PROGRESSIVE ENGINEERING ASSOCIATES Versus PAKISTAN STEEL MILLS CORPORATION LTD.

This is a petition (now treated as suit) under section 20 of the Arbitration Act, 1940 filed by the plaintiff on the basis of an agreement dated 9‑3‑1983.

2. The plaintiff was entrusted work of "Supply, Installation and Commissioning" (Electrical and Mechanical) by the defendant to be executed on the site of the defendant but, as alleged in the plaint, due to lack of cooperation on the part of defendant's management the site was not handed over to the plaintiff for a long time and in these circumstances tenure of contract was extended from time to time. It is the further case of the plaintiff that heavy machinery was imported and huge investments were made in the project by the plaintiff which was initially agreed to be completed by 30‑12‑1986 but later on extended up to 30‑6‑1987. However, according to the plaintiff the defendant without notice to the plaintiff and in an illegal and unauthorised manner abandoned the project. In these proceedings the plaintiff has prayed for appointment of Sole Arbitrator in terms of Article 20.4 of the abovesaid contract which reads as under:

"20.4. Any matter required to be referred to arbitration under section 19.2 hereof shall subject to section 20.3 hereof and in accordance with and subject to the provisions of the Arbitration Act, 1940 or any statutory modification or re‑enactment thereof for the time being in force be referred unless the parties concur in the appointment of a single arbitrator or two arbitrators (one to be appointed by each party to the dispute or difference) who shall by instrument in writing appoint art umpire immediately after they are themselves appointed. The parties shall be deemed to have filed to concur in appointing a single arbitrator if such an arbitrator shall not have been appointed within fourteen clear days after the service by either party on the other of a notice requesting him to concur in the appointment of such an arbitrator. If either party shall refuse or neglect to appoint an arbitrator for fourteen clear days after the other party having appointed his arbitrator has served the party making default with notice to make the appointment the party who has appointed the arbitrator shall be entitled to appoint that arbitrator to act as sole arbitrator in the reference."

3. I have heard Mr. Syed Zaki Muhammad, Advocate for the plaintiff and Mr. Mushtaque Memon, Advocate for the defendants. Besides arguing the case on merits, Mr. Mushtaque Memon has raised two legal objections on the maintainability. Firstly, that in view of Article 181 of the Limitation Act, 1908 this suit is time‑barred and, secondly, that for invoking section 20 of the Arbitration Act, one of the prerequisite is that there should be a dispute in existence amongst the parties which must be the subject‑matter of arbitration. In support of these two objections, he has referred to the following cases:

(i) Messrs Islamic Estates and Builders Ltd. v. Mirza Saeeduddin and another 1986 CLC 369;

(ii) Muhammad Abdul Latif Faruqi v. Nisar Ahmad and another PLD 1959 (W.P.) Karachi 465;

(iii) Tufail Muhammad v. Water and Power Development Authority 1985 MLD 1449;

(iv) M/s. Tata Iron and Steel Co. Ltd. v. M/s. Rajrishi Mineral Industries AIR 1979 Orissa 88;

(v) Vipinbhai R. Parekh v. General Manager, Western Railway, Bombay AIR 1984 Gujarat 41;

(vi) ? Messrs Friends Trading Co. v. Messrs Muhammad Usman‑Moula Bux PLD 1954 Sindh 56; and

(vii) Messrs Jamia Industries Ltd. v. Messrs Pakistan Refinery Ltd., Karachi PLD 1976 Karachi 644.

4. Mr. Syed Zaki Muhammad has argued that the time as provided under Article 181 will commence from the date of Annexure ' H' which is a notice dated 8‑5‑1990 and thus the suit filed on 14‑12‑1991 is within time. On the other hand, it is argued by Mr. Mushtaque Memon that the time as prescribed under Article 181 of the Limitation Act will start from the date the dispute arose and not from the date any legal notice was issued by the plaintiff. He has referred to Annexure ' E' filed with the plaint which is a notice dated 10‑11‑1988 through which the plaintiff has called upon the defendant to remove the grievances otherwise the plaintiff would invoke the arbitration clause. Mr. Mushtaque Memon has also referred to Annexure 'J‑1' which is a latter written by the plaintiff to the defendant on 5‑3‑1988. In para. 4 of this letter, the plaintiff has stated that if an amicable settlement is not effected within 15 days from the date of such letter, they reserved their right of taking their grievances to the concerned authorities and the Court of law. According to the learned counsel this letter suggests that there was a dispute pending between the parties much prior to the said date i.e. 5‑3‑1988 which dispute is similar to the present grievance of the plaintiff. He has also alternately pleaded that even if the date of first notice, Annexure ' E' (dated 10‑11‑1988) is to be treated as time of commencement; even then this suit is barred as it was filed after expiry of three years.

5. Mr. Syed Zaki Muhammad, Advocate for the plaintiff has strenuously argued that the dispute is still pending between the parties and, therefore, the suit is maintainable in law and that plaintiff is entitled to invoke section 20 of the Arbitration Act. On the other hand, Mr. Mushtaque Memon has referred to the "minutes of the meeting" held between the parties on 5‑8‑1991 under the direction of the learned Federal Ombudsman and contends that this is an agreement of final settlement between the parties and, therefore, at present there is no dispute between the parties. This situation is disputed by Mr. Syed Zaki Muhammad on the grounds that this is simply a "minutes of meeting" and not binding on the plaintiff and that there still exists dispute between the parties which can be subjected in arbitration proceedings. A close scrutiny of Annexure ' L' filed with the plaint, which minutes of the meeting, indicated that it has been signed by some four senior officers of the defendants as well as by the managing partner of plaintiff company. It has also been signed by the representatives of the Senior Engineer and the Contractor. This document further shows that several disputes/differences pending between the parties were amicably settled. Several claims by the parties against each other were either accepted or waived. As far as the status of this duly signed nun?tes is concerned, it is reflected in Annexure ' M' which is a letter dated 18‑11‑1991 written by the plaintiff to the defendant wherein the plaintiff has admitted that "the signing of the minutes of meeting were unanimously a consensus agreement made by all the concerned including Pakistan Steel". The said letter further states that the plaintiff simply waited for the progress of the first phase of the agreement for which 2/1/2 months' time was settled but they regretted that the said tenure had already lapsed yet no progress was made. It was further mentioned in the said letter that they do not know whether the concerned officials of Pakistan Steel are really sincere to implement the "agreement" and resolve the dispute. In view of this admission by the plaintiff, the argument that no binding and concluded agreement was reached in the meeting of 5‑8‑1991 and that there still exists dispute between the parties is not tenable.

6. Mr. Mushtaque Memon has referred to three reported judgments in support of his argument that existence of a dispute between the parties is a pre?requisite for the purpose of invoking jurisdiction of a Court under section 20 of the Arbitration Act, 1940. The first case is of Messrs Friends Trading Co. v. Messrs Muhammad Usman‑Moula Bux (PLD 1954 Sindh 56) wherein a learned Single Judge after referring to the cases (i) Dawoodbhai Abdulkader v. Abdulkader Ismailji (AIR 1931 Bombay 164), (ii) Uttam Chand Saligram v. Jewa Momoji (46 I.L.R. Cal. 534) and (iii) Shah Velchand Changanlal v. Lieutenant R.C.C. Liston (I.L.R. 38 Bombay 1914 page 638) held that the very essence of arbitration agreement and the condition for reference to an arbitration is existence of a dispute. To further support this view the learned Single Judge of this Court referred to the Halsbury Laws of English, Second Edition. Volume I-7622. Same view was held by Orissa High Court in the case of M/s. Tata Iron and Steel Co. Ltd. v. M/s. Rajrishi Mineral Industries AIR 1979 Orissa 88. Mr.Zafar Hussain Mirza, J. (as he then was) in a very illucid manner expressed the need for existence of dispute or difference as an essential condition for making a reference to the arbitrator. (See Messrs Jamia Industries Ltd. v. Messrs Pakistan Refinery Ltd., Karachi PLD~1976 Karachi 644. The relevant portion of the last reported case is reproduced as under:‑‑ .

"There can be no cavil against the preposition of law that the existence of a difference of dispute is an essential condition for making a reference to the arbitration, for, that constitutes a cause of action for an application under section 20, Arbitration Act. The Court, has, therefore, to be satisfied that a real question of differences has arisen before compelling the parties to submit to arbitration. A dispute implies an assertion of a right by one party and repudiation thereof by another. In other words materials for a lis as such must be shown to exist. Unless a dispute has developed which requires adjudication, there will be nothing to refer to arbitration. Further, the dispute must be real as the Court will not leave a mere pretence of dispute to arbitration for decision . . . . . "

7. No time limit is provided in the Arbitration Act, 1940 for filing of different applications or, references nor any provision is available in the Limitation Act, 1908 for such purpose. In such circumstances, Article 181 would apply as held in the case of Muhammad Abdul Latif Faruqi v. Nisar Ahmad and another PLD 1959 Karachi 465. For further reference see the case of Messrs Islamic Estates and Builders Ltd. v. Mirza Saeeduddin and another 1986 CLC 369 wherein a Division Bench of this Court comprising of Mr. Tanzeelur Rehman and Mr. K.A. Ghani, JJ. (as they then were) held that residuary Article of the Limitation Act i.e. Article 181 would attract for the purpose of filing an application under section 20 of the Arbitration Act, 1940. In the case of Tufail Muhammad v. Water and Power Development Authority 1985 MLD 1449 a learned Single Judge of Lahore High Court Mr. Muhammad Afzal Lone, J. (as he then was) has followed the rule laid down by this Court in the case of Karachi Shipyard and Engineering Works Ltd. v. Muhammad Aslam Khan PLD 1979 Karachi 635 and held that the period of limitation for application under section 20 of the Arbitration Act is three years as envisaged in Article 181 of Limitation Act. The case of Vipinbhai R. Parekh v. General Manager, Western Railway, Bombay AIR 1984 Gujarat 41 does not require discussion as it has followed the rule laid down by the Indian Supreme Court in the case of Damodar Valley Corporation v. K.K. Kar. (AIR 1974 SC 158) where somewhat similar question was raised before the Supreme Court of India that arbitration clause ceased to exist or is frustrated/terminated due to the acts of both the parties who were executants of such arbitration agreement. It was held as follows:‑‑

"8. In certain circumstances, it may be that there has been a termination of the contract unilaterally and as a consequence the parties may agree to rescind the contract. In such situation the rescission would put an end to the performance of the contract in future, but it may remain alive for claiming damages either for previous breaches or for the breach which constituted the termination .

?----------It is, therefore, clear that a dispute as to the binding nature of the contract cannot be determined by resort to arbitration, because as we have stated earlier, the arbitration clause itself stands or falls according to the determination of the question in dispute. It may be stated that the Privy Council had in Hirji Mulji v. Cheong Yue Steamship Co. (1926 AC 497) held that as the authority of a person claiming arbitral jurisdiction depends on the existence of some submission to him by the parties of the subject‑matter of the complaint, a contract that bas determined is in the same position as one that has never been concluded at all'. The observations of Lord Summer in that case as to the effect of frustration of the contract before its performance on the arbitration clause inasmuch as frustration operates automatically and the contract ceases to exist for all purposes say for the enforcement of claims vested before that date of which there were none. dissented from in Heyman v Darwins Ltd. 1942 AC 326 though Lord MaCmillan did not want to express any opinion on this question "

8. Mr.Mushtaque Memon has also argued that the arbitration clause in the agreement i.e. Article 20.4 is not attracted inasmuch as the petitioner is required to show that the so‑called dispute falls within section 19.2 of the agreement and that the arbitration clause can be invoked only when the dispute is subject to section 20.3 of the agreement. However, I would not like to deal with this argument as in view of the discussion on the abovesaid two legal points this suit is likely to be disposed of.

9. Article 181 of the Limitation Act, 1908 requires that the period of three years to file a petition will start running from the day when the right to apply accrues in other words, when the cause of action accrues to the plaintiff. Therefore, in my view the time limit would start running from the day when the dispute arose between the executants to the agreement and not from the day when a legal notice or any other communication is addressed by either party for the invoking of the arbitration clause. If the argument of the learned counsel for the plaintiff is accepted, than there could not be an end for the time to stop running under Article 181. Any party may issue a communication at ;Inv stage calling upon the other party for appointment of arbitrator (even after passing of three years) and then may set up a claim that such proceeding is maintainable as the time is to be reckoned from the date of such notice or communication. In my humble view this will frustrate the provision of Article 181 of the Limitation Act, 1908. The entire conduct of the party is to be considered for reckoning the period of limitation. No single act is sufficient to conclusively prove that when the time for filing such proceeding commenced and when it ended. Therefore, whatever date is accepted, either 10‑11‑1988 or 5‑3‑1988, I am of the opinion that the present petition/suit under section 20 of the Arbitration Act, 1940 was filed beyond the prescribed limitation period of three years. I am also of the considered view that in view of the settlement deed entered into by the parties on 5‑8‑1991 which was subsequently admitted by the plaintiff, there does not exist any dispute for the purpose of referring the same to arbitrator. At present, there may by same dispute in existence but it arises out of the settlement deed (Annexure ' L' to the plaint) which obviously cannot be the subject‑matter of arbitration under arbitration clause (20.4) as quoted earlier. Resume of the facts of the case sufficiently establishes that through their conduct, the parties have waived/superseded the provision of arbitration clause in the agreement dated 9‑3‑1983 which now stands frustrated/terminated and as held in the case of Damodar Valley Corporation (supra), the plaintiff is not entitled to invokes section 20 of the Arbitration Act, 1940.

10. As a result of the above discussion, this suit is liable to be dismissed with no order as to cost. Order accordingly.

A.A./P‑26/K ??????????????????????????????????????????????????????????????????????????????????????????????????? Suit dismissed.