TaxTMI 
TaxTMI 
1991 (12) TMI 268
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.... give reasons. Thus the first question stands concluded against the appellants. As regards the second question, when the appeal was taken up for hearing by a Division Bench the appellants placed reliance on a Three Judge Bench decision of this Court in Executive Engineer Irrigation Galimala and Ors. v. Abaaduta Jena wherein it was held that the Arbitrator to whom the reference is made without the intervention of the court, does not have jurisdiction to award interest pendente lite. On behalf of the respondents the correctness of that view was assailed. The Bench hearing these appeals referred the matter to Constitution Bench by order dated 15th March, 1991, as the learned Judges were of the view that the correctness of the view taken by this Court in Jena's case in so far as it held that the Arbitrator has no power to award pendente lite interest, requires consideration by a larger Bench. That is how these appeals are before this Constitution Bench. 3. Before we deal with the submissions raised before us, we consider it appropriate to refer to the facts involved in Civil Appeal No. 1403/86. On 27.4.1977, Government of Orissa the appellant and G.C.Roy respondent entered into an a....
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....alternative method of settlement of dispute through arbitration proceedings. In addition to these two known processes of settlement of dispute there is another alternative method or settlement of dispute through statuary arbitration. Statutory arbitrations are regulated by the statutory provisions while the parties entering into agreement for the resolution of their dispute through the process of arbitration are free to enter into agreement regarding the method, mode and procedure of the resolution of their dispute provided the same are not opposed to any provision of law. Many a time while suit is pending for adjudication before a court, the court with the consent of the parties, refers the dispute to arbitration. On account of the growth in the international trade and commerce and also on account of long delays occurring in the disposal of suits and appeals in courts, there has been tremendous movement towards the resolution of disputes through alternative forum of arbitratOrs. The alternative method of settlement of dispute through arbitration is a speedy and convenient process, which is being followed throughout the world. In India since ancient days settlement of disputes by P....
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....hat Section 41 makes the provisions of CPC applicable to all proceedings before the court including appeals under the Act. It further declares that the Court shall have "for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule, as it has, for the purpose of, and in relation to, any proceedings before the Court". This is without prejudice to conferment of similar powers upon the arbitrators by the parties. In other words if the parties confer powers similar to those as contained in the Second Schedule upon the Arbitrator, his powers are not affected or curtailed by Section 41(b). The Second Schedule enumerates the powers of the court which it can exercise while the dispute is pending before the arbitrator. These include the power to give directions for the preservation, interim custody or sale of any goods which are the subject matter of reference to give appropriate directions for securing the amount in difference in the reference and also power to give appropriate directions for the detention, preservation or inspection of any property and similar other powers specified in Rule ....
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....ction 29 confers power on the court to award interest on the amount awarded by the Arbitrator from the date of the decree. Section 41 makes provisions of the CPC applicable to all arbitration proceedings. Section 34 of the CPC confers power on the Court to award interest but the Arbitration Act does not confer any express power on the Arbitrator to award interest pendente lite. However, under Sections 3 and 4 of the Interest Act 1978, the 'court' which includes a Tribunal or an 'Arbitrator' within the meaning of Section 2(a) of that Act is empowered to award interest. In the context of these provisions the question arises whether an Arbitrator to whom reference is made by the parties has jurisdiction or authority to award interest pendente lite. If the arbitration agreement or the contract itself provides for award of interest on the amount found due from one party to the other, no question regarding the absence of arbitrator's jurisdiction to award the interest could arise as in that case the Arbitrator has power to award interest pendente lite as well. Similarly, where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the Arbitrat....
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....onsiderable difficulty in later cases wherein they have been explained as having been never intended to lay down any such broad and unqualified proposition as they appear to lay down on first impression. The learned Judge then referred to various decisions including the decisions in Nachippa Chettiar , Satinder Singh , Madan Lal Roshanlal , Bungo Steel [1967] 1 S.C.R. 325, Ashok Construction and Saith and Skelton wherein the power of the arbitrator to award interest was upheld, and explained them on the basis that all those were "cases in which the reference to arbitration was made by the court, of all the disputes in the suit." It would be appropriate to reproduce the observations in so far as they are relevant. The question of interest by an arbitrator was considered in the remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam Chettier, (supra) Satinder Singh v. Amrao Singh (supra), Firm Madanlal Roshanlal Mahajan v. Hukum Chand Mills Ltd. (supra), Union of India v. Bungo Steel Furniture Private Limited (supra), Ashok Construction Company v. Union of India, (supra) and State of Madhya Pradesh v. Saith & Skelton Private Limited were all (cases in ....
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....ion agreement does not exclude the jurisdiction of the arbitrator to award interest pendente lite, such power must be inferred. (4) The decision in Jena does not take into account several earlier decisions of this Court where the power of the arbitrator to award interest pendente lite has been upheld. Many such decisions have been explained away as cases where reference to arbitration was in a pending suit, though as a matter of fact it is not so. Even on principle the said decision does not represent the correct view. 14. Shri Soli Sorabji who supported the reasoning of Shri Milon Banerji submitted that there is no good reason why the arbitrator should be held to have no power to award interest pendente lite. Arbitrator is an alternative forum for resolution of disputes. The idea is to avoid going to Court. If so, the arbitrator must be held to possess all the powers as are necessary to do complete and full justice between the parties. If the arbitrator is held to have no power to award interest pendente lite, the party claiming such interest would still be required to go to the Civil Court for such interest even though he may have obtained satisfaction in respect of his oth....
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....her the Arbitrator is empowered to award interest on the amount awarded by him if he thinks such a course proper. The plaintiff's case was that he was entitled to such interest whereas the defendant company disputed the power of the Arbitrator. The Company's case was that inasmuch as the notice of action did not demand interest, the plaintiff was not entitled to claim interest. This argument was repelled by Jervis, C.J. in the following words: There are two answers to this: one is that there is no plea of want of notice of action, but only a plea of never indebted "by statute", the effect of which is altered by Sir F. Pollock's act, 5 & 6 Vict. c. 97, Section 3. The defendants had, therefore, no right to rely upon the general plea; they are bound to plead specially the want of notice of action. A further answer would be, that this is a submission, not only of the action, but of all matters in difference; and the interest would be a matter in difference, whether demanded by the notice of action or not. If the arbitrator could give it, he might give it in that way, notwithstanding the want of claim of interest in the notice. 17. It is relevant to notice that the Court clearly h....
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.... the Civil Procedure Act of 1833. The ratio of Edwards is that it is the submission which empowers the arbitrator to award interest and that power of the arbitrator was not derived from 1833 Act. Lord Tucker observed: But I agree with Mr. Mocatta that the real basis of Edward's v. Great Western Ry. (64) was not that the arbitrator derived his powers from the Act of 1833, but that he derived them from the submission to him, which necessarily gave him the 'implied powers' referred to by Lord Salvesen; and I see no reason why, since the Act of 1934, an arbitrator should not be deemed impliedly to have the same powers. Therefore, with diffidence, having regard to the view expressed by the Divisional Court on this matter, I have come to the conclusion that in such a case as this the arbitrator has power to award interest. Accordingly, to that extent, I think, this appeal should succeed and Podar Trading Co. Ltd., Bombay v. Francois Tagher, Barcelona (65) should on this point be overruled. 20. Cohen J. who delivered a concurring opinion observed that the law Reform (Miscellaneous Provisions) Act, 1934 really did not bring about any change. All that it did was to substitute Court in....
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....e referred, awarded interest for all the three periods, namely for the period anterior to the reference, pendent lite and for the period subsequent to the award. The award was challenged in view of the decision in Thawardas's case. This objection was overruled by Gajendragadkar, J. in the following words: The argument is based solely on the observations made by Bose, J. who delivered the judgment of this Court in Seth Thawardas Pherumal v. The Union of India. It appears that in that case the claim awarded by the arbitrators was a claim for an unliquidated sum to which Interest Act of 1839 applied as interest was otherwise not payable by law in that kind of case. Dealing with the contention that the arbitrators could not have awarded interest in such a case, Bose, J., set out four conditions which must be satisfied before interest can be awarded under the Interest Act, and observed that none of them was present in the case; and so he concluded that the arbitrator had no power to allow interest simply because he thought that the payment was reasonable. The alternative argument urged before this Court that interest could be awarded under Section 34 of the C.P.C. 1908, was also repe....
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....ent. The Court observed: What then is the contention raised by the claimants? They contend that their immovable property has been acquired by the State and the State has taken possession of it. Thus, they have been deprived of the right to receive the income from the property and there is a time-lag between the taking of the possession by the State and the payment of compensation by it to the claimants. During this period they have been deprived of the income of the property and they have not been able to receive interest from the amount of compensation. Stated broadly, the act of taking possession of immovable property generally implies an agreement to pay interest on the value of the property and it is on this principle that a claim for interest is made against the State. This question has been considered on several occasions and the general principle on which the contention is raised by the claimants has been upheld. In Swift & Co. v. Board of Trade it has been held by the House of Lords that "on a contract for the sale and purchase of land it is the practice of the Court of Chancery to require the purchaser to pay interest on his purchase money from the date when he took, or....
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.... aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. In this Court, counsel for the claimant contended that the arbitrator had statutory power under the Interest Act of 1839 to award the interest and, in any event, he had power to award interest during the pendency of the arbitration proceedings under Section 34 of the CPC, 1908. Bose, J. rejected this contention. It will be noticed that the judgment of this Court in Seth Thawarda's case is silent on the question whether the arbitrator can award interest during the pendency of arbitration proceedings if the claim regarding interest during the pendency of arbitration proceedings if the claim regarding interest is referred to arbitration. In the present case, all the disputes in the suit were referred to the arbitrator for his decision. One of the disputes in the suit was whether the respondent was entitled to pendente lite interest. The arbitrator could decide the dispute and he could award pendente lite interest just as a Court could do so under Section 34 of the CPC. Though, in terms, Section 34 of the CPC does n....
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....t proceedings under Section 34 of the CPC, 1908. Bose, J. rejected this contention, but it should be noticed that the judgment of this Court in Seth Thawardas's case does not deal with the question whether the arbitrator can award interest subsequent to the passing of the award if the claim regarding interest was referred to arbitration. In the present case, all the disputes in the suit, including the question of interest, were referred to the arbitrator for his decision. In our opinion, the arbitrator had jurisdiction, in the present case, to grant interest on the amount of the award from the date of the award till the date of the decree granted by Mallick, J. The reason is that it is an implied term of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a court could give if it decided the dispute. Though in terms, Section 34 of the CPC does not apply to arbitration proceedings, the principle of that section will be applied by the arbitrator for awarding interest in cases where a court of law in a suit having jurisdiction of the subject-matter covered by Section 34 could grant a decree for interest. I....
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....on is the same in India. In Bhawanidas Ramgobind v. Harasukhdas Balkishandas the Division Bench of the Calcutta High Court consisting of Rankin and Mookerjee, JJ. held that the arbitrators had authority to make a decree for interest after the date of the award and expressly approved the decision of the English cases-Edwards v. Great Western Ry, Sherry v. Oke and Beahan v. Wolfe. The same view has been expressed by this Court in a recent judgment in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore. We are accordingly of the opinion that the arbitrator had authority to grant interest from the date of the award to the date of the decree of Mallick, J. and Mr. Bindra is unable to make good his argument on this aspect of the case. 29. The above passages show that the Court laid down two principles: (i) it is an implied term of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a court could give if it decides the dispute; (ii) though in terms Section 34 of the CPC does not apply to arbitration proceedings, the principle of that Section will be applied by the arbitrator for awarding intere....
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....on or failure to execute the same whatever, arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the Superintending Engineer. xxx xxx xxx The terms of the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain a claim for interest, on the amount due under the contract. The award of the arbitrator cannot be said to be invalid. 32. The principle of this judgment is that since the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain claim for interest he was competent to award interest on the amount due under the contract. Though no decisions are cited in support of this proposition, it is in accord with the principles laid down in Edwards as understood in Chandri's case. 33. In State of Madhya Pradesh v. Saith & Skelton (P) Ltd. disputes had arisen between the contractor and the State of Madhya Pradesh in respect of certain work done by the contractor. An arbitrator was appointed but there were disputes even with respect to the said appointment and that dispute reached this Court. This Court appointed a sole arbitrator with the con....
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....ct on the part of the seller-from the date on which the payment was made. In the case before us, admittedly the contract does not provide that no interest is payable on the amount that may be found due to any one of them. If so, it follows that the seller, namely, the firm is entitled to claim interest from the date on which the price became due and payable. The finding of the arbitrator in this case is that the price became payable on June 7, 1958. As held by this Court in Union of India v. A.L. Rallia Ram which related to an arbitration proceeding, under Sub-section (2) of Section 61, in the absence of a contract to the contrary, the seller is eligible to be awarded interest on the amount of the price for the goods sold. On this principle it follows that the award of interest from June 7, 1958 is justified. 34. Having so said the Court proceeded to point out that: If the contention of Mr. Shroff that under no circumstances an arbitrator can award interest prior to the date of the Award, or prior to the date of reference, is accepted, then the position will be very anomalous. As an illustration, we may point out that there may be cases where the only question that is refe....
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.... Skelton dealt with power of the arbitrator to award-interest for the period prior to reference. 37. The High Court of Australia too considered this question in Government Insurance Office of NSW v. Atkinson-Leighton Joint Venture 146 C.L.R. 206. The respondents before the High Court agreed to construct an embankment under an agreement entered into with the Maritime Services Board of NSW. By a contractors' all risks policy of insurance, the Government Insurance Office of NSW agreed to indemnify the Joint Ventures against any unforeseen loss or damage to the contract works. The policy contained certain exclusions with which we are concerned. Construction of the embankment began in 1971. While it was in progress, a violent storm occurred causing considerable damage to the embankment under construction. Even thereafter there were repeated storms causing further damage to the embankment. The Joint Ventures laid a claim against the insurer which was rejected, whereupon an arbitrator was appointed as provided by the Insurance Policy. The arbitrator found in favour of the respondent but stated a special case for the opinion of the Supreme Court of New South Wales in accordance with the....
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....nciples on which terms are implied in an agreement have to be considered in the context that the agreement relates to an arbitration. 41. At page 303, para 580 dealing with the award of interest, it reads: An arbitrator or umpire has power to award interest on the amount of any debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the award. 42. Para 592 deals with the Conduct of proceedings of the arbitrator and evidence upon which he can act. Since we find this paragraph relevant we extract it hereunder: In the conduct of the proceedings in his capacity as arbitral tribunal, the arbitrator or umpire must conform to any directions which may be contained in the agreement of reference itself. Subject to any such directions, he should observe, so far as may be practicable, the rules which prevail at the trial of an action in court, including rules as to issue estoppel, but he may deviate from those rules provided that in so doing he does not disregard the substance of justice. Fundamental to notions of justice are the rules that each party has a right to know the case made against him and a right to put his....
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....es arising under the Arbitration Act or arbitration matters. 47. 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, C.P.C., and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) an arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences ar....