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CASE NO.: Appeal (civil) 3586  of  1984 Appeal (civil)  710-711  of  1981 Appeal (civil)  6808-09  of  1983 Appeal (civil)  10649    of  1983 Appeal (civil)  779      of  1982 Appeal (civil)  2723     of  1981

PETITIONER: EXECUTIVE ENGINEER, DHENKANAL MINOR IRRIGATION DIVISION, ETC.  ETC.

       Vs.

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

DATE OF JUDGMENT:       10/01/2001

BENCH: D.P.Mohapatro

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J       J U D G M E N T

     D.P.MOHAPATRA,J.

     I have had the privilege of reading the draft judgment prepared  by my learned brother Justice Doraiswamy Raju.  He has  come  to the conclusion that the  arbitrator  appointed with  or without intervention of 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.  With respect, I am unable to agree with the said conclusion.

     This  case stood referred by a bench of three  learned Judges  of  this  Court by the order  dated  29.10.1999  for consideration  by  a larger Bench.  In paragraph 15  of  the said order the question to be considered has been formulated as  :  "In the absence of any prohibition to claim or  grant interest  under  the  arbitration   agreement  whether   the arbitrator  has  no jurisdiction to award interest  for  the pre-reference  period under the general law or on  equitable principles  although such claim may not strictly fall within the provisions of the Interest Act, 1839.  ?"

     From the discussions in the reference order it appears that it was urged by Mr.  Anil Divan, learned senior counsel appearing  for the respondents that in view of the judgments of  this Court in Secy.  Irrigation Deptt.  Govt.  of Orissa vs.   G.C.Roy (1992 (1) SCC 508) (hereinafter referred to as ’G.C.Roy  case’),  Executive Engineer (Irri.) vs.   Abhaduta Jena  1988 (1) SCC 418 (hereinafter referred to as ’Abhaduta Jena’s  case)  and  in  the  case of  State  of  Orissa  vs. B.N.Agarwalla  (1997)  2 SCC 469, requires  reconsideration. The  question  of  competence  of  an  arbitrator  to  award interest  has engaged the attention of this Court in umpteen

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cases.  The claim of interest can be broadly split up into 3 periods  -  a) for the period before the  arbitrator  enters upon  the  reference, in other words, pre-reference  period; (b)  for  the period during which the proceeding is  pending before  the  arbitrator which is otherwise  called  pendente lite  period;  (c) for the period from the date of the award till  the award is made rule of the court.  The question  to be  considered  in  the  present case  is  confined  to  the jurisdiction  of  the arbitrator to award interest  for  the pre-reference  period  only.   After   hearing  the  learned counsel  appearing for the appellants and the respondents it appears  to me that the moot question to be answered by this Bench  is whether the decision in Abhaduta Jena case (supra) holding  that  the  arbitrator has no  competence  to  award interest  for  the  pre-reference period unless any  of  the three  conditions  namely - 1) if the agreement between  the parties  entitles  the arbitrator to award interest;  2)  if there  is a usage of trade having the force of law for award of  interest  and  3) if there are other provisions  of  the substantive  law  enabling the award of interest;   requires re-consideration,  particularly  in view of the decision  of the  Constitution Bench in G.C.Roy case (supra).   Therefore it will be convenient to notice at the outset the principles of law and the reasons which persuaded the learned Judges in Abhaduta  Jena  case to hold as noted above.   Therein  this Court  took note of the important changes brought in by  the Interest   Act,  1978  particularly   the  inclusion  of  an arbitrator  in  the  definition of section  2(a)  which  was absent  in  the Interest Act of 1839.  This Court also  took note  of the position that section 34 of the Civil Procedure Code  applies  to arbitration in a suit for the 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 and that section 34 does not otherwise apply to arbitration  as  arbitrators  are not  ’courts’  within  the meaning of section 34 CPC.  As O.  Chinappa Reddy,J speaking for  the Court has observed "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,  1978".   In   this  regard  the   following observations in paragraph 4 of the judgment may be noticed:

     "It is important to notice at this stage that both the Interest  Act 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

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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  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."

     (emphasis supplied)

     This  Court  discussed  a number of decisions  of  the Privy Council and Supreme Court including the case of Bengal Nagpur  Railway Co.  Ltd.  V.  Ruttanji Ramji (1965 IA  66); Seth Thawardas Pherumal V.  Union of India (1955) 2 SCR 48 : AIR  1955  SC  468;   Nachiappa  Chettiar  vs.   Subramanium Chettiar (1962) 2 SCR 209);  Satinder Singh vs.  Amrao Singh (1961)  3 SCR 676;  Union of India Vs.  Watkins Mayor &  Co. AIR  1966 SC 275;  Union of India Vs.  West Punjab Factories (1966)  1 SCR 580:  AIR 1966 SC 395;  M/s Ashok Construction Co.   vs.  Union of India (1971) 3 SCC 66 and State of  M.P. Vs.   M/s  Saith  &  Skelton Pv.t Ltd.  (1972)  3  SCR  233: (1972) 1 SCC 702:  AIR1972 SC 1507.

     After   discussing  in  detail   the  facts  and   the principles  laid down in the decided cases this Court summed up the position in the following words:

     "15.   As  a result of the discussion of  the  various cases,  we  see  that Bengal Nagpur Railway  Co.   Ltd.   v. Ruttanji  Ramji,  Union of India, v.  West Pubjab  Factories and Union of India v.  Watkins & Co.  were cases of award of

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interest  not  by an arbitrator, but by the Court.   It  was laid  down  in those 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.

     16.   The  question  of  award   of  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 Sec.   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 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

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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."

     (emphasis supplied)

     The  ultimate  conclusions reached by the  Court  were summed up in these words:

     "In  regard  to  pendente   lite  interest,  that  is, interest  from  the  date of reference to the  date  or  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 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."   (emphasis supplied)

     The  Constitution Bench of this Court in G.C.Roy  case (supra)  considered  the  correctness  of  the  decision  in Abhaduta  Jena case (supra) so far as award of pendente lite interest is concerned.  Indeed while stating the two grounds on  which  the award before the Court was challenged it  was stated  "(2)  the  arbitrator had no jurisdiction  to  award pendente  lite interest".  The conclusion on that point  was stated  in paragraphs 44-45 of the judgment in the following words:

     "44.   Having  regard to the above  consideration,  we think  that  the  following is the correct  principle  which should be followed in this behalf:

     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  shall have the power to award interest pendente lite.  This is 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  when the parties  refer  all  their disputes  - or refer the dispute as to interest as such - to the  arbitrator, he shall have the power to award  interest. This  does not mean that in every case the arbitrator should necessarily  award  interest pendente lite.  It is a  matter wihin  his direction to be exercised in the light of all the facts  and  circumstances of the case, keeping the  ends  of justice in view.

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     45.   For the reasons aforesaid we must hold that  the decision  in  Jena, insofar as it runs counter to the  above proposition, did not lay down correct law."

     In  the present proceedings we are not concerned  with the  competence  of  an arbitrator to  award  pendente  lite interest.   From the discussion in the judgment in G.C.  Roy case  (supra)  it  is  clear  that  the  Constitution  Bench confined  its consideration to the question of pendente lite interest  only.   Therefore, this decision can be of  little assistance  in  deciding the question raised in the  present proceedings which relates to power of an arbitrator to award interest  for  the pre-reference period.  A decision  is  an authority  on the question that is raised and decided by the Court.   It  cannot be taken as an authority on a  different question  though in some cases the reason stated therein may have a persuasive value.

     A  Bench of three learned Judges of this Court in  the case  of  Jugal  Kishore Prabhatilal Sharma  v.   Vijayendra Prabhatilal Sharma (1993) 1 SCC 114) considered the question of   power   of  an  arbitrator   to  award   interest   for pre-reference  period in a case where reference of a dispute to  arbitrator  was made prior to coming into force  of  the Interest  Act, 1978.  The Bench had occasion to consider the decision in Abhaduta Jena case (supra) and also G.C.Roy case (supra).   The  Bench  rejected   the  contention  that  the decision  in  Abhaduta Jena case had been overruled in  G.C. Roy   case   on  the  aspect  of  award  of   interest   for pre-reference  period also.  B.P.  Jeevan Reddy, J., in  his concurring  judgment  specifically dealt with the  question. The  relevant portions of the judgment are quoted hereunder: "During   the   course   of    arguments,   two    different interpretations  were placed upon the principles  enunciated by the Constitution Bench in Secretary

     Irrigation Department v.  G.C.Roy.  On one hand it was contended, relying upon the first of the five principles set out  in  para 43 that the said decision lays down that  even for the pre-reference period, interest can be granted in all cases  and  that  the  earlier decision  of  this  Court  in Executive  Engineer (Irrigation), Balimela v.  Abhaduta Jena has  been  overruled in that behalf as well.  On  the  other side, it was contended that it was not so and that so far as the  pre-reference  period  is concerned,  the  Constitution Bench  decision  does not say anything contrary to what  was said  in Jena.  It is in view of the said contentions that I thought it appropriate to clarify the matter since I was the member  of  the  Bench which decided  Secretary,  Irrigation Department v.  G.C.Roy.

     36.   The decision in G.C.Roy was concerned only  with the power of arbitrator to award interest pendente lite.  It was  not concerned with his power to award interest for  the pre-reference  period.  This was made clear at more than one place  in  the  judgment.   In  para 2  it  is  stated  that reference  to  the Constitution Bench was only for  deciding the  question  whether  the  decision in  Jena  was  correct insofar  as  it held that arbitrator has no power  to  award interest  pendente  lite.   In  para 8  it  is  stated  (SCC pp.514-15) :

     "Generally,  the question of award of interest by  the

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arbitrator  may arise in respect of three different  period, 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  arbitrator’s  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" (emphasis supplied)

     A  Bench  of two learned Judges of this Court  in  the case  of State of Orissa Vs.  B.N.Agarwala (1993) 1 SCC 140) considered  the  question  relating  to  the  power  of  the arbitrator  to award interest for the pre-reference  period. While  on behalf of the appellant the contention was  raised that  the  arbitrator  has no power to  award  interest  for pre-reference  period  relying on the decision  in  Abhaduta Jena  case  (supra);   the  contention   on  behalf  of  the respondent was that the said decision was no longer good law in  view of the Constitution Bench decision in G.C.Roy  case (supra).   This Court also declined to refer the matter to a larger  Bench.  The relevant observations in para 10 of  the Judgment  are quoted hereunder :  "We cannot agree with Shri Bhagat.   Both of us were members of the Constitution  Bench which  decided G.C.Roy.  It was confined to the power of the arbitrator  to  award  interest pendente lite.  It  did  not pertain to nor did it pronounce upon the power of the

     Arbitrator  to award interest for the period prior  to his  entering  upon  the reference  (pre-reference  period). This very aspect has been clarified by one of us (B.P.Jeevan Reddy,J.)   in  his  concurring   order  in  Jugal   Kishore Prabhatilal   Sharma  v.    Vijayendra  Prabhatilal  Sharma. Accordingly, we hold following the decision in Jena that the arbitrator   had  no  power  to   award  interest  for   the pre-reference  period in this case inasmuch as the award was made  prior  to coming into force of the Interest Act,  1978 (The  Interest  Act, 1978 came into force with  effect  from August  19, 1981).  So far as interest for the period during which  the  arbitration proceedings were  pending  (pendente lite  interest)  is concerned, the arbitrator does have  the power  to  award the same as held in G.C.Roy.  A request  is made by Shri Bhagat to refer the matter to a larger Bench to decide  the question relating to the power of the arbitrator to award interest for the pre-reference period even in cases where  the award is made before the coming into force of the Interest  Act,  1978.  Jena was decided by a Bench of  three Judges.   We do not also feel persuaded to refer the  matter to a larger Bench." (emphasis supplied)

     Again  a Bench of three learned Judges in the case  of State  of  Orissa  vs.  B.N.Agrawala (1997) 2  SCC  469  had occasion  to deal with the question whether the decision  in Abhaduta  Jena case (supra) was overruled in entirety in the decision  of the Constitution Bench in G.C.Roy case (supra). This Court held that the decision in Abhaduta Jena case with

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regard to award of interest for pre-reference period was not overruled in G.C.  Roy case.  The relevant observations made in  paragraph  12  of the judgment read  as  follows:   "The perusal  of  the  aforesaid   passages  clearly  shows  that Abhaduta Jena case, was not overruled in its entirety by the decision  in  G.C.Roy case.  It is only with regard  to  the award  of pendente lite interest that the Constitution Bench came  to a conclusion which was contrary to the one  arrived at  in  Abhaduta Jena case with regard to award of  interest for pre-reference period was not overruled in G.C.Roy case."

     On   the   question  whether    the   arbitrator   had jurisdiction  to award pre-reference interest in case  which arose  prior to the applicability of the Interest Act,  1978 this Court held :  "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."

     In  the case of Seth Thawardas Pherumal vs.  Union  of India  (supra) a Bench of three learned Judges of this Court considered the question of validity of the award of interest by  the  arbitrator  in the light of the provisions  of  the Interest  Act, 1839 and section 34 of the CPC.  The views of the  Court  on that aspect were expressed in  the  following words:

     "The  arbitrator  held - The  contractor’s  contention that his claims should have been settled by January 1948 is, in  my opinion reasonable.  I therefore award interest at 6% for  16  months on the total amount of the award given  i.e. Rs.17,363."

     Then the arbitrator sets out the amounts awarded under each  head of claim.  A perusal of them shows that each head relates  to  a claim for an unliquidated sum.  The  Interest Act,  1839  applies as interest is not otherwise payable  by law  in  this kind of case (see Bengal Nagpur Ry.   Co.   v. Ruttanji  Ramji but even if it be assumed that an arbitrator is a "court" within the meaning of that Act, (a fact that by no  means appears to be the case), the following among other conditions  must be fulfilled before interest can be awarded under the Act:-

     (1) there must be a debt or a sum certain;

     (2) it must be payable at a certain time or otherwise;

     (3)  these debts or sums must be payable by virtue  of some written contract at a certain time;

     (4)  there must have been a demand in writing  stating that interest will be demanded from the date of the demand.

     Not  one  of  these  elements   is  present,  so   the arbitrator erred in law in thinking that he had the power to allow  interest  simply  because he thought the  demand  was reasonable."

     In  the  case  of  Union of  India  vs.   West  Punjab Factories  Ltd.  (supra) a Constitution Bench of this  Court

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considered the question of an award of interest for a period prior  to filing of the suit and held that in the absence of any  usage  or  contract, expressed or implied,  or  of  any provision  of law to justify the award of interest it is not possible to award interest by way of damages, and therefore, no  interest  should  have been awarded in the  present  two suits  upto  the date of the filing of either of  the  suit. The  relevant  observations on that aspect read as  follows: "The  next  contention is that no interest could be  awarded for  the  period  before the suit on the amount  of  damages decreed.    Legal   position  with   respect  to   this   is well-settled  :  (see Bengal Nagpur Railway co.  Limited  v. Ruttanji  Ramji and others).  That decision of the  Judicial Committee  was  relied upon by this Court in Seth  Thawardas Pherumal  v.   The  Union  of  India.   The  same  view  was expressed  by this Court in Union of India v.  A.L.   Rallia Ram.   In  the absence of any usage or contract, express  or implied,  or of any provision of law to justify the award of interest,  it  is not possible to award interest by  way  of damages.  Also see recent decision of this Court in Union of India  v.   Watkins  Mayer  & Company.   In  view  of  these decisions  no interest could be awarded for the period  upto the  date  of  the suit and the decretal amount in  the  two suits will have to be reduced by the amount of such interest awarded." (Emphasis supplied)

     The  discussions  in the decisions referred to in  the foregoing  paragraphs  show  the  conspectus  of  the  views expressed  on the question of competence of an arbitrator to award  interest  for  a  period  before  he  enters  upon  a reference.   The question has been examined in the light  of the  ratio  in  Abhaduta Jena case (supra)  even  after  the Constitution  Bench  decision in G.C.Roy case (supra).   The consistent  view taken by this Court is that the decision in Abhaduta  Jena  case, so far as it relates to the aspect  of pre-reference  interest  has  not   been  overruled  by  the Constitution  Bench.   The  question  to  be  considered  is whether  the  decision in Abhaduta Jena case should  now  be overruled  on that aspect also.  The contention was advanced before  us by Shri Anil Divan learned senior counsel for the respondent  that  though  Abhaduta Jena case  has  not  been expressly  overruled  on  this  aspect by  the  decision  in G.C.Roy  case  the  reasons  given   in  the  judgment   for overruling  Abhaduta  Jena  on the point  of  pendente  lite interest  should be applied in the present case and the said decision  should be overruled on the aspect of pre-reference interest  also.  At the cost of repetition I may state  here that this contention was not accepted by this Court in Jugal Kishore   Prabhatilal   Sharma   &  Ors.    v.    Vijayendra Prabhatilal  Sharma and another (supra), State of Orissa  v. B.N.   Agarwala (supra), State of Orissa v.  B.N.  Agarwalla (1997) 2 SCC 469 (supra).  In my view this contention cannot be  accepted for the reason that the two periods, the period during   which  the  proceeding   was  pending  before   the arbitrator  (pendente  lite)  and   the  period  before  the arbitrator  entered upon the reference (pre-reference) stand on  different footing.  While the former refers to a  period when   the  arbitrator  was  ceased   of  the   matter   for adjudication,  the  latter  refers to the period  before  he (arbitrator)  came  into  the picture.  Further  during  the period  when the arbitrator is ceased of the proceeding  the parties  are  aware  of  the claims made  by  the  applicant against  the  opposite  party  and  the  matter  is  pending

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adjudication;   but during the pre-reference period  neither the  claims are crystallized nor has the opposite party  any notice  that it may be required to pay certain amount to the claimant depending on the adjudication of the dispute by the Arbitrator.   In Abhaduta Jena case (supra) this Court  held that  the arbitrator has no competence to award interest for a  period  prior to reference unless agreement  between  the parties  entitles the arbitrator to award interest or  there is  a  usage or trade having the force of law for  award  of interest  or there is any other provision of the substantive law  enabling the award of interest.  In that decision as  I read  it,  this Court has emphasised the position  that  the claim  for  interest for pre- reference period can  be  made only  if there is a firm basis giving the claimants a  cause of  action for claim of such interest and in the absence  of such  basis for such claim an arbitrator is not competent to award   interest.   The  position   is   well-settled   that arbitrator  is a creature of agreement between the  parties. He  is vested with the power of adjudication of disputes  in terms  of such agreement.  He has to act in accordance  with law.   Though  he discharges the functions of a Court  while adjudicating  the dispute raised by the parties he cannot be said  to be a substitute for the Court in all respects.   An arbitrator  is  not  bound to follow  the  strict  procedure applicable  in  a case before the Court.  In many cases  the arbitrator,  though nominated as a judge by the parties, may not  have the requisite experience in the field of law which a  presiding officer of a Court possesses.  Therefore, it is necessary  that  in  judging  the   claim  of  interest  for pre-reference  period he should ascertain whether such claim is  permitted  under the terms of the contract  between  the parties  or there is a usage of trade having force of law in support of such claim or there is any other provision of the substantive  law  enabling the award of such  interest.   In Abhaduta  Jena  case  this  court   did  not  rule  that  an arbitrator   was  not  competent  to  award   interest   for pre-reference  period in any circumstance.  This court  only held  that award of such interest was not permissible unless any  one  of  the conditions laid down in  the  decision  is satisfied.  The ratio of Abhaduta Jena case (supra) is based on  sound  legal  principles which have been tested  in  the subsequent   decisions  in  the   light  of  the  principles enunciated in G.C.Roy case (supra) also.  In this connection I  may  notice another contention which was raised  by  Shri Anil  Divan  that  the jurisdiction to  award  interest  for pre-reference  period  will  only compel the claimant  to  a civil   suit  for  interest  and   that  would   result   in multiplicity  of  proceedings.  This contention is based  on the  assumption that a Civil Court can award interest for  a period  prior  to the institution of the suit without  being satisfied  that any of the conditions laid down in  Abhaduta Jena’s  case  is satisfied.  This assumption, in my view  is incorrect.  The plaintiff in a suit has to base his claim on a  cause of action in law and in the absence of a firm basis in  law  the  Court  cannot entertain  such  a  claim.   The plaintiff  has  to  lay a firm basis for the  claim  in  the pleading.   That  position has only been reiterated by  this Court in Abhaduta Jena case (supra).

     On the discussions in the foregoing paragraphs I am of the  view  that the decision in Abhaduta Jena  case  (supra) lays  down the correct position of law and does not  require reconsideration.   An arbitrator has no competence to  award interest  for  the  pre-reference period unless any  of  the

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conditions namely - (1) if the agreement between the parties entitles  the arbitrator to award interest;  (2) if there is a  usage  of  trade  having the force of law  for  award  of interest,  and  (3)  if there are other  provisions  of  the substantive   law  enabling  the   award  of  interest,   is satisfied.   Therefore,  the  question   formulated  in  the reference  order is answered in the negative.   Accordingly, the  appeals are allowed in so far as the award of  interest for the pre-reference period is concerned.  No costs.