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CASE NO.:

Appeal (civil) 3586 of 1984

PETITIONER:

EXECUTIVE ENGINEER, DHENKANAL MINOR IRRIGATION DIVISION,ETC.ETC.

RESPONDENT:

N.C.BUDHARAJ (DEAD) BY L.RS.ETC.ETC.

DATE OF JUDGMENT: 10/01/2001

BENCH:

G.B.PATTANAIK & S.RAJENDRA BABU & D.P.MOHAPATRA & DORAISWAMY RAJU & S.V.PATIL

JUDGMENT:

JUDGMENT

WITH

Appeal (civil) 710-711 of 1981

Appeal (civil) 6808-09 of 1983

Appeal (civil) 10649 of 1983

Appeal (civil) 779 of 1982

Appeal (civil) 2723 of 1981

DELIVERED BY:

G.B. PATTANAIK,J. D.P.MOHAPATRA,J.DORAISWAMY RAJU, J.

PATTANAIK,J.

I have gone through the two judgments of two of my

Brother Judges, on the question of the jurisdiction of the

Arbitrator to grant interest for the period prior to the

reference. While Brother Justice Raju has come to the

conclusion that the arbitrator does possess the said power,

Brother Justice Mohapatra, has taken a contrary view.

Having considered both the view points, I have not been able

to persuade myself to agree with the conclusion of Brother

Raju, J, and I entirely agree with the conclusion of Brother

Mohapatra, J. But in view of the importance of the point, I

am tempted to indicate my views in few paragraphs.

The power of the arbitrator to award interest for the

period prior to entertaining upon the reference as well as

the period the reference was pending before him pendente

lite was considered by this Court in Thowardas, 1955(2) SCR

48, and also by the Privy Council in Bengal Nagpur Railway

co. Ltd. vs. Ruttanji Ramji, 65 IA 66. Between 1960 and

1972 in several decisions, which have been referred to by

the Constitution Bench in G.C.Roys case, 1992(1)SCC 508,

the question of power of the arbitrator to award interest

has been considered but without any detailed discussion, it

has been held that the arbitrator possesses the power since

the reference to arbitrator was made by the Court and all

the disputes in the suit stood referred. This Court,

therefore, came to the conclusion that on the application of

the principle of Section 34 of the Civil Procedure Code,

pendente lite interest could be awarded by the arbitrator.

But so far as the power to award interest for the period

prior to the reference is concerned, only in the case of

Ashok Construction Co., 1971(3) SCR 66, this court no doubt

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held that the arbitrator has the power to award interest

from the date the amount is due under the contract, on the

ground that the arbitration agreement did not exclude the

jurisdiction of the arbitrator but the earlier decision of

the Court either in Thawardas or in Bengal Nagpur Railway,

deciding to the contrary, had not been noticed and in fact

the question had been disposed of in one sentence in

paragraph(6). While this was the position, for the first

time, this Court made an in- depth examination of the

question in Jenas case, 1988(1) SCC 418. Three learned

judges considered the competence of the arbitrator on

reference made without intervention of the Court and came to

the conclusion that in cases, which arose prior to the

commencement of the Interest Act, 1978, the arbitrator did

not have the power to grant interest either pendente lite or

for the period prior to the reference. In this case, though

several English cases have been cited, including the case of

Chandris, but the Court refrained from referring, in view of

the abundance of authoritative pronouncement of the Supreme

Court. Since the Interest Act of 1839 did not confer power

on the arbitrator to award interest, the Court looked

elsewhere for that power of the arbitrator to award interest

up to the institution of the proceeding but could not find

any such power, and, therefore, ultimately came to the

conclusion that the arbitrator did not possess any power to

award interest for the pre-reference period. So far as the

power of arbitrator to grant interest pendente lite is

concerned, the Court held that Section 34 of the Civil

Procedure Code could be made applicable to arbitrations in

suit and, therefore, when a dispute is referred to

arbitrator in suit, the arbitrator will have the power of

the Court in deciding the dispute, but not otherwise. In

other words, in case of an arbitration proceeding, where a

reference is made to the arbitrator, not by the Court in a

pending suit, but otherwise, in accordance with the

arbitration clause in agreement, then the arbitrator also

did not possess the power to award pendente lite interest as

the arbitrator cannot be held to be a Court. It is

necessary to bear in mind, it was held in no uncertain terms

that there is no substantive law which can be said to have

conferred power on the arbitrator to award interest, before

the commencement of the proceedings, that is for the

pre-reference period. This decision of the three Judge

Bench, operated the field till the Constitution Bench

decision in G.C.Roys case, 1992(1) SCC 508. The

Constitution Bench over-ruled the conclusion in Jenas case,

so far as it related to the power of the arbitrator pendente

lite is concerned. Even in G.C.Roys case, the Constitution

Bench, itself held that the earlier decisions of the Court

in Rallia Ram, 1964(3) SCR, 164, Bengal Nagpur Railway, 65

IA 66, AND Thawardas, 1955(2) SCR 48, what was held in

relation to the power of the arbitrator to award interest

for pre-reference period is because of the fact, as a matter

of substantive law, no such power was available and as such,

the ratio in that case cannot have any relevance on the

question of arbitrators power to award interest pendente

lite. The Constitution Bench did record a finding that

interest pendente lite is not a matter of substantive law,

like interest for the period anterior to reference. The

Constitution Bench also very carefully expressed Untill

Jenas case, almost all the Courts in the country had upheld

the power of the arbitrator to award interest pendente

lite. Even when the earlier Constitution Bench decision in

the case of Union of India vs. West Punjab Factories Ltd.,

1966(1) SCR 580, approving Thawardas, Bengal Nagpur Railway

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Co.,and Rallia Ram, was brought to the notice of the Court,

it was observed that not only the said case was not a case

under Arbitration Act but also it approved Thawardas only so

far as the power to grant interest prior to the institution

of the suit and not so far as the power to award interest

pendente lite is concerned. If the Constitution Bench in

the case of Union of India vs. West Punjab Factories Ltd.,

approved Thawardas, Bengal Nagpur Railway and Rallia Ram and

held that even in a suit, interest prior to the institution

of the suit cannot be granted, following the principles in

Thawardas and two others, which decided the power of the

arbitrator in relation to the grant of interest for

pre-reference period, it is unimaginable on my part to think

that an arbitrator does possess the power on the ground that

otherwise it would lead to multiplicity of proceedings. It

would be appropriate for me to indicate that in G.C.Roy, the

ratio of Thawardas, Bengal Nagpur Railway and Rallia Ram had

not been doubted even, and possibly could not have been

doubted in view of its acceptance by the earlier

Constitution Bench decision in Union of India vs. West

Punjab Factories Ltd., so far as the power of award of

interest for the pre-reference period is concerned. Even

subsequent to Roys case, there have been decisions of three

Judge Bench and two Judge Bench, which have been noticed by

Mohapatra, J in his judgment, including the judgment of

Justice Jeevan Reddy, who was a party to the Constitution

Bench in G.C.Roy, reiterating the principle that an

arbitrator does not possess the power to award interest for

a pre- reference period. [see Jugal Kishore, 1993(1) SCC

114, B.N.Agarwala, 1993(1) SCC 140(in this case both the

learned judges, Justice Jeeval Reddy and Justice G.N. Ray

were party to the Constitution Bench decision in

G.C.Roy'scase) and B.N.Agarwala, 1997(2) SCC 469]. The

arbitration proceeding has been a racket in this country and

in construing the law in relation to the powers of the

arbitrator, the Courts must construe the provisions of the

law rather strictly. Courts would not be justified in

construing the provisions and providing for something which

is not there in the Act and it is in this context, I express

my utter inability to construe the provisions of the

Interest Act, 1839 and interpret the same to have a

meaningful and purposeful object. To hold that an

arbitrator possesses the power to award interest even for

the pre-reference period, would tantamount to legislation in

that respect and would be contrary to the well reasoned and

well discussed decisions of this Court, starting from

Thowardas as well as the decision of Privy Council in Bengal

Nagpur Railway, which decisions though noticed in G.C.Roys

case, but have the approval of the Constitution Bench in

West Punjab Factories case, though the case was not on

arbitration but was of a five Judge Bench decision and

possibly, it would not be proper for this Bench to take a

view contrary to the same. The fact that the arbitrator has

the power to deal with and decide disputes which cropped up

at a point of time, would certainly not clothe the

arbitrator with any power, which neither any law confers

upon him nor there is any usage of trade having the force of

law nor is there any agreement between the parties

conferring that power. It is difficult for me to conceive

that such power could be conferred upon an arbitrator for

the pre-reference period on the supposition that he must be

presumed to have the power to grant interest as an accessory

or incidental to the sum awarded as due and payable. It is

not the question of absence of any specific stipulation in

the contract but the correct criteria should be whether

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there is a positive provision in the contract, conferring

the power to the arbitrator to award interest for

pre-reference period. I need not discuss any

further in view of my concurrence with Brother

Mohapatra,J. So, the appeals must be allowed.

______________________________________________________________________________

D.P.MOHAPATRA,J.

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 urged by Mr. Anil Divan, learned senior counsel

appearing for the respondents that in view of the judgments

of this Court in Secy. Irrigation Deptt. Govt. of Orissa

vs. G.C.Roy (1992 (1) SCC 508) (hereinafter referred to as

'G.C.Roy case'), Executive Engineer (Irri.) vs. Abhaduta

Jena 1988 (1) SCC 418 (hereinafter referred to as 'Abhaduta

Jena's case) and in the case of State of Orissa vs.

B.N.Agarwalla (1997) 2 SCC 469, requires reconsideration.

The question of competence of an arbitrator to award

interest has engaged the attention of this Court in umpteen

cases. The claim of interest can be broadly split up into 3

periods - a) for the period before the arbitrator enters

upon the reference, in other words, pre-reference period;

(b) for the period during which the proceeding is pending

before the arbitrator which is otherwise called pendente

lite period; (c) for the period from the date of the award

till the award is made rule of the court. The question to

be considered in the present case is confined to the

jurisdiction of the arbitrator to award interest for the

pre-reference period only. After hearing the learned

counsel appearing for the appellants and the respondents it

appears to me that the moot question to be answered by this

Bench is whether the decision in Abhaduta Jena case (supra)

holding that the arbitrator has no competence to award

interest for the pre-reference period unless any of the

three 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

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substantive law enabling the award of interest; requires

re-consideration, particularly in view of the decision of

the Constitution Bench in G.C.Roy case (supra). Therefore

it will be convenient to notice at the outset the principles

of law and the reasons which persuaded the learned Judges in

Abhaduta Jena case to hold as noted above. Therein this

Court took note of the important changes brought in by the

Interest Act, 1978 particularly the inclusion of an

arbitrator in the definition of section 2(a) which was

absent in the Interest Act of 1839. This Court also took

note of the position that section 34 of the Civil Procedure

Code applies to arbitration in a suit for the 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 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

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 Section 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 Interest Act of 1978 an arbitrator

has the same power as the court to award interest up to 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 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

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force of law the arbitrator may award interest. Again if

there are any other provisions of 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 of exchange. We may also refer

Section 61(2) of the Sale of Goods Act which provides for

the award of interest to the seller or the buyer as the case

may be under certain circumstances in suits filed by them.

We may further cite the instance of the non- performance of

a contract of which equity could give specific performance

and to award interest. We may also cite a case where one of

the parties is forced to pay interest to a third party, say

on an overdraft, consequent 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 discussion of the various

cases, we see that Bengal Nagpur Railway Co. Ltd. v.

Ruttanji Ramji, Union of India, v. West Pubjab Factories

and Union of India v. Watkins & Co. were cases of award of

interest not by an arbitrator, but by the Court. It was

laid down in those three cases that interest could not be

awarded for the period prior to the suit in the absence of

an agreement for the payment of interest or any usage of

trade having the force of law or any provision of the

substantive law entitling the plaintiff to recover interest.

Interest could also be awarded by the court under the

Interest Act if the amount claimed was a sum certain payable

at a certain time by virtue of a written instrument. In

regard to pendente lite interest, the provisions of

the Civil Procedure Code governed the same.

16. The question of award of interest by an

arbitrator was considered in the remaining cases to which we

have referred earlier. Nachiappa Chettiar v. Subramaniam

Chettiar, Satinder Singh v. Amrao Singh, Firm Madanlal

Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India

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v. Bungo Steel Furniture Pvt. Ltd. Ashok Construction Co.

v. Union of India and State of Madhya Pradesh v. M.s Saith

& Skelton Pvt. Ltd. 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 those circumstances to have the same power to award

interest as the court. It was on that basis that the award

of pendente lite interest was made on the principle of

Section 34 Civil Procedure Code in Nachiappa Chettiar v.

Subramaniam Chettiar, Firm Madanlal Roshanlal Mahajan v.

Hukumchand Mills Ltd., Union of India v. Bungo Furniture

Pvt. Ltd. and State of Madhya Pradesh v. M/s Saith &

Skelton Pvt. Ltd. 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 be awarded if there was

an agreement to pay interest or a usage of trade having the

force of law or any other provision of substantive law

entitling the claimant to recover interest. Illustrations

of the provisions of substantive law under which the

arbitrator could award interest were also given in some of

the cases. It was said, for instance, where an owner was

deprived of his property, the right to receive interest took

the place of the right to retain possession, and 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

so

whether 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

provision of the substantive law which entitled the

plaintiff to receive interest. In that case, interest had

been awarded on the ground that it was reasonable to award

interest and the court, therefore, held that the arbitrator

was wrong in awarding the interest."

(emphasis supplied)

The ultimate conclusions reached by the Court were

summed up in these words:

"In regard to pendente lite interest, that is,

interest from the date of reference to the date or the

award,

the claimants would not be entitled to the same for

the simple reason that the arbitrator is not a court within

the meaning of Section 34 of the CPC, nor were the

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references to arbitration made in the course of suits. In

the remaining cases which arose before the commencement of

the Interest Act, 1978, the respondents are not entitled to

claim interest either before the commencement of the

proceedings or during the pendency of the arbitration. They

are not entitled to claim interest for the period prior to

the commencement of the arbitration proceedings for the

reason that the Interest Act, 1839 does not apply to their

cases and there is no agreement to pay interest or any usage

of trade having the force of law or any other provision of

law under which the claimants were entitled to recover

interest. They are not entitled to claim pendente lite

interest as the arbitrator is not a court nor were the

references to arbitration made in suits." (emphasis

supplied)

The Constitution Bench of this Court in G.C.Roy case

(supra) considered the correctness of the decision in

Abhaduta Jena case (supra) so far as award of pendente lite

interest is concerned. Indeed while stating the two grounds

on which the award before the Court was challenged it was

stated "(2) the arbitrator had no jurisdiction to award

pendente lite interest". The conclusion on that point was

stated in paragraphs 44-45 of the judgment in the following

words:

"44. Having regard to the above consideration, we

think that the following is the correct principle which

should be followed in this behalf:

Where the agreement between the parties does not

prohibit grant of interest and where a party claims interest

and that dispute (along with 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

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 and decided by the

Court. It cannot be taken as an authority on a different

question though in some cases the reason stated therein may

have a persuasive value.

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A Bench of three learned Judges of this Court in the

case of Jugal Kishore Prabhatilal Sharma v. Vijayendra

Prabhatilal Sharma (1993) 1 SCC 114) considered the question

of power of an arbitrator to award interest for

pre-reference period in a case where reference of a dispute

to arbitrator was made prior to coming into force of the

Interest Act, 1978. The Bench had occasion to consider the

decision in Abhaduta Jena case (supra) and also G.C.Roy case

(supra). The Bench rejected the contention that the

decision in Abhaduta Jena case had been overruled in G.C.

Roy case on the aspect of award of interest for

pre-reference period also. B.P. Jeevan Reddy, J., in his

concurring judgment specifically dealt with the question.

The relevant portions of the judgment are quoted hereunder:

"During the course of arguments, two different

interpretations were placed upon the principles enunciated

by the Constitution Bench in Secretary

Irrigation Department v. G.C.Roy. On one hand it was

contended, relying upon the first of the five principles set

out in para 43 that the said decision lays down that even

for the pre-reference period, interest can be granted in all

cases and that the earlier decision of this Court in

Executive Engineer (Irrigation), Balimela v. Abhaduta Jena

has been overruled in that behalf as well. On the other

side, it was contended that it was not so and that so far as

the pre-reference period is concerned, the Constitution

Bench decision does not say anything contrary to what was

said in Jena. It is in view of the said contentions that I

thought it appropriate to clarify the matter since I was the

member of the Bench which decided Secretary, Irrigation

Department v. G.C.Roy.

36. The decision in G.C.Roy was concerned only with

the power of arbitrator to award interest pendente lite. It

was not concerned with his power to award interest for the

pre-reference period. This was made clear at more than one

place in the judgment. In para 2 it is stated that

reference to the Constitution Bench was only for deciding

the question whether the decision in Jena was correct

insofar as it held that arbitrator has no power to award

interest pendente lite. In para 8 it is stated (SCC

pp.514-15) :

"Generally, 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

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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 decision in G.C.Roy case

(supra). This Court also declined to refer the matter to a

larger Bench. The relevant observations in para 10 of the

Judgment are quoted hereunder : "We cannot agree with Shri

Bhagat. Both of us were members of the Constitution Bench

which decided G.C.Roy. It was confined to the power of the

arbitrator to award interest pendente lite. It did not

pertain to nor did it pronounce upon the power of the

Arbitrator to award interest for the period prior to

his entering upon the reference (pre-reference period).

This very aspect has been clarified by one of us (B.P.Jeevan

Reddy,J.) in his concurring order in Jugal Kishore

Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma.

Accordingly, we hold following the decision in Jena that the

arbitrator had no power to award interest for the

pre-reference period in this case inasmuch as the award was

made prior to coming into force of the Interest Act, 1978

(The Interest Act, 1978 came into force with effect from

August 19, 1981). So far as interest for the period during

which the arbitration proceedings were pending (pendente

lite interest) is concerned, the arbitrator does have the

power to award the same as held in G.C.Roy. A request is

made by Shri Bhagat to refer the matter to a larger Bench to

decide the question relating to the power of the arbitrator

to award interest for the pre-reference period even in cases

where the award is made before the coming into force of the

Interest Act, 1978. Jena was decided by a Bench of three

Judges. We do not also feel persuaded to refer the matter

to a larger Bench." (emphasis supplied)

Again a Bench of three learned Judges in the case of

State of Orissa vs. B.N.Agrawala (1997) 2 SCC 469 had

occasion to deal with the question whether the decision in

Abhaduta Jena case (supra) was overruled in entirety in the

decision of the Constitution Bench in G.C.Roy case (supra).

This Court held that the decision in Abhaduta Jena case with

regard to award of interest for pre-reference period was not

overruled in G.C. Roy case. The relevant observations made

in paragraph 12 of the judgment read as follows: "The

perusal of the aforesaid passages clearly shows that

Abhaduta Jena case, was not overruled in its entirety by the

decision in G.C.Roy case. It is only with regard to the

award of pendente lite interest that the Constitution Bench

came to a conclusion which was contrary 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

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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 head of claim. A perusal of them shows that each head

relates to a claim for an unliquidated sum. The Interest

Act, 1839 applies as interest is not otherwise payable by

law in this kind of case (see Bengal Nagpur Ry. Co. v.

Ruttanji Ramji but even if it be assumed that an arbitrator

is a "court" within the meaning of that Act, (a fact that by

no means appears to be the case), the following among other

conditions must be fulfilled before interest can be awarded

under the Act:-

(1) there must be a debt or a sum certain;

(2) it must be payable at a certain time or otherwise;

(3) these debts or sums must be payable by virtue of

some written contract at a certain time;

(4) there must have been a demand in writing stating

that interest will be demanded from the date of the demand.

Not one of these elements is present, so the

arbitrator erred in law in thinking that he had the power to

allow interest simply because he thought the demand was

reasonable."

In the case of Union of India vs. West Punjab

Factories Ltd. (supra) a Constitution Bench of this Court

considered the question of an award of interest for a period

prior to filing of the suit and held that in the absence of

any usage or contract, expressed or implied, or of any

provision of law to justify the award of interest it is not

possible to award interest by way of damages, and therefore,

no interest should have been awarded in the present two

suits upto the date of the filing of either of the suit.

The relevant observations on that aspect read as follows:

"The next contention is that no interest could be awarded

for the period before the suit on the amount of damages

decreed. Legal position with respect to this is

well-settled : (see Bengal Nagpur Railway co. Limited v.

Ruttanji Ramji and others). That decision of the Judicial

Committee was relied upon by this Court in Seth Thawardas

Pherumal v. The Union of India. The same view was

expressed by this Court in Union of India v. A.L. Rallia

Ram. In the absence of any usage or contract, express or

implied, or of any provision of law to justify the award of

interest, it is not possible to award interest by way of

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damages. Also see recent decision of this Court in Union of

India v. Watkins Mayer & Company. In view of these

decisions no interest could be awarded for the period upto

the date of the suit and the decretal amount in the two

suits will have 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-reference

interest also. At the cost of repetition I may state here

that this contention was not accepted by this Court in Jugal

Kishore Prabhatilal Sharma & Ors. v. Vijayendra

Prabhatilal Sharma and another (supra), State of Orissa v.

B.N. Agarwala (supra), State of Orissa v. B.N. Agarwalla

(1997) 2 SCC 469 (supra). In my view this contention cannot

be accepted for the reason that the two periods, the period

during which the proceeding was pending before the

arbitrator (pendente lite) and the period before the

arbitrator entered upon the reference (pre-reference) stand

on different footing. While the former refers to a period

when the arbitrator was ceased of the matter for

adjudication, the latter refers to the period before he

(arbitrator) came into the picture. Further during the

period when the arbitrator is ceased of the proceeding the

parties are aware of the claims made by the applicant

against the opposite party and the matter is pending

adjudication; but during the pre-reference period neither

the claims are crystallized nor has the opposite party any

notice that it may be required to pay certain amount to the

claimant depending on the adjudication of the dispute by the

Arbitrator. In Abhaduta Jena case (supra) this Court held

that the arbitrator has no competence to award interest for

a period prior to reference unless agreement between the

parties entitles the arbitrator to award interest or there

is a usage or trade having the force of law for award of

interest or there is any other provision of the substantive

law enabling the award of interest. In that decision as I

read it, this Court has emphasised the position that the

claim for interest for pre- reference period can be made

only if there is a firm basis giving the claimants a cause

of action for claim of such interest and in the absence of

such basis for such claim an arbitrator is not competent to

award interest. The position is well-settled that

arbitrator is a creature of agreement between the parties.

He is vested with the power of adjudication of disputes in

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terms of such agreement. He has to act in accordance with

law. Though he discharges the functions of a Court while

adjudicating the dispute raised by the parties he cannot be

said to be a substitute for the Court in all respects. An

arbitrator is not bound to follow the strict procedure

applicable in a case before the Court. In many cases 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 to a

civil suit for interest and that would result in

multiplicity of proceedings. This contention is based on

the assumption that a Civil Court can award interest for a

period prior to the institution of the suit without being

satisfied that any of the conditions laid down in Abhaduta

Jena's case is satisfied. This assumption, in my view is

incorrect. The plaintiff in a suit has to base his claim on

a cause of action in law and in the absence of a firm basis

in law the Court cannot entertain such a claim. The

plaintiff has to lay a firm basis for the claim in the

pleading. That position has only been reiterated by this

Court in Abhaduta Jena case (supra).

On the discussions in the foregoing paragraphs I am of

the view that the decision in Abhaduta Jena case (supra)

lays down the correct position of law and does not require

reconsideration. 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. Accordingly,

the appeals are allowed in so far as the award of interest

for the pre-reference period is concerned. No costs.

____________________________________________________________

DORAISWAMY RAJU, J.

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The principal question arising in all these civil

appeals and stand referred to for the consideration of the

Constitution Bench is as to whether the Arbitrator has got

jurisdiction to award interest for the pre-reference period

in cases which arose prior to the commencement into force on

19.8.1981 of the Interest Act, 1978, when the provisions of

the Interest Act 1839 was holding the field. The cases

before us relate to the appointment of the Arbitrators

concerned by the specified authority, on a demand made

therefor by the contractor concerned without the

intervention of the Court. The Arbitrators concerned, while

sustaining portions of the claim made in the Awards also

allowed on those amounts interest from the due date of the

amount till date of Award. On the Awards being made the

Rule of Court, as per the determination made by the Civil

Court, the State pursued the matter before the High Court

unsuccessfully and the High Court sustained the claim of the

contractor for interest from the due date up to the date of

the Award. Aggrieved, the above appeals came to be filed

and entertained on certain limited and specified grounds,

inclusive of the dispute relating to the Award of interest

for the period prior to the date of the Award.

The Bench of three learned judges, who heard the

appeals initially, considered it necessary to refer to a

larger Bench for an authoritative pronouncement, the

following question of law:

In the absence of any prohibition to claim or grant

interest under the arbitration agreement whether Arbitrator

has no jurisdiction to award interest for the pre-reference

period under the general law or equitable principles,

although such claim may not strictly fall within the

provisions of Interest Act, 1839 ? (since reported in 1999

(9) SCC 514)

The order of reference also further indicated that

there is no clause in the agreement as regards the payment

of interest for the pre-reference period and that there is

also no clause prohibiting the payment of interest for the

pre- reference period.

Before adverting even to the respective contentions of

parties on either side and undertaking a consideration of

the same, it would be necessary to refer to some of the

decisions of this Court and highlight the principles laid

down therein, since the chore of controversy centres around

the efficacy and effect of those principles on the issue

raised and stand referred to this Bench. The leading

decision which undertook an analysis of the case law on the

subject and laid down certain propositions of law is

reported in Executive Engineer (Irrigation), Balimela and

Others vs Abhaduta Jena and Others [(1988) 1 SCC 418] (to be

referred to hereinafter as Jenas Case). In paragraph 4

of the judgment, the general state of law is found stated as

follows:

It is important to notice at this stage that both the

Interest Act of 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

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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 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 Section 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 Interest Act of 1978 an arbitrator

has the same power as the court to award interest up to 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 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 award interest. Again if there are

any other provisions of 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 of exchange. We may also refer Section 61 (2)

of the Sale of Goods Act which provides for the award of

interest to the seller or the buyer as the case may be under

certain circumstances in suits filed by them. We may

further cite the instance of the non-performance of a

contract of which equity could give specific performance and

to award interest. We may also cite a case where one of the

parties is forced to pay interest to a third party, say on

an overdraft, consequent 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.

After considering the earlier cases on the subject, it

has been observed thus: 16. The question of award of@@

JJJJJ

interest by an arbitrator was considered in the remaining

cases to which we have referred earlier. Nachiappa Chettiar

v. Subramaniam Chettiar, Satinder Singh v. Amrao Singh,

Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.,

Union of India v. Bungo Steel Furniture Pvt. Ltd., Ashok

Construction Co. v. Union of India and State of Madhya

Pradesh v. M/s Saith & Skelton Pvt. Ltd. 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 those circumstances to have

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the same power to award interest as the court. It was on

that basis that the award of pendente lite interest was made

on the principle of Section 34 Civil Procedure Code in

Nachiappa Chettiar v. Subramaniam Chettiar, Firm Madanlal

Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India

v. Bungo Furniture Pvt. Ltd. and State of Madhya Pradesh

v. M/s Saith & Skelton Pvt. Ltd. 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 be

awarded if there was an agreement to pay interest or a usage

of trade having the force of law or any other provision of

substantive law entitling the claimant to recover interest.

Illustrations of the provisions of substantive law under

which the arbitrator could award interest were also given in

some of the cases. It was said, for instance, where an

owner was deprived of his property, the right to receive

interest took the place of the right to retain possession,

and 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 so whether possession of immovable property was

taken away by private treaty or by compulsory acquisition.

Another instance where interest could be awarded was under

Section 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

provision of the substantive law which entitled the

plaintiff to receive interest. In that case, interest had

been awarded on the ground that it was reasonable to award

interest and the court, therefore, held that the arbitrator

was wrong in awarding the interest.

18. While this is the position in cases which arose

prior to the coming into force of the Interest Act, 1978, in

cases arising after the coming into force of the Act, the

position now is that though the award of pendente lite

interest is still governed by the same principles, the award

of interest prior to the suit is now governed by the

Interest Act, 1978. Under the Interest Act, 1978, an

arbitrator is, by definition, a court and may now award

interest in all the cases to which the Interest Act

applies.

Thereupon, dealing with the cases before them, the

general principles noticed were applied and they were

disposed of in the following terms:

20. Coming to the cases before us, we find that in

Civil Appeal Nos. 120 and 121 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

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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 reference 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

applies, it was argued by Dr Chitale, learned counsel for

the respondents, that the amount claimed was a sum certain

payable at a certain time by virtue of a written instrument

and, therefore, interest was payable under the Interest Act

for the period before the commencement of the proceedings.

In support of his contention that the amount claimed was a

sum certain payable at a certain time by virtue of a written

instrument, the learned counsel relied upon the decision of

this Court in State of Rajasthan v. Raghubir Singh. The

case certainly supports him and in the cases to which the

1978 Interest Act applies the award of interest prior to the

proceeding is not open to question. In regard to pendente

lite interest, that is, interest from the date of reference

to the date of the award, the claimants would not be

entitled to the same for the simple reason that the

arbitrator is not a court within the meaning of Section 34

of the CPC, nor were the references to arbitration made in

the course of suits. In the remaining cases which arose

before the commencement of the Interest Act, 1978, the

respondents are not entitled to claim interest either before

the commencement of the proceedings or during the pendency

of the arbitration. They are not entitled to claim interest

for the period prior to the commencement of the arbitration

proceedings for the reason that the Interest Act, 1839 does

not apply to their cases and there is no agreement to pay

interest or any usage of trade having the force of law or

any other provision of law under which the claimants were

entitled to recover interest. They are not entitled to

claim pendente lite interest as the arbitrator is not a

court nor were the references to arbitration made in suits.

One of the submissions made on behalf of the respondents was

that in every case, all disputes were referred to

arbitration and the jurisdiction of the arbitrator to award

interest under certain circumstances was undeniable. The

award not being a speaking award, it was not permissible to

speculate on the reasons for the award of interest and the

court was not entitled to go behind the award and disallow

the interest. It is difficult to agree with this

submission. The arbitrator is bound to make his award in

accordance with law. If the arbitrator could not possibly

have awarded interest on any permissible ground because such

ground did not exist, it would be open to the court to set

aside the award relating to the award of interest on the

ground of an error apparent on the record. On the other

hand, if there was the slightest possibility of the

entitlement of the claimant to interest on one or other of

the legally permissible grounds, it may not be open to the

court 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 propriety 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 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

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disallowed. There will be no order as to costs.

S.L.P.8640/81 is disposed of on the same lines.

The decision, which equally need a detailed reference,

is that of Constitution Bench reported in Secretary,

Irrigation Department, Government of Orissa and Others vs

G.C. Roy [(1992) 1 SCC 508] (hereinafter referred to as

Roys case). Of the two issues raised in the appeal

therein, the one which related to the jurisdiction of the

Arbitrator to award pendente lite interest when taken up for

hearing before a Bench, the correctness of Jenas case

(supra) insofar as it held that the Arbitrator had no power

to award interest pendente lite was contested and on the

view taken by that Bench that the said question required

further consideration by a larger Bench, the matter was

placed before the Constitution Bench. Ultimately, the

Constitution Bench held that the decision in Jenas case

(supra) does not lay down good law and where the agreement

between the parties does not prohibit grant of interest and

where a party claims interest and that dispute (along with

the claim for principal amount or independently) is referred

to the Arbitrator, he will have the power to award interest

pendente lite, 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 the parties refer all

their disputes - or refer the dispute as to interest as such

to the Arbitrator- which he shall have power to decide. It

was also emphasised therein that the matter being one within

the discretion of the Arbitrator - the same requires to be

exercised in the light of all facts and circumstances of the

case, keeping the ends of justice in view.

The Constitution Bench, which decided Roys case

(supra) after a critical analysis of the earlier decisions

including the one in Jenas case (supra), held as follows:

43. The question still remains whether arbitrator

has the power to award interest pendente lite, and if so on

what principle. We must reiterate that we are dealing with

the situation where the agreement does not provide for grant

of such interest nor does it prohibit such grant. In other

words, we are dealing with a case where the agreement is

silent as to award of interest. On a conspectus of

aforementioned decisions, the following principles emerge:

(i) A person deprived of the use of money to which he

is legitimately entitled has a right to be compensated for

the deprivation, call it by any name. It may be called

interest, compensation or damages. This basic consideration

is as valid for the period the dispute is pending before the

arbitrator as it is for the period prior to the arbitrator

entering upon the reference. This is the principle of

Section 34, Civil Procedure Code and there is no reason or

principle to hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form (sic forum)

for resolution of disputes arising between the parties. If

so, he must have the power to decide all the disputes or

differences arising between the parties. If the arbitrator

has no power to award interest pendente lite, the party

claiming it would have to approach the court for that

purpose, even though he may have obtained satisfaction in

respect of other claims from the arbitrator. This would

lead to multiplicity of proceedings.

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(iii) An arbitrator is the creature of an agreement.

It is open to the parties to confer upon him such powers and

prescribe such procedure for him to follow, as they think

fit, so long as they are not opposed to law. (The proviso

to Section 41 and Section 3 of Arbitration Act illustrate

this point). All the same, the agreement must be in

conformity 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 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

substantive 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.

While overruling Jenas case on the above principles,

this Court applied the principle of prospective overruling

making it clear that their decision shall not entitle any

party nor shall it empower any Court to re-open proceedings

which have already become final and that the law declared

shall apply only to pending proceedings.

The area of consideration and the questions which fell

for the determination of the cases in Jenas case and Roys

case have been adverted to in Roys case itself and in para

8 of the judgment it has been observed as follows:

Generally, the question of award of interest by the

arbitrator may arise in respect of three different periods,

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 arbitrators 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. In Jena Case, two questions arose for

consideration of the Court, namely: (i) the power of the

arbitrator to award interest for the period prior to his

entering upon reference, and; (ii) the powers of the

arbitrator to award interest for the period the dispute

remained pending before him pendente lite. Since, the Court

dealt with the second question in detail and held that the

arbitrator had no jurisdiction or authority to award

interest pendente lite, we think it necessary to consider

the reasons for the decision. Justice Chinnappa Reddy, J.

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speaking for the bench held that neither the Interest Act,

1839 nor the Interest Act, 1978 conferred power on the

arbitrator for awarding interest pendente lite. The learned

Judge observed that Section 34 of the Civil Procedure Code

which provides for the same did not apply to arbitrator

inasmuch as an arbitrator is not a court within the meaning

of the said provision. Consequently the arbitrator could

not award interest pendente lite.

In Jugal Kishore Prabhatilal Sharma & Ors. vs

Vijayendra P. Sharma & Anr.[(1993) 1 SCC 114] a Bench of

three learned judges to which B.P. Jeevan Reddy, J. was a

party observed that there was force in the contention that

the decision in Roys case did not affect the position of

law relating to the power of the Arbitrator in respect of

the period prior to reference in respect of a pre 1978 Act

period. B.P. Jeevan Reddy, J. who was also a member of

the Constitution Bench which decided Roys case, wrote a

separate concurring opinion clarifying the position that

Roys case was concerned with the power of the Arbitrator to

award interest pendente lite unlike Jenas case which

considered the question both for the pre-reference period as

well as the pendente lite period and therefore, it may not

be right to read the decision in Roys case as overruling

Jenas case insofar as it dealt with the power of the

arbitrator to award interest for the pre-reference period.

The learned Judge (Jeevan Reddy, J.) speaking for another

Bench in the decision reported in State of Orissa vs B.N.

Agarwala [(1993) 1 SCC 140] reaffirmed the same position and

even rejected a request for reference of the matter to a

larger Bench of this Court. The decision in State of Orissa

vs B.N. Agarwalla [(1997) 2 SCC 469], also reaffirmed the

above position.

In B.N. Agarwallas case (supra) [(1997)2 SCC 469],

B.N. Kirpal, J., speaking for a Bench of three learned

judges of this Court, adverted to the earlier decisions some

of which rendered even after those noticed above and held as

follows:

18. In view of the aforesaid decisions there can now

be no doubt with regard to the jurisdiction of the

arbitrator to grant interest. The principles which can now

be said to be well-settled are that the arbitrator has the

jurisdiction to award pre- reference interest in cases which

arose after the Interest Act, 1978 had become applicable.

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. For the period

during which the arbitration proceedings were pending in

view of the decision in G.C. Roy case and Hindustan

Construction Ltd. case, the arbitrator has the power to

award interest. The power of the arbitrator to award

interest for the post-award period also exists and this

aspect has been considered in the discussion relating to

Civil Appeal No.9234 of 1994 in the later part of this

judgment.

As to what should happen for the post Award period,

Section 29 of the Arbitration Act, 1940, itself provides

clue for an answer by stipulating that where and insofar as

an award is for the payment of money, the Court may in the

decree order interest from the date of the decree at such

rate as the Court deems reasonable to be paid on the

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principal sum as adjudged by the award and confirmed by the

decree. This question has been specifically dealt with in

Hindustan Construction Company Ltd. vs State of Jammu &

Kashmir [(1992) 4 SCC 217] by a Bench of three learned

judges and it was held therein as follows:

5. The question of interest can be easily disposed

of as it is covered by recent decisions of this Court. It

is sufficient to refer to the latest decision of a five

Judge bench of this Court in Secretary, Irrigation

Department, Govt. of Orisssa vs 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. Section 34 of Code of Civil Procedure provides

both for awarding of interest pendente lite as well as for

the post-decree period and the principle of Section 34 has

been held applicable to proceedings before the arbitrator,

though the section as such may not apply. In this

connection, the decision in Union of India vs Bungo Steel

Furniture (P) Ltd. may be seen as also the decision in

Gujarat Water Supply & Sewerage Board vs Unique Erectors

(Gujarat) P. Ltd. which upholds the said power though on a

somewhat different reasoning. We, therefore, think that the

award on Item No.8 should have been upheld.

This aspect was also specifically dealt with and it

was held in B.N. Agarwallas case (Supra), as hereunder:

37. 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 passed. It does

happen that when an 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. and Hindustan Construction Co. Ltd. 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 is filed in the court and a decree is passed in terms

thereof, then Mr. Sanyal has rightly contended that it is

for the court to determine under Section 29 of the

Arbitration Act as to whether interest should be ordered to

be paid and if so at what rate.

It is in the above backdrop of the legal principles

enunciated and considered holding the field that this

reference came to be made for determining the jurisdiction

of the Arbitrator to award interest for the pre- reference

period, in the circumstances stated in the very question of

reference.

Shri Gobind Das, learned senior counsel for the

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appellants, submitted that having regard to the principles

and ratio laid down in Jenas case and B.N. Agarwalas case

(Supra) and the other decisions wherein the position came to

be re-affirmed and followed consistently, the Arbitrator

will have no jurisdiction to award interest for the

pre-reference period in a matter relating to the pre 1978

Act, period. The decision of this Court in G.C. Roys

case, according to the learned counsel, has no relevance to

the case pertaining to pre-reference period, the same

being only concerned with pendente lite period and therefore

the authority of the Jenas case in respect of the pre-

reference period holding that no interest is payable for

pre-reference period never stood undermined or overruled by

the decision of the Constitution Bench rendered in G.C.

Roys case. Emphasis has been laid to derive support to

this stand on the decisions reported in Bengal Nagpur

Railway Co. Ltd. vs Ruttanji Ramji and others [AIR 1938 PC

67]; Seth Thawardas Pherumal and another vs Union of India

[AIR 1955 SC 468 = 1955(2) SCR 48]; Union of India vs A.L.

Rallia Ram [(1964) 3 SCR 164]; Union of India vs Watkins

Mayor & Co. [AIR 1966 SC 275]; Union of India vs West

Punjab Factories Ltd. [(1966) 1 SCR 580 = AIR 1966 SC 395];

M/s Ashok Construction Companys case (Supra) and State of

Madhya Pradesh vs M/s Saith & Skelton (P) Ltd. [(1972) 3

SCR 233]. According to the learned counsel for the

appellants, the principles laid down in Jenas case as

affirmed in G.C. Roys case and as clarified and declared

in the subsequent decisions of this Court including the one

in B.N. Agarwalas case (Supra), do not call for any change

or modification or alteration and the reference should be

answered in favour of the appellants.

Per contra, Shri Anil B. Divan, learned Senior

Counsel spear heading the arguments on behalf of the

respondents followed by Sharvashri V.Bhagat and A.K. Panda

strenuously contended that the ratio or the reasons which

formed the basis for the judgment and the principles laid

down in G.C. Roys case dehors their ultimate application

to the actual case before court for according relief,

renders the decision in Jenas case, insofar as it related

to award of interest for pre-reference period also bad even

for the very reasons on which the Court in G.C.Roys case

found the judgment in Jenas case bad or unsustainable in

respect of award of interest for pendente lite period. The

conclusions in Jenas case are said to be directly in

conflict with the earlier three judges judgment of this

Court and all these cases having been quoted with approval

in G.C.Roys case, Jenas case must be held to be no longer

good law even in respect of award of interest for the

pre-reference period. Argued the learned senior counsel

further that inasmuch as the principles laid down in the

English cases (Chandris case, Edwards case) came to be

approved in G.C.Roys case, it becomes inevitably necessary

to hold that the Arbitrator has jurisdiction to award

interest for pre-reference period as long as there is no

specific prohibition as such in the agreement/contract

between parties restraining the claim/payment of interest,

on the principle of an implied term of the agreement between

the parties, that the Arbitrator could award interest in a

case where the Court could award it and that as a

consequence thereof when the parties refer all their

disputes/ or the dispute as to interest as such - to the

Arbitrator, he shall have the necessary power to award

interest - though such power may be exercised in his

discretion in the light of all the facts and circumstances

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of the case and in the interests of justice. Our attention

has also been invited in this regard to certain English

cases: Chandris Vs. Isbrandtsen Moller Co. Inc. (1950

(2) All England Law Reports 618); President of India Vs.

La Pintada Compania Navigacion S.A. (Law Reports [1985] 1

A.C. 104); and Food Corporation of India Vs. Marastro

Compania Naviera S.A. of Panama (1986 (3) All England Law

Reports 500 = [1987] 1 Weekly Law Reports 134), and those of

the Supreme Court in G.C. Roys case and some of the

decisions referred to therein. We have carefully considered

the submissions of the learned counsel appearing on either

side. The mere reference and reliance placed by the counsel

for the appellants on the earlier decisions which have been

already considered by this Court in deciding Jenas case and

G.C. Roys case and explained, does not help to improve the

position of the appellants in any manner to sustain their

plea. The Constitution Bench which dealt with G.C. Roys

case while adverting to the English cases reported in

Edwards vs Great Western Railway Company [(1851) 138 ER

603]; Podar Trading Co. Ltd. vs Francois Tagher [(1949) 2

All E.R. 62]; Chandris vs Isbrandsten- Moller Co. Inc.

[1950 (1) All E.R. 768], observed, while quoting with

approval the decision in Ashok Construction Companys case

(supra), that the principles laid down by this Court it only

accorded with the principles laid down in Edwards case

(Supra) as understood in Chandris case (Supra). Reference

has also been made in G.C. Roys case to the decision

reported in Union of India vs Bungo Steel Furniture Pvt.

Ltd. [AIR 1967 SC 1032] wherein also this Court accorded

approval to the principles laid down in the English cases,

observing as follows:

26. The above passages show that the Court laid down

two principles: (i) it is an implied term of the reference

that the arbitrator will decide the dispute according to

existing law and give such relief with regard to interest as

a court could give if it decides the dispute; (ii) though

in terms Section 34 of the Code of Civil Procedure does not

apply to arbitration proceedings, the principle of that

section will be applied by the arbitrator for awarding

interest in cases where a court of law in a suit having

jurisdiction of the subject matter covered by Section 34

could grant a decree for interest. It is also relevant to

notice that this decision refers with approval to both the

English decisions in Edwards and Chandris case besides the

decision of this Court in Firm Madanlal Roshanlal. It is

noteworthy that the decision explains and distinguishes the

decision in Thawardas on the same lines as was done in Firm

Madanlal Roshanlal case.

The subsequent development and march of law in

England, in this connection also deserve to be noticed. In

President of India vs La Pintada Compania Navigacion S.A.

(supra), the House of Lords approved the rule in Chandris

case as follows:

The true position in law is, in my opinion, not in

doubt. It is this. Where parties refer a dispute between

them to arbitration in England, they impliedly agree that

the arbitration is to be conducted in accordance in all

respects with the law of England, unless, which seldom

occurs, the agreement of reference provides otherwise. It

is on this basis that it was held by the Court of Appeal in

Chandris vs Isbrandtsen-Moller Co. Inc.[1951] 1 K.B. 240

that, although section 3(1) of the Act 1934, by its terms,

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empowered only courts of record to include interest in sums

for which judgment was given for damages or debt,

arbitrators were nevertheless empowered, by the agreement of

reference, to apply English law, including so much of that

law as is to be found in section 3(1) of the Act of 1934.

(At page 119.)

In Food Corporation of India vs Marastro Compania

Naviera S.A. of Panama (supra), it was held by the Court of

Appeal as hereunder:

Before section 19A there was no general statutory

provision empowering arbitrators to award interest on the

sums they awarded. But it was held by this court in

Chandris vs Isbrandtsen-Moller Co. Inc. [1951] 1 K.B. 240

that, just as before the Act of 1934 came into force an

arbitrator had been held entitled to award interest in the

circumstances in which, under the Civil Procedure Act 1933,

a jury could have awarded interest, so equally, after the

Act of 1934 came into force, an arbitrator had impliedly the

power to award interest which section 3 had conferred upon

courts of record.

The decision in the Chandris case was approved by the

House of Lords in President of India vs La Pintada Compania

Navigacion S.A.[1985] A.C. 104. There, Lord Brandon of

Oakbrook said that, where parties refer a dispute between

them to arbitration in England, they impliedly agree that

the arbitration is to be conducted in accordance in all

respects with the law of England, unless the agreement of

reference provides otherwise. Thus, although section 3 of

the Act of 1934 by its terms empowered only courts of record

to include interest in sums for which judgment was given for

damages or debt, arbitrators were nevertheless empowered, by

the agreement of reference, to apply English law, including

so much of that law as was to be found in section 3 of the

Act of 1934.

In my judgment, this implied agreement in the

arbitration agreement is naturally to be understood as

empowering arbitrators to apply English law as it is from

time to time during the course of the reference (and in

particular in the context of the present case as it was at

the time of the hearing and the award) and not as an

agreement empowering the arbitrator to apply English law

crystallised as at the date of the arbitration agreement.

As it was put by Cohen L.J. in the Chandris case [1951] 1

K.B. 240, 264 (though admittedly without having his mind

addressed to transitional problems):

In my opinion, the right of arbitrators to award

interest was not derived from sections 28 and 29 of the

Civil Procedure Act, 1833, but from the rule that

arbitrators had the powers of the appropriate court in the

matter of awarding interest. In my opinion, therefore, the

effect of the Act of 1934 is that, after it came into force,

an arbitrator had no longer the powers of awarding interest

on damages conferred on juries by sections 28 and 29 of the

Civil Procedure Act, 1833, but he had the power conferred on

the appropriate court in the act of 1934 described as a

`court of record.

In the present case, the power of the court under

section 3 of the Act of 1934 to award interest on a judgment

at the trial of proceedings which the arbitrator would by

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implication prospectively have had at the time of the

arbitration agreement had been superseded by the time of the

hearing, and afortiori by the date of the award, by the

wider powers of the court as a result of section 15 of the

Act of 1982. It is those wider powers which, by the

Chandris process of implication, the arbitrator would have

had when he made the award if section 19A had not been

inserted into the Arbitration Act 1950. The purpose of

section 19A is to make explicit powers to award interest

which had previously rested on implication. There is thus a

further strong pointer to holding that section 19A has

retrospective effect and applies to pending and future

arbitrations under arbitration agreements whenever made,

just as the powers of the High Court and of the county

courts under section 35A of the Act of 1981 and section 97A

of the Act of 1959 apply to proceedings whenever

instituted. (At pages 141 & 142)

The Constitution Bench in G.C.Roys case also

recognised and accorded approval to this principle in para

43 (iii) by stating, The Arbitrator must also act and make

his award in accordance with the general law of the land and

the agreement.

As for the reliance placed for the appellants upon the

decisions reported in AIR 1938 PC 67; AIR 1955 SC 468 and

1966 (1) SCR 580, we are of the view that the observations

contained in those judgments have to be construed in the

factual context and nature of the claims involved therein

and not in the abstract and out of their context.

Thawardas case (Supra) is one where the Arbitrator awarded

interest on unliquidated damages for a period before the

reference to arbitration as well as for the period

subsequent to reference. The Bengal Nagpur Railway Company

Ltd. case (Supra) dealt with the claim of interest by way

of damages under Section 73 of the Contract Act and it was

observed therein that Section 73 is merely declaratory of

the common law as to damages and that it was not available

to the plaintiff therein. In West Punjab Factories Ltd.

Case (Supra) also the suit claim was for damages for loss of

goods destroyed by fire, and issue No. (iv) considered

therein related to the question of awarding interest for the

period before the suit on the amount of damages decreed. A

careful analysis of the principles underlying those

decisions would show that the claim of interest for the

period prior to the commencement of proceedings was not

countenanced in view of the settled and indisputable

position of law that damages till quantified is not and

cannot be said to be an ascertained or definite sum and

until it is ascertained and crystalised into a definite sum

and decreed, no question of payment of interest for the

period prior to such quantification would either arise or be

permissible in law, even if made before regular civil

courts, in ordinary suits filed.

There can be no controversy over the position that the

Constitution Bench of this Court in G.C. Roys case while

declaring that the decision in Jenas case does not lay down

good law upheld, as a consequence the jurisdiction of the

Arbitrator to award only pendente lite interest, as

explained and highlighted in the subsequent decisions of

this Court. When the claim involved for consideration in

G.C. Roys case was only with reference to pendente lite

interest it cannot be expected of the Court to travel

outside, except for analysing the general principles, to

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academically adjudicate the other aspects of the matter also

decided by the Bench in Jenas case and overrule the same on

such other points, too. Be that as it may, the ratio or the

basis of reasons and principles underlying a decision is

distinct from the ultimate relief granted or manner of

disposal adopted in a given case. While laying down

principle No. (i) in para 43, it has been in unmistakable

terms declared that the basic proposition that a person

deprived of the use of money to which he is legitimately

entitled to has a right to be compensated for the

deprivation, by whatever name it may be called viz.,

interest, compensation or damages, is as valid for the

period the dispute is pending before the Arbitrator as it is

for the period prior to the Arbitrator entering upon the

reference. The efficacy and binding nature of this

declaration of law cannot be either diminished or whittled

down even on any known principle underlying the doctrine of

stare decisis. The same is the position with reference to

the principle Nos. (ii) and (iii). It cannot be

legitimately contended that these principles would either

vary or could be different in a case relating to the award

of interest for the pre-reference period and to assume such

a contra position in juxta position would not only be

destructive in nature but also illogical and

self-contradictory resulting in grave miscarriage of

justice. Some of the very reasons and principles which

weighed with the Constitution Bench in G.C.Roys case to

sustain the jurisdiction of the Arbitrator to award pendente

lite interest in a claim arising out of an agreement which

does not also prohibit the grant of interest, in our view

would equally suffice and provide sound basis of reasoning

for upholding the power of the Arbitrator to award interest

in respect of the pre- reference period, too. The further

fact that the decisions of this Court, including the Jenas

case, envisaged four circumstances or contingencies wherein

such interest for pre-reference period can be countenanced

by the Arbitrator, is by itself sufficient to confer

jurisdiction upon the Arbitrator to entertain and consider

the said claim also, and consequently there is no

justification to thwart the same even at the threshold

denying the Arbitrator power even to entertain the claim as

such.

What difference it would make and consequences would

follow, if principle No. (i) is read along with principle

No. (v), be it even that, interest for the pre-reference

period is a matter of substantive law unlike the interest

for the period pendente lite, which ultimately came to be

allowed applying the principles engrafted in Section 34 of

the Code of Civil Procedure would next deserve our

consideration. Substantive Law, is that part of the law

which creates, defines and regulates rights in contrast to

what is called adjective or remedial law which provides the

method of enforcing rights. Decisions, including the one in

Jenas case while adverting to the question of substantive

law has chosen to indicate by way of illustration laws such

as Sale of Goods Act, 1930 [Section 61(2)], Negotiable

Instruments Act, 1881 (Section 80) etc. The provisions of

the Interest Act 1839, which prescribes the general law of

interest and becomes applicable in the absence of any

contractual or other statutory provisions specially dealing

with the subject, would also answer the description of

substantive law. This Act was excluded from consideration

for the simple reason that unlike the inclusive definition

of Court in 1978 Act so as to include an Arbitrator, also

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the 1839 Act did not provide any definition clause much

less an expansive one. Not only, Section 1 of the Interest

Act but even the provisions contained in Sale of Goods Act

and Negotiable Instruments Act themselves only envisage and

enable courts to grant or award interest. But on that

ground alone it could not be reasonably postulated that such

Acts applied only to proceedings before Courts and not to

proceedings before forums created in lieu of conventional

Civil Courts. Once it is construed and considered that the

method of redressal of disputes by an alternative forum of

arbitration as agreed to between the parties, with or

without the intervention of Court is only a substitute of

the conventional Civil Courts by forums created by consent

of parties, it is but inevitably necessary that the parties

must be deemed to have by implication also agreed that the

arbitrator shall have power to award interest, the same way

and in the same manner as courts do and would have done, had

there not been an agreement for arbitration. It is in this

connection that the practice followed by English Courts

which came to be noticed and approved by this Court also

lend support and strength to adopt such construction in

order to render complete and substantial justice between the

parties. That there is nothing in the Interest Act, 1839 to

confine its operation and applicability only to proceedings

before ordinary and conventional Courts, cannot also be

ignored, in this connection. In our view any such

restricted and literal construction which is bound to create

numerous anomalies and ultimately defeat the ends of justice

should be scrupulously avoided. On the other hand, that

interpretation which makes the text not only match the

context but also make a reading of the provisions of an Act,

just, meaningful and purposeful and help to further and

advance the ends of justice must alone commend for the

acceptance of courts of law. Adopting a different

construction to deny a claimant who opts for adjudication of

disputes by arbitral process alone and that too when

recourse to such process is made without the intervention of

Court would amount to applying different and discriminatory

norms and standards to situations which admits of no such

difference and that too where there is no real distinction

based upon any acceptable or tangible reason.

It is not in dispute that an Arbitrator appointed in a

pending suit or with the intervention of the Court, will

have all the powers of the Court, in deciding the dispute

and the dispute is only in respect of an Arbitrator to whom

the reference has been made by the parties, under the

agreement without the intervention of the Court. It would

then mean that the parties have to be driven to vexatious

litigation before Courts by passing an agreement of

arbitration, to be ultimately told to abide by it and have

the matter formally referred by staying such proceedings

before Civil Court to secure to the Arbitrator power to

award interest also. In G.C. Roys case while emphasising

the importance and need for availing arbitration process, it

has been observed as follows:

4. A dispute between two parties may be determined

by court through judicial process or by arbitrator through a

non-judicial process. The resolution of dispute by court,

through judicial process is costly and time consuming.

Therefore, generally the parties with a view to avoid delay

and cost, prefer alternative method of settlement of dispute

through arbitration proceedings. In addition to these two

known process of settlement of dispute there is another

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alternative method of settlement of dispute through

statutory arbitration. Statutory arbitrations are regulated

by the statutory provisions while the parties entering into

agreement for the resolution of their dispute through the

process of arbitration are free to enter into agreement

regarding the method, mode and procedure of the resolution

of their dispute provided the same are not opposed to any

provision of law. Many a time while suit is pending for

adjudication before a court, the court with the consent of

the parties, refers the dispute to arbitration. On account

of the growth in the international trade and commerce and

also on account of long delays occurring in the disposal of

suits and appeals in courts, there has been tremendous

movement towards the resolution of disputes through

alternative forum of arbitrators. The alternative method of

settlement of dispute through arbitration is a speedy and

convenient process, which is being followed throughout the

world. In India since ancient days settlement of disputes

by Panches has been a common process for resolution of

disputes in an informal manner. But now arbitration is

regulated by statutory provisions.

If that be the position, Courts which of late

encourage litigants to opt for and avail of the alternative

method of resolution of disputes, would be penalising or

placing those who avail of the same in a serious

disadvantage. Both logic and reason should counsel courts

to lean more in favour of the Arbitrator holding to possess

all the powers as are necessary to do complete and full

justice between the parties in the same manner in which the

Civil Court seized of the same dispute could have done. By

agreeing to settle all the disputes and claims arising out

of or relating to the contract between the parties through

arbitration instead of having recourse to Civil Court to

vindicate their rights the party concerned cannot be

considered to have frittered away and given up any claim

which otherwise he could have successfully asserted before

Courts and obtained relief. By agreeing to have settlement

of disputes through arbitration, the party concerned must be

understood to have only opted for a different forum of

adjudication with less cumbersome procedure, delay and

expense and not to abandon all or any of his substantive

rights under the various laws in force, according to which

only even the Arbitrator is obliged to adjudicate the claims

referred to him. As long as there is nothing in the

arbitration agreement to exclude the jurisdiction of the

Arbitrator to entertain a claim for interest on the amounts

due under the contract, or any prohibition to claim interest

on the amounts due and become payable under the contract,

the jurisdiction of the Arbitrator to consider and award

interest in respect of all periods subject only to Section

29 of the Arbitration Act, 1940 and that too the powers of

the Court thereunder, has to be upheld. The submission that

the Arbitrator cannot have jurisdiction to award interest

for the period prior to the date of his appointment or

entering into reference which alone confers him power is too

stale and technical to be countenanced in our hands, for the

simple reason that in every case the appointment of an

Arbitrator or even resort to Court to vindicate rights could

be only after disputes have cropped up between the parties

and continue to subsist unresolved and that if the

Arbitrator has the power to deal with and decide disputes

which cropped up at a point of time and for the period prior

to the appointment of an Arbitrator, it is beyond

comprehension as to why and for what reason and with what

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justification the Arbitrator should be denied only the power

to award interest for the pre-reference period when such

interest becomes payable and has to be awarded as an

accessory or incidental to the sum awarded as due and

payable, taking into account the deprivation of the use of

such sum to the person lawfully entitled to the same. For

all the reasons stated above, we answer the reference by

holding that the Arbitrator appointed with or without the

intervention of the 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. The decision in Jenas case [1988 (1) SCC 418]

taking a contra view does not lay down the correct position

and stands overruled, prospectively, which means that this

decision shall not entitle any party nor shall it empower

any Court to reopen proceedings which have already become

final, and apply only to any pending proceedings. No costs.