KHALIL-UR-REHMAN KHAN, J.- This petition for leave to appeal arises out of an application under section 20 of the Arbitration Act, 1-940 invoking the arbitration clause contained in Agreement for Sub-Contract works of Lahore By Pass Project dated 10.7.1994 for reference of the dispute pertaining to the outstanding amount of Rs. 60,28,261,00 to Arbitration under clause 42 of the aforesaid contract. This application was resisted by the petitioner, inter alia, with the plea that there was no agreement subsisting between the parties for reference of the dispute to Arbitration and as such the application merited dismissal.
2. Learned Civil Judge, Lahore, after hearing the arguments of the parties overruled the objection of the petitioner vide order dated 8.10.1996 holding that the application is maintainable and directed the parties to nominate their arbitrators. This order was assailed before the High Court in appeal which is dismissed vide impugned judgment dated 8.4.1997. Hence this Petition for leave to appeal.
3. Learned counsel in support of the petition argued that, front the commencement of work under Agreement of sub-contract, certain dispute arose between the petitioner and M/s. Crescent Services/respondent No. 1, particularly regarding exact entitlement of the said respondent for work executed under the said sub-contract and as the efforts of the parties to resolve the dispute did not succeed and it was not possible to continue with the work, the contractual relationship was terminated by signing a termination agreement on 22.6.1995. it was added that oil signing of the Termination Agreement, the sub-contract agreement stood novated and substituted with the said Termination Agreement. It was contended that the Termination Agreement does not contain any arbitration clause and as such the arbitration clause contained in the superseded sub-contract agreement did remain no longer available for seeking reference to the Arbitration of the alleged dispute. Consequently, the application under section 20 of the Arbitration Act was not maintainable and the learned Courts below have erred in directing the parties to nominate their respective arbitrators for decision of the dispute through Arbitration.
4. Learned Civil Judge repelled these contentions by recording reasons with which the learned Judge of the High Court agreed by giving further reasons. Learned Judge of the High Court in the impugned order held that there is a clear nexus between the two agreements (the sub-contract agreement dated 10.7.1994 and the termination agreement dated 22.6.1995) and both have to be read together to discern the intention of the parties and that the disputes arising under the original agreement dated 10.7.1994 were to be sorted out with reference to the mode agreed upon therein can be easily spelt out from the relevant clause of the agreement dated 22.6.1995. The aforesaid conclusion concurrently arrived at by the Learned Courts below is well founded as will appear from the discussion below.
5. The sub-contract Agreement dated 10.7.1994 contains the Arbitration clause as follows: -
42. Settlement of Disputes: Any and all disputes arising out of, or relating to this Agreement shall first be settled amicably. If this should prove not to be possible, within 28 days after one of the parties request to this effect then the dispute may be referred by either party to arbitration of three arbitrators, one to be appointed by each party, and the third Arbitrators the Umpire to be appointed by the two arbitrators. The Umpire's decision shall be final and binding on the parties. The Arbitration shall .Be held in Lahore in accordance with the Arbitration Act ,1940, and the cost of arbitration shall be borne in accordance with the arbitral award. Arbitration shall be a precondition to any action at law.
Termination Agreement relied upon by the Learned counsel for the petitioner is available at page 61 of the Paper Book and the same is reproduced hereunder in extenso:- with reference to the agreement for sub-contract works of Lahore By-pass Project, concluded between STFA Construction Co. And Crescent Services, dated July 10, 1994. On this day of June 22.
1995, the parties decided and agreed that:
1. The parties mutually agreed to terminate the sub-contract as of June. 22, 1995.
2. Payment to Crescent Services against works executed by them upto June 22, 1995 will be as follows: 2.1. Amount due to Crescent against works approved and paid by the NHA will be 'cleared within (7) seven days following the signing of this agreement by both parties (amount net after deductions as noted 0n summary sheets of- progress certificates previously forwarded to Crescent).
2.2 Amount not certified and paid by the NHA yet, will be paid to Crescent Services within (7) seven working days following corresponding payment made by the NHA or (7) seven days following signing of this agreement by both parties, whichever latest-30 % of LPC 8 (March), IPC 9 (April), IPC 10 (May).
2.3 A joint site inspection and survey will be made within a week the for the purpose of final measurement and evaluation of total works executed by Crescent upto June, 22, 1995. During the same site inspection any incomplete items of work and/or defective works if any Will also be recorded and evaluated.
Difference if any on the total amount of work, compared to IPC 10 will be paid to Crescent together with IPC 10.
3. Crescent Services will evaluate the full R.O.W. And hand over the site and record books (survey, tests etc.) to STFA within (7) days after this agreement and any of his facilities still remaining beyond R.O.W. After this date will not create any obstacle to STFA.
4. Crescent Services remain responsible in .Financial and legal grounds by indemnifying STFA against any damages or accidents he may have caused to the third Parties during' the works undertaken by him and against any claims from the landowners, and third Parties and - Government Authorities during the same period.
5. Once the parties fulfil their obligations with reference to- item (2) (3) of this-Agreement, it will be automatically presumed that both the Parties have cleared their accounts with reference to their rights and obligations through the sub-contract agreement of July 10, 1994.
6. The release of cash withholding of 10% against performance security and 5% against retention is decided to be a subject of separate discussions and agreement. The release of performance and retention, (after deductions if any against item 2.3) will be made to Crescent Services during October, 1995. No revision of Crescent Service sub-contract rates will be made by STFA against nonperformance of intersections sub-grade, during evaluation referred in item 2.3.
6. A perusal of the aforesaid clauses would show that the same can only be understood and applied by making reference to the provisions of subcontract agreement. One of the clauses (clause 5) of the termination agreement says that once the parties fulfil their obligations with reference to items No. (2) and (3) of the termination agreement, it will be automatically presumed that both the parties have cleared their accounts with reference to their rights and obligations through the sub-contract agreement of July 10, 1994. It Is, therefore, apparent that termination agreement is to be implemented with reference to rights and obligations secured to the parties under sub-contract agreement dated 10.7.1994. The later agreement though provides that the parties would no longer continue to work under the subcontract any further but the mechanism to assess and pay for the work already executed has also been provided. Thus, the work which had been executed is to be assessed, evaluated and paid for in terms of provisions of the sub-contract agreement dated 10.7.1994. In these circumstances it is idle to urge that the subcontract agreement stood novated and substituted with new arrangement altogether in complete suppression of the previous sub-contract agreement. Learned Judge was, therefore, right in concluding that there exists a clear nexus between the two agreements and both have to be read together to find out the intention of the parties. Reference with advantage may be made here to the case of Wade-Grey v. Morrison (1877) 37 L.T. (N.S.) 270). In that case there were two contemporaneous agreements, one of which contained, though the other did not, a reference to arbitration, and the learned Judge decided that those two agreements must be treated as together forming one agreement, and that the arbitration clause consequently must be taken as applying to both. Reference may also be made to the case of Messers Nawab Brothers Limited, Karachi v. Project Director, Office of the Project Director, Special Projects. Planning and Development Department, Karachi and another (1981 CLC 638), a judgment of High Court of Sind, Karachi, by pur learned brother Nasir Aslam Zahid J. As he then was, wherein after noticing various judgments, the question whether a subsequent agreement does, or does not, wipe out the previous agreement, was examined and it was held that where both the agreements are to be read together to form a complete subsisting contract, the original is not wiped out and will remain in full force subject to terms of second agreement, and arbitration clause in dispute is not superseded in subsequent agreement as it continues to remain binding between the parties. Another judgment of Mr. Justice Noorul Arfin of the High Court of Sind, Karachi, in the case of Karachi Shipyard and Engineering Works Ltd., Karachi v. Messers General Iron and Steel Works Ltd. (PLD 1971 Karachi 501) may also be referred to as in this case the parties entered into a contract whereby the defendants had to fill and supply to the plaintiffs steel structural including short length angles. As per the agreement concluded between them the supplies were made, out of which fifty tons of short length angles were rejected by the plaintiffs and the defendants were asked to replace these angles immediately. But they had no steel billets in their possession. It was alleged that the plaintiffs loaned 51/1867 metric tons of M.S. Billets to the defendants, which were returnable to the plaintiffs on receipt by them of their consignment from abroad but the defendants in fact did not return the M.S. Billets. The plaintiffs then brought a suit for return of the M.S. Billets and in the alternative for payment of its price amounting to Rs. 72,613,80 at the rate of Rs. 1400,00 per matric ton. The stay of the suit was sought by submitting application under section 34 of the Arbitration Act, 1940 on the contention that the contract between the parties provided for adjudication of the disputes between them by arbitration. This was resisted with the plea that the suit was based not on the original contract but on the defendants promise made towards the end of January, 1969 to return the M.S. Billets loaned to them by the plaintiffs and this promise constituted a new contract between-the parties which was not covered by the arbitration clause of the contract. This plea was repelled with the observation that defendants promise to return the M.S. Billets can in no way be said to constitute a new contract or even to modify the provisions of the original contract as the requisite quality had in fact been supplied which was rejected. If that is so, the dispute between the parties is covered by the arbitration clause and even if it be assumed that the original contract stood novated or modified by defendant's promise to return the M.S. Billets rather than adjust its price against the contracted items, this would not lead to the abrogation of the arbitration clause which contained very broad and wide terms that the disputes between the parties were essentially connected with the original agreement. Hence, on the alleged modification or novation of the contract, the arbitration clause would survive. The cases where despite the frustration of the contract or the repudiation of the contract the arbitration clause was held to survive and apply, noted in this case were Hymen and another v. Darwins, Ltd. (1942 A.C. 356) and Finn Karam Narain Daulat Rant and another v. Messers Volkart Bros, and another (AIR 1946 Lah. 116) in which it was held that arbitration clause in a contract Can be regarded as a tiling apart from the main conditions of a contract and in other words, die arbitration clause is severable from the remaining contract and would survive fruition of the contract itself. The same view was followed in the case of Woolf v. Collis Removal Service (1948 ) 1 K.B.
11. The Calcutta decision in the case of Rungtu Sons (Private) Ltd. v.
Jugametal Trg. Republike and another (AIR 1959 Cal. 423) also provides the instance wherein the arbitration clause was held not to have been superseded even if die parties substituted the new contract for the old contract or entered into new arrangement which, in fact, modified or novated the terms of the old contract.
7. The position obtaining in the instant case is that the fulfilment of the obligation mentioned in the Termination Agreement is only possible by following the terms contained in the Sub-contract agreement dated 10.7.1994 and any dispute arising in respect thereof has to be settled by the mode of decision i.e. Arbitration provided therein. It is, therefore, obvious that the conclusions recorded by the learned Courts below are justified and interference as such is not called for leave to appeal is, therefore, refused and the petition is dismissed.