' This is an application under sections 5, 11 and 12 of the Arbitration Act for removal of respondent No, 2 an arbitrator and respondent No, 3 the Umpire. Respondent No, 1 entered into an agreement dated 9-8-1979 which contained the following arbitration clause :- "If any question or difference whatever shall arise between the parties hereto touching this agreement or any clause or thing herein contained or the construction thereof, or as to any matter in any way connected with or arising therefrom, then and in all such cases the matters in dispute shall be referred in Pakistan in two arbitrators (one to be appointed by the SELLERS and the other by the BUYERS) for decision and on their failure to agree, to an Umpire, appointed by the arbitrators before entering upon the reference. The provisions of the Arbitration Act, 1940, shall apply to arbitrations proceedings under this Agreement. The venue of arbitration proceedings shall be Karachi."
2. The applicant appointed K. A. As his Arbitrator while respondent No, 1 appointed respondent No, 2 as its Arbitrator and both the arbitrators appointed respondent No, 3 as the Umpire. The arbitrators entered upon the reference on 27-3-1981 and as they were not able to make the award within four months, an application under section 28 of the Arbitration Act was made for the extension of time.
Prior to making this application respondent No, 2 wrote a letter to the Advocates for the parties that as four months have expired the arbitrators cannot proceed with the matter further. On 17th August, 1980 respondent No, 2 wrote a letter to the Advocates for the parties that the arbitrators have received a telegram dated 3rd August, 1980 from the Umpire calling the record and proceedings as he had entered upon the reference in lieu of arbitration and fixed the matter for hearing on 21st August, 1980.
3. It seems that after the arbitrators had stated that time had expired on 27-7-1980 the Umpire entered upon the reference and issued a notice fixing the case before him on 25th August, 1980. He further fixed it for admission if any on 7th September, 1980. The date was fixed by a telegram dated 11-8-1980 but thereafter it was changed to 13th September, 1980. However it seems that as the applicant had made an application under section 28, interim order was passed restraining the arbitrators from sending the record and proceedings to the Umpire. The applicants have filed two letters from Muneer Malik, Advocate for the Respondent No, 1 addressed to the Advocate for the applicant in which it was intimated that respondent No, 2 had informed that as the time for making the award had expired perhaps the matter may be referred to the Umpire. But no reply seems to have been sent by the applicants to the learned Advocate for the respondent No,
1. A letter of the Umpire dated 13th September, 1980 has been filed in which referring to a letter dated 18th September, 1980 copy of which has not been filed in these proceedings, the Umpire stated that he had admittedly entered upon the reference but in view of the order passed by the High Court he did not proceed with the matter. However he expressed his view that he was entitled to enter upon the reference on the expiry of the statutory period of four months and that his entering upon reference is not dependent upon disagreement between the arbitrators.
4. The application under section 28 was granted on 25-10-1980 and four months' extension was granted to the arbitrators for making the award. It was held that "the agreement between the parties provided for reference of the dispute to the Umpire only upon disagreement between the arbitrators. Difference has not yet arisen between the arbitrators and as such mere expiry of time is not sufficient to enable the Umpire to enter upon the reference." Thereafter the matter proceeded before the Arbitrators when issues were filed and the respondent No, 1 made an application under section 27 of the Arbitration Act which was seriously contested by the applicants who took time and it even sought permission to lead evidence which was granted by the arbitrators. However during that proceeding the time again expired and ultimately on 28th February, 1981 the Arbitrators stated that in view of the order of the High Court dated 25-10-1980 they cannot proceed and left the parties to take such action as they deem fit.
5. In this regard it is pertinent to refer to a letter of the arbitrator for the applicant dated 22-2-1981 addressed to the Umpire and copies endorsed to the respondent No, 2 and Advocates for the parties in which he stated that on 21st February 1981 he came to know that the Umpire had entered upon the reference last year on an application made by one of the parties of which neither the other party nor the arbitrators had any notice before or after the application or presumably granted." It was further stated that this tantamounted" to the grant of the application without any opportunity of being heard and would amount to what is termed as "legal misconduct in the decided cases whatever be the intention". He further stated that in view of this he felt that the Umpire "may wish to reconsider whether he wants to act in this case as an Umpire or whether you wish to act in this case as an Umpire or whether you have disentitled yourself from doing so". This letter surely refers to the steps taken by the Umpire which were stayed by the Court and finally time was extended on 25-10-1980. This letter of the Arbitrator at a late stage does not seem to be in good taste. The diary sheet of the arbitrators makes it clear that on 9-8-1980 the arbitrators had already received the Umpire's telegram dated 3-8-1980 and notice was issued to the parties to consider the telegram. Again on the next date in the presence of parties counsel meeting was held.
Thereafter it seems that the arbitrators met on 20-11-1980 and proceeded with the matter till 21-2- 1981. During this period several hearings were held. It is unthinkable that when the arbitrators had received Umpire's telegram and parties had appeared as stated above and on applicant's application Court had passed order restraining the arbitrators from sending the record to the Umpire, which would have been served upon them, the arbitrator of applicant was not aware of the steps taken by the Umpire as stated in his letter of 21-2-1981. The fact that this letter was written only few days before the expiry of time granted to the arbitrators gives as impression that it was only to pre-empt the umpire from entering upon reference after 25-2-1981. The arbitrators in their capacity act as judges and it does not benefit them to comment upon the conduct of the Umpire.
If the Umpire acts in a manner which is objectionable and amounts to legal misconduct it is for the parties to make an application for his removal but it is not the duty of the arbitrator to point out such irregularities and misconduct to the Umpire.
6. Reverting to the fact, after the expiry of four months none of the parties made any application for extension of time for making the award. However on 4th April, 1981 the Advocate for respondent No, 1 sent a letter to both the arbitrators stating that the applicant had agreed to the extention of time but did not present any application and therefore as the arbitrators have failed to agree the matter should be referred and records be sent to the Umpire for decision. A copy of this letter was also endorsed to the applicant. The respondent No, 2 by his letter dated 9-5-1981 replied that he wanted to reply this letter in consultation with the other arbitrator "but there appears to be difference of opinion pertaining to the interpretation to paragraph that the provisions of the Arbitrator Act, 1940 shall apply under the agreement". He expressed the view that the Umpire can enter upon the reference in case the arbitrators allowed the time to expire. He further expressed his unwillingness to send the record and proceedings unless directed by the High Court or the Umpire. Thereupon the learned counsel for the respondent No, 1 addressed a letter to the Umpire stating, that the time has expired and the applicant has refused to proceed before the arbitrator after the expiry of the time and further that the application promised by the applicant to file in the High Court for extension of time has also not been presented. Referring to the letter of respondent No, 2 dated 19th May, 1981 he stated that there .Seems to be a difference between the arbitrators on referring the matter to the Umpire and requested that the records and papers may be called from the arbitrators. The Umpire referring to this letter of the learned counsel for the applicant wrote a letter to both the arbitrators that one of the parties has applied to him to enter upon the reference and that the records and papers may be sent to him. He also issued a notice on the same date to the parties fixing the date of hearing on 5th July, 1981. Again the Umpire fixed the date of hearing on 25- 7-1981 when the applicant by telephonic notice dated 30-7-1981 objected to the jurisdiction of the Umpire to enter upon the reference. At this stage the present petition was filed on 8-8-1981. The learned counsel for the applicant by his letter dated 20th August, 1981 inquired from the arbitrators how the difference between them had arisen on the basis of which the Umpire has assumed jurisdiction. The arbitrator appointed by the applicants replied that as no proceeding or meeting so far was held after February, 1981 no occasion arose for difference or disagreement and in fact both the arbitrators did not send the record to the Umpire as requested by him.
7. Mr. Qamar Hasnain, the learned counsel for the applicants has contended the following points :-
(1) The arbitrators have committed legal misconduct in refusing to proceed with the matter after 29-7-1980 when four months had expired.
(2) There was exchange of communication between respondent No, 2 and the Umpire inviting the Umpire to enter upon the reference without any notice or information to the applicant and therefore the entire proceedings before the Umpire is illegal.
(3) Improper interest was shown by the respondents Nos. 1 and 2 in favour of the Umpire.
(4) The Umpire has shown improper interest in taking away jurisdiction of the arbitrators and foisting himself illegally and proceeding with the arbitration.
(5) All the three respondents have acted in wilful disobedience to order dated 25-10-1980.
(6) There was no difference between the arbitrators and the respondents Nos. 1 and 2 have illegally tried to create an artificial disagreement.
8. The learned counsel for the applicant made a categorical statement that the applicants are totally dissatisfied with the conduct of the arbitrators. This statement considered with the contentions raised on behalf of the applicants makes it very clear that the applicants do not wish to proceed before the arbitrators. However when the matter was fixed for final hearing the applicants have moved an application under section 28 of the Arbitration Act seeking the extension of time for making the award by the arbitrators. This application completely contradict the stand taken by the learned counsel for the applicants in their main petition as well as in the arguments. On the one hand it has been prayed that the arbitrators appointed by the respondent No, 1 should be removed and on the other hand it is being prayed by a miscellaneous interlocutory application that four months' time may be granted to the arbitrators for making the award. The learned counsel for the applicants has levelled serious charges of misconduct, secret inquiry and communication between the respondents Nos. 1 and 2 and on the face of these allegations when he has very emphatically argued that the applicants have no faith in any of the arbitrators how can they possibly ask for extension ; the request does not seem to be bona fide. By this contradictory stand one can only infer that either all the allegations which the applicants have made against the arbitrators are waived or that they were incorrect. A party cannot be allowed to take a contradictory stand. In face of his submission he has to choose whether the arbitrators shall remain or they should go. In my opinion the arbitrators had taken sufficient time and have not made the award although on 25-10-1980 the Court had allowed four months for making the award.
The matter proceeded till 25-2-1981 but award was not made, The applicants had agreed to make an application under section 28 of the Arbitration Act but did not file it for six months and have now filed with intention to avoid proceeding before the Umpire. Furthermore the conduct of the arbitrators in addressing the letters between themselves or to the parties or to the Umpire makes it very clear that they have exceeded the propriety. Inasmuch as one arbitrator has taken upon himself to comment upon the conduct of the Umpire. The proceeding before the arbitrators and their conduct does not inspire confidence. In the circumstances I do not see it proper that the arbitrators should proceed with the matter.
9. The only question remained for consideration is whether the Umpire has assumed jurisdiction legally and should he be allowed to continue. The arbitration clause as reproduced above provides that the matter in dispute shall be referred in Pakistan to two arbitrators one to be appointed by the sellers and the other by the buyers for decision and on their failure to agree to an Umpire. Rule 4 of Schedule I of the Arbitration Act provides that if the arbitrators have allowed time to expire without making an award or have delivered to any party to arbitration agreement and or to the Umpire a notice in writing stating that they cannot agree the Umpire shall forthwith enter upon the reference in lieu of the arbitration. The applicability of rule 4 is subject to the provision of section 3 of the Arbitration Act which provides that an arbitration agreement unless a different intention is expressed therein shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference. The arbitration clause specifically provides that the dispute shall be referred to two arbitrators and on their failure to agree to an Umpire. So it is in case of difference between the arbitrators that the Umpire will be entitled to enter upon the reference. If the arbitrators failed to agree the matter will be referred to the Umpire. This is a clear departure from rule 4 which contemplates two situations, one when the time has expired and secondly when the arbitrators have served a notice in writing to any party or Umpire that they cannot agree. In the case of disagreement it is necessary that arbitrators may serve notice in writing. The agreement does not contemplate such a situation. It authorises the Umpire to enter upon the reference in case of disagreement. If the Umpire comes to know of disagreement through any party to the agreement or any one of the arbitrators he can enter upon the reference. However such information being received the Umpire should verify and ascertain it.
10. Now it is to be determined whether Arbitrators have failed to agree. Mr. Habibur Rehman, the learned counsel for the respondent No, 1 has contended that as there was no agreement between the arbitrators it amounted to a disagreement. He further contended that in a letter written by the respondent No, 2 he had expressed his disagreement in clear terms and stated that the matter should be referred to the Umpire and he had therefore contended that respondent 2 has no power to proceed with the matter. On the other hand, Mr. Qamar Hasnain, the learned counsel for the- applicant has contended that till the time hearing was adjourned in February, 1981 no occasion had arisen for disagreement and therefore there was no disagreement between the arbitrators and the Umpire did not have the jurisdiction to enter upon the reference. Russel on Arbitration, 19th Edn., at p. 254, states as follows : "The question what constitutes such a disagreement between the arbitrators as will entitle the Umpire to make an award in cases where section 8 (2) does not apply, is one upon which no definite rule can be laid down. It has been held that there was such a disagreement when one of the arbitrators declined to proceed further with the case and also where one arbitrator refused to permit certain evidence to be produced which his fellow arbitrator declared to be essential, and in another case it was decided that non-agreement on important points was equivalent to disagreement."
11. From perusal of the diary sheet of the arbitrators photo copy of which has been produced by the defendant No, 1 with their counter-affidavit, it seems that the arbitrators (even in eight months) have not delivered the award. No disagreement can be pointed out from the diary sheet but there seems to be subsequent developments from which inference can be drawn. The applicant had agreed to make an application under section 28 of the Arbitration Act but did not do so. From 27-2- 1981 nothing happened for about a month and thereafter the respondent No, l's Advocate addressed a letter dated 4th April, 1981 to both the arbitrators and copy was endorsed to he applicants. After about one month the respondent No, 2 wrote a letter to the advocate for the respondent No, 1 stating that according to his view after expiry of time the Umpire can enter upon reference and there is a difference between the arbitrators. A copy of this letter was endorsed to the fellow arbitrator but no reply was received from him. On such information being received from one of the arbitrators the counsel for the respondent No, 1 wrote a letter to the Umpire, the respondent No, 3, calling upon him to enter upon the reference. Thereupon the Umpire issued a notice dated 12-6-1981 to the Arbitrators to handover the record of the proceeding, copies whereof were endorsed to the applicants and Advocate for the respondent No,
1. The Umpire then issued a notice and fixed the case for hearing. On these facts it has to be seen whether there was a difference between the arbitrators which justified entering upon the reference by the Umpire. The applicant has filed two letters alongwith his rejoinders one addressed by it to its arbitrators and the other a reply from him. The said arbitrator who is not a party to this proceeding clarified that "as no proceedings or meetings of Arbitrators were held after 28th February, 1981, no occasion arose for a difference or disagreement". But he has not denied the fact that respondent No, 2 had written a letter to him stating that in his view the matter may be referred to the Umpire. It seems that this letter of respondent No, 2 was not replied by his fellow arbitrator. In the absence of any reply and complete silence over the matter it can be presumed that it has not been accepted by him. His letter dated 23rd August, confirms that he was not agreeable to the reference of the proceeding to the Umpire. His main emphasis is that record of proceeding does not show that there was any difference between the arbitrators. It is correct but when the matter had remained in abeyance for four months the arbitrators seem to have difference on question of referring the matter to Umpire.
This could not be a matter of arbitration record but is borne out by the subsequent letters.
12. It is not every disagreement or every failure to agree on insignificant point in dispute that the matter shall be referred to the Umpire. As for example if the arbitrators do not agree to a particular date of hearing that may be fixed, the matter cannot be referred to the Umpire. But if as a consequence of this difference the arbitrators refuse to proceed with the matter the Umpire can enter upon the reference. In the present case one of the arbitrators has expressed the view that the matter should be referred to the Umpire which implies that he does not want to proceed with the matter. The other arbitrator is of the view that this is not the correct position. The matter had been pending since 28th February, 1981 and no action had been taken by any of the parties for extension of time. In the circumstances, the arbitration proceedings cannot be allowed to remain unnecessarily pending to the extent that it is frustrated. In such a situation if the interpretation of the arbitration clause as argued by the learned counsel for the applicant, is accepted, then it will mean that as no further meetings are likely to be held there can be no disagreement between the arbitrators and the matter shall remain pending till such time an application is made to the Court for revocation of their authority. It is not necessary that the disagreement of the arbitrators should be during the proceedings. If an arbitrator refuses to participate in the meeting from the very beginning there is a disagreement although the arbitrators have not met. In the facts and circumstances of this case which are peculiar, it can safely be said that a difference has arisen B between the arbitrators in respect of the proceedings and the manner in which the matter should proceed and therefore the Umpire has jurisdiction to enter upon the reference.
13. In view of the fact that I have held that Umpire has jurisdiction to enter upon the reference I do not wish to deal with the argument attacking the authority of the arbitrator. I will now confine only to the points raised for the removal of the Umpire. The learned counsel has contended that there has been exchange of communication between the respondents Nos. 1, 2 and 3 behind the back of the applicant and the respondent No, 3 is not entitled to proceed with the arbitration. He has further contended that improper interest has been shown by the respondents Nos. 1 and 2 in favour of the Umpire who has also shown his interest and anxiety to foist himself and to proceed with the arbitration. In support of his contention the learned counsel for the applicant has referred to the fact when the Umpire had first entered upon the reference in August, 1980. Respondent No, 3 had however in a letter written to the arbitrators to the Advocates for the parties had clarified that in his opinion on expiry of four months after entering upon the reference by the arbitrators he was entitled to assume jurisdiction but since the matter had been stayed by the Court he did not proceed with the case. This shows the bona fide belief and interpretation of the arbitration clause which may be incorrect but surely does not render him disqualified or amounts to a misconduct.
14. The learned counsel for the applicant has objected to the manner in which notices were issued and jurisdiction was assumed. It is contended that the Umpire wanted to proceed with posthaste. It may be observed that under Schedule I of the Arbitration Act the Umpire is required to make his award within two months and unless the Umpire proceeds with dispatch it is not possible to complete the proceedings within the time allowed by the Act. It therefore does not seem to be improper if the Umpire has on entering upon the reference issued notices to the parties to appear before him.
15. Now coming to the incidents after February, 1981 it seems that on 4th April, the learned counsel for the respondent No, 1 asked the arbitrators to refer the matter to the Umpire. After receiving a reply from respondent No, 1 that there is a difference amongst the arbitrator he addressed a letter to Umpire intimating him of all these facts and requesting him to enter upon the reference. The Umpire then issued a -notice to all the parties,
16. Mr. Qamar Hasnain, the learned counsel for the applicant has contended that as the Umpire had entered upon secret communication with the respondents Nos. 1 and 2 he has misconducted and his authority should be revoked. A perusal of the record will demonstrate the nature of communication alleged to have been made. All such letters have been referred earlier.
17. To start with the Umpire first entered upon the reference in August, 1980 when he advised the arbitrators by a telegraphic notice. In the absence of anything on record to show that the Umpire entered upon reference after secret communication with the respondents Nos. 1 and 2 it will not be proper to presume a misconduct. Again for the second time the Advocate for the respondent No, 1 addressed a letter dated 7-6-1981 to the Umpire intimating him about the difference between the arbitrators and thereupon he entered upon the reference by writing letter to arbitrators and parties in which he made a pointed reference to the aforestated letter of the Advocate for the respondent No,
1. The fact that the said letter was written by the Advocate for the respondent No, 1 does not mean that the Umpire had entered into any secret communication with the other side or had made any secret inquiry about the merits of the case. The learned counsel for the applicant has relied upon PLD 1970 Kar. 357, 1980 CLC 1854 and AIR 1966 Cal.
461. All these eases are distinguishable on facts as in these cases the arbitrators had made enquiries behind the back of the other party relating to the merits of the case. In the present case only the Advocate for the respondent No, 1 had written a letter informing the Umpire about the difference between the arbitrators whereupon he issued letter to both the parties. The Umpir c himself did not enter into correspondence with any one of the parties touching upon the merits of the case. Where allegations are made for revocation of the authority of the arbitrator or Umpire as held in PLD 1958 Dacca 81, there are two limits within which discretion is to be exercised, "(1) that the Court should not lightly release the parties from their bargain, and (2) that the Court should be satisfied that substantial miscarriage of justice will take place in the event of its refusal to grant the leave to revoke". To induce to grant a leave to revoke a very strong case should be made out. Such application should be granted with great caution and the discretion should be exercised sparingly.
The applicant has based his case only on apprehension and inferences. There is nothing to show that the Umpire has exceeded or has refused to exercise his jurisdiction or in any manner misconducted. In view of the provisions of section 11 of Arbitration Act and rule 5 of In Schedule to Arbitration Act the Umpire must use all reasonable dispatch in entering on and proceeding with the reference and making the award. If the Umpire has acted in that manner then in the absence of any proof it cannot be alleged that he has shown interest in the matter. In my opinion the applicant has failed to make out a case for leave to revoke the authority of the Umpire.
18. Mr. Qamar Hasnain, the learned counsel relying upon PLD 1975 Lah. 142 and PLD 1970 Kar. 357, has contended that as the misconduct of the Umpire for the purposes of his removal is a question of fact it should be ascertained from the entire proceedings and that the arbitrators Umpire should be examined by the Court. In the present case Umpire has hardly proceeded with the matter. There are only few letters and notices that have been addressed by the parties and they have been brought on record. There is nothing more which could be ascertained from the arbitrators or Umpire because the letters written by them are very clear. In the facts of this case it is not necessary that the arbitrators or Umpire be called for ascertain in the facts.
19. The conduct of the applicant from February, 1981 till the Petition was filed and the fact that contradictory stand has been taken by it during the proceedings clearly demonstrates that the present application is not a bona fide one but is an attempt to hold up the arbitration proceedings.
20. In the result the application is dismissed with costs. The Umpire should make his award within a period of four months. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.