2001 (1) TMI 916 - SC - Indian Laws

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? Whether possession of immovable property was taken away by private treaty or by compulsory acquisition? Held that - Appeal allowed. 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 satisfied. Therefore, the question formulated in the reference order is answered in the negative - the appeals are allowed in so far as the award of interest for the pre-reference period is concerned.

Issues Involved:
1. Jurisdiction of the arbitrator to award interest for the pre-reference period.
2. Application of the Interest Act, 1839 and 1978.
3. Interpretation of Section 34 of the Civil Procedure Code (CPC) regarding arbitrator's powers.
4. Analysis of precedents including G.C. Roy, Abhaduta Jena, and related cases.
5. Distinction between pre-reference and pendente lite interest.

Detailed Analysis:

1. Jurisdiction of the Arbitrator to Award Interest for the Pre-Reference Period:
The core issue addressed is whether an arbitrator has the jurisdiction to award interest for the pre-reference period in the absence of any specific stipulation or prohibition in the contract. The judgment reiterates that an arbitrator cannot award interest for the pre-reference period unless one of the following conditions is met:
- The agreement between the parties entitles the arbitrator to award interest.
- There is a usage of trade having the force of law for the award of interest.
- There are other provisions of substantive law enabling the award of interest.

2. Application of the Interest Act, 1839 and 1978:
The judgment discusses the significant changes brought by the Interest Act, 1978, particularly the inclusion of an arbitrator in the definition of "court" under Section 2(a), which was absent in the Interest Act of 1839. It is noted that while the 1978 Act allows an arbitrator to award interest up to the date of the institution of proceedings, the 1839 Act did not provide such power. Therefore, for cases arising before the 1978 Act, the arbitrator lacks the power to award pre-reference interest unless supported by contract, trade usage, or substantive law.

3. Interpretation of Section 34 of the Civil Procedure Code (CPC):
Section 34 of the CPC, which deals with the award of interest by courts, does not apply to arbitrations as arbitrators are not considered "courts" within its meaning. The judgment clarifies that while Section 34 applies to arbitrations in suits, it does not extend to arbitrations outside this context. Thus, arbitrators must look elsewhere for the authority to award interest for the pre-reference period.

4. Analysis of Precedents Including G.C. Roy, Abhaduta Jena, and Related Cases:
The judgment extensively analyzes previous decisions, particularly the G.C. Roy and Abhaduta Jena cases. It concludes that the decision in Abhaduta Jena, which held that arbitrators cannot award pre-reference interest unless specific conditions are met, was not overruled by the G.C. Roy case. The G.C. Roy case focused solely on pendente lite interest, affirming the arbitrator's power to award such interest when the agreement does not prohibit it. Subsequent cases, including Jugal Kishore Prabhatilal Sharma and State of Orissa v. B.N. Agarwala, reaffirmed that Abhaduta Jena's principles regarding pre-reference interest remain valid.

5. Distinction Between Pre-Reference and Pendente Lite Interest:
The judgment emphasizes the distinction between pre-reference interest (interest for the period before the arbitrator enters upon the reference) and pendente lite interest (interest during the arbitration proceedings). It asserts that these two periods stand on different footing. The period during which the arbitrator is seized of the matter (pendente lite) involves adjudication of known claims, whereas the pre-reference period involves no crystallized claims or notice to the opposite party. Therefore, the arbitrator's competence to award interest is limited to the conditions outlined in Abhaduta Jena for the pre-reference period.

Conclusion:
The judgment concludes that the decision in Abhaduta Jena correctly states the law and does not require reconsideration. An arbitrator lacks the competence to award interest for the pre-reference period unless the agreement, trade usage, or substantive law explicitly permits it. The appeals are allowed concerning the award of interest for the pre-reference period, and no costs are awarded.

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