' This is an application (C.M.A. 5336 of 1996) by Defendant Nichimen Corporation, Osaka, Japan, one of the defendants, under section 34 of the Arbitration Act for stay of the suit.
2. The matter relates to an arbitration agreement said to be contained in the sale confirmation No,NM-504-RR, dated May 11, 1992 duly signed by Nichimen Corporation (Seller) and Plaintiff (buyer) for supply of spindles spinning plant equipment together with 3 sets of generators 800 KW to plaintiff. The relevant clause in this case reads as follows:--- "Arbitration.--All disputes, controversies, or differences which may arise between the parties hereto, out of or in connection with this Contract, shall be finally settled by Arbitration in Japan in accordance with commercial arbitration rules of the Japan -Commercial Arbitration Association and the award resulting therefrom shall be final and binding upon the parties hereto."
3. The application is supported by the affidavit of Shigemasa Kisara, attorney of the defendant No,1 averting therein that defendant No,1 was and is always ready and willing to have all disputes resolved by the arbitral forum which has been consciously and solemnly chosen and agreed by the parties and the dispute in suit is covered by the arbitration agreement.
4. The application has been contested by the plaintiff on various grounds taken in counter-affidavit but learned counsel for the plaintiff has pressed, inter alia, the following grounds:
(1) The application under section 34 of the Arbitration Act is misconceived, the provisions of section 3 of the Arbitration (Protocol and Convention) Act is applicable.
(2) The dispute in suit does not fall under arbitration clause.
(3) The suit cannot be stayed as there are more than one defendant, who are not party to the agreement.
(4) The arbitration proceedings in Japan would be most inconvenient, expensive and impossible for the plaintiff to carry out and to produce the evidence, which is available in Karachi, before the Arbitration in Japan.
The facts in brief can be summed up as under:-
5. The plaintiff, a textile Mill, situated at Habibabad Chunia Road, District Kasur, Punjab, with head office at Karachi entered into an agreement with the defendant No, 1 for purchase of 18,144 Spindles Spinning Plant equipment together with 3 sets of generators, 800 KW for the said Mill under sale confirmation Contract, dated May 11, 1992, which contains arbitration clause referred to above. The case of the plaintiff is that instead of supplying generator sets of the specification as described in the invoice, the defendant. No,1 actually supplied to the plaintiffs three generator sets of 1000 KVA and not of 1050 KVA (equivalent to 800 KW). The generator sets of 1000 KVA are subject to duty whereas no duty is payable on 1050 KVA generators. Since generator sets were not of .Corresponding to the specification as given to the plaintiff, the plaintiff was required to pay a sum of Rs,1.1 million as duty The plaintiff got the above equipment's released against guarantee furnished by them. The plaintiff's further case is that the generators so supplied by the defendant No,1 were faulty and on account non-use, they underwent heavy financial loss and asked the defendant No,1 to replace the same and install control panel for the generators alongwith necessary parts. The defendant agreed and sent technicians with spare parts but it could not resolve the problem of the plaintiff and ultimately the defendant No,1 agreed to replace the generators for which the plaintiff obtained NOC from the concerned Ministry. Instead of replacing the generators, the defendant No,1 by a their letter, dated 21st November, 1994 requested 'to allow them to repair/adjustment the generators to keep its successful operation, in case of no success, they will think over to some suitable action to settle the problem instead of replacement of Generators.
6. The plaintiff has claimed to have sustained the losses under following heads:---
(i) Damages on account of three Faulty generatorsRs.1,40,33,843
(ii) Payment of Customs Duty.Rs.10,29,897
(iii) Damages on account of business Losses and mental torture.
TotalRs.5 00.00.000.
Rs.6,50,63,740
7. Thus, the plaintiff has claimed following reliefs:---
(a) For sum of Japenese Yen 44.250 million, equivalent to approximately Pak. Rupees 1,40,33,843.
(b) For Rs,1,029,897 towards customs duty.
(c) For sum of Rs,5,00,00,000 towards business losses and mental torture.
8. Defendant No,1 after service of summons moved the application under disposal.
9. I have heard the learned counsel for the parties. The learned counsel for the defendant No,2, Mr. Zaki Ahmed, has stated at the bar that he has instructions to support the application.,
10. First I intend to deal with the objection taken by the learned counsel for the plaintiff about the application of the provisions of section 3 of the Arbitration (Protocol and Convention) Act, 1937. It would be relevant to refer the provisions for stay as contained in two enactments viz. Arbitration (Protocol and Convention) Act, 1937, and Arbitration Act, 1940.
Section 3 of the former and section 34 of the latter enactment are reproduced as under:-- "3. Stay of proceedings in respect of matters to be referred to arbitration.--Notwithstanding anything contained in the (Arbitration Act, 1940), or in the Code of Civil Procedure, 1908, if any party to a submission made in pursuance of an agreement to which the protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission or any person claiming through or under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings apply to the Court to stay the proceedings; and the Court, unless satisfied that the agreement or arbitration has become inoperative or cannot proceed, or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings."
"34. Power to stay legal proceedings where there is an arbitration agreement.--Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings."
11. On comparison of the above provisions, the main difference that while stay under section 3 of the Act 1937 is an obligation and a mandate upon the Court by reason of the use of the word "shall" in that Act, such stay under section 34 of the Arbitration Act is always discretionary with the Court by reason of the use of the word "May" therein, provided, of course subject to certain conditions stated in the said provisions are present.
' The preconditions of section 3 of the Act, 1937, are as under:---
(i) an agreement between citizens of different States;
(ii) such agreement contains a clause agreeing to submit future disputes to arbitration; and
(iii) a submission has been made in pursuance of such agreement of an actual and existing dispute after it has arisen.
12. I do not find that in this case there is any submission at all. As Russell puts it, there must not only be an agreement containing a clause agreeing to submit future disputes to arbitration but there must also be, in addition, an actual submission made in pursuance of such an agreement after a dispute has arisen.
13. Thus, the provisions of section 3 of the Act, 1937 are not applicable in absence of actual submission. See W. Wood and sons v. Bengal Corporation (AIR 1956 Calcutta 238). Bajrang Electric Steel Co. v. Commissioner of the Port of Calcutta) (AIR 1957 Calcutta 240).
14. Whereas, the object of stay of the proceedings of suit under section 34 of the Act of 1940, is for a reference to the arbitration, if the conditions laid down in the said provision are available, such as
(i) the proceedings must have been commenced by a party to an arbitration agreement with any other party to the agreement, (ii) the legal proceedings which are sought to be stayed must be in respect of a matter agreed to be referred, (iii) the application for stay must be referred by a party to legal proceedings, (iv) the request must be before filing the written statement, (v) the applicant must have taken no steps in the proceedings, after appearance, (vi) the appellant is and also was at the commencement of the proceedings ready and willing to do all things necessary to the proper conduct of the arbitration.
15. The aforesaid provisions of section 34 of the Act of 1940 are of general application irrespective of venue of consensual forum, provided conditions referred to above are available. There is no denial of existence of the conditions except condition at No,(ii).
16. Reverting to the second plea against the stay conversed by learned counsel for the plaintiff, that the proceedings of the suit is not in respect of the matter agreed to be referred under the agreement. I he main contention of Mr. Khalil-ur-Rehman is that the defendant has agreed to replace the generators but they subsequently backed out, thus, it is not covered by the arbitration clause. Secondly, the plaintiff has claimed damages as well, which is also not covered by the agreement clause. Mr. Khaldu-ur-Rehman pointed out that defendant by the letter, dated 5th June, 1994, agreed to replace the generators. Thus, a new agreement between parties came into existence as such arbitration agreement has become inoperative,. There is not in fact any dispute between the parties with regard to the matter agreed to be referred, to support his contention reliance has been placed by him in Middle East Trading Co. v. NN Mills (AIR 1990 Bombay 292).
17. Mr. Hamm I. Ali, learned counsel for the defendant, conversely has urged that the arbitration clause is wide enough to encompass all the disputes arising out of the contract. He contended that the defendant agreed to supply generators to the plaintiff, which, according to them were not of specification and faulty as well. In the process of removing the defects pointed out by the plaintiff any step taken by the parties will be within the ambit of the earlier contract containing the arbitration clause. He also contended that Novation in contract has not been pleaded by the plaintiff nor the steps taken amount to Novation. He also contended that the Middle East Company case (supra) referred by the plaintiff's counsel is of no application to the present case.
18. In Anderson Wright Ltd. v. Moran & Co. (AIR 1955 SC 53), the Supreme Court of India has held that the question whether the dispute in the suits falls within the arbitration clause involves consideration of two matters viz. (1) what is the dispute in the suit and (2) what dispute the arbitration clause covers. In the present case the defendant stated that dispute raised is covered by Arbitration clause. The plaintiff's case is for damages on account of supply of generators by the defendant other than of agreed specification and its malfunctioning being faulty and its replacement etc. I am of the view that the dispute is covered by the arbitration clause which covers all disputes. Controversies or differences, which may arise out of or in connection with the contract. The above expressions are wide enough to cover the dispute raised in the suit. As stated earlier, the supply of generators of particular specification was agreed. The dispute emanates from supply of generators which are not in accordance with the contract and were faulty as well. The case of Middle East (supra) referred by the plaintiff's counsel is distinguishable. In said case defendant's plea was that dispute was with regard to the rejection of the sample sent to the plaintiff second time and that it was the dispute which was covered by the arbitration clause. In suit, however, this was not the dispute. The plaintiff's grievance was that no fresh sample had been sent and there was no delivery of goods and, therefore, there was breach of contract. The learned Judge observed that the suit sought to be stayed is not in respect of the matter agreed to be referred to arbitration and allowed the appeal and set aside the stay order.
19. The third objection taken by Mr. Khalil-ur-Rehman is that the application has been made by the defendant No,1 alone and if it were to be granted, there is real possibility of conflict of decisions. He urged that the dispute at both fora would be the same. Mr. Hamza I. Ali, on the other hand, contended that the defendant No,2 is superfluous and that merely the plaintiffs have chosen to include said defendant also in the suit is no reason for not staying the proceedings. The question is whether the defendants No,2 are necessary party and any relief has been claimed. It is admitted fact that there is no private of contract between the plaintiff and defendant No,2. The generators in question, no doubt, are manufactured by the defendant No,2, who have issued capacity certificate of generators and their mechanics/Technicians inspected the generators on the request of the defendant No,1 and also attended the meeting to ratify the fault. Their participation was on behalf of the defendant No,1 and the relief has not been claimed against all the defendants jointly and severally as appears from the prayer reproduced in para. No,7 hereinabove. Thus, case of Hidayatullah v. Shamsuddin and others (1993 MLD 993) is distinguishable on facts referred by Mr. Khalil-ur-Rehman. The case of M/s. Haji Muhammad Ibrahim and others v. Karachi Municipal Corporation and others (PLD 1960 Karachi 916) wherein similar contention was rejected by A.S. Farooqi, J. (as he then was) that claim of the plaintiff being based upon the breach of contract which contains the arbitration clause, it really is directed against Municipal Corporation, and the plaintiff cannot get out of arbitration clause merely by impleading certain officers of the Corporation or the subsequent contractor to whom the work has been awarded. If I was to accept this contention, it would amount to nullifying the arbitration clause to which the parties had bound themselves at the time of contract, and to which they still adhere".
20. The present case has almost the same features. The defendants Nos.2 and 3 have been joined by the plaintiff, though they have acted on behalf of the defendant No,1 with whom the plaintiff had contract containing arbitration clause. The production of photocopy of the contract without its contents of reverse page, which contains the clause for arbitration by the plaintiff cannot be said an inadvertence, obviously with purpose to supress the arbitration clause.
' The concept of exercise of discretion against the stay is only to avoid the conflict of decisions. The defendant No,2's counsel has consented for the grant of application. Thus, this ground also fails.
21. I come to the last objection raised by Mr. Khalil-ur-Rehman that the plaintiff would be put to inconvenience if the plaintiff is asked to go for arbitration in Japan. It would be impossible to the plaintiff to carry and produce the evidence, which is available in Karachi, it will also cause hardship to the plaintiff. Mr. Khalil-ur-Rehman, has referred the observations made by Justice Sajjad Ali Shah (as he then was) in case of Echardt & Co. v. Muhammad Hanif (PLD 1993 SC 42), while dismissing the appeal against concurrent findings, that.No interference was warranted for the reasons that discretion exercised by the Court in refusing stay on a cogent ground and further observed that "non-performance of contract for reasons of congestion and strike at Karachi port was beyond the contemplation of the parties at the time of contract and while evidence has to be come from Karachi and taking off to London would be inconvenient to the parties and would also be expensive".
' Mr. Hamza I. Ali contended that bulk of evidence in the shape of oral and in the shape of documents are available in Japan as the technicians/experts, their report etc., are available in Japan. He contended that normal rule is that Court will not interfere with the contractual agreement between the parties to have the dispute settled by a private tribunal and it will be for the plaintiff to satisfy this Court that there are sufficient reasons for rejecting the prayer for the stay of the suit, he urged that the approach of the Court in this regard should be dynamic and Court should not lightly release the parties from the bargain on the ground of inconvenience or hardship and referred the separate note recorded by Mr. Justice Ajmal Mian (as he then was) in Echardt & Co. (supra) in the following:--- "It may observe that while dealing with an application under section 34 of the Arbitration Act in relation to a foreign arbitration clause like the case in issue, the Court's approach should be dynamic and it should bear in mind that unless there are some compelling reasons, such an arbitration clause should be honoured as generally the other party to such an arbitration clause is a foreign party. With the development and growth of International Trade and Commerce and due to modernization of Communication/Transport system the world, the contracts containing such an arbitration clause are very common now-a-days. The rule that the Court should not lightly release the parties from their bargain, which follows from the sanctity which the Court attaches to contracts, must be applied with more vigour to a contract containing a foreign arbitration clause.
We should not overlook the fact that any breach of a term of such a contract to which a foreign company or person is a party, will tarnish the image of Pakistan in the comity of nations. A ground which could be in contemplation of a party at the time of entering into the contract as a prudent man of business, cannot furnish basis for refusal to stay the suit under section 34 of the Act. So, the ground like, that it would be difficult to carry the voluminous evidence or numerous witnesses to a foreign country for arbitration proceedings or that it would be too expensive or that the subject- matter of the contract is in Pakistan or that the breach of the contract has taken place in Pakistan, in my view, cannot be a sound ground for refusal to stay a suit filed in Pakistan in breach of a foreign arbitration clause contained in contract of the nature referred to hereinabove. In order to deprive a foreign party to have arbitration in a foreign country in the manner provided for in the contract, the Court should come to the conclusion that the enforcement of such an arbitration clause would be unconscionable or would amount to forcing the plaintiff to honour a different contract, which was not in contemplation of the parties and which could not have been in their contemplation as a prudent man of business."
22. I cannot be unmindful of well-established principle that the Court should not lightly release the parties from their bargain, that follows from the sanctity which the Court attracts to contracts. In the present case a foreign firm is involved, which entered into the contract in question on the basis that in case of any dispute the same would be adjudicated upon as per arbitration clause but the plaintiff wish to defeat the above clause with the aid of this Court. In order to acquire a respectable place in the community of nations, not only the Government, but even the individuals are expected to honour their commitments.
22. In my view a party having entered into an agreement after having full knowledge of its consequences cannot be allowed to defeat the arbitration clause.
' In view of the above discussion, the application is liable to be granted. I, therefore, stay the suit and order that the dispute between the plaintiff and defendant No,1 may be referred to arbitration as per arbitration clause.
Application granted.