P L D 1954 Sind 247 (PLP)

INAMULLAH, J.‑This is an application for setting aside an award filed in this Court and arises under the following circumstances. The parties entered into a contract on 10th December 1951 for supply and purchase of 200 cotton bales. The contract was factory selection contract. Under the contract delivery was to be made between 1st January 1952 and 25th January 1952. The plaintiffs who were the sellers in the present case for some reason or other could not carry out the terms of the contract with the result that there was some negotiations between the parties which so far as the record before me is concerned ultimately ended with the letter dated 5th February 1952. In spite of the fact as would appear from the letter of 5th February 1952, that there was certain modification in the terms of the original contract, the parties could not carry out the terms of the contract. 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 defendants that they protested against the appointment of the arbitrator. The award had been filed on 13th November 1952. Notices had been issued to the parties concerned as a result of which the defendants have filed the present application challenging the award on various grounds. Mr. Ibadat Yar Khan, the learned advocate has pressed only two of the grounds before me. His first contention was that the contract being factory selection contract, Bye‑law 140 of the Karachi Cotton Association Limited was applicable. His second contention was that the award was perverse inasmuch as the plaintiffs were the defaulting party and as such there could be no question of any award against the defendants. I would consider these two objections separately. Of the two contentions the main contention of Mr. Ibadat Yar Khan was that the contract being factory selection contract, the arbitrators having been appointed under Bye law 39 of the Karachi Cotton Association Limited had no jurisdiction and therefore the award was a nullity. In this connection the two documents that have to be construed are the original contract of 10th December 1951 and the letter of 5th February 1951. So far as the original contract, as it stands, is concerned it was not contended by the plaintiffs that it was not a factory selection contract. The very heading of the contract form dated 10th Decem ber 1951 is "factory selection contract form". The learned Advocate for the plaintiffs has contended that the original contract of 10th December 1952 stands modified by the letter of 5th February 1952. The relevant portion of the letter addressed by the defendants to the plaintiffs for the purposes of the present contention is as under: "On the persuasion of your Mr. Muhammad Sharif and in view of the cordial business relations subsisting between us and as mutually agreed between our and your brokers, the previous correspondence on the dispute will be considered as dropped. Hence we agree to take delivery of the lots subject to the following conditions. (1) You should submit as samples of good lots of full weight for our approval immediately, which, if approved (approval will be subject to the lots being of full weight) will be intimated to you, otherwise, if, at actual weighment, the goods are of short weight, export duty difference will be payable by you upto 470 maunds net and no market rate difference on short weight will be recovered from us, if any. Please be advised that we will prefer to have full weight lots only and if not, the above is to apply. The lots are to be approved in advance." The contention of Mr. Rafique, the learned counsel for the plaintiffs is that the contract which stands modified by the letter of 5th February 1952 became a ready delivery contract and therefore the only bye‑law that could apply was Bye‑law 39 of the Karachi Cotton Association Limited. Mr. Ibadat Yar Khan, the learned advocate for the defendants, however, contends that the agreement of his client to modify the terms of the original contract so far as the supply was concerned did not change the nature of the factory selection contract. He contends that under the Rule of the Association if the terms of the original factory selection contract could not for some reason or other be carried out by the seller, the buyer was given certain options which he could exercise. If the buyer exercises his option as provided under the bye‑laws it does not, he contends, change the nature of the contract. The obligations of the parties would be governed by the nature of the contract which was factory selection contract. In this connection he relies on Bye‑law 5 of the Karachi Cotton Association Limited which now stands modified by Bye‑law 161 of the Karachi Cotton Association Limited but I am not concerned with this bye‑law as at the time when the dispute between the parties arose it was only Bye‑law 5 of the Association which was in force. The relevant portion of Bye‑law 5 runs as under :‑ "In case the seller fails to complete pressing of the cotton selected by the buyer 5/7 days before due date as mentioned in clause 6 of the contract or fails to give selection as required under clause 6, the buyer shall have the following options:‑ (a) To extend the delivery period of the contract. This option must be exercised on or before the due date. (b) To take delivery at Karachi from a ready lot belonging to the seller. (c) Invoice back on the spot rate of the due date. (d) Buy in seller's account on the first working day following the due date in the local ready market. A perusal of the letter of the 5th February 1952 makes it clear that all that the defendants had agreed was that they would be willing to take delivery from ready stock at Karachi. The relevant portion of the contents of that letter would therefore be governed by sub‑clause (b) of Bye‑law 5 of the Association which is "to take delivery at Karachi from a ready lot belonging to the seller". In my opinion the contract between the parties so far as the jurisdiction of the arbitrators is concerned must be construed strictly. There is nothing in the letter of the 5th February 1952 which would justify a conclusion that the parties agreed to change the venue of the arbitration from Bye‑law 140 to that of Bye‑law

39. The option having been given to the party aggrieved to enforce his previous contract in a certain way does not give right to the plaintiffs to have recourse to Bye‑law 39 for the submission of the dispute. The aggrieved party being the defendants on the 5th February 1952 had the choice to modify the terms of the original .contract but the same should stand modified only to that extent that it actually purports to be in express terms. The bye‑law of the Association provides that certain disputes which appertained to factory selection contract can be referred to under Bye‑law 140 while others relating to or arising out of ready transaction or out of a forward contract can be referred under the terms embodied under Bye‑law

39. The difference between the two Bye‑laws 140 and 39 is of some importance. Under Bye‑law 39 the parties have been given the option to refer their dispute to two arbitratois one appointed by each party. These arbitrators need not be even members of the Association while under Bye‑law 140 their disputes can be referred to only those arbitrators who are on a panel maintained by the Association. These persons are expected to have expert knowledge about cotton transactions. They are to be appointed by drawing ballot. Another difference is that under Bye‑law 140 the award has to be given more expeditiously than under Bye‑law

39. It would appear therefore that the parties who entered under factory selection contract have a valuable right to have their disputes decided according to Bye‑law 140 and not according to Bye‑law

39. I have given my careful consideration to this question whether the original contract of 10th December 1951 was modified by the letter of 5th February 1952 so as to change the very nature of the contract to one of ready delivery contract. I am of the opinion that the nature of the contract for the purposes of arbitration was not changed to ready delivery transaction so as to invoke Bye‑law 39 of the Karachi Cotton Association Limited. It is evident from various circumstances that the parties cannot be said to have agreed to change the venue of jurisdiction of arbitrators from one laid down in Bye‑law 140 to Bye‑law 39 of the Association. Bye‑law 5 which I have already dealt with above does not in any way modify Bye‑law

140. If it was the intention of those who framed the rules that if the buyer were to exercise his option under Bye‑law 5 he would be deemed to have given up his right to refer the dispute under Bye‑law 140 the same would have found place in Bye‑law 5 of the Association. If the parties wanted to change the venue of submission of their dispute from Bye‑law 140 to that of Bye‑law 39 they could have either done so by agreement between themselves or the same should have been provided under the bye‑laws of the Association itself. As I have already mentioned above the reference of the dispute under Bye‑law 140 is a valuable right which the parties should not be deemed to be deprive of by implication unless it is so expressly agreed between the parties. There are circumstances also which go to show that the factory selection contract was not changed to ready trans action contract so far as the reference of the dispute between the parties according to Bye‑law 140 was concerned. The arbitrators in their award have in para. 6 pointed out as under:- "Thereafter sample slips of many lots were issued to Buyers and a good deal of correspondence was exchanged which terminated in sellers invoicing back the contract in accordance with special Bye‑law No. 5 of the Karachi Cotton Association Ltd." It would appear from the above that the original factory selection contract was modified only as regards certain supply and purchase of the articles. It cannot be said that it was modified as regards the reference of the dispute from bye‑law 140 to

39. The letter of the 5th February 1952 also, as it would appear from the heading, makes a reference to the original contract itself. This letter moreover does not in any way express that the defendants had given up their right of reference under Bye‑law 140 of the Karachi Cotton Association Limited in case the other side failed to carry out the modified terms of the agreement dated 5th February 1952. Mr. Rafique, the learned advocate for the plaintiffs has strenuously contended that the defendants are now estopped from challenging the jurisdiction of the arbitrators as they had participated before the arbitrators in the proceedings before them. Mr. Ibadat Yar Khan, on the 'other hand, has relied on certain correspondence between the parties and a letter of protest by the defendants to the arbitrators in support of his contention, that they attended, if at all, the proceedings under protest. He has also maintained that they did not attend the present proceedings before the arbitrators. The first letter in this connection challenging the jurisdiction of the arbitrators is dated 8th April 1952. This is a letter addressed by Mr. E. V. Castellino, the learned advocate for the defendants to the plaintiffs. This is a letter of protest against the appointment of an aribtrator by the plaintiffs. It is true, as Mr. Rafique contends, that this protest has not made any reference to Bye‑law 140 but the fact remains that the defendants have objected to the jurisdiction of the arbitrators on a different ground. The question at this stage before me is only this whether the defendants submitted themselves to the jurisdiction of the arbitrators under protest or not. The grounds of protest would be not very relevant so long as the defendants, if they appeared at all before the arbitrators, protested to their jurisdiction. The plaintiff however persisted as would appear from the letter of 8th April 1952 that their action in making a reference of their dispute according to Bye‑law 39 was a correct one. The arbitrators appointed by the plaintiffs sent in their notice to the defendants for their appearance before them on 26th April 1952. The defendants protested again to their jurisdic tion by their letter of 28th April 1952. They stated in that letter: "Please note that you are acting without jurisdiction and the award, if any, will not be binding on us". Under these circumstances it is clear from the various letters, I have already referred to, that the defendants if they appeared before the arbitrators, which is contended, and denied by the defendants, they did so only under protest. It was contended by the defendants that they never appeared before the arbitrators in order to participate in the proceeding relating to the present contract regarding 200 bales. It is contended by them that they had appeared before the same arbitrators in relation to another dispute between the same parties regarding 600 bales. It is admitted by the plaintiffs that these two disputes between the parties regarding 600 bales and 200 bales were pending before the same arbitrators at the same time. In fact by letter of 5th May 1952 on the record it would appear from the heading of the letter that the arbitrators were carrying on arbitration proceedings regarding these two transactions at the same time. The relevant portion of the letter is as under: "Arbitration in the matter of 600 bales Desi cotton and 200 bales 4‑F roller Cotton." Please note that at the request of Messrs. S. M. Fazail & Co., we have adjourned the above arbitration to Tuesday, 13th May." It is clear from the above that the arbitrators were proceeding with the two transactions at the same time. It cannot be said, under these circumstances, that the defendants had given up the protest which they had originally lodged regarding the jurisdiction of these arbitrators relating to 200 bales. I do not find any documentary evidence on the record which would establish the presence of the defendants pointedly relating to the present contract relating to two hundred bales. The arbitrators have filed certain documents. Although they have mentioned that the defendants had filed their written statement but the same has not been filed along with the various documents that they have filed along with the award. Under the Rules of the Court the arbitrators are required to file all the documents that may have been produced by the parties along with their award. If the written statement had been filed by the defendants in this reference it was certainly a very important document and it would have been filed along with the award. The arbitrators appeared to be under some misapprehension as they were conducting both the proceedings simultaneously regarding 600 bales and 200 bales. The reference in the award to the presence of the defendants appears to be due to the fact that the defendants admittedly were present so far as the dispute relating to the other contract was concerned. I have come to the conclusion as would appear from the above that the defendants had not given up their right to proceed with the matter of submission to arbitrators according to Bye‑law 140 and that the defendants had submitted themselves, if at all, to the jurisdiction of the arbitrators under protest. This Court has of recent taken a consistent view that where the parties are governed by Bye‑law 140 and if the dispute had been referred according to Bye‑law 39 the award wasp without jurisdiction and the award was liable to be set aside on that ground. This view was taken by Muhammad Bakhsh, J. in the case of Messrs Universal Corporation v. S. A. Rauf & Co. (P L D 1953 Sind 18) where Bye‑law 140 of the Karachi Cotton Associa tion Limited was applicable but the reference of the dispute was under Bye‑law

39. This case was followed by Lari, J. in Messrs Inam & Co. Suit No. 896 of 1952. In this case also Bye‑law 29 was applied while the contract being factory selection contract Bye‑law 140 was held to be applicable. It was held, under those circumstances, that the arbitrators had no jurisdiction and the award was set aside. Another important case in this connection is that of Messrs Munawar & Co. Though this case does not decide the question relating to Bye‑law 140 but it lays down an important principle that the appointment of an umpire (in the present case of arbitration) by the Pakistan Cotton Association would be illegal if it was not in accordance with the arbitration clause contained in the contract between the parties. The umpire so appointed acted without jurisdiction and the award on that ground was liable to be set aside. Other cases cited by Mr. Ibadat Yar Khan in this connection are 29 Bombay Law Report 1087 and 32 Bombay Law Report 1451. It was also contended by Mr. Ibadat Yar Khan that consent cannot give jurisdiction to the arbitrators. He has relied in support of his contention on the observation of Bachal, J. in Munawar & Co. v. S. A. Rauf & Co. (P L D 1954 Sind p? 30 at p. 32) "an appearance before an arbitrator whose appointment is without jurisdiction and ultra vices, even though it is not made under protest, does not amount to a waiver of the right of a party E to contest that the arbitrator has no jurisdiction to act." It was however open to the parties to explicitly agree in the present case that though the contract was a factory selection contract the dispute would be decided by Bye‑law 39 and not by Bye‑law

140. There is nothing under the Arbitration Act or the Bye‑laws of the Association to forbid the parties to come to any such agreement. Mr. Rafique also contended that the award cannot be set aside on the ground that the same was given by arbitrators who had no jurisdiction to go into the matter. Mr. Rafique has relied on ' two authorities A I R 1946 P. C. 72 and A I R 1951 Cal.

78. He has contended that an award pre‑supposes an award made with jurisdiction and if it is contended that the arbitrators had no jurisdiction proceedings for setting aside the same would not be maintainable under section 30 of the Arbitration Act. So far as the above contention of Mr. Rafique is concerned reference has to be made to sections 30, 32, and 33 of the Arbitration Act 1940. Section 30 of the Arbitration Act lays down the grounds under which the award can be set aside. Section 32 of the Arbitration Act lays down that no suit shall lie on any ground whatsoever for a decision on the existence, effect or validity of an arbitration agreement or award nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act. Under section 33 of the Arbitration Act a party to an arbitration agreement can challenge the existence or validity of an arbitration agreement or an award by an application. The object of the Legislature after perusing these sections appears to be that matters relating to an arbitration agreement or an award should be expeditiously disposed of by means of an application. If the various questions relating to an arbitration agreement or an award were to be made the subject matter of a suit it was bound to take much more time. The question before me therefore is in the first place whether the application which purported to be under section 30 of the Arbitration Act can be treated to be an application also under section 33 of the Arbitration Act. In my opinion the Court has to be guided by the contents of the application for the correct application of law and not by reference to the heading of the application. In the present case I find after a perusal of the objections filed by the defendants that they have specifically challenged the jurisdiction of the arbitrators under para 3 of their application. In view of this pointed objection by the defendants regarding the jurisdiction of the arbitrators the Court has to take into consideration this objection and the provision of law applicable would be section 33 of the Arbitration Act. All that section 33 of the Arbitration Act requires is that the Court should be moved by an application in that respect. In the present case the objection regarding the jurisdiction of the arbitrators had been taken in the application filed by the defendants and therefore it cannot be said that the plaintiffs are being in any way prejudiced. In fact in the present case the plaintiffs have also examined a witness on their behalf though they did not file any counter affidavit. The plaintiffs cannot be said to be taken by surprise in view of the pointed reference to the jurisdiction of the arbitrators in the objection filed in this Court. Moreover Mr. Ibadat Yar Khan has also made a formal application that the application under section 30 may be treated as an application under section 33 also. The plaintiffs' advocate has not urged as to how he would be prejudiced if I were to dispose of the application as an application under section 33 of the Arbitration Act also. I would consider, under the circumstances of the present case, the application filed by the defendants to be an applica tion under section 33 of the Arbitration Act also and would! accordingly dispose of the question before me. In this connec tion the observation made by a Division Bench of the Madras High Court (A I R 1947 Mad. 315) would be relevant. Mr. Rafique, the learned advocate for the plaintiffs has relied on a number of authorities where a party to an arbitra tion proceeding was stopped from challenging the same though illegal on the ground that he had submitted to the jurisdiction of the arbitrators. I need not cite those authori ties, in view of what I have held above that the defendants had in the first place not submitted to the jurisdiction of the arbitrators and at any rate they had done so under protest. I therefore for the reasons set forth above hold that the arbitrators had no jurisdiction to go into the dispute as they were not appointed under the Bye‑Law 140 which was applicable in the present case. The next contention of Mr. Ibadat Yar Khan is that the defendants being an aggrieved party the award would be deemed to be perverse as it cannot be said that they were liable to any payment. He has relied on a letter addressed by the plaintiffs to the defendants on 16th February 1952. The relevant portion reads as under: "We regret very much to say that in spite of our best efforts, we could not obtain Phutti at Chaudry and therefore tender our inability in tendering you the more samples from our stocks as no stocks of 4F Roller are held with us. Kindly arrange to purchase the same from the ready market in our account and inform us about your purchase in strict accordance of the bye‑laws of the Karachi Cotton Association Limited." This letter, in my opinion, cannot be said to be a letter conveying a refusal by the plaintiffs to perform their part of the contract. It offered to the defendants according to bye‑laws of the Association to purchase the contracted goods on their account. As the goods were to be supplied from ready stock it was immaterial if the plaintiffs requested the defendants to purchase the same on their behalf and it cannot therefore be said that the plaintiffs had refused to perform their part of the contract on the 16th February 1952. Moreover it was a matter for the arbitrators themselves to judge, under the circumstances of the present case, if they had been properly appointed, whether the defendants were liable to the payment of any amount or not. I therefore for the reasons set forth above set aside the award. I make no order as to costs under the circumstances of the present case. A. H. Award set aside.