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Suit No. 127 of 1960, decided on 4th February 1966.

, Ss. 8(2) & 28‑Arbitration Court's refusal to enlarge time under S. 28 or to appoint arbitrator under S. 8(2)‑Does not result in supersession of arbitration agreement.

Abdul Halim Khan v. Chairman, Lahore Improvement Trust P L D 1949 Lah. 278; P. S. Sabnani v. Impex (India) Ltd. A I R 1954 Born. 309; Mian Muhammad Allah Bux v. Universal Corpora tion P L D 1960 Kar. 736 and Chokkappa Mudaliar v. S. M. Ahmedullah Sahib 21 I C 558 rel.

, S. 37(5) read with Limitation Act (IX of 1908), S. 14‑Limitation‑Order other than one setting aside award or superseding arbitration agreement‑Does not extend period of limitation under S. 37(5).

, S. 14 read with Arbitration Act. (X of 1940), S. 37(5)‑Arbitration‑Limitation‑Exclusion of "time during which plaintiff has been prosecuting" with due deligence another civil proceeding as provided in S. 14, Limitation Act, 1908‑'Due deligence"‑Not a requirement of S. 37(5), Arbitration Act, 1940.

A. Z. Company v. S. Maula Bux P L D 1965 S C 505 ref.

Muhammad Akram and Noorul Arfin for Plaintiff.

Shah Jamil Alam for Defendant No. 1.

Dates of hearing : 4th, 5th, 10th, 23rd and 24th November 1965.

The plaintiffs Messrs Malick Bros., a partnership firm, have sued Messrs United Cotton & Wool Traders, also a partnership firm and its four partners, for the recovery of Rs. 17,12,589‑9‑3 which includes the alleged principal debt and interest thereon. The plaintiffs' case as set out in the plaint is that from 7th October 1950 there commenced mutual dealings in cotton between the parties in the course of which the plaintiffs used to supply cotton to the defendants and the defendants used to make payments on account; that likewise, the plaintiffs used to purchase cotton from the defendants from time to time and make payments on account for the cotton so purchased from the defendants; that it was agreed/understood between the parties that account will be made for the price of the cotton supplied by each party to the other and the balance due from one party to the other will be paid; that the dealings between the parties which commenced from 7th October 1950 continued up to 6th October 1951 during which period the plaintiffs supplied to the defendants 6,400 cotton bales of the value of Rs. 32,99,822‑9 and received against it Rs. 24,92;270‑15‑3; that they paid to the defendants a sum of Rs. 11,69,150‑5‑6 against 1,500 cotton bales of the value of Rs. 8,57,405‑6 which they had purchased from the defendants; there was thus left a balance of Rs. 11,19,296‑9‑3, which demand having been made was repudiated by the defendants whereupon the plaintiffs attempted to have their claim decided through arbitration as the parties were members of the Karachi Cotton Association and the dealings between them were subject to the rules and bye‑laws of that Association under which all disputes were to be referred to arbitration. The particulars of the arbitration proceedings will be given a little later in this judgment.

2. It was the case of the plaintiffs that the cause of action for the suit arose between 7th October 1950 and the ‑6th of August 1951 but the nature of the dealings between the parties established a mutual, open and current account with the result that having regard to the plaintiffs' records in which the account year is from 1st of April to 31st of March Article 85 of the Limitation Act was applicable and in view of the orders passed by the Court in connection with arbitration matters the period from 30th January 1952 up to 23rd July 1957 would be excluded for the purposes of limitation, both under section 14 of the Limitation Act and section 37 (5) of the Arbitration Act, 1940. It was further alleged that the Court was closed from 27th May to 7th August 1960 on account of the Summer Vacation and, therefore, the suit which was filed on 8th August, that is on the first day of the reopening of the Court, was within time. It was alleged that a sum of Rs. 5,93,293 had accrued on account of interest and adding this sum to Rs. 11,19,296‑9‑3 which was alleged to be due, the amount in suit was claimed.

3. The defendants denied the plaintiffs' claim on merits and alleged that nothing was due from them to the plaintiffs and that on the other hand it is the plaintiff from whom Rs. 11,000 was due to the defendants. It was denied that the dealings between the parties established a mutual open and current account so as to attract Article 85 of the Limitation Act. It was then pleaded that the plaintiffs' suit was clearly barred by time and that section 14 of the Limitation Act or section 37 of the Limitation Act did not help them. It was further alleged that even if the allegations of the plaintiffs be accepted for the sake of argument the bar of limitation would still apply as the various periods during which the plaintiffs kept inactive and did not diligently pursue the matter in Court there would be no exclusion of time.

4. Amongst the issues framed one of them was: "Is the suit time‑barred." Mr. Jamil Alam for the defendants allowed the plaintiffs to lead their evidence because he said that he would show by cross‑examination that the plaintiffs had not pursued the Covet proceedings with due diligence so as to entitle them for exclusion of time under section 14 of the Limitation Act. There fore, it was only after the plaintiffs' cross‑examination had been concluded that a prayer was made that the issue of limitation be tried and disposed of. To this the plaintiffs' Advocate consented and, therefore, the issue of limitation came to be tried as a preliminary issue and with which I shall now proceed to deal. I may add that in the trial of this issue I had the benefit of a very full argument by Mr. Noorul Aran Advocate for the plaintiffs, as he then was, and Mr. Jamil Alam for the defendants.

5. For the purposes of the issue whether the suit is barred by limitation I shall proceed upon facts which are not in dispute and these may now be stated. The dealings between the parties commenced on 7th October 1950 and ended on 6th August 1951 on which date the last transaction took place. On 30th January 1952 the plaintiffs wrote to the defendants (Exh. P‑10‑31) inviting their attention to their debit note dated 30th August 1951 (in this debit note Exh. 10‑10 Rs.8,49,160‑8‑9 only had been claimed) and complained that the defendants had not paid that amount.

Accordingly the plaintiffs had decided to refer the case to arbitration and that they had appointed Mr. Abdur Rahman to act as arbitrator on their behalf. The defendants were required to appoint their arbitrator within the tithe allowed by the bye‑law 39 of the Karachi Cotton Association.

6. The defendants promptly appointed their own arbitrator on 31st January 1952 as per Exh. P‑10,/32. Tdis arbitrator was substituted by another arbitrator on 4‑3‑52 named Muhammad Bashir and he and the arbitrator of the plaintiffs proceeded with the reference on 19‑3‑52 and called for the accounts of the parties but as they were not able to make an award within time, the plaintiffs moved an application on 19‑9‑52 in the Chief Court of Sind under section 28 of the Arbitration Act for extension of time which application was registered as J. Miscellaneous No. 70‑50. This application for extension of time was dismissed by Muhammad Bachal, J. by his order dated 4th May 1954 whereby he refused to grant the extension.

7. While the application for extension of time of the plaintiffs was still pending in the Chief Court the plaintiffs by their letter of 18th August 1953 to the defendants informed the defendants that they had appointed one Mr. Mukhtar Ahmed Khan of Messrs Inland Traders as their arbitrator and further called upon the defendants to appoint their arbitrator within 15 days failing which they (plaintiffs) would appoint an arbitrator on their behalf as well. The defendants protested that the matter was sub judice as the application for time was still pending. However, after the order of Muhammad Bachal, J. on 4‑5‑54 dismissing the application for extension of time the plaintiffs filed two applications under section 8 of the Arbitration Act praying for appointment of arbitrators by Court. Two applications were filed because the two accounts, that is one of sale by the plaintiffs to the defendants and the other of purchase by the plaintiffs from the defendants of cotton bales were treated separately and appointment was sought in both the cases. These two applications were filed on 30th July 1954 but were not 'registered until the middle of 1955 because of objections by the office on the ground of defects in the applications. They were registered as J. Miscell aneous 57/55 and J., Miscellaneous 59/55. Both these applications were dismissed .by Inamullah, J. on 23rd July 1957 by his order Exh. P‑10/47.

8. The plaintiffs then filed the present suit on 8th August 1960 and the contention of Mr. Noorul Arfin for the plaintiffs was that all the time between 30th January 1952, when the plaintiffs had given notice of the arbitration, Exh. P‑10/31, and 23rd July 1957 when the order of Inamullah, J. was passed should be excluded in computing the period of limitation and that if this argument succeeded the suit would be within time because though it was instituted on 8th August 1960 more than 3 years after the passing of the order by Inamullah, J. the Courts were closed for summer vacation on 27‑5‑60 and were reopened on 8th August 1960 on which date the suit was filed. This is so. Therefore, the question which requires consideration is as to whether time can be excluded under section 37 (5) of the Arbitration Act in the manner claimed by the plaintiffs and thus save the suit from being time barred. I may note that Mr. Noorul Arfin conceded, and rightly, that section 14 of the Limitation Act was not applicable in this case. There are a number of decisions on this point which were brought to my notice by Mr. Noorul Arfin that section 14 of the Limitation Act does not apply in a case of this nature to exclude time and what was applicable was section 37 (5) of the Arbitration Act. For that reason the admissions brought out in cross‑examination of the plaintiff' partner with regard to the want of diligence in prosecuting the two applications under section 8 of the Arbitration Act in this Court would not be relevant as due diligence is not a requirement of section 37 (5) of the Arbitration Act. This is also the view taken by the Supreme Court iii the case of A. Z. Company v. S. .Maula Bux (PLD 1965SC505). Therefore, the only point to consider is whether limitation is saved in the present case by the application of section 37 (5), Arbitration Act. This may be usefully reproduced:‑---

"37. (5)‑Where the Court orders that an award be set aside or orders, after the commencement of an arbitration, that the arbitration agreement shall cease to have effect with respect to the difference refereed the period between the commencement of the arbitration and the date if the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1908, for the commencement of the proceedings (including arbitration) with respect to the difference referred.

9. As has been seen above the order of Inamullah, J. was passed on 23‑7‑57. Thereafter nothing 'happened unfit 8‑8‑b0 when the suit was instituted. The Court had closed for summer vacation on 27th May 1960. Thus by 27th May 1960 the plaintiffs had already lost 2 years 10 months and 4 days. The period of limitation for the suit is 3 years. If, therefore, it could be shown that the plaintiffs had lost the remaining period between the date of the cause of action and the order of Inamullah, J. even if it was assumed that the said order brings into operation section 37 (5) of the Arbitration Act; the suit would still be barred by time.

10. The case of the plaintiffs is that though the cause of action accrued on 6th August 1951 when the last transaction between the parties took place they would be entitled to exclude the period up to 31st March 1952 which was the day of the close of their account year in view of the provisions of Article 85 of the Limitation Act. Mr. Jamil Alam for the defendants has strongly contended that this was not a case of a mutual open and current account so as to fall under Article 85 and he had pointed out that even according to the plaintiffs the transactions of sale by them of cottonseed and of purchase were kept separate and even according to their accounts, assuming it to be correct, they bad made payments for the purchase by them even when in the sale account they had to receive a large sum of money froth the defendants. It was further pointed out that this fact was recognised by the plaintiffs because they filed two separate applications under section 8 (2) of the Arbitration Act in respect of the two sets of transactions, viz., of, sale and purchase by them. I do not consider it necessary to decide this point because, of the view that 1 have taken that even if Article 85 was held to be applicable the suit would still be barred by time. I would, therefore, proceed upon the basis that when notice of first arbitration was given on 30th January 1952 no time had been lost by the plaintiffs for the purposes of computing limitation. We have seen that as no award was made the plaintiffs filed an application under section 28 of the Arbitration Act on 19‑9‑52 for extension of time for the making of the award, which application was dismissed by Muhammad Bachal, J. by his order dated 4‑5‑54. The first question to determine is whether time can be excluded under section 37 (5) from 30th January 1952 to 4th May 1954 during which period the application under section 28 of the Arbitration Act was pending. Now, in order that section 37 (5) can be attracted, the Court must have ordered that an award be set aside or that the arbitration agreement shall cease to have effect. Neither of these things) happened. The application before Muhammad Bachal, J. was under section 28 for extension of time and by his order of 4‑5‑54 which has been produced in the case he merely refused to extend time and dismissed the application. There was no order that the arbitration agreement shall cease to have effect. It is, therefore, plain that the order passed on 4th May 1954 did not have the effect of attracting the provisions of section 37 (5).

11. The next question is as to what was the effect of the proceedings which were concluded by the order of Inamullah, J. passed on 23‑7‑57. This order has been produced in the case and is marked Exh. P/20. These proceedings in Court started upon two applications by the plaintiffs made under section 8 (2) of the Arbitration Act for the appointment of an arbitrator on behalf of the defendants who had declined to make an appointment upon a notice for that purpose having been given by the plaintiffs on 18‑8‑53. . This notice has not been produced in this case but the contents of it have been reproduced in the order of Inamullah, J. along with the reply thereof from the defendants dated 31‑8‑53 and Mr. Noorul Arfin has referred to them from the said order. In their letter of 18th August 1953 the plaintiffs referred to their debit note on 15th August showing a balance of Rs. 7,04,810‑15 which amount the defendants had been called upon to pay within 48 hours and which they having failed to do the plaintiffs were thereby appointing Mr. Mukhtar Ahmed Khan as their arbitrator. It was added that 15 days time was being given to the defendants to appoint their arbitrator, failing which they would also appoint an arbitrator on their (defendants) behalf. The defendants replied by their letter dated 31st August 1953 wherein they acknowledged the plaintiffs letter of 18th August and asserted that there could be no second arbitration in the matter which had already been submitted to the decision of duly appointed arbitrators and the plaintiffs had themselves applied to the Court (Application No. J. M. 70/52) for the grant of extension of time. They went on to add that the said application was still pending and the decision of it could not be anticipated and so they could not agree to a second reference to another set of arbitrators: They ended up by saying that this second reference which was being sought was illegal and the plaintiff's could not call upon them to nominate their arbitrator. The plaintiffs did nothing further and their application under section 28 was dismissed on 4‑5‑54. Then on 30th July 1954 they filed the two applications under section 8.(2). These were dismissed by Inamullah, J. by his order dated 23rd July 1957 Exh. P/20. The learned Judge held that the applicants before him (the present plaintiffs) had no right icy law to start a fresh arbitration proceeding in view of the existing proceeding commenced in 1952. He further held that the order of Muhammad Bachal, J. dated 4‑5‑54 had the effect of superseding the previous reference between the parties and it was not open to the applicants to have recourse to fresh proceeding ignoring the order of the Court. No appeal against this order was preferred by the present plaintiffs and the next action that they took was by filing the present suit on 8th August 1960.

12. Mr. Noorul Arfin did not contend that the order of Muhammad Bachal, J. dated 4‑5‑54 had the effect of superseding the arbitration agreement. On the contrary, he cited several decisions to show that notwithstanding the order of Muhammad Bachal, J. refusing to extend time the arbitration agreement still remained in force and had not been superseded.

I may note two of them. These are:

(1) Abdul Halim Khan v. Chairman, Lahore Improvement Trust P L D 1949 Lah. 278.

(2) P. S. Sabnani v. Impex (India) Ltd. A I R 1954 Bom. 309. I agree that upon the refusal to extend, time under section 28 the arbitration agreement does not cease to have effect. For that result to be achieved one of the two conditions of section 37 (5) have to be fulfilled. In the case of Mian Muhammad Allah Bux v. Universal Corporation (P L D 1960 Kar. 736). I have taken the same view. But Mr. Noorul Arfin contended that the effect of the order of Inamullah, J. was to supersede the arbitration agreement because the Court had done something which was inconsistent with the continuation of that agreement. It was theti claimed that as a result of this order all the time between 30‑1‑52 when the plaintiffs had given the first notice of arbitration and 23‑7‑57 which is the date of the order of Inamullah, J. would be excluded under section 37 (5). The learned counsel relied upon a judgment of the Madras High Court in the case of N. P. Chokkappa Mudaliar v. S. M. Ahmedullah Sahib (21 I C 558) in support of his contention. This was a suit in which a reference was made to the Commissioner to take accounts and upon the report of the Commissioner being filed the parties had filed their objections. Subsequently the Court with the consent of 1 the parties referred the matter in dispute to an arbitrator who did not submit his award within the time specified. The case then came on for hearing and the Judge directed the case to be posted to another day. On that date, toe Judge proceeded to deal with it, confirmed the Commissioner's report and passed a decree thereon, no objection having been taken to the procedure followed. Upon these facts it was held that the fact that no formal order was made superseding the arbitration did not vitiate the decree. When the Court, without extending the time, proceeded to deal with the suit, there was in effect, in the circumstances, an order superseding the arbitration and the arbitration was superseded by the Court proceeding with the suit. Mr. Noorul Arfin contended that when in the present case, Inamullah, J. refused to appoint an arbitrator on behalf of the defendants and dismissed the two applications under section 8 (2) of the Arbitration Act, the effect was that the arbitration agreement stood superseded so as to attract the provisions of section 37 (5).

13. In the first place, I am unable to agree that an order refusing to appoint an arbitrator has the effect of superseding the arbitration agreement. In order that time may be excluded under section 37 (5) one of the two conditions stated in that provision has to be fulfilled. It cannot be said that the dismissal of an application under section 8 (2) has the same effect as the setting aside of the award or declaring that the arbitration agreement shall cease to have effect. But it was argued that indirectly the same result has been achieved by the order of Inamullah, J. But even if such an effect was achieved, a point upon which I have grave doubt, it is still difficult to hold that upon such an indirect result the provisions of section 37 (5) would become applicable so as to exclude time in computing the period of limitation. The hold as it was done in the Madras case that upon the failure of the arbitrator to make an award within the specified time and in the absence of any extension the passing of a decree by the Court upon the material before it would have the effect of superseding the reference is one thing but it is quite another to say that in such a case it would be deemed that an order such as contemplated by section 37 (5) has been passed so as to have the limitation.

14. There is another aspect of the matter. Even if it was to be held that the order of Inamullah, J. dated 23rd July 1957 had the effect of superseding the arbitration agreement the suit would still be beyond time because I do not see how all the period from "30th January 1952 (on which the notice of first arbitration was given) or for that matter from 30th March 1952 (which was the close of the account year of the plaintiffs) up to 23rd July could be excluded. The notice of first arbitration was given by the plaintiffs on 30th January 1952 and assuming it to be the date of the commencement of arbitration as contemplated by section 37 (5) it must be held that when the award was not made within time and the application dated 19‑9‑52 for extension of time was rejected on 4‑5‑54 all this period could not be tagged onto the second attempted arbitration. The arbitration which commenced on 30th January 1952 did not conclude by an order such as is contemplated by section 37 (5). The order rejecting an application for extension of time as I have held does not result in the supersession of the arbitration agreement, it must, therefore, follow that time between 30th January 1952 and 4th May 1954 could not be excluded in computing the time prescribed by the Limitation Act. If this time is not excluded the suit would barred by limitation because even from the date of the order of Inamullah, J. 2 years 10 months and 4 days had been allowed to pass and it was at the end of this period that the Court closed for stammer vacation. The limitation admittedly was 3 years.

15. Coming then to the second attempt at arbitration we find that a notice to this effect was given by the plaintiffs on. 18‑8‑53. I have reproduced the contents of it and the reply thereto given by the defendants on 31‑8‑53. Considering that the defendants had repudiated the right of the plaintiff to appoint another arbitrator and start fresh proceedings, it would be difficult to hold that the second arbitration commenced on 18‑8‑53. But even if it did and was concluded by the order of Inamullah, J. dated 23‑7‑57 the period from. 31‑3‑52 (end of the account year of the plaintiffs) up to 17th August 1953 must still be computed for the purposes of limitation and this period added up to the period which passed between 23‑7‑57 and the filing of the suit would be more than 3 5 ears and the suit would still be barred by limitation. The result is that in either view of the matter it must be held that the plaintiffs' suit was instituted beyond the expiry of the period of limitation. I hold accordingly.

16. I accordingly dismiss the suit as being barred by time. There will be no order as to costs.

S. A. H. Suit dismissed.

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