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PETITIONER: THE BOARD OF TRUSTEES FOR THEPORT OF CALCUTTA

       Vs.

RESPONDENT: ENGINEERS-DE-SPACE-AGE

DATE OF JUDGMENT07/12/1995

BENCH: AHMADI A.M. (CJ) BENCH: AHMADI A.M. (CJ) SEN, S.C. (J)

CITATION:  1996 SCC  (1) 516        1995 SCALE  (7)274

ACT:

HEADNOTE:

JUDGMENT:                            ORDER      This appeal  came up  before a  bench  of  two  learned Judges on 7.11.1994 when it passed the following order :      "The  question   for  decision   in  the      present case  relates to  the  award  of      interest pendent lite by the Arbitrator.      The effect of the decision in Secretary,      Irrigation Department,  Govt. of  Orissa      and Ors.  Vs. G.C. Roy etc. [1992(1) SCC      508] is  stated to  be pending  before a      three Judges  Bench on a reference being      made  to   this   effect.   Accordingly,      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 question regarding award of interest pendent 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 pendent  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 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 order and dispose of the case on merits.      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 pendent lite notwithstanding the  prohibition  contained  in  the  contract  against  the payment of interest on delayed payments. Clause 13(g) of the contract was  relied upon  in this  behalf and  that  clause

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reads as under:      "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 which respect to any delay      on the  part  of  the  Commissioners  in      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 or otherwise. In support of this contention he also  invited our  attention to  a decision of this Court rendered by two learned Judges in Associated Engineering Co. Vs. 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  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 Department,  Government of  Orissa &  Others  Vs. G.C. Roy  [1992(1) SCC  508] was  called  upon  to  consider whether the  decision of  this Court  in Executive  Engineer (Irrigation), Balimela  & Ors.  Vs.  Abhaduta  Jena  &  Ors. [1988(1) SCC  418] correctly laid down the Rule in regard to Arbitrator’s power  to grant  interest pendent lite. Dealing with this  question the  Constitution Bench  summed  up  the legal position  in regard  to grant of interest pendent lite in the following terms :      "The  question   still  remains  whether      arbitrator  has   the  power   to  award      interest pendent  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 such  interest nor  does it  prohibit      such  grant.  In  other  words,  we  are      dealing with  a case where the 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  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  Procedure  Code  and      there is  no reason or principle to hold      otherwise in the case of arbitrator.      (ii) An  arbitrator  is  an  alternative      form  (sic   forum)  for  resolution  of      disputes arising between the parties. If      so, he must have the power to decide all

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    the  disputes   or  differences  arising      between the  parties. If  the arbitrator      has no  power to  award interest pendent      lite, the  party claiming  it would have      to approach  the court for that purpose,      even  though   he  may   have   obtained      satisfaction in  respect of other claims      from the  arbitrator. This would lead to      multiplicity of proceedings.      (iii) An  arbitrator is  the creature of      an agreement.  It is open to the parties      to  confer  upon  him  such  powers  and      prescribe  such  procedure  for  him  to      follow, as  they think  fit, so  long as      they  are   not  opposed  to  law.  (The      proviso to  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 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  pendent lite. The awards      has  not  been  followed  in  the  later      decisions of  this Court.  It  has  been      explained and distinguished on the basis      that in that case there was no claim for      interest   but    only   a   claim   for      unliquidated damages.  It has  been said      repeatedly that observations in the said      judgment were  not intended  to lay down      any such  absolute or  universal rule as      they appear  to,  on  first  impression.      Until Jena’s  case almost all the courts      in the  country had  upheld the power of      the arbitrator to award interest pendent      lite.  Continuity  and  certainty  is  a      highly desirable feature of law.      (v)  Interest  pendent  lite  is  not  a      matter of substantive law, like interest      for the  people  anterior  to  reference      (pre-reference   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  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 or  principle to  hold 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 pendent lite, the  party entitled thereto would be required to go to a Court which would result in multiplicity of proceedings, a

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situation which the Court should endeavor to avoid. Reliance was, however,  placed on  the observation  in sub-para (iii) wherein 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  pendent   lite  the arbitrator must act in accordance therewith. In other words, according to  their Lordships  the arbitrator is expected to act and make his award in accordance with the general law of the  land   but  subject  to  an  agreement,  provided,  the agreement is  valid and  legal. Lastly,  it was  pointed out that interest  pendent lite  is not  a matter of substantive law, like  interest for  the period  anterior to  reference. Their Lordships  concluded that  where the agreement between 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 pendent 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 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, 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 establishes  that the  intention was to prohibit the Commissioner from  granting interest  on account  of delayed payment  to  the  contractor.  Clause  has  to  be  strictly construed for  the simple  reason that as pointed out by the Constitution  Bench,   ordinarily,  a   person  who   has  a legitimate claim  is entitled to payment within a reasonable time and  if the  payment has been delayed beyond reasonable time he  can legitimately  claim to  be compensated for that delay whatever  nomenclature one  may give  to his  claim in that behalf. 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 this term of the contract and  the  Arbitrator  would  be  entitled  to  consider  the question  of  grant  of  interest  pendent  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 pendent lite.      Looked at from another point, if there was a dispute as to whether  under this  term of  the contract the Arbitrator was prohibited from awarding interest pendent lite, that was a  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  pendent lite. In that case it cannot be said that the Arbitrator had wandered outside the contract to deny to him jurisdiction to decide the  question regarding  payment of  interest pendent

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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 within his jurisdiction in awarding interest pendent lite.      In view of the above we see no merit in this appeal and dismiss the same.