SECRETARY, IRRIGATION DEPARTMENT, GOVERNMENT OF ORISSA AND ORS. ETC. ETC. v. G. C. ROY ETC. ETC

Citation: [1991] SUPP. 3 S.C.R. 417

Court: Supreme Court of India

Bench: K.N. SINGH, P.B. SAWANT, N.M. KASLIWAL, B.P. JEEVAN REDDY, G.N. RAY

Case summary

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; and (2) . The Constitution Bench held that an award is not liable to be set aside merely on the ground of absence of reasons.

Judgment text

The Judgment of the Court was delivered by . - . . ' 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; and (2) . the Arbitrator had no jurisdiction to awru,1 pendente lite interest. 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 behalfof 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: "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 or the work or after the completion or aban~.. mment th~reof shall be referred to the sole arbitrator. :.................. ". 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 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 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 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 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.

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 arbitration. On account of the growth in the international trade and commerce and also on account oflong delays occurring in the disposal ofsuits 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 settlement of disputes by Panches has been a common process for resolution ofdisputes in an informal manner. But now arbitration is regulated by statutory 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 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 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 .. 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 ofcosts 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 ofCourt: -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: 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 to any of such matters. " 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 . 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 . 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 to appoint a receiver pending proceedings before. the Arbitrator, while Rule 5 . D 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. Howeverit is 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, 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 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 ofdisputes, he does nol'ipsofacto enjoy or possess all the powers conferred on the courts of law. Nonetheless the Arbitrator ·has power . to decide the dispute and . his powers are regulated by the provisions of the SECRETARY 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 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 ofinterest 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; F· (ii) for. the period commencing from the date of the. Arbitrator's entering upon reference till tpe date ofmaking 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 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. 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 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 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 observations in so far as they are relevant. "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 ofIndia 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 LalMahajan v. Hukumchand Mills Limited (supra), Union of India v. Bungo Furniture Private Limited (supra) and State ofMadhya Pradesh v. Mis. Saith & Skelton Private Limited (supra). " Certain English decisions including the decisions in·Chandris 1951 (1) 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. 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 ofan 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; (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 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 · 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 of fact it is not so. Even on principle the said decision does not represent the 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 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 ; 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 ofOrissa urged that interest was never regarded as a matter ofright at common law. -lt is either a matter of agreement or a right created by statute.

Of Course, interest can also be awarded on the ground ofequity 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 ofIndia, (1955] 2 SCR 48. According to learned counsel, a reading of 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 ofarbitrator 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 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 ·~hetherthe 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 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, butOfall 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 ofinterest 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 ofCivil 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 ofcause ofaction to the date ofjudgment. 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. ~~· . 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 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 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 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 .

/ 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% which was questioned before the Court. The Court, in the first instance, examined the power of the arbitrator to award interest . for the period anterior 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 the 1 period the dispute was pending before the arbitrator, he could award interest on · 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: "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 acourt would not 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 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 jection was rejected by the Court. Ramaswami, J. speaking for the Judge Bench, observed: "This passage supports the argument of the appellant that interest cannot be awarded by the arbitrator after the date of the award but in later cases it has . been pointed out by this Court that the observations ofBose, J. in Seth Thawardas Pherumal v. The Union ofIndia were not intended to lay down such a broad and unqualified proposition. In Seth Thawardas Pherumal v.

The Union of India, the material facts were that the arbitrator had awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. In this Court, counsel for the appellant contended that the arbitrator had statutory power under the Iriterest Act of 1839 to award the Interest and, in any event, he had power to award interest proceedings under S. 34 '&f the Code of Civil Pre1Cedure, 1908. Bose, J. rejected this c eriod prior to reference. The High Court of Australia too considered this question in Government Insurance Office ofNSW v. Atkinson-Leighton Joint Venture 146 C. L. R. 206.

The respondents before the High Court agreed to construct an embankment under an agreement entered into with the Maritime Services Board ofNSW. By a contractors' all risks policy of insurance, the Government Insurance Office of NSW agreed to indemnify the Joint Ventures against any unforeseen loss or damage to the contract works. The policy contained certain exclusions with which we are concerned. Construction of the embankment began in 1971. While it was in progress, a· violent storm occurred causing considerable damage to the embankment under construction. Even thereafter there were repeated storms causing further damage to the embankment The Joint Ventures laid a claim against the insurer which was rejected, whereupon an arbitrator was appointed as provided by the Insurance Eolicy. The arbitrator found in favour of the respondent but stated a special case for the opinion of the Supreme Court of New South Wales in accordance with the provisions of Arbitration Act 1902 (NSW).

Of the two questions stated, the. second oneis relevant for our purposes. It reads: "Whether the Arbitrator had power to award interest on any sum awarded in the course of the Arbitration. " The Supreme Court ofNSW answered the same in affirmative. Accordingly, the arbitrator made his award. The Insurer then applied for setting aside the award on the ground of error apparent on the face of the record, whereas the respondent applied for making it a decree of the Court. The matter ultimately reached the High Court of Australia where it was argued that the Arbitrator had no power to award interest for the period the dispute was pending before him (pendente lite). The majority (Stephen, Mason and Murphy Justices), on a consideration of the decisions in Chandris, Edwards and Podar Trading among other cases, held that the Arbitrator has power to award interest in the following words: · \.

"In those circumstances I would affirm the views expressed by the New South Wales Court of Appeal concerning arbitrators' powers regarding the award of1 interest. Not only is it in conformity with the great weight of authority; that authority appears to me to involve no error of principle. Moreover, it is wholly beneficial in its operation, conferring, as it does, upon arbitrators power to do justice as between parites to a submission by enabling them to award interest, up to the date of the award, upon amounts found due. This is a power the need for which is the greater in times of dear money, reflected in prevailing high rates of interest-The Myron (28). " Of course Barwick Chief Justice and Wilson Justice dissented. According to them the Arbitrator has no such power, but the majority opinion acords with the view we are taking herein. Ha/sbury' s Laws ofEngland Vol.

2, page 273 (para 534) states: "In general, the parties to an arbitration agreement may include in it such clauses as they think fit. By statute, however, certain terms are implied in an arbitration agreement unless a contrary intention is expressed or implied therein. Moreover, it is normally an implied term of an arbitration agreement that the arbitrator must decide the dispute in accordance with the ordinary law. This jncludes the basic rules as to procedure, although parties can expressly or impliedly consent to depart from those rules. The normal principles on which terms are implied in an agreement have to be considered iO the context that the agreement relates to an arbitration. " At page 303, para 580 dealing . with the award ofinterest, it reads: . . ,"Anarbitratoror umpire has power to award intere. st on the amount of any debt or damag~s for the whole or any Part ofthe perioo between th. e date when the cause ofaction arose and the date. of the award.

" - Para 592 deals With the Conduct of prcx:eed1ngs of the arbitrator arid evidence upori which he can ac. t Since we find this parcigraph relevantwe extract it hereunder: · · · . · "In the conduct of the proceedings in his capacity ~ arbi. tral . / tribunal, the arbitrator or umpire must conform to any direction. s which may be ·contained in the agreement ofreference i~lf. · Subject to any such directions, he should observe; so far as may be practicable, the rules whicb prevailat the trial ofanaction in court, including rules as to issue estoppel, but he may deviate from those rules provided that in so doing he does not diSregard. the s1,1bstaJice ( ofjustice. Fundamental to notions ofjustice are the rules thateach party has a right to know the case made against him and a rigb~ to . put hiS own case, but it does not follow that a party is entilled to . J .. an oral hearing.

Again, the arbitrator is bound by the rules of =='' evidence, and although the parties may agree that rules ofevidence as observed in the courts shall not be strictly followed, he must not admit and act upon evidence which is obviously inadmissible, and which goes to the root of the question which he has to decide. Hearsay evidence is, however, now generally admissible. " Now, we thinkitappropriate to consider the decisions cited by Sri Sanghi in support of his contention. ~ The first decision relied upon by him is in Union ofIndia v. West Pwijab Factories Ltd. , [1966] 1 SCR 580. He referred to the passage at Page 590 to contend that the Constitution Bench in this case has approved decision in Thawardas. 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, alongwith Bengal Nagpur '', Railway (supra) and Union ofIndia v. A. LRallia Ram, [1964] 3 SCR 164. 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. Mr. Sanghi·then relied upon the decision in Rallia Rani (supra) to which a brief reference would be sufficient. That case related too 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 ihe 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 ofinterest, 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. 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. The question still remains whether arbitrator has the power to award interestpendente lite, and ifso on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of ~ such intereswiordoes it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of inierest.

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. Ifso, 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 general law of the land 311d the agreement. (iv) Ovet 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 interestpendente lite.

Thawardas 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 Jena's case almost all the Courts in the country had upheld the power of the arbitrator to ,... award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.

Having regard to the above considerations, we think that the following is the correct principle which should be followed in this behalf: 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 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.

For the reason aforesaid we must hold that the decision in Jena, insofar as it runs counter to the above proposition, did not lay down correct law. In view of the above discussion we hold that in two appeals namely Civil Appeal No. 1403 of 1986 and Civil Appeal No. 2586 of 1985 the Arbitrator acted with jurisdiction in awarding pendente lite interest and the High Court rightly upheld the award. In the result both the appeals fail and are, accord· . ingly, dismissed but there will be no order as to costs. Even though we have held that the decision inJena's case does not lay down good law, we would like to direct that our decision shall only be prospective in operation, which means that this decision shall not entitle any party nor shall it empower any court to reopen proceedings which have already become final. In other words, the law declared herein shall apply. only to pending proceedings. As regards the C. A. No. 2565 of 1991 and S. L. P. No.

5428 of 1990 the same shall be placed before an appropriate Bench for decision in the light of · this judgment. V. P. R. Appeals dismissed.