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TMI Blog1997 (1) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... or could award pre reference, pendente lite and future interest. Before dealing with the facts of each case it will be appropriate to examine the relevant decisions of this Court in order to determine the correct legal position with regard to the jurisdiction of the arbitrator to award interest in respect of the periods for which interest can be awarded namely- (i) for the period commencing from the date of dispute till the date Arbitrator entered upon the reference, or the pre-reference period; (ii) for the period commencing from the date the Arbitrator entered upon reference till the date of making the award (pendente lite interest) 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, or the post award interest. The question with regard to power of the Arbitrator to award interest was considered at great length by this Court in ABHADUTA JENA'S CASE (SUPRA). Two questions which arose for consideration of the Court in Abhaduta Jena's case (supra) were (i) the power of the Arbitrator to award interest for the period prior to his entering upon reference and; (ii) the power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Act the arbitrator has no such power under the Interest Act of 1839. It is, therefore, necessary, as we said, to look elsewhere for the power of the arbitrator to award interest up to the date of institution of the proceedings. Since the arbitrator is required to conduct himself and make the award in accordance with law we must look to the substantive law for the power of the arbitrator to award interest before the commencement of the proceedings. If the agreement between the parties entitles the arbitrator to award interest no further question arises and the arbitrator may award interest. Similarly if there is a usage of trade having the force of law the arbitrator may aware interest. Again if there are any other provisions for the substantive law enabling the award of interest the arbitrator may award interest. By way of an illustration, we may mention Section 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 or exchange. We may also refer Section 61(2) of the Sale of Goods Act which provides for the award of interest to the sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G.C. Roy's case (supra) that the arbitrator could award interest for all the above-mentioned three periods, namely; pre-reference, pendente lite and post-award. On the other hand, it has been submitted by the learned counsels on behalf of the appellants that G.C. Roy's case was not concerned with the interest for the period prior to the making of the reference and it overruled the decision in Jena's case (supra) only insofar as award of pendente lite interest was concerned. It was submitted that the decision of Abhaduta Jena's case (supra), of the arbitrator not having the jurisdiction to award pre-reference interest, continues to hold the field and G.C. Roy's case (supra) has not ruled to the contrary in this regard. A careful reading of G.C. Roy's case (supra) clearly shows that, insofar as award of interest is concerned, this Court was only required to consider whether the arbitrator had jurisdiction to award pendente lite interest. This is so stated in the judgment at more places than one. Apart from noting that the appellants had challenged the validity of the award on two grounds, one of which was that "arbitrator had no jurisdiction to award pendente lite interest", it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and the Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena 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 substantite 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. " Applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of this Court in Secretary. Irrigation Department, Govt. of Orissa V. G.C. Roy. Though the said decision deals with the power of the arbitrator to award interest pendente lite, the principle of the decision makes it clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for, while award of interest for the period prior to an arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the post-award period is a matter of procedure." Claim for interest for pre-reference period again came up for consideration before this Court in JUGAL KISHORE PRABHATILAL SHARMA AND OTHERS VS. VIJAYENDRA PRABHATILAL SHARMA AND ANOTHER, (1993) 1 SCC 114. It was contended in that case that the arbitrator could not award interest for pre-reference period. While Ranganathan, J. with whom V. Ramaswamy, J. concurred, only observed that "there is some force in this contention" but B.P. Jeevan Reddy, J. who was one of the Members of the Bench which decided G.C. Roy's case (supra), in his concurring judgment dealt with thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: "The Constitution Bench in G.C. Roy case was dealing with the question relating to the award of interest pendente lite and not with the question of the award of interest for the pre-reference period and it was in that context that the Constitution Bench held that the view expressed in Jena case with regard to award of pendente lite interest could not be said to have laid down good law The Constitution Bench did not deal with the question of pre-reference interest in cases coming after the enforcement of the Interest Act, 1978, which came in force from 19.8.1981. In G.C. Roy case itself, it is stated that the reference to the Constitution Bench had been necessitated only for deciding the question whether the decision in Jena case was correct insofar as it held that arbitrator had no power to award interest pendent lite. On a doubt being raised whether the Constitution Bench in G.C. Roy case had overruled the law laid down in Jena Case relating to the power of the arbitrator to award interest for the pre-reference period in the post-Interest Act, 1978 era, the position was clarified by a three-Judge Bench in Jugal Kishore Prabhatilal Sharma V. Vijayendra Prabhatilal Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of decree, whichever is later. On the award being filed in the court, the appellant filed objections. One of the objection was that the arbitrator had awarded interest but there was a clear stipulation in the agreement that no interest was payable on the amount withheld under the agreement. The objections were not accepted and with regard to the claim of interest, the trial court held that this was not a case where interest was awarded on any amount having been witheld. It was, however, found that the claim for interest was referred to the arbitrator and, therefore, the award of interest was held to be valid. In the appeal before the High Court, with reference to the award of interest, the contention which was raised on behalf of the appellant was that the arbitrator had no jurisdiction to award interest for the pre-reference period and that the rate or interest granted was excessive. In support of this contention, reliance was place on the decision of this Court in the case of Abhaduta Jena's case (supra). The High Court, by its judgment under appeal, relied upon the decision of this Court in the case of Unique Erectors case (supra) and came to the conclusion that interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enumerated hereinabove it is clear that the reference in this case was made to the arbitrator by the court on an application having been failed under Section 20 of the Arbitration Act. As interest was one of the claims made by the respondent, the said dispute was referred to arbitrator. The arbitrator, therefore, had the jurisdiction to decide this issue. Inasmuch as reference to the arbitration was made after the Interest Act, 1978 had come into force w.e.f. 19.8.1981, the High Court rightly came to the conclusion that at least with effect from that date, interest could be awarded for the pre-reference period under Section 3 or the Interest Act, 1978. This conclusion of the High Court is in conformity with the decision of this Court in the cases of Unique Erectors & Sudhir Bros, (supra). The only question, therefore, is whether the aforesaid clause 4 of the Agreement negates any claim for interest being made. There can be no doubt that if the terms of the Contract expressly stipulate that no interest would be payable then, notwithstanding the provisions of the Interest Act, 1978, an arbitrator would not get the jurisdiction or right to award interest. In the present case, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force i.e. 19.8.1981 and the award or pendente lite interest, therefore, calls for no interference. In the result, the appeals of M/s. Bharat Coking Coal Ltd, are liable to be dismissed, but with no order as to costs. CIVIL APPEAL NO. ......./96 (ARISING OUT OF S.L.P. (C) NO. 3630 OF 1987 & CIVIL APPEAL...../96 (ARISING OUT OF S.L.P. (C) NO. 15995/1987. Leave granted. The parties in both these cases are the same and the material facts are not very dissimilar. In appeal arising out of S.L.P. (C) No. 3630/87, the respondent was entrusted with some civil work by the agreement made in the year 1974-75. Some disputes had arisen and an arbitrator was appointed on 4.7.1979. The arbitrator on 11.3.1981 gave an award for Rs. 1.82,860/- including interest. As is evident from the judgment of the High Court the arbitrator had awarded a sum of Rs. 99009/- as principal and interest of Rs. 68635/- for the period 1.6.1975 to 10.3.1981 was also awarded. This award of interest has been upheld by the trial court and the High Court. The present appeal is confined only to the award of interest by the arbitrator. As far as pre-reference interest is concerned, in view of the settled legal position, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act. This application was allowed by the Court on 19.5.1987 and an arbitrator was appointed who entered upon the reference on 10.6.1987. The arbitrator gave an award on 28.2.1988 and directed the payment of Rs. 30.21.047/- towards the principal claim and interest @ 6% from 2.1.1984 to 25.2.1988 amounting to Rs. 8,26,811/- ad future interest @ 13% from the date of the award till the date of realisation. In this way, the arbitrator awarded interest in respect of all the three periods, namely; pre-reference, pendente lite and future interest. When the award was filed in the court, the appellant herein, filed objections to the same. With regard to interest in the objection which was filed, the appellant only challenged the decision of the arbitrator in allowing pendente interest. The trial court came to the conclusion that reference to the arbitration had been made in the course of a suit and the arbitrator was justified in allowing pendente lite interest. In appeal filed before the High Court it was contented that the claim of the respondent in respect of escalation of price had not been referred to arbitrator and, therefore, he could not have given the award in respect of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly gives the Court the power to award interest from the date of the decree till the date of payment but would this empty that the arbitrator when making the award, has no jurisdiction to award interest from the date of the award till the date of payment. When the arbitrator makes an award, it is not necessary that in every case the award has to be filed in a court and a decree, in terms thereof, is based. It does happen that when a award is made, the party against whom it is made, may accept the award and comply with the same. It is rightly not disputed that from the date of passing of the award, future interest can be awarded by the arbitrator as held by this Court in the cases of Unique Erectors Gujarat (P) Ltd. (supra) and Hindustan Construction Co. Ltd. (supra). The correct procedure which should be adopted by the arbitrator is to award future interest till the date of the decree or the date of payment, whichever is earlier. The effect of this would be that if the award is voluntarily accepted, which may not result in a decree being passed, then payment of interest would be made from the date of award till the date of payment. Where, however, as in the present case, the award ..... X X X X Extracts X X X X X X X X Extracts X X X X
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