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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  6971       OF 2009 [Arising out of S.L.P.(C)No.14269 of 2007]

Indian Hume Pipe Co. Ltd.     ....Appellant

Versus

State of Rajasthan     ....Respondent

J U D G M E N T

Deepak Verma,  J.

1. Leave granted.

2. This appeal arises out of order and Judgment dated 15.5.2007 passed by  

learned Single Judge of High Court of Judicature for Rajasthan, Jaipur Bench in  

SB  Civil  Miscellaneous  Appeal  No.  1631/2006,  whereby  and  whereunder  the  

appeal preferred by appellant herein under Section 39 of the Arbitration Act, 1940  

(hereinafter shall be referred to as ‘the Act’) has been dismissed, which arose out  

of the orders dated 13.09.2005 & 26.11.2005 passed by District Judge, Jaipur in  

Arbitration  Case  No.  143/1998 & Misc.  Arbitration  Application  No.  443/2005  

respectively.

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3. Thumb nail sketch of the facts of the case is as under:-  

4. Respondent/State  of  Rajasthan  had  issued  notice  inviting  tender  on  

03.01.1981 and 11.02.1981 for grant of contract for laying PSC pipeline in Kota  

Division. Appellant herein, pursuant to the said notice submitted its tender.

5. The tender of the appellant being lowest was accepted on 18.04.1982. The  

agreement, thereafter, was executed between the parties on 13.12.1982. The said  

Agreement contained an arbitration clause, to be invoked in case of any dispute  

arising between the parties.

6. Since a dispute between the parties arose, the said arbitration clause was  

invoked and the matter was referred to three arbitrators.

7. They entered into the reference on 12.02.1995 and gave their Award on  

12.12.1997.

8. The  arbitrators  substantially  allowed the  claim of  the  appellant  together  

with interest for pre-reference on outstanding payment, pendente lite interest and  

future  interest  from the  date  of  award  till  the  date  of  payment  or  the  date  of  

making of the award a rule of Court, whichever is earlier.  

9. Feeling  aggrieved  by  the  said  award,  respondent-State  of  Rajasthan  

preferred  objections  under  Section  30  read  with  Section  33  of  the  Act  before  

District  Judge,  Jaipur  City.  The  appellant  herein  filed  its  reply  to  the  said  

objections and prayed that the award be made rule of the Court.

10. The matter was heard by the learned District Judge and vide order dated  

13.09.2005 the objections preferred by respondent were allowed only to the extent

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of awarding pendente lite interest,  future interest and compound interest on the  

total amount awarded by the arbitrators.

11. Since, while passing the said impugned order no direction was made by the  

learned District Judge to make the said award a rule of the Court and the pendente  

lite  and  future  interest  awarded  by  the  arbitrators  were  disallowed,  thus,  an  

application for review was filed by the appellant. The same came to be heard and  

disposed of on 26.11.2005. The award was made rule of the Court and appellant  

was awarded only simple interest at the rate of 9% per annum from the date of  

decree of the award. It is against the aforesaid two orders and judgments passed by  

learned District Judge, appellant was constrained to carry the matter further before  

the  learned  Single  Judge  by  filing  Miscellaneous  Appeal  as  mentioned  

hereinabove.

12. Learned Single Judge considered the matter from all angles and came to the  

conclusion that even though the arbitrators have got the power to grant interest at  

all the three stages i.e. pre-reference, pendente lite interest and future interest but it  

is not mandatory for the arbitrators to have awarded the same.  

13. However, the learned Single Judge completely lost sight of the fact that on  

the  counterclaim  having  been  preferred  by  the  respondent,  the  same,  that  is,  

pendente lite and future interest was awarded by the arbitrators and the same was  

not disturbed either by the learned District Judge or by the learned Single Judge,  

yet,  on the  same set  of  facts  they  were  denied  to  the  appellant.  Thus,  feeling  

aggrieved by the said orders, this appeal has been preferred.

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14. By a long catena of cases decided by this Court from time to time, it is too  

well settled that arbitrators have the competence, jurisdiction and power to award  

interest for the period from the date of award to date of payment as also for pre-

reference, pendente lite and post award. The only caveat is that the  amount of  

interest   so  awarded  should  be  reasonable  and  agreement  between  the  parties  

should not prohibit grant of such interest.  

15. In the light of several judgments of this Court, the question projected in this  

appeal is no more res integra.   

16.    The question with regard to grant of interest by an arbitrator for the period  

from the date of award to date of payment stands settled by a judgment of this  

Court  in  the  case  of  Hindustan  Construction  Co.  Ltd. Vs.  State  of  Jammu &  

Kashmir reported in (1992) 4 SCC 217.  The aforesaid question has been dealt  

with by this Court in para 5 of the said judgment reproduced hereinbelow:-

“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 Orissa  v.  G.C.  Roy (1992)  1  SCC  508  :  JT  (1991)  6  SC  309.  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 realization, 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-

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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 v. Bungo Steel Furniture (P) Ltd.  (1967) 1 SCR 324 : AIR 1967 SC 1032 may be seen as also  the decision in Gujarat Water Supply & Sewerage Board v.  Unique  Erectors  (Gujarat)  P.  Ltd. (1989)  1  SCC  532  :  (1989) 1 SCR 318 which upholds the said power though on  a somewhat  different  reasoning.  We, therefore,  think that  the award on Item No. 8 should have been upheld.”

17. The other question with regard to grant of interest by the arbitrator at three  

different  stages  that  is  pre-reference,  pendente  lite  and post  award  also  stands  

settled by judgment of this Court in the case of  Bhagawati Oxygen Ltd. etc. v.  

Hindustan Copper Ltd. etc. reported in (2005) 6 SCC 462. The said question has  

succinctly been settled in paras 36, 37, 38 and 39 reproduced hereinbelow:-

“36. The last  question relates to payment of interest.  The  arbitrator awarded interest to BOL at the universal rate of  eighteen  per  cent  for  all  the  three  stages,  pre-reference  period,  pendente  lite and  post-award  period.  It  is  not  disputed  that  in  the  arbitration  agreement  there  is  no  provision for payment of interest. The learned Single Judge  as well as the Division Bench were right in observing that  the  arbitrator,  in  the  facts  and circumstances,  could  have  awarded interest. The arbitrator had granted interest at the  rate of eighteen per cent on the ground of loan so advanced  by HCL to BOL at that rate.

37.  Now Section 34 of the Code of Civil Procedure has no  application  to  arbitration  proceedings  since  the  arbitrator  cannot be said to be a “court” within the meaning of the  Code. But an arbitrator has power and jurisdiction to grant  interest for all the three stages provided the rate of interest  is reasonable.

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38.  So far as interest for pre-reference period is concerned,  in view of the conflicting decisions of this Court, the matter  was  referred  to  a  larger  Bench  in  Executive  Engineer,   Dhenkanal  Minor  Irrigation  Division v.  N.C.  Budharaj  (2001)  2  SCC 721.  The Court,  by  majority,  held  that  an  arbitrator  has  power  to  grant  interest  for  pre-reference  period  provided  there  is  no  prohibition  in  the  arbitration  agreement excluding his jurisdiction to grant interest. The  forum of arbitration is created by the consent of parties and  is a substitute for conventional civil court. It is, therefore, of  unavoidable  necessity  that  the  parties  be  deemed to  have  agreed by implication that the arbitrator would have power  to award interest in the same way and same manner as a  Court.

39.   Regarding  interest  pendente  lite also,  there  was  cleavage of opinion. The question was, therefore, referred to  a larger Bench in Secy., Irrigation Deptt., Govt. of Orissa v.  G.C. Roy (1992) 1 SCC 508. The Court considered several  cases and laid down the following principles: (SCC pp. 532- 33, para 43)

“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.

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(ii) An  arbitrator  is  an  alternative  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 the Arbitration Act illustrate this point.)  All the same, the agreement must be in conformity  with law. The arbitrator must also act and make his  award in accordance with the general law of the land  and the agreement.  

(iv)  Over the years, the English and Indian courts  have  acted  on  the  assumption  that  where  the  agreement  does  not  prohibit  and  a  party  to  the  reference makes a  claim for  interest,  the arbitrator  must have the power to award interest pendente lite,  Thawardas  Pherumal  v.  Union  of  India (1955)  2  SCR 48 : AIR 1955 SC 468 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  observation  in  the  said  judgment  were  not  intended to lay down any such absolute or universal  rule  as  they  appear  to,  on  first  impression.  Until  Executive  Engineer  (Irrigation)  v.  Abhaduta  Jena  case  (1988) 1 SCC 418 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.

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

18. In the light of the aforesaid judgments of this Court we have no hesitation  

to hold that impugned orders passed by learned District Judge as also by learned  

Single Judge of High Court cannot be sustained in law.

19. Even though learned counsel for respondent tried to advance arguments that  

in this appeal no case for interference has been made out but at last, in the teeth of  

aforesaid  judgments  peevishly  conceded  that  the  impugned  orders,  cannot  be  

sustained in law.

20. Learned  Single  Judge  also  committed  a  grave  error  in  coming  to  the  

conclusion that even though arbitrator was competent to award interest but it was  

not mandatory on his  part  to do so.  The said reasoning does not appeal  to be  

legally  tenable  and convincing,  for  the  simple  reason,  if  the  amount  has  been  

withheld wrongly and without any justification then of course the aggrieved party  

would be fully justified in claiming interest. This is the mandate of Section 34 of  

the Code of Civil Procedure as also Section 29 of the Act.  

21. Both the aforesaid provisions make it abundantly clear that power to award  

interest at all stages vests with the arbitrators. Arbitrators are bound to make the  

award  in  accordance  with  law  and  if  there  is  no  embargo  or  legal  hurdle  in

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awarding interest for the aforesaid three stages mentioned hereinabove then there  

cannot be any justifiable reason to deny the same.  

22. It  is  also pertinent  to  mention here that  the interest  awarded by learned  

District Judge and learned Single Judge to the counter claim of respondent was not  

disturbed but it was set aside only for the appellant.  If appellant was not entitled  

to claim interest then how respondent-State would get powers or competence to  

receive it.  Same doctrine should have been made applicable for respondent’s case  

also.  Two persons, similarly situated, could not have been treated differently as  

the same may amount to discrimination.

23. In the light of the aforesaid discussion, we allow the appeal and set aside  

and quash the impugned orders passed by learned District Judge in so far as they  

refuse to grant interest pendente lite and future and also by learned Single Judge of  

High  Court  and  restore  the  award  together  with  interest  as  awarded  by  the  

arbitrators.

24. Respondent  to  bear  the  cost  of  litigation  throughout.   Counsel’s  fee  

Rs.10,000/-.

……….............................J.                    [V.S. SIRPURKAR]

.........................................J.                  [DEEPAK VERMA]

New Delhi. October 19, 2009.