "impugned order") passed by the learned Civil
Judge -H, Quetta (hereinafter the "trial Court"), whereby the awar d dated 21st September, 2005
filed on 20th October, 2005 was made rule of the Court.
2. The facts arising out of the instant appeal are that the respondent/applicant filed an application
under section 20 of the Arbitration Act, 1940 (hereinafter the "Act , 1940") and averred that the
respondent/applicant (Enterprise and Development Consultant Pvt. Ltd. (EDC) is a private
limited Company incorporated under the Companies Ordinance, 1984. The Government of
Balochistan engaged the services of EDC in respect of Balochistan National Resources
Management Project (BNRMP) through contract dated 1st July, 1996 (hereinafter the
"contract"), which contained terms of reference, scope of work, implementation, consultancy fee,
mode and time of payment, termination, settle ment of disputes. It was the case of the respondent
that he completed the work with the entire satisfaction, however a dispute over an amount US$
23794 in foreign currency i.e. Rs.189,511 in local currency arose. The petitioner vide letter dated
6th Octobe r, 2000 avoided the payment. The said dispute under clause (8) of the Contract Act
was to be settled amicably but it was declined and as per arbitration clause in the contract, the
respondent invoked the arbitration clause and filed an application under se ction 20 of the Act,
1940.
3. The trial Court vide order dated 22nd March, 2003, in view of clause 8.2 of the Contract
allowed the application of the respondent and directed the parties to provide the name, of
arbitrators. The petitioner could not provide the name of the arbitrator, however, the trial Court
on 13th August, 2003, appointed Mr. Sakhi Sultan, Advocate (late) as arbitrator from the list
provided by the respondent, who filed award dated 21st September, 2005 on 20th October, 2005.
4. The obje ction to the award filed by the petitioner was rejected, as such vide impugned order,
the same was made rule of the Court.
5. The learned Assistant Advocate General contended that the trial Judge acted beyond the scope
of section 20 of the Act and contra ry to the agreement/contract; that the arbitrator was appointed
on 13th August, 2003, who had given his award on 21st September, 2005 after lapse of two
years; that the award was made ex parte without affording opportunity; that the arbitration clause
of the agreement specifically exclude the jurisdiction of the Court and competency of the
arbitrator to give award; that the award lacks reason and substance and based on presumptions.
The learned counsel for the respondent contended that on the basis of arbitration clause in the
agreement, the trial Court had rightly appointed the arbitrator with consent of the parties; that
though the arbitrator was appointed on 13th August, 2003, but he was directed by the trial Court
to commence the proceedings on 9th Apr il, 2005, due to non- deposit of the fee of the arbitrator
by the petitioner; that the arbitrator had provided ample opportunity to the petitioner but despite
receiving notices, the petitioner failed to appear; that the arbitration award is based on sound
reasons and is liable to be sustained.
6. We have heard the learned counsel for the parties and have gone through the record of the
case. We find that pursuant to contract/agreement dated 1st July 1996, the petitioner hired the
services of the respondent' s company in respect of BNRNP. The agreement contained terms and
condition of the work and reference of the case to arbitrator in case of dispute. According to the
respondent, the petitioner in contravention of the contract withheld an amount US$ 23794 in
foreign currency i.e. Rs. 189,511. The dispute, according to the respondent was not settled by the
petitioner amicably nor through reference to arbitrator, so he invoked the arbitration clause by
filing application under section 20 of the Act, 1940. Clause (4) of section 20 of the Act, 1940,
'provides that the Court prior to appointing the arbitrator will consider the following
circumstances:
(a) If no arbitrator has been appointed by the parties in the agreement.
(b) Or otherwise there was also no proc edure for appointment and
(c) The parties fail to agree about an arbitrator.
7. The power and duty of the Court in subsection (4) of section 20 of the Act, 1940 are of two
distinct kinds. The first is judicial function to consider whether the arbitration agreement should
be filed in the Court or not. That may involve dealing with objection to the existence and validity
of the agreement itself. Once that is done and the Court has decided that the agreement must be
filed, the first part of its po wer and duty is over, and then follows the other, step of reference to
arbitrator appointed by the parties. That also was a perfectly possible, if the parties agree. The
Court may be required to make a decision who should be selected as an arbitrator and i n this
respect, the mode, manner and mechanism is to be adhered from the agreement, if the arbitration
clause does not name an arbitrator, but provides the manner in which the arbitrator is to be
chosen and appointed. In the instant case, the trial Court w ithout considering the dispute between
the parties and arbitration clause of the agreement, had unilaterally appointed the arbitrator. The
trial Court, while considering this important aspect of the matter passed an order on 22nd March,
2003 and observed a s under:
"Counsel for applicant Mr. Nazir Agha, Advocate present. A.D.A Miss Farhat Shameem
is also present from respondent side. Hearing of case file has been fixed today for order.
After submission of reply to application, argument heard from both side and case file
perused carefully. It is perceived from record available that a contract for consultant's
service was executed between the parties on 1 -7-1996 and Government of Balochistan
has engaged the services of applicant (ED C) in respect of Balochist an National Resource
Management project according to said contract, but now there arises a dispute between
the parties on the payment of some amount by respondent to applicant as well as on the
performance of applicant. The above mentioned dispute is requi red settlement by
Arbitration as per clause 8:2 of said contract. Therefore, the application of applicant for
adopting procedure of arbitration is accepted and both the parties are directed to produce
their list of nominee within thirty days on next date of hearing before Court for the
appointment of arbitrators as per clause 8.2 of the contract. So case file adjourned on 28-
4-2003 for the appointment of arbitrators."
8. The arbitration clause contained in clauses 8.1 and 8.2 which reads as under: --
"8.1 Amicable Settlement
The Parties shall use their best efforts to settle amicably all disputes arising out of or in
connection with this Contract or the interpretation thereof.
8.2 Dispute Settlement
Any dispute between the Parties as to matters ar ising pursuant to this Contract which
cannot be settled amicably within (30) days after receipt by one Party of the other Party's
request for such amicable settlement may be submitted by either Party for settlement in
accordance with the provisions specifi ed in the SC."
9. The special condition of the contract (SC) provides the name, mode and manner of dispute and
reference of arbitrator as follows:
"8.2 Disputes shall be settled by arbitration within the following provisions:
(1) Selection of Arbitra tors
Each dispute submitted by a Party to arbitration shall be heard by a sole arbitrator or on
arbitration panel composed of three arbitrators, in accordance with the following
provisions:
(a) Where the Parties agree that the dispute concerns a technical matter, they may agree
to appoint a sole arbitrator or, failing agreement on the identity of such sole arbitrator
within thirty (30) days after receipt by the other Party or proposal of a name for such an
appointment by the Party who initiated th e proceedings, either Party may apply to the
Federation International des Engineers -Counsel (FID1C) of Lausanne, Switzerland, for a
list of not fewer than five nominees and, on receipt of such list, the Parties shall
alternately strike names therefrom, and the last remaining nominee on the list shall be the
sole arbitrator for the matter in dispute. If the last remaining nominee has not been
determined in this manner within sixty (60) days of the date of the list F1DIC shall
appoint, upon the request of eit her Party and from such list of otherwise, a sole arbitrator
for the matter in dispute.
(b) Whether the Parties do not agree that the dispute concerns a technical matter, the
Client and the Consultants shall each appoint one arbitrator, and these two arbitrators
shall jointly appoint a third arbitrator, who shall chair the arbitration panel. If the
arbitrators named by the Parties do not succeed in appointing a third arbitrator within
thirty (30) days after the latter of the two arbitrators named by the P arties has been
appointed, the third arbitrator shall, at the request of either Party, be appointed by the
Secretary General of the Permanent Court of Arbitration, the Hague.
(c) If, in a dispute subject to Clause SC 82.a (b), one Party fails to appoint its arbitrator
within thirty (30) days after the other Party has appointed its arbitrator, the Party which
has named an arbitrator may apply to the Secretary General of the Permanent Court of
Arbitration, the Hague, to appoint a sole arbitrator for the mat ter in dispute, and the
arbitrator appointed pursuant to such application shall be the sole arbitrator of that
dispute."
10. The aforesaid arbitration clause of the contract reveals that the trial Court conducted the
proceedings without adhering to the a foresaid clause of the contract/agreement. The trial Court
prior to appointment of arbitrator was required to have first determined its competence/
jurisdiction over the alleged dispute and reference of the matter to the arbitrator, which had not
been done so. Besides in a plain reading of the arbitration clause of the agreement and provisions
of law, we are of the considered opinion that the procedure followed and mythology adopted by
the respondent is wholly unknown to law and the appointment of the sole arbitrator and the
reference of the dispute to such arbitrator and the ex parte proceeding and award given by the
arbitrator are all void ab initio. In case of arbitration with intervention of the Court, the parties
must rigorously stick to the agreement/c ontract entered into between them. If the arbitration
clause names an arbitrator and further provides for the manner in which the arbitrator is to be
chosen and appointed then the parties are bound to act accordingly.
11. In the instant case, since the t rial Court in view of section 20 of the Act, 1940, while rejecting
the objection of the applicant made the award dated 21st September, 2005 rule of the Court and
against which, appeal under section 39 of the Act, 1940 is competent and in presence of appeal
on the same subject Civil Revision Petition No. 219 of 2006 is not maintainable and dealt
accordingly it is settled that when in respect of a dispute arising out of an agreement, the primary
duty of the arbitrator under the deed of reference as to whether on the terms of the agreement, the
arbitrator has got jurisdiction. It was for the trial Court to have considered, whether the arbitrator
has exceeded his jurisdiction, or he had jurisdiction to adjudicate upon the matter. All these
aspects of the matter had been gone unnoticed by the trial Court and the question of competency
of the reference as well as appointment of the arbitrator had been decided without reference to
the agreement, therefore, the impugned order is not sustainable.
In view of the above, the Civil Miscellaneous Appeal No. 7 of 2006 is allowed, the impugned
order dated 10th May, 2006 passed by the learned Civil Judge -II, Quetta, whereby the award
dated 21st September, 2005 filed on 20th October, 2005 was made rule of the court is set asi de
and the impugned award is hereby rejected and the case is remanded to the trial Court with
direction to first decide as to whether under the Clause of the agreement, the trial Court has
jurisdiction to appoint an arbitrator other than provided in the Cl auses 8.1 and 8.2 of the
agreement and after affording opportunity to the parties decide the matter in accordance with law
within a period of three months.
ZC/72/Bal. Appeal allowed.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
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