Pakistan Water & Power Develeopment Authority Vs M/s Zardad Khan & Co

PESHAWAR HIGH COURT,

PESHAWAR

(JUDICIAL DEPARTMENT)

R.F.A. No. 426/2023

Pakistan Water & Power Development Authority.

V.

M/s Zardad Khan & Co.

For the Appellant: Mr. Salman Mansoor & Mr. Burhan Latif Khaisori Advocates.

For Respondents: Mr. Muhammad Sufyan Malik, Advocate Research assistance: Mr. Mazhar Ali Khan, Research & Reference Officer Date of hearing: 09.02.2026

JUDGMENT

MUHAMMAD FAHEEM WALI, J.- Through this judgment, the disposal of the present Appeal filed by the Water & Power Development Authority (WAPDA) through the Chief Engineer Hydro Power Project, Terbela (Appellant), against M/s Zardad Khan & Company (Respondent), concerning the judgment dated 17-10-2023 passed by the Senior Civil Judge, Swabi, is intended.

2.The dispute originated from a contract awarded by the Appellant, WAPDA, to the Respondent on 10-01-2018. The contract was for the construction of 73 residential buildings at a

total price of Rs. 189,223,439/-. The scheduled completion date for the works was 05-01-2019, which was subsequently extended to 03-06-2019. Following the substantial completion of the works, the Respondent submitted a Final Account on 25-12-2019, claiming various amounts. The Appellant, WAPDA, reviewed the submission and, through a communication dated 17-01-2020, denied certain claims related to specific Bill of Quantities (BoQ) items, variations, interest bills, price adjustment, and KPRA Sales Tax. The Appellant, however, paid the cost of executed works under Final Account-Part A.

3.Consequently, being dissatisfied with the Appellant’s response regarding the remaining parts of the Final Account (Parts B, C, D, E, G & H), the Respondent initiated arbitration proceedings on 09-05-2020 under Sub-Clause 24.4 of the Particular Conditions of the Contract. Arbitration proceedings were subsequently held on 05 and 06-11-2020. The arbitrators rendered their decisions on 15-04-2021, resolving seven out of eleven disputes unanimously. Due to a difference of opinion on the remaining four issues, Mr. Abdul Samad Qureshi was jointly appointed as an Umpire. The Umpire announced his award on 17- 11-2021, deciding the four disputed issues in favor of Respondent.

4.Subsequently, the learned Senior Civil Judge, Swabi, through a judgment dated 17-10-2023, made the Umpire’s award the rule of the court. The Appellant, WAPDA, has now filed the present Regular First Appeal, challenging the judgment dated 17- 10-2023 passed by the Senior Civil Judge, Swabi, and the Umpire’s award dated 17-11-2021. The Appellant contends that both the Umpire’s award and the trial court’s judgment are against the law Page 2 of 13

and facts. The grounds for appeal include allegations of misconduct by the arbitrators and umpire, failure to consider evidence, and violations of contract provisions concerning price adjustment, interest on retention money, and rate adjustments for quantity changes, among other points.

5.The threshold issue in this appeal concerns the maintainability of the challenge against the composite judgment dated 17-10-2023. Under Section 17 of the Arbitration Act, 1940 (Arbitration Act), once the trial court refuses to set aside an award and pronounces judgment in accordance with it, a decree follows.

The statute explicitly mandates that “no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.” In the instant case, the Appellant’s grievances primarily target the Umpire’s substantive findings on price adjustments, interest, and variations, grounds that constitute an attack on the award itself rather than a claim that the decree deviates from the award. Consequently, the scope of this appeal is severely restricted by the language of Section 17. For ease of reference Section 17 is reproduced below:

17.Judgment in terms of award. Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.

6.The legal framework of the Arbitration Act differentiates between an appeal against a decree (Section 17) and an appeal Page 3 of 13

against an order refusing to set aside an award (Section 39).

Section 39 of the Arbitration Act states:

39.Appealable orders. — (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order: — An order—

(i)superseding an arbitration;

(ii)on an award stated in the form of a special cases;

(iii)modifying or correcting an award;

(iv)filing or refusing to file an arbitration agreement;

(v)staying or refusing to stay legal proceedings where there is an arbitration agreement;

(vi)setting aside or refusing to set aside an award:

Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court.

(2)No second appeal shall lie from an order passed in appeal under this section, but nothing in this Section shall affect or take away any right to appeal to [the Supreme Court]

7.The fundamental distinction between the scope of an appeal under Section 17 and Section 39 of the Arbitration Act has been clarified by the Honorable Supreme Court of Pakistan in the case of Shahin Shah VS Government of Khyber Pakhtunkhwa through Secretary Irrigation Department, Peshawar and others (2022 SCMR 1810). The Court held that Section 39 provides a broader range of grounds for challenging an order than the highly restrictive grounds available under Section 17. Specifically, the Supreme Court observed:

10.The difference between section 39 and section 17 is that section 39 provides more grounds under which an order passed under the Act, 1940 may be challenged, than the grounds of challenge under section 17. It is evident from the grounds taken by the Respondents in R.F.A. 94/2007 that they did not dispute the decree of the Trial Court as being either in excess of the Arbitration Award or otherwise, against the Arbitration Award. The learned High Court conceded that, for a challenge to be maintainable under section 17, the conditions prescribed therein must be met. However, it escaped the learned High Court's notice that the Page 4 of 13

Respondent had not challenged the decree of the Trial Court on the grounds mentioned in section 17 (supra) inasmuch as it was not the stance of the Respondents that the judgment and decree of the Trial Court was either in excess of the Arbitration Award or otherwise against the Arbitration Award. Since the Respondents had not taken the stance that the decree of the Trial Court was in excess of or against the Arbitration Award; they effectively admitted that the decree of the Trial Court was correct to the extent that the decree was in accordance with the Award. As such, the findings of the learned High Court in this respect are in our opinion erroneous and unsustainable. If the High Court found that the order of the Trial Court had two distinct parts, then, it had to examine whether the Respondents had challenged both parts of the order independently by raising 11 independent grounds in terms of section 17 and section 39. The High Court could not have suo motu implied that such grounds had been taken. The High Court was required to proceed on the basis of record which clearly showed that the Respondents had nowhere taken the stance that the decree of the Trial Court was in excess of or against the Arbitration Award. As such, the High Court could not have assumed jurisdiction in the matter, especially when the Respondents did not question the decree on the grounds mentioned in section 17 of the Act, 1940. Even otherwise, the failure of the Respondents to agitate the grounds mentioned in section 17 before the Trial Court barred them from raising any such grounds before the High Court since the Respondent was appealing against the judgment of the Trial Court. They were to show that the judgment of the trial Court was hit by any of the grounds available under section 17 ibid which they failed to do. The High Court, in our opinion, erred in law and exceeded its jurisdiction in proceeding beyond the grounds agitated by the Respondent in its appeal.

This precedent case establishes that where a trial court judgment comprises two distinct legal actions, the refusal to set aside an award and the subsequent pronouncement of a decree, an appellant is required to examine and challenge both parts of the order independently. The scope of Section 39 allows for a broader challenge against the order refusing to set aside the award, whereas Section 17 is strictly confined to jurisdictional or clerical errors where the decree itself deviates from the award. The failure Page 5 of 13

to agitate specific grounds under Section 17 before the trial court or to raise independent grounds under both sections in the appellate memorandum restricts the High Court’s jurisdiction to only those specific grounds provided by the statute. Reference may also be made to Judgment dated 17.09.2025 of this Court in Peshawar Development Authority through its Director General, Peshawar v.

M/S Al-Mehreen Enterprises and another (2025 PHC 5309).

8.In evaluating the Appellant’s allegations of “misconduct” under the scope of Section 39(1)(vi) of the Arbitration Act, this Court must adhere to the authoritative principles governing judicial interference with arbitral awards. As articulated by the Honorable Supreme Court in Gerry’s International (Pvt.) Ltd VS Aeroflot Russian International Airlines (2018 SCMR 66), the arbitrator is the “sole and final Judge of all questions, both of law and of fact,” and “alone is the judge of the quality as well as the quantity of evidence.” The Supreme Court further emphasized the sanctity of such awards by noting:

“(10) The Court cannot review the award, nor entertain any question as to whether the arbitrators decided properly or not in point of law or otherwise.

(11)It is not open to the Court to re-examine and reappraise the evidence considered by the arbitrator to hold that the conclusion reached by the arbitrator is wrong.

(12)Where two views are possible, the Court cannot interfere with the award by adopting its own interpretation.”

Applying these principles to the merits of the instant case, the Appellant’s primary contention that the Umpire committed misconduct by disregarding contractual clauses and awarding claims for price adjustment, interest, and variations must be Page 6 of 13

scrutinized against the high threshold of “legal misconduct.”

Misconduct, as defined in Gerry’s International (supra), does not encompass mere erroneous decisions on facts or law; rather, it requires a “deliberate departure or conscious disregard of the contract” or a “failure to perform the essential duties which are cast on an arbitrator.”

The record and the Umpire’s award dated 17-11-2021 demonstrate that the Umpire acted within his jurisdiction to resolve the four points of disagreement between the original arbitrators. These points were precisely defined in the reference to the Umpire and included Part C (Price Adjustment), Part D (Interest on delayed payments/retention money), Part E (Rate Adjustment for quantity variations), and notably Part G and Part H, which related to the consequences of project delays.

Regarding the merit of these claims, the Umpire’s award reflects a detailed engagement with the technical and contractual framework of the project. On Price Adjustment (Part C), the Umpire found that despite the deletion of the clause in the bidding documents, the use of World Bank SPDs for a National Competitive Bidding (NCB) project was inappropriate given the inordinate 7-month delay in award and a 5-month extension, pushing the project duration beyond the 18-month threshold where inflation adjustment is encouraged; thus, he awarded adjustment based on the Consumer Price Index for 2018-2019. For Interest on Retention Money (Part D), the Umpire ruled that withholding dues beyond the defect liability period justified interest as compensation for the loss of use of funds. Regarding Variation in Quantities (Part E), the Umpire interpreted GCC 37.1 to mean that rate adjustments apply to both increases and decreases in Page 7 of 13

quantities exceeding 25%, as both impact the contractor's costs.

On Time Extension and Compensation (Part G), the Umpire decided that WAPDA’s grant of a 5-month extension, coupled with a failure to contest the contractor’s cost forecasts, constituted an admission of fault, awarding compensation of Rs. 9,975.55 per day. Finally, for the Completion Certificate (Part H), the Umpire concluded that backdating the certificate from November to June 2019 was an unreasonable delay by the Project Manager, awarding costs for watch and ward and transportation up to the actual issuance date. These findings, based on the Particular Conditions of Contract (PCC), procurement rules, and the project timeline, fall squarely within the Umpire’s mandate.

Crucially, the arbitrable nature of the price adjustment dispute (Part C) is well-established. The Arbitrators, in their commitment to a fair and transparent process, actively invited written comments and issued a detailed questionnaire dated November 6, 2020, to which WAPDA provided its comprehensive reply on November 24, 2020 (Award, paras 19-20). It is pertinent to note that the Appellant fully participated in these proceedings, with hearings conducted at their own office in Tarbela. The dispute itself was treated as an interpretational matter, focusing on the applicability of PEC Rules, the prevailing Law of Pakistan, and the consequences of the inappropriate deletion of GCC Clause 45 from the Particular Conditions of Contract (PCC). This approach demonstrates that the Umpire did not invent new claims but rather interpreted existing contractual and legal frameworks to resolve a contention between the parties.

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The Appellant’s argument that the Umpire exceeded his jurisdiction by adding new BoQ items or disregarding Clause 37.1 and 38 of the contract is essentially an invitation for this Court to re-appraise the evidence and substitute its own interpretation for that of the Umpire. However, as per Gerry’s International (supra), “reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd.” The trial court, in its judgment dated 17-10-2023, specifically found that the Umpire’s award was well-reasoned and supported by the “technical documents of the project.” Furthermore, the definition of misconduct in the judicial sense implies an “irregularity of action which is not consistent with general principles of equity and good conscience.” In the present matter, the Appellant participated fully in the proceedings, submitted its own evidence, and failed to raise any contemporaneous objection to the Umpire’s methodology or the scope of the reference. As the Supreme Court observed, “it is not misconduct on the part of the arbitrator to come to an erroneous decision, whether his error is one of fact or law.” Absent any evidence of “moral misconduct,” such as a lack of good faith or partiality, or a “legal misconduct” that floats on the surface of the record, the Umpire’s decision on the merits of the Final Account remains final and binding. It is also a settled principle enunciated in the case of Mian Corporation v. Messrs Lever Brothrs of Pakistan Ltd. (PLD 2006 SC 169) that “the court does not sit in appeal over the award” and “an award cannot be lawfully disturbed on the premises that a different view was possible.” The Appellant has failed to demonstrate that the award is “preposterous or absurd” or that it lacks any evidentiary support, which are the only narrow windows through which this Court could interfere under Section 39(1)(vi).

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9.The issue of arbitrability and the Appellant’s right to challenge the reference to arbitration must also be viewed through the lens of the Appellant’s conduct during the proceedings. It is a settled principle of law that once a party participates in arbitration proceedings unconditionally and without objection to the jurisdiction of the arbitrator or the nature of the dispute, they are deemed to have waived any right to later challenge the arbitrability of those issues. Reference may be made to Karachi Dock Labour Board v. M/s Quality Builders Ltd. (PLD 2016 SC 121) In the present matter, the trial court in its judgment dated 17-10-2023 explicitly noted that the Appellant “unconditionally” participated in the arbitration and “did not raise any objection upon other arbitrator as well, rather no objection upon the appointment of the umpire was raised”. This conduct attracts the principle of waiver and estoppel. When a party submits to the jurisdiction of an arbitral tribunal, presents evidence, and awaits the outcome, they cannot subsequently seek to set aside the award on the ground that the dispute was not arbitrable or that the arbitrator lacked jurisdiction, unless such an objection was raised at the earliest possible opportunity. As noted earlier that the arbitrator is the sole judge of the quality and quantity of evidence, and where a party has allowed the arbitrator to proceed to a final decision without protest, they are debarred from challenging the very foundation of that process. Reference may also be made to Messrs Tribal Friends Co. v. Province of Balochistan (2002 SCMR 1903); Pakistan Steel Mills Corporation v.

Messrs Mustafa Sons (Pvt) Ltd. (PLD 2003 SC 301) & Sh. Saleem Ali v.

Sh. Akhtar Ali (PLD 2004 Lahore 404).

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10.The Appellant’s challenge to the Umpire’s findings on the merits specifically regarding price adjustments (escalation), quantity variations, and interest pertains to questions of fact and contractual interpretation that fall within the exclusive jurisdiction of the arbitrator. In the Umpire’s award dated 17-11-2021, a meticulous analysis was conducted regarding the “Price Adjustment” (Part C) and “Variation in Quantities” (Part E). The Umpire determined that the contractor was entitled to these claims based on the technical documents of the project and the fact that the delay in completion was not attributable to the contractor.

Such determinations, being rooted in the evidentiary record, are protected from judicial interference. As established in the legal principles governing this field in the case of Ghulam Abbas v.

Trustees of the Port of Karachi (PLD 1987 SC 393):

“.....It was submitted on behalf of the appellant that bursting of KPT dredger pipe was not and could not be an anticipated risk. In any event this being a question of fact whether the work under this item was executed or not and whether it was an anticipated risk, was a matter within the exclusive jurisdiction of the Arbitrator to decide. We find force in this submission as there appears no error on the face of the award in view of the positive findings by the Arbitrator that the contractor had executed this item of work which finding was based on the evidence produced before the Arbitrator. The Court could not go behind the award and indeed no evidence has been pointed out for sustaining the conclusion that the contractor had opportunity of anticipating leakage from the dredger pipe, which is at best a conclusion based on surmises and conjectures ....”

11.The Umpire’s award reflects that he performed a detailed examination of the “BoQ items and WAPDA Standard Specifications” to resolve the points of disagreement. For instance, on the issue of quantity variations, the Umpire found that the actual work executed exceeded the original estimates, necessitating Page 11 of 13

a rate adjustment to maintain the equity of the contract. This finding was based on the “Final Account” and technical data produced during the proceedings. Under the all-embracing power conferred by the arbitration clause, the Umpire was authorized not only to decide disputes but also to interpret the meaning of contractual clauses and determine the rights and liabilities of the parties. The Appellant’s belated objection to the Umpire’s jurisdiction to award these sums is similarly unsustainable. The Court, not sitting in appeal over the award, cannot “encroach upon the jurisdiction of the arbitrator, go behind the award or reopen the whole case.” The Umpire’s decision on price adjustments and variations fulfills the requirements of Section 26-A of the Arbitration Act, as it provides clear reasons inconsistent with any notion of arbitrariness. Since the Umpire’s findings are well-reasoned and based upon the project record, they remain final and binding within the limited scope of review available under Section 39(1)(vi).

12.In view of the above, the appellant has failed to point out any infirmity, illegality or irregularity in the impugned judgment.

Consequently, the present appeal being devoid of merits is dismissed.

13.The Civil Miscellaneous Application (C.M.A No. 1357/ 2025) filed by the Appellant for amendment of the memorandum of appeal to include additional grounds regarding pecuniary jurisdiction is also dismissed. This dismissal is primarily based on the grounds that the Appellant fully participated in the proceedings before the Trial Court and the Umpire without raising any objection to the pecuniary jurisdiction or the forum. As per Section Page 12 of 13

21 of the Code of Civil Procedure, 1908, an objection to the place of suing or pecuniary jurisdiction must be taken in the court of first instance at the earliest possible opportunity. The Appellant’s attempt to raise such a jurisdictional challenge at this appellate stage, particularly after the award has been made a rule of court and execution proceedings have commenced, is clearly hit by the principle of waiver and acquiescence. Furthermore, no ‘consequent failure of justice’ has been demonstrated, as the matter was decided by a competent Civil Court where the Appellant’s rights were fully protected through their active participation. This application appears to be an afterthought, primarily intended to frustrate the execution of the award.

14.All other C.M.s are disposed of accordingly. Parties are left to bear their own costs.

Sd/-

JUDGE

Date of hearing

Date of announcement

D.B (SB) Mr. Justice Muhammad Faheem Wali

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