SHAHZAD ALI USMANI CHOHAN Versus MANAGING DIRECTOR, SIND SMALL INDUSTRIES CORPORATION
1. A dispute between the parties regarding a claim arising out of a contract was referred to sole arbitration. On 28th April, 1986, the arbitrator made an award in favour of the plaintiffs in the sum of Rs.2,23,663.71. The arbitrator applied to this Court for a decree in terms of the award. The defendants filed objections to the award, on the grounds that the defendants were not given reasonable opportunity of being heard by the arbitrator and the arbitrator misconducted himself by his omission td give notice to the defendants of his intention to proceed ex parte. The Arbitrator misconducted himself by awarding (i) Rs.56,983.72 as additional cost for shuttering, (ii) by awarding Rs.69,000 as damages on account of staff remaining idle, (iii) awarding Rs.6,685 as interest as no provision exists in the contract, (iv) awarding Rs.50,759.99 as interest on account of delay, (v) awarding Rs.1,32,668 as damages on account of losses, and (vi) awarding Rs.40,235 towards final bill without giving finding on defendants claim for reconciliation of quantity of cerrent supplied to the plaintiffs amounting to Rs.22,000 and failing to allow Rs.2,735 as 3$ income‑tax deduction and retention money of Rs.15,000.
2. Briefly the facts of the case are that Messrs D . H . Daruwala & Company were appointed as Architects by the defendants in connection with carrying out the work of construction of proposed extension to existing building on Plot No.AM‑310, Preedy Street, Sadder, Karachi, owned by the defendants. The said Architects invited tenders for the aforesaid works. The tender submitted by the plaintiffs was accepted and approved by the defendants vide their letter dated 17‑1‑1981. Consequently the agreement was executed on 12‑4‑1981. The value of the works was Rs.19,09,951. The agreement contained the arbitration clause for reference of the disputes to two arbitrators, one to be nominated by the defendants and one by the plaintiffs or in case of the said arbitrators not agreeing, then to an umpire to be appointed by the arbitration in writing before proceeding on the reference and the decision of the arbitrators or in the event of their not agreeing of the umpire shall be final and conclusive and binding.
3. Plaintiffs by notice dated 3‑10‑1985 nominated Shajar Ali Hoti as their arbitrator and called upon the defendants to nominate their arbitrator within 15 days of the receipt of notice. As the defendants failed to nominate their arbitrator within the stipulated time, the plaintiffs by their letter dated 4‑12‑1985 requested their arbitrator to proceed for arbitration. The defendant sent a reply bated 29‑12‑1985 stating therein that there is no dispute between the parties. Parties were directed to appear‑ before him on 2‑1‑1986.
4. Mr. Rashid Tariq, learned counsel for the defendants submits that the defendants were not given reasonable opportunity of being heard by the arbitrator, the arbitrator misconducted himself by his omission to give notice to the defendants of his intention to proceed ex parte.
5. From the record of the arbitration proceedings it is apparent that on 2‑1‑1986 the plaintiffs and their counsel appeared before the arbitrator but none appeared before him on behalf of the defendants. The case was adjourned to 18‑1‑1986. On 1‑1‑1986 the defendants sent a reply to the arbitrator stating therein that clause 16 provides appointment of two arbitrators. The arbitrator sent a letter dated 2‑1‑1986 to the defendants. The defendants sent a reply dated 14‑1‑1986 stating therein that defendants are in the process of nomination of their arbitrator. On 18‑1‑1986 the arbitrator decided to proceed as sole arbitrator and adjourned the case to 25‑1‑1986 giving another opportunity to the parties to file necessary statements of claim on 25‑1‑1986 at 4 p.m. Parties were also directed to pay arbitrator fee of Rs.10.000 each on the next date of hearing. On 25‑1‑1986 the plaintiffs filed statement of claim and the case was adjourned to 2‑2‑1986, for filing of reply to the statement of claim. The defendants by their letter dated 30‑1‑1986 requested the arbitrator to supply copy of statement and further requested that the case be adjourned upto 9‑2‑1986 as their managing director was out of Pakistan. On 1‑2‑1986 the case was adjourned to 9‑2‑1986. On 9‑2‑1986 the plaintiffs and their counsel were present. None was present for the defendants and the case was adjourned to 17‑2‑1986 for the evidence of the plaintiffs. On 9‑2‑1986 the arbitrator sent a letter intimating that on 17‑2‑1986 the evidence of the plaintiffs would be recorded. On 17‑2‑1986 the case was adjourned to 8‑3‑1986 for recording evidence of the plaintiffs. On 8‑3‑1986 the evidence was recorded and the case was adjourned for evidence of plaintiff's witness to 31‑3‑1986. On 31‑3‑1986 deposition of Felix D Costa, Office Secretary of D.H. Daruwalla was recorded. The case was adjourned to 28‑4‑1986 for the award.
6. On the other hand Mr. Khalilur Reman, learned counsel for the plaintiffs submits that reasonable opportunity was given to the defendants. The arbitrator has not misconducted in this case. The objections be dismissed and the award be made rule of the Court.
7. The question for consideration is whether in this case the arbitrator should have given notice of his intention to proceed ex parte against the defendants when they had not appeared before him on 9‑2‑1986. There is no hard and fast rule of giving notice by the arbitrator of his intention to proceed ex parte. But the principles of natural justice require that a person cannot be condemned unheard and he should be afforded a reasonable opportunity of being heard.
8. In the instant case the managing director of the defendants was out of Pakistan at the relevant time. The copy of the claim was not annexed to letter dated 28‑1‑1986 sent by the arbitrator. The defendants stated in their letter dated 30‑1‑1986 that the reply could not be filed. It is not ascertainable from the record whether the copy of claim was supplied to the defendants or not. In Halsbury's Laws of England, 4th Edition, Volume 2, Page 306, para 590, it has been stated as under:‑
9. Where the arbitrator proposes to proceed with the reference notwithstanding the absence of one of the parties, it is advisable that he should give that party distinct notice of his intention to do so.
10. If reasonable excuse for not attending the appointment can be shown, the Court will set aside an award made by an arbitrator who has proceeded ex parte."
11. In Russell on Arbitrator, 19th Edition. page 271 the following passages appear:‑
12. "Notice of intention to proceed ex parte. In general, the arbitrator is not justified in proceeding ex parte without giving the party absenting himself due notice. It is advisable to give the notice in writing to each of the parties of their solicitors. It should express the arbitrator's intention clearly, otherwise the award may be set aside. An ordinary appointment, for a meeting with the addition of the word 'pre‑emptory' marked on it is, however, sufficient. ,
13. If the arbitrator declines to proceed on the first failure to attend a pre‑emptory appointment and gives another appointment he is not authorised to proceed ex parte at the second meeting unless the appointment of it was also marked 'pre‑emptory or contained a similar intimation of his intention."
14. In Udaichand Panna Lall v. Debibux Jewanram AIR 1920 Calcutta 853 it has been observed that before an arbitrator proceeds ex parte, he should give notice in writing to each of the parties, otherwise the award may be liable to set aside. In Bhowanidas Ramgobind v. Harasukhdas Ballishendas (AIR 1924 Cal. 524), a Division Bench held that arbitrators should give notice of their intention to proceed ex parte if one of the parties should not appear but their award is valid if the complainant has not been prejudiced in any manner by the failure of the arbitrators to give such notice. In Pratapsingh v. Kishanprasad and Company Ltd. (AIR 1932 Bom. 68) it has been observed that even when an arbitrator considers that the time and place fixed by him for the meeting are reasonable and if after service of notice one of the parties to the arbitrator fails to attend before him, he is entitled to proceed ex parte. But it is advisable for him though it is not compulsory that he should give that party notice of his intention to do so. Similar observations were made in Prem Nath L. Harsaran Dass and another v. Om Parkash L. Ram Kishan Dass (AIR 1956 Punjab 187) and Ariyur Muhammad Habeebur Rehman and others v. Ansuri Varamma and another AIR 1974 A.P.
113. In Juggilal v. General Fibre Dealers Ltd. AIR 1955 Cal. 354, Chakravati, C.J. speaking for the Court laid down the following principles:‑
15. The procedural rule applicable to arbitration proceedings is more tolerant than the rule followed in Courts of law. Broadly stated, the principles governing the arbitrator's right to proceed ex parte are:
16. If a party to an arbitration agreements fails to appear at one of the sittings, the arbitrator cannot or, at least, ought not to, proceed ex parte against him at that sitting. Where the non‑appearance was accidental or casual, the arbitrator ought ordinarily to proceed in the ordinary way, fixing another date of hearing and awaiting the future behaviour of the defaulting party.
17. If, on the other hand, it appears that the defaulting party had absented himself with a view to preventing justice or defeating the object of the reference, the arbitrator should issue a notice that he intends at specified time and place to proceed with the reference and that if the party concerned does not attend, he will proceed in his absence. But, if after making such a pre‑emptory appointment and issuing such a notice, the arbitrator does not in fact proceed ex parte on the day fixed, but fixes another subsequent date, he cannot proceed ex parte on such subsequent date, unless he issues a similar notice in respect of that date as well.
18. If he issues a similar notice and the party concerned does not appear, an award made ex parte will be in order. But he does not issue such a notice on the second occasion, but nevertheless proceeds ex parte, the award will be liable to be set aside in spite of a notice of a pre‑emptory hearing having been given in respect of the earlier date, subject, however, to the condition that prejudice was caused to the party against whom the ex parte order was made. But this duty to give notice of an intention‑to proceed ex parte is not an absolute duty.
19. If it appears from the circumstances of the case that a particular party is determined not to appear before the arbitrators as in any event, as when he has openly repudiated either the reference itself or the particular arbitrators and has shown no desire to recant, the arbitrators are not required to issue a notice of an intention to proceed ex parte against such a recusant person and may proceed ex parte and make a valid award without issuing a notice. The better course, however even in such a case is to issue a notice and give the party concerned a chance to change his mind.
20. Where the question arises after an. ex parte award has, in fact, been made and it appears that no notice of intention to proceed ex parte had been given, the principle to be applied is that the award will not be upheld, unless it is shown or it appears that the omission to give a notice has not caused any prejudice to the party against whom the ex parte award was made, because he had made it abundantly clear that he would not appear before the arbitrators in any circumstances. When there has been an omission to give a notice, there will, however, always be a presumption that prejudice has been caused. But the presumption can be rebutted by circumstances appearing on the face of the record. The principle to be borne in mind in such cases is that the failure to attend is not required to be explained on satisfactory grounds in order to dislodge the ex parte award, but the ex parte award requires to be defended by establishing that the omission to issue a notice of an intention to proceed ex parte has not caused any prejudice."
21. In Mst. Amir Begum v. Syed Badr‑ul‑Din Hussain and others A I R 1914 P C 105, it has been observed that if irregularities in procedure can be proved which would amount to no proper hearing of the matters in dispute, there would be misconduct sufficient to vitiate the award without any imputation on the honesty or partiality of the arbitrator but the onus of proving the irregularities in procedure is on the person alleging the same. Similar observations were made in Sadhu Singh and others v. Bameo Singh A I R 1943 Patna 318.
22. In Khan Bahadur Allah Bukhsh Gabole v. Mst. Razia Begum PLD 1960 Karachi 455, it has been observed "that although an arbitrator is allowed considerable latitude in the procedure to be followed by him at the hearing, it is. his paramount duty to afford the parties a reasonable opportunity to know the case against them for defending it before him. He cannot condemn a party without letting him know the case against him. If he makes an award without complying with such elementary principles of natural justice, he does so at the risk and peril of his award being set aside on ground of misconduct. In my opinion in order tp justify an arbitration proceeding ex parte a very strong case must be made out of wilful delay of the party at fault and if a reasonable cause is shown it is the duty of the Court to set aside such an award. The defendant's counsel's telegram dated 9‑6‑1959 shows anxiety on defendant's party to know the terms of reference. It also shows change of latitude and the possibility, that on knowing the plaintiff's _ claim, she might choose to participate in the arbitration cannot be ruled out. But the learned arbitrator did not appreciate the implication of the telegram and failed to give the defendant reasonable opportunity to defend the plaintiff's claim before him". In the same judgment it has been ,further observed "that the learned arbitrator did not communicate the disputes and claims of the plaintiff pending before him to the defendant, he proceeded in the matter in utter haste and bypassed the ordinary principles of natural justice which are inherent in all quasi‑judicial proceedings. It was his duty to wait till such time as the defendant was apprised of the plaintiff's claim before proceeding ex parte".
23. In M. Ameen M. Bashir Ltd. v. Haji Soomar Haji Hajjan Potoli P L D 1977 Karachi 973 it has been observed as follows:‑
24. However, applying the principles laid down in the aforesaid decision, it is difficult to hold in this case that the defendants had manifested any intention to defy the arbitration proceedings or an intention not to appear at all events."
25. In Paracha Textile Mills Ltd. v. Nanikram Shamdas P L D 1977 Karachi 37, it has been observed that "there can be no cavil against the proposition of law that an arbitrator has to adhere to the principles of natural justice in spite of the latitude in the matter of procedure allowed to him at the hearing. The basic norms of fair adjudication contained in the rule of natural justice are inherent on the adjudication of a dispute by any domestic tribunal.
26. Accordingly, if the Court finds that at no stage in the history of the dispute and its eventual adjudication by the arbitrator, the adverse party is informed about the claim of the party seeking decision of the dispute, the award must necessarily be struck down" . In Suit No.99 of 1987 Naiyyar Pesh Imam v. M/s. Rajput and Company decided by me on 3‑7‑1980, I set aside t‑he award on the 'ground that the arbitrator misconducted himself by his omission to communicate the claim of the plaintiff and served a pre‑emptory notice of his intention to proceed ex parte against the defendants, who have been prejudiced by omission of such claims and notice.
27. From the statement of law laid down in Halsbury's Laws of England and Russell on Arbitration and these authorities it is apparent that an arbitrator ought not to proceed ex parte against a party if he has failed to appear at one of the sittings. The arbitrator should fix another date for hearing and give notice to the defaulting party of his intention to proceed ex parte on a specified date. time and place.
28. When an ex parte award has been made the principle to be applied is that the award will not be upheld unless it is apparent that the failure to give notice of intention to proceed ex parte has not caused any prejudice to the party against whom an ex parte award was made.
29. Keeping in view of the above principles it has to be seen what is the position of the, present case? The defendants have been) contesting the claim of the plaintiff tooth and nail since the date of issuance of notice dated 3‑10‑1985. Their case has been that they were not liable to pay any amount and there is no dispute between the parties. They sent a letter dated 14‑1‑1986 stating therein that there is no provision for sole arbitrator and the defendants are in the process of nomination of their arbitrator. The defendants by I their letter dated 30‑1‑1986 informed the learned arbitrator that the' managing director of the defendants was out of country and expected to arrive Pakistan in the first week of February, 1986. It is also mentioned that in his absence reply to the claim cannot be filed and also decision for payment of fees is to be given by the said authority. The defendants also requested that copy of claim was to be given to them. On 9‑2‑1986 the learned arbitrator passed the following order:
30. Case called. Mr. Khalilur Rehman, Advocate alongwith plaintiff Mr. Shahzad Ali Chohan are present, none present on hehalf of M/s. Sind Small Industries Corporation in spite of their request for extension of time for filing reply to the statement of claim upto 9‑2‑1986. No further time can be allowed to the defendant.
31. The matter is now adjourned to .17‑2‑1986 at 4.00 p.m. for evidence of the plaintiff."
32. The copy of the diary sheet was sent by letter dated 9‑2‑1986. Again on 17‑2‑1986 the case was adjourned to 8‑3‑1986. On 8‑3‑1986 deposition of Chohan was recorded and the case was adjourned to 31‑3‑1986 to summon his witnesses. In these circumstances the arbitrator ought to have issued a pre‑emptory notice to the defendants of his intention to proceed ex parte on 17‑2‑1986. The diary sheet as well as letter dated 9‑2‑1986 are absolutely silent as to whether the copy of the claims was delivered to the representative of the defendants. There is nothing on record that the letter dated 9‑2‑1986 was delivered to the defendants. The arbitrator could have recorded in the margin of the diary that the copy of claim was delivered to the representative of the defendants. The managing director of the defendants, as already stated, was out of country. The defendants have been prejudiced by omission of notice by the arbitrator of his intention to proceed ex parte. The defendants cannot be said to be aware of the proceedings fixed for 17‑2‑1986, 8‑3‑1986, 24‑3‑1986 and 31‑3‑1986. Thus, after going through the record and proceedings before the arbitrator, I am of the opinion that omission to give notice to proceed ex parte against the defendants and failing; to supply the copy of the claim by the plaintiff, the arbitrator has prejudiced them. This omission on the part of the arbitrator is an irregularity in procedure adopted by the arbitrator and amounts to misconduct as the defendants have not been given proper hearing of the matters in dispute and as such the award is liable to be set aside.
33. In this view of the matter I do not propose to deal with the raised by the defendants. I accordingly set aside other objections raised the award dated 28‑4‑1986. In the circumstances of the case, parties will bear their own costs.
34. Award set aside M.Y.H./S‑274/K,