THE BOARD OF TRUSTEES FOR THE PORT OF CALCUTTAversusENGINEERS-DE-SPACE-AGE

  THE BOARD OF TRUSTEES FOR THE PORT OF CALCUTTA                              A
                         v.
              ENGINEERS-DE-SPACE-AGE

                          DECEMBER 7, 1995

                   [AM. AHMADI, CJ AND S.C. SEN, J.]                          B

     Arbitration

       Award of interest pendente lite despite prohibition contained in Con-
tract against payment of interest on delayed payments-Validity of-Held, the C
clause merely prohibited the Commission-Arbitrator has the discretion and
was well within jurisdiction in awarding interest pendente lite.

      In a contract between the appellant and respondent, clause 13(g)
provided that no claim for interest would be entertained by the Commis-
sioners with respect to any money or balance which might be in their hands    D
owing to any dispute between themselves and the Contractor or with
respect to any delay on the part of the Commissioners in making interim
or final payment or otherwise.

      In this appeal against the High Court's judgment, the appellant         E
contended that the Arbitrator had wrongly awarded interest pendente lite
despite the absolute prohibition contained in clause 13(g) of the contract.
It was also contended that the Arbitrator has to function in terms of the
contract and not de hors the contract and he has no power to travel beyond
the contract and if he does so he would be acting without jurisdiction.
                                                                              F
     Dismissing the appeal, this Conrt

      HELD : 1.1. The term in sub-clause (g) of clause 13 of the contract
merely prohibits the Commissioner from entertaining any claim for inter-
est and does not prohibit the Arbitrator from awarding interest. The G
opening words 'no claim for interest will he entertained by the
Commissioner' clearly establishes that the intention was to prohibit the
Commissioner from granting interest on account of delayed payment to
the contractor. The clause 'h' has to be strictly construed for the simple
reason that ordinarily a person who has a legitimate claim is entitled to
payment within a reasonable time and if the payment has been delayed H
                                   327
    328                   SUPREME COURT REPORTS [1995) SUPP. 6 S.C.R.

A beyond reasonable time he can legitimately claim to be compensated for
    that delay whatever nomenclature one may give to his claim in that behalf.
    Strictly construed the term of the contract merely prohibits the Commis-
    sioner from paying interest to the contractor for delayed payment but once
    the matter goes to arbitration the discretion of the Arbitrator is not, in
    any manner, stifled by this term of the contract and the Arbitrator would
B   be entitled to consider the question of grant of interest pendente lite and
    award interest if he finds claim to be justified. Under the clause of the
    contract the Arbitrator was in no manner prohibited from awarding
    interest pendente lite. [332 F-H; 333 A-CJ

C       1.2. Looked at from another point, if there was a dispute as to
  whether nnder this term of the contract the Arbitrator was prohibited from
  awarding interest pendente lite, that was a matter which fell within the
  jurisdiction of the Arbitrator, as the Arbitrator would have to interpret
  sub-clanse(g) of Clause 13 of the contract and decide whether that clause
  prohibits him form awarding interest pendente lite. In that case it cannot
D be said that the arbitrator had wandered outside the contract to deny to
  him jurisdiction to decide the question regarding payment of interest
  pendente lite. Thus the Arbitrator was well within his jurisdiction in
  awarding interest pendente lite. [333-C-E]

E         Secretary, Irrigation Department, Government of Orissa & Others v.
    G.C. Roy, [1992] l SCC 508 and Executive Engineer(Irrigation), Balimela &
    Ors. v. Abhaduta Jena & Ors., [1988) 1 SCC 418, relied on.

         Associate Engineering Co. v. Government of Andhra Pradesh &
    Another, AIR (1992) SCC 232, referred to.
F
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7384 of
    1994.

         From the Judgment and Order dated 19.5.94 of the Calcutta High
G   Court in A. No. 1016193.

            Harish N. Salve, AK. Sil and G. Joshi for the Appellant.

            K.K. Venugopal and Bijan K. Ghosh for the Respondent.

H           The following Order of the Court was delivered :
        BOARDOFTRUSTEES v. ENGINEERS-DE-SPACE-AGE                          329

      This appeal came up before a bench of two learned Judges on                 A
7.11.1994 when it passed the following order :

        "The question for decision in the present case relates to the award
        of interest pendente lite by the Arbitrator. The effect of the decision
        in Secretary, Irrigation Depmtment, Govt. of Orissa and Ors. v. G.C.
        Roy Etc., [1992) 1 SCC 508 is stated to be pending before a three         B
        Judges Bench on a reference being made to this effect. Accord-
        ingly, Special Leave is granted in the present matter."

       Mr. K.K. Venugopal the learned senior counsel for the respondent
pointed out that the aforesaid order was passed on the premise that the C
question regarding award of interest pendente lite by the Arbitrator was
referred to a three Judge Bench. He pointed out that the question which
was in fact referred to the three Judge Bench was in regard to the Award
of interest in pendente lite but prior to the Arbitrator entering upon the
reference. He, therefore, submitted that the aforesaid order and Special
Leave had been granted because it was not correctly represented that the D
reference to the three Judge Bench was in relation to interest accruing
prior to the reference to Arbitration. That being so, after hearing counsel
for the appellant, we have thought it proper to recall that part of the otder
and dispose of the case on merits.
                                                                                  E
      The short question which arises for consideration in this case and
which was canvassed before us by Mr. Salve the learned senior counsel for
the appellant was that the Arbitrator had awarded interest pendente lite
notwithstanding the prohibition contained in the contract against the pay-
ment of interest on delayed payments. Clause 13(g) of the contract was
relied upon in this behalf and that clause reads as under :                       F

        ''No claim for interest will be entertained by the Commissioners
        with respect to any money or balance which may be in their hands
        owing to any dispute between themselves and the Contractor or
        with respect to any delay on the ·part of the Commissioners in G
        making interim or final payment or otherwise."

The contention urged by the learned counsel for the appellant was that this
clause contained an absolute prohibition against the payment of interest on
account of any delay on the part of the Commissioner in making interim
or final payment of otherwise. In support of this contention he also invited H
    330                   SUPREME COURT REPORTS [1995] SUPP. 6 S.C.R.

A out attention to a decision of this Court rendered by two learned Judges
  in Associated Engineering Co. v. Government of Andhra Pradesh & Another,
  AIR (1992) SCC 232. His emphasis, placing reliance on this decision was
  that the Arbitrator has to function in terms of the contract and not de hors
  the contract and he has no power to travel beyond the contract and if he
B does so he would be acting without jurisdiction. He invited our attention
  to the observation in paragraphs 26 and 29 of that decision which we have
  noticed.

           A Constitution Bench of this Court in Secretary, Irrigation Depart-
    ment, Government of Orissa & Others. v. G.C. Roy, [1992] 1 SCC 508 was
C   called upon to consider whether the decision of this Court in Executive
    Engineer (Irrigation), Balimela & Ors. v. Abhaduta Jena & Ors., (1988) 1
    SCC 418 correctly laid down the Rule in regard to Arbitrator's power to
    grant interest pendente lite. Dealing with this question the Constitution
    Bench summed up the legal position in regard to grant of interest pendente
    lite in the following terms :
D
             "The question still remains whether arbitrator has the power to
             award interestpendente lite and if so, on what principle. We must
             reiterate that we are dealing with the situation where the agree-
             ment does not provide for grant of such interest nor does it prohibit
             such grant. In other words, we are dealing with a case where the
E
             agreement is silent as to award of interest. On a conspectus of
             aforementioned decisions, the following principles emerge :

                  (i) A person deprived of the use of money to which he is
                  legitimately entitled has a right to be compensated for the
F                 deprivation, call it by any name. It may be called interest,
                  compensation or damages. This basic consideration is as valid
                  for the period the dispute is pending before the Arbitrator
                  as it is for the period prior to the arbitrator entering upon
                  the reference. This is the principle of Section 34, Civil pro-
                  cedure Code and there is no reason or principle to hold
G                 otherwise in the case of arbitrator.

                  (ii) An arbitrator is an alternative form (sic forum) for resolu-
                  tion of disputes arising between the parties. If so, he must
                  have the power to decide all the disputes or differ cnces
H                 arising between the parties. If the arbitrator has no power to
       BOARD OF TRUSTEES v. ENGINEERS-DE-SPACE-AGE                      331

            award interest pendente lite, the party claiming it would have A
            to approach the court for that purpose, even though he may
            have obtained satisfaction in respect of other claims from the
            arbitrator. This would lead to multiplicity of proceedings.

            (iii) An arbitrator is the creature of an agreement. It is open
            to the parties to confer upon him such powers and prescribe        B
            such procedure for him to follow, as they think fit, so long as
            they are not opposed to law. (The proviso to Section 41 and
           ·Section 3 of the 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          c
            with the general law of the land and the agreement.

            (iv) Over the years, the English and Indian courts have acted
            on the assumption that where the agreement does not
            prohibit and a party to the reference makes a claim for
            interest, the arbitrator must have the power to award interest D
            pendente lite. The awards has not been followed in the later
            decisions of this Court. It has been explained and distin-
            guished 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 E
            were not intended to lay down any such· absolute or universal
            rule as they appear to, on first impression. Until Jena's case
            almost all the courts in the country had upheld the power of
            the arbitrator to award interest pendente lite. Continuity and
            certainty is a highly desirable feature of law.
                                                                               F
            (v) Interest pendente lite is not a matter of substantive law,
            like interest for the people anterior to reference (pre-refer-
            ence period). For doing complete justice between the parties,
            such power has always been inferred."

It will appear from what the Constitution Bench stated to be the legal G
position, that ordinarily a person who is deprived of his money to which
he is legitimately entitled as of right is entitled to be compensated in
deprivation thereof, call it by whatever name. This would be in terms of
the principle laid down in Section 34 of the Code of Civil Procedure. Their
Lordships pointed out that there was no reason of principle to hold H
    332                   SUPREME COURT REPORTS (1995] SUPP. 6 S.C.R.

A otherwise in the case of an arbitrator. Pointing out that arbitrator is an
    alternative forum for resolution of disputes arising between the parties, it
    said that he must have the power to decide all disputes and differences
    arising between the parties and if he were to be denied the power to award
    interest pendente lite, the party entitled thereto would be required to go to
B   a Court which would result in multiplicity of proceedings, a situation which
    the Court should endeavour to avoid. Reliance was, however, placed on .
    the observation in sub-para (iii) whereiu it is pointed out that an arbitrator
    is a creature of an agreement and if the agreement between the parties
    prohibits the payment of interest pendente lite the arbitrator must act in
    accordance therewith. In other words, according to their Lordships the
C   arbitrator is expected to act and make hi> award in accordance with the
    general law of the land but subject to an agreement, provided, the agree-
    ment is valid and legal. Lastly, it was pointed out that interest pmdente lite
    is not a matter of substantive law, interest for the period anterior to
    reference. Their Lordships concluded that where the agreement between
D   the parties does not prohibit grant of interest and where a party claims
    interest and that dispute is referred to the arbitrator, he shall have the
    power to award interest pendente lite for the simple reason that in such a
    case it is presumed that interest was an implied term of the agreement
    between the parties; it is then a matter of exercise of discretion by the
    arbitrator. The position in law has, therefore, been clearly stated in the
E   aforesaid decision of the Constitution Bench.

         We are not dealing with a case in regard to award of interest for the
  period prior to the reference. We are dealing with a case in regard to
  award of interest by the Arbitrator post reference. The short question,
F therefore, is whether in view of sub-clause (g) of clause 13 of the contract
  extracted earlier the Arbitrator was prohibited from granting interest
  under the contract. Now the term in sub-clause (g) merely prohibits the
  Commissioner from entertaining any claim for interest and does not
  prohibit the Arbitrator from awarding interest. The opening words 'no
  claim for interest will be entertained by the Commissioner' clearly estab-
G lishes that the intention was to prohibit the Commissioner from granting
  interest on account of delayed payment to the contractor. Clanse has to be
  strictly construed for the simple reason that as pointed out by the constitu-
  tion Bench, ordinarily, a person who has a legitimate claim is entitled to
  payment within a reasonable time and if the payment has been delayed
H beyond reasonable time he can legitimately claim to be compensated for
           BOARD OF1RUSTEES v. ENGINEERS-DE-SPACE-AGE                      333

 that delay whatever nomenclature one may give to his claim in that behalf.       A
 If that be so, we would be justified in placing a strict construction on the
 term of the contract on which reliance has been placed. Strictly construed
 the term of the contract merely prohibits the Commissioner from paying
 interest to the contractor for delayed payment but once the matter goes to
 arbitration the discretion of the Arbitrator is not, in any manner, stifled by   B
 this term of the contract and the Arbitrator would be entitled to consider
 the question of grant of interest pendente lite and award interest if he finds
 the claim to be justified. We are, therefore, of the opinion that under the
 clause of the contract the Arbitrator was in no manner prohibited from
 awarding interest pendente lite.
                                                                                  c
      .. Looked at from another point, if there was a dispute as to whether
  under this term of the contract the Arbitrator was prohibited form award-
  ing interest pendente lite, that was matter which fell within the jurisdiction
  of the Arbitrator, as the Arbitrator would have to interpret sub-clause (g)
  of Clause 13 of the contract and decide whether that clause prohibits him
  from awarding interest pendente lite. In that case it cannot be said that the D
  Arbitrator had wandered outside the contract to deny to him jurisdiction
· to decido·the question regarding payment of interest pendente lite. Even if
  we were to accept the contention.. urged by the learned counsel for the
  appellant placing reliance on paragraphs 26 and 29 of the Associated
  Engineering Company case (supra) we think, that the Arbitrator was well E
  within his jurisdiction in awarding interest pendente lite.

         In view of the above we see no merit in this appeal and dismiss the
 same.

 G.N.                                                      Appeal dismissed.