Holding

An arbitrator has jurisdiction to award pendente lite interest unless the agreement expressly prohibits it, and an award is not liable to be set aside merely for lack of reasons.

Summary

The Government of Orissa entered into a construction contract with G.C. Roy, which contained an arbitration clause. After the work was completed, a dispute arose and the arbitrator awarded the contractor the claimed sum plus 9% interest pendente lite from the date the amount became due. The Sub‑ordinate Judge set aside the award, but the High Court restored it. The Supreme Court considered (i) whether an award can be set aside merely for lack of reasons and (ii) whether an arbitrator can award pendente lite interest when the contract is silent on interest. The Court held that an award is not void for lack of reasons unless the agreement requires them, and that an arbitrator does have the power to award pendente lite interest unless the agreement expressly excludes it. The earlier decision in Jena was overruled. Consequently, the appeals were dismissed and the arbitrator’s award upheld.

Issues considered

Whether an arbitral award may be set aside on the ground of absence of reasons.
Whether an arbitrator has jurisdiction to award pendente lite interest when the arbitration agreement is silent on interest.
Whether the decision in Executive Engineer Irrigation Galimala & Ors. v. Abaaduta Jena (1988) should be overruled.
Interpretation of the Arbitration Act, 1940 and the Interest Act, 1978 with respect to arbitrators' powers.

Legislation cited

Arbitration Act, 1940s. 29, s. 2(c), s. 3, s. 30, s. 41, s. 47
Code of Civil Procedure, 1908s. 34
Interest Act, 1978s. 2(a), s. 3, s. 4
Law Reform (Miscellaneous Provisions) Act, 1934
Sale of Goods Act, 1930s. 61

Subjects

ArbitrationPendente lite interestArbitral award set‑asideArbitrator's jurisdictionImplied terms in arbitration agreementArbitration Act 1940Interest Act 1978Civil Procedure Code

Judgment

SECRETARY, IRRIGATION DEPARTMENT, GOVERNMENT OF A
ORISSA AND ORS. ETC. ETC.
\I. .
G. C. ROY ETC. ETC.

DECEMBER 12, 1991

[K. N. SINGH, CJ, P. B. SAWANT, N. M. KASLIWAL, B. P.
B
JEEVAN .REDDY· AND G. N. RAY, JJJ

Arbitration Act, 1940-Section 30--(/nreasoned awartJ.-;-When to be set
aside, indicated. · . ,
c
· Dispute-Settlement of-Methods-Arbitration a metho~ts 'features.

Arbitration Act, 1940-Section 2(c)--'Court' -'Arbitrator' ;whether in-
cluded.
D
Arbitration Act, 1940-Section 41-Applicability ofprovisions of C.P .C.
to the proceedings under the Act_:_scope of ·

Arbitration Act, 1940-Section 41, Second Schedule, Rules 3,4.5-
C?urt' s powers under, enumerated.
E
Arbitration Act, 1940-Sections 47, 3-ApplicabilitY of Act to arbitra-
tions-Arbitrat~r· s jurisdiction-Whether parties can ton/er additional power.
(
I

---
\ Interest Act, 197&-;-SeC.2(a)--'Court'-lncludes'Arbitrator'.

Arbitration Act, 1940-section 29, Section 41, First Schedule, "Rule 8,
read with Section 34, CPC and Sections 3, 4 of Interest Act,'1978-Award of
F
interest-Arbitrator's jurisdiction-Scope of.
. '

Arbitration Act, 1940-Section 29-Award_ of interest-Duration--Na-
lure of.
G
In C.A.No. 1403/86, the appeJJant-Goverriment and the respondent•
contractor entered into an agreement for the construction of head works
on 27.4.1977. The' work was completed oit 20.2.1980.· · ·

A dispute arose between the parties, when the respondent's claim for
certain amounts was not accepted by the appellant. · ·' H

417
418 SUPREME COURT REPORTS (1991] SUPP. 3 S. C.R.

A As per clause 23 of the agreement, the dispute was referred to an
Arbitrator. The Arbitrator awarded interest @ 9% on the awarded
amount from 20.3.1980 till the date of payment or decree whichever was
earlier.

The respondent made an application before the Subordinate.Judge
B for making the award rule of the Court, which the appeJlant contested.

The Subordinate Judge set aside the award on 29.11.1982, against
which the respondent moved the High Court, on appeal.

The High Court setting aside the order of the Subordinate Judge
C made the award tule of the Court.
This appeal was preferred by the appeJlant-Government by Special
leave against the judgment of the High Court.

In CA No. 2565/91, the High Court held that the Arbitrator has ju-
D risdiction to award interest pendente lite in the absence of agreement to the
contrary. ·

The State-appellants contended that interest was never regarded as
a matter of right at common law; that it was either a matter of agreement
!
or a right created by statue; that though interest could also be awarded ,
)
E on the ground of equity, that was applicable only to limited class or cases;
'>
that under Sections 3, 17 and 41 of the Arbitration Act, Arbitrator was
denied such a power; and, that if it is held that the arbitrator has the
power to award interest pendente lite under Section 34 of C.P.C., it would
open the door for innumerable cases.
-
)

F
The respondent-contr~ctor urged that there was no good reason why
the arbitrator should be held to have no power to award interest pendente
lite; that as the arbitration is an alternative form for resolution of disputes,
the arbitrator should be held to possess all the powers as are necessary to
do complete and fuJI justice between the parties; that if the Arbitrator is
G held to have no power to award interest pendente lite, the party claiming
such interest would still be· required to go to the Civil Court for such
interest and such a course was neither consistent with the concept of
arbitration nor was conductive to the rule of avoidance of multiplicity or
proceedings.

H On the questions, (i) whether the award was vitiated on the ground
SECRETARY v. G.C. ROY 419

- of absence or reasons, and (ii) whether the Arbitrator had jurisdiction to A
award pendente lite interest, dismissing the appeals, and over-ruling the
earlier decision of this Court in Jena's case, (1988] 1 SCR 253, this Court,

HELD:l. An award is not liable to be set aside merely on the ground
of absence of reasons. Where however, the arbitration agreement itself
stipulated reasons fo'!" the award the Arbitrator is under a legal obligation B
to give reasons. [421 CJ

Raipur Development Authority v. Chokamal Contractors, [1989] 2 SCC
721, followed.

2. The expression 'Court' as defined in section 2(a) of the Interest C
Act, 1978 includes an 'Arbitrator'. [425C]

3.01. If the arbitration· agreement or the contract itself provides for
award ofinterest on the amount found due from one party to the other, no
question regarding'the absence of Arbitrator's jurisdiction to award the
interest could arise, as in that case the Arbitrator bas power to award D
interest pendente lite as well. Simllarly, where the agreement expressly
provides that no interest pendente lite shall be payable on the amount due,
the Arbitrator has no power to award pendente lite interest. [425 D-E]

3.02. Where the agreement between the parties does not prohibit
grant of interest ·and where a party claims interest and that dispute E
(alongwith the claim for principal amount or indt.>pendently) is referred to
the Arbitrator, be shall have the power to award interest pendente lite. This
is for the reason that in such a case it must be presumed that interest was
an implied term of the agreement between the parties and therefore when
the parties refer all their disputes-or refer the dispute as to interest as
F
such-to the Arbitrator, he sha11 have the power to award interest. This
does not mean that in every case the Arbitrator should necessarily award
interest pendente lite. It is a matter within his discretion to be exercised in
the light of all the facts and circumstances of the case, keeping the ends of
justice in view. [445 C-D]
G
4. Generally, the question ofaward of interest by the Arbitrator may
arise in respect of three different periods, namely; (i) for the period
commencing from the date of dispute till the date the Arbitrator enters
upon the reference; (ii) for the period commencing from the date of the
Arbitrator's entering upon reference till the date of°making the award;
and (iii) for the period commencing from the date of making of ti1e award H

.
420 SUPREME COURT REPORTS [1991] SUPP. 3 S. C. R

A till the date the award .is made the rule of the· court or till the date of
realisation, whichever is earlier. [425 F]

Executive Engineer Irrigation Bali me/a & Ors. v.Abaaduta Jena, [1988)
1 SCR 253, over-ruled.
< ~' -

B Raipur Development Authority & Ors,. v •. Chokhamal Contractors. &
Ors., [1989] 2 SCC 721, followed.

Seth _Thawardas l'herumal v. The Union of India, [1955] 2 SCR ~;
Nachiappa Chettiar & Ors. v. Subramaniam Chettiar, [1960] 2 SCR 209;
Satinder Singh & Ors. v. Amrao Singh & Ors., [1961) 3 SCR 676; Firm
C M adanlal Rosh.an Lal Mahajan v. Hukumchand Mills Ltd., [1967] 1 SCR 105;
Union of India v. Bungo Steel Furniiure Pvt. Ltd., [1967] 1 SCR 325;Mls
Ashok Construction Co. v. Union of India, (1971] 3 SCC 66; State of Madhya
Pradesh v.Saith & Skelton (P)Ltd., [1972]3 SCR 2J3;Chandris v.Jsbrandtsen-
Moller Co.Inc;., [1951] 1 King's Bench Div: 240; Bengal NagpurRailway Co.
Ltd. v. Ruttanji Ramji & ·ors., 65 I.A. 66,.Edward's v. The. Great Western
D Railway Company, [1851] 138 English Reports 603, Podar Trading Co. Ltd. ·
v. Francois Tagher, [1949] (2) All England Law Reports 62;,Swift and Cd. .4
v.Board of, Trade, 1925 A.C.520; Inglewood Pulp and Paper Co. Ltd. v. New
Brunswick Electrical Power Commission, 1928 A.C. 492; Government1nsur-.
ance Office of NSW v. Atkinson-Leighton Joint Venture, 146; C.L.R. 206;
E Union of1ndia v. West Punjab Factori{!s Ltd.,[1966] l SCR-580 and Union
of India v, AL. Rallia Ram, (1964] 3 SCR 164, referred to. ,, ·

Hals bury' s Law of England VolUme 2 page 273 (para 534), page 303, ----
para 580 para 592; Russel's Arbitration, referred to.· · ·

F 5. The Court however directed that the decision 'shall only be prO-·i
spective in operation, which means that. this decision shall not entitle any !
party nor·shall ·itempower any court to reopen proceedings which have.
already become final. In other words, the law declared herein shall apply
only to pending proceedings. ,..,_

G CIVIL APPELLA1E JURISDICTION: Civil Appeal No. 1403of1986.

From the judgment and orde~ dated 20.9 .85 of the Orissa. High Court in
Misc. Appeal No. 543 of 1982.. : , .

N.S.Hegde, G.L.Sanghi and R.K.Mehta for.the Appellants.
H '·
Milan Banerjee, R.K.Garg, and Arnn Madan for the Respondents .

...
SECRET ARY v. G.C. ROY [K.N. SINGH, CJ.] 421

The Judgment of the Court was delivered by A
. - . . '

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. B

The first question was considered by a constitution Bench of this r;ourt
in Raipur Development Authority & Ors. v. Clwkhama/ Contractors & Ors.•
(1989] 2 SCC 721. The Constitution Bench held that an award is not liable to
be set aside merely on the ground of absence of reasons. The Constitution
Bench further held that where the arbitration agreement itself stipulated c
reasons for the award the Arbitrator is under a legal obligation to give reasons.
Thus the first question stands concludc1 against the appellants. As regards the
second question, when the appeal was taken up for hearing by a Division Bench
the appellants placed reliance on a Three Judge Bench decision of this Court
in Executive Engineer Irrigation Galimala & Ors. v. Abaaduta Jena, (1988] 1

- SCR 253 wherein it was held that the Arbitrator to whom the reference is made
without the intervention of the court, does not have jurisdiction to award
interest pendente lite. On behalf of the respondents the correctness of that view
D

was assailed. The Bench hearing these appeals referred the matter to Consti-
tution 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, E
,_ 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
F
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 specifi- G
cations etc ................. or as to any other question or claim, right,
matter or thing whatsoever, in any way arising out of or relating
to the contract whether arising during the progress or the work or
after the completion or aban~ . mment th~reof shall be referred to
the sole arbitrator.:.................. ".
422 SUPREME COURT REPORTS [1991) SUPP.~ S. C.R.

A The work was completed on 20.2.1980. G.C.Roy's claim for certain
amounts was not accepted by the Government as a result of which a dispute
arose between the parties. The dispute was referred to the Arbitrator who mad~
his award on 6.8.1982. The Arbitrator held that G.C.Roy, the respondent, was
entitled to certain amount of money and in addition he wa;S entitled to receive
interest@ 9% on the awarded amount from 20.3.1980 till the date of payment
B or decree whichever was earlier. It appears that 20.3.1980 was evidently the
date on which the amount claimed by G.C.Roy became due to him as the wof!t
was completed on 20.2.1980. The respondent made an application before the
Court for making the award rule, of the Court, which was contested on behalf
of the State of Orissa. The subordinate Judge by his order dated 29.11.1982 set
a-;ide the award. On appeal by the respondent, the High Court set aside the
C order of the subordinate Judge and made the award rule of the court. The
appclla~t. thereupon filed this appeal by obtaining leave (ror,-i this Court. As
noted earlier two questions were raised in the appeals. The fust question has
already been decided by a Constitution Bench. The second question relating to
the jurisdiction of the Arbitrator to award pendente lite interest is under
consideration before us. We do not consider it necessary to refer the facts
D involved in C.A. 2565/91. Suffice it to say that in that appeal also the High
Court held that in the absence of agreement to the contrary, the Arbitrator has
jurisdiction to award interest pendente lite.

A dispuf.e between two parties may be determined by court through
E judicial process or by Arbitrator through a non-judicial process. The resolution
of dispute by court, through judicial process is costly and time consuming.
Therefore, genei:ally the parties with a view. to avoid delay and cost, prefer
alternative method of settlement of dispute through arbitration proceedings. In
addition to these two known processes of settlement of dispute there is another
alternative method or settlement of dispute through statuary arbitration.
F Statutory arbitrations are regulated by the statutory provisions while the parties
entering into agreement for the resolution of their dispute through the process
of arbitration are free to enter into agreement regarding the method, mode and
procedure of the resolution of their dispute provided the same are not opposed
to any provision of law. Many a time while suit is pending for adjudication
before a court, the court with the consent of the parties, refers the dispute to
G arbitration. On account of the growth in the international trade and commerce
and also on account of long delays occurring in the disposal of suits and appeals
in courts, there has been tremendous movement towards the resolution of
disputes through alternative forum of arbitrators. The alternative method of
settlement of dispute ~rough arbitration is a speedy and convenient process,
which is being followed throughout the world. In India since ancient days
H settlement of disputes by Panches has been a common process for resolution
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 423

of disputes in an informal manner. But now arbitration is regulated by statutory A
provisions.

In India Schedule II to the code of Civil Procedure of 1908, contained
pro~isions relating to the law of arbitration and all proceedings of arbitration
were regulated by those provisions. Subsequently, the Arbitration Act of 1940
was enacted by the Legislature with a view to consolidate and amend tl1e law B
concerning arbitration. By virtue of Section 47 of the Act the provisions of the
Act apply to all arbitrations and all proceedings thereunder except insofar as
is otherwise provided by any law for the time being in force. Section 3 declares
that

"An arbitration agreement, unless a different intention is expressed C
therein, shall be deemed to include the provisions set out in the
First Schedule insofar as they are applicable to the reference."

The First Schedule to the Act contains eight rules. For our purposes i~ is not
necessary to notice these rules in detail except Rule 8 which provides: "the
... costs of the reference and award shall be in the discretion of the Arbitrators or
Umpire who may direct to and by whom and in what manner such costs or any
D

part thereof shall be paid and may tax or settle the amount of costs to be so paid
or any part thereof and may award costs to be paid as between legal practioner
and client." Section 41 sets out the procedure and powers of the Court. ;rhe
expression 'court' as defined in Section 2(C) means a Civil Court and docs not
include an Arbitrator. It would be appropriate to set out Section 41 in its E
entirety.

Section 41: "Procedure and powers of Court: -Subject to the provisions
of this Act and of rules made thereunder-
F
(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 G
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 H
to any of such matters."
424 S.UPREME COURT .REPORTS (1991] SUPP. 3 S. C. R.

A A reading .of the above provision shows that Section 41 makes the
provisions of Code of Civil Procedure applicable to all proceedings before the
court including appeals under the Act. It further declares that the Court shall
have "for the purpose of, and in relation to, arbitration proceedings, the same
·power of making orders in respect of any of the matters set.out in the Second
Schedule, as it has, for the purpose of, and in relation to, any proceedings
B .before the Court". This is without prejudice to confennent of similar powers
upon the arbitrators by the parties. In other words if the parties confer powers
similar to those as contained in the Second Schedule upon the Arbitrator, his
powers are not affected or curtailed by Section 4l(b). The Second Schedule
enumerates the powers of the court which it can exercise while the dispute is
pending before the arbitrator. These include the power to give directions for the
C .preservation, interim custody or sale of any goods which are the subject matter
of reference to give appropriate directions for·securing the.amount in differ-
ence 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. However it is
E always open to the parties to confer more or additional powers on the arbitrator
by consent or agreement. The arbitrator derives power to decide the dispute
under the agreement of the parties. The Act provides for Arbitration with or
without intervention of a court and it also provides for making the award rule
of the court and also for passing decree in terms of the award. It provides that
every arbitration agreement unless a different intention is expressed. therein,
F shall be deemed to include the provisions set out in the First Schedule to the
Act: The award may be modified or remitted to the Arbitrator by the Court for
reconsideration. The Court has power under Section 30 of the Act to set aside
the award if it suffers from apparent errors of law or if it.is otherwise invalid.
The award made by the Arbitrator is 'final and binding on the parites and
persons claiming under them respectively. It is open to th~parties and it would
G be a welcome feature to accept the award without the same being made a rule
of the court. However, generally the parties approact the court for making the
award rule of the court with a view to ensure enforceability of the award
_ through the instrumentality of the court. Though the Arbitrator is an alternative
forum for resolution of disputes, he does nol'ipso facto enjoy or possess all the
powers conferred on the courts of law. Nonetheless the Arbitrator ·has power
. H to decide the dispute and .his powers are regulated by the provisions of the
SECRET ARY v. G~C. ROY [K.N. SINGH, CJ.j 425

Arbitration Act and.the substantive law of the land. As already noted Section A
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 arbitra-
tion 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 B
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 c
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 of interest on the amount found due from one
party to the other, no question regarding the'absence of arbitrator's jurisdiction · -D
to award the interest could arise as in that case the Arbitrator has power to
award interest ppdente lite as well. Similarly, where the agreement expressly
·provides that no interest pendente lite shall be payable on the amount due, the
·Arbitrator has no power to award pendente lite interest. But where the agree-
ment 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 E
authority to grant pendente lite interest.

Generaliy, the question of .award of i~terest by the Arbi.trator may arise
in respect of three different periods, namely; (i) for the pcr~od commencing
from the date of dispute till the date the Arbitrator enters upon the reference;
(ii) for.the period commencing from the date of the.Arbitrator's entering upon
F·
reference till tpe date of making the award; and (iii) for the period commencing
from the date of making of the award till the date the award is made the rule
of the court or till the date of realisation, whichever is earlier. In the appeals
'before us we are concem~d only with the second of the three afore-mentioned
periods. In Jena's case, two questions arose. for consideration of the court, G
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 H
426 SUPREME COURT REPORTS (1991) SUPP. 3 S. C.R.

A Reddy, J. speaking for the Bench held that neither the Interest Act 1839 nor the
Interest Act 1978 conferred power on the Arbitrator for awarding interest
pendente lite. The learned Judge observed that Section 34 of the Civil
Procedure Code which provides· for the same did not apply to Arbitrator
inasmuch as an Arbitrator is not a court with in the meaning of the said
provision consequently the Arbitrator could not award interest pendente lite.
B
For this proposition, the learned Judge relied upon the decision in
Thawardas, (1955) 2 S.C.R. 48. The learned Judge pointed out that in
Thawardas "question of payment of interest was not the subject matter of
reference to the arbitrator" though the interest awarded by the arbitrator related
to the period prior to the reference to arbitration as well as the period during
C the 'pendency of the arbitration. The learned Judge also noticed that the
observations of Bose, J. in Thawardas have given rise to considerable diffi-
culty in later cases wherein they have been explained as having been never
intended .to lay down any such broad and unqualified proposition as they
appear to lay down on first impression. The learned Judge then referred to
various decisions including· the decisions in Nachippa Chettiar, [1960] 2
D S.C.R. 209, Satinder Singh, [1961) 3 S.C.R. 676, Madan Lal Roshanlal, [1967]
1S.C.R.105,Bungo Steel, [1967] 1S.C.R.325,Ashok Construction [1971) 3,
S.C.C. 66 anq Saith and Skelton, [1972) 3 S.C.R. 233 wherein the power of the
arbitrator to award interest was upheld, and explained them on the basis that
all those were "cases in which the reference to arbitration was made by the
court, of all the disputes in the suit"'It would be appropriate to reproduce the
E observations in so far as they are relevant.

"The question of interest by an arbitrator was considered in the re-
maining. cases to which we have referred earlier. Nachiappa
Chettiar v. Subramaniam Chettier, (supra) Satinder Singh v.
Amrao Singh (supra), Firm MadanlalRoshanlal Mahajan v. Hukum
F Chand Mills Ltd. (supra), Union of India v. Bungo Steel Furniture
Private Limited (supra), Ashok Construction Company v. Union of
India, (supra) and State a/Madhya Pradesh v. Mis Saith & Skelton
Private Limited were all (cases in which the reference to arbitration
was made by the court, of all the disputes in the suit). It was held
that the arbitrator must be assumed in these circumstances to have
G the same power to award interest as the court. It was on that basis
that the award of pendente lite interest was made on the principle
of S. 34, Civil Procedure Code, in Nachiappa Chettier v.
Subramaniam Chattier (supra), Finn MadanlalRoshan Lal Mahajan
v. Hukumchand Mills Limited (supra), Union of India v. Bungo
Furniture Private Limited (supra) and State of Madhya Pradesh v.
H Mis. Saith & Skelton Private Limited (supra)."
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.]· 427

Certain English decisions including the decisions in·Chandris 1951 (1) A
K.B. 240 were brought to the notice of the learned Judges apart from certain
passages from Halsbury' s Law of England and Russell's Arbitration. The
learned Judge however, refrained from referring to them in view of the
abundance of authoritative pronouncements by this Court The correctness of
the decision in Jena's case is challenged by the respondent. We therefore
departed from the normal rule and heard learned counsel for the respondent Mr. B
Milon Banerji before hearing the appellant's counsel. Mr. Banerji appearing
for the respondent made the following submissions:

( 1) The power of an Arbitrator to award interest is by virtue of an implied
term in the arbitration agreement or reference i.e. by virtue of the arbitrator's
implied authority to follow the ordinary rules of law; C
(2) It is an implied term in every arbitration agreement that the arbitrator
will decide the dispute according to Indian Law. Though Section 34 of the Civil
Procedure Code does not expressly apply to arbitrators, its principle applies,
just as the principle of several other provisions (e.g., Section 3 of the Limitation
Act) has been held applicable to the arbitrators. Inasmuch as the arbitrator is D
an alternative forum for resolution of disputes he must be deemed to possess
all such powers as are necessary to do complete justice between the parties.
(
The power to award interest pendente lite is a power which must necessarily
be inferred to do complete justice between the parties. The principle is that a
person who has been deprived of the use of money should be compensated in
that behalf. In short it is based upon the principle of compensation or ·E
restitution, as it may be called.
' ,.~-

(3) In every case }Vhere the arbitration agreement does not exclude the
jurisdiction of the arbitrator to award interestpendente lite, such power must
be inferred.
F
(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 G
correct view.

Shri Soli Sorabji who supported the reasoning of Shri Milon Banerji
submitted that there is no good reason why the arbitrator should be held to have
no power to award interest pendente lite. Arbitrator is an alternative forum for
resolution of disputes. The idea is to avoid going to Court. If so, the arbitrator H
428 SUPREME COURT REPORTS [1991) SUPP. 3 S. C.R.

A must be held to possess all the powers as are necessary to do complete and full
justice-between the parties. If the arbitrator is held to have. no power to award
interest pendente lite, the party claiming such interest would still be required
to go to the Civil Court for.such interest even though he may have obtained
satisfaction in respect of his other.claims.from the arbitrator; Such a course is
neither consistent with the. concept of arbitration nor is conducive to:the rule
; B of avoidance of multiplicity of proceedings. After all, interest is nothing but
another name for compensation for deprivation. It is .based upon the principle
of restitution. He submitted further tliat in a number of cases, this Court has
held that though a particular provision is not applicable in a particular situation,
: the principle of that provision is yet applicable. This course has been applied
to ensure that justice prevails. On the same analogy, it must be held that though
:C Section 34, C.P.C. does not apply to arbitrators, its principle does. To the same
effect is the submission of Shri R.K.Garg.
' '
On th~ other hand, Shri Sanghi, learned counsel appearing for the State
of Orissa urged that interest was never regarded as a matter of right at common
law.-lt is either a matter of agreement or a right created by statute. Of Course,
D interest can also be awarded on the ground of equity but that is applicable only
to limited class of cases·referred to in the decision of Privy Council in Bengal
Nagpur Railway Co. Ltd. v. Ruttanji Ramji & Ors. 65 LA. 66. This indeed -is
the basis of the judgment of this Court in Seth Thawardas Pherumal v. The
Union of India, (1955] 2 SCR 48. According to learned counsel, a reading of
E Sections 3, 17 and 4 l of the Arbitration Act goes to establish that arbitrator is
denied such a power. If this Court holds that the arbitrator has the powerto
award interest pendente lite on the ground that principle of Section 34 C.P.C.
avails him though the section itself does not if apply, it will open the door for
innumerable cases. It will create room for submitting that all the powers of the
-·
Civil Court should-be inferred in the case of arbitrator as well as by extending
. p the same analogy. This would indeed amount to legislation by.this Court which
it ought to desist from doing.

The question with which we are faced has been considered by the Inctian
and English Courts in detail: .The decisions of the English Courts have been
followed by the Indian Courts. It is, therefore, necessary to refer to some of the
G English decisions to examine how this question has been dealt with by the
courts in England. In Edward's v. The Great Western Railway Company,
(1851) 138 English Reports 603 the question raised before the Court was
·~hether the Arbitrator is empowered to award interest on the amount awarded
by him if he thinks such a course proper. The plaintiff's case was that he was
entitled to such interest· whereas the defendant company disputed the power of
H the Arbitrator. The Company's case was that inasmuch as the notice of action
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.l 429

did not demand interest, the plaintiff was not entitled to Claim interest. This A
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 B
the general plea; they are bound to plead specially the want of
notice of action. A further answer would be, that this is a submis~
sion, not only of the action, but Of all matters in difference; and the
interest would be a matter in difference, whether demanded by the
notice of action or not If the arbitrator could give it, he might give
it in that way, notwithstanding the want of claim of interest in the c
· 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.· D

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
E
custom, and in no other situation. Subsequent to the said enactment, however,
the position was-according to the decision-that there was no difference be-
tween 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 F
Sections 28 and 29 .of the Code of Civil Procedure empowered awarding· of
such interest in certain other specified situations. In other words, the Court
held, the arbitrator had the same power as the Court in the matter of awarding
interest. It then noticed the effect of Law Reforms (Miscellaneous Provisions)'
Act; 1934 and observed that Section 3(1) of the said Act en'lpowered only the
Court to award interest from the date of cause of action to the date of judgment. G
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.
~~· .
H
430 SUPREME COURT REPORTS . [1991] SUPP.) S. C.R.

A In Chandris v. Isbrandtsen-Moller Co. Inc. 1951 (1) King's Bench Div.
240 the arbitrator awarded interest without specification of any time. One bf
the questions before the Court of Appeal was whether he had the power to
awatd interest. The matter came tip before Devlin; J. in the first instance the
Court held, following the decision in Podar Trading that arbitrator had no such
power. The matter was then carried in appeal to Court of Appeals. Lord Tucker
B who delivered the leading judgment held that Podar Trading was wrongly
decided and that the High Court was wrong in Podar Trading in assuming that
the decision in Edward's was based upon the Civil Procedure Act of 1833. The
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 :
c
"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,
D 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.
E Francois Tagher, Barcelona (65) should ·on this point be over-
ruled."

Cohen J. who delivered a concurring opinion observed that the law
Reform (Miscellaneous Provisions) Act, 1934 really did not bring about any
F change. All that it did was to substitute Court in place of jury, inasmuch as by
·that time, damages were being 11ormally awarded by the Judge sitting alone i.e.
without jury. Asquith L.J., who too delivered a separate concurring opinion
observed that the decision in Edwards had assumed that the arbitrator has the
same power as that of Courts in the matter of awarding interest, which "'-
assumption has stood the test of time and that there was no good reason to ./
G discard the said assumpti9n.

In Thawardas (supra)'. the dispute related to the power of arbitrator to
award in\erest both for the period prior to entering upon reference and for the
period the reference was pending before him (pendente lite). The contractor
had claimed interest and the arbitrator.did award such interest at the rate of 6%
H which was questioned before the Court. The Court, in the first instance,
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 431

examined the power of the arbitrator to award interest .for the period anterior A
to his entering upon reference and held that such interest could not be awarded
inasmuch as the requirements of Section 1 of Interest Act, 1839 w~re not
satisfied in that case. Since the requirements of Interest Act were not satisfied,
the Court held the arbitrator had no power to award interest just because he
thought it just to do so. It was then urged for the contractor that at least for the1
period the dispute was pending before the arbitrator, he could award interest on · B
the analogy of Section 34 C.P.C. This too was repelled holding that Section 34
does not apply to arbitrator since he is not a Court within the meaning of Code
of Civil Procedure nor does the Civil Procedure apply to proceedings before
him. The.Court observed that but for Section 34, even the Court could not have
the power to award interest for the period the suit is pending before it for the
later period. It would be appropriate to reproduce the relevant paragraph: C

"It was suggested that atleast interest from the date of "suit" could
be awarded on the analogy of Section 34 of the Civil Procedure
Code, 1908. But Section 34 does not apply because an arbitrator is
not a "Court" within the meaning of the Code nor does the Code
apply to arbitrators, and, but for Section 34, even a court would not D
have the power to give interest after the suit. This was, therefore,
also rightly struck out from the award."

In Nachiappa Chettiar & Ors. v. Subramaniam Chettiar, [1960) (2) SCR
209 the arbitrators to whom the disputes pending in a suit were referred,
awarded interest for all the three periods, namely for the period anterior to the E
reference, pendente lite and for the period subsequent to the award. The award
was challenged in view of the decision in Thawardas' s case. This objection ·
was overruled by Gajendragadkar, J. in the following words:

"The argument is ba<;ed solely on the observations made by Bose, F
J. who delivered the judgment of this Court in Seth Thawardas
Pherumal v. The Union of India. It appears that in that case the
claim awarded by the arbitrators was a claim for an unliquidated
sum to which Interest Act of 1839 applied as interest was otherwise
not payable by law in that kind of case. Dealing with the contention
that the arbitrators could not have awarded interest in such a case, G
Bose, J., set out four conditions which must be satisfied before
interest can be awarded under the Interest Act, and observed that
none of them was present in the case; and so he concluded that the
' arbitr~tor had no power to allow interest simply because he thought
that the payment was reasonable. The alternative argument urged
before this Court that interest could be awarded under S. 34 of the H
I

t
432 SUPREME COURT REPORTS [199i] SUPP. 3 S. C.R.

A C;P.C. 1908, was also repelled on the ground that the arbitrator is·
l
·not a Court within the meaning of the Code nor does the Code
• apply to arbitrators Mr. Viswanatha Sastri relies upon these obser-
vations and contends that in no case can the arbitrators award
interest It is open to doubt whetlier the observations on ~hich Mr:
Viswanatha Sastri relies support or were intended to lay such a
broad and unqualified proposition. However, we do not propose to
pursue this matter any further because the present contention was
F1,

not urged before the High Court. It was no doubt taken as a ground
of appeal but from the judgment it is clear that it was not urged at
the time of hearing. Under these circumstances, we do not think we
J
would· be justified in allowing this point to be raised ·before us." ·l
c It is true' that the contentions were not allowed to be urged on the ground
that.the same had not been urged in the High Court However, it is significant
to note that the Court expressed its doubt whether the obser:\rations in Tbawar-
[
d~· relied upon ~y Sri Vishwanatha Sastri were intended to lay down any such [
br?ad arid unqualified proposition as ~as.conten,ded for before them.
· Satindir Singh & Ors. v. Amrao Singh & Ors .. [1961] 3 SCR 676 was
not a case under the Arbitration Act It arose under the East Punjab Acquisition
and Requisition of Immovable Property (Temporaty Powers) Act, 1948. We
r
would consider this case, since it was referred to in Jena alongwith Nachiappa
and other cases considered hereinaftt(r. The relevant facts were that certain laild
was acquired under the provisions of the said Act· and compensation was
E awarded, but no interest was awarded on the compensation on the ground that
the Act did not provide for interest. The High Court held that no interest was
payable on the compensation amount, in view of Section S(e) of the Act while
·making the provisions of Section 23(1) of the Land Acquisition Act applicable
but it did not apply the provisions of Sections 28 and '34 of the Land
F . Acquisition Act which must· lead to: the necessary inference that it did not
intend to provide for grant of interest. This court did not agree with the Higl:i
f
Court's reasoning, and it .held that application -.of Section 23(1) did not
necessarily mean exclusion of Sections 23 and 34. It then proceeded to
1
examine the question on principle, on the a5sumption that awarding of interest
was not· excluded by the provisions of the said enactment The Court obseryed:
,"What theri is the contention raised· by the claimants? They
. cont~nd that. the.ir immoyable projJerty has bee,n acquired by the
.. State and tI:ie $.tafo has taken pgssessioil of it. Thus, they have been (
. deprived of the right to receive the income from the property and
there is a ii~e- lag betw~en. the taking of the possession:by the stale

H
'and the payment of compensation by it to the claimants. During
·this p.eriod they have been deprived of the income or'the property
l
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 433

and they have not been able to receive interest from the amount of A
compensation. Stated broadly, the act of taking possession of
immovable property generally implies an agreement to pay interest
on the value of the property and it is on this principle that a claim
for interest is made against the State. This question has been
considered on several occasions and the general principle on which.
the contention is raised by the claimants has been upheld. In Swift · B
& Co. v. Board of Trade it has been held by the House ol Lords
that "on a contract for the sale and purchase of land it is the practice
...
~/
of the Court of Chancery to require the purchaser to pay interest on
his purchase money from the date when he took, or might safely
' have taken, possession of the land."
c
The Court then referred to the decision of th.e House of Lords in Swift and
Co. v. Board of Trade 1925 A.C. 520 and of the Privy Council in Inglewood
Pulp and Paper Co. Ltd. v. New Brunswick Electrical Power Commission.
1928 A.C. 492 and observed:

"It would thus be noticed that the claim for interest proceeds on the D
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. The question which we have to consider is
whether the application of this rule is intended to be excluded by
the Act of 1948, and as we have already observed, the mere fact
E
that Section 5(3) of.the Act makes Section 23(1) of the Land
Acquisition· Act of 1894 applicable, we cannot reasonably infer
that the Act intends to exclude the application of this general rule
in the matter of the payment of interest."
•
The decision of this Court in Firm Madan/al Roshan Lal Mahajan v. F
Hukumchand Mills Ltd., [1967) 1 SCR 105 is a case where a dispute pending
in a suit was referred to arbitration. In the suit, plaintiff had specifically claimed
interest. The arbitrator awarded interest and when it was objected to, it was
...-.,., upheld on the ground that inasmuch as interest was claimed in the suit, it must
be assumed that all the issues iri controversy in the suit between the parties,
including interest, were referred to arbitrator. The appellant, who disputed the G
award of interest, however, relied upon the observations in Thawardas quoted
earlier. This Court (K.N.Wanchoo., J.C.Shah and R.S. Bachawat, JJ.) dealt
with the said observations in the following words:

"These observations divorced from their context, lend colour to the
argument that the arbitrator has no power to award pendente lite H
. 434 SUPREME COURT REPORTS [1991) SUPP. 3 S. C.R.

A interest. But, in later cases, this court has pointed out that the
observations in Seth Thawardas' s case were not intended to lay
down such a broad and unqualified proposition. The relevant facts
regarding the claim for interest in Seth Thawardas' s case will be
found at pp, 64 to 66 of the Report and in paragraphs 2, 17 and 24
of1he judgment of the Patna High Court reported in Union ofIndia
B v. Premchand Satram Das. The arbitrator awarded interest on
unliquidated damages for a period before the reference to arbitra-
tion 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
c the claimant contended that the arbitrator had statutory power
under the Interest Act of 1839 fo award the interest and, in any
event, he had power to award interest during the pendency of the
arbitration proceedings under S. 34 of the Code of Civil Procedure,
1908. Bose, J. rejected this contention. It will be noticed that the
judgment of this Court in Seth Thawarda' s case is silent on the
D question whether the arbitrator can award interest during the
pendency of arbitration proceedings if the claim regarding interest
,. ..
during the pendency of arbitration proceedings if the claim regard-
ing interest is referred to arbitration. 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
E entitled to pendente lite interest. The arbitrator could decide the
dispute and he could award.pendente lite interest just as a Court
could do so under s. 34 of the Code of Civil Procedure. Though,
in terms, S. 34 of the Code of Civil Procedure does not apply to
arbitration, it was an implied term of the reference in the suit that
the arbitrator would decide the dispute ·according to law and would
F
give such relief with regard topendente 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
Arbitration Act, 1940. The contention thatin an arbitration inasuit
the arbitrator had no power to awardpendente lite interest must be
'-_
G rejected."·
The above observations were no doubt made in the context of a reference
to arbitrator in a pending suit, wherein one of the issues in controversy was the
plaintiff's claim for interest. What is of significance is the basis on which the
decision in Thawardas was explained and distinguished: In fact, the learned
H Judges looked into the High Court record too to ascertain the correct formal
position.
::.: SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 435

- The next decision is in Union ofIndia v. Bungo Steel Furniture Pvt. Ltd.,
(1967) 1 SCR 325. Reference in this case to the arbitration was otherwise than
in a pending suit. The dispute, however, pertained to interest for the period
A

subsequent to the making of the award i.e. from the date bf the award onwards.
The arbitrator did award such interest which was objected to on the strength of
this C6urt's decision in Thawardas but the ol;>jection was rejected by the Court.
Ramaswami, J. speaking for the Judge Bench, observed: B

"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 of Bose, J. in Seth Thawardas Pherumal v. The Union
of India were not intended to lay down such a broad and unquali- c
fied 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
E
c<IDtention, but it should be noticed that the judgment of this court
in Seth Thawardas' s case does not deal with the question whether
the arbitrator can award interest subsequent to the passing of the
award if the claim regarding interest was referred to arbitration. 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 F
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 granted by Mallick, J. The reason is that it •·
is an implied term of the reference that the arbitrator will decide the
dispute according to existing law and give such relief with regard
to interest as a court could give if it decided the dispute. Though, G
in terms, S. 34 of the Code of Civil Procedure does not apply to
arbitration proceedings, the principle of that section will be applied
by the arbitrator for awarding interest in cases where a court of law
in a suit having jurisdiction of the subject-matter covered by S. 34
could grant a decree for interest. In Edwards v. Great Western Ry.
one.of the questions at issue was whether an arbirrawr could or H

,,
I
r
I
I
436 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A could not award interest in a case which was within S. 28 of the
Civil Procedure Act, 1833. It was held by the Court of Common
Pleas that the arbitrator, under a submission of "all matters in
difference", might award the plaintiff interest, notwithstanding thr:
notice of action did not contain a demand of interest; and further,
that, assuming a notice of action, to have been necessary, the want
B or insufficiency of such notice could not be taken advantage of,
since the 5 & 6 Viet. C. 97 S. 3, unless pleaded specially, in the
course of his judgment, Jarvis, CJ. observed:

"A further answer would be, that this is a submission, not only of
the action, but of all matters in difference; and the interest would
c be a matter in difference, whether demanded by the notice of action
or not If the arbitrator could give it, he might give it in that way,
notwithstanding the want of claim of interest in the notice."

This clearly decides that, although the Civil Procedure Act, 1833,
. speaks in terms of a jury, and only confers upon a jury a discretion-
D ary right to give interest, nonetheless, if a matter was referred wan
arbitrator-a matter with regard to which a jury could have given
interest-an arbitrator may equally give interest, and that despite
the language used in that Act. The Principle of this case was
applied by the Court of Appeal in Chandris v. Isbrandtser Moller
Colnc. and it was held that though in terms S.3 of the Law
E Reforms (Miscellaneous Provisions) Act, 1934 giving the Court
power to award interest on any debt or damages did not apply to
an arbitrator, it was an implied term of the contract that the
arbitrator could award interest in a case where the court could
award it. It was pointed out by the court of appeal that the power
of an arbitrator to award interest was derived from the submission
F
to him, which impliedly gave him power to decide ''.aJl matters in
difference "according to the existing law of Conir~~- exercising
every right and discretionary remedy given to a court of law; that
the law Reform (Miscellaneous Provisions) Act, 1934, which
repealed S. 28 of the Civil Procedure Act, 1833, was not concerned
G with the powers of arbitrators; and that the phpntiff was entitled to
the interest awarded by the arbitrator.

The legal position is the same in India. In Bhawanidas Ramgobind
v. Harasukhdas Balkishandas the Division Bench of the Calcutta
'High CoUrt consisting of Rankin and Mookerjee, JJ. held that the·
H arbitrators had authority to make a decree for interest after the date
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 437

..,.' of the award and expressly approved the decision of the English
caseS-.:.Edwards v. Great Western Ry, Sherry v. Oke and Beahan
A
v. Wolfe. The same view has been expressed by this Court in a
·recent judgment in Firm Madan/al Roshanlal Mahajan v.
Hukumchand Mills Ltd., Indore. We are accordingly of the opinion
that the arbitrator had authority to grant interest from the date· of
the award to the date of the decree of Mallick, J. and Mr. Bindra B
is unable to make good his argument on this aspect of the case."
The above passages show that the Court laid down two principles: (i) it
is an implied term of the reference that the arbitrator will decide the dispute
according to existing law and give such relief with regard to interest as a court
could give if it decides the dispute; (ii) though in terms Section 34 of the Code C
of Civil Procedure does not apply to arbitration proceedings, the principle of
that Section will be applied by the arbitrator for awarding interest in cases
where a court of law in a suit having jurisdiction of the subject matter covered
by Section 34 could grant a decree for interest. It is also relevarit to notice that
this decision refers with approval to both the English decisions in Edwards and
Chandris case besides the decision of this Court in Firm Madan/al Roshanlal. D
It is noteworthy that the decision explains and distinguishes the decision in
Thawardas on the same, lines as was done in Firm Madan/al Roshanlal' s case.
It would be appropriate to deal, at this stage, with a submission of Sri
Sanghi that in this 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 E
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
F
that the use of the words "in the suit" in the sentence quoted above is an
. accidental or typographical error.
Mis. Ashok Construction Co. v. Union of India, (1971] 3 SCC 66 was a
case of arbitration otherwise than in a pending suit. The arbitrator made his
award and also awarded interest from the date the amount fell due. One of the
objections before the Supreme Court was that the arbitrator acted beyond his G
jurisdiction in awarding interest. This objectioft was dealt with in the following
words:
".......•..The appellants made a claim for interest on the amount
withheld after the due date and the ·arbitrator was competent to
decide that claim. The arbitration agreement by clause 25 provides: H
..

438 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A "Except where otherwise provided in the contract all questions and
disputes relating to the meaning of the specifications, designs,
drawings and instructions hereinbefore mentioned and as to the
quality to workmanship or materials used on the work or as to any
other questions, claim, right, matter or thing, whatsoever, in any
way, arising out of, or relating to the contract, designs, drawings,
B specifications estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to
execute the same whatever, arising during the progress of the work
or after the completion or abandonment thereof shallbe referred to
the sole arbitration of the Superintending Engineer."

c xxx xxx xxx

The terms of the arbitration agreement did not exclude the jurisdic-
. tion of the arbitrator to entertain a claim for interest, on the amount
due under the contract The award of the arbitrator cannot be said
to be invalid."
D
The principle of this judgment is that since the arbitration agreement did
not exclude the jurisdiction of the arbitrator to entertain claim for interest he
was competent to award interest on the amount due under the contract. Though
no decisions are cited in support of this proposition, it is in accord with the
principles laid down in Edwards as understood in Chandri' s case.
E
In State of Madhya Pradesh v. Saith & Skelton (P) Ltd., [1972] 3 SCR
233 disputes had arisen between the contractor and the State of Madhya
Pradesh in respect of certain work done by the contractor. An arbitrator was
appointed but there were disputes even with respect to the said appointment
F and that dispute reached this court. This Court appointed a sole arbitrator with
the consent of the parties and directed that the arbitration records be sent to the
sole arbitrator. The arbitrator gave award and awarded simple interest from a
date anterior to the date of reference. The respondent-contractor filed a petition
for passing a decree in terms of the award, which was opposed by the State
before this Court. One of the questions conversed before this Court was
G whether the arbitrator had jurisdiction to award interest from a date anterior to
the date of award, or the date of reference, till the date of decree, as was done
by him. It was urged on behalf of the state that he had no such power and in
support of this argument decision of the Privy Council in Bengal Nagpur
Railway and of this Court in Thawardas and other decisions were relied upon.
This Court referred to the decision in Bungo Steel and Firm Madan/al
H Roshanlal and pointed out that the decision in Thawardas was distinguished in
.r

SECRETARY v. G.C. ROY [K.N. SINGH, CJ.) 439

Firm Madanlal Roshan/al "on the ground that the said decision is silent on the A ··
question whether an arbitrator can award interest during the pendency of the
arbitration proceedings, if all the disputes in that suit including the claim for
interest were referred for arbitration." After referring to the decision in Firm
Madan/al the court observed thus: ;:

"In the case before us there is no controversy that all the disputes B '
including a claim for payment of the amount with interest was
referred to the arbitrator. The arbitrator, as pointed out earlier,
found that the firm was entitled to the payment as price in the sum
of Rs. 1,79,653.18 p. The arbitrator has further found that this
amount became payable as balance pricefor the goods supplied by ·
the firm on June 7; 1958, on which date the finalinspeetion took C
place. If that is so, Section 61 of the Sale of Goods Act, 1930
squarely applies and it saves the right of the seller (in this case the
finn) to recover interest, where by law interest is recoverable. Sub-
section (2) of Section 61, which is.material as follows:

"6L(2)In the absence of a contract to the contrary the Court may D
award interest at such rate as it thinks fit on the amount of the price-

(a) tO the seller in a 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.
E
.(b) to the buyer in a suit by him for the refund of the price in a case
of a breach of the contract on the part of the seller-from the date
ori which the payment was made."

In the case before us, admittedly the contract does not provide that F
. · .jlO interest is payable on the amount that may be found due to any
·. one of them~ If so, itfollows that the seller, namely, the firm is
entitledto Claim interest from the date on which the price became
·. :due and payable. The finding of the arbitrator in this case is that the
pf.ice became payable on June 7, 1958. As held by this Court in
Union of India.v.A.L. Rallia Ram which related to an arbitration G
proceeding, under sub-section (2) of S. 61; in the absence of a
contract to i.he contrary, the Seller is eligible to be awarded interest
()n the amount of the price for the goods sold. On this principle it
follows that the awarci ofinterest from Ju~e 7, 1958 isjustified. ·
. ' . .

Having so said the Court. proceeded to point out that: H
440 SUPREME COURT REPORTS [1991) SUPP. 3 S. C.R.

A "If the contention of Mr. Shroff that under no circumstances an
arbitrator can award interest prior to the date of the Award, or prior
to the date of reference, is accepted, then the position will be very
anomalous. As an illustration, we may point out that there may be
cases where the only question that is referred to the arbitrator is
whether any of the parties is entitled to claim interest on the
n· amount due to him from a date which may be long anterior to the
date of reference. When such a question is referred to the arbitrator,
naturally he has to decide whether the claim for award of interest
from the date referred to by the parties is acceptable or not. If the
arbitrafur accepts that claim, he will be awarding interest from the
date which will be long prior even to the date of reference.
c Therefore, the question ultimately will be whether the dispute
referred to the arbitrator included the claim for interest from any
particular period or whether the party is entitled by contract or
usage or by a provision of law for interest from a particular date."

It is relevant to notice that the principle of this decision is again the same
D in the cases of Ashok Construction Co., Edwards and Chandris.
Sri Milon Banerji urged that in Jena's case Justice Chinnappa Reddy
referred to six decisions of this Court (which the learned Judge referred to as
cases where reference to arbitration was made by the court of all the disputes
in the suit). Only two cases were really of that kind whereas the other four were
E not In other words, his submission was that of the six cases, only Nachiappa
Chettiar and Firm Madan/al Roshanlal were cases in which reference to
arbitration was made in pending suits whereas the other four cases namely
Satinder Singh, Bungo Steel, Ashok Construction and Saith and Skelton were
cases where the reference to arbitration was otherwise than in a pending suit.
F We have 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 much also
point out that Nachiappa Chettiar decision dealt with interest for all three
periods, viz. pre-referehce,.pendente lite and post-award, whereas Firm Ma-
dan/al Roshanlal dealt with pendente lite interest alone. Satinder Singh' s case
as has been pointed out hereinabove, was not a case under Arbitration Act at
G all but one arising under Punjab Requisition and Acquisition of Immovable
·Property Act, 1948. Bungo Steel dealt with the interest for the post-award
perio1 while Ashok . Construction dealt generally with the power of the
arbitrator to award i~terest 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 j:>eriod prior to reference.
H
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 441

The High Court of Australia too considered this question in Government A
Insurance Office of NSW 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 of NSW. 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 B
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 Ven-
tures laid a claim against the insurer which was rejected, whereupon an
arbitrator was appointed as provided by the Insurance Eolicy. The arbitrator C
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 D
awarded in the course of the Arbitration."

The Supreme Court ofNSW answered the same in affirmative. Accord-
ingly, 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 E
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 F
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 G
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

- H
442 SUPREME COURT REPORTS [1991] SUPP. 3 S. C.R.

A dear money, reflected in prevailing high rates of interest-The
Myron (28)."
Of course Barwick Chief Justice and Wilson Justice dissented. Accord-
ing to them the Arbitrator has no such power, but the majority opinion acords
with the view we are taking herein.
B Ha/sbury' s Laws of England 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
c 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
D to be considered iO the context that the agreement relates to an
arbitration."

At page 303, para 580 dealing .with the award of interest, it reads: .

.,"Anarbitrator or umpire has power to award intere.st on the amount
E of any debt or damag~s for the whole or any Part ofthe perioo
between th.e date when the cause of action 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
F extract it hereunder: · ·· . ·

"In the conduct of the proceedings in his capacity ~ arbi.tral .
to
tribunal, the arbitrator or umpire must conform any direction.s /

which may be ·contained in the agreement of reference i~lf. ·
Subject to any such directions, he should observe; so far as may be
G an
practicable, the rules whicb prevail at the trial of action 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 (

of justice. Fundamental to notions of justice are the rules that each
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
H
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 443

.
==''
.J

an oral hearing. Again, the arbitrator is bound by the rules of
evidence, and although the parties may agree that rules of evidence
A
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."
B
Now, we think it appropriate 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 c
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 of India v. A.LRallia Ram, [1964] 3 SCR 164. It D
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 E
Arbitrator to award interest for the pre-reference period. Following the deci-
sion 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
F
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.

A few other decisions were also cited by both sides but we do not think G
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
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 H
~
444 SUPREME COURT REPORTS [1991) SUPP. 3 S. C. R

A such intereswior does 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 legiti-
mately entitled has a right to be compensated for the deprivation,
B 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.
c
(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,
D · 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 proce-
E dure 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.
F
(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 interest pendente lite. Thawardas has not
G 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
H the Courts in the country had upheld the power of the arbitrator to
,...
SECRETARY v. G.C. ROY [K.N. SINGH, CJ.] 445

award interest pendente lite. Continuity and certainty is a highly A
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. B

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 c
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 D
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. E

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· . F
ingly, dismissed but there will be no order as to costs. Even though we have
held that the decision in Jena'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. G
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.