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PETITIONER: EXECUTIVE ENGINEER IRRIGATION GALIMALA & ORS. A

       Vs.

RESPONDENT: ABAADUTA JENA

DATE OF JUDGMENT22/09/1987

BENCH: REDDY, O. CHINNAPPA (J) BENCH: REDDY, O. CHINNAPPA (J) KANIA, M.H. SHETTY, K.J. (J)

CITATION:  1988 AIR 1520            1988 SCR  (1) 253  1988 SCC  (1) 418        JT 1987 (4)     8  1987 SCALE  (2)675  CITATOR INFO :  F          1988 SC1530  (4)  F          1988 SC1791  (13)  RF         1989 SC 777  (16)  R          1989 SC 973  (12,14)  F          1989 SC1987  (2)  F          1989 SC2125  (4)  D          1989 SC2257  (3,8)  R          1990 SC 685  (11,12)  RF         1990 SC 864  (5)  R          1990 SC1340  (13 TO 17)  O          1992 SC 732  (2,9,10,11,22,33,43,46,47)  RF         1992 SC2090  (2)

ACT:      Arbitration Act,  1940: Sections  14, 15,  30  and  33- Arbitrator-Competency of-To award interest on reference made without intervention  of Court-Court  whether entitled to go behind the  award  and  decide  whether  award  of  interest justifiable. C      InterestAct 1839/lnterestAct 1978.      Civil  Procedure   Code  1908,  Section  34.  Award  of pendente lite interest by arbitrator. D

HEADNOTE:      In the  appeals by  Special Leave  to  this  Court  the question for  consideration was:  whether an  arbitrator  to whom a  reference was  made without  the intervention of the Court could  award interest  during the  period prior to the reference and during the pendency of the arbitration: ^      HELD: 1.  The general statutory provisions in regard to the award  of interest  by the  Court are  contained in  the Interest Act and the Civil Procedure Code. [258F]      2. The  Interest Act  of 1839  was repealed  and a  new Interest Act  incorporated in  1978. Both these Acts provide for the  award of  interest upto the date of the institution of the proceedings. Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. [260D]      3. The  award of pendente lite interest is provided for

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in Section  34 of  the  Civil  Procedure  Code.  Section  34 however, applies  to arbitrations  in suits  for the  simple reason that  where a  matter is referred to arbitration in a suit, the  arbitrator will  have all the powers of the Court in deciding the dispute. Section 34 does not otherwise apply to arbitrations  as arbitrators  are not  courts within  the meaning of s. 34 Civil Procedure Code. [260E] 254      4. While  under the Interest Act of 1978 the expression ’court’ was  defined to  exclude an  arbitrator,  under  the Interest Act  of 1839  it was  not so defined. The result is that while  in cases  arising after  the commencement of the Interest Act  of 1978  an arbitrator  has the  same power to award interest  upto the date of institution of proceedings, in cases  which arose  prior to commencement of the 1978 Act the arbitrator  has no  such power under the Interest Act of 1839. [260G]      5. Since  the arbitrator is required to conduct himself and make  the award  in accordance with law, the substantive law has to be looked into for the power of the arbitrator to award interest  before the  commencement of the proceedings. [260H-261A]      6. If  the agreement  between the  parties entitles the arbitrator to  award interest no further question arises and the arbitrator  may award interest. Similarly, if there is a usage of  trade having  the force of law the arbitrator must award interest. [261B]      7. Again, there are other provisions of the substantive law enabling  the  award  of  interest  by  the  arbitrator. Section 80 of the Negotiable Instruments Act under which the court may  award interest  even in  a case  where no rate of interest is  specified in  the promissory  note or  bill  of exchange, and  Section 61(2)  of the Sale of Goods Act which provides for  the award  of interest  to the  seller or  the buyer under  certain circumstances  in suits  filed by them. [261C]      8. There  is also  the instance of non-performance of a contract of which equity could give specific performance and to award interest. [261C]      9. Where  one of  the parties is forced to pay interest to a  third party  say on  an overdraft,  consequent on  the failure of  the other  party to  the contract not fulfilling the obligation  of paying the amount due to them, equity may compel the payment of interest. [261C]      10. Loss  of interest  in the  place of  the  right  to remain in  possession may be rightfully claimed in equity by the owner  of a  property who has been dispossessed from it. [261D]      11. In the instant appeals, in those cases in which the references  to   arbitration  were   made   prior   to   the commencement of the new Act which was on August 19, 1981 and the amount  claimed was  a certain  sum payable at a certain time by  virtue of a written instrument, interest is payable under  the   Interest  Act   for  the   period  before   the commencement of the proceeding. [269H-270A] 255      12. In  regard to  pendente  lite  interest,  that  is, interest from  the date  of reference  to the  date  of  the award, the  claimants would  not be entitled to the same for the simple  reason that the arbitrator is not a court within the meaning  of s. 34 of the CPC, nor were the references to arbitration made in the course of suits.[1270C]      13. In  the remaining  cases  which  arose  before  the commencement of  the Interest Act, 1978, the respondents are not  entitled   to  claim   interest   either   before   the

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commencement of  the proceedings  or during  the pendency of the arbitration. They are not entitled to claim interest for the period  prior to  the commencement  of  the  arbitration proceedings for  the reason that the Interest Act, 1839 does not apply  to their  cases and  there is no agreement to pay interest or  any usage  of trade  having the force of law or any other  provision of  law under  which the claimants were entitled to recover interest. They are not entitled to claim pendente lite  interest as the arbitrator is not a court nor were the references to arbitration made in suits. [270D-E]      14. The  arbitrator is  bound  to  make  his  award  in accordance with  law. If  the arbitrator  could not possibly have awarded interest on any permissible ground because such ground did  not exist,  it would be open to the court to set aside the  award relating  to the  award of  interest on the ground of an error apparition the record. On the other hand, if there was the slightest possibility of the entitlement of the claimant  to interest  on one  or other  of the  legally permissible grounds,  it may  not be open to the court to go behind the  award and  decide whether  the award of interest was justifiable. [270F-G]      Bengal Nagpur Railway Company Limited v. Ruttanji Ramji 6S Indian  Appeals 66;  Thawardas Pherumal  v. The  Union of India, [1955]  2 SCR 48; Union of India v. Prem Chand Satnam Das, AIR  1951 Patna  20l; Nachiappa Chettiar v. Subramaniam Chettiar, [1960]  2 SCR  209; Satinder Singh v. Amrao Singh, [1961]  3  SCR  676;  Firm  Madanlal  Roshanlal  Mahajan  v. Hukumchand Mills  Ltd., [1967]  1 SCR lO5; Union of India v. Bungo Steel  Furniture Pvt. Ltd., [1967] 1 SCR 324 and State of Madhya  Pradesh v. M/s. Saith & Skelton Pvt. Ltd., [1972] 3 SCR 233, referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6245-46 of 1983.      From the  Judgment and  order  dated  9.1.1981  of  the orissa High 256 Court in Miscellaneous Appeal Nos. 285 and 286 of 1980.      G.L. Sanghi,  D.P. Mohanty,  R.K. Mehta,  Inderjit Roy, P.N. Misra and R.N. Poddar for the Petitioners.      Probir Patil,  Y.S.  Chitale,  Sankar  Ghosh,  Jitender Sharma,  Vinoo   Bhagat,  Arun   Madan,  P.N.   Misra,  D.N. Mukherjee, M.M. Kashtriya P.K. Banerjee, P.K. Mukherjee, Ms. Lily Thomes,  Bagga Mrs.  S.K. Bagga,  B.P. Meheshwari, J.R. Das, Parijat Sinha, and M.A. Firoz for the Respondents. .      The Judgment of the Court was delivered by      CHINNAPPA REDDY,  J. This  group of  appeals raises the question of  award of  interest by  an arbitrator  to whom a reference is  made without  the intervention  of the  court. Special leave  to appeal  was granted  under Art. 136 of the Constitution limited  to the  question of  award of interest during the  period prior to the reference and during 1:) the pendency of  the arbitration  proceedings. Special leave was not granted in regard to the award of interest subsequent to the  date   of  the   arbitrator’s  award.   This  question, therefore, does not concern us in these appeals.      The various  references to  arbitration in  these cases were in  regard to  work done  by different  contractors  in excess of  what was  stipulated under the several contracts. The contracts  generally contained a clause to the following effect:           "Clause 11-The Engineer-in-charge shall have power

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         to make  any alterations  in or  additions to  the           original specifications,  drawings,  designs,  and           instructions  that   may  appear   to  him  to  be           necessary or  advisable during the progress of the           work, and  the contractor  shall be bound to carry           but the  work in  accordance with any instructions           which may be given to him in writing signed by the           Engineer-in charge,  and such alteration shall not           invalidate the  contract; and  any additional work           which the  contractor may be directed to do in the           manner above  specified as  part of the work shall           be carried  out by  the  contractor  on  the  same           conditions in  all respects  on which he agreed to           do the  main work,  and at  the same  rates as are           specified in  the tender  for the  main work.  The           time for  the completion  of  the  work  shall  be           extended in the proportion that the addi- 257           tional work  bears to  the original  work bears to           the original  contract work and the certificate of           the Engineer-in-charge  shall be  conclusive as to           such  proportion.   And  if  the  additional  work           includes any  class of  work, for which no rate is           specified in  this contract,  then such  class  of           work shall  be carried out at the rates entered in           the sanctioned  schedule of  rates of the locality           during the  period when  the work is being carried           on and if such last mentioned class of work is not           entered in  the schedule  of rates of the district           then the contractor shall within seven days of the           date of  his receipt of the order to carry out the           work inform  the Engineer-in-charge  of  the  rate           which it is his intention to charge for such class           of work,  and if  the Engineer-in-charge  does not           agree to  this rate  he shall by notice in writing           be at  liberty to  cancel his  order to  carry out           such class  of work and arrange to carry it out in           such manner as he may consider advisable, provided           always that  if the contractor shall commence work           order of  any expenditure in regard thereof before           the rates  shall have  been determined  as  lastly           herinbefore mentioned,  then and  in such  case he           shall only  be entitled  to be  paid in respect of           the work  carried out  or expenditure  incurred by           him prior  to the date of the determination of the           rate as  aforesaid according to such rate or rates           as shall  be fixed  by the  Engineer-in-charge. In           the event  of  a  dispute,  the  decision  of  the           Superintending Engineer  of  the  circle  will  be           final:           Provided always  that the  contractor shall not be           entitled to  any payment  or any  additional  work           done unless  he has  received an  order in writing           from the  Engineer-in-charge  for  the  additional           work that  the contractor shall be bound to submit           his claim  for any additional work done during any           month on  or before  the 15th day of the following           month accompanied  by  a  copy  of  the  order  in           writing  of   the   Engineer-in-charge   for   the           additional work, and that the contractor shall not           be entitled  to any  payment in  respect  of  such           additional work  if he  fails to  submit his claim           within the aforesaid period." All the contracts also contained a provision for a reference to arbitration  in case  of  disputes.  The  clause  of  the

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contract enabling the reference was as follows:- 258           "Clause 23-Except  where otherwise provided in the           contract all  questions and  disputes relating  to           the  meaning   of  the   specifications,  designs,           drawings, and  instructions herinbefore  mentioned           and as to the quality of workmanship, or materials           used on  the work,  or as  to any  other question,           claim, right  matter, or  thing whatsoever, in any           way arising  out of,  or relating to the contract,           designs,   drawings,   specifications,   estimates           instructions,  orders,  or  these  conditions,  or           otherwise concerning the work or the execution, or           failure to  execute the same, where arising during           the progress  of the work, or after the completion           or abandonment  thereof shall  be referred  to the           sole arbitration  of a  Superintending Engineer of           the State Public Works Department unconnected with           the work  at any  stage nominated by the concerned           Chief Engineer. If there be no such Superintending           Engineer  it   should  be  referred  to  the  sole           arbitration of  the Chief  Engineer concerned.  If           will be  no objection to any such appointment that           the  arbitrator   so  appointed  is  a  Government           servant. The  award of the arbitrator so appointed           shall be  final, conclusive  and  binding  on  all           parties to these contracts." Pursuant to  the clause  in the contracts enabling the Chief Engineer to refer disputes to an arbitrator, references were made. For the purposes of our decision, we are proceeding on the basis  that  in  the  notices  of  demand  made  by  the contractors before the disputes were referred to arbitration interest on the amounts said to be payable was claimed.      The general statutory provisions in regard to the award of interest by a court are contained in the Interest Act and the Civil Procedure Code. The Interest Act of 1839 contained only one section and it was as follows:-           " 1.  It is,  therefore, hereby enacted that, upon           all debts  or sums  certain payable  at a  certain           time or  otherwise, the  Court before  which  such           debts or  sums may  be recovered  may, if it shall           think fit,  allow interest  to the  creditor at  a           rate not  exceeding the  current rate  of interest           from the time when such debts or sums certain were           payable, if  such debts  or  sums  be  payable  by           virtue of  some written  instrument at  a  certain           time; or  if payable otherwise, then from the time           when demand  of payment  shall have  been made  in           writing so  as such  demand shall  give notice pay           the debtor that 259           interest will  be claimed  from the  date of  such           demand until  the term  of payment;  provided that           interest shall be payable in all cases in which it           is now payable by law. " In 1978,  the Interest  Act of  1839 was  repealed and a new Interest Act  was enacted.  The  Statement  of  objects  and Reasons of the new Act recited,           "The Law  Commission of  India in  its sixty-third           report  had   recommended  the   revision  of  the           existing Interest  Act, 1839.  This Act  is a very           short one;  besides a  preamble, it  contains only           one section  and  a  proviso.  However,  it  is  a           statute of  importance, since  it  prescribes  the           general law  of interest  which becomes applicable

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         in the  absence of  any contractual  or  statutory           provisions specifically  dealing with the subject.           According to  the Commission,  almost every phrase           used in  the Act  has given  rise to  problems  of           interpretation   and   judicial   decisions   have           disclosed divergence  of views  in respect  of the           same.  The   Commission  has   revised   the   Act           comprehensively so  as to make its provisions more           precise, specific,  unambiguous  and  juristically           satisfactory.  It   is  proposed  to  replace  the           existing  Act   by  a   new  Act   based  on   the           recommendations of  the Law  Commission." The  new           Act has  made some  important changes.  One of the           important changes  is that  the expression ’court’           is  defined   to  include   a  tribunal   and   an           arbitrator.  Debt   is  defined   as  meaning  any           liability  for   an  ascertained   sum  of  money,           including  a   debt  payable   in  kind,  but  not           including a  judgment debt.  Section 3(1)  enables           the court, if it so thinks fit, to award interest,           in any  proceeding for the recovery of any debt or           damages or  in any proceeding in which a claim for           interest in respect of any debt or damages already           paid is  made, to  the person entitled to the debt           or damages or to the person making such claim, for           the whole  or part of the following period; (a) if           the proceeding relates to a debt payable by virtue           of a  written instrument  at a certain time, then,           from the date when the debt is payable to the date           of institution  of the  proceedings;  (b)  if  the           proceeding does  not relate to any such debt, then           from the  date  mentioned  in  this  regard  in  a           written notice given by the person entitled or the           person making  the claim to the person liable that           interest  will   be  claimed,   to  the   date  of           institution  of   the  proceeding.   Section  3(3)           provides that 260           nothing in  the section shall apply in relation to           (i) any  debt or  damages upon  which interest  is           payable as  of right,  by virtue of any agreement;           or (ii)  any debt or damages upon which payment of           interest  is   barred  by  virtue  of  an  express           agreement. Section  3(3)(c) provides  that nothing           in the  section shall  empower the  court to award           interest upon  interest.  Section  4(1)  provides,           "notwithstanding anything  contained in section 3,           interest shall be payable in all cases in which it           is payable  by virtue  of any  enactment or  other           rule of  law or  usage having  the force  of law."           Section  4(2)   further  provides  notwithstanding           anything as  s. 4,  the court shall allow interest           in the  class of  cases specified  in s. 4(2) from           the dates  stipulated to  the dates  stipulated in           the provision.  Section 5 provides that nothing in           the Act  shall affect  the provisions  of s. 34 of           the Code of Civil Procedure, 1908.      It is  important to  notice at this stage that both the Interest Act  of 1839  and the  Interest Act of 1978 provide for the  award of  interest upto the date of the institution of the  proceedings Neither the Interest Act of 1839 nor the Interest Act of 1978 provides for the award of pendente lite interest. We must look elsewhere for the law relating to the award of interest pendente lite. This, we find, provided for in s.  34 of the Civil Procedure Code in the case of courts.

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Section 34,  however, applies  to arbitrations  in suits for the simple  reason  that  where  a  matter  is  referred  to arbitration in  a suit,  the arbitrator  will have  all  the powers of the court in deciding the dispute, Section 34 does not otherwise  apply to  arbitrations as arbitrators are not courts within  the meaning  of s.  34 Civil  Procedure Code. Again, we  must look  elsewhere to discover the right of the arbitrator to  award interest  before the institution of the proceedings, in  cases where  the proceedings  had concluded before the  commencement of  the Interest Act of 1978. While under the  Interest Act  of 1978  the expression ’court’ was defined to  include an arbitrator, under the Interest Act of 1839 it  was not  so defined.  The result  is that  while in cases arising  after the commencement of the Interest Act of 1978 an  arbitrator has the same power as the court to award interest upto the date of institution of the proceedings, in cases which  arose prior to the commencement of the 1978 Act the arbitrator  has no  such power under the Interest Act of 1839. It  is, therefore  necessary,  as  we  said,  to  look elsewhere for  the power of the arbitrator to award interest upto the  date of  institution of the proceedings. Since the arbitrator is required to conduct himself and make the award in accordance with law we must look to the substan 261 tive law  for the  power of the arbitrator to award interest before the commencement of the proceedings. If the agreement between  the   parties  entitles  the  arbitrator  to  award interest no  further question  arises and the arbitrator may award interest.  Similarly if  there is  a  usage  of  trade having the  force of  law the arbitrator may award interest. Again if  there are  any other provisions of the substantive law enabling  the award of interest the arbitrator may award interest. By way of an illustration, we may mention s. 80 of the  Negotiable  Instruments  Act  as  a  provision  of  the substantive law  under which  the court  may award  interest even in a case where no rate of interest is specified in the promissory note  or bill  of exchange.  We may also refer s. 61(2) of  the Sale of Goods Act which provided for the award of interest  to the  seller or  the buyer as the case may be under certain  circumstances in  suits filed by them. We may further  cite  the  instance  of  the  nonperformance  of  a contract of which equity could give specific performance and to award  interest. We may also cite a case where one of the parties is  forced to  pay interest to a third party, say on an overdraft,  consequent on  the failure of the other party to the  contract not fulfilling the obligation of paying the amount due  to them.  In such  a case also equity may compel the payment  of interest.  Loss of  interest in the place of the right  to remain in possession may be rightfully claimed in  equity   by  the  owner  of  a  property  who  has  been dispossessed from it.      We may  now refer  to the  case law.  We may  start the discussion of  the topic  with the  case  of  Bengal  Nagpur Raiiway Company Limited v. Ruttanji Ramji (65 Indian Appeals 66). There  certain rates  of payment under an agreement for the construction  of a railway line were abandoned by mutual consent of the parties and the contractor was required to be paid at  rates which  were fair  and reasonable for the work done. The question arose whether the contractor was entitled to be  paid interest on the amount which the Railway Company was liable  to pay. The Privy Council found that the railway was liable  to pay  to the plaintiff an amount of Rs.66,980- 10-6 on  July 26,  1925. The suit for recovery of the amount was filed  on November 29, 1927. The Privy Council held that award of  interest from  the date  of the institution of the

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suit was  governed by  s. 34  of the Code of Civil Procedure and went on to observe that the crucial question was whether the court  had authority  to allow  interest for  the period prior to the institution of the suit. They observed that the solution of the question depended not upon the Code of Civil Procedure out  upon substantive law. Interest for the period prior to  the date  of suit  may be  awarded if there was an agreement for  the payment of interest at a fixed rate or it was payable by the usage of trade having the force of law or under the provision of H 262 any substantive  law  entitling  the  plaintiff  to  recover interest. Section  80 of  the Negotiable Instruments Act was cited as  a provision of the substantive law under which the court may  award  interest  when  no  rate  of  interest  is specified in the promissory note or bill of exchange. In the case before  them however,  they observed  there was neither usage nor  any contract,  express or implied, to justify the award of interest. Interest was not payable by virtue of any provision of  the law governing the case. Under the interest Act of  1839, the  court may allow interest to the plaintiff if the amount claimed is a sum certain which is payable at a certain time  by virtue  of a written instrument. But it was conceded that  the amount  claimed in the case was not a sum certain. Referring to the provisions of s. 1 of the Interest Act which stated that interest shall be payable in all cases in which interest was then payable by law, the Privy Council observed that  the proviso  applied to  cases in  which  the court  of   equity  exercised   the  jurisdiction  to  allow interest. But  then they  said that the case before them did not attract  the jurisdiction  of the  court. An  example of cases which  attract the equitable jurisdiction of the court to award  interest was  given as  the  nonperformance  of  a contract of  which equity  could give  specific performance. Considering next  the question  whether  interest  could  be awarded by  way of damages, it was held that it could not be so done. It was categorically stated that interest could not be allowed  by way  of damages. It was also pointed out that in England,  the law  had been  amended by  the  Law  Reform Miscellaneous Provisions  Act which  empowered  a  court  of record to-award  interest on  whole or  any part of damages. But there was no such amendment of the law in India (at that time).      Seth Thawardas Pherumal v. The Union of India, [1985] 2 SCR 48 was a case which arose out of a decision of the Patna High Court,  which is  reported in  Union of  India v.  Prem Chand Satnam  Das, AIR  1951 Patna  201. Some.  Of the facts have been  taken by  us from  the judgment of the Patna High Court as  those facts  were not evident from the judgment of this court.  Pursuant to  clause 14  of the contract between the Dominion of India and the contractor which provided that all disputes  arising out  of or  relating to  the  contract should  be   referred  to  the  Superintending  Engineer,  a reference was made on January 21, 1949 and an award followed on  May  8,  1949.  Before  the  arbitrator  the  contractor submitted a  claim under  17 heads. Item No. 17 as mentioned in  the   Statement  of  claim  before  the  arbitrator  was "interest on  the amount  of money involved in this claim at the rate  of six  per cent-Rs.27,665. This work was finished in May  1946 and  it was  proper for  the Department to have decided all our claims at least by 263 31st December, 1947 .. But this was not done. Due to this, a heavy amount  remained blocked and we were compelled to take money from  our bankers on interest. We pray, therefore, for

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interest for  15 months  from January  1, 1948  to March 31, 1949." The  arbitrator held: "The contract’s contention that his claims  should have  been settled by January 1948 is, in my opinion,  reasonable. I, therefore, award interest at six per cent  for sixteen  months on  the total  amount  of  the awards  given,  that  is,  Rs.17,363".  The  question  arose whether the  arbitrator could  award the interest? The Patna High Court  noticed that  the contractor did not include any claim for  interest for  the period March 3 1, 1947 to April 20, 1949  in the  bill originally  submitted by  him to  the Chief Engineer  and that  the claim  was made  for the first time before  the  arbitrator  during  the  progress  of  the arbitration proceedings.  The High  Court also  noticed that the Executive  Engineer who  appeared on behalf of the Union of  India  before  the  arbitrator  did  not  seem  to  have submitted to  the jurisdiction  of the  arbitrator to decide the question  of interest.  In those circumstances, the High Court held  that it  could not  be said  that the  claim for interest was one of the matters referred to arbitration. The arbitrator, it  was, therefore, held, had no jurisdiction to entertain the claim and award interest. In the appeal by the contractor, the  Supreme Court  noticed that the claim under each  head   on  which  interest  was  awarded  was  for  an unliquidated sum  and observed  that in  that kind  of case, interest was  not payable  by  law  otherwise  than  by  the application of  the Interest  Act. Reference was made to the Bengal Nagpur  Rly. Co.  v. Ruttanji Ramji, 65 I.A. 66 as an authority for  that proposition. The Court then proceeded to say that  even if  an arbitrator  could be  assumed to  be a court within the meaning of the Act, which he did not appear to be,  none of  the four  conditions, which  required to be fulfilled, was  present in the case before them. It was then said that  the arbitrator erred in thinking he had the power to allow  interest simply  because he thought the demand was reasonable.  A  further  argument  that  interest  could  be awarded at least from the date of the suit on the analogy of sec. 34  of the  Civil Procedure  Code was repelled with the following observations:  "It was  suggested  that  at  least interest from  the date  of suit  could be  awarded  on  the analogy of  sec. 34  of the  Civil Procedure Code, 1908. But sec. 34  does not apply because an arbitrator is not a court within the  meaning of  the Code  nor does the Code apply to arbitrator, and, but for sec. 34 even a court would not have the power  to  give  interest  after  the  suit.  This  was, therefore, also  rightly struck  out from  the award." These observations  of   Bose,  J.   gave  rise   to  considerable difficulty in  later cases,  but in  the  series  of  cases, Nachiappa Chettier  v. Subramaniam  Chettier, [1960]  2  SCR 209; Setinder Singh v. Amrao Singh, [1961] 3 264 SCR 676; Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., [1967]  1 SCR  lO5; Union  of  India  v.  Bungo  Steel Furniture Pvt.  Ltd., [  1967] 1 SCR 324 and State of Madhya Pradesh v. M/s. Saith & Skelton Pvt. Ltd., [1972] 3 SCR 233, these observations  have been explained and it was held that the observations  never intended  to lay  down the broad and unqualified proposition  that they appeared to lay down on a first impression. We will presently refer to these cases. At this  juncture,  it  is  necessary  to  note  that  in  Seth Thawardas  Pherumal’s   case  the  question  of  payment  of interest was  not the  subject matter  of reference  to  the arbitrator  and   that  the   interest  claimed  before  the arbitrator and  awarded by  the arbitrator  related  to  the period prior  to the reference to arbitration and the period during the  pendency of  the arbitration.  It is  also to be

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noted that the reference was not in the course of a suit.      Nachiappa Chettier v. Subramaniam Chettier, (supra) was a case  of arbitration  in a  suit. The  arbitrator made  an interim award  on August  1, 1944  and December  6, 1944. He awarded interest  pendente   lite as well as future interest until the  date of  payment. Relying  on the observations in Seth Thawardas  Pherumal v.  Union of  India, the  award  of interest was  questioned.  The  court  doubted  whether  the observations in Seth Thawardas Pherumal’s case were intended to lay  down such  a broad  and unqualified proposition, but did not pursue the matter further as that contention was not urged before the High Court. E      Satinder Singh  v. Amrao Singh (supra) was a case which arose under  the East  Punjab Acquisition and Requisition of Immovable Property  (Temporary) Powers  Act, 1948.  The  Act containd no provision for payment of interest. It was argued that in  the absence  of a  provision providing for interest could be  awarded. The court approved the observation of the Privy Council  in 1928  A.C. 429  that where  the  owner  is deprived of  his property "the right to receive the interest takes the  place of  the right  to retain  possession and is within the  rules." The  court then observed, "it would thus be noticed  that the  claim for  interest  proceeds  on  the 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." and held that this general rule was not excluded by the 1948 Act. Referring then to the observations in  Seth Thawardas  Pherumal v. Union of India, (supra) what  was said  in Nachiappa Chettier v. Subramaniam Chether,  (supra)   was  reitereated   that  no   broad  and unqualified proposition was intended to be laid down in Seth Thawards Pherumal  v. The  Union of  India. Referring to the Interest Act and the power of the Court to allow 265 interest, it  was expressly noticed that the proviso to sec. 1 of  the Interest  Act, 1939  made it  clear that  interest shall be payable in all cases in which it was now payable by law. The  power to  award interest  on equitable  grounds or under any  provisions of  the law  was held  to be expressly saved  by   the  proviso.  The  award  of  interest  by  the arbitrator was  upheld on  the  ground  that  the  right  to receive interest in lieu of possession of immovable property taken  away  either  by  private  treaty  or  by  compulsory acquisition was  generally regarded by judicial decisions as an equitable right.      In Union  of India  v. Watkins  & Co. (AIR 1966 SC 275, the question  arose when  interest could  be awarded for the period prior to the date of the institution of the suit. The suit there  was for  compensation for  storage of  over  600 tonnes of  iron sheets  for a period of about five years. It was held  that interest  could not be awarded for the period prior to  the suit as there was no agreement for the payment of interest  nor was  their any  usage of  trade having  the force of  law or  any provision of the substantive law which entitle  the   plaintiff  to  recover  interest.  Under  the Interest Act,  1839, the  court could  allow interest if the amount claimed was a sum certain, payable at a certain time, by virtue  of a  written instrument. The compensation for an unliquidated amount was not a sum certain. Interest prior to the institution of the suit was not awardable.      In Union  of India  v. West Punjab Factories, [ 1961] 1 SCR 580,  it was  held, that  in a  suit, interest by way of damages could  not be awarded in the absence of any usage or contract, express  or implied,  or of  any provision of law. Bengal Nagpur  Railway Co.  v. Ruttanji  Ramji, (supra)  and

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Seth Thawardas  Pherumal v.  Union of  India,  (supra)  were relied on      Firm Madanlal  Roshanlal Mahajan  v.  Hukumchand  Mills Ltd. (supra) was a case where the arbitration was in a suit. Before the  arbitrator, no claim was made for interest prior to the  institution of  the suit,  but interest  was claimed from the  date of  institution of  the suit till recovery of the amount.  The arbitrator  awarded  interest  on  the  sum determined by  him from  the date of the award till the date of payment.  The award  was then  filed in the court. One of the objections  was to  the grant  of  interest  during  the pendency of  the suit  relying on  the observations  of Seth Thawardas Pherumal  v. Union  of India, (supra) that sec. 34 CPC did  not apply  to arbitration  proceedings.  The  court observed that  the observations  lent colour to the argument that the  arbitrator had  no power  to award  pendente  lite interest, but the obser- 266 vations were  not intended  to lay  down such  a  broad  and unqualified proposition.  A reference  was made to Nachiappa Chettier v. Subramaniam Chettier, (supra) and Satinder Singh v. Amrao  Singh, (supra).  It was  further observed  "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  entitled to  pendente lite interest.  The arbitrator  could decide the dispute and we could  award pendente lite interest just as a court could do so  under sec. 34 of the Civil Procedure Code. Though, in terms, s.  34 of  the Code of Civil Procedure does not apply to arbitrations,  it was an implied term of the reference in the suit  that  the  arbitrator  would  decide  the  dispute according to  law and  would give such relief with regard to pendente 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 condention  that in an arbitration in a suit the arbitrator  had no power to award pendente lite interest must be  rejected." Thus while the court did not dispute the proposition that  the arbitrator  was not  a court,  it held that in  a case  where the reference was made to arbitration in a  suit, the  arbitrator would have the same power as the court to award interest.      In Union  of India  v. Bungo  Steel  Furniture  Private Limited, [1957]  1 SCR  324, certain  disputes  between  the Union of  India and  a  contractor  in  respect  of  certain contracts for  the supply  of  bedsteads  were  referred  to arbitration. The  question arose  whether the arbitrator had jurisdiction to  award interest  on the  amount found due by the arbitrator  from the  date of the award till the date of the decree.  This of  course is  not the question before us. But even  so we  must say that the observations made therein appear prima  facie to justify the view that interest may be awarded by  the arbitrator  pendente lite. Ramaswamy, J. who spoke for the court, observed that the observations of Bose, B. in  Seth  Thawardas  Pherumal’s  case  (supra)  were  not intended to  lay down  any broad and unqualified proposition and that  though sec.  34 of the Code of Civil Procedure did not apply in terms to arbitration proceedings, the principle of that  section would  be applied  by  the  arbitrator  for awarding interest  in the  classes of  cases where the court having jurisdiction in a suit over the subject matter or the proceeding would be competent to award interest. It was said "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 opinion, the arbitrator

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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." The words emphasised by us clearly show that in this case 267 too, the  arbitration was  in a  suit and  it was therefore, held that  the  arbitrator  had  the  same  power  to  award interest as the court would h ave .      In M/s.  Ashok Construction  Company v. Union of India, [1971]  3   SCC  66,   there  was   an  arbitration  on  the intervention of  the Court (Deputy Commissioner). Before the arbitrator, a  total  claim  for  Rs.4,41,440.20p  was  made consisting of  a claim  of Rs.64,006.71  for works  done,  a claim for  Rs. l,83,393.77p  for damages  at 13 per cent per annum and  a claim  for Rs.1,91,097.88p  for depreciation of the value  of money.  The arbitrator made an award for a sum of Rs.1,79,843,80p.  He gave  no reasons  for his award. The last item of the claim was wholly unjustified, but there was nothing to  show that the arbitrator had taken that claim of account in  making the  award. Considering  the question  of award of  interest by  way of damages, the court referred to the arbitration  agreement and  on its  interpretation  held that the  terms of the arbitration agreement did not exclude the jurisdiction of the arbitrator, to entertain a claim for interest, award amount due under the contract      In State  of Madhya  Pradesh v. M/s. Saith & Skelton P. Limited, [1972]  3 SCR 233, with the consent of the parties, the Court  appointed an  arbitrator  and  referred  all  the disputes to  him. The  arbitrator awarded  interest from the date when  the amount  became payable  till the  date of the decree. The  question arose  whether the  arbitrator had the power to  do so.  It was held that, in the case before them, interest prior to the suit could be awarded under sec. 61(2) of the  Sale of Goods Act, 1930 which expressly provides for the award  of interest  to the seller in any 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 and to the buyer  in a suit by him for the refund of the price in a case of  the breach  of contract  on the part of the seller- from the  date on which the payment was made. In view of the provision of  substantive law  which enabled  the  award  of interest it  was held  that interest prior to the suit could be awarded  by the  arbitrator. In  regard to  pendente lite interest, it  was held  that since  all  the  disputes  were referred to arbitration by the court, the arbitrator had the same power as the court to award the pendente lite interest.      As a  result of the discussion of the various cases, we see that  Bengal Nagpur  Railway Company  Ltd.  v.  Ruttanji Ramji, (supra),  Union of  India v.  West Punjab  Factories, (supra) and  Union of  India v.  Watkins &  Co. (supra) were cases of award of interest not by an 268 arbitrator, but  by the  court. It  was laid  down in  these three cases  that interest  could  not.be  awarded  for  the period prior  to the suit in the absence of an agreement for the payment  of interest  or any  usage of  trade having the force of  law  or  any  provision  of  the  substantive  law entitling the  plaintiff to recover interest. Interest could also be  awarded by  the court under the Interest Act if the amount claimed  was a  sum certain payable at a certain time by virtue  of a  written instrument.  In regard  to pendente lite interest,  the-provisions of  the Civil  Procedure Code governed the same.      The question  of award of interest by an arbitrator was considered in  the remaining cases to which we have referred

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earlier. Nachiappa Chettier v. Subramanian Chettier, (supra) Sattinder  Singh  v.  Amrao  Singh  (supra),  Firm  Madanlal Roshanlal Mahajan v. Hukum Chand Mills Ltd. (supra) Union of India v.  Bungo Steel  Furniture  Private  Limited  (supra), Ashok Construction  Company v.  Union of  India, (supra) and State of  Madhya Pradesh  v. M/s.  Saith &  Skelton  Private Limited were all cases in which the reference to arbitration was made  by the  court, of all the disputes in the suit. It was held  that the  arbitrator  must  be  assumed  in  these circumstances to  have the  same power  to award interest as the court.  It was  on that basis that the award of pendente lite interest  was made  on the  principle of  s.  34  Civil Procedure Code in Nachiappa Chettier v. Subramaniam Chettier (supra), Firm Madanlal Roshanlal Mahanan v. Hukamchand Mills Limited, (supra),  Union of India v. Bungo Furniture Private Limited, (supra) and State of Madhya Pradesh v. M/s. Saith & Skelton Private  Limited, (supra).  In  regard  to  interest prior to the suit, it was held in these cases that since the Interest Act,  1839 was  not applicable,  interest could  be awarded if there was an agreement to pay interest or a usage of trade  having the  force of law or any other provision of substantive law  entitling the claimant to recover interest. Illustrations of  the provisions  of substantive  law  under which the arbitrator could award interest were also given in some of the cases. It was said, for instance, where an owner was deprived  of his property, the right to receive interest took the  place of  the right  to retain possession, and the owner of  immovable property  who lost possession of it was, therefore, entitled  to claim interest in the place of right to retain  possession. It  was further said that it would be so whether  possession of  immovable property was taken away by private  treaty or  by  compulsory  acquisition.  Another instance where  interest could be awarded was under s. 61(2) of the  Sale of  Goods Act  which provided  for the award of interest to  the seller  or the  buyer, as  the case may be, under the circumstances specified in that section. 269      Sec. 80 of the Negotiable Instruments Act was mentioned as an  instance of  a provision of the substantive law under which interest  prior to  the institution of the proceedings could be awarded. Interest could also be awarded in cases of non-performance of  a contract  of which  equity could  give specific performance.  Seth Thawardas Pherumal was a case of direct reference  to arbitration without the intervention of a court.  Neither the  Interest  Act,  1839  nor  the  Civil Procedure Code  applied as  an arbitrator  was not  a court. Interest could,  therefore, be  awarded only if there was an agreement to  pay interest  or a  usage of  trade having the force of  law or some other provision of the substantive law which entitled  to plaintiff  to receive  interest. In  that case, interest  had been  awarded on  the ground that it was reasonable to  award interest and the court, therefore, held that the arbitrator was wrong in awarding the interest.      While this  is the  position in cases which arose prior to the coming into force of the Interest Act, 1978, in cases arising after the coming into force of the Act, the position now is  that though  the award  of pendente lite interest is still governed by the same principles, the award of interest prior to the suit is now governed by the Interest Act, 1978. Under  the   Interest  Act,   1978,  an  arbitrator  is,  by definition, a  court and  may now  award interest in all the cases to which the Interest Act applies.      We were  referred  to  certain  English  cases:  London Chatham and  Dover Rly. Co. v. South Eastern Ply. Co., [1893 AC 429],  Chandris v.  Isbrandtsen Mollar  Co., [1951]  1 KB

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240, Timber  Shipping Co.  v. London  & overseas  Freighters Ltd., [1972]  AC 1  and President of lndia v. La Pintada Cia Navegacion, [1984]  2 All  Eng. Law  Reports. Passages  from Halsbury’s Laws  of England  and Russell’s  Arbitration were also read  out. We  have  read  them  out  we  refrain  from referring  to  those  cases  and  passages  because  of  the abundance of  authoritative pronouncements  of  the  Supreme Court of India.      Coming to  the cases  before us,  we find that in Civil Appeal Nos.  120 and  12 1  of 1981  before the  arbitrator, there was  no answer to the claim for interest and we see no justification for  us at  this stage to go into the question whether interest  was rightly  awarded or  not. Out  of  the remaining cases  we find that in all cases except two (Civil Appeal Nos.  6019-22 of  1983 and  Civil Appeal  No. 2257 of 1984, the  references to  arbitration were made prior to the commencement of the new Act which was on August 19, 1981. In the cases  to which  the Interest  Act, 1978 applied, it was argued by Dr. Chitale, learned counsel for H 270 the respondents,  that the  amount claimed was a sum certain payable at  a certain time by virtue of a written 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 of Rajasthan v. Raghubir Singh, [ 19791 3 SCR 6. The case certainly supports him and in the cases to which the  1978. Interest  Act applies the award of interest prior to  the proceeding  is not open to question. In regard to pendente  lite interest,  that is, interest from the date of reference  to the  date of the award, the claimants would not be  entitled to  the same for the simple reason that the arbitrator is  not a  court within the meaning of sec. 34 of the CPC,  nor were the references to arbitration made in the course of  suits. In  the remaining cases which arose before the commencement  of the Interest Act, 1978, the respondents are  not  entitled  to  claim  interest  either  before  the commencement of  the proceedings  or during  the pendency of the arbitration. They are not entitled to claim interest for the period  prior to  the commencement  of  the  arbitration proceedings for  the reason that the Interest Act, 1839 does not apply  to their  cases and  there is no agreement to pay interest or  any usage  of trade  having the force of law or any other  provision of  law under  which the claimants were entitled to recover interest. They are not entitled to claim pendente lite  interest as the arbitrator is not a court nor were the references to arbitration made in suits. One of the submissions made  on behalf  of the  respondents was that in every case,  all disputes  were referred  to arbitration and the jurisdiction  of the  arbitrator to award interest under certain circumstances  was undeniable. The award not being a speaking award,  it was  not permissible to speculate on the reasons for  the award  of interest  and the  court was  not entitled to  go behind  the award and disallow the interest. It  is   difficult  to   agree  with  this  submission.  The arbitrator is  bound to  make his  award in  accordance with law. If  the arbitrator  could  not  possibly  have  awarded interest on  any permissible  ground because such ground did not exist,  it would  be open  to the court to set aside the award relating  to the award of interest on the ground of an error apparent  on the  record. On  the other hand, if there was the  slightest possibility  of the  entitlement  of  the claimant  to  interest  on  one  or  other  of  the  legally

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permissible grounds,  it may  not be open to the court to go behind the  award and  decide whether  the award of interest was justifiable.  We do  not want to enter into a discussion on the  legality or properiety of a non-speaking award as we understand the  question is  now awaiting  the decision of a Seven Judge  Bench. In the light of what we have said above, Civil Appeal Nos. 120 271 and 121  of 1981 are dismissed, Civil Appeal Nos. 6019-22 of 1983 and A Civil Appeal No. 2257 of 1984 are allowed to this extent that  interest during the pendency of the arbitration proceedings is  disallowed and the rest of the civil appeals are allowed  to the  extent that  both interest prior to the proceedings  and   interest  during   the  pendency  of  the proceedings are  disallowed. There  will be  no order  as to costs. S.L.P.8640/81 is disposed of on the same lines. N.V.K. 272