Shahid Muneer Sattar vs Mst. Mamoona Asad Raza etc.

Stereo. H C J D A 38.

JUDGMENT SHEET

LAHORE HIGH COURT

RAWALPINDI BENCH RAWALPINDI

JUDICIAL DEPARTMENT

FAO No.59/2019

Shahid Muneer Sattar Versus Mst. Mamoona Asad Raza etc.

JUDGMENT

Date of Hearing: 22.12.2022 Appellant by: Sh. Zameer Hussain, Advocate along with Mr. Shaheryar Khan, Advocate.

Respondents No.1 Mr. Abdur Rashid Awan, Advocate. and 2 by:

Respondent Mr. Abid Jalil, Advocate.

No.3/Appellant in connected FAO No.64/2019 by:

Anwaar Hussain, J. Through this single judgment, the titled as well as connected appeal bearing FAO No. 64/2019 are simultaneously being decided as both the appeals lay challenge to the same judgment of the learned Trial Court dated 11.04.2019 whereby the award dated 31.12.2018, rendered by the learned Arbitrator, was made Rule of Court in terms of Section 17 of the Arbitration Act, 1940 (“the Act”) and the suit instituted by respondents No. 1 and 2 was decreed giving rise to common questions of law and fact, which require opinion of this Court.

Factual Background:

2.By way of factual background, it has been noted that Mst. Mamoona Asad Raza and Mst. Samia Mansoor Hussain (“the

respondents/plaintiffs”) being owners in possession of the property bearing number 34-Morning Side Estate, Rich Bel Road, Kashmir Point, Murree (“the Property”), entered into a joint venture agreement dated 06.09.2008 (“the Agreement”) with Shahid Munir Sattar (“the appellant/defendant”) who has preferred the present appeal. Under the Agreement, the parties agreed with respect to completion of development work of the Property in the terms that complete control of the Property was given to the appellant/defendant who was obligated to complete the development, install an elevator therein, and obtain approval of building plan of the Property from the authority/regulator concerned. It was further agreed that once the development was completed, the Property was to be let out through short and/or long-term leases and the income generated therefrom was to be distributed as per the Agreement. The expenditure which was to be incurred for carrying out the development work was to be spent by the appellant/defendant and was to be treated as loan from the appellant/defendant to the respondents/plaintiffs that was to be adjusted by retaining 50 percent of the rental income by the appellant/defendant and the remaining 50 percent was to be divided equally between the parties till such time that the entire loan amount was adjusted where after the income was to be divided equally between them. The Agreement also stipulated that the audit would be got conducted by the appellant/defendant by firms such as M/s Ferguson.

3.The appellant/defendant after completion of the work tried to manage the affairs of the Property for sometimes by entering into short-term tenancies but when the revenue/income expectation remained elusive and could not reach desired level, he entered into a tenancy agreement initially with one Irfan Aqeel Daultana followed by subsequent tenancy agreements with Mr. Imran Aqeel Daultana (“the tenant”), who is presently occupying the property pursuant to tenancy agreement dated 03.01.2017 (“the Tenancy Agreement”)

and is the appellant in the connected appeal. The tenant is admittedly running a hotel in the name and style of Massionitee and agreed to pay an amount of Rs.5,000,000 as annual rent to the appellant/defendant. The term of the tenancy under the Tenancy Agreement is valid till 01.11.2023.

4.On 24.02.2017, the respondents/plaintiffs instituted a suit against the appellant/defendant as well as the tenant who was arrayed as defendant No.2 in the suit. Prayer in the suit was made for cancellation of the above referred agreements, grant of permanent and mandatory injunction and recovery of possession of the Property, with the averments that the appellant/defendant has committed material breach of the terms and conditions of the Agreement that, inter alia, includes failure to make any payment, conduct audit, associate the respondents/plaintiffs while taking major business decisions such as long-term lease with the tenant etc. Contesting written statement was filed by the defendants arrayed therein. Alternate dispute resolution clause was invoked by the appellant/defendant and the learned Trial Court appointed a Chartered Accountancy Firm, namely, M/s Tahir Shah & Company as arbitrator. Said appointment was assailed in constitutional petition bearing W.P No. 1450/2018 and vide order dated 30.05.2018, this Court appointed Justice (R) Ch. Mazhar Hussain Minhas as the Arbitrator. Terms of Reference (“TORs”) were settled by the learned Trial Court, vide order dated 25.08.2018. Subsequent thereto, the learned Arbitrator conducted the arbitration proceedings and also invited the tenant to participate in the proceedings who refused to do so on the ground that as he is not party to the Agreement, inter se, the appellant/defendant and respondents/ plaintiffs, therefore, the alternate dispute resolution clause embedded in the Agreement is not binding upon him and he is not obligated to join the arbitration proceedings. The learned Arbitrator rendered the award dated 31.12.2018 which was filed in the Court on 02.01.2019. Objections were filed by the appellant/defendant as well as the tenant,

however, the same were dismissed and the award was made Rule of Court in terms of which decree dated 11.04.2019 has been passed that is impugned through these appeals.

Arguments:

5.On behalf of the appellant/defendant, Sheikh Zameer Hussain, Advocate assisted by Mr. Shaheryar Khan, Advocate submits that both the learned Arbitrator as well as the learned Trial Court have not appreciated the factual matrix as well as evidence available on record inasmuch as the matter has not been conclusively decided by the learned Arbitrator and the award rendered thereof is uncertain in material terms leaving room for future litigation, more particularly by not addressing and appreciating that the initial investment made by the appellant/defendant was treated as loan and the learned Arbitrator has wrongly held that investment was recovered without any supporting material on record to establish such recovery besides the fact that no calculation had been made in this regard and nothing has been stated as to how the same had been cleared and the matter has been decided on mere assumptions. Further asserts that the learned Arbitrator erred in not appreciating the distribution agreement (Exh-A/7) pertaining to the Property executed by and between respondent No.1/plaintiff No.1 and respondent No.2/plaintiff No.2, which reveals that the Property is under loan as referred above. Contends that the Agreement provided complete control of the Property to the appellant/defendant for a period the expiry whereof has been set out to be in the year 2028 and hence, possession cannot be claimed before expiry of the same. Further avers that it was obligatory on part of the learned Arbitrator to first examine the effect of order dated 16.10.2017 passed in the suit instituted by the tenant who is in possession of the Property inasmuch as the same was dismissed under Order VII Rule 11, CPC, which finding was not binding on the Arbitrator as the tenant is in occupation under the Tenancy Agreement that was executed pursuant to the Agreement that is in the nature of joint venture and hence, the

tenant cannot be termed as illegal occupant and this fact has escaped notice of the learned Trial Court and therefore, arbitration proceedings were improperly conducted. Places reliance on cases reported as “Kh. Ghulam Rasool Lone v. Azad Jammu & Kashmir Government” [PLD 1971 Azad J & K (DB) 127] and “Raja Karam Dad Khan v. Faiz Ahmad through Special Attorney and others” [2017 CLC 1720 (Lahore)] in support of his contentions. Concludes that the payments were received by the respondents/plaintiffs, which were used by the respondents/plaintiffs, inter alia, for facilitating the educational expenses of their children studying abroad, however, the learned Arbitrator did not direct the respondents/plaintiffs to furnish the proof to that extent and hence, has not completely appreciated the controversy as per the TORs.

6.On behalf of the tenant, Mr. Abid Jalil, Advocate, while adopting the arguments of learned counsel for the appellant/defendant, submits that the alternate dispute resolution clause envisaged under the Agreement has been misconstrued as the same is mere mediation and not arbitration. Adds that even otherwise, arbitration clause is not binding upon the tenant since, the tenant was not party to the Agreement and the suit to this extent was supposed to be decided on merits.

7.On behalf of the respondents/plaintiffs, Mr. Abdur Rashid Awan, Advocate, submits that by letting out the Property to the tenant, the appellant/defendant committed gross violation of the Agreement as he lost complete control over the Property, which goes to the roots of the case and this fact alone is sufficient to constitute the breach of the Agreement. Further avers that the tenant has been clearly inducted without approval of the respondents/plaintiffs and hence, was rightly declared as unauthorized occupant, of the Property, by the learned Civil Court in suit for declaration instituted by the Tenant titled “Mian Imran Aqeel Daultana v. Shahid Munir Satar etc.”, vide order dated 16.10.2017. Concludes that the award was rendered after thorough

examination as the appellant/defendant could not prove his case in the light of TORs and any ground not forming part of the TORs cannot be raised before this Court in appeal.

8.Arguments heard. Record perused.

Points for Determination:

9.The present appeals raise following questions of law for an opinion to be rendered by this Court:

i. Whether the learned Trial Court and/or this Court could traverse beyond the award and substitute its opinion as if it were an Appellate Court?

ii. Whether in the present case, the award is inexecutable being uncertain?

iii. Whether the award is binding upon the tenant who was neither party to the Agreement nor participated in the arbitration proceedings? If not, whether the award to the extent of the tenant is severable and can be modified accordingly?

Analysis:

10.Before delving deep into the facts of the case and rendering the opinion of this Court on the questions formulated hereinabove, it is imperative to first scan the jurisprudence developed as regards power of the learned Trial Court in relation to the award as well as power of this Court under the Act. An award is the decision of a domestic tribunal chosen by the parties, and the Civil Courts, which are entrusted with the power to facilitate the arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right, the decision by an Arbitrator is binding if it be reached fairly after giving adequate opportunity to the parties to place their grievance in the manner provided by the arbitration agreement.

Under the Act, an award can be set aside only on limited grounds as envisaged under Section 30 of the Act. It reads as under:

“30. Grounds for setting aside award.- An award shall not be set aside except on one or more of the following grounds, namely:

(a)that an arbitrator or umpire has misconducted himself or the proceedings;

(b)that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(c)that an award has been improperly procured or is otherwise invalid.”

As early as in the case of “Hodgkinson v. Fernie” [(1857) 140 ER 712], Williams, J. observed and held as under:

“The law has for many years been settled, and remains so at this day, that, where a cause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact. Many cases have fully established that position, where awards have been attempted to be set aside on the ground of the admission of an incompetent witness or the rejection of a competent one. The court has invariably met those applications by saying, ‘You have constituted your own tribunal; you are bound by its decision.”

(Emphasis supplied)

While interpreting Section 30 of the Act that came for examination before this Court as well as before the other High Courts and the Supreme Court of Pakistan, in several cases, the ratio laid down in case of Hodgkinson supra, has been followed. It has been held that the learned Trial Court while exercising the power under Section 30, cannot re-appreciate the evidence or examine correctness of the conclusions arrived at by the Arbitrator inasmuch as the jurisdiction is not appellate in nature and an award passed by the

Arbitrator cannot be set aside on the ground that it was erroneous or that the Arbitrator could possibly have reached some other decision. It is not open to the Court to interfere with the award merely because in the opinion of the Court, other view is equally possible. It is only when the Court is satisfied that the Arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is ‘otherwise’ invalid that the Court may set aside such award. In addition, by now it has also become crystal clear leaving no twilight zone that the Courts are to lean in favour of saving the award having been rendered by the forum chosen by the parties on their own volition and consent unless the same is found to fall under the purview of grounds spelled out in Section 30 of the Act. There is also abundant legal and jurisprudential basis that in exercise of powers under Section 14 of the Act, the Court does not sit as an appellate forum to upend the reasoning and findings of the Arbitrator with those of its own by re-appraisal of evidence as the Court is attired with supervisory jurisdiction and has to see if the award is infested with such legal infirmity as is apparent on the face of it. In case reported as “Al- Abdullah Constructors (Pvt.) Ltd. v. Pakistan Water and Power Development Authority through Chief Engineer” (2008 CLC 798), it has been held as under:

“It is now well-settled principle of law that Court cannot act as an Appellate Court and the jurisdiction is supervisory in nature. The Court while examining the validity of an award cannot undertake reappraisal of evidence/material considered by the Arbitrator in order to discover the error or infirmity in the award. The error or infirmity in the award must appeared on the face of the award and should be discovered by reading the award itself. The Court can remit the award to the Arbitrator, where award does not state the reason or where the illegality appearing on its face is so obvious and prominent that one may point it out by reading the award without referring to any other document or evidence. It is also well-established principle of law that when a dispute is referred to an Arbitrator and no misconduct has been found on the part of the Arbitrator

and award do not suffer from any illegality and infirmity it becomes the duty of the Court to give every reasonable intendment in favor of the award and lean towards holding it rather than to vitiate it.”

However, the Court is also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those which were referred. Similarly, the Court has also power to remit the award when it has left some matters, referred undetermined, or when the award is indefinite, or where the objection to the legality of the award is apparent on the face of the award.

11.Having above analyzed legal position in sight, it will also be relevant to scan the terms and conditions settled between the appellant/defendant and the respondents/plaintiffs as per the Agreement, which for facility of reference are reproduced hereunder:

“Agreement

This agreement is entered into on this day of 6th September 2008 between Maimoona Asad Raza, and Samia Hussain the daughters of the late Syed Asad Hussain (hereafter referred to as “Party A”) and Shahid Sattar s/o of Dr A Sattar (hereafter referred to as “Party

B”).

The subject matter of this contract relates to the lease, development and management of Morning Side Estate, Rich Bel Road, Kashmir Point, Murree (hereafter referred to as “Property X”) of which the owner is party A. The parties upon entering into this agreement give their mutual consent to the following provisions:

Terms of Lease

1)Party A agrees to let Party B take possession and control of Property X from the date of the agreement. Possession shall be without hindrance and interference especially from the old contractor.

2)The lease shall expire in 20 years starting from the date of completion of Property X. Construction and completion is estimated to take 6-8 months from commencement.

3)This lease would be renewable for another period of 5 years on mutually agreed terms and conditions.

4)Party A will receive payment of Rs.2.5million (Rs. One million as good will payment and Rs.1.5 million as payment to the contractor for settlement of his outstanding account) on timings agreed between both the parties, from Party B upon formally entering into this agreement. This bonus will be accounted for towards total investments made by Party B.

5)Party B shall be responsible for the final development, completion, finishing and furnishing of Property X including the installation of an elevator etc.

6)Party B shall be responsible for obtaining approval and regularization of Property X from the relevant local authorities to the extent possible under the prevailing Laws in Murree.

Terms of Business and Joint Venture Agreement

1)Party B shall manage Property X with full control and possession for the duration of the lease.

2)The flats shall be let out to prospective tenants by Party B for long term and short term lets.

3)Rental income is money derived from letting out finished flats in Property X to corporate clients, multinational companies or other prospective tenants as convenient and determined by Party B.

4)Party B intends to recover investment out of the rental by allocation of 50% of the net revenues (after deduction of opex) towards investment recovery till all investment is recovered. After deduction the rest of the amount shall be distributed as 25% each to party “A” and “B” once the investment has been recovered all the income shall be divided as per clause 5. The initial investment shall be treated as a loan to the project.

5)The balance amount of profit, accruing from rental income, will be shared equally between Party A and Party B in a 50-50 formula. The parties shall meet at least 4 times a year to review progress and to take management decisions.

6)It is not envisaged that the agreement would be terminated before its term however should the Agreement be cancelled or terminated for any reason whatsoever than Party A shall reimburse the balance of the capital costs incurred and not recovered by Party B.

7)Annual or biannual audit of the business thus conducted shall be undertaken by a reputed Charted Accountant’s firm like Fergusons etc., as mutually agreed upon by the two parties.

Dispute Resolution Clause:

The parties agree to resolve all disputes arising from this agreement and the affairs of business in a private and non-adversarial manner, failing which both Parties agree to appoint a neutral third party as mediator to help resolve disputes, and failing which litigation is to be to the last resort (and least preferred) remedy.”

12.It is also admitted feature of the case that once the appellant/defendant and the respondents/plaintiffs agreed to refer the matter to the arbitration, both sides submitted their respective TORs that were finalized by the learned Trial Court and on the basis of which the learned Arbitrator conducted the proceedings and rendered the award. The TORs are reproduced hereunder:

A. Whether plaintiffs are entitled to receive reimbursement of amount received by the defendant No.1 from defendant No.2 towards rent received by him in terms of agreement dated 28.07.2015 effective from 21.11.2010.

B. Share of plaintiffs from income generated from the business of the hotel and restaurant w.e.f 30.04.2009 till final decision of the case by the defendants.

C. Whether plaintiffs are entitled to receive an amount of Rs.5,00,00,000/- from the defendant No.1 towards the compensation and damages because in spite of his commitment, in terms of the agreement the defendant No.1 has failed to obtain necessary approval and regularization of the building. No step was taken by him for the purpose for which in fact the building was originally handed over to him. From the time to time the TMA served notice upon the plaintiffs. Even the Hon’ble Supreme Court of Pakistan also took suo moto action regarding the construction of the buildings at Murree including the present building.

D. Cancellation of all the agreements between the parties regarding the suit property.

E. Vacation/ejectment of the suit property which is presently in the possession and occupation of

defendant No.2 unauthorizedly and restoration thereof the plaintiff No.1.

F. Whether suit property was in the shape of Skeleton grey construction of 14 flats on 07 floors 2008 and defendant No.1 incurred Rs.65 Million upon instance of defendant No.1 as per agreement dated 06.09.2008 and defendant No.1 is entitled to recover the same from plaintiffs as per clause 06 of agreement mentioned supra.

G. Whether defendant No.1 has paid more than Rs.10 Million to plaintiff No.1 in the shape of 12 KVA generator, civil works at her home and several installments in cash which should be reimbursed to him accordingly.

H. Whether plaintiffs impliedly consented upon subletting of suit property by defendant No.1 to defendant No.2.

I. Whether defendant No.1 has paid Rs.40,00,000/- to buy house upon assurance of plaintiffs but subsequently they failed to honour their commitment, hence the same shall be recovered by defendant No.1 from them.

13.Here, it is imperative to observe, as also stated earlier, that the TORs were framed by the learned Trial Court on proposals received from appellant/defendant and the respondents/plaintiffs and no challenge was laid to the TORs settled by the learned Trial Court on the basis of which the award was rendered. It has been noted that the Agreement envisaged both the term of lease and/or control of the Property by the appellant/defendant and the terms of business. Thus, as per TORs, the learned Arbitrator was essentially obligated to examine whether or not the appellant/defendant who was entrusted with complete control of the Property to manage its affairs committed breach of the terms of the Agreement and, if the answer was in affirmative, what was the effect thereof. The Agreement clearly envisages that the appellant/defendant was obligated to keep the accounts of the joint venture/business and ensure that the same were audited through an audit firm with reputation like that of M/s Ferguson. Admittedly, audit was not conducted and it is misconceived on part of the appellant/defendant that the statement of accounts

maintained in due course of business was to be taken as true picture of the financial state of affairs inasmuch as the audit is an official inspection of an organization’s accounts to ascertain the accuracy of financial statements provided by the organization which can be done internally by the employees or heads of internal audit and externally by an outside firm or an independent auditor. It was specifically agreed to conduct audit from some independent firm like M/s Ferguson to make sure that the transactions are carried out accurately and all books of accounts are maintained in a fair manner and there is no cheating or misrepresentation. Therefore, keeping the statement of accounts and submitting the same in evidence before the learned Arbitrator cannot be taken as substitute of discharge of the obligation on part of the appellant/defendant to ensure conduct of an annual or bi-annual external audit, which admittedly was never discharged by the appellant/defendant preventing depiction of true picture of the payments received and made including those to the respondents/plaintiffs. The learned Arbitrator has aptly encapsulated this aspect by putting forth cogent reasons and left no uncertainty by concluding as under:

“7. ...As per clause-7 of “Terms of Business and Joint Venture Agreement” in original agreement (Ex.A/9), it is provided that Annual or Biannual Audit of the business shall be undertaken by a reputed Chartered Accountant’s Firm like Fergusons etc as mutually agreed upon by both the parties, but no such audit has been got conducted by the parties. Statement of Affairs of 34 Morning Side Murree for the period from 01-11-2007 to 31-10-2017 (Ex.RW1/J) prepared by Asad Rasul and Co. Chartered Accountants dated 31- 08-2018 has been submitted by respondent No.1 but it is observed therein that it is neither an audit nor a review report, and is intended solely for the information and use of the management. Learned counsel for respondent No.1 has also conceded that it is not an audit report. Therefore, it cannot be determined as to how much amount was spent by respondent No.1 for renovating/revamping the premises to make it suitable for hotel business. After scanning the evidence of both

sides, I am of considered view that respondent No.1 has already recovered his investment, claimant no.1 has also received her share of rental income till May 2016. However, thereafter till vacation of the premises she is entitled to receive the share of income from respondent no.1 on 50:50 basis.”

(Emphasis supplied)

14.This Court also does not agree with the argument of learned counsel for the appellant/defendant that the award is uncertain in material terms as it does not specify as to what income is to be distributed between the appellant/defendant and the respondents/ plaintiffs in equal shares, in terms of the Agreement, after May 2016 inasmuch as the only income being received from the Property is rentals, which at present is being paid by the tenant to the appellant/defendant and there is no uncertainty in respect of the income to be distributed in terms of clauses (4) and (5) forming part of Terms of Business of the Agreement. Therefore, it is misconceived to present and argue on a point/matter of simple calculation in such a manner as to put the findings of learned Arbitrator into the corridors of uncertainty so that the award could be set aside being infested with uncertainty.

15.Another aspect of the case relates to how the respondents/ plaintiffs were held to have not been entitled to any claim of damages for period prior to May, 2016 as no calculations were made not only in this regard but also regarding settlement of amount spent by the appellants/defendant on development of the Property which was to be treated as loan. No doubt that the appellant/defendant had failed to prove any payment made to the respondents/plaintiffs and only averred that some payment, inter alia, in the form of installation of generator at the home of the respondents/plaintiffs was made in addition to some payment for construction of house of the respondents/plaintiffs in Islamabad. The learned Arbitrator has also not awarded any payment. When confronted, learned counsel of the respondents/plaintiffs submitted that even though the recovery of amount due to the respondents/plaintiffs was the right of the

respondents/plaintiffs, and the learned Arbitrator has merely inferred and presumed that it seems implausible that till May, 2016 the respondents/plaintiffs remained silent and did not demand the rent, however, the same has not been pressed and have been waived by the respondents/plaintiffs because the respondents/plaintiffs were satisfied with the recovery of control/possession of the Property and eviction of the tenant therefrom as they wanted this issue to be put paid. It was submitted in a candid manner that the respondents/plaintiffs had been deprived of fruits of the Property lawfully owned by them and the recovery of the possession substantially redressed their grievance. This reflects bona fide of the respondents/plaintiffs. Reasons put forth by the learned Arbitrator are apt and for facility of reference are reproduced hereunder:

“Admittedly respondent No.1 has been receiving rent from respondent No.2 and his brother Mr. Irfan Aqeel Doultana under the above agreements at the stipulated rate. In cross examination he has admitted that he has received about 4 crore rupees from Irfan Aqeel and Imran Aqeel Doultana. He has further admitted that he has received amount Rs.65 lac in advance from respondent No.2. Under the original agreement dated 06-09-2008 (Ex.A/9) executed between claimants and respondent No. 1, 50% of rental income was to be adjusted towards investment and renovation etc made by respondent No.1 and after recovery of the whole amount, rent was to be shared by the parties on 50:50 basis. There is no documentary evidence on record that respondent No. 1 has been sharing the rental income with the claimants except his statement in affidavit (Ex.RW1/A) that he has been paying them one million rupees per year, besides installation of a 12.5 KVA generator and some civil works in the house of claimant No.1 in Islamabad, and that total payments exceed Rs.10 million. Respondent No. 1 has further stated he stopped payment in May 2016.

Claimant No.1 has denied the receipt of share in the rental income, but it seems quite implausible that till May 2016, she kept silent and did not demand the rent. Even in subject titled suit, relief for recovery of rental amount has not been claimed. She has, however, admitted initial payment of Rs.2.5 million (one million as goodwill money and 1.5 million as outstanding payment to the previous contractor for the work done by him in the premises).” (Emphasis supplied)

16.The assertion that the learned Arbitrator has assumed that the amount spent by the appellant/defendant on development by May, 2016 have been recovered is not supported by evidence and hence, the award is uncertain and ambiguous on this ground is also misconceived for the reasons that it was obligation of the appellant/defendant to keep the proper accounts, got them audited through external auditor, which could have easily cleared everything, more particularly after admitting that an amount of Rs.4 crores was received from the tenant and his brother without keeping the record of payment. This contractual obligation, being in the nature of transparent and prudent business operation, formulated the essence of the Agreement and failure of appellant/defendant to adhere to this obligation shallowed out the good faith and trust element in the transaction and the appellant/defendant cannot take advantage of his own breach, rather, the learned Arbitrator has correctly drawn an adverse inference therefrom against the appellant/defendant.

17.Adverting to the question as to whether the award is binding upon the tenant or not, it is imperative to note that there is no denial to the fact that the tenant dealt with the appellant/defendant who had been given an exclusive control of the Property with the power to enter into short as well as long-term leases/tenancies by virtue of clauses (1) and (2) of the Terms of Business envisaged under the Agreement and as a consequence thereof the Tenancy Agreement was executed. The fact that the Tenancy Agreement itself envisaged a clause that a NOC is required from the respondents/plaintiffs does not ipso facto make the tenant an unauthorized occupant as the Agreement was the foundational instrument and the same clearly authorizes the appellant/defendant to deal with the Property by entering into the long-term and short-term leases/tenancies without such condition and/or bar as to obtain prior consent from the respondents/plaintiffs. Therefore, even if no prior consent or subsequent ratification was obtained by the appellant/defendant from respondents/plaintiffs, the

same is breach of the terms and conditions of the Tenancy Agreement and not the Agreement though it can be argued that said inaction amounts to disassociating the respondents/plaintiffs in major business decisions under the Agreement and hence, a breach thereof but in such an eventuality, it is the appellant/defendant who has to suffer and not third parties like the tenant who has entered into a contractual arrangement, i.e., the Tenancy Agreement, with the appellant/ defendant having complete authority under the Agreement to deal with the Property. Even otherwise, the argument as to non-obtaining of prior consent or subsequent ratification from the respondents/plaintiffs may be a breach of the Agreement, inter se, the respondents/plaintiffs and the appellant/defendant and the consequences thereof would remain confined to the said parties and would not spill over to third party i.e., the tenant. An important factual aspect is that the Agreement is not denied by either of the parties thereto rather its breach or otherwise is the disputed issue between them. Hence, the authority of the appellant/defendant to lease the Property for short term and long-term lease vested in the appellant/defendant at the time of letting out the Property to the tenant. By making the award Rule of Court, the Agreement, inter se, the respondents/plaintiffs and the appellant/defendant came to an end but this would not, by any means, render the Tenancy Agreement void ab initio.

18.Here it is imperative to mention that arbitration is an alternative form of dispute resolution where the parties voluntarily agree that a neutral private person will resolve disputes between them, instead of the Court. In-fact, arbitration is a ‘creature of contract’ and only signatories to such contract containing an arbitration clause can be compelled to arbitrate. Therefore, a party, not signatory to the contract, cannot be required to submit any dispute to arbitration to which it has not agreed and for this reason, such a party will not be compelled to arbitrate and, thereby, surrender its right to due process of law. Admittedly, the arbitration took place in the suit

instituted by the respondents/plaintiffs against the appellant/defendant as well as the tenant who was defendant No.2 in the suit and hence, the proceedings were governed under Chapter IV of the Act. In the absence of an arbitration agreement, a party is bound by the decision if it has consented to an arbitration in a pending suit in terms of Section 21 of the Act that contemplates that parties to suit may apply for order of reference whereas Section 24 thereof states that the reference to arbitration can be made by some of the parties and in that eventuality the parties who have not agreed to the same cannot be compelled to join the arbitration proceedings. Section 24 reads as under:

“24. Reference to arbitration by some of the parties: Where some only of the parties to a suit apply to have the matters in difference between them referred to arbitration in accordance with, and in the manner provided by Section 21; the Court may, if it thinks fit, so refer such matters to arbitration (provided that the same can be separated from the rest of the subject- matter of the suit) in the manner provided in that section, but the suit shall continue so far as it relates to the parties who have not joined in the said application and to matters not contained in the said reference as if no such application had been made, and an award made in pursuance of such a reference shall be binding only on the parties who have joined in the application.”

(Emphasis supplied) Perusal of the above quoted Section 24 reveals that the same seems to be an exception to Section 21 of the Act and entails following conditions for its applicability:

(i)the matter desired to be referred to arbitration can be separated from rest of subject-matter of the suit;

(ii)the suit continues so far as it relates to the parties who have not joined in the said application and the matter not contained in the said reference in the same manner as if no such application has been made; and

(iii)the award made in pursuance of such a reference shall be binding only on the parties who have joined in the application.

19.The above discussion takes the Court to answer the third and final question that involves determination as to whether the award to the extent of the eviction of the tenant is sustainable or not and that whether this Court can modify the award. In this regard, reference is made to the case reported as “Pakistan State Oil Company Ltd. v. Pakistan National Shipping Corporation [(2021 CLC 761) Sindh] wherein it was held as under:

“9...... Integrity and impartiality of an Arbitrator should not be an only consideration for not interfering in the award passed by Arbitrator, but an award should be considered in the light of dispute referred for arbitration and wherein error is apparent that certain clauses in a contract were not properly interpreted, then such error can be modified by the Court; where a part of award can be separable from the rest, then Court can modify the same under Section 15 of the Said Act, instead of remitting the Award to Arbitrator(s).”

Similarly, Islamabad High Court in case reported as “National Highway Authority through General Manager Construction v. Messrs Hakas (Private) Limited through Managing Director (PLD 2011 Islamabad 43) has held as under:

“10. As far as modification in the award is concerned, the Court under section 15 of the Arbitration Act, 1940, has power to modify the award provided it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on matter referred; or where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or where the award contains a clerical mistake or an error arising from an accidental slip or omission. In other words, the Court cannot enter into the merits of the case and

cannot assume the power and authority of the arbitrator. Appreciation of evidence is entirely authority of the arbitrator, but if error is on the basis of record and merely by reading of the award the Court comes to the conclusion that there is error in the award, then that error can be rectified. It was held by Hon'ble Supreme Court of Pakistan in 2002 SCMR 1662 that the Court can suo motu modify or correct the award, notwithstanding that the objections were barred by limitation. So the Court can modify the award, even after period of limitation, provided the modification does not require evidence and also does not change the decision of the arbitrator.”

In the instant case, the arbitration proceedings commenced when an application under Section 34 of the Act was filed by the appellant/defendant with the assertion that the suit is not maintainable as the Agreement contains an arbitration clause. Through order dated 31.03.2018, the parties were directed to nominate the arbitrators, however, as regards the tenant, it was held as under:

“....as for (sic) as defendant No.2 is concerned, he is not required to submit nomination of Arbitrators because he was not party of the alleged agreement......”

Thereafter, the matter came before the learned Arbitrator appointed by this Court as discussed hereinabove. The appropriate course of action under law should have been to refer the matter to arbitration insofar as the appellant/defendant and the respondents/plaintiffs were concerned, and the suit to the extent of the Tenant should have been proceeded with and decided separately by the learned Trial Court inasmuch as Section 24 of the Act, in unequivocal terms, contemplates that an award made in pursuance of such a reference shall be binding only on the parties who have joined in the application for submission of the matter to the arbitration. It is clear that the tenant was neither party to the Agreement nor he consented and/or submitted to the jurisdiction of the learned Arbitrator. Therefore, the sine qua non of arbitration as to parties choosing their own arbiter for resolution of dispute is

conspicuous by its absence in the instant case to the extent of the tenant. Even otherwise, the tenant was prevented from submitting the names of the Arbitrator by the learned Trial Court, vide order dated 31.03.2018, on account of the fact that the tenant was not party and signatory to the Agreement which contained arbitration clause. Thus, it is against the dictates of fair trial and due process embodied under Article 10-A of the Constitution of Islamic Republic of Pakistan,1973 that on the one hand, the tenant is debarred from proposing names of arbitrator for not being party and signatory to the Agreement; and on the other hand, arbitral award is imposed upon him.

20.Additionally, this Court is of the opinion that the tenant is not an illegal occupant rather he obtained possession of the Property from the appellant/defendant who had duly executed the Tenancy Agreement as the appellant/defendant apparently derived his authority to enter Tenancy Agreement from and under the Agreement between the appellant/defendant and respondents/plaintiffs. However, after the award having been made Rule of Court by modification to the extent of eviction of tenant, the Agreement inter se appellant/defendant and respondents/plaintiffs would subside. As a natural corollary, the status of landlord would shift in the respondents/plaintiffs as by operation of the award being made Rule of Court, the respondents/plaintiffs may avail remedy under the law to execute fresh Tenancy Agreement with the tenant or seek his eviction as per applicable law.

21.In view of the above discussion and answers to the legal questions formulated hereinabove, the present appeal bearing FAO No. 59/2019 is dismissed whereas the connected appeal bearing FAO No. 64/2019, preferred by the tenant is allowed and the impugned judgment and decree dated 11.04.2019 making the award dated 31.12.2018 as Rule of Court is modified in the terms that;

(i)the part of impugned judgment and decree in terms of findings on TORs (D)&(E) in the Award declaring the

Tenancy Agreement between the appellant/defendant and the tenant void is hereby set aside and the award is modified accordingly; and

(ii)the remaining part of the impugned judgment, dated 11.04.2019, as well as the Award, is maintained as it is.

In the facts and circumstances of the case, there is no order as to costs.

22.Before parting with, it is pertinent to observe that the respondents/plaintiffs may initiate the eviction proceedings against the tenant in accordance with law as the land ladies/land owners and if such proceedings are initiated, the same shall be carried out without being influenced by any observation of this Court in this judgment or those recorded in the award dated 31.12.2018 or the impugned judgment and decree dated 11.04.2019.

(ANWAAR HUSSAIN)

JUDGE

Approved for reporting

Judge

Announced in Open Court on________.

Judge Akram