' Facts giving rise to this appeal are that respondent No, 1, a firm known as M/s. Pak Oriental Tapis, 46 Empress Road, Lahore, filed a suit against the appellant, National Security Insurance Company Ltd., Ferozepur Road, Lahore, and respondent No, 2, United Bank Limited, Dyal Singh Mansion, Shahrah-e-Quaid-e-Azam, Lahore, for the recovery of Rs, 11,41,220 on account of loss of certain goods. This claim was made on the basis of an insurance policy which was recorded in an agreement deed. According to the learned counsel, who have appeared before me, status of respondent No, 2 was that of a mortgagee of the goods in question.
2. It was submitted by learned counsel for the appellant that respondent No, 1 claimed the above amount alleging that burglary had taken place in respect of the insured goods and thus it had suffered loss to the tune of Rs,11,41,220.
3. In the suit, the appellant made an application, under section 34 of the Arbitration Act, 1940, praying that since there was an arbitration clause in the agreement deed, the suit be stayed and the dispute involved in the suit be referred to the arbitrator(s). Existence of arbitration clause was not denied by respondent No, 1 but it was contended by it that the appellant had denied the factum of loss and, therefore, the arbitration clause was not attracted to the suit against the appellant. This plea was accepted by the Civil Judge who was seized of the suit, with the result that the application made by the appellant was dismissed. Order of the learned trial Court in this behalf has been challenged in the instant appeal.
4. It was contended by learned counsel for the appellant that despite the plea of the appellant that no loss had been suffered by respondent No, 1, the arbitration clause was a bar to the suit brought by that respondent. He placed reliance on Ismail Abdul Sattar and Brothers v. Eastern Federal Union Insurance Company Ltd. (PLD 1959 (W.P.) Karachi 179) to support his argument.
5. Arbitration clause required to be interpreted in this case makes the following reading:- "18. If any difference arises as to the amount of any loss or damages 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 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 affect 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 arbitrators (as the case may be) by whom the arbitrator or umpire so dying was appointed. The cost 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 declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators, or umpire of the amount of the loss or damage if disputed shall be first obtained."
6. In the cited case of Ismail Abdul Sattar and Brothers, the defendants, namely, Messrs Eastern Federal Union Insurance Company Ltd., opposed a reference to arbitration on the ground that they had repudiated their liability to make good the loss alleged by the plaintiffs, namely, Ismail Abdul Sattar and Brothers, but it was held by the erstwhile High Court of West Pakistan (Karachi Bench) that the matter could be referred to the arbitrators to determine the amount of loss. Relevant observations made in the said case read as follows:-- "The plaintiffs, though probably under a misapprehension regarding their right to sue without the ascertainment of the quantum of loss, insisted on referring to arbitration their claim for a certain amount. They in this manner called upon the defendants to say yes or no to the correctness of the amount claimed by them. The defendants again wanted to postpone the determination of the quantum of loss on the ground that they had repudiated their liability to pay. But at this stage their refusal to say yes to the sum claimed was equal to their denial to accept it. They were free to rely on their plea of general repudiation of liability for purposes of resisting the claim of the plaintiffs, but that plea became insufficient or even irrelevant when the plaintiffs pointed their finger to the sum named by them and wanted the defendants to say whether they accepted it or not. The defendants' counsel contended that their refusal to admit or deny the correctness of the actual amount claimed by the plaintiff did not amount to a dispute regarding the quantum but to a dispute as to whether they were bound to join issue with the plaintiffs at the stage regarding the quantum of loss. I would concede that there is a difference between the two disputes. But it is slight and I think that their refusal to join issue on the question. Impliedly and in reality, was equal to the rejection of the claim for the amount, There was, therefore, a dispute between the parties, as to the quantum of loss also after the plaintiffs called upon the defendants to appoint their arbitrator to consider their claim for Rs,54,560-8-0.
' The plaintiffs should however, have referred the difference as to the amount of their loss only to arbitration. Their terms of reference are in excess of it. The agreement of Reference after reciting the preliminary facts went on as follows:--- "Now..................... Do hereby appoint Mr. Baboolal Narayandas as the sole arbitrator to decide the dispute about the quantum of damages to be awarded.................. "
' The words 'to be awarded' ought to have been omitted. In consequence of these words the arbitrator has held: "Messrs Eastern Federal Union Insurance Company Limited to pay to Messrs Ismail Abdul Sattar and Bros. The sum of Rs,37,500 only."
What the arbitrator ought to have done in view of the terms of the insurance policy was to determine the quantum of loss and not to order the amount determined by him to be paid. Mr. Farooqui for the plaintiffs has conceded that his order for payment of the amount is in excess of the scope of item 18. Mr Ibrahim Ahmed conceded on his part that if the award determined the quantum of loss and contained no direction for its payment, then the plaintiffs would not be prejudiced because their liability to pay would still be open for determination in a suit.
' I. Therefore. Modify the award, and replace the above sentence of the award by the following sentence:--- ' Messrs Ismail Abdul Sattar and Bros. Have suffered loss or damage in the amount of Rs,37,500.
' Subject to the above modification I order the award to be made a rule of the Court, and decree the suit with no order as to costs."
(Underlining is by me)
7, It is regretted that respondent No, 1 did not care to enter appearance to present its viewpoint and learned counsel for respondent No, 2 did not render any assistance to me by saying that he would not oppose or concede what learned counsel for the appellant had maintained. His plea was that respondent No, 2 was a pro forma respondent and would abide by any order to be made by this Court.
8. In view of what has gone above, I hold that in the instant case, in spite of the stand taken by respondent No, 1, the arbitrators could be called upon to determine the amount of loss. The appellant's application is allowed accordingly.
9. The appeal is disposed of as aforesaid, with no order as to costs.
10. Learned trial Court shall now act in the light of the above order and the law laid down in aforementioned case of Ismail Abdul Sattar and Brothers. Learned counsel for the parties, who are present before me, shall appear before the said learned Court on 10th December, 1991. The record shall be returned immediately.