1. This is a case where the plaintiff has claimed a sum of Rs.49,31,262 on the basis of a cheque, dated 30-5-1996 issued to the plaintiff in the name of his proprietary concern namely, Nissan Steel.
2. According to plaintiff the said amount was paid in consequence of 7 various bills as shown in the plaint supported by Annexure "P.1-14" which are the covering letters and bills filed with the plaint.
3. The defendant has moved two applications C.M.As. Nos.7911 of 1999 and 7912 of 1999, simultaneously without taking any steps in proceedings. The first application being an application under Order 37. Rule 3, C.P.C. for leave to appear and defend and the second being an application under section 34 of the Arbitration Act for stay of proceedings. It is the contention of Mr. Salim Salam Ansari that the various purchase orders were issued, but as there was a dispute in regards the same the defendants had proceeded to have the payments of said cheques stopped.
4. According to him it is not the case where the cheques have bounced. According to him, it is the dispute that had arisen out of the Purchase Order and, therefore, the matter is liable to be referred to arbitration under clause (xiv) of the various purchase orders. It is his case that the Arbitration Clause provides for arbitration in the case of any dispute arising out of or in connection with the purchase order and as it arises out of and is in connection with the purchase order the matter has to be proceeded with under the Arbitration Act and the present suit is liable to be stayed. It is the case of Mr. Salim Salam, as he categorically stated in his application for leave to defend (C.M.A.
5. No.7911 1999), that it is due to a dispute between the parties; in respect of the purchase order due to which the defendants had instructed their bankers to 'stop payment' of the cheque. There is nothing on record to show that there was a dispute. There is nothing on record that there was an application to the bank to stop the payments in respect of the said cheques. In fact the certificate of the bankers of the plaintiff, 'Habib Bank Ltd. shows that the cheque had been dishonoured. If payment would have been stopped the bank would have so stated. Section 34 of the Arbitration Act reads as under:-- "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 arbitration, such authority may make an order staying the proceedings...."
6. According to Mr. Salim Salam Ansari as the matter falls within the scope of aforesaid provision of law and that the agreement is valid and binding on both the parties, therefore, the matter is liable to be referred to arbitration in accordance with the clause. Mr. Salim has referred to the judgment of Messrs Pioneer Cables Limited v. Messrs Saadi Cement Limited 1999 CLC 1841 and states that a similar situation had arisen in that case also. According to him in that case also the defendant moved an application both under section 34 of the Arbitration Act as also the application under Order 37, Rule 3, C.P.C. and similar grounds were taken. In fact the order in that case is contrary to the argument of Mr. Salim Salam. It was held in that case:--- "7. I entirely agree that by filing an application for leave to defend alongwith an application under section 34 of the Arbitration Act might not as a pure matter of law, amount to taking 'steps in proceedings' or constitute a waiver on the part of the defendant to apply for stay of proceedings and a reference to the domestic forum agreed upon between the parties. Nevertheless, with profound respect I was a little doubtful whether an application under section 34 of the Arbitration Act, must invariably take precedents over one under Order 37, Rule 3, C.P.C. The logical outcome would be that whenever the parties entered into an arbitration agreement, the statutory presumption created by the Negotiable Instruments Act and enforceable through the mechanism provided by Order 37, Rule 3, C.P.C. would stand destroyed. In plain words whenever an arbitration agreement exists, the defendant, irrespective of the questions whether his defence is sham or plausible would stand relieved of the statutory liability, to satisfy the Court that he has a plausible defence and would have an unconditional right to plead his defence in arbitration proceedings without ever being put to terms.
8. After having heard the learned counsel on 25-9-1997 I reserved the matter for consideration of the correct legal position and found that the judgment of Haziqul Khaki, J. (as he then was) in the above quoted case had been reversed by a Division Bench of this Court in the case reported as Cotton Export Corporation of Pakistan (Pvt.) Ltd. v. Messrs Asif Cotton Ginners and 5 others 1995 CLC 1024, I issued .notice of rehearing to the learned counsel and Mr. Chundrigar sought time to verify whether an appeal against the aforesaid Division Bench judgment had been referred. On 10-10- 1997 both the learned counsel appeared and stated that to their knowledge no appeal had been preferred. In the aforesaid Division Bench judgment which needless to say is binding upon me the Court proceeded to hold that only the pleadings in the plaint could be looked into for the purpose of deciding an application for stay under section 34 of Arbitration Act and the plaint showed that the suit was based not upon the agreement between the parties, but the promissory note executed by the defendant. As such their Lordships came to the conclusion that there was no arbitrable dispute and the proceedings could not have been stayed under section 34 of the Arbitration Act.
9. It may also be pertinent to refer to a Division Bench of the Madras High Court in the case of Messrs Vasanji Navji & CO. v. K.P.C. Spinners and others AIR 1983 Mad. 31, relied upon by Mr. Shakir Naqshbandi. In this case too there was a contract for sale of cotton which contained in arbitration clause. Some cheques made by the defendant towards payment of the sale consideration were dishonoured and the plaintiff filed a suit for recovery of the amount stated in the dishonoured cheque. The defendant filed an application for stay of the suit. It was held that the dishonouring of the cheques furnished an independent cause of action and section 34 of the Arbitration Act was not applicable. In view of the above I am of the opinion that the application under section 34 of the Arbitration Act must fail and the application for leave to defend has to be decided on its own merits. ...."
7. I am in agreement with the observation made by my brother Mr. Justice Sabihuddin Ahmed, in the order passed. The application under section 34 of the Arbitration Act must fail and the application for leave to defend has to be decided on its own merits.
8. I now proceed to decide the application under Order 37, Rule 3, C.P.C. (C.M.A. No.7911 of 1999). It is an admitted position that the cheque was issued. It is also an admitted position that the cheque has remained unpaid. It is the case of the defendant that the said cheques were without consideration.
9. Mr. Salim has relied on section 118 of the Negotiable Instruments Act and has referred to the judgment of United Bank Limited v. Ch. Ghulam Hussain 1998 CLC 816 and Muhammad Yaqoob and others v. Naseer Hussain and others PLD 1995 Lah. 395 (D.B.). Such is an accepted proposition of law that, where a Negotiable Instrument has been issued and is without consideration such Negotiable Instrument cannot be acted upon. However, in this present case there is nothing to show why I should hold at this stage that the Negotiable Instrument was issued without consideration. There are purchase orders and there are bills both have been filed. The cheque has been dishonoured. The cheque has been issued on the basis of the bills. There is a Remittance Advice also on record to show payment against the bills of the plaintiffs. The cheques could not have been issued otherwise, then by checking the actual quantum delivered per those bills. The cheque is, dated 30-5-1996 and the bills are upto 26-11-1995. There was sufficient time in between where the said defendant could have at least returned to the plaintiff and could have informed them of any dispute. Nothing is on record. However, the question of, whether the cheques were issued and are without consideration require evidence to be led but, such application cannot be granted with sufficient security, as nothing has been filed to show a prima faice case. I would, however, for the purposes of determining as to whether such cheque was issued without consideration grant leave to appear and defend the suit subject to the defendant, furnishing security, the amount mentioned on the face of the cheque. The applications stand disposed of.