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TMI Blog1987 (9) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt to go behind the award and decide whether the award of interest was justifiable. We do not want to enter into a discussion on the legality or properiety of a non-speaking award as we understand the question is now awaiting the decision of a Seven Judge Bench. In the light of what we have said above, Civil Appeal Nos. 120 and 121 of 1981 are dismissed, Civil Appeal Nos. 6019-22 of 1983 and A Civil Appeal No. 2257 of 1984 are allowed to this extent that interest during the pendency of the arbitration proceedings is disallowed and the rest of the civil appeals are allowed to the extent that both interest prior to the proceedings and interest during the pendency of the proceedings are disallowed. - C.A. 6245 OF 1983 - - - Dated:- 22-9-1987 - O. CHINNAPPA REDDY, M.H.KANIA AND K.J. SHETTY, JJ. JUDGMENT This group of appeals raises the question of award of interest by an arbitrator to whom a reference is made without the intervention of the court. Special leave to appeal was granted under Art. 136 of the Constitution limited to the question of award of interest during the period prior to the reference and during 1:) the pendency of the arbitration proceedings. Special leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mentioned, then and in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-charge. In the event of a dispute, the decision of the Superintending Engineer of the circle will be final: Provided always that the contractor shall not be entitled to any payment or any additional work done unless he has received an order in writing from the Engineer-in-charge for the additional work that the contractor shall be bound to submit his claim for any additional work done during any month on or before the 15th day of the following month accompanied by a copy of the order in writing of the Engineer-in-charge for the additional work, and that the contractor shall not be entitled to any payment in respect of such additional work if he fails to submit his claim within the aforesaid period." All the contracts also contained a provision for a reference to arbitration in case of disputes. The clause of the contract enabling the reference was as follows:- "Clause 23-Except where otherwise provided in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest shall be payable in all cases in which it is now payable by law. " In 1978, the Interest Act of 1839 was repealed and a new Interest Act was enacted. The Statement of objects and Reasons of the new Act recited, "The Law Commission of India in its sixty-third report had recommended the revision of the existing Interest Act, 1839. This Act is a very short one; besides a preamble, it contains only one section and a proviso. However, it is a statute of importance, since it prescribes the general law of interest which becomes applicable in the absence of any contractual or statutory provisions specifically dealing with the subject. According to the Commission, almost every phrase used in the Act has given rise to problems of interpretation and judicial decisions have disclosed divergence of views in respect of the same. The Commission has revised the Act comprehensively so as to make its provisions more precise, specific, unambiguous and juristically satisfactory. It is proposed to replace the existing Act by a new Act based on the recommendations of the Law Commission." The new Act has made some important changes. One of the important changes is that the expression court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure Code in the case of courts. Section 34, however, applies to arbitrations in suits for the simple reason that where a matter is referred to arbitration in a suit, the arbitrator will have all the powers of the court in deciding the dispute, Section 34 does not otherwise apply to arbitrations as arbitrators are not courts within the meaning of s. 34 Civil Procedure Code. 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 of 1978. While under the Interest Act of 1978 the expression court was defined to include an arbitrator, under the Interest Act of 1839 it was not so defined. The result is that while in cases arising after the commencement of the Interest Act of 1978 an arbitrator has the same power as the court to award interest upto the date of institution of the proceedings, in cases which arose prior to the commencement of the 1978 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 interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount was filed on November 29, 1927. The Privy Council held that award of interest from the date of the institution of the suit was governed by s. 34 of the Code of Civil Procedure and went on to observe that the crucial question was whether the court had authority to allow interest for the period prior to the institution of the suit. They observed that the solution of the question depended not upon the Code of Civil Procedure out upon substantive law. Interest for the period prior to the date of suit may be awarded if there was an agreement for the payment of interest at a fixed rate or it was payable by the usage of trade having the force of law or under the provision of H any substantive law entitling the plaintiff to recover interest. Section 80 of the Negotiable Instruments Act was cited as a provision of the substantive law under which the court may award interest when no rate of interest is specified in the promissory note or bill of exchange. In the case before them however, they observed there was neither usage nor any contract, express or implied, to justify the award of interest. Interest was not payable by virtue of any provision of the law governing the case. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d blocked and we were compelled to take money from our bankers on interest. We pray, therefore, for interest for 15 months from January 1, 1948 to March 31, 1949." The arbitrator held: "The contract s contention that his claims should have been settled by January 1948 is, in my opinion, reasonable. I, therefore, award interest at six per cent for sixteen months on the total amount of the awards given, that is, Rs.17,363". The question arose whether the arbitrator could award the interest? The Patna High Court noticed that the contractor did not include any claim for interest for the period March 3 1, 1947 to April 20, 1949 in the bill originally submitted by him to the Chief Engineer and that the claim was made for the first time before the arbitrator during the progress of the arbitration proceedings. The High Court also noticed that the Executive Engineer who appeared on behalf of the Union of India before the arbitrator did not seem to have submitted to the jurisdiction of the arbitrator to decide the question of interest. In those circumstances, the High Court held that it could not be said that the claim for interest was one of the matters referred to arbitration. The arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or and awarded by the arbitrator related to the period prior to the reference to arbitration and the period during the pendency of the arbitration. It is also to be noted that the reference was not in the course of a suit. Nachiappa Chettier v. Subramaniam Chettier, (supra) was a case of arbitration in a suit. The arbitrator made an interim award on August 1, 1944 and December 6, 1944. He awarded interest pendente lite as well as future interest until the date of payment. Relying on the observations in Seth Thawardas Pherumal v. Union of India, the award of interest was questioned. The court doubted whether the observations in Seth Thawardas Pherumal s case were intended to lay down such a broad and unqualified proposition, but did not pursue the matter further as that contention was not urged before the High Court. E Satinder Singh v. Amrao Singh (supra) was a case which arose under the East Punjab Acquisition and Requisition of Immovable Property (Temporary) Powers Act, 1948. The Act containd no provision for payment of interest. It was argued that in the absence of a provision providing for interest could be awarded. The court approved the observation of the Privy Council in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of damages could not be awarded in the absence of any usage or contract, express or implied, or of any provision of law. Bengal Nagpur Railway Co. v. Ruttanji Ramji, (supra) and Seth Thawardas Pherumal v. Union of India, (supra) were relied on Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. (supra) was a case where the arbitration was in a suit. Before the arbitrator, no claim was made for interest prior to the institution of the suit, but interest was claimed from the date of institution of the suit till recovery of the amount. The arbitrator awarded interest on the sum determined by him from the date of the award till the date of payment. The award was then filed in the court. One of the objections was to the grant of interest during the pendency of the suit relying on the observations of Seth Thawardas Pherumal v. Union of India, (supra) that sec. 34 CPC did not apply to arbitration proceedings. The court observed that the observations lent colour to the argument that the arbitrator had no power to award pendente lite interest, but the observations were not intended to lay down such a broad and unqualified proposition. A reference was made to Nachiappa Chettier v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was said "In the present case, all the disputes in the suit, including the question of interest were referred to the arbitrator for his decision. In our opinion, the arbitrator had jurisdiction, in the present case, to grant interest on the amount of the award from the date of the award till the date of the decree." The words emphasised by us clearly show that in this case too, the arbitration was in a suit and it was therefore, held that the arbitrator had the same power to award interest as the court would have . In M/s. Ashok Construction Company v. Union of India, [1971] 3 SCC 66, there was an arbitration on the intervention of the Court (Deputy Commissioner). Before the arbitrator, a total claim for Rs.4,41,440.20p was made consisting of a claim of Rs.64,006.71 for works done, a claim for Rs. l,83,393.77p for damages at 13 per cent per annum and a claim for Rs.1,91,097.88p for depreciation of the value of money. The arbitrator made an award for a sum of Rs.1,79,843,80p. He gave no reasons for his award. The last item of the claim was wholly unjustified, but there was nothing to show that the arbitrator had taken that claim of account in making the award. Considering the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest by an arbitrator was considered in the remaining cases to which we have referred earlier. Nachiappa Chettier v. Subramanian Chettier, (supra) Sattinder Singh v. Amrao Singh (supra), Firm Madanlal Roshanlal Mahajan v. Hukum Chand Mills Ltd. (supra) Union of India v. Bungo Steel Furniture Private Limited (supra), Ashok Construction Company v. Union of India, (supra) and State of Madhya Pradesh v. M/s. Saith Skelton Private Limited were all cases in which the reference to arbitration was made by the court, of all the disputes in the suit. It was held that the arbitrator must be assumed in these circumstances to have the same power to award interest as the court. It was on that basis that the award of pendent lite interest was made on the principle of s. 34 Civil Procedure Code in Nachiappa Chettier v. Subramaniam Chettier (supra), Firm Madanlal Roshanlal Mahanan v. Hukamchand Mills Limited, (supra), Union of India v. Bungo Furniture Private Limited, (supra) and State of Madhya Pradesh v. M/s. Saith Skelton Private Limited, (supra). In regard to interest prior to the suit, it was held in these cases that since the Interest Act, 1839 was not applicable, interest could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases to which the Interest Act applies. We were referred to certain English cases: London Chatham and Dover Rly. Co. v. South Eastern Ply. Co., [1893 AC 429], Chandris v. Isbrandtsen Mollar Co., [1951] 1 KB 240, Timber Shipping Co. v. London overseas Freighters Ltd., [1972] AC 1 and President of lndia v. La Pintada Cia Navegacion, [1984] 2 All Eng. Law Reports. Passages from Halsbury s Laws of England and Russell s Arbitration were also read out. We have read them out we refrain from referring to those cases and passages because of the abundance of authoritative pronouncements of the Supreme Court of India. Coming to the cases before us, we find that in Civil Appeal Nos. 120 and 12 1 of 1981 before the arbitrator, there was no answer to the claim for interest and we see no justification for us at this stage to go into the question whether interest was rightly awarded or not. Out of the remaining cases we find that in all cases except two (Civil Appeal Nos. 6019-22 of 1983 and Civil Appeal No. 2257 of 1984, the references to arbitration were made prior to the commencement of the new Act which was on August 19, 1981. In the cases to which the Interest Act, 1978 applied, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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