The Arbitration Act 1940 in Pakistan: Procedure, Court Intervention, and the Recognition and Enforcement of Foreign Arbitral Awards

Arbitration in Pakistan is still governed primarily by the Arbitration Act 1940 (Act X of 1940), a pre-independence statute that has remained in force for over eight decades. Despite repeated calls for modernisation, the 1940 Act continues to be the principal legislation regulating domestic arbitration, the appointment of arbitrators, the conduct of proceedings, and the enforcement of arbitral awards through the courts. For international commercial arbitration, a separate legislative framework now exists under the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011, which gives effect to Pakistan's obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).

This article examines the key provisions of both statutes, the role of the courts in arbitration proceedings, and the practical challenges that parties face when arbitrating disputes in or connected with Pakistan.

Scope and Structure of the 1940 Act

The Arbitration Act 1940 applies to domestic arbitrations where the arbitration agreement is governed by Pakistani law or where the arbitration takes place in Pakistan. The Act is divided into two main parts: Chapter II deals with arbitration without the intervention of a court (where parties have an arbitration agreement and proceed to arbitrate without first filing a suit), and Chapter III deals with arbitration in suits (where a court refers a pending dispute to arbitration under an order of reference).

Section 3 provides that where parties have entered into an arbitration agreement and one party commences legal proceedings in respect of a matter covered by the agreement, the other party may apply to the court to stay the legal proceedings and refer the dispute to arbitration. The court is required to stay the proceedings if satisfied that there is no sufficient reason why the matter should not be referred to arbitration and that the applicant was ready and willing to do everything necessary for the proper conduct of the arbitration. This provision mirrors, in substance, the approach taken in Section 9 of the English Arbitration Act 1996, though the 1940 Act's language is considerably older and has been interpreted through decades of case law.

Appointment of Arbitrators

Section 5 empowers the court to appoint an arbitrator or umpire where the arbitration agreement does not specify a mechanism for appointment, or where the specified mechanism has failed. The court's power under this section is exercised only where the parties have not been able to agree on the appointment. In practice, most commercial arbitration agreements in Pakistan specify either a sole arbitrator or a panel of three arbitrators, with each party nominating one arbitrator and the two nominees selecting the presiding arbitrator. Where the nominees cannot agree on a presiding arbitrator, the court steps in under Section 5.

The 1940 Act does not impose specific qualifications on arbitrators, unlike more modern arbitration statutes that may require independence and impartiality as express statutory conditions. However, Pakistani courts have consistently held that an arbitrator must be impartial and independent, and that a failure to disclose a conflict of interest is a ground for setting aside the award. The Supreme Court addressed the issue of arbitrator impartiality in several reported decisions, including the principle that an arbitrator who has a financial interest in the outcome of the dispute, or who has a close personal or professional relationship with one of the parties, is disqualified from acting.

Conduct of Proceedings

The 1940 Act gives relatively little guidance on the procedure to be followed during arbitration. Section 14 provides that the arbitrators or umpire shall make their award within four months of entering on the reference, or within such extended time as the court may allow. This statutory time limit has been a frequent source of difficulty, as complex commercial disputes often cannot be resolved within four months. In practice, the court routinely grants extensions of time under Section 28, but the need to apply to the court for extensions adds cost and delay to the process.

The Act does not contain detailed provisions on matters such as the taking of evidence, the conduct of hearings, the exchange of written submissions, or the appointment of experts. These procedural matters are left to the agreement of the parties or the discretion of the tribunal. This lack of procedural detail is one of the main criticisms of the 1940 Act. Modern arbitration statutes, such as the UNCITRAL Model Law on International Commercial Arbitration (1985, as amended in 2006), provide a more comprehensive procedural framework while still respecting party autonomy.

The Award and Its Enforcement

Once the arbitrator has made an award, it must be filed in court under Section 14(2) for the purpose of enforcement. The filing of the award triggers the court's jurisdiction to examine the award. Section 14 requires the arbitrator to sign the award and notify the parties. The award, once filed, is treated as a decree of the court for the purpose of enforcement under the Code of Civil Procedure 1908.

Section 30 sets out the grounds on which an award may be set aside. These are narrow and include: that the arbitrator or umpire misconducted himself or the proceedings; that the award was made after the issue of an order by the court superseding the arbitration; that the award is otherwise invalid. The term "misconduct" has been interpreted broadly by Pakistani courts. It encompasses not only corruption or bias but also procedural irregularity, a failure to consider material evidence, a failure to give reasons (where reasons were required), and exceeding the scope of the reference. The Supreme Court has held, however, that the court should not substitute its own view of the merits for that of the arbitrator, and that mere errors of law or fact do not amount to misconduct unless they go to the root of the jurisdiction or reveal a fundamental defect in the proceedings.

Section 33 provides for the modification of an award where the award is imperfect in form, where the award is on a matter not referred to arbitration, or where it contains an obvious error. Section 34 provides that no suit shall lie on any ground whatsoever to set aside or modify an award, effectively channelling all challenges to arbitral awards through the provisions of the Act itself.

Court Intervention: Hubco v WAPDA

The question of how far courts should intervene in arbitration proceedings has been a central issue in Pakistani arbitration law. The landmark decision of the Supreme Court in Hub Power Company Ltd v Pakistan WAPDA (PLD 2000 SC 841, also reported as 1999 SCMR 2564 at an earlier stage) established several important principles. The Supreme Court held that courts should give effect to arbitration agreements and should not readily interfere with the arbitral process. The court affirmed the policy of minimal judicial intervention in arbitration, consistent with international best practice. The decision also addressed the enforceability of arbitration clauses in government contracts, holding that the government is bound by its agreement to arbitrate in the same way as a private party.

Subsequent decisions have reinforced the principle of minimal court intervention, though in practice the degree of intervention varies. Lower courts have sometimes been willing to examine the merits of the dispute when considering applications under Section 30 or Section 33, despite the settled principle that courts should confine themselves to the statutory grounds. This inconsistency is one of the reasons why commercial parties with a choice of seat often prefer to arbitrate outside Pakistan, typically in Singapore, London, or Dubai.

The 2011 Act and the New York Convention

Pakistan acceded to the New York Convention in 2005 and enacted the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011 to give domestic effect to the Convention. The 2011 Act provides for the recognition and enforcement of foreign arbitral awards in Pakistan, subject to the grounds for refusal set out in Article V of the New York Convention. These grounds include incapacity of a party, invalidity of the arbitration agreement, lack of proper notice, the award dealing with matters beyond the scope of the submission, improper composition of the tribunal, the award not being binding or having been set aside in the country of origin, and public policy.

The 2011 Act was a significant step forward for Pakistan's arbitration framework. Before its enactment, the enforcement of foreign arbitral awards in Pakistan was uncertain and often litigated. The 2011 Act provides a clear statutory basis for enforcement and limits the grounds on which enforcement can be refused to those recognised under the New York Convention. The Act applies to awards made in the territory of any state that is a party to the Convention, provided Pakistan has not made a reservation excluding that state.

It is important to note that the 2011 Act does not replace the 1940 Act for domestic arbitration. The two statutes operate in parallel: the 1940 Act governs domestic arbitration and the enforcement of domestic awards, while the 2011 Act governs the recognition and enforcement of foreign arbitral awards. There is no unified arbitration statute in Pakistan, and the lack of a modern, comprehensive law has been identified by the legal community, the judiciary, and international organisations as a significant gap.

The Case for Reform

The calls for replacing the 1940 Act with a modern statute based on the UNCITRAL Model Law have been persistent. A draft Arbitration Bill has been discussed at various stages, but as of April 2026, no replacement legislation has been enacted at the federal level. The Islamabad Capital Territory (ICT) is reported to have advanced a draft more recently, and Punjab has periodically considered provincial arbitration reform, but neither has resulted in an enacted statute that replaces the 1940 Act.

The key deficiencies of the 1940 Act, from a modern arbitration perspective, include the absence of detailed procedural provisions, the requirement to file the award in court for enforcement (which invites judicial scrutiny beyond the internationally accepted grounds), the short default time limit for making an award, the lack of express provisions on interim measures by the tribunal, and the absence of a clear regime for international commercial arbitration seated in Pakistan.

For parties drafting arbitration clauses in contracts with a Pakistani element, the choice of seat is a critical decision. Where both parties are Pakistani, the 1940 Act will typically apply. Where the contract involves an international element, parties frequently choose a seat outside Pakistan to avoid the uncertainties of the 1940 Act, while including a submission to the jurisdiction of the 2011 Act for the purpose of enforcement in Pakistan if required.

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