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

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 v. Abnaduta Jena, (1988) 1 SCR 253 : (AIR 1988 SC 1520 ), 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 correctness of the view taken by this Court in Jenas case in so far as it held that the Arbitrator has no power to award pendentelite interest requires consideration by a larger Bench. That is how these appeals are before this Constitution Bench.3. 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:"All questions and disputes relating to the meaning of the specifications 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 of the work or after the completion or abandonment thereof shall be referred to the sole arbitrator........"The work was completed on 20-2-1980. G.C.Roys 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 made 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 was entitled to receive interest @ 9% on the awarded amount from 20-3-1980 till the date of payment 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 work 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 aside the award. On appeal by the respondent, the High Court set aside the order of the subordinate Judge and made the award rule of the court. The appellant thereupon filed this appeal by obtaining leave from this Court. As noted earlier two questions were raised in the appeals. The first 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 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.

Court's reasoning:
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.