MUHAMMAD IJAZ KHAN, J.- Through instant civil revision, petitioner has challenged the order and judgment of learned trial court dated 16.02.2019 whereby the application of the respondents/ defendants for rejection of the plaint on the ground that since there is an arbitration clause in the lease agreement, therefore, the suit is not proeedable, which application was allowed to the extent that petitioner/ plaintiff was directed to approach the appropriate forum for redressal of his grievance(s) in accordance with law which order was lateron challenged by the petitioner before the learned appellate Court, however, the same was also dismissed by the learned appellate Court vide second impugned judgment and decree dated 28.07.2020.
2. Precisely, the facts of the case are that petitioner filed a suit for declaration-cum-injunction etc against the respondents. The respondents were summoned by the learned trial court who appeared and filed an application under Order VII rule 11 CPC for rejection of plaint, which application was though dismissed by the learned trial court vide first impugned order dated 16.02.2019, however, the suit of the petitioner was adjourned sine die with the direction to the petitioner to approach the appropriate forum for his redressal according to the law. Feeling aggrieved from the said order, petitioner filed an appeal which was also dismissed by the learned appellate Court vide second impugned order/judgment dated 28.07.2020 and now the petitioner has called in question both the aforesaid orders/judgments through this civil revision.
3. Arguments of both the learned counsel for the parties heard in considerable detail and record perused with their valuable assistance.
4. The main emphasis of learned counsel for the petitioner was that the learned trial court could not stay proceedings suo-moto as no application under section 34 of The Arbitration Act, 1940 has submitted by the respondents/defendants. He while further elaborating his arguments states that such application should not only be an application simplicitor for stay of the proceedings rather the same must contain sufficient reason(s) justifying the referral of the dispute to the arbitration.
As against this, learned counsel for the respondents/defendants stated that since there was an arbitration clause in the lease deed agreed between the parties, therefore, the two for a below have rightly stayed proceedings in the suit of petitioner/plaintiff by adjourning the case sine die.
5. In view of the arguments of learned counsel for the parties and in order to address the same, it would be relevant to reproduce section 34 of the Arbitration Act, as under: "34. Power to stay legal proceedings where there is an arbitration agreement. Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there in no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings."
The plain reading of the aforesaid section of law manifestly shows that where a party to an arbitration agreement commences any legal proceedings in respect of any matter agreed to be referred, any party to such legal proceedings may, at the very start of such proceedings and even before filing of written statement or taking any other steps in proceedings, shall apply to the Court to stay the proceedings and if the Court is satisfied that there are no sufficient reasons that why the matter should not be referred to the arbitration then in such eventuality, the Court shall order the stay of the proceedings and will refer the matter to the arbitrator, however, in the present case, no such application has filed by the respondents/defendants rather they have submitted an application for rejection of the plaint which application though was dismissed by the learned trial court, however, for all legal and practical purposes the said application was treated by the learned trial court as an application under section 34 of the Arbitration Act as the proceedings of the petitioner's suit were ordered to be stayed and it was held to be a premature suit and it was directed to approach to the competent forum, therefore, the procedure as adopted by the learned trial court is totally alien to the law and as such could not legally sustain. What was the proper procedure, which should have been adopted by the learned trial Court was that if respondents/defendants had submitted an application for stay of proceedings and referral of the matter to the Arbitration then thereafter passing of an order qua staying of proceedings could have been passed, however, in the present case, the learned trial court without filing any application by the respondents/defendants under section 34 of the Arbitration Act for stay of proceedings and referral of the matter to the arbitration, it on its own has stayed the proceedings which order could not legally sustain and as such the same is liable to be set aside. The Supreme Court of Pakistan in a case[1] elaborating section 34 of the Arbitration Act qua stay of legal proceedings, has observed that the mere existence of a clause providing for arbitration does not bar a suit or other legal proceeding in Court. It only entitles a party to have the legal proceedings stayed. In order that a stay may be granted under the provisions of this section, certain condition must be fulfilled. The party must take the objection and apply for stay of proceedings before taking any step, for example, the filing of the written statement, that is, before he places his cards on the table. The provision of the section, further imply that the Court should, first of all, examining whether the arbitration clause applies to the dispute, and if it does, whether the nature of the dispute is such that the ends of justice will be better met by the decision of the Court than by that of private forum chosen and agreed upon, and to which the parties had made themselves bound to adhere and adopt in case that type of dispute arose between them. The Legislature has, of course, clearly implied in the language used in the section that the arbitration clause should be respected, but has also made it abundantly clear that the party seeking to avail of the provision of stay under this section must clarify his position at the earliest possible opportunity, so as to leave no manner of doubt that he wishes to have resort to arbitration proceedings. If he hesitates in this regard, or allows the suit to proceed in any manner, that conduct would indicate that he has abdicated his claim to have the dispute decided under the arbitration clause, and to have thereby forfeited his right to claim stay of the proceedings in the Court. The Sindh High Court in a case[2] has held that mere existence of Arbitration Clause in the agreement between the parties does not bar the jurisdiction of tile Civil Court it only provides that where a party to an agreement commences any legal proceeding against another party to the agreement, then such a party before filing a written statement or taking any other step in the proceeding may apply to the Court before which the proceeding is pending to stay the proceeding and the Court may if it is satisfied, that there are sufficient reasons for referring the matter to arbitration, stay the proceedings. Under section 34 of Arbitration Act, Court does not act suo motu. A party, seeking stay of the proceeding has to apply to the Court where the proceedings have been initiated through a proper application. Merely taking a defence in a written statement or in a counter-affidavit to any interlocutory application does not fulfil the requirement of section 34 of the Arbitration Act and the Court on its own cannot refer the matter to the arbitrator simply because the agreement so provides. Islamabad High Court in a case[3] also observed that whenever any dispute or difference arises relating to and arising out of the arbitration agreement, any party to the agreement may apply for staying of the Court's proceedings by filing an application under section 34 of the Act. A party who wishes to refer the disputes to arbitration has to apply without delay to the Court for the stay of the proceedings particularly in breach of agreement to arbitrate the dispute which arises between the parties must fall within the scope of arbitration.
6. It would also be relevant to mention here that the wording "sufficient reason why the matter should not be referred to the arbitrator" occurring in section 34 of The Arbitration Act, 1940 is of prime significance and it speaks of the intention of legislature that an application for staying of legal proceedings and to refer the matter to arbitrator must not only be an application simplicitor but there must be some valid and convincing reasons for the same. It also speaks that the aforesaid eventuality of staying of proceedings and referring the matter to the arbitrator must be made with full application of judicial mind keeping in view the grounds taken in such application.
The aforesaid compliance in the present case was much needed as it was the stance of learned counsel for the petitioner/plaintiff that as per his wisdom the arbitration clause as stipulated in the agreement would only be applicable if there was any dispute with respect to the construction, meaning and effect of the deed but since in the present case, the very agreement has been cancelled vide the impugned notices/letters dated 21.06.2017 and 04.07.2017, therefore, such clause would not be attracted and it would only be civil Court who could determine and adjudicate upon the rights of the parties, whereas, the stance of the respondents/defendants was that irrespective of nature of dispute, the matter was required to be referred to the arbitrator and thus in the given facts and circumstances it appears that the learned trial court has not apply its judicial mind while deciding the application of respondents/defendants for rejection of the plaint. The Lahore High Court in a case[4] has held that when a person applies under section 34, he has to satisfy the Court firstly that there is an agreement to refer and secondly that the suit relates to any matter agreed to be referred, that is, there is a dispute between the parties which is covered by the agreement. Unless that is shown the suit cannot be stayed.
7. Accordingly this revision petition is allowed and consequently impugned orders/judgments of both the courts below respectively dated 16.02.2019 and 28.07.2020 are set aside and as a result thereof the suit of the petitioner shall be deemed pending before the learned trial court who shall proceed and decide the same in accordance with law.
CM No.432-A/2020.
MUHAMMAD IJAZ KHAN, J.- Since the main Civil Revision has been decided, therefore, this application for grant of temporary injunction having become infructuous is dismissed.
1. Pakistan International Airlines Corporation v. Messrs Pak Saaf Dry Cleaners (PLD 1981 Supreme Court 553)
2. Itehad Cargo Services, National Hotel, Lahore and 2 others v. Rana Rafaqat Ali and 3 others (PLD 2002 Karachi 420)
3. Messrs SGEC-AMC JV through Authorized Officer v. National Highway Authority through Chairman (2024 CLD 301)
4. Novelty Cinema, Layallpur v. Firdaus Films and another [PLD 1958 (W.P.) 208]