1986 C L C 2800

[Lahore]

Before C. A. Rahman, J

PROVINCE OF PUNJAB through

Secretary to Government of Punjab, Communication and Works Department and 4 others--

Appellants

versus

EHSAN FAZAL & COMPANY, LAHORE--Respondent

First Appeal from Original Order No. 167 of 1985, heard on 20th January, 1986.

(a) Arbitration Act (X of 1940)--

---Ss. 34 & 39(1)(v)--Civil Procedure Code (V of 1908), O.VIII, R.1- Stay of proceedings for filing of
written statement--Further steps in proceeding--Determination of--Case having been adjourned by Court
in routine for filing written statement by defendant and not on written request made by appellants--Such
adjournment, held, would not amount to taking steps in proceedings before moving Court under S.34, Act
X of 1940 for staying proceedings in suit nor would same amount to waiver of right to invoke arbitration
clause.

Mubarik Cotton Factory v. General Agencies P L D 1980 BJ 1; Messrs Parem Nath Paran Nath v. Amba
Parashad A I R 1941 Lah. 64; Sat Pal v. R.K. Ahaja A I R 1973 Punjab 1q7; Badshah Meah Sowdagar v.
Nurul Haq and others P L D 1967 Dacca 250; M.D. Esack v. Raja Miah P L D 1969 Dacca 791; Island
Textile Mills Limited Karachi v. V/0 Techno-exper and another 1979 C L C 307; Pfaff Company Ltd. v.
Sartaj Engineering Company Limited P L D 1970 Lah. 184; Chanand's & Sons v. Harbachan Singh Hardit
Singh A I R 1952 Punjab 109; Muhammad Idrees v. Tabarak Hussain P L D 1965 Dacca 260 and Pakistan
International Airlines Corporation v. Pak. Saaf Dry Cleaners P L D 1981 S C 553 rel.

(b) Arbitration Act (X of 1940)----

--Ss. 34 & 39(1)(v)--Stay of proceedings--Criterion for--Main criterion for determining whether

proceedings under S.34 of Act X of 1940 should be stayed and dispute between parties to be referred to
arbitration, held, would be whether there was valid agreement between parties and dispute brought before
Court arose out of said agreement--Existence of agreement between parties having not been desired and
there being no controversy that claim of respondent has arisen out of said agreement, proceedings in suit
were stayed and Trial Court was directed to proceed in accordance with clause of said agreement to refer
matter to arbitration in circumstances.

Novelty Cinema Faisalabad v. Firdous Films P L D 1958 (W.P.) Lah. 208 and Gill Company Limited v.
Samad Aziz and Company P L D 1961 (W.P.) Kar. 700 ref.

Muhammad lqbal for Appellants.

Ghulam Muhammad Bhatti for Respondent.

Date of hearing: 20th January, 1986.

JUDGMENT

The present appeal has been filed under section 39(1)(v) of the Arbitration Act, 1940 against order, dated
21-7-1985 of Civil Judge 1st Class, Lahore, whereby the appellants' application under section 34 of the
aforementioned Act for staying proceedings in the suit instituted by the respondent against the appellants
for recovery of Rs.26,28,153,84 was dismissed.

2. The respondent firm was allocated the work of 'Remodelling of Panjnad Head works--Decking of
Panjnad Bridge', by the Chief Engineer, Highways Department, Punjab, Lahore, in 1980, after its tenders
were accepted. Formal intimation of acceptance of the respondent firm's tender and allocation of the work
was conveyed by Executive Engineer, Highways Division, Bahawalpur, vide Memo. No. ST/43-W/3230,
dated 22-5-1980. The work was completed on 31-5-1982 and a final bill of Rs.2,91,692.84 was prepared.
In addition the respondent firm claimed a sum of Rs.17,69,607 on account of 10% deductions made out of
the running bills and interest on the amount so deducted. As the aforementioned outstanding amount was
not paid to the respondent firm a suit for recovery of the said amount with interest amounting to
Rs.5,66,054 was instituted in the Court of Senior Civil Judge, Lahore, on 5-3-1985. The suit was entrusted
to Ch. Nabi Ahmad, Civil Judge 1st Class, Lahore for disposal. On 11-6-1985 an application under section
34 of the Arbitration Act 1940 was submitted on behalf of the appellants praying for staying of
proceedings in the suit and referring the dispute to arbitration in terms of clause 25(a) of the agreement
entered into between the parties with regard to the execution of the work of 'Remodelling of Panjnad
Headworks' Decking of Punjnad Bridge. The application was opposed by the respondent inter alia on the
ground that the appellants had not disclosed the dispute in the application, which, according to them, was
to be referred to the arbitration; and that the respondent's claim was not covered by clause 25(a) of the
agreement. The learned Civil Judge, after hearing the parties' counsel, dismissed the application on the
grounds that the appellants had not moved the Court immediately after appearance in Court for staying
proceedings in the suit and that they had also failed to disclose the alleged dispute, which they wanted to
be referred to arbitration.

3. Learned counsel for the appellants has submitted that the application under section 34 of the Arbitration
Act, 1940 was filed on behalf of the appellants before filing written statement or taking any other step in
the proceedings. The requirements of section 34 were fully met. There was no controversy with regard to
the dispute between the parties inasmuch as the respondent had claimed the amount in suit as outstanding
under the agreement pertaining to the execution of work of 'Remodelling of Panjnad Head works--
Decking of Panjnad Bridge', which according to the respondent, the appellants had refused to pay. The
above dispute clearly fell within the purview of clause 25(a) of the agreement and as such could be
resolved through arbitration.

4. Learned counsel for the respondent has contended that the appellants had filed the application after
taking steps in the proceeding, and the learned trial Court has rightly refused to stay the suit under section
34 of the Arbitration Act. He has stated that after service of summonses no one had appeared on behalf of
the Province of the Punjab, and Secretary to the Government of the Punjab, appellants Nos. 1 and 2
respectively on 24-3-1985, which was fixed as the date of hearing by the Court with the result that ex
parte proceedings were ordered against them. On 22-4-1985 the District Attorney filed an application
under Order IX rule 7, C.P.C. on behalf of the aforementioned appellants for setting aside the ex parte
proceedings. According to .the learned counsel for the respondent the filing of the aforementioned
application amounted to taking steps in the proceedings, and, therefore, application under section 34 of the
Arbitration Act 1940 filed subsequently on behalf of the appellants did not merit consideration. Learned
counsel for the respondent had also referred to order, dated 22-4-1985 passed by the learned trial Judge,
whereby the case was adjourned to 1-16-1985 for filing written statement. According to the learned
counsel the case was adjourned for filing written statement at the request of the District Attorney and that
such request also constituted a step in the proceedings for the purposes of section 34 of the Arbitration,
Act, 1940. Relying on Mubarik Cotton Factory v. General Agencies P L D 1980 BJ 1 learned counsel for
the respondent has submitted that the Court was not bound to stay the proceedings.
5. At the outset it may be pointed out that the only ground, on which the appellants' application under
section 34 was opposed by the respondent, as stated in the reply to the above application, is that the
appellant's have failed to mention the dispute in the application, which they want to be referred to
arbitration. The plea now taken by the respondent that provisions of section 34 were not attracted to the
facts of the case because the appellants had taken steps in the proceedings before filing the application
was neither stated in the application nor was seriously urged before the learned trial Court. There is no
doubt that in the impugned order the learned trial Court has made a reference in passing to the effect that
the appellants did not move the Court for staying proceeding in the suit immediately after appearance in
Court and before filing the written statement but there is no material on the record to support the above
view. On going through the record it has been found that the case was registered on 5-3-1985 and
summonses were ordered to be issued to the appellants for 24-3-1985. The Superintending Engineer,
Highways Circle. Bahawalpur and the Executive Engineer. Highways Division, Bahawalpur appellants
Nos. 3 and 4 were represented by Naair Ahmad Sub-Divisional Officer when the case came up for hearing
before the Court on 24-3-1985. As no one appeared on behalf of appellants Nos. 1 and 2 after service of
summons, they were proceeded against ex parte and fresh summons were ordered to be issued to
respondent No. 5 for 11-4-1985. The Presiding Officer of the Court on leave on 11-4-1985 and the case
was adjourned to 22-4-1985 on which date the District Attorney appeared on behalf of all the appellants
and filed Memo. for appearance. The Court adjourned the case for filing written statement on 11-6-1985.
There is nothing in the order to indicate that the adjournment was granted by the Court at the request of
the District Attorney. It is, therefore, not possible to accept the contention of the learned counsel for the
respondent that the adjournment of the case for filing written statement, in the circumstances, amounted to
taking steps in the proceedings. Even otherwise there is a direct authority in support of the proposition that
granting of time for filing written statement is not a step taken by the defendants in the proceedings.
Massrs Parem Nath Paran Nath v. Amba Parashad A I R 1941 Lah. 64 may be referred in this behalf. This
case was relied upon in Sat Pal v. R.K. Ahaja A I R 1973 Pb. 197. It may also be noticed that seeking
adjornment by the defendant from the Court for filing reply to the application for injunction or application
for appointment of receiver also does not amount to taking step in the proceedings for the purpose of
section 34 of the Arbitration Act, 1940. Badshah Meah Sowdagar v. Nurul Haq and others P L D 1967
Dacca 250. M.D. Esack v. Raja Miah P L D 1969 Dacca 791 and Island Textile Mills Limited Karachi v .
V/0 Techno-expert and another 1979 CLC 307 may be referred in this behalf. By filing a reply to the
application for temporary injunction the defendant cannot be said to have taken step in the proceedings as
was held in Pfaff Company Ltd. v. Sartaj Engineering Company Limited P L D 1970 Lah. 184. Similarly
filing of application for setting aside ex parte proceedings by the defendant cannot be considered taking
step in the proceedings as was held in Chanand's and Sons v. Harbachan Singh Hardit Singh AIR 1952
Punjab 109. The case of Mubarik Cotton Factory cited by the learned counsel for the respondent is
distinguishable on, facts. In that case the respondent-defendant after appearing in Court had obtained
adjournment for filing the written statement and thereafter had not got ex parte proceedings set aside.
Adjournment had also been granted by the Court at his request for his settlement or compromise. It was,
under these circumstances, held that the defendant had waived his right of invoke the Arbitration clause of
the agreement. In the above case reliance was also placed on Muhammad ldrees v. Tabarak Hussain P L D
1965 Dacca 260 where application submitted for getting time to file written statement was held and as
amounting to taking steps in the proceedings. It may be appreciated that seeking adjournment to file
written statement barely making a verbal request is quite different from filing application in the Court for
grant of time to file written statement. In the latter case there is a positive action on the part of the
defendant indicating that he does not want the dispute to be settled through arbitration and that is why he
wants to file written statement. While considering the effect of an application submitted by the defendant
seeking adjournment of the case to enable him to file written statement it was held by the Supreme Court
in Pakistan International Airlines Corporation v . Pak. Saaf Dry Cleaners P L D 1981 S C 553 that:-

"In my opinion, the true tests for determining whether an act is a step in the proceedings is not so much
the question as to whether the party sought an adjournment for filing the written statement all thought of
course that would be a satisfactory test in many cases-but whether taking into consideration the contents
of the application as well as all the surrounding circumstances that led the party to make the application
display an unequivocal intention to proceed with the suit, and to give up the right to have the matter
disposed of by arbitration. An application of such nature, therefore, should prima facie be construed as a
step in the proceedings within the meaning of section 34, and the whole burden should be upon the party
to establish why effect should not be given to the prima facie meaning of the application. "

6. As noticed earlier no request was made by the District Attorney for adjournment for filing written
statement on behalf of the appellants. There is also no application filed by the District Attorney in the
Court seeking adjournment to file written statement. The case was adjourned by the Court in routine for
filing written statement by the defendants. On the next date of hearing the appellants filed application
under section 34 of the Arbitration Act. In the circumstances it cannot be said that the appellants had
waived their right to invoke the arbitration clause of the agreement or they had taken any step in the
proceedings before moving the Court under section 34 of the Arbitration Act for staying proceedings in
the suit.

7. One of the reasons stated by the learned trial Court for dismissing the appellants, application is that they
had failed to mention the dispute in the application, which they wanted to be referred to arbitration. A
perusal of the reply of the appellants application would reveal that the respondent has specifically stated
that the amount in suit was claimed under the agreement by which the construction work was given to the
respondent. Clause 25 (a) of the agreement is quite clear and provides that in the event of any
disagreement arising out of the contract the matter shall first be referred to the Superintending Engineer,
Highways Circle, for decision. Evidently the claim of the respondent, which was denied by the appellants,
was a matter, which had arisen out of the contract and was to be settled in terms of clause 25(a). In
Novelty Cinema Faisalabad v. Firdous Films P L D 1958 (W.P.) Lah. 208 application for stay filed under
section 34 of the Arbitration Act, 1940 filed by the defendant was refused on the ground that the
defendant had failed to mention the dispute in the application. In that case the defendant had not even
mentioned the existence of agreement between the parties under which the dispute was sought to be
referred to arbitration. Moreover, one of the defendants in the suit was not a party to the agreement and
the plea on which the suit was defended by the other defendant was that the former was not its agent and
there was no agreement. The omission to mention the dispute in the application under section 34 is not
considered fatal. In this connection reference may be made to Gill Company Limited v. Samad Aziz t
Company P L D 1961 (W.P.) Kar. 700. The main criterion for determining whether the proceedings under
section 34 of the Arbitration Act, should be stayed and the dispute between the parties to be referred to
arbitration is whether there is a valid agreement between the parties and the dispute brought before the
Court arises out of the said agreement. The above criterion is amply fulfilled in the present case because
the existence of the agreement between the parties is not denied and it is also not controverted that the
claim of the respondent has arisen out of the said agreement.

In view of what has been stated above the appeal is accepted and the impugned order, dated 21-7-1985
passed by the learned trial Court is set aside. The proceedings in the suit are stayed and the learned trial
Court is directed to proceed in accordance with clause 25(a) of the agreement to refer the matter to
arbitration. Having regard to the facts of the case the parties are left to bear their own costs.

H . B . T . Appeal accepted.