1. ZIA PERWEZ, J.---This appeal under section 39 of the Arbitration Act, 1940 is directed against the order of the learned Single Judge of this Court in Suit No, 904 of 2000, dated 23-4-2002 allowing the application under section 20 of the Arbitration Act moved the respondents.
2. ' In pursuance to 'notice respondent No,2 has put in appearance. Learned counsel has advanced the detailed arguments on the main appeal as well as C.M.A. No,875 of 2002 and we propose to dispose of the same together by this order.
3. ' Brief facts of the case are that respondent was awarded contract for supply/delivery of Computer Lab., Equipment, dated 7-2-1998 (hereinafter referred to as the said contract). Resolution of disputes is covered under the General Condition of contract providing for negotiation as follows:--- Resolution of Disputes: "19.1. The Purchaser and the Supplier shall make every effort to resolve amicably by direct informal negotiation any disagreement or dispute arising between them under or in connection with the Contract.
4. 19.2. If after thirty days from the commencement of such informal negotiations, the Purchaser and the Supplier have been unable to resolve amicably a Contract dispute, either part may require that the dispute be referred for resolution by arbitration by the mechanism described in the Special Conditions of Contract. The award shall be final and binding on the parties.
5. Applicable Law.
6. '20.1. The Contract shall be governed by and interpreted in accordance with the laws of the Purchaser's Country."
7. Clause 8.1 of the "Special Condition" is the Arbitration Clause as follows:--- Arbitration 8.1. In the case of a dispute. Between the Purchaser and a Supplier, the dispute shall be referred to adjudication/arbitration in accordance with the laws of Islamic Republic of Pakistan."
8. 'Dispute arose between the parties when certain payments were withheld by the appellants. On failure to get the dispute resolved through negotiation respondent moved an application under section 20 of the Arbitration Act, 1940 seeking appointment of an Arbitrator through the Court.
9. Appellants opposed the application on the grounds that the respondent failed to perform the contract in letter in spirit. The equipment supplied did not confirm to the specification under the contract the respondent therefore, committed breach of contract by not supplying the proper equipment as per specification and also due to non-completion of the installation of the Computer Lab. Equipment in various Colleges in spite of being called to rectify the same. It may not be out of place to mention here that during the pendency of the proceedings the contract for Phase-Il was terminated by the Project Director, Technical Education Project, Education Department, Government of Sindh vide the letter of termination dated 12-9-2000 followed by a Notification No,S.o.(E-VI) MDS-44/2000, dated 3-10-2001 whereby respondent was blacklisted due to serious default. Copies whereof are filed as Annexures F/3 and F/4 by the appellant.
10. ' Mr. Abbas Ali learned A.A.-G. Has assailed the impugned order . On the ground that in view of allegation of fraud against the respondent the learned trial Judge erred in exercise of discretion by appointing an Arbitrator. That the order of reference made to an Arbitrator not appointed by the parties was not maintainable. He further contended that the contract was awarded in pursuance to the project assisted Asian Development Bank and further disbursement would be delayed.
11. Reliance has also been placed on the report of enquiry conducted by Probe Committee, dated 25- 4-2000 and a statement dated 27-6-2002 to show that proceedings against the officers found guilty have been taken. The documents enclosed therewith only reveal that a show-cause notice, dated 8-3-2001 is addressed to Mir Anjum Hussain the Project Director. Lastly it has been contended that in the absence of the directions to the effect that Arbitration Agreement to be filed the impugned order is violative of the provision of subsection (4) of section 20 of the Arbitration Act. That each party was entitled to nominate an Arbitrator and the impugned order of reference to Sole Arbitrator instead' of two Arbitrators is liable to be set aside. Mr. Suleman Habibullah, learned A.A. -G. Has also supported the above contentions.
12. ' Perusal of the record placed before us and the arguments advanced reveal that in the findings and recommendations of the report of enquiry by the Probe Committee, though highlighting numerous irregularities and lapses in the execution of contract, there is finding to the effect of commission and allegation or proof of fraud. The breach of conditions of contract or claim on account of goods not conforming to the required specifications are covered under the arbitration clause. The exercise of discretion by the Court in case where traud was examined in the leading case of Russel v. Russel (1880) 14 Ch. D 471. That was a case of partnership between two brothers containing an arbitration clause. One of the brothers gavenotice to the other for dissolving the partnership. The other brother thereupon brought an action alleging various charges of fraud and claiming that the notice should be declared void and no announcement of the dissolution of partnership should be allowed:Thereupon the brother who was charged with fraud moved that the matter be referred to arbitration under the arbitration clause. That was resisted and the Court held that in a case where fraud is charged, the Court will in general refuse to send the dispute to arbitration if the party charged with the fraud desires a public inquiry. But where the objection to arbitration is by the party charging the fraud, the Court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved."
13. ' This case certainly lays down that where allegations of fraud are made the party against whom such allegations are made.May successfully resist the reference to arbitration.
14. ' The principle of this case was followed in Osenton & Co. v. Johnston, 1942 AC 130. In that case a firm of estate agents and surveyors resisted the reference to an official referee under section 89 of the Judicature Act of 1925. The decision of an official referee could not be called, in question by appeal or otherwise except on a point of law as provided by S.I. Of the Administration of Justice Act, 1932. The firm therefore, contended that as their professional reputation was involved the matter should not be referred to the official referee and the House of Lords held that as the professional reputation of the appellants was involved, that question should not be left to the final decision without appeal of an official referee but should be tried before the normal tribunal of a High Court with a jury.
15. ' The principle of these cases has also been followed in India with reference to cases coming under sections 20 and 34 of the Act. (See, Manindra Chandra Nandy v. H.V. Low & Co. Ltd., AIR 1924 Cal.
16. 796, Narsingh Prasad v. Dhanraj Mills, ILR 21 Pat. 544: AIR 1943 Pat.
53. Union of India v. Firm Vishydha Ghee Vyopar Mandal, ILR (1953) 1 All. 423, AIR 1951 All. 541 Sudhangsu Bhattacharjee v. Ruplekha Pictures, AIR 1954 Cal. 284, Abdul Kadir v. Madhav Prabhakar AIR 1962 SC 406.
17. 'Appointment of an arbitrator was declined in the case of the Hub Power Company Ltd. v. Pakistan WAPDA through Chairman and others, PLD 2000 SC 841 where, in addition to pending criminal prosecution proceedings before the Court, the supplementary agreement was alleged to have been obtained through fraud and sufficient material was placed on record providing prima facie evidence in support of the allegations, details whereof are set forth at pages 866 and 867 of the said report. No such material has been brought on record to substantiate the allegations of fraud in the instant case in support of prima facie case of fraud.
18. ' From the documents placed on record, although a show-cause notice has been issued but no finding of guilt against any officer, any prosecution nor even an F.I.R. Is available on record. The allegation of fraud has not been substantiated in the present case. Merely by an allegation of fraud by the appellant at this stage, the respondent cannot be deprived to have the dispute resolved through arbitration.
19. 'The arbitration clause is silent as to the number of arbitrators. This attracts the provisions of the First Schedule to the Arbitration Act providing for the implied conditions of arbitration agreements and in pursuance to first condition, the reference in the present case is to be made to a Sole Arbitrator as also observed in the case of Muhammad Jamil v. Iqbal Ahmed PLD 1977 Kar. 886 the contention has no merit.
20. ' The contract containing the Arbitration Clause as well as the Arbitration Clause are admitted by the parties and the execution thereof is not in dispute. A copy is already filed alongwith the application. Under these circumstances an order for filing of the Arbitration agreement is a mere formality and no, prejudice is likely to be caused to either of the parties.
21. 'In view of action of termination of contract followed by the blacklisting of the respondent/contractor there is no impediment for the . Execution of Phase-II which may now be effected through a fresh contract and the question of delay on account of the pending arbitration proceedings or a suit in the alternative has no bearing on the award of fresh contract for supply installation of the stipulated computers and equipment under an independent contract. The question of fraud can likewise be considered on its own merits even at a later stage if sufficient material to make out a prima facie case is available.
22. ' In view of the above we dismiss this appeal alongwith the listed application subject to modification of the impugned order to the extent that the agreement be filed in Court and with no order as to costs.