1986 PLP 1350 (CLC)

9. I may state that substantially the same contentions were raised by the learned counsel for the appellant before the Umpire as well as the learned Single Judge before whom the application for making the award of the Umpire rule of the Court had come up for consideration. The learned counsel argued at length and cited a number of cases but before examining them it would be relevant not to lose sight of the settled principle that the arbitrators/ umpire are Judges of law and facts and that the Courts are not expected to act as Courts of appeal over the award/decision given by them and that an award as provides by section 30 of the Arbitration Act, 1940 which reads as follows:‑ "

30. Grounds for setting aside award‑‑ The award shall not be set aside except on one or more of the following grounds, namely:‑ (a) That an Arbitrator or Umpire has mis-conducted himself or the proceedings: (b) That an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35; (c) That an award has been improperly procured or is otherwise invalid." Under the provisions of section 26‑A incorporated in the Act of 1940 by Arbitration (Amendment) Ordinance No.XV of 1981, an arbitrator/ umpire is required to state in the award reasons for the award in sufficient details to enable the Court to consider any question of law arising out of the award. It has also been provided that in case reasons for the award in sufficient details are not stated, the Court shall remit the award to the arbitrator or umpire and fix the time , within which the award together with reasons in sufficient details shall be submitted. These provisions are applicable to the award which is subject‑matter of this appeal by reason of section 3 of the aforementioned Ordinance of 1981. In the light of above legal position, I would now consider the points raised by Mr. S.M. Noorul Hassan, learned counsel for the appellant.

10. Mr. Noorul Hassan, learned counsel for the appellant cited a number of cases on the points urged by him to which I may briefly refer herein below. (1) Smith v. Martin (1925) (94) LJKB 645 (1925‑1 KB 745). In the cited case, the form of building contract inter alia provided that in case any difference shall arise between the building owner and the builder as to the construction of the contract or as to any matter arising thereunder such difference is to be referred to arbitration, but that "such reference shall not be opened until after completion of the works. As the builder during progress of certain works determined the contract for the reasons, which being not relevant for this case are not reproduced here, commenced arbitration proceedings. The learned Court, however, held, the said arbitration proceedings as premature (the work having not been completed) in view of the language of the arbitration clause referred above. I have carefully considered the cited case and find that the principles on which it was decided are not attracted in the matter before us. (2) Province of West Pakistan v. Spinning Mills Ltd. P L D 1962 Kar.

386. The facts of the said case were that an application under sectior 30 and 33 of the Arbitration Act, 1940 was filed setting out grounds attack upon an award. The said application was accompanied by the production of a copy of the award. It was however, dismissed by the learned District Judge and thus the controversy became subject‑matte of appeal preferred in the High Court. Dealing with the argument advanced by the learned counsel that the petition was framed not mere to contest the award but to contest the arbitration agreement contain, as it was for a contract of which the validity was disputed, the learn, Court held:‑ " There is no doubt that under section 33, a party ma: apply to the Court for adjudication on the point whether and arbitration agreement is in existence or valid, but once it alleged that an award has been made in purported pursuance such an agreement, the attack upon the agreement, becomes attack upon the award, he quoted the remarks of Chagla, J. the case cited above as under: "If a question arises with regard to the validity, effect of existence of an arbitration agreement, then the question has go' to be decided by the Court in which the award which ma3 result from that arbitration agreement may be filed." But this quotation cannot be divorced from the passage which follows immediately: "If the question is with regard to the award itself, then the question has got to be determined by the Court in which the award has been filed." "There can obviously be cases where, without an award having been made, a party wishes to dispute the validity or existence of an arbitration agreement. But once the award has been given, then it is the award which must be challenged. There may be of course cases where a party against whom an award has been made, but not filed in Court, wishes to challenge the validity of a purported arbitration agreement in order to prevent any further proceedings in arbitration upon other matters, . . . .. . .." In the above‑cited case the question which finally arose for consideration was, "whether the party who desires to challenge an award can do so before it has been filed in the Court under the provisions of section 14, Arbitration Act". The learned Judge after discussing the law answered the question in the affirmative. I may mention here that against this judgment of the High Court the respondent had applied for leave to appeal to. the Honourable Supreme Court but the same was refused with the observation that validity of the award could be challenged even though original award had not been filed in Court. It was further observed that the Government/ respondent No. 1 had filed a copy of the award and, therefore, the question whether the award could be set aside without filing the original award was purely an academic one, Faqir Spinning Mills Ltd. v. Government of West Pakistan and others 1970 S C M R 186. (3) Water and Power Development Authority v. Abdul Razzaq Muhammad lqbal P L D 1977 Iah.

5. This case was relied upon by the learned counsel in support of his contention that in case a dispute as to factum or validity of a contract is raised before the arbitrator he would not have jurisdiction to decide such a question. In the said case, it was held that the arbitration clause is confined to the dispute arising out of the agreement and as such its language cannot include a dispute as to the factum or the validity of the contract itself. It was further held that the denial of the factum of the contract is the denial of the submission clause and the denial of jurisdiction of the arbitrator. It was further held that the existence or validity of the submission clause can be decided only by a civil Court. To the extent the principles have been laid down in the cited cases there cannot be any other opinion. Such however, is not the case before us in which the arbitration clause or the contract has not been disputed but the only plea raised is that there has been remission of the claim and that there was novation of the contract whereby the scope of the arbitration clause was narrowed down for determination of three claims which were mentioned in the letter, dated 27th March, 1979.

11. Learned counsel however, relied upon the case of Union of India v. B.C. Nawn (Bros.) Ltd. A I R 1961 Cal. 630 wherein it was held that in a case where the original contract containing arbitration agreement is extinguished by a settlement contract i.e. the settlement is in full satisfaction of the original contract, no dispute is left outstanding to be adjusted by arbitration and that if any dispute arises that must be a dispute under the settlement contract and such a dispute is not covered by the arbitration clause in the original contract for the simple reason that the original contract is dead and alongwith it the arbitration clause. It was further held that if however all the disputes in respect of the contract containing arbitration clause are not settled and some remain still outstanding and have yet to be adjusted, the contract is not dead but is still alive with the contract and the arbitration clause remains alive but for the limited purpose. The scope and extent of arbitration agreement in spite of its wide scope is only kept alive in respect only to such dispute under the contract as has not been settled. Learned counsel also relied upon the case reported as Shori Lal v. Sardari Lal A I R 1963 Pb. 165 where it was held that like all contracts the arbitration agreement is a contract and that unless there is any specific prohibition in the statute the contract can be revoked, altered or varied by the parties to the contract. The learned counsel for the appellants placed reliance also on the provisions of section 63 of the Contract Act which provides that every promissor may dispense with or remit wholly or in part the performance of the promise made to him or may extend the time for such performance or may accept instead of it any satisfaction which he thinks fit.

12. As to the point No. 1 raised in this appeal it may be observed that a reading of the award shows that before the learned Umpire objection was not taken in the form as now urged before us. I have already reproduced above the preliminary issues framed by the Umpire with the consent of the parties a reading of which shows that no such plea was taken before the learned Umpire. In that the preliminary Issue No. (a) question which came up for consideration before the Umpire was if the arbitration was barred by reason of clause 27 of the conditions of contract. This issue was dealt with by the learned Umpire in para. 5 of the award, wherein interpreting said arbitration clause. It was observed that its language is wide enough to cover the claim submitted by the respondent. At the same time, the learned Umpire cited the cases reported as Province of West Pakistan v. Fakir Spinning Mills Ltd. (ibid) and WAPDA v. Abdul Razzaq Muhammad Iqbal (ibid) affirming the principle that the jurisdiction of the Umpire cannot be decided by the arbitrator or the Umpire. This being the settled principle of law even before the learned Single Judge none of the parties contested its correctness. The contention of the learned counsel that once the' question of want of jurisdiction of the arbitrator/ Umpire as to the maintainability of the claim is raised they for that reason alone are precluded from proceeding with the case could hardly be accepted as an absolute rule. In my opinion, if a party raises such an objection before the arbitrator who however nevertheless decided to enter upon consideration of a matter, which according to the said party was not preferred to him or was beyond the scope of arbitration clause/ jurisdiction, it is open to him to object to the arbitrators entering upon reference and then appear under protest and continue to attend before the arbitrators and cross‑examine the witness on the point objected to. By adopting such a course the party does not thereby waive his objection, nor he is estopped from saying that the arbitrators have exceeded from authority by awarding on the matter. (Russel on Arbitration 19th Edition page 275) . The learned author in his said treatise has further observed that the parties objecting to the proceedings before an arbitrator may withdraw from the proceeding in case the arbitrator in spite of the objection continues with the consideration of the matter or withdraw from the proceeding. The legal implications following from the procedure that may be adopted have been summarised at para. 274 as follows:‑ "For while withdrawal will undoubtedly preserve the right to object later to the irreqularity concerned, it is dangerous; if the objection is ill‑founded, or the irregularity is sufficient to invalidate an award, the arbitrator may properly go on with the proceedings in the absence of the objecting party. Thus, that party may ultimately find that an award is made against him in his absence, yet he is unable to have it set aside."

13. The learned counsel was unable to cite any rule or law under which an arbitrator merely for the reason that objection to his jurisdiction has been taken is totally debarred from proceeding with the reference made to him. It would however, be correct to say that ultimately the question of jurisdiction of the arbitrator is to be decided by the civil Court who can always pronounce if the jurisdiction were assumed rightly or otherwise. The learned Single Judge in the impugned judgment has taken notice of the fact that the Umpire refused to go into the question r of jurisdiction of the arbitrators and the Umpire, with regard to the maintainability of the claim on the ground that such a question was not open for decision by the Umpire or the arbitrators and is to be decided by the Court. With the conclusion thus reached, I do not find any reason to disagree.

14. As to the point No. 2 raised as abovementioned the learned counsel for the appellants submitted that by the letter, dated 27th March, 1969 the respondent /claimant remitted all claims except those 3 which were mentioned in it. It was argued that the arbitration clause like any other contract can always be varied by mutual consent A I P 1963 Pb. 165 and that by remission which according to the counsel could be spelt out from the letter of 27th March, 1979 written by the respondent/ claimant the scope of the arbitration clause was narrowed down to the adjustment /adjudication of the 3 claims mentioned therein. It is not the case of the appellants that the arbitration clause was extinguished as a whole or that it was in any manner modified or altered. The plea of the appellants was that the respondent had remitted all but three claims which were mentioned in the letter of 27th March, 1979 by giving a 'No Claim Certificate'. But this plea can hardly be sustained as the arbitration clause in the form in which it has been incorporated is wide enough to confer authority upon the arbitrators to enter upon the reference and adjudicate upon" all questions and disputes relating to the meaning of the specification, design or any other question, claim, right, matter or thing whatever in any way arising out of or relating to the contract, .. ...." I may refer here to the case roported as A I R 1978 S C

158. The facts of the said case were that the respondent (the tenderer; entered into a contract with the appellant Corporation to supply coal, however the latter unilaterally repudiated the contract on the plea that the former failed to do so in accordance with terms of the contract. Ultimately, the appellant made payment to the respondent for the supply of the coal. It was the case of the appellant that these payments, including the return of the deposit amount, finally settled the claim of the respondent. After receiving those payments the respondent claimed from the appellant damages for repudiation of the contract which, however, was refused. Consequently, the respondent served a notice of his intention to refer the matter to the arbitration under the arbitration clause contained in the contract which inter alia provided as follows:‑ .......... if at any time any question dispute or difference whatsoever shall arise between the tenderer upon or in relation to or in connection with the contract the same shall be referred to the adjudication of two arbitrators, and the award of the arbitrator shall be final and binding on the parties

. The respondent nominated his arbitrator but as the appellant refused to appoint its own arbitrator, the former intimated the appellant that the arbitrator nominated by him would be the sole arbitrator for adjudicating the disputes between the parties. In the circumstances, application under section 9(b) and section 33 of the Arbitration Act, 1940 challenging the propriety of the reference to arbitration was made in the Court. In the said proceeding question arose for determination was: where one of the parties refers a dispute or disputes to arbitration and the other party takes a plea that there was a final settlement of all claims, is the Court on an application made as above entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved, it would bar a reference to the arbitration inasmuch as arbitration clause itself would perish. The learned Judges of the Supreme Court of India on the interpretation of the arbitration clause (which appears to be almost identical as in the case before this Court) held as follows:‑‑ "It appears to us that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising 'upon' or 'in relation to' or 'in connection with' the contract. These words are wide enough to cover the dispute sought to be referred. The respondent's contention is that the contract has been repudiated by the appellant unilaterally as a result of which he had no option but to accept that repudiation because if the appellant was not ready to receive the goods he could not supply them to him or force him to receive them. In the circumstances, while accepting the repudation, without conceding that the appellant had a right to repudiate the contract, he could claim damages for breach of contract. Such a claim for damages is a dispute or difference which arises between himself and the appellant and is 'upon' or 'in relation to' or 'in connection with' the contract. The contention that has been canvassed before us is that as there has been a full and final settlement under the contract, the rights and obligation under the contract do not subsist and consequently, the arbitration clause also perishes alongwith the settlement. If so, the dispute whether there has or has not been a settlement cannot be the subject of an arbitration. There is in our view, a basic fallacy underlying this submission. A contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an arbitration clause, that clause stands apart from the rights and obligations under that contract, as it has been incoporated with the object of providing a machinery for the settlement of disputes arising in relation to or in connection with that contract. The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance of discharge of the contract. For from putting an end to the arbitration clause, they fall within the purview of it." In the aforementioned judgment it was also observed:‑ "This is not a case where the plea is that the contract is void, illegal or fraudulent etc, in which case, the entire contract alongwith the arbitration clause is non est. , or voidable Where, therefore, the dispute between the 'parties is that the contract itself does not subsist either as a result of its being substituted by a new contract or by rescission or alteration, that dispute cannot be referred to the arbitration as the arbitration clause itself would perish if the averment is found to be valid. As the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed, the parties have no right to invoke a clause which perishes with the contract." Reference may also be made here to the following observations made in the above‑cited case which being relevant are reproduced below:‑ the question whether the arbitration clause survives or perishes would depend upon the nature of the controversy and its effect upon the existence or survival of the contract itself. Where the binding nature of the contract is not disputed, but a difference has arisen between the parties thereto as to whether there has been a breach by one side or the other or whether one or both the parties have been discharged from further performance such differences are "upon" or "in relation to" or "in connection with" the contract neterence may be also mane here to the case of Union of India v. D. Bose and others A I R 1981 Cal.

95. The case before the learned High Court was an appeal which arose out of the judgment and order passed by the trial Judge dismissing application made by the appellant under sections 16, 30 and 33 of the Indian Arbitration Act, 1940 inter alia for setting aside of the award made by the arbitrator. The award was challenged amongst others on the ground that the entire claim of the claimant stood satisfied by the accord and satisfaction in view of the submission of 'No Claim Certificate'. Repelling the contention thus raised the learned High Court held as follows:‑ "In our opinion, the submission of 'No Claim Certificate' by the respondent to the appellant on the conditions mentioned hereinabove or in any event was a dispute within the ambit of the arbitration clause contained in the said contract and was a subject‑matter for adjudication by the Arbitrator."

16. Jiwani Engineering Works (P) Ltd. v. Union Of India A I P. 1981 Cal. 101 was a case in which the award made adjudicating upon the disputes between the parties pursuant to a contract for execution of works, was challenged, inter alia, on the ground that the award holder had executed a. 'No Claim Certificate' and, therefore, he was not entitled to any claim in the reference as he had mentioned specifically in no equivocal terms that there was no dispute or difference relating to the agreement contained in the arbitration clause in the arbitration agreement. It was submitted that on the basis of the said 'No Claim Certificate' the order of reference of the award became nullity as the arbitrator had no jurisdiction to enter into the reference as there was no difference or dispute between the parties arising out of the said contract. The learned Court repelled the contention thus raised with the observations made as follows:‑ "But that does not prevent the contractor from raising his claim before the arbitrator in terms of the arbitration clause for the value of his work or other claims within the scope of the agreement between the parties. The said question came up before this Court from time to time and in one of the unreported decisions of the appeal Court in Award Case No. 124 of 1978 (Union of India v. D. Bose) of C.J. and S.C. Ghose, J., dated 15th February, 1980 (since reported in A I R 1981 Cal. 95, the same contention of Mr. P.K. Sen, who is appearing before me, as to the no claim certificate, has been rejected and, therefore, in my view, there is no substance in the said contention."

17. Finally, I may refer to unreported judgment given in Suit No. 342/67 K.B. Haji Ishaque and sons v. Province of West Pakistan by Mr. Justice A.S. Farooqui (as he then was). It was an application filed under section 20 read with section 8(2) of the Arbitration Act, 1940 for filing of arbitration agreement in Court and appointment of the Arbitrator. The plaintiff having executed certain works was made payment which appeared to have been made upon a finall bill which according to the defendant was made on submission of unconditional no claim statement as the payment was not made the application was moved for filing of the arbitration agreement which inter alia provided as follows:‑ "If any dispute, difference or controversy shall at any time arise between the contractor on the one hand and the Secretary of State for India in Council or the said Railway administration on the other , or as to any other matter or thing whatsoever connected with or arising out of the contract, and whether before or during the progress or after the completion of the work, "such question, difference or dispute shall be referred for decision to an arbitrator, who shall be a Railway Engineer, to be appointed by the Agent for the time being of the N.W.R. administration and his decision in writing shall be final, binding and conclusive." The application made by the Plaintiff was resisted on the ground that after such no claim statement had been given the matter could not be re‑agitated the learned Judge on the pleas taken by the defendant framed the following issues:‑ (1) Whether there was no dispute in view of the no claim certificate signed by the plaintiff? . (2) Whether this is not a question which should also be left to be decided by the arbitrator?" After hearing the Advocates who appeared for the parties in that case the learned Judge answered the above issues in favour of the plaintiff with the following observations:‑ "With regard to first issue there can be no doubt that in fact there is a dispute between the parties with regard to the additional claims which are made by the plaintiff. The question, however, is whether this is a matter which falls outside the arbitration clause so as not to be the subject‑matter of an arbitration. This question is connected with the second issue and for that purpose it would be necessary to refer to the arbitration clause. The arbitration clause includes "any other matter or thing whatsoever connected with or arising out of the contract". The fact whether the additional claim of the plaintiff is a thing connected with or, arising out of the contract can hardly be denied. This claim does arise out of the contract. Whether it was foregone or waived is also a matter which relates to the contract. I am, therefore, clearly of the opinion that the present dispute is not outside the contract and is not excluded from the arbitration clause and, therefore, is a matter which should be referred to the arbitrator. Whether the plaintiff is entitled to any additional payment is a question which will fall entirely for decision within the jurisdiction of the arbitrator and I should not be understood in this order to have expressed any opinion with regard to it. The further question whether in the circumstances of the case the plaintiff had received full and final satisfaction as also the question whether the claim in question was waived and given up are also matters which must be decided by the arbitrator."

18. The discussion as above, particularly, in view of the decision given by Mr. Justice A.S. Farooqui (as he then was) as reproduced above and with which I am in respectful agreement, controversy raised before us stands concluded as the question whether the issuance of No Claim Certificate was in full and final settlement, is a question which the arbitrators to whom the reference has been made, have jurisdiction I to deal with as "arising out of" or "relating to the contract". Before concluding, I may observe here that to the direction given by the learned Umpire, after holding that the arbitration is not barred by reason of clause 27 of conditions of contract or by reason of 'no claim certificate', sending the case back to the arbitrators for further proceedings on the claims of the claimants neither any objection was raised before the learned Single Judge (Original Side) nor its correctness or propriety was challenged in this appeal.

19. The upshot of the above discussion is that this appeal is dismissed but in the circumstances, the parties are left to bear their own costs. IBADAT YAR KHAN, J.‑‑ I agree. A . A . Appeal dismissed.