Arbitrators' Authority on Pre-Reference and Post-Award Interest

The Court clarified that arbitrators have the authority to award pre-reference interest only in cases arising after the Interest Act, 1978, and for periods before this Act, arbitrators lack jurisdiction unless supported by substantive law, contract, or usage. Regarding pendente lite interest, the Court affirmed that arbitrators can award it unless explicitly prohibited by the contract. Additionally, the Court confirmed that arbitrators can award post-award interest from the award date until payment, with courts having the power to modify this under Section 29 of the Arbitration Act.

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Issues Involved:
1. Power of the Arbitrator to award interest for the pre-reference period.
2. Power of the Arbitrator to award pendente lite interest.
3. Power of the Arbitrator to award post-award interest.

Detailed Analysis:

1. Power of the Arbitrator to Award Interest for the Pre-Reference Period:

The central issue was whether arbitrators have the authority to award interest for the period before the arbitration reference (pre-reference period). The appellants argued that, as per the decision in Executive Engineer (Irrigation) vs. Abhaduta Jena (1988) 1 SCC 418, arbitrators lack the power to award such interest unless the claimant has a right under the contract or substantive law. However, the respondents contended that this decision was overruled by a Constitution Bench in Secretary, Irrigation Department Government of Orissa and Others vs. G.C. Roy (1992) 1 SCC 508, which allowed arbitrators to award interest for pre-reference, pendente lite, and future periods.

The Court examined prior decisions, including Abhaduta Jena and G.C. Roy. In Abhaduta Jena, it was held that arbitrators could not award pre-reference interest unless the claimant had a substantive right under a contract or law. The G.C. Roy case was interpreted to overrule Abhaduta Jena only concerning pendente lite interest, not pre-reference interest. Subsequent decisions, such as Hindustan Construction Co. Ltd. vs. State of J & K (1992) 4 SCC 217 and Jugal Kishore Prabhatilal Sharma and Others vs. Vijayendra Prabhatilal Sharma and Another (1993) 1 SCC 114, confirmed that G.C. Roy did not overrule Abhaduta Jena on pre-reference interest.

The Court concluded that arbitrators could award pre-reference interest only in cases arising after the Interest Act, 1978. For periods before this Act, arbitrators lacked jurisdiction unless supported by substantive law, contract, or usage.

2. Power of the Arbitrator to Award Pendente Lite Interest:

The Court scrutinized the power to award pendente lite interest, referencing Abhaduta Jena, which held that arbitrators could not award such interest as they were not courts under Section 34 of the Civil Procedure Code. However, G.C. Roy overruled this part, establishing that arbitrators could award pendente lite interest even if the agreement was silent on this issue.

The principles derived from G.C. Roy included:
- A person deprived of money is entitled to compensation, whether termed as interest, compensation, or damages.
- Arbitrators, as alternative dispute resolution forums, should have the power to decide all disputes, including interest.
- Arbitrators derive their powers from agreements, which must conform to the law.
- Courts have historically assumed arbitrators' power to award pendente lite interest unless explicitly prohibited by the agreement.

The Court affirmed that arbitrators could award pendente lite interest unless explicitly prohibited by the contract.

3. Power of the Arbitrator to Award Post-Award Interest:

The Court also addressed the arbitrator's authority to award post-award interest. The Hindustan Construction Co. Ltd. case confirmed that arbitrators could award interest from the award date to the decree date or payment date, whichever was earlier. Section 29 of the Arbitration Act allows courts to award interest from the decree date to the payment date, but this does not negate the arbitrator's power to award post-award interest.

The Court clarified that arbitrators could award interest from the award date until payment, and courts could modify this under Section 29 of the Arbitration Act.

Case-Specific Judgments:

Civil Appeal No. 9233 of 1994:
The appellant's tender for constructing quarters led to disputes resolved by arbitration. The arbitrator awarded interest from 31.8.1977, but the High Court modified this to 19.8.1981, aligning with the Interest Act, 1978. The Court upheld this, noting that the contract clause prohibiting interest on withheld amounts did not apply to the awarded interest.

Civil Appeal No. 3630 of 1987 & Civil Appeal No. 15995 of 1987:
In these cases, the arbitrator awarded pre-reference interest before the Interest Act, 1978, which was set aside by the Court. The Court upheld the award of future interest, modifying the decrees accordingly.

Civil Appeal No. 9234 of 1994:
The arbitrator awarded interest for all three periods. The Court upheld the award, including post-award interest, confirming the arbitrator's jurisdiction under the Interest Act, 1978.

Conclusion:
The judgment delineates the arbitrator's power to award interest across different periods, affirming their jurisdiction post-Interest Act, 1978, and clarifying the scope of awards in line with substantive law and contract terms.

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