This first appeal is under section 39 of the Arbitration Act, 1940, against order, dated 16-3-1998, by which the Court refused to set aside the award on dismissing the objections of the appellant and proceeded to make the award a rule of the Court.
2. Respondent filed an application under section 14(2) read with section 17 of the Arbitration Act, for filing of award, dated 7-8-1996, in the Court and for making the same rule of the Court with a decree in terms thereof. The appellants filed a reply to the application and also objections to the award. The objections were rejected by the learned Civil Judge, on 16-3-1998, when the award (Exh.C/1) was ordered to be made a rule of the Court and respondent was directed to affix Stamp Duty at the rate of 3% of the amount of award.
3. Learned Assistant Advocate-General, referred to the documents annexed with this appeal to take this Court through the events which took place from time to time and pointed out that the very appointment of the umpire was invalid, the appointment was obtained under political influence and under the orders of the Minister, Umpire had no jurisdiction to tender the award as the arbitrators had never differed nor made a reference to him, the umpire committed serious misconduct in rendering the award in violation of the terms of the contract and awarded interest of Rs, one crore, the Umpire having already rendered his opinion by affirming the decision of two arbitrators, had become functus officio and could not make the fresh award, there was no contract for payment of interest nor any mercantile usance existed and in the absence of any reference, no interest could be granted and also that the award was violative of section 26-A of the Arbitration Act, because of absence of reasons and that the trial Court acted with material illegality in rejecting the objections without framing the issues and allowing opportunity of evidence to substantiate the objections.
4. In return, learned counsel for the respondents contended that the appellants had waived objections on award by joining proceedings, the appointments was made by the Secretary who was competent to make such appointments, the objections filed by the appellants did not fall within the purview of section 30 of the Arbitration Act, being objections under section 33 of the Arbitration Act, the same could be decided on affidavit and without evidence. It was added that no such issue as was being raised in this Court was ever raised before the Trial Court, the objections did not contain the grounds being urged before this Court, and that the appellants could not object to-the appointment of Umpire or the proceedings held by him, after having joined proceedings. Learned counsel further submitted that the documents annexed with this appeal having not been formally tendered in evidence, the same could not either be referred to or relied upon to question the impugned order.
5. For the purpose of appreciating of respective contentions of learned counsel for the parties, it will be necessary to have careful view of the documents annexed with this appeal. Undeniably, the agreement, dated 15-2-1986, was awarded to the respondents at a price of Rs,14,77,741 which provided for miscellaneous and other contingencies in the sum of. Rs,49,972 and in this way the total value of the contract was Rs,14,77,741. Out of this amount a sum of Rs,12,90,549, is stated to have been paid to the contractor, on 25-8-1987. The agreement did contain an arbitration clause for decision of dispute. At page 27 of the file, a copy of application, dated 12-10-1987, addressed to the Secretary, Irrigation and Power Department, Punjab, Lahore, Ch. Muhammad Iqbal, Managing Director of Chauhan & Co. (respondent) has been annexed, wherein the total claim raised by the contractor was in the sum of Rs,7,11,000. In the said application, it was requested that assessment of rates required revision and that the respondent should be asked to make balance payment in the sum of Rs,7,11,000. On this application, Muhammad Ashraf and Abdul Wasey Khan were appointed as arbitrators in terms of clause 28 of the agreement, to render decision on 18-1-1988. At page 40 of the appeal file, an application of respondent appears which was addressed to the Minister for Irrigation in which the title was "forfeiture" of Rs,7,11,000 and illegal forfeiture of security of Rs,14,780.
Referring to the dispute in the application, the respondent asked for the payment of the abovementioned amount. It also appears from record that Writ Petition No,3620 of 1989 was filed in which a compromise was effected. In terms thereof, it was agreed that the Superintending Engineer, Bahawalpur and Superintending Engineer, Bahawalnagar should act together as arbitrators to hear the dispute and give the award accordingly. A copy of order, dated 14-11-1989, passed in the said writ petition by the High Court is at page 69 of the appeal file, the operative part whereof is to the following effect:-- "In view of the aforesaid statement made by learned counsel for the parties, the Superintending Engineer, Irrigation, Bahawalnagar Canal Circle, Bahawalnagar and Superintending Engineer, Bahawalpur Canal Circle, Bahawalpur, shall hear the dispute, sitting together and after hearing the parties, deliver the award in accordance with law. With these observations, the writ petition is disposed of." In compliance to the orders of High Court, the office order was issued by the Secretary, Irrigation and Power Department, Government of the Punjab, Lahore, which appears at page 71 of the appeal file and is to the following effect:-- "No,6/8-S.0.(P)/88.-In pursuance of order, dated 14-11-1989 awarded by the Honourable Lahore High Court on the Writ Petition No,3820 of 1989 filed by M/s. Chohan & Co. For his dispute with the Department regarding the work "Rehabilitation or Jamrala Disty" undertaken by him.
(2) Ch. Fateh Muhammad, Superintending Engineer, Irrigation, Bahawalnagar and Mr. Abdul Wasey Khan, Superintending Engineer. Irrigation, Bahawalpur are hereby appointed as 'Arbitrator', under clause 28 of the Agreement/Arbitration Act, 1940 to settle the dispute between the parties. Both the Arbitrators shall hear the dispute, sitting together and after hearing the parties, deliver the award in accordance with law."
6. The two arbitrators entered upon the reference and gave their award on 15-7-1991. The operative part of the award is to the following effect:-- "CONCLUSION. It is worth-mentioning that M/s. Chohan & Company contractor took a lot of time in completing this work. They took about 550 days against 100 days as per agreement. The Department took a very lenient view in granting extension in time limit instead of taking action under clauses (2) and
(3) of the agreement. On the other hand, the Contractor did not abide by clauses (9) and (10) which reads:-- "A bill shall be submitted by the Contractor each month on the printed Form to be obtained from the office on application. If the contractor does not submit the bill within the time fixed, the Engineer In charge may prepare a bill which shall be binding on the contractor in all respects." However, after scrutinizing the record, hearing the parties and inspection the site or works, the claim for Rs,59,271 is admissible to M/s. Chohan & Company Contractor (Claimant) and we the Arbitrators in this case, accord sanction for an amount of Rs,59,271 (Rupees fifty-nine thousand two hundred and seventy-one only).
(Sd.) (Sd.)
(Ch. Fateh Muhammad), (R.B. Parwaz), Superintending Engineer, Superintending Engineer, Bahawalnagar Canal Circle, Bahawalpur Canal Circle, Bahawalnagar. Bahawalpur."
7. After the aforesaid award, the respondent moved an application to the Minister for Irrigation which was, in fact, the objections to the award rendered by the two arbitrators. A copy of this application appears at page 82 of the appeal file. Again at page 84, there is an application by respondent-company addressed to the Secretary, Irrigation and Power Department, Lahore, raising objections to the award of the arbitrators and requesting for fresh appointment of the arbitrator. In the application, respondent also nominated Muhammad Ashraf Khan, Superintending Engineer (Retd.) as its nominee. At page 91 of the appeal file, a copy of the order, dated 9-7-1992, from Secretary, Irrigation and Power Department, Lahore, appears in which it is stated that the arbitrators had rendered their decision and that the committee comprising of three officers be constituted to examine the view/award within 15 days. The members of this committee were Ch. Riaz Khan, Chief Engineer, Ch. Fateh Muhammad. Superintending Engineer and Mr. Jahangir Ahmad Khan, Superintending Engineer. The Committee gave its report on 4-5-1993 in which the view expressed was that the award delivered by the abovementioned two arbitrators was binding on the parties and there was no case for fresh arbitration proceedings.
8. Despite, the aforesaid views, the respondent again approached the Minister and succeeded in getting appointment of Ch. Mazhar Ali, as Inquiry Officer. This Inquiry Officer returned the reference, with the remarks that he had not been invested with any authority under the contract to hand down any award/findings which were binding on the department as well as the claimant- contractor, and that the representative of the contractor was informed of the limitations. A copy of the report of Mazhar Ali, Advisor, I&P, dated 28-3-1994 is at page 98 of the appeal file. It is amazing that the respondent was so influential to get a directive from the Secretary, Irrigation and Power Department, Government of the Punjab, Lahore under the pressure of Minister, for appointment of Mazhar Ali as an Umpire. A copy of the letter issued by the Section Officer (Revenue), Irrigation and Power Department, Lahore, dated 13-7-1995, is at page 101 of the appeal file which shows that Ch. Mazhar Ali was appointed as Umpire, to examine the relevant material/award. It is not understood under what law Ch. Mazhar Ali could examine the award or his appointment was made. In his report, Ch. Mazhar Ali, expressed the views that in view of the proceedings before the High Court and the statements of the counsel for the parties, the two arbitrators were appointed with consent and approval of the two sides and that the two arbitrators rendered their award jointly and, therefore, there was no ground under clause 28 of the contract for the appointment of the Umpire.
He opined that the appointment of the Umpire was not in accordance with clause 28 of the agreement and that the award of the Arbitrator had become final, therefore, inaction of the department subsequent to the joint award, dated 15-7-1991 would be considered as extra-legal and not provided under the law. A copy of the report is at page 104 of the appeal file.
9. Despite having given the above report, Ch. Mazhar Ali, rendered the present award, on 7-8-1996, purportedly acting on reference, dated 18-2-1996, from Advisor, Irrigation and Power Department, Government of the Punjab, Lahore, and on the basis of his alleged appointment by the Secretary, Irrigation and Power Department as Umpire. In this award, interestingly, Mazhar Ali, as alleged Umpire, awarded an amount of Rs,1,74,65,616. In this way, the respondent who had initially made a claim of Rs,7,11,000 was offered a gift of award in the sum of Rs,1,74,65,616 by a person who had initially expressed his lack of authority, in law, and had treated the award as final. He was the same person who had opined that the award of the two arbitrators in the sum of Rs,59,271 would be binding and has become conclusive.
10. The objection of the learned counsel for the respondent is that the facts referred to hereinabove, and the documents annexed with the appeal should be ignored as the same were not formally brought in evidence. This objection loses sight of the fact that the learned Civil Judge did not frame any issue on the objections nor invited evidence and instead he proceeded to dispose of the objections in an extreme mechanical way, being oblivious of the serious objections to the appointment of the Umpire and also to the alleged, award rendered by him. If the evidence had been allowed, the appellant would have brought all these documents on record, for correct decision but in view of the denial of opportunity to lead evidence and decision of the objections in an arbitrary manner, the appellant was seriously prejudiced. In the course of hearing of this appeal, learned counsel for the respondent was asked as to whether the documents referred to hereinabove annexed with the appeal and also the facts appearing therein were denied by the respondent, learned counsel conveniently avoided direct answer by saying that these were not in his knowledge. On this the representative of the respondent, present in the Court, was confronted with the facts noted supra who did not deny those facts but only claimed that the Umpire validly rendered the award. Be that as it may, the argument that the facts were not alleged is otherwise devoid of merit and appears to have been raised being oblivious of the reply filed by the appellant to the application under section 14(2) and section 17 of the Arbitration Act, 1940 before the trial Court. Admittedly, respondent filed an application under section 14(2) read with section 17 of the Arbitration Act, for filing of the award in Court and making it a rule of the Court. In reply, the appellant highlighted all the material facts. From the contents of the reply, it is obvious that the appellant pleaded that the respondent had concealed true facts and had not come to the Court with clean hands, respondent went to the High Court in Writ Petition No,3820 of 1989, which was decided on 14-11-1989 and in pursuance to that order, the two arbitrators did enter upon the reference and rendered their award on 15-7-1991 after hearing the parties and that there was no inconsistency or different opinion and resultantly, no Umpire could be appointed. It was also pointed out that the appointment of the Umpire was violative of the order of the High Court and also clause 28 of the contract and that the award in the sum of Rs,59,271 had become final. It was further disclosed that even the Committee comprising of one Chief Engineer and two Superintending Engineers, in their report, dated 4-3-1993, had upheld the award and there was not cause for fresh arbitration proceedings. In para. 4 of the reply, it was highlighted that the respondent managed through political influence to get appointment of Ch. Mazhar Ali, Advisor, Irrigation and Power Department, Government of the Punjab, Lahore, against the provisions of clause 28 of the contract who made two contradictory reports on 18-2-1996 and 17-8-1996, as in the 1st report, he found his appointment as Umpire unwarranted and opined that the award of two arbitrators had attained finality while in the subsequent report, he blessed the respondent with huge amount of Rs,1,74,65,616. It was, thus, clearly stated that the total proceedings including the alleged appointment of the Umpire were invalid. Apart from the reply, to the application, the objections were filed to the award. The reply and the objections were to be read together. To find out the grounds of attack to the appointment of the Umpire and also proceedings held by the alleged umpire, learned Civil Judge completely overlooked the record and appears to oblivious of the scope of his powers under section 30 of the Arbitration Act and as such the objections were repelled for perverse reasons and in total disregard to the facts appearing on record. It was the case in which many important questions of law would arise which were not attended to. The first question will be as to whether after the award, dated 15-7-1991, rendered by the two arbitrators, appointed with the consent of the parties and as approved in the order of the High Court, any fresh arbitration could take place. The next question would be as to whether the award which was consistent and unanimous would become final after the time for filing objections had expired and whether in the presence of that award, any Umpire could be appointed, particularly, when there was no point of dissent nor any reference was made by the two arbitrators on the ground that there was a point of disagreement. Another question would be as to whether Ch. Mazhar Ali, who had previously opined that the award had become final, and that his appointment as Umpire would be extra-legal and against the provisions of contract. Could be sit in appeal over the award or could act as Umpire by superseding the earlier reference of the arbitrators. One of the important questions would be as to whether the initial claim of Rs,7,110,000 could be enlarged to the tune of Rs,1,74,65,616. It is also a matter of consideration as to whether the alleged Umpire could award interest in the sum of Rs, 1,49,99,000. It needs to be examined as to whether the increase of rates which under the contract was permissible to the extent of 87% could be allowed to the extent of 250% and whether the alleged Umpire could act in violation of the terms of the contract or whether any interest in the absence of any agreement and mercantile usage or statutory provisions could be awarded and whether the principal amount of additional compensation could exceed the total amount of the contract.
11. Neither all these questions were attended to by the learned Civil Judge, nor he allowed any evidence to come on record, while the whole exercise was completed, in total departure to the settled legal norms. It was a case which required examination with all seriousness, to the objections raised, particularly the objection that an attempt was made to squander the public exchequer by misusing the political influence and authority and by flouting/violating the settled provisions of law. There appears to be substance in the submissions that after the award had been rendered by the two arbitrators, the political machinery was put into action and the matter was directly taken to the Minister of Irrigation, who prima facie did not appear in the hierarchy of jurisdiction to deal with such-like matters, and by his unlawful interference, the matter was pushed time and again up to the stage when the respondent succeeded in getting the award from a person, who prima facie appears to have been brought in field under the influence and pressure of the Minister. If these allegations are carefully examined, after recording evidence and it is found that on account of misuse of authority and political influence, all efforts were made to misappropriate the public money, then the officials/Minister may not be able to save their skin from the proceedings which can be initiated as consequential effects. This is one aspect of the matter which was expected to be attended with all seriousness. The other point is as to whether any interest of huge amount running in Rs,1,49,00.000 could be awarded without any agreement, statutory provisions or mercantile practice and whether the alleged Umpire could breach the terms of the agreement and whether any Umpire could be appointed in the absence of any dissenting award by the two arbitrators and whether the principal claim could exceed the total amount of the contract.
12. Ordinarily, in the absence of any contract, statutory provisions of mercantile usage, the arbitrator is not competent to award interest. Reference can be made to Ghulam Abbas v. Trustees of the Port of Karachi (PLD 1987 SC 393). It is also a rule that the arbitrator is not entitled to act in breach of terms of the contract or to enforce terms different than the one contained in the contract. It cannot be denied that when in law something is not permissible directly the same cannot be allowed through back-door and in this way, if the interest is not permissible, in the absence of any agreement or mercantile usage, or statutory provisions, the same cannot by allowed through back-door means, in the garb of alleged compensation. Similar provisions of section 26-A of the Arbitration Act visualize recording of reasons in sufficient details by the arbitrator which reasons are subject to scrutiny by the Court and if the same offend against any provision of law, the Court cannot overlook the legal or jurisdictional error on the part of the arbitrator. Simply because the arbitrator is a Judge of law and facts would not mean that the Court is denuded of its jurisdiction to examine the question of misconduct and legal error, apparent on the face of award nor the Court is bound to provide a blanket to any illogical, irrational or illegal award. Of course, these questions can be attended to after recording of evidence as the questions raised noted supra, needed factual inquiry. It also needs to be considered as to what was the basis for the award, particularly, when prima facie the award was lacking reasons in terms of section 26- A of the Arbitration Act, 1940.
13. Keeping in view the circumstances, noted supra, it was not the case in which the objections could have been repelled without issues and evidence. Even otherwise, under section 17 of the Arbitration Act, the Court is bound to examine if the award suffers from any invalidity, misconduct and error of law, though no objections have been filed. The Court is also bound to consider if the award is liable to be remitted. Unfortunately, no serious consideration was given, to the matter of extra importance and objections against the award for an amount running in Rs,1,74,65,616 were dealt with like an award of Rs,10.
14. For the reasons above, this F.A.O. Succeeds, with costs, the impugned order dated 16-3-1998 is set aside, with the result that the objections shall be deemed to be pending which shall now be decided by the learned trial Court after framing issues, recording evidence and attending to the questions observed hereinabove. The case is entrusted to the learned Senior Civil Judge, who will decide the objections in the light of observations made hereinabove within three months, with intimation to the Additional Registrar (Judicial) of this Court.