Note – (1) Maintainability of application under s.20 and s.

41 of Arbitration Act, 1940

(2) Requirements for application under s.20
Dated: 21.04.2021
Note
___________________________________________________________________________

Issues / Questions:
1. Can the application under section 41 and section 21 of the Arbitration Act,
1940, be decided together?
2. What are the requirements for acceptance of application under section 20 of
Arbitration Act, 1940?
Discussion:
For the above query, the following law was analysed:
I. Arbitration Act, 1940
Answer 1:
“20. Application to file in Court arbitration agreement.(1) Where any persons have
entered into an arbitration agreement before the institution of any suit with respect to the
subject-matter of the agreement or any part of it, and where a difference has arisen to
which the agreement applies, they or any of them, instead of proceeding under Chapter
II, may apply to a Court having jurisdiction in the matter to which the agreement relates,
that the agreement be filed in the Court.
(2) The application shall be in writing and shall be numbered and registered as a suit
between one or more of the parties interested or claiming to be interested as plaintiff or
plaintiffs and the remainder as defendant or defendants, if the application has been
presented by all the parties, or, if otherwise, between the applicant as plaintiff and the
other parties as defendants.
(3) On such application being made, the Court shall direct notice thereof to be given to
all parties to the agreement other than the applicants, requiring them to show cause
within the time specified in the notice why the agreement should not be filed.
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed,
and shall make an order of reference to the arbitrator appointed by the parties, whether
in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to
an arbitrator appointed by the Court.
(5) Thereafter the arbitration shall proceed in accordance with, and shall be governed
by, the other provisions of this Act so far as they can be made applicable.

41. Procedure and powers of Court. Subject to the provisions of this Act and of rules
made there under__
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021
(a) the provisions of the Code of Civil Procedure, 1908 (V of 1908), shall apply
to all proceedings before the Court, to all appeals, under this Act, and
(b) the Court shall have, fix the purpose of, and in relation to arbitration
proceedings, the same power 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:
Provided that nothing in clause (b) shall be taken to prejudice any power which may be
vested in an arbitrator or umpire for making orders with respect to any of such matters.”
CASE LAW
1. 2020 CLD 60 Lah.
Messrs Rmc Construction Company v. Gujranwala Development Authority
[Shahid Waheed, J]

 Application under section 20 and 41 of the Arbitration Act, 1940 was filed and
the court held that interim injunction should only be granted in exceptional cases
i.e. where there is likelihood that the entire arbitration proceedings would become
infructuous if stay is not granted.

- 1. … seeking an order in the nature of writ of certiorari for quashing the

impugned orders and the grant of temporary injunction as prayed for in the
application under section 41 read with Schedule-II to the Arbitration Act, 1940,
which was filed along with application under section 20 of the said Act
@ Para 1

- 8 …In my view, though the Court is vested with the powers to grant
interim relief, but such discretion must be exercised by the Court sparingly and
only in appropriate cases. The Court should be extremely cautious in granting
interim relief in cases of this nature. The Court's discretion ought to be exercised in
the exceptional cases when there is adequate material on record, leading to a
definite conclusion that the respondent is likely to render the entire arbitration
proceedings infructuous, by frittering away the properties or funds either before or
during the pendency of arbitration proceedings or even during the interregnum
period from the date of award to its execution. In those cases, the Court would be
justified in granting interim relief.
@ Para 8

2. 2019 CLC 1486

Dewan Petroleum (Pvt.) Ltd v. Oil and Gas Investment Ltd
[Miangul Hassan Aurangzeb, J]

 The petitioner had filed application under section 20 and 41 of the Arbitration
Act, 1940 thereafter the application under section 41 was challenged and the stay
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021
was set aside. The court declared that unless the three elements for the granting of
stay are met, stay should not be granted.

- 18. …the respondent filed an application under section 20 of the 1940 Act
before the Court of the learned Civil Judge, Islamabad, praying for the matters in
dispute between the appellant and the respondent to be referred to arbitration. Along
with the said application, the respondent also filed an application for interim
injunction under Section 41 of the 1940 Act.
@ Para 18

- 27. It is well settled that temporary injunction cannot be granted in cases

where applicant did not have a good prima-facie case; the balance of convenience
was not in his favour; and that the loss he would suffer if the injunction was not
granted was not irreparable and could be measured in terms of money.
@ Para 27

- 28 Under section 41(b) read with the Second Schedule to the 1940 Act, the
Court has the power to issue interim injunctions for the purpose and in relation to
arbitration proceedings. The principles for the grant of an interim injunction under
section 41(b) read with the Second Schedule of the 1940 Act are the same as the ones
applicable to interim injunctions granted under Order XXXIX, Rules 1 and 2, C.P.C.
In the case of Pakistan Railways v. Four Brothers International (Pvt.) Ltd. (PLD
2016 SC 199), it has been held that an injunctive order against the recovery of
amounts passed under section 41(b) of the 1940 Act without examining the three
ingredients for the grant of injunction i.e. prima facie arguable case, balance of
convenience and irreparable loss, is not sustainable in law.
@ Para 28

- 30.    It is well settled that all the three ingredients for the grant of an
injunction must co-exist and if any one of such ingredients is missing in the case, the
litigant would not be entitled to the grant of a temporary injunction.
@ Para 30
3. 2011 CLC 323 Kar.
Arabtec Pakistan (Pvt.) Ltd. V. Enshaanlc Developments (Pvt.) Ltd
[Ms. Rukhsana Ahmed, J]

 In this case, the plaintiff had filed a suit under section 20 readwith section 41 of
the Arbitration Act, 1940. The court had allowed the application under both the
sections. Hence, the matter was referred to the arbitrator and stay was also
granted.

- Plaintiff …has filed present suit under section 20 R/W section 41 of the Arbitration
Act, 1940.
- The main contention raised by both advocates is centered as to whether payment is
due to the plaintiff or whether the defendant No. 1 has paid to plaintiff more than
what is due. This would at its best be successfully decided by the Arbitrator
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021
meanwhile, the Guarantees would remain intact till the award is given on the
Arbitration proceedings.
- Therefore, the present application wherein the defendant No.1 has prayed for
encashment of the advance payment guarantee or in the alternative encashment of
the advance payment guarantee to the extent of unverified and undisputed invoices is
dismissed. Lastly the application for restraining the encashment of the Guarantees
filed by the plaintiff in which a stay had been already granted is disposed of
accordingly. Suit is also disposed of.

4. 2009 MLD 892 Kar.

Pakistan Insulations (Pvt.) Ltd v. Messrs Ranhill Engineers
[Salman Talibuddin, J]

- In support of his submissions that the order of 18-3-2008 be confirmed learned

counsel for the plaintiff has relied on the judgments in Shipyard K. Damen
International v. Karachi Shipyard and Engineering Works Ltd. 2003 CLD 309 and
Commodities Trading International Corporation v. Trading Corporation of Pakistan
Ltd. 1987 CLC 2063. Both judgments hold that where a section 20 application has
been filed and is maintainable, the Court is empowered by section 41(b) of the
Arbitration Act to make orders in respect of any of the matters set out in its second
schedule.
While there can be no doubt that in appropriate cases the Court may make an order
in respect of any of the matters set out in the second schedule to the Arbitration Act
including an order securing the amount in difference in the reference, such an order
is within the discretion of the Court and will not be passed unless the person
seeking such relief establishes a strong prima facie case; establishes that the
balance of convenience is in his favour; and also that he would suffer irreparable
injury if the relief sought was not granted.

In view of the above, an application under section 20 alongwith section 41 of the Arbitration
Act, 1940 may be maintainable only if the person seeking relief satisfies the court that he fulfils
the three requirements:
i. Establishes a strong prima facie case;
ii. Establishes that the balance of convenience lies in his favour; and
iii. He would suffer irreparable loss / injury.
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021

Answer 2.
CASE LAW

1. 2021 MLD 67 Isl.

Messrs Oil and Gas Development Company Ltd v. Messrs Admore Gaz (Pvt.) Ltd
[Lubna Saleem Pervez, J]

 Service of notice is an essential requirement.

- 10. …Keeping in view the dictum laid down in the above judgment, the
extraordinary mode of effecting service should be the last resort to the trial Court
when it is satisfied and has reasons to believe that the other mode of service of notice
on the respondent are either not possible or the respondent is avoiding receipt of
notice. Service of notice on the respondent is the essential requirement of law to
ensure the attendance of the parties to participate in the proceedings so as to arrive
at just and impartial conclusion as important rights of the parties are involved in
the matter. Thus, it is mandatory to adopt all the modes of effecting service
prescribed under the law and unless and until it is finally determined through various
modes of service that there is no possibility of appearance of the party to proceed
with the matter, the ex-parte proceedings should not be commenced.
@ Para 10

2. 2005 Y.L.R 2709 Kar.

Mujtaba Hussain Siddiqui V. Sultan Ahmed
[Rahmat Hussain Jafferi, J]

- 5. …For invoking the provisions of section 20 of the Arbitration Act, it is

essential that three main conditions are to be satisfied: (i) arbitration agreement
has been entered into before filing the suit concerning the subject-matter of the
agreement; (ii) the differences or disputes have arisen between the parties to which
such agreement applies; and (iii) proceedings under sections 3 to 9 of the
Arbitration Act had not commenced.
@ Para 5

3. 2021 CLC 377

Vertiv Pakistan (Pvt.) Ltd v. Ntg Pakistan
[Muhammad Junaid Ghaffar, J]

- 5. … It is settled law that the parties while seeking various relief(s) under
Arbitration Act including an application under Sections 20 and 34 of the Act (ibid)
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021
must not be allowed to take refuge under procedural advantages to avoid a trial as
contemplated within ambit of general law.
@ Para 5

- 9. Before moving the Court for appointment of arbitrator certain conditions

are required to be fulfilled they are; (1) There should be an arbitration agreement
between the parties executed between them before the institution of any suit with
respect to the subject-matter of the agreement, (2) There should be dispute between
the parties of such agreement, and (3) the parties have not invoked the provisions of
Chapter II viz. sections 3 to 19. If above three conditions are fulfilled then the party
may move an application in writing before the Court which shall be registered as a
suit and then notice is required to be issued to the parties interested or claiming to be
interested to be plaintiff or defendant. After registering the application as suit, a
notice is required to be issued to all the parties to the agreement other than the
applicant requiring them to show cause within the time specified in the notice as to
why the agreement should not be filed. After serving the notice if no sufficient cause
is shown to the Court then an order is to be passed that the agreement be filed and
then the Court is required passed an order of reference to the arbitrator appointed by
the parties or where the parties cannot agree upon any Arbitrator to appoint an
Arbitrator. Once such orders are passed then arbitration proceedings start which
should be governed by the other provisions of the Arbitration Act so far as they could
be made applicable. Once the above conditions are fulfilled, then the purpose of
section 20 of Arbitration Act is achieved and the application stands disposed of.
@ Para 5

- 12. …This Court  in the case of C.T.I., Corpn. v. Trading Corporation,

Pakistan Limited (1987 CLC 2063) has also formed same opinion by holding that
one of the requirements of maintainability of application under section 20 is that
the proceedings under sections 3 to 19 of the Act had not commenced.
@ Para 12

- 12-A …I am of the considered view that the section 20 will not be applicable in
the situation where a suit is pending before the Court of law between the parties of
arbitration agreement.

In view of the above, the following conditions might have to be satisfied for an application
under section 20 of the Arbitration Act, 1940:
i. Arbitration agreement has been entered into before filing the suit.
ii. Differences or disputes have arisen between the parties to which such agreement applies.
iii. Proceedings under sections 3 to 19 of the Arbitration Act had not commenced.
iv. Notices have been served to the other party.
 Note – (1) Maintainability of application under s.20 and s.41 of Arbitration Act, 1940
(2) Requirements for application under s.20
Dated: 21.04.2021
v. Notices to all the parties other than the applicant to show cause as to why the agreement
should not be filed.
vi. If no sufficient cause is shown then an order is to be passed that the agreement be filed.
vii. Then the Court is required to pass an order of reference to the arbitrator appointed by the
parties or where the parties cannot agree upon any Arbitrator, to appoint an Arbitrator.