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‑‑ S. 35‑‑‑Statutory bar on proceeding with arbitration‑Held, attracted only in case lejal proceedings upon whole of subject‑matter of reference have commenced between parties to reference.

The statutory bar on proceeding with the arbitration under section 30 of Arbitration Act, 1940 is attracted only in case legal proceedings "upon the whole of the subject‑matter of the reference" have been commenced between the parties to the reference. Therefore, before invoking the bar of section 35, it is incumbent upon a party to establish that the subject‑matter of the reference and the legal proceedings i9 identical. In other words it would mean that the cause of action or the dispute between the parties which is the subject‑matter of the legal proceedings should be such as covers the dispute forming the subject‑matter of the submission.

Shiva Jute Baling Ltd. v. Hindley & Co. Ltd. A I R 1959 S C 1357 fol.

(b) Arbitration Act (X of 190)‑‑

‑‑ Ss. 33 & 41 read with Second Schedule‑Powers of Court‑Court entertaining an application under S. 33‑Held, possesses power to order stay of proceedings before arbitrator‑Such order partakes of nature of a stay a9 distinguished from an order of injunction. [Injunction‑‑Arbitrator].

The power of stay of the arbitration proceedings before the arbitrators is not expressly conferred. But to accept this construction would amount to denuding the Court of the power of effective adjudication of a Us over which the statute has granted it express authority and jurisdiction.

When the Court is conferred jurisdiction under section 33 of Arbitration Act, to declare the arbitration agreement as non‑existent or invalid, the power to stay the arbitration proceedings pending the decision of the controversy would obviously be ancillary to the main relief. It is now well established that if there is no valid reference, the purported award is a nullity, and calf be challenged in any appropriate proceeding.

It, therefore, follows that if an arbitration proceeding is prima facie doomed to result to an award which will be a nullity, the Court vested with jurisdiction to decide the validity of the reference obviously would have the power to stay the further proceedings which eventually may be found to be without jurisdiction.

The Court which entertains an application under section 33 has the power to order stay of the proceedings before the arbitrator and such an order would partake of the nature of a stay as commonly understood and as distin guished from an order of injunction.

Sind Employees' Social Security v. Adamjee Cotton Mills Ltd. P L D 1.975 S C 32 ; Commissioner, Khairpur Division v. Ali Sher Sarki P L D 1971 S C 243 and Chhabba Lal v. Kallu Lal A I R 1946 P C 72 ref.

(c) Civil Procedure Code (V of 1908)‑

0. XXXIX, rr. I 8t 2 8t O. XL1, r. 5‑"Injunction" and "stay older"‑Distinction.‑[Injunction].

The nature and incidents of an order of stay as understood in our judicial system is that it is addressed and binds a subordinate Court or Tribunal. Whereas an injunction is essentially directed against and enjoins a party to the proceeding from doing or from omitting to do certain acts. The former binds the subordinate Court or Tribunal from proceeding further in It pending proceeding or from executing an order parsed by itself. In the latter case the effect of injunction is to bind the parties. This essential distinction has assumed great importance in relation to the operation of the two types of orders. The judicial consensus holds that an order of stay takes effect immediately on being passed even if it is not brought to the notice of the sub ordinate Court or Tribunal, whereas an injunction order becomes operative upon being served on the party against which it is directed.

(d) Practice and procedure‑

‑Right to remedy in a Court of law‑Field, a substantive right and sot a mere matter of procedure‑Mere act of a party or Tribunal- Cannot obliterate or set at naught such right to remedy.

It is now well laid down that a right to remedy in a Court of law is a .substantive right and not a mere matter of procedure. Upon the jurisdic tion of the competent Court being lawfully invoked, the right to remedy ‑matures into a vested right.

If a statutory change of a fundamental law like the Constitution. has no effect on the vested right of an individual to remedy, the mere act of a party or a tribunal changing his position cannot be held to obliterate or set at naught such right to remedy.

Sutlej Cotton Mills Ltd. v. Industrial Court P L D 1966 S C 472 ref.

(e) Arbitration Act (X of 1940)‑

‑‑‑ S. 33‑Right to specific remedy provided for under S. 33 invoked prior to passing of award‑Cannot be taken away merely by fact that award has been passed.

Rubinstein on Treatise on Jurisdiction and Illegality, p. 219 ref:

(f) Jurisdiction‑

‑ Parties cannot, by their act. deprive Court of law of jurisdiction to adjudicate and decide a case having seizin thereof.

Mansoorul Arfin for Plaintiff (in Suit No. 647 of 1975) and for Respon dent (in J. M. No. 28 of 1974).

M. G. Dastgir for Defendant (in Suit No. 647 of 1975) and for Petitioner (in J. M. No. 28 of 1974).

JUDGEMENT

This order relates to Suit No. 647/1975 and 1. M. 28/1974 as both these cases are between the same parties and were ordered to be heard together.

2. Messrs Ghafoor Textile Mills (hereinafter referred to as the defendants) filed an application under section 33, Arbitration Act on 21‑5‑74 against Messrs Hakimuddin Hurmusji & Sons (hereinafter referred to as the plaintiffs) for a declaration shat there was no contract between the parties and as such there was no arbitration agreement binding the defendants. Alongwith the main petition the defendants had prayed for a temporary injunc tion to restrain the plaintiffs from proceeding with and taking any step in the arbitration case pending before the Arbitrators. On 22‑5‑74 the learned Single Judge sitting on the Original Side ordered notice of this application with ad Interim stay in the meanwhile. On 3‑12‑74 the plaintiffs filed counter affidavit in which they disclosed the fact that the award had already been given by the Arbitrators on 23‑5‑1974. Consequently on 4‑8‑75 when the case came up before the learned Single Judge, the Court was informed that the award had been filed In this Court by J. disc. petition which was lying under objection in the office. It was ordered therefore, that the application under section 33, Arbitration Act may be heard alongwith the objections if any to the award. The application of the Arbitrators under section 14(2), Arbitration Act filing the award was registered as a suit bearing No. 647 of 1975. On 22‑3‑1976 the defendants filed application under section 30 of the Arbitration Act for setting aside the award. On 19‑4‑76 with the consent of the counsel for the defendants, order for furnishing security by way of bank guarantee in the sum payable under the award was passed, to be furnished within one month. However, the defendants could not furnish security within the prescribed time and moved an ,application seeking an amendment of the order by substitution of bank guarantee with other security. This request was opposed by the plaintiffs on the ground that the bank guarantee was ordered by a consent order and as such could not be modified without consent of the plaintiffs. Accord ingly the application was rejected but the time for furnishing bank guarantee was further extended by 15 days.

The case was thereafter called in Court on 20‑1‑77 by which time the extended period for furnishing bank guarantee had expired. Since the defendants did not comply with the order for furnishing security even within the extended tune, the plaintiffs urge that the objections to the award cannot be entertained in view of the bar contained in the second proviso to sec tion 33 of the Arbitration Act and that the award is liable to be made the rule of the Court, without further proceedings.

Mr. M. G. Dastagir for the defendants. however, referring to the pendency of the prior proceedings challenging the existence and validity of the arbitration agreement vide J. M‑28/74, contended as under:

(1) That the award is a nullity as it was passed sifter stay ordered by the Court of which due information was communicated to the arbitrators before the passing of the award.

(2) That the stay became operative the moment order was passed to that effect and as such the arbitrators had no jurisdiction to proceed with the arbitration and pass the award.

(3) That the arbitrators had no jurisdiction, even if the stay order had not been passed or communicated to them in view of the provisions of section 35, Arbitration Act which placed an embargo upon proceeding with the arbitration in a pending reference where notice of legal proceeding upon the subject‑matter of the reference has been served.

Taking up the last contention first, the statutory bar on proceeding with the arbitration under section 35 is attracted only in case legal proceedings "upon the %hole of the subject‑matter of the reference" have been commenced between the parties to the reference. It was, therefore, rightly contended by Mr. Arfin that before invoking the bar of section 35, it is incumbent upon a party to establish that the subject‑matter of the reference and the A legal proceedings is identical. In other words it would mean that the cause of action or the dispute between the parties which is the subject matter of the legal proceedings should be such as covers the dispute forming the subject‑matter of the submission. Relying upon a decision from the Indian Jurisdiction reported as "Shiva Jute Baling Ltd. v. Hindley & Co. Ltd." AIR 1969 S C 1357, counsel contended that a proceeding under section 33, Arbitration Act pending in a Court of law in which the subject‑matter for adjudication Is the existence or validity of an arbitration agreement, can In no circumstances in view of the terms of section 35 ever bar the arbitration proceedings. Wanohoo, J. at page 1360, in this connection, made the following observations:

"Section 35 makes proceedings before the arbitrators invalid, in the absence of an order under section 34 staying the legal proceedings, where the whole of the subject‑matter of the reference is covered by any legal proceedings taken with respect to it. In other words, an arbitrator can continue the proceedings and proceed to make the award on the reference, unless the whole of the subject‑matter of the reference is covered by the legal proceedings which have been instituted.

Where in an application under section 33 the prayers were (a) that the arbitration agreement. it any, between the parties was void ab initio on the ground of uncertainty and was not binding on the applicant, and (b) declaration that there was in fact and in law no contract between the parties on account of mutual mistake of the parties, the prayers cannot be the subject matter of arbitration for they go to very root of the contract and imply that there was no contract between the parties at all and. therefore, no arbitration agreement. There fore, the subject‑matter of the proceedings under section 33, assuming they are legal proceedings mentioned in section 35. cannot and does not cover any part of the subject‑matter of reference."

Respectfully agreeing with this exposition of law I find no force in the contention.

The remaining two contentions of the learned counsel for the defendants present a somewhat difficult question. There could have been no scope for a controversy but for the pendency of the petition under section 33, Arbitration Act questioning the validity and existence of the arbitration agreement. The natural consequence of non‑compliance with the order for furnishing security in terms of the proviso to section 33, Arbitration Act would be to summarily reject the objections and pass a decree in terms of the award. The defendants have undoubtedly made a default in the compliance of the aforesaid order by not furnishing security and is view of the clear provisions of the said proviso the objections to the award cannot be entertained. But even if the objections cannot be entertained against the award, the question that falls for consideration is whether the award should be made the rule of the Court, in view of the fact that the reference itself has been questioned in separate proceedings under section 33 instituted prior to the passing of the award. If the award is now made the rule of the Court as a consequence of the failure of the defendants to furnish security the proceedings under section 33 would be rendered infructuous.

Now it is contended that upon passing of the order for stay of arbitra tion proceedings, the arbitrators had no jurisdiction to proceed further and pass the award. It was. however, contended on behalf of the plaintiffs that although the Court passed the order of stay in the proceeding under section 33. in substance the order was for injunction. The distinction between an order of injunction and stay was emphasised by the learned counsel in this behalf. His argument was that whereas an order of stay takes effects immediately on being passed, the injunction issued by a Court becomes operative upon service on the party who is intended to be restrained from committing illegal acts. Elaborate arguments were addressed at the bar by both the counsel on this question. Mr. Arfin contended that the Court while exercising jurisdiction under the Arbitration Act is not empowered to issue orders of stay of the nature provided for in Order XLI, rule 5, C. P. C. In this behalf a reference was made to section 41 of the Arbitration Act which deals with the procedure and powers of the Court and provides that subject to the provisions of the Arbitration Act the provisions of the Code of Civil Procedure shall apply to all proceedings before the Court and the Court shall have, for the purposes of. and in relation to, arbitration proceed ings, the same powers of making orders in respect of any of the matters set out in the second schedule as it has for the purpose of and in relation to, any proceedings before the Court. Distinction was drawn between the two sub‑clauses of section 41 and it was submitted that clause (a) which makes the Code of Civil Procedure applicable, is confined to "proceedings before the Court" as distinct from "arbitration proceedings" before the arbitrator referred to in clause (b). In this context it was argued that as regards the arbitration proceedings the Court's powers for passing interlocutory orders are clearly set out in the Second Schedule which Inter alla refers to the power to pass an order for interim injunction or for appointment of receiver. The Schedule nowhere expressly empowers the Court to pass an order for stay of arbitration proceedings. The learned counsel, however, conceded that if it was intended by an application to tic down the hands of an arbitrator from proceeding further with the arbitration, the arbitrator could be impleaded as a party and an order of injunction issued against him. In the present proceedings, however, the arbitrators were not impleaded as parties and he order of stay was directed against the plaintiffs, The prayer in the application for interlocutory relief also speaks of an order "to restrain the defendants from proceeding with and taking any step in the arbitration case.". It was thus contended that having regard to the nature of the order which clearly is an order for interim injunction, the jurisdiction of the arbitrators was intact as they were not bound by the order. On the factual plane the case of the defendants was that on 22‑5‑74 Abdul Ghani an employee of the defendants delivered to the arbitrators a letter from the advocate of the defendants which was read by one of them and was returned on the plea that it be sent by registered post. However, the arbitrators were orally informed about the stay order. The arbitrators were also on the same day telegraphically informed about the stay order granted by the Court and were requested to refrain from proceeding with the arbitration.

The argument advanced by Mr. Arfin is on the face of it attractive, in asmuch as in relation to arbitration proceedings the entire gamut of judicial powers conferred under the Coda of Civil Procedure is not available as in the case of proceedings before the Court. but the powers of the Court are well and clearly defined in the Second Schedule. As pointed out above the power of stay of the arbitration proceedings before the arbitrators is not expressly conferred. But to accept this construction would amount' B to denuding the Court of the power of effective adjudication of a lis over which the Statute has granted it express authority and jurisdiction.

The question whether in absence of express provision the Court has power to grant interim relief in a statutory appeal under the West Pakistan Employees' Social Security Ordinance, 1965 came up for consideration by the Supreme Court in Sind Employees' Social Security v. Adamjee Cotton Mills Ltd. P L D 1975 S C 32. The contention advanced before their Lordships way that although the right of appeal was granted by the statute, in absence of an express power to suspend the operation of the order appealed against, the appellate Court had no power to grant stay. Repelling the contention it was observed:

"To accept any such proposition, would indeed be to whittle down the substance of the Court's appellate jurisdiction, which would be scarcely just or reasonable. Strictly speaking, the matter does not fall to be governed by Order XXXIX, rule 1, C. P. C. In our opinion, the power to grant interim relief by suspending wholly or partially, the operation of the order appealed against is reasonably incidental or ancillary to the main appellate jurisdiction. It would be wrong to regard the exercise of this incidental on ancillary power as enlarge ment of the appellate jurisdiction of the Court. Mr. Sarwana's argument that in absence of any provision in the Ordinance, cor responding to Order XXXI, rules 1 and 2, C. P. C. the Social Security Court will have no power to suspend the recovery of the amount of contribution either wholly or partly, also overlooks the true nature of 1965 Ordinance which is essentially a substantive law and is not designed to lay down the procedure in detail to be followed by the institution or Social Security Court."

In Commissioner, Khairpur Division v. Ali Sher Sarki P L D 1971 S C 243, their Lordships considered the same question in relation to the power of a Commissioner under section 18, West Pakistan Control of Goonda's Ordinance, 1959 and it was held that the power of the Divisional commissioner to grant interim relief during the pendency of the main appeal before him was ancillary to the main appellate jurisdiction expressly conferred under section 18. By parity of reasoning therefore, it is not difficult to see that when the Court is conferred jurisdiction under section 33 to declare the arbitration agreement as non‑existant or invalid, the power to stay the arbitration proceedings pending the decision of the controversy would obviously be ancillary to the main relief. It is now well established that if there is no valid reference, the purported award is a nullity, and can be challenged in any appropriate proceeding. In Chhabba Lal v. Kallu Lal AIR 1946 P C 72, it was held that all powers conferred upon the Court in relation to an award on reference made in a suit presupposes a valid reference on which an award has been made which may be open to question and that if there is no valid reference, the purported award is a nullity. It, therefore follows that if an arbitration proceeding is prima facie doomed to result in an award which will be a nullity, the Court vested with jurisdiction to decide the validity of the reference obviously would have the power to stay the further proceedings which eventually may be found to be without jurisdiction.

In view of the above, I am clearly of the opinion that the Court which entertains an application under section 33 bas the power to order stay of the proceedings before the arbitrator and such an order would partake of the nature of a stay as commonly understood and as distinguished from an order of injunction. The nature and incidents of an order of stay as understood in our judicial system Is that it is addressed and binds a sub. ordinate Court or Tribunal. Whereas an injunction is essentially directed against and enjoins a party to the proceeding from doing or from omitting to do certain acts. The former binds the subordinate Court or Tribunal from proceeding further in a pending proceeding or from executing an order passed by itself. In the latter case the effect of injunction is to bind the parties. This essential distinction has assumed great importance in relation to the operation of the two types of orders. The judicial consensus holds that an order of stay takes effect immediately on being passed even if it is not brought to the notice of the subordinate Court or tribunal, where as an injunction order becomes operative upon being served on the party against which it is directed.

In view of this distinction it was contended on behalf of the plaintiffs that the order of stay being in substance an order of injunction would have come Into operation only when service was effected on the plaintiffs. But since by 23‑5‑74 the writ of injunction was admittedly not served upon the plaintiffs who were the parties in the arbitration proceedings, the prohibition contained in the order op injunction was not effective with the result that there vi as no legal bar upon the arbitrators to proceed with the arbitration and pass the award. In their affidavit in rejoinder the defendants admitted that the order of the Court was served upon the plaintiffs on 23‑9‑74 but the allegation, as stated earlier was that intimation was given to the arbitrators regarding the order of stay. In this connection the letter of Superintendent, Telegraph office, Karachi, has been placed on record wherein it is stated that the telegram sent by the defendants on 22‑5‑74 to the address of Mr. Basharat Ahmad (one of the arbitrators) was delivered to the addressee on 23‑5‑74 between 10‑30 to 12 a.m. It is to be noted that the arbitrators passed the award on that day but it i9 not known whether it was passed before the telegram was delivered to them or afterwards. It is stated in the award that the representative of the defendants had put in appearance before the arbitrators on 16‑5‑74 and was shown the documents relied upon by the plaintiffs. The plaintiffs were ordered to supply copy of their claim to the defendants who were requested to submit their reply if any, by 61‑5‑74. However, the defendants made default in submitting their reply and consequently another notice fixing the hearing on 23‑5‑74 at 10 am. was issued to them by telegram. Despite this the defendants did not appear on 23‑5‑74 and the arbitrators proceeded to hear the reference ex parts. In view of these circumstances, it is difficult to hold affirmatively the arbitrators deliberately passed the award after being informed that the Court had stayed the proceedings. Be that as it may, it is nobody's case that the arbitrators were sent an intimation from the Court directing them to stay further proceedings. In the foregoing part of this judgment I have discussed the powers of the Court while exercising the jurisdiction under the Arbitration Act its respect of the arbitration proceedings. In my view the Court is competent not only to issue injunction but also an order of stay of proceedings. But in the present case having regard to the fact that the prayer in the interlocutory application itself did not seek an order of stay, nor did the Court treat it as an order of stay, in so for as the usual procedure of intimation of the order was not taken, it is obvious that the order was issued by :way of an injunction to the parties. Thus it cannot be held that the order of stay came into effect immediately on being passed so as to render the further arbitration proceedings illegal. The contention that the award is vitiated on account of the order of stay, therefore, has no substance. However, the matter is not concluded by this.

The important question to be considered which is at the core of the present controversy is as to the effect of pendency of the proceedings under section 33 Arbitration Act. Although the objections for setting aside the award cannot be entertained in view of the default committed by the defendants in furnishing the security, they cannot be deprived of their remedy which they had lawfully invoked before the passing of the award. It is now well laid down that a right to remedy in a Court of law is substantive right and not a mere matter of procedure. Upon the jurisdiction of the competent Court being lawfully invoked, the right to remedy matures into a vested right. in Sutlaj Cotton Mills Ltd. v. Industrial Court PLD1966SC472, a petition for special leave to appeal against the order of a tribunal was filed under Article 163 of the 1956 Constitution of Pakistan read with Laws (Continuance in Force) Order, 1958, a day prior to the coming into force of the 1962 constitution. The petition was accepted after coming into force of the new Constitution. At the hearing of the appeal a preliminary objection was raised that the appeal was not competent inasmuch as under Article 58(3) of the new Constitution the Supreme Court had jurisdiction to bear and determine appeals from judgments, decrees, orders or sentences of .a High Court only, and not from that of a tribunal. The objection was overruled and it was observed as under:

"Article 160 of the late Constitution, in our opinion, was not a mere procedural provision, but gave to a person aggrieved by an order of any Court or tribunal the right of approaching this Court for special leave even in cases where ordinarily no appeal lay. It was a valuable right and not a mere matter of procedure. This right the appellant in this case certainly had vested in him on the day he filed this petition in this Court and if the petition was heard on that day the objection nosy raised would not have been available. Can this right be now denied to him merely because in the ordinary course of business of this Court the petition came up for hearing later. And the proceeding commenced for the enforcement of a right which bad already accrued to the appellant before the commencing day, be not continued as if taws (Continuance in Force) Order, 1958 had not been repealed even under Article 250 of the new Constitution In our view, the vested right cannot be s 3 taken away, for the appellant had a right to have his petition heard on the basis of law prevailing on the day he filed his petition."

In the light of the principles postulated above it is not difficult to see that in the present case the defendants had come to acquire a right to have the question of the validity of existence of the arbitration agreement adjudicated upon a proper petition under section 33 Arbitration Act having been presented on 22‑5‑74. If a statutory change of a fundamental law like the Constitu tion, has no effect on the vested right of an individual to remedy, the mere act of a party or a tribunal changing his position cannot be held to obliterate B or set at naught such right to remedy.

Mr. Arfin strenuously contends.] that after the award is passed the affected party cannot merely question the reference but must assail the award itself. This submission was made in order to prevent the defendants from raising the question of validity of the arbitration agreement. I agree with the learned counsel that the objections available on the grounds mentioned in section 30, Arbitration Act, cannot be entertained at the instance of the defendants, but as discussed above their right to the specific remedy provided for under section 33 having been invoked prior to the passing of the award l cannot be taken away merely by the fact that the award has been passed. Rubinstein in has 'Treatise on 'Jurisdiction and Illegality' at page 219 says that if the jurisdiction has been acquired at the start of the proceedings the tribunal is authorised to act and has jurisdiction to hear and determine the case. Consequently, once a Court has seisin of a case, the parties by their own act cannot deprive a Court of law of the jurisdiction to adjudicate and decide the same.

In the view I have taken the application under section 33, Arbitration Act filed by the defendants has to be decided according to law and the necessary consequence of that would be to defer the passing of the decree until the decision of the said application. If the decision in that application is to the effect that there existed a lawful and binding agreement of arbitration, obviously the award would be made the rule of the Court. On the other hand, it is held that either the arbitration agreement did not exist or was invalid, the award would be rendered a nullity and no decree can be passed in terms thereof.

In the result the final orders in Suit No. 647/75 must stand over in terms of the above. JM‑28/74 shall now come up for regular hearing in the normal course.

S. Q. Order accordingly,

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