M. HAYAT JUNEJO, J.----This is an appeal from the judgment of a learned Single Judge of this Court whereby the learned Judge dismissed the objections of the appellants under section 30 of the Arbitration Act, thereby refusing to set aside the award.
2. It arises in the following circumstances. The appellants filed a suit for specific performance of a contract in the sum of Rs. 6,38,284-5-3 against the respondents on the ground that on the 24th of April 1959, an agreement was entered into between the appellants on the one hand and the respondent No. 3 representing himself as the attorney for respondent No. 2 and the governing director of respondent No. 1, for the sale and transfer of all shares of the Eastern Textile Mills Ltd., with the entire furniture, fixtures etc. For a total amount of Rs. 5,25,000.00. The parties agreed to get the share of respon--dent No. 1 transferred to the appellants and to hand over the possession of the mill in a running condition as well as to deliver the raw material of silk yarn valued at Rs.
1,66,284-5-3 at the cost price. After the possession had been handed over it was also agreed to get the registered transfer deed executed in favour of and at the expense of the appellants. Part payment of Rs. 52,500.00 was made towards the sale price, the balance to be paid at the time of delivery of possession. The appellant's case was that the respondents accepted the agreement as binding, and although the advance amount was paid, the arrangements pursuant to the agreement referred to above were still to be effected, and although the appellants were ready and willing throughout to perform their part of the contract, and had deposited the balance of the amount due towards the sale with Haji Abdul Ghani of Rashid Textile Mills by a cheque in favour of respondent No. 2 on 1-5-1959, the respondents had refused to perform their part of the contract. It was further alleged in the plaint that with a view to defeat the agreement, the respondents had taken certain steps in transferring the shares of the mills in dispute and had also issued new shares thereby increasing the capital of respondent No. 1. The appellants prayed for a decree for specific performance of the contract and for accounting or determination of profits of the entire business in the alternative for failure of non--performance, for a decree, for refund of the advance amount paid by the appellants and for damages in the sum of Rs. 2,50,496.10 with interest and costs.
3. In their written statement respondent No. 3 admitted that there is a provisional agreement made between the parties but asserted that it was not binding as it was subject to final agreement. It was further admitted that Haji Umar had deposited Rs. 52,500.00 as guarantee towards the final and binding agreement. The respondents Nos. 1, 2, 4, 5 and 6 adopted the statement of respondent No. 3.
4. On 27th August 1962, consent issues were filed by the parties. Thereafter evidence of the appellants' witnesses was recorded. About 8 witnesses were examined by the appellants when on 12-11-1965 an application under section 21 of the Arbitration Act was made before the learned Judge praying that the dispute be referred to a sole arbitrator, namely Sob Ahmed Haji Mohammad of Messrs Ahmed Abdul Ghani, Karachi, who was to determine the amount that should be paid by the respondents to the appellants for the transfer of the Eastern Textile Mills Ltd. It was stipulated in the application that in determining the said amount, the arbitrator shall take into consideration of the various contentions and claims of both the parties and that he shall have the full power to make his decision by holding such enquiries as he considers necessary.
On 25-2-1966, the guardian of appellant No. 3 who is a minor gave a letter of claim on behalf of the minor to the arbitrator, who replied to him orally that he would get the letter translated and give a date of hearing thereafter. According to the appellants, however, nothing happened till 24-6-66 when the appellants sent a registered letter (A/D) on the Karachi address of the arbitrator. This letter was returned undelivered as the arbitrator was in East Pakistan. In the meantime extensions of time for finalization of the award were taken by the other side on 17-1-1966, 28-3-1966 and 4-5- 1966. The award was finally filed in Court on 17-5-1966, and the notice thereof was issued to the appellants on 26-5-1966. It was received on 30th May 1966 by the Advocate of the appellants and the objections under sections 30 and 33 of the Arbitration Act were filed in Court on 15-8-1966.
These objections were, however, in time considering that there was vacation in between.
On 31-10-1966, the award was made the rule of the Court by judgment of the learned Single Judge of this Court, Feroze Nana Ghulamally, J. Against which this appeal has been preferred.
5. The judgment of the learned Single Judge is assailed by Mr. Abdus Sattar Pirzada, the learned counsel for the appellants before us mainly on the ground that the award is invalid as the arbitrator neither issued any notice nor heard the appellants at any stage of the arbitration proceedings ; but instead he made secret enquiries behind the back of the appellants which are in violation of the principles of natural justice. In substance, the contention was that the arbitrator had misconducted himself.
6. On the other hand the contention of Mr. Naimuddin, the learned counsel for the respondents was that the terms of the reference excluded taking of evidence and dispensed with notice to and hearing of the parties. We have, however, no hesitation in repelling this contention. In this connection it would be useful to reproduce paragraphs 3 and 4 of the application under section 21 of the Arbitration Act, which read as follows :- "The parties have agreed that the plaintiff's will buy and the defendants will sell the Eastern Textile Mills Ltd. Free from any mortgage lien or charge or liabilities. The parties have also agreed that the suit be referred to the sole arbitration of Seth Ahmed Haji Mohammad of Messrs Ahmed Abdul Ghani of Karachi to determine the amount that should be paid to the defendants by the plaintiffs for the transfer of Eastern Textile Mills Ltd. As it is at present by transfer of all their shares now held by defendants Nos. 2 to 13, and every thing pertaining or belonging to the Company, in favour of the plaintiffs and or their nominees. In determining the said amount, the arbitrator shall take into consideration the various contentions and claims of both the parties.
The Arbitrator shall have full power to make his decision by holding such enquiries as he considers necessary. He will also have power to give full directions as to the time and method of carrying out the sale and transfer of the shares, and for payment of liabilities, if any, and income-tax or arrears, thereof payable by the said Eastern Textile Mills Ltd."
7. Although the arbitrator is allowed considerable latitude in the procedure to be followed by him at the bearing, it is his paramount duty to afford the parties a reasonable opportunity to know the case against them. He cannot condemn a party without letting him know the case. If he makes an award without complying, with this elementary principle of natural, justice, he does so at the risk and peril of award being set f aside on grounds of misconduct. It has been repeatedly held that unless the terms of reference dispense with holding an enquiry, the right of hearing is to be presumed. In any case, the arbitrator cannot hold secret enquiries behind the back of the parties and if he does so the award will be vitiated. Reference on this point may be made to the following cases :-
(1) Municipality of Ahmedabad v. Ravjibhai Bhailal Contractor AIR 1935 Bom. 127 ;
8. Mr. Naimuddin further contended that as the words of the award itself showed, both the parties were heard before the award was given. This point does not appear to have been properly considered in the judgment of the learned Single Judge who appears to have been influenced greatly by his findings that the terms of the award excluded the right of hearing or even the application of the principles of natural justice as the following observations would show :- ---I am, however, quite clear in my mind that it was not necessary for the arbitrator to issue notice to the parties or that he should hear them in person before giving his decision. He had to confine himself in this conduct of the arbitration proceedings to the term$ and conditions agree upon in the application under section 21 of the Arbitration Act.---
9. In this connection we would state that the least that could have been done in view of this being the main issue before the learned Single Judge was to summon the arbitrator as a Court witness.
PLD 1959 Kar. 320) a Division Bench of this Court consisting of Kaikaus and Wahiduddin Amad, JJ.
Observed that in a case where allegations were made against an arbitrator or an umpire it is always better to examine the umpire or arbitrator as Court witness and it would have been much better if the umpire would have been called as a Court witness to meet the allegations made against him in respect of partiality. Similar observations were made in Leiserach v. Schalit ((1934) 2 K B 353) and Muhammad Keramat A.I 8c Co. v. Messrs Amin Jute Mills Ltd., Chittagong (PLD 1961 Dacca 452). In this case, the case of the appellant / objector throughout was that he was not heard. The trend of the judgment of the learned Single Judge was also that hearing was not necessary. We accordingly feel that the case of the appellant has been prejudiced by the fact that no evidence was taken in this case and even the arbitrator was not summoned as a Court witness.
10. In view of what has been stated above we consider that it is necessary to take evidence in this case in order to determine the main issue involved namely, whether the parties were heard by the arbitrator and whether the rules of natural justice were followed by him in the proceedings. We are informed by the learned counsel that six witnesses are to be examined on each side. If we were to do this ourselves in this Letters Patent Appeal we would be converting ourselves into the trial Court.
We, therefore, consider that it would be more convenient that the case is remanded to the learned Single Judge (OS) for taking evidence and thereafter hearing of the objections in reference to the question whether the arbitrator had heard the appellants before giving his award, and whether he held enquiries if any behind the back of the parties in violation of the principles of natural justice.
The appeal is accepted to this extent only. As however, the appellant should have asked the Court to summon the arbitrator and to take evidence at a much earlier stage during the trial of the suit itself and as he failed to do so we feel that we can permit him to lead evidence at this stage by compensating the respondents by special costs of Rs. 1,000.00. Mr. Abdus Sattar Pirzada, the learned counsel for the appellants has agreed to pay this amount as special costs. Orders accordingly.