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Suit No.24 and Civil Miscellaneous Application No. 183 of 1987, decided on 13th June, 1987.

‑‑‑ S. 20‑‑Scope and ' ambit of section 20‑‑Application for filing of Arbitration agreement between parties and order of reference to arbitrators‑ ‑Maintainability of‑‑Requirements‑‑Applicability of S. 20, Arbitration Act, would depend on satisfaction of conditions viz. that arbitration agreement had been entered into before filing of any suit with respect to subject‑matter of agreement or any part thereof; that differences had arisen between parties to which such agreement applied; and proceedings under Ss. 3 to 19 of the Act had not been commenced.

---S. 20(l)‑‑Filing of arbitration agreement in Court‑‑Requirements‑ Where difference had arisen between parties to arbitration agreement, either both the parties or any of them, held, could adopt procedure provided under Ss.3 to 19, Arbitration Act or could apply to Court that agreement be' filed in Court‑‑Comprehensive procedure for appointment of arbitrator, without intervention of Court has been prescribed under Ss. 3 to 19 of the Act‑‑Non‑invoking of provisions of said sections would entitle a party to apply for filing the agreement in the Court‑‑Effect of such proceedings would be that Court after notice and hearing parties and where no sufficient cause was shown would order agreement to be filed and would make order for reference to arbitrator appointed by parties in terms of agreement‑‑Where parties failed to agree for appointment of arbitrator, Court would appoint one‑‑Option is given to party either to proceed under Ss. 3 to 19 or apply to Court that agreement be filed‑‑Both such proceedings, however cannot be taken simultaneously‑ ‑Where plaintiff exercised option to proceed under Section 3 to 19 he cannot file application under S. 200) for relief that agreement be filed in Court.

‑‑‑ S. 41 & Second Sched.‑‑Civil Procedure Code (V of 1908)‑‑Scope of S. 41‑‑Procedure and powers of Court‑ ‑Provisions of Civil Procedure Code, 1908, would be applicable to all arbitration proceedings before Court and in appeal‑‑For purpose of, and in relation to arbitration proceedings Court, held, would exercise such powers and pass orders as specified in Second Sched to Arbitration Act‑‑Court could pass interim orders for detention and preserving property, custody or sale of goods, appointment of receiver and grant interim injunction‑ Whether arbitration proceeding was pending or not, in cases where application under Arbitration Act was moved in Court and was maintainable, Court had power under S. 41(b) to pass such orders as provided in Second Sched to Arbitration Act.

M/s. Shoukat and Raza Limited Karachi v. Karachi Development Authority and others 1980 C L C 346 and Asadullah Khan v. Karachi Shipyard Engineering Works 1979 C L C 625 ref.

‑‑‑S. 41‑‑Appointment of arbitrator‑ ‑Notice issued to opposite‑party for appointment of Arbitrator‑ ‑Before expiry of time to enable other party to appoint his arbitrator, application under S. 41 of Arbitration Act whether maintainable‑‑Where petitioner had issued notice appointing his own arbitrator and before expiry of time during which opposite party could appoint his arbitrator, filing of application by such petitioner under S. 41 of the Act, held, was not maintainable‑‑No arbitration proceedings were pending as other side had not yet appointed its arbitrator within period specified in agreement‑ ‑Petition being devoid of merit was dismissed in circumstances.

Khalid Anwar for Petitioner.

Mansoorul Arfin for Respondent

The plaintiff has filed this application under sections 20 and 41 of the Arbitration Act praying that the arbitration agreement be filed and order of reference to the arbitrators be made in accordance with the agreement and the defendants be restrained from encashing the performance bond bank guarantee. Alongwith this petition an application under Order XXXIX, Rules 1 & 2 C.P.C. has also been filed read with section 41 of the Arbitration Act praying that the defendant No.1 may be restrained from encashing the bond/bank guarantee issued by defendant No.2. Briefly the facts are that the plaintiffs entered into a contract with the defendant No. 1 on 4‑11‑1986 in terms whereof the plaintiff agreed to supply 48,000 metric tons (+ ‑5% at seller option) of urea in bags confirming to the specifications set out therein in accordance with the terms and conditions contained in the contract. There see to be dispute between the parties in which the plaintiff complained that the letter of credit was not in terms of contract. The inaccuracies have been specified in paragraph 4 of the plaint which inter alia include the prohibition of part shipment, the stipulation that the bill of lading must be dated not later than 25‑11‑1986 and name of pre‑shipment inspection agency was to be corrected. The plaintiff however shipped 26, 756.80 metric tons on board m.v. MONTANA which arrived at Karachi on 21st December, 1986. The defendant alleged that the time for completion should be reckoned from the date of origin letter of credit and therefore 30 days expired on December 5, 1986. According to the plaintiff due to defect in the letter of credit which was later on rectified by the defendant No.1, time of 30 days should be calculated not from the date of opening of defective letter of credit from 7‑12‑1986 when defects were removed. The plaintiff had furnished a performance bond through defendant No.2. The defendant No.1 demanded that a additional performance bond for the sum of US 145,000 should be furnished to it or alternatively it would deduct US 369,000 by way of penalty. This was not accepted by the plaintiffs. The first lot of shipment was unloaded upto 11‑1‑1987 and the defendant No.1 took possession on 14‑1‑1987 and lodged a demand on defendant No.2 for encashment of the bond. In these circumstances the plaintiff invoked the arbitration clause contained, in the contract which reads as follows: ‑

20. ARBITRATION:

Any dispute or difference arising between the parties relating to or in connection with the contract shall be referable to arbitration by two arbitrators. Each party to appoint a person as an arbitrator on its behalf within 30 days from the date of receipt of notice invoking this Arbitration Clause by the other party to the contract. The Arbitrators before they enter on the reference shall nominate an umpire who shall adjudicate the matter in the event of difference between the arbitrators.

The provisions of Arbitration Act, 1940 and the Rules made thereunder shall be applicable to the arbitration proceedings. The venue of the arbitration proceedings shall be Karachi.'

By a telex message dated 17‑1‑1987 the plaintiff nominated its arbitrator and requested the defendant No.1 also to nominate an arbitrator so that the matter may proceed in accordance with the contract. The plaintiff alleged that in the facts and circumstances of the case as the defendant No.1 is not entitled to encash the bond it should be restrained from doing so. On 18‑1‑1987 the plaintiff filed this petition under Sections 20 and 41 of the Arbitration Act which has been registered as a suit.

The defendant No.2 has filed counter affidavit in which it has denied that any breach has been committed by it. It has been alleged that the plaintiff has failed to supply goods in terms of contract within the stipulated period. The part‑shipment made by the plaintiff was accepted and taken possession of and price in respect of these goods has already been received by the plaintiff. One of the objections of the defendant No.1 is that this petition is not maintainable as the plaintiff has already appointed its arbitrator. Although in the affidavit nothing has been stated about the appointment of the arbitrator by the defendant No.1, the learned counsel for the defendant has stated that the defendant No.1 has also appointed its arbitrator. The defendant No.2 has also filed its counter affidavit in which it has been stated that the performance bond was unconditional and therefore as the demand has been made by the defendant No.1 it is bound to pay the said amount which it has already realized from the plaintiff's banker.

I will now first take up the contention of the learned counsel for the defendant No.1 regarding maintain ability of the main petition. As stated above the plaintiff served a notice dated 17‑1‑1987 appointing its arbitrator and calling upon the defendant No. 1 to appoint arbitrator. On the next day i.e. 18‑1‑1987 the plaintiff filed the present petition under Sections 20 and 41 of the Arbitration Act. First it is to be considered whether application under section 20 is maintainable. Applicability of section 20 of the Arbitration Act depends on satisfaction of three conditions namely (i) that the arbitration agreement has been entered into before any suit is filed with respect to the subject matter to the agreement or any part thereof, (ii) that the difference has arisen between the parties to which the agreement applies and (iii) the proceedings under Chapter two of the Arbitration Act have not been commenced. In the present case the first two conditions seem to have been satisfied but the third condition, according to Mr. Mansoorul Arfin, the learned counsel for the defendant No.1, has not been complied with. Admittedly the plaintiff has appointed its arbitrator before filing this petition. The plaintiff has thus taken steps under Chapter 11 of Arbitration Act. Chapter two of the Arbitration Act includes sections 3 to 19. Mr. Khalid Anwar, the learned counsel for the plaintiff has referred to Mohammad Akbar v. Punjab Province PLD 1974 Lah. 117 where the question for consideration was whether the Civil Court can under Section 41 (b) issue a temporary injunction when no proceeding is pending before it and reference to arbitration has also been made without the intervention of the Court. This judgment therefore does not refer to the controversy under consideration here viz whether the application under Section 20 is maintainable. The question whether petition is also maintainable under Section 41 shall be discussed later when this judgment will be considered. The learned counsel also referred to M/s. 'Soukat Raza v. Karachi Development Authority 1980 C.L.C. This case is also relevant only in so far the question of maintainability of the petition under section 41 is concerned. Mr. Mansoorul Arfin the learned counsel for the defendant No.1 has contended that if a party has invoked the jurisdiction of the Court under Chapter two of the Arbitration Act it cannot file an application under Section 20 for filing of the agreement in court. This contention of the learned counsel is based mainly on the interpretation of Section 20 sub‑section (i). The law has given an option to a party to the arbitration agreement that where difference has arisen between them to which the agreement applies either both the parties or any one of them may adopt the procedure provided under Chapter two of the Arbitration Act or may apply to the Court that the agreement be filed in court. These two remedies contemplate two different situations. Chapter two provides a comprehensive procedure for appointment of arbitrator without the intervention of the Court. In case where the party does not invoke the provision of Chapter two he is entitled to apply to the Court that the agreement be filed. The effect of such proceeding is that the court after notice and hearing the parties and where no sufficient cause is shown, shall order the agreement to be filed and shall make order for reference to the arbitrator appointed by the parties in terms of agreement and if parties cannot agree for appointment of arbitrator the Court will appoint the arbitrator. In the present case the plaintiff has already invoked provision of Chapter two on 17‑1‑1987. The defendant No.1 could have appointed its arbitrator within 30 days from the date of notice invoking the arbitration clause by the plaintiff. The plaintiff therefore was not entitled to file application under section 20 of the Arbitration Act the next day . It should have waited till the expiry of the period required for appointment of arbitrator by defendant No.1 and in case it failed to do so the plaintiff should have taken steps as provided by the provisions of Chapter two. Section 20 (1) gives an option to a party either to proceed under Chapter two or apply to court that the agreement be filed in Court. Both these proceedings cannot be taken simultaneously. Having exercised its option to proceed under Chapter two, the plaintiff could not have filed an application under section 20 (1) for relief that the agreement be filed in Court. The next question is whether in these circumstances application under Section 41 is maintainable. Section 41 reads as follows:

41. Procedure and powers of Court. Subject to the provisions of this Act and of rules made thereunder‑‑

(a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act, and

(b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court:

Provided that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making order with respect to any of such matters.

The first part of this provision makes C.P.C. applicable to all proceedings before the Court and appeal under the Arbitration Act. The second part further provides that the purposes of and in relation to arbitration proceeding the court shall exercise such powers and pass orders as specified in the Second Schedule to Arbitration Act. The Court can pass interim orders for detention and preserving the property, custody or sale of goods, appointment of receive and grant interim injunction. Therefore it is section 41 (b) which requires interpretation. It is well settled that the order provided under second schedule can be passed only for the purposes and in relation to arbitration proceeding. Therefore whether an arbitration proceeding is pending, or not, in cases where any application under the Arbitration Act is moved in Court and is maintainable, the Court has power under Section 41 (b) to pass such orders as provided in the second schedule to the Act. An application under section 41 (b) can be filed in Court if proceeding before the arbitrator is pending, In cases where no petition under the provision of the Arbitration Act has been filed or is maintainable and there being no arbitration proceeding before the arbitrator, application under section 41 cannot be filed. The question is what is the meaning of the word 'proceeding'. It was considered by Naimuddin J (as he hen was) in M/s. Shoukat and Raza Limited Karachi v. Karachi Development Authority and others 1980 C L C 346 where after considering host of authorities and dictionary meaning it was observed as follows:‑

"According to the above meanings of the word 'proceeding', there cannot be any proceedings without there being an arbitrator or Court or authority being in existence to decide the claim or dispute and proceedings can be said to have commenced only when some action is taken before an arbitrator or Court or authority for example filing a statement of claim or dispute before an arbitrator or a plaint before a Court. In the instance case no arbitrator has yet been appointed and no reference has been made and therefore, it cannot be said that arbitration proceedings have commenced. Even if the respondents fail to appoint an arbitrator within the time mentioned in the notice served on them the applicant's remedy may be to file an application under section 8 or 20 of the Arbitration Act for appointment of an arbitrator or filing the arbitration agreement in court and referring the dispute in accordance therewith. "

In Asadullah Khan v. Karachi Shi yard Engineering Works 1979 CLC 625 Naimuddin, J. (as he then 'was) observed "therefore in the absence of appointment of arbitrator and filing of claim before him it is not possible to hold that any arbitration proceeding had commenced before filing of the present application". In the referred case, before the appointment of arbitration a application under section 41 of Arbitration Act was filed and interim order was sought restraining the Ship from directly or indirectly encashing the bank guarantee. After observing that no arbitration proceeding was pending the application was dismissed. Mr. Mansoorul Arfin has referred to A I R 1963 Cal. 594. This case and may other cases have been considered in the case of Shoukat and Ra a Limited and it is not necessary to discuss it at this stage.

Now applying these principles to the present case I find that the petitioner had issued a notice appointing arbitrator and before the expiry of the time during which the defendant No.1 could appoint its arbitrator the plaintiff filed this petition under section 41 of the Arbitration Act. There was no arbitration proceeding pending as the other side had not yet appointed its arbitrator within the period specified in the agreement. Respectfully following the dictum laid down in the aforesaid two cases in the absence of any arbitration proceeding pending and there being no other proceeding legally pending in Court as well, the petition under section 41 is not maintainable. The Petition is, therefore, dismissed, consequently the application for interim injunction is also dismissed.

A.A./C‑17/K Petition dismissed.

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