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Civil Miscellaneous No. 1 of 1961, decided on 4th October 1961.

Arbitration Act (X of 1940). S. 20 (4)‑Arbitrator named in agreement, a Government official, being Chief Conservator of Forests‑Party a contractor executing work for Forest Depart ment‑Agreed arbitrator not to be replaced merely for the reason that the Chief Conservator has already expressed opinions adverse to contractor in official routine.

Where the parties have entered into an agreement knowing fully well that the Arbitrator agreed upon is an employee of one party and that as executive head of the department he is likely to make certain orders, they cannot be allowed to resile from this agreement simply on the suspicion that the said officer would stick to his decision taken or opinion formed while acting as such executive officer. When a party accepts an employee of the other party as an Arbitrator he accepts him as a gentleman who has an open mind and also a judicious mind. They believe that the Arbitrator agreed upon would be open to conviction and would be ready to change his mind when he is convinced by arguments

140 1 C 626 ; 90 I C 932 ; 157 I C 607 ; Jackson v. Barry Ry. (1893) 1 Ch. 238 and Mohammad Ishaque Qureshi v. Azad J. & K. Govt. Civil Suit No. 1 of 1960 (unreported) ref.

A I R 1934 Sind 200 considered.

S. M. Zaffar and S. A. Haiy for Petitioner.

Kh. Mohammad Shafi for Respondent.

This is an application made by Mr. Mohammad Ishaque Qureshi under section 20 of the Arbitration Act praying that the Arbitration agreement entered into between the parties be ordered to be filed and the disputes that have arisen between the parties be referred to the Arbitrator, It is also prayed that the authority of the Chief Conservator ox Forests Azad Government of the State of Jammu & Kashmir, who has been nominated as Arbitrator in the agreement be revoked and another Arbitrator be appointed by the Court. The reply of the respondent is that there exists no dispute and, therefore, the question of making the reference to the Arbitrator does not arise. Moreover, it has been alleged on behalf of the respondent that if at all a reference has to be made, the reference should be made to the C. C. F. who has been nominated as Arbitrator in the agreement between the parties.

The points of dispute are entered in paras. 4, 6, 7 and 8 of the application made by the petitioner. In para. 4 it has been alleged that the C. C. F. in manner not authorised by the agreement and without the existence of evidence and thus with out any justification for such an action, has imposed upon the petitioner a penalty of Rs. 18,629‑6 and that the action of the C. C. F. is outside the terms of the agreement. In para. 6 it is alleged that for a considerable length of time under the pretext of accusation and enquiry which was never held the work of the petitioner was suspended and when the stipulated period of lease was allowed to expire in this manner extension was granted upon imposition of other penalties. In para. 7 it is alleged that throughout the period from the commencement of the lease, the petitioner was never allowed to remove the converted timber including the timber in respect of which a penalty had been imposed and recovered from the petitioners and finally without a legal justification, the petitioner's lease has been cancelled and illegal bills Nos. 2980/85 C. VII 105 and 2190/95. C. VII 23 8 dated 25‑1‑61 and 16‑1‑61 for Rs. 1000 each have also meanwhile been issued to the petitioner. The respondent in his written statement while making a reply to para. 4 of the peti tioner's application asserted that Mr. Habib Khan, the Exh. C. C. F. bad imposed the penalty in strict conformity with the terms of the agreement and the respondent repeated the allegation that the action of the said C. C. F. was not without existence of evidence or justification. The assertions made in para. 6 of the petition are denied by the respondent and it was alleged that no other penalty except the penalty as provided by the terms of the agreement was imposed. In reply to para. 7 of the petition it was submitted in the written statement that what ever action had been taken was in strict compliance with the terms of the agreement and that the lease had not been cancelled. It was stated on behalf of the respondent by the learned counsel that the petitioner had paid the penalty mentioned in para. 4 and that there remained no dispute. Obviously, if a penalty was imposed upon the petitioner and he made the payment it would mean that he accepted the liability and there remained no dispute between the parties. The learned counsel for the petitioner referred to para. 5 of the petition in which it has been entered that the penalty referred to in para. 4 was paid by the petitioner under protest. He had with him a copy of the letter addressed by the petitioner to the C. C. F. Intima ting that he was making the payment under protest. This copy was shown to the learned counsel appearing on behalf of the res pondent he was asked to get immediate instructions on this point. The allegation made in para. 5 of the petition had not been specifically denied. However, I adjourned the hearing for some time to enable the counsel to obtain the instructions. After sometime the learned counsel returned and made a statement at the bar that it was a fact that the petitioner had made the payment of the penalty mentioned in para. 4 of the petition under protest. It is alleged on behalf of the petitioner that the penalty was imposed 'in manner not authorised by the agreement. On the other hand the contention of the respondent is that the penalty was imposed in strict conformity with the terms of the agreement. Now there is a dispute between the parties whether the penalty was imposed in accordance with the terms of the agreement or not.

Reading paras. 6 and 8 of the petition, the petitioner's case is that the petitioner without any justification was illegally stopped from working the lease and that he had thereby incurred a loss for which he claims damages to the tune of Rs. 5 lakhs. The respondent denies the allegation made in para. 6 and naturally his liability for any damages. There also exists a dispute with regard to the allegation made in paras. 6 and 8. It is alleged in para. 7 of the petition that throughout the period from the commencement of the lease the petitioner was never allowed to remove the converted timber including the timber in respect of which a penalty had been imposed and recovered from the petitioner and finally without a legal justification the peti tioner's lease has been cancelled and illegal bills had been issued to him. On behalf of the respondent the contents of para. 7 of the petition are controverted and it is claimed that whatever action had been taken was in strict compliance with the terms of the agreement. Here also a dispute exists. In the circumstances, it becomes necessary that the agreement dated 29‑11‑1957 be filed in Court and the disputes referred to an Arbitrator in accordance with clause 43 of the said agree ment.

Now I take up the question whether the authority of the Arbitrator named in the agreement should be revoked or not and whether a new Arbitrator could be appointed. In para. 9 of the petition it is entered that the C. C. F. (the Arbitrator named in the agreement) by his order No. 2844‑49/C. VIII. 238 dated 3‑4‑1961 has already judged the matter against the peti tioner and declared his verdict in his capacity as the executive head of the Department and has thus rendered himself incompetent to adjudge the matter judicially as an Arbitrator. Similarly in reference to the events detailed out in the foregoing paras. of this petition, the C. C. F. and other staff of the Forest Department have repeatedly taken prejudicial actions against the petitioner, upon the request of the petitioner In re Application under sections 5 and 12 (2) or the Arbitration concerning the dispute over lease of Compartment No. 17 in Keran Division bet ween the same parties the Court has already revoked the authority of the C. C. F. as Arbitrator under a similar agreement in respect of that lease and appointed the District Judge of Muzaffarabad as the Arbitrator . . . . . The petitioner, therefore, prays that while ordering the agreement to be filed and the dispute referred to the Aribtrator, a fresh Arbitrator may be appoint ed.

The learned counsel for the petitioner has cited A I R 1934 Sind 200. It was held in this authority that one of the essential ingredients of a submission to arbitration is that the parties should intend that the dispute intended to be referred should be deter mined in a quasi‑judicial manner. If it is not to be so determined, the agreement does not amount to a submission to Arbitration and the person who decides the dispute is not an Arbitrator. It was further laid down in this authority that although the Court is bound to start with a strong bias in favour of maintaining the special bargain between the parties, it must at the same time, consider all the circumstances of the case with vigilance to see that it is not driving either of the parties to a Tribunal where there Is a likelihood of his not getting sub stantial justice. Rupchand, A. J. C. on the language used In the agreement decided that the President of the Karachi District Local Board was not required to give a quasi‑judicial decision in respect of disputes which might arise between the contractors and the Board, as an Arbitrator after hearing the parties but he was to act only as a Munsif in respect of complaints that the contractors may have against the employees of the Board.

The learned counsel for the petitioner relied on para. 2 column second page 203 of this judgment wherein the learned A. J. C. has written that "in view of the correspondence carried on by the President before suit he has incapacitated himself from acting as an Arbitrator even if Clause 17 is interpreted as amounting to a valid submission to his arbitration. He appears to have dealt with the matter ex parte and to have already Irrevocably committed himself to certain views. Although I am bound to start with a strong bias in favour of maintaining the special bargain between the parties, I must to use the words of Lord Moulton in (1913) A. C. 241 (6) at the same time, consider all the circumstances of the case with vigilance to see that I am not driving either of the parties to a Tribunal where there is a likelihood of his not getting substantial justice." The learned counsel appearing on behalf of the respondent has cited 140 I C 626, 90 I C 932 and 157 I C 607. It was held by Aston A. J. C. (Sind Judicial Commissioner's Court) that the fact that the engineer of one of the parties to the contract, who was nominated as Arbitrator in the contract, had a duty to watch the work in respect of which contract was given and might already have formed an opinion upon the matters in dispute is not enough, in the absence of any evidence that he would not act fairly, to prevent him from being a proper person to decide the dispute. The learned A. J. C. quoted with approval Russell on Arbitration 10th Edition page 42, while laying down the above rule of law. 901 C 932 is also a case from the Sind Judicial Commissioner's Court and was decided by Mr. Aston A. J. C. It was laid down In this authority that a submission Is not invalid merely because an Arbitrator or an umpire is to sit in judgment on his own acts, if parties with their eyes open chose to agree to a sub mission providing for a reference to such an arbitrator or umpire, unless it be shown that the arbitrator or umpire has made up his mind so as not to be open to change ft upon argument. The oft‑quoted case of Jackson v. Barry Ry ((1893) 1 Ch. 238 ; 2 R 207 ; 68 L T 472) was also referred to and approved by this authority. The facts of Jackson v. Barry Ry., were that a dispute arose between a Company and a contractor whether the interior of an embankment was to be made of stone or rocky mark, and the Ehmneer of the Company expressed the view that it should be o f stone, and after the matter was referred to his arbitration and on the day for which the first appointment had been made, he again wrote repeating the same opinion, it was held by the Court of Appeal that considering the position of the Engineer who as Engineer of the Company must necessarily have already expressed an opinion on the point in dispute his writing after the commencement of the arbitration a letter repeating the same opinion would not disqualify him from acting as Arbitrator unless on the fair con struction of the letter it appeared that he had made up his mind so as not to be open to change It upon argument. In spite of the letter written by the Engineer, he was not disqualified to act as an Arbitrator. In 157 I C 607, Venkatasubba Rao, J. of the Madras High Court laid down :‑

"that an arbitrator who has an interest dependent upon his decision will be disqualified if that fact has not been disclosed at the time of his appointment. But if the parties with full knowledge of the facts select an arbitrator who has to perform other duties which will not Permit of his being an impartial person in the ordinary sense of the words, the Court will not release them from the bargain upon which they have agreed."

Russell on Arbitration 12th Edition, page 40 & 41 was quotes with approval for this proposition of law. Bowen, L. J. it Jackson v. Barry Railway remarked :‑

"They (the parties) knew well that be possibly or probabl3 must be committed to a prior view of his own and that ht might not be impartial in the ordinary sense of the words . . . . It is no part of our duty to approach such curiously coloured contracts with a desire to upset them . . . . . To do so would be to attempt to dictate to the commercial work the conditions under which it should carry on its business".

The learned counsel for the petitioner has also referred to an unreported case of our own High Court decided by my Lord the Chief Justice on 6‑4‑1961 which is Civil Suit No. 1 of 1961 entitled "Mohammed Ishaq Qureshi v. The.4zad Government of the State of Jammu & Kashmir" an application under section 21 of the Arbitration Act in which the authority of the C. C. F. the Arbitrator nominated in the agreement was revoked and the District Judge, Muzaffarabad was appointed as an Arbitration in his place. The arguments of the learned counsel for th petitioner in this case was that the reply of the respondent was that the decision of the C. C. F. is now Anal as contemplated b clause 3, therefore, it should be inferred that if the C. C. F. i asked to act as an Arbitrator he will not bring an unbiased mind to the dispute between the parties. The same argument has been advanced before me also. The reasoning of the learned counsel of the petitioner is that it has been asserted in the written statement that the order of the Exh. C. C. F. (Mr. Habib Khan) had become final and that there remained no dispute. From this he wants me to infer that the present C. C. F. (Mr. Saeed) would also stick to the proposition that the order of the Exh. C. C. F. had become final. This argument does not appeal to me. The written statement has been filed on behalf of the Government and not Mr. Saeed, the present C. C. F. A party to the arbitration agreement can assert that whatever orders have been passed in the case have become final and cannot be changed but this cannot possibly disqualify the C. C. F. who has been nominated as Arbitrator in the agreement from acting as such. I am of the opinion that where the parties have entered into an agreement with their eyes open knowing fully well that the Arbitrator agreed upon is an employee of one party and that as executive head of the department he is likely to make certain orders they cannot be allowed to resile from this agreement simply on the suspicion that the said officer would stick to his decision taken or opinion formed while acting as such executive officer. When a party accepts an employee of the other party as an Arbitrator he accepts him as a gentleman who has an open mind and also a judicious mind. They believe that the Arbitra tor agreed upon would be open to conviction and would be ready to change his mind when he is convinced by arguments. Mr. Zaffar on behalf of the petitioner frankly stated that the present C. C. F. had made no orders in the case from which it could be said that he was biased against the petitioner, but then he stated that he had an apprehension that the present C. C. F. would also try to uphold the orders of his predecessor in office. My Lord the Chief Justice at page 4 of his judgment in the unreported case cited above has remarked that a situation has arisen in the present case which tends to produce a bias in the mind of even the present C. C. F. which might make him lean towards the decision of his predecessor. On the record before me the present C. C. F. has passed an order which is No. 2844‑49/C. VII. 238 dated 3‑4‑1961. This is an order declaring that the periods of extension granted to the petitioner having expired towards the end of February 1961, the lease had lapsed and then the order of confiscation of the security of Rs. 2,440 and of the timber lying outside the coup left behind by the lessee at the time of the expiry of the lease period was made. Since according to the record before him there was an outstanding of Rs. 43,462/7/7 against the lessee. This is an order which in official routine any C. C. F. would have made. From this order it cannot be inferred that Mr. Saeed, the present C. C. F. would not be bringing an unbiased mind while acting as an Arbitrator and decide the disputes between the parties. It is, therefore, ordered that the agreement dated 29‑11‑57 be filed in Court and the following points of dispute be referred to the C. C. F. who has been nominated as an Arbitrator in the agreement :

(1) Was the petitioner illegally imposed with the penalty of Rs. 18,629/6/‑ and whether he is entitled to its return or any part thereof

(2) Was the petitioner illegally stopped from working the lease and whether he incurred any damages as a result thereof and in the event of any damages having been proved to have been suffered. Whether the petitioner is entitled to recover such damages in the arbitration proceedings or should he have recourse to a separate suit. The Arbitrator should also decide the amount of the damages, if the petitioner is held entitled to any.

(3) Was the petitioner not allowed to remove the converted timber including the timber in respect of which a penalty had been imposed and recovered from the petitioner and whether illegal bills Nos. 2980/85‑C‑VII‑105 and 2190/95‑C‑VII‑238 dated 25‑1‑61 for Rs. 1,000 each had been illegally issued to the petitioner.

The points of dispute shall be read in conjunction with paras. 4, 6, 7 and 8 of the petition. The Arbitrator shall proceed according to law and the award will be submitted on or before 2‑12‑61.

A. H. Order accordingly.

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