JUDGMENT WAJIHUDDIN AHMED, C.J.- This is an appeal directed against the order dated 22.10.1996, passed by a learned Single Judge of this Court in Suit No. 588/1991, whereby the plaintiff's application for injunction (CMA 2563/1991) was dismissed for the reasons that neither prima facie case was established nor the plaintiff was likely to suffer irreparable loss in case of refusal nor did balance of convenience lie in the plaintiff's favour. The facts of the case are stated succinctly by the learned Single Judge as under: - "In this suit for injunction and in the alternative for declaration brought by the Trading Corporation of Pakistan (hereinafter referred to as T.C.P.), by way of aforesaid application, plaintiff seeks an order to restrain the defendants from seeking remedy for and proceeding with arbitration before Federation of Oil Seeds and Fats Association (hereinafter referred to as FOSFA) as there exists no binding contract between the parties.
2. Facts in brief leading to this suit are that by way of tender notice dated 19.2.1991 published in daily 'Dawn' dated 21.2.1991, T.C.P. Invited tenders for the supply of soyabean oil on C and F Karachi free out basis from eligible world-were sources, for import of one corgo of 26,000 metric tons plus/minus 5% at seller's option. According to the notice, suppliers were required to furnish along with their offers a bid bond in the form of Bank Guarantee on T.C.P.s prescribed proforma. As is usual in such cases, T.C.P.
Reserved the right to accept or reject any or all the tenders, partly or wholly without assigning or intimating any reason.
3. Defendant No. 1 carrying on business in Netherlands though their agent defendant No. 2 offered to sell soyabean oil at the rate of U S $ 65 per metric ton plus interest at the rate of US $ 23.90 for credit of 180 days and local agents commission of US $ 0.50 per metric ton. According to the plaintiffs, they communicated a conditional acceptance by telex dated 10.3.1991 which stipulated:- "(i) that a signed formal contract would be executed,
(ii) that defendant No. I would submit an acceptable performance bond for the due performance of the contract strictly in accordance with the prescribed proforma. Under clause 6(b) of the enquiry. Letter of Credit was to be opened by the plaintiffs within fourteen days from the date of signing of contract which was subject to the receipt of the bank guarantee for the purpose.
4. On 16.3.1991 defendant No. 2 submitted a signed contract form for itself on a performance bond which according to the plaintiffs was not in accordance with the tender enquiry. It is asserted that between 16th March and 31st March, 1991, the plaintiffs received several communications, one of them requesting certain changes in the Letter of Credit and others requesting early acceptance by opening of Letter of Credit as they expected the ship for carrying the commodity to berth for loading on or about 30/31st March, 1991. According to the plaintiffs performance bond was subject to compliance with the condition. "to keep this guarantee valid and in force for 90 days after completion of discharge of the contracted goods in Karachi."
Whereas the performance bond furnished by the defendants contained the additional words "Or 15th August, 1991, whichever date is earlier." On account of this addition, T.C.P. Regretted that due to their non-compliance strictly with the proforma of the performance bond supplied by them they had committed breach of the contract which stood cancelled now.
5. It is further the case of the plaintiffs that notwithstanding aforesaid telex, the defendants in defiance of their obligation to mitigate damages by not loading the ship, loaded the commodity on ship and after informing the plaintiffs that defendants were holding the plaintiffs in breach offered to sell commodity to the plaintiffs. Later defendant No. 1 communicated to the plaintiffs that it had purchased some consignment through M/s Pasternak and claimed damages in the sum of US $ 18, 31, 2500. Defendant No. 1 finally communicated to the plaintiffs a notice of arbitration by FOSFA London. Referring to arbitration in London in order to recover some amount of money from them which would be mostly, without jurisdiction and lead to multiplicity of legal proceedings in the absence of a binding contract, they filed this suit.
6. The T.C.P. Have prayed for an injunction in order to restrain the defendants from seeking remedy by arbitration before Federation of Oil Seeds and Fats Association London and in the alternative a declaration that no binding contract having been concluded between the parties, the defendants cannot seek and proceed with the arbitration proceedings before FOSFA London.
7. The defendants filed separate written statements wherein they denied the case of the plaintiffs in the plaint and explained the circumstances and the steps taken by the parties in furtherance of the contract which in fact make contract complete and concluded for all intents and purposes. It was denied that the performance guarantee submitted by them did not fulfil the requirements of law.
8. A counter affidavit was also filed to the aforesaid CMA disputing and denying various averments made by the T.C.P and more particularly pointing out that clause "13" of the contract expressly provided that the bid bond of successful tenderers will be returned on their furnishing performance bond acceptance to the T.C.P. And thus the scrutiny of the performance bond had to take place before the return of the bid bond which was returned to them. They further pointed out that the guarantee furnished by them contained a clause by which the Bank expressly agreed to extend it for such further period or period as may be required by the buyers in their sole discretion i.e days before the expiration of the validity date, it was urged that there was no limitation on the validity of the guarantee and even if it be assumed that the guarantee was not fully complaint with, the requirements of the tender, it was not open to the plaintiffs to unilaterally cancel the contract as they had accepted the guarantee. T.C.P. Also returned the bid bond to the defendants which was decisive by itself to conclude that the contract was concluded done. In fact the plaintiffs acted upon the contract by appointing M/s Thionville Surveying Company ISA, as Pre- shipment Inspectors. They had requested the defendants to supply the relevant information pertaining to the shipment which was conveyed to the T.C.P. By means of a telex dated 14.3.1991 stating that the vessel had been chartered by them by means of a chartered party dated 12.3.1991 and particulars asked for were actually supplied. T.C.P. Was further intimated that it was planned to start loading on or about It and 2nd April, 1991."
Examining the dispute, it becomes manifest that while the defendants- respondents were asking, time and again, for establishing of the letter of credit by the plaintiff-appellant, they were virtually eliciting no response. Yet, apparently, because the market had moved favourably for the defendants they were proceeding to make arrangements for the shipment of the consignment. In the ultimate analysis while no formal contract seems to have been concluded in spite of acceptance of offer through the plaintiffs telex dated 10.3.1991 conditional upon the following " "PARA TWO PLS SUBMIT PERFORMANCE BOND FR 3RD OF TOTAL CNF VALUE WITH 10 WORKING DAYS FM ACCEPTANCE OF YR OFR () YOU ARE REQUESTED TO FORMALIZE CONTRACT IMMEDIATELY (.) L/C B OPENED ONLY ON RECEIPT OF FORMAL CONTRACT N ACCEPTABLE PERFORMANCE BOND (.)
REGARDS" a performance bond from Banque Indosuez was submitted. In such performance bond in the original clause 2(ii), viz, "to keep this guarantee valid and in force for 90 days after completion of discharge of the contracted goods in Karachi" an additional phrase, namely, "or 15th August, 1991 whichever date is earlier" was inserted. Mr. Khalid Anwar, while arguing the case, pointed out that there was the under-noted other clause in the performance bond which covered the situation and made no difference whatsoever to the operative portion of the guarantee:- "(i.e) To extend this guarantee for such further period or periods as may be required by the Buyers in the Buyers sole discretion i.e days before the expiry of the validity date."
Be that as it may, the plaintiff per telex dated 31.3.1991, principally on the basis of the above alteration, maintained that the supplier had committed breach and cancelled the contract. The telex in extension is as under:- "REFERENCE YOUR TELEXT NO. 1/314 DATED 28.3.1991, No. 1/325 DATED 28.3.1991 AND NO. 1/351 DATED 30.3.1991. IT IS TRUE THAT WE DID INFORM YOU ON 21.3.1991 THAT ACTIONS FOR OPENING L/S WERE ALREADY IN HAND (.) THESE ACTIONS INCLUDED THE SCRUTINY OF THE DOCUMENTS SUCH AS PERFORMANCE BOND ETC. SUBMITTED BY YOU TO ASCERTAIN WHETHER OR NOT ALL THE TERMS AND CONDITIONS OF THE TENDER INQU IRY HAVE BEEN STRICTLY ADHERED TO BY YOU (.) REGRET TO INFORM YOU THAT YOU HAVE NOT ADHERED TO THE PROFORMA OF THE PERFORMANCE GUARANTEE ATTACHED TO THE TENDER INQU IRY (.) ACCORDING TO CLAUSE 10 OF THE TENDER INQUIRY, THE SELLERS WERE TO ARRANGE FOR PERFORMANCE BOND/BANK GUARANTEE FOR THE PERFORMANCE OF CONTRACT IN BUYER'S PRESCRIBED PROFORMA WITHIN TEN WORKING DAYS OF ACCEPTANCE OF OFFER (.) NOW WHEN WE HAVE SCRUTINISED THE PERFORMANCE BOND WE HAVE FOUND THAT YOU HAVE WITHOUT ANY AUTHORITY DEPARTURED FROM OUR PROFORMA BOND INASMUCH AS IN CLAUSE (ii) IT HAS BEEN MENTIONED THAT GUARANTEE SHALL REMAIN IN FORCE FOR 90 DAYS AFTER COMPLETION OF DISCHARGE OF THE CONTRACTED GOODS IN KARACHI "OR 15TH AUGUST, 1991 WHICHEVER DATED IS THE EARLIEST" (.)
THE ABOVE WORDINGS WITHIN COMAS HAVE BEEN ADDED BY YOU IN THE GUARANTEE (.) FURTHER ON THE FIRST PAGE OF THE GUARANTEE THE MATURITY DATE IS UNAUTHORISEDLY MENTIONED AS 15TH AUGUST, 1991 (.) WE REGRET THAT DUE TO YOUR NON-COMPLIANCE STRICTLY WITH THE PROFORMA OF THE PERFORMANCE BOND SUPPLIED BY US YOU HAVE COMMITTED BREACH OF THE CONTRACT AND THE SAME STANDS CANCELLED NOW (.) REGARDS."
2. On the facts stated, the learned Single Judge found that in spite of there being no formal contract and thus no formal arbitration clause the legal position remained unaffected. It is true, as the learned Single Judge has observed, that in arbitration agreement while such may be in writing need not be signed by the parties if circumstances go to establish that, formalities notwithstanding, there in fact subsisted I concluded arbitration agreement. While much the same may be true of contracts generally, a contract may yet be conditional or even contingent. We have carefully examined the plea of Mr. Khalid Anwar that clause (i.e) above reproduced covered the situation on the score of detriment, if any. However, we find that such clause has. Not been, inserted by the seller or its bank to cover the alterations aforesaid but was already there in the draft form. It will, therefore, remain to be seen whether the words "15th of August, 1991" inserted in two places (according to the learned single judge just one), as brought out by the buyer did not did not make a difference. It is by no means without precedent that such technicalities may be made capital of by parties and even bankers when that suits a defence. On the other had, it should remain to be seen whether the plaintiff for doing that it did was not entirely motivated by the falling market.
Furthermore, it is to be noted that the formal contract was never signed even though that was one of the conditions of acceptance of the offer by the plaintiff-buyer. All this throws open the question whether or not due contract had been concluded and if such contract was not concluded, as urged by the plaintiff, there can hardly be any question that the arbitration agreement itself for much the same reasons may not have stood concluded either. We may and here that nothing turns on the question that the plaintiff, as a last resort, chose to cancel the contract, rather than say that none was concluded. This is not the stage to determine that question. All that need be stated at this juncture is that it is not for the parties but for the Court to assess whether the contract was rescind or never materialised, the parties' conduct at best furnishing a clue in the direction of assessing the legal implications. In saying so, we are mindful of the fact that acceptance must correspond exactly to the terms of the offer (HUGH COLLINS: THE LAW OF CONTRACT p. 72) and there has to be CONSENSUS AD IDEM (STATE OF PUNJAB Vs. HINDUSTAN DEV., AIR 1960 Punjab 585). The person, to whom the tender is submitted, does not always incur liability merely by accepting it. At times, he becomes liable only when he places an order for the goods. The same is true where it is expressly stipulated that "there is to be no contract until certain formal documents have been executed" (TREITEL: THE LAW OF CONTRACT p. 20). There can be no specific performance unless there is a complete or definite contract (SNELL'S PRINCIPLES OF EQUIRY, 1947, at p. 557). The manner prescribed for acceptance of the proposal cannot be mere silence nor can, as an unexceptionable rule, silence simpliciter amount to an assent (DR. .M.A. MANNAN: THE CONTRACT ACT, 1872. Sec. 9 p.
81 and BANK OF INDIA Vs. RUSTOM FAKIRJI, AIR 1955 Bom. 419). An offer or has no power to cause the silence of the offerer to operate as an acceptance when the offerer does not intend to do so (CORBIN ON CONTRACTS Vol. I p. 310, 1963 Ed.). The Paminddin Rams for the appellant had contended like case.
3. It is nobody's case that any inherent power vests with the arbitrator to determine the existence or effect of an arbitration agreement much less such a determination of the larger agreement of which an arbitration clause may only be one of the clause.
4. Mr. Khalid M. Ishaque points out that a subtle distinction has been drawn by the Indian Supreme Court between the existence and validity of the main contract and an arbitration clause therein as reported in Korean Transport Vs. Jay a Bharat, AIR 1987 SC 2289 and it has been found that there is no bar in section 9 of the Code of Civil Procedure for entertainment of a suit seeking the validity or effectiveness of a broad contract determined of which the arbitration component is but one of the ingredients. The learned Single Judge was in error to hold that Awan Industries Ltd Vs. Ex.
Engineering Lines Channel, 1992 SCM R 65, is a deviation from the rule spelt out by the Indian Supreme Court. The case neither expressly nor impliedly lays down any other rule. On the contrary in BADRI NARAYAN V/s PAK JUTE, PLD 1970 SC 43, the Supreme Court of Pakistan referred with approval a passage in AIR 1959 SC 1357, where it was categorically observed that while dealing with an arbitration clause, pure and simple, in terms of section 33 of the Arbitration Act, the Court was not concerned with the other terms of the main agreement which lay beyond the scope and parameters of: Section 33 aforesaid. The applicable observations of their Lordships are as under:- "The provisions referred to above clearly permit a party to an arbitration agreement; to challenge the existence of such an agreement by filing an application under section 33 of the Act. Section 32 bars a suit no obtain such a relief. Two questions, therefore, fall for determination. It is firstly to be seen whether the appellant who denied to have signed the contract which contained the arbitration clause could i.e an application under section 33 of the Act. The other point which needs consideration is whether in the absence of an independent application under section 33 the existence of the agreement could be challenged by way of defence to the acceptance of the award by the Court for the passing of a decree in terms of it. The fact that the appellant denied to have signed the contract will not disentitle him to challenge it under section 33 as the words "any party to an arbitration agreement" in that section indued a party who is alleged to be a party to an agreement, but who challenges the existence thereof.
In the ease of Shiva Jute Baling Limited v. Hindley and Co. Limited (AIR 1959 SC 1357), the Supreme Court of India observed:- "The part of section 33 of the Arbitration Act, relevant for our purposes, lays down that any party to an arbitration agreement desiring to challenge the existence or validity of an arbitration agreement or to have its effect determined shall apply to the Court and the Court shall decide the question. It will thus be clear that section 33 contemplates an application for three purposes, namely, (i) when it is desired to challenge the existence of an arbitration agreement, (ii) when it is desired to challenge its validity and (i.e) when it is desired to have its effect determined. An arbitration agreement may come into existence in one of two ways; it may either arise out of an agreement which contains nothing else besides the arbitration agreement, or it' may arise out of a term contained in a contract which deals with various other matters relating to the contract, which is the present case. Where one is dealing with an arbitration agreement of the second kind, section 33 is concerned only with the term relating to arbitration in the contract and not with the other terms of the contract which do not arise for consideration on an application under that section."
We respectfully agree with the above observations, The only point that could be raised by the appellant under section 33 was whether the clause relating to the arbitration agreement existed.
Section 33 of the Act has nothing to do with the other terms of the contract which the appellant is said to have signed. It is true that the case of the appellant is that he never signed the agreement in question which contained the arbitration clause. Nonetheless his right to challenge the term relating to arbitration cannot be denied in view of the language of section 33 of the Arbitration Act.
The Arbitration Act of 1940 is a consolidating and an amending Act and is a complete Code in itself relating to arbitration save what is mentioned in section 47. The learned Judges of the High Court in holding that the remedy of the appellant lay in filing a suit when he challenged the existence of the contract itself have relied upon the decision of the Indian Supreme Court, reported in AIR 1959 SC 1357 to which reference has already been made by me. I have found no observation in that judgment which lends support to such a conclusion. The challenge of the appellant, of course has to remain confined to the arbitration clause in the agreement but in challenging the same I do not find any reason why he could not show that he had not signed the agreement and therefore the arbitration clause was non-existent. The view that I have taken finds support from the following observation made by Gajendragadkar, J., in the case reported as Jawahar Lal Barman v. Union of India (AIR 1962 SC 378):- "Even if it is held that there is inherent jurisdiction on the Court- to entertain an application in support of the existence of an arbitration agreement the question still remains whether an application can be made under such inherent jurisdiction for a declaration that the contract which includes the arbitration agreement as defined by section 2(a) includes cases where the arbitration is made a part of the contract itself. The argument is that though an application may be made under the inherent jurisdiction of the Court to obtain a declaration about the existence or validity of an arbitration agreement, no such application can be made to obtain a declaration about the existence or validity of the main contract itself. In dealing with this argument it would be necessary to have regard to the substance rather than the form of the matter. In the present case the respondent claims that there is a concluded contract between the parties and that the said contract contained a vlid arbitration agreement. Looking at the substance of the matter the prayer was first in regard to the existence and the validity of the main contract leading up to the second and principal prayer that there was a valid arbitration agreement. Quite clearly the decision of this question cannot depend merely on the words used in the petition. Where the challenge to the contract made by the appellant in defence to the claim of the respondent is a challenge common to both the contract and the arbitration agreement, the petition, like the one made by the respondent, must in substance be held to be a petition for a declaration as to the ' existence of a valid arbitration agreement; and a suit to obtain such a declaration is clearly barred by section 32.
Therefore, in our opinion, the fact that an incidental declaration is claimed about the existence and validity of the main contract does not affect the essential character of the application. It is an application for obtaining a declaration about the existence and validity of an arbitration agreement."
The declaration prayed for by the appellant that he had not executed the contract in question included the declaration that the arbitration agreement did not exist. A suit filed for such a declaration would be clearly hit by section 32 of the Act as the prayer for declaring the non- existence of the arbitration agreement cannot be made in a suit in view of the words "on any ground whatsoever", used in that section."
5. What, therefore, emerges from the above discussion is that section 9 of the Code of Civil Procedure does not bar a suit where the existence, effect or validity of a contract is questioned in which contract an arbitration clause is also incidentally included. Indeed such a broad contract cannot, as a whole, be challenged under section 33 of the Arbitration Act, though the arbitration clause therein separately may.
6. On our part, we called for the suit i.e and examined as to what action the" learned Single Judge has taken with reference to the following conclusion recorded by him in the impugned order:- "32. Before parting with this order, I would direct the issuance of notice to the plaintiffs to appear and to address this Court with regard to the maintainability of the suit in the present form."
We find that the learned Single Judge has lately drawn up the issues in the case and the main controversy is to proceed to trial.
7. Having said as much we are by no means convinced that no prima facie case, in other words, an arguable case was made out by the plaintiff. To this extent the conclusion of the learned Judge was erroneously recorded.
8. However, the foregoing does not and should not make any difference to a case of this character.
Even where a suit questioning the main agreement is brought and is found entertainable, notwithstanding an arbitration stipulation in- it, such suit in itself, as an interim measure should not be allowed to preclude arbitration proceedings in totality. It seems to us that notwithstanding such a suit the arbitration clause cannot be suspended or unreasonably whittled down solely because the main agreement is under challenge. If a party is disinclined to go to arbitration then, notwithstanding Such a general or broad based challenge with which the arbitration clause may stand or fall it must institute appropriate proceedings under section 33 of the Arbitration Act challenging the arbitration clause itself and unless that is done the arbitration proceedings cannot, as an interim measure, be allowed to be by-passed. That the plaintiff has not done, as was the requirement under section 33 of the Arbitration Act. It follows, therefore, that till such time the suit proceeds to trial and the entire contract is found either not to have been concluded duly or stood to have been lawfully cancelled and with it the arbitration clause, the parties have to go to arbitration, if anyone of them insists tor that course.
9. Indeed any other course may prove to be counter productive. It can hardly be disputed that a person, in default, solely to circumvent the quick and effective procedure of arbitration may embark upon a broader suit of the present category. The proceedings may be mala i.e and if an interim injunction is issued therein, precluding the arbitration, the fundamental intention of the parties may be put at naught and one of them may stand to suffer irreparable loss. None of this should occur if an interim injunction of the same kind were to issue on a summary challenge to the arbitration agreement under section 33 of the Arbitration Act. The detriment to the opposite number in such a situation can only be transitory since no protracted proceedings should thereby be generated; not necessarily so may transpire in a regular suit. There instead of interim relief the suiter must wait for the ultimate outcome. In case a suit of the instant character succeeds with such success the arbitration proceedings and even the award following thereupon, if any, would fall and if not the proceedings and the award can be given due effect to. If an award intervenes, while such suit still remains pending the suit can be expedited to ensure that justice is denied to none. Balance of convenience also lies in favour of allowing arbitration proceedings to take place and that process to commence and conclude without anyone being left as a sufferer in the process. It will be another matter though if both parties in such a suit agree to postpone the arbitration in which case, of course, a consent order to such effect can be passed. Similar should be the effect if the plaintiff in such a suit, instead of having a mere prima facie or arguable case has an indefeasible case to go to trial. There the elements of irreparable loss and balance of convenience would fall in place and an interim injunction may well be the choice relied for no useful purpose can be achieved by opening up an arbitration, where, for instance, the main agreement is void and where the arbitration at the inception itself, may be no more than still-born.
10. Having said as much, we are of the view that, as a general rule, in cases of this character since all the essential ingredients for grant of an injunction, namely, prima facie case, irreparable loss and balance of convenience cannot normally subsist conjointly, an interim relief in the way of injunction can neither be granted nor sustained.
11. For such reasons even though we think that the learned Single Judge was not entirely right in drawing the conclusion that hie did, he was perfectly justified in refusing to stay the arbitration proceedings. This appeal, therefore, fails but the out come of the arbitration would abide the result of the suit. The parties are left free to nominate their respective arbitrators.