Sufficient Cause for Arbitration Proceedings

In the case of National Command Authority Foundation (NCAF) v. Sheikh Sarosh Iftikhar, heard by the Lahore High Court, Rawalpindi Bench, NCAF (appellant) challenged an order passed by the Civil Judge Class-I, Rawalpindi, which allowed a petition under Section 20 of the Arbitration Act, 1940, and granted a temporary injunction under Order XXXIX Rules 1 & 2 of the Code of Civil Procedure (CPC), 1908. This judgment addresses both the appeal and the connected civil revision petition arising from a common order dated July 19, 2023.

Key Facts:

Background: NCAF, a charitable organization, entered into an agreement with Sheikh Sarosh Iftikhar (respondent) for the purchase of 751 Kanal and 77 square feet of land for Rs. 550 million. The respondent paid Rs. 50 million as earnest money and provided post-dated cheques for the remaining amount.

Force Majeure Claim: The respondent invoked a force majeure clause due to the COVID-19 pandemic, offering to pay the first installment in a staggered manner, which the appellant rejected, leading to contract termination.

Legal Proceedings: The respondent filed an application under Section 20 of the Arbitration Act, 1940, for the appointment of an arbitrator and sought a temporary injunction to prevent the appellant from taking adverse actions against the respondent.

Key Legal Points:

Arbitration Agreement: The court reaffirmed the existence of an arbitration agreement between the parties, as per Clause 24 of the contract, which mandates arbitration for any disputes arising from the agreement.

Sufficient Cause for Arbitration: The court emphasized that the existence of a dispute and an arbitration agreement suffices to proceed under Section 20 of the Arbitration Act, 1940, referencing Lahore Stock Exchange Limited v. Fredrick J. Whyte Group (Pakistan) Ltd. (PLD 1990 SC 48).

Force Majeure and Contract Validity: The appellant's argument that the contract became void due to force majeure was deemed premature for resisting arbitration. The court cited BNP (Pvt.) Limited v. Collier International Pakistan (Pvt.) Limited (2016 CLC 1772), which supports the survival of arbitration clauses despite contract termination.

Temporary Injunction: The court upheld the temporary injunction, noting the respondent's successful demonstration of a prima facie case, balance of convenience, and potential irreparable loss, referencing Messrs Petrosin Products (Pvt.) Limited v. Government of Pakistan (2000 MLD 785).

Conclusion: The appeal and the civil revision petition were dismissed, affirming the trial court's order to refer the matter to arbitration and maintain the temporary injunction.

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