MUHAMMAD NAEEM ANWAR, J.- This single judgment in the instant petition shall also decide connected C.R No. 540-P of 2021 titled "Philip Morris Pakistan Limited vs. Iftikhar Hussain and others" because both the petitions are the outcome of consolidated judgement and decree dated 20.03.2021 in civil appeal No. 119/13 of 2018 & 118/13 of 2018 whereby their appeal against the judgement & decree of learned civil judge-VI Peshawar dated 15.11.2011 dismissing their objections & and making the award of arbitrator "as a rule of Court", were dismissed.
2. Pakistan Tobacco Board (PTB) awarded the contract for collection of Federal Tobacco Cess
(FTC) on surplus tobacco stock etc. for the year 2003-2004 to respondent No.1 executed on 1st July 2003 with an arbitration clause that any dispute between the parties shall be decided by the by the Chairman, PTB as sole arbitrator or in his absence by the Secretary PTB. That on the transportation of tobacco, which was over and above to the allotted quota of the companies by PTB regarding "Charge Cess" a dispute arose to the effect that whether the petitioner shall charge the companies for transportation of Tobacco over and above to the allotted quota, at prescribed rate, if so, whether the petitioner is entitled to recover the Cess from PTB which the board collected from the companies or the companies paid to board as "Amanat" or the companies shall pay the Cess to PTB? Respondent No.1 filed two writ petitions before this Court for issuance of appropriate directions to the Pakistan Tobacco Board to act in accordance with law, and the Board may be directed to pay the Cess collected from the companies on transportation of Tobacco over and above their allotted quota, to him (contractor). During pending adjudication of the petitions, on the direction of Court, the arbitration proceedings commenced which culminated in the award, thus, both the petitions were disposed of on 18.04.2006, in term that the petitioner may avail the remedy provided under section 14(2) of the Arbitration Act of 1940, from the court of competent jurisdiction, as an alternate remedy, if so advised. Owing to the direction of this Court respondent No.1 filed application under section 14(2) of the Act of 1940, before Civil Court on 29.04.2006.
Learned Trial Court, on hearing the parties, on 02.02.2010, observed that the Arbitrator has failed to determine the factum of Cess upon the export quota and that who was entitled to receive the amount of Cess on the transportation of tobacco on over and above to the allotted quota. The award was set aside, and the Court directed that fresh arbitration be commenced to be conducted by the Secretary of PTB within the period of two months. The order was amended to the extent of Chairman PTB instead of Secretary vide order dated 25.02.2010. The court directed the arbitrator to give the findings besides other issues on three issues i.e., a) Whether the petitioner is entitled for the collection of Cess upon the export quota of tobacco? b) Whether the petitioner is entitled for the surplus quota/additional quota in the light of MLO 487? c) Whether the petitioner is entitled for admitted amount of the Cess beyond the surplus and additional quota?
The arbitrator completed the arbitration proceedings, announced the award on 14.05.2010, and submitted the same before the Court on 15.05.2010 owing to the application submitted by respondent No.1. An application was submitted by respondent No.1 for arraying Pakistan Tobacco Company & Lakson Tobacco Company as necessary party, which was allowed on 28.10.2010 and amended application under section 14(2) was filed on 24.11.2010. Both the added respondents have submitted their objections to the arbitration proceedings & award on various legal and factual objections. After hearing the parties, learned Civil Judge discarded the objections and the award dated 14.05.2010 was made rule of Court on 15.11.2011. Being aggrieved, both the petitioners filed their respective appeals however, their appeals were dismissed by the learned Additional District Judge-XV Peshawar on 20.03.2021 hence these petitions.
3. I have listened to the arguments of the learned counsel for the parties and perused the record annexed with their petitions.
4. Admitted position is that there was no specific clause in the contract on respondent No.1 and PTB regarding the Cess charged on transportation of tobacco, over and above to the allotted quota, owing to which the dispute arose between respondent No.1 & Pakistan Tobacco Board. Respondent No.1 was claiming his entitlement the Cess on the transportation of tobacco collected from the companies including the petitioners whereas the PTB has denied form the claim of respondent No.1 and as per record PTB had directed the companies to deposit the Cess charged on the transportation of tobacco surplus to their allotted quota. It is also an admitted fact that the companies had deposited the amount of Cess for transportation of tobacco more than their quota with the board as "Amanat". Undeniably, the companies had to pay the Cess of the transportation of tobacco over and above to their allotted quota either to the contractor or to PTB. The dispute arose when respondent No.2 denied the right of contractor for collection of Cess from the companies on over and above to their allotted quota for transportation of tobacco. It was the plea of respondent No.1 to direct respondent No.2 to act in accordance with the settled terms of the contract and to direct respondent No.2 to pay the Cess collected on the transportation of tobacco, surplus from their allotted quota to them. It is indisputable that there remained no dispute between petitioner & respondent No.1 & 2, either individually or collectively, during the entire period of the contract and undisputedly, they have never litigated with both the respondents No.1 & 2. The arbitrator was to resolve the issue as to who was entitled for collection of the Cess for transportation of surplus tobacco from their allotted quota. In resolving the issue or determination of controversy the petitioners were obviously not the parties. In essence, the grievance of the petitioners was to the effect that learned arbitrator while resolving the issue between respondents No.1 & 2, has bulldozed them for the payment of amount and that too without arraying them as party and affording them an opportunity of being heard before the decision against them in favour of both the respondents No.1 & 2. None of the parties to the reference of contract and award was aggrieved from the decree of the court "in making award as rule of court", whereas the petitioners who were neither party to the contract nor were arrayed as party in the application filed under section 14(2), earlier to the arbitration proceedings, of the Act of 1940 were aggrieved because of the findings of the arbitrator against them followed by dismissal of their objections and the judgement & decree. It appears from record that after filing of award pursuance to the application submitted by respondent No.1 under section 14(2) of the Act of 1940, the petitioners filed their objections which were resisted by both the respondents No. 186 2 through their reply and after hearing the parties, learned civil Court dismissed their objections and vide same judgment & decree had made the award as rule of court. It was a "composite order" against which the petitioners filed their separate appeals. The impugned judgement & decree of the learned trial court which provides two distinct remedies under section 17 & 39 of the Act of 1940 being composite order in view of the principle laid down by the Hon'ble Supreme Court in the case of Shahan Shah Versus Government of Khyber Pakhtunkhwa through Secretary Irrigation Department, Peshawar and others (2022 SCMR 1810). Under section 17 the court has limited jurisdiction for setting aside the award which provides that the award can be set aside when (a) the decree is in excess of the award and (b) it is otherwise not in accordance with the award.
Whereas, under section 39 the validity of the decree can be questioned when (a) an arbitrator or umpire has mis-conducted himself or the proceedings; (b) when an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; and (c) that an award has been improperly procured or is otherwise invalid. It is intriguing aspect of the matter that during proceedings notices were issued to the petitioners by considering them that they are major parties to the issue involved but neither the arbitrator not the parties to the proceeding including respondent No.1 has applied for making the petitioners as party to the proceeding of arbitration. [Relevant is the Order sheet dated 09.04.2010, of the arbitrator.] On 24.04.2010 it was clearly submitted to the arbitrator that since they (petitioners) were not party to the proceedings of arbitration as such they were unable to address the issue because they were not aware of the facts of the case and even then, neither the arbitrator has made them party, nor respondent No.1 bothered to do so.
5. In addition, after competition of arbitration, on the direction of the Court, when award was submitted before the court an application was submitted by respondent No. 1 for impleadment of petitioners in the application filed under section 14(2) of the Act of 1940 which was allowed and amended application was filed before the court, notices were issued to the petitioners, who on their appearance have filed objection to the arbitration proceedings on the ground of misconduct, violation to the principle of natural justice, illegality and improper application of law. In the impugned judgement & decree learned trial Court has held that since the agreement was between respondents No.1 & 2 as such they were not arrayed as party; that sufficient opportunities were granted to the parties but they failed to explain their position; that ordinarily, the agreement is executed between the contractor and PTB and the companies are bound to be charged for the Cess even for the transportation of tobacco over and above to their allotted quota as such the entire aspect of the case has rightly been dealt by the Arbitrator. The appellate court has upheld the findings of the trial Court, but the significance aspect is whether there was any clause in the agreement for collection of the Cess of the surplus quota allotted to the companies and whether a person who has never been impleaded as party, could be held responsible for the payment of amount to either of the parties? Scrutiny of the record reveals that neither it was the clause of the agreement that the Contractor shall collect Cess on the transportation of tobacco surplus to the quota allotted to the companies nor there was any claim of respondent No.1 against the petitioners. Admittedly, respondent No.1 was aggrieved that he was restrained from collection of the Cess of the transportation of the tobacco which was in excess to the allotted quota of the companies, and it is also transpired from record that the companies have deposited the Cess of the transportation of surplus quota with PTB. Moreover, respondent No.2 refuted the claim and demand of respondent No.1, but it is more than important that through award respondent No.1 was held entitled for Cess on the transportation of surplus quota. Issue No. (a) & (b) were decided in favour of respondent No.1 and issue as reproduced in para-No.2 of this judgement, that whether the petitioner is entitled for admitted amount of the Cess beyond the surplus and additional quota? was decided in favour of respondents No.1 & 2 but against the petitioners who were never made party to the arbitration proceedings. The Sind High Court in the case of Messrs. Shahzad All Usmani Chohan versus Managing Director, Sind Small Industries Corporation (1989 CLC 540) has set aside the award for irregularity and misconduct for not issuing the last notice to the party and for not supplying the copy of claim to the party, especially, when the petition of the case of party to the proceedings of arbitration, the Court has held: The copy of the diary sheet was sent by letter dated 9-2-1986. Again on 17-2-1986 the case was adjourned to 8-3-1986. On 8-3-1986 deposition of Chohan was recorded and the case was adjourned to 31-3-1986 to summon his witnesses. In these circumstances the arbitrator ought to have issued a pre-emptory notice to the defendants of his intention to proceed ex parte on 17-2- 1986. The diary sheet as well as letter dated 9-2-1986 are absolutely silent as to whether the copy of the claims was delivered to the representative of the defendants. There is nothing on record that the letter dated 9-2-1986 was delivered to the defendants. The arbitrator could have recorded in the margin of the diary that the copy of the claim was delivered to the representative of the defendants. The managing director of the defendants, as already stated, was out of country. The defendants have been prejudiced by omission of notice by the arbitrator of his intention to proceed ex parte. The defendants cannot be said to be aware of the proceedings fixed for 17-2-1986, 8-3-1986, 24-3-1986 and 31-3-1986. Thus, after going through the record and proceedings before the arbitrator, I am of the opinion that omission to give notice to proceed ex parte against the defendants and failing: to supply the copy of the claim by the plaintiff, the arbitrator has prejudiced them. This omission on the part of the arbitrator is an irregularity in procedure adopted by the arbitrator and amounts to misconduct as the defendants have not been given proper hearing of the matters in dispute and as such the award is liable to be set aside.
Moreso, the parties (respondents No. 1 86 2) have settled their score by succeeding in getting the award in their favour and thereafter, when the award was submitted, the petitioners were added as party, in such circumstances the petitioners were condemned unheard by the arbitrator and that too with the connivance of both the parties to arbitration proceedings. In such scenario, to the extent of the findings against the petitioners, the award is violative to the principle of audi alteram partem according to which each party is entitled to a fair hearing and must be given the opportunity to respond to evidence against them. The petitioners have specifically taken the grounds in their application for violation of the principle of natural justice which is apparent in the case in hand for findings of arbitrator against them. I also rely upon the dicta laid down by the Hon'ble Supreme Court in the case of National Highway Authority through Chairman. Islamabad Versus Messrs. Sambu construction co. Ltd. Islamabad and others (2023 SCMR 1103) wherein it was observed that "The grounds for challenging an Award are very limited. There are three broad areas on which an arbitration Award is likely to be challenged i.e. firstly, jurisdictional grounds (non-existence of a valid and binding arbitration agreement); secondly, procedural grounds (failure to observe principles of natural justice) and thirdly, substantive grounds (arbitrator made a mistake of law)."
6. More particularly, the court cannot sit in appeal over the award in search of latent errors in the proceedings or the award. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is incorrect. The Court can set aside the award if there is any error, factual or legal, which floats on the surface of the award or the record, these parameters were fixed by the apex Court in the case of Injum Aqeel Versus Latif Muhammad Chaudhry and others (2023 SCMR 1361). The arbitration was conducted to settle the matter between the parties to the contract, he did so but by no stretch of imagination he was bestowed with the powers to fix the liability or to held a person liable to pay the amount which was the bone of contention between the contractor and PTB and that too without any stance of the petitioners being party before him, such conduct of the learned arbitrator betrays the lack of rationale, purpose, scope and the object of the settlement through the manner agreed by the parties to the contract other than the court which also amounts to misconduct on the part of arbitrator. Hon'ble Supreme Court in the case of Muhammad Farooq Shah Versus Shakirullah (2006 SCMR 1657) fixed the outline for the arbitrator and for the umpire (if any), it was observed by the Court that: It is well-settled that there must be purity iii the administration of justice as well as in the administration of quasi-justice which are involved in the adjudicatory process before the Arbitrators. It is also well-settled that once the Arbitrator enters in an arbitration, the Arbitrator must not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. A bare perusal of the added section 26-A would reveal that after insertion it is obligatory upon the Arbitrator or Umpire to give reasons in sufficient detail and such reasons should be made in the award itself. A line of distinction is to be drawn in between "sufficient detail/reasons" and that of "application of mind" to determine the controversy as both are not synonym ous and interchangeable. By no stretch of imagination it can be imagined that prior to section 26-A in the Arbitration Act, the Arbitrator or Umpire were not bound to examine the entire controversy with diligent application of mind to make an in depth scrutiny of the evidence and thereafter draw conclusion irrespective of the fact whether it was to be mentioned in the award itself or otherwise, would hardly make any difference as an Arbitrator or Umpire cannot be relieved of his duties i.e. to set the controversy at naught by imparting speedy justice after having taken into consideration all the relevant factors.
7. Adverting to another important issue, as the arbitrator has decoded issues No. (a) & (b) in favour of respondents No.1 against which respondent No.2 has not filed any objections or the appeal against the decree of the trial Court, in the similar fashion, the arbitrator has decided issue (c) which too is on hand in favour of respondent No.1 and on the other hand it is favouring respondent No.2, nonetheless, the grievance of the petitioners is only to the extent of the findings of the arbitrator, judgement & decree of both the learned courts below they were held liable to make the payment thus, in such circumstances whether the court could upheld the findings of the award in partiality and set aside the award for a single issue? This issue has been put to rest by the apex Court in the case of Allah Din & Company Versus Trading Corporation of Pakistan and others (2006 SCMR 614) wherein the controversy was to the effect that the learned single Judge of Hon'ble Sind High Court has upheld the amount mention at item No. (i) to (iii) while declined to award the claim under item No.(iv), both the parties filed their respective appeals to the Division Bench but the appeal of both the parties were dismissed, Hon'ble Supreme Court has held: The learned Division Bench in the impugned judgment had aptly rejected the above claim on the ground that compensation for loss of goodwill or reputation is generally not awarded, particularly in the absence of tangible evidence showing additional loss and further that since the purchaser was already awarded Rs. 1 million by the arbitrator as compensation for the anticipated loss of profit further compensation on account of loss of goodwill and reputation was not justified. We find ourselves in agreement with the reasoning of the learned Division Bench.
The learned counsel appearing for the purchaser was unable to show any discussion by the arbitrator in the award regarding the loss suffered by the purchaser on account of reputation or goodwill. Apart from a bare claim of the purchaser, the learned counsel could not even refer to any evidence produced by the purchaser before the arbitrator on this issue. The finding of the arbitrator on the issue reproduced above indicates the absence of such evidence as he had awarded compensation on the item simply on the ground that the purchaser was not questioned on behalf of the Food Department on the issue. Such failure by the department does not go to prove the loss caused to the purchaser. It was the burden to the purchaser to have produced independent evidence of the damage caused to his reputation and goodwill on account of non-performance of the contract by the Food Department. Bald statement of the petitioner, without more, that he had suffered loss on this account was not sufficient to establish the claim. In this view of the matter the purchaser was rightly denied damages for loss of goodwill and reputation.
In view of the above, I am of the view that respondent No. 1 was rightly held entitled for the Cess on collection of the Cess on surplus quotas for transportation of tobacco thus, issues No. (a) & (b) were rightly decided in favour of respondent No. 1 . Moreover, despite the claim of respondent No.2, from the initiation of litigation since 2006 till the award, they have not objected to the findings of the arbitrator thus, respondent No.1 was rightly held entitled for Cess on over and above the surplus quota of the companies. However, for determining the liability of petitioners, neither they were made party to the proceedings nor were provided with any opportunity for filing of their reply before the learned Arbitrator and no evidence to the extent of transportation of tobacco over and above to their quota was placed on file except the reply of respondent No. 2 and purported signed statement of representative of the petitioner of connected petition, however, the facts and figures mentioned in the award for determination of issue (c) except the stance of respondents No. 1 85 2 nothing was made available and the record which was relied upon by the learned arbitrator, the petitioners were never afforded any opportunity as a party to the arbitration for resolution of the issue in the terms of reference for the arbitrator who has to decide , the dispute of entitlement for the Cess of the surplus tobacco transported by the companies. It is stunning in its significance that respondent No. 1 never filed any claim against the petitioners till the submission of award. The astounding development for filing of application to implead the petitioners in the application after filing of award was to set the stage for fixing the liability but the mode adopted is not permissible in consonance with law. Thus, the findings to the extent of issue (c) are unjustified, unwarranted, illegal and as such are struck down.
8. One legal aspect requires determination that when a person was not party to the arbitration proceedings, could he challenge the award by filing of objection or appeal instead of regular suit as the bar under section 33 is only in respect of the party to the proceedings and in such circumstances, he was not barred to file regular suit to challenge the decree against him as held in the case of Muhammad Rashid and others Versus Abdul Rashid through Mst. Sharifan Begum and others (2004 SCMR 76). It is pertinent to mention that the petitioners no doubt were not party before the Arbitrator however, sensing the findings of the arbitrator respondent No.1 for the first time realized that the petitioners were necessary party for resolution of controversy. The court, while allowing the application, has also held that the petitioners were necessary party to the application. When they were necessary parties to the application, of course they were necessary party to the arbitration proceedings and without impleading them no effective award, to the extent of the liability of the petitioners, could be announced and such award could not be made as a rule of Court for the purpose of execution against the interest of petitioners. In Juggilal versus General Fibre Dealers Ltd. (AIR 1955 Cal. 354) it was laid down that "The procedural rule applicable to arbitration proceedings is more tolerant than the rule followed in Courts of law. Broadly stated, the principles governing the arbitrator's right to proceed ex parte are: If a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot or, at least, ought not to proceed ex parte against him at that sitting.
Where the non-appearance was accidental or casual, the arbitrator ought ordinarilu to proceed in the ordinary way, fixing another date of hearing and awaiting the future behaviour of the defaulting party."
9. Accordingly, a person not made party to the proceeding could not be held liable for any decision either by the court or by the arbitrator. In Wazir Khan and 8 others versus Sardar Ali and 25 others (2001 SCMR 750), in similar controversy, the award was submitted by the arbitrator but without impleading the necessary parties to the proceeding and of the basis of award the matter was disposed of by the High Court, but when the application filed by the necessary party challenging the award and decision thereon, the High Court accepted the application and set aside the award, against which the petition was filed before the apex Court which was dismissed by observing that: Under section 17 of the Act the Court was required to look into the award to satisfy itself that the same was proper and in accordance with law and that it did not require reconsideration by the arbitrator and after the expiry of the period for making the application to set aside the award, pronounce judgment and pass a decree accordingly to the award. In this case, it appears that the Court before passing the order did not examine the award in the light of the provisions of sections 17 and 26-A of the Act and passed a mechanical order. Section 26-A of the Act provides that the Arbitrator must state the reasons for the award in sufficient detail to enable' the Court to consider the question of law arising out of the award and where the award does not state the reasons insufficient detail, the Court should remit the award to the Arbitrator to give reasons for the award. The provisions of section 26-A of tire Act are mandatory and if the award has been given without recording any reason therefor, the Court would remit the award to the Arbitrator.
The award in the instant case was given without recording any reason, therefore, the Court should have remitted the award to the Arbitrator to give reasons. Since the mandatory provisions of sections 17 and 26-A of the Act have not been complied with, therefore, the award was invalid and unmaintainable.
By considering the dicta laid down as reproduced above in juxtaposition with the principle laid down in the case of Allah Din & Company Versus Trading Corporation of Pakistan and others (supra) The matter to the extent of liability of the petitioners or otherwise requires to be decided by the Arbitrator after their impleadment in the application before him (arbitrator) only to the extent what was the total quota of the petitioners for transportation of tobacco by the companies (the petitioners) separately for the year 2003-2004? Whether the petitioners have transported the tobacco over and above to their allotted quota, if yes, how much surplus quota was allotted to them respectively? How much amount they had deposited with PTB (respondent No.2) as "Amanat"? Whether the petitioners were at fault for non-payment of the amount of Cess, if so, its effect? Since the above questions have not been answered and because the petitioners were necessary party to the arbitration proceeding therefore, the award to the extent of findings of issue (c ), the judgements & decrees to that extent are set aside and for settlement of the additional issues the petitioner are made party to the application submitted by respondent No.1 who shall submit amended application before the Arbitrator (the Chairman of PTB), the petitioners shall file their reply and the Arbitrator shall proceed with the matter but being the old issue of respondents No.1 & 2, and for that matter of petitioners pertaining to the year 20032004 (financial year), shall expedite the proceeding to its logical conclusion, he shall complete the entire exercise within two month, after receipt of the attested copy of this order/judgement, when he enters upon the reference. Thereafter, the award shall be submitted before the court in accordance with law. In view of the controversy involved, I make no order as to costs. The Office shall send the copy to the parties, their counsel and to the Designated Arbitrator. The parties shall appear before the arbitrator on 16.09.2024. However, the arbitrator shall issue notices to the parties for their appearance in furtherance of the direction discussed above. Hence, this and the connected C.R No. 540-P of 2021 are disposed of in the above terms.
In deciding the issue, I have also made reliance on the case law reported as Design Group of Pakistan versus Clifton Cantonment Board (1990 MLD 2010), Muhammad Unis Elahi Sethi and another versus Federation Of Pakistan, Chambers Of Commerce And Industries (1996 CLC 1226), Turner Morrison Garahams Group Of Companies, London versus Rice Export Corporation Pakistan Ltd. (PLD 1998 KARACHI 791, Punjab Province through Secretarg to Government of the Punjab; Irrigation and Power Department, Lahore and another Versus Messrs. Chauhan & Company through Managing Partner (PLD 2000 Lahore 314), University of Engineering and Technology through Vice-Chancellor, Lahore versus Messrs Moderate Builders through A.
Qutabuddin (2001 MLD 2331, Faisalabad development authority versus R.C.C. limited through Managing Director (2003 YLR 2377), Umar Din through L.Rs. Versus Mst. Shakeela Bibi and others (2009 SCMR 29), Messrs. Trading Corporation of Pakistan Ltd. Versus Messrs. General Industrial Machines (2016 MLD 897).