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TMI Blog2001 (1) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rajendra Babu, D. P. Mohapatra, Doraiswamy Raju And S. V. Patil,JJ. JUDGMENT I have had the privilege of reading the draft judgment prepared by my learned brother Justice Doraiswamy Raju. He has come to the conclusion that the arbitrator appointed with or without intervention of Court, has jurisdiction to award interest on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. With respect, I am unable to agree with the said conclusion. This case stood referred by a bench of three learned Judges of this Court by the order dated 29.10.1999 for consideration by a larger Bench. In paragraph 15 of the said order the question to be considered has been formulated as : "In the absence of any prohibition to claim or grant interest under the arbitration agreement 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. ?" From the discussions in the reference order it appears that it was urge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitrator will have all the powers of the Court in deciding the dispute and that section 34 does not otherwise apply to arbitration as arbitrators are not courts within the meaning of section 34 CPC. As O. Chinappa Reddy,J speaking for the Court has observed "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, 1978". In this regard the following observations in paragraph 4 of the judgment may be noticed: "It is important to notice at this stage that both the Interest Act 1839 and the Interest Act of 1978 provide for the award of interest up to the date of the institution of the proceedings. Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. We must look elsewhere 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, applies to arbitrations in suit for the simple reason that where a matter is referred to arbitration in a suit, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent 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 has been dispossessed from it." (emphasis supplied) This Court discussed a number of decisions of the Privy Council and Supreme Court including the case of Bengal Nagpur Railway Co. Ltd. V. Ruttanji Ramji (1965 IA 66); Seth Thawardas Pherumal V. Union of India (1955) 2 SCR 48 : AIR 1955 SC 468; Nachiappa Chettiar vs. Subramanium Chettiar (1962) 2 SCR 209); Satinder Singh vs. Amrao Singh (1961) 3 SCR 676; Union of India Vs. Watkins Mayor Co. AIR 1966 SC 275; Union of India Vs. West Punjab Factories (1966) 1 SCR 580: AIR 1966 SC 395; M/s Ashok Construction Co. vs. Union of India (1971) 3 SCC 66 and State of M.P. Vs. M/s Saith Skelton Pv.t Ltd. (1972) 3 SCR 233: (1972) 1 SCC 702: AIR1972 SC 1507. After discussing in detail the facts and the principles laid down in the decided cases this Court summed up the position in the following words: "15. As a result of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the owner 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 sowhether possession of immovable property was taken away by private treaty or by compulsory acquisition. Another instance where interest could be awarded was under Sec. 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. 17. Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wihin his direction to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view. 45. For the reasons aforesaid we must hold that the decision in Jena, insofar as it runs counter to the above proposition, did not lay down correct law." In the present proceedings we are not concerned with the competence of an arbitrator to award pendente lite interest. From the discussion in the judgment in G.C. Roy case (supra) it is clear that the Constitution Bench confined its consideration to the question of pendente lite interest only. Therefore, this decision can be of little assistance in deciding the question raised in the present proceedings which relates to power of an arbitrator to award interest for the pre-reference period. A decision is an authority on the question that is raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the question of award of interest by the arbitrator may arise in respect of three different period, namely : (I) for the period commencing from the date of dispute till the date the arbitrator enters upon the reference; (ii) for the period commencing from the date of the arbitrator s entering upon reference till the date of making the award; and (iii) for the period commencing from the date of making of the award till the date the award is made the rule of the court or till the date of realisation, whichever is earlier. In the appeals before us we are concerned only with the second of the three aforementioned periods" (emphasis supplied) A Bench of two learned Judges of this Court in the case of State of Orissa Vs. B.N.Agarwala (1993) 1 SCC 140) considered the question relating to the power of the arbitrator to award interest for the pre-reference period. While on behalf of the appellant the contention was raised that the arbitrator has no power to award interest for pre-reference period relying on the decision in Abhaduta Jena case (supra); the contention on behalf of the respondent was that the said decision was no longer good law in view of the Constitution Bench decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to the one arrived at in Abhaduta Jena case with regard to award of interest for pre-reference period was not overruled in G.C.Roy case." On the question whether the arbitrator had jurisdiction to award pre-reference interest in case which arose prior to the applicability of the Interest Act, 1978 this Court held : "With regard to those cases pertaining to the period prior to the applicability of the Interest Act, 1978, in the absence of any substantive law, contract or usage, the arbitrator has no jurisdiction to award interest." In the case of Seth Thawardas Pherumal vs. Union of India (supra) a Bench of three learned Judges of this Court considered the question of validity of the award of interest by the arbitrator in the light of the provisions of the Interest Act, 1839 and section 34 of the CPC. The views of the Court on that aspect were expressed in the following words: "The arbitrator held - The contractor s contention that his claims should have been settled by January 1948 is, in my opinion reasonable. I therefore award interest at 6% for 16 months on the total amount of the award given i.e. Rs.17,363." Then the arbitrator sets out the amounts awarded under each h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be reduced by the amount of such interest awarded." (Emphasis supplied) The discussions in the decisions referred to in the foregoing paragraphs show the conspectus of the views expressed on the question of competence of an arbitrator to award interest for a period before he enters upon a reference. The question has been examined in the light of the ratio in Abhaduta Jena case (supra) even after the Constitution Bench decision in G.C.Roy case (supra). The consistent view taken by this Court is that the decision in Abhaduta Jena case, so far as it relates to the aspect of pre-reference interest has not been overruled by the Constitution Bench. The question to be considered is whether the decision in Abhaduta Jena case should now be overruled on that aspect also. The contention was advanced before us by Shri Anil Divan learned senior counsel for the respondent that though Abhaduta Jena case has not been expressly overruled on this aspect by the decision in G.C.Roy case the reasons given in the judgment for overruling Abhaduta Jena on the point of pendente lite interest should be applied in the present case and the said decision should be overruled on the aspect of pre-refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases the arbitrator, though nominated as a judge by the parties, may not have the requisite experience in the field of law which a presiding officer of a Court possesses. Therefore, it is necessary that in judging the claim of interest for pre-reference period he should ascertain whether such claim is permitted under the terms of the contract between the parties or there is a usage of trade having force of law in support of such claim or there is any other provision of the substantive law enabling the award of such interest. In Abhaduta Jena case this court did not rule that an arbitrator was not competent to award interest for pre-reference period in any circumstance. This court only held that award of such interest was not permissible unless any one of the conditions laid down in the decision is satisfied. The ratio of Abhaduta Jena case (supra) is based on sound legal principles which have been tested in the subsequent decisions in the light of the principles enunciated in G.C.Roy case (supra) also. In this connection I may notice another contention which was raised by Shri Anil Divan that the jurisdiction to award interest for pre-reference period will only compel the claimant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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