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CASE NO.: Appeal (civil) 3586  of 1984         Appeal (civil)  710-711  of 1981        Appeal (civil)  6808-6809        of 1983     Appeal (civil)  6810     of 1983        Appeal (civil)  10649    of 1983        Appeal (civi l)      779      of 1982        Appeal (civil)  2723     of 1981

PETITIONER: STATE OF PUNJAB

       Vs.

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

DATE OF JUDGMENT:       10/01/2001

BENCH: S.R.Babu, Doraswamy Raju, S.P.Patil

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     J U D G M E N T

     RAJU, J.

     The  principal  question  arising in all  these  civil appeals  and stand referred to for the consideration of  the Constitution  Bench is as to whether the Arbitrator has  got jurisdiction  to award interest for the pre-reference period in cases which arose prior to the commencement into force on 19.8.1981  of the Interest Act, 1978, when the provisions of the  Interest  Act  1839 was holding the field.   The  cases before  us  relate  to the appointment  of  the  Arbitrators concerned  by  the  specified authority, on  a  demand  made therefor   by   the  contractor    concerned   without   the intervention of the Court.  The Arbitrators concerned, while sustaining  portions  of the claim made in the  Awards  also allowed  on those amounts interest from the due date of  the amount  till  date of Award.  On the Awards being  made  the Rule  of  Court, as per the determination made by the  Civil Court,  the  State pursued the matter before the High  Court unsuccessfully and the High Court sustained the claim of the contractor  for interest from the due date up to the date of the  Award.   Aggrieved, the above appeals came to be  filed and  entertained  on certain limited and specified  grounds, inclusive  of the dispute relating to the Award of  interest for the period prior to the date of the Award.

     The  Bench  of  three learned judges,  who  heard  the appeals  initially,  considered it necessary to refer  to  a larger  Bench  for  an   authoritative  pronouncement,   the following question of law:

     In  the absence of any prohibition to claim or  grant

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interest  under the arbitration agreement whether Arbitrator has  no jurisdiction to award interest for the pre-reference period  under  the  general  law  or  equitable  principles, although  such  claim  may  not  strictly  fall  within  the provisions  of Interest Act, 1839 ? (since reported in 1999 (9) SCC 514)

     The  order  of reference also further  indicated  that there  is no clause in the agreement as regards the  payment of  interest for the pre-reference period and that there  is also  no clause prohibiting the payment of interest for  the pre- reference period.

     Before adverting even to the respective contentions of parties  on  either side and undertaking a consideration  of the  same,  it  would be necessary to refer to some  of  the decisions  of  this Court and highlight the principles  laid down  therein, since the chore of controversy centres around the  efficacy  and effect of those principles on  the  issue raised  and  stand  referred  to this  Bench.   The  leading decision  which undertook an analysis of the case law on the subject  and  laid  down  certain  propositions  of  law  is reported  in  Executive Engineer (Irrigation), Balimela  and Others vs Abhaduta Jena and Others [(1988) 1 SCC 418] (to be referred  to hereinafter as Jenas Case).  In paragraph  4 of the judgment, the general state of law is found stated as follows:

     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 up to 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 Section 34 of the Civil Procedure Code  in the  case  of  courts.   Section  34,  however,  applies  to arbitrations  in  suit  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 Section 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 Interest Act of 1978 an arbitrator has  the same power as the court to award interest up to 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 up to 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 substantive 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

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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  Section  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 Section 61 (2) of  the  Sale of Goods Act which provides 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  non-performance  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.

     After considering the earlier cases on the subject, it has  been  observed  thus:  16.  The question of  award  of@@                      JJJJJ interest  by  an arbitrator was considered in the  remaining cases to which we have referred earlier.  Nachiappa Chettiar v.   Subramaniam  Chettiar, Satinder Singh v.  Amrao  Singh, Firm  Madanlal Roshanlal Mahajan v.  Hukumchand Mills  Ltd., Union  of India v.  Bungo Steel Furniture Pvt.  Ltd.,  Ashok Construction  Co.   v.  Union of India and State  of  Madhya Pradesh  v.  M/s Saith & Skelton Pvt.  Ltd.  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 those 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 Section 34 Civil  Procedure  Code  in Nachiappa  Chettiar v.  Subramaniam Chettiar, Firm  Madanlal Roshanlal  Mahajan v.  Hukumchand Mills Ltd., Union of India v.   Bungo Furniture Pvt.  Ltd.  and State of Madhya Pradesh v.   M/s  Saith & Skelton Pvt.  Ltd.  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 Section  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.

     17.   Section 80 of the Negotiable Instruments Act was

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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  the 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.

     18.   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.

     Thereupon,  dealing  with the cases before  them,  the general  principles  noticed  were  applied  and  they  were disposed of in the following terms:

     20.   Coming to the cases before us, we find that  in Civil   Appeal  Nos.   120  and   121  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 reference 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 applies,  it  was argued by Dr Chitale, learned counsel  for 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.   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 Section  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

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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 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 propriety 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 and 121 of 1981 are dismissed,  Civil  Appeal  Nos.  6019-22 of 1983  and  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.

     The decision, which equally need a detailed reference, is  that  of  Constitution   Bench  reported  in  Secretary, Irrigation  Department,  Government of Orissa and Others  vs G.C.   Roy  [(1992) 1 SCC 508] (hereinafter referred  to  as Roys  case).   Of  the two issues raised  in  the  appeal therein,  the  one which related to the jurisdiction of  the Arbitrator to award pendente lite interest when taken up for hearing  before  a  Bench, the correctness  of  Jenas  case (supra)  insofar as it held that the Arbitrator had no power to  award  interest pendente lite was contested and  on  the view  taken  by that Bench that the said  question  required further  consideration  by  a larger Bench, the  matter  was placed  before  the  Constitution  Bench.   Ultimately,  the Constitution  Bench  held that the decision in  Jenas  case (supra)  does not lay down good law and where the  agreement between  the parties does not prohibit grant of interest and where  a party claims interest and that dispute (along  with the claim for principal amount or independently) is referred to  the Arbitrator, he will have the power to award interest pendente lite, for the reason that in such a case it must be presumed  that interest was an implied term of the agreement between  the  parties  and therefore the parties  refer  all their disputes - or refer the dispute as to interest as such to  the Arbitrator- which he shall have power to decide.  It was also emphasised therein that the matter being one within the  discretion of the Arbitrator - the same requires to  be

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exercised in the light of all facts and circumstances of the case, keeping the ends of justice in view.

     The  Constitution  Bench,  which  decided  Roys  case (supra)  after a critical analysis of the earlier  decisions including the one in Jenas case (supra), held as follows:

     43.   The  question still remains whether  arbitrator has  the power to award interest pendente 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 the  disputes  or differences  arising between the parties.  If the arbitrator has  no  power  to award interest pendente 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 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  pendente lite.  Thawardas 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 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.

     (v)  Interest  pendente  lite  is   not  a  matter  of substantive  law,  like interest for the period anterior  to reference   (pre-reference  period).    For  doing  complete

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justice  between  the  parties, such power has  always  been inferred.

     While  overruling Jenas case on the above principles, this  Court applied the principle of prospective  overruling making  it  clear that their decision shall not entitle  any party  nor shall it empower any Court to re-open proceedings which  have  already become final and that the law  declared shall apply only to pending proceedings.

     The area of consideration and the questions which fell for  the determination of the cases in Jenas case and Roys case  have been adverted to in Roys case itself and in para 8 of the judgment it has been observed as follows:

     Generally,  the question of award of interest by  the arbitrator  may arise in respect of three different periods, namely:   (i)  for  the period commencing from the  date  of dispute  till  the  date  the  arbitrator  enters  upon  the reference;   (ii) for the period commencing from the date of the  arbitrators  entering upon reference till the date  of making  the award;  and (iii) for the period commencing from the  date of making of the award till the date the award  is made  the rule of the court or till the date of realisation, whichever  is  earlier.   In the appeals before  us  we  are concerned  only with the second of the three  aforementioned periods.    In   Jena   Case,   two  questions   arose   for consideration  of  the Court, namely:  (i) the power of  the arbitrator  to  award interest for the period prior  to  his entering  upon  reference,  and;   (ii) the  powers  of  the arbitrator  to  award  interest for the period  the  dispute remained pending before him pendente lite.  Since, the Court dealt  with the second question in detail and held that  the arbitrator  had  no  jurisdiction  or  authority  to   award interest  pendente  lite, we think it necessary to  consider the  reasons for the decision.  Justice Chinnappa Reddy,  J. speaking  for the bench held that neither the Interest  Act, 1839  nor  the  Interest Act, 1978 conferred  power  on  the arbitrator for awarding interest pendente lite.  The learned Judge  observed that Section 34 of the Civil Procedure  Code which  provides  for  the same did not apply  to  arbitrator inasmuch  as an arbitrator is not a court within the meaning of  the  said provision.  Consequently the arbitrator  could not award interest pendente lite.

     In  Jugal  Kishore  Prabhatilal   Sharma  &  Ors.   vs Vijayendra  P.   Sharma & Anr.[(1993) 1 SCC 114] a Bench  of three  learned judges to which B.P.  Jeevan Reddy, J.  was a party  observed that there was force in the contention  that the  decision  in Roys case did not affect the position  of law  relating  to the power of the Arbitrator in respect  of the  period prior to reference in respect of a pre 1978  Act period.   B.P.   Jeevan Reddy, J.  who was also a member  of the  Constitution  Bench which decided Roys case,  wrote  a separate  concurring  opinion clarifying the  position  that Roys case was concerned with the power of the Arbitrator to award  interest  pendente  lite  unlike  Jenas  case  which considered the question both for the pre-reference period as well  as the pendente lite period and therefore, it may  not be  right  to read the decision in Roys case as  overruling Jenas  case  insofar  as  it dealt with the  power  of  the arbitrator  to award interest for the pre-reference  period. The  learned  Judge (Jeevan Reddy, J.) speaking for  another Bench  in  the decision reported in State of Orissa vs  B.N. Agarwala [(1993) 1 SCC 140] reaffirmed the same position and

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even  rejected  a request for reference of the matter  to  a larger Bench of this Court.  The decision in State of Orissa vs  B.N.  Agarwalla [(1997) 2 SCC 469], also reaffirmed  the above position.

     In  B.N.  Agarwallas case (supra) [(1997)2 SCC  469], B.N.   Kirpal,  J.,  speaking for a Bench of  three  learned judges of this Court, adverted to the earlier decisions some of which rendered even after those noticed above and held as follows:

     18.  In view of the aforesaid decisions there can now be  no  doubt  with  regard  to  the  jurisdiction  of   the arbitrator  to grant interest.  The principles which can now be  said to be well-settled are that the arbitrator has  the jurisdiction to award pre- reference interest in cases which arose  after  the Interest Act, 1978 had become  applicable. With regard to those cases pertaining to the period prior to the  applicability of the Interest Act, 1978, in the absence of  any  substantive law, contract or usage, the  arbitrator has  no  jurisdiction  to award interest.   For  the  period during  which  the arbitration proceedings were  pending  in view  of  the  decision  in G.C.   Roy  case  and  Hindustan Construction  Ltd.   case, the arbitrator has the  power  to award  interest.   The  power  of the  arbitrator  to  award interest  for  the  post-award period also exists  and  this aspect  has  been considered in the discussion  relating  to Civil  Appeal  No.9234  of 1994 in the later  part  of  this judgment.

     As  to  what should happen for the post Award  period, Section  29  of the Arbitration Act, 1940,  itself  provides clue  for an answer by stipulating that where and insofar as an  award is for the payment of money, the Court may in  the decree  order  interest from the date of the decree at  such rate  as  the  Court  deems reasonable to  be  paid  on  the principal  sum as adjudged by the award and confirmed by the decree.   This question has been specifically dealt with  in Hindustan  Construction  Company Ltd.  vs State of  Jammu  & Kashmir  [(1992)  4  SCC 217] by a Bench  of  three  learned judges and it was held therein as follows:

     5.   The question of interest can be easily  disposed of  as it is covered by recent decisions of this Court.   It is  sufficient  to  refer to the latest decision of  a  five Judge   bench  of  this   Court  in  Secretary,   Irrigation Department, Govt.  of Orisssa vs G.C.  Roy.  Though the said decision  deals  with the power of the arbitrator  to  award interest  pendente lite, the principle of the decision makes it  clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of  decree  or  date of realisation, whichever  is  earlier. This  is also quite logical for, while award of interest for the  period  prior  to  an   arbitrator  entering  upon  the reference  is  a  matter of substantive law,  the  grant  of interest  for  the  post-  award   period  is  a  matter  of procedure.   Section 34 of Code of Civil Procedure  provides both  for awarding of interest pendente lite as well as  for the  post-decree period and the principle of Section 34  has been  held applicable to proceedings before the  arbitrator, though  the  section  as  such   may  not  apply.   In  this connection,  the  decision in Union of India vs Bungo  Steel Furniture  (P)  Ltd.   may be seen as also the  decision  in Gujarat  Water  Supply & Sewerage Board vs  Unique  Erectors (Gujarat) P.  Ltd.  which upholds the said power though on a

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somewhat different reasoning.  We, therefore, think that the award on Item No.8 should have been upheld.

     This  aspect  was also specifically dealt with and  it was held in B.N.  Agarwallas case (Supra), as hereunder:

     37.   When  the arbitrator makes an award, it is  not necessary  that in every case the award has to be filed in a court  and  a decree, in terms thereof, is passed.  It  does happen that when an award is made, the party against whom it is  made, may accept the award and comply with the same.  It is rightly not disputed that from the date of passing of the award,  future interest can be awarded by the arbitrator  as held by this Court in the cases of Unique Erectors (Gujarat) (P)  Ltd.  and Hindustan Construction Co.  Ltd.  The correct procedure  which  should be adopted by the arbitrator is  to award  future  interest till the date of the decree  or  the date  of payment, whichever is earlier.  The effect of  this would  be  that if the award is voluntarily accepted,  which may  not  result in a decree being passed, then  payment  of interest  would be made from the date of award till the date of  payment.   Where, however, as in the present  case,  the award  is filed in the court and a decree is passed in terms thereof,  then Mr.  Sanyal has rightly contended that it  is for  the  court  to  determine   under  Section  29  of  the Arbitration  Act as to whether interest should be ordered to be paid and if so at what rate.

     It  is  in the above backdrop of the legal  principles enunciated  and  considered  holding  the  field  that  this reference  came to be made for determining the  jurisdiction of  the Arbitrator to award interest for the pre-  reference period,  in the circumstances stated in the very question of reference.

     Shri  Gobind  Das,  learned  senior  counsel  for  the appellants,  submitted that having regard to the  principles and ratio laid down in Jenas case and B.N.  Agarwalas case (Supra) and the other decisions wherein the position came to be  re-affirmed  and followed consistently,  the  Arbitrator will  have  no  jurisdiction  to   award  interest  for  the pre-reference  period  in a matter relating to the pre  1978 Act,  period.   The  decision of this Court in  G.C.   Roys case,  according to the learned counsel, has no relevance to the  case  pertaining  to pre-reference period,  the  same being only concerned with pendente lite period and therefore the  authority  of  the Jenas case in respect of  the  pre- reference  period  holding that no interest is  payable  for pre-reference  period never stood undermined or overruled by the  decision  of  the Constitution Bench rendered  in  G.C. Roys  case.   Emphasis has been laid to derive  support  to this  stand  on  the  decisions reported  in  Bengal  Nagpur Railway Co.  Ltd.  vs Ruttanji Ramji and others [AIR 1938 PC 67];   Seth Thawardas Pherumal and another vs Union of India [AIR  1955 SC 468 = 1955(2) SCR 48];  Union of India vs A.L. Rallia  Ram  [(1964) 3 SCR 164];  Union of India vs  Watkins Mayor  &  Co.   [AIR 1966 SC 275];  Union of India  vs  West Punjab Factories Ltd.  [(1966) 1 SCR 580 = AIR 1966 SC 395]; M/s  Ashok Construction Companys case (Supra) and State  of Madhya  Pradesh  vs M/s Saith & Skelton (P) Ltd.  [(1972)  3 SCR  233].   According  to  the   learned  counsel  for  the appellants,  the  principles  laid down in  Jenas  case  as affirmed  in G.C.  Roys case and as clarified and  declared in  the subsequent decisions of this Court including the one in B.N.  Agarwalas case (Supra), do not call for any change

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or  modification  or alteration and the reference should  be answered in favour of the appellants.

     Per  contra,  Shri  Anil  B.   Divan,  learned  Senior Counsel  spear  heading  the  arguments  on  behalf  of  the respondents  followed by Sharvashri V.Bhagat and A.K.  Panda strenuously  contended  that the ratio or the reasons  which formed  the  basis for the judgment and the principles  laid down  in G.C.  Roys case dehors their ultimate  application to  the  actual  case  before court  for  according  relief, renders  the decision in Jenas case, insofar as it  related to  award of interest for pre-reference period also bad even for  the  very reasons on which the Court in G.C.Roys  case found  the  judgment in Jenas case bad or unsustainable  in respect  of award of interest for pendente lite period.  The conclusions  in  Jenas  case  are said to  be  directly  in conflict  with  the earlier three judges judgment  of  this Court  and all these cases having been quoted with  approval in  G.C.Roys case, Jenas case must be held to be no longer good  law  even  in  respect of award of  interest  for  the pre-reference  period.   Argued the learned  senior  counsel further  that  inasmuch as the principles laid down  in  the English  cases  (Chandris  case, Edwards case)  came  to  be approved  in G.C.Roys case, it becomes inevitably necessary to  hold  that  the  Arbitrator has  jurisdiction  to  award interest  for  pre-reference period as long as there  is  no specific  prohibition  as  such  in  the  agreement/contract between  parties restraining the claim/payment of  interest, on the principle of an implied term of the agreement between the  parties, that the Arbitrator could award interest in  a case  where  the  Court  could  award   it  and  that  as  a consequence  thereof  when  the   parties  refer  all  their disputes/  or  the dispute as to interest as such -  to  the Arbitrator,  he  shall  have the necessary  power  to  award interest  -  though  such  power may  be  exercised  in  his discretion  in the light of all the facts and  circumstances of  the case and in the interests of justice.  Our attention has  also  been  invited in this regard to  certain  English cases:   Chandris  Vs.  Isbrandtsen Moller Co.  Inc.   (1950 (2)  All  England Law Reports 618);  President of India  Vs. La  Pintada Compania Navigacion S.A.  (Law Reports [1985]  1 A.C.   104);   and Food Corporation of India  Vs.   Marastro Compania  Naviera S.A.  of Panama (1986 (3) All England  Law Reports 500 = [1987] 1 Weekly Law Reports 134), and those of the  Supreme  Court  in  G.C.  Roys case and  some  of  the decisions referred to therein.  We have carefully considered the  submissions of the learned counsel appearing on  either side.  The mere reference and reliance placed by the counsel for  the appellants on the earlier decisions which have been already considered by this Court in deciding Jenas case and G.C.  Roys case and explained, does not help to improve the position  of  the appellants in any manner to sustain  their plea.   The Constitution Bench which dealt with G.C.   Roys case  while  adverting  to  the English  cases  reported  in Edwards  vs  Great  Western Railway Company [(1851)  138  ER 603];  Podar Trading Co.  Ltd.  vs Francois Tagher [(1949) 2 All  E.R.   62];  Chandris vs Isbrandsten- Moller Co.   Inc. [1950  (1)  All  E.R.  768], observed,  while  quoting  with approval  the decision in Ashok Construction Companys  case (supra), that the principles laid down by this Court it only accorded  with  the  principles laid down  in  Edwards  case (Supra)  as understood in Chandris case (Supra).   Reference has  also  been  made in G.C.  Roys case  to  the  decision reported  in  Union of India vs Bungo Steel  Furniture  Pvt. Ltd.   [AIR  1967 SC 1032] wherein also this Court  accorded

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approval  to the principles laid down in the English  cases, observing as follows:

     26.  The above passages show that the Court laid down two  principles:  (i) it is an implied term of the reference that  the  arbitrator will decide the dispute  according  to existing law and give such relief with regard to interest as a  court could give if it decides the dispute;  (ii)  though in  terms Section 34 of the Code of Civil Procedure does not apply  to  arbitration  proceedings, the principle  of  that section  will  be  applied by the  arbitrator  for  awarding interest  in  cases  where a court of law in a  suit  having jurisdiction  of  the subject matter covered by  Section  34 could  grant a decree for interest.  It is also relevant  to notice  that this decision refers with approval to both  the English  decisions in Edwards and Chandris case besides  the decision  of  this Court in Firm Madanlal Roshanlal.  It  is noteworthy  that the decision explains and distinguishes the decision  in Thawardas on the same lines as was done in Firm Madanlal Roshanlal case.

     The  subsequent  development  and   march  of  law  in England,  in this connection also deserve to be noticed.  In President  of  India vs La Pintada Compania Navigacion  S.A. (supra),  the  House of Lords approved the rule in  Chandris case as follows:

     The  true  position in law is, in my opinion, not  in doubt.   It is this.  Where parties refer a dispute  between them  to  arbitration in England, they impliedly agree  that the  arbitration  is  to be conducted in accordance  in  all respects  with  the  law of England,  unless,  which  seldom occurs,  the agreement of reference provides otherwise.   It is  on this basis that it was held by the Court of Appeal in Chandris  vs Isbrandtsen-Moller Co.  Inc.[1951] 1 K.B.   240 that,  although section 3(1) of the Act 1934, by its  terms, empowered  only courts of record to include interest in sums for   which  judgment  was  given   for  damages  or   debt, arbitrators were nevertheless empowered, by the agreement of reference,  to apply English law, including so much of  that law  as is to be found in section 3(1) of the Act of  1934. (At page 119.)

     In  Food  Corporation  of India vs  Marastro  Compania Naviera S.A.  of Panama (supra), it was held by the Court of Appeal as hereunder:

     Before  section  19A there was no  general  statutory provision  empowering  arbitrators to award interest on  the sums  they  awarded.   But  it was held  by  this  court  in Chandris vs Isbrandtsen-Moller Co.  Inc.  [1951] 1 K.B.  240 that,  just  as  before the Act of 1934 came into  force  an arbitrator  had been held entitled to award interest in  the circumstances  in which, under the Civil Procedure Act 1933, a  jury  could have awarded interest, so equally, after  the Act of 1934 came into force, an arbitrator had impliedly the power  to award interest which section 3 had conferred  upon courts of record.

     The  decision in the Chandris case was approved by the House  of Lords in President of India vs La Pintada Compania Navigacion  S.A.[1985]  A.C.  104.  There, Lord  Brandon  of Oakbrook  said  that, where parties refer a dispute  between them  to  arbitration in England, they impliedly agree  that the  arbitration  is  to be conducted in accordance  in  all

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respects  with  the law of England, unless the agreement  of reference  provides otherwise.  Thus, although section 3  of the Act of 1934 by its terms empowered only courts of record to include interest in sums for which judgment was given for damages or debt, arbitrators were nevertheless empowered, by the  agreement of reference, to apply English law, including so  much of that law as was to be found in section 3 of  the Act of 1934.

     In   my  judgment,  this   implied  agreement  in  the arbitration  agreement  is  naturally to  be  understood  as empowering  arbitrators  to apply English law as it is  from time  to  time  during the course of the reference  (and  in particular  in the context of the present case as it was  at the  time  of  the  hearing and the award)  and  not  as  an agreement  empowering  the arbitrator to apply  English  law crystallised  as  at the date of the arbitration  agreement. As  it was put by Cohen L.J.  in the Chandris case [1951]  1 K.B.   240,  264 (though admittedly without having his  mind addressed to transitional problems):

     In  my  opinion,  the right of arbitrators  to  award interest  was  not  derived from sections 28 and 29  of  the Civil   Procedure  Act,  1833,  but   from  the  rule   that arbitrators  had the powers of the appropriate court in  the matter  of awarding interest.  In my opinion, therefore, the effect of the Act of 1934 is that, after it came into force, an  arbitrator had no longer the powers of awarding interest on  damages conferred on juries by sections 28 and 29 of the Civil Procedure Act, 1833, but he had the power conferred on the  appropriate  court  in the act of 1934 described  as  a ‘court of record.

     In  the  present  case, the power of the  court  under section 3 of the Act of 1934 to award interest on a judgment at  the  trial of proceedings which the arbitrator would  by implication  prospectively  have  had  at the  time  of  the arbitration agreement had been superseded by the time of the hearing,  and  afortiori  by the date of the award,  by  the wider  powers of the court as a result of section 15 of  the Act  of  1982.   It  is those wider  powers  which,  by  the Chandris  process of implication, the arbitrator would  have had  when  he  made the award if section 19A  had  not  been inserted  into  the  Arbitration Act 1950.  The  purpose  of section  19A  is to make explicit powers to  award  interest which had previously rested on implication.  There is thus a further  strong  pointer  to holding that  section  19A  has retrospective  effect  and  applies to  pending  and  future arbitrations  under  arbitration agreements  whenever  made, just  as  the  powers of the High Court and  of  the  county courts  under section 35A of the Act of 1981 and section 97A of   the  Act  of  1959   apply  to   proceedings   whenever instituted. (At pages 141 & 142)

     The   Constitution  Bench  in   G.C.Roys  case   also recognised  and accorded approval to this principle in  para 43  (iii) by stating, The Arbitrator must also act and make his award in accordance with the general law of the land and the agreement.

     As for the reliance placed for the appellants upon the decisions  reported in AIR 1938 PC 67;  AIR 1955 SC 468  and 1966  (1) SCR 580, we are of the view that the  observations contained  in  those judgments have to be construed  in  the factual  context  and nature of the claims involved  therein

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and   not  in  the  abstract   and  out  of  their  context. Thawardas  case (Supra) is one where the Arbitrator awarded interest  on  unliquidated damages for a period  before  the reference  to  arbitration  as  well   as  for  the   period subsequent  to reference.  The Bengal Nagpur Railway Company Ltd.   case (Supra) dealt with the claim of interest by  way of  damages under Section 73 of the Contract Act and it  was observed  therein  that Section 73 is merely declaratory  of the  common law as to damages and that it was not  available to  the  plaintiff therein.  In West Punjab  Factories  Ltd. Case (Supra) also the suit claim was for damages for loss of goods  destroyed  by  fire, and issue No.   (iv)  considered therein related to the question of awarding interest for the period  before the suit on the amount of damages decreed.  A careful   analysis  of  the   principles  underlying   those decisions  would  show  that the claim of interest  for  the period  prior  to  the commencement of proceedings  was  not countenanced  in  view  of   the  settled  and  indisputable position  of  law  that damages till quantified is  not  and cannot  be  said  to be an ascertained or definite  sum  and until  it is ascertained and crystalised into a definite sum and  decreed,  no  question of payment of interest  for  the period prior to such quantification would either arise or be permissible  in  law,  even  if made  before  regular  civil courts, in ordinary suits filed.

     There can be no controversy over the position that the Constitution  Bench of this Court in G.C.  Roys case  while declaring that the decision in Jenas case does not lay down good  law  upheld, as a consequence the jurisdiction of  the Arbitrator   to  award  only   pendente  lite  interest,  as explained  and  highlighted in the subsequent  decisions  of this  Court.   When the claim involved for consideration  in G.C.   Roys  case was only with reference to pendente  lite interest  it  cannot  be  expected of the  Court  to  travel outside,  except  for analysing the general  principles,  to academically adjudicate the other aspects of the matter also decided by the Bench in Jenas case and overrule the same on such other points, too.  Be that as it may, the ratio or the basis  of  reasons and principles underlying a  decision  is distinct  from  the  ultimate relief granted  or  manner  of disposal  adopted  in  a  given  case.   While  laying  down principle  No.  (i) in para 43, it has been in  unmistakable terms  declared  that  the basic proposition that  a  person deprived  of  the use of money to which he  is  legitimately entitled   to  has  a  right  to  be  compensated  for   the deprivation,  by  whatever  name  it  may  be  called  viz., interest,  compensation  or  damages, 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.   The  efficacy  and   binding  nature  of  this declaration  of law cannot be either diminished or  whittled down  even on any known principle underlying the doctrine of stare decisis.  The same is the position with reference to the   principle  Nos.   (ii)  and   (iii).   It  cannot   be legitimately  contended  that these principles would  either vary  or could be different in a case relating to the  award of  interest for the pre-reference period and to assume such a  contra  position  in  juxta position would  not  only  be destructive    in   nature    but    also   illogical    and self-contradictory   resulting  in   grave  miscarriage   of justice.   Some  of  the very reasons and  principles  which weighed  with  the Constitution Bench in G.C.Roys  case  to sustain the jurisdiction of the Arbitrator to award pendente lite  interest in a claim arising out of an agreement  which

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does  not  also prohibit the grant of interest, in our  view would  equally suffice and provide sound basis of  reasoning for  upholding the power of the Arbitrator to award interest in  respect of the pre- reference period, too.  The  further fact  that the decisions of this Court, including the Jenas case,  envisaged four circumstances or contingencies wherein such  interest for pre-reference period can be  countenanced by  the  Arbitrator,  is  by  itself  sufficient  to  confer jurisdiction  upon the Arbitrator to entertain and  consider the   said  claim  also,  and   consequently  there  is   no justification  to  thwart  the same even  at  the  threshold denying  the Arbitrator power even to entertain the claim as such.

     What  difference it would make and consequences  would follow,  if principle No.  (i) is read along with  principle No.   (v),  be it even that, interest for the  pre-reference period  is  a matter of substantive law unlike the  interest for  the  period pendente lite, which ultimately came to  be allowed  applying the principles engrafted in Section 34  of the  Code  of  Civil  Procedure   would  next  deserve   our consideration.   Substantive Law, is that part of the  law which  creates, defines and regulates rights in contrast  to what  is called adjective or remedial law which provides the method of enforcing rights.  Decisions, including the one in Jenas  case while adverting to the question of  substantive law  has chosen to indicate by way of illustration laws such as  Sale  of  Goods Act, 1930  [Section  61(2)],  Negotiable Instruments  Act, 1881 (Section 80) etc.  The provisions  of the  Interest Act 1839, which prescribes the general law  of interest  and  becomes  applicable  in the  absence  of  any contractual  or other statutory provisions specially dealing with  the  subject,  would also answer  the  description  of substantive  law.  This Act was excluded from  consideration for  the simple reason that unlike the inclusive  definition of  Court in 1978 Act so as to include an Arbitrator, also the  1839  Act did not provide any definition clause  much less  an expansive one.  Not only, Section 1 of the Interest Act  but even the provisions contained in Sale of Goods  Act and  Negotiable Instruments Act themselves only envisage and enable  courts  to  grant or award interest.   But  on  that ground alone it could not be reasonably postulated that such Acts  applied  only to proceedings before Courts and not  to proceedings  before  forums created in lieu of  conventional Civil  Courts.  Once it is construed and considered that the method  of redressal of disputes by an alternative forum  of arbitration  as  agreed  to  between the  parties,  with  or without  the  intervention of Court is only a substitute  of the  conventional Civil Courts by forums created by  consent of  parties, it is but inevitably necessary that the parties must  be deemed to have by implication also agreed that  the arbitrator  shall have power to award interest, the same way and in the same manner as courts do and would have done, had there  not been an agreement for arbitration.  It is in this connection  that  the  practice followed by  English  Courts which  came  to be noticed and approved by this  Court  also lend  support  and  strength to adopt such  construction  in order to render complete and substantial justice between the parties.  That there is nothing in the Interest Act, 1839 to confine  its operation and applicability only to proceedings before  ordinary  and  conventional Courts, cannot  also  be ignored,  in  this  connection.   In   our  view  any   such restricted and literal construction which is bound to create numerous anomalies and ultimately defeat the ends of justice should  be  scrupulously avoided.  On the other  hand,  that

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interpretation  which  makes  the text not  only  match  the context but also make a reading of the provisions of an Act, just,  meaningful  and  purposeful and help to  further  and advance  the  ends  of justice must alone  commend  for  the acceptance   of  courts  of   law.   Adopting  a   different construction to deny a claimant who opts for adjudication of disputes  by  arbitral  process  alone  and  that  too  when recourse to such process is made without the intervention of Court  would amount to applying different and discriminatory norms  and  standards to situations which admits of no  such difference  and that too where there is no real  distinction based upon any acceptable or tangible reason.

     It is not in dispute that an Arbitrator appointed in a pending  suit  or with the intervention of the  Court,  will have  all  the powers of the Court, in deciding the  dispute and  the dispute is only in respect of an Arbitrator to whom the  reference  has  been  made by the  parties,  under  the agreement  without the intervention of the Court.  It  would then  mean  that the parties have to be driven to  vexatious litigation   before  Courts  by   passing  an  agreement  of arbitration,  to be ultimately told to abide by it and  have the  matter  formally referred by staying  such  proceedings before  Civil  Court  to secure to the Arbitrator  power  to award  interest also.  In G.C.  Roys case while emphasising the importance and need for availing arbitration process, it has been observed as follows:

     4.   A dispute between two parties may be  determined by court through judicial process or by arbitrator through a non-judicial  process.  The resolution of dispute by  court, through  judicial  process  is costly  and  time  consuming. Therefore,  generally the parties with a view to avoid delay and cost, prefer alternative method of settlement of dispute through  arbitration proceedings.  In addition to these  two known  process  of  settlement of dispute there  is  another alternative   method  of  settlement   of  dispute   through statutory arbitration.  Statutory arbitrations are regulated by  the statutory provisions while the parties entering into agreement  for  the resolution of their dispute through  the process  of  arbitration  are free to enter  into  agreement regarding  the method, mode and procedure of the  resolution of  their  dispute provided the same are not opposed to  any provision  of  law.  Many a time while suit is  pending  for adjudication  before a court, the court with the consent  of the  parties, refers the dispute to arbitration.  On account of  the  growth in the international trade and commerce  and also  on account of long delays occurring in the disposal of suits  and  appeals  in courts, there  has  been  tremendous movement   towards  the  resolution   of  disputes   through alternative forum of arbitrators.  The alternative method of settlement  of  dispute through arbitration is a speedy  and convenient  process, which is being followed throughout  the world.   In India since ancient days settlement of  disputes by  Panches  has  been a common process  for  resolution  of disputes  in  an  informal manner.  But now  arbitration  is regulated by statutory provisions.

     If  that  be  the  position,   Courts  which  of  late encourage  litigants to opt for and avail of the alternative method  of  resolution of disputes, would be  penalising  or placing   those  who  avail  of   the  same  in  a   serious disadvantage.   Both logic and reason should counsel  courts to  lean more in favour of the Arbitrator holding to possess all  the  powers  as are necessary to do complete  and  full

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justice  between the parties in the same manner in which the Civil  Court seized of the same dispute could have done.  By agreeing  to settle all the disputes and claims arising  out of  or relating to the contract between the parties  through arbitration  instead  of having recourse to Civil  Court  to vindicate  their  rights  the   party  concerned  cannot  be considered  to  have frittered away and given up  any  claim which  otherwise he could have successfully asserted  before Courts  and obtained relief.  By agreeing to have settlement of disputes through arbitration, the party concerned must be understood  to  have  only opted for a  different  forum  of adjudication  with  less  cumbersome  procedure,  delay  and expense  and  not to abandon all or any of  his  substantive rights  under the various laws in force, according to  which only even the Arbitrator is obliged to adjudicate the claims referred  to  him.   As  long as there  is  nothing  in  the arbitration  agreement  to exclude the jurisdiction  of  the Arbitrator  to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on  the  amounts due and become payable under the  contract, the  jurisdiction  of the Arbitrator to consider  and  award interest  in respect of all periods subject only to  Section 29  of the Arbitration Act, 1940 and that too the powers  of the Court thereunder, has to be upheld.  The submission that the  Arbitrator  cannot have jurisdiction to award  interest for  the  period  prior to the date of  his  appointment  or entering into reference which alone confers him power is too stale and technical to be countenanced in our hands, for the simple  reason  that  in every case the  appointment  of  an Arbitrator or even resort to Court to vindicate rights could be  only after disputes have cropped up between the  parties and  continue  to  subsist  unresolved   and  that  if   the Arbitrator  has  the power to deal with and decide  disputes which cropped up at a point of time and for the period prior to   the  appointment  of  an   Arbitrator,  it  is   beyond comprehension  as  to why and for what reason and with  what justification the Arbitrator should be denied only the power to  award  interest for the pre-reference period  when  such interest  becomes  payable  and  has to  be  awarded  as  an accessory  or  incidental  to  the sum awarded  as  due  and payable,  taking into account the deprivation of the use  of such  sum to the person lawfully entitled to the same.   For all  the  reasons stated above, we answer the  reference  by holding  that  the Arbitrator appointed with or without  the intervention  of  the  court,   has  jurisdiction  to  award interest,  on  the sums found due and payable, for the  pre- reference period, in the absence of any specific stipulation or  prohibition  in the contract to claim or grant any  such interest.   The  decision in Jenas case [1988 (1) SCC  418] taking  a contra view does not lay down the correct position and  stands overruled, prospectively, which means that  this decision  shall  not entitle any party nor shall it  empower any  Court  to reopen proceedings which have already  become final, and apply only to any pending proceedings.  No costs.