Ali Baqar Najafi, J.--This regular first appeal is directed against the judgment and decree dated 20.09.2011 passed by the learned Civil Judge 1st Class, Rawalpindi, whereby the award dated 05.08.2010 given by the learned Arbitrator was made rule of the Court to the tune of Rs, 49,00,000/- along with the interest at the rate of 11 percent per annum.
2. Brief facts giving rise to the filing of this appeal are that the appellant is a Charitable Trust registered under Charitable Endowments Act, 1890 created for the welfare of ex-servicemen of the Armed Forces of Pakistan (Army, Navy and Air Force) in the fields of education, health and all other welfare activities including the widows and orphans of the Martyr (Shaheeds) Army Personnel. The appellant awarded contract for Rs, 2,66,92,065/- to the respondent for the construction of 200 beds Hospital at Fauji Foundation Medical Centre, Rawalpindi. The date of commencement of the contract was 12.09.1984 and its completion period was within 24 months. As the respondent could not complete the construction work till 30.11.1987, therefore, on his request three extensions of 14 months and 19 days in total were granted to the respondent. The work still remained incomplete and the respondent, again requested for 4th extension which was turned down as earlier extensions have earned bad name for the appellant and added to the miseries of the beneficiaries of the hospital.
3. Since the said contract contained the provisions of arbitration for resolution of the dispute, the respondent served a notice on the appellant and on 01.10:1987, whereby a claim of a sum of Rs, 1;13,78,207k was made and the appellant has also asked for the appointment of arbitrator.
Consequently, an application under Section 20 of the Arbitration Act, 1940, for the appointment of arbitrator was moved to refer the matter to the arbitrator. With the agreement of the parties, initially, Mr. Justice (R) K.M.A Samdani, a former Judge of the Lahore High Court, Lahore, was appointed as Arbitrator vide order dated 04.12.1988 by the learned Civil Judge 1st Class, Rawalpindi.
As the respondent submitted claim of Rs, 2,24,18,619/- instead of Rs, 1,13,78,207/- therefore, the learned Arbitrator conveyed through his letter dated 01.10.1987 to the learned Civil Judge that the matter was beyond his jurisdiction. On 09.01.1992 the learned Civil Judge allowed the application under, Sections 32/33 of the Arbitration Act, 1940 directing the said arbitrator to consider all the claims submitted by the respondent. Being aggrieved, the appellant assailed the said order in Civil Revision No, 124 of 1992 which was allowed by this Court on 15.06.1995, whereby the order dated 09.01.1992 passed by the learned Civil Judge 1st Class, Rawalpindi was set aside. The reasons advanced by this Court were that vide clauses 69 & 72 of the condition of contract, only the claim of the respondent to the extent of Rs, 1,13,78,207/- will be considered by the arbitrator, who was otherwise not competent to enlarge the scope of agreement between the parties. Later, the said learned arbitrator was substituted by Mr. Justice (Retired) Ghulam Ahmad. However, upon showing no confidence Mr. Justice Akhtar Hassan was appointed as arbitrator. The latter sent his award dated 20.09.2011 to the Civil Court without its formal pronouncement. The learned Civil Court made the said award as rule of the Court on 05.08.2010 which is challenged in the instant appeal.
4. The learned counsel for the appellant submits that the impugned judgment and decree is not sustainable in law as the same is in violation of Section 20(4) of the Arbitration Act, 1940 as no reference was sent by the Civil Court to the learned arbitrator; that under Section 14 of the Act ibid the learned arbitrator was required to send a notice to the appellant before sending the award which was not complied with; that learned arbitrator has mis-conducted himself and mis- conducted the proceedings as apparent from the face of the award; that in Para-10 of the award the learned arbitrator has incorrectly mentioned that the witnesses of the respondent were. cross- examined at length which fact is not reflected from the record; that vide clause 38 of the agreement the time was essence of the contract which aspect was ignored while delivering the award; that under Clause 48-A of the contract no escalation/ compensation could be awarded to the respondent-contractor; that the judgment rendered by this Court on 15.06.1995 in Civil Revision No, 124 of 1992 was ignored while passing the impugned judgment & decree whereby it was held that the scope of dispute was confined only to the amount for which notice under Section 69/72 of the condition of the contract was given to the appellant and no Court was competent to enlarge the scope of reference; that the findings on the differential amount of Rs, 4.9 millions was not based on any cogent evidence, as no issue in that respect was ever framed. Places reliance on Fauji Foundation and another vs Shamimur Rehman and (PLD 1983 SC 457) Shamim-ur-Rehman vs. Fauji Foundation-Rawalpindi and another (1992 SCM R 1496) and prays for setting aside the impugned judgment.
5. Conversely, learned counsel for the respondent submits that under Section 17 of the Arbitration Act, 1940 the appeal is not competent as the decree was passed exactly in accordance with the award; that the arbitration was convened on the basis of notices which were issued in accordance with the terms of reference; that another agreement dated 03.09.1984 had supplemented the earlier agreement whereby claim on the basis of escalation/compensation was made permissible; that the respondent accepted the contract with clear understanding that he will be fully protected; that the attitude of the appellant was adamant that they have failed to perform their part of the contract by fulfilling the responsibilities.
6. We have heard the learned counsel for the parties and perused the available record.
7. Although the time was essence of the contract, yet its period of 24 months was further extended to another 14 months and 19 days by the appellant at the request of the respondent. On the failure of the respondent to complete contract, (even after extended time), the work was completed by another contractor for which 03.05 million rupees was paid by the appellant. The award of the differential amount of 4.9 million was granted which was later made rule of the Court under Section 14 of the Arbitration Act, 1940; On the other hand, a perusal of Clause 40-A of the contract reveals that no claim for escalation/compensation due to rise in prices of material/labour and overhead will be acceptable by the employer for the completion of work. The respondent claim that this clause of the original contract was modified/diluted by a supplementary agreement dated 03.09.1984, is not correct. Last clause of the said agreement specifically stipulates that the employer agreed to pay to the contractor consideration of the construction, completion, maintenance of the work, contract price, and time in the manner prescribed by the original contract. This means that clause 40-A expressly stipulates that no claim of escalation/compensation can be allowed. We rely on the judgment of the Honourable Supreme Court of Pakistan rendered in House Building Finance Corporation vs. Shahinshah Humayun Corporative House Building Society and others (1992 SCM R-19) wherein it is held that stipulation not expressed in a written contract was not to be implied merely because the Court thought that it would be reasonable thing to imply. It was observed as follows:-- "A stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be a reasonable thing to imply it. Such an implication can be made only on consideration of the terms of the contract in a reasonable manner and if the Court is satisfied that it should necessarily have been intended by the parties when the contract was made. In documents of contracts where terms and conditions have been exhaustively specified dealing with all possible future and foreseeable contingencies but if certain fundamental contingencies have been left out which necessarily in the context, facts and circumstances of the case should have been incorporated and can be spelt out, then the Court may imply such conditions."
8. The observation passed in Civil Revision No, 124 of 1992 vide order dated 26.03.1995 is to the extent that the agreement between the parties contained stipulation that contractor's claim would be confined only to the amount for which a notice under Clause 69 & 72 was given to the appellant, neither the Court nor the arbitrator was competent to enlarge the scope of the agreement or the application made under Section 20 of the Arbitration Act. This means that the award of differential amount between, the contract given to the respondent and those mentioned in the contract given to the 3rd party was beyond the scope of jurisdiction of learned arbitrator. Additionally, Section 20 of the Arbitration Act requires that the Court shall issue notice to the parties to the agreement requiring them to file agreement and if no sufficient cause is shown, the Court shall order the agreement to be filed and make an order of reference to the arbitrator. This means that a notice in terms of reference to the arbitrator is the requirement of law, which was not complied with.
9. Under Section 17 of the Arbitration Act, 1940, an appeal shall lie on the ground that the decree is in access of or not in accordance with the award but this provision is attracted when the Court finds no reason either to remit or to set aside the award. However, we find reasons to differ with the learned Civil Judge., It is true that Court while examining the correctness and legality of award does not act as a Court of appeal and cannot undertake reappraisal of evidence recorded by the arbitrator in order to discern the error or infirmity in the award. But when the award was given by the Arbitrator against the terms of the submissions made before him, adverse inference can be drawn against him. Misconduct of proceedings was not only alleged but proved against the learned arbitrator, for which it does not necessarily imply anything in the nature of moral turpitude.
In the judicial sense the misconduct of an arbitrator means his failure to perform his essential duty resulting in substantial miscarriage of justice between the parties. We follow the dictum laid down by the apex Court in Mian Corporation through Managing Partner vs. Messrs Lever Brothers of Pakistan Ltd. through General Sales Manager. Karachi (PLD 2006 SC 169) and Brooke Bond (Pakistan) Ltd: vs. Conciliator Appointed by the Government of Sindh and 6 others (PLD 1977 Supreme Court 237).
10. Even Otherwise, it is not the function of the arbitrator to be influenced by his own imagination and opinion ignoring relevant clauses of the contract between the parties as he is required to apply already agreed clauses of the contract. We, therefore, are of the opinion that the judgment and decree based on award is beyond the terms of reference for being without notice and was against the clause 40-A of the contract and is therefore, not sustainable in the eyes of law. We may observe and adopt the observation given by the Hon'ble Supreme Court of Pakistan in the case cited Shamim-ur-Rehman vs. Fauji Foundation Rawalpindi and another (1992 SCM R 1496) that Islam protects trust funds more and its protection, retrieval is justified by all means.
11. For what has been discussed above, we allow this appeal, set aside the judgment passed by the learned trial Court and remand the case to the trial Court to decide it afresh in accordance with clear terms of reference and on the basis of contract between the parties.