MESSRS M. A. NAWAZ & Co. (REGD.) AND 5 OTHERS vs NATIONAL BANK OF PAKISTAN THROUGH ITS REGIONAL MANAGER, MULTAN
This petition arises from a money suit initiated by the respondent-Bank against the petitioners for the recovery of Rs. 2,08,795.05, representing an outstanding balance on an overdraft account secured by a pledge of the petitioners' factory building and goods. Following the destruction of the insured assets by fire, the petitioners initiated arbitration proceedings against the insurance company to recover their losses. The core legal question was whether the pending arbitration proceedings between the petitioners and the insurance company regarding the insurance claim justified a stay of the recovery suit filed by the Bank against the petitioners under Section 34 of the Arbitration Act. The Supreme Court held that the Bank, not being liable for the fire loss, had no legal interest in the outcome of the arbitration proceedings between the petitioners and the insurance company. Consequently, the Court affirmed the lower courts' dismissal of the petitioners' application for a stay of proceedings. The key principle established is that a suit for recovery of a debt cannot be stayed merely because the debtor is pursuing separate arbitration proceedings against a third party for insurance claims related to the pledged assets.
- Can a suit for recovery of a debt be stayed under Section 34 of the Arbitration Act 1940 due to pending arbitration proceedings between the defendant and a third party?
- Does a bank's recovery suit against a debtor depend on the outcome of the debtor's insurance claim arbitration against an insurer?
- Section 34, Arbitration Act 1940
1. SAJIAD AHMAD, J.-This petition arises out of a money suit brought by the respondent-Bank against the petitioners for recovery of Rs. 2,08,795.05 due from the latter on an over-draft account of the petitioners with the Bank against pledge of their factory building, goods and stocks which they were obliged to insure with an Insurance Company under the conditions of the loan.
2. The factory building and the goods of the petitioners which were insured with the Muslim Insurance Company, caught fire and were destroyed. A claim was preferred against the company by the petitioners which was referred to arbitration under the arbitration clause in the insurance policy.
3. The award has since been given but its legality and adequacy is the subject-matter of litigation in cross-cases between the insurance company and the petitioners.
4. It is admitted that the Bank is not liable for the loss which has occurred to the petitioners on account of fire. It is therefore not concerned with the adjudication of the petitioners' claim against the insurance company in arbitration proceedings. No exception can be taken to the order made by the Courts below in dismissing the petitioners' prayer for stay of the proceedings in the suit brought by the respondent against the petitioners under section 34 of the Arbitration Act.
5. The petition is dismissed.
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