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Issues: (i) Whether an arbitrator can award pre-reference interest, including where the agreement contains a clause excluding interest on withheld amounts. (ii) Whether an arbitrator can award pendente lite and post-award interest, and the extent to which the court may deal with such interest when making the award a rule of court.
Issue (i): Whether an arbitrator can award pre-reference interest, including where the agreement contains a clause excluding interest on withheld amounts.
Analysis: The prior view that an arbitrator had no power to award pre-reference interest unless the claimant could show a contractual or substantive-law basis was held to continue in relation to periods before the Interest Act, 1978 became applicable. The later Constitution Bench decision overruling the earlier restriction was confined to pendente lite interest and did not displace the rule on pre-reference interest. Once the Interest Act, 1978 applied, however, the arbitrator could award pre-reference interest for claims arising after its commencement, unless the contract expressly prohibited such award. A clause barring interest on withheld amounts was construed narrowly and did not exclude interest on sums found due on the final bill where that sum was not the amount retained under the clause.
Conclusion: Pre-reference interest was permissible only where the Interest Act, 1978 applied or a contractual or statutory basis existed, and the contractual exclusion in the case considered did not bar interest on the adjudicated balance; relief on this issue was therefore partly in favour of the appellants and partly against them.
Issue (ii): Whether an arbitrator can award pendente lite and post-award interest, and the extent to which the court may deal with such interest when making the award a rule of court.
Analysis: The Constitution Bench ruled that where the agreement is silent and does not prohibit interest, the arbitrator may award pendente lite interest as part of the power to do complete justice between the parties. That principle was treated as settling the law for pendente lite interest. The Court further held that post-award interest may also be awarded by the arbitrator, but where the award is filed in court and a decree follows, the court retains control under Section 29 of the Arbitration Act over interest from the date of decree to the date of payment. The arbitrator should ordinarily structure future interest up to the date of decree or payment, whichever is earlier.
Conclusion: The arbitrator had power to grant pendente lite interest and post-award interest, subject to the court's power under Section 29 of the Arbitration Act when the award is made a decree.
Final Conclusion: The governing rule was clarified to be that pre-reference interest depends on the applicable substantive law or contractual permission, while pendente lite and post-award interest may be awarded by the arbitrator in the manner recognised by the later Constitution Bench decisions; the appeals were disposed of accordingly, with some allowed in part and others dismissed.
Ratio Decidendi: The power to award pre-reference interest is a matter of substantive law or contract, whereas pendente lite interest may be granted by an arbitrator when the agreement is silent and does not prohibit such award, and post-award interest may also be allowed subject to the court's power when the award is made a decree.
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