Anwaar Hussain, J. This Civil Revision is directed against the judgment dated 27.06.2024, whereby the Appellate Court below allowed the appeal of the respondent, setting aside the order dated 28.09.2022 of the Civil Court, and remanded the matter with the directions, inter alia, for appointment of an arbitrator.
FACTUAL BACKGROUND:
2. The respondent entered into an agreement dated 23.04.2014 ("prior agreement"), with the petitioner, for the construction of Ground Floor, Mezzanine Floor, and First Floor of factory of the petitioner in Lahore. Subsequently, another agreement was executed on 08.11.2015 ("subsequent agreement") for the construction of the Second Floor of the same building. Both the agreements provided for the resolution of the disputes through arbitration. Disputes arose regarding certain withheld payments, compelling the respondent to issue notices calling for the appointment of a sole arbitrator. The respondent invoked the arbitration clause, apparently under both the agreements, through a notice to the petitioner dated 30.12.2017 with the subject Notice for Appointment of Sole Arbitrator'. Upon failure of the petitioner to resolve the dispute, the respondent filed an application under Sections 8 & 20 of the Arbitration Act, 1940 ("the Act") before the Civil Court, Lahore, for appointment of an arbitrator. The respondent claimed an amount of Rs.94,596,538/. The petitioner submitted a reply to the application whereby the assertions of the respondent were denied and dismissal of the application was sought. The petitioner contested the maintainability of the application under Sections 8 & 20 of the Act by filing a miscellaneous application with the averments that the application under Sections 8 & 20 of the Act is premature; that the respondent wrongfully filed a single application under Sections 8 & 20 of the Act for two separate agreements having independent arbitration clauses; and that the arbitration mechanism prescribed in both agreements was not fully exhausted before invoking the jurisdiction of the Civil Court. In addition, a miscellaneous application was filed on behalf of the petitioner seeking that preliminary issues be framed whereby the maintainability of the application under Sections 8 and 20 of the Act should be decided, inter alia, on the ground that the respondent could not have filed a single application for appointment of an arbitrator, under two separate agreements containing separate arbitration clauses.
3. The Civil Court dismissed the respondent's application, under Sections 8 & Section 20 of the Act, vide order dated 28.09.2022, holding that arbitration must first proceed as per the agreement(s). In appeal, preferred by the respondent, the Appellate Court below reversed the order dated 28.09.2022, holding that the respondent had exhausted all the remedies and was justified in seeking the intervention of the Civil Court, under the Act, and the matter was remanded to the Civil Court with directions to first appoint an arbitrator and proceed by referring the matter to such Arbitrator, for passing of an award.
SUBMISSIONS OF THE PARTIES:
4. Learned counsel for the petitioner submits that findings of the Courts below are at variance and after perusal of the record, it is for this Court to adjudge as to which of the two findings has been rendered in accordance with law. Places reliance on case of M/s. Ganapati Technology Services[1] to contend that a single application for reference to the arbitration in respect of two separate agreements was not maintainable. Conversely, the respondent has already been proceeded against ex-parte vide order dated 16.12.2024.
SUBMISSIONS OF THE AMICUS:
5. Syed Shahab Qutab, Advocate Supreme Court was appointed as Amicus Curiae. He submits that where multiple arbitration agreements exist, each containing distinct arbitration clauses, that are neither interconnected nor interdependent, a consolidated application under the Act for a composite reference under all agreements together, is not maintainable. He further contends that a single application under the Act is permissible only if the agreements constitute an "indivisible whole contract", and where it is evident from the agreements that the parties intended disputes under multiple agreements to be referred jointly to composite arbitration. Emphasizing the contractual nature of arbitration, he asserts that the parties must adhere to their agreed terms and cannot deviate from the procedure for appointment of the arbitrator(s) prescribed in the arbitration agreements. He concludes that the Courts are duty-bound to closely examine the terms of the arbitration agreement in order to determine whether the matter falls within the scope of Section 8 or Section 9 of the Act, given the substantial procedural differences between these provisions, as well as the circumstances in which each provision is attracted. In support of his submissions, he relies on the decisions in cases of Orient Power Company[2]; Sezai Turkes Feyzi Akkaya Construction Company[3]; and M/s. Duro Felguera, S.A[4].
6. The following legal questions arise for determination by this Court: i. Whether a single application, under Sections 8 & 20 of the Act, was maintainable for disputes under two separate agreements, each having an independent arbitration clause? ii. Whether the respondent prematurely invoked Section 8, without first exhausting the procedure outlined in the agreements? iii. Whether the arbitration clauses in both agreements fell within the scope of Section 9, rather than Section 8 of the Act?
7. Before answering the first legal question formulated herein above, it will be appropriate to reproduce the relevant arbitration clauses under the agreements, between the parties. Under the prior agreement, the arbitration clause reads as under: "15-Arbitration Clause: In case of any dispute between the owner and contractor the matter will be referred to the sole arbitrator mutually appointed by the Owner and Contractor.
In case both parties are not agreeing upon a sole arbitrator then one arbitrator will be appointed by the Owner and the second arbitrator will be appointed by the Contractor to resolve issues. If both arbitrators do not arrive at a decision, then both arbitrators will appoint the third umpire.
Decision of the sole arbitrator or both arbitrators or by the third umpire shall be considered as a firm and final decision and shall be binding upon both parties (the Owner and the Contractor)."
Similarly, under the subsequent agreement, the arbitration clause reads as under: "14-Arbitration: In case of any dispute between the owner and contractor, the matter will be referred to the sole arbitrator mutually appointed by both parties. In case both parties are unable to agree upon a sole arbitrator then one arbitrator will be appointed by the owner and the second arbitrator will be appointed by the contractor to resolve their issues. If both arbitrators do not arrive at a decision, then both arbitrators will appoint a third umpire. Decision of the sole arbitrator or both arbitrators or by the third umpire shall be considered as a firm and final decision and shall be binding upon both parties (the Owner and the Contractor)."
8. Having above clauses pertaining to the arbitration as well as relevant provisions of the Act in sight, and adverting to the first legal question, it is imperative to note that the Courts in Pakistan and in Indian jurisdictions have held that the parties do have a network of inter-connected, inter- dependent, or multi-contracts. In case of Orient Power Company supra, the Supreme Court of Pakistan held that it is not unusual for parties to have a network of inter-connected, inter- dependent, or multi-contracts, which form an "indivisible whole contract" and therefore, when disputes arise, a party who intends to initiate arbitration will potentially wish to do so under several of these inter-connected, inter-dependent or multi-contracts connected inter-se, however, the test is to consider whether such contracts are indivisible whole contract or whether they are separate and independent from each other. The Supreme Court held as under: "8. A proper approach to construction therefore requires the court to give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause..."
Similarly, in case of Sezai Turkes Feyzi Akkaya Construction Company supra, the Supreme Court of Pakistan held as under: "6. A perusal of the aforesaid clauses would show that the same can only be understood and applied by making reference to the provisions of sub-contract agreement. One of the clauses (clause 5) of the termination agreement says that once the parties fulfill their obligations with reference to items Nos. (2) and (3) of the termination agreement, it will be automatically presumed that both the parties have cleared their accounts with reference to their rights and obligations through the sub-contract agreement of July 10, 1994. It is, therefore, apparent that termination agreement is to be implemented with reference to rights and obligations secured to the parties under sub-contract agreement dated 10.7.1994. The later agreement though provides that the parties would no longer continue to work under the sub-contract any further but the mechanism to assess and pay for the work already executed has also been provided. Thus the work which had been executed is to be assessed, evaluated and paid for in terms of provisions of the sub-contract agreement dated 10-7-1994. In these circumstances it is idle to urge that the sub-contract agreement stood novated and substituted with new arrangement altogether in complete supersession of the previous sub-contract agreement. Learned Judge was, therefore, right in concluding that there exists a clear nexus between the two agreements and both have to be read together to find out the intention of the parties. Reference with advantage may be made here to the case of Wade-Grey v. Morrison (1877) 37 L.T. (N.S.) 270. In that case there were two contemporaneous agreements, one of which contained, though the other did not, a reference to arbitration, and the learned Judge decided that those two agreements must be treated as together forming one agreement, and that the arbitration clause consequently must be taken as applying to both.
(Emphasis supplied)
The judgments quoted hereinabove elucidate the principle in cases where there are multiple contracts that are so inter-connected and inter-dependent that they are to be considered as `one indivisible contract' and make up one single business transaction, the interplay between them cannot be ignored, including, in the context of referring disputes to the arbitration. At this juncture, it is pertinent to refer "Russell on Arbitration"[5], which states that `where a transaction comprises a series of agreements between the same parties, it is important to consider the dispute resolution provisions in each of them. Failure to do so may result in the disputes under different agreements being resolved in different fora, which carries risk of additional expense and inconsistent decisions.'
9. However, it is important to note that arbitration is fundamentally a contractual arrangement and therefore, before the Court embarks on any exercise regarding reference to the arbitration under inter-connected agreements, it must first and foremost have regard to the intention of the parties, as gathered from the plain words of their agreements. The above cited judgments relate primarily to those situations where there are two or more inter-dependent contracts, in which one contract has an arbitration clause, while the other contract does not and the Courts have engaged with the issue of whether (i) the contracts read together form an indivisible whole; or (ii) one contract incorporates by reference the arbitration clause from another contract. Whereas in the present case, there are two separate contracts with independent arbitration clauses. Does the fact that both contracts relate to the same project (albeit with different scope of work and pricing), provide sufficient grounds for those to be treated as `one indivisible whole' and for the Court to refer disputes under both contracts, to composite arbitration in the same proceedings? Will this accord with the intention of the parties, who provided for independent arbitration clauses in both agreements (though similarly worded)? This aspect of the matter has been dealt with by the Courts in India. In the case of M/s. Duro Felgueras S.A supra, the Supreme Court of India addressed the issue of whether composite reference to arbitration was warranted where contracts for different packages related to the same project (Bulk Material Handling System and associated works for Gangavaram Port were awarded to same party-Duro Felguera, S.A.) but with distinct scope of work and with independent arbitration clauses (in each contract). The Indian Supreme Court held as under: "40. The learned Senior Counsel for GPL relied upon Chloro Controls India Private Ltd. (supra), to contend that where various agreements constitute a composite transaction, court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreements. Even though Chloro Controls has considered the doctrine of "composite reference", "composite performance" etc., ratio of Chloro Controls may not be applicable to the case in hand. In Chloro Controls, the arbitration clause in the principal agreement i.e. clause (30) required that any dispute or difference arising under or in connection with the principal (mother) agreement, which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration conducted in accordance with Rules of ICC. The words thereon "under and in connection with" in the principal agreement was very wide to make it more comprehensive. In that background, the performance of all other agreements by respective parties including third parties/non-signatories had to fall in line with the principal agreement. In such factual background, it was held that all agreements pertaining to the entire disputes are to be settled by a "composite reference". The case in hand stands entirely on different footing. As discussed earlier, all five different Packages as well as the Corporate Guarantee have separate arbitration clauses and they do not depend on the terms and conditions of the Original Package No.4 TD nor on the MoU, which is intended to have clarity in execution of the work.
(Emphasis supplied)
Similarly, in the case of Libra Automotives,[6] the High Court of Delhi examined the issue of whether overlapping disputes in two contracts, each of which contained separate and distinct arbitration clauses ought to be referred to the composite arbitration by the same tribunal and held as under: "12. Significantly, the arbitration clauses in the agreements" are separate and distinct, and this becomes evident from the following tabulation:- ...
16. The fact that Petitioner was appointed as a Dealer of Respondent No. 1 and that there was a finance arrangement between the Petitioner and Respondent No. 1 and also with Respondent No. 2, for carrying out the business of dealership, no doubt discloses that the agreements were interlinked and interconnected. Thus, the disputes arising under the Agreements could possibly include the interconnected contractual violations, claims relating to encashment of the Bank Guarantee and the termination of the Dealership Agreement. However, just because there is an element of overlapping disputes between the parties on account of the fact that the agreements are interconnected, cannot be the sole ground for the Court to direct the parties to go for a composite arbitration. In the present scenario this is impermissible. The commercial transaction between the parties have two limbs, a) Dealership Arrangement b) Financing Arrangement, and pertinently for this reason, the Agreements between the parties contain separate and distinct arbitration clauses. The dealership Agreement dated 1st January, 2018, which is the umbrella agreement for the dealership relationship between the parties provides for arbitration administered by the Singapore International Arbitration Centre (SIAC). The said dealership agreement, contract was entered into between Petitioner and Respondent No.1. In contrast, there is no arbitration agreement under the Floor Plan Financing Agreement, which is the principal agreement for the financing scheme between the parties. The said agreement was entered into between Petitioner and Respondent No. 2.
17. Furthermore, in the Dealership Agreement, Respondent No. 2 is not a party and likewise Respondent No. 1 is not a party to the Financing Agreements. The Arbitration Clauses are only contained in Hypothecation Deeds and Spare part financing agreements. These clauses also provide for a different mechanism for the constitution of the Arbitral Tribunal; The Hypothecation Deed dated 20th June 2016, provides for the Arbitral Tribunal consisting of three Arbitrators. Under the Hypothecation Deed dated 11th July 2016, the parties have agreed for a sole Arbitrator. The same is the situation under the Hypothecation Deed dated 21st June 2016.
18. In this view of the matter, directing the parties to go for a composite arbitration under a sole Arbitrator would amount to rewriting the terms of the dealership agreement agreed between the parties."
(Emphasis Supplied)
It is imperative to note that in an earlier decision in the Olympus Superstructures,[7] the Supreme Court of India addressed a situation where three main agreements for sale of flats were entered into while three separate agreements for interior design were also entered into, each with separate arbitration clauses. The question was whether in respect of items that overlapped in the two agreements, arbitration under the main contract would also cover disputes under the interior design agreements. In the said case, the Indian Supreme Court took the view that the general arbitration clause in the main agreement was broad enough to cover disputes under the interior design agreement. The Olympus Superstructure case referred above, was distinguished by the Supreme Court of India in a more recent decision in the DLF Home Developers[8] case where the Court emphasized that where the arbitration clause in any one of the two related agreements is neither broader or wider than the arbitration clause in the other agreement, then Court must give effect to both arbitration clauses separately. The reliance placed by learned counsel for the petitioner on case of M/s. Ganapati Technology Services supra is also apt.
10. From the above analysis, what can be inferred is that one stream of jurisprudence evolved relates to issues where more than one agreement is executed and one thereof contains the arbitration clause whereas the others do not. In other words, there can be multiple agreements that are apparently inter-connected because they relate to the same transaction or project, and the question is whether disputes under those multiple contracts ought to be referred to composite arbitration pursuant to the arbitration clause in any one agreement. In such cases, Courts will first and foremost examine the text of the contracts and the arbitration clauses in those agreements to assess whether it was the intention of the parties that the disputes under those multiple agreements should be resolved through composite arbitration. Where, for example, there is a main agreement along with an ancillary agreement and the arbitration clause in the main agreement provides that the disputes connected with that main agreement will be referred to arbitration in accordance with its arbitration clause, then, in such an event, where the disputes, though arising partially under the ancillary agreement are integrally connected with the main agreement, Courts have taken the view (per decision in Olympus Superstructures supra), that the disputes under the ancillary agreement can be referred to arbitration pursuant to the arbitration clause in the main agreement. A somewhat similar view was taken by the Supreme Court of Pakistan in the case of Sezai Turkes Feyzi Akkaya Construction Company supra in which it has been held that where an agreement executed later in time was dependent on and inter-connected with the terms of an earlier agreement then even though the later agreement did not contain an arbitration clause, the disputes arising under it can be referred to arbitration under the arbitration clause in the earlier main agreement. In this view of the matter, this Court is of the opinion that a single application, can be filed for disputes under two separate agreements, provided the same are interdependent and constitute indivisible whole contract' and single arbitrator can be appointed.
11. However, the other stream relates to such situations where the underlying subject matter/project is the same relating to which more than one agreement is executed, and all of them contain arbitration clause entailing the question of composite reference. In the present case, there is no apparent hierarchy to the two agreements in question. In-fact, in the subsequent agreement, there is no reference to the prior agreement. Clause 13 of the subsequent agreement that lists the contract documentation also does not make reference to the prior agreement. There are also other differences between the two agreements. While the prior agreement does not refer to a contract area, the subsequent agreement specifically refers to the contract area as being the Second Floor estimated at 75,000 sq. ft. Moreover, the contract value of both the agreements is different. The owner and contractor's scope of supply in both the agreements are also different. So is the position with the payment schedule in both the agreements. It is noted that the claims stated in paragraph 9 of the application under Sections 8 & 20 of the Act, clearly relate to the prior agreement since the same pre-date the subsequent agreement. The claims stated in application, while not identified in each case, have been separately identified in several instances as being related to the First Floor, the Mezzanine Floor or the Second Floor although the subsequent agreement only related to the Second Floor. There is no apparent overlap in the claims, between the two agreements. It is imperative to observe that just because there is an element of overlapping in disputes between the parties, it cannot be the sole ground for the Court to direct the parties to go for a composite arbitration where there are two agreements with two separate arbitration clauses.[9]
12. The facts of the present case are more relatable to the case of Duro Felguera, S.A. supra, wherein the Indian Supreme Court held that where there are separate agreements (though related to the same project) with independent arbitration clauses and where one agreement is not dependent on the other, then the disputes under those various agreements cannot be referred to one arbitral tribunal, but separate arbitral tribunals ought to be constituted for disputes under each agreement. This approach is also reasonable since it means that the Courts will first and foremost give effect to the intent of the parties, as neither party can be allowed to circumvent their agreement, nor can the Court re-write the agreement between the parties.
13. However, in the present case, despite having certain similarities with the facts of Duro Felguera, S.A. supra, there is a distinguishable feature as well. The nature of projects in the sub-agreements in case of Duro Felguera, S.A. supra was different whereas the nature of the project i.e., construction in the present case is similar to one another and also with respect to the same building and the dispute pertains to the payments withheld. At this stage, it is pertinent to note that the Court in determining suchlike situation should look into the nature of the dispute requiring arbitration in order to strike a balance that two distinct contractual arrangements reached by the parties are not disturbed by interpolation and/or substitution by the Court with its own arrangement as well as the necessity to rule out the conflicting awards. In the present case, for instance, the issue of certain payments withheld has triggered the filing of application under Sections 8 & 20 of the Act for reference to the arbitration. The separate references run the risk as to one set of payments as adjustment and/or withholding of payment in the other. The matter may involve determination of payments/adjustments under one agreement against payments withheld under the other agreement. While the Civil Court did not appreciate as to whether both the agreements are inter connected or interdependent and dismissed the application under Sections 8 & 20 of the Act, the Appellate Court below also erred by not examining and appreciating as to whether the application under Sections 8 & 20 was filed by first exhausting the procedure outlined in the agreements.
14. The above-mentioned discussion takes this Court to second legal question related to scope of the arbitration clause in both the agreements, which is almost identical in both the agreements and provides for a two-step procedure for appointment of the arbitrators. In the first step, the parties are to appoint a sole arbitrator by mutual consent, however, if parties are not agreeing upon a sole arbitrator, then in the second step, each party would appoint one arbitrator, and if the two arbitrators so appointed are not able to agree on a decision, they will appoint an umpire and refer the matter for decision to the umpire. Record depicts that the respondent complied with only the first step of the appointment procedure provided in the arbitration clause i.e., the attempt for appointment of a sole arbitrator, however the respondent, thereafter did not proceed with the second step of the appointment procedure wherein it was to appoint its own arbitrator (instead of proposing a sole arbitrator). This is evident from the facts, as stated in the respondent"s application under Sections 8 & 20 of the Act, where the respondent states that it sent two notices to the petitioner for the appointment of a sole arbitrator. Once it was clear that the parties had failed to agree on the appointment of a sole arbitrator and the petitioner did not respond to the respondent"s proposal, the respondent should have proceeded to the second step provided in the arbitration clause and ought to have appointed its own arbitrator. The respondent, instead, approached the Civil Court without fully complying with the inbuilt procedure for the arbitrator(s) appointment provided in the arbitration clause of each agreement. As mentioned above, arbitration is fundamentally a contractual arrangement and the parties must be held to their bargain. They cannot be allowed to circumvent the procedure for arbitration provided in the arbitration clause. The procedure for appointment of the arbitrator, as provided in the agreements, must be given effect, and the Appellate Court below ought not to have proceeded to direct the Civil Court for the appointment of an arbitrator without the parties first exhausting the mechanism agreed in the arbitration clause(s). In this respect, the following passages from the case of Libra Automotives supra are referred: "18. In this view of the matter, directing the parties to go for a composite arbitration under a sole Arbitrator would amount to rewriting the terms of the dealership agreement agreed between the parties. It can also not be ignored that the invocation of the arbitration agreement is also misconceived. The invocation notice is unspecific and not as per procedure prescribed under the arbitration agreement. Petitioner has not proceeded as per the agreed procedure under any of the Arbitration Agreements. The Petitioner has rather called upon the Respondents to agree to an arbitration mechanism contrary to the agreed procedure prescribed under the Agreement. The invocation is thus contrary to the contract and wholly misconceived.
"22. The Court while exercising its power under Section 11 of the Act, cannot recast the terms of the Contract and direct the parties to go for a composite arbitration contrary to the procedure prescribed under the arbitration clause provided in distinct arbitration agreements ...Where an application under section 11(6) of the Act is filed, the procedure for appointment of an arbitrator provided in the agreement, be given effect to and the court ought not to appoint an independent arbitrator without resort to the inbuilt mechanism agreed to between the parties. Parties were conscious of the terms of the agreement and they willingly and consciously agreed for the arbitral procedure envisaged under the agreement without any reservation."
(Emphasis supplied)
Therefore, this Court is of the opinion that the respondent approached the Civil Court, at a premature stage without exhausting the procedure for appointment of the arbitrator(s) provided in the arbitration clauses in both the agreements. On this account, the respondent"s application under Sections 8 & 20 of the Act, was not maintainable.
15. Before answering the third legal question as to inter play of Sections 8 and 9 of the Act and their applicability in present case, it is imperative to reproduce both provisions of law. Section 8 of the Act reads as under: "8. Power of Court to appoint arbitrator or umpire :-(1) In any of the following cases:-
(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or
(b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or
(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; Any party may serve the other parties or the arbitrators, as the case may be with a written notice to concur in the appointment or appointments or in supplying the vacancy.
(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties."
Whereas Section 9 of the Act reads as under: "9. Power to party to appoint new arbitrator or, in certain cases, a sole arbitrator:- Where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party, then, unless a different intention is expressed in the agreement:-
(a) If either of the appointed arbitrators neglects or refuses to act, or is incapable of acting or dies, the party who appointed him may appoint a new arbitrator in his place;
(b) If one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent: Provided that the Court may set aside any appointment as sole arbitrator made under clause (b) and either, on sufficient cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit.
Explanation.--The fact that an arbitrator or umpire, after a request by either party to enter on and proceed with the reference, does not within one month comply with the request may constitute a neglect or refusal to act within the meaning of section 8 and this section."
Section 8(1) of the Act empowers a party to serve a notice on another party to concur in the appointment of an arbitrator etc., where the arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and the parties do not, after differences have arisen, concur in the appointment or appointments. Section 8(2), inter alia, provides that if the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party which gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be. While the arbitration clauses, in both agreements, do provide for the appointment of a sole arbitrator by consent of the parties, that is not the exclusive mode of appointment, since the arbitration clauses provide for the next step, in case the parties fail to agree on a sole arbitrator. Therefore, when read in its entirety, the arbitration clauses eventually provide for a reference to two arbitrators, one to be appointed by each party. This situation takes the present case, out of the remit of Section 8 of the Act and brings it within the purview of Section 9 of the Act. Section 9 of the Act applies in a situation where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party. Section 9(b) provides that, in such a case, if one party fails to appoint an arbitrator, either originally or by way of substitution, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent.
16. A situation such as the one that arises in the present case was addressed by the Calcutta High Court in the case of Subal Chandra[10]. In that case the partnership deed provided for reference of disputes to a single arbitrator in case the parties agree upon one, otherwise to two arbitrators one to be appointed by each party to the dispute. It was held that where an arbitrator appointed by one party is made sole arbitrator under Section 9, the other party having refused to act, the procedure to be followed is not that which is laid down in Section 8(1) but the procedure in Section 9 will be followed, and the party which appointed the arbitrator who became the sole arbitrator may appoint a fresh arbitrator after giving notice to the other side. Furthermore, it was held in the aforesaid judgment as follows: "6. ...This arbitration agreement cannot be construed as an agreement to refer the disputes to a single arbitrator simpliciter so as to attract the operation of section 8 of the Act. Reference to a single arbitrator is conditional on all the parties agreeing to do so and there is an alternative mode of appointment of two arbitrators. To construe this arbitration agreement as an unconditional agreement to refer to one arbitrator is to cancel the alternative provision altogether and will amount to making a new contract for the parties, which is obviously not permissible."
Similarly, in the present case the arbitration clauses in both agreements cannot be construed as an unconditional agreement to refer the disputes to a sole arbitrator so as to attract section 8(1) of the Act. To construe it as such would mean that the alternative mode of appointing arbitrators (where each party appoints one arbitrator) provided in the arbitration clauses would be rendered redundant. The above noted case from the Calcutta High Court was also relied by the Islamabad High Court[11] that clearly elucidates the distinction between Sections 8 and 9 of the Act, in the following terms: "14. The arbitration clause in the Agreements shows that the parties had agreed for their disputes and differences to be resolved through arbitration by two arbitrators "to be appointed one each by the parties." Where a party to an arbitration agreement, which provides for arbitration by a two- member arbitral tribunal one to be appointed by each party, wants to initiate arbitration proceedings without the intervention of the Court, it must, after appointing its arbitrator, serve a written notice on the other party as to such appointment and require the other party to appoint its arbitrator. If the other party does not appoint its arbitrator within fifteen clear days of the service of such notice, the party which had appointed its arbitrator acquires the right to appoint its arbitrator as the sole arbitrator by invoking the provisions of Section 9(b) of the 1940 Act. The sole arbitrator appointed through this process is treated as having been appointed with the consent of the parties. ...
16. Section 9 is attracted only when the arbitration agreement requires the disputes between the parties to be referred to two arbitrators, one to be appointed by each party. The essential condition for the exercise of the power by a party to appoint a sole arbitrator under section 9(b) is that the other party fails to appoint an arbitrator for 15 days after service of notice in writing to make an appointment.
Before that time a sole arbitrator cannot be appointed and if appointed the arbitrator has no jurisdiction... ...
35. In the case at hand, neither party had submitted an application to the Court for the appointment of arbitrator(s). The parties could not have resorted to Section 8 of the 1940 Act for the appointment of arbitrator(s) since the arbitration clause in the Agreements did not provide for the arbitral tribunal to be appointed with the consent of the parties. Where arbitrators are appointed by the parties or a sole arbitrator is appointed pursuant to Section 9(b), and thereafter either of the appointed arbitrators or the sole arbitrator neglect or refuse to act, or are incapable of acting, or die, then their substitutes can be appointed by the respective parties that had appointed them. The parties exercise this power vested in them by Section 9(a) of the 1940 Act, which provides the mode for filling a vacancy in the appointment of arbitrators and comes into play only if either of the appointed arbitrators neglect or refuse to act or are incapable of acting or die."
Since both the agreements required two arbitrators, followed by an umpire if needed, the correct legal provision to invoke was Section 9, and not Section 8 of the Act. The Appellate Court below directed the Civil Court to appoint an arbitrator without first determining whether two steps procedures envisaged under the arbitration clauses agreed between the parties were exhausted and it also failed to address the issue of whether the application under Sections 8 & 20 was maintainable for two separate agreements, which is erroneous, making its decision legally unsustainable.
17. This Court is of the opinion that the respondent's application under Sections 8 & 20 was not maintainable as it covered two separate agreements and the arbitration mechanism, in both the agreements, was not exhausted, by the respondent, rendering the application premature.
Moreover, the disputes fall under Section 9, rather than Section 8 of the Act.
18. In view of the above, this Civil Revision is allowed, and the impugned judgment dated 27.06.2024 is set aside. However, it is observed that the parties are at liberty to invoke the arbitration clauses in letter in spirit.
19. Before parting with, valuable assistance provided by learned amicus is acknowledged with thanks.
1. M/s. Ganapati Technology Services P Ltd v. The State Fisheries Development (AIRONLINE 2021 CAL 120)
2. Orient Power Company (Private) Limited through Authorized Officer v. Sui Northern Gas Pipelines Limited through Managing Director (2021 SCMR 1728).
3. Sezai Turkes Feyzi Akkaya Construction Company, Lahore through Project Director v. M/s. Crescent, Services, Lahore and another (1997 SCMR 1928).
4. M/s. Duro Felguera, S.A v. M/s. Gangavaram Port Limited (AIR 2017 SC 5070).
5. Twenty Third Edition, Section 2-066
6. Libra Automotives Private Limited vs BMW India Private Limited & Anr. [2019 (176) DRJ 976].
7. Olympus Superstructures Pvt. Ltd. vs Meena Vijay Khetan & Ors. (AIR 1999 SUPREME COURT 2102).
8. DLF Home Developers Limited vs Rajapura Homes Private Limited & Anr. (AIRONLINE 2021 SC 759).
9. See Libra Automotives, supra 6.
10. Subal Chandra Bhur v. MD. Ibrahim and Anr (AIR 1943 Calcutta 484).
11. Better Engineered Solutions (Pvt.) Ltd. v. Balochistan Development Authority, Quetta through Chairman and another (2023 PLD Islamabad 105).