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TMI Blog1987 (9) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... ny alterations in or additions to the original specifications, drawings, designs, and instructions that may appear to him to be necessary or advisable during the progress of the work, and the contractor shall be bound to carry but the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in charge, and such alteration shall not invalidate the contract; and any additional work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work, and at the same rates as are specified in the tender for the main work. The time for the completion of the work shall be extended in the proportion that the additional work bears to the original work bears to the original contract work and the certificate of the Engineer-in-charge shall be conclusive as to such proportion. And if the additional work includes any class of work, for which no rate is specified in this contract, then such class of work shall be carried out at the rates entered in the sanctioned schedule of rates of the locality during the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution, or failure to execute the same, where arising during the progress of the work, or after the completion or abandonment thereof shall be referred to the sole arbitration of a Superintending Engineer of the State Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer. If there be no such Superintending Engineer it should be referred to the sole arbitration of the Chief Engineer concerned. If will be no objection to any such appointment that the arbitrator so appointed is a Government servant. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to these contracts." Pursuant to the clause in the contracts enabling the Chief Engineer to refer disputes to an arbitrator, references were made. For the purposes of our decision, we are proceeding on the basis that in the notices of demand made by the contractors before the disputes were referred to arbitration interest on the amounts said to be payable was claimed. The general statutory provisions in regard to the award of interest by a court are contained in the Interest Act and the Civil Procedure Code. The Interest Act of 1839 contained on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or to the person making such claim, for the whole or part of the following period; (a) if the proceeding relates to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings; (b) if the proceeding does not relate to any such debt, then from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceeding. Section 3(3) provides that nothing in the section shall apply in relation to (i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or (ii) any debt or damages upon which payment of interest is barred by virtue of an express agreement. Section 3(3)(c) provides that nothing in the section shall empower the court to award interest upon interest. Section 4(1) provides, "notwithstanding anything contained in section 3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law." Section 4(2) further provides notwithst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of law the arbitrator may award interest. Again if there are any other provisions of the substantive law enabling the award of interest the arbitrator may award interest. By way of an illustration, we may mention s. 80 of the Negotiable Instruments Act as a provision 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 s. 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 certain circumstances in suits filed by them. We may further cite the instance of the nonperformance 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in which the court of equity exercised the jurisdiction to allow interest. But then they said that the case before them did not attract the jurisdiction of the court. An example of cases which attract the equitable jurisdiction of the court to award interest was given as the nonperformance of a contract of which equity could give specific performance. Considering next the question whether interest could be awarded by way of damages, it was held that it could not be so done. It was categorically stated that interest could not be allowed by way of damages. It was also pointed out that in England, the law had been amended by the Law Reform Miscellaneous Provisions Act which empowered a court of record to-award interest on whole or any part of damages. But there was no such amendment of the law in India (at that time). Seth Thawardas Pherumal v. The Union of India, [1985] 2 SCR 48 was a case which arose out of a decision of the Patna High Court, which is reported in Union of India v. Prem Chand Satnam Das, AIR 1951 Patna 201. Some. Of the facts have been taken by us from the judgment of the Patna High Court as those facts were not evident from the judgment of this court. Pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. The Court then proceeded to say that even if an arbitrator could be assumed to be a court within the meaning of the Act, which he did not appear to be, none of the four conditions, which required to be fulfilled, was present in the case before them. It was then said that the arbitrator erred in thinking he had the power to allow interest simply because he thought the demand was reasonable. A further argument that interest could be awarded at least from the date of the suit on the analogy of sec. 34 of the Civil Procedure Code was repelled with the following observations: "It was suggested that at least interest from the date of suit could be awarded on the analogy of sec. 34 of the Civil Procedure Code, 1908. But sec. 34 does not apply because an arbitrator is not a court within the meaning of the Code nor does the Code apply to arbitrator, and, but for sec. 34 even a court would not have the power to give interest after the suit. This was, therefore, also rightly struck out from the award." These observations of Bose, J. gave rise to considerable difficulty in later cases, but in the series of cases, Nachiappa Chettier v. Subramaniam Chettier, [1960] 2 SCR 209; Setinder Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Act. Referring then to the observations in Seth Thawardas Pherumal v. Union of India, (supra) what was said in Nachiappa Chettier v. Subramaniam Chether, (supra) was reitereated that no broad and unqualified proposition was intended to be laid down in Seth Thawards Pherumal v. The Union of India. Referring to the Interest Act and the power of the Court to allow interest, it was expressly noticed that the proviso to sec. 1 of the Interest Act, 1939 made it clear that interest shall be payable in all cases in which it was now payable by law. The power to award interest on equitable grounds or under any provisions of the law was held to be expressly saved by the proviso. The award of interest by the arbitrator was upheld on the ground that the right to receive interest in lieu of possession of immovable property taken away either by private treaty or by compulsory acquisition was generally regarded by judicial decisions as an equitable right. In Union of India v. Watkins & Co. (AIR 1966 SC 275, the question arose when interest could be awarded for the period prior to the date of the institution of the suit. The suit there was for compensation for storage of over 600 tonnes of iron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Code of Civil Procedure does not apply to arbitrations, it was an implied term of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the court could give if it decided the dispute. This power of the arbitrator was not fettered either by the arbitration agreement or by the Arbitration Act, 1940. The condention that in an arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected." Thus while the court did not dispute the proposition that the arbitrator was not a court, it held that in a case where the reference was made to arbitration in a suit, the arbitrator would have the same power as the court to award interest. In Union of India v. Bungo Steel Furniture Private Limited, [1957] 1 SCR 324, certain disputes between the Union of India and a contractor in respect of certain contracts for the supply of bedsteads were referred to arbitration. The question arose whether the arbitrator had jurisdiction to award interest on the amount found due by the arbitrator from the date of the award till the date of the decree. This of course is not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrator awarded interest from the date when the amount became payable till the date of the decree. The question arose whether the arbitrator had the power to do so. It was held that, in the case before them, interest prior to the suit could be awarded under sec. 61(2) of the Sale of Goods Act, 1930 which expressly provides for the award of interest to the seller in any suit by him for the amount of the price-from the date of the tender of the goods or from the date on which the price was payable and to the buyer in a suit by him for the refund of the price in a case of the breach of contract on the part of the sellerfrom the date on which the payment was made. In view of the provision of substantive law which enabled the award of interest it was held that interest prior to the suit could be awarded by the arbitrator. In regard to pendente lite interest, it was held that since all the disputes were referred to arbitration by the court, the arbitrator had the same power as the court to award the pendente lite interest. As a result of the discussion of the various cases, we see that Bengal Nagpur Railway Company Ltd. v. Ruttanji Ramji, (supra), Union of India v. West Punjab Facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 private treaty or by compulsory acquisition. Another instance where interest could be awarded was under s. 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 specified in that section. Sec. 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-performance of a contract of which equity could give specific performance. 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 subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than v. Raghubir Singh, [ 19791 3 SCR 6. 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 reference to the date of the award, the claimants would not be entitled to the same for the simple reason that the arbitrator is not a court within the meaning of sec. 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 Interest 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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