1991 (12) TMI 268 - SC - Indian Laws

Whether the Award was vitiated as it contained no reasons? Whether the Arbitrator had no jurisdiction to award pendente lite interest? Held that - 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 not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view. Thus the 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

Issues Involved:
1. Validity of the Arbitrator's Award due to Absence of Reasons.
2. Jurisdiction of the Arbitrator to Award Pendente Lite Interest.

Detailed Analysis:

1. Validity of the Arbitrator's Award due to Absence of Reasons:
The appellants challenged the validity of the award on the ground that it contained no reasons. This issue was addressed by a Constitution Bench in Raipur Development Authority and Ors. v. Chokhamal Contractors and Ors. [1989] 2 SCC 721, which held that an award is not liable to be set aside merely on the ground of absence of reasons. The Constitution Bench further clarified that if the arbitration agreement itself stipulates that reasons must be provided, then the Arbitrator is under a legal obligation to give reasons. Therefore, the first issue was decided against the appellants, affirming that the absence of reasons in the award did not invalidate it.

2. Jurisdiction of the Arbitrator to Award Pendente Lite Interest:
The second issue concerned the Arbitrator's jurisdiction to award pendente lite interest. The appellants relied on the decision in Executive Engineer Irrigation Galimala and Ors. v. Abaaduta Jena, where it was held that an Arbitrator, to whom the reference is made without the intervention of the court, does not have jurisdiction to award interest pendente lite. The matter was referred to a Constitution Bench for reconsideration.

Legal Framework and Precedents:
The judgment delved into the history and legal framework governing arbitration in India, including the Arbitration Act of 1940 and various judicial precedents. The court discussed the provisions of the Arbitration Act, specifically Sections 3, 29, 30, and 41, and the applicability of the Code of Civil Procedure (CPC) to arbitration proceedings.

Key Points of Consideration:
- The court noted that an Arbitrator is an alternative forum for dispute resolution and must be deemed to possess all powers necessary to do complete justice between the parties, including the power to award interest pendente lite.
- The court examined several precedents, including Thawardas Pherumal v. Union of India, Nachiappa Chettiar v. Subramaniam Chettiar, and Union of India v. Bungo Steel Furniture Pvt. Ltd., among others. These cases highlighted the evolving judicial stance on the Arbitrator's power to award interest.

Principles Established:
1. Compensation for Deprivation of Money: A person deprived of the use of money to which they are legitimately entitled has a right to be compensated for the deprivation. This principle applies to the period the dispute is pending before the Arbitrator.
2. Arbitrator's Jurisdiction: An Arbitrator, being an alternative forum for dispute resolution, must have the power to decide all disputes or differences arising between the parties, including awarding interest pendente lite.
3. Implied Terms in Arbitration Agreements: Where the arbitration agreement does not prohibit the grant of interest and a party claims interest, it must be presumed that interest was an implied term of the agreement. Therefore, the Arbitrator has the power to award interest pendente lite.
4. Discretion of the Arbitrator: While the Arbitrator has the power to award interest pendente lite, it remains a matter of discretion to be exercised in light of all the facts and circumstances of the case.

Final Holding:
The court concluded that the decision in Jena's case, which held that Arbitrators have no power to award interest pendente lite, did not lay down the correct law. The court held that the Arbitrator acted with jurisdiction in awarding pendente lite interest in the present cases, and the High Court rightly upheld the award. The appeals were dismissed, but the decision was made prospective, meaning it would apply only to pending proceedings and not reopen finalised cases.

Separate Judgments:
The judgment was delivered collectively, and there were no separate judgments by individual judges.

Disposition:
Civil Appeal No. 1403 of 1986 and Civil Appeal No. 2586 of 1985 were dismissed with no order as to costs. Civil Appeal No. 2565 of 1991 and S.L.P. No. 5428 of 1990 were to be placed before an appropriate Bench for decision in light of this judgment.

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