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CASE NO.: Appeal (civil) 3586  of 1984.         Appeal (civil)  710-711  of 1981        Appeal (civil)  6808-009         of 1983     Appeal (civil)  6810     of 1983        Appeal (civil)  10649    of 1983        Appeal (civi l)      779      of 1982        Appeal (civil)  2723     of 1983

PETITIONER: DIVISION ETC.  ETC.

       Vs.

RESPONDENT: N.C.BUDHARAJ(DEAD) BY L.RS.ETC.ETC.

DATE OF JUDGMENT:       10/01/2001

BENCH: G.B.Pattanaik

JUDGMENT:

PATTANAIK,J. L.....I.........T.......T.......T.......T.......T.......T..J

     I  have  gone through the two judgments of two  of  my Brother  Judges, on the question of the jurisdiction of  the Arbitrator  to  grant interest for the period prior  to  the reference.   While  Brother  Justice Raju has  come  to  the conclusion  that the arbitrator does possess the said power, Brother  Justice  Mohapatra,  has  taken  a  contrary  view. Having considered both the view points, I have not been able to  persuade myself to agree with the conclusion of  Brother Raju, J, and I entirely agree with the conclusion of Brother Mohapatra, J.  But in view of the importance of the point, I am tempted to indicate my views in few paragraphs.

     The  power of the arbitrator to award interest for the period  prior to entertaining upon the reference as well  as the  period  the reference was pending before  him  pendente lite  was considered by this Court in Thowardas, 1955(2) SCR 48,  and also by the Privy Council in Bengal Nagpur  Railway co.   Ltd.  vs.  Ruttanji Ramji, 65 IA 66.  Between 1960 and 1972  in  several decisions, which have been referred to  by the  Constitution  Bench in G.C.Roys case, 1992(1)SCC  508, the  question  of power of the arbitrator to award  interest has  been considered but without any detailed discussion, it has  been held that the arbitrator possesses the power since the  reference  to arbitrator was made by the Court and  all the  disputes  in  the  suit stood  referred.   This  Court, therefore, came to the conclusion that on the application of the  principle  of Section 34 of the Civil  Procedure  Code, pendente  lite interest could be awarded by the  arbitrator. But  so  far as the power to award interest for  the  period prior  to  the reference is concerned, only in the  case  of Ashok  Construction Co., 1971(3) SCR 66, this court no doubt held  that  the arbitrator has the power to  award  interest from  the date the amount is due under the contract, on  the ground  that  the arbitration agreement did not exclude  the jurisdiction  of the arbitrator but the earlier decision  of

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the  Court either in Thawardas or in Bengal Nagpur  Railway, deciding  to the contrary, had not been noticed and in  fact the  question  had  been  disposed of  in  one  sentence  in paragraph(6).   While  this was the position, for the  first time,  this  Court  made  an in- depth  examination  of  the question  in  Jenas case, 1988(1) SCC 418.   Three  learned judges  considered  the  competence  of  the  arbitrator  on reference made without intervention of the Court and came to the  conclusion  that  in cases, which arose  prior  to  the commencement  of the Interest Act, 1978, the arbitrator  did not have the power to grant interest either pendente lite or for the period prior to the reference.  In this case, though several English cases have been cited, including the case of Chandris, but the Court refrained from referring, in view of the  abundance of authoritative pronouncement of the Supreme Court.   Since the Interest Act of 1839 did not confer power on  the  arbitrator  to  award interest,  the  Court  looked elsewhere for that power of the arbitrator to award interest up  to the institution of the proceeding but could not  find any  such  power,  and, therefore, ultimately  came  to  the conclusion  that the arbitrator did not possess any power to award  interest for the pre-reference period.  So far as the power  of  arbitrator  to grant interest  pendente  lite  is concerned,  the  Court  held that Section 34  of  the  Civil Procedure  Code could be made applicable to arbitrations  in suit   and,  therefore,  when  a  dispute  is  referred   to arbitrator  in  suit, the arbitrator will have the power  of the  Court  in deciding the dispute, but not otherwise.   In other  words, in case of an arbitration proceeding, where  a reference  is made to the arbitrator, not by the Court in  a pending   suit,  but  otherwise,  in  accordance  with   the arbitration  clause  in agreement, then the arbitrator  also did not possess the power to award pendente lite interest as the  arbitrator  cannot  be  held  to be  a  Court.   It  is necessary to bear in mind, it was held in no uncertain terms that  there is no substantive law which can be said to  have conferred  power on the arbitrator to award interest, before the  commencement  of  the  proceedings,  that  is  for  the pre-reference  period.   This  decision of the  three  Judge Bench,  operated  the  field  till  the  Constitution  Bench decision   in   G.C.Roys  case,   1992(1)  SCC  508.    The Constitution Bench over-ruled the conclusion in Jenas case, so far as it related to the power of the arbitrator pendente lite is concerned.  Even in G.C.Roys case, the Constitution Bench,  itself held that the earlier decisions of the  Court in  Rallia Ram, 1964(3) SCR, 164, Bengal Nagpur Railway,  65 IA  66,  AND  Thawardas, 1955(2) SCR 48, what  was  held  in relation  to  the power of the arbitrator to award  interest for pre-reference period is because of the fact, as a matter of substantive law, no such power was available and as such, the  ratio  in  that case cannot have any relevance  on  the question  of  arbitrators power to award interest  pendente lite.   The  Constitution  Bench did record a  finding  that interest  pendente lite is not a matter of substantive  law, like  interest  for the period anterior to  reference.   The Constitution  Bench  also very carefully expressed  Untill Jenas case, almost all the Courts in the country had upheld the  power  of  the arbitrator to  award  interest  pendente lite.  Even when the earlier Constitution Bench decision in the  case of Union of India vs.  West Punjab Factories Ltd., 1966(1)  SCR 580, approving Thawardas, Bengal Nagpur Railway Co.,and  Rallia Ram, was brought to the notice of the Court, it  was observed that not only the said case was not a  case under Arbitration Act but also it approved Thawardas only so far  as the power to grant interest prior to the institution

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of  the  suit and not so far as the power to award  interest pendente  lite  is concerned.  If the Constitution Bench  in the  case of Union of India vs.  West Punjab Factories Ltd., approved Thawardas, Bengal Nagpur Railway and Rallia Ram and held  that even in a suit, interest prior to the institution of  the suit cannot be granted, following the principles  in Thawardas  and  two others, which decided the power  of  the arbitrator  in  relation  to  the   grant  of  interest  for pre-reference period, it is unimaginable on my part to think that an arbitrator does possess the power on the ground that otherwise  it would lead to multiplicity of proceedings.  It would be appropriate for me to indicate that in G.C.Roy, the ratio of Thawardas, Bengal Nagpur Railway and Rallia Ram had not  been  doubted  even, and possibly could not  have  been doubted   in  view  of  its   acceptance  by   the   earlier Constitution  Bench  decision  in Union of India  vs.   West Punjab  Factories  Ltd.,  so far as the power  of  award  of interest  for  the pre-reference period is concerned.   Even subsequent to Roys case, there have been decisions of three Judge  Bench and two Judge Bench, which have been noticed by Mohapatra,  J  in  his judgment, including the  judgment  of Justice  Jeevan  Reddy, who was a party to the  Constitution Bench   in  G.C.Roy,  reiterating   the  principle  that  an arbitrator  does not possess the power to award interest for a  pre-  reference period.  [see Jugal Kishore, 1993(1)  SCC 114,  B.N.Agarwala,  1993(1) SCC 140(in this case  both  the learned  judges, Justice Jeeval Reddy and Justice G.N.   Ray were   party   to  the   Constitution  Bench   decision   in G.C.Roy’scase)  and  B.N.Agarwala, 1997(2) SCC  469].   The arbitration proceeding has been a racket in this country and in  construing  the  law in relation to the  powers  of  the arbitrator,  the Courts must construe the provisions of  the law  rather  strictly.   Courts would not  be  justified  in construing  the provisions and providing for something which is not there in the Act and it is in this context, I express my  utter  inability  to  construe  the  provisions  of  the Interest  Act,  1839  and  interpret  the  same  to  have  a meaningful   and  purposeful  object.   To  hold   that   an arbitrator  possesses  the power to award interest even  for the pre-reference period, would tantamount to legislation in that  respect and would be contrary to the well reasoned and well  discussed  decisions  of  this  Court,  starting  from Thowardas as well as the decision of Privy Council in Bengal Nagpur  Railway, which decisions though noticed in G.C.Roys case,  but  have the approval of the Constitution  Bench  in West  Punjab  Factories  case, though the case  was  not  on arbitration  but  was  of a five Judge  Bench  decision  and possibly,  it  would not be proper for this Bench to take  a view contrary to the same.  The fact that the arbitrator has the  power to deal with and decide disputes which cropped up at  a  point  of  time,   would  certainly  not  clothe  the arbitrator  with  any power, which neither any  law  confers upon him nor there is any usage of trade having the force of law  nor  is  there  any   agreement  between  the   parties conferring  that power.  It is difficult for me to  conceive that  such  power could be conferred upon an arbitrator  for the  pre-reference period on the supposition that he must be presumed to have the power to grant interest as an accessory or  incidental to the sum awarded as due and payable.  It is not  the question of absence of any specific stipulation  in the  contract  but  the correct criteria should  be  whether there  is  a positive provision in the contract,  conferring the   power  to  the  arbitrator   to  award  interest   for pre-reference period.  I need not discuss any

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     further  in  view  of  my  concurrence  with   Brother Mohapatra,J.  So, the appeals must be allowed.