' This is an application under section 20 of the Arbitration Act, 1940 moved by the plaintiff, Nawab Brothers Ltd., against the Project Director, Special Projects, Planning and Development Department, Karachi and the Additional Chief Secretary (Development) Planning and Development Department, Government of Sind, Karachi. The following reliefs were claimed in this application :- (a)that the agreement be placed on record ; (b)that an order of reference to Arbitration be made ; and
(c) the defendants be ordered not to carry out the work pending the decision of the arbitration.
2. As regards relief (c) relating to the carrying out of work pending the decision of the arbitration, the matter has already been disposed of in connected J. M. 34/78 and, therefore, this prayer has become infructuous in the present proceedings.
3. By a short order dated 22-9-1980 I had held that the arbitration clause No, 28 reproduced in para. 3 of the main application under section 20 of the Arbitration Act, 1940 is valid and subsisting between the parties. Hereinbelow are given reasons for my aforesaid decision.
4. According to the plaintiffs, the defendants had invited tenders for construction of the Sind House at Islamabad and the tender of the plaintiff was accepted by the defendants in April, 1974. Letter of intent was issued by the consultants Messrs Zaheeruddin Consultants Ltd., on 23-4-1974 which was accepted by the plaintiffs on 29-4-1974. The tender documents have been filed in this case and clause No, 28 of the General Conditions of the Contract is the arbitration Clause. As this clause will be referred to later in this judgment and the controversy between the parties resolves around this clause, the same is reproduced here :- "28. Settlement of disputes.-All disputes and differences of any kind whatever arising out of or in connection with the contract or the carrying out of the work (whether during the progress of the work or after the completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the Consultants who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Consultants with respect to any of the expected matters shall be final and without appeal as stated in the preceding clauses. But if either the employer or the contractor be dissatisfied with the decision of the consultants on any matter, question or dispute of any kind (except any of the excepted matters) or as to the withholding by the Consultants of any certificate to which the contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within 28 days after receiving notice of such decision give a written notice to the other party through the Consultants requiring that such matter in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such disputes or differences of which such written notice has been given, and no other shall be and is hereby referred to the arbitration and final decision of a Single Arbitrator to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of a Single Arbitrator, to the arbitration of two Arbitrators one to be appointed by each party which Arbitrators shall before taking upon themselves the burden of reference appoint an Umpire.
' The arbitrator, the Arbitrators or the Umpire shall have power to open up review and revise any certificate, opinion, decision, requisition or notice, save in regard to the excepted matters referred to in the preceding clauses and to determine all matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid. Upon every or any such reference the cost of an incident able to the reference and award respectively, shall be in the direction to the Arbitrator, or Arbitrators or the Umpire who may determine the amount thereof, direct the same to be taxed as between attorneys and client or as between party and parties and shall direct by whom and to whom and in what manner the same shall be borne and paid. This submission shall be deemed to be a submission to Arbitration within the meaning of the Arbitration Act in force or any statutory modification thereof, this Award of the Arbitrator or Arbitrators or the Umpire shall be final and binding on the parties. Such reference except as to the withholding by the Consultants of any certificates under clause 25.I(vi) and 25.2 to which the contractor claims to be entitled, shall not be opened or entered upon till after the completion or alleged completion of the works or until after the practical cessation of the works arising from any cause unless with the written consent of the Employer and Contractor, provided always that the employer shall not withhold the payment of an Interim Certificate nor the Contractor, except with the consent in writing of the Consultant, in any way delay the carrying out of the work by reason or any such matter, question of dispute being referred to Arbitration, but shall proceed with the work with all due diligence and shall, until the decision of the Arbitrator, or Arbitrators, or the Umpire be given abide by the decision of the Consultants and no award of the Arbitrator or the Arbitrators or the Umpire shall relieve the Contractor of his obligations to adhere strictly to be Consultant's instructions. The Employer and the Contractor hereby also agree that Arbitration under this clause shall be a condition precedent to any right of action under the contract."
5. This clause, therefore, provides that all disputes and difference of any kind whatever arising out of or in connection with the contract or the carrying out of the work (whether during the progress of the work or after the completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to the consultants for settlement who shall state their decision in writing. It is further provided that if either party be dissatisfied with the decision on any matter, question or dispute of any kind (except any of the excepted matters) then in any such case either party may within 28 days after receiving notice of such decision give a written notice to the other party through the consultants requiring that such matter in dispute be arbitrated upon. Such dispute is to be decided by a sole arbitrator if agreed upon or in case of disagreement to the arbitration of two arbitrators, one to be appointed by each party.
6. According to the plaintiff the defendant in February, 1975 substantially changed the design, specification and the concept of the project and an additional agreement was executed between the parties for the purposes of removal of inconsistency as to the rates of the tender documents and the change of specification. This new contract is dated 8-8-1977, and is referred hereinafter as "the second agreement".
7. Thereafter certain disputes arose and the matter was referred to the Consultants under aforesaid Claim No, 28 of the General Conditions contained in the tender documents. The plaintiffs filed their claim on 6-5-1978 before the Consultants and the Consultants calling upon and receiving the view points of both parties stated their decision on 30-8-1978 in writing. Instead of accepting the decision of the Consultants, or going into arbitration the defendants on 4-9-1978 advertised the remaining work under the project, which was to be completed by the plaintiff, inviting tenders. The plaintiff telegraphically addressed a legal notice on 14-9-1978 to the defendants requiring them to act in accordance with the agreement between the parties.
8. The plaintiff then filed J. M. 34/78 against the defendants in this Court on 21-9.1978 under clause
(4) of the Second Schedule read with see-lion 41 of the Arbitration Act and Order XXXIX, rules 1 and 2 section 151, C. P. C. And a status quo order was passed in J. M. 34/76 on 24-7-1978. The defendants in their affidavits in reply in J. M. 34/78 took the position that the provisions of the Arbitration Act, 1940 were not at all applicable and clause 28 of the so-called agreement had no legal sanctity and the agreement containing this clause was not signed by the parties. In the circumstances the plaintiffs filed the present application under section 20 of the Arbitration Act, 1940 claiming the reliefs mentioned in the first para. Of this judgment.
9. Mr. Habib-ur-Rehman, learned counsel for the plaintiff has taken me through the second agreement dated 8-8-1977. In the preamble of the second agreement it is mentioned that the Bidding conditions on which the plaintiffs offered to construct the Sind House also forms an integral part of the said agreement. It is also mentioned in the preamble that the necessity for entering into this second agreement arose as on the one hand the Bidding conditions were inconsistent and on the other there was inconsistency between the Bidding conditions and the said agreement in so far as they related to payment of compensation to the contractors due to increase in the prices of the material used and cost of labour engaged in the construction of the Sind House and it was expedient to remove the aforesaid inconsistencies. In clause (1) of the second agreement it is mentioned that notwithstanding anything contained in the earlier agreement and the said bidding conditions the Government has agreed to pay to the plaintiff an additional amount of Rs, 30,00,000 on account of escalation of the cost of material and labour. Clause (2) of the agreement details the manner in which the payment was to be made and clause (3) states that if the contractors failed to complete the said works in accordance with the Schedule to the second agreement and to the satisfaction of the Government this amount of Rs, 30 lacs or a part thereof and the guarantee to be furnished in pursuance of clause (2) may be forfeited. Clause (5) states that the contractors shall not make any further claim for compensation on account of escalation. Mr. Habib-ur-Rehman specially invited my attention to clause 6 of the second agreement which is to the following effect : "The contractors shall faithfully perform and observe the said agreement and the said Bidding conditions and complete their obligations thereunder in accordance with the conditions thereof."
10. According to Mr. Habib-ur-Rehman the second agreement dated 8-8-1977 does not wipe out the earlier contracts between the parties which contains the arbitration clause especially in view of the clear workings of clause (6) of the second agreement. Further, according to learned counsel, actions in writing of the defendants after the execution of the second agreement on 8-8-1977 clearly show that even according to the defendants arbitration clause (28) continued to bind the parties.
11. After the execution of the second agreement on 8-8-1977, certain disputes had arisen between the parties and by document No, 22, which is the letter dated 6-5-1978 of the Consultants addressed to the defendant No. 1, the defendants were advised to put up all their issues in writing in a consolidated form so that the Consultants could give their decision in writing. On the same day another letter dated 6-5-1978 was addressed by the Consultants to the plaintiff (document No, 23) to the effect that the letters submitted by the plaintiffs to the Consultants from time to time were not adequate for action under clause (28) of the General Conditions of Contract regarding settlement of disputes and plaintiffs were advised to put up all their points/issues in writing in a consolidated form so that the consultants could give their decision in writing.
12. By letter dated 6-5-1978 (document No, 24) of the plaintiffs addressed to the consultants the plaintiffs raised 16 points for settlement under clause 28 by the consultants.
13. In reply to the Consultants' letter dated 6-5-1978, defendant No. 1 by his letter of 8-6-1978 (document No, 25) referring to the consultants' request for putting up all points/issues in writing in a consolidated form, stated that the "settlement of disputes" clause did not lay down any such condition for taking action by the Consultants but in any case defendant No. 1 did put down the points for immediate action by the consultants.
14. In the letter dated 16-5-1978 of the consultants (document No, 26) addressed to defendant No. 1 with a copy to the plaintiffs, the parties were informed that the points had now been received from both the parties and the consultants would state their decision in writing.
15. In document No, 27, which is the letter dated 29-5-1978, of defendant No. 1 addressed to the plaintiff, apart from making certain complaints, in the last para. The following was stated :- "We have already requested the consultants to take appropriate action under your contract/agreement for your failure to complete the work in time and also for keeping the work suspended on the false pretext of non-payment of your dues. Please note."
16. By letter dated 30-8-1978 (document No, 28) the Consultants communicated their decision to the parties. Document No, 29 is the letter dated 17-9-1979 of defendant No. 1 addressed to the consultants in which he expresses his disappointment that the consultants had arbitrarily proceeded in taking action under clause (28) of the agreement completely ignoring the Government stand in the matter. It further states that the decision clearly revealed consultants' partisan attitude towards the plaintiff and against the Government and that they were rejecting the decision.
17. Mr. Habib-ur-Rehman is correct in his assertion that nowhere in the correspondence was the stand taken in at any time by the Government that the previous agreement was no longer valid or binding between the parties or that clause (28) in any case was no longer binding between the parties. On the contrary a perusal of the documents filed clearly show that the Government itself was acting under clause (28) by referring the matter to the consultants and asking for a decision from the consultants.
18. Mr. Sarfaraz Ahmad Khan, learned Assistant Advocate-General, who appeared on behalf of the defendants has raised the following objections to the grant of the application under section 20 of the Arbitration Act, 1940 moved by the plaintiff :- (a)There is no arbitration agreement between the parties as the second agreement dated 8-8- 1977 wipes out the earlier agreement.
(b)First agreement between the parties was void.
(c) Agreement containing clause (28) was never signed.
(d)Clause No, (28) is void because of restraint on legal remedies in view of the provisions of section
(28) of the Contract Act.
(e) Application under section 20(4) of the Arbitration Act is not maintainable.
(f) No final certificate was issued by the consultants as required by clause (28).
(g) Plaintiffs were not aggrieved parties and, therefore, cannot file the present application.
(h)This was not a case for reference to arbitration.
(1) This was a case of fraud or misrepresentation and, therefore, not a fit case for reference to arbitration.
(j) By conduct the plaintiffs had abandoned the arbitration clause.
19. Objections (a) and (b) raised by the learned Assistant Advocate-General, can be taken up together. According to Mr. Sarfraz Ahmad Khan, the second agreement dated 8.8-1977 had wiped out the earlier agreement and in the second agreement of 8-8-1977 there is no arbitration clause.
Learned counsel relied upon section 62 of the Contract which reads as follows :- "62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed."
20. According to Mr. Sarfraz the second agreement dated 8-8-1977 supersedes the original agreement which contained the arbitration clause, and in the second agreement there is no arbitration clause and in view of section 62 of the Contract Act neither of the parties can call upon the other to perform any term in the original contract. The precise contention of the learned counsel was that the arbitration clause is no longer in existence and cannot be enforced by the plaintiff.
21. Learned counsel has referred to the case of Balak Ram v. Telu (1), wherein it was held that the terms of the original contract were varied and this variation was, in the opinion of the learned Judge, sufficient to absolve the defendants from performance of the original contract. The facts of that case were that Balak Ram had filed a suit for the recovery of Rs, 800 on the basis of the balance in the Bahi account. The suit was resisted on the ground that subsequent to the balance which was struck, the parties agreed to substitute a new contract for it or at any rate to alter it and, therefore, the suit on the Bahi account did not lie. The Civil Judge found that no substituted contract had been proved and decreed the suit. On appeal the District Judge came to a different conclusion. He found that in fact an instrument bond was actually executed by the defendant after striking off the balance, that it was in the plaintiff's possession and that the suit should have been brought on the bond rather than on the Bahi entry. The District Judge accepted the appeal and dismissed the suit. The second appeal was dismissed by the Lahore High Court in the above judgment.
' The facts of the case in AIR 1935 Lah. 897 are clearly distinguishable. In that case the bond which was executed did not provide for interest and provided for payment by instalment, whereas the plaintiff had claimed interest on the original account on the basis of an oral agreement and there was no instalment implied as far as the balance of Bahl account was concerned. It was in view of these facts that the Lahore High Court came to the conclusion that the bond executed between the parties had substituted the original liability on the Bahi account. {{FOOT NOTE}}
(1) AIR 1935 Lab. 897 {{FOOT NOTE}}
22. Mr. Sarfraz then relied upon the case of Nagendranath Majumdar v. Kshitish Chandra Ghose (1).
In that case it was held that a compromise or a contract or an agreement setting up a new contract amounts to a novation of contract and since in such a case the ordinary incident would be as indicated in section 62 of the Contract Act, namely, that the original contract would no longer be liable to be performed, the effect would be to substitute the other debt by a new debt arising from the date of the compromise decree. It was further held that the breach of a term of the compromise decree would not restore the parties to the sights which they had prior to the decree, for, after the compromise decree the rights and liabilities of the parties would be governed by terms of the compromise itself not by what it was before the entry into the compromise. The facts of that case are clearly distinguishable from the instant case. In the Dacca case the previous rights and liabilities were completely extinguished and substituted by the compromise.
23. Reliance was also placed on the case of Vishrarn Arjun v. Irukullah Shahkariah (2). In that case it was held that a novation is a substitution of a contract and not a mere variation of some of its terms and it should rescind or extinguish, the previous contract. It was further held that a new and independent agreement concerning the same matter as the previous agreement may be construed to discharge the former, only if the terms of the letter are so inconsistent with these of the former that they cannot stand together. It was then observed that whether an agreement entered into is in substitution of an old contract or not is always a question of fact depending also on the intention of the parties and the intention of the parties may be inferred from the contents of the documents but in order to gather their intention one should look to the substance of the matter and not to the mere form. On the facts of that case the Court held that on consideration of the terms of the original contract and the subsequent agreement which only related to some of the terms was not a self-contained agreement in relation to the original contract, the subsequent agreement did not constitute a novation but was substantially an agreement of remission and in fact both put together formed one complete subsisting contract.
I am in complete agreement with the views expressed in the judgment reported in AIR 1957 Andh.
Pra. 784, and also with the conclusion , that where the subsequent agreement only relates to some of the terms of - the original agreement, both agreements should be read together to form a complete subsisting contract.
24. Mr. Sarfraz has also relied upon the case of Kadernath Lal v. Sheo Narayan Ram (3). Learned counsel referred to para. 16 of that judgment wherein it is observed that section 62 of the Contract Act deals with novation of the contract and it comes into operation when a new contract is substituted for the contract in existence. I am in agreement with the principle enunciated in this judgment but in the instant case there has been no substitution of the earlier agreement and the provisions of the second agreement themselves confirm the earlier agreement and alters only a few terms thereof.
25. Mr. Habib-ur-Rehman, learned counsel for the plaintiff, has opposed the contention of Mr. Sarfraz and has argued that the second agreement did not substitute the original agreement but changed a few terms thereof. According to the learned counsel, in the second agreement there {{FOOT NOTE}}
(1) PLD 1958 Dacca 179 (2) AIR 1957 Andh. Pra. 784
(3) AIR 1957 Pat. 408 {{FOOT NOTE}} ' is a specific reference to the fulfilment of the Bidding condition and that the previous agreement should be fully adhered to and that in the second agreement there is no reference to the exclusion or deletion of the arbitration clause. Counsel, therefore, argued that in the circumstances of the case the defendants cannot take any assistance from the principle laid down in section 62 of the Contract Act. His further argument was that the agreement relating to arbitration contained in clause (28) had in fact been acted upon not only by the plaintiff but also by the defendants and that the arbitration clause was in writing and in the circumstances the defendants were estopped under section 115 of the Evidence Act from denying the arbitration agreement between the parties.
26. Mr. Habib-ur-Rehman has referred to a judgment of this Court in the case of Karachi Shipyard & Engineering Works Ltd. v. General Iron and Steel Works Ltd. (1). In that judgment after making reference to various judicial pronouncements, the learned Single Judge held that the arbitration clause in a contract can be regarded as a thing apart from the main conditions of a contract and that the arbitration clause is severable from the remaining contract and would survive frustration of the contract itself. It was further held that the arbitration clause is not superseded even if the parties substituted a new contract for the old contract or entered into a new agreement which, in fact, modified or notated the terms of the old contract. In that judgment, the decision of the Dacca High Court in the case of Magan Lal Jhawar v. M. R. Khan was distinguished. In the Dacca case, by a subsequent agreement, a different forum of settlement of disputes was provided by the parties.
While distinguishing this decision, Noorul Arfin, J. Observed as follows :- `But in my opinion, the rule in this decision (Dacca case) is not at all applicable. Though there was an arbitration clause in the contract, which was the subject-matter of this decision, yet the parties, by a subsequent agreement, made provision for a different forum of settlement of disputes between them, that is, they agreed to accept settlement of differences given by a third party. In the Dacca decision, therefore, the arbitration clause itself was superseded or abrogated by a subsequent arrangement for settlement of differences between the parties by a different forum altogether."
27. In the instant case, the subsequent agreement dated 8-8-1977 only makes alterations in a few terms of the previous agreement but does not make any reference to arbitration clause No, 28.
There is also no term in the second agreement superseding or altering the arbitration clause No, 28.
28. Mr. Sarfraz had first taken the stand that because of "inconsistencies" in the original agreement, there was no contract between the parties and by the second agreement dated 8-8-1977 a legal contract came into existence. However, later on he conceded that the tender documents which included the arbitration clause No, 28 was a part of the contract between the parties but this no longer remained the contract on the signing of the second agreement dated 8-8-1977, and, as observed earlier, relied upon section 62 of the Arbitration Act. In the instant case, the second agreement does not wipe cut the earlier agreement in its entirety. Only a few terms are altered and there is no alteration or supersession of the arbitration clause No,
28. The contents of the second agreement dated 8-8-1977 also do not support the contention of the learned counsel. These refer specifically {{FOOT NOTE}}
(1) PLD 1971 Kar. 501 {{FOOT NOTE}} ' to the fulfilment of the Bidding conditions containing the Arbitration clause and also to the earlier agreement. The parties including the defendants have also, even after 8-8-1977, acted upon and taken positive action under clause 28 by referring their differences to and corresponding with the consultants under clause 28.
29. Mr. Sarfraz had also argued that the original contract was void because of "inconsistencies" and the second agreement refers to and confirms that there were inconsistencies in the original agreement. Be that as it may, the second agreement rectified the "inconsistencies" and the two agreements became the subsisting contract between the parties.
30. I have, therefore, come to the conclusion that the original agreement is not wiped out but, subject to the terms of the second agreement, l, remains in full force. The arbitration clause, in any case, is not superseded) and continues to remain binding between the parties.
31. The next objection raised by Mr. Sarfraz is that the agreement containing clause No, 28 is not signed. I have already held that the tender documents containing this arbitration clause are a part of the contract between the parties and even if a formal contract was not signed, as contended by Mr. Sarfraz, it is an admitted position that the work was awarded to the plaintiff and it is also an admitted position that the defendants carried on work for a considerable period of time in respect of the work awarded to them. I have already held that not only that the agreement containing the arbitration clause was entered into between the parties but that the defendants had 'themselves acted under the arbitration clause No, 28 inasmuch as action was taken by them through correspondence with the consultants. The defendants have themselves referred to their agreement with the plaintiff and specific mention is made in the second agreement dated 8-8- 1977 about the Bidding conditions and the first agreement. Under the law, that is section 2(a) of the Arbitration Act, 1910 it is not necessary that the arbitration agreement should also be signed by the parties. What is required is that the arbitration agreement be in writing. Arbitration clause No, 28 is contained in the tender documents which are the basis of the contract between the parties. Mr. Sarfraz had conceded that the tender documents were a part of the contract between the parties before the second agreement was signed.
32. For the established principle that under section 2(a) of the Arbitration Act only a written agreement of arbitration is required and the same need not necessarily be signed by the parties as long as its terms and conditions are readily ascertainable and freely agreed to between the parties, I may refer to the judgment of or Supreme Court in the case of Mst. Shameem Akhtar v. Mst.
Najma Bagai (1). In this judgment of the Supreme Court reference has been made to various judgments of the Superior Courts of or country as well as of foreign jurisdiction. I may here with advantage refer to three of these judgments in this regard.
' In the case of Umed Singh v. Seth Sobhao Mal Dhadha (2), the Privy Council, while dealing with a corresponding provision in clause (1) of the Second Schedule to the Code of Civil Procedure, 19u8, to the effect that where the parties to a suit had agreed that the matter in difference shall be referred to arbitration they may apply in writing to the Court for an order {{FOOT NOTE}}
(1) PLD 1977 SC 644 (2) I L R 48 Cal. 290 {{FOOT NOTE}} ' of reference, held that it did not require that the writing should of necessity be signed by the parties.
' I may also reproduce the following paragraph from the judgment of Sir Shah Muhammad Suleman, J. In the case of Shankar Lal Lachhmi Narain v. Jainy Brothers (1) dealing with a similar provision in section 4(b) of the Arbitration Act, 1899 :- "The plain acceptance of a document containing all the terms is sufficient. All that is required is that both the parties accept a written document as containing the agreed terms ; it might be in the form of a signed document by both parties containing all the terms, or a signed document by one party containing the terms and a plain acceptance, either signed or orally accepted, by the other party, or, in the third case, an unsigned document containing the terms of the submission to arbitration agreed to orally by both parries."
' In the words of Muhammad Akram, J, who wrote the judgment in the case of Mst. Shamim Akhtar v. Najma Baqai, these observations of Sir Shah Muhammad Suleman, J. Are almost of classic importance and have been relied upon with approval by different Courts ever since.
' The Indian Supreme Court in the case of Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji (2) has finally held that it was settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties, and it was sufficient if the terms are reduced to writing and the agreement of the parties thereto is established.
33. The tender documents were a part of the contract between the parties. In view of the settled law, Mr. Sarfraz's contention that as a formal agreement had not been signed, there was no arbitration agreement between the parties, cannot be accepted.
34. Objection (d) raised by learned counsel for the defendants was that the arbitration clause 28 is void as it placed restraint on the parties to avail legal remedies in ordinary Courts by way of civil suits. Learned Assistant Advocate-General placed reliance on the provisions of section 28 of the Contract Act in support of his plea which section is reproduced here :- "28. Agreement in restraint of legal proceedings void.-Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals or which limits the time within which he may thus enforce his rights, is void to that extent.
' Exception 1.-Saving of contract to refer to arbitration dispute that may arise. This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects, shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the-dispute so referred.
' Suit barred by such contract,.-When such a contract has been made, a suit may be brought for its specific perform a and b, and if a suit, other than for such specific performance or for the recovery of the amount so awarded, is brought by one party in respect of any subject which they have so agreed to refer, the existence of such contract shall be a bar to the suit. {{FOOT NOTE}}
(1) I L R 43 All. 384 (2) AIR 1955 SC 812 {{FOOT NOTE}} ' Exception 2.-Saving of contract to refer questions that have already arisen. Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen or affect any provision of any law in force for the time being as to references to arbitration."
The argument of learned counsel was apparently based on the underlined part of section 28 without reference to "Exception I" which is a complete answer to the contention. The judgments of the superior Courts are also unanimous on the principle that an agreement between the parties to refer disputes to arbitration is perfectly valid and does not come within the mischief of section 28 of the Contract Act.
35. The next objection is that the application under section 20(4) of the Arbitration Act moved by the plaintiffs is not maintainable. Having held that there is an arbitration agreement between the parties and the fact that the defendants took up the position that there was no arbitration agreement, application under section 20 of the Arbitration Act was competently made by the plaintiffs. The objection raised by learned counsel is misconceived. Whenever there arises a difference regarding the existence of a contract of arbitration, the party affirming the existence of the contract of arbitration may adopt one of the following courses :-
(i) The party may approach the Court to have the same determined under sections 31 and 32 of the Arbitration Act, 1940.
(ii) It may apply to the Court under section 20 of the Arbitration Act, 1940 and request that the agreement be filed and that the matter be referred to arbitration.
(iii) It may follow the procedure of Chapter II of the Act and refer the matter to arbitration according to the contract.
' The second permissible course was adopted by the plaintiff and no illegality thereby has been committed.
36. The next objection (f) of Mr. Sarfraz was that in this case the matter could not go to arbitration as no final certificate had been issued by the consultants which, according to him, was a condition precedent for invoking the arbitration. A perusal of clause 28 shows that initially the disputes or differences are to be referred to the consultants who are required to state their decision in writing, but this clause does not say that such decision must be in the form of a final certificate. The words used are "such decision may be in the form of a final certificate or otherwise." In the present case, although the decision of the consultants is not in the form of a al certificate in the sense that the letter dated 30-8-1978 of the consultants (document No, 28) addressed to the parties is not titled as "Final Certificate" but it nevertheless can be treated as a certificate in terms of clause 28. Document No, 28 formally informs the parties of the decision vide clause 28 by the consultants and encloses the written decision along with the letter. In any case, even if this letter of 30-8-1978 is not treated as a final certificate, there is sufficient compliance of clause 28.
37. Objection No, (g) of Mr. Sarfraz was that the plaintiffs are not an aggrieved party. I have already held that the application under section 20 of the Arbitration Act was competently made by the plaintiffs. The defendants denied that there was any arbitration agreement between the parties and in view of this stand taken by the defendants the plaintiffs adopted one of the permissible courses, that is, of moving the application under section 20. The objection raised by Mr. Sarfraz has no merit.
38. The other objection raised by Mr. Sarfraz was that this was not a case for reference to arbitration. Both the parties had initially adopted the prescribed procedure under clause 28 by referring the difference to the consultants. The consultants gave a decision on 30-8-1978 which has not been accepted by the defendants. They have termed the decision as a farce and their further grievance was that the consultants had sided with the plaintiffs and had not considered the contentions of the defendants. Mr. Sarfraz was not able to show that any of the claims made by the plaintiffs in their letter dated 6-5-1978 were outside the scope of the arbitration clause. Clause No, 27 is the clause which excepts certain matters from being referred to arbitration but claims for payment in respect of any matter are not excepted matters. Clause (27) is reproduced here :- "MATTERS TO BE FINALLY DETERMINED BY THE CONSULTANTS"
27.1. The decision, opinion, direction, certificate (except for payment) with respect to all or any of the matters under clauses 1, 2, 3, 5, 7, 8. 3, 8.4, 8.6, 8.10, 8.11, 8.13, 8.15, 8.37, 15.3, 17.4, 17.6, 17.8, 20 and 25.3 hereof (which matters are herein referred to as the excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal. Any other decision, opinion, direction, certificate or valuation of the consultants or any refusal of the Consultants to give any of the same shall be subject to the right of Arbitration and review in the same way in all respect (including the provision as to opening the reference) as if it were decision of the Consultants under following clause."
' All the claims made in the letter dated 6-5-1978 are in respect of payment Mr. Sarfraz has not been able to show how this was not a case for reference to arbitration.
38. Mr. Sarfraz has further taken up the objection that this was case of fraud or misrepresentation and, therefore, arbitration in such claim was not competent. Mr. Sarfraz did not support his objection by reference to any documents on record or by any case-law. A bare plea that frau' and misrepresentation has been committed/made is not sufficient to make it a case where the Court would decline to refer the matter to arbitration In any case, I find from the documents on record that certain claims has been made which have not been accepted by the defendants and in view clause 28 the disputes require decision through arbitration.
39. The last objection was that the plaintiffs had by their conduct abandoned the arbitration clause. I do not find any substance in the objection. Both the parties had referred the differences to the consultant under clause 28 and a decision was given in writing by the consultants required by the said clause. The defendants have not accepted the decision of the consultants and in view of the denial of the arbitration agreement the plaintiffs filed the present application under section 20 of the Arbitration Act. Both the parties have not only accepted the arbitration clause as valid agreement between the parties but both parties have also acted and this clause by referring to it in their correspondence and by also refer the matter to the consultants for their decision in writing.
Mr. Sarfraz could not refer to any writing/conduct of the plaintiff whereby the plaintiff had abandoned the arbitration clause. Objection in this behalf is dismissed.
40. In view of the discussion and reasons recorded in this judgment I hold that arbitration agreement contained in clause 28 of the General Conditions of the contract at pages GC-51 and GC-52 of the Tender Documents relating to "Construction of Sind House at Islamabad" is a valid and subsisting contract between the parties and the same is ordered to be filed in Court. I further order the reference of the claims made by the plaintiff in the letter dated 6-5-1978 of the plaintiff addressed to the consultants (Annexure P-3 to the main application under section 20 of the Arbitration Act, 1940) to two arbitrators, as the defendants have not agreed to the appointment of a sole arbitrator. The plaintiffs have appointed Mr. Noorul Arfin, a retired Judge of the High Court, as their-arbitrator on 29-9-1980. The defendants shall appoint their arbitrator before 15-10-1980. The two arbitrators before entering upon the reference shall appoint an umpire. In the event of the failure on the part of the defendants to appoint their arbitrator, Mr. Noorul Arfin will become the sole arbitrator and enter upon the reference as such. I further order that it will be open to the defendants to file their claims, if any, against the plaintiff before the arbitrator or arbitrators or umpire, and such claims shall also form part of the reference.