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Suit No. 434 of 1956, decided on 30th July 1957.
Schedule First, para. 3 ‑Phrase taking over the reference" means entering upon the reference‑"Entering upon reference" means when arbitrators issue notices.
Iossigoglu v. Coumantaros L R (1941) 1 K B 396 ref.
General‑Object of Act ‑2'o give expeditious relief to parties unhampered by rules of procedure laid down in Civil Procedure Code (h of 1908) and Evidence Act (I of 1872)‑Act should not be so interpreted as to prolong proceedings before arbitrators.
Act of Court‑No party should suffer by act of Court.
Schedule First, Para. 3 ‑Time for fling award‑Time during which proceedings before arbitrators were stayed by Court is to be included in certain circumstances.
By‑law 39‑II of Karachi Cotton Associa tion Limited‑Secretary has no power to draw fresh ballots appointing another set of arbitrators.
S. 62‑‑Whether parties have substituted old contract by new contract or not would depend upon their intention, which can best be read from terms of offer and acceptance.
S. 30‑Dispute referred to arbitration on breach of agreement of sale of goods‑New offer and acceptance regarding sale of same goods after dispute ‑Old agreement wiped out‑Award of arbitrators on old dispute is without jurisdiction.
Union of India v. Kishorilal Gupta & Brothers A 1 R 1953 Cal. 642 ref
Dingomal for Plaintiffs.
Ihsanul Haq and Ibadatyar Khan for Defendant.
--‑ This is an application under sections 30 and 33 of the Arbitration Act, and arises under the following circumstances :‑----
The defendants entered into a contract dated 1st December 1951 for purchase of cotton bales in the form of 'Factory Selection Contract with the plaintiff‑firm. The parties could not fulfil the contract, with the result that the defendants, on 5th February 1952, wrote to the plaintiffs that they were willing to accept the contracted goods on certain terms. The plaintiffs accepted the terms by their letter dated 13th February 1952. The parties however, could not fulfil the contract, with the result that the matter was referred to arbitration, and the award was given on 24th March 1953. The present defendant‑objectors filed an objection to that award, which was set aside by me on 22nd December 1954.
The plaintiffs on 22nd December 1954 wrote to the Secretary, Karachi Cotton Association for appointing arbitra tors from the panel of arbitrators maintained by the Association to decide the dispute between the parties. The Secretary wrote a letter on 11th January 1955 to the defend ants, with reference to the letter written by the plaintiff, that he would look into the matter. The defendants protested that there was no subsisting arbitration clause and therefore the Secretary had no power to appoint arbitrators. The Secretary, however, on 1st February 1955, under by‑law 39 (ii) appointed Mr. Higgins and Mr. Suklidev as arbitrators and Mr. Desai as Umpire.
The arbitrators issued a notice on 14th February 1955 fixing 21st February 1955 as the date of hearing. The defendant by their letter dated 19th February 1955 protested to the hearing of the matter on the ground that they had no jurisdiction.
The defendants also filed an application in this Court which was numbered as J., Misc. 19 of 1955 under sections 4, 5, 11, 12, 19 and 33 of the Arbitration Act. There was an application for injunction also restraining the arbitra tors from going on with the arbitration proceeding. I granted an ad interim injunction on 10th March 1955, which was disposed of by consent of the learned Advocates for the parties on 22nd August 1955, whereby the proceeding before the arbitrators was to continue.
The plaintiff, after the disposal of J. Misc. Application No. 19 of 1955 wrote a letter to the Secretary on 30th August 1955 informing him that the injunction had been with drawn by the Court and the arbitration should proceed. This action on behalf of the plaintiff was, however, not necessary, as the arbitrators themselves were represented before me on 22nd August 1955 when the injunction was withdrawn through an Advocate, Mr. Jamiatrai. In the meantime, Mr. Desai declined to act as Umpire on 30th August 1955, and one Mr. Bhimji was appointed as Umpire by the Secretary on 10th September 1955.
Almost after 11 months of the discharge of the injunction order on 12th July 1956 the Secretary wrote to the defendants that the arbitrators had gone away and that fresh ballot would be held. The defendants, however, protested against the appointment of arbitrators through fresh ballot by their letter dated 23rd July 1956. The Secretary however appointed Mr. Abdur Rehman and Mr. Mueller as arbitrators on 29th July 1956, while Mr. Bhimji was appointed as Umpire.
The freshly appointed arbitrators served notices for hearing on 30th July 1956 fixing the 8th of August 1956 as the date of hearing. The arbitrators gave their award on 5th September 1956. It may be mentioned here that the defend ants had appeared before the freshly appointed arbitrators under protest.
The arbitrators filed their award under section 14, Arbitration Act. on 29th November 1956. Notices were issued to the defendants who filed an objection under sections 30 and 33 of the Arbitration Act on 22nd March 1957. A number of objections have been taken by Mr. Ibadatyar Khan, the learned Advocate for the defendants. The objec tions pressed before me, however, are three‑fold :‑
(1) That there was no subsisting contract of 1st Decem ber 1951 between the parties, as the same was substituted by a contract dated 5th February 1952 ;
(2) That the Secretary, Karachi Cotton Association Limited, having already appointed Mr. Higgins and Sukhdev as arbitrators on 1st February 1955 had no power to gain appoint fresh arbitrators on 24th July 1956 ;
(3) That the Award was given beyond time. I would consider these points separately ;
I would in the first place consider the question of the award being beyond time. The relevant provision of the Karachi Cotton Association by laws relied upon by the learned Advocates of the parties, Mr. Ibadat Yar Khan and Mr. Dingomal, in by‑law 39‑II ; the relevant portion reads as under
"The arbitrators shall complete the arbitration within 30 days following the day of their taking over the reference".
On the face of it, the arbitrators having taken over the reference on 14th February 1955, the award was beyond time.
Mr. Dingomal, the learned Advocate for the plaintiff raised 3‑fold contentions. (1) That the question of limitation should be considered, not from the date when the first set of: arbitrators issued notices for hearing, but from the date that the second set of arbitrators issued notices for hearing. (2) That the period during which the injunction of the Court restrain ing the arbitrators from going on with the proceeding subsisted, should be excluded. (3) That "taking over" should be after the arbitrators again gave notices for hearing of the proceeding before them after the injunction was withdrawn by this Court on 22nd August 1950. So far as the first contention is concerned, even if I do in favour of Mr. Dingomal that the period of limitation may be computed from the appointment of the second set of arbitrators, this would not help Mr. Dingomal, as the second set of arbitrators issued notice on 30th July 1956 and the award was given on 5th September 1956, beyond 30 days.
The other contention of Mr. Dingomal relating to the question of limitation has also no force, The most favourable interpretation to the plaintiff that can be put on the words "taking over the reference" would lie that it means "entering upon the reference" within the meaning of the Arbitration Act. As to what is the meaning of "entering upon the reference" has been considered in various authorities. The arbitrators are said to have entered upon the reference when they have issued notice to the parties intimating the date of hearing. In fact, in the case of lossigogly v. Coumantaros (L R (1941) 1 K B 396) it was held that if one of the arbitrators refused to act, the arbitrators will be deemed to have entered upon the reference as they had accepted their appointment and had communicated with each other about the reference. In the present case, the freshly appointed arbitrators, as already mentioned above, had given notice on 30th July 1956 calling upon the parties to appear before them on 8th August 1956. On the face of it, it would be against the spirit of the Arbitration Act to interpret the rules and the Act in such a way as to prolong the proceeding before the arbitrators. The object of the Arbitration Act is to give expeditious relief to the parties concerned unhampered by the rules and procedure prescribed by the Code of Civil Procedure or the Evidence Act. If II, were to accept the interpretation of Mr. Dingomal that 8th August 1956 should be taken to be the date when the arbitrators should be said to have taken over the proceeding, it would have the effect of nullifying the object of expeditious disposal embodied under by‑law 39‑II. Under by‑law 39‑II reproduced above, the arbitrators are duty bound to give the award within 30 days of their having taken over the reference. If the issue of notice by the arbitrators was not to be taken to be the date when the arbitrators are said to have entered upon the reference, the arbitrators can fix a date which may be 10 months after the issue of the notice. In that case they can always nullify the object of by‑law 39‑II calling upon them to give their award within 30 days of their having taken over the reference. Mr. Dingomal, the learned Advocate for the plaintiff accepted the force of this observation and did not try to meet the same.
So far as the other contention of Mr. Dingomal is concerned, ix, the time during which the injunction order subsisted should be excluded, must be accepted. No party it is a well‑settled rule‑should suffer by an act of the Court. As the injunction was withdrawn in 1955 and the arbitr9tors were appointed in 1956, this contention of Mr. Dingomal is without any force. Moreover, in my opinion, the period taken by the injunction, no doubt, will be excluded, but the result would not be this that the period of 30 days would commence afresh from the date on which the injunction order was withdrawn. It is easy to conceive cases where the arbitrators had concluded their proceeding and had reserved orders and in the meantime injunction was issued by the Court ; if the injunction was withdrawn, the result would not be that the arbitrators should start the proceeding afresh. It would be open to the arbitrators to announce the order after the injunction order is withdrawn without multiplying the proceeding and starting afresh. On these considerations. I would hold that the award which was given in September 1956 is beyond time.
The next contention that I would take is that the Secretary of the Karachi Cotton Association Limited had no power to appoint fresh arbitrators after having drawn the ballot on 1st February 1955 appointing Mr. Hinggins and Mr. Sukhdeo as arbitrators. The relevant provisions which might be considered in this connection are by‑law 39‑II, and amendment No. I of by‑law 39‑II made on 29th October 1953, and amendment No. 11 of by‑law No. 39‑11 made oil 27th May 1954. By‑law 39‑1I provides that where disputes arise out of a Factory Selection Contract, reference should be made to the arbitration of two disinterested arbitrators drawn by ballot by the Secretary of the Association from the panel maintained by the Association. Amendment No. I of by law 39‑II reads as under :‑
"In case the two arbitrators be unable to agree or fail to complete arbitration within 30 days, the matter will be referred to a disinterested Umpire, who will be drawn simultaneously with the arbitrators from either Panel of Arbitrators by ballot by the Chairman or in his absence by the Vice‑Chairman or by the Secretary from disinterested members of the two Panels. In the event of the Umpire resigning either before or after taking up the reference for any reasons whatsoever, a fresh ballot shall be drawn for the appointment of another umpire from the remaining members of the panel in the same way in which the original umpire is appointed and the appointment so made shall be effectual as though it had been made simultaneously with the arbitrators".
Considering the above amendment of by‑law 39‑II I have no doubt that the Secretary of the Association had no power whatsoever to draw fresh ballots appointing another set of arbitrators. The rules clearly provide that in case the two arbitrators who were appointed on 1st February 1955 failed to give their award within 30 days of taking over the reference, the matter should have been referred to the arbitration of the umpire, Mr. Desai. At this stage I may mention that the period during which the injunction order subsisted, i.e., from 12th March 1955 to August 1955, has to be taken away from the period prescribed under Amendment No. 1 of by‑law 39‑II. I may also mention at this stage that 1958 the arbitrators Mr. Higgins and Sukhdev, were represented before me through Mr. Jamiatrai when the injunction order was withdrawn on 22nd August 1955. It was the duty of the arbitrators to nave proceeded with the arbitration. It appears that nothing was done by the arbitrators for almost 11 months from the date that I withdrew the injunction order restrain ing the arbitrators from continuing with the proceeding, The Secretary of the Association wrote oil 12th July 1956 that as Mr. Sukhdev had resigned and Mr. Higgins had gone out of Karachi for an indefinite period, he wished to appoint fresh arbitrators. Reading Amendment I of by‑law 39‑II I have no doubt that the Secretary of the Association had no power to appoint fresh arbitrators. Mr. Dingornal, however, had half heartedly relied upon Amendment II of by‑law 39‑II dated 27th May 1954, which reads as under :‑
"If for any reason whatsoever, the arbitrators do not take over or enter on the reference for a period of three months commencing from the date of communication of their appointment as arbitrators to them, they will auto matically cease to function as arbitrators for that particular matter and afresh ballot will be drawn as provided for (by) by‑law 39‑‑11 from among the remaining members on panel so far as the appointment of arbitrators is concerned, but the Umpire originally selected will continue to function as Umpire".
Mr. Dingomal contended that in this case, as one of the arbitrators had resigned and the other had gone away, Amendment II applied. The language of Amendment II is very clear, and it cannot apply by any stretch of imagination to the circumstances of the present case. It cannot be said that the arbitrators had not entered upon the reference within the meaning of Amendment II.
The last contention of Mr, Ibadatyar Khan was that, as there was no subsisting contract dated 1st December 1951, the arbitrators had no jurisdiction to go into the dispute to adjudicate on the contract dated 1st December 1951. From the award submitted it would appear that the arbitrators adjudicated upon a dispute between the parties relating to the contract of 1st December 1951. The relevant portion of the award reads as under :‑
"Whereas dispute has arisen between Messrs Ismail Bros. (Karachi) Ltd .on the one hand and Messrs S. M. Fazail & Co, . . . . . on the other hand concerning and arising out of the sale of 500 bales . . . . . at Rs. 121‑8‑0, delivery from 15th December 1951, to 15th January 1952, Factory Selection Contract, P 131 dated 1st December 1951, ..and whereas both the parties to the dispute are members of the Karachi Cotton Association Limited and whereas in accordance with the provisions of the rules and regulations of the Karachi Cotton Association Limited governing the 'Factory Selection Contract' the Secretary, Karachi Cotton Association Ltd. appointed Mr. A. Mueller and Mr. S. Abdur Rahman as arbitrators and Mr. Ebrahim Ismail Virji as Umpire ....
From the above it is clear that the arbitrators had entered upon a reference relating to the dispute which was said to arise as regards the contract of 1st December 1951.
The contention of Mr. Ibadatyar Khan was that the defendants were obliged to give fresh offers to the plaintiffs, as they had failed to supply the contracted goods, on 5th February 1952, by their letter dated 5th February 1952, which was accepted by the plaintiffs by their letter dated 13th February 1952. This gave rise to a fresh contract between the parties, with the result that the contract of 1st December 1951, no longer existed. The dispute, if any, related to this fresh contract between the parties, and the arbitrators should have adjudicated upon the dispute relating to this contract and not the one which did not exist between the parties. In this connection, Mr. Ibadatyar Khan also relied upon the argument advanced by Mr. Dingomal in Suit No. 434 of 1956, between these parties relating to the purchase and supply of 500 bales of cotton now in dispute which had resulted in an award which was set aside by me. In that case, the contention of Mr. Ibadatyar Khan was that the contract of the 1st December 1951, was a Factory Selection Contract, and therefore the arbitrators should have been appointed by the Secretary of the Karachi Cotton Association, and not by the parties themselves. The contention was that the parties could appoint arbitrators on their own behalf only if the transaction related to a Ready Delivery Contract. Mr. Dingomal contended that "in the first place there was a novation of the contract and as such the contract of 1st December, 1951 was replaced by another contract or agree ment. This, he maintained, was contained in the two letters dated 5th February 1952, and 13th February 1952. By the letter of 5th February 1952, it was contended by Mr. Dingomal, the defendants offered certain terms to the plaintiffs, which they accepted by their letter of 13th February 1952, The result of this agreement between the parties was that the contract no longer remained as "Factory Selection Contract" but it became a "Ready Delivery Contract". The dispute, under the Ready Delivery Contract admittedly would be governed by by‑law 39 of the Karachi Cotton Association Limited. Mr. Ibadatyar Khan contends that this is an admission of fact made by the learned advocate for the plaintiffs, which is binding upon the plaintiffs. Whatever the effect of this admission by Mr. Dingomal may be, it is clear that the case put forward by the plaintiffs in the previous proceeding related to the dispute of 500 bales of cotton. Mr. Dingomal has relied on the offer of 5th February 1952, as accepted by his clients by their letter of 13th February 1952. I may here observe that the agreement, which was brought about between the parties by their letters of 5th February 1952 and 13th February 1952, did not technically have the effect of novation of contract within the meaning of section 62 of the Contract Act. As the breach of the agreement dated 1st December 1951, had already taken place on 15th January 1952, the latter agreement between the parties which, was brought about in February 1952, would, it was contended by Mr. Ibadatyar Khan, fall under section 63 of the Contract Act. At any rate, it was contended by him, under the Contract Act it was always open to the parties to enter into fresh arrangement and agreement. The offer dated 5th February 1952 and the acceptance by the plaintiff dated 13th February 1952, clearly amounts to a new contract.
In order to consider the contention of the learned advocates for the parties it would be necessary to reproduce the relevant portion of the offer dated 5th February 1952, and the acceptance dated 13th February 1952. The offer dated 5th February 1952 reads as under:‑
"Re : Our purchase of 500 bales NTR chudo/Nabisar at Rs. 121‑8‑0 vide our purchase Contract No. 131 dated 1st December 1951.
With reference to your letter dated 31st January 1952, and 4th February 1952, we will maintain our stand as taken in our various letters ending with our letter No. P‑131/1339 dated 30th January 1952.
However to keep our cordial business relations with you, we agree to take delivery of the lot subject to following conditions, as agreed between our and your brokers.
(1) You should submit us samples of goods lots of full weight for our approval immediately which, if approved, (approval will be subject to the lots being of full weight) will be intimated to you, otherwise, if, at actual weight, the goods are of short weight, export duty difference will be payable by you upto 470 maunds nett and no market rate difference on short weight will be recovered from us, if any. Please be advised that we will prefer to have full weight lots only and if not, the above is to apply. The lots are to be approved in advance.
(2) You will charge us no yard rent, no insurance and no interest etc. and
(3) We shall take delivery of the approved lots till up the first week of March 1952 at the latest.
Please confirm this in writing at your earliest and oblige".
The acceptance letter dated 13th February 1952, reads as under :‑
"Re : Your purchase of 500 bales NTR Jhudo/Nabisar.
With reference to your letter No. ‑ P‑131/1395 of the 5th instant, we confirm, in order to avoid unpleasantness; the settlement arrived at through our respective brokers on a clear understanding that you will take delivery and make payment in first week of March at the latest.
We shall be glad if you will kindly expedite the approval of samples. Please let us know on which date you wish to draw samples so that we can tender sample‑slips of that date".
It is always a question of fact whether the parties have substituted tile old contract by a new contract or not. This H would depend upon the intention of the parties, which can best be read from the terms of the offer and the acceptance. Reading the letters of 5th February and 13th February repro duced above, there is no doubt in my mind that tile parties had entered into a fresh agreement, as the old contract dated 1st December 1951, could not be performed by the 15th January 1952, irrespective of on whose side tire fault lay. The test of whether the parties entered into a fresh contract or not, would, to my mind, be whether the parties could claim damages according to the rate prevailing on the 15th January 1952, tire last date of supply under the contract of 1st December 1951, or the rate prevailing on the 7th March 952, the last date of supply according to the letter of 5th February 1952, as mentioned in para. 3. In my opinion, in view of these two letters dated the 5th and 13th February 1952, the parties could claim damages only according to the rate prevailing in March 1952, and not January 1952 and therefore, the effect of tile fresh agreement was that the old agreement of December 1951, no longer existed between the parties.
Mr. Dingomal very strenuously contended that the old contract of December 1951, still subsisted, as a result of the agreement between the parties brought about by their letters of the 5th and 13th February came to be only an 'accord', and there was no satisfaction' thereby, and therefore the old contract was not discharged. He relied in support of his contention on the case of Union of India v. Kishorilal Gupta & Bros., (A I R 1953 Cal. 642). On a perusal of that case, I am clearly of the view that it does not help Mr. Dingomal. There were three contracts in question in that case. In one of the con tracts the parties had come to some agreement wherein it was definitely mentioned that the old contract would stand discharged if tile terms of their latter contract were fulfilled, and under those circumstances the Court held that oil the non‑fulfilment of the terms contained in the second contract, the old contract revived. On a perusal of the present contract between the parties, as contained in their letters of the 5tlr and 13th February 1952, I find no such condition. In the case relied upon by Mr. Dingomal, so far as the other two contracts were concerned, tile Court in the absence of any such condition as to the revival of the old contract on the non‑fulfilment of the terms of the latter contract, came to tile conclusion drat tile latter contract had wiped out the previous contracts. In tile present case also I find that there being no condition in tire letters of the 5th and 13th February 1952, whereby on the non‑fulfilment of the conditions contained therein tile old contract was to revive. I would hold that tile old contract of December 1951, was wiped out.
Mr. Dingomal contended, as I have already mentioned that there was only an accord, but no satisfaction. In this B, connection, the observation of the Calcutta High Court in L para. 29 at page 644 in the case cited above is helpful. It runs as under :‑
"It may be shown that the accord itself is also the satis faction. It is open to the injured party to accept the promise of the party in default in satisfaction of the existing 1 cause of action. The question in modern law is purely one of construction of the accord :‑1918 A C 1 at p. 35 and (1933) 2 K B 616 at pp. 654‑5. The cases are illustrative of this question of construction. The promise itself was held to be the s satisfaction in Elton Cop Dying C. v. Broadbent & Son Ltd. (1919) 89 L J K B 186 ; 40 Cal. W N 808 and P R L Saminathan Chetty v. P. L. Palaniappa Chetty 18 Cal. W N 17 (P C). Not the promise but its actual performance was held to be the satisfaction in 15 Cal. 319 at p. 327 ; Babulal v. Tulsi Singh A I R 1940 Pat. 121. In 18 Cal. W N 617 at pp. 619‑20 (P C) Lord Moulton observed thus
'The receipt given by the appellants and accepted by the respondent and acted by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the receipt. It is a clear example of what used to be well known in Common Law Pleading as accord and satisfaction' by a substituted agreement. No matter what were the respective rights of the parties inter se. They are abandoned in consideration of the acceptance by all of a new agree ment. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have, in fact, been extinguished for the new rights ; and the new agreement becomes a new departure and the rights of all the parties are fully repre sented by it."
In the present case, the plaintiffs and the defendants having realised, irrespective of on whose side the breach or non‑fulfilment of the contract of 1st December 1951, lay, came to a fresh agreement on certain terms and conditions, the object being that the parties should not under the by‑laws of the Karachi Cotton Association Limited claim damages under the contract of 1st December 1951. Under the by‑laws of the Karachi Cotton Association it was open to the party aggrieved to invoice back the goods at the rate prevailing on the 15th of January 1952. In fact, the defendants did invoice back by their letter dated 13th February 1952, claiming damages at the rate prevailing on 15th January 1951. They however, as would appear from their letter of February 1952, wanted to maintain good relations with the plaintiffs and did not like to claim damages, and therefore I offered fresh terms to the plaintiffs. I may not be implied to hold as to whether the plaintiffs have committed the breach. I am concerned, so far as this question is concerned, only with mentioning the facts.
Mr. Dingomal contended that this Court should construe that there was no fresh contract between the parties on the following grounds :‑
(1) That there was no reference to the fresh contract in the correspondence between the parties ;
(2) That Mr. Castellino's letter dated 23rd March 1952 lead repudiated the contract.
These grounds, new to my mind, do not support the con tention of Mr. Dingomal, as the correspondence and the letter of M. Castellino relate to the period previous to December 1951. He (Mr. Dingomal) contended that the contract of 1st December 1951, was substituted by a new contract which was brought about by the offer of 5th February 1952, and the acceptance of 13th February 1952. After the contention put forward before me on 22nd December 1952, in suit No. 1016 of 1953, the defendants never explicitly took the stand that no fresh contract between the parties was brought about by the letters dated 5th and 13th February 1952.
I would for these reasons hold that a new contract was brought about between the parties, and the arbitrators acted without jurisdiction in entertaining any claim with regard to K the contract of 1st December 1951, as the same did not exist.
I would for the reasons given above, set aside the award but would make no order as to costs in the circumstances of the present case.
K. M. A. Award set aside.
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