Case: Secretary Irrigation Department Government Of Orissa Secretary &amp; Ors Vs. G.C. Roy

the institution of the suit. (It was not a case under Arbitration Act but was a Civil Suit). In that connection the Court referred to Thawardas, as laying down the correct law in that behalf, along with Bengal Nagpur Railway (AIR 1938 PC 67 ) (supra) and Union of India v. A. L. Rallia Ram, (1964) 3 SCR 164 : (AIR 1963 SC 1685 ). It is not possible to read this paragraph as approving or affirming the decision of Thawardas insofar as it held that an arbitrator had no power to award interest pendente lite. 41. Mr. Sanghi then relied upon the decision in Rallia Ram (supra) to which a brief reference would be sufficient. That case related to the power of the Arbitrator to award interest for the pre-reference period. Following the decision of the Privy Council in Bengal Nagpur Railway and the decision of this Court in Thawardas it held that the Arbitrator had no power to award interest for the said period merely because he thought it to be just in the circumstances. It was held that interest for the pre-reference period is a matter of substantive law, usage or agreement. Accordingly, they held that in the absence of usage, contract or any provision of law to justify the award of interest, interest cannot be awarded by way of damages. We do not think that this case has any relevance on the question of arbitrators power to award interest pendente lite. 42. A few other decisions were also cited by both sides but we do not think it necessary to burden this judgment with them since those are not cases arising under the Arbitration Act or arbitration matters. 43. The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge: (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of S.34,C.P.C., and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) An arbitrator is an alternative form 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 S.41 and S.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 generallaw of the land and the agreement. (iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas (AIR 1955 SC 468 ) has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jenas case (AIR 1988 SC 1520 ) almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred. 44. Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf:45. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter 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.46. For the reason afore said we must hold that the decision in Jena (AIR 1988 SC 1520 ), insofar as it runs counter to the above proposition, did not lay down correct law.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]if the arbitration agreement or the contract itself provides for award of interest on the amount found due from one arty to the other, no question regarding the absence of arbitrators jurisdiction to award the interest could arise as in that case the Arbitrator has power to award interest pendente 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.It would be appropriate to deal,at this stage, with a submission of Sri Sanghi that inthis case, the Court stated in so many words that "all the disputes in the suit, including the question of interest were referred to the arbitrator for his decision". He urged that in the face of the said statement, it is not open to this Court to say that it was not a reference in a pending suit. But he conceded that on a reading of the judgment. it does not appear to be a reference in a pending suit, yet he contended that we cannot treat it as a case of reference otherwise than in a pending suit in view of the above quoted sentence.We cannot agree. On perusal of the facts as narrated in the judgment it is evident that the use of the words "in the suit" in the sentence quoted above is an accidental or typographicalhave already referred to the facts of all six cases hereinabove and we find that the learned counsel appears to be right in his submission. We must also point out that Nachiappa Chettiar decision dealt with interest for all three periods, viz. pre-reference, pendente lite and post-award, whereas Firm Madanlal Roshanlal dealt with pendente lite interest alone. Satinder Singhs case as has been pointed out hereinabove, was not a case under Arbitration Act at all but one arising under Punjab Requisition and Acquisition of Immovable Property Act, 1948. Bungo Steel dealt with the interest for the post-award period while Ashok Construction dealt generally with the power of the arbitrator to award interest from the due date onwards which evidently included pendente lite interest as well. Saith and Skelton dealt with power of the arbitrator to award interest for the period prior to reference.The first decision relied upon by him is in Union of India v. West Punjab Factories Ltd. (1966) 1 SCR 580 : (AIR 1966 SC 395 ).He referred to the passage at Page 590 to contend that the Constitution Bench in this case has approved decision in Thawardas (AIR 1955 SC 468 ).We do not agree.The question, the Constitution Bench was considering in the said paragraph was whether interest could be awarded for the period prior to the institution of the suit. (It was not a case under Arbitration Act but was a Civil Suit). In that connection the Court referred to Thawardas, as laying down the correct law in that behalf, along with Bengal Nagpur Railway (AIR 1938 PC 67 ) (supra) and Union of India v. A. L. Rallia Ram, (1964) 3 SCR 164 : (AIR 1963 SC 1685 ).It is not possible to read this paragraph as approving or affirming the decision of Thawardas insofar as it held that an arbitrator had no power to award interest pendente lite.Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf:45. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter 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.46. For the reason afore said we must hold that the decision in Jena (AIR 1988 SC 1520 ), insofar as it runs counter to the above proposition, did not lay down correct law.