1. FAISAL ARAB, J. - 1 &2. Deferred.
3. The plaintiff filed this suit for declaration, injunction and damages against defendant seeking following reliefs:-
(i) Declare that the plaintiff is the lessee of Plot No. 15, Sector C-VII, Karachi Export Processing Zone, admeasuring approximately 1000 square meters and is in lawful possession of the same;
(ii) Restrain the defendant from interfering with the plaintiff's quiet possession of the said plot and causing harassment to the plaintiffs business activities and order the defendant to remove its locks from the gages of the said plot;
(iii) Direct the defendant to restore electricity and gas connection to the said plot;
(iv) Declare that the defendant's purported cancellation order dated 22.11.2007 is illegal, mala fide, void ab initio and of no legal effect;
(v) Direct the defendant to restore the plaintiffs safety deposit box together with all its contents including USD 50,000 and Rs. 1,500,000/- in cash, 5 computer laptops and the plaintiffs business machinery and vehicular documents and records;
(vi) Grant damages of Rs. 10,000,000/-;
(vii) Grant costs of the suit; and
(viii) Pass such further/additional order as may be necessary or expedient.
2. The defendant before taking any further proceeding in the matter filed an application under Section 34 of Arbitration Act, 1940 read with Section 24 of Export Processing Zones Authority Ordinance, 1980 seeking stay of the proceedings in the suit and referral of the dispute to arbitration.
3. The learned counsel for the defendant argued that not only there is an arbitration clause in the agreement between the parties but Section 24 of the Export Processing Zones Authority Ordinance IV of 1980 itself provides that disputes shall be referred to arbitration. Section 24 reads as under:- "Dispute to be referred to arbitration(1) any dispute relating to the interpretation of the provisions of any agreement made under any scheme prepared under Section 10 between the Authority and an investor or the rights of the parties to such agreement or any rights conferred or any liability imposed by this Ordinance shall be referred for arbitration to an arbitrator appointed by the parties."
4. Clause 17(A) of the agreement reads as follows:- "Any dispute between the parties shall be referred to arbitration as provided under Section 24 of the Ordinance IV of 1980 and such processing shall take place at Karachi."
5. The learned counsel for the defendant placing reliance on the above-referred clause of the agreement and Section 24 of the Export Processing Zones Authority Ordinance IV of 1980, states that all disputes arising between the parties have to be referred to the arbitration, In support of his contention he has relied upon 1999 MLD 673, unreported order of this Court passed in C.P. No. 1111 of 2008 (Prime Safety Limited & another v. Federation of Pakistan & another), 2009 CLD 814 and unreported order passed by this Court in Suit No. 990 of 2008 {Premier Stitching Limited v. Export Processing Zones Authority}. The learned counsel for the defendant also placed reliance on 2009 CLD 814 and states that any dispute arising between the parties relating to agreement has to be referred to arbitration.
6. In reply, the learned counsel for the plaintiff has argued that even where there is an arbitration clause between the parties any dispute that arise between them but is not covered by the arbitration clause, then the matter cannot be referred to the arbitration. He further argued that even where a dispute arises, which is partly covered under arbitration clause the Courts have not referred the matter for arbitration as in such eventuality there would be two simultaneous proceedings, one before the arbitration and the other before ordinary forum. He also argued that mala Fide has been alleged in the plaint and if there is criminal conduct on the part of any of the parties to the agreement, the matter is not to be referred to arbitration. He pointed out that in the present case the defendant has cancelled the allotment of the plots on which the plaintiff has set up his unit on the plea that there is failure on the part of the plaintiff to meet the export targets and based on such grounds of cancellation, the defendant forcibly entered upon the premises and took over valuable assets illegally. He submitted that these controversies do not emanate from any of the obligation under the agreement between the parties, In support of his contention he relied upon PLD 1958 Lahore 208.
7. The learned counsel for the defendant, in rebuttal, argued that if the arguments of the plaintiff are believed, then in every controversy where there is allegation of criminal conduct on the part of a party, the arbitration can be avoided. He further argued that as there is no denial of arbitration clause in the agreement between the parties the parties the matter be referred to arbitration, In support of his contention he has placed reliance on PLD 2002 SC 808, 1999 SCMR 985 and PLD 1999 636.
8. The basic controversy between the parties arose when the defendant served notice of cancellation of allotment vide its letter dated 22.11.2007. The reason for cancellation was that the plaintiff failed to meet export obligations or targets and failure to do so, the allotment was liable to be cancelled under the covenants of the agreement. In pursuance of such cancellation notice attempt was made to forcibly taken over the possession of the premises. As regards the failure of the plaintiff to meet the export targets, the only obligation in the approval letter, issued by the defendant on 17.01.2003, arises from two of its Clauses, which read as follows:-
(i) The export to Pakistan and abroad would be in a ratio of 40:60;
(ii) In case, you fail to achieve the above export target during your first year of operation, then the facility for export to Pakistan would be discontinued.
9. In the case relied upon by the learned counsel for the plaintiff reported as PLD 1958 Lahore 208, wherein B.Z. Kaikais, J. Held that where a person applies under Section 34 of the Arbitration Act 1940, he has to satisfy the Court firstly that there is an agreement for referring the matter to arbitration and secondly that the controversy relates to any matter agreed to be referred to arbitration. This means that there should not only be a dispute between the parties but it should be of such a nature which is covered under the arbitration clause. Unless this is shown, the suit cannot be stayed and matter cannot be referred to arbitration, It is not sufficient that controversy has arisen between the parties to arbitration but it is necessary that the controversy should be of such a nature which is covered by a situation which provides for referral of the matter to arbitration. The applicant of Section 34 of the Arbitration Act, 1940 must satisfy the Court that the controversy is of the nature which has arisen out of the provisions of the arbitration clause, In the present case the controversy pertains to the cancellation of the allotment of plots solely on the ground that the export target has not been achieved by the plaintiff in terms of the approval letter or the general agreement between the parties or of the lease deed. No such consequence is provided in the agreement between the parties or any other document, therefore, the controversy has not arisen from any of the terms of the arbitration agreement. The application under Section 34 of the Arbitration Act, 1940 is, therefore, dismissed.