TMI Blog1997 (1) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... im for interest even for the pre-reference period had arisen after the Interest Act. 1978 had came into force and, therefore the arbitrator could award interest - C.A. 471 OF 1997 - - - Dated:- 29-1-1997 - A.M. AHMADI, S.P. BHARUCHA AND B.N. KIRPAL, JJ. JUDGMENT The main question which arises for consideration in these cases relates to the power of the Arbitrator to award interest. The contention on behalf of the appellants against whom interest has been awarded by the arbitrators, is that this Court held in EXECUTIVE ENGINEER (IRRIGATION) VS. ABHADUTA JENA (1988) 1 SCC 418 that the arbitrator has no power to award interest in respect of pre reference period in the absence of the claimant having a right under the contract or a provision of substantive law, to get interest. On the other hand, it is the submission on behalf of the claimants/respondents that the aforesaid decision in the case of Abhaduta Jena (supra) has been overruled by a Constitution Bench of this Court in the case of SECRETARY, IRRIGATION DEPARTMENT GOVERNMENT OF ORISSA AND OTHERS VS. G.C.ROY. (1992) 1 SCC 508 and it has been held that the arbitrator could award pre reference, pendente lite and futu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lsewhere 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, applied 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 arbitrators are not courts within the meaning of Section 34 Civil Procedure 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 include 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 institution of the proceedings, in cases which arose prior to the commencement of the 1978 Act the arbitrator has no such power under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest pendants lite could not be awarded but with regard to pre-reference interest, it was held that "since in this case the reference to arbitration was made after the commencement of the Interest Act, 1978, the arbitrator under Section 3(1)(a) of the said Act was entitled to award interest from 6.8.1981 till 12.8.1984 in view of this Court's decision in Abhaduta Jena's case". This Court also held that even though in Abhaduta Jena's case (supra), granting of interest for the period from the date of award had not been considered nevertheless interest should be allowed for that period on the principle that this Court could, once proceedings under Sections 15 to 17 of the Arbitration Act are initiated, grant interest pending the litigation before it i.e. from the date of award to the date of decree. We may now consider the decision of the Constitution Bench in SECRETARY, IRRIGATION DEPARTMENT, GOVERNMENT OF ORISSA AND OTHERS VS. G.C. ROY, (1992) 1 SCC 508. The contention of the counsels appearing on behalf of the respondents is that the decision in Abhaduta Jena's case (supra) was overruled in its entirety and it was held in G.C. Roy's case (supra) that the arbitrator c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages. This basic consideration is as valid for the period the disputes 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 from (sic forum) for resolution 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 could have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Roy's case (supra). 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's case (supra). The decision in Abhaduta Jena's case (supra) with regard to award of interest for pre reference period was not overruled in G.C. Roy's case (supra). More recent decisions of this Court also indicate that G.C. Roy's case (supra) has been understood and followed as having overruled Abhaduta Jena's case (supra) only with regard to pendente lite interest and not with regard to pre reference interest. We may now refer to these decisions. In HINDUSTAN CONSTRUCTION CO. LTD. VS. STATE OF J K, (1992) 4 SCC 217, the question which arose for consideration was whether the arbitrator was competent to award interest for the period from the date of the award to the date of payment. It was in that connection that reference was made to G.C. Roy's case (supra) and it was observed as follows: "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 Secreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the interest for the pre-reference period could be granted. In this case, the Supreme Court also held that the interest pendente lite i.e. from the date for reference to the date of the award, the claimants would not be entitled to the same for the reason that arbitrator is not a court within the meaning of Section 34 CPC since the reference was not by a court in a pending suit. This view regarding the interest pendente lite however has been reversed in Secretary, Irrigation Department, Government of Orissa V. G.C. Roy, Regarding the interest during the pre-reference period, the view taken in Abhaduta Jena case is not disturbed. Therefore, the interest during the pre-reference period can be awarded provided on the date of the award, 1978 Interest Act was in force." In SUDHIR BROTHERS VS. DELHI DEVELOPMENT AUTHORITY AND ANOTHER, (1996) 1 SCC 32, the question with regard to awarding interest for pre-reference period, but in a case arising after the commencement of Interest Act. 1978, came up for consideration and the legal position, emanating from earlier decisions of this Court including G.C.Roy's case (supra) and Jena's case (supra), was stated to be as follows: "The Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping the aforesaid principles in mind, we may now refer to the facts in each case. CIVIL APPEAL NO. 9233 OF 1994 In Civil Appeal No. 9233 of 1994, the appellant had invited tenders for construction of certain quarters. The respondent Durga Parshad had submitted his tender which was accepted. The work was completed by him on 31.5.1977. As certain differences had arisen between the parties. Durga Parshad, the respondent herein, requested the appellant to make a reference of the disputes to an arbitrator as provided by the agreement. AS no reference was made, Durga Parshad filed an application under Section 20 of the Arbitration Act whereupon the Court appointed an arbitrator as per the terms of the agreement and disputes between the parties were referred to the said arbitrator. The arbitrator after hearing the parties and considering the evidence adduced before him made his award whereby the appellant was held to be liable to pay a sum or RS. 2.73.130.82/- to the respondent Durga Parshad. This arbitrator further held that the appellant was liable to pay simple interest @ 15% per annum from 31.8.1977 till the gate of payment on the aforesaid amount or the date of decree, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sportation etc. The Engineer in charge will have full and final authority to reject any material or work done due to defect therein and the contractor/contractors shall forthwith remedy the defects at his/their own expense and no further work shall be done in connection with particular work or portion of the work till such time as the defect is removed to the entire satisfaction of the Engineer in charge. All materials, tools and plants brought to site by the contractor/contractors shall be deemed to be held in lien by the BCCL and the contractor/contractors shall not have the right to remove the same from the site without the written permission of the Engineer in charge. However, the BCCL shall not be liable for any loss, theft or damage due to fire or other causes sustained during this period of lien. No interest is payable on amounts with held under the item of the agreement. The BCCL shall be at liberty to deduct from the security deposit or from any other sum due or to become due under this contract or under any other contract all sums that become due to the BCCL. All bills shall be per-audited before amounts and will be made by cheque only." From the facts enumerated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant towards retention money for the defect liability period. It was submitted that the appellant had received a sum of Rs. 30,000/- as security for the fulfillment of the contract to the satisfaction of the company and the respondent Durga Parsad has not claimed any interest on this amount as under aforesaid clause 4, no interest was payable on the amount so withheld. The claim which was made by Durga Parsad before the arbitrator was for the non-payment of the full amount as per final bill submitted by him. The claim on this account before the arbitrator was for a sum of Rs. 5.86.381.50/- being the balance amount payable out of the final bill and interest thereon was claimed with effect from the date of completion of work (31.5.1977) till the date of payment. The claim of the respondent for a sum of Rs. 5.80.381.50/- was upheld by the arbitrator only to the extent of Rs. 2,73,136.82/- and the respondent was awarded interest on this amount. The interest so awarded is clearly not covered by the aforesaid clause 4 of the contract. The decision of the High Court awarding pre-reference interest with effect from the date when the Interest Act, 1978 had come into force i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal filed by the appellant. It is clear from the principle enunciated hereinabove that pre-reference interest could not have been awarded in favour of the respondent in the present case because the Interest Act, 1978 was not applicable and there was no term in the contract and nor was it established that under any law or usage any interest was payable. Applying the ration of decisions of this Court in Abhaduta Jena's case (supra) and other cases, the appeal is allowed to the extent that the award of the arbitrator, insofar as it awards interest for the pre-reference period is set aside. The decree would stand modified accordingly. Parties to bear their own costs. CIVIL APPEAL NO. 9234 OF 1994 On 27.5.1979, an agreement was entered into between the State Government, the appellant herein, and the respondent for improvement of Salai-Manoharpur Road. This was followed by a supplementary agreement dated 30.4.1982 for carting earth. The respondent made claims against the appellant in respect of above work allegedly done under the said agreements. On 19.5.1987, the respondent filed an application in the trial court for appointment of an arbitrator under Section 8 of the said Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of payment and, therefore, the award to that extent, at lest, was liable to be set-aside. From the Facts enumerated hereinabove. It is clear that though the arbitrator had awarded interest in respect of all the three periods, the objections which were filed, and the contentions raised before the trial court as well as the High Court, related only to the award of pendente lite interest. In fact, the decision of the High Court upholding the award of pendente lite interest was not seriously challenged by Mr. Sanyal. obviously in view of the decision of the Constitution Bench of this Court in G.C. Roy's case (supra). Ordinarily, we would not be inclined to allow the appellant to raise a new point relating to the grant of post award interest for the first time in this Court, but as this is a pure question of law and in order to finally decide this issue we allowed the learned counsel to raise the same. We, however, do not find any merit in this submission. According to Section 29 of the Arbitration Act, where the award is for payment of money the Court may in the decree order interest from the date or the decree to the date of payment. This Section by it's plain language expre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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