1979 PLP 625 (CLC)

Samiuddin Sami for Respondents; This is an application filed by Asanullah Khan & Co. Ltd. the applicant. under section 41 of the Arbitration Act, 1940 (hereinafter called as the Act) read with para. 4 of the Second Schedule to the Act praying for an injunction restraining the Karachi Shipyard and Engineering Works Ltd., respondent No. 1, its agents and employees from directly or indirectly encashing the two bank guarantees issued by the National Bank of Pakistan respondent No. 2, mentioned in the application until the sole arbitrator makes his award in terms of the arbitration envisaged under the contract. This application arises under the following circumstances l: . The applicant and respondent No, I entered into a contract dated 16th October 1976, whereby the applicant undertook on behalf of respondent No. 1 to act as its clearing agent, till 31st August 1977, unless extended by mutual consent, to clear their consignments from customs on the terms and conditions mentioned in the contract. One of the term and condition of the contract was that advances will be made by respondent No. 1 to applicant for the purposes of payment of customs duty, sales-tax, custom examination fees, con veying charges, K. P. T. wharfage charges, K. M. C. octroi and other charges mentioned in the contract. It was also stipulated that the applicant shall furnish two bank guarantees, one for performance of the contract in the sum of Rs. 50,000, and the other for Rs. 100,000 as security for the advances to be made by respondent No. 1 to the applicant from time to time. The contract also contains arbitration agreement in clause 27 thereof which reads as follows : "All disputes, differences and questions which may, at any time arise between the parties hereto or their respective representatives, in respect of this agreement, the subject matter, therefor, shall be referred to a single Arbitrator in accordance with the provisions of the Arbitration Act, 1940 (X of 1940) or any statutory modification re-exactment there of for the time being in force." The applicant accordingly furnished the two back guarantees and there after according to the averments made in the application cleared several consignments belonging to respondent from the Karachi Port Trust. However, it appears dispute arose inter alia, regarding the payment of demurrage imposed by K. P. T. on various consignments on account of delay in clearance of consign ments. Respondent No. 1 claimed that demurrage was imposed due to the negligence and default of the applicant and not due to factors beyond its control. Dispute also arose with regard to the non-payment of advances to the applicant under the contract, which the respondent No. 1 denied. Under these circumstances respondent threatened to encash two bank guarantees issued by the National Bank of Pakistan, respondent No.

2. Therefore the applicant sent the following telegram to respondent No. 1 In our meeting lastly taking place today we have urged your reconsidera tion for non-encashment of Bank Guarantees which action is both illegal and arbitrary. You indicated that guarantees be encashed and dispute be referred to arbitration. We pressed for arbitration of either Mr. Justice (Retd.) M. B. Ahmed or Mr. Shaukat Ali Additional Finance Secretary, Government of Sind. Karachi, or Mr. Yousuf Jamal Managing Director Site Ltd. Karachi. Upon adjudication by sole arbitrator if found liable ready and willing encashment of guarantee without recourse to us. Meanwhile reiterate our unconditional offer Extend Bank Guarantee. Mohafiz." But it appears respondent No. 1 wrote to respondent No. 2 for payment of the amount of guarantees. Therefore the applicant filed the present application for injunction restraining respondent No. 1 from encashing the bank guarantees and also seeking ad interim injunction. However, this Court issued notice of this application for 1-9-1977, before passing any interim order. On this date Mr. Samiuddin Sami Advocate for respondent No. 1 appeared and requested for time to file counter-affidavit and agreed that respondent No. 1 would maintain status quo till the hearing of the application, Respondent No. 1 has raised several objections to this application. The first one is as to the maintainability of the application. It is contended by Mr. Samiuddin Sami that an application under section 41 would lie only if there are any proceedings pending before the Court or before the arbitrators. It is submitted by him that in the present case no proceedings were pending in this Court when this application was filed and similarly no arbitration proceedings were pending before any arbitrator as the application was filed 2 or 3 days after sending the telegram. It is an admitted position that no proceedings were pending in this Court when the present application was filed. However, Mr. Nasim Farooqui says that subsequently he has filed an application under section 20 of the Arbitration Act in this Court and, therefore, he contends that the proceedings are pending. Alternatively, he contends that the proceedings commenced with the service of telegram quoted above and, therefore, the requirement of section 41 of the Arbitration Act were fulfilled to pass orders in respect of matters enumerated in para. 4 of the Second Schedule. In order to appreciate the contentions it would be convenient to quote section 41 of the Arbitration Act which reads as follows :, "

41. Subject to the provisions of this Act and of rules made there under.-(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 purposes of, and in relation to, arbitration a 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 orders with respect to any of such matters." Paragraph 4 of Second Schedule to the Arbitration Act gives power to the Court to issue interim injunction or appoint receivers in cases covered by section 41 of the Arbitration Act. It will be noticed that the powers conferred on the Court under the Second Schedule to Arbitration Act could be exercised only if any proceedings were pending before the Court or in relation to arbitration proceedings and not otherwise. As stated above it is an admitted position that on the date when the present application was filed no proceedings were pending in this Court. Admittedly the application, under section 20 of the Arbitration Act if any, has been filed subsequently. The provisions of section 41, subsection (1) of the Arbitration Act envisage an application thereunder only if some proceedings are pending before the Court such as under sections 8, 9, 11 or 20 of the Arbitration Act. In Ramchand & Sons v. Governor-General-in-Council (A I R 1947 Sind 147) it was held by Davis, C. J. that the application of the provisions of the Civil Procedure Code is subsequent to the application to file arbitration agreement and cannot have retrospective effect. Although the observations made in the quoted judgment are in regard to a notice under section 80, C. P. C., but the observation in my opinion, apply to the present case also. Therefore the filing of the application under section 20 of the Arbitration Act subsequent to the present application would not make the application under considera tion valid under the provisions of section 41 of the Arbitration Act. Some support in my view, can also be drawn from. the judgment of a learned Single Judge of this Court in Jamiat Industries Ltd. v. Messrs Pakistan Refineries Ltd., Karachi (P L D 1976 Kar. 644), wherein his Lordship while considering the two applications, one under section 20 and the other under section 41 of the Arbitration Act observed that the consideration of the second application. would arise only in the event the main petition succeeds. Considering next contention there is no doubt that the power of the' Court under the Second Schedule to the Arbitration Act can be exercised even in a case where the reference to arbitration has been made without the intervention of the Court, and no proceedings are pending in connection c therewith in any Court. However, the question that falls for consideration is whether any arbitration proceedings were pending when the present application for interim injunction. was filed. Mr. Nasim Farooqui, the learned counsel, for the applicant submitted that the applicant had already served a notice by telegram which has been quoted herein before in extenso, ate, luiring respondent No. 1 to agree to arbitration of either Justice (retired) M. B. .Ahmed or Shoukat Ali, Additional Finance Secretary, Government of Sind or Yousuf Jamal, Managing Director, Site Limited, Karachi. On the other hand, Mr. Samiuddin Sami contends that this telegram was an invitation to agree to the appointment of one of persons named therein as an arbitrator, but it cannot be said that by it arbitration proceedings commenced. He submitted that arbitration proceedings commence when an arbitrator or arbitrators, as the case may be, is or are appointed and he or they enter upon the reference and a claim is preferred before him or them. He submitted that in the present case no arbitrator was appointed before the filing of the present application and as such there was no question of the arbitrator entering upon the reference and any claim being preferred before him. He, therefore, argued that it cannot be said that any arbitration proceedings had commenced or were pending within the meaning of clause (b) of section 41 of the Act. I am inclined to agree with the contention of Mr. Samiuddin for the term proceedings on its general acceptation means the form in which the action is brought or defended, the manner of intervention by the parties, the mode of deciding issues of opposing judgments and of executing as was held in Dhanalakshmi Amal v. Income-tax Officer, IInd Additional City Circle 11, Madras and others (1959 P T D 153) and according to Halsbuey's Laws (3rd Edn.), 5, 6, the term proceeding "is frequently used to note a step in an action." Therefore, in the absence of appointment of arbitrator and filing of claim before him, it is not possible to hold that any arbitration proceedings had commenced before the filing of the present application. By the telegram in question neither an arbitrator was appointed nor does it contain the claim. I, therefore, held that the present application was prematurely filed and is not maintainable and I accordingly dismiss it. In the consequence G the ad interim order passed on the 18th September, 1977, is hereby vacated, I may, however, state that this order will not preclude the Applicant from making fresh application, if so advised. Application dismissed.