TMI Blog1991 (12) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... e Arbitrator acted with jurisdiction in awarding pendente lite interest and the High Court rightly upheld the award. In the result both the appeals fail and are, accordingly, dismissed - C.A. 1403 OF 1986 - - - Dated:- 12-12-1991 - K Singh, P Sawant, N Kasliwal, B J Reddy, G Ray, JJ. ORDER 1. These two appeals are directed against the judgment of the Orissa High Court making the award made by the Arbitrator rule of the court. The appellants challenged the validity of the award before this Court on two grounds, namely; (1) the Award was vitiated as it contained no reasons; and (2) the Arbitrator had no jurisdiction to award pendente lite interest. 2. The first question was considered by a Constitution Bench of this Court in Raipur Development Authority and Ors. v. Chokhamal Contractors and Ors. [1989] 2 SCC 721. The Constitution Bench held that an award is not liable to be set aside merely on the ground of absence of reasons. The Constitution Bench further held that where the arbitration agreement itself stipulated reasons for the award the Arbitrator is under a legal obligation to give reasons. Thus the first question stands concluded against the appellants. As regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa. The subordinate Judge by his order dated 29.11.1982 set aside the award. On appeal by the respondent, the High Court set aside the order of the subordinate Judge and made the award rule of the court. The appellant thereupon filed this appeal by obtaining leave from this Court. As noted earlier two questions were raised in the appeals. The first question has already been decided by a Constitution Bench. The second question relating to the jurisdiction of the Arbitrator to award pendente lite interest is under consideration before us. We do not consider it necessary to refer the facts involved in C.A. 2565/91. Suffice it to say that in that appeal also the High Court held that in the absence of agreement to the contrary, the Arbitrator has jurisdiction to award interest pendente lite. 5. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id or any part thereof and may award costs to be paid as between legal practicener and client." Section 41 sets out the procedure and powers of the Court. The expression 'court' as defined in Section 2(c) means a Civil Court and does not include an Arbitrator. It would be appropriate to set out Section 41 in its entirety. 7. Section 41: "Procedure and powers of Court:-Subject to the provisions of this Act and of rules made thereunder- (a) the provisions of the code of Civil Procedure, 1908 (5 of 1908), shall apply to all proceedings before the Court and to all appeals under this Act; and (b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court: 8. Provided that nothing in Clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters." 9. A reading of the above provision shows that Section 41 makes the provisions of CPC applicable to all proceedings before the court including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under them respectively. It is open to the parties and it would be a welcome feature to accept the award without the same being made a rule of the court. However, generally the parties approach the court for making the award rule of the court with a view to ensure enforceability of the award through the instrumentality of the court. Though the Arbitrator is an alternative forum for resolution of disputes, he does not ipso facto enjoy or possess all the powers conferred on the courts of law. Nonetheless the Arbitrator has power to decide the dispute and his powers are regulated by the provisions of the Arbitration Act and the substantive law of the land. As already noted Section 3 of the Act provides that an arbitration agreement unless a different intention is expressed shall be deemed to include the provisions set out in the First Schedule insofar as they are applicable to the reference. The matters specified in the First Schedule are accordingly treated as implied conditions of arbitration agreement. Rule 8 of the First Schedule confers power on the Arbitrator to award cost. Section 29 confers power on the court to award interest on the amount awarded by the Arbitrator from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator 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 with in the meaning of the said provision consequently the Arbitrator could not award interest pendente lite. 12. For this proposition, the learned Judge relied upon the decision in Thawardas . The learned Judge pointed out that in Thawardas "question of payment of interest was not the subject matter of reference to the arbitrator" though the interest awarded by the arbitrator related to the period prior to the reference to arbitration as well as the period during the pendency of the arbitration. The learned Judge also noticed that the observations of Bose, J. in Thawardas have given rise to considerable difficulty in later cases wherein they have been explained as having been never intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of an implied term in the arbitration agreement or reference i.e. by virtue of the arbitrator's implied authority to follow the ordinary rules of law; (2) It is an implied term in every arbitration agreement that the arbitrator will decide the dispute according to Indian Law. Though Section 34 of the Civil Procedure Code does not expressly apply to arbitrators, its principle applies, just as the principle of several other provisions (e.g., Section 3 of the Limitation Act) has been held applicable to the arbitratOrs. Inasmuch as the arbitrator is an alternative forum for resolution of disputes he must be deemed to possess all such powers as are necessary to do complete justice between the parties. The power to award interest pendente lite is a power which must necessarily be inferred to do complete justice between the parties. The principle is that a person who has been deprived of the use of money should be compensated in that behalf. In short it is based upon the principle of compensation or restitution, as it may be called. (3) In every case where the arbitration agreement does not exclude the jurisdiction of the arbitrator to award interest pendente lite, such powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to learned Counsel, a reading of Sections 3, 17 and 41 of the Arbitration Act goes to establish that arbitrator is denied such a power. If this Court holds that the arbitrator has the power to award interest pendente lite on the ground that principle of Section 34 C.P.C. avails him though the section itself does not if apply, it will open the door for innumerable cases. It will create room for submitting that all the powers of the Civil Court should be inferred in the case of arbitrator as well as by extending the same analogy. This would indeed amount to legislation by this Court which it ought to desist from doing. 16. The question with which we are faced has been considered by the Indian and English Courts in detail. The decisions of the English Courts have been followed by the Indian Courts. It is, therefore, necessary to refer to some of the English decisions to examine how this question has been dealt with by the courts in England. In Edward's v. The Great Western Railway Company, (1851) 138 English Reports 603 the question raised before the Court was "whether the Arbitrator is empowered to award interest on the amount awarded by him if he thinks such a course prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered only the Court to award interest from the date of cause of action to the date of judgment. It further noticed the fact that Section 3(2) of this Act repealed Sections 28 and 29 of the Civil Procedure Act 1833. By virtue of this repeal, the Court held, the arbitrator has no power to award interest. This may have been an omission, said the Court, but it is for the legislature to rectify and not for the Court to fill up the gap. 19. In Chandris v. Isbrandtsen-Moller Co. Inc. 1951 (1) King's Bench Div. 240 the arbitrator awarded interest without specification of any time. One of the questions before the Court of Appeal was whether he had the power to award interest. The matter came up before Devlin, J. in the first instance the Court held, following the decision in Podar Trading that arbitrator had no such power. The matter was then carried in appeal to Court of Appeals. Lord Tucker who delivered the leading judgment held that Podar Trading was wrongly decided and that the High Court was wrong in Podar Trading in assuming that the decision in Edward's was based upon the Civil Procedure Act of 1833. The ratio of Edwards is that it is the submission which empowers the arbitrator t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute was pending before the arbitrator, he could award interest on the analogy of Section 34 C.P.C. This too was repelled holding that Section 34 does not apply to arbitrator since he is not a Court within the meaning of CPC nor does the Civil Procedure apply to proceedings before him. The Court observed that but for Section 34, even the Court could not have the power to award interest for the period the suit is pending before it for the later period. It would be appropriate to reproduce the relevant paragraph: It was suggested that atleast interest from the date of "suit" could be awarded on the analogy of Section 34 of the Civil Procedure Code, 1908. But Section 34 does not apply because an arbitrator is not a "Court" within the meaning of the Code nor does the Code apply to arbitrators, and, but for Section 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. 22. In Nachiappa Chettiar and Ors. v. Subramaniam Chettiar the arbitrators to whom the disputes pending in a suit were referred, awarded interest for all the three periods, namely for the period anterior to the reference, pendent lite a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (Temporary Powers) Act, 1948. We would consider this case, since it was referred to in Jena alongwith Nachiappa and other cases considered hereinafter. The relevant facts were that certain land was acquired under the provisions of the said Act and compensation was awarded, but no interest was awarded on the compensation on the ground that the Act did not provide for interest. The High Court held that no interest was payable on the compensation amount, in view of Section 5(e) of the Act while making the provisions of Section 23(1) of the Land Acquisition Act applicable but it did not apply the provisions of Sections 28 and 34 of the Land Acquisition Act which must lead to the necessary inference that it did not intend to provide for grant of interest. This court did not agree with the High Court's reasoning, and it held that application of Section 23(1) did not necessarily mean exclusion of Sections 23 and 34. It then proceeded to examine the question on principle, on the assumption that awarding of interest was not excluded by the provisions of the said enactment. The Court observed: What then is the contention raised by the claimants? They contend that their immovable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the issues in controversy in the suit between the parties, including interest, were referred to arbitrator. The appellant, who disputed the award of interest, however, relied upon the observations in Thawardas quoted earlier. This Court (K.N.Wanchoo., J.C.Shah and R.S. Bachawat, JJ.) dealt with the said observations in the following words: These observations divorced from their context, lend colour to the argument that the arbitrator has no power to award pendente lite interest. But, in later cases, this Court has pointed out that the observations in Seth Thawardas's case were not intended to lay down such a broad and unqualified proposition. The relevant facts regarding the claim for interest in Seth Thawardas's case will be found at pp. 64 to 66 of the Report and in paragraphs 2, 17 and 24 of the judgment of the Patna High Court reported in Union of India v. Premchand Satram Das. The arbitrator awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdas but the objection was rejected by the Court. Ramaswami, J. speaking for the Judge Bench, observed: This passage supports the argument of the appellant that interest cannot be awarded by the arbitrator after the date of the award but in later cases it has been pointed out by this Court that the observations of Bose, J. in Seth Thawardas Pherumal v. The Union of India were not intended to lay down such a broad and unqualified proposition. In Seth Thawardas Pherumal v. The Union of India, the material facts were that the arbitrator had awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. In this Court, counsel for the appellant contended that the arbitrator had statutory power under the Interest Act of 1839 to award the Interest and, in any event, he had power to award interest proceedings under Section 34 of the CPC, 1908. Bose, J. rejected this contention, but it should be noticed that the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve interest, and that despite the language used in that Act The Principle of this case was applied by the Court of Appeal in Chandris v. Isbrandtser Moller Co.Inc. and it was held that though in terms Section 3 of the Law Reforms (Miscellaneous Provisions) Act, 1934 giving the Court power to award interest on any debt or damages did not apply to an arbitrator, it was an implied term of the contract that the arbitrator could award interest in a case where the court could award it. It was pointed out by the court of appeal that the power of an arbitrator to award interest was derived from the submission to him, which impliedly gave him power to decide "alt matters in difference "according to the existing law of Contract, exercising every right and discretionary remedy given to a court of law; that the law Reform (Miscellaneous Provisions) Act, 1934, which repealed Section 28 of the Civil Procedure Act, 1833, was not concerned with the powers of arbitrators; and that the plaintiff was entitled to the interest awarded by the arbitrator. The legal position is the same in India. In Bhawanidas Ramgobind v. Harasukhdas Balkishandas the Division Bench of the Calcutta High Court consisting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction Co. v. Union of India was a case of arbitration otherwise than in a pending suit. The arbitrator made his award and also awarded interest from the date the amount fell due. One of the objections before the Supreme Court was that the arbitrator acted beyond his jurisdiction in awarding interest. This objection was dealt with in the following words: ....The appellants made a claim for interest on the amount withheld after the due date and the arbitrator was competent to decide that claim. The arbitration agreement by Clause 25 provides: Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality to workmanship or materials used on the work or as to any other questions, claim, right, matter or thing, whatsoever, in any way, arising out of, or relating to the contract, designs, drawings, specifications estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whatever, arising during the progress of the work or after the completion or abandonment thereof shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes including a claim for payment of the amount with interest was referred to the arbitrator. The arbitrator, as pointed out earlier, found that the firm was entitled to the payment as price in the sum of Rs. 1,79,653.18 p. The arbitrator has further found that this amount became payable as balance price for the goods supplied by the firm on June 7, 1958, on which date the final inspection took place. If that is so, Section 61 of the Sale of Goods Act, 1930 squarely applies and it saves the right of the seller (in this case the firm) to recover interest, where by law interest is recoverable. Sub-section (2) of Section 61, which is material as follows: 61.(2) In the absence of a contract to the contrary the Court may award interest at such rate as it thinks fit on the amount of the price- (a) to the seller in a 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. (b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller-from the date on which the payment was made. In the case before us, admittedly the contract does not provide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which reference to arbitration was made in pending suits whereas the other four cases namely Satinder Singh, Bungo Steel, Ashok Construction and Saith and Skelton were cases where the reference to arbitration was otherwise than in a pending suit. We have already referred to the facts of all six cases hereinabove and we find that the learned Counsel appears to be right in his submission. We much also point out that Nachiappa Chettiar decision dealt with interest for all three periods, viz. pre-reference, pendente lite and post-award, whereas Firm Madanlal Roshanlal dealt with pendente lite interest alone. Satinder Singh's case as has been pointed out hereinabove, was not a case under Arbitration Act at all but one arising under Punjab Requisition and Acquisition of Immovable Property Act, 1948. Bungo Steel dealt with the interest for the post-award period while Ashok Construction dealt generally with the power of the arbitrator to award interest from the due date onwards which evidently included pendente lite interest as well. Saith and Skelton dealt with power of the arbitrator to award-interest for the period prior to reference. 37. The High Court of Australia too considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween parties to a submission by enabling them to award interest, up to the date of the award, upon amounts found due. This is a power the need for which is the greater in times of dear money, reflected in prevailing high rates of interest-The Myron (28). 39. Of course Barwick Chief Justice and Wilson Justice dissented. According to them the Arbitrator has no such power, but the majority opinion accords with the view we are taking herein. 40. Halsbury's Laws of England Vol. 2, page 273 (para 534) states: In general, the parties to an arbitration agreement may include in it such clauses as they think fit. By statute, however, certain terms are implied in an arbitration agreement unless a contrary intention is expressed or implied therein. Moreover, it is normally an implied term of an arbitration agreement that the arbitrator must decide the dispute in accordance with the ordinary law. This includes the basic rules as to procedure, although parties can expressly or impliedly consent to depart from those rules. The normal principles on which terms are implied in an agreement have to be considered in the context that the agreement relates to an arbitration. 41. At page 303, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd interest pendente lite. 45. Mr. Sanghi then relied upon the decision in Rallia Ram (supra) to which a brief reference would be sufficient. That case related too the power of the Arbitrator to award interest for the pre-reference period. Following the decision of the Privy Council in Bengal Nagpur Railway and the decision of this Court in Thawardas it held that the Arbitrator had no power to award interest for the said period merely because he thought it to be just in the circumstances. It was held that interest for the pre-reference period is a matter of substantive law, usage or agreement. Accordingly, they held that in the absence of usage, contract or any provision of law to justify the award of interest, interest cannot be awarded by way of damages. We do not think that this case has any relevance on the question of arbitrators' power to award interest pendente lite. 46. A few other decisions were also cited by both sides but we do not think it necessary to burden this judgment with them since those are not cases arising under the Arbitration Act or arbitration matters. 47. The question still remains whether arbitrator has the power to award interest pendente lite, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... universal rule as they appear to, on first impression. Until Jena's 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. 48. Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf: 49. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (alongwith 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 interest. This does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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