MUHAMMAD IQBAL Versus P.I.D.C.

This judgment will dispose of F.A.O. No. 13 of 1990 which arises from order, dated 5‑4‑1990 of the learned Civil Judge, Islamabad, refusing to set aside the award and making it rule of the Court, after rejecting objections thereto.

2. Terbella Cotton and Spinning Mills (Pvt.) Limited at Khalabat Town, Haripur, managed by P.I.D.C. was sold to Messrs PEMSECO, sole proprietorship ‑of Muhammad. Iqbal, appellant herein, vide agreement, dated 15‑7‑1986 which provided, amongst others, for reference of dispute, if any, to the Chairman Dis‑investment Negotiating Committee. In view of the dispute raised by the appellant, on account of 20 claims, the matter was referred to the arbitrator who made his award on 16‑5‑1988. The award made by the arbitrator was challenged by the appellant through objection petition, dated 25‑5‑1988 moved under sections 30 and 33 of the Arbitration Act, which objections were rejected vide impugned order, dated 5‑4‑1990 and in result award Exh.P.6 was made rule of the Court.

3. Learned counsel for the appellant submitted that initially objections were filed in regard to the findings against claims Nos. l to 20 but through an application under section 151 of C.P.C., moved in the trial Court, objections qua items Nos.2 to 20 were not pressed and the award was challenged only to the extent of item No1l "Chinese Spares". It was added that the appellant, presently, confines himself to claim No.l and does not challenge the impugned order of making the remaining award rule of the Court. It was contended that the appellant had vehemently pointed out that the award in regard to claim No1l was violative of provisions of section 26‑A of Arbitration Act, as it did not disclose reasons in sufficient detail and on this ground alone, it was liable to be remitted to the arbitrator but the learned Court below did not decide the objection and instead acted as a Court of appeal to supply the omission. Learned counsel referred to letter, dated 7‑5‑1986, Exh.P.3 (Exh.P.2), Exh.P.8, Exh.P.4 and other material document on record and submitted that the arbitrator did not attend to the ground for claim No. l and instead disposed of the matter in a casual manner without giving any serious thought. It was maintained that even the learned Civil Judge misconstrued and misread the evidence on record and proceeded on erroneous assumptions which have no basis. Elaborating his submissions, learned counsel contended that the tender was issued on 4‑8‑1985 alongwith the balance sheet as on 30‑6‑1985 providing fixed assets as 161 millions. Learned counsel submitted that the arbitrator illegally assumed "Chinese Parts" as current spares though current spares were separately shown as 2.5 millions. It was explained that offer, in fact, was made on the basis of above balance sheet and fixed assets. Referring to agreement, it was argued that even in the agreement, the basis of letter of acceptance were not denied. Learned counsel submitted that after acceptance of the offer, changes were made, certain interpolation took place and that all the documents and the points raised by the appellant, if considered in juxtaposition would make the whole claim fully established but the arbitrator neither attended the same nor recorded any reason for repelling the claim in disregard to the documents on record. It was added that not only the award was non‑speaking but also certain changes were made therein subsequently, in the absence of parties and without notice to them, hence the award stood vitiated.

4. Defending the impugned order, learned counsel for the respondent argued that the appellant twisted the facts to claim that value of fixed assets was tentative, para. .No.l(b) of the contract had completely settled everything, balance sheet of 31‑3‑1986 was made part of final agreement, the basis of agreement were not changed and that the claim raised by the appellant was ill‑founded. It was added that no interpolation was made, "Ordinary Spares" and "Chinese Spares" were clubbed together, each page of the agreement was signed by the parties and that in view of fn al agreement, no objection could be accepted to vary the terms thereof. Learned counsel submitted that no objection was accepted and in fact he was beneficiary of second settlement whereunder Rupees 1.06 million were refunded and installments were reduced. It was further contended that the arbitrator was necessary party who having not been impleaded, the appeal was not competent. Regarding objection in respect of changes in award, it was submitted that a corrigendum was issued which was never challenged and, therefore, the objection was not well‑placed.

5. With the assistance of learned counsel for the parties, the entire oral as well as documentary evidence and other material on record was minutely scanned to consider the respective submissions made by learned counsel for the parties.

6. Initially 20 claims were raised before the arbitrator and in the objection petition, objections were raised in respect of 20 items but in the course of trial, objections qua items 2 to 20 were not pressed and only findings on item No. 1 were questioned. Even in the course of hearing of appeal, learned counsel for the parties confined themselves to item No. l "Chinese Spares" and the impugned order to the extent of making the award rule of the Court for the remaining items was not challenged.

7. The award has been challenged mainly on the ground that the arbitrator did not record reasons in sufficient details while repelling claim No.1 and in this way, the award need to be remitted in terms of section 26‑A of Arbitration Act. Section 26‑A of the Act requires the arbitrator/umpire to State in the award the reasons for the award in sufficient detail to enable the Court to consider any question .of law arising out of the award and in the event of non‑disclosure of sufficient reasons, it makes mandatory for the Court to remit the award to arbitrator/umpire for re‑submitting the award together with the reasons in sufficient detail. Subsection (3) of section 26‑A of the Act contemplates that if the award is remitted under subsection (2), it shall become void on the failure of the arbitrator to submit it in accordance with direction of the Court. In Province of the Punjab etc. v. Messrs Industrial Tools, Lahore 1986 MLD 501 it was ruled by a Division Bench of this Court that the powers conferred on the Court were not restricted to the cases where the proceedings were pending and the award had not been made rule of the Court but the power to remit the award of the arbitrator could be exercised by the Court, even after the award had been made a rule of the Court and the matter had come up in appeal before the appellate Court. It was observed that where the award had been challenged on the ground that the arbitrator pronounced it by ignoring the facts and evidence placed before him, it would not be fair and just to implement the award if the same did not contain any reason in its support. It was also observed that section 26‑A of the Arbitration Act makes it obvious that a radical change was brought in the law of arbitration as the old concept that the arbitrators or umpires were not bound to follow technical rules of procedure in the proceedings before them because they were not expected under the law to record reasons in support of conclusion arrived at by them was done away with and it was deemed necessary that the umpires or the arbitrators should state in the award the reasons for the award in sufficient detail to enable the Court to consider any question of law arising out of the award.

8. Reference can also be made to J.F.C. Gollaher v. Samad Khan 1993 MLD 726, where it was observed that proceedings before an arbitrator are of a quasi judicial nature and if the conclusions in award are based on reasons which are bad, it would be open to attack them. It was further observed that previous to introduction of section 26‑A, it was discretionary for‑ the arbitrator not to mention any reason for the award but with the insertion of section 26‑A in the Act, the material shift occurred which requires reasons in sufficient detail. Considering the scope and effect of section 26‑A of the Arbitration Act, it was observed as follows:‑‑

"Previous to the introduction of section 26‑A it was discretionary for an arbitrator not to mention any reason for the award and once an arbitrator choses not to ascribe any reason for his conclusions, the matter stood excluded from close scrutiny of the Court unless the case was alleged to be one of no‑ evidence, when the arbitrator could be called upon to state a special case. There is also, however, some authority that in relation of awards involving no evidence, .the record, including the evidence, could be perused. Even in behalf of such awards reasons where for were detailed wholly or in part, the jurisdiction of the Court by the large remained limited to such reasons as found mention or such evidence as was discussed in the award. Of course, the rule, then as now, has always been that if the reason(s) cited for an award is bad, it is open to a party to question it. Arbitration is a modern device for resolving disputes. It is calculated to ensure speedy disposal, on the one hand and substantially, informal and matter of fact dispensation on the other. A degree of sanctity, however, is attached to adjudications upon arbitrations the Court is expected to be extremely circumspect in making interference in such matters, though illegality or misconduct, either of the arbitrator or in the proceedings, leave the award open to due correction. Misconduct itself is a term of art. It may not involve any moral turpitude and often does not. While left undefined by the statute, it has very broadly been interpreted to mean a failure, howsoever, innocent or honest, to discharge an essential duty on the part of an arbitrator, resulting in substantial miscarriage of justice between the parties.

The introduction of section 26‑A in the Act, making reasons for an award obligatory, as opined by Naeem‑ud‑Dir, J. in the DI"'vision Bench judgment of Karachi Metropolitan Corporation v. Associated Constructors Ltd. 1984 CLC 1077 enables the parties to know agitate and the Court correspondingly, to consider any question of law emerging from non‑examination of relevant matters or flowing upon irrelevant or extraneous considerations of matters or an erroneous view of law or material facts or evidence. As to reasons given by an arbitrator, such as I may add, have to be based upon the evidence produced before him and the law applicable to it. An award inconsistent with law was never sustainable and so also one which is erroneous on the face of it. An award is also bad if the findings incorporated therein are perverse or unsupported by the evidence adduced or tantamount to deciding a dispute question without duly going into relevant evidence. "

9. Keeping in view the provisions of section 26‑A of the Arbitration Act and also the rule in the precedent cases, it is discernible that very purpose of the newly added provision of law was to enable the parties to know and agitate and also for the Court to consider any question of law emerging from the non‑consideration of relevant matters. Obviously, if the conclusion drawn by the arbitrator is perverse or the reasons given by him are not based on the evidence produced before him and also the law B applicable on the subject, the interference can be claimed on the ground of misconduct. The question as to whether any misconduct has been committed will, of course, have to be looked into by deeper consideration of the reasons in support of the award. If the award does not disclose reasons in sufficient detail, the Court is not expected to supply omission or to make adjudication of the issues involved, of its own by reappraisal of evidence on record. The Court while dealing with the objections to the award neither acts as a Court of appeal nor a substitute forum for adjudication of the issues which the parties had agreed to be decided by the arbitrator, though it does possess jurisdiction to interfere if the conclusions drawn by the arbitrator are C perverse or the view taken is bad in law or is inconsistent or in total departure of evidence of the parties. In the present case, notwithstanding the fact that a specific objection as to the non‑disclosure of sufficient reasons in award was raised before the Court, the matter was not attended to in legal perspective and instead the learned Civil Judge attempted to himself assume the jurisdiction of adjudicating the issue involved by making pick and choose in the evidence and declining to consider the other material evidence on taking too much technical view of the matter. It will not be appropriate to make any observation as to merits of the respective contentions of parties, on claim No. 1, lest it should prejudice the case of either side as the matter is being remitted to the arbitrator for disclosure of reasons in support of the award. Suffice it to observe that the observations of the trial Court as to the claim of parties on merit or the rights flowing from the true spirit of the contract appear to have been made without considering material evidence on record before the arbitrator and as such the same cannot be affirmed at this stage. Unless and until, the reasons had forth come before the Court, it was not possible to assume the premises on which the arbitrator had reached the conclusion as recorded in the award and, therefore, without calling for reasons in detail, it was premature for the Court to foreclose the fate of the case of either side.

10. On consideration of record in the light of requirements of section 26‑A of the Act, one finds that the decision rendered by the arbitrator does not disclose reasons in sufficient detail. The operative part of the award dealing with Claim No.1 in its original form was to the following effect:‑‑

" Chinese Svares (Rs.3,929,483) .

It was contended by PEMSECO that these formed part of fixed assets and may be excluded from current assets. This has no basis as these spares were included in current assets in the tendered documents in response to which Messrs PEMSECO had made their offer for the purchase of the Mills. This amount, therefore, cannot be reduced from current assets. As such this claim of PEMSECO is rejected."

11. The award appears to have been signed on 16‑5‑1988 with a note of distribution to Muhammad M. Iqbal, Proprietor of Messrs PEMSECO and Mirza Naseer Ahmad, G.M. (G.A.) P.I.D.C. (Pvt.) Limited. Subsequently corrigendum, dated 23‑5‑1988 was‑issued by the arbitrator to the following effect,‑‑ ,

Government of Pakistan Ministry of Production

No.791/ADP/86‑Vo1.II Islamabad, 23rd May, 1988.

Corrigendum

The second sentence of Item 1 page 2 of Order No.791‑ADP/86 Vol.II dated the 16th May, 1988 is corrected and should be read as follows:‑‑

'This has no basis as these spares were not included in fixed assets shown in the tender document in response to which Messrs PEMSECO had made their offer for purchase of the mill'.

(2) The inconvenience caused due to typographical error is regretted. for Chairman,

Disinvestment Negotiating Committee

23‑5‑1988."

12. This document was tendered in evidence as Exh.P.T It appears that by virtue of this corrigendum, cuttings and additions were made in part of the award dealing with claim No1 by which material change was introduced. It will of course be a question for consideration as to whether the arbitrator, after having announced the award, could make any changes therein, in the absence of parties without hearing them or by way of issuance of corrigendum. It is true that under section 13(d) of the Arbitration Act, the) arbitrator could make correction of typographical errors but, of course, it will be a big question as to whether a correction changing the basis of conclusion could be made without notice or hearing of the parties, particularly when the arbitrator had become functus office. This part of the case does not appear to have been considered by the Court in proper legal perspective, though serious objection to the correction adopted by the arbitrator was raised. Even if the decision of the arbitrator against claim No.1 "Chinese Spares" is considered, either as it was in its original form or after amendment, it makes it obvious that reasons in sufficient detail have not been recorded for reaching the conclusion. The award is silent as to how the material questions raised by the respective parties on the basis of documents on record were decided and what was the effect of various documents, starting from tender documents, letter of acceptance, the documents annexed with the tender documents and other material, before the arbitrator on the respective claim. '

13. The case of the appellant was that respondent No. l invited offers on the basis of tender which was based upon balance sheet of 30th June, 1985 in which "Chinese Spares" were included a spare and parcel of fixed assets and were not included in the current assets, the appellant submitted his offer on 7‑1‑1986, from 7‑1‑1986 there were detailed negotiation between the parties and on that basis respondent No.1 sent letter, dated. 7‑5‑1986 which according to the appellant was the basis of the agreement Exh.R.1. According to the appellant, the sale of mill was based upon acceptance of terms and conditions contained in letter, dated 7‑5‑1986 and subsequent misunderstanding arose due to typographical mistake which had already been corrected, by author of the letter while signing the same. It was also added that the balance sheet annexed with the counter‑offer was dated 31‑3‑1986 and the appellant had signed duplicate copy of the letter, dated 7‑5‑1986 which was also signed after correction by Mirza Naeem Ahmad, author of the letter. Reference was also made to the minutes and it was claimed that certain interpolations were made by the department to change the initial stance. According to the appellant, the minutes only authorise deletion of foreign aid and cash development loan but respondent No.1 added cost of Chinese Spares in the current assets which was throughout included in the cost of fixed assets. It was, thus, claimed that any alteration or alleged interpolation subsequently, made could not reflect the rights claimed by the appellant. In this regard, reference was made to number of documents which were claimed to have been produced before the arbitrator. The perusal of award in regard to claim No. l' reveals that the arbitrator did not give any reason for the conclusion drawn nor the award is indicative of the fact as to how the conclusion formed by th4 arbitrator was reached and how the documents in the light of the facts noted supra were dealt with by the arbitrator. In this view of the matter, the award cannot be said to have been E framed in accordance with the provisions of section 26‑A of the Arbitration Act and the proper course will be to remit the same for securing reasons and to adjudicate on the objections thereafter. The learned Civil Judge acted with material illegality, in refusing to remit the award and disposing of the objection without securing the reasons of the award, to the extent of claim No. 1, from the arbitrator.

14. It may be observed that the impugned order to the extent of making the award rule of the Court qua claims Nos.2 to 20 has not been challenged, therefore, to that extent the order attains finality and need not be interfered with. It is also observed that C.M. No.622/C of 1995 was moved in the appeal for producing additional evidence which need not be decided on merit, as the award is being remitted to the arbitrator .for sending detailed reasons. However, on the submission of award in the trial Court, the appellant shall be at liberty to repeat request for production of additional documents in the said Court, which, of course, will attend to the same and decide it on merit while dealing with the objections to the award. C.M. No.622/C of 1995 is accordingly disposed of.

15. For the reasons hereinabove, this appeal is allowed, the impugned order and decree to the extent of claim No. 1 is set aside, the award is remitted to the arbitrator with the direction to state reasons in sufficient detail for the award and to resubmit the same in the Court of learned Civil Judge, Islamabad, within four months from the date of this judgment, for further proceedings, in accordance with law.

Q.M.H./M.A.K./M‑18/L Appeal allowed.