# SECRETARY v. G.C. ROY

- **Citation:** [1991] Supp. 3 S.C.R. 417
- **Court:** Supreme Court of India
- **Decided:** 1991-12-12
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/secretary-v-g-c-roy-11371
- **Pages:** 29

## Headnote

(
I
\ ---
SECRETARY, IRRIGATION DEPARTMENT, GOVERNMENT OF
A
ORISSA AND ORS. ETC. ETC.
\I. .
G. C. ROY ETC. ETC.
DECEMBER 12, 1991
[K. N. SINGH, CJ, P. B. SAWANT, N. M. KASLIWAL, B. P.
JEEVAN .REDDY· AND G. N. RAY, JJJ
Arbitration Act, 1940-Section 30--(/nreasoned awartJ.-;-When to be set
aside, indicated. ·
.
,
· Dispute-Settlement of-Methods-Arbitration a metho~ts 'features.
Arbitration Act, 1940-Section 2( c)--'Court' -'Arbitrator' ;whether included.
Arbitration Act, 1940-Section 41-Applicability of provisions of C.P .C.
to the proceedings under the Act_:_scope of
·
Arbitration Act, 1940-Section 41, Second Schedule, Rules 3,4.5C?urt' s powers under, enumerated.
Arbitration Act, 1940-Sections 47, 3-ApplicabilitY of Act to arbitrations-Arbitrat~r· s jurisdiction-Whether parties can ton/er additional power.
Interest Act, 197&-;-SeC.2(a)--'Court'-lncludes'Arbitrator'.
B
c
D
E
Arbitration Act, 1940-section 29, Section 41, First Schedule, "Rule 8, F
read with Section 34, CPC and Sections 3, 4 of Interest Act,'1978-Award of
interest-Arbitrator's jurisdiction-Scope of.
.
'
Arbitration Act, 1940-Section 29-Award_ of interest-Duration--Nalure of.
In C.A.No. 1403/86, the appeJJant-Goverriment and the respondent•
contractor entered into an agreement for the construction of head works
on 27.4.1977. The' work was completed oit 20.2.1980.·
·
·
G
A dispute arose between the parties, when the respondent's claim for
certain amounts was not accepted by the appellant.
· · ' H
417
418
SUPREME COURT REPORTS
(1991] SUPP. 3 S. C.R.
A
As per clause 23 of the agreement, the dispute was referred to an
Arbitrator. The Arbitrator awarded interest @ 9% on the awarded
amount from 20.3.1980 till the date of payment or decree whichever was
earlier.
The respondent made an application before the Subordinate.Judge
B for making the award rule of the Court, which the appeJlant contested.
The Subordinate Judge set aside the award on 29.11.1982, against
which the respondent moved the High Court, on appeal.
The High Court setting aside the order of the Subordinate Judge
C made the award tule of the Court.
This appeal was preferred by the appeJlant-Government by Special
leave against the judgment of the High Court.
In CA No. 2565/91, the High Court held that the Arbitrator has juD risdiction to award interest pendente lite in the absence of agreement to the
contrary.
·
The State-appellants contended that interest was never regarded as
a matter of right at common law; that it was either a matter of agreement
or a right created by statue; that though interest could also be awarded
E on the ground of equity, that was applicable only to limited class or cases;
that under Sections 3, 17 and 41 of the Arbitration Act, Arbitrator was
denied such a power; and, that if it is held that the arbitrator has the
power to award interest pendente lite under Section 34 of C.P.C., it would
open the door for innumerable cases.
F
The respondent-contr~ctor urged that there was no good reason why
the arbitrator should be held to have no power to award interest pendente
lite; that as the arbitration is an alternative form for resolution of disputes,
the arbitrator should be held to possess all the powers as are necessary to
do complete and fuJI justice between the parties; that if the Arbitrator is
G held to have no power to award interest pendente lite, the party claiming
such interest would still be· required to go to the Civil Court for such
interest and such a course was neither consistent with the concept of
arbitration nor was conductive to the rule of avoidance of multiplicity or
proceedings.
H
On the questions, (i) whether the award was vitiated on the ground
!
,
)
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SECRETARY v. G.C. ROY
419
-
of absence or reasons, and (ii) whether the Arbitrator had jurisdiction to
A
award pendente lite interest, dismissing the appeals, and over-ruling the
earlier decision of this Court in Jena's case, (1988] 1 SCR 253, this Court,
HELD:l. An award is not liable to be set aside merely on t

## Text

_Characters 0–39,776 of 77,708. This is a partial read: ask again with offset=39776 for what follows._

(
I
\ ---
SECRETARY, IRRIGATION DEPARTMENT, GOVERNMENT OF
A
ORISSA AND ORS. ETC. ETC.
\I. .
G. C. ROY ETC. ETC.
DECEMBER 12, 1991
[K. N. SINGH, CJ, P. B. SAWANT, N. M. KASLIWAL, B. P.
JEEVAN .REDDY· AND G. N. RAY, JJJ
Arbitration Act, 1940-Section 30--(/nreasoned awartJ.-;-When to be set
aside, indicated. ·
.
,
· Dispute-Settlement of-Methods-Arbitration a metho~ts 'features.
Arbitration Act, 1940-Section 2( c)--'Court' -'Arbitrator' ;whether included.
Arbitration Act, 1940-Section 41-Applicability of provisions of C.P .C.
to the proceedings under the Act_:_scope of
·
Arbitration Act, 1940-Section 41, Second Schedule, Rules 3,4.5C?urt' s powers under, enumerated.
Arbitration Act, 1940-Sections 47, 3-ApplicabilitY of Act to arbitrations-Arbitrat~r· s jurisdiction-Whether parties can ton/er additional power.
Interest Act, 197&-;-SeC.2(a)--'Court'-lncludes'Arbitrator'.
B
c
D
E
Arbitration Act, 1940-section 29, Section 41, First Schedule, "Rule 8, F
read with Section 34, CPC and Sections 3, 4 of Interest Act,'1978-Award of
interest-Arbitrator's jurisdiction-Scope of.
.
'
Arbitration Act, 1940-Section 29-Award_ of interest-Duration--Nalure of.
In C.A.No. 1403/86, the appeJJant-Goverriment and the respondent•
contractor entered into an agreement for the construction of head works
on 27.4.1977. The' work was completed oit 20.2.1980.·
·
·
G
A dispute arose between the parties, when the respondent's claim for
certain amounts was not accepted by the appellant.
· · ' H
417
418
SUPREME COURT REPORTS
(1991] SUPP. 3 S. C.R.
A
As per clause 23 of the agreement, the dispute was referred to an
Arbitrator. The Arbitrator awarded interest @ 9% on the awarded
amount from 20.3.1980 till the date of payment or decree whichever was
earlier.
The respondent made an application before the Subordinate.Judge
B for making the award rule of the Court, which the appeJlant contested.
The Subordinate Judge set aside the award on 29.11.1982, against
which the respondent moved the High Court, on appeal.
The High Court setting aside the order of the Subordinate Judge
C made the award tule of the Court.
This appeal was preferred by the appeJlant-Government by Special
leave against the judgment of the High Court.
In CA No. 2565/91, the High Court held that the Arbitrator has juD risdiction to award interest pendente lite in the absence of agreement to the
contrary.
·
The State-appellants contended that interest was never regarded as
a matter of right at common law; that it was either a matter of agreement
or a right created by statue; that though interest could also be awarded
E on the ground of equity, that was applicable only to limited class or cases;
that under Sections 3, 17 and 41 of the Arbitration Act, Arbitrator was
denied such a power; and, that if it is held that the arbitrator has the
power to award interest pendente lite under Section 34 of C.P.C., it would
open the door for innumerable cases.
F
The respondent-contr~ctor urged that there was no good reason why
the arbitrator should be held to have no power to award interest pendente
lite; that as the arbitration is an alternative form for resolution of disputes,
the arbitrator should be held to possess all the powers as are necessary to
do complete and fuJI justice between the parties; that if the Arbitrator is
G held to have no power to award interest pendente lite, the party claiming
such interest would still be· required to go to the Civil Court for such
interest and such a course was neither consistent with the concept of
arbitration nor was conductive to the rule of avoidance of multiplicity or
proceedings.
H
On the questions, (i) whether the award was vitiated on the ground
!
,
)
'>
) -
SECRETARY v. G.C. ROY
419
-
of absence or reasons, and (ii) whether the Arbitrator had jurisdiction to
A
award pendente lite interest, dismissing the appeals, and over-ruling the
earlier decision of this Court in Jena's case, (1988] 1 SCR 253, this Court,
HELD:l. An award is not liable to be set aside merely on the ground
of absence of reasons. Where however, the arbitration agreement itself
stipulated reasons fo'!" the award the Arbitrator is under a legal obligation
B
to give reasons. [ 421 CJ
Raipur Development Authority v. Chokamal Contractors, [1989] 2 SCC
721, followed.
2. The expression 'Court' as defined in section 2(a) of the Interest
C
Act, 1978 includes an 'Arbitrator'. [ 425C]
3.01. If the arbitration· agreement or the contract itself provides for
award ofinterest on the amount found due from one party to the other, no
question regarding'the absence of Arbitrator's jurisdiction to award the
interest could arise, as in that case the Arbitrator bas power to award
interest pendente lite as well. Simllarly, where the agreement expressly
provides that no interest pendente lite shall be payable on the amount due,
the Arbitrator has no power to award pendente lite interest. [425 D-E]
3.02. Where the agreement between the parties does not prohibit
grant of interest ·and where a party claims interest and that dispute
(alongwith the claim for principal amount or indt.>pendently) is referred to
the Arbitrator, be 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 sha11 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 within his discretion to be exercised in
the light of all the facts and circumstances of the case, keeping the ends of
justice in view. [445 C-D]
4. Generally, the question ofaward 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
Arbitrator's entering upon reference till the date of°making the award;
D
E
F
G
and (iii) for the period commencing from the date of making of ti1e award
H
..
420
SUPREME COURT REPORTS
[1991] SUPP. 3 S. C. R
A till the date the award .is made the rule of the· court or till the date of
realisation, whichever is earlier. [425 F]
Executive Engineer Irrigation Bali me/a & Ors. v .Abaaduta Jena, [1988)
1 SCR 253, over-ruled.
<
~ '
-
B
Raipur Development Authority & Ors,. v •. Chokhamal Contractors. &
Ors., [1989] 2 SCC 721, followed.
Seth _Thawardas l'herumal v. The Union of India, [1955] 2 SCR ~;
Nachiappa Chettiar & Ors. v. Subramaniam Chettiar, [1960] 2 SCR 209;
Satinder Singh & Ors. v. Amrao Singh & Ors., [1961) 3 SCR 676; Firm
C M adanlal Rosh.an Lal Mahajan v. Hukumchand Mills Ltd., [1967] 1 SCR 105;
Union of India v. Bungo Steel Furniiure Pvt. Ltd., [1967] 1 SCR 325;Mls
Ashok Construction Co. v. Union of India, (1971] 3 SCC 66; State of Madhya
Pradesh v.Saith & Skelton (P)Ltd., [1972]3 SCR 2J3;Chandris v.JsbrandtsenMoller Co.Inc;., [1951] 1 King's Bench Div: 240; Bengal NagpurRailway Co.
Ltd. v. Ruttanji Ramji & ·ors., 65 I.A. 66,.Edward's v. The. Great Western
D Railway Company, [1851] 138 English Reports 603, Podar Trading Co. Ltd. ·
v. Francois Tagher, [1949] (2) All England Law Reports 62;,Swift and Cd.
. 4
v.Board of, Trade, 1925 A.C.520; Inglewood Pulp and Paper Co. Ltd. v. New
Brunswick Electrical Power Commission, 1928 A.C. 492; Government1nsur-.
ance Office of NSW v. Atkinson-Leighton Joint Venture, 146; C.L.R. 206;
E Union of1ndia v. West Punjab Factori{!s Ltd.,[1966] l SCR-580 and Union
of India v, AL. Rallia Ram, (1964] 3 SCR 164, referred to.
,, ·
Hals bury' s Law of England VolUme 2 page 273 (para 534), page 303,
----
para 580 para 592; Russel's Arbitration, referred to.· ·
·
F
5. The Court however directed that the decision 'shall only be prO-·i
spective in operation, which means that. this decision shall not entitle any !
party nor·shall ·itempower any court to reopen proceedings which have.
already become final. In other words, the law declared herein shall apply
only to pending proceedings.
,..,_
G
CIVIL APPELLA1E JURISDICTION: Civil Appeal No. 1403of1986.
From the judgment and orde~ dated 20.9 .85 of the Orissa. High Court in
Misc. Appeal No. 543 of 1982 .. :
, .
N.S.Hegde, G.L.Sanghi and R.K.Mehta for.the Appellants.
H
'·
Milan Banerjee, R.K.Garg, and Arnn Madan for the Respondents .
...
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SECRET ARY v. G.C. ROY [K.N. SINGH, CJ.]
421
The Judgment of the Court was delivered by
.
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.
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'
K.N.SINGH, CJ. These two appeals are directed against the judgment
of the Orissa High Court making the a\Yard made by the Arbitrator rl'le of the
court. The appellants challenged the validity of the award before this court on
two grounds, namely; (1) the Award wa~ vitiated as it contained no reasons;
A
and (2) .the Arbitrator had no jurisdiction to awru,1 pendente lite interest.
B
The first question was considered by a constitution Bench of this r;ourt
in Raipur Development Authority & Ors. v. Clwkhama/ Contractors & Ors .•
(1989] 2 SCC 721. The Constitution Bench held that an award is not liable to
be set aside merely on the ground of absence of reasons. The Constitution
Bench further held that where the arbitration agreement itself stipulated
reasons for the award the Arbitrator is under a legal obligation to give reasons.
Thus the first question stands concludc1 against the appellants. As regards the
second question, when the appeal was taken up for hearing by a Division Bench
the appellants placed reliance on a Three Judge Bench decision of this Court
in Executive Engineer Irrigation Galimala & Ors. v. Abaaduta Jena, (1988] 1
SCR 253 wherein it was held that the Arbitrator to whom the reference is made
without the intervention of the court, does not have jurisdiction to award
interest pendente lite. On behalf of the respondents the correctness of that view
was assailed. The Bench hearing these appeals referred the matter to Constitution Bench by order dated 15th March, 1991, as the learned Judges were of
the view that the correc.tness of the view taken by this Court in Jena's case in
so far as it held that the Arbitrator has no power to award pendente lite interest,
requires consideration by a larger Bench. That is how these appeals are before
this Constitution Bench.
Before we deal· with the submissions raised before us, we consider it
appropriate to refer to the facts involved in Civil Appeal No. 1403/86. On
27.4.1977,.Government of Orissa the appellant and G.C.Roy respondent
entered into an agreement for construction of head works in Phulwani. Clause
23 of the contract contained provision for resolution of disputes through
arbitration. Clause 23 is as under:
c
D
E
F
..
"All questions and disputes relating to the meaning of the specifiG
cations etc ................. or as to any other question or claim, right,
matter or thing whatsoever, in any way arising out of or relating
to the contract whether arising during the progress or the work or
after the completion or aban~ .. mment th~reof shall be referred to
the sole arbitrator.: .................. ".
422
SUPREME COURT REPORTS
[1991) SUPP.~ S. C.R.
A
The work was completed on 20.2.1980. G.C.Roy's claim for certain
amounts was not accepted by the Government as a result of which a dispute
arose between the parties. The dispute was referred to the Arbitrator who mad~
his award on 6.8.1982. The Arbitrator held that G.C.Roy, the respondent, was
entitled to certain amount of money and in addition he wa;S entitled to receive
interest@ 9% on the awarded amount from 20.3.1980 till the date of payment
B or decree whichever was earlier. It appears that 20.3.1980 was evidently the
date on which the amount claimed by G.C.Roy became due to him as the wof!t
was completed on 20.2.1980. The respondent made an application before the
Court for making the award rule, of the Court, which was contested on behalf
of the State of Orissa. The subordinate Judge by his order dated 29.11.1982 set
a-;ide the award. On appeal by the respondent, the High Court set aside the
C order of the subordinate Judge and made the award rule of the court. The
appclla~t. thereupon filed this appeal by obtaining leave (ror,-i this Court. As
noted earlier two questions were raised in the appeals. The fust question has
already been decided by a Constitution Bench. The second question relating to
the jurisdiction of the Arbitrator to award pendente lite interest is under
consideration before us. We do not consider it necessary to refer the facts
D involved in C.A. 2565/91. Suffice it to say that in that appeal also the High
Court held that in the absence of agreement to the contrary, the Arbitrator has
jurisdiction to award interest pendente lite.
A dispuf.e between two parties may be determined by court through
E 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, genei:ally 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 processes of settlement of dispute there is another
alternative method or settlement of dispute through
statuary arbitration.
F
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
G 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 ~rough arbitration is a speedy and convenient process,
which is being followed throughout the world. In India since ancient days
H settlement of disputes by Panches has been a common process for resolution
...
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.]
423
of disputes in an informal manner. But now arbitration is regulated by statutory
A
provisions.
In India Schedule II to the code of Civil Procedure of 1908, contained
pro~isions relating to the law of arbitration and all proceedings of arbitration
were regulated by those provisions. Subsequently, the Arbitration Act of 1940
was enacted by the Legislature with a view to consolidate and amend tl1e law
B
concerning arbitration. By virtue of Section 47 of the Act the provisions of the
Act apply to all arbitrations and all proceedings thereunder except insofar as
is otherwise provided by any law for the time being in force. Section 3 declares
that
"An arbitration agreement, unless a different intention is expressed
C
therein, shall be deemed to include the provisions set out in the
First Schedule insofar as they are applicable to the reference."
The First Schedule to the Act contains eight rules. For our purposes i~ is not
necessary to notice these rules in detail except Rule 8 which provides: "the
costs of the reference and award shall be in the discretion of the Arbitrators or
D
Umpire who may direct to and by whom and in what manner such costs or any
part thereof shall be paid and may tax or settle the amount of costs to be so paid
or any part thereof and may award costs to be paid as between legal practioner
and client." Section 41 sets out the procedure and powers of the Court. ;rhe
expression 'court' as defined in Section 2(C) means a Civil Court and docs not
include an Arbitrator. It would be appropriate to set out Section 41 in its
entirety.
Section 41: "Procedure and powers of Court: -Subject to the provisions
of this Act and of rules made thereunder-
(a)
the provisions of the code of Civil Procedure, 1908 (5 of 1908),
shall apply to all proceedings before the Court and to all appeals
under this Act; and
(b)
the Court shall have, for the purpose of, and in relation to,
arbitration proceedings, the same power of making orders in
respect of any of the matters set out in the Second Schedule as it
has for the purpose of, and in relation to, any proceedings before
the Court:
E
F
G
Provided that nothing in clause (b) shall be.taken to prejudice any power
which may be vested in an arbitrator or umpire for making orders with respect
H
to any of such matters."
A
424
S.UPREME COURT .REPORTS
(1991] SUPP. 3 S. C. R.
A reading . of the above provision shows that Section 41 makes the
provisions of Code of Civil Procedure applicable to all proceedings before the
court including appeals under the Act. It further declares that the Court shall
have "for the purpose of, and in relation to, arbitration proceedings, the same
·power of making orders in respect of any of the matters set.out in the Second
Schedule, as it has, for the purpose of, and in relation to, any proceedings
B .before the Court". This is without prejudice to confennent of similar powers
upon the arbitrators by the parties. In other words if the parties confer powers
similar to those as contained in the Second Schedule upon the Arbitrator, his
powers are not affected or curtailed by Section 4l(b). The Second Schedule
enumerates the powers of the court which it can exercise while the dispute is
pending before the arbitrator. These include the power to give directions for the
C . preservation, interim custody or sale of any goods which are the subject matter
of reference to give appropriate directions for·securing the.amount in difference in the reference and. also power to give. appropriate direetions for the
detention, preservation or inspection ·or any property and similar other powers
specified.in Rule 3. Rule 4 empowers· the court to issue interim.injunction or
.D
to appoint a receiver pending proceedings before.the Arbitrator, while Rule 5
empowers the court to appoint a guardian in respect of a person of unsound
mind for the purpose of arbitration proceedings.
Proceedings before the arbitrator are regulated by the provisions of the
Arbitration Act and the arbitrator's powers are specified therein. However it is
E
always open to the parties to confer more or additional powers on the arbitrator
by consent or agreement. The arbitrator derives power to decide the dispute
under the agreement of the parties. The Act provides for Arbitration with or
without intervention of a court and it also provides for making the award rule
of the court and also for passing decree in terms of the award. It provides that
every arbitration agreement unless a different intention is expressed. therein,
F
shall be deemed to include the provisions set out in the First Schedule to the
Act: The award may be modified or remitted to the Arbitrator by the Court for
reconsideration. The Court has power under Section 30 of the Act to set aside
the award if it suffers from apparent errors of law or if it.is otherwise invalid.
The award made by the Arbitrator is 'final and binding on the parites and
persons claiming under them respectively. It is open to th~parties and it would
G be a welcome feature to accept the award without the same being made a rule
of the court. However, generally the parties approact the court for making the
award rule of the court with a view to ensure enforceability of the award
_ through the instrumentality of the court. Though the Arbitrator is an alternative
forum for resolution of disputes, he does nol'ipso facto enjoy or possess all the
powers conferred on the courts of law. Nonetheless the Arbitrator ·has power
. H
to decide the dispute and .his powers are regulated by the provisions of the
·-
SECRET ARY v. G~C. ROY [K.N. SINGH, CJ.j
425
Arbitration Act and.the substantive law of the land. As already noted Section
3 of the Act provides that an arbitration agreement unless a different intention ,
is express~ shall be, deemed to include the provisions set out in the First
Schedule insofar.as they are applicable to the reference. The matters specified
in the First Schedule are accordingly treated as implied conditions of arbitration agreement. Rule 8 ·of the First Schedule confers power on the Arbitrator
to award cost. Section 29 confers power on the court to award interest on the
amount awarded by the Arbitrator from the date of the decree. Section 41
· ·makes provisions of the Code of Civil Procedure applicable to all arbitration
proceedings. Section 34 of the Code of Civil Procedure confers power on the
Court to award interest but the Arbitration Act does not confer any express
power on the Arbitrator to award interest pendente lite. However, under
Sections 3'and 4 of the Interest Act 1978, the 'court' which includes a Tribunal
or an 'Arbitrator' within the meaning of Section 2(a) of that Act is empow~red
to award interest. In the context of these provisions the question arises whether
A
B
c
an Arbitrator to whom reference is made by the parties has jurisdiction or
authority to award !nterest pendente lite. If the arbitration agreement or the
contract itself provides for award of interest on the amount found due from one
party to the other, no question regarding the'absence of arbitrator's jurisdiction · -D
to award the interest could arise as in that case the Arbitrator has power to
award interest ppdente lite as well. Similarly, where the agreement expressly
·provides that no interest pendente lite shall be payable on the amount due, the
·Arbitrator has no power to award pendente lite interest. But where the agreement d0es ·not provide either for grarit or denial of interest on the amount found
due, the question arises whether in such an event the Arbitrator has power and
authority to grant pendente lite interest.
Generaliy, the question of .award of i~terest by the Arbi.trator may arise
in respect of three different periods, namely; (i) for the pcr~od 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 tpe 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 concem~d only with the second of the three afore-mentioned
periods. In Jena's case, two questions arose. for consideration of the court,
namely; (i) the power of the Arbitrator to ~ward 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. Just.ice Chinnappa
E
F·
G
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426
SUPREME COURT REPORTS
(1991) SUPP. 3 S. C.R.
A
Reddy, J. 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 with in the meaning of the said
provision consequently the Arbitrator could not award interest pendente lite.
B
For this proposition, the learned Judge relied upon the decision in
Thawardas, (1955) 2 S.C.R. 48. The learned Judge pointed out that in
Thawardas "question of payment of interest was not the subject matter of
reference to the arbitrator" though the interest awarded by the arbitrator related
to the period prior to the reference to arbitration as well as the period during
C the 'pendency of the arbitration. The learned Judge also noticed that the
observations of Bose, J. in Thawardas have given rise to considerable difficulty in later cases wherein they have been explained as having been never
intended .to lay down any such broad and unqualified proposition as they
appear to lay down on first impression. The learned Judge then referred to
various decisions including· the decisions in Nachippa Chettiar, [1960] 2
D S.C.R. 209, Satinder Singh, [1961) 3 S.C.R. 676, Madan Lal Roshanlal, [1967]
1S.C.R.105,Bungo Steel, [1967] 1S.C.R.325,Ashok Construction [1971) 3,
S.C.C. 66 anq Saith and Skelton, [1972) 3 S.C.R. 233 wherein the power of the
arbitrator to award interest was upheld, and explained them on the basis that
all those were "cases in which the reference to arbitration was made by the
court, of all the disputes in the suit"'It would be appropriate to reproduce the
E
observations in so far as they are relevant.
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"The question of interest by an arbitrator was considered in the remaining. cases to which we have referred earlier. Nachiappa
Chettiar v. Subramaniam Chettier, (supra) Satinder Singh v.
Amrao Singh (supra), Firm MadanlalRoshanlal Mahajan v. Hukum
Chand Mills Ltd. (supra), Union of India v. Bungo Steel Furniture
Private Limited (supra), Ashok Construction Company v. Union of
India, (supra) and State a/Madhya Pradesh v. Mis Saith & Skelton
Private Limited were all (cases in which the reference to arbitration
was made by the court, of all the disputes in the suit). It was held
that the arbitrator must be assumed in these circumstances to have
the same power to award interest as the court. It was on that basis
that the award of pendente lite interest was made on the principle
of S. 34, Civil Procedure Code, in Nachiappa Chettier v.
Subramaniam Chattier (supra), Finn MadanlalRoshan Lal Mahajan
v. Hukumchand Mills Limited (supra), Union of India v. Bungo
Furniture Private Limited (supra) and State of Madhya Pradesh v.
Mis. Saith & Skelton Private Limited (supra)."
(
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SECRETARY v. G.C. ROY [K.N. SINGH, CJ.]·
427
Certain English decisions including the decisions in·Chandris 1951 (1)
A
K.B. 240 were brought to the notice of the learned Judges apart from certain
passages from Halsbury' s Law of England and Russell's Arbitration. The
learned Judge however, refrained from referring to them in view of the
abundance of authoritative pronouncements by this Court The correctness of
the decision in Jena's case is challenged by the respondent. We therefore
departed from the normal rule and heard learned counsel for the respondent Mr.
B
Milon Banerji before hearing the appellant's counsel. Mr. Banerji appearing
for the respondent made the following submissions:
( 1) The power of an Arbitrator to award interest is by virtue of an implied
term in the arbitration agreement or reference i.e. by virtue of the arbitrator's
implied authority to follow the ordinary rules of law;
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(2) It is an implied term in every arbitration agreement that the arbitrator
will decide the dispute according to Indian Law. Though Section 34 of the Civil
Procedure Code does not expressly apply to arbitrators, its principle applies,
just as the principle of several other provisions (e.g., Section 3 of the Limitation
Act) has been held applicable to the arbitrators. Inasmuch as the arbitrator is
D
an alternative forum for resolution of disputes he must be deemed to possess
all such powers as are necessary to do complete justice between the parties.
The power to award interest pendente lite is a power which must necessarily
be inferred to do complete justice between the parties. The principle is that a
person who has been deprived of the use of money should be compensated in
that behalf. In short it is based upon the principle of compensation or · E
restitution, as it may be called.
(3) In every case }Vhere the arbitration agreement does not exclude the
jurisdiction of the arbitrator to award interestpendente lite, such power must
be inferred.
(4) The decision in Jena does not take into account several earlier
decisions of this Court where the power of the arbitrator to award interest
pendente lite has been upheld. Many such decisions have been explained away
as cases where reference to arbitration was in a pending sui.t, though as a matter
F
of fact it is not so. Even on principle the said decision does not represent the
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correct view.
Shri Soli Sorabji who supported the reasoning of Shri Milon Banerji
submitted that there is no good reason why the arbitrator should be held to have
no power to award interest pendente lite. Arbitrator is an alternative forum for
resolution of disputes. The idea is to avoid going to Court. If so, the arbitrator
H
428
SUPREME COURT REPORTS
[1991) SUPP. 3 S. C.R.
A must be held to possess all the powers as are necessary to do complete and full
justice-between the parties. If the arbitrator is held to have. no power to award
interest pendente lite, the party claiming such interest would still be required
to go to the Civil Court for.such interest even though he may have obtained
satisfaction in respect of his other.claims.from the arbitrator; Such a course is
neither consistent with the. concept of arbitration nor is conducive to:the rule
; B
of avoidance of multiplicity of proceedings. After all, interest is nothing but
another name for compensation for deprivation. It is .based upon the principle
of restitution. He submitted further tliat in a number of cases, this Court has
held that though a particular provision is not applicable in a particular situation,
: the principle of that provision is yet applicable. This course has been applied
to ensure that justice prevails. On the same analogy, it must be held that though
:C
Section 34, C.P.C. does not apply to arbitrators, its principle does. To the same
effect is the submission of Shri R.K.Garg.
' '
On th~ other hand, Shri Sanghi, learned counsel appearing for the State
of Orissa urged that interest was never regarded as a matter of right at common
law.-lt is either a matter of agreement or a right created by statute. Of Course,
D interest can also be awarded on the ground of equity but that is applicable only
to limited class of cases·referred to in the decision of Privy Council in Bengal
Nagpur Railway Co. Ltd. v. Ruttanji Ramji & Ors. 65 LA. 66. This indeed -is
the basis of the judgment of this Court in Seth Thawardas Pherumal v. The
Union of India, (1955] 2 SCR 48. According to learned counsel, a reading of
E Sections 3, 17 and 4 l of the Arbitration Act goes to establish that arbitrator is
denied such a power. If this Court holds that the arbitrator has the powerto
award interest pendente lite on the ground that principle of Section 34 C.P.C.
avails him though the section itself does not if apply, it will open the door for
innumerable cases. It will create room for submitting that all the powers of the
Civil Court should-be inferred in the case of arbitrator as well as by extending
. p
the same analogy. This would indeed amount to legislation by.this Court which
it ought to desist from doing.
The question with which we are faced has been considered by the Inctian
and English Courts in detail: .The decisions of the English Courts have been
followed by the Indian Courts. It is, therefore, necessary to refer to some of the
G English decisions to examine how this question has been dealt with by the
courts in England. In Edward's v. The Great Western Railway Company,
(1851) 138 English Reports 603 the question raised before the Court was
·~hether the Arbitrator is empowered to award interest on the amount awarded
by him if he thinks such a course proper. The plaintiff's case was that he was
entitled to such interest· whereas the defendant company disputed the power of
H the Arbitrator. The Company's case was that inasmuch as the notice of action
-·
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.l
429
did not demand interest, the plaintiff was not entitled to Claim interest. This
argument was repelled by Jervis, CJ. in the following words:
"There are two answers to this: one is that there is no plea of want
of notice of action, but only a plea of never indebted "by statute",
the effect of which is altered by .Sir F. Pollock~s act, 5 & 6
Vict.c.97, s.3. The defendants had, therefore, no right to rely upon
the general plea; they are bound to plead specially the want of
notice of action. A further answer would be, that this is a submis~
sion, not only of the action, but Of all matters in difference; and the
interest would be a matter in difference, whether demanded by the
notice of action or not If the arbitrator could give it, he might give
it in that way, notwithstanding the want of claim of interest in the
· notice."
'
It is relevant to notice that the Court clearly held that where a money
claiin is referred to an arbitrator, it would include the claim for.interest as well.
This is how it has been understood in subsequent decisions, as we shall
presently notice.·
In Podar Trading Co. Ltd. v. Francois Tagher, i949 (2) All England
Law Reports 62; the dispute was.whether the arbitrator had the power to award
interest for the period subsequent to his award. The Court held that prior to
Civil Procedure Act, 1833, ·interest could be awarded in three cases only,
namely where it' is provided by statute or by .agreement or by mercantile
custom, and in no other situation. Subsequent to the said enactment, however,
the position was-according to the decision-that there was no difference between a Court and an arbitrator. According to it, this proposition flowed from
Edward's. It noticed that Section 11 of the Arbitration Act, 1934 specifically
empowered the Courtto award interest from the date ofaward, and further that
Sections 28 and 29 .of the Code of Civil Procedure empowered awarding· of
such interest in certain other specified situations. In other words, the Court
held, the arbitrator had the same power as the Court in the matter of awarding
interest. It then noticed the effect of Law Reforms (Miscellaneous Provisions)'
Act; 1934 and observed that Section 3(1) of the said Act en'lpowered only the
Court to award interest from the date of cause of action to the date of judgment.
It further noticed the fact that Section 3(2) of this Act repealed Sections 28 and
29 of the Civil Procedure Act 1833. By virtue of this repeal, the Court held, the
arbitrator has no power to award interest. This may have been an omission, said
the•Court, but it is for the legislature to rectify and not for the Court tO fill up.
~~·
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430
SUPREME COURT REPORTS .
[1991] SUPP.) S. C.R.
A
In Chandris v. Isbrandtsen-Moller Co. Inc. 1951 (1) King's Bench Div.
240 the arbitrator awarded interest without specification of any time. One bf
the questions before the Court of Appeal was whether he had the power to
awatd interest. The matter came tip before Devlin; J. in the first instance the
Court held, following the decision in Podar Trading that arbitrator had no such
power. The matter was then carried in appeal to Court of Appeals. Lord Tucker
B who delivered the leading judgment held that Podar Trading was wrongly
decided and that the High Court was wrong in Podar Trading in assuming that
the decision in Edward's was based upon the Civil Procedure Act of 1833. The
c
D
E
ratio of Edwards is that it is the submission which empowers the arbitrator to ·
,.,.
award interest and that power of the arbitrator was not deriveo from 1833 Act.
Lord Tucker observed :
"But I agree with Mr. Mocatta that the real basis of Edward's v.
Great Western Ry. (64) was not that the arbitrator derived his
powers from the Act of 1833, but that he derived them from the
submission to him, which neces.sarily gave him the 'implied
powers' referred to by Lord Salvesen; and I see no reason why,
since the Act of 1934, an arbitrator should not be deemed impliedly
to have the same powers. Therefore, with diffidence, having regard
to the view expressed by the Divisional Court on this matter, I have
come to the conclusion that in such a case as this the arbitrator has
power to award interest. Accordingly, to that extent, I think, this
appeal sh~uld succeed and Podar Trading Co. Ltd., Bombay v.
Francois Tagher, Barcelona (65) should ·on this point be overruled."
Cohen J. who delivered a concurring opinion observed that the law
Reform (Miscellaneous Provisions) Act, 1934 really did not bring about any
F
change. All that it did was to substitute Court in place of jury, inasmuch as by
·that time, damages were being 11ormally awarded by the Judge sitting alone i.e.
without jury. Asquith L.J., who too delivered a separate concurring opinion
observed that the decision in Edwards had assumed that the arbitrator has the
same power as that of Courts in the matter of awarding interest, which
"'-
assumption has stood the test of time and that there was no good reason to
. /
G discard the said assumpti9n.
In Thawardas (supra)'. the dispute related to the power of arbitrator to
award in\erest both for the period prior to entering upon reference and for the
period the reference was pending before him (pendente lite). The contractor
had claimed interest and the arbitrator.did award such interest at the rate of 6%
H which was questioned before the Court. The Court, in the first instance,
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.]
431
examined the power of the arbitrator to award interest .for the period anterior A
to his entering upon reference and held that such interest could not be awarded
inasmuch as the requirements of Section 1 of Interest Act, 1839 w~re not
satisfied in that case. Since the requirements of Interest Act were not satisfied,
the Court held the arbitrator had no power to award interest just because he
thought it just to do so. It was then urged for the contractor that at least for the1
period the dispute was pending before the arbitrator, he could award interest on · B
the analogy of Section 34 C.P.C. This too was repelled holding that Section 34
does not apply to arbitrator since he is not a Court within the meaning of Code
of Civil Procedure nor does the Civil Procedure apply to proceedings before
him. The.Court observed that but for Section 34, even the Court could not have
the power to award interest for the period the suit is pending before it for the
later period. It would be appropriate to reproduce the relevant paragraph:
C
"It was suggested that atleast interest from the date of "suit" could
be awarded on the analogy of Section 34 of the Civil Procedure
Code, 1908. But Section 34 does not apply because an arbitrator is
not a "Court" within the meaning of the Code nor does the Code
apply to arbitrators, and, but for Section 34, even a court would not D
have the power to give interest after the suit. This was, therefore,
also rightly struck out from the award."
In Nachiappa Chettiar & Ors. v. Subramaniam Chettiar, [1960) (2) SCR
209 the arbitrators to whom the disputes pending in a suit were referred,
awarded interest for all the three periods, namely for the period anterior to the E
reference, pendente lite and for the period subsequent to the award. The award
was challenged in view of the decision in Thawardas' s case. This objection ·
was overruled by Gajendragadkar, J. in the following words:
"The argument is ba<;ed solely on the observations made by Bose, F
J. who delivered the judgment of this Court in Seth Thawardas
Pherumal v. The Union of India. It appears that in that case the
claim awarded by the arbitrators was a claim for an unliquidated
sum to which Interest Act of 1839 applied as interest was otherwise
not payable by law in that kind of case.