Alternative Dispute Resolution: Courts should refrain from interfering with: SC

ISLAMABAD: The Supreme Court ruled that the courts should adopt a resolute stance of non-interference, encouraging arbitration and other forms of alternative dispute resolution (ADR), such as mediation, as the preferred modes of resolving disputes.

The judgment authored by Justice Syed Mansoor Ali Shah said: “This judicial mindset is particularly vital for our country, where an overburdened judicial system and burgeoning case backlogs impose immense economic costs on both the judiciary and society. By respecting arbitration agreements and fostering an environment conducive to swift dispute resolution, courts can play a pivotal role in alleviating this crisis.”

“Courts in Pakistan must therefore embrace this ethos, recognizing that promoting arbitration is not merely a legal necessity but also an economic and commercial imperative for ensuring the country’s progress and prosperity. It is with this pro-arbitration approach that we proceed to address and decide the questions raised in the instant case.”

The facts of the case are that Qatar Lubricants Company W.L.L. (QALCO) and FawadNaeemRana (respondents) filed a petition before the Lahore High Court, invoking its jurisdiction as a Company Bench under the Companies Act 2017 (Companies Act). Through the said petition, they sought, inter alia, rectification of the register of sharers under Section 126 of the Companies Act and action against AtifNaeemRana and SameenNaeemRana (petitioners) under Section 127 of the Companies Act. The respondents alleged that the petitioners had fraudulently secured the transfer of the respondents’ shares in KausarRana Resources (Pvt.) Ltd. (KRR) in the register of sharers, relying on an illegal and void agreement dated 12.04.2020 (agreement).

The petitioners appeared before the Company Bench in the said petition and filed an application under Section 34 of the Arbitration Act 1940 (Arbitration Act), seeking a stay of the proceedings on the respondents’ petition and for referring the matter to arbitration by any retired Judge of a High Court or the Supreme Court, in accordance with clause (13) of the agreement. The respondents opposed the application by filing a written reply. Through a judgment dated 24.06.2024, the Company Bench dismissed the petitioners’ application. Consequently, the petitioners have filed the present petition for leave to appeal.

The apex court set aside the judgment of Company Bench, and accepted the petitioners’ application under Section 34 of the Arbitration Act.

The dispute concerning the alleged fraudulent transfer of shares is referred to arbitration and meanwhile, the proceedings on the respondents’ petition under Sections 126 and 127, etc., of the Companies Act before the Company Bench shall remain stayed.

The Court proposed the name of Justice (retired) MaqboolBaqar as the arbitrator. It expected that the arbitrator will conduct the arbitral proceedings as expeditiously as possible and endeavour to decide the matter preferably within a period of four months from the date of the submission of claims by the parties before him.

The judgment said in case the said Arbitrator declines to accept the assignment, then the parties are free to approach the Company Bench through a proper application for the appointment of a new Arbitrator.

The court directed that the award made by the arbitrator be filed before the Company Bench for further proceedings in accordance with the Arbitration Act.

Justice Mansoor wrote that arbitration alleviates the burden on national courts, enhances business productivity and provides a faster resolution process, thereby, minimising disruptions to businesses. Furthermore, the ability to enforce international arbitration awards strengthens trade and commerce; while arbitration’s stable and predictable dispute resolution mechanism promotes investor confidence, making the country an attractive destination for foreign investment.

The court was informed that a draft bill for a new Arbitration Act, prepared by the Law and Justice Commission of Pakistan, was submitted to the federal government through the Ministry of Law and Justice on 2 May 2024.

It expected that the federal government will prioritise the larger economic interest of the nation and ensure the swift enactment of fresh arbitral legislation to provide an effective and contemporary dispute resolution mechanism for the people. The SC office directed to dispatch a copy of this judgment to the attorney general of Pakistan for onward correspondence and as a reminder to the concerned ministry.

Copyright Business Recorder, 2025