JUDGMENT RANA BHAGWANDAS, J.- In this suit arising out of application under Section 20 of the Arbitration Act, 1940, sole question for consideration is whether the plaintiff limited company can agitate their prayer before this Court seeking an order that the agreement dated 21.1.1975 between the parties, may be filed in Court and the dispute be referred to a single arbitrator for adjudication.
2. By agreement dated 24.1.1975 defendant Air France an International Air Lines Company incorporated under the' I laws of France with registered office at Paris and Local Office (at Karachi, appointed the plaintiff as its General Agent for cargo, transportation, sale, etc. In Pakistan. For the due performance of the exclusive general agency, plaintiff furnished a Bank guarantee in the sum of Rs. 3,00,000/- later increased from time to time and lastly raised to Rs. 15,0, 000/-. It is the case of the plaintiffs that at the time of their appointment as General Sales Agent of defendant, Air France had no business of cargo, transportation and sales emanating from Pakistan. With a view to reflect their dedicated efforts for promotion of the business, plaintiffs have cited the figures relating to the sales from 1976 up to date in the plaint. It is averred that the agency business was going on smoothly to the utmost satisfaction of the defendants when on 2.12.1996, plaintiffs received letter dated 21.11.1996 from the defendant's Head Office in Paris giving 60 days notice to termination of General Sales Agreement with effect from 1.2.1997. It is averred that with the knowledge and consent of the defendant's Country Manager plaintiffs opened a new office in PECHS, Karachi by paying a sum of Rs. 15,00,000/- as advance rent to the landlord. It is further stated that with the expansion of business, plaintiffs also opened offices at Lahore and Islamabad and renovated their offices at Sialkot and Rawalpindi by spending huge amounts thereon, which was notified to the defendants in pursuance of the agreement between the parties.
3. Pleading that the General Sales Agency is coupled with an interest therefore it could not be revoked by virtue of section 202 of the Contract Act, alternatively plaintiffs urged that if at all the agency could be terminated, it could be done by serving a reasonable notice and not through notice of 60 days as provided in the agreement. It is averred that the plaintiffs protested against the purported termination but without any success. Being fully conscious of the fact that under Article 14 of the agreement all disputes concerning the interpretation or effect of the agreement or any rights or obligations arising therefrom shall be settled by the arbitration, plaintiffs claim a declaration that the notice of termination is illegal, unlawful, void and of no legal effect and a permanent injunction restraining the defendants from giving effect to letter of termination or taking further action in pursuance thereof. Alternatively plaintiffs claim a sum of Rs. 50,00,000/- by way of damages from the defendants for establishing, setting up and promoting the business and operations of the defendants in Pakistan, investments pursuant to the General Sales Agreement and the established loss of income/profits for a period of 10 years from the date of termination notice as well as permanent injunction restraining the defendants from encashing the Bank guarantee furnished by them.
4. Along with the plaint; plaintiffs moved an application under Section 41 of the Arbitration Act read with Second Schedule thereto and Order XXXIX rules 1 & 2 CPC praying for ad interim injunction restraining the defendants from giving effect to the notice of termination or obstructing the plaintiffs from carrying on business operations in Pakistan, to stay operation of the notice of termination and restraining the defendants from carrying on cargo, transportation, sales business in Pakistan and/or from awarding the said agency/business to any other person. After notice to defendants by order dated 28.1.1997, defendants were directed to maintain status quo which is still in force.
5. On behalf of the defendants a counter-affidavit was filed seriously resisting the prayer for interim injunction and disputing the maintainability of the main application/suit on a number of grounds.
With reference to Article 14 of the agreement between the parties which provides a forum and procedure for arbitration under the provisions of International Air Transport Association (IATA) which is deemed to be incorporated in the agreement, defendants urged that the arbitration between the parties is required to be conducted by IATA under the IATA Arbitration Rules, 1984. It is the case of defendants that there exists no dispute between the parties which could be referred to arbitration inasmuch as in its letters dated 11.12.1996 and 6.1.1997 written to the defendants, plaintiff did not dispute the termination of the agency agreement and requested to renegotiate a fresh agency agreement or reduce commission. At any event, plaintiffs having accepted the termination letter they are estopped from questioning the same for after termination of the agreement they did not invoke the arbitration clause. Moreover Article 16 of the agreement supersedes all articles of the agency agreement including the arbitration clause and it gives right to either party to terminate the agency agreement as such the plaintiffs have no right to question the termination of agency agreement or to seek the injunction asked for.
6. An affidavit-in-rejoinder was filed on behalf of the plaintiffs reiterating the pleas raised in the plaint as well as injunction application and controverting various averments of fact and law raised by the defendants.
7. At the hearing both the learned counsel advanced valuable arguments for and against the proposition whether the instant suit without recourse to arbitration proceedings on the part of the plaintiffs is maintainable inasmuch as they did not inform the defendants regarding appointment of their arbitrator nor called upon them to appoint their on arbitrator as provided under the IATA Rules.
8. Mr. A.H. Kazmi, learned counsel for the defendants strenuously contended that in the face of contract between the parties for referring their disputes to arbitrator, this Court cannot same jurisdiction under Section 20 of the Arbitration Act and substitute the agreement between the parties in as such as there is no dispute between the parties for reference to arbitration through the intervention of the Court.
9. On the other hand, Mr. Muneer A. Malik, learned counsel for the plaintiffs heavily relied upon sub- section (1) of section 20 of the Arbitration Act, which postulates as under:
(1) "Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to Court having jurisdiction in the matters to which the agreement relates, that the agreement be filed in Court."
10. While sub-section (2) relates to such application being registered as a suit, sub-section (3) provides for notice to all parties to the agreement requiring them to show-cause within a time to be specif ed as to why agreement should not be filed, sub-section (4) lays down that where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to he arbitrator appointed by the parties; named in the agreement or otherwise or where the parties cannot agree upon arbitrator, to an arbitrator appointed by the Court.
11. Arbitration agreement between the parties is not in dispute at all. Sole question for consideration before the Court is whether a sufficient cause has been shown for filing the arbitration agreement in Court and whether the Court is competent to refer the dispute to arbitration. Essentially it is for analysis and determination whether there is a difference/dispute between the parties as contemplated in the agreement. The fact that the defendants issued a notice for termination of agency agreement with 60 days notice as contemplated in Article 16 of the agreement is also beyond the pale of any controversy.
12. In support of his contention that the plaintiffs can directly approach this Court for filing the arbitration agreement in Court and seek reference of a dispute to the Arbitrator, Mr. Muneer A.
Malik, learned counsel for plaintiffs relied upon:
(i) Venkata Soorya Rao v. Venkata Rao (AIR 1963 Andhra Pardesh 286),
(ii) CIT Corporation v. Trading Corporation of Pakistan (1987 CLC 2063).
13. On the other hand, Mr. M.H. Kazmi, learned counsel for defendants referred to:
(i) India Hosiery Works v. B.W. Mills Ltd. (AIR 1953 Calcutta 488),
(ii) Eckhardt & Co. v. Muhammad Hanif {PLD 1993 S.C. 42), (i.e) Board of Intermediate and Secondary Education u. Fine Star & Co. (1993 SCM R 530),
(iv) Government of Bangla Desk v. Mashriqui Textiles (35 Dacca Law Reports (A.D.) 1983).
14. For proper understanding and appreciation of the controversy between the parties it is necessary to reproduce relevant articles of the agreement pertaining to arbitration as well as termination of the agency. Article 14 of the agreement relating to arbitration reads as under: "Any dispute concerning the interpretation or effect of the present agreement or any rights or obligations arising therefrom directly or indirectly shall be settled by arbitration. Arbitration procedure shall be in accordance with the provisions of the IATA arbitration clause current at the time of reference to arbitration, which clause shall be deemed to be incorporated in the present Agreement."
15. IATA arbitration clause which by reference is deemed to be a part and parcel of this article has not been referred in the plaint but in their counter-affidavit, defendants have reproduced the relevant rules which read as under: - "IATA ARBITRATION RULES (Montreal- October 1984).
WHEREAS it is obviously desirable that all disputes between Members of IATA, or between an IATA Member and another party, which cannot be amicably settled should be decided by arbitration and not made the subject of law-suits.
WHEREAS The "Resolution as to Arbitration Procedure" adopted by the Third Annual General Meeting in 1947 has been found to require amendment in certain respects and differs from other arbitration clauses currently included in multilateral and bilateral agreements between IATA Members; WHEREAS The IATA Legal Committee at its 70th meeting in September, 1984 has recommended adoption of revised IATA Arbitration Rules.
THE 40TH ANNU AL GENERAL MEETING
1. DECIDES to rescind Resolution VI of the Third Annual General Meeting held in October, 1947.
RECOMMENDS that in the absence of an agreement between the parties concerning the constitution and procedure of the arbitral tribunal, the following rules be adopted in arbitrations between Members or between Members and other parties; # Any dispute or claim concerning the scope, meaning, construction or effect of this agreement or arising therefrom shall be referred to and finally settled by arbitration in accordance with the procedures set forth below and if necessary, judgment on the award rendered may be entered in any Court having jurisdiction.
(1) if the parties agree to the appointment of a single arbitrator, the arbitral tribunal shall consist of him alone. The arbitrator may be appointed either directly by the parties or at, their request, by the Director General of IATA.
(2) if they do not agree to the appointment of a single arbitrator, the arbitral tribunal shall consist of three arbitrators appointed as follows:
(a) if only two parties are involved in the dispute each party shall appoint one of the three arbitrators. Should either party fail to appoint his arbitrator such appointment shall be made by the Director General of IATA;
(b) if more than two parties are involved in the dispute they shall jointly agree on the appointment of two of the' arbitrators. Faling unanimous agreement thereon, such appointment shall be made by the Director General;
(c) the two arbitrators appointed in the manner provided above shall appoint the third arbitrator, who shall act as Chairman. Should they fail to agree on the appointment of the third arbitrator, such appointment shall be made by the Director General;
3. The Director General may, at the request of any party concerned, fix any time limit he finds appropriate within which the parties, or the arbitrators appointed by the parties, shall constitute the arbitral tribunal. Upon expiration of this time limit, the Director General shall take the action prescribed in the preceding paragraph to constitute the tribunal.
4. When the, arbitral tribunal consists of three arbitrators, its decision shall be given by a majority vote.
5. The arbitral tribunal shall settle its on procedure and if necessary shall decide the law to be applied. The award shall include a direction concerning allocation of costs and expenses I f and incidental to the arbitration (including arbitral r fees), the award shall be final and conclusively binding upon the parties.
RESOLVES that these Rules shall be called "the IATA Arbitration Rules" and Members may refer to them under that description."
Suffice to state, relevancy and authenticity of these Rules has not been questioned by the plaintiffs.
3. Article 16 of the agreement between tho parties relating to termination of agency reads as under:- 'The present agreement shall be effective as of 1st February, 1975 (notwithstanding the date hereof), it shall continue in force until terminated by either party upon 60 days prior notice in writing, this provision constituting no obstacle however to the provisions contained in Articles 7 & 9 hereinabove. In the event of termination by either of the Parties or for any other reason whatsoever, it is understood that the rights and obligations of the two parties prior to such termination shall not be affected."
4. Perusal of the IATA Arbitration Rules referred in the preceding paragraph categorically suggests the procedure and manner for reference of dispute concerning the scope, meaning, construction or effect of the agreement to be Finally settled under these rules. The relevant clause of such rules postulates that if the parties agree to the appointment of a single arbitrator, the arbitral tribunal shall consist of him alone. The arbitrator may be appointed either directly by the parties or at their request by the Director General of IATA. It is further provided that if the parties do not agree to the appointment of a single arbitrator, the arbitral tribunal shall consist of three arbitrators appointed as follows:-
(a) if only two parties are involved in the dispute each party shall appoint one of the three arbitrators. Should either party fail to appoint his arbitrator such appointment shall be made by the Director General of IATA.
(b) if more than two parties are involved in the dispute they shall jointly agree on the appoint. Jnt of two of the arbitrators. Failing unanimous agreement thereon, such appointment shall be made by the Director General.
(c) the two arbitrators appointed in the manner provided above shall appoint the third arbitrator, who act as Chairman, should they fail to agree on the appointment oi the third arbitrator, such appointment shall be made by the Director General.
5. Analysis of the arbitration clause referred to above leads to inevitable conclusion that a complete, comprehensive and mutually agreed procedure was agreed upon by the parties for reference to arbitration which cannot be deviated under any circumstance. In any event, plaintiffs having placed such restrictions upon themselves to be bound by such covenants cannot say a good-bye to such contract.
6. In India Hosiery Works case (supra) a Division Bench of the Calcutta High Court expressed the view that the Arbitration Act does not purport of its on force to restrict the contractual rights of parties but only gives effect to restrictions which they may choose to impose on themselves as regards the forum to which their dispute shall be taken.
19. In Eckhardt & Co. v. Muhammad Hanif (supra) Amal Mian, J. Essentially dealing with an application under Section 34 of the Arbitration Act in relation to foreign arbitration clause held that the rule that the Court should not lightly release the parties from their bargain, that follows from the sanctity which the Court attached to contracts, must be applied with more vigour to a contract containing a foreign arbitration clause. Any breach of a term of such contract to which a foreign company or person is a party would tarnish the image of Pakistan in the comity of nations.
20. In Board of Intermediate and Secondary Education (supra) clause 25-A of the agreement the parties prescribed the manner of settlement of disputes to the effect that in the event of disagreement arising out of the contract, it was to be referred in the first instance to the Chairman of the Board. The respondent moved an application under Section 20, Arbitration Act before the Court seeking a direction for the filing of the arbitration agreement in Court as well as for the appointment of a sole arbitrator, which was resisted by the Board mainly on the ground that before moving the same the respondent had not approached the Chairman for his decision in accordance with the arbitration clause in the agreement. This plea found favour with the trial Court, who dismissed the application but in appeal High Court came to the contrary conclusion and set aside the order of trial Court. In appeal before the Supreme Court the view taken was that the clause clearly stated that before referring the dispute for decision to an arbitrator, the respondent was required to take his "disagreement" to the Chairman for decision. Observing that it could not, therefore, be said that the respondent had fulfilled the rf acquirements of the arbitration clause by referring the disptment in the first instance to the Chairman for decision by case applying to the Court for filing of the arbitration agreement Supreme Court set aside the judgment of the High court and restored the order passed by the trial Court.
21. With utmost respects it may be observed that the case of Board of Intermediate and Secondary Education may not be applicable to the facts of the present case for a decision of the controversy for the reason that in the afore-mentioned case before reference to arbitration the dispute was referable to the Chairman of the Board whereas the dispute was directly taken to Court without reference to Chairman in the event of disagreement arising out of the contract.
22. Under the law, Court is obliged to give due preference to the desire of the parties to abide by the terms of the contract. I am fortified in this view by the judgment reported as Dhanrajamal Gobindram v. Shamji Kalidas & Co. (AIR 1961 SC. 1285) in which following principle was laid down: "Where the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in it is included also the umpire) in the hands of the Chairman of the Board of Directors of the East India Cotton Association Ltd. The Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him. Once the agreement filed in Court is sent to the Chairman, the Bye-laws lay down the procedure for the Chairman and the appointed arbitrator or arbitrates to follow, and that procedure, if inconsistent with the Arbitration Act, prevails. In such a case there is no impediment to action being taken under So -,:m 20(4) of the Arbitration Act."
23. In Union of India v. Nimco (India) (P) Limited), AIR 1965 Calcutta 404) the view taken was that when the arbitration agreement contains an effective machinery for appointment of arbitrators, the Court is competent to make an order to refer even if the arbitrator has not yet signified his willingness to act.
24. In Government of Bangladesh v. Mashriqui Textiles (35 Dacca Law Reports) (A.D.) 1983) a Full Bench of the Supreme Court of Bangladesh dealing with a case under Section 20 of Arbitration Act, expressed the view that function of Court under this section is that when, after hearing the parties the Court is satisfied that the dispute covered by the arbitration agreement should be referred to the arbitrator, then the Court shall refer the dispute to the arbitrator "appointed by the parties", whether in the agreement or otherwise, and where the parties cannot agree upon an arbitrator, to an arbitrator appointed by it. Thereafter, the arbitration shall proceed in accordance with law.
25. In the aforesaid case both the parties had agreed in the arbitration agreement that the Secretary of the Ministry would nominate the arbitrator. It was observed that if the Court is satisfied that the arbitration agreement should be filed, then the Court shall refer the dispute to the arbitrator to be nominated by the Secretary of the Ministry.
26. At any event provisions of Chapter II of the \arbitration Act, and section 20 are supplementary to each ither and in order to apply the aforesaid principle it has to be seen whether both the provisions can be harmonised. Subsection (4) of section 20 of Arbitration Act reads as under: "(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court."
27. Aforesaid view was confirmed in Union of India u. Profulla Kumar Sanyal (AIR 1979 SC 1456) in which it was held that when the arbitration agreement provides for appointment of the arbitrator by a person designated inf the arbitration agreement the Court will consider the feasibility of appointment according to terms of contract by asking such person to make the appointment.
28. Suffice to say the provisions of law contained in Chapter II as well as section 20 of the Arbitration Act being supplementary to each other and judged in the light of aforesaid case law both the provisions must be harmonised the sanctity of arbitration agreement between the parties to which there is no controversy and without violating the terms and conditions of the IATA Rules both the parties are tentatively called upon to nominate a single arbitrator amongst the panel of arbitrators maintained by IATA or an arbitrator by each of the parties within 30 days for constitution of an arbitral tribunal under the agreement between the parties. I think this procedure is just, proper, equitable and in consonance with the spirit of the arbitration agreement between the parties and advance the cause of justice.