SAIDUZZAMAN SIDDIQUI, J.---The abovementioned three direct appeals are filed by the appellant against the judgment of a learned Judge in Chambers of Lahore High Court, Rawalpindi Bench, dated 4-7-1995.
2. The respondents in the above appeals instituted three civil suits before the Civil Judge, Ist Class, Rawalpindi, claiming reliefs of declaration, permanent injunction and damages in respect of three different contracts relating to construction of houses in Army Officers' Housing Scheme No.11. The appellant filed, applications in the above suits for stay of proceedings under section 34 of the Arbitration Act, 1940, (hereinafter to be referred as the Act only) on the ground that clause 71 of the contracts executed by the parties contemplated references of all disputes arising between them for decision to the sole arbitrator of Adjutant General, General Headquarters (GHQ) Pakistan Army, hereinafter to be referred, for the sake of convenience, as the A.G. Only. The trial Court by order dated 21-12-1992 though stayed the suits but instead of referring the dispute to the nominated arbitrator directed the parties to approach Pakistan Engineering Council (P.E.C.) to nominate a sole arbitrator for deciding the dispute between the parties, within 3 months of the reference to him.
Respondents filed three F.A.Os. Nos.27, 28 and 29 of 1993 respectively, challenging the above order of Civil Judge staying the suits and directing reference of the disputes between the parties to an arbitrator to be nominated by P.E.C. The appellants also filed three Civil Revision Applications Nos.
115, 116 and 117 of 1993 before the High Court challenging only that part of the order of trial Court whereunder the dispute between the parties was directed to be referred to an arbitrator to be nominated by 'P.E.C. By order dated 1-6-1995 a learned Single Judge by consent of the parties allowed the three Civil Revision Applications as follows:--- "This judgment shall dispose of C.R. Nos. 115, 116 and 117 of 1993 which involve the same controversy.
2. These petitions under section 115 of C.P.C., seek revision of the order of the Civil Judge dated 21- 12-1992 whereby while accepting applications under section 34 of the Arbitration Act, 1940, the learned Civil Judge removed the nominated arbitrator and appointed fresh arbitrators and referred the dispute between the parties to them for arbitration.
3. The main contention raised by Mr. Bashir Ahmad Ansari, Advocate, in support of these petitions is that learned Civil Judge was seized only of the applications under section 34 of the Arbitration Act, 1940, moved by the petitioner seeking stay of the proceedings of the suits filed by the respondent and while deciding those applications the trial Court could have either stayed the proceedings or refused to do so but it could not have proceeded to make an order of referring the dispute to arbitration and more importantly, remove the .Nominated arbitrator and appoint a fresh arbitrator and that to, without recording any evidence and without there being any application to that effect.
4. Learned counsel for respondents does not dispute the legal proposition put forward by the learned counsel for the petitioner and he to is of the view that if the Court was minded to stay proceedings, then parties should have been left to pursue the course of action under Arbitration Act by moving appropriate applications. In view of the consensus of the learned counsel for the parties which is supported by a bare reading of section 34 of the Arbitration Act, 1940 itself, it is evident that the trial Court exceeded its jurisdiction in proceeding to remove the nominated arbitrator, appoint a fresh arbitrator and refer the dispute to arbitration.
In this view of the matter, this petition is allowed; impugned order is set aside to the extent that it directs removal of the nominated arbitrator and appointment of fresh arbitrator.
No order as to costs. "
3. After decision of the Civil Revision Applications filed by the appellant as aforesaid, the learned Judge in Chambers took up the three F.A.Os. Filed by the respondent against the order of trial Court dated 21-12-1992 and by the impugned judgment accepted the same, set aside the order of trial Court and rejected the applications for stay of the suits under section 34 of the Act filed by the appellant, giving rise to the present appeals.
4. Mr. Muhammad Bilal, Sr. A.S.C., the learned counsel for the appellant firstly contended, that the assumption by the learned Judge in Chambers that the nominated arbitrator being a part of the appellant organisation is likely to at in a biased manner is purely conjectural as this assumption by the learned Judge is not supported by any material on record. It is contended that the Adjutant General A.G. Is one of the senior most officers of Pakistan Army with the rank of Lt.-General and in that capacity he heads number of departments of Army such as Personnel Services Directorate, Civilian Personnel Directorate, Regulation Directorate, Pay Pension and Accounts Directorate, Medical Directorate, Judge Adjutant-General Directorate, Welfare and Rehabilitation Directorate and Housing Directorate. It is, accordingly, contended that the Housing Directorate, which was responsible for framing of Scheme-II, wherein respondents were awarded construction contracts, was just one of the several departments headed by A.G. In his official capacity and as such it could not be said that the A.G. Had any personal interest in the contracts awarded to respondents in the ordinary course. It is argued that motives and bias alleged. Against the A.G. By the respondents in respect of the dispute arising out of construction contracts, is totally imaginative besides being false and baseless. The respondents, it is argued by the learned counsel for the appellant, having executed the contracts of construction containing the arbitration clause which provided for reference of dispute to the sole arbitration of A.G. Voluntarily with full knowledge that the A.G. Was the President of the Housing Directorate which floated Scheme-II, could not be allowed to turn round and challenge the validity of the arbitration clause on the supposed and imaginary ground that the A.G. Was not likely to at in an unbiased and fair manner on account of his association with the Housing Directorate. It is lastly, contended that the allegation of bias against the A.G. Is otherwise untenable and without any justification as the incumbent A.G. Who acted as the President of Housing Directorate, at the the of grant of the contracts and on the date difference arose between the parties, had since retired from the service and thereafter to more A.Gs. Acted as the President of Directorate in their official capacity. The learned counsel for the appellant, referred to a large number of cases to support his contention that where a party voluntarily entered into an arbitration agreement which provided for reference of a future dispute to a named arbitrator then merely because the named arbitrator happened to be associated with the organisation which was party to such an agreement, would not be a ground for not enforcing the arbitration clause. The learned counsel for the respondents on the other hand, supported the order of High Court.
It is not disputed before us that the construction contracts executed by the respondents contained the following arbitration clause:--- "All disputes between the employer and the contractor will be referred to the Adjutant-General, GHQ, Pakistan Army or a person so nominated by him whose decision shall be considered final and binding on all the parties, for this purpose. Adjutant General will be considered as the sole Arbitrator, who shall have the power to scrutinize, review and revise and certificate, opinion requisition or notice etc. Decision taken by the Adjutant-General in this regard will not be challengeable in any Court of law within and outside the country."
5. There is no allegation that the agreement containing the" above arbitration clause was executed under duress, undue influence or on account of any misrepresentation on the part of appellant at the the of its execution. The arbitration clause clearly and unequivocally provides that all disputes between the employer (appellant) and the contractor (respondent) will be referred to A.G. GHQ Pakistan Army or a person so nominated by him who shall be the sole arbitrator and his decision will be final and binding on the parties. The respondents having entered into the contracts voluntarily which contained the above arbitration clause, could not be allowed to avoid the arbitration agreement lightly. The respondents, however, appeared to have taken the stand before the Courts below that the A.G. Being the part of the organisation which awarded the contract, is not likely to at fairly and honestly in the matter and therefore, it will be against the principles of justice, equity and good conscience that a person be allowed to at as a judge in his own cause. The learned Judge in Chambers also appears to have been influenced by these considerations while rejecting the application of appellant under section 34 of the Arbitration Act. The learned Judge in the impugned judgment after referring to observations in the cases of Girdhari Lal v. Gorbardhan AIR 1937 Oudh 436, Abdul Latif v. Dost Muhammad & Co. Ltd. AIR 1949 Allahabad 304, Bhuwalka Bros.
Ltd. v. Fatehchand Murlidhar AIR 1952 Calcutta 294, Uttar Pradesh Cooperative Federation Ltd. v.
Sunder Bros. Delhi AIR 1967 SC 249 and Union of India and others v. Messrs Narayan Cold Storage Ltd. AIR 1958 Punjab 24, reached the following conclusion:---
10. Keeping in view the above principles, the facts of the present case may now be examined. The first thing which is to be noted is that the trial Court itself had come to the conclusion that the apprehension of the appellant that the nominated arbitrator may not at fairly cannot be said to be unfounded. The relevant observations of the trial Court are as under:--- , 'As regards A.G., the proposed arbitrator under the contract agreements, the apprehensions of petitioner are not absolutely unfounded. Even the knowledge of petitioner as to the role of A.G. As a party to the contract is immaterial. As admitted A.G. Is a party to the contract in question. No principle of justice, equity and good conscience conceive that a party may itself be a Judge of his own cause, I am in agreement with the learned counsel for the petitioner that A.G, cannot be allowed to sit in judgment in the light of principle enunciated in above quoted authorities.'
11. It has not been disputed by the ,learned counsel for respondent that to meetings had taken place between the representatives of the appellant and Adjutant-General for resolution of the dispute between the parties. It stands admitted in the replication filed by the appellant to the application under section 34 of the Arbitration Act, 1940 that the affairs of the respondent directorate are managed by governing body of which Adjutant-General was the President.
12. A perusal of the rules and regulations framed by the Directorate Housing clearly shows that three contracts could not have been entered into except with the concurrence of the Adjutant- General himself. Furthermore, Director Housing who is officer incharge of all projects and is directly responsible for execution of the contracts to the Adjutant-General. These provisions contained in the rules and regulations show that the Adjutant-General in his capacity as President of the Governing Body of the Housing Directorate is the controlling and supervisory authority and thus vitally interested in the affairs of the Directorate. In these circumstances, when the nominated arbitrator is a part of the respondent organization itself, it cannot be held that the apprehension in the mind of the appellant that the arbitrator may be biased is unfounded. It may also be observed that in law it is not necessary to show actual bias but if the apprehension in this behalf is not unreasonable or frivolous it provides a sufficient cause for refusing to stay the proceedings."
The learned Judge further supported his above conclusions by referring to the case of Messrs Bata Shoe Co. Pakistan Ltd. Karachi v. The Government of Pakistan PLD 1970 Karachi 784, Akbar Cotton Mills Ltd, v. Messrs Ves/0juanojo Objedineniji Tech/Amesh Export and another 1984 CLC 1605 and Muhammad Ishaque v. The State PLD 1963 Azad J & K 1. Besides the abovementioned cases noted in the impugned judgment, the learned counsel for the respondents also cited the following cases to support the judgment of the learned Single Judge:---
(i) Talaram Nath Mull v. Birla Jute Manufacturing Co. Ltd. 1t.R 2 Cal. 171.
(ii) Bristal Corporation v. John Aird & Co. 1913 AC 241.
6. There is no cavil with the proposition that an arbitrator selected or named by the parties must at fairly and honestly while adjudicating, upon a dispute between them. The parties while selecting a domestic forum for resolution of their dispute in preference to well-established Courts of law, do not intend to sacrifice the paramount and most avowed objective of seeking adjudication of their disputes in a just, fair and impartial manner. However, the question, whether the named or selected arbitrator is likely to at in a biased or unfair manner is always a question of fact which must be answered with reference to the facts and circumstances of each case. It is neither possible nor desirable to state with precision the circumstances from which it may be inferred that the arbitrator is not likely to at fairly and honestly. Therefore, reliance on the observations made in one case, on the basis of its peculiar facts, is not always safe and correct for the purposes of recording a finding in another case that the arbitrator is not likely to at fairly and honestly. The observations made in each case of this nature are to be seen in the context of the facts of that case. Despite similarities between the facts of a decided case and the case under consideration, the finding regarding bias or otherwise of the arbitrator must be stemmed out from the facts of the case under consideration.
7. There can also be no cavil with the proposition that the existence of an agreement between the parties to refer for decision any dispute between them to the arbitrator neither ousts the jurisdiction of ordinary Courts in the matter nor the party pleading existence of an arbitration agreement has an absolute right to obtain stay of legal proceedings filed, ignoring the arbitration agreement. The Court in such cases has a discretion either to stay or refuse to stay the legal proceedings. However, in exercise of this discretion the Court is always guided by the paramount consideration that a party is bound by the terms of a lawful agreement which it enters into with another party and it cannot be relieved lightly from the obligations arising under the agreement except in very exceptional circumstances which make the enforcement of the terms of agreement unlawful or highly inequitable. Therefore, where a party enters into an agreement with another party to refer any future dispute arising between them under the agreement to the arbitration for its resolution, the Court will not generally allow continuation of any legal proceeding initiated by a party to such an agreement, ignoring the arbitration agreement, and direct the party to have recourse to the agreed forum for decision of the dispute. However, where the Court has material before it to reach a definite conclusion that the private forum selected by the parties for resolution of their dispute is not likely to decide the dispute fairly and justly, it may allow continuation of proceedings initiated in Court notwithstanding the agreement between the parties to refer the dispute to arbitration of a named arbitrator.
8. The learned Judge in Chambers, in the impugned judgment, observed that there were meetings between the representatives of respondents and the A.G. For resolving the dispute before institution of suits. It was further found by the learned Judge that A.G. Was the President of Housing Directorate and under the rules, the contracts, which were subject-matter of the dispute in the suits, could not be entered into except with the concurrence of A.G. Who was the controlling authority of the affairs of the Housing Directorate of Army. On these considerations, the learned Judge in Chambers held that as the nominated arbitrator was part of respondents' organisation, the apprehension in the mind of appellant that the named arbitrator may be biased, was not unfounded. We are unable to agree with the above approach of learned Judge in Chambers. It is a well known fact that in majority of the contracts entered into by the Government with the private individuals, the named arbitrator is generally an officer serving in the same or other department of the Government. If the above reasoning of the learned Judge in Chambers is accepted, then in all sudh cases the named arbitrator would be disqualified to at as an arbitrator as on the above premises an inference of bias can always be drawn against him.
9. The A.G. Was holding the office -of President of Directorate of Housing, in his official capacity.
There is nothing on record to show that A.G. Had any personal interest in the subject-matter of these contracts. On the contrary, it is, admitted before us that the A.G. With whose concurrence the subject contracts were awarded to the respondents and with whom the respondents held meetings to resolve the dispute arising under these contracts before filing of the suits, had retired long ago and, thereafter, to more AGs. Served in their official capacity as the President of the Housing Directorate and retired. Therefore, the respondents' grievance of bias, if any, against the A.G. Who awarded the contract is no more valid. The respondents at the the they entered into these contracts were fully aware that in the event of a dispute arising between them and the appellant under the contracts, the same is to be referred to the A.G. Or a person nominated by him, as the sole arbitrator: The respondents having entered into the arbitration agreement voluntarily and knowing fully well the consequences of the arbitration clause could not be allowed to resile from it lightly. The bias which disqualified a person to at as a judge in a dispute must, as held by this Court in the case of Islamic Republic of Pakistan v. Abdul Wali, Khan PLD 1976 SC 57, be in the nature of personal bias or prejudice of such a nature as would ~ necessarily render him unable to exercise his functions impartially in a particular case, and this bias or prejudice must be shown as a matter of fact and not merely of a matter of opinion. Similarly, in the case of M.H. Khondkar v. The State PLD 1966 SC 40 this Court observed that "mere apprehension in the mind of a litigant that he may not get justice, such as is based on inferences drawn from circumstantial indication, will not justify the raising of the plea. The facts adduced must be such that the conclusion of bias follows necessarily therefrom. The principles enunciated in the cases of Islamic Republic of Pakistan v. Abdul Wali Khan and Khondkar v. State (supra) though related to allegations of bias against the Judges of superior Courts but these principles in our view, equally applied to cases where bias is alleged against an arbitrator appointed or named by the parties to adjudicate upon a dispute between them. The learned Judge in Chambers has referred to some reported decisions in support of his conclusion that the A.G. In his capacity as the sole arbitrator, was not likely to at fairly and justly in the case.
The cases referred by the learned Judge in chambers proceeded on the basis of their peculiar facts. Therefore, as earlier pointed out by us, the observations made in those cases must be understood and interpreted with reference to the facts of those cases and ( G it was not a correct approach to apply those observations as a generalised principle of law applicable to all similar cases.
10. In the cases before us, there was nothing on record to suggest that the named arbitrator was not likely to at fairly and justly because of any personal interest in the subject-matter of dispute or on account of any personal prejudice against the respondents. On the contrary, the admitted position on record is that the A.G. During whose tenure, the subject contracts were awarded to the respondents, had retired since long and thereafter to more A.Gs. Relinquished their offices after serving as President of Housing Directorate (appellant). In these circumstances, there was absolutely no ground available for declining the prayer for stay of the suits made by the appellant on the ground of bias on the part of named arbitrator.
11. The learned Judge in Chambers lastly observed that the application under section 34 of the Act filed by the appellant did not specify the dispute between the parties and therefore, for this reason also the application under section 34 of the Act was liable to be dismissed. In support of this conclusion, the learned Judge referred to Novelty Cinema, Lyallpur v. Firdaus Films and another PLD 1958 Lahore 208, Syed Arshad Ali v. Sarwat Ali Abbasi 1988 CLC 1350 and Messrs Cosmopolitan Development Company v. Messrs SO DI, ME.-S.P.A. And another 1987 MLD 2832. In Arshad Ali's case, supra, the dispute did not arise under the agreement which contained the arbitration clause.
Similarly, in Messrs Cosmopolitan Development Company's case, the dispute arose between the parties under a subsequent agreement which did not specifically incorporate the arbitration clause contained in` the previous agreement between the parties. It was in these circumstances, the Court observed that non- mentioning of particulars of dispute was fatal as in the absence of such details, it could not be ascertained by the Court whether the dispute was covered under the first agreement which contained the arbitration clause or if fell under the subsequent agreement which did not contain arbitration clause. No such situation arises in the present cases. The appellant in para. 3 of the application under section 34 of the Act filed before the trial Court specifically referred to the contract between the parties and stated that the dispute in the suits related to that contract. This averment was not disputed though the validity of arbitration clause was questioned on the ground that the named arbitrator was not likely to at fairly and justly as he is part of the orgnaisation which awarded the contract. The learned Judge in Chambers, therefore, was not justified in rejecting the application under section 34 of the Act filed by the appellant.
12. We, accordingly, allow the above appeals, set aside the impugned judgment and grant the application under section 34 of the Arbitration Act filed by the appellant. The suits filed by the respondents are ordered to be stayed. The above are the reasons for the short order passed by us on 12-1-1997.