ORDER SHEET
IN THE HIGH COURT OF SINDH AT KARACHI
HCA No.208 of 2008
Present:
Mr. Justice Khilji Arif Hussain
1. For orders on CMA No. 1193/08 (u/s 148 CPC)
2. For Katcha Peshi.
07/04/2009
Mr. Ali Gohar Masroof, advocate for appellant.
Mr. Arshad Hussain, advocate for respondent.
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Brief facts to decide listed appeal are that respondent filed suit Under Order XXXVII of CPC being Suit No.1338/07 against appellant. The respondent is a public limited company engaged in supply of aviation fuels to airlines and related services. Appellant No.1 Company holding license as commercial airlines from Civil Aviation Authority and was operating domestic as well as international flights. Respondent filed suit for recovery of Rs.3,47,19,297/- against appellant on the dishonouring of cheques issued by the appellant. The respondent filed suit on dishonouring of cheques then filed suit for decree of Rs.3,47,1900 against the appellant No.1 and for Rs.20,00,000 against appellant No.2. The appellant instead of filing application under sub-rule (2) of rule 2 of order 37 CPC seeking permission to defend the suit filed an application under section 34 of the Arbitration Act, 1940.
After hearing the learned advocates for the parties, learned Single Judge dismissed the application and decree the suit in the sum of Rs3,47,19,297/- with interest 10 per cent per annum from the date of decree to the date of payment.
Heard Mr. Ali Gohar Masroof, learned counsel for the appellant, and Mr. Arshad Hussain, learned counsel for the respondent.
Mr. Ali Gohar Masroof, learned counsel for the appellant, vehemently argued that since there was an Arbitration Clause in the contract between the parties the defendant cannot file suit and proceedings ought to have been stayed under section 34 of the Arbitration Act. In support of his contention learned counsel relied upon the cases of Shell Pakistan Ltd. vs. Bhoja Air (Pvt) Ltd., 2007 MLD1424, Associated Agencies Ltd and another vs. Industrija Masina/Tractora and another, PLD 1993 Kar. 459.
We have taken into consideration arguments advanced by the advocates for the parties.
The respondent filed suit under order XXXVII CPC on the dishonoured of two cheques issued by the appellant. After service of notice/summons in terms of order XXXVII CPC to file application for leave to defend the suit, the appellant instead of filing application for leave to defend filed application under section 34 of Arbitration Act. The question of stay of proceedings under section 34 of Arbitration Act in a suit filed under Order XXXVII CPC came under consideration occasions. In the case of Associated Agencies Ltd. (supra) it was held:-
“ In order, therefore, to avoid decree, the defendant receiving such summons must apply for leave to appear and defend the suit. The defendant shall not appear or defend the suit unless he obtains leave from a Judge. In default of his obtaining such leave or of his appearance and defence in pursuance thereof, the Court will accept the statement in the plaint as correct and on those statements pass a decree in favour of the plaintiff. Such leave would only prevent the Court from passing the decree. By obtaining leave to appear or defend, he becomes entitled to appear or to defend. But such appearance is not indicative of any intention on his part to waive his right under the arbitration agreement.”
In the case of United Distributors Pakistan Ltd. Vs. Ahmed Zarie Services, 1997 MLD 1835 Kar. held:
“ At the outset it may be observed that in a suit based upon negotiable instrument in which summons have been issued in Form No.4 Appendix B, the defendant is not entitled to appear or defend the suit as matter of course unless he obtains leave from the Court so to appear and defend. In default of his obtaining such leave for his appearance and defence in pursuance thereof the allegation in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree. The advantage in adopting the procedure prescribed by Order XXXVII, CPC is that the defendant is not as a matter of right entitled to appear or to defend, but, if he deserves to be heard he must apply to the Court for permission to appear and defend within 10 days of service of summons as envisaged by Article 159 of the Limitation Act. Till such time as leave to defend is granted the defendant cannot even file interlocutory application in order to agitate the point of jurisdiction or to question the transaction between the parties or to challenge validity and legal effect of the promissory note and cross-cheque issued by them in favour of the plaintiff.”
In the case of Sh. Muhammad Irfan and others vs. Sitara Commission Shop, 2005 MLD 851, while dealing with the question of maintainability of the suit, learned Judge held that trial Court should have decided the question of jurisdiction along with the application for leave to defend is not tenable as before leave is granted the defendant has no locus standi to attack maintainability of the suit.
In Cotton Export Corporation of Pakistan (Pvt) Ltd. vs. Messrs Nagina Cotton Industries Ginning Pressing and Oil Mills and six other, 1993 CLC 2217, held as under:
“The question of maintainability of the suit can be considered in depth, after leave to defend is granted. Before obtaining leave to defend in a summary suit a defendant has no locus standi to attack maintainability of the suit.---------.”
In the case of Nasir Ahmed vs. Pakland Cement Limited, it was held that dishonour of the cheque furnish independent cause of action and section 34 of the Arbitration Act was not applicable.
After taking into consideration various judgments on the issues ‘we are of the view, in the Suit filed under Order XXXVIII CPC in a matter having arbitration clause, the defendant if want to rely upon arbitration clause, then had to file application for leave to defend the Suit along with application under section 34 of the Arbitration Act. We are in agreement with the principle laid down by the Hon’ble Justice Sabihuddin Ahmed, in the case of M/s. Pioneer Cables Ltd. vs Saadi Cement Ltd., 1999 CLC 1841
“Whenever the parties entered into an arbitration agreement, the statutory presumption created by the Negotiable Instrument Act and enforceable through the mechanism provided by Order 37, Rule 3, CPC would stand destroyed. In plain words whenever an arbitration agreement exists, the defendant, irrespective of the questions whether his defence is sham or plausible would stand relieved of the statutory liability to satisfy the Court that he has a plausible defence and would have an unconditional right to plea his defence in arbitration proceedings without ever being put to terms.”
Since, the appellant had not filed application for leave to defend application, application under section 34 of the Arbitration Act alone was not maintainable.
For the foregoing reasons, listed appeal has no merit, which is accordingly dismissed in limine along with the listed application, however, with no order as to cost.
JUDGE
JUDGE
HCA No.208 OF 2008
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