ZAFFAR HUSSAIN MIRZA, J.-This judgment shall dispose of High Court Appeals Nos. 79 and 80 of 1973 as these appeals are between the same parties, raise common questions of law and were argued together.
2. Appeal No. 79 arises out . Of Suit No. 305 of 1971 of this Court. The facts of this case briefly are that by award dated 22-9-1971 the arbitrators awarded a sum of Rs. 1,54,100 in favour of the respondents against the appellants with interest at 9 % per annum on account of non-delivery of the contracted quantities of cotton. The claim of the respondents was for Rs. 1,84,046 being the amount payable by the appellants to them on account of two Factory Selection Contracts of 2,000 bales and 1,000 bales totall--ing 3,000 bales of cotton sold by the appellants to the respondents at the rate mentioned in the contracts which were registered with the Karachi Cotton Association Limited.
These contracts were dated 22-9-1970 and 26-9-1970 respectively. As the contracts contained arbitration clauses, the respondents took the matter to the Arbitrators after the appellants allegedly failed to give delivery to the respondents. The claim of the respondents was repudiated by the appellants on the ground that they had offered the deliveries, but the respondents' representative deliberately avoided to take the same. The Arbitrators called upon the parties to appear before them on 31-8-1971 for the purpose of hearing by means of peremptory notice. The Arbitrators met on the appointed date, but in the meanwhile they had received a telegram dated 25-8-1971 from the appellants informing them a civil suit had been filed by the appellants challenging the "alleged arbitration agreement and the proceedings and that a stay had already issued". A further telegram was received by the . Arbitrators from the appellants in which it was alleged that the appointment of a new. Arbitrator in place of the original Arbitrator was illegal. At the hearing on 31-8-1971 the respondents produced a copy of the order dated 29-7-1971 made by the Additional Administrative Civil Judge, Multan by which he allowed the arbitration proceedings to continue. In spite of the aforesaid, the Arbitrators adjourned the hearing for 22-9-1971 for which intimation was given to the parties under registered cover acknowledgment due, but the appellants remained absent. The Arbitrators, therefore, proceeded with the hearing on the last- mentioned date in absence of the appellants. The award was then passed on the same date.
3. . Appeal No. 89 arises out of a Suit No. 300 of 1971 of this Court. The facts of this case briefly are that by award dated 29-9-1971 the Arbitrators awarded a sum of Rs. 74,612 in favour of the respondents against the appellants with interest at 9 % per annum on account of non-delivery of the contracted quantities of cotton. In this case the entire claim of the respondents was awarded being the amount payable by the appellants to them on account of one Factory Selection Contract dated 26-9-1970 relating to the sale of 1,000 bales of cotton also registered with the Karachi Cotton Association Limited. In this case also the appellants allegedly failed to deliver the contracted goods in the same circumstances as in the previous case. Accordingly the respondents by their telegram dated 23-12-1970 informed the appellants that as they had failed to give deliveries they will invoice back the appellants on the basis of Karachi Cotton Association spot rate and that debit note will follow. The debit note was accordingly for--warded on 4-10-1972 for Rs. 72,312 being the difference between the Karachi Cotton Association spot rate. As on 3-12-1970 less railway freight and terminal tax, and the contracted price. On revision of the spot rate by Karachi Cotton Association, revised debit note for Rs. 74,612 was sent to the appellants oh 11-12-1970, but the appellants failed to comply. Upon this the matter was taken in accordance with the Karachi Cotton Association Bye- laws to the Arbitrators The Arbitrators called upon the parties to appear for the hearing on 20-9- 1971. On that date the Arbitrators met, but before that on 15-8-1971 the appellants sent a telegram requesting the Arbit--rators, as in the previous case, to stop the proceedings of the arbitration as they had filed a civil suit and stay had been issued by the Court. They also objected to the appointment of new Arbitrators in place of the originally appointed Arbitrators. Subsequently, by another telegram dated 20-9-1971 they reiterated their request and expressed their inability to attend the hearing. Once again the respondents produced order dated 29-7-1971 made by the Administrative Civil Judge, Multan by which the Arbitrators were allowed to proceed with the arbitration. The Arbitrators, therefore, proceeded with the hearing in absence of the appellants and passed the award.
4. The aforesaid awards passed by the Arbitrators were filed on the Original side of this Court by the Arbitrators under section 14 of the Arbit--ration Act, 1940. The appellants after receiving notice of the filing of the awards, appeared in Court and filed objections to these awards which were heard by the learned Single Judge. The objections were, however, overruled by a common judgment and a .Decree was- passed in terms of the awards in each case. The appellants now seek to challenge the aforesaid judgment dated 6-8-1973 by the present appeals.
5. Mr. Abbas Zia, learned counsel for the appellants in the first place contended that since very existence of the contract of which the arbitration clause was an integral part was itself denied the Arbitrators had no jurisdic--tion to carry on the arbitration proceedings and hence the award was a nullity. Learned counsel referred 'to para. 3 of the impugned judgment and submitted that the learned Single Judge conceded to the proposition of law "that the Arbitrators do not, have jurisdiction to decide the factum or validity of the agreement to refer." In support of the proposition counsel cited Meyman v. Darwins Ltd. (1942) 1 All E R 337, and relied upon the observations of Vis-- count Simon, L. C.
"If the dispute is as to whether the contract which contains the clause has even been entered into at all, that issue cannot go to arbitration under the clause, for a party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the sub--mission."
Before us the learned counsel for the respondents did not seek to challenge the proposition of law enunciated in the aforesaid observation as was indeed accepted by the learned Single Judge.
However, the learned Single Judge was of the view that the Arbitrators were not bound to terminate the proceedings on the intimation received from the appellants that a civil suit had been filed by the appellants challenging the alleged arbitration agreement and the proceedings. It was held that the remedy for challeng--ing the factum or validity of an arbitration agreement was only by way of an application under section 33 of the Arbitration Act. The learned Single. Judge rejected .The argument for the reason that otherwise the arbitration clause could be set at naught by a dissatisfied party only by raising an objection denying the existence of the contract and thereby depriving the Arbitrator of his jurisdiction. 1n the facts of the present case, the appellants refused to appear before the Arbitrators did not even raise the question properly before them denying existence of the contract and no issue, therefore, arose between the parties nor a decision, was given by the. Arbitrators. There does not arise, therefore, any question of the Arbitrators exceeding their jurisdiction to enter upon the decision of the question of non--existence of the contract containing the arbitration clause. Learned counsel for the appellants has relid upon some decisions from the Indian Jurisdiction which may be briefly referred to. In Hanutmull v. Fatehchand AIR 1954 Cal. 1, the aforesaid. Dictum from the English case was followed, but the facts of that case were that the appellant in that case had appeared before the Arbi--trators and bad filed a statement in reply to the claim of the either side refusing to submit to the jurisdiction of the Arbitrators, inter alia, on the ground that there was no valid and/or legally enforceable contract, but only an arrangement made for the sole purpose of withholding delivery of the goods in question. Nonetheless, the Arbitrators proceeded, with the arbitra--tion proceedings and passed the award. Thereupon the appellant moved the Court for setting aside the award and for declaring the same to be a nullity. While considering the argument of the appellant that despite a challenge offered to the jurisdiction and authority of the Arbitrators to arbitrate, they proceeded to pass the award, the learned Judges expressed the view that in such a situation the question that - arises for consideration is whether such an award passed without jurisdiction can be challenged in an application under section 30, Arbitration Act or whether section 33, Arbitra--tion Act would be the appropriate section under which the validity of an award made in such circumstances can be challenged. A necessary corollary of such a situation was that where the original Court refused to set aside the award under section 33 or declared it re-valid there will be no appeal as 11 no appeal lies from an order passed under section 33. After stating the aforesaid, the learned Judges did not proceed to decide this question and disposed of the appeal on other grounds. This case is, therefore, no authority for the proposition. The next case referred was Ghelabhai Mamasukhram v.
Keshavdew Nandanlal (AIR 1049 Bom: 343). In this case also it was held that the plea raised by the opposite-party in the arbitration proceedings did not amount to challenging the factum of contract and in fact the contract itself was not disputed, but the mode of performance only was disputed which was within the jurisdiction of the Arbitrator. Dinasari Ltd. v. Hussain Ali (AIR 1951 Mad. 879), the next case cited, is also not relevant as it deals with the question of stay of suit under section 34 of the Arbitration Act. None of the cases cited, therefore, is an authority for the proposition that even on a written communication from the defendant an Arbitrator would be deprived of his jurisdiction, to adjudicate the dispute. It would .Of course be a different matter if the defendant appears before the Arbitrator and raises the question of the non--existence of contract before the Arbitrator and joins issue with the plaintiff on that question. If then the Arbitrator determines that question and passes the award, the award can be assailed as having been passed without jurisdic--tion. At any rate, an award passed by an Arbitrator when there was no valid arbitration agreement between the parties can be challenged under section 33 of the Arbitration Act. We are, therefore, unable to agree wit the proposition that once the Arbitrators were informed that a suit challenging the agreements had been filed, they were deprived of their jurisdiction t proceed further and that by itself renders their award a nullity in law. At any rate,-as pointed out earlier, notwithstanding the fact that an award was passed against the appellants, they were at liberty to challenge the same of the ground that the award was invalid for want of an agreement of arbitration under the provisions of section 33 of the Arbitration Act before the Court.
In the present case the appellants did seek such relief in the application filed before two learned Single Judge, but did, not press this ground nor attempted to produce evidence to show that the contract containing the arbitration clause was not entered. Into by the appellant or was invalid on .Any other ground. No such argument has been advanced before us to show how the existence of the arbitration agreement is denied.. The awards were, therefore, not liable to be set aside on the ground of non-existence or, invalidity of the arbitration agreement.
6. The next contention on behalf of the appellants was that the awards were invalid as they were passed at a time when suits filed by the appellants were pending before the Administrative Civil Judge, Multan which had the effect of making the Arbitrators functus officio. Section 35(1) of the Arbitra--tion Action which reliance has been placed provides as under; ---No reference nor award shall be rendered invalid, by reason only of the commencement of legal proceedings upon the 4ubject-matter of the reference; but when legal proceedings upon the whole of the subject-matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under section 34, be invalid."
The plain reading of the aforesaid provisions makes out that three conditions must tae satisfied before the effect of legal proceedings would be to render pro--ceedings in a pending reference invalid, namely, (i) that a 'legal proceeding must be commenced, (ii) such legal proceeding must be upon the 'whole' and not merely part of the subject-matter of the reference, and (iii) notice of such legal proceeding must be given to the arbitrators. A Single Judge of the Calcutta High Court in Banwarllal v. Joylal AIR 1956 Cal. 467, cited on behalf of the appel--lants, very lucidly expounded the law in this respect with particular reference to the meaning of the words "the whole of the subject-matter of the reference". On page 470 of the report it was observed; "This involves construction of the expression "the whole of the subject---matter of the reference" occurring in section 35 of the Act. Any interpretation of that expression must in my opinion be guided by the principle behind, that section that on the same subject-matter the Court of law and the Court of the arbitrators must not compete for the good reason that it will lead to the possibility of conflict of decisions. Therefore,. The possibility of conflict of decisions must be real and not fanciful. From that principle follows naturally its corollary that the legal proceeding must be upon the "whole of the subject-matter of the reference" and not merely a part. The expres--sion "whole of the - subject-matter of the reference"' to me means, without attempting to be at all exhaustive in such construction that the decision in that suit or legal proceeding one way or the other will decide whole matter referred to- the arbitrators. In other words, a one-sided possibility of the suit being decided in one way is not enough to render invalid the arbitration proceedings. - For instance, this was a suit to declare the arbitration agreement along with the bought and sold notes to be void and illegal. Now if the plaintiff lost the suit (as indeed he did in this case) then that would not decide the subject-matter of the reference at all. In fact such a dismissal of the suit would never adjudicate fully and completely the rights of the parties. It is true that if the plaintiff won the suit and the Court had decided in his favour that the contracts were illegal, then the arbitrators would-have had no jurisdiction and consequently their award would be a nullity and, therefore, there is no need to invoke section 35 of the Act to render 3t invalid. To say, therefore, that because the suit challenges the very basis of the arbitration clause it covers the whole of the subject-matter of the reference" is to take the most superficial view because the word "whole" cannot mean whole if the decision in the suit is in one way and part or nothing at all if such decision is the other way.
That would not be giving the plain ordinary meaning to the word "whole" but a speculative meaning. This interpretation also will prevent speculative suits without jurisdiction being filed by recalcitrant parties wanting to subvert arbitration agreements and thus hold up any arbitration proceeding for an indefinite length of time on the specious plea that such suit it is pending in respect of the "whole of the subject-matter of the reference. A suit assuming it lies, to decide that an arbitration clause itself is void and illegal because of a particular statute cannot, conceivably be a subject-matter of the reference to arbitration far less the "whole" of the subject-matter. Of reference."
7. The question that falls for consideration, therefore is, whether the legal proceedings on which reliance has been placed by the appellants, were upon the cause of action relating to the whole of the subject-matter of the reference in the pending arbitration proceedings. For the decision. Of this question it will be necessary to refer to the dispute referred by the respondents to the arbitrator as well as to the scope of the suits filed. By the, appellants. As far as the first is concerned, the claim set up by the respondents before the arbitrators has been mentioned in the awards. 1n the narration of facts the details of the claims preferred by the respondents have been mentioned. 1n both cases the claim of the respondents was based upon the alleged breach of contract on the part of the appellants by non-delivery of the con--tracted quantities of cotton. Copy of the plaint filed by the appellants in the Civil Court. Produced with their counter-affidavit before the learned Single Judge, on the other hand, shows that the respondents challenged the existence and the legality of the contract on the plea that the transaction was not a concluded contract having been "dropped" at the negotiation stage. The demand made by the respondents was also challenged as premature and fraudulent. Additionally the plea raised by the appellants was that the dispute between the parties was not referable to arbitration as the arbitrators had no legal status. The reference was also assailed on other legal grounds. The appellants claimed relief in the following terms : "It is, therefore, prayed that a decree for declaration to the effect that the plaintiff is bound by the alleged contract dated 26-9-1970 for 1,000 bales of A. C. 134)9 G Cotton, alleged to have been entered between the plaintiff and defendant No. 1, that the above-said contract never matured and there is no legal and valid contract between the plaintiff and the defendant No. 1 and that the alleged contract is void, ineffective and illegal and defendant No. 1 is neither entitled to claim or make demand of any amount on the basis of the said alleged contract nor is he entitled to proceed for arbitration before defendant No. - 2 who has without any lawful authority appointed defendants Nos. 3 and 4 to act as Arbitrators and defendant No. 5 as Umpire and a decree for permanent (injunction) as a consequential relief to the effect that defendant No. 1 be permanently restrained from claiming or realizing from the plaintiff any amount on the basis of the abovesaid alleged contract or to proceed for arbitration before defendants 2 to 5 and defendants 2 to 5 be also restrained to proceed in arbitration or in any other way against the plaintiff on the basis of the above said impugned contract be passed in favour of the plaintiff' against the defendants."
The plaint in the other case relating to the contract is also in the same terms. On the plain reading of the plaint it appears that the subject-matter of the suits was the question whether the contract between the parties was a valid and biding contract. The entire cause of action disclosed in the suits is founded on the plea that the aforesaid contract was not a legally enforceable contract capable of creating rights and obligations. Apparently this was not the subject-matter of the reference before the Arbitrators where the claim proceeded on the assumption that a valid concluded contract existed between the parties. In terms of the dictum laid down in Banwarilal's case refereed to above, therefore, the legal proceedings were not upon the whole subject--- matter of the - reference before' the Arbitrators. In the event of a finding reached by the Court that a proper and legal contract was entered into between the parties the necessary consequence would have been that the arbitration clause which formed part of the contract would be fully operative and the matters referred to arbitration would have been held to be properly before the Arbitrators. There is, therefore, no substance in the contention advanced on behalf of the appellants that the award was rendered invalid on account of pendency of the proceedings in the Civil Court. Further it may be pointed out that the main reliance on behalf of the appellants before the learned Single Judge as well as before us was on a dictum laid down in the English case of the Court of Appeal reported as Boleman & Sons v. Ossett Corporation (1912)3KB257, in which it was laid down; "Where the action has been commenced upon a contract containing a provision for reference to an arbitrator of any dispute arising under the contract, and is pending, no application to stay the action having been made under section 4 of the Arbitration Act, 1889, or such an application having been refused, an award made by the arbitrator under the provision for reference upon the subject-matter of the action, subsequently to the commencement thereof and without the consent of the plaintiff, is invalid, and will not afford -the defence to the action."
It is true that the rule laid down in the aforesaid leading English case has been followed in the sub- continent in a chain of decisions, but as pointed out in Banwarilal's case section 35, Arbitration Act is a clear departure from the law as it existed before the said Act as laid down in Doleman's case. It will be observed that Doleman's case lays down the rule in very wide terms and does not restrict the effect of the pendency of legal proceedings on the arbitration proceedings to cases where the legal proceedings are upon the "whole" subject-matter of the reference. The present statutory effect, arising from the provisions of section 35, on the other hand, is that it only renders invalid only such part of the arbitration. Proceedings which follows the giving of a notice to the arbitrators that a legal proceeding had been commenced upon the "whole" of the subject-matter of the reference.
The consequence is that the provision preserves and protects those parts of the arbitration proceeding which had taken place before the notice of the legal proceedings is given to the arbitrators. The dictum laid down in Doleman's case is, therefore, not fully operative and must yield to the narrow limits set down by section 35.
8. Befori; proceeding further, mention may be made of the argument advanced by Mr. Abdul Hameed, learned counsel for the respondents that the suits filed by the appellants were barred by sections 32 and 33 of the Arbitration Act and, therefore, would not constitute "legal proceedings" with--in the meaning of section 35 of the Act. Reliance was placed in this behalf on Badri Narayan Aggarivala v. Pak Jute Balers Limited PLD1970SC43. This was a case in which an award was given by the arbitrators which was filed before the Court for making it the rule of the Court. The opposite- party resisted the suit, inter alia, on the contention that he had never entered into the contract alleged by the plaintiff who had obtained the award. It was held that "the provisions of sections 32 and 33 of the Arbitration Act, 1940 clearly permit a party to an arbitration agreement to challenge the existence of such an agreement by filing ad application under section 33 of the Act. Section 32 bars a suit to obtain such relief." The view was taken that in such a case where the opposite-party denies having entered into the contract can nonethe--less, be a party within the meaning of the words "any party to an arbitration agreement" as they occur in section 33. The reason for the decision was that the Arbitration Act of 1940 is a consolidating and an amending Act and is a complete code in itself relating to arbitration save what is mentioned in section 47. This case is on all fours with the present case and, therefore, clearly the suits filed by the appellants were barred under section 32 of the Arbitration Act. However, it is not necessary to invoke the said provision since I have already held that even section 35 is not attracted to the present case. At any rate this case is an authority for the view that the remedy of the appellants lay in filing an application under section 33 and not by a separate suit. In the face of the authoritative view expressed by the Supreme Court no reliance can be placed on the contrary view of the East Punjab High Court in Banwarilal v. Hindu College Dehli (AIR 1949 East Pun. 165) on which reliance was placed on behalf of the appellants.
9. The argument that the award was invalid for want of proper stamp on the agreement of arbitration, has no force. The law has been fully discussed in Pak Chrome Mines Ltd. v. Phibro Asia Ltd. (PLD 1975 Kar. 861.) and followed by one of us in Paracha Textile Mills Ltd. v. Nanikeam Shamandas (PLD 1977 Kar. 37). In this case it was held that a contract of sale and purchase of goods containing an arbitration clause as a collateral and subsidiary incident thereto is exempt from stamp duty.
10. The last contention for the appellants was that the Arbitrators illegally proceeded to pass an ex parte award without properly giving notice to the appellants regarding the claim of the respondents. We agree with the view taken by the learned Single Judge that the appellants bad full knowledge of the claim is made by the respondents, their intention to invoke the arbitration clause and that the Karachi Cotton Association had, on more than, one occasions, communicated the appellants the appointment of the Arbit--rators by ballot and the reference of dispute to the Arbitrators for adjudica--tion. Learned single Judge has referred to the contents of the plaints filed by the appellants before the Civil Court which disclose their knowledge of all these matters. We fully agree with the reasoning and the conclusion arrived at by the learned Single Judge that there is no force in this connection.
11. For the foregoing reasons, there is no merit in these appeals, which are dismissed with no order as to costs.