Judgment Sheet

IN THE HIGH COURT OF SINDH AT KARACHI

Suit No. 684 of 2003

Present :

Mr. Justice Nadeem Akhtar

Plaintiff : Engro Fertilizers Limited

(formerly known as Exxon Chemical Pakistan Limited),

through Mr. Rashid Anwar, Advocate.

Defendant : The Federation of Pakistan, through the Secretary, Ministry of Industries, Government of Pakistan, Islamabad, through Mrs. Tabassum Ghazanfar,

Standing Counsel.

Dates of hearing : 20.12.2012 and 14.10.2013.

J U D G M E N T

NADEEM AKHTAR, J.- This judgment will dispose of the objections filed by the defendant to the Award rendered on 16.03.2001 by the learned Sole Arbitrator, Hon’ble Mr. Justice (Retired), Fakhruddin G. Ebrahim, former Judge of the Supreme Court of Pakistan.

2. The dispute between the parties, which was referred to and was decided through the Award by the learned Sole Arbitrator, had arisen out of an Agreement entered into on 16.12.1964 (“the Agreement”) between Esso Standard Eastern Inc. and the defendant. There were two claimants before the learned Sole Arbitrator, Exxon Chemical Pakistan Limited (claimant No.1), which was formed and incorporated under the laws of Pakistan ; and, Exxon Corporation (claimant No.2), which owned 75% shares of claimant No.1, and was the assignee of Esso Standard Eastern Inc. under Article 8.01 of the Agreement. Vide paragraphs 12 and 13 of the Award, the learned Sole Arbitrator struck off the name of claimant No.2 from the matter before him, on the ground that claimant No.2, not being a party to the Agreement, was unnecessarily joined as a party in the proceedings. Accordingly, the entire claim was examined by the learned Sole Arbitrator with respect to claimant No.1 as the sole claimant.

3. On 20.12.2012, the learned counsel for the plaintiff informed the Court that, in pursuance of an order passed by this Court in J. Misc. No. 42/2009, the name of Exxon Chemical Pakistan Limited (original claimant No.1) had been changed, and all the rights and interests therein now vest in Engro Fertilizers Limited. It was prayed by the learned counsel that the name of the original claimant No.1 / plaintiff be treated and read in these proceedings as Engro Fertilizers Limited. With the consent of the learned Standing Counsel, it was ordered accordingly.

4. The relevant facts giving rise to the dispute between the parties were that in pursuance of the Agreement, a plant was established by the plaintiff at Daharki, District Sukkur (“the plant”), for production of fertilizer (“Urea”). The plant commenced operation on 15.12.1968. The price of Urea and other matters incidental thereto, were to be dealt with in accordance with the terms and conditions of the Agreement. The dispute that was referred by the parties to the learned Sole Arbitrator pertained to certain claims made by the plaintiff against the defendant and the rights and liabilities of the parties arising therefrom under the Agreement. After examining the claim and the material on record, the learned Sole Arbitrator opined that the claims of the plaintiff may be broadly subdivided into two groups ; namely, “(a) Claim for marketing markup / incidentals”, and “(b) Refund of amounts charged by way of Development Surcharge”. The plaintiff’s claims under the above two groups were further segregated by the learned Sole Arbitrator under various heads and were examined by him in depth. In order to appreciate the objections filed by the defendant, it is necessary to briefly discuss the findings of the learned Sole Arbitrator and the reasons of such findings given by him.

5. (a) Claim for marketing markup / incidentals : These claims comprised of marketing markup / incidentals for the year 1985 and for the period from 01.01.1986 to 19.05.1986 (“the relevant period”). They included claims for storage losses and other costs, regional office charges, foreign exchange loss on regional office charges, donations, excess of interest income over expense, dispatch monies earned, profit on sale of fixed assets, and rounding off of Paisas by the defendant. While dealing with the above claims, the learned Sole Arbitrator examined and referred to all the relevant Articles ; namely, 3.01, 3.03, 4.01, 4.02, 5.01, 5.03, 7.10 and 7.11 of the Agreement, which have also been reproduced by him in the Award. In paragraphs 14 and 15 of the Award, it was observed by the learned Sole Arbitrator that the term “marketing markup” had a very wide scope under Article 5.01 of the Agreement ; in terms of the said Article, during any period when fertilizer prices were not controlled or subsidized by the Government, the plaintiff was entitled to charge its dealers the price of Urea calculated at a sum of transfer value plus marketing markup in accordance with the said Article ; the figure for marketing markup for any given year (except the first year) was to be arrived at by dividing the total cost of distributing and marketing incurred during the preceding year of plant operation by the metric tons of fertilizer sold during the preceding year of plant operation ; and, the plaintiff was also entitled to receive marketing profit equal to 2% of the applicable transfer value. In paragraph 16 of the Award, it was observed by the learned Sole Arbitrator that under Article 5.03 of the Agreement, if fertilizer prices were controlled or subsidized by the Government, the plaintiff could charge its dealers prices of Urea equal to the controlled or subsidized price less the dealer’s margin ; and, if the price of Urea so calculated was less than the sum of transfer value plus marketing markup, the Government was bound to pay to the plaintiff an amount equal to the difference. In view of his above observations, the learned Sole Arbitrator held in paragraph 17 of the Award that the plaintiff was entitled to charge or receive, as the case may be, the price of Urea equal to the sum of the transfer value plus marketing markup, irrespective of whether the price of Urea was controlled or subsidized by the Government in any given year.

6. It was the plaintiff’s case before the learned Sole Arbitrator that on account of excess supply of fertilizer in the year 1984, the plaintiff was compelled to incur increased marketing and distribution costs to promote sales of Urea ; the dealers were obliged to carry out marketing campaign for increased use of Urea by the farmers ; the plaintiff was obliged to sell Urea on credit basis and to deliver the same at the farmers’ doorstep ; and, the controlled price fixed by the defendant for the said year was unreasonably high which further contributed to excess supply in the domestic market. The above assertions were denied by the defendant by alleging that there was no excess supply of fertilizer during the said period ; the plaintiff itself contributed to the alleged excess supply by increasing its annual capacity in violation of Article 1.03 of the Agreement ; the alleged marketing allowance paid by the plaintiff to its dealers was in fact commission, which was increased by the plaintiff without authorization, without the defendant’s consent and in violation of the Agreement ; the commission paid by the plaintiff to its dealers covered all necessary marketing expenses ; and, despite the defendant’s requests, the plaintiff had failed to provide detailed information of the actual payments made by it to its dealers. The above allegations made by the defendant were denied by the plaintiff by clarifying that the production of Urea had tripled within a short span of four year as three plants approved by the defendant had gone into production ; the control price fixed by the defendant was unrealistically high ; there was a sharp decline in agriculture production during the said period resulting into suppression in domestic demand of Urea ; and, the supply and availability of Urea far exceeded its domestic demand during the said period.

7. After closely examining the figures / tables produced by PW-1 in support of this particular claim, the learned Sole Arbitrator, in paragraphs 24 and 25 of the Award, came to the conclusion that the same were supported by the official figures released by the Federal Directorate of Fertilizer Imports, Government of Pakistan. In paragraph 26 of the Award, it was particularly noticed by the learned Sole Arbitrator that DW-1 did not question the said tables produced by PW-1, and despite the fact that DW-1 stated that he would confirm whether the figures given in the said two tables were in accordance with FDFI reports or not, no questions were put to him in this regard in his re-examination. In paragraph 27 of the Award, it was further noticed by the learned Sole Arbitrator that DW-1 had admitted that the supply far exceeded the demand during the relevant period due to the permission granted by the defendant for setting up fertilizer production plants and by agreeing to give guaranteed returns to the producers ; on account of excess supply in the years 1984-85, the defendant allowed Urea to be exported ; and, there was increase in the control price of Urea, but the same was due to the reason that Urea prices had increased with the increase in support price of major crops. In view of the un-rebutted evidence produced by the plaintiff and admissions made by DW-1, the learned Sole Arbitrator held that in a situation where supply far exceeded the demand of Urea, the plaintiff was justified, indeed obliged, to take extra measures for marketing and distribution of Urea, and thereby to incur increased cost for the same ; and, the auditors had duly certified such costs, and the plaintiff could not be denied reimbursement of the same. On the basis of his above findings, the learned Sole Arbitrator opined that it was for the manufacturer / plaintiff to decide as to what steps were needed to market its product in a given situation, and if the steps taken had nexus with the product and its sale, the wisdom of the manufacturer in taking such steps was not open to question.

8. The plaintiff’s claim of marketing markup / incidentals was considered, analysed, discussed and decided by the learned Sole Arbitrator by subdividing the said claim in the following manner and under the following heads :

9. A. Marketing Allowance for the relevant period :

Rs.41,886,000.00 plus Rs.8,788,000.00

The plaintiff had pleaded before the learned Sole Arbitrator that the least expensive method in the marketing and sale of Urea was adopted during the relevant period. It was observed by the learned Sole Arbitrator that no doubt the plaintiff had the option to enlarge its own marketing facilities, but doing so would have permanently increased the marketing cost ; since the excess supply was admittedly considered to be temporary, the decision of the plaintiff of giving marketing allowance to its dealers, was understandable; if, on the other hand, the plaintiff had simply increased the commission payable to the dealers, it would have found it difficult to backtrack once the situation had improved ; the dealers’ commission was to meet a normal sale while the marketing allowance was in the nature of ad hoc assistance to the dealers to enable them to undertake expenditure for promoting sales in a situation where there was excess supply. It was noticed by the learned Sole Arbitrator in paragraph 32 of the Award that there was nothing in the Agreement to prevent the plaintiff from paying a marketing allowance to the dealers. It was once again observed by the learned Sole Arbitrator that the judgment of the manufacturer in this context must prevail. The defendant’s contention that the dealers actually sold the Urea at a price lower than the control price, was rejected by the learned Sole Arbitrator in paragraph 33 of the Award on the ground that such contention was not supported by any evidence. The contention of the defendant that the plaintiff had failed to provide details of the expenditure incurred by the dealers, was also rejected in paragraph 34 of the Award on the ground that the same was irrelevant as, under the Agreement, the claimant was required only to show that it had incurred particular costs in relation to marketing of Urea, and no further details were to be provided by the plaintiff. The objection raised by the defendant regarding increase of the Urea production in the year 1985 by the plaintiff beyond the designated capacity of 173,000 metric tons per annum, was dealt with by the learned Sole Arbitrator in paragraphs 35 to 38 of the Award. It was held by the learned Sole Arbitrator that the plaintiff should have obtained express permission from the defendant for the increased production in accordance with the Agreement, and in the absence of express permission, the plaintiff could not rely either on the BMR facilities granted by the defendant or the defendant’s alleged failure in objecting to the increase production. It was further held that the additional cost of marketing allowance could not be foisted upon the defendant in respect of Urea produced by the plaintiff in excess of the agreed designated capacity. On the basis of his above findings, the plaintiff was awarded Rs.34,906,210.00, as against its claim of Rs.41,886,000.00, towards marketing allowance for the year 1985 at the rate of Rs.201.77 per metric tons for 173,000 tons. The entire amount of Rs.8,787,886.00 claimed for the period from 01.01.1986 to 19.05.1986, was also awarded to the plaintiff.

10. B. Regional Office Charges : Rs.693,000.00 plus Rs.239,000.00

This claim made by the plaintiff was dealt with in paragraphs 40 to 43 of the Award. It related to the charges of allocation of Regional Headquarters, Hong Kong, which included the foreign exchange loss for the year 1985. The basis of this claim was that the nature of advisory assistance provided by the Regional Headquarters necessitated a 50:50 devisor. It was observed by the learned Sole Arbitrator that it was an admitted position that the plaintiff used to allocate its overhead cost in the ratio of 60:40 between manufacturing cost and the marketing and distribution cost, and the overhead cost of the Regional Headquarters was a sum of costs incurred in respect of marketing and costs incurred in the marketing and distribution activities of the plaintiff. It was held by the learned Sole Arbitrator that if the plaintiff had sought to alter the ratio of 60:40 to 50:50, it ought to have produced evidence to justify such alteration ; in the absence of any evidence that 50% of the overhead cost incurred at Regional Headquarters was in relation to the marketing and distribution activities, there was no reason to alter the 40% allocation made by the defendant ; and, the defendant had not acted unreasonably in maintaining the 60:40 ratio. This claim was rejected by the learned Sole Arbitrator in view of his above findings.

11. C. Marketing of Imported Fertilizer :

Rs.2,524,000.00 plus Rs.911,000.00

This claim, which was dealt with in paragraphs 44 to 46 of the Award, was in relation to the cost incurred by the plaintiff in marketing and distributing imported fertilizer. It was observed by the learned Sole Arbitrator that the plaintiff had not denied that the total marketing and administrative overhead cost claimed by it included Urea manufactured by it at the plant as well as fertilizer imported or handled by it. This claim was rejected by the learned Sole Arbitrator mainly on the ground that the proceedings before him pertained only to the Urea manufactured by the plaintiff at the plant, and any claim unrelated to such Urea had to be excluded from the ambit of the said proceedings.

12. D. Claim related to Daharki : Rs.1,809,827.00 plus Rs.395,000.00

This claim was dealt with in paragraphs 47 to 56 of the Award. It was related to storage losses at field warehouses claimed by the plaintiff in the sums of Rs.37,000.00 and Rs.7,000.00 for the year 1985 and part of the year 1986, respectively ; and, cost relating to product movement and storage of bagged Urea at the marketing facilities at Daharki and the Urea re-bagging cost at field warehouse claimed by the plaintiff in the sums of Rs.1,772,827.00 and Rs.388,000.00 for the year 1985 and part of the year 1986, respectively. In support of these claims, the plaintiff had relied upon Exhibit 32, which were the minutes of the meeting held on 06.12.1983, wherein the then Secretary Industries had suggested that steps be taken to segregate marketing warehouses at Daharki. It was observed by the learned Sole Arbitrator that the defendant had not denied Exhibit 32, but it was questioned as to whether the Ministry of Industries was the relevant Ministry in this regard. It was held by the learned Sole Arbitrator that the allegation made by the defendant was belied by the very minutes of the meeting and the fact that during the course of arguments, the defendant’s learned counsel did not demonstrate, by reference to the Rules of Business, that the Ministry of Industries was in fact not the relevant Ministry. The defendant had denied these claims on the grounds that as the same had been incurred at Daharki, the same were part of the production cost having already been duly compensated for by the transfer price and could not be claimed as marketing and distribution cost ; all costs incurred at Daharki was in fact manufacturing cost ; and, there was no separate marketing area or activity at Daharki. The defendant had maintained that if the said claims were allowed, it would tantamount to increasing the ex-factory price of Urea mentioned in the Agreement, which could not be done without a mutual Agreement. It was noticed by the learned Sole Arbitrator that, in his cross-examination, DW-1 had asserted that no segregation of warehouses took place at Daharki, but no such statement was made by him in his examination-in-chief, nor was PW-1 confronted with this allegation. It was further noticed that DW-1 had admitted that there was no document on record to show that the defendant had alleged that the segregation referred to in Exhibit 32, did not in fact take place. It was also noticed that no document was brought on record by the defendant to contradict the said Exhibit 32. It was held by the learned Sole Arbitrator that the marketing facility at Daharki was segregated at the suggestion of the defendant, therefore, the cost incurred was part of marketing incidentals ; it was the act itself, which had to determine whether it was an act relating to manufacturing or relating to marketing and distribution and not the place where the cost in relation to the act was incurred ; and, the defendant had wrongly denied these claims. It was further held that the costs incurred at Daharki, could not be denied to the plaintiff, and accordingly, the entire claim of Rs.2,204,827.00 made by the plaintiff in this behalf, was allowed by the learned Sole Arbitrator.

13. E. Claim for donations : Rs.14,531.00 plus Rs.8,675.00

This claim was dealt with in paragraphs 57 and 58 of the Award. The plaintiff had pleaded that donations were given by it to improve the image of the Company, therefore, the same be treated as marketing incidentals in view of the fact that because of donations, not only the image of the Company had improved, but the magnitude of the sale of its products had also increased many times. It was held by the learned Sole Arbitrator that donations may improve the image of the Company, but may not necessarily result in increased sales, and in the absence of any evidence showing direct nexus between donations and the sale of Urea, donations could not be treated as part of marketing cost. This claim of donations was rejected by the learned Sole Arbitrator.

14. F. Adjustment of interest income :

Rs.1,274,609.00 plus Rs.377,886.00

This claim was dealt with in paragraphs 59 to 61 of the Award. Justifying adjustment of interest income, it was pleaded by the defendant that interest earned should be deducted from the interest cost incurred. It was further pleaded that such adjustments had been made in the past also. The plaintiff had opposed such adjustments by stating that any earlier adjustment was insignificant. It was observed by the learned Sole Arbitrator that the excess interest sought to be adjusted by the defendant, related to interest on dividend not yet disbursed and interest on fund obtained from the defendant under the Export Finance Scheme, and none of these items had any nexus with marketing or distribution of Urea. The learned Sole Arbitrator held that it was the legality of the adjustment that needed to be examined and not its quantum ; there was no provision in the Agreement for making this or any other adjustment, the adjustment could not be sustained ; the defendant’s reliance on Article 5.01(2) was misconceived ; and, the adjustment by the defendant was unwarranted. In view of his above findings, the entire claim of Rs.1,652,495.00 made by the plaintiff in this behalf, was allowed by the learned Sole Arbitrator.

15. G. Adjustment of other income : Rs.259,489.00 plus Rs.34,698.00

This claim, which was dealt with in paragraphs 62 and 63 of the Award, was sought to be adjusted by the defendant against the claim of marketing incidentals. It was held by the learned Sole Arbitrator that the defendant was not entitled to such adjustment, as the plaintiff derived this income from the profit made on sale of its fixed assets, and as such it had no nexus with the marketing incidentals. It was further held that there was no provision in the Agreement for adjustment of any income. Accordingly, the entire claim of Rs.294,187.00 made by the plaintiff in this behalf, was allowed by the learned Sole Arbitrator.

16. H. Claim for dispatch money : Rs.145,000.00 plus Rs.5,000.00

This claim was rejected by the learned Sole Arbitrator as being misconceived, on the ground that the Government had not made any such adjustment.

17. H. Rounding off claim : Rs.6,288.00 plus Rs.14,638.00

This claim was rejected by the learned Sole Arbitrator, on the ground that the defendant was entitled to round off the Paisas which practice had in certain cases in fact benefited the plaintiff.

18. (b) Refund of amounts charged by way of Development Surcharge :

This was the second part of the plaintiff’s claim before the learned Sole Arbitrator, and an amount of Rs.152,800,000.00 was claimed by the plaintiff in this account. It was pleaded by the plaintiff that this surcharge, which was being paid by it to the defendant since the year of its imposition in 1973 under the Chemical Fertilizers (Development Surcharge) Act, 1973, had seriously affected the profits assured to it by Article 5.03 of the Agreement ; and, the levy of Development Surcharge was also in violation of Articles 7.10 and 7.11 of the Agreement. The defendant had opposed this claim on the ground that, irrespective of the provisions of the Agreement, a levy under an Act of Parliament cannot be questioned. The learned Sole Arbitrator agreed with the defendant’s contention. However, he proceeded to examine as to whether the levy in question had the effect of denying the plaintiff’s entitlements under the Agreement, which were limited to transfer price marketing profit at 2% thereon, plus the agreed dealers’ commission and per ton marketing and distribution cost. It was held inter alia by the learned Sole Arbitrator that, since the Development Surcharge did not exceed the agreed entitlements of the plaintiff, there was no violation of Agreement, and the levy of surcharge was applicable to the entire Urea industry. This entire claim of Rs.152,800,000.00 was rejected by the learned Sole Arbitrator in view of the above.

19. The claim of damages made by the plaintiff was not even examined by the learned Sole Arbitrator, as it was conceded before him that the said claim was in the alternative only. The plaintiff had also claimed for interest pendente lite, and further interest at the rate of 14% per annum until payment on its claims. In this context, it was held by the learned Sole Arbitrator that, in view of PLD 1987 Supreme Court 393, an arbitrator cannot award interest for the period prior to the date of the Award. As such, interest was awarded by the learned Sole Arbitrator at the rate of 14% per annum on the claims found due and payable, from the date of the Award until payment. Costs were not awarded by the learned Sole Arbitrator to any of the parties, by observing that success was evenly divided between the parties.

20. In view of his findings, the total amount that was awarded by the learned Sole Arbitrator to the plaintiff came to Rs.47,845,585.00 along with interest thereon as stated above. For the sake of convenience and understanding, the claims allowed / amounts awarded, and the claims rejected by the learned Sole Arbitrator, are summarized below :

CLAIMS ALLOWED / AMOUNTS AWARDED

i.	Marketing Allowance for the year 1985 for 173,000 tons @ Rs.201.77 per metric ton	34,906,210.00
ii.	Marketing Allowance for the period from 01.01.1986 to 19.05.1986	8,787,886.00
iii.	Claims related to Daharki	2,204,827.00
iv.	Adjustment of interest income	1,652,495.00
v.	Adjustment of other income	294,187.00
vi.	Interest @ 14% per annum on the claims found due and payable, from the date of the Award until payment
T O T A L		47,845,605.00

CLAIMS REJECTED :

i.	Regional Office charges	932,000.00
ii.	Marketing of Imported Fertilizer	3,435,000.00
iii.	Claim for Donations	23,206.00
iv.	Claim for dispatch money	150,000.00
v.	Rounding off claim	20,926.00
vi.	Refund of Development Surcharge	152,800,000.00
vii.	Claim for interest pendente lite	-
viii.	Costs	-
T O T A L		157,361,132.00

21. The Award was filed by the learned Sole Arbitrator before this Court on 03.06.2003, whereafter notice was ordered to be issued to the parties. The plaintiff did not file objections to the Award against rejection of its above mentioned claims. The present objections to the Award, which were registered as CMA No.5449/2003, were filed by the defendant, praying that the Award be set aside with costs. The plaintiff filed its counter affidavit in reply to the defendant’s objections, and in its rebuttal, affidavit-in-rejoinder was filed by the defendant. It is to be noted that objections have been filed by the defendant only in respect of the marketing allowance awarded to the plaintiff by the learned Sole Arbitrator in the sum of Rs.43,694,096.00 for the year 1985 and for the period from 01.01.1986 to 19.05.1986. The learned Standing Counsel reiterated the objections filed by the defendant, and submitted on behalf of the defendant that marketing allowance claimed by the plaintiff included unauthorized allowance given by the plaintiff to its dealers by way of discount over and above their authorized commission of Rs.50.00 per ton, which was fixed by the defendant after consultation with the plaintiff ; under the terms and conditions of the Agreement, the plaintiff was not entitled to allow commission to dealers beyond the agreed rate ; marketing allowance beyond the agreed rate of Rs.50.00 per ton was granted by the learned Sole Arbitrator in violation of Clause 5.03 of the Agreement ; this claim could not be allowed at the same rate for the year 1985 and from 01.01.1986 to 19.05.1986 ; the plaintiff’s claim was allowed at the rate of Rs.201.77 per ton without any discussion or calculation, although the plaintiff itself had claimed marketing allowance at the rate of Rs.162.098 per ton for the period from 01.01.1986 to 19.05.1986 ; and, the findings of the learned Sole Arbitrator are absurd, perverse and not sustainable in law. In view of the above objections, the learned Standing Counsel prayed that the Award be set aside with costs of the proceedings.

22. On the other hand, the Award was strongly supported by Mr. Rashid Anwar, the learned counsel for the plaintiff. He submitted that marketing allowance of Rs.8,787,886.00 was claimed by the plaintiff for 54,216 metric ton of Urea produced during the period from 01.01.1986 to 19.05.1986 at the rate of Rs.162.09 per ton, which is almost the same amount that has been awarded for the said period by the learned Sole Arbitrator. In support of this submission, he relied upon Exhibit 66. He further submitted that the learned Sole Arbitrator awarded marketing allowance to the plaintiff after carefully examining Clauses 5.01 and 5.03 of the Agreement, and after coming to the conclusion that the plaintiff was justified in giving a temporary marketing allowance to its dealers. In this context, he invited my attention to the observation of the learned Sole Arbitrator about the admission made by the defendant regarding oversupply of Urea in the market in view of the permission granted by the Government for setting up three new plants ; and, also to the observation that as it was expected that the oversupply would be temporary, there was no justification for the plaintiff to set up a permanent marketing establishment or to permanently increase the normal commission of its dealers. The learned counsel also referred to Exhibit 50, whereby the defendant itself had admitted that the plaintiff was entitled to receive marketing allowance as per the Agreement. It was specifically noticed by the learned Sole Arbitrator that DW-1 was confronted with Exhibit 50, but he did not respond satisfactorily.

23. Mr. Rashid Anwar submitted that, without prejudice to his submissions that the objections raised by the defendant are misconceived and misleading, the objections even otherwise are not sustainable in law, and the Award cannot be set aside on the basis thereof. He emphasised that the scope of Section 30 of the Arbitration Act, 1940, is limited to the extent of setting aside an Award only where the Arbitrator has misconducted himself or the proceedings, or if the Award has been superseded by a court order, or where an Award has been improperly procured or is otherwise invalid.

24. In continuation to his above submission that the objections filed by the defendant are clearly beyond the scope of Section 30 of the Arbitration Act, 1940, the learned counsel for the plaintiff made a number of submissions. His first submission was that it is a settled law that while considering objections to the Award, the Court would interfere only if the circumstances mentioned in Section 30 (ibid) are attracted, and not otherwise ; and, it is not open to a party to challenge the decision of the Arbitrator, if it is otherwise valid. In support of this submission, Mr. Rashid Anwar relied upon the cases of (1) President of Islamic Republic of Pakistan V/S Syed Tasneem Hussain Naqvi and others, 2004 SCMR 590, and, (2) Muhammad Ramzan V/S Additional District Judge, Multan and others, 2005 SCMR 1542.

25. The second submission of Mr. Rashid Anwar was that it is well-established principle of law that the Arbitrator is the judge of all matters arising in the dispute before him, whether of fact or of law, and the Court is not to act as a Court of appeal sitting in judgment over the Award ; and, if an Award is scrutinized while applying yardstick of appeal, the very purpose of referring the matter to Arbitration would be frustrated. In support of this submission, the learned counsel relied upon the cases of (1) Federation of Pakistan through Secretary, Ministry of Food, Islamabad and others V/S Messrs Joint Venture Kocks K.G. / RIST, PLD 2011 Supreme Court 506, (2) Mian Corporation through Managing Partner V/S Messrs Lever Brothers of Pakistan Ltd. through General States Manager, Karachi, PLD 2006 Supreme Court 169, (3) Ashfaq Ali Qureshi V/S Muncipal Corporation, Multan and another, 1984 SCMR 597, (4) S.G. Rayon Mills (Pvt.) Limited V/S Fida Hussain & Associates, 2002 CLC 353, (5) Al-Abdullah Constructors (Pvt.) Ltd. V/S Pakistan Water and Power Development Authority through Chief Engineer, 2008 CLC 798, (6) Friends Corporation V/S Airport Development Agency and another, 1997 CLC 626, and, (7) Messrs Abdullah Traders through Partner Mukhtar Ahmed V/S Trading Corporation of Pakistan Ltd. through Chairman, Attorney, Principal Officer and 2 ohers, 1999 CLC 2047.

26. The third submission that was made by the learned counsel for the plaintiff was that the Court, while hearing objections to an Award, cannot undertake reappraisal of evidence recorded by the Arbitrator in order to discover error or infirmity therein ; and, an error or any illegality in an Award must appear on the face of the Award and should be discoverable by reading the Award itself without examining the underlying evidence. In support of this submission, the learned counsel relied upon the cases of (1) M/s. Joint Venture KG / RIST through D.P. Giesler G.M., Bongard Strasse 3,4000, Dusseldorf-30, Federal Republic of Germany, C/o 15 Shah Charagh Chambers, Lahore and 2 others, PLD 1996 Supreme Court 108, (2) Trustees of the Port of Karachi V/S Messrs Iftikhar Brothers, 1993 CLC 1491, (3) Messrs Gandhara Consultants (Pvt.) Ltd. V/S Pakistan Defence Officer’s Housing Authority, Karachi, 2010 CLC 506, (4) Razo (Pvt.) Ltd V/S Pakistan Steeel Mills Corporation (Pvt.) Ltd., 2009 MLD 1399, and, (5) Ghee Corporation of Pakistan Ltd. and others V/S Multan Chemicals Ltd. and others, 2000 YLR 253.

27. The fourth submission of Mr. Rashid Anwar was that an Award cannot be set aside on the ground of insufficiency of evidence, or for being against the weight of evidence, or even for misreading of the evidence. The cases of (1) Messrs Waseem Construction co. V/S Government of Sindh and others, PLD 1987 Karachi 575, (2) Messrs Ibad & co. V/S Province of Sindh through Secretary to the Government Communication and Works Department and 2 others, PLD 1980 Karachi 207, and, (3) Haji Abdul Hameed & Co. V/S Insurance Company of North America and others, 1999 YLR 1213 (Karachi), were relied upon by the learned counsel in support of his above submission.

28. The fifth submission of the learned counsel for the plaintiff was that the Superior Courts have consistently held that the law leans in favour of upholding the Award and not vitiating the same. In support of this submission, he relied upon the cases of (1) Rais Chiragh-ud-din V/S Muhammad Aslam, 2001 YLR 2162, (2) Saifullah Khan and others V/S Karachi Customs Agents Association and others, 2011 YLR 202, (3) Civil Aviation Authority, Quaid-e-Azam International Airport, Karachi V/S AER Rainta International Pakistan (Pvt.) Ltd., Karachi, 2003 YLR 1523, (4) Chairman, WAPDA and another V/S Messrs Syed Bhais (Pvt.) Ltd and another, 2011 CLC 841, and, (5) The Federation of Pakistan, Chamber of Commerce and Industry, Karachi V/S Messrs Al-Farooq Builders, 2001 MLD 99.

29. The principles laid down in the above mentioned cases cited and relied upon by the learned counsel for the plaintiff are so well settled by now that the same do not require any discussion. However, some of the authorities are discussed here in brief in order to appreciate their applicability to the present case. In the case of President of Islamic Republic of Pakistan (supra), the Hon’ble Supreme Court affirmed the findings of the High Court that the Award could be challenged only on the grounds mentioned in Section 30 (ibid), that is, if the Arbitrator had misconducted himself and the proceedings, and not on merits as the Court while hearing objections against the Award could not sit as a Court of appeal against the Award and interfere with it on merits. In the case of Federation of Pakistan through Secretary, Ministry of Food, Islamabad (supra), the Hon’ble Supreme Court was pleased to hold inter alia that while considering objections under Sections 30 and 33 of the Arbitration Act, 1940, the Court is not supposed to sit as a Court of appeal and fish for the latent errors in the arbitration proceedings and the Award ; and, arbitration is a forum of the parties’ own choice and is competent to resolve the issues of law and fact between them, which opinion or the decision should not be lightly interfered by the Court by deciding the objection thereto, until a clear and definite case within the purview of the aforesaid Sections is made out, inasmuch as the error of law or fact in relation to the proceedings or the Award is floating on the surface, which cannot be ignored and if left outstanding, shall cause grave injustice or violate any express provision of law or the law laid down by the Superior Courts. In Mian Corporation (supra), it was held inter alia by the Hon’ble Supreme Court that an Award cannot be lawfully disturbed on the premise that a different view was possible, if the facts were appreciated from a different angle ; and, in fact the Court while examining the correctness and legality of Award does not act as a Court of appeal and cannot undertake reappraisal of evidence recorded by an Arbitrator in order to discover the error or infirmity in the Award. In the case of M/S Joint Venture KG / RIST (supra), the Hon’ble Supreme Court was pleased to hold inter alia that where the reasons recorded by the Arbitrator are challenged as perverse, the perversity in the reasoning has to be established with reference to the material considered in the Award by the Arbitrator. In Trustees of the Port of Karachi (supra), a learned Division Bench of this Court upheld the finding of a learned Single Bench of this Court that the error was to be pointed out from the Award itself as the court cannot first look into the material used by the Arbitrator and then compare it with the reasoning given in the Award in order to discover the error in the Award. In Messers Ibad & Co. (supra), it was held by a learned Single Judge of this Court that it is a well settled principle of law that insufficiency of evidence would not warrant an interference with an Award by the court. Similar view was taken by another Single Bench of this Court in the case of Messers Waseem Construction Co. (supra).

30. In the case of The Federation of Pakistan, Chamber of Commerce and Industry (supra), it was held inter alia by a learned Division Bench of this Court that it is a recognized principle of law that where a dispute is referred to an arbitrator on the choice of the parties and he makes an Award, it becomes the duty of the Court to give every reasonable intendment in favour of the Award and lean towards upholding it rather than vitiating it ; and, the Court should always endeavour to sustain the Award rather than to destroy it, unless it could be shown by sufficient and reliable material on record that the Arbitrator was guilty of misconduct, or the Award was beyond the scope of reference, or it was violative of statute or in contradiction to the well-settled norms and principles of law.

31. As observed earlier, objections have been filed by the defendant only in respect of the marketing allowance awarded to the plaintiff by the learned Sole Arbitrator in the sum of Rs.43,694,096.00 for the year 1985 and for the period from 01.01.1986 to 19.05.1986. It is to be noted that no objections whatsoever have been filed by the defendant in respect of other three claims / amounts awarded by the learned Sole Arbitrator to the plaintiff towards its claim related to Daharki in the sum of Rs.2,204,827.00, adjustment of interest income in the sum of Rs.1,652,495.00, and adjustment of other income in the sum of Rs.294,187.00. The defendant has also not objected to the interest awarded by the learned Sole Arbitrator at the rate of 14% per annum from the date of the Award until payment, on the claims found by him as due and payable. In view of the above, the Award to the extent of Rs.4,151,509.00, being the aggregate amount of the above three claims awarded to the plaintiff that have not been objected to by the defendant, and the interest thereon at the rate of 14% in terms of the Award, stands accepted by the defendant. I am of the view that if an Award is challenged partially by filing objections only to a limited extent, the unchallenged portion of the Award should straightaway be made rule of Court, while the objections could be heard and decided in accordance with law for the disputed portion of the Award.

32. Regarding the defendant’s objections that the claim of marketing allowance could not be allowed at the same rate for the year 1985 and from 01.01.1986 to 19.05.1986, or that the plaintiff’s claim was allowed at the rate of Rs.201.77 per ton without any discussion or calculation, although the plaintiff itself had claimed marketing allowance at the rate of Rs.162.098 per ton for the period from 01.01.1986 to 19.05.1986, I have no hesitation in holding that these objections have no force. The learned counsel for the plaintiff appears to be correct in saying that the said claim for the period from 01.01.1986 to 19.05.1986 was awarded to the plaintiff at the rate of Rs.162.09 per ton, and not at the rate of Rs.201.77. Marketing allowance of Rs.43,694,096.00 was awarded by the learned Sole Arbitrator in two parts ; the first part for Rs. 34,906,210.00 for the year 1985 for 173,000 tons at the rate of Rs.201.77 (173,000 X 201.77 = 34,906,210.00) ; and, the second part for Rs.8,787,886.00 for the period from 01.01.1986 to 19.05.1986 for 54,216 metric tons at the rate of Rs.162.09 per ton (54,216 X 162.09 = 8,787,871). The grand total of both the parts / claims comes to Rs.43,694,096.00, which is the total marketing allowance awarded by the learned Sole Arbitrator to the plaintiff. The above shows not only that, for the period from 01.01.1986 to 19.05.1986, marketing allowance was awarded to the plaintiff at the rate of Rs.162.09 per ton, but also that the Award is based on correct calculation and appreciation of evidence. These objections are, therefore, rejected.

33. Under Section 30 of the Arbitration Act, 1940, an Award may be set aside on one or more of the grounds specified therein ; namely, (a) when an arbitrator or umpire has misconducted himself or the proceedings ; (b) when 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 of the Act ; and (c) when an Award has been improperly procured or is otherwise invalid. Regarding ground (a), it is a matter of record that the defendant has not alleged that the learned Sole Arbitrator misconducted himself or the proceedings, or that the Award was procured improperly. Thus, the defendant is seeking setting aside of the Award only on the grounds / objections discussed above. Ground (b) is not applicable to the present case. That leaves only the second part of ground (c) that the Award can be set aside if it is otherwise invalid. The learned Standing Counsel has not been able to point out any error, defect, infirmity or illegality in the Award that may lead to the conclusion that the same is otherwise invalid. If the objections filed by the defendant are examined in juxtaposition to Section 30 (ibid), the contention of the learned counsel for the plaintiff that the objections raised by the defendant do not fall within the scope of Section 30 (ibid), appears to be correct. None of the grounds contained in the said Section is available in this case to the defendant, and even a bare reading of the objections would show that the objections are not based on any of the grounds specified in the said Section. The objections are liable to be rejected on this ground also.

34. The defendant was required to first point out / show the error from the Award itself, as the Court cannot first look into the material used by the learned Sole Arbitrator and then compare it with the reasoning given in the Award in order to discover the error in the Award. Had the defendant succeeded in pointing out / showing such an error from the Award itself, the burden would have still been on the defendant to show that the findings of the learned Sole Arbitrator were contrary to the evidence produced before him. The defendant was also required to show that the error of law or fact in relation to the proceedings or the Award is floating on the surface, which cannot be ignored, and if it is left outstanding, it shall cause grave injustice or it shall violate any express provision of law or the law laid down by the Superior Courts. In my view, a perusal of the Award itself shows that the defendant has not been able to point out any such error which may lead to the conclusion that there was an error of law or fact in relation to the proceedings or the Award floating on the surface ; the findings of the learned Sole Arbitrator in relation to the marketing allowance awarded to the plaintiff, were against any express provision of law or the law laid down by the Superior Courts ; and/or, the marketing allowance awarded to the plaintiff, ought not be awarded. The Award clearly shows that it was rendered by the learned Sole Arbitrator in a meticulous manner after minutely and systematically examining the voluminous record comprising of 3,234 pages, evaluating the entire evidence, hearing the parties, and noticing the relevant admissions made by the defendant’s witness. Six claims of the plaintiff involving a huge amount of Rs.157,361,132.00, were rejected by the learned Sole Arbitrator, and the claim for interest pendente lite and costs, were also declined. The learned Sole Arbitrator awarded only such amounts to the plaintiff to which the plaintiff was actually entitled. The Award is well-reasoned, balanced and equitable, and it amply reflects full application of mind by the learned Sole Arbitrator. As held in the above mentioned authorities, the findings of the learned Sole Arbitrator cannot be questioned or interfered with on merits ; and, this Court while deciding objections to the Award, can neither act as a Court of appeal nor can the exercise of reappraisal of evidence be undertaken by this Court. I am convinced that the well-reasoned findings of the learned Sole Arbitrator do not call for any interference by this Court.

35. As the defendant has not objected to the other claims awarded to the plaintiff, and the objections with regard to the marketing allowance awarded to the plaintiff have been rejected / overruled, C.M.A. No. 5449 of 2003 filed by the defendant is hereby dismissed. Consequently, this Suit stands disposed of and the Award rendered on 16.03.2001 by the learned Sole Arbitrator is made Rule of the Court. The office is directed to prepare the decree forthwith in terms of the Award.

J U D G E

*Suit 684-2003-Rule of Court-F G. Ebrahim.doc/Judgments Single/Court Work/D*