AGHA ALI HYDER, J.-The facts forming he background of this appeal from the order of a learned Single Judge of this Court, dated 31-5-1969, in Execution Application No. 9 of 1969, are as follows :-
2. The respondents had insured the stock of cotton lying in their factory at LiaquatabaJ, against loss and damage due to fire, with the appellants under different insurance policies covering different risks for the period from 3-10-1965 to 15-3-1966. This stock of cotton was already pledged with the National Bank of Pakistan, Lahore Branch, in the sum of Rs. 2,60,000.00.
3. On the night between the 17th and 18th December 1965, a fire broke out inside the said factory in which almost the entire stock was burnt and damaged. The respondents estimated their loss at Rs.
4,90,000.00. As the parties could not breach an amicable settlement, the matter was referred for arbitration under clause 18 of the insurance policies, and the appellants paid a sum of Rs.
2,60,000.00 to the National Bank of Pakistan with whom the cotton stock was .Pledged on the understanding that the amount was to be treated as interest-free deposit to be ultimately set off against the claim of the appellants. Mr. Jalal Roomi was appointed arbitrator by the claimant, i.e. The respondents while Mr. Bilgrami was nominated by the Insurance Companies i.e., the appellants.
The two arbitrators jointly appointed Mr. Justice A. R. Changez, a retired Judge of this Court, as an Umpire.
4. Owing to disagreement between the two arbitrators, the dispute came up before the Umpire who gave the Award on 13-4-1969. According to the Award, cotton of the value of Rs. 3,50,000.00 had been destroyed by the fire. It was expressly mentioned by the Umpire in the award that is view of clause 18 of the insurance policies and the pronouncement in Ismail Abdus Sattar & Brothers v.
Eastern Federal Insurance Co. Ltd. (1) he could only determine the quantum of loss or damage which had occurred as a result of fire, and not the liability to pay the loss or damage involved. He, therefore, did not consider the question of interest or other damages claimed by the appellants also. He however, granted Rs. 11,290.00 to the respondents as the costs of the award, as according to him, clause 18 of the Insurance Policies gave him the discretion.
5. A number of contentions were raised in the objections filed by the appellants, but those pressed before the learned Single Judge, were (1) that the Award was invalid as the appoint--ment of the Umpire was not in accordance with the arbitration clause, (2) that the National Bank of Pakistan, though a necessary party, was not joined in the proceedings, (3) that the Umpire had misconducted himself as he based his conclusion upon conjectures and surmises and had given findings which were inconsistent with the Award, and (4) that the umpire was not competent to award the costs of the proceedings.
6. The learned Single Judge, however, overruled the objections filed by the appellants and the award was made a rule of the Court by his judgment dated 10-12-68. When the decree was prepared on 8-1-1969, it was couched inter alla, in the following words "that the objection filed by the defendants is dismissed and the suit is decreed in terms of the said award as under `that the defendants do pay to the plaintiffs a sum of Rs. 3,61,290.00, only, including the costs of the reference and the award.' "
(1) PLD 1959 Kar. 179
7. Aggrieved by the decree of the learned Single Judge, the appellants filed an appeal being L. P. A.
No. 32 of 1969. The appeal, however, was dismissed in limine on 7-5-1969.
8. The respondents had earlier filed an execution application, being No. --9 of 1969, and the only objection raised by the appellants/Judgment-debtors was that there was an error in the preparation of the decree inasmuch as the umpire had declined to fix liability and had only determined the quantum of loss. His award had been made a rule of the Court by the learned Single Judge; therefore, the liability to pay that loss could not be inserted in the decree. The learned Single Judge, however, came to the conclusion that the decree was properly framed in terms of the award. He, therefore, dismissed the application filed on behalf of the appellants/Judgment- debtors and granted the Execution Application by the impugned order dated 31st May 1969.
9. Mr. Khalid Ishaq, learned counsel for the respondents raised two preliminary objections (1) that the appeal was time-- of 1969, which had become final, would operate as res judicata.
He will, therefore, advert to the same.
10. The award was made a rule of the Court on 10-12-69. It is obvious that an error in the preparation of the decree does not amount to a judgment and no Letters Patent Appeal can be filed for the correction of such error. The appellants, however, had also made an application- in execution proceedings on 11-1-1969, in which it was stated that the decree was declaratory in nature and was, therefore, not executable. Another application was made under section 151, C. P. C., read with section 152, C. P. C., in which a prayer was made to stay the issue of attachment in execution, "on the grounds that the decree is unexecutable, and the decree as drawn up is not in accordance with the award and the judgment of this Honourable Court confirming the award". This contention was, however, repelled by the order dated 31-5-1969, which has been now questioned ,4 before us in this appeal which was filed on 6-6-1969.
11. Mr. Khalid Ishaq's contention that the application under section 152, C. P. C. Was never made is factually not correct as apart from the reference to the section in the memorandum of appeal and the order of dismissal, an application under section 152, C. P. C., dated 13-1-69, is on the record. The appellants are aggrieved by the order of 31-5-1969, and the appeal obviously would be within time.
We are, therefore, of the opinion that there is no substance in the objection relating to limitation.
12. As for the bar of res judicata, a perusal of the memorandum of appeal in L. P. A. No. 32 of 1969, would show that it did not raise any contention about the error in the preparation of the decree.
That point was raised during the course of arguments and the observations in the order in that context are as under t "The first contention is of no value because the alleged error in the preparation of the decree does not amount to a judgment with the result that Letters Patent Appeal is not competent for the correction of the error. Counsel says that he has applied under section 152, C. P. C., for the correction of the decree, we accordingly overrule the first contention."
It cannot, therefore, be said that the matter was directly and substantially in issue between the parties or that it was heard and finally decided in the said appeal. The contention, therefore,) fails.
13. At this stage, it will be proper to look at clause 18 of the Insurance Policy. It reads as under "18. If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator ; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or effect the authority or powers of the arbitrator, arbitrators or umpire respectively ; and in the event of the death of an arbitrator or umpire another shall in each case be appointed in his stead by the party or arbitrator (as the case may be) by whom the arbitrator or umpire so dying was appointed. The costs of the reference and of the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declar:d that it shall be a condition precedent to any right of action or suit upon his policy that award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained."
The italics are ours: The above terms show that dispute relating to the amount of any loss or damage is to be referred to arbitration and that no action shall be taken or suit filed without first obtaining an award of such amount of loss or damage. No other dispute was referable to arbitration under the above terms.
14. Mr. Sharifuddin Pirzada argued that making an award a condition precedent to legal action or suit is not illegal. He cited the following passages from page 84 of Russell on the Law of Arbitration t "While parties cannot by contract, oust the jurisdiction of the Court, they can agree that no right of action shall accrue in respect of any differences which may arise between them until such differences had been adjudicated upon by an arbitrator. Such provision is termed Scott v. Amery Clause from the case cited above.
The contract, either instead of or along with a clause, submitting differences and disputes to arbitration, may provide that there is no right of action save upon the award of an arbitrator. The parties fn such a case make an arbitration followed by an award a condition of any legal right of recovery on the contract. This is a condition of contract to which the Court must give effect, unless the condition has been `waived', that is, unless the party seeking to set it up has some- how disentitled himself to do so."
15. Counsel also relied on Koegler and another v. The Coringa Oil Co. Ltd. (1). A Letters Patent Appeal was preferred against that judgment in which the same view was upheld (See Coringa Oil Co. Ltd. v. Koegler and another (2)).
16. It was further argued by Mr. Sharifuddin Pirzada that a stipulation excluding the jurisdiction of Courts until an award is given has been made legal by Exception I to section 28 of the Contract Act, which. Reads as under "This section shall not render a contract illegal by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and that only the amount awarded in such arbitration, shall be recoverable in respect of the dispute so referred.".
According to the above Exception a contract can be legally made that any dispute which may arise between the parties shall be referred to arbitration and a provision can also be legally made in such a contract that only the amount awarded in such arbitration shall b.- recoverable.
17. In the case now before us there was no stipulation that only the amount awarded in the contemplated arbitration shall be recoverable. The arbitrators were required to assessee the amount of loss or damage only, with the result that the umpire had expressly refrained from determining the liability of the appellants and confined himself to determining the quantum of loss which was incurred as a result of the fire. The award, made by the umpire, was made a rule of the Court without any modification. It was only when the decree was drawn up that the words "that the- defendants do pay to the plaintiffs a sum of Rs. 3,61,290.00" were added. It was argued by Mr. Sharifuddin Pirzada, learned counsel for the appellants, that this addition could not be made in the decree as it was outside the award as well as the order by which the award was made a rule of the Court.
18. Mr. Khalid Ishaq, learned counsel for the respondents, however, argued that the Calcutta cases, referred to earlier, had ceased to be good law after the enactment of the Arbitration
(1) 1 L R 1 Cal. 42(2) 1 L R 1 Cal. 466 Act, 1940. According to him, as enjoined by sections 31 and 32 of the Arbitration Act, the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement, had to be decided by the same Court in which the award was filed and by no other Court. The sections are as follows "31.- (1)Subject to the provisions of this Act, an award may be filed in any Court having jurisdiction in the matter to which the reference relates.
(2) Notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in this Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the Court in which the award under the agreement has been, or may be, filed, and by no other Court.
(3) All applications regarding the conduct of arbitration proceedings or otherwise arising out of such proceedings shall be made to the Court where the award has been, or may be filed, and to no other Court.
(4) Notwithstandiug anything contained elsewhere in this Act or in any other law for the time being in force, where in any reference any application under the Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that Court and in no other Court.
32. Notwithstanding any law for the time being in force no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act."
In other words he contended that the consequence of the enactment of the two sections was that the question of the liability to pay had also to be referred to arbitration ; otherwise the liability to pay being an effect of the determination of loss or damages, could not be the subject-matter of any suit. He sought support for this proposition from Abdul Karim v. Mirza Bashir Ahmed (1), Narbadabai and others v. Natverlal Chunilal Bhalakhia and another (2) and Moolchand Jothajee v.
Rashid Jamshed Sons & Co. (3). None of these cases has a clause of the nature as in the instant case. It is true that no suit lies to have a decision upon the existence, effect or validity of an arbitration agreement or award, but there is no such question before us, nor are we called upon to decide whether a suit for determining the liability to pay would be maintainable or not. The question of loss or damage was referred to arbitration and the award which has been made a rule of the Court expressly excluded the consideration of such liability. Neither the award nor the order has been attacked before us for excluding that consideration: When the award was filed in Court before the learned Single Judge, an application under sections 15, 16 and 17 of the Arbitration Act was filed by the respondents and all that was stated on their behalf was that the Court should modify the said award so as to award interest and remit it for determining damages arising from the loss o business and goodwill only. There was no grievance of any party that the umpire had omitted to determine the liability of the appellants.
There being no intention of the parties to arbitration to get the liability of the appellants determined, the determination of liability was outside the scope of the award. The decree had to be in harmony and accord with the award. Fixing the liability of the appellants in the decree, therefore, was in excess of the award, and could not be enforced within the framework of the Arbitration Act, 19.10. This was the view taken in Ismail Abdus Sattar & Brothers v. Eastern Federal Insurance Co. Ltd. (1) to which one of us was a party. The Umpire relied on it and no party has questioned this aspect.
19. Mr. Sharifuddin Pirzada referred to section 36 and subsection (2) of section 37 of the Arbitration Act, 1940 but we do not propose to discuss them as they do not appear to be relevant to the basic discussion of this case. The scope of section 36 has been explained by S. D. Singh in his Commentary on the Law of Arbitration as follows "Scope.-This section will apply to those cases where the Court is of opinion that the arbitration agreement applies to any matter in dispute, but for some reason it shall cease to have effect as regards any particular difference. If the arbitration agreement does not apply to any particular difference, there will be no question of ordering that the arbitration agreement shall cease to have effect."
The same author has explained section 37(2) as follows t "Arbitration agreements often contain a clause that no cause of action shall accrue, I.e. No party shall be entitled to go to Court unless a reference is made to arbitration and an award is made.
Subsection (2) makes such clauses in arbitration agreements inoperative. And since the law of limitation will henceforth be applicable to all disputes referred to arbitration, even though there be a contract to the contrary, parties will have either to refer their disputes to arbitration or prefer their claims in Court within the period of limitation prescribed for the claim and reckoned from the date on which the original cause of action accrued.
This section will also render all those rulings inoperative which lay down that in cases where the parties makea reference to arbitration and an award a condition precedent to the filing of a suit about a dispute, the suit will not lie unless the dispute has been referred to arbitration. The suit will be maintainable in spite of such an agreement. The only remedy which the
(1) PLD 1959 Kar. 179 opposite-party will have will be to apply under section 34 for the stay of the suit."
20. In conclusion of the aforesaid discussion we would set aside the order of the learned Single Judge dated the 31st of May 1969, made in Execution Application No. 9 of 1969 and allow the appeal with costs.