# EXECUTIVE ENGINEER, DHENKANAL MINOR IRRIGATION DIVISION, ORISSA, ETC. ETC v. N.C. BUDHARAJ (DEAD) BY LRS. ETC. ETC

- **Citation:** [2001] 1 S.C.R. 264
- **Court:** Supreme Court of India
- **Decided:** 2001
- **Bench:** G.B. Pattanaik, S. Rajendra Babu, D.P. Mohapatra, Doraiswamy Raju, Shivaraj V. Patil
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/executive-engineer-dhenkanal-minor-irrigation-division-orissa-etc-etc-v-n-c-17705
- **Pages:** 42

## Headnote

Arbitration:
Arbitration Act, 1940-Section 29-/nterest Act, 1839/ Interest Act,
1978-Award-Cases arising during the enforceability of the Interest Act,
1839-/nterest-Pre-reference period-Grant of-Arbitrator appointed
without the intervention of Coz;rt-Jurisdiction of-Interest Act. 1839 only
D envisaging and enabling courts to grant or award interest-However, nothing
in the said Act confining its applicability only to proceedings before ordinary
and conventional courts or excluding its applicability before forums created
in lieu of conventional civil courts-Held, an 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, br the absence
E of any specific stipulation or prohibition in the contract to claim or grant
any such interest-Arbitrator possessing a11 the powers necessary to do
complete and full justice between the parties in the same manner as a Civil
Court.
F
Substantive Lav.~Meaning of-Explained.
Appointment of the arbitrators in the present cases were made without
the intervention cf the Court on a demand made by the contractor concerned.
The said arbitrators, while sustaining portions of the claim made in the
awards also allowed on those amounts interest from the due date of the
G amount till date of Award. The awards were made Rule of Court by the Civil
Court. Aggrieved, State approached the High Court which sustained the
• claim of the contractor for interest from the due date up to the date of the
Award. Hence the present appeals. The appeals were referred to for
consideration of the Constitution Bench on the question as to whether the
Arbitrator had got jurisdiction to award interest for the pre-reference period
H
2M
;
MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDHARAJ
265
iii cases which arose prior to the commencement into force or the Interest A
Act, 1978.
On behalf of the appellant it was contended that having regard to the
principles and ratio laid down in various Supreme Court decisions, the
Arbitrator had no jurisdiction to award interest for the pre-reference period
in a matter relating to the pre-1978 Act.
B
On behalf of the respondents it was contended that the Arbitrator had
jurisdiction to award interest for pre-reference period as long as there was
no specific prohibition as such in the agreement/contract between parties
restraining the claim/payment of interest; that on the principle of an implied C
term of the agreement between the parties that the Arbitrator could award
interest in a case where the Court could award it, when the parties referred
all their disputes to the Arbitrator, he had the necessary power to award
interest.
Dismissing the appeals, the Court
HELD: (Per Raju J. for himself and Rajendra Babu and Patil JJ.)
D
1.1. The Arbitrator appointed with or without the intervention of the
Court, has jurisdiction to award interest, on the sums found due and payable, E
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 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, for the
simple reason that in every case the appointment of an arbitrator or even F
resort to Court to vindicate rights could be only after disputes have cropped
up between the parties and continue to subsist unresolved. 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 the Arbitrator.should G
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 paya

## Text

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A
B
c
EXECUTIVE ENGINEER, DHENKANAL MINOR IRRIGATION
DIVISION, ORISSA, ETC. ETC.
v.
N.C. BUDHARAJ (DEAD) BY LRS. ETC. ETC.
JANUARY IO, 2001
[G.B. PATTANAIK, S. RAJENDRA BABU, D.P. MOHAPATRA,
DORAISWAMY RAJU AND SHIVARAJ V. PATIL, JJ.]
Arbitration:
Arbitration Act, 1940-Section 29-/nterest Act, 1839/ Interest Act,
1978-Award-Cases arising during the enforceability of the Interest Act,
1839-/nterest-Pre-reference period-Grant of-Arbitrator appointed
without the intervention of Coz;rt-Jurisdiction of-Interest Act. 1839 only
D envisaging and enabling courts to grant or award interest-However, nothing
in the said Act confining its applicability only to proceedings before ordinary
and conventional courts or excluding its applicability before forums created
in lieu of conventional civil courts-Held, an 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, br the absence
E of any specific stipulation or prohibition in the contract to claim or grant
any such interest-Arbitrator possessing a11 the powers necessary to do
complete and full justice between the parties in the same manner as a Civil
Court.
F
Substantive Lav.~Meaning of-Explained.
Appointment of the arbitrators in the present cases were made without
the intervention cf the Court on a demand made by the contractor concerned.
The said arbitrators, while sustaining portions of the claim made in the
awards also allowed on those amounts interest from the due date of the
G amount till date of Award. The awards were made Rule of Court by the Civil
Court. Aggrieved, State approached the High Court which sustained the
• claim of the contractor for interest from the due date up to the date of the
Award. Hence the present appeals. The appeals were referred to for
consideration of the Constitution Bench on the question as to whether the
Arbitrator had got jurisdiction to award interest for the pre-reference period
H
2M
;
MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDHARAJ
265
iii cases which arose prior to the commencement into force or the Interest A
Act, 1978.
On behalf of the appellant it was contended that having regard to the
principles and ratio laid down in various Supreme Court decisions, the
Arbitrator had no jurisdiction to award interest for the pre-reference period
in a matter relating to the pre-1978 Act.
B
On behalf of the respondents it was contended that the Arbitrator had
jurisdiction to award interest for pre-reference period as long as there was
no specific prohibition as such in the agreement/contract between parties
restraining the claim/payment of interest; that on the principle of an implied C
term of the agreement between the parties that the Arbitrator could award
interest in a case where the Court could award it, when the parties referred
all their disputes to the Arbitrator, he had the necessary power to award
interest.
Dismissing the appeals, the Court
HELD: (Per Raju J. for himself and Rajendra Babu and Patil JJ.)
D
1.1. The Arbitrator appointed with or without the intervention of the
Court, has jurisdiction to award interest, on the sums found due and payable, E
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 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, for the
simple reason that in every case the appointment of an arbitrator or even F
resort to Court to vindicate rights could be only after disputes have cropped
up between the parties and continue to subsist unresolved. 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 the Arbitrator.should G
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. [289-C-D-E-F-Gl
/
Secretmy, Irrigation Department, Government of Orissa and Others v.
G. c. Roy, [ 19921 1 sec 508, relied on.
H
266
SUPREME COURT REPORTS
[2001] I S.C.R.
A
Executive Engineer (Irrigation), Balimela and Others v. Abhaduta
B
Jena and Others, 119881 I SCC 418, overruled.
Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra P. Sharma &
Anr., 11993) I SCC ll4 and State of Orissa v. B.N. Agarwala, (1993) 1 SCC
140. State of Orissa v. B.N. Agarwalla, (1997) 2 SCC 469, impliedly overruled.
Bengal IVagpur Railway Co. Ltd v. Ruttanji Ramji and others, AIR
+ "
(1938) PC 67; Seth Thawardas Pherumal and another v. Union of India, AIR
(1955] SC 468 = (19551 2 SCR 48 and Union of India v. West Punjab
Factories Ltd, !199611 SCR 580 =AIR 119661 SC 395, distinguished.
C
Executive Engineer, Dhankanal Minor Irrigation Division, Orissa v.
NC Budhiraj (Dead) by Lrs., 119991 9 SCC 514; Hindustan Construction
Cpn/pany Ltd. v. State of Jammu & Kashmir, 119921 4 SCC 217; Union of
India v. A.l. Rallia Ram, 1196413 SCR 164; Union of India v. Watkins Mayor '
& Co., AIR (19661 SC 275; Mis As/10k Construction Company v. Union of
D India, (197113 SCC 66; State of Madhya Pradesh v. Mis. Saith & SAelton
(P) ltd., 11972) 3 SCR 233 and Union of India v. Bungo Steel Furniture Pvt.
Ltd, AIR 11967( SC 1032, referred to.
Chandris v. Isbrandtsen Moller Co. Inc., 11950) 2 All England Law
Reports 618 = 119501 1 All E.R. 768; President of India v. La Pintada
E Compania Navigacion SA., Law Reports,
119851 I A.C. 104; Food
Corporation of India v. Marastro Compania Naviera S.A. of Panama, 11986)
3 All England Law Reports 500 = 11987) I Weekly Law Reports 134;
Edwards v. Great Western Railway Company; ( 18511138 ER 603 and Podar
Trading Co. Ltd v. Francois Tagher, 119491 2 All E.R. 62, referred to.
F
1.2. Interest for the pre-reference period 1s a matter of substanti~e law.
'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. The provisions of the Interest Act 1839,
which prescribes the general law of interest and becomes applicable in the
G absence of any contractual or other statutory provision specially dealing with
the subject, would answer the description of substantive law. The Interest
Act, 1839, only envisaged and enabled courts to grant or award interest. But
on that ground alone it could not be reasonably postulated that the Act
applied only to proceedings before Courts and not to proceedings before
forums created in lieu of conventional Civil Courts. Once it is construed and
H considered that the method of redressal of disputes by an alternative forum
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MINOR IRRIGATION DIVISION, ORISSA v. N.C. BUDHARAJ
267
of arbitration :is agreed to between the parties, with or without the intervention A
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. That there is nothing in the Interest Act, t 839 to confine its operation B
and applicability only to proceedings before ordinary and conventional Courts,
cannot also be ignored in this connection. 1286-E-F-G-H; 287-A-B-C-Dj
2. 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 C
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 'Yhich otherwise he could. have
successfully asserted before Courts and obtained relief. By agreeing to have D
settlement of disputes through arbitration, the party concerned must be
understood to have only opted for a different forum of adjudication with Jess
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. E
1288-G-H; 289-A-BI
Per Mohapatra, J. (Dissenting)
t. t. An arbitrator has no competence to award interest for the prereference period unless any of the conditions namely- (I) ifthe agreement
between the parties entitles the arbitrator to award interest; (2) if there is F
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. 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 G
is not competent to award interest. Though an arbitrator 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. Therefore, it is necessary that in judging the claim of interest for
pre-reference period he should ascertain whether such claim is permitted .H
268
SUPREME COURT REPORTS
[2001] I S.C.R.
A 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.
1301-B-C-D; 302-A-BI
Executive Engineer (Irrigation), Balime/a and Others v. Abhaduta
B Jena and Others, 119881 I sec 418, reaffirmed.
State of Orissa v. B.N. Agarwal/a, 1199712 SCC 469; Seth Thawardas
Pherumal and another v. Union of India, AIR 119551SC468=1195512 SCR
48; Union of India v. West Punjab Factories Ltd.. 119661 I SCR 580 =AIR
(1966) SC 395; Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra P.
C Sharma & Anr., 119931 I SCC 114 and State ofOrissa v. B.N. Aganrnla,
119931 I SCC 140, relied on.
Secret my, Irrigation Department. Government of Orissa and Others v.
G.C. Roy, 119921 I SCC 508, distinguished.
D
Bengal Nagpur Railway Co. Ltd. v. R1111anji Ramji, 119651 IA 66;
Nachiappa Cheuiar v. Subramanium Che/liar, 119621 2 SCR 209; Satinder
Singh v. Amrao Singh, 119611 3 SCR 676; Union of India v. Watkins Mayor
& Co., AIR 119661 SC 275; AHs Asl10k Construction Co. v. Union of India,
119711 3 SCC 66 and State of M.P. v. Mis Saith & Skelton Pvt. Ltd., 119721
E 3 SCR 233 = 119721 I SCC 702 =AIR 119721SC1507, referred to.
1.2. 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
F of the matter for adjudication, the latter refers to the period before the
arbitrator came into 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
G amount to the claimant depending on the adjudication of the dispute by the
Arbitrator.1300-F-GI
Per Pattanaik, J. (Dissenting)
I. An arbitrator does not possess power to award interest for preH reference period. It is unimaginable that an arbitrator does possess the
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MINOR IRRIGATION DIVISION. ORISSA "· N.C. i3UtlHARAJ
269
power on the ground that otherwise it would lead to multiplicity of proceedings. A
To hold that an arbitrator possesses the power to award interest even for the
pre-reference period, would tantamount to legislation in that respect. 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 ttor there is any usage B
of trade having the force of law nor is there any agreement between the
parties conferring that power. It is difficult 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.
1304-D-E-G-H; 305-A-B-C) C
Seth Thawardas Pherumal and another v. Union of India, 119551 2
SCR 48; Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and others,
119651 IA 66; SecretW)', Irrigation Department, Government of Orissa and
Others v. G.C. Roy, 11992] I SCC 508; Mis. Ashok Construction Company
v. Union of India, 11971] 3 SCC 66; Executive Engineer (Irrigation), Balimela D
and Others v. Abhaduta Jena and Others, j1988) 1 SCC 418; Union of India
v. A.l. Ral/ia Ram, 11964] 3 SCR 164; Union of India v. West Punjab
Factories ltd., 11966] I SCR 580; Jugal Kishore Prabhatilal Sharma & Ors.
v. Vijayendra P. Sharma & Anr., 11993] I SCC 114 and State ofOrissa v. B.N.
Agarwalla, (1997( 2 sec 469, referred to.
E
Chandris v. lsbrandtsen Moller Co. Inc., (1950] 2 All England Law
Reports 618 = 119501 I All E.R. 768, referred to.
CIVIL APPEL LA TE JURISDICTION: Civil Appeal No .. 3586 of
1984.
From the Judgment and Order dated 15.5.82 of the Orissa High Court
in Misc. A.No. 254of1981.
With
F
C.A Nos. 710-711/ 1981, 6808-6809/1983, 6810/1983, 10649/1983, 779/ G
1982, and 2723/1981.
Gobind Das and Raj Kumar Mehta for the Appellants.
Anil B. Diwan, A.K. Panda, K.K. Patel, R.P. Wadhwani and Vinoo Bhagat
and Radhe Shyam Jena for the Respondents.
H
270
SUPREME COURT REPORTS
[2001] 1 S.C.R.
A
The Judgments of the Court were delivered by
RAJU, J. 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 prereference period in cases which arose prior to the commencement into force
B on 19.8.1981 of the Interest Act, 1978, when the provisions of the Interest Act
I 839 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
C A wards 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
I
·~
before the High Court unsuccessfully and the High Court sustained the claim
y·
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
D limited and specified grounds, inclusive of the dispute relating to the Award
of interest for the period prior to the date of the Award.
E
F
G
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:
"Jn 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.
H The leading decision which undertook an analysis of the case law on the
'
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MINOR IRRIGATION DIVISION, ORISSA v. N.C. BUIJHARAJ [RAJU, J.]
271
subject and laid down certain propositions of Jaw is reported in Executive A
Engineer (Irrigation), Ba/imela and Others, v. Abhaduta Jena and Others,
[ 1988] 1 SCC 418 (to be referred to hereinafter aS "Jena's 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 B
to the date of the institution of the proceedings. Neit~er the Interest
Act of 1839 nor the Interest Act of 1978 provides fot 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 C
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 D
interest before the institution of thP- 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 E
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 un'der 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 F
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
bef~~ the commencement of the proceedings. Ifthe agreement between
the parties entitles the arbitrator to award interest no further question G
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 interes.t. By
way of an illustration, we may mention Section 80 of the Negotiable
Instruments Act as a provision of the substantive law under which H
272
A
B
SUPREME COURT REPORTS
[200 I] I S.C.R.
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 a.lso 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.
C
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
D
E
F
G
been dispossessed from it."
After considering the earlier cases on the subject. it has been observed
thus:
"16. The question of award of interest by an arbitrator was considered
in the remaining cases to which we have referred earlier. Nachiappa
Che/liar v. Subramaniam Che/liar, Satinder Singh v. Amrao Singh,
Firm Madan/al Roshanlal Mahajan v. Hukwnchand Mills ltd., Union
of India v. Bungo Steel Furniture Pvt. ltd., Ashok Cons/ruction Co.
v. Union of India and Stale of Madhya Pradesh v. Mis 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 Chelliar v. Subramaniam
Chettiar, Firm Madan/al Roshanlal Mahajan v. Hukumchand Mills ltd.,
Union of India v. Bungo Furniture Pvt. ltd. and Stale of Madhya
Pradesh v. Ml~ Saith & Skelton Pvt. Ltd. In regard to interest prior to
the suit, it was held in these cases that since the Interest Ac:t, 1839
was not applicable, interest could be awarded ifthere 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 mterest.
Illustrations of the provisions of substantive law under which the
arbilrator could award interest were also given in some of the cases.
H
It was said. for instance, where an owner was deprived of his property,
•
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MINOR IRRIGATION DIVISION, ORISSA v. N.C. IlUDHARAJ [RAJU, J.] 273
the right to receive interest took the place of the righi to retain A
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 B
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 C
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 D
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 E
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 F
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 G
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 the question whether interest was rightly awarded or not. Out H
274
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SUPREME COURT REPORTS
[200 I] I S.C.R.
of the remaining cases we find that in all cases except two (Civil
Appeal Nos. 6019-22of1983 and Civil Appeal No. 2257of1984), the
reference to arbitration were made prior to the commencement of the
new Act which was on August 19, 198 l. In the cases to which the
Interest Act, I 978 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 p~riod 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
C
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
D
claimants would not be entitled to the same for the simple reawn 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
E
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
F
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
G
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
H
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
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MINOR IRRIGATION DIVISION, ORISSA v. N.C. 13UDl-IARA.I [RAJU. J.] 275
award of interest on the ground of an error apparent on the record. A
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 B
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 121of1981 are dismissed, Civil
Appeal Nos. 6019-22of1983 and Civil Appeal No. 2257of1984 are
allowed to this extent that interest during the pendency of the
arbitration proceedings is disallowed and the rest of the civil appeals C
are allowed to the extent that both interest prior to the proceedings
and interest during the pendency of the proceedings are 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 D
Constitution Bench reported in Secretary, Irrigation Department, Government
ofOrissa and Others v G.C. Roy, [1992] I SCC 508 (hereinafter referred to as
"Roy's 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 Jena's case E
(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 Jena's case (supra) does not lay down good law and
where the agreement between the parties does not prohibit grant of interest F
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 G
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 Roy's case (supra) after a H
276
SUPREME COURT REPORTS
[200111 S.C.R.
A critical analysis of the earlier decisions includii1g the one in Jena's 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
B
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
c
D
E.
F
G
H
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".
(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 prohioit and a
party to the reference makes a claim for interest, the arbitrator
must have the power to award interest pendente lite. Thawardas
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MINOR IRRIGATION DIVISION, ORISSA v, N,C, BUDHARAJ [RAJU, J.] 277
has not been followed in the later decisions of this Court. It has A
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 B
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 C
always been inferred''.
While overruling Jena's case on the above principles, this Court applied
the principle of prospective overruling making it clear that their decision
shrill not entitle any party nor shall it empower any Court to re-open D
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 Jena's case and Roy's case have been adverted
to in Roy's case itself and in para 8 of the judgment it has been observed E
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 F
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 G
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 H
278
A
B
SUPREME COURT REPORTS
[200 I] I S.C.R.
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. speaking for the bench held that neither the
Interest Act, 1839 nor the Interest Act, 1978 <:onferred 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 Shanna & Ors. v. Vijayendra P. Sharma
C & Anr., [1993] 1SCC114 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 Roy's 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 Roy's case, wrote a separate concurring
D opinion clarifying the position that Roy's case was concerned with the power
of the Arbitrator to award interest pendente lite unlike Jena's 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 Roy's case as overruling Jena's case insofar as it dealt with the power of
E 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 v B.N. Agarwala, [1993] I 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 v B. N. Agarwalla, [ 1997]
2 sec 469, also reaffirmed the above position.
F
G
H
in B.N. Agarwalla's 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 aprilicabk. 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,
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....
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MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDl-IARAJ [RAJU, J.] 279
contraCt or usage, the arbitrator has no jurisdiction to award interest. A
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 B
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 principal sum as adjudged by the
award and confirmed by the decree. This question has been specifically dealt
with in Hindustan Construction Company ltd. v 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 Orissa v G.C. Roy. Though the said decision
deals with the power of the arbitrator to award interest pendente lite,
c
D
the principle of the decision makes it clear that the arbitrator is E
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.