' The Applicants Messrs Alfa Constructing Company were awarded a contract by the respondents Messrs National Motors Ltd. For the Construction of a mosque at A/3-S. I. T. E., Karachi, by way of an agreement, dated 18th April, 1977. During the progress of the work there were some differences between the parties over the execution of the work. After exchange of correspondence, the applicants invoked arbitration clause in the agreement and in pursuance thereof called upon the Managing Director (The defendant No, 2) of the defendant No, 1 to enter upon arbitration in the dispute and give award. It is alleged that the Managing Director declined to enter upon the arbitration. The applicants have, therefore, made this application under section 8 of the Arbitration Act, 1940 for filing in Court the agreement containing the arbitration clause and appointment of an arbitrator.
2. The respondents have filed objections to resist the application on the ground that no dispute had arisen between the parties as to attract the arbitration clause in the agreements and, moreover, no proper reference was made to the arbitrator to adjudicate upon any dispute between them. They have contended that the application is time-barred.
3. The learned counsel for the parties have projected the case of the parties represented by each of them. Mr. Tanweer Ahmed, Advocate for the appellants has urged that there was dispute between the parties over the performance of the contract and it could be resolved by way of arbitration as per paragraph No, 71 of the agreement and the arbitration clause was invoked by letter, dated 20th May, 1980 addressed to the Managing Director of the respondent to act as arbitrator and determine the differences having arisen in the performance of the contract.
According to him, the Managing Director turned down their request on the ground that there was no dispute between the parties in the terms of agreement vide letter, dated 28th August, 1980. He also made reference to further correspondence by it the applicants with the Managing Director of the defendant No, 1 contained in letter, dated 9th September, 1980 and 15th October, 1980. On the other hand Mr. Iqbal Ahmed Advocate for the respondents has contended that the applicants raised dispute by introducing the question of escalation of prices which lay outside purview of the agreement and could not be adjudicated upon under arbitration clause. He next contended that there was no proper reference to the arbitrator for entering upon arbitration. His formidable contention was that the application was time-barred as, according to him, the applicants had notified the alleged dispute by letter, dated 16th May, 1977 and the present application under section 8 of the Arbitration Act, 1940 was filed on 20th October, 1982 i. e. After more than five years, whereas the time of limitation prescribed under article 181 of the Limitation Act is three years. In this context he has relied upon PLD 1972 SC 123.
4. It appears from the documents placed on the record that the agreement for performance of the contract was executed on 18th April.
1976. On 6th May, 1977, the applicants addressed a letter to the respondents that the change introduced in specifications by the respondents called for the revision of the rates approved for the specified items of the material. The applicants were informed by letter dated 20th May, 1977 that their representation was receiving consideration. Revision in the rates was partly agreed to by the respondents as per communication, dated 31st December, 1977. The applicants made further representation by letter, dated 19th January, 1977 for increase in rates due to the escalation of prices. Their representation was turned down by letter, dated 4th April, 1978. They made further representation. This representation did not find favour with the respondents and, instead, the applicants received a notice, dated 26th April, 1978 that the respondents would take over physical possession of the work on 6th May.
1978. The applicant yet received another notice, dated 27th April, 1978 that they should pay damages to the respondents for failing to execute the work. The applicants made reply by letter, dated 7th May, 1978 repudiating the allegations of non-performance of the contract. Ultimately, the applicants invoked arbitration clause in the agreement and called upon the Managing Director of the respondents, the sole arbitrator, by letter, dated 20th May, 1980, . To settle the dispute and differences by way of arbitration. They were informed by the Managing Director (defendant No, 2), by letter dated 28th August, 1980, that their letter did not disclose- existence of any particular differences or dispute and branded their reference as misconceived and untenable. The applicants addressed another letter, vide 9th September. 1980 to the Managing Director to enter upon the arbitration proceedings. However, the Managing Director of the respondents maintained the same attitude and declined by his letter dated 15th October, 1980 to enter upon arbitration into the alleged dispute. The applicants then corresponded with respondents vide their letter, dated 13th February, 1982 that the arbitrator named in the agreement had "refused! Neglected" to arbitrate into the matter that they may refer the matter to him, else they would get an arbitrator appointed through Court of law. They filed this application on 20th October, 1982.
5. It would appear from the chronological events mentioned above that dispute between the parties embedded roots somewhere in May, 1977 as reflected the applicants first letter i.e. 16th May, 1977 and it culminated as actionable dispute on 6th May. 1978 when the respondents physically took over the unfinished work after informing the applicants by way of notice, dated 26th April, 1978.
The applicants made reference to the sole arbitrator by their letter, dated 20th May, 1980. Their correspondence with the arbitrator concluded on 15th October, 1980 when the arbitrator finally declined to enter upon arbitration. Accordingly, these two events viz. The taking over of the works by the respondents on 6th May, 1978 and refusal of the arbitrator to enter upon arbitaration by letter, dated 15th October, 1980 are the turning points for determination of the question of limitation.
6. The applicants have filed a photostat copy of the extract of clause 71 of the agreement which reads as under :- "71. All disputes and differences of any kind whatever arising out of or in connection with the Contract or the Carrying out of the works (whether during the progress of the works or after their completion and whether before or after the determination/abandonment of the Contract) shall be referred to and settled by Managing Director of N. M. L. Karachi, who shall be the sole judge and arbitrator and shall state his decision in writing, such decision may be in the form of a final certificate or otherwise and shall be final and conclusive and both the parties agree and undertake to abide by the same.
' Such reference shall not be entered upon or opened until after the completion or alleged completion of the work or until after the practical cessation of, the works arising from any cause unless with the written consent of the Employer and the 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 works by reason of any such matter, question or dispute being referred to the Sole Arbitration but shall proceed with the work with all due deligence and shall until the decision of the. Sole Arbitrator be given abide by the decision of the Consultant and no award of the Sole Arbitrator shall relieve the Contractor of his obligations to adhere strictly to the Consultants instructions with regard to the actual carrying out of the works. The employer and the Contractor hereby also agree that Arbitration under this clause shall be contention precedent to any right of action under the Contract."
' It is apparent from the text of the arbitration clause that resort to the arbitration proceedings could be had after the completion or alleged completion of the work or until after actual cessation of the work. As such, the arbitration clause could not be invoked earlier than 6th May, 1978 when the work was physically taken over by the respondents. The applicants invoked the arbitration clause on 20th May, 1980 when they called upon the sole arbitrator in the agreement to enter upon arbitration. The arbitrator finally intimated the applicants by his letter, dated 15th October, 1980 that he would not enter upon the arbitration. The present application has been filed under section 8 of the arbitration act which, inter alia, provides that where an appointed arbitrator neglects or refuses to act, anybody may serve the other party, as the case may be with a written notice to concur in the appointment of another arbitrator and in case the other party does not give concurrence an application may be made to the competent Court for making appointment of an arbitrator. In the instant case, the eventuality for approaching the Court under section 8 of the Arbitration Act arose when the arbitrator declined on 15th October, 1980 to enter upon arbitration. The applicants have put on record a copy of notice by them to the respondents dated 13th February, 1982 for giving their concurrence to the appointment of an arbitrator. This application under section 8 of the Arbitration Act was filed on 20th October, 1980. It would thus appear that the application was made after four years five months and fourteen days of the cessation of the contract by taking over of the work by the respondents ; and after two years and five days of the refusal by the arbitrator to enter upon the arbitration ; and after eight months and seven days of the notice to the respondents for their concurrence for the appointment of another arbitrator. There is no specific provision in the Limitation Act to provide the period of limitation in such cases. As such, residuary article 181 in schedule one of the Limitation Act would come into play and there is direct authority of Supreme Court on this proposition of law cited as M. Imamuddin Janjua v. Thal Development Authority (1).
The period of limitation provide under this article 181 is three years from the day the right to apply accrues. In this case, the right to the applicants to apply to the Court for substitution of an arbitrator under the provisions of section 8 of Limitation Act accrued where the arbitrator named in the agreement notified, on 15th October, 1980 his refusal to enter upon arbitration. As such, the application was filed within the period of limitation of three years prescribed under article 181 of the Limitation Act. The preceding period did not run against the prescribed period of limitation. This view was adopted in a case Karachi Shipyard and Engineering Works Ltd. v. Muhammad Aslam Khan (2).
7. As regards the other contention of the respondents that there was no dispute between the parties as to attract the arbitration clause, it was stipulated vide clause 66 of the agreement that the prices and unit rates were not liable to be changed due to fluctuation in the prices of material or 'B labour rates etc. But the dispute between the parties was not confined to only the escalation of prices but it also involved change of specifications and other matters and there was dispute between the parties within the terms of the agreement. The case does contain the requisite material required for invoking arbitration clause as highlighted in the case Messrs Jamia Industries Ltd. v. Messrs Pakistan Refinery Ltd. (3).
8. For the reasons recorded above, the respondents are directed to file in Court within a week the agreement containing the arbitration clause and the dispute is referred for arbitration to Mr. Justice (Rtd.) Z. A. Channa, ex-Judge of this Court.
9. Arbitration fees are tentatively fixed at Rs, 10,000 (ten thousands) which shall be deposit in the first instance by the applicants and the question of its apportionment by the parties shall be determined later.
(1) PLD 1972 SC 123 (2) PLD 1979 Kar. 635
(3) PLD 1976 Kar. 644