P L D 1970 Lahore 398 (PLP)

any party may serve the other parties with a written notice to concur in the appointment . . . . . (2) If the appointment is not made within fifteen clear days we after the service of the said notice, the Court may, on the w' application of the party who gave the notice and after giving p , the other parties an opportunity of being heard, appoint an arbitrator . . . . ., who shall have like power to act in the Ma reference and to make an award as if he . . . . . had been appointed by consent of all the parties." The opening word `if' in subsection (2) makes it abundantly clear that the Court's power to appoint an arbitrator comes into existence only when all proceeding conditions set out in sub section (1) are complied with namely:‑‑ (i) That there is an arbitration agreement which provides for reference to one or more arbitrators to be appointed with the consent of the parties; (ii) one of the parties has served the other with a written notice to concur in the appointment of the arbitrator or arbitrators; and (iii) that the other party to whom the notice has been sent has failed to concur in such appointment within 15 clear days after the service of notice. If any of the above conditions remains unsatisfied, it would not be within the competence of the Court to appoint arbitrator. In the instant case, there is no dispute as to the satisfaction of the first and the second conditions. Likewise, it is not denied that the contractor gave two formal notices on the 15th June 1964, and the 24th December 1961, calling upon the authority to concur in the appointment of any one of the three named gentlemen to be the sole arbitrator for the settlement of the outstanding dispute between the parties. On the plain reading of the entry in the third column of Article 181 of Limitation Act with section 8 of the Arbitration Act there can be no manner of doubt that the right to apply for the appointment of anyone of the three gentlemen as the sole arbitrator arises on the expiry of fifteen days of the notice and not at any time before that date. Conversely, unless the contractor shall have given the prescribed notice under subsection (1) of section 8 of Arbitration Act no right would have accrued to him for applying for the appoint ment of the sole arbitrator. In other words, notice under sub section (1) by one of the parties to the dispute and its non‑compliance within fifteen days of its receipt by the other is sine qua non for application under subsection (2) ibid. On this view of the matter, therefore, the right to apply for the appointment of arbitrator accrued to the contractor, on the expiry of fifteen days of the first notice dated the 15th June 1964 sent by the contractor to the authority, to concur in the appoint ment of the sole arbitrator. This makes the application well within limitation.

9. Sh. Abdul Haq learned counsel for the authority, however, argued with certain amount of vehemence that if refusal to appoint arbitrator in response to a notice under section 8 of the Arbitration Act were to be accepted as a starting point for three years limitation under Article 181 of the Limitation Act, then it would lead to some extraordinary results. It was urged that in that case a party to an arbitration agreement may delay the issuance of a notice for any number of years, say a hundred years, after the accrual of cause of action but may :nevertheless bring it within limitation by resorting to the issuance of a notice under section 8(1) of the Arbitration Act. It was, therefore, emphasised that to avoid such extraordinary results, the right to apply under section 8 of the Arbitration Act must be treated as synonymous with original cause of action giving rise to the claim for the settlement of which the arbitration is sought, so that if the application is not made within three years of the accrual of the cause of action, the remedy by say of appointment of arbitrator under section R(2) should be barred by limitation. The argument, in my opinion, is devoid of substance for, as pointed out already, there is a clear distinction between the cause of action giving rise to a claim and the right to initiate legal proceedings for the enforcement of that claim. It was observed in Secretary of State v. Balbant Singh (A I R 1933 Lah. 18), that refusal to refer to arbitration is a fundamental cause of action for the purpose of filing an agreement of reference to arbitration and mere delay, unless it might lead to an inference that the party had abandoned his right for reference to arbitration and anything short of this inference shall not make any difference. Therefore, the relevant statutory period of limitation cannot be cut down by mere inaction. It is nobody's case that the contractor in this case had in any manner abandoned his right for reference to arbitration. For the foregoing reasons, I am of the opinion that three years` limitation for application under section 8(2) of the Arbitration Act in this case started can the expiry of fifteen days after the receipt of the first notice, dated the 15th June 1964, addressed by the contractor to the authority to concur in the appointment of sole arbitrator. This makes the application well within time.

10. It was next argued by Sh. Abdul Haq, equally force fully, that the claim itself was barred by limitation for it accrued due to the contractor immediately on the completion of the contract on the Ist of June 1961, regarding which the contractor forwarded his `final bill' on the 20th July 1961. The further argument was that when a claim becomes barred by limitation there ceases to be a "subsisting claim" so as to form the subject -matter of arbitration between the parties. In support of this proposition, learned counsel strongly relied upon Official Receiver v. Cursondass Muavji (A I R 1926 Sind 209) and Uttam Chand v. Halmukind (A I R 1929 Sind 55), Privy Council case in Hirji Mulji and others v. Cheong Yne Steamship Co. Ltd. (1926 A C 497) and the recent judgment of Karachi Bench in M/s. Haji Muhammad Sharif‑Ata Muhammad v. Khoja Mitha Bhai Nathoo and others (P L D 1960 Kar. 10).

11. Before examining the efficacy of the above argument and the precedent cases upon which it proceeds, it is, in my opinion, advantageous to advert to certain facts which have a direct bearing upon the question. It is obvious that the argu ment proceeds on the pre‑supposition based upon the admission in letter dated the 5th September 1964 (Exh. D. 3), that the contractor had completed the execution of wore in the beginning of June 1961, a position reiterated in the notice dated the 15th June 1964, for the appointment of arbitrator. The argument on behalf of the authority, in essence, was, that since a suit for the recovery of the amount due to the contractor for having executed the contract would be barred by limitation after the C'‑',v Of three )ears from the Ist June 1961, there was no subsisting dispute" between the parties on the 1st of March 1965 when the contractor applied under section 8 of the Arbitration Act for the appointment of sole arbitrator and, therefore, any appointment of arbitrator was an exercise in futility. Learned Counsel for the contractor, on the other hand, stated at the Bar (and he was not contradicted by the learned counsel` for the authority) that so far no "Maintenance Certificate" has been issued by the Engineer in terms of clause 62 of Part I of the General Conditions of the Contract. Sub- clause (1) ibid, inter alia, reads: "The contract shall not be considered as completed until a Maintenance Certificate shall have been signed by the Engineer and delivered to the Employer stating that works have been completed and maintained to his satisfaction." Therefore, upon the above provision in the contract it would be a disputed question of law and fact between the parties whether the execution of work has been completed within the meaning of the above clause so as to give a start to limitation for suit.

12. Another noteworthy point is that Sh. Abdul Haq, learned counsel for the authority in his otherwise elaborate argument, was careful enough not to predicate any of any particular Article of the Limitation Act under which the contractor's suit for the recovery of the amount claimed would be barred by limitation. Under the terms of agreement between the parties, the contractor was not merely to charge the authority with the price of the work executed by him, that is to say merely for the labour and professional skill deployed in the execution of work: he also supplied the material utilised in the construction. Therefore, neither Article 56 nor Article 52 of the Limitation Act would be applicable each of which prescribes three years' limitation front the date when the work is done or the delivery of goods as the case may be. 1n Radha Kishan v. Basant Lall ((1914) 22 I C 576), a Division Bench of the Punjab Chief Court held that to a suit for the recovery of the price for the work done and of material supplied on a contract to build a house, Article 120 of the Limitation Act applies, Articles 52 and 56 being inapplicable. Later, however, in a Full Bench case, in Muhammad Ghasita v. Siraj‑ud‑Din ((1922) 46 I C 490), the Lahore High Court on somewhat similar facts took the view that the suit would be governed by Article 115 of the Limitation Act which is a residuary provision applying to all actions ex contractu not provided for otherwise. This Article provides for three years' limitation but the terminus a quo is the time "when the contract is broken" and not the date when the work is done or material is supplied. As to when the contract was broken under the terms of agreement between the parties herein is again a debatable question and may itself become a "dispute or difference" within the meaning of arbitration clause set out in the beginning. Needless to say that the clause is very widely worded and comprehends "any question or dispute arising under or in connection with (the) contract". These are words of the widest amplified and would cover all disputed questions of law and fact. Therefore, to say that there is no subsisting dispute between the parties because the contractor's claim for the recovery of the amount is barred by limitation, would amount to usurpation of the jurisdiction of the arbitrator for which there is no legal warrant.

13. There is yet another aspect of the matter arising with reference to the arbitration clause which ends up with the following provision:‑ "Reference to arbitration as aforesaid shall be a condition precedent to any other action in law." This provision is saved by the first exception to section 28 of the Contract Act, 1872, which for the relevant purpose reads:‑ "Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Exception I.

‑This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred." It was held in Koeglar v. The Coringa Oil Co. Limited ((1875) 1 Cal. 42), that; where parties have agreed that no action shall be brought until some question of amount has first been decided by a reference to arbitration, such a provision does not exclude the jurisdiction of Courts, it only stays the plaintiff's hand till some particular amount of money has been ascertained by reference. The same view was taken b5 the 1‑louse of Lords in Alexender Scot v. George Avery ((1885) 5 H L C 811). In Uttam Chand v. Balmakand one of the precedent cases relied upon by Sh. Abdul Haq, Rupchand Billaram, A. J. C. observed:‑ "Where the agreement between the parties falls within the four corners of the Exception 1 to section 28, Contract Act, which is based upon Scot v. Avery . . . . . no question of limitation can ever arise for, in that case, the claimant has no cause of action for instituting a suit so long as his damages have not been ascertained by recourse to arbitration . . . . ." It is, therefore, idle in view of the above overriding provision in the reference clause, to contend that suit by the contractor for the recovery of the claim in dispute would be barred by limitation. Unless the amount due by the authority is first determined by arbitration the cause of action for the recovery of the amount by a suit or other proceedings in a Court would not arise.

14. The four precedent cases relied upon by Sh. Abdul Haq learned counsel for the authority in support of his broad proposition that where the claim itself is barred by limitation there is no "subsisting dispute" to be referred to arbitration, in my opinion, cannot be read as laying down that wide proposition as the learned counsel sought to press. As will be seen presently, each case relied upon by him in support of his argument proceed, 4d on its own facts and did not lay down any general principle.

15. In the first case, namely, Ofcial Receiver v. Kersondas Mavji, the principal point that fell for determination of the learned A. J. C. (Rupchand Bitaram) was: Whether a receiver of the estate of a bankrupt is "a party" within the purview of section 9 of the Indian Arbitration Act, 1899, and entitled to enforce an agreement for reference in pursuance of a submission clause contained in a contract of sale of goods by appointing an arbitrator selected by him, as the sole arbitrator on the refusal of the opposite‑party to submit to arbitration? In that case, the official Receiver, acting on behalf of the insolvent purported to invest one Mr. Brachi, with the authority of the sole arbitrator on the refusal of the other party to appoint its own arbitrator pursuant to an arbitration clause contained in an agreement for sale of cotton between the insolvent and such other party. The learned A. J. C. answered the question in the negative and observed: "According to its literal or ordinary meaning, `a party' would refer to the contracting party . . . . and whatever doubts may exist as to the expression `party' having been used in sections 8 and 9 in an extended or wider sense so as to include parties and persons claiming through or under them. . . I am of opinion that the Official Receiver . . . . . does not come within the purview of this extended meaning. The Official Receiver claims adversely to the bankrupt by operation of the Statute. He cannot be compelled to be a party to the submission in a case where the bankrupt's estate is the debtor and not the creditor . . . . . ." The above answers effectively decided the case. It is true that the learned Additional Judicial Commissioner went on to observe that where at the date of the reference the claim statute barred there can be no subsisting difference to be referred to arbitration. But these observations were in the nature of obiter dicta which, I may say so with respect; I do pot fief bound to follow,

16. The second case relied upon by learned counsel for the authority namely Uttam Chand v. Balmakand S. L. was an appeal against the judgment of Tyabji, A. J. C. reported as Balmakand v. Uttam Chand (A I R 1927 Sind 177), wherein the learned A. J. C. held that a claim time‑barred according to the Limitation Act at the time of making the reference can validly form the subject‑matter of reference to arbitrator. The appeal was heard by a Division Bench comprising Percival, J. C. and Rupchand Bilaram, A. J. C. The leading judgment was by Percival, J. C. who disposed of the appeal but on different point holding that where on the basis of a contract which contained a reference clause, the plaintiff sues within time but the defendant relying on the reference clause, got the suit stayed and the matter was referred to arbitration, it was immaterial if the reference itself was made after the statutory period, the original suit being within time. What is important to point out is that the learned J. C. dismissed the appeal on the above view of the matter without adverting to the question relating to limitation. The concluding paragraph of the judgment is significant and reads: "I do not propose to go into other points connected with the question of limitation. It appears to me that the claim cannot be held to be time‑barred because the suit was filed within a requisite period of limitation. The application is, accordingly dismissed with costs," Rupeband Bilaram, A. J. C. concurred in the above view, but went on to reiterate his view in Official Receiver v. Kersondas Mavji. Therefore, the observations of Rupchand Bilaram, A. J. C., were again in the nature of obiter dicta.

17. The cases referred to above were noticed in the recent case of Muhammad Sharif‑Atta Muhammad v. Mithabhai Narhoo also relied upon by Sh. Abdul Haq, wherein Qadeeruddin Ahmad, J. observed: "When a claim submitted for decision by arbitration is disputed as barred by time, the Court is to see whether the dispute is real or a mere pretence. If it is real, then it can be a proper subject for arbitration . . . . ." His Lordship went on to observe that when "the dispute is genuine" the authority of the arbitrator cannot be revoked under section 5 nor any relief can otherwise be granted under section 33 of the Arbitration Act, "merely on the ground that the claim is disputed as barred by time". Thus it will be seen that this case also does not advance the wide proposition canvassed on behalf of the authority. Rather it supports the contractor's claim for seeking reference to arbitration, for it would be a traversity of facts to suggest, that the dispute between the parties in this case is not "real" but is a "mere pretence". It may be pointed out that of Rs. 3,73,854.90 claimed by the contractor Rs. 99,400 are claimed as what are described as "retainage" deducted from the monthly running bills of the contractor by way of security under clause 6.2 of the Contract, which the authority is bound to pay on the successful completion of the contract.

18. In the Privy Council case in Hirji Mulji v. Choeong, the main question that fell for determination of their Lordships was whether, where the object of the contract which contained an arbitration clause was completely frustrated by causes beyond the control of the contracting parties, the arbitration clause would also come to an end so that the arbitrator would cease to have jurisdiction to deal with any dispute arising under the contract. The question was answered in the affirmative. It cannot be gainsaid that therefore unenforceable on the principle of frustration is wholly different from a claim becoming unenforce able as being statute barred. In the latter case the claim itself does not become void; it merely becomes unenforceable by a suit. But there is nothing in law to prevent such a claim being pleaded in defence.

19. Section 37(1) of the Arbitration Act applies to all provisions of the Limitation Act to arbitration proceedings "as they apply to proceedings in Court". Therefore, proceedings before arbitrator are regarded by the Legislature as proceedings in the nature of suit. As pointed out already that expiry of limitation does not destroy the debt, it merely bars the remedy. It cannot, therefore, be said that in terms, the provisions of the Limitation Act, ab initio, prevent an arbitrator from entertaining a claim, which if made, in a Court of law may be barred by limitation. It can scarcely be controverted that the question whether the contractor's claim is barred by limitation, is a "dispute . . . . . arising in connection with (the) contract" and, therefore, in the absence of any limiting words in the clause itself, reference of such dispute to the arbitrator, must fall for his determination. In Board of Trade v. Cayzer Irvine & Co. ((1927) A C 610), Viscount Cave, L. C. observed: ". . . . an arbitrator acting under an ordinary submission to arbitration is bound to give effect to all legal defences, including a defence under any statute of limitation." In the same case, Lord Phillimore, said: "Where an action in progress is referred to arbitrators for disposal, and no special directions are given limiting or conditioning the functions to arbitrators, as for instance directing them, as I have known it happen, to take account of moral or social considerations, the arbitrators must decide the case as a Judge would or as an official referee would, and give effect to all legal defences such as the Statute of Limitation." In Re : Astley and Tyidesley Coal & Salt Co. ((1899) 68 L J Q B 252), it was observed: ". . . a submission to arbitration does not per se exclude the right of either party to raise the defence of the Statute of Limitation, but if it be intended to exclude such a defence an express term to that effect must be imported into the agreement of submission."

20. On the above review of the judicial precedents I have no doubt in my mind, that reference to arbitration cannot be throttled merely because the authority's plea that the contractor's claim against it is barred by limitation. Apart from the deter mination of the amount of the contractor's claim, it will also be the arbitrator's duty to further determine whether the claim or any part thereof is barred by limitation. To refuse reference to arbitrator on the plea of the authority that contractor's claim is barred, would be a usurpation of the jurisdiction of the arbitrator, for‑in essence, it would amount to a finding by this Court that the claim is barred by limitation, which, as discussed already, is wholly for the arbitrator to decide, under the arbitration clause.

21. For the foregoing reasons, I would dismiss the revision, though filed as appeal, with costs. MUHAMMAD AKRAM, J.‑

I agree. A.E. Revision dismissed.