' Respondent on 16th December, 1982 filed an application under section 20 of the Arbitration Act, 1940 (hereinafter referred to as the Act) seeking a direction for filing of the arbitration agreement in Court and for initiating the arbitration proceedings. The application was contested by filing reply.
Arising out of the pleadings, the Court framed as many as seven issues. Learned counsel for both the parties made a statement that the issues can be decided without recording of evidence, the same being legal. Thereafter, the case remained pending for consideration of the application for amendment, which was ultimately allowed on 13-3-1985. The Court directed filing of amended application/plaint, which was done. However, learned Counsel for the appellant made a statement that there was no need to file an amended reply. On 21-12-1985 two Arbitrators were nominated to give the award which was filed in Court on 27-10-1989. The award was in favour of the respondent in the sum of Rs,2,46,277. The appellant filed objections to the award, which gave rise to two issues.
The appellant examined two persons as witnesses. Thereafter, the evidence of the appellants was closed against which the appellant filed Civil Revision No, 1136 of 1991 in this Court. The revision was disposed of on 8-2-1992 with the permission to the petitioner to attack the order of closure in appeal against the award, if any. No evidence was produced by the respondent. The trial Court overruled the objections and made the award the Rule of the Court.
2. In this appeal under section 39 of the Arbitration Act, 1940, it has been strenuously argued by learned counsel for the appellant that the award is illegal and invalid as the trial Court never decided the original seven issues and further never allowed the application under section 20 of the Act. It is urged that the procedure adopted by the Court has no sanction of law. It is also urged that application under section 20 of the Act is not competent as the respondent did not act in accordance with condition 25-A of the agreement and never asserted his grievance before the Superintending Engineer as required by the above condition. In reply, it is urged by learned counsel for the respondent that the appellant participated in the arbitration proceedings without any protest and took the chance of success and, therefore, it cannot now be remitted to turn around and raise objection to the jurisdiction of the ArbitratoRs, He has relied on Suleman Haji Muhammad & Co. v. State Bank of Pakistan PLD 1960 (WP.) Kar.
78. He has further elaborated that the appellant appointed Mr. Saeed Khokhar, Superintending Engineer as its Arbitrator after revocation of the authority of Hafiz Aslam by the Court.
3. The record of trial Court shows that the application under section 20 of the Act has never been disposed of by the Court. It has never directed the agreement to be filed in Court. Resultantly, there is no arbitration agreement on the file. There is no disposal of seven issues framed on 12-10-1983. It is, however, correct that without such disposal of application under section 20 of the Act, the parties proceeded to nominate their respective ArbitratoRs, On 21-12-1985 the Court referred the matter to the Arbitration of Mr. Saeed Ahmad Khokhar, Superintending Engineer, Gujranwala and Muhammad Ashraf Khan, Superintending Engineer, Gulberg, Lahore and directed them to file the award by 28-3-1986. It is also correct that appellants did not object to the jurisdiction of the Arbitrators and participated in proceedings before the Arbitrators without any reservation. It is also correct that in the objection petition, the point now being raised has not been taken. The question, therefore, is whether this illegality can be ignored on the ground that the appellants are estopped to challenge the award on the basis of their conduct?
4. Section 20 appears in Chapter 3 of the Act which is headed "Arbitration with intervention of a Court where there is no suit pending............ ". Subsection (1) enables any person, party to arbitration agreement to apply to the Court for filing of the, agreement in Court. Under subsection (2) such an application has to be in writing and it has to be numbered and registered as a suit. Subsection (3) provides that the Court will issue notice to all the parties to the agreement other than the applicants requiring them to show as to why the agreement be not filed. Subsections (4) and (5) are crucial to this case, and therefore, are reproduced:---
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.
(5) Thereafter, the arbitration shall proceed in accordance with and shall be governed by, the other provisions of this Act, so far as they can be made applicable.
5. It will be appreciated that the language of subsection (4) is mandatory inasmuch as if no sufficient cause is shown the Court has to order the agreement to be filed and thereafter "shall make an order of a reference to the Arbitrator appointed by the partie The mandate of the law- giver is very clear. The filing of agreement has to precede the appointment of the Arbitrator or the ArbitratoRs, Language of subsection (5) further confirms the mandatory requirement of filing of agreement in the first instance. The expression thereafter in subsection (5) confirms that once the steps mentioned in subsection (4) have been taken, thereafter the arbitration shall proceed in accordance with and shall be governed by, the other provision of the Act, so far as they can be made applicable. The view I have taken is fortified by the decisions reported as University of the Punjab v. Perfect Electric Concern PLD 1980 Lah. 305 Union of India v. Muhammad Usman AIR 1965 All.
269.
6. In this appeal, unfortunately, the trial Court has fallen into error in proceeding to appoint the Arbitrator without directing the filing of agreement. In other words without even deciding the application under section 20. It was only when the agreement had been filed that the Court could have ascertained whether the dispute between the parties is covered by the arbitration clause or not. On such a finding the Court could have proceeded to direct reference to arbitration in accordance with the terms of arbitration agreement. As it is, the Court straightaway proceeded to appoint Arbitrators and directed them to file the award. In my judgment, such a procedure is illegal and vitiates all the proceedings notwithstanding the failure of the learned counsel appearing for the parties to point out the exact procedure or failure of the learned counsel for the appellant to object to the manner in which the Court proceeded. Similarly, participation of the appellants in proceedings before the Arbitrators without protest does not disentitle the appellants to urge this point. The reason is that neither the Court nor the parties themselves can circumvent the mandatory provision of section 20(4) and (5). Such an agreement will be void being opposed to public policy, under section 23 of the Contract Act, 1872.
7. No other point has been urged. For the reasons noted above, this appeal is allowed. The impugned decree/award is set aside and the case is remitted to the trial Court for fresh decision in accordance with law. The trial Court will proceed to decide the question of filing an arbitration agreement in the first instance before making reference to ArbitratoRs, No order as to costs.