Ch. Muhammad Ibrahim Zia, J.--This appeal by leave of the Court has arisen out of the judgment of the High Court dated 16.4.2013 whereby, the writ petition filed by the appellant herein has been dismissed.
2. The summary of facts necessary for disposal of this appeal is that the appellant-employer entered into an agreement with the respondent-contractor on 6.8.2008 for construction and rehabilitation of Bagh-Arja Road. The parties executed a formal contract deed consisting of Particular Conditions of Contract (hereinafter to be referred as PCC) and the General Conditions of Contract, (hereinafter to be referred as GCC). According to the agreed conditions, the respondent- contractor was under the obligation to complete the whole work within a period of 12 months under Condition No, 1.1 of. GCC, however, for one or the other reason, the work could not be completed within the agreed period. The respondent-contractor was granted two extensions however, after a period of two years, the contract was terminated vide termination letter dated 13.10.2010. Thereafter, the authority re-invited bids and the contract was awarded to some other party. The respondent- contractor feeling aggrieved, firstly approached the High Court in writ jurisdiction but remained fruitless. The High Court while disposing off the writ observed that the remedy is available before the other appropriate forum. Consequently, writ petition was dismissed in limine vide order dated 28.10.2010. The respondent-contractor filed an application under Section 20 of the Arbitration Act 1940, on 1.11.2010 before the learned District Judge, Muzaffarabad. The appellant-employer contested the application by filing objections especially that without following the agreed conditions of contract, the application under Section 20 of the Arbitration Act, is not maintainable.
The learned Additional District Judge Muzaffarabad, after completion of necessary proceedings, referred the matter to the arbitrators. The arbitrators submitted award which was made rule of the Court vide decree dated 28.6.2012. Dissatisfied from the decree, the appellant-employer filed an appeal before the High Court wherein it has been specifically agitated that the arbitration proceedings cannot be initiated without referring the matter to the adjudicator as agreed between the parties according to the conditions of contract but the High Court dismissed the appeal through the impugned judgment.
3. Mr. Abdul Rashid Kernahi, Advocate, the learned counsel for the appellant-employer, after narration of necessary facts argued the case at some length. He raised serious objection regarding the manner of conducting the proceedings by the trial Court, the arbitrator and also attempted to point out some misreading and non-reading of the available material and the documents. He mainly focused his arguments on the point that the application under Section 20 of the Arbitration Act, was pre-mature as at that time, according to the agreed terms and conditions of contract, legally no dispute was brought for adjudication. According to the agreed conditions of PCC, and GCC, "the dispute" has to be referred to the Adjudicator. In case of termination of agreement, it is agreed between the parties that the Project Manager will issue a certificate regarding claims of the parties. According to the agreed terms, till issuance of certificate by the Project Manager, there is no speculation of any difference or dispute between the parties. A party can only bring difference or dispute if there is any valid difference or dispute regarding the certificate issued by the Project Manager. As in the application filed by the respondents neither any such certificate has been disputed nor challenged and this aspect has altogether been ignored by the trial Court as well as the appellate Court, thus, on this sole ground the impugned judgments are not maintainable.
4. Conversely, Mr. Hamayun Nawaz Khan and Raza Ali khan, Advocates, the learned counsel for the respondents contractor, argued the case at some length. They emphasized in their arguments on the point that as the termination of agreement was illegal, thus, dispute arose there from. There was no option left the respondents except to approach the Court. The so-called certificate brought on record by the appellant-employer is based upon the ex party findings of the Project Manager which is not legal one and also has no validity. However, on behalf of the respondents they conceded that in the application, he has not made any averment regarding the Project Manager's certificate, any objection, difference or dispute regarding such certificate. They submitted that the impugned judgments are quite in accordance with law, thus, the appeal has no substance, hence, the same be dismissed with costs.
5. After hearing the learned counsel for the parties, this Court vide short order dated 19.6.2014, disposed off the appeal in the following manner:-- "Arguments heard. Detailed judgment to be followed. Keeping in view the nature of controversy between the parties in this appeal, we deem it appropriate for the ends of justice to pass the short order in the following terms:-
1. According to the spirit of clause 58.1 and 58.2, of the Contract, in such like matters, after termination of the contract, the party's claim has to be settled by the Project Manager through issuance of a certificate whereas examination of record, pleadings of the parties as well as arguments of the parties reveal that no such certificate according to the terms of contract has been issued by the Project Manager. Unless such certificate is issued by the Project Manager, dispute in the matter has not arisen for referring for arbitration.
2. According to the spirit and terms of contract of the parties, issuance of certificate by the Project Manager is not disputed. The dispute will arise if any of the parties is not satisfied with the certificate issued by the Project Manager, he may approach for settlement of dispute through arbitration.
3. In this case we deem it just for the ends of justice that the parties should approach the Project Manager for issuance of certificate according to clause 58 of the contract. The Project Manager is directed to finalize the claim of the party and issue certificate within one month's time from communication of this order."
6. Now the following detailed reasons are recorded in furtherance of our above reproduced short order: We have paid our utmost attention to the respective arguments of the learned counsel for the parties and also examined the record. In our considered view, the important legal proposition first of all to be attended is that according to the conditions of contract between the parties, herein, in what circumstances, any of them can initiate for arbitration or file application under Section 20 of the Arbitration Act. For resolution of this controversy, the contract and its conditions are of prime consideration as in such like cases, the superior Courts have always followed this principle.
Reliance can be placed on a ase reported as Andra Co-operative Spinning Mills Ltd. Guntakal, vs. Srinivasan [AIR 1958 Andhra Pradesh 158), Wherein it has been observed as follows:-- "12. Therefore, the only question in the case would be whether the claim of the respondent is a dispute which is covered by the arbitration clause, that is ,is it involving the construction of the contractor,' or the determination of any matter or thing arising thereunder.' The submission to arbitration being governed by a written contract, the terms of that contract must be looked into when a question arises as to whether the arbitration clause governs the dispute. Arbitration clauses, as is well-known, very widely in their language because they incorporate the desire of the parties to refer to arbitration such matters as they please.
Recourse therefore must be had to the language used to determine whether the clause embraces any question which may arise between the parties in any way relating to the contract. If the dispute is that the contract, which contains the clause, had not been executed or entered into at all or where one of the parties contends that it is void ab initio or that it is illegal, the arbitration clause cannot operate, nor can an issue go before an arbitration.
Where, however, the parties to a contract do not dispute the validity or the execution of the agreement and admit having entered into a binding contract, but contend that contract does not govern the dispute, the terms of the agreement will have to be looked into in order to determine whether the arbitration clause governs the dispute or not, it is equally clear that if the matter is one which relates to an agreement which is separate and apart from the admitted agreement containing the arbitration clause, recourse cannot be had to arbitration for the settlement of the dispute which does not arise thereunder."
(underlining is ours)
7. While following the above referred principle of law, it will be useful in this regard to have the survey of the conditions of contract/agreement agreed upon by the parties in shape of PCC and GCC. According to the GCC, 1.1 (c), the parties agreed that the Adjudicator will be a person appointed by the Employer and contractor to resolve the disputes in the first instance as provided by GCC No, 23.1 and according to the PCC, the appointing authority of the Arbitrator is the Chairman Pakistan Engineering Council, Pakistan. The parties have also agreed regarding the stage and nature of the disputes to be referred to the Adjudicator as provided in GCC No, 24.2. It has been provided that if the contractor believes that a decision taken by the Project Manager was either beyond the authority given to the Project Manager by the Contract or that the decision was wrongly taken, the decision shall be referred to the Adjudicator within 14 days from the notification of the Project Manager's decision. Thus, under these expressed agreed conditions, for referring the matter to an Adjudicator or bringing the same before the Court under the provisions of Arbitration Act, there should be a dispute among the parties. The conditions of contract agreed upon by the parties are isurely not disputed. Admittedly, the termination of contract has generated litigation between the parties, therefore, it will be useful appraise here that according to the PCC and GCC, there is an agreed mechanism between the parties for resolution of issues upon termination of contract. The GCC No 56, contains the eventualities of termination of the contract including fundamental breach of contract. Under GCC, No, 56.3, when either of the parties gives notice for breach of contract to the Project Manager, he will decide whether breach is fundamental or not.
Even the parties have agreed under GCC, 54, that the employer may terminate the contract for his own convenience. Upon termination of contract, the parties further agreed according to GCC 58.1 and 58.2 as follows:-- "58.1. If the Contract is -terminated because of a fundamental breach of Contract by the Contractor, the Project Manager shall issue a certificate for the value of the work done and materials ordered less advance payments received up to the date of the issue of the certificate and less the percentage to apply to the value of the work not completed, as indicated in the PCC.
Additional Liquidated Damages shall not apply. If the total amount due to the Employer exceeds any payment due to the Contractor, the difference shall be a debt payable to the Employer.
58.2. If the Contract is terminated for the Employer's convenience or because of a fundamental breach of Contract by the Employer, the Project Manager shall issue a certificate for the value of the work done, Materials ordered, the reasonable cost of removal of Equipment, repatriation of the Contractor's personal employed solely on the Works, and the Contractor's costs of protecting and securing the Works, and less advance payments received up to the date of the certificate."
8. According to these agreed conditions, where the contract is terminated because of fundamental breach of contract by the Contractor, the Project Manager shall issue the certificate for the value of work done and Materials ordered, less advance payments received up to the date of the issue of the certificate and less the percentage to apply to the value of the work not completed, as indicated in the PCC, and if the contract is terminated for the Employer's convenience or because of a fundamental breach of the contract by Employer, the Project Manager shall issue a certificate for the value of the work done, materials ordered, the reasonable cost of removal of equipment, repatriation of the contractor's personnel employed solely on the works and the contractor's costs of protecting and securing the works and less advance payments received up to date of the certificate. Thus, according to the plain reading of the agreed conditions of the parties, till issuance of the certificate by the Project Manager under GCC No, 58.1 or 58.2, the parties are not deemed to have any difference or dispute because the written agreed conditions of the contract cannot be treated as dispute or difference among the parties. Thus, in view of the conditions termed as GCC and PCC of the contract and peculiar circumstances of this case, in our considered view, difference or dispute among the parties will have to arise after issuance of certificate by the Project Manager, whether it is regarding nature of the termination of the contract, claims of the parties or damages etc. Unless and until the certificate is issued by the Project Manager, in the peculiar facts of this case, on termination of contract, none of the parties can claim to have difference or dispute in this regard. According to law, for initiation of proceedings, there must be dispute or difference between the parties. Our this view finds support from the case reported as BOC Pakistan Limited vs. National Gases (Put.) Limited [2013 CLC 767], wherein following principle law has been laid down:-- "10-I have no hesitation in my mind to hold that dishonoring of cheque is an independent cause of action particularly in the circumstances when neither the issuance of cheque is disputed nor its dishonoring and mere dishonoring of cheque due to insufficiency of funds does not create any dispute which is to be resolved through arbitration. When there is no dispute there is no arbitration and in view of this matter it would be Quite irrational and illogical to stay the proceedings and refer the matter to the arbitrator to resolve the dispute which is non-existent. No hard and fast rule can be laid down or line of demarcation can be drawn to say in what cases refusal can be made. Grant or refusal of stay is dependent upon peculiar facts and circumstances of each case. Court can make objective assessm ent and come to conclusion whether stay of legal proceedings (suit) could be granted or refused."
(underlining is ours) ' this regard another case reported as Novelty Cinema, Lyallpur vs. Firdaus Films and another [PLD 1958 (W.P.) Lahore 2081 is also helpful wherein it is observed as under:- "5. The second reason for the dismissal of this application is that it mentions no dispute. I have already experienced a difficulty in deciding some other cases under Section 34 of the Arbitration Act because in the application for stay the dispute was not specified. There seems to be a general impression that the dispute cannot possibly be specified in the application because the defendant is debarred from filing a written statement if he puts in an application for stay, and a statement as to what is the dispute will amount to the filing of a written statement. This is misapprehension.
When a person applies under Section 34 he has to satisf the Court is an agreement to refer and secondly that the suit relates to any matter agreed to be referred, that is there is a dispute between the parties agreement. Unless that is shown the suit cannot be stated. If a suit is filed on he which contains an arbitration clause, the mere fact that the defendant is not prepared to pay the amount to which he is liable under the...Agreement does not mean that there is a dispute between the parties. It is not necessary to guote authorities to show that a dispute does not mean simply a refusal to a mane for which a person is liable. A dispute is constituted by a proposition of fact or law being alleged by one party and denied by the other. The defendant must state, though not in detail, the matters which the other party alleges and which he denies or he alleges and the other party denies and the decision of which would affect the rights of the parties. When the defendant thus states the dispute, the Court will determine whether it falls under the arbitration agreement.
6. The fact that the defendant states the dispute in his application under Section 34 does not mean that he is putting in a written statement although he does state his own version of the facts or law.
This does not amount to the taking of a step in the proceedings so as to debar him from securing an order of stay. He is bound to state the difference or dispute in the application.
7. In the present case, the application does not mention the dispute at all. It simply says that as there is an arbitration clause in the agreement, the suit should be stayed. The application is, therefore, liable to be dismissed on this sole ground too. Of course, in view of the fact that on account of a misapprehension disputes are generally not stated in the applications under Section 34, I would have been prepared to consider an application for amendment of the application for stay but no such request has been made. This appeal is dismissed with costs."
(underlining is ours)
' This view stands further fortified from the case reported as Abid Ibal and 2 others vs. Export Processing Zones Authority through Chairman [2012 CLC 264].
9. It will also be useful to reproduce here Section 20 of the Arbitration Act, which reads as under:-- "20. Applicant to file in the Court arbitration agreement.--(1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.
(2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants.
(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show-cause within the time specified in the notice why the agreement should not be filed.
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. --_-
(5) Thereafter the arbitration shall proceed in accordance with and shall be governed by the other provisions of this Act so far as they can be made applicable."
' According to this statutory provisions, there are two important preconditions for filing an application; (i) the existence of arbitration agreement before institution of any suit with respect to the subject matter of agreement and (ii) difference relating to the subject matter to which the agreement applies.
10. In the light of hereinabove discussed facts, the conditions of agreement and law, in our considered view, the application under Section 20 of the Arbitration Act, by the respondent- contractor has been filed prematurely. This aspect has also not been properly resolved by the trial Court rather only GCC No, 24.1 has been considered which resulted into drawing a misconceived conclusion that there is no mechanism for the Contractor to approach the Project Manager. It appears that GCC Nos.
58.1 and 58.2 remained out of sight of the trial Court which resulted into drawing wrong conclusion.
Thus without attending these pre-conditions for initiating proceeding under Section 20 of the Arbitration Act, all the subsequent proceedings conducted are useless. Same like a perusal of the impugned judgment also reveals that the High Court has considered the merits of the case but despite being specifically agitated and argued, the fate of the case in the light of GCC 58.1 and 58.2 remained unattended by the High Court. In our considered view it goes to the roots of the case, hence, without its resolution the appreciation of other merits of the case or other material becomes, irrelevant.
11. Therefore, in this state of affairs, we are constrained to accept this appeal, set-aside the impugned judgments of the High Court as well as the trial Court by holding that the application filed by the respondents-contractor under Section 20 of the Arbitration Act, is pre-mature. The parties according to the agreed conditions first of all have to approach the Project Manager for issuance of certificate under GCC 58.1 and 58.2, and upon issuance of certificate, if any of them has any dispute, may adopt the legal course for redressal of its grievance.
' These are the detailed reasons following the short order passed by this Court on 19.6.2014.