ivil Appeal Nos
6245 46 of 1983
From the Judgment and order dated 911981 of the orissa High 256 Court in Miscellaneous Appeal Nos 285 and 286 of 1980
GL Sanghi DP Mohanty RK Mehta Inderjit Roy PN Misra and RN Poddar for the Petitioners
Probir Patil YS Chitale Sankar Ghosh Jitender Sharma Vinoo Bhagat Arun Madan PN Misra DN Mukherjee MM Kashtriya PK Banerjee PK Mukherjee Ms Lily Thomes Bagga Mrs SK Bagga BP Meheshwari JR Das Parijat Sinha and MA Firoz for the Respondents
The Judgment of the Court was delivered by CHINNAPPA REDDY J
This group of appeals raises the question of award of interest by an arbitrator to whom a reference is made without the intervention of the court
Special leave to appeal was granted under article 136 of the Constitution limited to the question of award of interest during the period prior to the reference and during 1 the pendency of the arbitration proceedings
Special leave was not granted in regard to the award of interest subsequent to the date of the arbitrator s award
This question therefore does not concern us in these appeals
The various references to arbitration in these cases were in regard to work done by different contractors in excess of what was stipulated under the several contracts
The contracts generally contained a clause to the following effect Clause 11 The Engineer in charge shall have power to make any alterations in or additions to the original specifications drawings designs and instructions that may appear to him to be necessary or advisable during the progress of the work and the contractor shall be bound to carry but the work in accordance with any instructions which may be given to him in writing signed by the Engineer in charge and such alteration shall not invalidate the contract and any additional work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work and at the same rates as are specified in the tender for the main work
The time for the completion of the work shall be extended in the proportion that the addi 257 tional work bears to the original work bears to the original contract work and the certificate of the Engineer in charge shall be conclusive as to such proportion
And if the additional work includes any class of work for which no rate is specified in this contract then such class of work shall be carried out at the rates entered in the sanctioned schedule of rates of the locality during the period when the work is being carried on and if such last mentioned class of work is not entered in the schedule of rates of the district then the contractor shall within seven days of the date of his receipt of the order to carry out the work inform the Engineer in charge of the rate which it is his intention to charge for such class of work and if the Engineer in charge does not agree to this rate he shall by notice in writing be at liberty to cancel his order to carry out such class of work and arrange to carry it out in such manner as he may consider advisable provided always that if the contractor shall commence work order of any expenditure in regard thereof before the rates shall have been determined as lastly herinbefore mentioned then and in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer in charge
In the event of a dispute the decision of the Superintending Engineer of the circle will be final Provided always that the contractor shall not be entitled to any payment or any additional work done unless he has received an order in writing from the Engineer in charge for the additional work that the contractor shall be bound to submit his claim for any additional work done during any month on or before the 15th day of the following month accompanied by a copy of the order in writing of the Engineer in charge for the additional work and that the contractor shall not be entitled to any payment in respect of such additional work if he fails to submit his claim within the aforesaid period
 All the contracts also contained a provision for a reference to arbitration in case of disputes
The clause of the contract enabling the reference was as follows 258 Clause 23 Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications designs drawings and instructions herinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question claim right matter or thing whatsoever in any way arising out of or relating to the contract designs drawings specifications estimates instructions orders or these conditions or otherwise concerning the work or the execution or failure to execute the same where arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of a Superintending Engineer of the State Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer
If there be no such Superintending Engineer it should be referred to the sole arbitration of the Chief Engineer concerned
If will be no objection to any such appointment that the arbitrator so appointed is a Government servant
The award of the arbitrator so appointed shall be final conclusive and binding on all parties to these contracts
 Pursuant to the clause in the contracts enabling the Chief Engineer to refer disputes to an arbitrator references were made
For the purposes of our decision we are proceeding on the basis that in the notices of demand made by the contractors before the disputes were referred to arbitration interest on the amounts said to be payable was claimed
The general statutory provisions in regard to the award of interest by a court are contained in the Interest Act and the Civil Procedure Code
The Interest Act of 1839 contained only one section and it was as follows  1
It is therefore hereby enacted that upon all debts or sums certain payable at a certain time or otherwise the Court before which such debts or sums may be recovered may if it shall think fit allow interest to the creditor at a rate not exceeding the current rate of interest from the time when such debts or sums certain were payable if such debts or sums be payable by virtue of some written instrument at a certain time or if payable otherwise then from the time when demand of payment shall have been made in writing so as such demand shall give notice pay the debtor that 259 interest will be claimed from the date of such demand until the term of payment provided that interest shall be payable in all cases in which it is now payable by law
 In 1978 the Interest Act of 1839 was repealed and a new Interest Act was enacted
The Statement of objects and Reasons of the new Act recited The Law Commission of India in its sixty third report had recommended the revision of the existing Interest Act 1839
This Act is a very short one besides a preamble it contains only one section and a proviso
However it is a statute of importance since it prescribes the general law of interest which becomes applicable in the absence of any contractual or statutory provisions specifically dealing with the subject
According to the Commission almost every phrase used in the Act has given rise to problems of interpretation and judicial decisions have disclosed divergence of views in respect of the same
The Commission has revised the Act comprehensively so as to make its provisions more precise specific unambiguous and juristically satisfactory
It is proposed to replace the existing Act by a new Act based on the recommendations of the Law Commission
 The new Act has made some important changes
One of the important changes is that the expression court  is defined to include a tribunal and an arbitrator
Debt is defined as meaning any liability for an ascertained sum of money including a debt payable in kind but not including a judgment debt
Section 31 enables the court if it so thinks fit to award interest in any proceeding for the recovery of any debt or damages or in any proceeding in which a claim for interest in respect of any debt or damages already paid is made to the person entitled to the debt or damages or to the person making such claim for the whole or part of the following period a if the proceeding relates to a debt payable by virtue of a written instrument at a certain time then from the date when the debt is payable to the date of institution of the proceedings b if the proceeding does not relate to any such debt then from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed to the date of institution of the proceeding
Section 33 provides that 260 nothing in the section shall apply in relation to i any debt or damages upon which interest is payable as of right by virtue of any agreement or ii any debt or damages upon which payment of interest is barred by virtue of an express agreement
Section 33c provides that nothing in the section shall empower the court to award interest upon interest
Section 41 provides notwithstanding anything contained in section 3 interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law Section 42 further provides notwithstanding anything as section 4 the court shall allow interest in the class of cases specified in section 42 from the dates stipulated to the dates stipulated in the provision
Section 5 provides that nothing in the Act shall affect the provisions of section 34 of the Code of Civil Procedure 1908
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 upto 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 suits for the simple reason that where a matter is referred to arbitration in a suit the arbitrator will have all the powers of the court in deciding the dispute Section 34 does not otherwise apply to arbitrations as arbitrators are not courts within the meaning of 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 the Interest Act of 1978 an arbitrator has the same power as the court to award interest upto the date of institution of the proceedings in cases which arose prior to the commencement of the 1978 Act the arbitrator has no such power under the Interest Act of 1839
It is therefore necessary as we said to look elsewhere for the power of the arbitrator to award interest upto 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 substan 261 tive 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 612 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 certain circumstances in suits filed by them
We may further cite the instance of the nonperformance 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
We may now refer to the case law
We may start the discussion of the topic with the case of Bengal Nagpur Raiiway Company Limited vs Ruttanji Ramji 65 Indian Appeals 66
There certain rates of payment under an agreement for the construction of a railway line were abandoned by mutual consent of the parties and the contractor was required to be paid at rates which were fair and reasonable for the work done
The question arose whether the contractor was entitled to be paid interest on the amount which the Railway Company was liable to pay
The Privy Council found that the railway was liable to pay to the plaintiff an amount of Rs66980 10 6 on July 26 1925
The suit for recovery of the amount was filed on November 29 1927
The Privy Council held that award of interest from the date of the institution of the suit was governed by section 34 of the Code of Civil Procedure and went on to observe that the crucial question was whether the court had authority to allow interest for the period prior to the institution of the suit
They observed that the solution of the question depended not upon the Code of Civil Procedure out upon substantive law
Interest for the period prior to the date of suit may be awarded if there was an agreement for the payment of interest at a fixed rate or it was payable by the usage of trade having the force of law or under the provision of H 262 any substantive law entitling the plaintiff to recover interest
Section 80 of the Negotiable Instruments Act was cited as a provision of the substantive law under which the court may award interest when no rate of interest is specified in the promissory note or bill of exchange
In the case before them however they observed there was neither usage nor any contract express or implied to justify the award of interest
Interest was not payable by virtue of any provision of the law governing the case
Under the interest Act of 1839 the court may allow interest to the plaintiff if the amount claimed is a sum certain which is payable at a certain time by virtue of a written instrument
But it was conceded that the amount claimed in the case was not a sum certain
Referring to the provisions of section 1 of the Interest Act which stated that interest shall be payable in all cases in which interest was then payable by law the Privy Council observed that the proviso applied to cases in which the court of equity exercised the jurisdiction to allow interest
But then they said that the case before them did not attract the jurisdiction of the court
An example of cases which attract the equitable jurisdiction of the court to award interest was given as the nonperformance of a contract of which equity could give specific performance
Considering next the question whether interest could be awarded by way of damages it was held that it could not be so done
It was categorically stated that interest could not be allowed by way of damages
It was also pointed out that in England the law had been amended by the Law Reform Miscellaneous Provisions Act which empowered a court of record to award interest on whole or any part of damages
But there was no such amendment of the law in India at that time
Seth Thawardas Pherumal vs The Union of India 1985 2 SCR 48 was a case which arose out of a decision of the Patna High Court which is reported in Union of India vs Prem Chand Satnam Das AIR 1951 Patna 201
Of the facts have been taken by us from the judgment of the Patna High Court as those facts were not evident from the judgment of this court
Pursuant to clause 14 of the contract between the Dominion of India and the contractor which provided that all disputes arising out of or relating to the contract should be referred to the Superintending Engineer a reference was made on January 21 1949 and an award followed on May 8 1949
Before the arbitrator the contractor submitted a claim under 17 heads
Item No 17 as mentioned in the Statement of claim before the arbitrator was interest on the amount of money involved in this claim at the rate of six per cent Rs27665
This work was finished in May 1946 and it was proper for the Department to have decided all our claims at least by 263 31st December 1947 
But this was not done
Due to this a heavy amount remained blocked and we were compelled to take money from our bankers on interest
We pray therefore for interest for 15 months from January 1 1948 to March 31 1949
 The arbitrator held The contract s contention that his claims should have been settled by January 1948 is in my opinion reasonable
I therefore award interest at six per cent for sixteen months on the total amount of the awards given that is Rs17363
The question arose whether the arbitrator could award the interest The Patna High Court noticed that the contractor did not include any claim for interest for the period March 3 1 1947 to April 20 1949 in the bill originally submitted by him to the Chief Engineer and that the claim was made for the first time before the arbitrator during the progress of the arbitration proceedings
The High Court also noticed that the Executive Engineer who appeared on behalf of the Union of India before the arbitrator did not seem to have submitted to the jurisdiction of the arbitrator to decide the question of interest
In those circumstances the High Court held that it could not be said that the claim for interest was one of the matters referred to arbitration
The arbitrator it was therefore held had no jurisdiction to entertain the claim and award interest
In the appeal by the contractor the Supreme Court noticed that the claim under each head on which interest was awarded was for an unliquidated sum and observed that in that kind of case interest was not payable by law otherwise than by the application of the Interest Act
Reference was made to the Bengal Nagpur Rly
Co vs Ruttanji Ramji 65 IA 66 as an authority for that proposition
The Court then proceeded to say that even if an arbitrator could be assumed to be a court within the meaning of the Act which he did not appear to be none of the four conditions which required to be fulfilled was present in the case before them
It was then said that the arbitrator erred in thinking he had the power to allow interest simply because he thought the demand was reasonable
A further argument that interest could be awarded at least from the date of the suit on the analogy of sec
34 of the Civil Procedure Code was repelled with the following observations It was suggested that at least interest from the date of suit could be awarded on the analogy of sec
34 of the Civil Procedure Code 1908
But sec
34 does not apply because an arbitrator is not a court within the meaning of the Code nor does the Code apply to arbitrator and but for sec
34 even a court would not have the power to give interest after the suit
This was therefore also rightly struck out from the award These observations of Bose J gave rise to considerable difficulty in later cases but in the series of cases Nachiappa Chettier vs Subramaniam Chettier   Setinder Singh vs Amrao Singh 1961 3 264 SCR 676 Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd 1967 1 SCR lO5 Union of India vs Bungo Steel Furniture Pvt Ltd   and State of Madhya Pradesh vs Ms Saith  Skelton Pvt Ltd   these observations have been explained and it was held that the observations never intended to lay down the broad and unqualified proposition that they appeared to lay down on a first impression
We will presently refer to these cases
At this juncture it is necessary to note that in Seth Thawardas Pherumal s case the question of payment of interest was not the subject matter of reference to the arbitrator and that the interest claimed before the arbitrator and awarded by the arbitrator related to the period prior to the reference to arbitration and the period during the pendency of the arbitration
It is also to be noted that the reference was not in the course of a suit
Nachiappa Chettier vs Subramaniam Chettier supra was a case of arbitration in a suit
The arbitrator made an interim award on August 1 1944 and December 6 1944
He awarded interest pendente lite as well as future interest until the date of payment
Relying on the observations in Seth Thawardas Pherumal vs Union of India the award of interest was questioned
The court doubted whether the observations in Seth Thawardas Pherumal s case were intended to lay down such a broad and unqualified proposition but did not pursue the matter further as that contention was not urged before the High Court
E Satinder Singh vs Amrao Singh supra was a case which arose under the East Punjab Acquisition and Requisition of Immovable Property Temporary Powers Act 1948
The Act containd no provision for payment of interest
It was argued that in the absence of a provision providing for interest could be awarded
The court approved the observation of the Privy Council in that where the owner is deprived of his property the right to receive the interest takes the place of the right to retain possession and is within the rules
 The court then observed it would thus be noticed that the claim for interest proceeds on the assumption that when the owner of immovable property loses possession of it he is entitled to claim interest in place of right to retain possession and held that this general rule was not excluded by the 1948 Act
Referring then to the observations in Seth Thawardas Pherumal vs Union of India supra what was said in Nachiappa Chettier vs Subramaniam Chether supra was reitereated that no broad and unqualified proposition was intended to be laid down in Seth Thawards Pherumal vs The Union of India
Referring to the Interest Act and the power of the Court to allow 265 interest it was expressly noticed that the proviso to sec
1 of the Interest Act 1939 made it clear that interest shall be payable in all cases in which it was now payable by law
The power to award interest on equitable grounds or under any provisions of the law was held to be expressly saved by the proviso
The award of interest by the arbitrator was upheld on the ground that the right to receive interest in lieu of possession of immovable property taken away either by private treaty or by compulsory acquisition was generally regarded by judicial decisions as an equitable right
In Union of India vs Watkins  Co AIR  the question arose when interest could be awarded for the period prior to the date of the institution of the suit
The suit there was for compensation for storage of over 600 tonnes of iron sheets for a period of about five years
It was held that interest could not be awarded for the period prior to the suit as there was no agreement for the payment of interest nor was their any usage of trade having the force of law or any provision of the substantive law which entitle the plaintiff to recover interest
Under the Interest Act 1839 the court could allow interest if the amount claimed was a sum certain payable at a certain time by virtue of a written instrument
The compensation for an unliquidated amount was not a sum certain
Interest prior to the institution of the suit was not awardable
In Union of India vs West Punjab Factories   it was held that in a suit interest by way of damages could not be awarded in the absence of any usage or contract express or implied or of any provision of law
Bengal Nagpur Railway Co vs Ruttanji Ramji supra and Seth Thawardas Pherumal vs Union of India supra were relied on Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd supra was a case where the arbitration was in a suit
Before the arbitrator no claim was made for interest prior to the institution of the suit but interest was claimed from the date of institution of the suit till recovery of the amount
The arbitrator awarded interest on the sum determined by him from the date of the award till the date of payment
The award was then filed in the court
One of the objections was to the grant of interest during the pendency of the suit relying on the observations of Seth Thawardas Pherumal vs Union of India supra that sec
34 CPC did not apply to arbitration proceedings
The court observed that the observations lent colour to the argument that the arbitrator had no power to award pendente lite interest but the obser 266 vations were not intended to lay down such a broad and unqualified proposition
A reference was made to Nachiappa Chettier vs Subramaniam Chettier supra and Satinder Singh vs Amrao Singh supra
It was further observed In the present case all the disputes in the suit were referred to the arbitrator for his decision
One of the disputes in the suit was whether the respondent was entitled to pendente lite interest
The arbitrator could decide the dispute and we could award pendente lite interest just as a court could do so under sec
34 of the Civil Procedure Code
Though in terms section 34 of the Code of Civil Procedure does not apply to arbitrations it was an implied term of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the court could give if it decided the dispute
This power of the arbitrator was not fettered either by the arbitration agreement or by the 
The condention that in an arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected
 Thus while the court did not dispute the proposition that the arbitrator was not a court it held that in a case where the reference was made to arbitration in a suit the arbitrator would have the same power as the court to award interest
In Union of India vs Bungo Steel Furniture Private Limited  certain disputes between the Union of India and a contractor in respect of certain contracts for the supply of bedsteads were referred to arbitration
The question arose whether the arbitrator had jurisdiction to award interest on the amount found due by the arbitrator from the date of the award till the date of the decree
This of course is not the question before us
But even so we must say that the observations made therein appear prima facie to justify the view that interest may be awarded by the arbitrator pendente lite
Ramaswamy J who spoke for the court observed that the observations of Bose B in Seth Thawardas Pherumal s case supra were not intended to lay down any broad and unqualified proposition and that though sec
34 of the Code of Civil Procedure did not apply in terms to arbitration proceedings the principle of that section would be applied by the arbitrator for awarding interest in the classes of cases where the court having jurisdiction in a suit over the subject matter or the proceeding would be competent to award interest
It was said In the present case all the disputes in the suit including the question of interest were referred to the arbitrator for his decision
In our opinion the arbitrator had jurisdiction in the present case to grant interest on the amount of the award from the date of the award till the date of the decree
 The words emphasised by us clearly show that in this case 267 too the arbitration was in a suit and it was therefore held that the arbitrator had the same power to award interest as the court would h ave 
In Ms Ashok Construction Company vs Union of India  there was an arbitration on the intervention of the Court Deputy Commissioner
Before the arbitrator a total claim for Rs44144020p was made consisting of a claim of Rs6400671 for works done a claim for Rs l8339377p for damages at 13 per cent per annum and a claim for Rs19109788p for depreciation of the value of money
The arbitrator made an award for a sum of Rs17984380p
He gave no reasons for his award
The last item of the claim was wholly unjustified but there was nothing to show that the arbitrator had taken that claim of account in making the award
Considering the question of award of interest by way of damages the court referred to the arbitration agreement and on its interpretation held that the terms of the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain a claim for interest award amount due under the contract In State of Madhya Pradesh vs Ms Saith  Skelton P Limited   with the consent of the parties the Court appointed an arbitrator and referred all the disputes to him
The arbitrator awarded interest from the date when the amount became payable till the date of the decree
The question arose whether the arbitrator had the power to do so
It was held that in the case before them interest prior to the suit could be awarded under sec
612 of the which expressly provides for the award of interest to the seller in any suit by him for the amount of the price from the date of the tender of the goods or from the date on which the price was payable and to the buyer in a suit by him for the refund of the price in a case of the breach of contract on the part of the seller from the date on which the payment was made
In view of the provision of substantive law which enabled the award of interest it was held that interest prior to the suit could be awarded by the arbitrator
In regard to pendente lite interest it was held that since all the disputes were referred to arbitration by the court the arbitrator had the same power as the court to award the pendente lite interest
As a result of the discussion of the various cases we see that Bengal Nagpur Railway Company Ltd vs Ruttanji Ramji supra Union of India vs West Punjab Factories supra and Union of India vs Watkins  Co supra were cases of award of interest not by an 268 arbitrator but by the court
It was laid down in these three cases that interest could notbe 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
The question of award of interest by an arbitrator was considered in the remaining cases to which we have referred earlier
Nachiappa Chettier vs Subramanian Chettier supra Sattinder Singh vs Amrao Singh supra Firm Madanlal Roshanlal Mahajan vs Hukum Chand Mills Ltd supra Union of India vs Bungo Steel Furniture Private Limited supra Ashok Construction Company vs Union of India supra and State of Madhya Pradesh vs Ms 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 section 34 Civil Procedure Code in Nachiappa Chettier vs Subramaniam Chettier supra Firm Madanlal Roshanlal Mahanan vs Hukamchand Mills Limited supra Union of India vs Bungo Furniture Private Limited supra and State of Madhya Pradesh vs Ms Saith  Skelton Private Limited supra
In regard to interest prior to the suit it was held in these cases that since the Interest Act 1839 was not applicable interest could 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 612 of the 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
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 to 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
While this is the position in cases which arose prior to the coming into force of the  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 
Under the  an arbitrator is by definition a court and may now award interest in all the cases to which the applies
We were referred to certain English cases London Chatham and Dover Rly
Co vs South Eastern Ply
Co  Chandris vs Isbrandtsen Mollar Co  Timber Shipping Co vs London  overseas Freighters Ltd and President of lndia vs La Pintada Cia Navegacion 1984 2 All Eng
Law Reports
Passages from Halsbury s Laws of England and Russell s Arbitration were also read out
We have read them out we refrain from referring to those cases and passages because of the abundance of authoritative pronouncements of the Supreme Court of India
Coming to the cases before us we find that in Civil Appeal Nos 120 and 12 1 of 1981 before the arbitrator there was no answer to the claim for interest and we see no justification for us at this stage to go into the question whether interest was rightly awarded or not
Out of the remaining cases we find that in all cases except two Civil Appeal Nos 6019 22 of 1983 and Civil Appeal No 2257 of 1984 the references to arbitration were made prior to the commencement of the new Act which was on August 19 1981
In the cases to which the applied it was argued by Dr Chitale learned counsel for H 270 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 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 vs Raghubir Singh  19791 3 SCR 6
The case certainly supports him and in the cases to which the 1978
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 sec
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  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 properiety of a non speaking award as we understand the question is now awaiting the decision of a Seven Judge Bench
In the light of what we have said above Civil Appeal Nos
120 271 and 121 of 1981 are dismissed Civil Appeal Nos
6019 22 of 1983 and A Civil Appeal No 2257 of 1984 are allowed to this extent that interest during the pendency of the arbitration proceedings is disallowed and the rest of the civil appeals are allowed to the extent that both interest prior to the proceedings and interest during the pendency of the proceedings are disallowed
There will be no order as to costs
SLP864081 is disposed of on the same lines


Summary:
In the appeals by Special Leave to this Court the question for consideration was whether an arbitrator to whom a reference was made without the intervention of the Court could award interest during the period prior to the reference and during the pendency of the arbitration  HELD 1
The general statutory provisions in regard to the award of interest by the Court are contained in the Interest Act and the Civil Procedure Code
258F 2
The Interest Act of 1839 was repealed and a new Interest Act incorporated in 1978
Both these Acts provide for the award of interest upto 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
260D 3
The award of pendente lite interest is provided for in Section 34 of the Civil Procedure Code
Section 34 however applies to arbitrations in suits for the simple reason that where a matter is referred to arbitration in a suit the arbitrator will have all the powers of the Court in deciding the dispute
Section 34 does not otherwise apply to arbitrations as arbitrators are not courts within the meaning of section 34 Civil Procedure Code
260E 254 4
While under the Interest Act of 1978 the expression court  was defined to exclude an arbitrator under the Interest Act of 1839 it was not so defined
The result is that while in cases arising after the commencement of the Interest Act of 1978 an arbitrator has the same power to award interest upto the date of institution of proceedings in cases which arose prior to commencement of the 1978 Act the arbitrator has no such power under the Interest Act of 1839
260G 5
Since the arbitrator is required to conduct himself and make the award in accordance with law the substantive law has to be looked into for the power of the arbitrator to award interest before the commencement of the proceedings
260H 261A 6
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 must award interest
261B 7
Again there are other provisions of the substantive law enabling the award of interest by the arbitrator
Section 80 of the Negotiable Instruments Act 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 and Section 612 of the Sale of Goods Act which provides for the award of interest to the seller or the buyer under certain circumstances in suits filed by them
261C 8
There is also the instance of non performance of a contract of which equity could give specific performance and to award interest
261C 9
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 equity may compel the payment of interest
261C 10
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
261D 11
In the instant appeals in those cases in which the references to arbitration were made prior to the commencement of the new Act which was on August 19 1981 and the amount claimed was a certain sum payable at a certain time by virtue of a written instrument interest is payable under the Interest Act for the period before the commencement of the proceeding
269H 270A 255 12
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 suits1270C 13
In the remaining cases which arose before the commencement of the  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
270D E 14
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 apparition 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
270F G Bengal Nagpur Railway Company Limited vs Ruttanji Ramji 6S Indian Appeals 66 Thawardas Pherumal vs The Union of India  Union of India vs Prem Chand Satnam Das AIR 1951 Patna 20l Nachiappa Chettiar vs Subramaniam Chettiar   Satinder Singh vs Amrao Singh   Firm Madanlal Roshanlal Mahajan vs Hukumchand Mills Ltd 1967 1 SCR lO5 Union of India vs Bungo Steel Furniture Pvt Ltd  and State of Madhya Pradesh vs Ms Saith  Skelton Pvt Ltd   referred to