' SH. AZMAT SAEED, J.---This Civil Appeal is directed against the judgment dated 01.4.2008 passed by the learned Lahore High Court, Lahore, whereby an Appeal filed by the Respondent under Section 39 of the Arbitration Act, 1940 against the Order dated 18.5.2002 was allowed and the Order impugned therein was set aside.
2. The brief facts necessary for adjudication of the lis at hand are that the Appellant i,e, Industrial Fabrication Company was awarded a contract by the Respondent i,e, Pak American Fertilizer Limited on 03.10.1996 and the work thereunder was completed and final bill submitted by the Appellant on 22.11.1999. Apparently, there was some issue about the quantum of the payment due against the Respondent and in the above backdrop, a letter dated 17.01.2000 was issued, by the Appellant addressed to the Respondent quantifying the amount due to them as full and final settlement. It is an admitted fact between the parties that such payments were received by the Appellant. Subsequently, after addressing some correspondence to the Respondent, the Appellant filed an Application under Section 20 of the Arbitration Act, 1940, hereinafter referred to as "the Act of 1940", alleging therein that the payment due under the contract dated 03.10.1996 had not been made to the Appellant and illegal deductions had been made. It is further alleged that the said agreement dated 03.10.1996 contained an Arbitration Clause i,e, Clause 37 thereof, which was invoked. It was prayed in the said Application that the Respondent be directed to file the agreement in the Court and an Order be passed, referring the dispute to the Arbitrators.
3. The Respondent resisted the said Petition, inter alia, by taking up the plea that the entire dispute inter se the parties was settled in terms of letter dated 17.01.2000 and, therefore, no dispute was outstanding, which could be referred to Arbitrator. After hearing the parties, the learned Trial Court seized of the matter vide Order dated 18.5.2002, accepted the Application filed by the Appellant by rejecting the objections raised by the Respondent and commenced the proceedings for the appointment of the Arbitrator in terms of Arbitration Clause i,e, Clause 37 of the Contract between the parties.
4. Aggrieved, the Respondent filed an Appeal before the learned High Court which was allowed vide judgment impugned dated 01.4.2008, whereby the Order of the learned Trial Court was set aside and the Application filed by the Appellant under Section 20 of the Act of 1940 was dismissed.
5. The learned counsels for the parties have been heard and the available record perused.
6. It is contended by the learned counsel for the Appellant that there was an admitted valid agreement dated 03.10.1996 between the parties, which contained an Arbitration Clause i,e, Clause
37. It is added that the dispute, as raised by the Appellant, was with reference to the work done by the Appellant under the Contract dated 03.10.1996, therefore, there was no occasion not to refer the matter to Arbitration in terms of Section 20 of the Act of 1940. It is further contended that the letter dated 17.01.2000 did not constitute a "sufficient cause" in terms of Section 20(4) of the Act of 1940 for not referring the matter to Arbitration and even otherwise, the said letter had been obtained from the Appellant by the Respondent by exercising coercion and undue influence and such coercion and undue influence was itself a dispute referable under Clause 37 of the Agreement.
7. The learned counsel for the Respondent has controverted the contentions raised on behalf of the Appellant by contending that the letter dated 17.01.2000 constituted a full and final settlement between the parties, whereby the Appellant undertook not to raise any further claim and, therefore, the Appellant was estopped from raising any claim for referring the same for adjudication through Arbitration. It is added that the validity of the letter dated.
17.01.2000 was never challenged by the Appellant nor the same formed a part of the dispute raised by the Appellant and as disclosed in its Application under Section 20 of the Act of 1940, therefore, the learned Appellate Court by way of the impugned judgment has rightly held that the said Application under Section 20 of the Act of 1940 was liable to be dismissed.
8. It is an admitted fact that a Contract dated 08.10.1996 was executed inter se the parties. The said agreement contained an Arbitration Clause" i,e, Clause 37. It appears from the record that prior to the final payment, a dispute arose between the parties as to the quantum of such payment. It is the case of the Respondent that the Appellant vide letter dated 17.01.2000 made an offer for final settlement of accounts, which .Was accepted by the Respondent and in terms thereof the payment was made by the Respondent and received by the Appellant. In the above backdrop, when the Appellant subsequently, invoked the jurisdiction of the learned Trial Court under Section 20 of the Act of 1940 for filing of the Arbitration Agreement and referring the matter for Arbitration in respect of its claim under the Contract dated 03.10.1996, the Respondent took up the plea that the dispute under the said Contract had been settled and thus, there was a "sufficient cause" in terms of Section 20(4) of the Act of 1940 for not passing any order.
' Sub-section (4) of Section 20 of the Act of 1940, reads as follows:--- "20. Application to file in Court arbitration agreement.
(1)..
(2)..
(3)..
(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)
9. The said provision of law came up for interpretation before the learned High Court of Sindh in the judgment, reported as M/s. Friends Trading Co. v. M/s. Muhammad Usman-Moula Bux (PLD 1954 Sindh 56), wherein the claim had already been adjusted through payment and it was observed as under:--- "It is well-settled law that an existing dispute is an essential condition for reference to arbitration.
This condition is as essential as a cause of action in a civil suit. Arbitration agreement is thus defined under section 2(a) of the Arbitration. Act, 1940."
10. The learned High Court of Sindh in the afore-said judgment, after examining the various judgments, reported as Dawoodbhai Abdulkadir v. Abdulkadir Ismailji (AIR 1931 Born 164), Shah Velchand Chhaganlal, v. Lieutenant R.C.C. Liston (ILR 38 Bombay 638) and Otani Chand Saligram v.
Jewa Mamooji (46 ILR Cal. 534) concluded as follows:- ' It is clear from the above authorities that there must be a dispute between the parties, an assertion of claim by one party and a denial of the same by the other relating to the matter about which an arbitration agreement exists between the parties. In the present case as I have already mentioned above there is nothing before me to controvert the allegations of fact supported as it is by documentary evidence, that there is no dispute between the parties regarding the contract."
11. In the case, reported as Oil & Gas Development Corporation Ltd., Pakistan v. Claugh Engineering Ltd. Through Legal Representative Mr. Marin Harris (1999 MLD 254), the learned High Court held as follows:--- ' ... If the Court finds that there is no dispute between the parties which requires resolution in accordance with the terms of the agreement certainly no reference shall be made to the arbitrator."
12. The Indian Supreme Court in the case, reported as M/s. P. K. Ramaiah and Company v.
Chairman and Managing Director National Thermal Power Corporation (1994 Supp (3) SCC 126) held as follows:--- "... Admittedly the full and final satisfaction was acknowledged by a receipt in writing and the amount was received unconditionally. Thus there is accord and satisfaction by final settlement of the claims. The subsequent allegation of coercion is an afterthought and a devise to get over the settlement of the dispute, acceptance of the payment and receipt voluntarily given. In Russell on Arbitration, 19th Edition, pg. 396 it is stated that "an accord and satisfaction may be pleaded in an action on award and will constitute a good defence". Accordingly, we hold that the appellant having acknowledged the settlement and also accepted measurements and having received the amount in full and final settlement of the claim, there is accord and satisfaction. There is no existing arbitrable dispute for reference to the arbitration. The High Court is, therefore, right in its finding in this behalf. The appeals are dismissed but in the circumstances without costs."
13. In the case of Nathani Steels Ltd. v. Associated Constructions (1995 Supp (3) SCC 324), it was held that:- "... Even otherwise we feel that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicably settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the Arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside..."
14. In the case of Damodar Valley Corporation v. K.K. Kar. (AIR 1974 SC 158), it was observed as follows:--- "... Where, therefore, the dispute between the parties is that the contract itself does not subsist either as a result of its being substituted by a new contract or by rescission or alteration, that dispute cannot be referred to the arbitration as the arbitration clause itself would perish if the averment is found to be valid. As the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed, the parties have no right to invoke a clause which perishes with the contract."
15. In the case, reported as Union of India v. B.C. Nawn (Bros.) Ltd. (AIR 1961 Cal. 630), it was held that where an original contract containing the arbitration clause is extinguished by a subsequent settlement in full and final satisfaction of the original contract, no dispute is left outstanding to be adjudicated upon through Arbitration.
16. However, there may be a distinct possibility that the factum, validity and effect of an alleged settlement or settlement agreement may be disputed by the opposite party. This aspect of the matter came up for consideration in the case of The Karachi Electricity Supply Corporation Ltd. v.
Consortium 2000 P.E.C.H. Society, Karachi (1986 CLC 1350), which approved and followed the view taken by the said Court in an unreported judgment passed in Suit No, 342 of 1967 titled as K.B. Haji Ishaque and Sons v. Province of West Pakistan, wherein it was observed as follows:--- "This claim does arise out of the contract.
' Whether it was foregone or waived is also a matter which relates to the contract. I am, therefore, clearly of the opinion that the present dispute is not outside the contract and is not excluded from the arbitration clause and, therefore, is a matter which should be referred to the arbitrator."
17. A similar view was taken in the judgment, reported as Manzoor Construction Co. Ltd. v. University of Engineering & Technology, Taxila (1984 CLC 3347 (Lahore)), wherein it was held as under:--- "... However, on the opposite side, the legal validity of this undertaking was itself being contested by the appellant-Firm. There was, therefore, clearly a dispute existing between the parties."
18. Reference in this behalf may also be made to the judgment, reported as Damodar Valley Corporation (Supra), wherein it was also observed as follows:--- "6. It appears to us that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising upon' or 'in relation to' or 'in connection with' the contract. These words are wide enough to cover the dispute sought to be referred. The respondent's contention is that the contract has been repudiated by the appellant unilaterally as a result of which he had no option but to accept that repudiation because if the appellant was not ready to receive the goods he could not supply them to him or force him to receive them. In the circumstances, while accepting the repudiation, without conceding that the appellant had a right to repudiate the contract, he could claim damages for breach of contract. Such a claim for damages is a dispute or difference which arises between him and the appellant and is `upon' or 'in relation to' or 'in connection with' the contract."
19. In the case of Union of India v. D. Bose and others (AIR 1981 Cal. 95), wherein it was held as follows:--- "14. In our opinion, the submission of 'No Claim Certificate' by the respondent to the appellant on the conditions mentioned hereinabove or in any event was a dispute within the ambit of the arbitration clause contained in the said contract and was a subject-matter for adjudication by the Arbitrator."
20. In the case, reported as Chairman and M.D., N.T.C. Ltd. v. M/s. Reshmi Constructions Builders and Contractors (AIR 2004 SC 1330), it was held as follows:--- "38. The fact-situation in the present case, would lead to the conclusion that the arbitration agreement subsists because:
(i) Disputes as regard final bill arose prior to its acceptance thereof in view the fact that the same was prepared by the respondent but was not agreed upon in its entirety by the appellant herein;
(ii) The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill, as prepared by the appellant, was accepted by the respondent unequivocally and without any reservation therefor;
(iii) The respondent herein immediately after receiving the payment of the final bill, lodged its protest and reiterated its claims.
(iv) .
(v) .
(vi) .
(vii) .
(viii)
(ix)
(x)
(xi) The cases cited by the learned counsel for the appellant (P.K. Ramaiah and Company (Supra and Nathani Steels (Supra)) would show that the decisions therein were rendered having regard to the finding of fact that the contract agreement containing the arbitration clause was substituted by another agreement. Such a question has to be considered and determined in each individual case having regasd to the fact situation obtaining therein."
21. Similar view was also taken by the Indian Supreme Court in the cases, reported as M/s. Bharat Heavy Electricals Limited Ranipur v. M/s. Amar Nath Bhan Prakash (1982 1 Supreme Court Cases 625) and Union of India and another v. M/s. L.K. Ahuja and Co. (AIR 1988 Supreme Court 1172).
22. An overview of the afore-said judicial pronouncements reveals that an existing dispute relating to a matter falling within the ambit of the Arbitration Agreement is a sine qua non for invoking the jurisdiction of the Court under Section 20 of the Act of 1940 and the absence thereof would be a "sufficient cause" in terms of sub-section (4) of Section 20 of the Act of 1940 for declining to direct filing of Arbitration Agreement. Where a claim is raised and finally settled through accord and satisfaction by payment or adjustment there would be no "existing dispute" requiring resolution through Arbitration. If the original contract is substituted through novation, lawful rescission or alteration the arbitration clause therein may also perish thereby precluding a reference to the Arbitrators.
' However, the factum of such final settlement may be disputed. Furthermore, the settlement being a sub-spicae of contract, its validity may be contested on the ground of having been obtained through exercise of undue influence or coercion, or on any other ground available under the law.
The acceptance of the settlement may be equivocal or "without prejudice" or substantial questions as to its true import meaning or effect may be raised by the opposite side. In such eventualities, a dispute arising from the contract would exist requiring adjudication by the forum chosen by the parties i,e, Arbitrators and appropriate orders in this behalf may be passed under Section 20 of the Act of 1940, provided such dispute has been raised and is before the Court seized of an Application under Section 20 ibid.
23. The facts and circumstances of this case must necessarily be examined in the context of the afore-said statement of law. The defence of the Respondent is based upon an averment that the dispute was raised and was settled through an offer made by the Appellant vide letter dated 17.01.2000, and such offer was accepted and payment made and received by the Appellant. The contents of the said letter are reproduced hereunder:--- "IFC/PAFL-881/00/P61B 17.01.2000 ' The Managing Director ' Pak American Fertilizers Limited ' ISKANDARABAD.
' Subject: FINAL BILL FOR ABOVE GROUND PIPING WORKS AT PAFL.
' Dear Sir, ' This has reference to our Final Bill No, IFC/PAFL-841/99/P61B, dated 22.11.1999 for Above Ground Piping Works Contract at PAFL Modernization & Expansion Project.
' In Order to have our bill settled, we hereby confirm:
(1) That final value Of work done, calculated at Rs, 121,609,852/- is hereby agreed to be as full and final claim for the subject contract and additional works attached thereto.
(2) That we accept that the above value of Rs, 121,609,852/- is in final settlement of all our previous claims raised against the subject contract and additional works attached thereto. Any claim not included in above amount is hereby withdrawn.
(3) That the payable amount after adjusting for the Performance Guarantee Money calculated at Rs, 4,947,706.12 is hereby agreed and accepted by us. As full and final payment against the Above Ground Piping Works Contract and additional works attached thereto.
(4) We further undertake that after receiving the cheque for Rs, 4,947,706.12 as explained in para-3 above, and an amount of Rs, 12,070,252.00 as a security/retention money, we have no further claims on Pak-American Fertilizers Limited against the Above Ground Piping Works contract and additional works attached thereto.
' Now kindly release our outstanding payments within a day or two to enable us to survive.
' Thanking you, we remain, ' Yours faithfully, ' for INDUSTRIAL FABRICATION COMPANY Sd/- ' MANAGING DIRECTOR"
24. In this behalf reference may be made to the impugned judgment and the stand taken by the Appellant before the learned High Court. The relevant paragraphs are reproduced as under:--- "13. During the course of arguments, the learned counsel for the Respondent is asked that whether the cheque as claimed by the Appellant was received by the Respondent/company or not, the plain answer was yes.
14. The next question was asked by the Court that whether the claim was raised before the Appellant after one and a half year of receiving the cheque, the answer was yes.
15. The next question was asked to the learned counsel for the Respondent/company that whether the letter dated 17.1.2000 whereby a sum of Rs, 17017958/- was accepted by the Respondent/ company as full and final payments of its final bill dated 22.11.1999 under the contract for erection of above ground piping was written by the Respondent/company or it was a forged document, the answer was that it was the company's letter and there is no question of any forgery.
16. The next question was whether the alleged undue influence exerted by the present Appellant was ever complained before any competent forum; the answer was in the negative."
25. A perusal of letter dated 17.01.2000 reveals that the Appellant had quantified the final value of the work under the Contract and a full and final claim including for additional work' was made. The settlement offered by the Appellant was clear and unambiguous, without any reservation and was not "without prejudice". Its authenticity was acknowledged and admitted before the learned High Court as is evident from the judgment impugned. The amount as identified was admittedly paid to and received by the Appellant. Thus, the claim raised by the Appellant was fully and finally settled by the Respondent leaving no existing dispute.
26. After the receipt of the payment in terms of letter dated 07.01.2000, the Appellant directly addressed various letters to the Respondent, including letters dated 17.01.2000, 26.01.2000 and 11.12.2000, the copies whereof are available on the file. A perusal of the said letters reveals that the factum and validity of the latter dated 17.01.2000 has not been challenged nor it has been alleged that the said letter was the outcome of undue influence or coercion as is being urged now.
Subsequently, various notices were issued on behalf of the Appellant by their Legal Advisors to the Respondent, including notices dated 13.02.2001, 22.03.2001, 25.04.2001, 08.05.2001 and 31.05.2001, the copies thereof are also available on record. An examination of the said notices also shows that the allegations of undue influence and coercion with regard to the letter dated 17.01.2000 are conspicuous by their absence. Eventually, the Appellant filed an Application under Section 20 of the Act of 1940, before the learned Trial Court. In the said Application, no allegation whatsoever with regards to the letter dated 17.01.2000 was made. It was not contended therein that the said letter was invalid or otherwise not binding upon the Appellant.
27. In the above circumstances, it is clear and obvious that a claim had been raised by the Appellant with regards to the original Contract dated 03.10.1996 vide letter dated 17.01.2000. The said claim was by way of a full and final settlement and was admittedly paid off by the Respondent. The said final settlement was not contested by the Appellant in its correspondence addressed subsequently to the Respondent, nor any grievance in this behalf, was raised in the Application under Section 20 ibid filed by the Appellant. Thus, the claim raised stood finally settled and no dispute qua such settlement was raised before the Court. In the circumstances, there was no "existing dispute" between the parties, hence, there was a "sufficient cause" for not directing the filing of the Arbitration Agreement as has been correctly held by the learned High Court vide judgment impugned and there is no legal justification for interfering therewith.
28. The afore-said are the detailed reasons of our short Order dated 11.12.2014, which is reproduced hereunder:- "After hearing the arguments of the learned counsel for the parties, for the reasons to be recorded separately, this appeal is dismissed."
' High Court Judgment Upheld/.