AVARI HOTELS LTD vs HILTON INTERNATIONAL COMPANY

1. ' ABDUL HAYEE KURESHI, C. J.-High Court Appeals bearing No, 39 1984 and No, 43;1984, are being disposed of by this single judgment, as the parties in both the appeals are the same, and these arise out of a single order passed by the learned Single Judge in Suit No, 314/1984 filed on the original side of this Court.

2. ' The suit in question was filed by Messrs Avari Hotels Limited, wherein Hilton International Company, incorporated in the State of Delawara of the United States of America, was arrayed as a /single defendant. For the purposes of convenience, the plaintiff are hereinafter referred to as "Avaris", and the defendant as "Hilton". The Avaris were represented before us by Mr. Ali Ahmad'Fazeel, Mr. Naseem Farooqi, Wajihuddin Ahmad and Mr. Abdus Shakor, whereas Hilton was represented before us by Mr. Parvez Hassan, Mr. Zakiuddin Paul, Mr. Naeem Bokhari and Mr. Saleem Baig.

3. ' The averments in the plaint were to the following effect :- ' Avari, the plaintiff, is a Company that owns the land and building, where Hilton Hotel at 'Lahore is, housed. It seems a lease agreement has initially been entered into, providing for lease of the said Hotel in favour of Hilton, but, on 2-12-1976, such lease agreement was superseded by a management agreement with the Hiltons for an initial period of twenty years, and renewable for the next thirty years. It is the case of Avaris that their investment was-Rs, 13,49,94,000 and it is common case before us that all the/financial investment is made by Avaris. This was so stated before us by 'the learned Advocates of the parties. The salient features of this management agreement are that Hiltons were to make available to the Avaris technical assistance services, which are detailed in Appendix 'A' to the agreement, and such technical assistance services consisted in providing to the architect, contractors, engineers and decorators the expertise and experience of Hiltons in the design and planning of hotels in the matter of architectural, international design, mechanical installations, kitchen and laundry equipments, other hotel equipments, lighting, graphic and other design work and project co-ordination. It was provided film Avaris will maintain full title for the Hotel, and they were also to advance to Hiltons a fixed sum for starting the said hotel. The Hiltons were to use the hotel solely for operation of a hotel under comparable standards to those prevailing in Hilton Hotels all over the world, but subject to local character and conditions. The Hiltons were to have absolute control and discretion in the operation of the hotel, A management fee was provided, and that was an amount equal to five per cent of the revenue, and ten per cent of gross operating profit. The term "gross operating profit" was defined in section 2 of Article 5 of the agreement. Hiltons had to maintain the hotel in good repair and condition with the exception of ordinary wear and tear, and they had a right to make alterations, additions, or, improvement in the hotel, but, if any fundamental changes in the character of the hotel were involved, written approval of Avaris was necessary, and, in that case, the cost on such alterations, additions and improvements was to be charged to current expenses, or, was to be capitalized in the books of accounts. The agreement also provided for Avaris providing sufficient funds for inventories of foods, beverages and other consumable items. The Avaris were to provide insurance, but Hiltons were to provide public liability 'insurance, workmen compensation insurance, the insurance for use and occupancy, etc. The agreement also provided 'a definition of "default" in Article X11, and provided for a method to cure the default. In that article, a clause was inserted, providing as follows :- "Notwithstanding the foregoing, neither party' shall be deemed to be in default under this agreement if a bona fide dispute with respect to any of the foregoing events of default has arisen between the Parties and such dispute has been submitted to arbitration."

4. ' Article X1V provides for arbitration, and this article reads as follows :- "All disputes arising in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one of more arbitrators ,appointed in accordance with said rules."

5. ' Although the initial period of the management agreement was twenty years, yet Article 15 provided, for Hiltons having a. Right to extend the operating term for three successive periods of ten years each, but subject to the conditions that Hilton was not in default, the operating term should have been extended for all prior periods, and Hiltons should have given notice to Avaris of its election to extend the operating term on, or, before 1st April of the nineteenth full calendar year of the original term, and on, or, before 1st April of the last year of any extended term.

6. ' The Avaris alleged in the plaint that the agreement was brought about by misrepresentation made by Hiltons. The misrepresentation alleged was that Hiltons had made Avaris believe that the management agreement was similar to those agreements made by Hiltons in various projects all the world over. Reliance was placed on two letters received by Avaris from Hiltons eh 15-2-1977 and 12-6-1977. Out of the first letter, the following passage was quoted is the plaint :- "There is certainly no reason for us to operate in; Pakistan under a Management Agreement, which is not the same as that under which we operate in all other parts of the world."

7. ' From the second letter, the following passage was reproduced in the plaint "In all of such countries, we operate on the basis of an Agreement and Lease similar to that previously entered into for Lahore and Karachi or on the basis of our standard Management Agreement, such as that which you asked us to substitute in the case of Lahore and Karachi for the pre-existing Lease Agreement."

8. ' It is the case of Avaris that the Government of Pakistan had approved the management agreement for. The reason that the terms were similar to all such agreements, which Hiltons had entered into in respect of their projects all over the world. It is the case of Avaris that the original lease agreement was superseded by the management agreement, because the latter agreement, on examination by: the Government of. Pakistan, was found to be acceptable in the interest of national economy. It may here be stated that the original lease agreement had provided for 33i per cent of the' gross operating profits being paid to Hiltons. But, in the management agreement, the payments to Hiltons were reduced to five per cent of total revenues and ten per cent of gross operating profits. It seems it was the case of Hiltons that, by the management agreement, the profit in their favour had been reduced, but barring such averment, the point was not demonstrated before us. At this juncture, it may straightaway be stated that the two letters, out of which extracts have been reproduced above, were of a date subsequent to the management agreement.

9. ' It seems that the Government of Pakistan took note of a publication in the New York Times of 23- 7-1976, which disclosed that internationally the Hiltons were managing other hotels on fee basis, so that the agreement between Avaris and Hilton was harmful to a developing country, like Pakistan, and, in such circumstances, the initial lease agreement was converted to management agreement, which, according to Avaris, should be similar to such agreements that Hiltons had, concerning the management of hotels. The Avaris then state that they assured the Ministry of Industries, Government of Pakistan, that the management agreement was in conformity with similar agreements entered into by Hiltons in their international projects. In paragraph 8 of the plaint, the Avaris have detailed five instances of the agreements which Hiltons have entered into with other parties in the rest of the world, and, in paragraph 9 of the plaint, it is stated that the terms under which Hiltons had entered into an agreement with the Avaris were different, apart from being oppressive, unfair and unconscionable. In the same paragraph of the plaint, eight circumstances have been highlighted, showing that the agreement provided for an unfair advantage to Hiltons. The plaint further states that, as from 1978 until the date of filing of the suit in 1984, Hiltons have earned a total sum of Rs, 95,43,641 as their management fee, incentive fee and group services, whereas the Avaris have received a total sum of Rs, 23,77,250 after paying the property taxes, insurance premiums, salary of staff and the telephone charges. From this amount, the Avaris deduct the charges for debt services and make an averment in the plaint that, during the period commencing 1-10-1978 and ending 31-12-1983, they had received a sum of only Rs, 6,52,809. It is also stated that the Hiltons had assured the Avaris to the effect 'that their return would not be less than fifteen per cent net of the total investment. The plaint further recites that Messrs Pannel Kerr Forster, who were public accountants, were appointed to examine the accounts, but they were only provided limited access by Hiltons to the books of account. It stated that the accountants reported that the Hiltons were guilty of fraudulent actions, misfeasance, malfeasance and maladministration, mismanagement, manipulations of accounts and illegal, unlawful and unauthorised divergence of the company funds in the course of hotel operations. A grievance had also been made in the plaint that the Avaris had been denied full access to the books of account, vouchers and documents, With the result that they'had no means of verifying the declaration of revenue and expenses made by Hiltons. Grievance was also made that extensive unauthorised and unnecessary expenditure had been incurred. It was in these circumstances that the Avaris gave a notice to Mr. Curt R. Strand, the President of Hiltons, on 21-3-1984, through Mr. Fakhruddin, G.

10. Ibrahim, wherein it was stated that the consent to the agreement was caused by fraud and misrepresentation, so that the Avaris have exercised the opinion of rescinding the agreement. In this notice, the report of the accountants was also referred to and the Hiltons were called upon to supply to Avaris all the documents that had been detailed in the notice. In the last paragraph of the letters it was ,stated that, in case default was made, the Avaris would take legal proceedings for appropriate, reliefs. Even in paragraph 14 of the plaint, averments have been made that the 'Hiltons had not taken Avaris into confidence in relation to any material aspect of the operation of the hotel, and that they were guilty of fraud. It may be stated that the notice of Mr. Fakhruddin G.

11. Ibrahim was replied to on 4-4-1984, wherein the various allegations were denied.. It was stated that the accountants were provided all the information, which they wanted, and it was.. Stated that they had asked the Avaris to supply a copy of the report, and the same had not been supplied. In regard to lesser profits, it was stated that the fault lay with the Avaris, because they had not made necessary advances for finishing the hotel. In the penultimate paragraph of the notice, Hiltons reserved a right to raise these questions.In the arbitration proceedings, which, according to them, was the 'exclusive method for resolving all disputes, In this background, the Avaris rescinded the management agreement vide the notice of Mr. Fakhruddin G. Ibrahim.

12. ' In the plaint, the Avaris had stated that the management agreement was void, and illegal. ab initio, as it was in conflict with Article 7 of the Company's (Managing Agency and Election of Directors) Order 11 of 1972. It was stated that the agreement created a managing agency, the creation of which was specifically barred under the Presidential Order, and that, by virtue of section 23 of the Contract Act, none of the parties could derive any right to title, or, benefit under the management agreement. It was further averred, that the management agreement was a pure and simple agreement of agency, which. The AVaris, as _principals, could revoke at will.

13. ' In paragraph 19 of the plaint, it was stated that, in spite of rescission of the management agreement, the hotel business was being carried on by staff, who were nominees of the Hiltons and who may prevent the Avaris from running the hotel. By a letter., dated 9-5-1984, signed by Mr. Byram D. Avari, the Managing Director of Avaris, the services of Mr. Schwander were terminated, and he was directed to hand over charge to Col. Hassan Kadir Kban.

14. ' In order to give a more clear picture in regard to the management of Hilton Hotel, it may be stated that the staff was selected, or, nominated by Hiltons, but the salary had to be paid by Avaris. This was, stated before us by both the parties. Another significant .Averment in the plaint is stated in paragraph 23 thereof in the following words :- "On 9-5-1984 when the services of the General Manager of the Hilton International, Lahore, the nominee of the defendants, were terminated and yet the defendants continued to manage the affairs of the hotel, in disregard of the rescission of the Management Agreement.',"

15. ' In these circumstances, the plaintiffs filed the\ suit; claiming a permanent injunction to restrain the Hiltons from interfering, or, intermeddling with the plaintiffs' control and management of the hotel. Accounts and damages \were also claimed.

16. ' An ad interim injunction was granted by the learned Single Judge to restrain Hiltons from managing the hotel.

17. ' Immediately on the ad interim order being passed by\ the learned Single Judge, Hilton made an application under section 34 of the Arbitration Act. Reliance was placed 'on Article XIV of the, management agreement, which has been reproduced above. It was fuhher stated that a supplementary agreement had also been made to provide that such arbitration shall be held in Pakistan, and the law applicable would be the law of Pakistan. In the same application, it was also averred that the Avaris had made "wild and fanciful accusations",. It was averred that the letter, whereby the services of Mr. Schwander were terminated, was received in Lahore on 13-5-1984, when Mr. Schwander was out of the country, and it was further stated that, since there was' no privity between Avaris and Mr. Schwander, the question of termination of his service by Avaris did not arise. It was further stated that, after the learned Single Judge passed ex parte orders on 14-5- 1984 to restrain Hiltons from operating the hotel, the representatives of Avaris, armed with the order of the Court, had managed to take over the physical possession and control of the hotel. A counter-affidavit was filed by Byram D. Avari to oppose stay under section 34 of the Arbitration Act.

18. It was stated that Mr. Schwander was an employee of Avaris, as the management agreement expressly stated that the employees of the hotel shall be employees of the first party (i,e, the plaintiffs), and not of Hilton. It was, therefore, averred that the services of Mr. Schwander could be terminated by the Avaris. In 4th paragraph of the counter-affidavit of Byram Avari, it was stated that the Avaris had always been in possession and control of Hilton Hotel, Lahore, and only the management of the hotel'for its operation 'was given to Hiltons under the management agreement. This argument was extended further by , stating that, since M . Schwander was receiving his pay, allowances and other expenses from Avaris, and not-Hiltons', the possession and control of the hotel had always, been with the plaintiffs. It was denied that, after obtaining the ad interim order, the Avaris had managed to take over the physical possession and control of the hotel. Allegations of the agreement, being void by reason of the provisions contained in Company's (Managing, Agency and Election of Directors) Order, 1972 were reiterated. The allegations of fraud and misrepresentation Were also reiterated. Some more allegations were made, alleging fraud in the maintenance of accounts and moneys of the hotel.

19. ' The learned Single Judge, by an order, dated 17-6-1984, granted the application made by Hiltons for stay of the suit tinder section 34 of the Arbitration Act. Since an alternate plea had also been raised by the Avaris to the effect that the management agreement, was void ab initio, the learned Single Judge adverted to that aspect of the case also, and came to the conclusion that the agreement in question was hit by the Company's (Managing Agency and Election of Directors)

20. Order II of 1972. In any case, the learned Single Judge did state that whether the agreement. Was old, or, what was the exact nature of that document should be held to be determined at the final trial, but he stated that the management agreement was not terminable at the will of Avaris. In that result, the application under section 34 of the Arbitration Act was allowed and the ad interim orders in regard to operation of the accounts and running of the hotel were recalled. However, the Hiltons were restrained from making any remittances of income, or, funds of the hotel outside Pakistan.

21. ' Both parties were aggrieved by the order of the learned Single Judge. The Avaris were aggrieved, because the right of Hiltons to manage the hotel was recognised by the learned Single Judge, and they were also aggrieved by the order, whereby the suit was stayed. They, therefore, filed an appeal, which' has been registered as H..C.A. No, 39/1984. Hiltons were aggrieved, because they were restrained . From remitting any amounts from Pakistan, and they filed a separate appeal, which has been registered as H. C. A. No, 43/1984.

22. ' Along with the appeal filed by Awls, eleven documents were placed on the record. These documents had not been produced before the learned Single Judge. Hiltons made an applications under Order XLt, rule 27, C.P.C. Read with section 151, C. P. C., requesting that these documents, which had been placed on the record at such belated stage and are designed to improve the case of Avaris by making new factual assertions, may hot be placed on the record, at the appellate stage. An affidavit of Schwander was also filed, stating that these documents had been filed to patch up the weak points and fill up omissions. The documents were called non-genuine, and the production of the documents was termed to be an afterthought to build up a new case. In that regard, Hiltons also with their, ,counter=affidavit had filed some other documents, which had not been placed before he learned Single Judge. During the hearing of the case, we had passed a shortsorder on 26th November, 1984, allowing the additional documents/evidence, and we had also permitted Hiltons to place any document \on the record, which they may be advised to do. No reasons were recorded in the said order, and we had stated that the detailed reasons shall be recorded separately in the main order. We now proceed to consider the question of reception of these documents at the present stage.

23. ' We would examine the import and significance of these documents, Although in the counter- affidavit filed by Schwander, it was stated that these documents were "non-genuine", the learned Advocate for Hiltons had not specifically stated that any of these documents were forged, -,or fake.'

24. The first document, which is marked as No, 3, and has been filed at page 133 of the record in H. C. A.

25. No, 43/1984, is a photostat copy of a letter from the State Bank of Pakistan, Exchange Cori1ro.1 Department, dated 26th 'Agri', 1977, and concerns the management agreement between the parties. It states that, since the lease agreement had been substituted by the management agreement, the State Bank had no objection to the approval of the management agreement, provided the Department of Investment Promotion and Supplies was satisfied. This is an official document, and the several documents, which have been placed on the record, would appear to lend an assurance to the genuineness and authenticity of this document, for it is common case between the parties that the original lease agreement was substituted by management agreement, and the terms were different.. The second document, which is No, 4, and appears at page 135 of the record in H. C. A. No, 43/1984, is again a letter from the Government of Pakistan, Department of Investment Promotion and Supplies, dated 12th May, 1977 to Avaris, and the said letter states that the management agreement had been re-examined by the State Bank, who had approved the same, ...And, by this letter, the Avaris were directed to produce documentary evidence to the effect that the proposed management agreement is the same under which Hiltons operate in other parts of the world. This too is at-official document, and the contents thereof are supported.By the ether documents that have been placed on record. The next document, which is No, 5 at page 137 of the record in H. C. A. No, 43/84, is a letter from Avaris, dated 20th June, 1977, and is in reply to the document, which has been numbered as No,

4. By this letter, the Avaris have confirmed to the Department of Investment Promotion and Supplies that the manalement agreement is in the same terms as agreements under which Messrs Hiltons operate internationally.

26. This letter carries an annexure;. Which is a letter from the President of Hiltons and addressed to Avaris. The letter from Hiltons is referred to in this document. Even this letter bears clear reference to the letter by the. President of Hiltons, and no doubts have been expressed by . The Advocate for Hiltons before us. The next at cement has been numbered as 6, and is a letter from the Investment, Promotion Bureau, dated 15th April, 1978, to Avaris, calling upon them to submit an application for exemption from the Company's (Managing Agency and Election of Directors) Order II of 1972. This letter too is an official document, and the contents 'thereof bear clear relation to the management agreement. The next document, which is No, 7, is 'a letter from Zahida Naz, the Executive Secretary, employed\at Hilton International Hotel, Lahore, and is dated 13th `May, 1984. By this letter, which is addressed to Col. Khan, who had been appointed as a care-taker of the hotel by Maris, and states that he had handed over the key of the office of Mr. Schwander, the General Manager of the Hilion Hotel, to Col. Khan. Zahida Naz is an employee at Hilton Hotel, and had written that letter on the writing pad of the same hotel. A copy thereof must be available with Hiltons. This letter too is not open to any doubt in regard to its authenticity. The net letter, bearing No, 8, is from Tariq Masood, the Acting General Manager-of Hilton Hotel, ,Lahore, and is addressed to the same gentleman Col. Khan, and is`dated 31st May, 1984. This also pertains to obtaining a key of the General Manager's office. The next three letters, bearing Nos. 9, 10 and -11, which appear at page 149 to 155 of the record in H. C. A. No, 43/1984, are letters from the A. R. C. To the Governor of the Punjab, the Ministry of foreign Affairs, Islamabad, and Ministry of Foreign Affairs, Camp Office, Lahore. These - letters are dated respectively as 13th May, 1984, 29th April, 1984 and 14th May, 1984. These are letters, concerning the use of the hiring, either by the 'Government of Pakistan or by the Government of the Punjab, of rooms and halli in Hilton Hotel, Lahore. It seems that these letters are designed to show.

27. That the Avaris had takeriover the hotel as from 13th May, 1984. This appears to be admitted case of Hiltons also. The letters are official, and there is nothing to doubt the genuineness of the same. The next letter, which is No, 12, and appears at page 157 of the record in H. C. A. No, 43/1984, is written by Schwandtc to thaliana of America regarding some transaction.

28. ' It is dated 3rd July, 1983. Schwander in his counter-affidavit has not specifically denied the authenticity of this letter. The signature on this letter bears very close resemblance to the signature of Schwander, appearing on the various affidavits that have been filed by him in this appeal. The last document, which is No, 13, and appears at pages 159 to 261 of the record in H. C. A. No, 43/1984, is the audit report of Pannel Keer Forster. Even in regard to such audit report, the correspondence between the parties, earlier to the filing of the suit, makes reference to it. No doubt, the correctness of this report is being challenged by Hiltons, but there. Is nothing to indicate that this document is not genuine.

29. ' To oppose the application for reception of additional evidence, Dr. ,Parvez Hassan has contended that an appeal is a re-hearing of the case, and not a fresh trial, or, re-trial, and, for that purpose, reception of additional evidence would not be legal, for the appellate Court does not ordinarily record fresh evidence. It is contended that the Board of Directo' of Avaris had passed a resolution on 22nd December, 1983, authorising the filing of the suit, and the suit having been filed five months thereafter, there was enough time for Avaris ,to prepare the, case. It is further contended that the documents were in Avaris' control well before the filing of the case, and the agreement had been acted upon for eight long years, so that the Avaris knew that the permission of the Government within the meaning of Article 15 of the Company's (Managing Agency and Election of Directors)

30. Order of 1972, had not been obtained. It was contended that' audit report of Forster was available with the Avaris, and that had not been produced before the learned Single Judge, and likewise it is stated that docume9ts, bearing Nos. 7, 9, 10 and 11 , were also in possession of Avaris at the time of hearing before the learned Single Judge. He further contended that no application had been made by Mr. Ali Ahmed Fazeel under Order XLI, rule 27 read with Order XLIII, rule 2, C. P. C., and, for that reason, the reception of the documents should be declined. He further stated that reasons for allowing the request have to be to order before allowing such additional evidence, but, in that context, we may state that we had, during the hearing, passed an order, allowing the reception of this evidence. Ultimately, he contended that, if additional evidence was to be received, the case may be remanded for re-hearing by the learned Single Judge, and, in any case, an opportunity of rebuttal should be given to the opposite party, but, in that context, we may state that opportunity of rebuttal has been provided to Hiltons, and indeed they have also filed some more documents.

31. ' On the legal plane, the relevant provisions. In the Code of Civil Procedure are contained in Order XLI, rule 27, C. P. C. And Order rule 2 of the said Code. Order XLIII, rule 2, C. P. C. States in general terms that the rules of Order XLI shall apply, so far as may be, to appeals from orders. Order XLI, rule 27, C. P. C. Reads as follows : "27. Production of additional evidence to Appellate Court.-(1) The parties to an appeal. Shall not be entitled to produce additional evidence, whether oral. Or documentary; in the Appellate Court. But if-

(a) the Court from whose decree the appeal.Is preferred has refused to ad hit evidence which ought to have been admitted, or

(b) the Appellate Court requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause, the Appellate Court may allow such evidence or document to be produced, or witness to be examined."

32. To this context, the provisions of Order XIII, rule 1, C. P. C. Are also relevant, and the said rule reads as follows :- "1. Documentary evidence to be produced at first hearing.-(1) The parties or their pleaders shall produce, at the first hearing of the suit, all the documentary evidence of every description in their possession or power, on which they intend to rely, and which has not already been filed in Court, and all documents which the Court has ordered to be produced."

33. The conjoint reading of the three provisions of law contained in the Code of Civil Procedur6 would show that the Appellate Court, while hearin an appeal, is bound by the rules of Order XLI, only is so far as those rules would apply. Such application of Order XLI is undoubtedly., limited. No doubt, the broad principals, governing the reception of additional evidence, are stated in Order XLI, rile 27, C. P.

34. C. But the provisions contained in Order XIII do not state that the appellate. Court cannot travel beyond the scope of Order XLI, rule 27, C. P. C. Examining the provisions of Order XLI, rule 27, C. P. C., it would appear that the appellate Court can require the -production of any document, or, allow the same to be produced, if there is a substantial cause, which could persuade the appellate Court to adopt such course. In that context, several considerations are noteworthy. First of all, the present appeal arises only out of an interlocutory order, which has been passed under section 34 of the Arbitration Act. The legal position is that section 34 of the Arbitration Act is always invoked before the filing of the , written Statement, and, on the other hand, if a written statement is filed, section 34 of the Arbitration Act cannot be invoked. The proper stage for production of documents, as stated in Order XLIII, rule 1, C. P. C., is A the first hearing of the suit. The words "first hearing" is not defined in the Code of Civil Procedure, but there case-law on the point that the first bearing is the date on which issues are settled. In any case, in the context of the present circumstances, even a written statement had not been filed, so that the trial of the suit had not even started. This then was not the proper-stage for filing of the documents in the suit. On the other hand, it must be stated that all such documents, as have been filed before us, could I:4 produced before the trial Court also during the hearing of the suit, and, that being so, we are clearly of the view that, in the circumstances, of this case such documents, as have been produced, could not be ruled out of consideration. The second point, that has persuaded us to take these documents into consideration, is that none of these documents appear to be fake, or, forged. Almost all the documents, except the audit report, are either official or letters written by one party to the other. In fact, we asked Dr. Parvez Hassan, if he doubted the authenticity of any document, and he appeared to parry the question by once again raising the technical points that these documents could not be legally entertained. In regard to relevancy of the documents, not much of an argument has been raised before us, and, we are convinced that each one of these documents is relevant to the points that require consideration in this appeal.

35. ' We would, however, refer to some case-law, that has been cited by the learned Advocates before us. Initially, we shall refer to the cases cited by Mr. Ali Ahmad Fazed. The first case is of Venkataramiah v. A. Seetharama Beddy and others (1). In this case, the principles, underlying Order XLI, rule 27(1), C. P. C. Have been considered, and :reliance was placed on the case

(1) AIR 1963 SC 1526 of Parsotim Thakur v. Lal Mohar Thakur (1). The Privy Council in the case of Parzotim observed that the legitimate occasion for the exercise of this discretion is not whenever before the appeal is heard a party applies to adduce fresh evidence, but when on examining the evidence as it stands, some inherent lacuna or defect becomes apparent, and sometimes such defect may be pointed out by a party, who may move the Court for supplying the defect, but the requirement must be the requirement of the Court upon its appreciation of evidence. Referring to this pronouncement of the Privy Council, the Supreme Court of India, while interpreting Order XLI, rule 27, C. P. C. Observed as follows : "Apart from this, it is well to remember that the appellate Court has the power to allow additional evidence not only if it requires such evidence 'to enable it to pronounce judgment' but also for 'any other substantial cause'. There may well be cases where even though the Court finds that it is able to pronounce judgment on the state of the record as it is, and so, it cannot strictly say that it requires additional evidence 'to enable it to pronounce judgment', it still considers that in the interest of justice something which remains obscure should be filed up so that it can pronounce its judgment in a more satisfactory manner. Such a case will be one for allowing additional evidence 'for any other substantial cause' under rule 27 (1) (b) of the Code."

36. ' The next case cited by Mr. Ali Ahmed Fazeel, which is also from Indian jurisdiction, is the case of State of Madras and another v. B. Ranganatham Chettiar (2). The relevant discourse will 'be found in paragraph 5 of the report. The learned Judges thought that it would have been better if the documents were brought to the notice of the trial Court, so that it could have independently appreciated the force and effect of such documents, but in the same context, the Court observed as follows :- "But that by itself does not prompt us to reject the request of the learned Assistant Government Pleader, for, by exhibiting such documents at this stage after giving an opportunity to the other side, we feel that justice could be furthered and done to both parties. If on the sole ground of delay the application is rejected, it would result in not only hindering justice but would be to perpetrate an irregularity in that we would be avoiding the scrutiny of acceptable material which might have an impact on the real question in issue."

37. ' The learned Judges, as would appear from the passage reproduced above, allowed the opportunity for producing additional evidence, because they felt that justice would be furthered, and, on the other hand, if the application was rejected, it may amount to hindering justice and perpetration of an irregularity inasmuch as it would amount to avoidance of scrutiny of acceptable material. The third case, on which reliance has been placed, is also from High Court of Allahabad, and the case of Babu Khan and others v. Nagar Mahapalika (3). In that case, the learned Judges found that often there might be a lacuna, or, gap in the evidence, and the lower appellate Court had permitted the filing of some postal receipts, relating to notice given by a party to another. In that case, the learned Judge stated that permission to adduce additional evidence therefore cannot be refused for the mere reason that it will enable the party to fill up a gap or lacuna in the evidence notwithstanding the fact that it may b6. Considered necessary, by

(1) AIR 1931 P C 143 (2) AIR 1975 Mad. 292

(3) A 1 R 1973 All. 111 ' the Court to enable it to pronounce judgment or for any other substantial reason. On the other hand, Dr. Parvez Hassan has also produced case-law on the subject. He stated that the three cases cited by Mr. Ali Ahmad Fazeel were from Indian jurisdiction, and therefore, not binding. He, however, cited some cases from our Courts. The first case was the case of Mehar Allanditta v. Muhammad All and another (1). In this case, the appellate Court had allowed additional evidence consisting of some Jamabandi documents without any application for the purpose by the party and without reasons for its submission. Such document was for these reasons not admitted as additional evidence. As far as the recording of reasons is concerned, we are undertaking that exercise now, although an order had been passed during the hearing of the appeal. As far as application is concerned, Mr. Ali Ahmad Fazeel had placed these documents on the record alongwith the appeal, and he has made a request during the hearing of the appeal for considering the documents. The next case cited by Dr. Parvez Hassan is the case of Khan Iftikhar Hussain Khan of Mamdot v. Alulam Nabi Corpora, ion Ltd. Lahore (2). In this case, the Supreme Court relied on an earlier judgment in the case of Muhammad Ikhlas and others v. Muhammad Ismail and others (3) and we will presently be referring to that case. However, the Supreme Court found fault with the production of additional evidence in appeal, because it was of the view that the discretion should not have been exercised in that case, as the documents, which were produced, could be easily fabricated and manufactured. This third case relied on by Dr. Parvez Hassan was the case of Sh. Muhammad Ikhlas and others v. Muhammad Ismail. The relevant passage in this case is reproduced below :- "The learned Single Judge relied to some extent upon evidence given by some of the witnesses whom he had examined for the first time,. But in our view, no case had been made out for admission of additional evidence in the second appeal, and consequently such evidence as was examined in the High Court should be ignored altogether. When that is done, the position that remains is that, upon the same evidence as that examined by the Rent Controller and the District Judge, who expressly mentioned an infirmity affecting the value to be attached to the letters produced in the case, had concluded as a fact that the necessity had been established, the learned Single Judge has, upon his own view of the matter come to the contrary conclusion. There was here no suggestion that the subordinate Court had committed any error of procedure as provided by law, or even that they had approached the question for decision from a fallacious point of view. What the learned Single Judge did in this case is what is expressly forbidden by the provisions of section 100 of the Civil Procedure Code and consequently his order cannot be maintained."

38. The next case, on which Dr. Parvez Hassan relied, was the case of Messrs Muha r, mad Siddiq Muhammad Umar and another v. The Australasia Bank Ltd. (4). Their Lordships, while interpreting Order XLI, rule 27, C. P. C., recorded that the rules of procedure are not made for the purpose of hindering justice and, as such, the Court should not give such a restricted interpretation to the provisions of Order XLI, rule 27, C. P. C. As would, in effect, amount to tying down the hands of the appellate Court and stand in the way of doing complete justice in a cause. The learned Judges found that

(1) PLD 1972 SC 59 (2) PLD 1971 SC 550

(3) PLD 1963 SC 466 (4) PLD 1966 SC 684 ' the rule prescribed that the requirement should be genuine, and the need for additional evidence should be felt by the Court itself after the evidence was examined, and, after such examination of evidence, a Court comes to the conclusion that there is apparent some inherent lacuna or defect, which hinders the due administration of justice, then, after recording its reasons, it may allow additional evidence. On facts of the case, it may be stated that the Division Bench had permitted the parties to lead additional evidence, but the parties did not avail of that .Opportunity. It seems 'the Judges on the Division Bench came to contrary conclusion, so that the case was referred to a third Judge. Such third Judge, while hearing the case on difference of opinion between the Members of the Division Bench, called for additional evidence, and this was held to be improper.

39. The case of Allandino v. Mst. Sabira and others (1) was also referred to by Dr. Parvez Hassan. The learned Single Judge in the judgment had only stated that additional evidence could be called only when it is an essential requirement, which should not only be genuine, but should also be felt by the Court after examination of the record.

40. All the cases, to which reference has been made by Dr. Parvez Hassan particularly, relate to a situation when a final decree had been passed. We are of the view that the principles embodied in Order XLI, rule 27, C. P. C. Are applicable only in so far as they may apply when an appellate Court hears an appeal arising out of first order. After all, the Code of Civil Procedure fixes a time for production of documents, and such time arises only when the case comes for first hearing viz. After the issues are settled. In dealing with appeals from orders, the matters are generally heard by reference to the pleadings and affidavits. Instances are not unknown when documents are produced not alongwith the pleadings, but during the hearing of the interlocutory application before the trial Court, and never has reception of documents at that stage been refused. The guiding principle is that the Courts come to the conclusion that it is necessary to have the documents on the record, and such conclusions can be drawn by the Court when the documents are found to be relevant on the point in issue, and there is no doubt that the documents are not fake, or, forged. The Court will also be guided by the circumstances, where the party, producing additional documents at the appellate stage, will be placed in an undue favour able position as against the opposite party. The next criterion will be a desire on the part of the Court to disallow a party from building a new case, or, a case conflicting with the earlier averments. With all the above considerations in mind, coupled with the traditional slowness of the appellate Court in receiving further evidence at the appellate stage, the appellate Court should then think about the relevancy and admissibility of the documents, and, if it then comes to the conclusion that reception of further evidence will advance the course of 'justice and- enable the Court to do complete justice in the matter between the parties, reception of additional evidence may be allowed at the appellate stage in cases which arise out of interlocutory orders. We should not be misunderstood to mean that in each appeal. Whether it arises out of a final decree, or, an interlocutory order, additional evidence could be adduced by a party at the appellate stage. All we mean to state is that, in appropriate circumstances, if substantial reasons are given, the appellate Court could receive further evidence, provided such evidence is clearly shown to be within the averments of the party, and can advance the course of justice. Applying the above principles,

(1) PLD 1983 Kar. 492 ' we had permitted the reception of such further evidence in the case. We had also permitted the Hiltons to adduce further evidence, and they have indeed done so. yi7e shall be referring to that evidence also during the hearing.

41. ' Having dealt with the first point in regard to reception of additional evidence, we now proceed to consider the applicability of section 34 of the Arbitration Act to the instant case. The contention of Mr. Ali Abmad Fazeel was that the application made by Hiltons under section 34 of the Arbitration Act was misconceived, and that the Arbitration Act did not apply in the circumstances of this case.

42. Additionally, it is contended that even if section 34 of the Arbitration Act could apply, still stay of the suit being a discretionary relief, stay should have been refused, because there was charge of fraud by Avaris against Hiltons, and the management agreement was a void document. In regard to the argument raised by Mr. Ali Ahmad Fazeel on the basis that the management agreement was void, and therefore, the arbitration clause contained therein was not enforceable, we will consider that point in a later part of this judgment. The first point raised by Mr. Ali Ahmad Fazeel in regard to the applicability of section 34 of the Arbitration Act is on the basis of section 47 of the said Act. The same reads as follows :- "47. Act to apply to all arbitrations.-Subject to the provisions of section 46, and save in so far as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder :- ' Provided that an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a compromise or adjustment of a suit by any Court before which the suit is pending."

43. ' The learned Advocate has laid stress on the closing words in the first clause of this section, which read "to all proceedings thereunder". His contention appears to be that, since the arbitration contemplated by the agreement was to be under the rules of arbitration of the International Chamber of Commerce, and in accordance with the said Rules, the provisions of section 34 of the Arbitration Act would not apply. Photostat copies of the rules of conciliation and arbitration have been placed before us for the purpose of showing that such rules provide for a complete Code in the matter of arbitration, which is foreign and alien to the provisions of the Arbitration Act. The learned Advocate for Avaris has pointed out several clauses in the rules of conciliation and arbitration to highlight the contention that these rules are entirely different from the rules that are embodied in the Arbitration Act. The point, that Mr. Ali Ahmad Fazeel seeks to make out, is that there is .Such a departure from the rules of arbitration contained in our Arbitration Act that the entire Arbitration Act would be almost alien to these rules; and therefore, section 34 of Arbitration Act could not apply. In that context, some case-law has been cited, to which we would, refer, but only after showing such provisions in the rules of conciliation and .Arbitration which make a departure from the rules contained in the Arbitration Act. Reference, in this context, may be made to paragraphs 1, 2 and 4 of Article 7, paragraphs 3 and 4 of Article 12, paragraphs 1 and 2 of Article 23, the whole of Article 24 and Article 26, and paragraph 2 of Article 29 of the said rules. These paragraphs read as follows : - "Article 7.-(1) The Court of Arbitration does not itself settle disputes.

44. ' Except when otherwise stipulated, it appoints or confirms the nomination of arbitrators in accordance with the following provisions :-

(2) If the parties have agreed to the settlement of a dispute by a sole arbitrator, they may nominate him by common agreement for confirmation by the Court. Failing agreement between the parties within a period of thirty days from the notification of the request for arbitration to the opposite party, the arbitrator shall be appointed by the Court.

(3) Should an arbitrator be challenged by one of the parties, the decision of the Court of Arbitration, which shall be the sole judge of the grounds of challenge, shall be final.

45. Article 12.-(3) If one of the parties raises one or more pleas as to the existence or validity of the arbitration clause, and the Court of Arbitration has satisfied itself of the prima facie existence of such a clause, the Court may, without prejudice to the admissibility or the merits of such pleas, order that the arbitration shall proceed. In this case, any decision as to the arbitrator's jurisdiction shall lie with the arbitrator himself.

(4) Unless otherwise stipulated, the arbitrator shall not cease to have jurisdiction by reason of an allegation that the contract is null and void or non-existent. If he upholds the validity of the arbitration clauses, he shall continue to have jurisdiction to determine the respective rights of the parties and to make declarations relative to their claims and pleas even though the contract shall be null and void or non-existent.

46. Article 23.-(1) The arbitrator must make the award within sixty days from the date on which he signed the statement referred to in Article 19.

(2) The Court may extend this period if considers it necessary.

47. Article 24.-When three arbitrators have been appointed, the award is given on a majority decision.

48. Failing a majority, the Chairman of the arbitral tribunal alone shall make the award.

49. Article 26.-Before completing the award, the arbitrator shall submit the same to the Court of Arbitration. The Court may lay down modifications as to its form and, if need be, draw the arbitrator's attention even to points connected with the merits of the case, but with due regard to the arbitrator's liberty of decision. No award shall under any circumstances be issued until approved as to its form by the Court of Arbitration.

50. Article 29.-(2) By submitting their dispute to I.C.C. Arbitration, the parties undertake to carry out the subsequent award without delay and waive their right to any form of appeal, in so far as such waiver may be valid."

51. ' Additionally, Mr. Ali Ahmad Fazeel has also pointed out that the Rules of International Chamber of Commerce make no provision of the nature of clause (b) of section 13 of our Arbitration Act. This clause postulates the stating of special case for the opinion of the Court, and reads as follows :- "13. Powers of Arbitrator.--The arbitrators or umpire shall, unless a different intention is expressed in the agreement, have power to ;

(b) state a special case for the opinion of the Court on any question of law involved, or state the award, wholly or in part, in the form of a special case of such question for the opinion of the Court ;"

52. ' His contention, on that score, is that the right under clause (b) of section 13 of the Arbitration Act is a very valuable right, which has been reserved in the statute for securing a chance to the contending parties to have astute questions of law decided by a Court, rather than by the Arbitrators. He states that action of similar provision in the rules of that foreign body is, by itself, sufficient to attract section 47 of the Arbitration Act in the sense that section 34 of the Arbitration Act as contained in our law would not be attracted, because, in the instant case, the arbitration contemplated by the parties in the management agreement was not an arbitration under the Arbitration Act of 1940.

53. ' Having said so. We proceed to examine the case law, on which Mr. Ali Ahmad Fazeel has relied. In the case of Man Fung Textiles Ltd. v. Sadly Traders Ltd. (1) a learned Single Judge of this Court was considering the provisions contained in the Arbitration (Protocol and Convention) Act, 1937, and, in that context, the learned Single Judge of this High Court took notice of sections 46 and 47 of our Arbitration Act, and stated that our Arbitration Act will apply to every arbitration under the Arbitration Act, but not to arbitration under any other law, or, body of rules. The learned Judge expressed that it was well-settled that the provisions of Arbitration Act, 1940, do not apply to foreign awards, which are defined by section 2 of the Arbitration (Protocol and Convention) Act, 1937. The conclusions were summed up in the following words : - "All such Arbitration awards which are governed by the Act of 1937 will be excluded from the operation of Arbitration Act, 1940. Reference may be made to Pfaff & Co. v. Sartaj Engineer Co. Ltd.

54. PLD 1970 Lah. 184, where it was held that all arbitration proceedings, except those excluded by section 47 are to be governed by Arbitration Act, 1940. It was observed that "one of the exceptions is 'save in so far as is otherwise provided by any law for the time being in force'. The Arbitration (Protocol and Convention) Act, 1937 is one such law. The Arbitration Act, 1940 far from prohibiting an arbitration covered by the Act of 1937, recongnises it by force of section 47". Aforeign award as defined by section 2 of the Act of 1937- will be enforceable under this Act and not under the Arbitration Act, 1940. In view of this discussion a` foreign award' cannot be challenged under section 26-A of the Arbitration Act nor section 3 of Ordinance XV of 1981 can be pressed in service for remitting a foreign award which is subject-matter of a pending proceeding under the provisions of the Act of 1937."

55. ' In the conclusion, the learned Judge stated that foreign awards could not be challenged, or, enforced under the Arbitration Act, 1940. The next case in point is the case of Mury Exportation v. D.

56. Khaitan & Sons Ltd. (2), from Indian jurisdiction within Calcutta High Court. In that case, the. Scope of section 35 of the Arbitration Act, 1940, was examined for the purpose of determining, whether that provision of Arbitration Act, 1940, will apply to arbitrations of International Chamber of Commerce, to which the Arbit-

(1) PLD 1982 Kar. 619 (2) AIR 1956 Cal. 644 ' ration (Protocol and Convention) Act of 1934 applied, and the learned Judge of the Calcutta High Court recorded as follows :-- "I am of the opinion that section 35, Arbitration Act, 1940, does not apply to arbitration of the International Chamber of Commerce where the Arbitration (Protocol and Convention) Act of 1937 applies. In Shiva Jute v. Mindley & Co. Ltd. 57 Cal WN 573 at 577 (A) the learned Chief Justice delivering judgment of the Court of Appeal observed : "I have grave doubts as to whether section 35 of the Indian Act can have that result on an English Award."

57. ' The Protocol Act and the Arbitration Act are two Statutes governing different kinds of arbitration, and to introduce sections of one Act to regulate the arbitration under the other Act will be to create confusion and contradiction which I do not think was intended by the Legislature. I shall attempt to give my reason briefly. To my mind it is clear that the basic object of section 35.

58. Arbitration Act, 1940 is that within 'the same system of law in the same country two Tribunals, one a Court of law and the other a Court of arbitration should not be allowed to compete in deciding the same dispute, and therefore, provision is made to avoid such conflict either by staying the suit under section 34, Arbitration Act, 1940 and allowing the arbitration to proceed or by nullifying the arbitration under section 35, Arbitration Act, 1940 by giving notice of the suit. That consideration or conflict between courts and arbitrators under the same sovereign working under the same system of law is absent where parties under different systems of law and different sovereigns are concerned and in the case of arbitration governed by the Protocol Act which involves the questions of both public and private International Law in regulating commercial disputes of parties who are subjects of different States and carry on international trade."

59. ' The next case in point is L. Oppenheim and Company v. Hajee Muhammad Haneef Saheb (1) from Privy Council. In that case, an award was made in London but it was challenged in the High Court of Madras. In fact, no steps had been taken under the English procedure to set aside that award, and in such circumstances, the Privy Council held that the award had become final. Their Lordships expressed their opinion in the following words :- ' In their Lordships' opinion Mr. Justice Courts Trotter came to the right decision and this appeal should succeed. The contract of the 23rd October, 1913, was made and was to be performed in England ; and this arbitration clause provided for an arbitration which was to take place in London and in accordance with English law and procedure. Under that law, by which both parties agreed to be bound, any objection to an award on the ground of misconduct or irregularity on the part of the arbitrator must be taken by motion to set aside or remit the award, and, if not so taken cannot be pleaded in answer to an action on the award. In the present case no such motion was made within the time limited by Order LXIV, rule 14 of the, Rules of the Supreme Court, England or at all, and accordingly the AIR 1922 P C 120 ' award became as fully binding on both parties as it it had been incorporated in the contract'.

60. ' The next case in point is of Serajuddin & Co. v. Michael Golodetz and others (1) which is the decision of a Division Bench of Calcutta High Court. The parties in that case had in the contract agreed that any dispute arising out of the contract was to be settled by arbitration in New York according to the rules of American Arbitration Association. The buyers under that contract alleged default on the part of the seller. A suit was filed and the defendants made an application under section 34 of the Arbitration Act, 1940. A plea had been raised that the evidence necessary for determining the disputes between the parties would also be available in India, and not in America.

61. In paragraph 43 of the report, the conclusions of the DiVision Bench were recorded, and, in that case also, the case of L. Oppenheim & Company was referred to. The learned Judge summed up the point in the following words :- "The arbitration, contemplated in the present case, is arbitration according to the rules of the American Arbitration Association. The purpose of those rules is 'to achieve orderly, economical and. Expeditious settlement of controversies in accordance with the Federal and States law' (vide the `Foreword' portion of the rules of the American Arbitration Association) which obviously mean American laws. The parties, therefore, must be deemed to have adopted the American law for the settlement of their disputes by arbitration. This is confirmed by two other circumstances. The forum or venue of arbitration in the present case is to be New York (vide the arbitration clause itself) and the arbitration also would presumably be by American citizens as arbitrators (vide the Rules (including Toreward') of the American Arbitration Association and the actual selection and appointment of arbitrators in the-present case). Prima facie then, the parties must have accepted the American law,-at least, for purposes 'of arbitration'. In the above view, the Indian Arbitration Act would be excluded and it would be irrelevant, so far as the present arbitration is concerned ; vide 49 Ind. App 174 (AIR 1922 P C 120).

62. It would now appear that the parties on their own volition had chosen a different forum for arbitration in relation to their disputes, such forum was situated outside Pakistan, the body. That was designated for the purpose of arbitration was also from a foreign country, such body has its own rules, concerning arbitrations before it, and even such rules in several matters make striking departures from the Arbitration Act and the body of rules framed thereunder. For the above reasons, it would seem that section 47C of the Arbitration Act would exclude such an arbitration, because the arbitration contemplated by the parties was not an arbitration under the Arbitration Act of 1940. Since the Arbitration Act itself did not apply, section 34 of the Arbitration Act would also not apply. There is one other equally weighty consideration, touching the application of section 34 of the Arbitration Act. In this case, Avaris have made some serious allegations of fraud against Hiltons. Such allegations are to the effect that the agreement was ab initio vitiated, because it was a product of fraud, and, even in the execution of the agreement by reason of several acts of malfeasance and misfeasance on the part of the Hiltons, an element of fraud had crept into the actions of Hiltons. Now, the first point, that deserves consideration,

(1) AIR 1960 Cal. 47 ' is, whether fraud can and in that circumstances displace the application of section 34 of the Arbitration Act of 1940. There can be no doubt that section 34 of the Arbitration Act, by itself, makes no mention of fraud being a factor to displace the application of section 34, but this section states that, if the Court is satisfied that there are sufficient reasons for not remitting the matter to arbitration, then the suit will proceed. It would mean, on the other hand, that, if there are sufficient reasons, which satisfy a Court that arbitration will, to be a proper venue, then the suit shall not by stayed. In course of time, the Courts have evolved a body of rules, which are to the effect that, if fraud is alleged, the application of section 34 of the Arbitration Act, 1940, shall be displaced. Even otherwise, the use of the words "may make an order staying the proceedings" would seem to indicate that the jurisdiction to act under section 34 of the Arbitration Act is discretionary. In the present state of law, the position. As it stands, is that section 34 gives a discretion to the Court to stay a suit, or, refuse to stay it, and normally the Court gives effect to the terms of the agreement between the parties, and stays the suit, but the discretion to stay the suit has to be used in a "sparing and cautious manner", and if there are good grounds for apprehending that reference to arbitration may result in failure of justice, stay is refused.

63. ' The leading case on the point of fraud being a sufficient factor to displace the arbitration agreement is the case of Russell v. _Russell (1). In that case, the parties were partner and the partnership deed contained an arbitration clause, providing that any differences in relation to the partnership should be referred to arbitration. The plaintiff brought an action against the defendant, alleging various charges of fraud, and claiming that the notice for dissolution of partnership may be declared void, and the defendant may be restrained from announcing the dissolution of partnership, whereupon the defendant made an application for referring the question to arbitration. The learned Master of Rolls considered the observations in the cases of Wickens of Willesford v. Watson (2). Blissei v. Daniel (3,1 and Wood v. Wood (4) and distinguished each one of ;these cases. The proposition was finally stated in the following words :- "It may be that must depend upon the circumstances of the case, not for getting both the evidence before the Court when the motion is made, and the nature of the charge that is actually made. But for one do not wish to countenance the doctrine that the mere fact of a partner, who has a contract in a deed to refer partnership disputes to arbitration, making a charge of fraud against a co-partner, is sufficient to prevent the co-partner insisting upon a reference to arbitration. As I conceive it, that rule 'ought only\ to be applied, as a matter of course, without investigating the circumstances,' in cases where the person -charged with the fraud desires the inquiry to be public."

64. ' The above passage would seem to indicate that, if the party, that is charged with fraud, takes the stand that the case should not be referred to arbitration, but should be inquired into in public, then his request should prevail. However, in the converse case viz. When the party, making the allegations of fraud, seeks the forum to ' arbitration, the Court will not necessarily accede to it, unless a prima facie case of fraud is proved. To sum up, it may be said that, if the party charged with fraud wants a regular

(1) (1880) 14 Ch. D 471 (2) Law Rep. 14 Eq. 572

(3) 10 Mare 493 (4) Law Rep. 9 Ex. 190 dial in the Court, it should not be refused, but, if the party, making a charge of fraud, wants a public inquiry in a Court of law, the Court would not be bound to accede to it, unless a prima facie case of fraud is proved. After the judgment was pronounced in the aforesaid case of Russell v.

65. Russell, the Parliament of England took notice of the weighty pronouncement of the Master of Rolls, and re-enacted the provisions of section 14 of the English Arbitration Act of 1934 to a corresponding provision, namely, section 24 of the Arbitration Act of 1950, wherein subsection (2) was inserted; so as to recognise in statute that fraud was a factor, which was sufficient to revoke the authority of any arbitrator in cases involving a question, whether any party had been guilty of fraud. Subsection (2) of section 24 of the English Arbitration Act, 1950, reads as follows "(2) Where an agreement between any parties provides that disputes which may arise in the future between them shall be referred to arbitration, and a dispute which so arises involves the question whether any such party has been guilty of fraud, the High Court shall, so far as may be necessary to enable that question to be determined by the High Court, have power co order that the agreement shall cease to have effect and power to give leave to revoke the authority of any arbitrator or umpire appointed by or by virtu( of the agreement."

66. ' As stated above, the Arbitration Act of 1934 was amended by the Arbitration Act of 1950 by the British Parliament in order to achieve, among its objects, a recognition of the rule laid down in Russell v. Russell. However, the statutory provision of England does not state that, in case a person charged with fraud wants public inquiry, he must succeed, but the person, making the charge, would have to show a prima faie strong case in order to have public inquiry. In short, the two compartments in which the Master of Rolls had divided the subject on the classification of the person against whom charge is made and the person who makes a charge, were not recognised by the British Parliament. The case of Russell v. Russell was also referred to by our Supreme Court in the case of Haji Soomar Haji Hajjan v. Muhammad Amin Muhamfrad Bashir Ltd. (1). The Supreme Court in paragraph 7 of the said judgment summed up the case in the following words : "According to the above-noted rule, in a case covered by an arbitration clause Courts would ordinarily be inclined to stay a suit on the application of the party against whom fraud is alleged and allow the dispute to be settled through arbitration, unless that party itself wants the matter to be decided through a public inquiry by a Court of law. If, however, that party does not wish the dirty linen to be washed in the public, the proceedings in the trial should be stayed. But even in such cases where a prima facie case of fraud is made out, the case may be allowed to proceed in a civil Court."

67. ' Even the Supreme Court came to the conclusion that, if the person charged with fraud requests for stay of a suit under section 34 of the Arbitration Act, 1940, the trial should be stayed, unless the party itself wants the matter to be decided through a public inquiry.

68. ' Dr. Parvez Hassan. However, submitted that, since the Hiltons, who were charged with fraud, did not want the case to be tried in Court, no alternative was left, but to refer the matter to arbitration To that extent,

(1) 1981 SCMR 129 ' the Supreme Court in the case of Haji Soomar Haji Hajjan, clearly stated that, where a prima facie case of fraud is made out, the case may be allowed to proceed in a Civil Court. The true import and meaning of these words used by the Supreme Court would seem to indicate that the Supreme Court was conceiving of a case in which the party, making the allegations of fraud, opposed the remitting of the case to the arbitrators. .It is obvious that only such party as wishes to oust the jurisdiction of the arbitrators would be interested in establishing a prima facie case. The use of the word "primal facie" is indeed significant and meaningful, and would seem to point that!

69. If the party, alleging fraud by the opposite party, wished an open trial in the Court, the request should not be declined, where a prima facie case is made, out, which would mean that the allegations are weighty, substantial and' have been made bona fide. Even the British Parliament, though substituting the Arbitration Act of 1934 by the Arbitration Act of 1950, did not make any distinction between cases in which the person, charged with fraud, seeks ouster of jurisdiction of the civil Court, as from a case where the person, charging the other with fraud, seeks trial before the Court. The principle would appear to be that, if there are substantial, weighty and bona fide allegations of fraud, then the case was better tried in an open Court, rather than be remitted to the arbitrators for decision. We cannot agree with Dr. Parvez Hassan on such submissions.

70. ' In the context of circumstances, laying the basis for fraud as detailed in the plaint, one can see that the Avaris make a two-fold grievance. Their case appears to be that the agreement was brought by misrepresentation, that the terms of the management agreement were similar to,.

71. Those entered into by Hiltons with other parties all the world over. Paragraph 6 of the plaint lays the foundation for such allegation. It would seem that Avaris wish to make out a case that the agreement was invalid and was hit by sections 19 and 23 of the Contract Act. No doubt, Avaris also alleged that Hiltons were guilty of malfeasance and misfeasance in the execution of the contract, apart from allegations of misappropriation and waste. It would thus appear that allegations of fraud are two-fold, firstly that the contract itself was vitiated on account of fraud, and secondly that, in the execution of the contract, the Hiltons had committed fraud. On a reading of Article 14 of the management agreement, it would appear that disputes had to be referred to arbitration, when such disputes arose "in connection with the agreement": Now, can such disputes, which arise in relation to the parties entering into this agreement, be considered to be disputes in connection with the agreement. Obviously, the answer has to be in the negative.

72. ' It L~ well-established law that, when a party seeks to avoid an agreement on the ground of fraud, or, misrepresentation, such dispute would not H attract the jurisdiction under section 34 of the Arbitration Aet. We would, at this stage, refer to some case-law on the subject. The first case in point is of Johurmull Parasra ,1 and others v. Louis Dreyfus & Co. Ltd. (1) which is a decision of a Division Bench of Calcutta High Court. The facts were that the parties had...Entered into a contract for supply of goods; and such contract contained an arbitration clause. The suppliers did supply certain goods, and then the other party filed a suit against the supplier, alleging that the contract had been wiped out by frustration, and that he had been induced to enter into the contract by fraud. Damages were claimed for fraudulent misrepresentation. In paragraph 25 Of the judgment, Harries, C. J. Observed (1). A I g 1949 Cal. 179 ' that, in the suit the money that was claimed was wholly independent of the contract and therefore section 34 of the Arbitration Act did not apply. It was stated that the claim, as framed, is a claim not under the contract, containing the arbitration clause, but it is a claim based on tort and an implied contract, and, that being so, the suit could not be stayed. The next case in point is Birla Erg Manufacturing Co. Ltd. v. Dulichand Partapmull (1) which is also 'a decision of the Calcutta High Court. In this case, one of the allegations was that the agreement was in violation of West Bengal Ordinance No, XVII of 1950 which, perhaps, prohibited the sale of raw jute to a jute mill.

73. Incidently, even in the present case, Avaris contended that the management agreement was in violation of Presidential Order No, II of 1972. The learned Judges of the Division Bench in the Calcutta High Court noticed the case of Heyman v. Darwine Ltd. (2) wherein the principle was propounded that a dispute between the parties, if it was within the arbitration clause, then action by suit may be stayed. Tliq learned Judges of the Calcutta High Court, taking notice of the English ease, observed as follows :--- "A dispute as to the validity of a contract cannot therefore, be held to be within an arbitration agreement contained in the contract itself and such a dispute cannot be referred to arbitrators or dealt with by them under such an agreement on the basis that it is to adopt the language of section 34, Arbitration Act, a 'matter agreed to be referred'.

74. ' The third case in point is of Suwalal Jain v. Clive Mills Co. Ltd. (3), which is also from Calcutta High Court. Even in this case, a question had arisen, whether the contract was prohibited by law, and therefore void. The learned Judges referred to the case of Bnudarmull Bazaz v. Una Shonkar Purushattumdas & Co. (4) and observed as follows :- "With respect I cannot agree with these observations. In my opinion the arbitrator has no power to adjudicate upon the legal validity of the submission. He has no power to decide whether or not certain facts exist which render the arbitration agreement illegal and void and to hold that the arbitration agreement is lawful and valid upon a finding that such facts do not exist. Where the arbitration agreement itself is void, the Arbitrator can have no jurisdiction to decide any question in controversy between the parties, for the whole jurisdiction of the Arbitrator is derived from that agreement. Disputes as to the legal validity of the arbitration agreement as to the existence of facts which render it illegal and void must be determined by the Court and not by the Arbitrator just as disputes as to its factual existence can be determined only by the Court and not by the arbitrator. The arbitrator cannot by his own finding clothe himself with jurisdiction. Supposing that the arbitrator finds that the arbitration agreement is valid, such a finding cannot bind the parties, if later on it is found by the Court that the arbitration agreement is invalid. The very arbitration agreement under which the arbitrator assumed jurisdiction, being legally non-existent, each and every finding made by the arbitrator under the supposed arbitration agreement must fail to the ground. The arbitration agreement being invalid its wide language and scope is of no assistance."

75. ' The next case is of Firm Jowahir Singh Sundar Singh v. Fleming Shaw &

(1) AIR 1953 Cal. 450 ,(2) (1942) A C 356

(3) AIR 1960 Cal. 90 (4) AIR 1953 Cal. 618 ' Co. Ltd., (1) which is a case from Lahore High Court. In this case, the judgment in the case of Hor musjt and another v. District Local Board Karachi (2) was referred to. In the Sind case, allegations of fraud, or, coercion had been made by a party, but the trial Court had refused stay on the ground that points of fraud, or, coercion could not possibly arise in a suit for rendition of accounts.

76. The learned Judges, in that context, referred to the situations, firstly if the contract had been brought about by fraud or coercion., and secondly a fraud had been committed in execution of the contract, and, in such situation, the learned Judges observed as under :- "It is hardly necessary to say that this proposition cannot be accepted as correct, in the wide terms in which it is expressed. It is settled law that if such allegations go to the very root of the agreement to refer to arbitration, or if they relate to matters outside the scope of the submission, the only forum to decide that matter is the civil Court. In either of these cases section 19 will ex necessitate re be inapplicable."

77. ' The learned Judges in the other situation, namely, when fraud, or, coercion is sought to be proved in proof, or, disproof of the contentions of the parties relating to a dispute referred to arbitration, and in that context, stated as follows :- "If on the other hand, misrepresentation, fraud, or coercion is alleged to have been committed in reference to matters which are sought to be proved in proof or disproof of the contentions of the parties relating to a dispute which has been, or can be, validly referred to arbitration in accordance with the original agreement, this will not necessarily be a ground for declining to stay the suit."

78. ' The last case, to which he will make a reference, is the case of pramada Prasad Mukharfee v.

79. Sagarinal Agarwala and others (3) a decision of a Division Bench of Patna High Court. Even in this case, the judgment of Lord Wright in the case of Heyman v. Darwins Ltd. Was noticed. The learned Judges reproduced the arbitration clause, which reads as follows :- "That if any dispute arises between the parties regarding this agreement and in respect of the Managing Agency ...... "

80. ' The learned Judges, in that context, summed up their conclusions in the following words :- "These words, though wide, are not of such amplitude that it can be said that the jurisdiction of the Court was ousted and the arbitrators were empowered to decide a dispute going to the very. Root of the contract, including the submission clause. These words clearly indicate that the parties intended that the arbitrators should decide questions arising on the basis of a valid and subsisting contract. Reading the arbitration clause as a whole, it cannot be said that it was the intention of the parties that the arbitrators should decide, under the arbitration clause, a dispute relating to the validity of the contract challenged on the ground of fraud or misrepresentation or any other ground, legal or equitable. Therefore, even if it be assumed that the arbitration clause is severable, it cannot be said that the parties

(1) AIR 1937 Lah. 851 (2) AIR 1934 Sind 200

(3) AIR 1952 Pat. 352 ' intended that the arbitrators should decide the dispute regarding fraud or the legality of the contract."

81. On a consideration of the case law on the point and even on principle .,f interpretation, we are left in no doubt that, in cases, where fraud is alleged, or, where legal validity of the agreement, containing the arbitration clause itself, is challenged, the Court would not leave these matters to be decided by the arbitrators. The validity of an arbitration clause is sine qua non to remitting of the case to the arbitrators. This is mainly for the reason that verily an arbitration clause may be in violation of law, or, is hit by the principles stated in the. Contract Act, which enable one party to avoid a contract. These are generally questions of law, and are hardly ever left for decision of the arbitrators. It would indeed be a meaningless exercise, if, at the very initial. Stage, when no evidence is recorded, and even a written statement is not filed, that a matter is referred to arbitration. It may well be putting the cart before the horse, for, if the arbitrator proceeds to decide the dispute, and the award is challenged again before the Court on the point of invalidity of the agreement itself on the basis of fraud, or, misrepresentation, or, illegality, the Court will have no option, but to set aside the award on that ground alone. It will then appear that the entire exercise before the arbitrator was an exercise in futility. We are, therefore, of the view that, if substantial and bona fide points are raised on the basis of an agreement being void on ground of being in violation of law, or, having been obtained by fraud, or, misrepresentation, the proper forum would be decision of the Court, and not remitting the case to an arbitrator.

82. ' The next point urged by Mr. Ali Ahmad Fazeel is that the case involves some difficult questions of law. He particularly dwelt on the management agreement, stating that it was a complex agreement. And, whether it will be hit by Presidential Order No, 11 of 1972, was a question, which could not be determined by the arbitrator. He also contended that the learned Single Judge should not have arrived at his conclusions in regard to the validity, or, otherwise of the management agreement on the basis of pleadings and the few documents that were produced.

83. On this point, we would like to refer to some judgments of the Courts in England and India. The Court of Appeal, while deciding the case of Angla Newfoundland Development Co. Ltd. v, King (1) had declined to stay proceedings in a Petition of Right on the ground that the matters in dispute included an important constitutional question. This case was followed by the Punjab High Court in Messrs Chiranji Lal Mulrani R. R. (Private) Ltd. v. Union of India (2). In paragraph 17 of the judgment, the learned Judge observed as follows "(17) A stay of a suit in relation to a contract, which embodies an arbitration clause, is refused when the matter raises a difficult question of law or an important matter relating to the interpretation of constitutional provision, as, adjudication of such matters is more appropriate by the Court than by an arbitrator."

84. For all the above reasons, we are of the view that, since the validity of the contract between the parties has been challenged in the instant case, and for the further reason that important and complicated questions of law are involved, and fraud too has been alleged, this would not be a fit case for remitting to the arbitrator. Moreover, the arbitration clause also provides arbitration under a different body of rules than rules contained in the Arbitration Act. In these circumstances, such part of the order of the

(1) (1920) 2 K B 214 (2) AIR 1963 Pb. 372 ' learned Single Judge, whereby the application under section 34 of the Arbitration Act was allowed is set aside.

85. ' This does not conclude- the matter, because one of the points raised by Mr. Ali Ahmad Fazeel is that the management agreement itself was void, and, for such reason, two consequences flow.

86. The first consequence is that the arbitration clause becomes inoperative, and, to that extent, we have already dealt with the matter in the foregoing paragraphs of this judgment. The second consequence, according to Mr. Ali Ahmad Fazeel, is that the agreement being void, no rights accrue to any party, and, in any case, Hiltons have no right to run the hotel in question.

87. ' We must straightaway state that the management agreement was executed on 2-12-1976 but, earlier, an original lease agreement had also been executed between the parties on 19-1-1968. In fact, the management agreement has substituted the original lease agreement. The management agreement itself provides that, in case this agreement falls through for any reason, the initial lease agreement shall prevail and govern the relationship between the two parties. This lease agreement was not produced before the learned Single Judge, and, on our asking, Dr. Parvez Hassan has produced a copy of the same. He has stated, on the basis of this lease agreement, that an arbitration clause was provided even in the said document.

88. ' Mr. Ali Ahmed Fazeel has invited our attention to paragraphs 7 and 15 (a) of the Companies (Managing Agency and Election of Directors) Order, 1972. Paragraph 7 of the said Order reads as follows :- "7. Managing agent not to be appointed, etc.-No company Shall, after the commencement of this Order.

(a) appoint, or agree to appoint, a managing agent; or

(b) except with the prior permission in writing of the Controller of Capital Issues, enter into any contract or other arrangement by or under which any person is appointed to be the sole purchase, sale or distribution agent of the company for any area or goods."

89. ' Paragraph 15 (a) of the said Order comers a power and au authority on the Government to relax the provisions of this Presidential Order.

90. ' Mr. Ali Ahmad Fazeel has contended before us that the position of Hiltons was that of a managing agent, because, according to the terms of the management agreement, Avaris were in no manner entrusted, or, concerned with the running of the hotel, and that was the sole affairs of Hiltons. It has also been contended that no exemption under paragraph 15 (a) of the Presidential Order has been obtained. It is further contended that the definition of the words "managing agent" in the Presidential Order is very wide, and the same reads as follows :- "(a) "managing agent" means a person, firm or company entitled to the management of the affairs of a company by virtue of an agreement with the company and includes a secretary, manager and any person firm or company occupying such position by whatever name called;"

91. ' Additionally, Mr. Ali Ahmad Fazeel has contended that, even if it is assumed that the management agreement has been approved by the Government, still a notification, as contemplated by paragraph 15 (a) had not issued, and therefore the bar contained in paragraph 7 of the Presidential Order would be attracted. On the other hand, Dr. Parvez Hassan has contended before us that all approvals and formalities for giving effect to the management agreement had to be obtained by Avaris, and, if the Avaris had failed to do that, they cannot, in the face of the agreement having been acted without any demur by the Government for last six years, now turn to state that the agreement was void. He has further contended that Hiltons could not be considered managing ,agents, because the relationship between the parties created by the management agreement was not the appointment of Hiltons as managing agents. It is contended that the preamble of the Presidential Order contemplates removal of managing agents solely to achieve the object of protecting the just interest of the minority members of a Company. It is stated that there is no complaint by any member of the Company. It is also contended that the object of paragraph 4 of the Presidential Order is removal of the managing agent and directors of the Company nominated by the managing agent, and, on that score, 1-e stated that the Hiltons had not nominated any directors, and therefore,, the Presidential Order would not be attracted. Dr. Parvez Hassan has also invited our attention to section 17 (2) of the Companies Act, which contemplates that articles of association of a Company snail be deemed to contain regulations 56, 66, 71, 78 and 79, and such regulations have to be read as an article in the articles of, association. He then referred to regulation 71 in the first schedule under the Companies Act, which provides that the business of a company shall be managed by the directors, and, in that context, he has advanced the argument, by contending that, since Hiltons were not directors of the Company of Avaris, they were not managing the hotel, and could not be termed to be managing agents. He has also made a reference to section 87, (c) of the Companies Act, and has highlighted subsection (1) of the said section to sustain an argument that a managing agent is, to get a fixed percentage of not annual profits of the Company, and a provision has to be made of a minimum payment in case of absence, or, inadequacy of profits, together with an office allowance to be advanced in the agreement of management. On such premises, it is contended that, since the management agreement does not provide for any minimum payment in absence, or, inadequacy of profits, the contract between the parties, although called "management contract" does not, in fact, create relationship as is by law contemplated in the concept of managing agencies. It is further contended that, even on principles of interpretation, law has to be interpreted in a manner which should advance remedy and suppress mischief, and unreasonable and inconvenient results are to be avoided. Our attention was also drawn to paras 3 and 4 of the treaty of Friendship and Commerce between the United States of America and Pakistan, and, on such basis, Dr. Parvez Hassan contended that the contract should not be hit down, as it might violate the international law. It is further contended that the management agreement was not ex facie illegal, or, void, but, even if there was a difficulty in relation to the agreement being valid, an application could 'still be made by Avaris for exemption under para 15 (a) of the Presidential Order. In that context, it is also stated that, in fact, the agreement was entered into at the behest of the Government. Some documents were brought to our notice, which indicated that the Government had indeed approved the agreement, although a formal notification had not been issued.

92. ' We have given serious consideration to the question, relating to the validity of management agreement. We find that the agreement is described as "management agreement", but, whether the relationship between the parties is of a nature that conflicts with the Presidential Order 11 of 1972, is the most pertinent question. Several documents have been placed on the record at the appellate stage. These documents were not placed before the learned Single Judge at the time of hearing, and he did not, therefore, advert to this aspect of the case. On the other hand, if the Hiltons were constituted managing agents within the meaning of the Presidential Order needs to be determined on the basis of evidence that may be produced. Weighty arguments have been advanced by both the parties before us. We are of the view that the nature of relationship between the parties can be gathered only when full evidence in regard to the rights and liabilities of the parties, and the manner in which the agreement has been used is brought on record. We can also not overlook one further aspect of the case that all the employees in the hotel draw their salary from Avaris. The effect of this important and crucial circumstance will also need to be looked into in a deeper perspective, so as to arrive at the conclusions in regard to the management agreement being a valid or void document by reason of the Presidential Order. In these circumstances, we would leave this point open for consideration by the learned Single Judge after he records evidence, and all the documents of the parties are placed on record. There can be no doubt that an issue on the point of validity of the agreement will be a very material issue in the case. Such issue shall be framed by the learned Single Judge, who could, if he thinks proper, try that issue as a preliminary issue. We have purposely refrained from making any comments on the contentions raised by the two parties, as that might amount to prejudging of the issue which we would like to avoid.

93. ' Having considered the several points raised by the counsel on either side, we now proceed to the next consideration as to what reliefs are the Avaris entitled to at this interlocutory stage. At the time of institution of the suit, the Avails had made an application, seeking a relief in the following terms - "In the above matter, it is prayed on behalf of the plaintiffs that for reasons disclosed in the accompanying affidavit, this Honourable Court may be pleased to restrain the defendants, their servants, agents or representatives and assigns and all those claiming through or under them, from :

(i) interfering or inter-meddling with the plaintiffs' management and control of Hotel Hilton International, Lahore, directly or indirectly,

(ii) operation of Bank Accounts,

(iii) remitting of any funds, and issue direction enabling plaintiffs to operate all accounts and give such other directions that the Court may deem fit and expedient in the circumstances of the case.

94. ' It is further prayed that interim orders in terms of the prayer may be passed pending disposal of the application."

95. ' The learned Single Judge passed an interim order in the following terms :- "Mr. Syed Sharifuddin Pirzada, Advocate with Mr. A. A. Fazeel, and Mr. Nasim Farooqi, Advocate for the Plaintiff.

96. 1, Granted.

2. Notice for 20-5-1984. In the meanwhile ad interim injunction to issue in terms of prayers Nos. 1 and 3 of the application subject to the condition that all the existing staff of the Hotel will be retained except General Manager Neins J. Schwander. In so far the operation of the bank accounts are concerned it may be continued to be operated upon by the two employees of the Hotel namely, Mr. Tariq Masood and Mr. Shirazi until further orders. The defendant shall submit a detailed statement of accounts within 15 days of the service of order. At the request of the learned counsel for the plaintiff service of notices and summons may also be effected through courier service at the cost of plaintiff."

97. ' However, upon hearing, the learned Single Judie modified the above interim order to the extent that the parties were to maintain status quo as existed on 14-5-1984 and the Hiltons were restrained from making any remittances of income, or, funds of the Hotel outside Pakistan.

98. ' The contention of Mr. Ali Ahmad Fazeel, appearing for the Avaris, is that, since the management agreement was itself a product of fraud and misrepresentation, that the lions had acted in a manner with a view to deprive the Avaris of their rightful share, that the agreement having been rescinded by the Avaris and that the entire investment being of the Avaris, Hiltons had no right to run the Hotel. On the other hand, Dr. Parvez Hassan, the learned Advocate appearing for Hiltons, has contended that the Hiltons had provided all the expertise and lent their good name to Avaris for running the hotel, that Hiltons are not guilty of any fraud, or, misrepresentation in procuring the agreement, that the agreement itself is not hit by the Presidential Order barring the creation of management agencies, and the Hiltons being in possession of the hotel, the Avaris were not entitled to exclude Hiltons from carrying on their business. Dr. Parvez Hassan has specifically invited our attention to Article III of the management agreement to sustain an argument that the Hiltons were in possession and control of the hotel. The said article reads as follows :- "Hilton shall use the Hotel solely for the operation of a hotel under standards comparable to those prevailing in Hilton Hotels and for all activities in connection therewith which are customary and usual to such an operation, and, insofar as feasible and in its opinion advisable, shall conduct such operations in accordance with local character and traditions.

99. ' Subject to the terms of this Agreement, Hilton shall have absolute control and discretion in the operation of the Hotel. Nothing herein shall constitute or be construed to be or to create a partnership or joint venture between the First Party and Hilton, and the right of First Party to receive financial returns based on the operation of the Hotel shall not be deemed to give First Party any interest, control or discretion in the operation of the Hotel. The control and discretion by Hilton shall include the use of the Hotel for all customary purposes, terms of admittance, charges for rooms and commercial space, entertainment and amusement, food and beverages, labour policies (including wage rates, the hiring and discharging of employees), the maintenance of the bank accounts and holding of funds in its own name, and all phases of promotion and publicity relating to the Hotel.

100. ' Hilton shall operate in the Hotel all facilities and provide all services and shall not lease or grant concessions in respect of such services or facilities, except that Hilton shall have the right in its own name to lease or grant concessions in respect of commercial space or services of the Hotel which are customarily subject to lease or concession in comparable hotels. The rentals or other payments received by Hilton under each such lease or concession shall be included in the Revenue, as hereafter defined."

101. One of the dominant considerations in the grant of injunction in matters relating to possession and control of a premises, or, business undertakings is balance of convenience. It is consistent law that persons in possession, if such possession is legally obtained, or obtained by consent are not to be lightly divested of their possession. The second dominant consideration in cases of this nature would be to evolve a method, whereby the rights of parties are protected pendente lite.

102. ' Mr. Ali Ahmad Fazeel, for the Avaris, has contended that the Avaris were in possession of Hilton Hotel on 13-5-1984, when Schwander was removed from the service. As stated above, the salaries of the staff were paid by Avaris although the top persons for managing the hotel and business were nominated by Hiltons, and it was the Hiltons, who, through their top personnel made the other appointments in the hotel. The learned Advocate for Avaris states that, since Schwander had been removed from service and replaced by Col. Hassan Kadir Khan by the Avaris, the Hiltons had stood dispossessed. On that premises, Mr. Ali Ahmad Fazeel has argued that, on the date the learned Single Judge passed the ad interim order, Avaris were in possession. There is some serious contest on the point. Firstly, the mere fact of. Schwander's removal from the service would not operate to divest the Hiltons of possession, or, control, because, besides Schwander, there were several other employees, who were running the hotel, and even these employees were nominees of Hiltons. To that extent, the learned Single Judge expressed as follows : "In these circumstances, after reading the above paragraph 19 of the plaint and in the absence of any specific averment in the plaint that the plaintiff took over possession and control of Hilton Lahore, on 13th May, 1984, I am of the view that on 14th May, 1984 when this plaint was presented in this Court the possession and management of the Hotel Hilton, Lahore, was with the defendant.

103. The plaintiff are perhaps under a misconception that by terminating the services of H. J.

104. Schwander and by appointing Col. Hassan Kadir Khan in his place they successfully assumed control and took over possession of Hotel, but his assumption on their part is wholly untenable.

105. Firstly, according to plaintiff's own case they terminated the services of H. J. Schwander and appointed Col. Hassan in his place on 9th May, 1984 while they allegedly assumed the control and management of hotel on 13-5-1984. The assumption of charge on 13-5-1984 by Col. Hassan is nowhere established Apart from it Col. Hassan in his affidavit in rejoinder dated 26th May, 1984 filed in the case, has described himself as the General Manager of Hiltons International Lahore since 13-5-1984."

106. ' What is more that, in paragraph 19 of the plaint itself, it is stated that, in spite of rescission of the management agreement, the operation of the hotel continued to be carried on by staff, who are the nominees of Hiltons, and, in the same sentence, the Avaris express an apprehension that the said nominees may prevent the Avaris from conducting the operations of the hotel which they were not entitled to do under the law. Additionally, it must be stated that, in the plaint, it was nowhere averred that actual physical possession was with Avaris, and, on the contrary, paragraph 23 of the plaint clearly states that "yet the defendants (Hiltons) continued to manage the affairs of the hotel, in disregard of the rescision of the management agreement". Mr. Ali Ahmad Fazeel, for the Avaris, has placed four documents on the record to show that, on 13-5-1984, Col. Hassan Kadir Khan, who had been appointed in place of Schwander, had received some letters from the Ministry of Foreign Affairs, Camp Office, Lahore, and the A.D.C. To the Governor of Punjab. These letters are, no doubt, addressed to Col. Hassan Kadir Khan. But these letters, by themselves, do not make out a case that the Hiltons had been divested of possession. It is admitted case that Col. Hassan Kadir Khan was a nominee of the Avaris who had been allowed to stay in the hotel for the purpose of protecting the interest of Avaris. Such letters having been received by Col. Hassan Kadir Khan are, therefore, not sufficient to show that the Hiltons had been dispossessed, or, that control over the hotel had been extinguished. What is more that the hotel continued to have the same name, viz. Hilton. To sum up, the only circumstance in favour of Avaris is that they had terminated the services of Schwander, but the termination of service of just one person would not be sufficient to arrive at the conclusion that possession, or, control of the hotel had been taken over by the Avaris. Even at the risk of repetition, we would say that the recital in the plaint does not fully show such a picture. We, therefore, agree with the observation of learned Single Judge that Hiltons had not been dispossessed of the hotel, nor had they lost their control.

107. ' We may, in those context, also refer to other circumstance in the case. As far as the management agreement is concerned, we have, in an earlier part of this order, stated that the point, whether such agreement was hit by the Companies (Managing Agency and Election of Directors) Order 11 of 1972, is still an open question, which is left for determination by the learned Judge, who hears the case. The learned Single Judge had, of course, held that, prima facie, the Presidential Order did not hit management agreement.

108. ' The admitted position is that the entire investment is of Avaris, which is stated to be in the neighbourhood of Rs, 14 crores. It was stated before us by Mr. Ali Ahmad Fazeel that the Avaris had been given to understand that their return would be about fifteen per cent per year. Paragraph 10 of the plaint discloses that, as from 1978, the Hiltons had earned a total sum of about Rs, 95,43,641 as their basic management fee, but, during the said period of six yeats, the -Avaris had received a sum of Rs, 23,77,250, and, if out of that property taxes, insurance premiums, salary of staff, telephone charges are deducted, the total amount earnei by Avaris from 1-10-1978 to 31-12-1983 works out to a paltry sum of Rs, 4,52,809 per year. It is also alleged by Avaris that Forster's report disclosed that the Hiltons were guilty of fraudulent actions, misfeasance, malfeasance, maladministration, mismanagement, manipulations of accounts, besides illegal, unlawful and unauthorised divergence of the funds. In such circumstances, Mr. Ali Ahmad Fazeel has urged before us that the agreement was harsh and unconscionable, and the total management and control by Hiltons had aggravated the situation. Schwander has filed a counter-affidavit on 22-9- 1984, which carries annexures, showing the return to Avaris and the earnings of Hiltons. This third annexure to the counter-affidavit shows the year-wise breakdown of the shares, and it shows that, from 1978 till July 1984, the Avaris had received a total of Rs, 16.734 million, whereas the management fee has been Rs, 8.668 million. This table shows that, in the year 1981, the management fee was nearly three times as the owner's return, and, even in the years subsequent to 1981, the management fee has varied between thirty-three per cent to sixty per cent. In the first half of 1984, the management fee has been Rs, 2.54 million, when the owner's return has been Rs, 6.8 million, and, in 1982, the management fee has been Rs, 1.9 million, and the owner's return has been Rs,

3. I million As it is, the agreement had provided that the management fee of Hiltons was to be five per cent of gross revenues and ten per cent of operating profits. We are unable to find the rationale underlying this division, and we must also state that the Advocates on either side have not addressed us on that point. Be that as it may, we were told in Court that the Avaris had been paid a total sum of Rs, 6.5 million in 1984. We were also told that the return to Avaris for the first four years, namely, 1978 to 1981, had been meagre, because the hotel had just started. We must state that even this point has not impressed us much, because we cannot see how a hotel of the status of Hilton International should not be making good profits for a long period of four years after its establishment. Whether the agreement is unconscionable or unfair, or, whether there has been leakage, malfeasance, or, misfeasance is not being entered into by us at this stage, because the suit is pending, and we would not like to pre-empt the learned Single Judge, who would be trying the suit.

109. ' With such background in regard to the return to Avaris, we have seriously considered what the order should be. The various considerations are that full investment is by Avaris, that the return to Avaris was not fifteen per cent, but much lower, the return to Hiltons in the absence of any explanation, which they may be able to offer at the time of trial, appears to be disproportionate, that Avaris had no access to accounts, that serious allegations in regard to improper accounting have been made, that the Avaris had not been taken into confidence in respect of the operation of hotel, and, above all, that the salaries to the staff are being paid by Avaris. With such background, we would like to pass an order which, while not displacing the management agreement and the Hiltons' expartise in controlling the hotel may create a confidence in the mind of Avaris that their investment is not being dissipated, or, wasted.

110. ' We hereby order that the Hiltons should cansult Avaris in the matter of running of the hotel in general terms. We should not be misunderstood to mean that, for the day to day running of the hotel, the consent of Avaris will be necessary, but in the matter of fixing or rates, appointment of executives, nomination of bankers, appointment of accountants, Avaris must be consulted by Hiltons, and, if a consensus is not obtained, the matter could be referred to Court. We further order that the Hiltons shall not at any one time keep with themselves cash amount in excess of Rs, 25,000 for sundry expenses, and all the amounts must be credited in the bank. We also order that all cheques, withdrawing money from the bank, if in excess of Rs, 5,000, shall require the signature of Avaris, or, their nominee. We also order that the account books shall always be kept available for inspection by Avaris, or, their nominee. This order, in our view, will safeguard the interest of Avaris. If, in the matter of actual implementation, the parties feel any difficulty, a reference could be made to the learned Single Judge, hearing the suit.

111. ' Having dealt with H.C.A. No, 43/1984, we now proceed to -consider the appeal filed by Hiltons against, Avaris, namely, H.C.A. No, 39/1984. The main grievance of Hiltons is that they have been prohibited from remitting any amount outside Pakistan. In view of the accounting process and the allegations in the matter of accounting made by Avaris, we are of the view that this order was eminently justified. This is a suit for accounts where, ultimately, the accounts shall have to be taken, if Avaris succeed. Until then, if the amounts are retained in Pakistan, no prejudice will be caused to Hiltons. On the other hand, if at any stage, of the suit an application is made by Hiltons for remitting any amount outside Pakistan the same may be considered by the learned Single Judge on its merits.

112. ' The above order disposes of both the appeals. Looking to the contest involved in these cases, we make no order as to -costs.