Holding

An arbitrator has the power and jurisdiction to award interest for the pre‑reference period where the reference is made after the commencement of the Interest Act, 1978.

Summary

The appellant Sudhir Brothers were awarded a construction contract by the Delhi Development Authority. Disputes led to a reference to arbitration on 1 April 1984; the arbitrator entered the reference on 8 February 1985 and rendered an award on 15 July 1987, granting the appellant the contract sum together with 12 % simple interest from the date of reference, i.e., also for the pre‑reference period. The Delhi High Court made the award a rule of court but rejected the arbitrator’s award of interest for the pre‑reference period, a decision upheld by the Division Bench, which restored only pendente‑lite interest. The Supreme Court was asked whether an arbitrator could award interest for the period between the making of the reference and his entry, when the reference was made after the Interest Act, 1978 came into force. Relying on earlier decisions, the Court held that the arbitrator does have such power for references made post‑1978, and that the earlier case of G.C. Roy dealt only with pendente‑lite interest. Consequently, the Division Bench’s order denying pre‑reference interest was set aside and the arbitrator’s award of that interest was restored, while the High Court’s decision on the other claims was left untouched.

Issues considered

Whether an arbitrator has jurisdiction to award interest for the pre‑reference period where the reference was made after the Interest Act, 1978 came into force
Whether the decision in Secretary, Irrigation Department v. G.C. Roy governs the award of pre‑reference interest

Legislation cited

Arbitration Act, 1940s. 14, s. 17, s. 29
Interest Act, 1978

Subjects

ArbitrationPre‑reference interestInterest Act 1978Arbitrator jurisdictionContract disputeSupreme Court interpretation

Judgment

A SUDHIR BROTHERS
v.
DELHI DEVELOPMENT AUTHORITY AND ANR.

NOVEMBER 16, 1995

B [DR. AS. ANAND AND M.K. MUKHERJEE, JJ.]

Arbitration Act, 1940: Sections 14, 17 and 29.

Arbitration-Pre-reference period-Award of interest for-Held Ar-
C bitrator can award interest for pre-reference period in references made after .
coming into force of the Interest Act, 1978.

The appellant was awarded a contract by the respondent- Authority
for construction of certain work. Disputes having arisen between the
D parties a reference was made to an Arbitrator on 1.4.1984 who entered
upon the reference on 8.2.1985. He made an award on 15.7.1987 in favour
of the appellant and also awarded 12% simple interest on the amount
awarded from 1.4.1984 to the date of payment. A single Judge of the High
Court made the award Rule of Court except in respect of claims under
clauses 1, 3 and 4 amounting to Rs. 23,685 and rejected the appellant's
E claim relating to both the award of pendente lite interest (between 8.2.1985
and 15.7.1987) as well as the pre-reference interest (from 1.4.1984 to
8.2.1985). On appeal the Division ~ench restored the order of Arbitrator
regarding pendente lite interest but upheld the order of the Single Judge
r~fusing the pre-reference interest as well as the claims under clauses 1, 3
F and4.

In appeal to this Court on the question whether the Arbitrator had
jurisdiction to award interest for the period between the making of the
reference to him and his entering upon the reference (pre-reference period)
G after the coming into force of the Interest Act, 1978 :

Allowing the appeal in part, this Court

HELD : 1. The arbitrator has the power and jurisdiction to grant
pre-reference interest in references made after the coming into force of the
H Interest Act, 1978. The Division Bench of the High Court, therefore, erred
424
SUDHIR BROS. v. D.D.A 425

in holding that the arbitrator had no jurisdiction to award interest from A
1.4.1984 till 8.2.1985 in the post Interest Act, 1978 era. The order of the
Division Bench in that regard is set aside and the award of the arbitrator
in that behalf is restored. [428-G; 429-B]

2. No error has been committed by the High Court in disallowing the
claim of the appellant for Rs. 23,685 under Clauses 1, 3 and 4. [428-H] B

Secretary, Irrigation Department, Government of Orissa and Ors. v.
G.C. Roy, JT (1991) 6 SC 349, explained and distinguished.

Executive Engineer (Irrigation), Balimela & Ors. v. Abhaduta Jena &
Ors., [1988) 1 SCC 418; fugal Kishore Prabhatilal Sharma & Ors. v.
c
Vijayendra Prabhatilal Shamia &Anr., [1993) 1SCC114 and State of 01issa
v. B.N. Agarwala, [1993) 1 SCC 140, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10613 of
1995. D
From the Judgment and Order/decree dated 15.7.92 of the Delhi
High Court in F.A.O. (OS) No. 85 of 1991.

Dr. AM. Singhvi and P.K. Manohar for the Appellant.
E
Sunil Gupta and Mrs. Indu Malhotra for the Respondents.

The following Order of the Court was delivered :

Leave granted.
F
The only issue involved in this appeal relates to the power and
jurisdiction of an arbitrator to award interest for the period between the
making of the reference to the arbitrator and his entering upon the refer-
ence (pre-reference period) after the coming into force of The Interest
Act, 1978 (post Interest Act era).
G
A reference to brief facts for deciding the issue would be apropos.
The first respondent - Delhi Development Authority-Awarded certain
work of construction of middle income group houses at Pitam Pura, New
Delhi to the appellant and entered into a contract with him. Differences
and disputes arose between the parties relating to tlie execution of the H
426 SUPREME COURT REPORTS [1995] SUPP: 5 S.C.R.

A contract on 1.4.1984, when a reference to arbitration was sought by the
appellant and in terms of Clause 25 of the General Conditions of Contract,
the same were referred to arbitration of the second respondent. The
arbitrator entered upon the reference on 8.2.1985. He made an award on
15.7.1987. The award together with the proceedings was filed in the court
B by the learned arbitrator. The award was substantially in favour of the
appellant. The arbitrator also awarded 12% simple interest on the amount
awarded from 1.4.1984 to the date of payment. The appellant filed an
application under sections 14 and 17 of the Arbitration Act for making the
Award a Rule of the Court. On notice being issued to respondent No. 1,
objections were filed to the award being made a Rule of the Court. On
c 21.12.1990, the learned Single Judge of the Delhi High Court made the
award Rule of the Court except in respect of claims under Clauses 1, 3 and
4. The Court also rejected the claim of the appellant relating to both the
award of pendente-lite interest as well as the pre-reference interest and set
aside the award to that extent. On appeal before the Division Bench,
D pendente-lite interest, (between 8.2.1985 and 15.7.1987) as awarded by the
arbitrator, was restored but the order of the learned Single Judge refusing
the pre-reference interest as well as the claims under Clauses 1, 3 and 4
amounting to Rs. 23, 685 was upheld. The Division Bench opined :

E "In view of the decision of the Supreme Court in Secretary, lnigation
Department, Govemment of Orissa and Others v. G.C. Roy JT
(1991) 6 SC, 349, the Arbitrator had the jurisdiction to award
interest during the pendency of the reference before him i.e. from
8th February, 1985 till 15th July, 1987 when he gave the Award.
However, the Arbitrator had no jurisdiction to award interest from
F 1st April, 1984 till before 8th February, 1985, the date when he
entered into reference".

This order of the Division Bench has been put in issue in this appeal.

G Learned counsel for the appellant submitted that the Division Bench
fell in error in interpreting the judgment in G.C. Roy's case (supra) to have
laid down that the arbitrator has no jurisdiction to award interest from
1.4.1984 to 8.2.1985 (pre-reference period) because no such proposition of
law was either under consideration or decided in G.C. Roy's case (supra).
H In our opinion, the grievance projected by Dr. Singhvi is well founded.
SUDHIR BROS. v. D.D.A 427

In Executive Engi,neer (Irrigation), Balimela and Others v. Abhaduta A
Jena & Others, [1988) 1 SCC, 418, a three Judge Bench of this Court while
dealing with pre-reference interest observed:
"
"Out of the remaining cases, we find that in all cases except two
(Civil Appeals Nos. 6019-22of1983 and Civil Appeal No. 2257 of B
1984, the reference of arbitration were made prior to the commen-
cement of the new Act which was on August 19, 1981. In the cases
to which the Interest Act, 1978 applies, it was argued by Dr. Chitale
leamed counsel for the respondents, that the amount claimed was
a sum certain payable at a certain time by virtue of a written C
instrument and, therefore, interest was payable under the Interest
Act for the period before the commencement of the proceedings. In
support of his contention that the amount claimed was a sum
certain payable at a certain time by virtue of a written instrument,
the learned counsel relied upon the decision of this Court in State D
of Rajasthan v. Raghubir Singh. The case certainly supports him and
in the cases to which the 1978 interest Act applies the award of the
interest prior to the proceeding is not open to question" (Emphasis
ours)

E
The Constitution Bench in G.C. Roy's (supra) was dealing with the
question relating to the award of interest pendente-lite and not with the
question of the award of interest for the pre- reference period and it was
in that context that the Constitution Bench held that the view expressed in
Jena's case with regard to award of pendente-lite interest could not be said
to have laid down good law. The Constitution Bench did not deal with the
F
question of pre-reference interest in cases coming after the enforcement
of Interest Act, 1978, which came into force from 19.8.1981. In G.C. Roy's
case itself, it is stated that the reference to the Constitution Bench had
been necessitated only for deciding the question whether the decision in
Jena's case was correct in so far as it held that arbitrator had no power to G
award interestpendente lite. On a doubt being raised whether the Constitu-
tion Bench in G.C. Roy's case had over-ruled the law laid down in Jena's
case relating to the power of the arbitrator to award interest for the
pre-reference period in the post Interest Act, 1978 era, the position was
clarified by a three Judge Bench inJugal Kishore Prabhatilal Shamia & Ors. H
428 SUPREME COURT REPORTS [1995] SUPP. 5 S.C.R.

A v. Vijayendra Prabhatilal Shamta & Anr., [1993] (1) SCC 114, wherein it was
specifically held that the decision in G.C. Roy's case was concerned only
with the power of arbitrator to award interest pendente-lite and that it was
--
not concerned with his power to award interest for the pre-reference
period.
B Again, in State of 01issa v. B.N. Agarwala, [1993] 1SCC140, Jeevan
Reddy, J. clarified the matter and speaking for the Bench observed :

"The next contention of learned counsel for the appellant/State
relates to the power of the arbitrator to award interest for the pre-ref-
c erence period. Reliance is placed upon the decision of this Court in
Executive Engineer (Irrigation) v. Abhaduta Jena, Shri Bhagat,
leamed counsel appearing for the respondent, however, submits that
the said decision is no longer good law in view of the Constitution
Bench decision in Secretary, Irrigation Department, Govt. of Orissa
D v. G. C. Roy. We cannot agree with Shri Bhagat. Both of us were
members of the Constitution Bench which decided G.C. Roy. It
was confined to the power of the arbitrator to award interest pendente
lite. It did not pertain to nor did it pronounce upon the power of the
arbitrator to award interest for the period prior to his entering upon
E the reference (pre-reference period). This very aspect has been
clarified by one of us. (B.P. Jeevan Reddy, J.) in his concurring
order in fugal Kishore Prabhatilal Shanna v. Vijayendra Prabhatilal
Shanna. Accordingly, we hold following the decision in Jena that
the arbitrator had no power to award interest for the pre-reference
period in this case inasmuch as the award was made prior to coming
F
into force of the Interest Act, 1978. ( The Interest Act, 1978 came
into force with effect from August 19, 1981)."

Thus, the law is now well settled that the arbitrator has the power
and jurisdiction to grant 'pre-reference interest in references made after
G the coming into force of the Interest Act, 1978. The Division Bench of the
High Court was thus clearly in error in holding that the arbitrator had no
jurisdiction to award interest from 1.4.84 till 8.2.1985 (pre-reference
period) in the post Interest Act, 1978 era. So far as the grievance of the
appellant pertaining to the disallowance of the claim of Rs. 23,685 under
H Clauses 1, 3 and 4 is c~ncerned, we do not find any error to have been
SUDHIR BROS. v. D.DA 429

committed by the High Court. The above view of the Division Bench A
therefore, cannot be sustained.

We accordingly set aside the order of the Division Bench in so far
as it disallows the award of interest to the appellant for the pre-reference
period i.e. w.e.f. 1.4.84 to 8.2.1985 and restore the award of the arbitrator
in that behalf. B
The appeal, accordingly succeeds to the above extent and is allowed.
No costs.

T.N.A. Appeal allowed.