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Letters Patent Appeals No. 69 and 70 of 1959, decided on 28th March 1963.

("Factory Selection Contract") Arbitration held in accordance with Bye‑law 39‑1 instead o/' Bye‑law 39‑11, Pakistan Cotton Association‑Party, on request of other party, agreeing by letters to appoint arbitrator on its own behalf in accordance with Bye‑law 39‑1‑Arbitrators and umpire, held, had jurisdiction to arbitrate or give award‑Formal agreement in regard to modified procedure in arbitration not necessary‑Arbitration Act (X of 1940), S. 2‑[Messrs Faridsons Ltd. v. Messrs S. M, Fazail & Co. P L D 1954 Sind 247 distinguished; Messrs Munawar & Co. v. Messrs S. A. Rauf & Co. P L D 1959 Kar. 325, considered].

E. V. Castellino for Appellants.

Ali Raza for Respondents.

Dates of hearing ‑ 8th and 12th March 1963.

‑These two Letters Patent Appeals (Nos. 69 and 70 of 1959) have arisen out of two agreements entered into between the parties on the 29th December 1950, and the god January 1951, for the sale of 500 bales of cotton. The arbitration clause in the two agreements was to the effect that all disputes, if any, between the parties were to be referred to arbitration under the rules of the Karachi Cotton Association Limited, Karachi, and the arbitration was to be subject to the Bye‑laws of that Association. Disputes having arisen between the parties, the appellants. namely, the Valika Textile Mills Ltd. appointed an arbitrator and requested the respondents to appoint the second arbitrator, in accordance with Bye‑Law 39 of the Pakistan Cotton Association Limited, Karachi. This request was acceded to by the respondents and they nominated an arbitrator on their behalf. After further exchange of correspondence between the parties, to which we will presently refer, one Mr. Babulal Naraindas, who had been appointed as an umpire, gave an award in favour of the appellants on the 27th September 1954, in respect of the breach of the two contracts. The respon dents filed an application under sections 30 and 33 of the Arbitration Act, 1940 to challenge the validity of that award and that application was accepted by a Single Judge of this Court on the 12th of November 1959, by means of two separate orders passed on the same date. It is against these orders that these two letters patent appeals have been filed.

2. The contracts between the parties are technically des cribed as "Factory Selection Contracts" and at the relevant time Bye‑Law 140, which has now been substituted by Bye‑Law 39‑II, of the Karachi Cotton Association Limited was applicable for the purpose of deciding all disputes arising out of such contracts. In the matter of arbitration, disputes relating to contracts, other than Factory Selection Contracts, were then governed by Bye- Law 39, the corresponding Bye‑Law, at present, being No. 39‑I. The main difference between the two Bye‑laws is that while under the former the arbitrators are to be selected by ballot from a panel of 36 arbitrators consisting of buyers, exporters and sellers, under Bye‑Law 39‑I each party to the dispute is required to appoint one arbitrator and in the event of the two arbitrators not agreeing, the Board of Directors are to appoint an umpire. Under Bye‑Law 39‑I1 (Old No. 140), in case of difference of opinion between the arbitrators, the umpire is to be appointed from amongst the panel of arbitrators by ballot.

3. Although the contracts in this case were Factory Selection Contracts and although in matters of dispute Bye‑Law 140 applied, in the first letter (dated the 21st March 1951) addressed by the appellants to the respondents, which is repro duced below, reference was made to Bye‑Law 39 of the Pakistan Cotton Association Limited, Karachi, and not to Bye‑Law 140 of the Karachi Cotton Association. This letter read as follows :‑.

"With reference to our letter No. V/4831, dated the 19th instant, we (torn) till now you have not sent us a cheque for Rs. 72,720 being the difference at the rate of Rs. 50‑8‑0 per Md. on the total of 1440.

Under the Bye‑Law 39 of the Pakistan Cotton Association Limited, Karachi, we appointed Mr. Kandawala as our arbi trator and request you to appoint your arbitrator within 7 days from the receipt of this letter. If you fail to do so, the decision given by Mr. Kandawala, our arbitrator, will be final, for which you will be responsible."

4. This letter was replied to by the respondents by means of the letter dated the 26th March 1951 and in pursuance of the request made by the appellants, they agreed to appoint an arbitrator on their behalf. This letter reads as follows :‑

"With reference to your letter No. V/4890, dated the 23rd March 1951, we have noted the name of your arbitrator and are pleased to appoint Mian Ferozuddin Saheb of Messrs Amin Feroze & Co., as to arbitrate on our behalf."

5. On the 8th September 1951 the appellants addressed another letter on this subject to the respondents, in which they informed them that the arbitrators already appointed were "evading the quick disposal of the dispute" or had no time for this purpose and a request was made to the respondents to nominate another arbitrator because the appellants had nomi nated an arbitrator in place of Mr. Kandawala. The relevant part of this letter was worded as follows :‑

"Under the circumstances, our arbitrator Mr. K. U. Kandawala has expressed his inability to arbitrate on our behalf in the dispute in question. We, therefore, appoint on our behalf Mr. R. K. Doctor of M/s. China Cotton Exporters, Karachi, as our arbitrator and request you to appoint one on your behalf within seven days as laid down in Rules, failing which we shall appoint an arbitrator on your behalf, which please note."

6. This request made by the appellants was also acceded to by the respondents, who appointed another arbitrator on their behalf, and conveyed this information to the appellants by means of their letter of 2nd January 1952, which is in the following words :‑

"We thank you for your Letter No. V/SK/1706, dated 26 12‑1951, and have to impress on you that we earnestly desire amicable settlement of our disputes, but as you want another arbitrator we appoint Mr. Haji Ishaq of M/s. Haji Muhammad Ishaq‑Dost Muhammad."

7. Mr. R. K. Doctor, who had been appointed as an arbitrator by the appellants, declined to proceed on with the work entrusted to him and in a letter dated the 16th July 1952, addressed to the Secretary, Karachi Cotton Associa tion Ltd., Karachi informed him that he had resigned from the office and asked him to convey this information to the parties. He sent a copy of this letter to both the parties. The second paragraph of this letter, which is important for the purpose of these appeals, is reproduced below :‑

"I had approached you in the matter soon after the decision of Mr. Haji Muhammad Ishaq to consult in the matter, and you had given your opinion that any arbitrator can resign at any time. Under the circumstances, I have to inform you that I am compelled to resign from this case. Kindly inform the parties of the position of the case and please advise them to go into arbitration under Bye‑law No. 140 of the Factory Selection Contract, Please note that I am now returning the files of their documents of the said case."

8. It may be pointed out that although one of the arbitrators had informed the parties that in the matter of arbitration, arising out of Factory Selection Contracts, the relevant Bye‑law appli cable was No. 140 of the Karachi Cotton Association Limited, no action appears to have been taken by the parties to have. recourse to this Bye‑law for the purposes of selecting arbitrators by ballot from the penal of arbitrators kept by the Association.

9. On the 21st November 1952, the appellants sent a notice, through a counsel, to the respondents intimating them of the appointment of Mr. R. K. Doctor as one of the arbitrators and requesting them to appoint another arbitrator on their behalf. In another letter addressed by the counsel to the respondents on the 13th December 1952, in reply to a letter dated the 9th December 1952, which has not been produced before us, the respondents were informed that one Hamid Seth had been appointed as an arbitrator on their behalf, because they had failed to nominate an arbitrator of their own. On the 15th January 1953, a letter was addressed by the arbitrators to the parties informing them that one S. Abdur Rehman had been appointed as an Umpire under Bye‑Law 39. Two other letters were sent to the respondents by the appellants through a counsel, on the 12th February 1953 in which, after stating all the relevant facts, they were informed that the notice appointing Mr. Hamid Seth as an arbitrator on behalf of the respondents had been withdrawn and a request was made to them to appoint an arbitrator on their behalf.

10. The appellants moved an application under section 8 of the Arbitration Act before the Chief Court of Sind, which appears to have been dismissed by the Court on the 10th of November 1953, on the ground that no such application lay. This fact was brought to the notice of the respondents specifically by means of two letters sent to them through a counsel, on the 23rd November 1953. As the arbitrators already appointed had failed to give an award, the appellants appointed one Muhammad Yahya as an arbitrator on their behalf and one Haji Hassanali Peerbhai as an arbitrator on behalf of the respondents and information of this fact was conveyed to the respondents, through a counsel, by means of two letters dated the 16th December 1953. On the 20th January 1954, the newly‑appointed arbitrators took proceedings in the presence of both the parties. The represen tative appearing on behalf of the respondents objected to the proceedings and made a request that time may be given to them for moving a petition in the Chief Court. On the 11^th February 1954, in proceedings before the arbitrators, one Mukarram Ali who appeared on behalf of the respondents, again lodged a protest. The precise nature of this protest was, however, not disclosed until the 23rd February 1954 when, for the first time Mr. Mukarram Ali, who was appearing on behalf of the respon dents, stated, in writing, that the proceedings were not being taken in accordance with Bye‑Law 39‑11 (old No. 140). The proceedings ware adjourned from that date to the 3rd March 1954, then to the 24th March 1954 and, again to the 3rd April 1954.

11. As it appears that there was difference of opinion between the arbitrators, the matter was referred to Mr. Babulal Naraindas, who had been appointed as an umpire by the two arbitrators on the 23rd January 1954. The umpire sent a notice to the parties asking them to appear before him on the 27th July 1954. From that date the proceedings were adjourned by the umpire to the 31st August 1954, due notice of which was given to both parties. On both the dates of hearing the respondents were represented by one Mr. Anis Ahmed before the umpire, but he protested against the proceedings. The umpire then gave an award on the 27^th September 1954 and informed the parties of this fact by means of a written notice.

12. From the history of the case which has been reproduced above, it would appear that although the case was governed by Bye‑Law 39‑II (old No. 140) and the arbitrators had to be chosen by ballot, from the penal of arbitrators kept by the Karachi Cotton Association, the contracts in question being Factory Selection Contracts, the procedure followed by the parties, in the matter of appointment of arbitrators, was that laid down in Bye‑Law 39‑1 (old 39) and no objection of any kind was taken by the respondents until the 9th December 1952, but even up to that date the precise nature of the objection was not disclosed by the respondents. The respondents did not even take action under old Bye‑Law 140, after they were informed by Mr. R. K. Doctor, by means of his letter, dated the 16th July 1952, that such contracts were governed by that Bye‑law. On the other hand, the respondents in their letters dated the 26th March 1951 and the 2nd January 1952, addressed to the appellants in reply to the latter's request, accepted the position that the matter was covered by Bye‑Law 39‑1 (old 39) and the arbitrators had to be appointed by the parties themselves and not through intervention of the Karachi Cotton Association Limited. On the 20th January 1954, also, when a representative of the respondents appeared before the arbitrators and lodged a protest, it was not alleged that the arbitration proceedings were being taken wrongly under Bye‑Law 39‑1 (old 39). It was on the 23rd February 1954, for the first time, that Mukarram Ali, a representative of the respondents, pointed out to the arbitrators that their appointment was not in accordance with Bye‑Law 39‑I1 and was, therefore, not correct.

13. The view of the learned Single Judge, who accepted the application of the respondents, was that the procedure that was followed by the appellants was in accordance with Bye‑Law 39‑1 (old 39) and not in accordance with Bye‑Law 39‑II (old 140) and, therefore, by doing so the proceedings had been vitiated. The learned Judge also held that the parties could not orally make a substantial modification in the written agreement and as the subsequent change was made orally, the modification did not confer any jurisdiction on the arbitrators or the umpire.

14. There can be no doubt that, according to section 2 of the Arbitration Act an agreement to refer present, or future, difference to arbitration must be by means of a written agreement, but with all due respect to the learned Judge, we are unable to agree with him that, in this case, the subsequent agreement modifying the original agreement was an oral one and had not been reduced to writing. As stated above, on two occasions when a request was made to the res pondents to appoint an arbitrator on their behalf, they acceded to their request and, without raising any objection, nominated an arbitrator. Both parties should be presumed to have been aware that in a matter of this kind where the dispute was about Factory Selection Contracts, ‑the arbitrators maintained by the Karachi Cotton Association, but there was nothing to prevent them from agreeing to a different mode of arbitration, if that agreement was also in writing. It was, in our opinion, not necessary for the parties to enter into a fresh formal agreement for referring their disputes to arbitration and the change, if any, could be made by exchange of letters, or by some other mode, provided the modified agreement was in writing and was not an oral one. By accepting the proposals contained in the two letters addressed to the respondents by the appellants, they should be deemed to have agreed, in writing, to follow the procedure laid down in Bye‑Law 39‑1 (old 39) instead of the procedure laid down in Bye‑Law 39‑II (old 140), as was necessary under the original agreement between the parties.

15. The learned counsel for the respondents referred to Messrs Faridsons Ltd. v. Messrs S. M. Fazail & Co. (P L D 1954 Sind 247) a case decided by one of us, in which it was held that where the parties are governed by Bye‑Law 140 and if the dispute had been referred according to Bye‑Law 39, the award was liable to be set aside on that ground. The facts of that case were different from those of the present one, because the defendants had not agreed to the appointment of arbitrators under Bye‑Law 39 and had protested against the appointment as soon as the matter was brought to their notice. The following passage at page 248 of the judgment makes the position quite clear

"The plaintiffs by their letter of 31st March 1952 contended that as there was a dispute between the parties regarding the contract, they had appointed their arbitrator and called upon the defendants to appoint their arbitrator according to Bye‑Law 39 of the Karachi Cotton Association Limited. It would appear from the letters purported to be on behalf of the defen dants that they protested against the appointment of the arbitrator."

16. It was not contended before the Court, in that case, that the defendants had agreed to the appointment of arbitrators in terms of Bye‑Law 39 or that their agreement was in writing. The observations made in that case, therefore, are of no avail to the respondents.

17. In Munawar & Co. v. Messrs S. A. Rauf & Co (P L D 1959 Kar. 325), which has been referred to in the judgment of the learned Single Judge, it was held that alterations relating to the appointment of an umpire or arbitrator are alterations of a substantial condition of the agreement and such alterations are to be evidenced by writing as required by section 2 of the Arbitration Act. It was also held that mere submission to the arbitration was not enough. There is no quarrel with these two propositions of law and it was conceded by the learned counsel for the appellants that no modification of the original agreement could be made verbally and that by submission to arbitration alone it could not be presumed that there had been such a modification. It was, however, contended by him that in the present case the respondents not only submitted to the arbitration of the two arbitrators, but also agreed in writing to the appointment of arbitrators as required by Bye‑Law 39‑1 (old 39) and, hence, the original agreement stood modified.

18. Keeping in mind the facts of this case and for reasons given above we are of opinion that although the original agree ment between the parties required that the arbitration should be in accordance with Bye‑Law 39‑11 (old 140), that agreement was modified, in writing, when the respondents agreed to appoint arbitrators on their behalf and, hence, the arbitrators as well as the umpire had jurisdiction in the matter. We, therefore, accept both the appeals with costs, set aside the orders of the learned Single Judge and remand the case for re‑decision on merits.

A. H.

Appeals accepted

Case remanded.

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