Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: NAWAB BROTHERS LTD., KARACHI VS Respondent: PROJECT DIRECTOR, OFFICE OF THE JUDGMENT
Court Name: Sindh High Court Judge(s): Nasir Aslam Zahid Title:NAWAB BROTHERS LTD., KARACHI vs PROJECT DIRECTOR, OFFICE OF THE
JUDGMENT
Reported As: 1981 CLC 638 Result: Order accordingly Judgment JUDGMENT ' This is an application under section 20 of the Arbitration Act, 1940 moved by the plaintiff, Nawab Brothers Ltd., against the Project Director, Special Projects, Planning and Development Department, Karachi and the Additional Chief Secretary (Development) Planning and Development Department, Government of Sind, Karachi. The following reliefs were claimed in this application :- (a)that the agreement be placed on record ; (b)that an order of reference to Arbitration be made ; and (c) the defendants be ordered not to carry out the work pending the decision of the arbitration. 2. As regards relief (c) relating to the carrying out of work pending the decision of the arbitration, the matter has already been disposed of in connected J. M. 34/78 and, therefore, this prayer has become infructuous in the present proceedings. 3. By a short order dated 22-9-1980 I had held that the arbitration clause No, 28 reproduced in para. 3 of the main application under section 20 of the Arbitration Act, 1940 is valid and subsisting between the parties. Hereinbelow are given reasons for my aforesaid decision. 4. According to the plaintiffs, the defendants had invited tenders for construction of the Sind House at Islamabad and the tender of the plaintiff was accepted by the defendants in April, 1974. Letter of intent was issued by the consultants Messrs Zaheeruddin Consultants Ltd., on 23-4-1974 which was accepted by the plaintiffs on 29-4-1974. The tender documents have been filed in this case and clause No, 28 of the General Conditions of the Contract is the arbitration Clause. As this clause will
---
## Page 2
be referred to later in this judgment and the controversy between the parties resolves around this clause, the same is reproduced here :- "28. Settlement of disputes.-All disputes and differences of any kind whatever arising out of or in connection with the contract or the carrying out of the work (whether during the progress of the work or after the completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the Consultants who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Consultants with respect to any of the expected matters shall be final and without appeal as stated in the preceding clauses. But if either the employer or the contractor be dissatisfied with the decision of the consultants on any matter, question or dispute of any kind (except any of the excepted matters) or as to the withholding by the Consultants of any certificate to which the contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within 28 days after receiving notice of such decision give a written notice to the other party through the Consultants requiring that such matter in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such disputes or differences of which such written notice has been given, and no other shall be and is hereby referred to the arbitration and final decision of a Single Arbitrator to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of a Single Arbitrator, to the arbitration of two Arbitrators one to be appointed by each party which Arbitrators shall before taking upon themselves the burden of reference appoint an Umpire. ' The arbitrator, the Arbitrators or the Umpire shall have power to open up review and revise any certificate, opinion, decision, requisition or notice, save in regard to the excepted matters referred to in the preceding clauses and to determine all matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid. Upon every or any such reference the cost of an incident able to the reference and award respectively, shall be in the direction to the Arbitrator, or Arbitrators or the Umpire who may determine the amount thereof, direct the same to be taxed as between attorneys and client or as between party and parties and shall direct by whom and to whom and in what manner the same shall be borne and paid. This submission shall be deemed to be a submission to Arbitration within the meaning of the Arbitration Act in force or any statutory modification thereof, this Award of the Arbitrator or Arbitrators or the Umpire shall be final and binding on the parties. Such reference except as to the withholding by the Consultants of any certificates under clause 25.I(vi) and 25.2 to which the contractor claims to be entitled, shall not be opened or entered upon till after the completion or alleged completion of the works or until after the practical cessation of the works arising from any cause unless with the written consent of the Employer and Contractor, provided always that the employer shall not withhold the payment of an Interim Certificate nor the Contractor, except with the consent in writing of the Consultant, in any way delay the carrying out of the work by reason or any such matter, question of dispute being referred to Arbitration, but shall proceed with the work with all due diligence and shall, until the decision of the Arbitrator, or Arbitrators, or the Umpire be given abide by the decision of the Consultants and no award of the Arbitrator or the Arbitrators or the Umpire shall relieve the Contractor of his obligations to adhere strictly to be Consultant's instructions. The Employer and the Contractor hereby also agree that Arbitration under this clause shall be a condition precedent to any right of action under the contract." 5. This clause, therefore, provides that all disputes and difference of any kind whatever arising out of or in connection with the contract or the carrying out of the work (whether during the progress of the work or after the completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to the consultants for settlement who shall state their decision in writing. It is further provided that if either party be dissatisfied with the decision on any
---
## Page 3
matter, question or dispute of any kind (except any of the excepted matters) then in any such case either party may within 28 days after receiving notice of such decision give a written notice to the other party through the consultants requiring that such matter in dispute be arbitrated upon. Such dispute is to be decided by a sole arbitrator if agreed upon or in case of disagreement to the arbitration of two arbitrators, one to be appointed by each party. 6. According to the plaintiff the defendant in February, 1975 substantially changed the design, specification and the concept of the project and an additional agreement was executed between the parties for the purposes of removal of inconsistency as to the rates of the tender documents and the change of specification. This new contract is dated 8-8-1977, and is referred hereinafter as "the second agreement". 7. Thereafter certain disputes arose and the matter was referred to the Consultants under aforesaid Claim No, 28 of the General Conditions contained in the tender documents. The plaintiffs filed their claim on 6-5-1978 before the Consultants and the Consultants calling upon and receiving the view points of both parties stated their decision on 30-8-1978 in writing. Instead of accepting the decision of the Consultants, or going into arbitration the defendants on 4-9-1978 advertised the remaining work under the project, which was to be completed by the plaintiff, inviting tenders. The plaintiff telegraphically addressed a legal notice on 14-9-1978 to the defendants requiring them to act in accordance with the agreement between the parties. 8. The plaintiff then filed J. M. 34/78 against the defendants in this Court on 21-9.1978 under clause (4) of the Second Schedule read with see-lion 41 of the Arbitration Act and Order XXXIX, rules 1 and 2 section 151, C. P. C. And a status quo order was passed in J. M. 34/76 on 24-7-1978. The defendants in their affidavits in reply in J. M. 34/78 took the position that the provisions of the Arbitration Act, 1940 were not at all applicable and clause 28 of the so-called agreement had no legal sanctity and the agreement containing this clause was not signed by the parties. In the circumstances the plaintiffs filed the present application under section 20 of the Arbitration Act, 1940 claiming the reliefs mentioned in the first para. Of this judgment. 9. Mr. Habib-ur-Rehman, learned counsel for the plaintiff has taken me through the second agreement dated 8-8-1977. In the preamble of the second agreement it is mentioned that the Bidding conditions on which the plaintiffs offered to construct the Sind House also forms an integral part of the said agreement. It is also mentioned in the preamble that the necessity for entering into this second agreement arose as on the one hand the Bidding conditions were inconsistent and on the other there was inconsistency between the Bidding conditions and the said agreement in so far as they related to payment of compensation to the contractors due to increase in the prices of the material used and cost of labour engaged in the construction of the Sind House and it was expedient to remove the aforesaid inconsistencies. In clause (1) of the second agreement it is mentioned that notwithstanding anything contained in the earlier agreement and the said bidding conditions the Government has agreed to pay to the plaintiff an additional amount of Rs, 30,00,000 on account of escalation of the cost of material and labour. Clause (2) of the agreement details the manner in which the payment was to be made and clause (3) states that if the contractors failed to complete the said works in accordance with the Schedule to the second agreement and to the satisfaction of the Government this amount of Rs, 30 lacs or a part thereof and the guarantee to be furnished in pursuance of clause (2) may be forfeited. Clause (5) states that the contractors shall not make any further claim for compensation on account of escalation. Mr. Habib-ur-Rehman specially invited my attention to clause 6 of the second agreement which is to the following effect : "The contractors shall faithfully perform and observe the said agreement and the said Bidding conditions and complete their obligations thereunder in accordance with the conditions thereof."
---
## Page 4
10. According to Mr. Habib-ur-Rehman the second agreement dated 8-8-1977 does not wipe out the earlier contracts between the parties which contains the arbitration clause especially in view of the clear workings of clause (6) of the second agreement. Further, according to learned counsel, actions in writing of the defendants after the execution of the second agreement on 8-8-1977 clearly show that even according to the defendants arbitration clause (28) continued to bind the parties. 11. After the execution of the second agreement on 8-8-1977, certain disputes had arisen between the parties and by document No, 22, which is the letter dated 6-5-1978 of the Consultants addressed to the defendant No. 1, the defendants were advised to put up all their issues in writing in a consolidated form so that the Consultants could give their decision in writing. On the same day another letter dated 6-5-1978 was addressed by the Consultants to the plaintiff (document No, 23) to the effect that the letters submitted by the plaintiffs to the Consultants from time to time were not adequate for action under clause (28) of the General Conditions of Contract regarding settlement of disputes and plaintiffs were advised to put up all their points/issues in writing in a consolidated form so that the consultants could give their decision in writing. 12. By letter dated 6-5-1978 (document No, 24) of the plaintiffs addressed to the consultants the plaintiffs raised 16 points for settlement under clause 28 by the consultants. 13. In reply to the Consultants' letter dated 6-5-1978, defendant No. 1 by his letter of 8-6-1978 (document No, 25) referring to the consultants' request for putting up all points/issues in writing in a consolidated form, stated that the "settlement of disputes" clause did not lay down any such condition for taking action by the Consultants but in any case defendant No. 1 did put down the points for immediate action by the consultants. 14. In the letter dated 16-5-1978 of the consultants (document No, 26) addressed to defendant No. 1 with a copy to the plaintiffs, the parties were informed that the points had now been received from both the parties and the consultants would state their decision in writing. 15. In document No, 27, which is the letter dated 29-5-1978, of defendant No. 1 addressed to the plaintiff, apart from making certain complaints, in the last para. The following was stated :- "We have already requested the consultants to take appropriate action under your contract/agreement for your failure to complete the work in time and also for keeping the work suspended on the false pretext of non-payment of your dues. Please note." 16. By letter dated 30-8-1978 (document No, 28) the Consultants communicated their decision to the parties. Document No, 29 is the letter dated 17-9-1979 of defendant No. 1 addressed to the consultants in which he expresses his disappointment that the consultants had arbitrarily proceeded in taking action under clause (28) of the agreement completely ignoring the Government stand in the matter. It further states that the decision clearly revealed consultants' partisan attitude towards the plaintiff and against the Government and that they were rejecting the decision. 17. Mr. Habib-ur-Rehman is correct in his assertion that nowhere in the correspondence was the stand taken in at any time by the Government that the previous agreement was no longer valid or binding between the parties or that clause (28) in any case was no longer binding between the parties. On the contrary a perusal of the documents filed clearly show that the Government itself was acting under clause (28) by referring the matter to the consultants and asking for a decision from the consultants. 18. Mr. Sarfaraz Ahmad Khan, learned Assistant Advocate-General, who appeared on behalf of the defendants has raised the following objections to the grant of the application under section 20 of the Arbitration Act, 1940 moved by the plaintiff :- (a)There is no arbitration agreement between the parties as the second agreement dated 8-8- 1977 wipes out the earlier agreement.
---
## Page 5
(b)First agreement between the parties was void. (c) Agreement containing clause (28) was never signed. (d)Clause No, (28) is void because of restraint on legal remedies in view of the provisions of section (28) of the Contract Act. (e) Application under section 20(4) of the Arbitration Act is not maintainable. (f) No final certificate was issued by the consultants as required by clause (28). (g) Plaintiffs were not aggrieved parties and, therefore, cannot file the present application. (h)This was not a case for reference to arbitration. (1) This was a case of fraud or misrepresentation and, therefore, not a fit case for reference to arbitration. (j) By conduct the plaintiffs had abandoned the arbitration clause. 19. Objections (a) and (b) raised by the learned Assistant Advocate-General, can be taken up together. According to Mr. Sarfraz Ahmad Khan, the second agreement dated 8.8-1977 had wiped out the earlier agreement and in the second agreement of 8-8-1977 there is no arbitration clause. Learned counsel relied upon section 62 of the Contract which reads as follows :- "62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed." 20. According to Mr. Sarfraz the second agreement dated 8-8-1977 supersedes the original agreement which contained the arbitration clause, and in the second agreement there is no arbitration clause and in view of section 62 of the Contract Act neither of the parties can call upon the other to perform any term in the original contract. The precise contention of the learned counsel was that the arbitration clause is no longer in existence and cannot be enforced by the plaintiff. 21. Learned counsel has referred to the case of Balak Ram v. Telu (1), wherein it was held that the terms of the original contract were varied and this variation was, in the opinion of the learned Judge, sufficient to absolve the defendants from performance of the original contract. The facts of that case were that Balak Ram had filed a suit for the recovery of Rs, 800 on the basis of the balance in the Bahi account. The suit was resisted on the ground that subsequent to the balance which was struck, the parties agreed to substitute a new contract for it or at any rate to alter it and, therefore, the suit on the Bahi account did not lie. The Civil Judge found that no substituted contract had been proved and decreed the suit. On appeal the District Judge came to a different conclusion. He found that in fact an instrument bond was actually executed by the defendant after striking off the balance, that it was in the plaintiff's possession and that the suit should have been brought on the bond rather than on the Bahi entry. The District Judge accepted the appeal and dismissed the suit. The second appeal was dismissed by the Lahore High Court in the above judgment. ' The facts of the case in AIR 1935 Lah. 897 are clearly distinguishable. In that case the bond which was executed did not provide for interest and provided for payment by instalment, whereas the plaintiff had claimed interest on the original account on the basis of an oral agreement and there was no instalment implied as far as the balance of Bahl account was concerned. It was in view of these facts that the Lahore High Court came to the conclusion that the bond executed between the parties had substituted the original liability on the Bahi account. {{FOOT NOTE}} (1) AIR 1935 Lab. 897 {{FOOT NOTE}} 22. Mr. Sarfraz then relied upon the case of Nagendranath Majumdar v. Kshitish Chandra Ghose (1). In that case it was held that a compromise or a contract or an agreement setting up a new contract amounts to a novation of contract and since in such a case the ordinary incident would
---
## Page 6
be as indicated in section 62 of the Contract Act, namely, that the original contract would no longer be liable to be performed, the effect would be to substitute the other debt by a new debt arising from the date of the compromise decree. It was further held that the breach of a term of the compromise decree would not restore the parties to the sights which they had prior to the decree, for, after the compromise decree the rights and liabilities of the parties would be governed by terms of the compromise itself not by what it was before the entry into the compromise. The facts of that case are clearly distinguishable from the instant case. In the Dacca case the previous rights and liabilities were completely extinguished and substituted by the compromise. 23. Reliance was also placed on the case of Vishrarn Arjun v. Irukullah Shahkariah (2). In that case it was held that a novation is a substitution of a contract and not a mere variation of some of its terms and it should rescind or extinguish, the previous contract. It was further held that a new and independent agreement concerning the same matter as the previous agreement may be construed to discharge the former, only if the terms of the letter are so inconsistent with these of the former that they cannot stand together. It was then observed that whether an agreement entered into is in substitution of an old contract or not is always a question of fact depending also on the intention of the parties and the intention of the parties may be inferred from the contents of the documents but in order to gather their intention one should look to the substance of the matter and not to the mere form. On the facts of that case the Court held that on consideration of the terms of the original contract and the subsequent agreement which only related to some of the terms was not a self-contained agreement in relation to the original contract, the subsequent agreement did not constitute a novation but was substantially an agreement of remission and in fact both put together formed one complete subsisting contract. I am in complete agreement with the views expressed in the judgment reported in AIR 1957 Andh. Pra. 784, and also with the conclusion , that where the subsequent agreement only relates to some of the terms of - the original agreement, both agreements should be read together to form a complete subsisting contract. 24. Mr. Sarfraz has also relied upon the case of Kadernath Lal v. Sheo Narayan Ram (3). Learned counsel referred to para. 16 of that judgment wherein it is observed that section 62 of the Contract Act deals with novation of the contract and it comes into operation when a new contract is substituted for the contract in existence. I am in agreement with the principle enunciated in this judgment but in the instant case there has been no substitution of the earlier agreement and the provisions of the second agreement themselves confirm the earlier agreement and alters only a few terms thereof. 25. Mr. Habib-ur-Rehman, learned counsel for the plaintiff, has opposed the contention of Mr. Sarfraz and has argued that the second agreement did not substitute the original agreement but changed a few terms thereof. According to the learned counsel, in the second agreement there {{FOOT NOTE}} (1) PLD 1958 Dacca 179 (2) AIR 1957 Andh. Pra. 784 (3) AIR 1957 Pat. 408 {{FOOT NOTE}} ' is a specific reference to the fulfilment of the Bidding condition and that the previous agreement should be fully adhered to and that in the second agreement there is no reference to the exclusion or deletion of the arbitration clause. Counsel, therefore, argued that in the circumstances of the case the defendants cannot take any assistance from the principle laid down in section 62 of the Contract Act. His further argument was that the agreement relating to arbitration contained in clause (28) had in fact been acted upon not only by the plaintiff but also by the defendants and that the arbitration clause was in writing and in the circumstances the defendants were estopped under section 115 of the Evidence Act from denying the arbitration agreement between the parties.
---
## Page 7
26. Mr. Habib-ur-Rehman has referred to a judgment of this Court in the case of Karachi Shipyard & Engineering Works Ltd. v. General Iron and Steel Works Ltd. (1). In that judgment after making reference to various judicial pronouncements, the learned Single Judge held that the arbitration clause in a contract can be regarded as a thing apart from the main conditions of a contract and that the arbitration clause is severable from the remaining contract and would survive frustration of the contract itself. It was further held that the arbitration clause is not superseded even if the parties substituted a new contract for the old contract or entered into a new agreement which, in fact, modified or notated the terms of the old contract. In that judgment, the decision of the Dacca High Court in the case of Magan Lal Jhawar v. M. R. Khan was distinguished. In the Dacca case, by a subsequent agreement, a different forum of settlement of disputes was provided by the parties. While distinguishing this decision, Noorul Arfin, J. Observed as follows :- `But in my opinion, the rule in this decision (Dacca case) is not at all applicable. Though there was an arbitration clause in the contract, which was the subject-matter of this decision, yet the parties, by a subsequent agreement, made provision for a different forum of settlement of disputes between them, that is, they agreed to accept settlement of differences given by a third party. In the Dacca decision, therefore, the arbitration clause itself was superseded or abrogated by a subsequent arrangement for settlement of differences between the parties by a different forum altogether." 27. In the instant case, the subsequent agreement dated 8-8-1977 only makes alterations in a few terms of the previous agreement but does not make any reference to arbitration clause No, 28. There is also no term in the second agreement superseding or altering the arbitration clause No, 28. 28. Mr. Sarfraz had first taken the stand that because of "inconsistencies" in the original agreement, there was no contract between the parties and by the second…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.