1. ' The plaintiff has filed this application under sections 20 and 41 of the Arbitration Act praying that the arbitration agreement be filed and order of reference to the arbitrators be made in accordance with the agreement and the defendants be restrained from encashing the performance bond bank guarantee. Alongwith this petition an application under Order XXXIX, Rules 1 & 2 C.P.C. Has also been filed read with section 41 of the Arbitration Act praying that the defendant No.1 may be restrained from encashing the bond/bank guarantee issued by defendant No.2. Briefly the facts are that the plaintiffs entered into a contract with the defendant No.1 on 4-11-1986 in terms whereof the plaintiff agreed to supply 48,000 metric tons (+ -5% at seller option) of urea in bags confirming to the specifications set out therein in accordance with the terms and conditions contained in the contract. There see to be dispute between the parties in which the plaintiff complained that the letter of credit was not in terms of contract. The inaccuracies have been specified in paragraph 4 of the plaint which inter alia include the prohibition of part shipment, the stipulation that the bill of lading must be dated not later than 25-11-1986 and name of pre- shipment inspection agency was to be corrected. The plaintiff however shipped 26, 756.80 metric tons on board m.v. MONTANA which arrived at Karachi on 21st December, 1986. The defendant alleged that the time for completion should be reckoned from the date of origin letter of credit and therefore 30 days expired on December 5, 1986. According to the plaintiff due to defect in the letter of credit which was later on rectified by the defendant No.1, time of 30 days should be calculated not from the date of opening of defective letter of credit from 7-12-1986 when defects were removed. The plaintiff had furnished a performance bond through defendant No.2. The defendant No.1 demanded that a additional performance bond for the sum of US $ 145,000 should be furnished to it or alternatively it would deduct US $ 369,000 by way of penalty. This was not accepted by the plaintiffs. The first lot of shipment was unloaded upto 11-1-1987 and the defendant No.1 took possession on 14-1-1987 and lodged a demand on defendant No.2 for encashment of the bond. In these circumstances the plaintiff invoked the arbitration clause contained in the contract which reads as follows: - ' Any dispute or difference arising between the parties relating to or in connection with the contract shall be referable to arbitration by two arbitrators. Each party to appoint a person as an arbitrator on its behalf within 30 days from the date of receipt of notice invoking this Arbitration Clause by the other party to the contract. The Arbitrators before they enter on the reference shall nominate an umpire who shall adjudicate the matter in The provisions of Arbitration Act, 1940 and the Rules made thereunder shall be applicable to the arbitration proceedings. The venue of the arbitration proceedings shall be Karachi.'
2. ' By a telex message dated 17-1-1987 the plaintiff nominated its arbitrator and requested the defendant No.1 also to nominate an arbitrator so that the matter may proceed in accordance with the contract. The plaintiff alleged that in the facts and circumstances of the case as the defendant No.1 is not entitled to encash the bond it should be restrained from doing so. On 18-1-1987 the plaintiff filed this petition under Sections 20 and 41 of the Arbitration Act which has been registered as a suit.
3. ' The defendant No.2 has filed counter affidavit in which it has denied that any breach has been committed by it. It has been alleged that the plaintiff has failed to supply goods in terms of contract within the stipulated period. The part-shipment made by the plaintiff was accepted and taken possession of and price in respect of these goods has already been received by the plaintiff .
4. One of the objections of the defendant No.1 is that this petition is not maintainable as the plaintiff has already appointed its arbitrator. Although in the affidavit nothing has been stated about the appointment of the arbitrator by the defendant No.1, the learned counsel for the defendant has stated that the defendant No.1 has also appointed its arbitrator. T hP defendant No.2 has also filed its counter affidavit in which it has been stated that the performance bond was unconditional and therefore as the demand has been made by the defendant No.1 it is bound to pay the said amount which it has already realized from the plaintiff's banker.
5. ' I will now first take up the contention of the learned counsel for the defendant No.1 regarding maintainability of the main petition. As stated above the plaintiff served a notice dated 17-1-1987 appointing its arbitrator and calling upon the defendant No.1 to appoint arbitrator. On the next day i.e. 18-1-1987 the plaintiff filed the present petition under Sections 20 and 41 of the Arbitration Act.
6. First it is to be considered whether application under section 20 is maintainable. Applicability of section 20 of the Arbitration Act depends on satisfaction of three conditions namely (i) that the arbitration agreement has been entered into before any suit is filed with respect to the subject- matter to the agreement or any part thereof, (ii) that the difference has arisen between the parties to which the agreement applies and (iii) the proceedings under Chapter two of the Arbitration Act have not been commenced. In the present case the first two conditions seem to have been satisfied but the third condition, according to Mr. Mansoorul Arfin, the learned counsel for the defendant No.1, has not been complied with. Admittedly the plaintiff has appointed its arbitrator before filing this petition. The plaintiff has thus taken steps under Chapter II of Arbitration Act.
7. Chapter two of the Arbitration Act includes sections 3 to 19. Mr. Khalid Anwar, the learned counsel for the plaintiff has referred to Mohammad Akbar v. Punjab Province PLD 1974 Lah. 117 where the question for consideration was whether the Civil Court can under Section 41 (b) issue a temporary injunction when no proceeding is pending before it and reference to arbitration has also been made without the intervention of the Court. This judgment therefore does not refer to the controversy under consideration here viz whether the application under Section 20 is maintainable.
8. The question whether petition is also maintaibable under Section 41 shall be discussed later when this judgment will be considered. The learned counsel also referred to M/s. Soukat Raza v. Karachi Development Authority 1980 C.L.C. This case is also relevant only in sO far the question of maintainability of the petition under section 41 is concerned. Mr. Mansoorul Arfin the learned counsel for the defendant No.1 has contended that if a party has invoked the jurisdiction of the Court under Chapter two of the Arbitration Act it cannot file an application under Section 20 for filing of the agreement in court. This contention of the learned counsel is based mainly on the interpretation of Section 20 sub-section (i). The law has given an option to a party to the arbitration agreement that where difference has arisen between them to which the agreement applies either both the parties or any one of them may adopt the procedure provided under Chapter two of the Arbitration Act or may apply to the Court that the agreement be filed in court. These two remedies contemplate two different situations. Chapter two provides a comprehensive procedure for appointment of arbitrator without the intervention of the Court. In case where the party does not invoke the provision of Chapter two he is entitled to apply to the Court that the agreement be filed.
9. The effect of such proceeding is that the court after notice and hearing the parties and where no sufficient cause is shown, shall order the agreement to be filed and shall make order for reference to the arbitrator appointed by the parties in terms of agreement and if parties cannot agree for appointment of arbitrator the Court will appoint the arbitrator. In the present case the plaintiff has already invoked provision of Chapter two on 17-1-1987. The defendant No.1 could have appointed its arbitrator within 30 days from the date of notice invoking the arbitration clause by the plaintiff. The plaintiff therefore was not entitled to file application under section 20 of the Arbitration Act the next day. It should have waited till the expiry of the period required for appointment of arbitrator by defendant No.1 and in case it failed to do so the plaintiff should have taken steps as provided by the provisions of Chapter two. Section 20 (1) gives an option to a party either to proceed under Chapter two or apply to court that the agreement be filed in Court. Both these proceedings cannot be taken simultaneously. Having exercised its option to proceed under Chapter two, the plaintiff could not have filed an application under section 20 (1) for relief that the agreement be filed in Court. The next question is whether in these circumstances application under Section 41 is maintainable. Section 41 reads as follows:
41. Procedure and powers of Court. Subject to the provisions of this Act and of rules made thereunder--
(a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act, and
(b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court: ' Provided that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making order with respect to any of such matters.
10. ' The first part of this provision makes C.P.C. Applicable to all proceedings before the Court and appeal under the Arbitration Act. The second part further provides that the purposes of and in relation to arbitration proceeding the court shall exercise such powers and pass orders as specifed in the Second Schedule to Arbitration Act. The Court can pass interim orders for detention and preserving the property, custody or sale of goods, appointment of receive and grant interim injunction. Therefore it is section 41 (b) which requires interpretation. It is well settled that the order provided under second schedule can be passed only For the purposes and in relation to arbitration proceeding. Therefore whether an arbitration proceeding is pending, or not, in cases where any application under the Arbitration Act is moved in Court and is maintainable, the Court has power under Section 41 (b) to pass such orders as provided in the second schedule to the Act. An application under section 41 (b) can be filed in Court if proceeding before the arbitrator is pending.
11. In cases where no petition under the provision of the Arbitration Act has been filed or is maintainable and there being no arbitration proceeding before the arbitrator, application under section 41 cannot be filed. The question is what is the meaning of the word 'proceeding'. It was considered by Naimuddin J (as he then was) in M/s. Shoukat and Raza Limited Karachi v. Karachi Development Authority and others 1980 CLC 346 where after considering host of authorities and dictionary meaning it was observed as follows:- "According to the above meanings of the word 'proceeding', there cannot be any proceedings without there being an arbitrator or Court or authority being in existence to decide the claim or dispute and proceedings can be said to have commenced only when some action is taken before an arbitrator or Court or authority for example filing a statement of claim or dispute before an arbitrator or a plaint before a Court. In the instance case no arbitrator has yet been appointed and no reference has been made and therefore, it cannot be said that arbitration proceedings have commenced. Even if the respondents fail to appoint an arbitrator within the time mentioned in the notice served on them the applicant's remedy may be to file an application under section 8 or 20 of the Arbitration Act for appointment of an arbitrator or filing the arbitration agreement in Court and referring the dispute in accordance therewith."
12. ' In Asadullah Khan v. Karachi Shipyard Engineering Works 1979 CLC 625 Naimuddin, J. (as he then 'was) observed "therefore in the absence of appointment of arbitrator and filing of claim before him it is not possible to hold that any arbitration proceeding had commenced before filing of the present application". In the referred case, before the appointment of arbitration an application under section 41 of Arbitration Act was filed and interim order was sought restraining the Ship from directly or indirectly encashing the bank guarantee. After observing that no arbitration proceeding was pending the application was dismissed. Mr. Mansoorul Arfin has referred to A 1 R 1963 Cal.
594. This case and many other cases have been considered in the case of Shoukat and Raza Limited and it is not necessary to discuss it at this stage.
13. ' Now applying these principles to the present case 1 find that the etitioner had issued a notice a (Amin 7 arbitrator and before he expiry of the time during which the defendant No.1 could appoint is arbitrator the plaintiff filed this petition under section 41 of the Arbitration Act. There was no arbitration proceeding pending as the other side had not yet appointed its arbitrator within the period specified in the agreement. Respectfully following the dictum laid down in the aforesaid two cases in the absence of any arbitration proceeding pending and there being no other proceeding legally pending in Court as well, the petition under section 41 is not maintainable. The Petition is, therefore, dismissed, consequently the application for interim injunction is also dismissed.