IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
PRESENT: 
MR. JUSTICE MIAN SAQIB NISAR 
MR. JUSTICE MANZOOR AHMAD MALIK 
 
 
CIVIL APPEAL NO.417-L OF 2009 
(Against the judgment dated 16.3.2004 of 
the Lahore High Court, Lahore passed in 
C.R.No.368-D/1998) 
 
 
Province of Punjab through Secretary to Government of the Punjab, 
Communication & Works Department, Lahore and another 
 
…Appellant(s) 
VERSUS 
 
M/s Muhammad Tufail & Co. through Muhammad Tufail (deceased) 
through Legal Heirs 
 
…Respondent(s) 
 
For the appellant(s): 
Mr. Subah Sadiq Wattoo, A.A.G. Punjab 
 
 
For respondent No.1(ii): 
In person 
 
 
Amicus Curiae: 
Mr. Rassal Hassan Syed, ASC 
Ms. Ayesha Hamid, ASC 
 
 
Date of hearing: 
06.09.2016 
… 
JUDGMENT 
 
 
MIAN SAQIB NISAR, J:- In this appeal, with leave of the 
Court, the only legal point involved is, which Court shall have the 
territorial jurisdiction in terms of Section 2(c) and Section 31(1) of the 
Arbitration Act, 1940 (the Act) where an Arbitration Award could be filed 
and the same could be made Rule of the Court. 
2. 
 
In the above context, the brief facts are that on 16.12.1982 
the work of widening and strengthening of Jhang-Toba Tek Singh 
Chichawatni Road in Toba Tek Singh District was awarded to the 
respondent by appellant No.2 which 
(work) was completed on 
30.12.1984. Thereafter a dispute arose on account of the respondent 
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challenging an amount deducted by the appellant no.2 from its final 
bill. The respondent invoked the arbitration Clause 25-A of the 
agreement inter se the parties. On 29.6.1993 the Chief Engineer (South) 
of the Highways Department appointed Mr. Muzaffar Iqbal Sheikh 
Director (Admin) of the Highways Department as the Sole Arbitrator. 
The learned Arbitrator entered upon the reference and arbitral 
proceedings were held at Lahore. Appellant No.2 filed an annotated 
reply to the respondent’s claim and was represented by the Executive 
Engineer in person at the arbitral proceedings. On 1.11.1993 the 
Arbitrator passed an Award at Lahore in favour of the respondent and 
directed appellant No.2 to pay a sum of Rs.57,534.73 to the respondent 
within two months. The respondent filed an application under Sections 
14 and 17 of the Act before the Civil Court at Lahore for the purposes of 
making the Award the Rule of the Court which was resisted by the 
appellant inter alia on the ground that the Courts at Lahore did not 
have the territorial jurisdiction, however vide judgment and decree 
dated 23.10.1995 the Civil Court, Lahore dismissed the said application 
on merits. Civil Appeal No.8/1996 of the respondent against such 
judgment and decree succeeded and vide order dated 5.5.1997 the 
learned Additional District Judge, Lahore made the Award the Rule of 
the Court. The present appellants challenged the decision ibid through 
Civil Revision No.368-D/98 before the Lahore High Court, Lahore which 
was dismissed vide the impugned order dated 16.3.2004. Vide order 
dated 17.06.2009 leave was granted by this Court inter alia to consider 
the question(s) mentioned in the opening portion of this opinion (the point 
about the award not being properly stamped was not pressed by the appellants’ counsel). 
3. 
 
The learned AAG Punjab has argued that the 
impugned judgment was illegal as it was based on Section 20 of the 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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Code of Civil Procedure, 1908 (CPC) which (provision) is inapplicable to 
arbitral proceedings as the jurisdiction of the Court in such a case is 
exclusively governed by Section 2(c) and Section 31(1) of the Act (being 
special law on the subject). He argued that the Courts at Lahore lacked 
jurisdiction in the matter as the subject matter of the reference was 
related to Toba Tek Singh because the contract was signed and 
executed at Toba Tek Singh. He relied on Ravi Glass Mills Ltd., Lahore 
Vs. I.C.I. Pakistan Power Gen Ltd. (2004 YLR 250 = PLJ 2004 Lah 
1818), M/s Nalanda Ceramic & Industries Ltd. Vs. M/s N. S. 
Choudhury and Co. (P) Ltd. (AIR 1977 SC 2142) and Hitachi Limited 
and another Vs. Rupali Polyester and others (1998 SCMR 1618). 
4. 
 
The learned counsel for the respondent contended that the 
courts at Lahore would have jurisdiction on account of the fact that the 
award was made at Lahore and because the head office of the appellant 
department was located at Lahore. He relied on Habib & Sons Ltd. & 
another Vs. Chaudhry Chiragh Din (NLR 1984 UC 352), Faqir 
Muhammad Vs. Pakistan through Secretary, Ministry of Interior 
and Kashmir Affairs Division, Islamabad (2000 SCMR 1312), Messrs 
Kadir Motors (Regd.), Rawalpindi Vs. Messrs National Motors Ltd., 
Karachi and 3 others (1992 SCMR 1174), Abdul Qayyum Khan Vs. 
Government of Punjab, Local Government and Rural Development 
Department through Secretary and another (PLD 2003 SC 536) and 
Federation of Pakistan through Secretary-General, Ministry of 
Defence and another Vs. Sqn. Ldr. (R) Muhstaq Ali Tahirkheli and 
another (PLD 2003 SC 930). 
5. 
 
Mr. Rassal Hassan Syed, learned amicus contended that in 
Section 31(1) of the Act the words “the matter” precede the word 
“reference” and therefore the place of the arbitration proceedings is not 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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relevant and what matters is that the cause of action occurred at Toba 
Tek Singh and the “matter” which is the subject of the reference relates 
to Toba Tek Singh, therefore it is the Courts there which will have 
jurisdiction on the basis of the cause of action arising there but Section 
31(1) of the Act requires that the application to make an Award the Rule 
of the Court be filed where the suit in respect of the dispute or the 
subject matter of the reference may have been filed and in this regard 
the courts at Lahore do have jurisdiction as the principal office of the 
appellant was located at Lahore. He relied on Province of the Punjab 
through Secretary to the Government of Punjab, Communication 
and Works Department and 2 others Vs. Messrs Unique Traders 
through Najam Maqsood, Government Contractor (MLD 2007 Lah 
531), Messrs Lilley International (Pvt) Ltd. Vs. Messrs National 
Highway Authority (PLD 2012 Sindh 301), Messrs Bakhtawar Singh 
Balkrishan Vs. Union of India and others (1989 MLD 1277) (Supreme 
Court of India judgment), Madhao Deshpande Vs. Madhav Dharmadhikaree 
(1989 MLD 2389) (Supreme Court of India judgment), Messrs Trade Masters 
(Pvt.) Ltd. through Chief Executive Vs. Messrs Shel Pakistan Ltd. 
through Chief Executive (2010 CLD 670) and Ghulam Abbas Vs. 
Trustees of the Port of Karachi (PLD 1987 SC 393). 
6. 
 
Ms. Ayesha Hamid, learned amicus argued that Section 
31(1) of the Act is subject to the provisions of the Act which means that 
the definition of a Court given in Section 2(c) of the Act is to be read into 
the substantive provisions of Section 31(1) which sets out which Court 
is to exercise jurisdiction in respect of an application to file an award in 
Court; the plain reading of Section 2(c) ibid requires an exercise of 
imagination whereby it should be considered which Court would 
exercise jurisdiction in the absence of an arbitration agreement. 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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According to her the Courts at Lahore would have jurisdiction on 
account of Section 20 CPC which is predicated on the residence or place 
of work of the defendants and on the place of occurrence of the cause of 
action. The Act is a special law governing arbitration and therefore it 
carves away a portion of the original jurisdiction of the courts of plenary 
jurisdiction with respect to arbitration/the subject matter of the Act. 
Admittedly, the provisions of the special law will override and prevail 
over those of the general law, but only where there is a conflict between 
the provisions thereof. In case there is no conflict, then the provisions of 
the CPC will be applicable to the proceedings under the Act in terms of 
Section 41 thereof. She argued that when the government participates 
in commercial activities it is to be treated at par with other private 
commercial enterprises and Section 20(a) and (b) CPC will apply 
thereto. She relied on Hitachi Limited (supra), Lilley International 
(supra), Harbans Singh Vs. Union of India (AIR 1961 Calcutta 659), M. 
A. Jalil Vs. Group Capt. (Retd.) Salah-ud-Din Khan (1983 CLC 
1685), Mian Fazal Muhammad Nizam-ud-Din Baig & Co. Vs. The 
Province of West Pakistan and others (PLD 1969 Lah 453), 
Bakhtawar Singh (supra), Province of Sind through the Secretary, 
Education Department, Karachi and 2 others Vs. Ghulam Rasul and 
35 others (1976 SCMR 297). 
7. 
 
Heard. There are a plethora of judgments that the Act is an 
exhaustive and complete codification of the law governing arbitration. 
Three modes have been prescribed by the Act for resorting to 
arbitration: (1) without the intervention of the Court (Chapter II of the Act) 
(2) with the intervention of the Court where no suit is pending (see Section 
20) (3) during the pendency of a suit (see Sections 21 to 24). In the first 
category, the parties to a civil dispute are free to enter into an 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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arbitration agreement and without any recourse to the Court may refer 
the matter to the arbitrator. However the Court has certain powers 
which are exercised under the provisions of the Act, e.g. Sections 5, 8, 
11, 12 and 33 etc. These powers can be exercised by the Court in 
certain circumstances even before a reference has been made to 
arbitration or during the pendency thereof, while Sections 14 to 19 
forming part of Chapter II deal with post arbitration i.e. when the award 
has been passed by the Arbitrator. The Court in the context of the 
above proceeding shall be the one which has been defined in Section 
2(c) of the Act. 
For the second mode of arbitration too, it shall be the same Court 
as envisaged by Section 2(c) ibid. However, it may be mentioned here 
that according to Sub-section (5) of Section 20, after reference has been 
made to the Arbitrator by the Court, arbitration shall proceed in 
accordance with and shall be governed by the other provisions of the 
Act as far as they can be made applicable.  
The third kind of arbitration is covered by Chapter IV (Sections 21 to 
24) and from the clear language of these provisions reference to 
arbitration can be made when a civil suit is pending before the Court. 
Section 25 of the Act enables the application of other provisions of the 
Act (like sub-Section (5) of Section 20) to this mode of arbitration and also 
provides for the authority of the Court to supersede arbitration under 
Section 19 of the Act and to proceed with the suit. In this category there 
is no ambiguity that it is the Court where the suit is/was pending and 
which has referred the matter to Arbitrator that shall have exclusive 
jurisdiction to deal with and decide all the issues which arising between 
the parties within the scope of the Act and no other Court. 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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8. 
 
In order to elucidate in which Court the proceedings under 
Chapters II and III or the miscellaneous provisions of the Act should 
initially be initiated, if for example the case falls within the purview of 
Sections 11, 12, 13 and 33 and/or if a Court has already taken 
cognizance and passed some order in these proceedings; where should 
the subsequent proceeding be filed such as, an application for seeking 
extension of time for pronouncing the Award or an application for an 
Award being made Rule of the Court, etc.? In this context Sections 2(c) 
and 31(1) of the Act and Section 20 CPC are relevant. Section 2(c) reads 
as under:- 
 
“2(c). “Court” means a Civil Court having jurisdiction to 
decide the question forming the subject-matter of the 
reference if the same had been the subject-matter of a suit, 
but does not, except for the purpose of arbitration 
proceedings under section 21, include a Small Cause 
Court.” 
 
The above definition implies the following:- 
i) 
It must be a Civil Court; 
ii) 
It must have the jurisdiction to entertain 
a suit with respect to the subject matter 
of the reference.  
 
In other words it shall be the Court in which a civil suit could be 
initiated by the plaintiff for the enforcement of any of his right(s) and/or 
for the redressal of his grievance(s). Thus for the purposes of 
determining the jurisdiction of the Court where a civil suit should lie 
the provisions of Sections 16 to 20 CPC are relevant (note: the relevant section 
shall be discussed in proceeding part of this opinion). The other relevant provision, 
i.e. Section 31(1), prescribes as under:- 
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“31. Jurisdiction.--(1) Subject to the provisions of this 
Act, an award may be filed in any Court having 
jurisdiction in the matter to which the reference relates.” 
 
According to the predominant view of the superior Courts regarding the 
nature and object of this section, it is not an enabling provision, rather 
one which identifies and defines the jurisdiction of the Court in which 
an Award should be filed. The object of this section is to clothe a single 
Court with jurisdiction in the matter so as to avoid conflict of 
jurisdiction which may arise between different Courts so that all the 
matters pertaining to arbitration, once having been initiated and dealt 
with by one Court, should subsequently continue to be determined by 
the same Court. The third relevant provision is Section 20 CPC which 
reads as follows:- 
 
“20. 
Other suits to be instituted where defendants reside 
or cause of action arises.-- Subject to the limitations 
aforesaid, every suit shall be instituted in a Court within the 
local limits of whose jurisdiction-- 
(a) 
the defendant, or each of the defendants where there 
are more than one, at the time of the commencement of the 
suit, actually and voluntarily resides, or carries on 
business, or personally works for gain; or 
(b) 
any of the defendants, where there are more than 
one, at the time of the commencement of the suit, actually 
and voluntarily resides, or carries on business, or 
personally works for gain, provided that in such case either 
the leave of the Court is given, or the defendants who do not 
reside, or carry on business, or personally work for gain, as 
aforesaid, acquiesce in such institution; or 
(c) 
the cause of action, wholly or in part, arises. 
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Explanation I.--- Where a person has a permanent dwelling 
at one place and also a temporary residence at another 
place, he shall be deemed to reside at both places in respect 
of any cause of action arising at the place where he has 
such temporary residence. 
 
Explanation II.--- A corporation shall be deemed to carry on 
business at its sole or principal office in Pakistan or, in 
respect of any cause of action arising at any place where it 
has also a subordinate office, at such place.” 
 
9. 
 
It is settled law that in the absence of an arbitration 
agreement inter se the parties, the dispute regarding the rights and 
obligations that arise out of the contract including payment(s) or 
amount(s) due under the contract would have been liable to be 
adjudicated at the first instance in a Civil Court competent to entertain 
a suit and jurisdiction would in those circumstances be governed by the 
provisions of Sections 15 to 20 CPC. The question which requires to be 
settled is in which manner are Sections 2(c) and 31(1) of the Act to be 
interpreted in order to determine which Court would take cognizance of 
an application to make an arbitral Award a Rule of Court and whether 
Section 20 CPC would be applicable in its entirety in the process of 
such determination. The further related question which emerged during 
the course of hearing of the appeal was whether the “government” is 
exempted from the purview of Section 20(a) and (b) CPC. 
Before we proceed to answer the above questions let us examine 
the case law referred by the learned counsel and amici curiae. 
10. 
 
As regards the case law referred to by learned counsel for 
the appellant, Ravi Glass Mills (supra) elaborates the doctrine of forum 
non-conveniens which means the power of a Court to decline 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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jurisdiction when the convenience of the parties and the ends of justice 
would be better served if actions were brought and tried before another 
forum. This doctrine is not applicable to the facts and circumstances of 
the present case as it is not the case of either party that the Civil Courts 
at Lahore amounted to a forum of non-conveniens. Reliance on Nalanda 
Ceramic (supra) is misplaced for the reason that the facts in that 
particular case were different and this is founded upon the question 
where the cause of action has arisen and Section 20(a) and (b) CPC was 
not a moot point. The case of Hitachi Limited (supra) does not advance 
the case of the appellant for the reason that the judgment considers 
whether and in what manner the provisions of private and public 
international law may affect the jurisdiction of Courts in Pakistan where 
either the arbitration proceedings take place outside Pakistan and/or 
where one of the parties to the dispute referred to arbitration is not 
resident in Pakistan. 
11. 
 
Adverting to the case law referred by learned counsel for 
respondent, Muhstaq Ali Tahirkheli (supra) does not advance the 
respondent’s case for the reason that the issue of jurisdiction was 
decided on the basis of where the cause of action arose. Similarly, the 
cases of Abdul Qayyum Khan (supra), Faqir Muhammad (supra), Kadir 
Motors 
(supra) 
and 
Habib 
& 
Sons 
Ltd. 
(supra) 
are 
patently 
distinguishable on their own facts and the question of law herein 
involved was not an issue in those matters therefore a detailed analysis 
of these dicta is not required. 
12. 
 
Mr. Rassal Hassan Syed, amicus referred to Unique 
Traders (supra) in which the point in issue was whether the Civil Courts 
at Lahore or Jhelum would have jurisdiction with respect to an 
application under Section 17 of the Act arising out of arbitration. The 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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finding of the Court was that as the property which was the subject 
matter of the dispute was located at Jhelum, the agreement was 
executed at Jhelum, and the alleged breaches occurred at Jhelum 
therefore the Courts at Jhelum would have jurisdiction. The argument 
in favour of the exercise of jurisdiction by the Civil Courts at Lahore on 
account of the fact that the part of the arbitration proceedings were 
conducted at Lahore was rejected. This judgment is distinguishable for 
the reason that a close reading of the same discloses that at no point 
was jurisdiction for the Civil Courts at Lahore claimed on account of the 
fact that it was either the place of residence or place of work of the 
defendant(s). 
In Trade Masters (supra), the point in issue was whether the 
parties, through in agreement, could confer exclusive jurisdiction on 
one Court in preference to another and it was held, inter alia, that the 
parties can validly agree to confer territorial jurisdiction to one out of 
two or more Courts which otherwise had/have jurisdiction and that 
such an agreement would be valid and enforceable. The question of 
electing to submit to the jurisdiction of one Court in preference to 
another is not at issue in the instant appeal. 
Ghulam Abbas’s case (supra) is not relevant to the facts and 
circumstances of the present appeal. 
In the case of Madhao Deshpande (supra) the point in issue was 
which of two Courts within the territorial jurisdiction of which the 
properties which formed the subject matter of the dispute referred to 
arbitration were situated, would exercise jurisdiction for the purposes of 
making an arbitral Award the Rule of the Court. This is not at issue in 
the instant appeal. 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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The cases of Lilley International (supra) and Bakhtawar Singh 
(supra) were referred by both learned amicus and will be referred to later 
in this opinion. 
13. 
 
The case law referred by the learned amicus Ms. Ayesha 
Hamid shall be discussed and reflected in our opinion. 
14. 
 
It is to be noted that Section 20 CPC confers jurisdiction on 
a Court in two ways. Firstly, on the basis of where a defendant(s) 
resides, carries on business or works for gain within its local limits. 
Secondly on the basis of where the cause of action wholly or in part 
arose within its local limits. Jurisdiction means the authority to decide. 
The concept of jurisdiction of a Court encompasses (i) territorial 
jurisdiction, (ii) pecuniary jurisdiction and (iii) subject matter 
jurisdiction. The concept of jurisdiction has its genesis in the physical 
power of a Court to issue process to persons within the reach of the 
Court. Shorn of all extraneous ‘frills’, this is the essence of jurisdiction. 
A Court is to decide matters when persons relating thereto are within its 
reach. This basic jurisdiction is then regulated by defining the limits of 
that ‘reach’ by setting pecuniary limits, or by assigning different 
‘subjects’ within one territory to different Courts, for example, by 
assigning banking and environmental matters to different Courts within 
one territory. In R. Viswanathan and others Vs. Rukn-ul-Mulk Syed 
Abdul Wajid since deceased and others (AIR 1963 SC 1) it was inter 
alia held “an action in personam lies normally where the defendant is personally 
within the jurisdiction or submits to the jurisdiction or though outside the jurisdiction 
may be reached by an order of the Court”1. This principle resonates in a 
judgment of the U.S. Supreme Court, Dennis Burnham Vs. Superior 
Court of California, Country of Marin [110 S. Ct. 2105 (1990)] 
                                                             
1 Hitachi Limited case (supra), p.1638. 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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wherein it was held “Historically the jurisdiction of Courts to render judgment in 
personam is grounded on their de facto power over the defendant’s person”.2 This 
concept was further developed in the case of Lulu B. McGee Vs. 
International Life Insurance Company (2 L ed 2nd 233) where the 
U.S. Supreme Court initially accepted and then abandoned ‘consent’, 
‘doing business’ and ‘presence’ as the standard for measuring extent of 
said judicial power over corporations and instead the Court decided 
that “due process requires only that in order to subject a defendant to a judgment in 
personam, if he be not present within the territory of the forum, he have certain 
minimum contacts with it such that the maintenance of the suit does not offend 
‘traditional notions of fair play and substantial justice’”3.  
15. 
 
Section 41 of the Act provides as under:- 
 
“Procedure and Powers of Court.--Subject to the 
provisions of this Act and of rules made thereunder-- 
(a) 
the provisions of the Code of Civil Procedure, 
1908, shall apply to all proceedings before the Court, and 
to all appeals under this Act, and 
(b) 
…………………………………………………………. 
Provided that…” 
 
Section 41 ibid makes the provisions of the CPC applicable to the 
proceedings in respect of arbitration before the Court. 
16. 
 
As the question arises on what basis are Courts to exercise 
jurisdiction in terms of Sections 2(c) and 31(1) of the Act, it is 
instructive to consider the case of M. A. Jalil (supra) wherein it was 
held:- 
                                                             
2 Ibid, p.1639. 
3 Ibid, p.1640. 
 
 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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“…section 31 of the Act deals with the jurisdiction of the 
Court. It provides that all matters relating to the 
reference should be made before the same Court in which 
the first application in connection with the arbitration 
matter was made and that it will be the said Court which 
alone be competent to decide all questions in relation to 
that particular arbitration. It also provides for the Court 
where an award is to be filed. By reading section 31 with 
the definition of the term ‘Court’ given in section 2(c) of 
the Act, it is plain that the award is to be filed in that 
Court which will have jurisdiction to decide the question 
forming the reference if the same had been the subject 
matter of the suit. Thus, to determine the question whether 
the Court before which the applications under the 
provisions of Arbitration Act, 1940, for instance under 
sections 31, 32 and 44, are filed, has jurisdiction to 
entertain them or not, one should first of all ascertain 
what the questions are which form the subject-matter of 
the reference to arbitration. Then one is to ask, 
supposing these questions had arisen in a suit which is 
the Court which would have jurisdiction to entertain the 
suit? That would be the Court having jurisdiction under 
the Arbitration Act also.”  
(Emphasis supplied) 
 
Further:- 
 
“Moreover, in view of the provisions of section 14 read 
with section 31 of the Arbitration Act, it is reasonable to 
construe that the award is to be filed in that Court which 
will have the jurisdiction to decide the question forming 
the subject-matter of the reference if the same had been 
the subject-matter of a suit”. 
 
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17. 
 
The relevant facts of Lilley International’s case (supra) are 
that a construction contract with respect to the Hyderabad-Hala 
Highway was executed in Islamabad between NHA and a contractor, 
where the NHA head office was situated. A dispute arose which was 
referred to arbitration. The Arbitrator entered upon the reference in 
Karachi, with the consent of the parties, and made the Award at 
Karachi which he filed in the Sindh High Court, Karachi. Meanwhile 
NHA filed objections in respect of the Award before the Civil Court at 
Islamabad (which was subsequently transferred to the Islamabad High Court). The 
judgment holds that for the purposes of determining which Court is to 
assume jurisdiction with respect to the Award it needs to be determined 
which Court, in the absence of an arbitration agreement, would have 
jurisdiction over the subject matter of the reference if instead, a civil 
suit was to be filed. Further, it held that the place where arbitration is 
held or where the Award is made is irrelevant and the courts at such 
place will not assume jurisdiction on account thereof. 
18. 
 
It is settled law that in terms of Section 20 CPC different 
Courts may assume jurisdiction on the basis of the defendant’s place of 
business or residence and/or where the cause of action wholly or partly 
arises. Section 2(c) read with Section 31(1) of the Act requires that we 
suspend the existence of the arbitration agreement to consider which 
Court(s) may have jurisdiction with respect to the “subject matter of the 
reference” if a civil suit were to be filed in respect thereof. The subject 
matter of a reference cannot be limited to the physical construction of 
the road at Toba Tek Singh as contended by the appellants. The subject 
matter of the reference is an inclusive term which would cover the 
physical road constructed at Toba Tek Singh, the contract executed at 
Toba Tek Singh, the arising of all the disputes regarding the violation 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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and enforcement of the terms and conditions of the contract, and the 
rights emerging and based thereupon, including payment of/deduction 
from the final bill of the respondent. In these circumstances, in the 
absence of an arbitration agreement, the respondent could have filed a 
civil suit at Toba Tek Singh on the basis that the cause of action 
accrued therein. Could the respondent have filed a civil suit at the Civil 
Courts at Lahore (on the basis that the head office of the Highways Department was 
situated at Lahore)? In Union of India and another Vs. Sri Ladulal Jain 
(AIR 1963 SC 1681) it was held that the provisions of Section 20 CPC 
with respect to ‘carries on business’ or ‘personally work for gain’ do 
apply to the Government. It was observed:- 
 
“Running of railways is a business. That is not denied. 
Private companies and individuals carried on the 
business of running railways, prior to the State taking 
them over. The only question then is whether the running 
of railway ceases to be a business when they are run by 
Government. There appears to be no good reason to hold 
that it is so. It is the nature of the activity which defines its 
character. Running of railways is such an activity which 
comes within the expression ‘business’. That fact as to 
who runs it and with what motive cannot affect it”. 
 
It was further observed that the profit element was not necessary for 
carrying on business. 
19. 
 In the case of Fazal Muhammad (supra) it was held, inter alia, 
that:- 
  
“It is admitted before us that the words “actually and 
voluntarily resides” or “personally works of gain.” In 
(sic) this section are applicable to natural persons and 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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not to legal entities like a Government. We have only to 
see if it can be said in the case of the Government that it 
“carries on businsess” (sic) at its principal office in 
Pakistan for the purpose of this section”. 
 
Fazal Muhammad (supra) cites from the judgment reported as R. J. 
Wyllie and Co. Vs. Secy. of State (AIR 1930 Lah 818) and held in this 
connection that the words ‘actually and voluntarily resides’ “refer only to 
natural persons and not to legal entities such as limited companies and Governments 
and that ‘business’ in this section meant the commercial business and not the business 
of Government”. The following passage from Pratap Chandra Biswas Vs. 
Union of India (AIR 1956 Assam 85) is reproduced in Fazal 
Muhammad (supra):-  
 
“It is difficult to hold that even commercial ventures of the 
Government 
assume 
the 
colour 
of 
its 
ordinary 
administrative 
or 
Governmental 
functions. 
In 
its 
commercial undertakings the Government is entering into 
contracts with the citizen. These contracts are governed 
by the ordinary law of the land and they are enforceable 
between the parties. The Government has no privileged 
position in regard to these contracts nor can it have any 
privileged position for purposes of clause 12 of the Letters 
Patent or section 20, C.P.C. unless the law lays down 
expressly that these provisions or parts of these provisions 
have no application to business undertakings of the 
Government”. 
(Emphasis supplied) 
 
However, the case of Fazal Muhammad (supra) relies on an obiter dicta 
from Pakistan Vs. Waliullah Sufyani (PLD 1965 SC 310), wherein 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
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Kaikaus J held that “…a Government neither resides anywhere nor carries on 
business nor works for gain”, and concluded that:- 
 
“These activities which may be truly commercial in the 
hands of the private agencies may not necessarily partake 
of the same character after they are undertaken by the 
Government in persuit (sic) of its welfare policies. A 
private person may run a hospital as a business venture. 
But it may altogether cease to retain that character in the 
hands of the State running the same for the welfare and 
service of its people. In our opinion, the dominant, if not 
the sole object in running a business is to make profits. In 
contradistinction to this, the immediate and paramount 
consideration before the Government in providing for 
these facilities and services, is the welfare of its people. 
“They have to be operated for use and not for profit,” 
according to H. J. Laski, in his “Grammer (sic) of 
Politic”, at p.436. This then is the essential difference in 
the nature and character of these two activities…From 
the above discussion it follows that those words in section 
20 of the Code have been used in their primary business 
and natural meanings and connote a business carried on 
for pecuniary profits and gains by the business and 
trading houses. These have no application to the case of 
the Government engaged in commercial activities as a 
part of its duties for the welfare of its people”. 
 
20. 
 
Fazal Muhammad’s case (supra) was challenged in due 
course before this Court but through the judgment cited at Mian Fazal 
Muhammad (deceased) through his legal heirs Vs. Province of West 
Pakistan and others (1975 SCMR 312) this Court declined to decide 
the questions raised in the leave granting order as, for reasons 
recorded, the matter had become infructuous and there remained no 
live issues to be decided. In this view of the matter, we find that there is 
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         -:19:- 
 
no definitive finding by this Court as to whether the Government, when 
it undertakes commercial activities, is to be treated as a creature apart 
or at par with other commercial undertakings. 
21. 
 
In the case cited at Khawaja Ahmad Tariq Rahim Vs. The 
Federation of Pakistan through Secretary, Ministry of Law and 
Parliamentary Affairs, Islamabad and another (PLD 1992 SC 646) (12 
member bench) it was held that Government means:-  
 
“…“the whole class or body of office-holders or 
functionaries considered in the aggregate upon whom 
devolves, 
the 
executive, 
judicial, 
legislature 
and 
administrative business of the State”… 
In Tariq Rahim’s case (supra) the following extract from Master Khusrow 
Amir Khan Niazi Vs. Province of Punjab and 2 others (PLD 1975 Lah 
819) was cited:- 
 
“…the word “Government” includes in its ordinary 
connotation, legislative, judicial and executive functions, 
and the ordinary connotation should be adopted in the 
absence of any indication to the contrary.” 
 
22. 
 
The commercial activities undertaken by a government are 
not included in the “ordinary connotation” of the word “Government”.  
Indeed we are not persuaded by the reasoning of the learned High Court 
in Fazal Muhammad’s case (supra) to the effect that commercial 
activities are undertaken by Government for welfare purposes and for 
that reason they are to be treated as part of its functions. The 
commercial activities do not form a part of the core functions of a 
government which remain its executive, judicial, legislative and 
administrative functions. When a government enters into the domain of 
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         -:20:- 
 
business and commerce it cannot be given a premium of its position 
and must be treated at par with its competitors or near competitors in 
the private sector. It must be subject to the laws of the land. Its 
commercial activities must be regulated in the same manner as those of 
the private sector. It cannot be exempted therefrom simply by the dint 
of being a “government”. Hence when a government is engaged in the 
‘business’ of road building through the vehicle of construction contracts 
with a private contractor then it cannot be allowed to claim privileges on 
account of being the government. In these circumstances it would be 
liable to be treated as a corporation in terms of Explanation II to Section 
20 CPC. In the case of Bakhtawar Singh (supra) the Supreme Court of 
India upheld the decision of the Delhi High Court dismissing an the 
application of a contractor under Sections 14 and 17 of the Indian 
Arbitration Act by holding that the phrase ‘actually and voluntarily’ 
resides, ‘carried on business’ or ‘personally works for gain’ do not apply 
to legal entities like the Union of India and only to natural persons. But 
this inapplicability is only in reference to the sovereign functions 
of the State (as the contract pertained to maintaining armed forces therefore it was 
considered to be a sovereign activity of the State). When the State carries on 
commercial activities then Section 20 CPC would apply, as held in 
Ladulal Jain’s case (supra). We find ourselves in agreement with this 
subtle but important distinction. The Government in the exercise of its 
core functions viz, its executive, legislative, judicial and quasi-judicial, 
and administrative roles exercises sovereign powers. But when it 
engages in commercial activities it is not exercising sovereign power, 
rather it is engaging in business/commercial activities and merits no 
undue advantage over ordinary litigants: it is subject to Section 20 CPC 
in its entirety. Therefore, the Civil Courts at Toba Tek Singh and Lahore 
Civil Appeal No.417-L of 2009  
 
 
 
 
 
         -:21:- 
 
would have had concurrent jurisdiction with respect to the putative civil 
suit. Having established the concurrent jurisdiction of the Civil Courts 
at Toba Tek Singh and Lahore in case a civil suit were to be filed by the 
respondent,  we can now return to the circumstances as they existed 
inter se the parties i.e. the arbitration agreement was a part of the 
contract between the appellant and the respondent. A conjunctive 
reading of Sections 2(c) and 31(1) of the Act would therefore confer 
jurisdiction, for purposes of filing an application under Sections 14 and 
17 of the Act for making an Award a Rule of the Court on both the Civil 
Courts at Toba Tek Singh and Lahore. Therefore, the Award was 
competently filed before the Civil Court at Lahore to be made a Rule of 
Court. 
23. 
 
During the course of the hearing of the instant appeal we 
asked the learned counsel for the appellant whether in the absence of 
an arbitration agreement a civil suit in respect of the dispute inter se 
the parties could have been filed in the Civil Court at Lahore. He agreed 
that such a civil suit could indeed have been competently filed at 
Lahore. In light of the above, this appeal has no merits and is hereby 
dismissed. 
In the case of Ghulam Rasul (supra) it was held:- 
 
“As to the second ground, if we may say so with due 
respect we are rather surprised at the objection taken on 
behalf of the Government. Courts expect the Government 
to be the noblest of litigants and would not engage in 
litigation in vain much less against its own employees. In 
the instant case the matter was covered by express 
provision of the Constitution and the amount involved was 
trivial. Any attempt to avoid justice being done on a 
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         -:22:- 
 
technical plea, unless any high principle is involved, 
should be avoided”. 
 
We endorse the aforesaid view: Governments should litigate only where 
necessary and the might of the State should not be employed to make 
an ordinary litigant run from pillar to post. In the present and peculiar 
circumstances of the instant case we are persuaded to direct the 
appellants to make immediate payment of a sum of Rs.57,534.73/- to 
the respondent as per the Award dated 1.11.1993. Before parting we 
appreciate the valuable assistance provided by the learned amici curiae. 
 
 
 
 
JUDGE 
 
 
 
JUDGE 
Lahore, the 
6th September, 2016 
Approved For Reporting 
Waqas Naseer/*