1. ' By this application under sections 31 and 33 of the Arbitration Act, 1940 the petitioner seeks the determination of the question whether any arbitration agreement exists between the parties and in the alternative the application mainly seeks declaration that the arbitration agreement between the parties does not cover the disputes or differences alleged to have been arisen and purported to be referred to arbitration by the respondent.
2. ' In order to consider the prayer made in the application it is necessary to state briefly. Certain facts leading to making of this application, which are as follows :- ' The petitioner by an agreement dated 13th May, 1965 entitled as the Dispensing Pump and Soiling Licence appointed the respondent, in his firm's name Tahir All and Sons, as dealers to run a Petrol Pump situated at Liaquatabad, Karachi and owned by it and to sell Petroleum products on the terms and conditions contained therein. The terms include that (1) the premises and the facilities provided in the premises shall, during the subsistence of the licence, remain in the sole possession of the petitioner and no part of the facilities would be removed by the respondent ; (2) the licensee would not sell, mortgage, hypothecate, charge, assign and transfer, grant licence to any person or Company or otherwise deal with the premises and the facilities, nor would allow anyone to use the same except the duly authorised licensee; (3) the licence would be terminable by either party upon giving to the other not less than 30 days' notice in writing to expire at any time of its intention to terminate it and upon the expiration of any such notice the licence shall stand cancelled and revoked but without prejudice to the rights of either party against the other in respect of any matter or thing, antecedent to such termination. The term further provides that the requisite period of notice may be reduced or waived by mutual consent. Notwithstanding the above conditions, the agreement further provides the petitioner shall be at liberty to revoke the licence forthwith upon or at any time after the happening of any of the events mentioned in clause (12) of the agreement. In case of differences or disputes, the agreement in clause (16) thereof provides :- "If any question or difference or dispute of any nature shall arise between the parties hereto touching these presents or the construction thereof or the rights, duties, obligations, outstanding's of any nature under the said presents or as to any other matter in any wise arising out of or connected with the subject-matter of these presents, the same shall be referred to two Arbitrators one "to be nominated by each party to the reference. If either party shall refuse or neglect to appoint an Arbitrator within fifteen days after the one party shall have appointed an Arbitrator and served a written notice upon the other party requiring him to appoint an Arbitrator, then upon such failure the party making the request and having himsef appointment an Arbitrator may appoint another Arbitrator to act on behalf of the party so failing to appoint and the Arbitrator so appointed may proceed and act in all respects as if he had been appointed by the persons failing to make such an appointment. 1 he arbitrators shall within seven days after their appointment and before entering upon the business of the said reference appoint an Umpire in writing to whom the matters and disputes shall be referred if the Arbitrators disagree, and if they fail to appoint an Umpire within the said period. The Chairman or the acting Chairman for the time being of the Karachi Chamber of Commerce and Industry Karachi shall appoint the such Umpire. The Arbitrators and Umpire acting under these presents shall have the powers conferred by the Arbitration Act or any statutory modification thereof for the time being in force and these presents shall be deemed to be a submission or arbitration within the provisions of the said Act. The decision of the Arbitrators if they agree and in case of their disagreement the decision of the Umpire shall be final and binding on the parties."
3. ' The respondent continued to work as dealer under the agreement without any difficulty till 12th June, 1978 when he, by his letter of the same date informed the petitioner that he was not able to look after the petitioner's interest competently and he was not in a position to run the dealership and requested the petitioner to agree to the appointment of Sabir All as dealer of the petitioner in his place. However, the request of the respondent was turned down by the petitioner by its letter dated 19th June, 1978, and the respondent was informed that if he did not have any intention to carry Out the dealership for some reason he was at liberty to resign from the dealership and was further informed that resignation would not be converted into accepting his nominee as the dealer of the petitioner. The letter further informed that the petitioner would arrange to make its own arrangement in regard to reorganization of its dealership and it had no intention to accept any nominees for such matters. This letter appears to have been followed by another letter dated 19th September, 1978, informing the respondent that due to non-compliance of instructions contained in the letter the petitioner had no option but to stop the supply of petrol to him with immediate effect.
4. ' It is the case of the petitioner that thereafter on or about 20th September, 1978, it received a letter dated 31st December, 1978, from the respondent stating that due to his old age and ill-health he surrendered the dealerhip in favour of Sabir Ali.
5. ' The petitioner has annexed to the application a photostat copy of the sale agreement dated 8th November, 1976 between the respondent and Sabir Ali whereby the respondent agreed to get the dealership or in other words the Dispensing Pump and Selling Licence transferred by the petitioner in favour of Sabir Ali for a consideration of Rs, 1,00,000.
6. ' According to the petitioner it came to know of the agreement in suit filed by Sabir Ali against the respondent in the Court of XVIII Civil Judge, Karachi, in October, 1918, wherein the petitioner was made a party.
7. ' On the other hand according to the respondent this letter was delivered by him to Sabir Ali at the time when he entered into the agreement dated 8th November, 1976 and was to be presented to the petitioner alter three months from the date of the agreement.
8. ' It is further the case of the petitioner that on receipt of letter dated 31st December, 1978, whereby the respondent had resigned from the dealership, by the letter dated 1st ' January, 1979 accepted the same with effect from the same dispensing with 30 days' notice under clause (12) of the agreement and requested the respondent to arrange to band over the company's properties, equipment's to its representative Mr. M. Ismail Yousuf. I think it would be useful if the aforesaid two tenets are reproduced hereinbelow in extenso. Karachi 31.
12. 1978.
9. "To, The Divisional Manager, MIS. Pakistan Burman Shell Co. Ltd., Southern Area, Keamari, Karachi, ' Sub : Transfer of dealership Dear Sir, ' With due respects, I beg to submit that I am the Dealer of Pakistan Jturmah-Shell Co. Ltd., vide Agreement of Licence dated 13th May, 1965.. Due to my old age and ill-health I wish to surrender my Dealership in favour of Mr. Sabir Ali son of Haji Babu, resident Of "8/490, Liaquatabad, Karachi", which may kindly be accepted. Thanking you, Sir, Yours faithfully, for M/S. Tahir Ali and Sons Sd/- Tahir Ali, Proprietor.
10. SAO/KY-24.
11. "Mr. Tahir Ali, Tahir All & Sons, Pakistan Burmah Shell Dealers, Liaquatabad, Karachi.
12. Dear Sir, ' Dealership-Tahir Ali & Sons, Liaquatabad, Karachi.
13. ' We are in receipt of your resignation dated 31st December, 1978 today, and hereby accept it with effect from today waiving 30 days' notice under clause 12 (a) of our Dispensing Pump & Selling Licence.
14. ' Please arrange to Land over company's property/equipments to our District representative Mr. Muhammad Ismail Yousuf today.
15. ' Please note that you are liable to pay to us the amount of outstanding against you, if any in our books. Yours faithfully, for Pak istan Burmah Shell Limited (sd.) Md. Azhar Khan."
16. ' It appears that thereafter the respondent through his Advocate Mr. Abdul Hussain S. Motiwala, served a notice dated 11th January, 1979, informing the petitioner that he has appointed Mr. Ghazi Nasiruddin, Vice-Presi- dent, Federation of Pakistan Chambers of Commerce and Industry, Bellasis Street, Karachi to be the arbitrator on his behalf to settle by arbitration in pursuance of the proviso in that behalf contained in the Indenture dated 13th May, 1965, the following disputes : "(i) due to your ex parte and arbitrary action resulting in grant of the licence of Dispensing Pump and Selling. Of your products in favour of Mr. Sabir Ali son of Babu and further
(ii) on 7th January, 1979, you have taken forcible possession of our client's plot bearing City Survey Challan No, ST-4 Opposite, Super Market, Karachi thereon he was running the same Petrol Pump till his dispossession."
17. ' By the same letter the Advocate of the respondent requested the petitioner to appoint an arbitrator to decide the aforesaid disputes within a period of 7 days from the date of service of the notice failing which the Advocate of the respondent informed that his client would appoint another arbitrator to act on behalf of the petitioner. The petitioner by its letter dated 16th January, 1979, addressed to the Advocate for the respondent informed him that the appointment of the arbitrator was not only . Uncalled for, unwarranted, but also illegal as the licence was already revoked and cancelled and the possession of the petrol pump was voluntarily and willingly handed over by the respondent to Sabir Ali against valuable consideration, also denying the allegation that the possession was forcibly taken and further denying that there was any dispute or disagreement between the parties.
18. ' It appears that on failure of the petitioner to appoint its arbitrator the respondent appointed Mr. Zia G. Shaikh, Advocate as arbitrator on behalf of the petitioner.
19. ' The case of the respondent in brief is that he has not written the letter dated 31st December, 1978 to the petitioner. According to the respondent this letter was undated and was handed over to Sabir Ali for its presentation to the petitioner after 3 months as . Mentioned in clause (x) of the agreement between the respondent. And Sabir Ali. His further case is that he was in possession of the Petrol Pump site till .He was dispossessed on or about 7th January, 1979.
20. ' Having stated briefly the case of both the parties now I proceed to examine the contention of Mr. Noor Muhammad Advocate for the petitioner.
21. ' Mr. Noor Muhammad has raised three-fold contentions. The first contention is that by the letter of respondent dated_31st _December, 1978 and the letter of the petitioner dated 31st January, 1979 the agreement dated 13th May, 1965 stood terminated and cancelled by mutual consent. His second contention is that in view of the termination and cancellation of the agreement, the arbitration clause also stood terminated and Cancelled, and therefore, no dispute whatever may he its nature, could he referred to arbitration. The third contention is that the disputes raised by the respondent in his letter dated Ilth January, 1979 are not covered by the arbitration clause and that the dispute with regard to the possession does not exist.
22. ' On the other hand, it is submitted by Mr. A. F. Motiwala that the 'respondent never cancelled or terminated the agreement dated 13th May, 1965 and, therefore, the question of cancellation of the arbitration clause does not arise. He, otherwise contended that even if it is held that the arbitration agreement dated 31st May, 1965 stood cancelled, still the arbitration clause services and the disputes mentioned in the letter dated 31st December, 1978 and those mentioned in letter dated 1 1 th January, 1979 could be referred to arbitration under the arbitration agreement and that the disputes are covered by the arbitration clause.
23. ' With regard to the first submission Mr. Noor Muhammad relied on the letters of the respondent dated 31st December, 1978 and petitioner's reply dated 1st January, 1979. Those letters have already been quoted in extenso here before. It is submitted that by the letter dated 31st Decernber, 1978 the respondent had resigned and the resignation was accepted by the letter of 1st January, 1979. No doubt the petitioner in its letter had stated that it, thereby accepted the resignation from the date thereof but the respondent by this letter had not resigned but he had only expressed his wish to surrender his dealership in favour of Sabir Ali and requested the petitioner to accept his request. On the language of the letter of the respondent, it is not possible to say that he had resigned from dealership in clear terms. In my view the respondent had expressed only a wish to surrender the dealership in favour of Sabir Ali and requested the petitioner to accept Sabir Ali as its dealer. It was open to the petitioner to accept the request or not to accept the same. If the petitioner was not prepared to accept Sabir Ali as its dealer and licensee it could have said so and then if the respondent had stated that he did not wish to continue with the dealership then it could terminate the agreement in the manner provided in the licence. What the petitioner purported to accept was not offered to him. Manifestly, the parties do not appear to be ad idem as to the contents of the letter dated 31st December, 1978. Therefore, it cannot be said that Dispensing Pump and Selling Licence was terminated by mutual consent. In any event this dispute also could be referred to arbitration for the arbitration clause is couched in very wide terms.
24. ' In support of his second contention that the arbitration -agreement also stood cancelled on termination of the agreement dated 13th May, 1965, Mr. Noor Muhammad has relied upon a Single Bench decision of the Calcutta High Court in Union of India v. Kishorilal Gupta & Bros.. In this case there were three contracts between the respondents and the applicants and under each of the contracts the respondents supplied raw material and the three contracts were later cancelled.
25. However, much after the 'cancellation of the contracts the parties entered into a separate fresh settlement contract whereby the respondents agreed to .Pay to the Government of India certain amount. One of the terms of the settlement contract read that the original contract stood finally concluted in terms of settlement and no party would have further or other claim against each other. Pursuant to the settlement contract the respondents paid certain amount and defaulted in payment of the balance amount. Thereafter, the Government referred their claim under all the three contracts to arbitration by appointing their arbitrator, and called upon the respondents to nominate their arbitrator and on respondents failure to do so, the Government appointed a sole arbitrator. Thereupon one of the partners of the respondents applied to the Court for a declaration that the arbitration clause had ceased to exist. The application was dismissed on technical ground and on award being filed, the objection that there was no arbitration agreement was repeated. It was held that the original contract had ceased to exist in view of the subsequent settlement contract and, therefore, the award was set aside. Here I may reproduce some pertinent observations made in paragraph 32 of the report :- "32. The arbitration clause is distinct from the other clauses in the contract. "It is collateral to the substantive stipulations of the contract. It is merely procedural and ancillary. It is a mode of settling disputes It. Depends on there being a disspate or difference in respect of the substantive stipulation."
26. ' Per Lord wright in - Heyman v. Darwins Ltd. 1942 A. C. 356 at p. 377 (k) Total breach of the substantive stipulations even when it is accepted by the other party does not abrogate the arbitration clause and even the party in default may invoke that clause :-- 1942 A. C. 356 at p. 376- 79 and 400 (k)'. But the parties are not bound to have recourse to arbitration. They may settle the disputes directly and agree not to invoke the arbitration clause for that purpose. The arbitration clause ceases to exist with reference to the disputes which are thus settled. They may also enter into a substituted agreement in complete supersession of the original contract and thereby abrogate the contract and the arbitration clause contained in it."
27. ' This case was taken to the Supreme Court of India by way of Petition for Special Leave to Appeal and the judgment of the Calcutta High Court was upheld and the case is reported as Union of India v. Kishorilal Gupta & Brothers. Mr. Noor Muhammad particularly relied upon the following observations of the Supreme Court which appear in paragraphs 10 and 11, at pages 1370 and 1371 of the report :- "10.-The following principles relevant to the present case emerge from the aforesaid discussion : (1) an Arbitration clause is a collateral term of a contract as distinguished from its substantive terms ; but nonetheless it is an integral part of it. (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with the contract, (3) the contract may be non-last in the sense that it never came legally into existence or it was void ab initio ; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substituted a new contract for it solely governing their rights and liabilities thereunder; (5) in the 'former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for alongwith the original contract, it is also void; in the latter case, as the original contract is extinguished by the substitute one, the arbitration clause of the original contract perishes with it ; and (6) between the two fall many categories of disputes in connection with a contract. Such as the question, of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it.1 2 As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes."
28. "11.-We have held that the three contracts were settled and the third settlement contract was in substitution of the three contracts ; and after its execution, all the earlier contracts were extinguished and the arbitration clause contained therein also perished alongwith them. We have also held that the new contract was not a conditional one and after its, execution the parties should work out their rights only under its terms. In this view, the judgment of the High Court is correct. This appeal fails and is dismissed with costs."
29. ' It will be seen from the facts of the case and the above-quoted observations that in the settlement contract it was provided that the original contract stood finally determined and no party would have any further claim against the other. Therefore, there was full accord and satisfaction of the original contracts. In view of this clause it was held that the arbitration clause contained in the original contract had ceased to exist for no dispute under the original contract had arisen which could be referred to arbitration. The principles laid down in two paragraphs relied upon by Mr. Noor Muhammad cannot be disputed but in the present case there was no accord or satisfaction or mutual termination of the Dispensing Pump and Selling Licence. In fact the observations made by the Indian Supreme Court help the respondent in that even if the contract comes to an end, the contract still remains in existence for certain purposes in respect of disputes arising under it or in connection with it and since the contract subsists for certain purposes the arbitration clause operated in respect of these purposes.
30. It is by now well-settled that once it is found that there was a contract, then although the contract might have come to an end by reason of frustration or rescission of breach of condition or by being A. Avoided for fraud or misrepresentation or coercion, the arbitration clause already survived. If any precedents are needed reference can be had t Radhakishan Chawla v. General Construction Co. and Pan-Islamic Steamship Company Ltd. v. Messrs General Imports and Exports Ltd.. In the last named case reliance is placed on an earlier decision of this Court in Hoosen Brothers Ltd. v.
31. Pakistan Textile Mills Ltd..
32. ' Reliance can also be placed upon the opinion of Viscount Simon L. C. In Hayman v. Drawins Ltd. which is a House of Lords case wherein inter alia, it was observed at page 367 of the report as follows:- "I do not agree that an arbitration clause expressed in,such terms as above ceases to have any possible application merely because the contract has "come to an end." as, for example, by frustration. In such cases it is the performance of the contract that has come to an end. The doctrine of discharge from liability by frustration has often been explained as flowing from the inference of an implied term, and. In giving my opinion on the occasion of the recent decision of this House in Joseph Constantine S. S. Line Ltd. v. Imperial Emelting Corporation. Ltd. (1941) 2 All E. R.
33. 165 at page 171 (C). I expressed the view that the most statisfactory basis upon which the doctrine can be put is 'that it depends on an implied term in the contract of the parties.' If, therefore, when parties have entered into a contract, circumstances arise before the performance of the contract is completed which, in the view of one party, bring the contract to an end by frustration, and, therefore discharge both praties from further performance, but the other party does not agree, this is a difference about the applicability of the implied term, and is just as much within the arbitration clause as if it were a difference about an express term of the contract. There is a previous decision of this House which establishes .This proposition. I refer to Scott and Sons v. Del Sel (1923) SC. (HI)
34. 37) ................................................................ Ft ' The House of Lords case cited above has been followed by a Division Bench of Calcutta High Court in the case of Chandanmull Jhaleria and others v. Clive Mills Co. Ltd. And other and by a Full Bench of Lahore High Court consisting of Harries, C. J., Abdul Rashid, Ram Lal, Beckett and Mahajan, JJ. In3 4 5 6 7 Firm Karam Narain Daulat Ram and another v. Messrs Volkart Bros. And another I may here quote the relevant observations of Mahajan, J. Which appear at page 133 of the report :- "Moreover, in its very nature an agreement made between the contracting parties to refer their disputes to arbitration arising out of -the contract cannot be said to be an integral part of the contract of sale as defined in the Sale of Goods Act. That Act is not concerned with the forum -in which disputes arising out of a sale contract are to be settled. The essence of this agreement is that the parties agreed to nominate a Judge of their own choice to settle their differences if and when they arise. In substance, therefore, such an agreement is an independent agreement and cannot be held to be an integral part of the contract of sale. The observations of their Lordships of the Privy Council in 1926 A.C. 497 that the arbitration agreement could not survive if the contract of sale which was executory in its nature frustrated can have no application to the case of rescission which results from a contractual re-sale brought about owing to the default of one of the contracting parties."
35. ' In the present case it will be seen that arbitration clause is in a very wide term. It provides that any question, or difference or dispute of any nature arising between the parties, touching the terms of the licence of the contents thereof or rights, duties, obligations, outstanding of any nature under the said terms of licence could be referred to arbitration. Therefore, the question whether the licence was properly terminated or not and whether the possession of the Petrol Pump site was always with the petitioner as contended by it or was with respondent as contended by him and in support of which allegation the respondent has relied on paragraph 16 of the counter- affidavit filed by the Law Officer of the petitioner in the civil Court in the proceedings initiated by Sabir Ali, could be referred to arbitration.
36. ' Having dealt with the first two contentions, I now proceed to examine the third contention.
37. ' In the present case the disputes referred to arbitration are the granting of licence in favour of Sabir Ali and forcibly taking possession of the petrol pump. So far as the first dispute is concerned the same is not in my opinion, covered by the arbitration clause. However, the second dispute namely, taking forcible possession of the plot is in my view, covered by the arbitration agreement but the question whether the petrol pump always remained in possession of the petitioner or in possession of the respondent has to be gone into by the arbitrator if referred to him, and it is not for this Court to give a finding in these proceedings, on such a question.
38. ' However, I have noticed that the respondent by the letter dated 11th January, 1979 required the petitioner to nominate its arbitrator within 7 days from the service of the notice. This notice is neither in record within the provisions of the arbitration clause 16 which requires a notice of 15 days nor is it in accord with the provisions of section 9 (b) of the Arbitration Act, 1940. Therefore, the appointment of second arbitrator is illegal.
39. ' For the reasons given above I hold that the arbitration clause exists and the dispute covered by that clause could be referred to arbitration in the manner provided therein.
40. ' Accordingly, the application is allowed to this extent only that the appointment of the second arbitrator namely, Mr. Zia G. Shaikh is declared to be not according to law.
41. ' In the circumstances of the case the parties are left to bear their own costs. A 1 R 1953 Cal. 642 AIR 1959 SC 1362 AIR 1947 Sind 57 PLD 1959 Kar. 750 PLD 1954 Sind 1 1942 L C 356 AIR 1948 Cal. 2S78 1 2 3 4 5 6 7