Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa, etc. etc. Vs. N.C. Budharaj (Dead) by LR

Appeal: Civil Appeal No. 3586 of 1984 etc. etc.
With Civil Appeal Nos. 710-711/1981, 6806-09/83, 6810/83, 10649/83, 779/82 and 2723/81
(From the Judgement and Order dated 15.5.82 of the Orissa High Court in Misc. A. No. 254 of 1981)

Petitioner: Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa, etc. etc.

Respondent: N.C. Budharaj (Dead) by LRs. etc. etc.

Apeal: Civil Appeal No. 3586 of 1984 etc. etc.
With Civil Appeal Nos. 710-711/1981, 6806-09/83, 6810/83, 10649/83, 779/82 and 2723/81
(From the Judgement and Order dated 15.5.82 of the Orissa High Court in Misc. A. No. 254 of 1981)

Judges: G.B. PATTANAIK, S. RAJENDRA BABU, D.P. MOHAPATRA, DORAISWAMY RAJU & SHIVARAJ V. PATIL, JJ.

Date of Judgment: Oct 01, 2001

Mr. Gobind Das, Senior Advocate and Mr. Raj Kumar Mehta, Advocate with him for the Appellants.

Mr. Anil B. Diwan, Senior Advocate, Mr. A.K.Panda, Mr. K.K.Patel, Mr. R.P. Wadhwani, Mr. Vinoo Bhagat, Mr. Radha Shyam Jena, Advo-cates with him for the Respondents.

ARBITRATION

Arbitration Act, 1940

Section 29 with Interest Act, 1978 – Section 3 – Interest of pre-reference period- Powers of Arbitrator, to grant – Ratio in Jena’s and G.C. Roy’s case. Held, (per majority) that Arbitrator has the power to grant interest for pre-reference period, G.C. Roy’s case has not excluded the power to grant interest for pre-reference period. Case law discussed.

Majority view – (Pattanaik and Mohapatra, JJ. dissenting)

Constitution Bench in Secretary, Irrigation Department, Govern-ment of Orissa and Others v. G.C. Roy (JT 1992 (6) SC 349) held that the decision in Jena’s case (supra) does not lay down good law and where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for prin-cipal amount or independently) is referred to the Arbitrator, he will have the power to award interest pendente lite, for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and there-fore the parties refer all their disputes – or refer the dispute as to interest as such to the Arbitrator- which he shall have power to decide. (Para 29)

The Constitution Bench of this Court in G.C. Roy’s case while declaring that the decision in Jena’s case does not lay down good law upheld, as a consequence the jurisdiction of the Arbitrator to Award only pendente lite interest, as explained and highlight-ed in the subsequent decisions of this Court. The very reasons and principles which weighed with the Constitution Bench in G.C.Roy’s case to sustain the jurisdiction of the Arbitrator to award pendente lite interest in a claim arising out of an agree-ment which does not also prohibit the grant of interest, would equally suffice and provide sound basis of reasoning for upholding the power of the Arbitrator to award interest in respect of the pre-reference period, too. The further fact that the decisions of this Court, including the Jena’s case, envisaged four circumstances or contingencies wherein such interest for pre-reference period can be countenanced by the Arbitrator, is by itself sufficient to confer jurisdiction upon the Arbitrator to entertain and consider the said claim also, and consequently there is no justification to thwart the same even at the threshold denying the Arbitrator power even to entertain the claim as such. (Para 44)

By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitra-tion instead of having recourse to civil court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise he could have suc-cessfully asserted before Courts and obtained relief. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the Arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the Arbitrator to consider and award interest in respect of all periods subject
only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the Arbitrator cannot have jurisdiction to award interest for the period prior to the date of his appointment or entering into reference which alone confers him power is too stale and techni-cal to be countenanced. (Para 47)

The Arbitrator appointed with or without the intervention of the court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. The decision in Jena’s case (JT 1987 (4) SC 8) taking a contra view does not lay down the correct position and stands overruled, prospectively. (Para 48)

HELD Per Pattanaik, J. (Majority view)
This Court in Jena’s case, (JT 1987 (4) SC 8). Considered the competence of the Arbitrator on reference made without intervention of the Court and came to the conclusion that in cases, which arose prior to the commencement of the Interest Act, 1978, the Arbitrator did not have the power to grant inter-est either pendente lite or for the period prior to the refer-ence. So far as the power of Arbitrator to grant interest pen-dente lite is concerned, the Court held that Section 34 of the Civil Procedure Code could be made applicable to arbitrations in suit and, therefore, when a dispute is referred to Arbitrator in suit, the Arbitrator will have the power of the Court in deciding the dispute, but not otherwise. In other words, in case of an arbitration proceeding, where a reference is made to the Arbitra-tor, not by the Court in a pending suit, but otherwise, in accor-dance with the arbitration clause in agreement, then the Arbitra-tor also did not possess the power to award pendente lite inter-est as the Arbitrator cannot be held to be a Court. In G.C.Roy’s case, (JT 1991 (6) SC 349). The Constitution Bench over-ruled the conclusion in Jena’s case, so far as it related to the power of the Arbitrator pendente lite is con-cerned. (Para 2)

To hold that an Arbitrator possesses the power to award interest even for the pre-reference period, would tantamount to legisla-tion in that respect and would be contrary to the well reasoned and well discussed decisions of this Court. The fact that the Arbitrator has the power to deal with and decide disputes which cropped up at a point of time, would certainly not clothe the Arbitrator with any power, which neither any law confers upon him nor there is any usage of trade having the force of law nor is there any agreement between the parties conferring that power. (Para 2)

HELD Per Mohapatra, J. (Minority view)

In Abhaduta Jena case (supra) this Court held that the Arbitrator has no competence to award interest for a period prior to refer-ence unless agreement between the parties entitles the Arbitra-tor to award interest or there is a usage or trade having the force of law for award of interest or there is any other provi-sion of the substantive law enabling the award of interest. This Court did not rule that an Arbitrator was not competent to award interest for pre-reference period in any circumstance. This Court only held that award of such interest was not permissible unless any one of the conditions laid down in the decision is satisfied. The Constitution Bench of this Court in G.C.Roy case (supra) considered the correctness of the decision in Abhaduta Jena case (supra) so far as award of pendente lite interest is concerned. The consistent view taken by this Court is that the decision in Abhaduta Jena case,
so far as it relates to the aspect of pre-reference interest has not been overruled by the Constitution Bench. (Paras 20, 10, 19)

The period during which the proceeding was pending before the Arbitrator (pendente lite) and the period before the Arbitrator entered upon the reference (pre-reference) stand on different footing. While the former refers to a period when the Arbitra-tor was ceased of the matter for adjudication, the latter refers to the period before he (Arbitrator) came into the picture. The decision in Abhaduta Jena case (supra) lays down the correct position of law and does not require reconsideration. An Arbi-trator has no competence to award interest for the pre-reference period unless any of the conditions namely – (1) if the agreement between the parties entitles the Arbitrator to award interest; (2) if there is a usage of trade having the force of law for award of interest, and (3) if there are other provisions of the substantive law enabling the award of interest, is satisfied. (Paras 19, 22)

1. State of Orissa v. B.N.Agarwalla (JT 1997 (2) SC 51) (Paras 5, 15, 33)

2. Secretary, Irrigation Department, Government of Orissa and
Others v. G.C. Roy (JT 1992 (6) SC 349) (Para 29)

3. Hindustan Construction Company Ltd. v. State of Jammu & Kash-mir ((1992) 4 SCC 217) (Para 35)

4. State of Orissa v. B.N.Agarwala
(JT 1992 (Suppl.) SC 552) (Paras 14, 33)

5. Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma (JT 1992 (Suppl.) SC 112) (Paras 13, 33)

6. Secy. Irrigation Deptt., Govt. of Orissa v. G.C.Roy (JT 1991 (6) SC 349) (Para 5)

7. Executive Engineer (Irri.) v. Abhaduta Jena. (JT 1987 (4) SC 8) (Paras 5, 26)

8. State of M.P. v. M/s Saith & Skelton Pvt. Ltd. ((1972) 1 SCC 702: AIR 1972 SC 1507) (Paras 7, 38)

9. M/s Ashok Construction Co. v. Union of India ((1971) 3 SCC 66) (Para 7)

10. Union of India v. Bungo Steel Furniture Pvt. Ltd. (AIR 1967 SC 1032) (Para 40)

11. Union of India v. West Punjab Factories Ltd. (1966(1) SCR 580) (Paras 2, 7, 38)

12. Union of India v. Watkins Mayor & Co. (AIR 1966 SC 275) (Paras 7, 38)

13. Union of India v. A.L. Rallia Ram ((1964) 3 SCR 164) (Para 38)

14. Nachiappa Chettiar v. Subramanium Chettiar ((1962) 2 SCR 209)
(Para 7)

15. Satinder Singh v. Amrao Singh ((1961) 3 SCR 676) (Para 7)

16. Seth Thawardas Pherumal v. Union of India (AIR 1955 SC 468) (Paras 7, 38)

17. Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji , (65 IA 66) (Para 2)

18. Bengal Nagpur Railway Co. Ltd. v Ruttanji Ramji and others (AIR 1938 PC 67) (Para 38)

Foreign Cases Referred

1. Food Corporation of India v. Marastro Compania Naviera S.A. of Panama (1986 (3) All England Law Reports 500 = (1987) 1 Weekly Law Reports 134) (Para 39)

2. President of India v. La Pintada Compania Navigacion S.A. (Law Reports (1985) 1 A.C. 104) (Para 39)

3. Chandris v. Isbrandtsen Moller Co. Inc. (1950 (2) All England Law
Reports 618) (Paras 39, 40)

4. Podar Trading Co. Ltd. v. Francois Tagher ((1949) 2 All E.R. 62)
(Para 40)

5. Edwards v. Great Western Railway Company ((1851) 138 ER 603)
(Para 40)

PATTANAIK, J.
1. I have gone through the two judgments of two of my Brother Judges, on the question of the jurisdiction of the Arbitrator to grant interest for the period prior to the reference. While Brother Justice Raju has come to the conclusion that the Arbitra-tor does possess the said power, Brother Justice Mohapatra, has taken a contrary view. Having considered both the viewpoints, I have not been able to persuade myself to agree with the conclu-sion of Brother Raju, J, and I entirely agree with the conclu-sion of Brother Mohapatra, J. But in view of the importance of the point, I am tempted to indicate my views in few paragraphs.
2. The power of the Arbitrator to award interest for the period prior to entertaining upon the reference as well as the period the reference was pending before him pendente lite was considered by this Court in Thawardas, (1955(2) SCR 48), and also by the Privy Council in Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji, (65 IA 66). Between 1960 and 1972 in several decisions, which have been referred to by the Constitution Bench in G.C. Roy’s case, (JT 1991 (6) SC 349 = (1992(1)SCC 508), the question of power of the Arbitrator to award interest has been considered but without any detailed discussion, it has been held that the Arbitrator pos-sesses the power since the reference to Arbitrator was made by the Court and all the disputes in the suit stood referred. This Court, therefore, came to the conclusion that on the application of the principle of Section 34 of the Civil Procedure Code, pendente lite interest could be awarded by the Arbitrator. But so far as the power to award interest for the period prior to the reference is concerned, only in the case of Ashok Construction Co., this Court no doubt held that the Arbitra-tor has the power to award interest from the date the amount is due under the contract, on the ground that the arbitration agree-ment did not exclude the jurisdiction of the Arbitrator but the earlier decision of the Court either in Thawardas or in Bengal Nagpur Railway, deciding to the contrary, had not been noticed and in fact the question had been disposed of in one sentence in paragraph(6). While this was the position, for the first time, this Court made an in-depth examination of the question in Jena’s case, (JT 1987 (4) SC 8 = 1988(1) SCC 418). Three learned Judges considered the competence of the Arbitrator on reference made without intervention of the Court and came to the conclusion that in cases, which arose prior to the commencement of the Interest Act, 1978, the Arbitrator did not have the power to grant inter-est either pendente lite or for the period prior to the refer-ence. In this case, though several English cases have been cited, including the case of Chandris, but the Court refrained from referring, in view of the abundance of authoritative pro-nouncement of the Supreme Court. Since the Interest Act of 1839 did not confer power on the Arbitrator to award interest, the Court looked elsewhere for that power of the Arbitrator to award interest upto the institution of the proceeding but could not find any such power, and, therefore, ultimately came to the conclusion that the Arbitrator did not possess any power to award interest for the pre-reference period. So far as the power of Arbitrator to grant interest pendente lite is concerned, the Court held that Section 34 of the Civil Procedure Code could be made applicable to arbitrations in suit and, therefore, when a dispute is referred to Arbitrator in suit, the Arbitrator will have the power of the Court in deciding the dispute, but not otherwise. In other words, in case of an arbitration proceeding, where a reference is made to the Arbitrator, not by the Court in a pending suit, but otherwise, in accordance with the arbitration clause in agreement, then the Arbitrator also did not possess the power to award pendente lite interest as the Arbitrator cannot be held to be a Court. It is necessary to bear in mind, it was held in no uncertain terms that there is no substantive law which can be said to have conferred power on the Arbitrator to award inter-est, before the commencement of the proceedings, that is for the pre-reference period. This decision of the three Judge Bench, operated the field till the Constitution Bench decision in G.C. Roy’s case, (JT 1991 (6) SC 349 = 1992(1) SCC 508). The Constitution Bench over-ruled the conclusion in Jena’s case, so far as it related to the power of the Arbitrator pendente lite is concerned. Even in G.C. Roy’s case, the Constitution Bench, itself held that the earlier decisions of the Court in Rallia Ram, Bengal Nagpur Railway, (65 IA 66), and Tha-wardas, what was held in relation to the power of the Arbitrator to award interest for pre-reference period is because of the fact, as a matter of substantive law, no such power was available and as such, the ratio in that case cannot have any relevance on the question of Arbitrator’s power to award interest pendente lite. The Constitution Bench did record a finding that interest pendente lite is not a matter of substan-tive law, like interest for the period anterior to reference. The Constitution Bench also very carefully expressed – “Untill Jena’s case, almost all the Courts in the country had upheld the power of the Arbitrator to award interest pendente lite.” Even when the earlier Constitution Bench decision in the case of Union of India v. West Punjab Factories Ltd., approving Thawardas, Bengal Nagpur Railway Co., and Rallia Ram, was brought to the notice of the Court, it was observed that not only the said case was not a case under Arbitration Act but also it approved Thawardas only so far as the power to grant inter-est prior to the institution of the suit and not so far as the power to award interest pendente lite is concerned. If the Constitution Bench in the case of Union of India v. West Punjab Factories Ltd., approved Thawardas, Bengal Nagpur Railway and Rallia Ram and held that even in a suit, interest prior to the institution of the suit cannot be granted, following the princi-ples in Thawardas and two others, which decided the power of the Arbitrator in relation to the grant of interest for pre-reference period, it is unimaginable on my part to think that an Arbitrator does possess the power on the ground that otherwise it would lead to multiplicity of proceedings. It would be appropriate for me to indicate that in G.C.Roy, the ratio of Thawardas, Bengal Nagpur Railway and Rallia Ram had not been doubted even, and possibly could not have been doubted in view of its acceptance by the earlier Constitution Bench decision in Union of India v. West Punjab Factories Ltd., so far as the power of award of interest for the pre-reference period is concerned. Even subsequent to Roy’s case, there have been decisions of three Judge Bench and two Judge Bench, which have been noticed by Mohapatra, J in his judgment, including the judgment of Justice Jeevan Reddy, who was a party to the Constitution Bench in G.C.Roy, reiterating the principle that an Arbitrator does not possess the power to award interest for a pre-reference period. (see Jugal Kishore, (JT 1992 (Suppl.) SC 112 = 1993(1) SCC 114), B.N. Agarwala, (JT 1992 (Suppl.) SC 552 = 1993(1) SCC 140) (in this case both the learned Judges, Justice Jeevan Reddy and Justice G.N. Ray were party to the Constitution Bench decision in G.C.Roy’s’case) and B.N.Agarwala, (JT 1997(2) SC 51 = 1997(2) SCC 469). The arbitra-tion proceeding has been a racket in this country and in constru-ing the law in relation to the powers of the Arbitrator, the Courts must construe the provisions of the law rather strictly. Courts would not be justified in construing the provisions and providing for something which is not there in the Act and it is in this context, I express my utter inability to construe the provisions of the Interest Act, 1839 and interpret the same to have a meaningful and purposeful object. To hold that an Arbi-trator possesses the power to award interest even for the pre-reference period, would tantamount to legislation in that respect and would be contrary to the well reasoned and well discussed decisions of this Court, starting from Thawardas as well as the decision of Privy Council in Bengal – Nagpur Railway, which decisions though noticed in G.C.Roy’s case, but have the approval of the Constitution Bench in West Punjab Factories case, though the case was not on arbitration but was of a five Judge Bench decision and possibly, it would not be proper for this Bench to take a view contrary to the same. The fact that the Arbitrator has the power to deal with and decide disputes which cropped up at a point of time, would certainly not clothe the Arbitrator with any power, which neither any law confers upon him nor there is any usage of trade having the force of law nor is there any agreement between the parties conferring that power. It is difficult for me to conceive that such power could be conferred upon an Arbitrator for the pre-reference period on the supposi-tion that he must be presumed to have the power to grant interest as an accessory or incidental to the sum awarded as due and payable. It is not the question of absence of any specific stipulation in the contract but the correct criteria should be whether there is a positive provision in the contract, conferring the power to the Arbitrator to award interest for pre-reference period. I need not discuss any further in view of my concur-rence with Brother Mohapatra,J. So, the appeals must be allowed.
D.P. MOHAPATRA, J.
3. I have had the privilege of reading the draft judgment pre-pared by my learned Brother Justice Doraiswamy Raju. He has come to the conclusion that the
Arbitrator appointed with or without intervention of Court, has jurisdiction to award interest on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. With respect, I am unable to agree with the said conclusion.
4. This case stood referred by a Bench of three learned Judges of this Court by the order dated 29.10.1999 for consideration by a larger Bench. In paragraph 15 of the said order the question to be considered has been formulated as : “In the absence of any prohibition to claim or grant interest under the arbitration agreement whether the Arbitrator has no jurisdiction to award interest for the pre-reference period under the general law or on equitable principles although such claim may not strictly fall within the provisions of the Interest Act, 1839. ?”
5. From the discussions in the reference order it appears that it was urged by Mr. Anil Diwan, learned senior Counsel appearing for the respondents that in view of the judgments of this Court in Secy. Irrigation Deptt., Govt. of Orissa v. G.C.Roy (JT 1991 (6) SC 349 = 1992 (1) SCC 508) (hereinafter referred to as G.C.Roy case), Executive Engineer (Irri.) v. Abhaduta Jena (JT 1987 (4) SC 8 = 1988 (1) SCC 418) (hereinafter referred to as ‘Abhaduta Jena’s case) and in the case of State of Orissa v. B.N. Agarwalla (JT 1997 (2) SC 51 = (1997) 2 SCC 469), requires reconsideration.
6. The question of competence of an Arbitrator to award interest has engaged the attention of this Court in umpteen cases. The claim of interest can be broadly split up into 3 periods – a) for the period before the Arbitrator enters upon the reference, in other words, pre-reference period; (b) for the period during which the proceeding is pending before the Arbitrator which is otherwise called pendente lite period; (c) for the period from the date of the award till the award is made rule of the court. The question to be considered in the present case is confined to the jurisdiction of the Arbitrator to award interest for the pre-reference period only. After hearing the learned Counsel appearing for the appellants and the respondents it appears to me that the moot question to be answered by this Bench is whether the decision in Abhaduta Jena case (supra) holding that the Arbitrator has no competence to award interest for the pre-refer-ence period unless any of the three conditions namely – 1) if the agreement between the parties entitles the Arbitrator to award interest; 2) if there is a usage of trade having the force of law for award of interest and 3) if there are other provi-sions of the substantive law enabling the award of interest; requires re-consideration, particularly in view of the decision of the Constitution Bench in G.C. Roy case (supra). Therefore, it will be convenient to notice at the outset the principles of law and the reasons which persuaded the learned Judges in Abhaduta Jena case to hold as noted above. Therein this Court took note of the important changes brought in by the Interest Act, 1978 particularly the inclusion of an Arbitrator in the definition of Section 2(a) which was absent in the Interest Act of 1839. This Court also took note of the position that Section 34 of the Civil Procedure Code applies to arbitration in a suit for the reason that where a matter is referred to arbitration in a suit the Arbitrator will have all the powers of the Court in deciding the dispute and that Section 34 does not otherwise apply to arbitration as Arbitrators are not ‘courts’ within the meaning of Section 34 CPC. As O. Chinappa Reddy,J speaking for the Court has observed “again we must look elsewhere to discover the right of the Arbitrator to award interest before the institution of the proceedings in cases where the proceedings had concluded before the commencement of the Interest Act, 1978”. In this regard the following observations in paragraph 4 of the judgment may be noticed:
“It is important to notice at this stage that both the Interest Act 1839 and the Interest Act of 1978 provide for the award of interest up to the date of the institution of the proceedings. Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. We must look elsewhere for the law relating to the award of interest pendente lite. This, we find, provided for in Section 34 of the Civil Procedure Code in the case of courts. Section 34, however, applies to arbitrations in suit for the simple reason that where a matter is referred to arbitration in a suit, the Arbitrator will have all the powers of the court in deciding the dispute. Section 34 does not otherwise apply to arbitrations as Arbitra-tors are not courts within the meaning of Section 34 of Civil Proce-dure Code. Again, we must look elsewhere to discover the right of the Arbitrator to award interest before the institution of the proceedings, in cases where the proceedings had concluded before the commencement of the Interest Act of 1978. While under the Interest Act of 1978 the expression ‘court’ was defined to in-clude an Arbitrator, under the Interest Act of 1839 it was not so defined. The result is that while in cases arising after the commencement of Interest Act of 1978 an Arbitrator has the same power as the court to award interest upto the date of institution of the proceedings in cases which arose prior to the commence-ment of the 1978 Act, the Arbitrator has no such power under the Interest Act of 1839. It is, therefore necessary, .as we said, to look elsewhere for the power of the Arbitrator to award inter-est upto the date of institution of the proceedings. Since the Arbitrator is required to conduct himself and make the award in accordance with law we must look to the substantive law for the power of the Arbitrator to award interest before the commencement of the proceedings. If the agreement between the parties entitles the Arbitrator to award interest, no further question arises and the Arbitrator may award interest. Similarly, if there is a usage of trade having the force of law the Arbitrator may award interest. Again if there are any other provisions of the substan-tive law enabling the award of interest the Arbitrator may award interest. By way of an illustration, we may mention Section 80 of the Negotiable Instruments Act as a provision of the substan-tive law under which the court may award interest even in a case where no rate of interest is specified in the promissory note or bill of exchange. We may also refer Section 61(2) of the Sale of Goods Act which provides for the award of interest to the seller or the buyer as the case may be under certain circumstances in suits filed by them. We may further cite the instance of the non-performance of a contract of which equity could give specific performance and to award interest. We may also cite a case where one of the parties is forced to pay interest to a third party, say on an overdraft, consequent on the failure of the other party to the contract not fulfilling the obligation of paying the amount due to them. In such a case also equity may compel the payment of interest. Loss of interest in the place of the right to remain in possession may be rightfully claimed in equity by the owner of a property who has been dispossessed from it.”
(Emphasis supplied)
7. This Court discussed a number of decisions of the Privy Coun-cil and Supreme Court including the case of Bengal – Nagpur Railway Co. Ltd. v. Ruttanji Ramji (1965 IA 66); Seth Thawardas Pherumal v. Union of India (AIR 1955 SC 468); Nachiappa Chettiar v. Subramanium Chettiar ((1962) 2 SCR 209)); Satinder Singh v. Amrao Singh ((1961) 3 SCR 676); Union of India v. Watkins Mayor & Co. (AIR 1966 SC 275); Union of India v. West Punjab Factories (AIR 1966 SC 395); M/s Ashok Construction Co. v. Union of India ((1971) 3 SCC 66) and State of M.P. v. M/s Saith & Skelton Pvt. Ltd. ((1972) 3 SCR 233 = 1972 (1) SCC 702 = AIR1972 SC 1507).
8. After discussing in detail the facts and the principles laid down in the decided cases this Court summed up the position in the following words:
“15. As a result of the discussion of the various cases, we see that Bengal – Nagpur Railway Co. Ltd. v. Ruttanji Ramji, Union of India, v. West Punjab Factories and Union of India v. Watkins & Co. were cases of award of interest not by an Arbitrator, but by the Court. It was laid down in those three cases that interest could not be awarded for the period prior to the suit in the absence of an agreement for the payment of interest or any usage of trade having the force of law or any provision of the substan-tive law entitling the plaintiff to recover interest. Interest could also be awarded by the court under the Interest Act if the amount claimed was a sum certain payable at a certain time by virtue of a written instrument. In regard to pendente lite interest, the provisions of the Civil Procedure Code governed the same.
16. The question of award of interest by an Arbitrator was consid-ered in the remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam Chettiar, Satinder Singh v. Amrao Singh, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd. Ashok Construction Co. v. Union of India and State of Madhya Pradesh v. M/s. Saith & Skelton Pvt. Ltd. were all cases in which the reference to arbitration was made by the court, of all the dis-putes in the suit. It was held that the Arbitrator must be assumed in those circumstances to have the same power to award interest as the court. It was on that basis that the award of pendente lite interest was made on the principle of Section 34 Civil Procedure Code in Nachiappa Chettiar v. Subramaniam Chet-tiar, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Furniture Pvt. Ltd. and State of Madhya Pradesh v. M/s Saith & Skelton Pvt. Ltd. In regard to interest prior to the suit, it was held in these cases that since the Interest Act, 1839 was not applicable, interest could be awarded if there was an agreement to pay interest or a usage of trade having the force of law or any other provision of substantive law entitling the claimant to recover interest. Illustrations of the provisions of substantive law under which the Arbitrator could award interest were also given in some of the cases. It was said, for instance, where an owner was deprived of his property, the right to receive interest took the place of the right to retain possession, and the owner of immovable property who lost posses-sion of it was, therefore, entitled to claim interest in the place of right to retain possession. It was further said that it would be so whether possession of immovable property was taken away by private treaty or by compulsory acquisition. Another instance where interest could be awarded was under Section 61(2) of the Sale of Goods Act which provided for the award of interest to the seller or the buyer, as the case may be, under the circum-stances specified in that Section.
17. Section 80 of the Negotiable Instruments Act was mentioned as an instance of a provision of the substantive law under which interest prior to the institution of the proceedings could be awarded. Interest could also be awarded in cases of non-perfor-mance of a contract of which equity could give specific perfor-mance. Seth Thawardas Pherumal was a case of direct reference to arbitration without the intervention of a court. Neither the Interest Act, 1839 nor the Civil Procedure Code applied as an Arbitrator was not a court. Interest could, therefore, be awarded only if there was an agreement to pay interest or a usage of trade having the force of law or some other provision of the substantive law which entitled the plaintiff to receive interest. In that case, interest had been awarded on the ground that it was reasonable to award interest and the court, therefore, held that the Arbitrator was wrong in awarding the interest.”
(Emphasis supplied)
9. The ultimate conclusions reached by the Court were summed up in these words:
“In regard to pendente lite interest, that is, interest from the date of reference to the date of the award, the claimants would not be entitled to the same for the simple reason that the Arbi-trator is not a court within the meaning of Section 34 of the CPC, nor were the references to arbitration made in the course of suits. In the remaining cases which arose before the commence-ment of the Interest Act, 1978, the respondents are not entitled to claim interest either before the commencement of the proceed-ings or during the pendency of the arbitration. They are not entitled to claim interest for the period prior to the commence-ment of the arbitration proceedings for the reason that the Interest Act, 1839 does not apply to their cases and there is no agreement to pay interest or any usage of trade having the force of law or any other provision of law under which the claimants were entitled to recover interest. They are not entitled to claim pendente lite interest as the Arbitrator is not a court nor were the references to arbitration made in suits.”
(Emphasis supplied)
10. The Constitution Bench of this Court in G.C.Roy case (supra) considered the correctness of the decision in Abhaduta Jena case (supra) so far as award of pendente lite interest is concerned. Indeed while stating the two grounds on which the award before the Court was challenged, it was stated “(2) the Arbitrator had no jurisdiction to award pendente lite interest”. The conclu-sion on that point was stated in paragraphs 44-45 of the judgment in the following words:
“44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the Arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore, when the parties refer all their disputes – or refer the dispute as to interest as such – to the Arbitrator, he shall have the power to award inter-est. This does not mean that in every case the Arbitrator should necessarily award interest pendente lite. It is a matter within his direction to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.
45. For the reasons aforesaid we must hold that the decision in Jena, insofar as it runs counter to the above proposition, did not lay down correct law.”
11. In the present proceedings we are
not concerned with the competence of
an Arbitrator to award pendente lite
interest.
12. From the discussion in the judgment in G.C. Roy case (supra) it is clear that the Constitution Bench confined its considera-tion to the question of pendente lite interest only. Therefore, this decision can be of little assistance in deciding the ques-tion raised in the present proceedings, which relates to power of an Arbitrator to award interest for the pre-reference period. A decision is an authority on the question that is raised and decided by the Court. It cannot be taken as an authority on a different question though in some cases the reason stated therein may have a persuasive value.
13. A Bench of three learned Judges of this Court in the case of Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma (JT 1992 (Suppl.) SC 112 = (1993) 1 SCC 114) considered the question of power of an Arbitrator to award interest for pre-reference period in a case where reference of a dispute to Arbitrator was made prior to coming into force of the Interest Act, 1978. The Bench had occasion to consider the decision in Abhaduta Jena case (supra) and also G.C.Roy case (supra). The Bench rejected the contention that the decision in Abhaduta Jena case had been overruled in G.C. Roy case on the aspect of award of interest for pre-reference period also. B.P. Jeevan Reddy, J., in his concurring judgment specifically dealt with the ques-tion. The relevant portions of the judgment are quoted hereunder:
“During the course of arguments, two different interpretations were placed upon the principles enunciated by the Constitution Bench in Secretary Irrigation Department v. G.C.Roy. On one hand it was contended, relying upon the first of the five principles set out in para 43 that the said decision lays down that even for the pre-reference period, interest can be granted in all cases and that the earlier decision of this Court in Executive Engineer (Irrigation), Balimela v. Abhaduta Jena has been overruled in that behalf as well. On the other side, it was contended that it was not so and that so far as the pre-reference period is concerned, the Constitution Bench decision does not say anything contrary to what was said in Jena. It is in view of the said contentions that I thought it appropriate to clarify the matter since I was the member of the Bench which decided Secretary, Irrigation Department v. G.C.Roy.
36. The decision in G.C.Roy was concerned only with the power of Arbitrator to award interest pendente lite. It was not con-cerned with his power to award interest for the pre-reference period. This was made clear at more than one place in the judgment. In para 2 it is stated that reference to the Consti-tution Bench was only for deciding the question whether the decision in Jena was correct insofar as it held that Arbitrator has no power to award interest pendente lite. In para 8 it is stated (SCC pp.514-15) :
“Generally, the question of award of interest by the Arbitrator may arise in respect of three different period, namely : (I) for the period commencing from the date of dispute till the date the Arbitrator enters upon the reference; (ii) for the period com-mencing from the date of the Arbitrator’s entering upon reference till the date of making the award; and (iii) for the period commencing from the date of making of the award till the date the award is made the Rule of the court or till the date of realisa-tion, whichever is earlier. In the appeals before us we are concerned only with the second of the three aforementioned periods”
(Emphasis supplied)
14. A Bench of two learned Judges of this Court in the case of State of Orissa v. B.N.Agarwala (JT 1992 (Suppl.) SC 552 = (1993) 1 SCC 140) considered the question relating to the power of the Arbitrator to award interest for the pre-reference period. While on behalf of the appellant the contention was raised that the Arbitrator has no power to award interest for pre-reference period relying on the decision in Abhaduta Jena case (supra); the contention on behalf of the respondent was that the said decision was no longer good law in view of the Constitution Bench decision in G.C.Roy case (supra). This Court also declined to refer the matter to a larger Bench. The relev-ant observations in para 10 of the judgment are quoted hereun-der :
“We cannot agree with Shri Bhagat. Both of us were members of the Constitution Bench which decided G.C.Roy. It was confined to the power of the Arbitrator to award interest pendente lite. It did not pertain to nor did it pronounce upon the power of the Arbitrator to award interest for the period prior to his enter-ing upon the reference (pre-reference period). This very aspect has been clarified by one of us (B.P.Jeevan Reddy,J.) in his concurring order in Jugal Kishore Prabhatilal Sharma v. Vijayen-dra Prabhatilal Sharma. Accordingly, we hold following the deci-sion in Jena that the Arbitrator had no power to award interest for the pre-reference period in this case inasmuch as the award was made prior to coming into force of the Interest Act, 1978 (The Interest Act, 1978 came into force with effect from August 19, 1981). So far as interest for the period during which the arbitration proceedings were pending (pendente lite interest) is concerned, the Arbitrator does have the power to award the same as held in G.C.Roy. A request is made by Shri Bhagat to refer the matter to a larger Bench to decide the question relating to the power of the Arbitrator to award interest for the pre-reference period even in cases where the award is made before the coming into force of the Interest Act, 1978. Jena was decided by a Bench of three Judges. We do not also feel persuaded to refer the matter to a larger Bench.”
(Emphasis supplied)
15. Again a Bench of three learned Judges in the case of State of Orissa v. B.N.Agrawala (JT 1997 (2) SC 51 = (1997) 2 SCC 469) had occasion to deal with the question whether the decision in Abhaduta Jena case (supra) was overruled in entirety in the decision of the Constitution Bench in G.C.Roy case (supra). This Court held that the decision in Abhaduta Jena case with regard to award of interest for pre-reference period was not overruled in G.C. Roy case. The relevant observations made in paragraph 12 of the judgment read as follows:
“The perusal of the aforesaid passages clearly shows that Abhadu-ta Jena case, was not overruled in its entirety by the decision in G.C.Roy case. It is only with regard to the award of pendente lite interest that the Constitution Bench came to a conclusion which was contrary to the one arrived at in Abhaduta Jena case with regard to award of interest for pre-reference period was not overruled in G.C.Roy case.”
16. On the question whether the Arbitrator had jurisdiction to award pre-reference interest in case which arose prior to the applicability of the Interest Act, 1978 this Court held :
“With regard to those cases pertaining to the period prior to the applicability of the Interest Act, 1978, in the absence of any substantive law, contract or usage, the Arbitrator has no juris-diction to award interest.”
17. In the case of Seth Thawardas Pherumal v. Union of India (supra) a Bench of three learned Judges of this Court considered the question of validity of the award of interest by the Arbitra-tor in the light of the provisions of the Interest Act, 1839 and Section 34 of the CPC. The views of the Court on that aspect were expressed in the following words:
“The Arbitrator held – The contractor’s contention that his claims should have been settled by January 1948 is, in my opinion reasonable. I, therefore, award interest at 6% for 16 months on the total amount of the award given i.e. Rs.17,363.”
Then the Arbitrator sets out the amounts awarded under each head of claim. A perusal of them shows that each head relates to a claim for an unliquidated sum. The Interest Act, 1839 applies as interest is not otherwise payable by law in this kind of case (see Bengal – Nagpur Ry. Co. v. Ruttanji Ramji but even if it be assumed that an Arbitrator is a “court” within the meaning of that Act, (a fact that by no means appears to be the case), the following among other conditions must be fulfilled before inter-est can be awarded under the Act:-
(1) there must be a debt or a sum certain;
(2) it must be payable at a certain time or otherwise;
(3) these debts or sums must be payable by virtue of some writ-ten contract at a certain time;
(4) there must have been a demand in writing stating that interest will be demanded from the date of the demand.
Not one of these elements is present, so the Arbitrator erred in law in thinking that he had the power to allow interest simply because he thought the demand was reasonable.”
18. In the case of Union of India v. West Punjab Factories Ltd. (supra) a Constitution Bench of this Court considered the ques-tion of an award of interest for a period prior to filing of the suit and held that in the absence of any usage or contract, expressed or implied, or of any provision of law to justify the award of interest it is not possible to award interest by way of damages, and therefore, no interest should have been awarded in the present two suits upto the date of the filing of either of the suit. The relevant observations on that aspect read as follows:
“The next contention is that no interest could be awarded for the period before the suit on the amount of damages decreed. Legal position with respect to this is well-settled : (see Bengal – Nagpur Railway co. Limited v. Ruttanji Ramji and others). That decision of the Judicial Committee was relied upon by this Court in Seth Thawardas Pherumal v. The Union of India. The same view was expressed by this Court in Union of India v. A.L. Rallia Ram. In the absence of any usage or contract, expressed or implied, or of any provision of law to justify the award of interest, it is not possible to award interest by way of damages. Also see recent decision of this Court in Union of India v. Watkins Mayer & Company. In view of these decisions no interest could be award-ed for the period upto the date of the suit and the decretal amount in the two suits will have to be reduced by the amount of such interest awarded.”
(Emphasis supplied)
19. The discussions in the decisions referred to in the foregoing paragraphs show the conspectus of the views expressed on the question of competence of an Arbitrator to award interest for a period before he enters upon a reference. The question has been examined in the light of the ratio in Abhaduta Jena case (supra) even after the Constitution Bench decision in G.C.Roy case (supra). The consistent view taken by this Court is that the decision in Abhaduta Jena case, so far as it relates to the aspect of pre-reference interest has not been overruled by the Constitution Bench. The question to be considered is whether the decision in Abhaduta Jena case should now be overruled on that aspect also. The contention was advanced before us by Shri Anil Diwan learned senior Counsel for the respondent that though Abhaduta Jena case has not been expressly overruled on this aspect by the decision in G.C.Roy case the reasons given in the judgment for overruling Abhaduta Jena on the point of pendente lite interest should be applied in the present case and the said decision should be overruled on the aspect of pre-reference interest also. At the cost of repetition I may state here that this contention was not accepted by this Court in Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra Prabhatilal Sharma and Another (supra), State of Orissa v. B.N. Agarwala (supra), State of Orissa v. B.N. Agarwalla (JT 1997 (2) SC 51 = (1997) 2 SCC 469) (supra). In my view this contention cannot be accepted for the reason that the two periods, the period during which the proceeding was pending before the Arbitrator (pendente lite) and the period before the Arbitrator entered upon the reference (pre-reference) stand on different footing. While the former refers to a period when the Arbitrator was ceased of the matter for adjudication, the latter refers to the period before he (Arbitra-tor) came into the picture. Further during the period when the Arbitrator is ceased of the proceeding, the parties are aware of the claims made by the applicant against the opposite party and the matter is pending adjudication; but during the pre-reference period neither the claims are crystallized nor has the opposite party given any notice that it may be required to pay certain amount to the claimant depending on the adjudication of the dispute by the Arbitrator.
20. In Abhaduta Jena case (supra) this Court held that the Arbi-trator has no competence to award interest for a period prior to reference unless agreement between the parties entitles the Arbitrator to award interest or there is a usage or trade having the force of law for award of interest or there is any other provision of the substantive law enabling the award of interest. In that decision as I read it, this Court has emphasised the position that the claim for interest for pre-reference period can be made only if there is a firm basis giving the claimants a cause of action for claim of such interest and in the absence of such basis for such claim an Arbitrator is not competent to award interest. The position is well-settled that Arbitrator is a creature of agreement between the parties. He is vested with the power of adjudication of disputes in terms of such agreement. He has to act in accordance with law. Though he discharges the functions of a Court while adjudicating the dispute raised by the parties, he cannot be said to be a substitute for the Court in all respects. An Arbitrator is not bound to follow the strict procedure applicable in a case before the Court. In many cases the Arbitrator, though nominated as a judge by the parties, may not have the requisite experience in the field of law which a presiding officer of a Court possesses. Therefore, it is necessary that in judging the claim of interest for pre-reference period, he should ascertain whether such claim is permitted under the terms of the contract between the parties or there is a usage of trade having force of law in support of such claim or there is any other provision of the substantive law enabling the award of such interest. In Abhaduta Jena case this Court did not rule that an Arbitrator was not competent to award interest for pre-reference period in any circumstance. This Court only held that award of such interest was not permissible unless any one of the conditions laid down in the decision is satisfied. The ratio of Abhaduta Jena case (supra) is based on sound legal principles which have been tested in the subsequent decisions in the light of the principles enunciated in G.C.Roy case (supra) also.
21. In this connection I may notice another contention which was raised by Shri Anil Diwan that the jurisdiction to award inter-est for pre-reference period will only compel the claimant to a civil suit for interest and that would result in multiplicity of proceedings. This contention is based on the assumption that a civil court can award interest for a period prior to the institu-tion of the suit without being satisfied that any of the condi-tions laid down in Abhaduta Jena’s case is satisfied. This assumption, in my view is incorrect. The plaintiff in a suit has to base his claim on a cause of action in law and in the absence of a firm basis in law the Court cannot entertain such a claim. The plaintiff has to lay a firm basis for the claim in the pleading. That position has only been reiterated by this Court in Abhaduta Jena case (supra).
22. On the discussions in the foregoing paragraphs, I am of the view that the decision in Abhaduta Jena case (supra) lays down the correct position of law and does not require reconsideration. An Arbitrator has no competence to award interest for the pre-reference period unless any of the conditions namely – (1) if the agreement between the parties entitles the Arbitrator to award interest; (2) if there is a usage of trade having the force of law for award of interest, and (3) if there are other provisions of the substantive law enabling the award of interest, is satis-fied. Therefore, the question formulated in the reference order is answered in the negative. Accordingly, the appeals are al-lowed insofar as the award of interest for the pre-reference period is concerned. No costs.
RAJU, J.
23. The principal question arising in all these civil appeals and stand referred to for the consideration of the Constitution Bench is as to whether the Arbitrator has got jurisdiction to award interest for the pre-reference period in cases which arose prior to the commencement into force on 19.8.1981 of the Interest Act, 1978, when the provisions of the Interest Act 1839 was holding the field. The cases before us relate to the appointment of the Arbitrators concerned by the specified authority, on a demand made therefor by the contractor concerned without the intervention of the Court. The Arbitrators concerned, while sustaining portions of the claim made in the Awards also allowed on those amounts interest from the due date of the amount till date of Award. On the Awards being made the Rule of Court, as per the determination made by the civil court, the State pursued the matter before the High Court unsuccessfully and the High Court sustained the claim of the contractor for interest from the due date upto the date of the Award. Aggrieved, the above ap-peals came to be filed and entertained on certain limited and specified grounds, inclusive of the dispute relating to the Award of interest for the period prior to the date of the Award.
24. The Bench of three learned Judges, who heard the appeals initially, considered it necessary to refer to a larger Bench for an authoritative pronouncement, the following question of law:
“In the absence of any prohibition to claim or grant interest under the arbitration agreement whether Arbitrator has no juris-diction to award interest for the pre-reference period under the general law or equitable principles, although such claim may not strictly fall within the provisions of Interest Act, 1839 ?” (since reported in (JT 1999 (8) SC 554 = 1999 (9) SCC 514).
25. The order of reference also further indicated that there is no clause in the agreement as regards the payment of interest for the pre-reference period and that there is also no clause prohib-iting the payment of interest for the pre-reference period.
26. Before adverting even to the respective contentions of par-ties on either side and undertaking a consideration of the same, it would be necessary to refer to some of the decisions of this Court and highlight the principles laid down therein, since the chore of controversy centres around the efficacy and effect of those principles on the issue raised and stand referred to this Bench. The leading decision which undertook an analysis of the case law on the subject and laid down certain propositions of law is reported in Executive Engineer (Irrigation), Balimela and Others v. Abhaduta Jena and Others (JT 1987 (4) SC 8 = (1988) 1 SCC 418) (to be referred to hereinafter as “Jena’s case”). In paragraph 4 of the judgment, the general state of law is found stated as follows:
“It is important to notice at this stage that both the Interest Act of 1839 and the Interest Act of 1978 provide for the award of interest upto the date of the institution of the proceedings. Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. We must look elsewhere for the law relating to the award of interest pendente lite. This, we find, provided for in Section 34 of the Civil Procedure Code in the case of courts. Section 34, however, applies to arbitrations in suit for the simple reason that where a matter is referred to arbitration in a suit, the Arbitrator will have all the powers of the court in deciding the dispute. Section 34 does not otherwise apply to arbitrations as Arbitra-tors are not courts within the meaning of Section 34 Civil Proce-dure Code. Again, we must look elsewhere to discover the right of the Arbitrator to award interest before the institution of the proceedings, in cases where the proceedings had concluded before the commencement of the Interest Act of 1978. While under the Interest Act of 1978 the expression ‘court’ was defined to in-clude an Arbitrator, under the Interest Act of 1839 it was not so defined. The result is that while in cases arising after the commencement of Interest Act of 1978 an Arbitrator has the same power as the court to award interest up to the date of institu-tion of the proceedings, in cases which arose prior to the com-mencement of the 1978 Act the Arbitrator has no such power under the Interest Act of 1839. It is, therefore necessary, as we said, to look elsewhere for the power of the Arbitrator to award interest up to the date of institution of the proceedings. Since the Arbitrator is required to conduct himself and make the award in accordance with law we must look to the substantive law for the power of the Arbitrator to award interest before the com-mencement of the proceedings. If the agreement between the parties entitles the Arbitrator to award interest no further question arises and the Arbitrator may award interest. Similarly if there is a usage of trade having the force of law the Arbitra-tor may award interest. Again if there are any other provisions of the substantive law enabling the award of interest, the Arbi-trator may award interest. By way of an illustration, we may mention Section 80 of the Negotiable Instruments Act as a provi-sion of the substantive law under which the court may award interest even in a case where no rate of interest is specified in the promissory note or bill of exchange. We may also refer Section 61 (2) of the Sale of Goods Act which provides for the award of interest to the seller or the buyer as the case may be under certain circumstances in suits filed by them. We may further cite the instance of the non-performance of a contract of which equity could give specific performance and to award inter-est. We may also cite a case where one of the parties is forced to pay interest to a third party, say on an overdraft, consequent on the failure of the other party to the contract not fulfilling the obligation of paying the amount due to them. In such a case also equity may compel the payment of interest. Loss of interest in the place of the right to remain in possession may be right-fully claimed in equity by the owner of a property who has been dispossessed from it.”
27. After considering the earlier cases on the subject, it has been observed thus:
16. “The question of award of interest by an Arbitrator was con-sidered in the remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam Chettiar, Satinder Singh v. Amrao Singh, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd., Ashok Construction Co. v. Union of India and State of Madhya Pradesh v. M/s Saith & Skelton Pvt. Ltd. were all cases in which the refer-ence to arbitration was made by the court, of all the disputes in the suit. It was held that the Arbitrator must be assumed in those circumstances to have the same power to award interest as the court. It was on that basis that the award of pendente lite interest was made on the principle of Section 34 Civil Procedure Code in Nachiappa Chettiar v. Subramaniam Chettiar, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Furniture Pvt. Ltd. and State of Madhya Pradesh v. M/s Saith & Skelton Pvt. Ltd. In regard to interest prior to the suit, it was held in these cases that since the Interest Act, 1839 was not applicable, interest could be awarded if there was an agreement to pay interest or a usage of trade having the force of law or any other provision of substantive law entitling the claimant to recover interest. Illustrations of the provisions of substantive law under which the Arbitrator could award interest were also given in some of the cases. It was said, for instance, where an owner was deprived of his property, the right to receive interest took the place of the right to retain possession, and the owner of immovable property who lost possession of it was, therefore, entitled to claim interest in the place of right to retain possession. It was further said that it would be so whether possession of immovable property was taken away by pri-vate treaty or by compulsory acquisition. Another instance where interest could be awarded was under Section 61 (2) of the Sale of Goods Act which provided for the award of interest to the seller or the buyer, as the case may be, under the circumstances speci-fied in that Section.
17. Section 80 of the Negotiable Instruments Act was mentioned as an instance of a provision of the substantive law under which interest prior to the institution of the proceedings could be awarded. Interest could also be awarded in cases of non-perfor-mance of a contract of which equity could give specific perfor-mance. Seth Thawardas Pherumal was a case of direct reference to arbitration without the intervention of a court. Neither the Interest Act, 1839 nor the Civil Procedure Code applied as an Arbitrator was not a court. Interest could, therefore, be award-ed only if there was an agreement to pay interest or a usage of trade having the force of law or some other provision of the substantive law which entitled the plaintiff to receive interest. In that case, interest had been awarded on the ground that it was reasonable to award interest and the court, therefore, held that the Arbitrator was wrong in awarding the interest.
18. While this is the position in cases which arose prior to the coming into force of the Interest Act, 1978, in cases arising after the coming into force of the Act, the position now is that though the award of pendente lite interest is still governed by the same principles, the award of interest prior to the suit is now governed by the Interest Act, 1978. Under the Interest Act, 1978, an Arbitrator is, by definition, a court and may now award interest in all the cases to which the Interest Act applies.”
28. Thereupon, dealing with the cases before them, the general principles noticed were applied and they were disposed of in the following terms:
“20. Coming to the cases before us, we find that in Civil Appeal Nos. 120 and 121 of 1981 before the Arbitrator, there was no answer to the claim for interest and we see no justification for us at this stage to go into the question whether interest was rightly awarded or not. Out of the remaining cases we find that in all cases except two (Civil Appeal Nos. 6019-22 of 1983 and Civil Appeal No.2257 of 1984), the reference to arbitration were made prior to the commencement of the new Act which was on August 19, 1981. In the cases to which the Interest Act, 1978 applies, it was argued by Dr Chitale, learned Counsel for the respondents, that the amount claimed was a sum certain payable at a certain time by virtue of a written instrument and, therefore, interest was payable under the Interest Act for the period before the commencement of the proceedings. In support of his contention that the amount claimed was a sum certain payable at a certain time by virtue of a written instrument, the learned Counsel relied upon the decision of this Court in State of Rajasthan v. Raghubir Singh. The case certainly supports him and in the cases to which the 1978 Interest Act applies the award of interest prior to the proceeding is not open to question. In regard to pendente lite interest, that is, interest from the date of refer-ence to the date of the award, the claimants would not be enti-tled to the same for the simple reason that the Arbitrator is not a court within the meaning of Section 34 of the CPC, nor were the references to arbitration made in the course of suits. In the remaining cases which arose before the commencement of the Inter-est Act, 1978, the respondents are not entitled to claim interest either before the commencement of the proceedings or during the pendency of the arbitration. They are not entitled to claim interest for the period prior to the commencement of the arbitra-tion proceedings for the reason that the Interest Act, 1839 does not apply to their cases and there is no agreement to pay inter-est or any usage of trade having the force of law or any other provision of law under which the claimants were entitled to recover interest. They are not entitled to claim pendente lite interest as the Arbitrator is not a court nor were the references to arbitration made in suits. One of the submissions made on behalf of the respondents was that in every case, all disputes were referred to arbitration and the jurisdiction of the Arbitra-tor to award interest under certain circumstances was undeniable. The award not being a speaking award, it was not permissible to speculate on the reasons for the award of interest and the court was not entitled to go behind the award and disallow the inter-est. It is difficult to agree with this submission. The Arbi-trator is bound to make his award in accordance with law. If the Arbitrator could not possibly have awarded interest on any per-missible ground because such ground did not exist, it would be open to the court to set aside the award relating to the award of interest on the ground of an error apparent on the record. On the other hand, if there was the slightest possibility of the entitlement of the claimant to interest on one or other of the legally permissible grounds, it may not be open to the court to go behind the award and decide whether the award of interest was justifiable. We do not want to enter into a discussion on the legality or propriety of a non-speaking award as we understand the question is now awaiting the decision of a seven Judge Bench. In the light of what we have said above, Civil Appeal Nos. 120 and 121 of 1981 are dismissed, Civil Appeal Nos. 6019-22 of 1983 and Civil Appeal No.2257 of 1984 are allowed to this extent that interest during the pendency of the arbitration proceedings is disallowed and the rest of the civil appeals are allowed to the extent that both interest prior to the proceedings and interest during the pendency of the proceedings are disallowed. There will be no order as to costs. S.L.P.8640/81 is disposed of on the same lines.”
29. The decision, which equally need a detailed reference, is that of Constitution Bench reported in Secretary, Irrigation Department, Government of Orissa and Others v. G.C. Roy (JT 1992 (6) SCC 349 = (1992) 1 SCC 508) (hereinafter referred to as “Roy’s case”). Of the two issues raised in the appeal therein, the one which related to the jurisdiction of the Arbitrator to award pendente lite interest when taken up for hearing before a Bench, the correctness of Jena’s case (supra) insofar as it held that the Arbitrator had no power to award interest pendente lite was contested and on the view taken by that Bench that the said question required further consideration by a larger Bench, the matter was placed before the Constitution Bench. Ultimately, the Constitution Bench held that the decision in Jena’s case (supra) does not lay down good law and where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for prin-cipal amount or independently) is referred to the Arbitrator, he will have the power to award interest pendente lite, for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and there-fore the parties refer all their disputes – or refer the dispute as to interest as such to the Arbitrator- which he shall have power to decide. It was also emphasised therein that the matter being one within the discretion of the Arbitrator – the same requires to be exercised in the light of all facts and circum-stances of the case, keeping the ends of justice in view.
30. The Constitution Bench, which decided Roy’s case (supra) after a critical analysis of the earlier decisions including the one in Jena’s case (supra), held as follows:
“43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legiti-mately entitled has a right to be compensated for the depriva-tion, call it by any name. It may be called interest, compensa-tion or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolu-tion of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbi-trator. “This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliq-uidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impres-sion. Until Jena case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.”
31. While overruling Jena’s case on the above principles, this Court applied the principle of prospective overruling making it clear that their decision shall not entitle any party nor shall it empower any Court to re-open proceedings which have already become final and that the law declared shall apply only to pend-ing proceedings.
32. The area of consideration and the questions which fell for the determination of the cases in Jena’s case and Roy’s case have been adverted to in Roy’s case itself and in para 8 of the judg-ment it has been observed as follows:
“Generally, the question of award of interest by the arbitrator may arise in respect of three different periods, namely: (i) for the period commencing from the date of dispute till the date the arbitrator enters upon the reference; (ii) for the period com-mencing from the date of the arbitrator’s entering upon reference till the date of making the award; and (iii) for the period commencing from the date of making of the award till the date the award is made the rule of the court or till the date of realisa-tion, whichever is earlier. In the appeals before us we are concerned only with the second of the three aforementioned peri-ods. In Jena Case, two questions arose for consideration of the Court, namely: (i) the power of the arbitrator to award interest for the period prior to his entering upon reference, and; (ii) the powers of the arbitrator to award interest for the period the dispute remained pending before him pendente lite. Since, the Court dealt with the second question in detail and held that the arbitrator had no jurisdiction or authority to award interest pendente lite, we think it necessary to consider the reasons for the decision. Justice Chinnappa Reddy, J. speaking for the bench held that neither the Interest Act, 1839 nor the Interest Act, 1978 conferred power on the arbitrator for awarding interest pendente lite. The learned Judge observed that Section 34 of the Civil Procedure Code which provides for the same did not apply to arbitrator inasmuch as an arbitrator is not a court within the meaning of the said provision. Consequently the arbitrator could not award interest pendente lite.”
33. In Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra P. Sharma & Anr. (JT 1992 (Suppl.) SC 112 = (1993) 1 SCC 114) a Bench of three learned judges to which B.P. Jeevan Reddy, J. was a party observed that there was force in the contention that the decision in Roy’s case did not affect the position of law relat-ing to the power of the Arbitrator in respect of the period prior to reference in respect of a pre 1978 Act period. B.P. Jeevan Reddy, J. who was also a member of the Constitution Bench which decided Roy’s case, wrote a separate concurring opinion clarify-ing the position that Roy’s case was concerned with the power of the Arbitrator to award interest pendente lite unlike Jena’s case which considered the question both for the pre-reference period as well as the pendente lite period and therefore, it may not be right to read the decision in Roy’s case as overruling Jena’s case insofar as it dealt with the power of the arbitrator to award interest for the pre-reference period. The learned Judge (Jeevan Reddy, J.) speaking for another Bench in the decision reported in State of Orissa v. B.N. Agarwala (JT 1992 (Suppl.) SC 552 = (1993) 1 SCC 140) reaffirmed the same position and even rejected a request for reference of the matter to a larger Bench of this Court. The decision in State of Orissa v. B.N. Agarwalla (JT 1997 (2) SC 51 = (1997) 2 SCC 469), also reaffirmed the above position.
34. In B.N. Agarwalla’s case (supra) (JT 1997 (2) SC 469 = (1997)2 SCC 469), B.N. Kirpal, J., speaking for a Bench of three learned judges of this Court, adverted to the earlier decisions some of which rendered even after those noticed above and held as follows:
“18. In view of the aforesaid decisions there can now be no doubt with regard to the jurisdiction of the arbitrator to grant inter-est. The principles which can now be said to be well-settled are that the arbitrator has the jurisdiction to award pre-reference interest in cases which arose after the Interest Act, 1978 had become applicable. With regard to those cases pertaining to the period prior to the applicability of the Interest Act, 1978, in the absence of any substantive law, contract or usage, the arbi-trator has no jurisdiction to award interest. For the period during which the arbitration proceedings were pending in view of the decision in G.C. Roy case and Hindustan Construction Ltd. case, the arbitrator has the power to award interest. The power of the arbitrator to award interest for the post-award period also exists and this aspect has been considered in the discussion relating to Civil Appeal No.9234 of 1994 in the later part of this judgment.”
35. As to what should happen for the post Award period, Section 29 of the Arbitration Act, 1940, itself provides clue for an answer by stipulating that where and insofar as an award is for the payment of money, the Court may in the decree order interest from the date of the decree at such rate as the Court deems reasonable to be paid on the principal sum as adjudged by the award and confirmed by the decree. This question has been spe-cifically dealt with in Hindustan Construction Company Ltd. v. State of Jammu & Kashmir ((1992) 4 SCC 217) by a Bench of three learned judges and it was held therein as follows:
“5. The question of interest can be easily disposed of as it is covered by recent decisions of this Court. It is sufficient to refer to the latest decision of a five Judge bench of this Court in Secretary, Irrigation Department, Govt. of Orisssa vs G.C. Roy. Though the said decision deals with the power of the arbitrator to award interest pendente lite, the principle of the decision makes it clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for, while award of interest for the period prior to an arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the post-award period is a matter of procedure. Section 34 of Code of Civil Procedure provides both for awarding of interest pendente lite as well as for the post-decree period and the principle of Section 34 has been held applicable to proceedings before the arbitrator, though the section as such may not apply. In this connection, the decision in Union of India v. Bungo Steel Furni-ture (P) Ltd. may be seen as also the decision in Gujarat Water Supply & Sewerage Board v. Unique Erectors (Gujarat) P. Ltd. which upholds the said power though on a somewhat different reasoning. We, therefore, think that the award on Item No.8 should have been upheld.”
36. This aspect was also specifically dealt with and it was held in B.N. Agarwalla’s case (Supra), as hereunder:
“37. When the arbitrator makes an award, it is not necessary that in every case the award has to be filed in a court and a decree, in terms thereof, is passed. It does happen that when an award is made, the party against whom it is made, may accept the award and comply with the same. It is rightly not disputed that from the date of passing of the award, future interest can be awarded by the arbitrator as held by this Court in the cases of Unique Erectors (Gujarat) (P) Ltd. and Hindustan Construction Co. Ltd. The correct procedure which should be adopted by the arbitrator is to award future interest till the date of the decree or the date of payment, whichever is earlier. The effect of this would be that if the award is voluntarily accepted, which may not result in a decree being passed, then payment of interest would be made from the date of award till the date of payment. Where, however, as in the present case, the award is filed in the court and a decree is passed in terms thereof, then Mr. Sanyal has rightly contended that it is for the court to determine under Section 29 of the Arbitration Act as to whether interest should be ordered to be paid and if so at what rate.”
37. It is in the above backdrop of the legal principles enunciat-ed and considered holding the field that this reference came to be made for determining the jurisdiction of the Arbitrator to award interest for the pre-reference period, in the circumstances stated in the very question of reference.
38. Shri Gobind Das, learned senior counsel for the appellants, submitted that having regard to the principles and ratio laid down in Jena’s case and B.N. Agarwala’s case (Supra) and the other decisions wherein the position came to be re-affirmed and followed consistently, the Arbitrator will have no jurisdiction to award interest for the pre-reference period in a matter relat-ing to the pre 1978 Act, period. The decision of this Court in G.C. Roy’s case, according to the learned counsel, has no rele-vance to the case pertaining to ‘pre-reference’ period, the same being only concerned with pendente lite period and therefore the authority of the Jena’s case in respect of the pre-reference period holding that no interest is payable for pre-reference period never stood undermined or overruled by the decision of the Constitution Bench rendered in G.C. Roy’s case. Emphasis has been laid to derive support to this stand on the decisions re-ported in Bengal Nagpur Railway Co. Ltd. v Ruttanji Ramji and others (AIR 1938 PC 67); Seth Thawardas Pherumal and another v. Union of India (AIR 1955 SC 468 = 1955(2) SCR 48); Union of India v. A.L. Rallia Ram ((1964) 3 SCR 164); Union of India v. Watkins Mayor & Co. (AIR 1966 SC 275); Union of India v. West Punjab Factories Ltd. ((1966) 1 SCR 580 = AIR 1966 SC 395); M/s Ashok Construction Company’s case (Supra) and State of Madhya Pradesh v. M/s Saith & Skelton (P) Ltd. ((1972) 3 SCR 233). According to the learned counsel for the appellants, the principles laid down in Jena’s case as affirmed in G.C. Roy’s case and as clarified and declared in the subsequent decisions of this Court including the one in B.N. Agarwala’s case (Supra), do not call for any change or modification or alteration and the reference should be answered in favour of the appellants.
39. Per contra, Shri Anil B. Divan, learned Senior Counsel spear heading the arguments on behalf of the respondents followed by Sharvashri V.Bhagat and A.K. Panda strenuously contended that the ratio or the reasons which formed the basis for the judgment and the principles laid down in G.C. Roy’s case dehors their ultimate application to the actual case before court for according relief, renders the decision in Jena’s case, insofar as it related to award of interest for pre-reference period also bad even for the very reasons on which the Court in G.C.Roy’s case found the judgment in Jena’s case bad or unsustainable in respect of award of interest for pendente lite period. The conclusions in Jena’s case are said to be directly in conflict with the earlier three judges’ judgment of this Court and all these cases having been quoted with approval in G.C.Roy’s case, Jena’s case must be held to be no longer good law even in respect of award of interest for the pre-reference period. Argued the learned senior counsel further that inasmuch as the principles laid down in the English cases (Chandris case, Edwards case) came to be approved in G.C.Roy’s case, it becomes inevitably necessary to hold that the Arbitrator has jurisdiction to award interest for pre-reference period as long as there is no specific prohibition as such in the agreement/contract between parties restraining the claim/payment of interest, on the principle of an implied term of the agreement between the parties, that the Arbitrator could award interest in a case where the Court could award it and that as a consequence thereof when the parties refer all their disputes/ or the dispute as to interest as such – to the Arbitrator, he shall have the necessary power to award interest – though such power may be exercised in his discretion in the light of all the facts and circumstances of the case and in the interests of justice. Our attention has also been invited in this regard to certain English cases: Chandris v. Isbrandtsen Moller Co. Inc. (1950 (2) All England Law Reports 618); President of India v. La Pintada Compania Navigacion S.A. (Law Reports (1985) 1 A.C. 104); and Food Corporation of India v. Marastro Compania Naviera S.A. of Panama (1986 (3) All England Law Reports 500 = (1987) 1 Weekly Law Reports 134), and those of the Supreme Court in G.C. Roy’s case and some of the decisions referred to therein.
40. We have carefully considered the submissions of the learned counsel appearing on either side. The mere reference and re-liance placed by the counsel for the appellants on the earlier decisions which have been already considered by this Court in deciding Jena’s case and G.C. Roy’s case and explained, does not help to improve the position of the appellants in any manner to sustain their plea. The Constitution Bench which dealt with G.C. Roy’s case while adverting to the English cases reported in Edwards v. Great Western Railway Company ((1851) 138 ER 603); Podar Trading Co. Ltd. v. Francois Tagher ((1949) 2 All E.R. 62); Chandris v. Isbrandsten-Moller Co. Inc. (1950 (1) All E.R. 768), observed, while quoting with approval the decision in Ashok Construction Company’s case (supra), that the principles laid down by this Court it only accorded with the principles laid down in Edwards case (Supra) as understood in Chandris case (Supra). Reference has also been made in G.C. Roy’s case to the decision reported in Union of India v. Bungo Steel Furniture Pvt. Ltd. (AIR 1967 SC 1032) wherein also this Court accorded approval to the principles laid down in the English cases, observing as follows:
“26. The above passages show that the Court laid down two princi-ples: (i) it is an implied term of the reference that the arbi-trator will decide the dispute according to existing law and give such relief with regard to interest as a court could give if it decides the dispute; (ii) though in terms Section 34 of the Code of Civil Procedure does not apply to arbitration proceedings, the principle of that section will be applied by the arbitrator for awarding interest in cases where a court of law in a suit having jurisdiction of the subject matter covered by Section 34 could grant a decree for interest. It is also relevant to notice that this decision refers with approval to both the English decisions in Edwards and Chandris case besides the decision of this Court in Firm Madanlal Roshanlal. It is noteworthy that the decision explains and distinguishes the decision in Thawardas on the same lines as was done in Firm Madanlal Roshanlal case.”
41. The subsequent development and march of law in England, in this connection also deserve to be noticed. In President of India v. La Pintada Compania Navigacion S.A. (supra), the House of Lords approved the rule in Chandris case as follows:
“The true position in law is, in my opinion, not in doubt. It is this. Where parties refer a dispute between them to arbitration in England, they impliedly agree that the arbitration is to be conducted in accordance in all respects with the law of England, unless, which seldom occurs, the agreement of reference provides otherwise. It is on this basis that it was held by the Court of Appeal in Chandris v. Isbrandtsen-Moller Co. Inc. (1951) 1 K.B. 240 that, although section 3(1) of the Act 1934, by its terms, empowered only courts of record to include interest in sums for which judgment was given for damages or debt, arbitrators were nevertheless empowered, by the agreement of reference, to apply English law, including so much of that law as is to be found in section 3(1) of the Act of 1934.” (At page 119.)
42. In Food Corporation of India v. Marastro Compania Naviera S.A. of Panama (supra), it was held by the Court of Appeal as hereunder:
“Before section 19A there was no general statutory provision empowering arbitrators to award interest on the sums they award-ed. But it was held by this court in Chandris vs Isbrandtsen-Moller Co. Inc. (1951) 1 K.B. 240 that, just as before the Act of 1934 came into force an arbitrator had been held entitled to award interest in the circumstances in which, under the Civil Procedure Act 1933, a jury could have awarded interest, so equal-ly, after the Act of 1934 came into force, an arbitrator had impliedly the power to award interest which section 3 had con-ferred upon courts of record.
The decision in the Chandris case was approved by the House of Lords in President of India vs La Pintada Compania Navigacion S.A.(1985) A.C. 104. There, Lord Brandon of Oakbrook said that, where parties refer a dispute between them to arbitration in England, they impliedly agree that the arbitration is to be conducted in accordance in all respects with the law of England, unless the agreement of reference provides otherwise. Thus, although section 3 of the Act of 1934 by its terms empowered only courts of record to include interest in sums for which judgment was given for damages or debt, arbitrators were nevertheless empowered, by the agreement of reference, to apply English law, including so much of that law as was to be found in section 3 of the Act of 1934.
In my judgment, this implied agreement in the arbitration agree-ment is naturally to be understood as empowering arbitrators to apply English law as it is from time to time during the course of the reference (and in particular in the context of the present case as it was at the time of the hearing and the award) and not as an agreement empowering the arbitrator to apply English law crystallised as at the date of the arbitration agreement. As it was put by Cohen L.J. in the Chandris case (1951) 1 K.B. 240, 264 (though admittedly without having his mind addressed to transi-tional problems):
“In my opinion, the right of arbitrators to award interest was not derived from sections 28 and 29 of the Civil Procedure Act, 1833, but from the rule that arbitrators had the powers of the appropriate court in the matter of awarding interest. In my opinion, therefore, the effect of the Act of 1934 is that, after it came into force, an arbitrator had no longer the powers of awarding interest on damages conferred on juries by sections 28 and 29 of the Civil Procedure Act, 1833, but he had the power conferred on the appropriate court in the act of 1934 described as a ‘court of record.”
In the present case, the power of the court under section 3 of the Act of 1934 to award interest on a judgment at the trial of proceedings which the arbitrator would by implication prospec-tively have had at the time of the arbitration agreement had been superseded by the time of the hearing, and afortiori by the date of the award, by the wider powers of the court as a result of section 15 of the Act of 1982. It is those wider powers which, by the Chandris process of implication, the arbitrator would have had when he made the award if section 19A had not been inserted into the Arbitration Act 1950. The purpose of section 19A is to make explicit powers to award interest which had pre-viously rested on implication. There is thus a further strong pointer to holding that section 19A has retrospective effect and applies to pending and future arbitrations under arbitration agreements whenever made, just as the powers of the High Court and of the county courts under section 35A of the Act of 1981 and section 97A of the Act of 1959 apply to proceedings whenever instituted.”
(At pages 141 & 142)
The Constitution Bench in G.C.Roy’s case also recognised and accorded approval to this principle in para 43 (iii) by stating, “The Arbitrator must also act and make his award in accordance with the general law of the land and the agreement.”
43. As for the reliance placed for the appellants upon the deci-sions reported in AIR 1938 PC 67; AIR 1955 SC 468 and 1966 (1) SCR 580, we are of the view that the observations contained in those judgments have to be construed in the factual context and nature of the claims involved therein and not in the abstract and out of their context. Thawardas’ case (Supra) is one where the Arbitrator awarded interest on unliquidated damages for a period before the reference to arbitration as well as for the period subsequent to reference. The Bengal Nagpur Railway Company Ltd. case (Supra) dealt with the claim of interest by way of damages under Section 73 of the Contract Act and it was observed therein that Section 73 is merely declaratory of the common law as to damages and that it was not available to the plaintiff therein. In West Punjab Factories Ltd. Case (Supra) also the suit claim was for damages for loss of goods destroyed by fire, and issue No. (iv) considered therein related to the question of awarding interest for the period before the suit on the amount of damages decreed. A careful analysis of the principles underlying those decisions would show that the claim of interest for the period prior to the commencement of proceedings was not countenanced in view of the settled and indisputable position of law that damages till quantified is not and cannot be said to be an ascertained or definite sum and until it is ascertained and crystalised into a definite sum and decreed, no question of payment of interest for the period prior to such quantification would either arise or be permissible in law, even if made before regular civil courts, in ordinary suits filed.
44. There can be no controversy over the position that the Constitution Bench of this Court in G.C. Roy’s case while declar-ing that the decision in Jena’s case does not lay down good law upheld, as a consequence the jurisdiction of the Arbitrator to award only pendente lite interest, as explained and highlighted in the subsequent decisions of this Court. When the claim in-volved for consideration in G.C. Roy’s case was only with refer-ence to pendente lite interest it cannot be expected of the Court to travel outside, except for analysing the general principles, to academically adjudicate the other aspects of the matter also decided by the Bench in Jena’s case and overrule the same on such other points, too. Be that as it may, the ratio or the basis of reasons and principles underlying a decision is distinct from the ultimate relief granted or manner of disposal adopted in a given case. While laying down principle No. (i) in para 43, it has been in unmistakable terms declared that the basic proposition that a person deprived of the use of money to which he is legiti-mately entitled to has a right to be compensated for the depriva-tion, by whatever name it may be called viz., interest, compensa-tion or damages, “is as valid for the period the dispute is pending before the Arbitrator as it is for the period prior to the Arbitrator entering upon the reference.” The efficacy and binding nature of this declaration of law cannot be either dimin-ished or whittled down even on any known principle underlying the doctrine of ‘stare decisis’. The same is the position with reference to the principle Nos. (ii) and (iii). It cannot be legitimately contended that these principles would either vary or could be different in a case relating to the award of interest for the pre-reference period and to assume such a contra position in juxta position would not only be destructive in nature but also illogical and self-contradictory resulting in grave miscar-riage of justice. Some of the very reasons and principles which weighed with the Constitution Bench in G.C.Roy’s case to sustain the jurisdiction of the Arbitrator to award pendente lite inter-est in a claim arising out of an agreement which does not also prohibit the grant of interest, in our view would equally suffice and provide sound basis of reasoning for upholding the power of the Arbitrator to award interest in respect of the pre-reference period, too. The further fact that the decisions of this Court, including the Jena’s case, envisaged four circumstances or con-tingencies wherein such interest for pre-reference period can be countenanced by the Arbitrator, is by itself sufficient to confer jurisdiction upon the Arbitrator to entertain and consider the said claim also, and consequently there is no justification to thwart the same even at the threshold denying the Arbitrator power even to entertain the claim as such.
45. What difference it would make and consequences would follow, if principle No. (i) is read along with principle No. (v), be it even that, interest for the pre-reference period is a matter of substantive law unlike the interest for the period pendente lite, which ultimately came to be allowed applying the principles engrafted in Section 34 of the Code of Civil Procedure would next deserve our consideration. ‘Substantive Law’, is that part of the law which creates, defines and regulates rights in contrast to what is called adjective or remedial law which provides the method of enforcing rights. Decisions, including the one in Jena’s case while adverting to the question of substantive law has chosen to indicate by way of illustration laws such as Sale of Goods Act, 1930 (Section 61(2)), Negotiable Instruments Act, 1881 (Section 80) etc. The provisions of the Interest Act 1839, which prescribes the general law of interest and becomes applica-ble in the absence of any contractual or other statutory provi-sions specially dealing with the subject, would also answer the description of substantive law. This Act was excluded from consideration for the simple reason that unlike the inclusive definition of ‘Court’ in 1978 Act so as to include an Arbitrator, also the 1839 Act did not provide any ‘definition’ clause much less an expansive one. Not only, Section 1 of the Interest Act but even the provisions contained in Sale of Goods Act and Nego-tiable Instruments Act themselves only envisage and enable courts to grant or award interest. But on that ground alone it could not be reasonably postulated that such Acts applied only to proceedings before Courts and not to proceedings before forums created in lieu of conventional Civil Courts. Once it is con-strued and considered that the method of redressal of disputes by an alternative forum of arbitration as agreed to between the parties, with or without the intervention of Court is only a substitute of the conventional Civil Courts by forums created by consent of parties, it is but inevitably necessary that the parties must be deemed to have by implication also agreed that the arbitrator shall have power to award interest, the same way and in the same manner as courts do and would have done, had there not been an agreement for arbitration. It is in this connection that the practice followed by English Courts which came to be noticed and approved by this Court also lend support and strength to adopt such construction in order to render com-plete and substantial justice between the parties. That there is nothing in the Interest Act, 1839 to confine its operation and applicability only to proceedings before ordinary and convention-al Courts, cannot also be ignored, in this connection. In our view any such restricted and literal construction which is bound to create numerous anomalies and ultimately defeat the ends of justice should be scrupulously avoided. On the other hand, that interpretation which makes the text not only match the context but also make a reading of the provisions of an Act, just, mean-ingful and purposeful and help to further and advance the ends of justice must alone commend for the acceptance of courts of law. Adopting a different construction to deny a claimant who opts for adjudication of disputes by arbitral process alone and that too when recourse to such process is made without the intervention of Court would amount to applying different and discriminatory norms and standards to situations which admits of no such difference and that too where there is no real distinction based upon any acceptable or tangible reason.
46. It is not in dispute that an Arbitrator appointed in a pend-ing suit or with the intervention of the Court, will have all the powers of the Court, in deciding the dispute and the dispute is only in respect of an Arbitrator to whom the reference has been made by the parties, under the agreement without the intervention of the Court. It would then mean that the parties have to be driven to vexatious litigation before Courts by passing an agree-ment of arbitration, to be ultimately told to abide by it and have the matter formally referred by staying such proceedings before Civil Court to secure to the Arbitrator power to award interest also. In G.C. Roy’s case while emphasising the impor-tance and need for availing arbitration process, it has been observed as follows:
“4. A dispute between two parties may be determined by court through judicial process or by arbitrator through a non-judicial process. The resolution of dispute by court, through judicial process is costly and time consuming. Therefore, generally the parties with a view to avoid delay and cost, prefer alternative method of settlement of dispute through arbitration proceedings. In addition to these two known process of settlement of dispute there is another alternative method of settlement of dispute through statutory arbitration. Statutory arbitrations are regu-lated by the statutory provisions while the parties entering into agreement for the resolution of their dispute through the process of arbitration are free to enter into agreement regarding the method, mode and procedure of the resolution of their dispute provided the same are not opposed to any provision of law. Many a time while suit is pending for adjudication before a court, the court with the consent of the parties, refers the dispute to arbitration. On account of the growth in the international trade and commerce and also on account of long delays occurring in the disposal of suits and appeals in courts, there has been tremen-dous movement towards the resolution of disputes through alterna-tive forum of arbitrators. The alternative method of settlement of dispute through arbitration is a speedy and convenient pro-cess, which is being followed throughout the world. In India since ancient days settlement of disputes by Panches has been a common process for resolution of disputes in an informal manner. But now arbitration is regulated by statutory provisions.”
47. If that be the position, Courts which of late encourage litigants to opt for and avail of the alternative method of resolution of disputes, would be penalising or placing those who avail of the same in a serious disadvantage. Both logic and reason should counsel courts to lean more in favour of the Arbi-trator holding to possess all the powers as are necessary to do complete and full justice between the parties in the same manner in which the Civil Court seized of the same dispute could have done. By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to Civil Court to vin-dicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise he could have successfully asserted before Courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of his substantive rights under the various laws in force, according to which only even the Arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the Arbitra-tor to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the Arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the Arbitrator cannot have jurisdic-tion to award interest for the period prior to the date of his appointment or entering into reference which alone confers him power is too stale and technical to be countenanced in our hands, for the simple reason that in every case the appointment of an Arbitrator or even resort to Court to vindicate rights could be only after disputes have cropped up between the parties and continue to subsist unresolved and that if the Arbitrator has the power to deal with and decide disputes which cropped up at a point of time and for the period prior to the appointment of an Arbitrator, it is beyond comprehension as to why and for what reason and with what justification the Arbitrator should be denied only the power to award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same.
48. For all the reasons stated above, we answer the reference by holding that the Arbitrator appointed with or without the inter-vention of the court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the con-tract to claim or grant any such interest. The decision in Jena’s case (1988 (1) SCC 418) taking a contra view does not lay down the correct position and stands overruled, prospectively, which means that this decision shall not entitle any party nor shall it empower any Court to reopen proceedings which have already become final, and apply only to any pending proceedings. No costs.