' RANA BHAGWANDAS, J.---This is an appeal by leave of this Court from the judgment dated 10-4- 2000 of the Lahore High Court, Rawalpindi Bench in F.A.O. No,24 of 2000 reversing an order passed by the Senior Civil Judge, Islamabad whereby he dismissed respondents' prayer for stay of the proceedings of the suit under section 34, of the Arbitration Act 1940 (hereinafter referred as the Act 1940).
2. Appellant filed a suit for recovery of damages against the respondent on the basis of contract dated 23-11-1993 for publication of 1996 issue of telephone directories for Karachi and Lahore Region. It was stipulated in the contract that the respondent would make 30% of the payment to the appellant within 30 days of signing the agreement; another 30% would be paid within 30 days of the first payment, third payment of 30% would be payable at the time of shipment of the directories whereas the final payment of 10% was payable within ten days of delivery of the directories. It appears that despite shipment of-directories by the appellant, requisite payment was not made by the respondent-Corporation and there arose some dispute as to the liability for payment of sales tax imposed by the Government of Pakistan, leading to the institution of the suit for recovery of Rs,150,336,253.20.
3. Before a written statement could be filed respondent moved an application under section 34 of the Act, 1940 for stay of the suit and reference of the dispute to the arbitration in terms of the arbitration clause contained in clause 51 of the Contract stipulating that the Managing Director of the respondent-Corporation will be the sole arbitrator in case any dispute or difference arose between the parties' with regard to construction meaning and effect of the contract or any part thereof or any matter relating thereto or arising from the contract. This prayer was resisted on the premises that clause 51 of the contract did not record any agreement of the parties to the effect that any dispute present or future in relation to the contract would be submitted to arbitration; that the said clause was not only contradictory in terms but also void being violative of section 23 of the Contract Act to the extent of debarring the appellant from having recourse to Courts of law as well as the arbitration. Another ground agitated by the appellant appears to be that since validity of the agreement had been challenged, complicated questions of law could not be referred to the arbitrator. Appellant also took serious exception to the forum for arbitration as according to it reference to the Managing Director as arbitrator was negation of the principles of natural justice because the Managing Director being competent to accept or reject the claim of the appellant would be acting as a Judge in his own cause. Last ground raised by the appellant appears to be that its claim and the subject-matter of the suit was substantially and wholly not covered by the so-called arbitration agreement between the parties, which was vague, unspecific and uncertain as to the nature of the dispute. Learned trial Court, upon interpretation of clause 51 of the contract rejected the prayer for stay of the suit for the reasons, inter alia, that arbitration clause was against the principles of natural justice as Managing Director being one of the parties was nominated as sole arbitrator and competent to accept or reject the claim of the appellant; that discretion to stay the proceedings could not be exercised against the principles of natural justice; that intricate questions of law being involved in the suit could not be settled impartially by the arbitrator and that in view of challenge to the validity of arbitration agreement, there was strong apprehension of failure of justice. This order was assailed in appeal before the High Court, which has been allowed, setting aside the order of the trial Court leading to this appeal.
4. Leave to appeal was granted to consider the contentions firstly, that under section 34 of the Act 1940, the trial Court being vested with the discretion to decline the stay of proceedings and discretion having been exercised by the trial Court for cogent reasons whether the High Court could have interfered with it and secondly, whether the arbitration clause authorizing the respondent-Corporation as final judge to interpret any clause of the agreement against which the appellant was debarred from having recourse either to arbitration or through Court of law was against the lawhaving the effect of debarring the appellant from seeking remediesaccordance with law?
5. While granting leave, on the application for interim relief, it was ordered that operation of the impugned judgment of the High Court shall remain suspended but proceedings of the suit shall continue and be finalized with the exception that judgment shall not be announced till further order of this Court. It is stated at the Bar that by now, proceedings before the trial Court having been concluded but the judgment is withheld by reason of interim order passed by this Court.
6. We have heard Sheikh Muhammad Akram, learned Senior Advocate Supreme Court for the appellant and Raja Muhammad Ibrahim Satti, learned Advocate Supreme Court for the respondent and, with their assistance, scanned the record. Learned counsel for the appellant has raised the following contentions:
(i) That clause 51 of the contract between the parties is self-contradictory, invalid, unconscionable and against public policy and consequently there is no valid arbitration agreement between the parties.
(ii) That assuming, without conceding, there was an arbitration clause in the contract, under the Memorandum and Articles of Association of the respondent-Corporation, Managing Director was not competent to enter into an arbitration agreement and also to act as sole arbitrator for resolution of the dispute.
(iii) That intricate and complicated questions of law-arising in the suit the discretion for not referring the dispute to the arbitration was rightly exercised by the trial Court, which could not be legally interfered with by the High Court.
(iv) That the proceedings in the suit before the trial Court having been concluded, there would be no occasion for stay of the proceedings and reference of the dispute to the arbitration at this stage.
7. Conversely, learned counsel for the respondent wholeheartedly supported the judgment of the High Court and in rebuttal canvassed that the appellant having voluntarily entered into a lawful contract is bound by the valid and lawful arbitration clause accepting the Managing Director of the respondent-Corporation as sole arbitrator for resolution of any dispute arising out of the terms of the contract and any dispute relating to its meaning, interpretation and construction. Learned counsel is of the view that arbitration clause is not only clear, specific and express but also strictly according to law and constitutes a valid agreement for reference of any dispute between the parties concerning the contract to arbitration and that so-called intricate questions of law were neither identified by the appellant before the trial Court nor were such as could not be determined by the arbitrator, who is a high ranking public servant appointed by the Government of Pakistan and fully capable of doing complete justice to the parties. Lastly, learned counsel clarified that the respondent did not submit to the jurisdiction of the Court voluntarily and participated in the proceedings only because of interim order of this Court, which would not operate to the prejudice of the respondent for stay of the proceedings and reference of the dispute to the arbitration.
8. In order to fully comprehend the nature of dispute and to interpret the phraseology used in clause 51 of the contract, it would be appropriate if the relevant arbitration clause is quoted here, which reads as follows:-- "The supplier agrees that PCP is fully competent to interpret any clause of this agreement and such an interpretation as may be made by PCP will be accepted by the Supplier without recourse either to arbitration or through the Court of law. Managing Director PCP shall be the sole arbitrator in case any dispute or difference arises between the two parties with regard to the construction, meaning and effect of this contract r any part thereof or any matter relating thereto or arising from this contract."
The expression "arbitration agreement" within the contemplation of section 2(a) of Act 1940 means a written agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not. A glance at clause 51 of the contract reproduced hereinabove clearly suggests that appellant voluntarily agreed that respondent-Corporation would be fully competent to interpret any clause of the agreement and such interpretation as may be made by the Corporation would be acceptable to and binding on the appellant. Second part of the clause lays emphasis on the plain intention of the parties that Managing Director of the respondent- Corporation shall be the sole arbitrator in the event of any dispute or difference arising between the parties with regard to the construction, meaning and effect of the contract or any part thereof or any matter relating thereto or arising therefrom. No doubt, second part of the clause is preceded by the terms debarring the appellant to have recourse either to arbitration or to a Court of law but in the face of clear and candid agreement accepting the interpretation and construction as made by the Corporation and appointment of Managing Director as sole arbitrator, part of the agreement barring remedy to Court of law or arbitration is rendered redundant, in inconsequential and of no legal effect. Since execution of the contract between the parties is not in dispute and in the suit the appellant itself founded its claim on the said contract, the question for consideration would be whether the arbitration clause is against section 23 of the Contract Act, 1872 as contended? On a carefulconsideration of the facts and circumstances leading to the execution of contract between the parties and the phraseology employed in this particular clause, it is difficult to subscribe to the submission of the learned counsel that the agreement is violative of principle of natural justice or the statute. In our view the terms employed in the arbitration clause expressly reflect mutual intention of the parties to resolve all disputes concerning the implementation and execution of the contract through the nominated arbitrator jointly agreed upon without any duress or coercion. At any rate, mere fact that the chosen arbitrator happens to be the Chief Executive of the respondent-Corporation would not render it illegal and against public policy. Indeed it may be a case of bad drafting when it says that the appellant cannot have recourse to arbitration or a Court of law. This part of the clause thus can be conveniently ignored which is even otherwise unnecessary.
9. It is common ground that the respondent-Corporation was incorporated as a Private Limited Company as far back as 1-1-1969 under the provisions of Companies Act, 1913 and after the promulgation of Companies Ordinance, 1984 registered under the provisions of the Ordinance. It is equally not disputed that Managing Director is invariably appointed by Cabinet Division of the Government of Pakistan as the Corporation is wholly managed and controlled by the Federal Government. Managing Director of the Corporation is, thus, expected to be a highly qualified person not only in corporate affairs but also the law of the land including contractual liabilities of the parties, fiscal aspects, administrative and management skill as well as sense of propriety, equity and justice. For carrying out the terms and conditions of the contract between the parties, in the event of a difference arising between the parties, Managing Director could not be expected to be partisan or unfair in deciding the controversy without any fear or favour. It would, therefore, be unreasonable to contend that by nominating Managing Director of the Corporation as sole arbitrator the agreement would be hit by the principles of natural justice or violative of public policy. The question has been satisfactorily answered in Lahore Stock Exchange Limited v. Fredrick J. Whyte Group (PLD 1990 SC 48). There has been longstanding practice since times immemorial that in relation to contracts between the Government departments or Corporations and the individuals, invariably persons with reasonable technical knowledge of the terms and conditions of the contract are mutually agreed upon to act as sole arbitrator whose award is always subject to judicial scrutiny under the provisions of the Act 1940. We, are, therefore, least impressed by oft- repeated argument that the arbitration clause on the face of it is void, invalid or of no legal effect.
Refer Lahore Stock Exchange Limited (supra) and Director Housing, A.G's Branch v. Makhdum Consultants Engineers and Architects (1997 SCMR 988).
10. It may not be out of context to mention that during the hearing of his appeal, at the suggestion of this Court, the respondent was obliged tosubmit Memorandum and Articles of Association of the respondent-Corporation, which, inter alia, provides for a Board of Directors as well as the office of Managing Director to run 'the affairs of the Corporation incorporated as a Limited Company. As the appellant did not challenge the authority of the Managing Director to enter into arbitration agreement or to act as sole arbitrator in relation to any dispute arising out of the contract before lower forums, we are not inclined to enter into in-depth discussion of this aspect of the case. It is the consistent practice of this Court not to permit raising of an issue involving disputed factual enquiry for the first time before this Court unless agitated before the lower forums. However, suffice it to say written statement in the suit was filed by the Managing Director of the Corporation on behalf of the respondent and it was stated at the Bar as well that the office of Managing Director is still intact, who also performs the duties and functions of the Chief Executive of the Company. Be that as it may, the appellant having voluntarily and of his own volition entered into contract with the respondent-Corporation and accepted arbitration clause stipulating the sole arbitration of the Managing Director, we are not inclined to adjudicate upon his competence or otherwise to enter into the contract between the parties. Even otherwise, the argument on the face of it relates to the doctrine of indoor management of a limited company and, thus, it may not be open to the appellant to raise this question in collateral proceedings.Reliance on Uzin Export and Import Enterprises v. M.Iftikhar & Co. (1993 SCMR 866), House Building Finance Corporation v. Shahinshah Humayun Cooperative House Building Society (1992 SCMR 19), Hohnson and Phillips (Pakistan) Ltd. v. Muhammad Ayaz (1997 CLC 1177), Conforce Limited v. K.U. Naseem Malik (1983 CLC 1005), Union of India v. Messrs Narayan Cold Storage (AIR 1958 Punjab 24), Union of India v. Din Dayal (AIR 1952 Punjab 368), Governor-General v. Simla Banking and Industrial Co. (AIR 1947 Lahore 215) and Hormusji v. Local Board, Karachi (AIR 1934 Sindh 200) does not advance the cause of the appellant in view of entirely different and distinguishable facts.
11. Adverting to the submission of the learned counsel for the appellant that since intricate questions of law were involved in the suit, trial Court had rightly exercised the discretion by not referring the dispute to the arbitration, we are of the considered view that the claim of the appellant is essentially founded on the terms and conditions of the contract and alleged breach thereof. On the face of the record, we feel that the arbitrator would be fully competent to adjudicate upon the questions of fact leading to the determination of rights and liabilities of the parties to the contract. We are in no manner of doubt that the Managing Director of the Corporation should not be handicapped in resolving the dispute in terms of the contract and in accordance with the law applicable in the light of the respective contentions of the parties. In our view, there is no likelihood of failure of justice if the arbitration is allowed to proceed. On the contrary, it would be in the interestof justice and furtherance of the arbitration agreement that the dispute is resolved through arbitration as in the face of a valid and lawful arbitration clause it would not be within the province of the Courts to enter upon such disputes. Learned counsel for respondent has rightly referred to Director Housing, A.G.'s Branch v. Makhdum Consultants, Engineers and Architects (1997 SCMR 988), Province of the Punjab v. Messrs Irfan & Co. (PLD 1956 Lahore 442), A.M. Mair & Co. v. Gordhandas Sagarmull (AIR 1951 SC 9), Jublee Chamber of Commerce v. Amrit Shah (AIR 1940 Lah. 180).
12. Lastly, a word about learned counsel's submission that as the parties have participated in the proceedings, it would not be a proper stage for reference of the dispute to arbitration. As observed hereinabove, it was on account of interim order of this Court that the proceedings in the suit were allowed to continue and not because of any voluntary act of respondent submitting to the jurisdiction of the Court. Indeed prayer for stay of H proceedings of suit was made before the commencement of proceedings at the earliest possible stage. Since the respondent hid invoked the jurisdiction of Court under section 34 of the Act 1940 and refrained from conceding to the jurisdiction of the Court, no exception can be taken to subsequent developments. Suffice it to observe, no person shall suffer on account of act of Court and an order passed by the Court shall cause no prejudice to any of the parties. Refer Sajawal Khan v. Wali Muhammad (2002 SCMR 134), Fida Hussain v. The State (PLD 2002 SC 46), Ghulam Hussain v. Jamshaid Ali (2001 SCMR 1001), Imran Ashraf v. The State (2001 SCMR 424), State v. Asif Adil (1997 SCMR 209), Iftikhar Baig v.
Muhammad Azam (1996 SCMR 762), Sherin v. Fazal Mehmood (1995 SCMR 584), Abdur Rashid v.
Abdul Salam (1991 SCMR 2012), Fateh Khan v. Bozemir PLD 1991 SC 782, Muhammad Hanif v.
Muhammad (PLD 1990 SC 859), Rashad Ehsan v. Bashir Ahmed (PLD 1969 SC 146), Ghulam Haider v.
Raj Bharri (PLD 1988 SC 20) and Abdul Ghani v. Rasool (PLD 1977 SC 102). There is, thus no legal impediment in staying further proceedings of the suit and referring the dispute to the arbitrator, which would only advance the cause of justice, fairplay and equity. There is no gain observing that in view of valid and lawful arbitration clause in the contract, it would only be fit and proper to allow the law to take its own course rather than to frustrate the object of law by dragging the parties to cumbersome procedure of suit, appeal etc.
13. For the aforesaid facts, reasons and circumstances, we are firmly of the view that the trial Court exercised its discretion by not staying the proceedings of the suit in a manner not warranted by law while learned Judge in Chambers was right in reversing the order and staying the proceedings of the suit for valid and convincing reasons, which cannot be said to be contradictory to the settled principles of law. Resultantly, this appeal failsand is hereby dismissed. Impugned order of the High Court is upheld andthat of the trial Court set aside.