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PETITIONER: STATE OF ORISSA

       Vs.

RESPONDENT: B.N. AGARWALLA ETC.

DATE OF JUDGMENT:       29/01/1997

BENCH: A.M. AHMADI, S.P. BHARUCHA, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                             WITH                 CIVIL APPEAL NO. 472 OF 1997             (Arising out of SLP (C) No. 3630/87)                             WITH             CIVIL APPEAL NOS. 9234, 9233 OF 1994                       J U D G M E N T KIRPAL, J.      The main  question which  arises for  consideration  in these cases  relates to the power of the Arbitrator to award interest.      The contention on behalf of the appellants against whom interest has  been awarded  by the arbitrators, is that this Court held  in EXECUTIVE  ENGINEER (IRRIGATION) VS. ABHADUTA JENA (1988)  1 SCC  418 that  the arbitrator has no power to award interest  in respect  of pre  reference period  in the absence of the claimant having a right under the contract or a provision  of substantive  law, to  get interest.  On  the other  hand,   it  is   the  submission  on  behalf  of  the claimants/respondents that  the aforesaid  decision  in  the case of  Abhaduta Jena  (supra)  has  been  overruled  by  a Constitution Bench  of this  Court in the case of SECRETARY, IRRIGATION DEPARTMENT  GOVERNMENT OF  ORISSA AND  OTHERS VS. G.C.ROY. (1992)  1 SCC  508 and  it has  been held  that the arbitrator could  award pre  reference,  pendente  lite  and future interest.      Before dealing  with the  facts of each case it will be appropriate to  examine the relevant decisions of this Court in order to determine the correct legal position with regard to the  jurisdiction of  the arbitrator to award interest in respect of  the periods  for which  interest can  be awarded namely- (i)  for the  period commencing  from  the  date  of dispute till the date Arbitrator entered upon the reference, or the  pre-reference period; (ii) for the period commencing from the date the Arbitrator entered upon reference till the date of making the award (pendente lite interest) 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, or the post award interest.      The question  with regard to power of the Arbitrator to award interest  was considered at great length by this Court

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in ABHADUTA  JENA’S CASE  (SUPRA). Two questions which arose for consideration  of the  Court  in  Abhaduta  Jena’s  case (supra) were  (i) the  power  of  the  Arbitrator  to  award interest for the period prior to his entering upon reference and; (ii)  the power of the Arbitrator to award interest for the period the dispute remained pending before him.      Chinnappa Reddy.J..  speaking for the Court, considered all the  earlier decisions  of this  Court including that of SETH THAWARDAS  PHERUMAL VS. UNION OF INDIA, (1955) 2 SCR 48 and, with  regard to  pendente lite interest, concluded that as the  arbitrator was  not a  court within  the meaning  of Section 34  of Code  of Civil Procedure, therefore, he could not award  pendente lite  interest, with  regard to claim of interest for  the period  before the  reference, it was held that the  arbitrator  could  not  award  interest  for  pre- reference  period   in  cases   which  arose  prior  to  the commencement of  the Interest  Act. 1978 unless the claimant had a substantive right to get interest under the terms of a contract or under a provision of any law.      In coming  to this  conclusion with  regard to interest for pre-reference period, it was observed 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, applied 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

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    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   aware      interest. Again  if there  are  any      other    provisions     for     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 or 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."      The  decision  in  Jena’s  case  (supra)  came  up  for consideration before  this Court in the case of GUJARAT W.S. & S.B.  VS. UNIQUE  ERECTORS (GUJARAT) (P) LTD., AIR 1989 SC 973. In  that case, the interest had been awarded in respect of all the three periods namely; (i) from 6.8.1981, when the Interest Act,  1978 came  into force, to 21.8.1984, the date when reference  was  made  to  the  arbitration;  (ii)  from

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22.8.1984 to 19.7.1985 pendente lite; and (iii) 19.7.1985 to 17.6.1986 (date  of award  to  date  of  decree).  Following Jena’s case  (supra), it was held that the interest pendants lite could  not be  awarded but with regard to pre-reference interest, it was held that "since in this case the reference to arbitration  was  made  after  the  commencement  of  the Interest Act,  1978, the arbitrator under Section 3(1)(a) of the said  Act was  entitled to  award interest from 6.8.1981 till 12.8.1984  in view of this Court’s decision in Abhaduta Jena’s case".  This Court  also held  that  even  though  in Abhaduta Jena’s  case (supra),  granting of interest for the period from  the date  of  award  had  not  been  considered nevertheless interest  should be  allowed for that period on the principle  that this Court could, once proceedings under Sections 15  to 17  of the  Arbitration Act  are  initiated, grant interest  pending the  litigation before  it i.e. from the date of award to the date of decree.      We may  now consider  the decision  of the Constitution Bench in  SECRETARY, IRRIGATION  DEPARTMENT,  GOVERNMENT  OF ORISSA AND  OTHERS VS.  G.C. ROY,  (1992)  1  SCC  508.  The contention of  the  counsels  appearing  on  behalf  of  the respondents is  that the  decision in  Abhaduta Jena’s  case (supra) was  overruled in  its entirety  and it  was held in G.C. Roy’s  case (supra)  that the  arbitrator  could  award interest for  all the above-mentioned three periods, namely; pre-reference, pendente  lite and  post-award. On  the other hand, it  has been  submitted by  the  learned  counsels  on behalf of  the appellants  that  G.C.  Roy’s  case  was  not concerned with  the interest  for the  period prior  to  the making of  the reference  and it  overruled the  decision in Jena’s case  (supra) only  insofar as award of pendente lite interest was  concerned. It  was submitted that the decision of Abhaduta  Jena’s case  (supra),  of  the  arbitrator  not having the  jurisdiction to  award  pre-reference  interest, continues to  hold the field and G.C. Roy’s case (supra) has not ruled to the contrary in this regard.      A careful  reading of  G.C. Roy’s  case (supra) clearly shows that,  insofar as award of interest is concerned, this Court was  only required  to consider whether the arbitrator had jurisdiction to award pendente lite interest. This is so stated in  the judgment  at more places than one. Apart from noting that  the appellants  had challenged  the validity of the award  on two grounds, one of which was that "arbitrator had no jurisdiction to award pendente lite interest", it was noted that  the  case  had  been  referred  by  order  dated 15.3.1991 by the Division Bench to the Constitution Bench as "the learned Judges were of the view that the correctness of the view  taken  by  this  Court  in  Abhaduta  Jena’s  case (supra), insofar  as it held that arbitrator has no power to award pendente  lite interest,  required consideration  by a larger  Bench".  This  Court,  accordingly,  considered  the various decisions  which had  been referred  to by Chinnappa Reddy,  J.   in  Abhaduta   Jena’s  case  (supra)  and  also considered other  decisions and  at page 532 summarised it’s decision as follows:      "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

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    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      disputes  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 from  (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  could 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 the 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

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    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  substantite  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."      Applying  the   aforesaid  principles   the  conclusion arrived at was as follows:      "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 of 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  within  his      discretion to  be exercised  in the      light  of   all   the   facts   and      circumstances of  the case, keeping      the ends of justice in view."      Finally it was observed that "for the reasons aforesaid we must  hold that  the decision  in  Jena’s  case  (supra), insofar as it runs counter to the above proposition, did not lay down the correct law".      The perusal  of the  aforesaid passages  clearly  shows that Abhaduta  Jena’s case  (supra) was not overruled in its entirety by  the decision  in G.C. Roy’s case (supra). 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’s  case (supra). The  decision in  Abhaduta Jena’s case (supra) with regard to award of interest for pre reference period was not overruled in G.C. Roy’s case (supra).      More recent  decisions of this Court also indicate that G.C. Roy’s  case (supra) has been understood and followed as having overruled  Abhaduta Jena’s  case  (supra)  only  with regard to  pendente lite interest and not with regard to pre reference interest. We may now refer to these decisions.      In HINDUSTAN  CONSTRUCTION CO. LTD. VS. STATE OF J & K,

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(1992) 4 SCC 217, the question which arose for consideration was whether  the arbitrator  was competent to award interest for the  period from  the date  of the  award to the date of payment. It  was in  that connection that reference was made to G.C. Roy’s case (supra) and it was observed as follows:      "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. 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."      Claim for  interest for pre-reference period again came up for  consideration before  this Court  in  JUGAL  KISHORE PRABHATILAL SHARMA  AND OTHERS  VS.  VIJAYENDRA  PRABHATILAL SHARMA AND  ANOTHER, (1993)  1 SCC  114. It was contended in that case  that the  arbitrator could not award interest for pre-reference period.  While Ranganathan,  J. with  whom  V. Ramaswamy, J.  concurred, only  observed that "there is some force in  this contention" but B.P. Jeevan Reddy, J. who was one of  the Members  of the  Bench which  decided G.C. Roy’s case (supra),  in his  concurring judgment  dealt with  this question at  some length.  After referring  to some  of  the observations in  the judgment  of the  Constitution Bench in G.C. Roy’s  case (supra),  it was  observed by  B.P.  Jeevan Reddy, J. at page 139 as follows;      "In the circumstances. It would not      be correct to read the first of the      five principles  set out in para 43      as overruling  Jena insofar  as  it      dealt with  the arbitrator’s  power      to  award  interest  for  the  pre-      reference period. Principle No. (i)      should be read along with principle      No.  (v)   wherein  it  is  clearly      stated that  the interest  for  the      period anterior  to  the  reference      (pre-reference period)  is a matter      of substantive  law unlike interest      pendente lite.  The  conclusion  in      para 44  again deals  only with the      power of  the arbitrator  to  award      interest  pendente   lite.  It  is,      therefore, not  right to  read  the      said decision  as  overruling  Jena      insofar as  it dealt with the power      of the arbitrator to award interest      for the pre-reference period."

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    Again in  STATE OF  ORISSA VS.  LAL CHAND  KAPANI, 1994 SUPP. (1)  SCC 68  after referring to the decision in Jena’s and G.C.  Roy’s cases (supra), it was observed at page 69 as under:      "It is  thus clear  that before the      1978 Interest  Act came  into force      there was  no provision under which      the interest  for the pre-reference      period could  be granted.  In  this      case, the  Supreme Court  also held      that  the  interest  pendente  lite      i.e. from the date for reference to      the  date   of   the   award,   the      claimants would  not be entitled to      the  same   for  the   reason  that      arbitrator is  not a  court  within      the meaning of Section 34 CPC since      the reference was not by a court in      a pending suit. This view regarding      the interest  pendente lite however      has  been  reversed  in  Secretary,      Irrigation  Department,  Government      of Orissa  V. G.C.  Roy,  Regarding      the  interest   during   the   pre-      reference period, the view taken in      Abhaduta   Jena    case   is    not      disturbed. Therefore,  the interest      during the pre-reference period can      be awarded  provided on the date of      the award, 1978 Interest Act was in      force."      In SUDHIR  BROTHERS VS. DELHI DEVELOPMENT AUTHORITY AND ANOTHER, (1996)  1 SCC  32,  the  question  with  regard  to awarding interest  for pre-reference  period, but  in a case arising after  the commencement  of Interest Act. 1978, came up for  consideration and the legal position, emanating from earlier decisions  of this  Court including  G.C.Roy’s  case (supra) and  Jena’s  case  (supra),  was  stated  to  be  as follows:      "The Constitution Bench in G.C. Roy      case was  dealing with the question      relating to  the award  of interest      pendente  lite  and  not  with  the      question of  the award  of interest      for the pre-reference period and it      was  in   that  context   that  the      Constitution Bench  held  that  the      view expressed  in Jena  case  with      regard to  award of  pendente  lite      interest could  not be said to have      laid down good law The Constitution      Bench  did   not  deal   with   the      question of  pre-reference interest      in   cases    coming   after    the      enforcement of  the  Interest  Act,      1978,  which  came  in  force  from      19.8.1981. In G.C. Roy case itself,      it is  stated that the reference to      the  Constitution  Bench  had  been      necessitated only  for deciding the      question whether  the  decision  in      Jena case was correct insofar as it      held that  arbitrator had  no power      to award  interest pendent lite. On      a doubt  being raised  whether  the

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    Constitution Bench in G.C. Roy case      had overruled  the law laid down in      Jena Case  relating to the power of      the arbitrator  to  award  interest      for the pre-reference period in the      post-Interest Act,  1978  era,  the      position was  clarified by a three-      Judge  Bench   in   Jugal   Kishore      Prabhatilal  Sharma  V.  Vijayendra      Prabhatilal Sharma,  wherein it was      specifically held that the decision      in G.C. Roy case was concerned only      with the  power  of  arbitrator  to      award pendente lite and that it was      not concerned  with  his  power  to      award   interest   for   the   pre-      reference period."      In view  of the aforesaid decisions there can bow 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 aware pre-reference  interest in cases which arose after the interest Act,  1978 has  become applicable.  with regard  to those cases  pertaining to 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’s  case  (supra)  and  Hindustan  Constructions Limited Case  (supra), 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.      Keeping the  aforesaid principles  in mind,  we may now refer to the facts in each case. CIVIL APPEAL NO. 9233 OF 1994      In Civil  Appeal No.  9233 of  1994, the  appellant had invited tenders  for construction  of certain  quarters. The respondent Durga  Parshad had submitted his tender which was accepted. The  work was  completed by  him on  31.5.1977. As certain differences  had arisen  between the  parties. Durga Parshad, the  respondent herein,  requested the appellant to make a  reference  of  the  disputes  to  an  arbitrator  as provided by  the agreement.  AS no reference was made, Durga Parshad  filed  an  application  under  Section  20  of  the Arbitration Act  whereupon the Court appointed an arbitrator as per  the terms  of the agreement and disputes between the parties were referred to the said arbitrator.      The  arbitrator   after   hearing   the   parties   and considering the  evidence adduced  before him made his award whereby the  appellant was held to be liable to pay a sum or RS. 2.73.130.82/-  to the  respondent  Durga  Parshad.  This arbitrator further held that the appellant was liable to pay simple interest @ 15% per annum from 31.8.1977 till the gate of payment  on the  aforesaid amount  or the date of decree, whichever is later.      On the  award being  filed in  the court, the appellant filed  objections.   One  of  the  objection  was  that  the arbitrator had  awarded  interest  but  there  was  a  clear stipulation in the agreement that no interest was payable on the amount withheld under the agreement. The objections were not accepted  and with  regard to the claim of interest, the trial court held that this was not a case where interest was awarded on  any amount having been witheld. It was, however,

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found that  the claim  for  interest  was  referred  to  the arbitrator and, therefore, the award of interest was held to be valid.      In the  appeal before the High Court, with reference to the award  of interest,  the contention  which was raised on behalf of  the appellant  was that  the  arbitrator  had  no jurisdiction to  award interest for the pre-reference period and that  the rate  or interest  granted was  excessive.  In support of  this  contention,  reliance  was  place  on  the decision of  this Court  in the case of Abhaduta Jena’s case (supra). The  High Court,  by  its  judgment  under  appeal, relied upon the decision of this Court in the case of Unique Erectors case  (supra)  and  came  to  the  conclusion  that interest  for   the  period   prior  to  initiation  of  the proceedings could  be granted in cases in which reference to arbitration was  made after the commencement of the Interest Act, 1978.  The High  Court, therefore, restricted the grant or  interest   for  the  pre-reference  period  only  w.e.f. 19.8.1981, on  which date  the Interest  Act, 1978  had come into force.  The Judgment  and decree  of trial  court  was, accordingly, modified  with the  result that  the respondent Durga Prashad  instead of  being awarded  interest for  pre- reference period w.e.f. 31.8.77. was as a result of judgment under appeal,  awarded interest  w.e.f. 19.8.1981  till  the date of payment.      It was  contended by  Mr. Salve, learned Senior Counsel appearing for  the appellant, that clause (4) of the Special Terms and Conditions or the contract did not allow the award of  interest.   He  submitted   that  neither  pre-reference interest nor pendente lite interest could be awarded because of the  special stipulation  in the  agreement to the effect that no  interest would  be payable.  Clause (4),  on  which reliance was placed, reads as under:      RATES, MATERIALS AND WORKMANSHIP      The  rates  quoted  shall  be  fore      finished  work   inclusive  or  ail      materials,      labour,      taxes,      royalties, transportation etc.      The Engineer  in charge  will  have      full and  final authority to reject      any material  or work  done due  to      defect     therein      and     the      contractor/contractors        shall      forthwith  remedy  the  defects  at      his/their  own   expense   and   no      further  work   shall  be  done  in      connection with  particular work or      portion of  the work till such time      as the  defect is  removed  to  the      entire satisfaction of the Engineer      in charge.      All  materials,  tools  and  plants      brought    to     site    by    the      contractor/contractors   shall   be      deemed to  be held  in lien  by the      BCCL and the contractor/contractors      shall not  have the right to remove      the same  from the site without the      written permission  of the Engineer      in charge.  However, the BCCL shall      not be  liable for  any loss, theft      or damage  due  to  fire  or  other      causes sustained during this period      of lien.      No interest  is payable  on amounts

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    with held  under the  item  of  the      agreement.      The BCCL  shall be  at  liberty  to      deduct from the security deposit or      from any other sum due or to become      due under  this contract  or  under      any other  contract all  sums  that      become due  to the  BCCL. All bills      shall be per-audited before amounts      and will be made by cheque only."      From the  facts enumerated hereinabove it is clear that the reference in this case was made to the arbitrator by the court on  an application having been failed under Section 20 of the  Arbitration Act.  As interest  was one of the claims made by  the respondent,  the said  dispute was  referred to arbitrator. The  arbitrator, therefore, had the jurisdiction to  decide   this  issue.   Inasmuch  as  reference  to  the arbitration was  made after  the Interest Act, 1978 had come into force  w.e.f. 19.8.1981, the High Court rightly came to the conclusion  that at  least with  effect from  that date, interest could be awarded for the pre-reference period under Section 3  or the Interest Act, 1978. This conclusion of the High Court  is in conformity with the decision of this Court in the  cases of Unique Erectors & Sudhir Bros, (supra). The only question,  therefore, is whether the aforesaid clause 4 of the  Agreement negates any claim for interest being made. There can  be no  doubt that  if the  terms of  the Contract expressly stipulate  that no interest would be payable then, notwithstanding the provisions of the Interest Act, 1978, an arbitrator would  not get the jurisdiction or right to award interest. In  the present  case, however, no such contention based on  clause 4  was raised  before the  High Court.  The judgment does  not show  that any argument was raised before the High  Court to  the effect  that the contract prohibited the award of interest. It is no doubt true that reference to this clause  was made before the trial court but, in appeal, the only  contention which  was raised before the High Court was  that  the  arbitrator  had  no  jurisdiction  to  award interest  for  pre-reference  period.  This  contention  was accepted and  the judgment  and decree  was modified  to the effect that  interest was awarded not from 31.5.1977. as had been granted by the award and the decree of the trial court, but with  effect from 19.8.1981 from which date the Interest Act, 1978  came into force. The contention based on clause 4 having been  given up  before the  High Court  the appellant would normally  not have been allowed to be agitated in this appeal but we find that there is no merit in this contention and the  same had  been rightly rejected by the trial court. According to  clause 4,  interest was  not  payable  on  the amount which  was withheld.  The  learned  counsel  for  the respondent has rightly contended that the said clause refers to the  amount withheld  by the  appellant towards retention money for the defect liability period. It was submitted that the appellant had received a sum of Rs. 30,000/- as security for the  fulfillment of  the contract to the satisfaction of the company  and the respondent Durga Parsad has not claimed any interest  on this amount as under aforesaid clause 4, no interest was  payable on  the amount  so withheld. The claim which was made by Durga Parsad before the arbitrator was for the non-payment  of  the  full  amount  as  per  final  bill submitted by  him. The  claim on  this  account  before  the arbitrator was  for a  sum of  Rs. 5.86.381.50/-  being  the balance amount  payable out  of the  final bill and interest thereon was  claimed with effect from the date of completion of work  (31.5.1977) till  the date of payment. The claim of

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the respondent  for a sum of Rs. 5.80.381.50/- was upheld by the arbitrator  only to  the extent of Rs. 2,73,136.82/- and the respondent  was awarded  interest on  this  amount.  The interest so  awarded is clearly not covered by the aforesaid clause 4 of the contract.      The decision  of the  High Court awarding pre-reference interest with  effect from  the date  when the Interest Act, 1978 had  come into  force i.e.  19.8.1981 and  the award or pendente   lite    interest,   therefore,   calls   for   no interference. In  the result,  the appeals  of  M/s.  Bharat Coking Coal  Ltd, are  liable to  be dismissed,  but with no order as to costs.      CIVIL APPEAL  NO. ......./96 (ARISING OUT OF S.L.P. (C) NO. 3630  OF 1987  & CIVIL  APPEAL...../96 (ARISING  OUT  OF S.L.P. (C) NO. 15995/1987.      Leave granted.      The parties  in both  these cases  are the same and the material facts  are not  very dissimilar.  In appeal arising out of  S.L.P. (C) No. 3630/87, the respondent was entrusted with some civil work by the agreement made in the year 1974- 75. Some disputes had arisen and an arbitrator was appointed on 4.7.1979.  The arbitrator  on 11.3.1981 gave an award for Rs. 1.82,860/-  including interest.  As is  evident from the judgment of  the High Court the arbitrator had awarded a sum of Rs.  99009/- as principal and interest of Rs. 68635/- for the period 1.6.1975 to 10.3.1981 was also awarded.      This award  of interest  has been  upheld by  the trial court and the High Court.      The present  appeal is  confined only  to the  award of interest by the arbitrator. As far as pre-reference interest is concerned,  in view  of the  settled legal position, pre- reference interest could not be awarded for the period prior to coming  into force  of the  Interest Act,  1973 specially when the  agreement between  the parties did not provide for payment or interest. In other words, neither by contract nor under law  was  the  respondent  entitled  to  receive  pre- reference interest  for the  period  1.6.1975  to  10.3.1981 which had  been awarded to him. As far as future interest is concerned, it  was within  the jurisdiction of arbitrator to award the same. The appeal is allowed to the extent that the award of pre-reference interest to the sum of Rs. 68635/- is set-aside and the decree will stand modified accordingly. In appeal arising  out of  S.L.P. (C)  No. 15995  of  1987,  an agreement between  the parties  was entered  sometime in the year  1966-67.   Work  was   completed  on   31.12.1970  and thereafter the  respondent gave  notice t the Chief Engineer raising some  claims.  On  19.10.1976,  the  Chief  Engineer appointed a sole arbitrator. The arbitrator entered upon the reference and  thereafter on  12.5.1981 gave an award of Rs. 1.56.073.74/- plus interest @ 7% from 1.4.1971 till the date of payment  or decree.  The award  was made  the rule of the Court and  the High  Court dismissed the appeal filed by the appellant.  It   is  clear  from  the  principle  enunciated hereinabove that  pre-reference interest could not have been awarded in  favour of  the respondent  in the  present  case because the  Interest Act, 1978 was not applicable and there was no  term in the contract and nor was it established that under any  law or  usage any  interest was payable. Applying the ration  of decisions  of this  Court in  Abhaduta Jena’s case (supra)  and other  cases, the appeal is allowed to the extent that  the award  of the  arbitrator,  insofar  as  it awards interest  for the  pre-reference period is set aside. The decree would stand modified accordingly. Parties to bear their own costs.      CIVIL APPEAL NO. 9234 OF 1994

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    On 27.5.1979, an agreement was entered into between the State Government,  the appellant  herein, and the respondent for improvement  of Salai-Manoharpur Road. This was followed by a  supplementary agreement  dated 30.4.1982  for  carting earth. The  respondent made  claims against the appellant in respect  of   above  work  allegedly  done  under  the  said agreements.  On   19.5.1987,   the   respondent   filed   an application  in  the  trial  court  for  appointment  of  an arbitrator under Section 8 of the said Act. This application was allowed  by the Court on 19.5.1987 and an arbitrator was appointed who  entered upon  the reference on 10.6.1987. The arbitrator gave  an award  on  28.2.1988  and  directed  the payment of  Rs. 30.21.047/-  towards the principal claim and interest @  6% from  2.1.1984 to  25.2.1988 amounting to Rs. 8,26,811/- ad  future interest  @ 13%  from the  date of the award till  the  date  of  realisation.  In  this  way,  the arbitrator awarded  interest in  respect of  all  the  three periods, namely;  pre-reference, pendente  lite  and  future interest.      When the  award was  filed in  the court, the appellant herein,  filed  objections  to  the  same.  With  regard  to interest in  the objection  which was  filed, the  appellant only challenged  the decision  of the arbitrator in allowing pendente interest.  The trial  court came  to the conclusion that reference  to the  arbitration had  been  made  in  the course of  a  suit  and  the  arbitrator  was  justified  in allowing pendente lite interest.      In appeal  filed before the High Court it was contented that the claim of the respondent in respect of escalation of price had not been referred to arbitrator and, therefore, he could not have given the award in respect of the said claim. The second  contention which  was raised,  with which we are concerned in  the present  case, was that the arbitrator had no power  to grant  pendente lite  interest. While upholding the decision  of the  trial court,  in making  the award the rule of  the Court  and passing  the decree in term thereof, with  regard  to  pendente  life  interest  the  High  Court referred to  the decisions  of this  Court in  the cases  or SANTOSH SINGH  ARORA VS. UNION OF INDIA AND OTHERS. (1992) 1 SCC 492  and LALCHAND  KAPANI’S CASE (SUPRA) and came to the conclusion that  pendente lite  interest could be granted by the arbitrator under the Interest Act, 1978.      Mr. Sanval,  the learned  counsel  for  the  appellant, contended that  pre-reference interest could not be granted. He further  submitted that  the arbitrator  had <??>Interest also from the date or award till the date of payment. It was submitted that this had the effect of awarding interest even for the  period after  the court passes a decree, making the award the  rule of the court. Referring to Section 29 of the Arbitration Act  the  learned  counsel  submitted  that  the arbitrator had  no jurisdiction  to award  interest for  the period after  the passing  of the  decree till  the date  of payment and,  therefore, the  award to that extent, at lest, was liable to be set-aside.      From the Facts enumerated hereinabove. It is clear that though the arbitrator had awarded interest in respect of all the three  periods, the objections which were filed, and the contentions raised  before the  trial court  as well  as the High Court,  related only  to the  award  of  pendente  lite interest. In  fact, the decision of the High Court upholding the award  of  pendente  lite  interest  was  not  seriously challenged by  Mr. Sanyal. obviously in view of the decision of the  Constitution Bench  of this Court in G.C. Roy’s case (supra). Ordinarily,  we would  not be inclined to allow the appellant to raise a new point relating to the grant of post

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award interest for the first time in this Court, but as this is a  pure question  of law  and in  order to finally decide this issue we allowed the learned counsel to raise the same. We, however, do not find any merit in this submission.      According to  Section 29  of the Arbitration Act, where the award  is for  payment of  money the  Court may  in  the decree order  interest from  the date  or the  decree to the date  of  payment.  This  Section  by  it’s  plain  language expressly gives  the Court  the power to award interest from the date  of the  decree till  the date of payment but would this empty that the arbitrator when making the award, has no jurisdiction to  award interest  from the  date of the award till the date of payment.      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  based. It does happen that when a 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. (supra) and  Hindustan Construction  Co. Ltd.  (supra).  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 there or,  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.      Under Section 29 of the Arbitration Act. The Court can, even where the arbitrator has awarded interest from the date of the  award till  the date  of payment,  disallow interest from the date of the decree or determine a different rate at which the  interest is  to be  paid or  confirm the grant of interest as  awarded in  the award.  When the Court does not modify the  award with  regard to grant of interest from the date of the award upto the date of payment, the effect would be as if the court itself has granted interest from the date of the decree till the date of payment at the rate which was determined by  the arbitrator.  The future interest would be regarded as  having been ordered to be paid under Section 29 of the  Arbitration Act  when the  Court does not modify the award in this respect.      In the  instant case,  the claim  for interest even for the pre-reference  period had arisen after the Interest Act. 1978 had came into force and, therefore the arbitrator could award interest  for all  the three periods. C.A. No. 9234 of 1994 is  accordingly dismissed,  but with  no  order  as  to costs.