Holding

An arbitrator appointed with or without court intervention has jurisdiction to award interest for the pre‑reference period unless the arbitration agreement expressly prohibits it.

Summary

The case concerned whether an arbitrator appointed, with or without court intervention, could award interest on sums due for the period before the arbitration reference (pre‑reference period) in disputes that arose before the Interest Act, 1978. The contractor’s award included interest from the due date to the date of the award, which the High Court upheld. On appeal, the Supreme Court majority held that an arbitrator has jurisdiction to award such interest unless the arbitration agreement expressly prohibits it, reasoning that arbitration is a substitute for civil courts and the arbitrator must be able to grant relief akin to a court. Two dissenting judges held that the arbitrator lacks this power absent a contractual clause, a usage of trade, or a substantive legal provision. The Court dismissed the appeals, affirming the High Court’s award of interest.

Issues considered

The jurisdiction of an arbitrator to award interest for the pre‑reference period in cases governed by the Interest Act, 1839 and preceding the Interest Act, 1978.
Whether the absence of a specific prohibition in the arbitration agreement confers power on the arbitrator to award such interest.

Legislation cited

Subjects

ArbitrationInterest awardPre‑reference periodJurisdictionArbitration ActInterest ActSubstantive lawPendente lite

Judgment

A EXECUTIVE ENGINEER, DHENKANAL MINOR IRRIGATION
DIVISION, ORISSA, ETC. ETC.
v.
N.C. BUDHARAJ (DEAD) BY LRS. ETC. ETC.

JANUARY IO, 2001
B
[G.B. PATTANAIK, S. RAJENDRA BABU, D.P. MOHAPATRA,
DORAISWAMY RAJU AND SHIVARAJ V. PATIL, JJ.]

Arbitration:
c
Arbitration Act, 1940-Section 29-/nterest Act, 1839/ Interest Act,
1978-Award-Cases arising during the enforceability of the Interest Act,
1839-/nterest-Pre-reference period-Grant of-Arbitrator appointed
without the intervention of Coz;rt-Jurisdiction of-Interest Act. 1839 only
D envisaging and enabling courts to grant or award interest-However, nothing
in the said Act confining its applicability only to proceedings before ordinary
and conventional courts or excluding its applicability before forums created
in lieu of conventional civil courts-Held, an arbitrator appointed with or
without the intervention of the Court, has jurisdiction to award interest, on
the sums found due and payable, for the pre-reference period, br the absence
E of any specific stipulation or prohibition in the contract to claim or grant
any such interest-Arbitrator possessing a 11 the powers necessary to do
complete and full justice between the parties in the same manner as a Civil
Court.

Substantive Lav.~Meaning of-Explained.
F
Appointment of the arbitrators in the present cases were made without
the intervention cf the Court on a demand made by the contractor concerned.
The said arbitrators, while sustaining portions of the claim made in the
awards also allowed on those amounts interest from the due date of the
G amount till date of Award. The awards were made Rule of Court by the Civil
Court. Aggrieved, State approached the High Court which sustained the
• claim of the contractor for interest from the due date up to the date of the
Award. Hence the present appeals. The appeals were referred to for
consideration of the Constitution Bench on the question as to whether the
Arbitrator had got jurisdiction to award interest for the pre-reference period
H 2M
MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDHARAJ 265
iii cases which arose prior to the commencement into force or the Interest A
Act, 1978.

On behalf of the appellant it was contended that having regard to the
principles and ratio laid down in various Supreme Court decisions, the
Arbitrator had no jurisdiction to award interest for the pre-reference period
in a matter relating to the pre-1978 Act. B

On behalf of the respondents it was contended that the Arbitrator had
jurisdiction to award interest for pre-reference period as long as there was
no specific prohibition as such in the agreement/contract between parties
restraining the claim/payment of interest; that on the principle of an implied C
term of the agreement between the parties that the Arbitrator could award
interest in a case where the Court could award it, when the parties referred
all their disputes to the Arbitrator, he had the necessary power to award
interest.

Dismissing the appeals, the Court D

HELD: (Per Raju J. for himself and Rajendra Babu and Patil JJ.)

1.1. The Arbitrator appointed with or without the intervention of the
Court, has jurisdiction to award interest, on the sums found due and payable, E
for the pre-reference period, in the absence of any specific stipulation or
;
prohibition in the contract to claim or grant any such interest. The submission
that the Arbitrator cannot have jurisdiction to award interest for the period
prior to the date of his appointment or entering into reference which alone
confers him power is too stale and technical to be countenanced, for the
simple reason that in every case the appointment of an arbitrator or even F
resort to Court to vindicate rights could be only after disputes have cropped
up between the parties and continue to subsist unresolved. If the Arbitrator
has the power to deal with and decide disputes which cropped up at a point
of time and for the period prior to the appointment of an Arbitrator, it is
beyond comprehension as to why and for what reason the Arbitrator.should G
be denied only the power to award interest for the pre-reference period when
such interest becomes payable and has to be awarded as an accessory or
incidental to the sum awarded as due and payable. [289-C-D-E-F-Gl
/
Secretmy, Irrigation Department, Government of Orissa and Others v.
G. c. Roy, [19921 1 sec 508, relied on. H
266 SUPREME COURT REPORTS [2001] I S.C.R.

A Executive Engineer (Irrigation), Balimela and Others v. Abhaduta
Jena and Others, 119881 I SCC 418, overruled.

Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra P. Sharma &
Anr., 11993) I SCC ll4 and State of Orissa v. B.N. Agarwala, (1993) 1 SCC
140. State ofOrissa v. B.N. Agarwalla, (1997) 2 SCC 469, impliedly overruled.
B
Bengal IVagpur Railway Co. Ltd v. Ruttanji Ramji and others, AIR +"
(1938) PC 67; Seth Thawardas Pherumal and another v. Union of India, AIR
(1955] SC 468 = (19551 2 SCR 48 and Union of India v. West Punjab
Factories Ltd, !199611 SCR 580 =AIR 119661 SC 395, distinguished.

C Executive Engineer, Dhankanal Minor Irrigation Division, Orissa v.
NC Budhiraj (Dead) by Lrs., 119991 9 SCC 514; Hindustan Construction
Cpn/pany Ltd. v. State of Jammu & Kashmir, 119921 4 SCC 217; Union of
India v. A.l. Rallia Ram, 1196413 SCR 164; Union of India v. Watkins Mayor '
& Co., AIR (19661 SC 275; Mis As/10k Construction Company v. Union of
D India, (197113 SCC 66; State of Madhya Pradesh v. Mis. Saith & SAelton
(P) ltd., 11972) 3 SCR 233 and Union of India v. Bungo Steel Furniture Pvt.
Ltd, AIR 11967( SC 1032, referred to.

Chandris v. Isbrandtsen Moller Co. Inc., 11950) 2 All England Law
Reports 618 = 119501 1 All E.R. 768; President of India v. La Pintada
E Compania Navigacion SA., Law Reports, 119851 I A.C. 104; Food
Corporation of India v. Marastro Compania Naviera S.A. of Panama, 11986)
3 All England Law Reports 500 = 11987) I Weekly Law Reports 134;
Edwards v. Great Western Railway Company; (18511138 ER 603 and Podar
Trading Co. Ltd v. Francois Tagher, 119491 2 All E.R. 62, referred to.

F 1.2. Interest for the pre-reference period 1s a matter of substanti~e law.
'Substantive Law' is that part of the law which creates, defines and regulates
rights in contrast to what is called adjective or remedial law which provides
the method of enforcing rights. The provisions of the Interest Act 1839,
which prescribes the general law of interest and becomes applicable in the
G absence of any contractual or other statutory provision specially dealing with
the subject, would answer the description of substantive law. The Interest
Act, 1839, only envisaged and enabled courts to grant or award interest. But
on that ground alone it could not be reasonably postulated that the Act
applied only to proceedings before Courts and not to proceedings before
forums created in lieu of conventional Civil Courts. Once it is construed and
H considered that the method of redressal of disputes by an alternative forum
- ~-
MINOR IRRIGATION DIVISION, ORISSA v. N.C. BUDHARAJ 267
of arbitration :is agreed to between the parties, with or without the intervention
of Court is only a substitute of the conventional Civil Courts by forums
created by consent of parties, it is but inevitably necessary that the parties
A

must be deemed to have by implication also agreed that the arbitrator shall
have power to award interest, the same way and in the same manner as courts
do. That there is nothing in the Interest Act, t 839 to confine its operation B
and applicability only to proceedings before ordinary and conventional Courts,
cannot also be ignored in this connection. 1286-E-F-G-H; 287-A-B-C-Dj

2. Both logic and reason should counsel courts to lean more in favour
of the Arbitrator holding to possess all.the powers as are necessary to do·
complete and full justice between the parties in the same manner in which C
the Civil Court seized of the same dispute could have done. By agreeing to
settle all the disputes and claims arising out of or relating to the contract
between the parties through arbitration instead of having recourse to Civil
Court to vindicate their rights the party concerned cannot be considered to
have frittered away and given up any claim 'Yhich otherwise he could. have
successfully asserted before Courts and obtained relief. By agreeing to have D
settlement of disputes through arbitration, the party concerned must be
understood to have only opted for a different forum of adjudication with Jess
cumbersome procedure, delay and expense and not to abandon all or any of
his substantive rights under the various laws in force; according to which
only even the Arbitrator is obliged to adjudicate the claims referred to him. E
1288-G-H; 289-A-BI

Per Mohapatra, J. (Dissenting)

t. t. An arbitrator has no competence to award interest for the pre-
reference period unless any of the conditions namely- (I) ifthe agreement
between the parties entitles the arbitrator to award interest; (2) if there is F
a usage of trade having the force of law for award of interest, and (3) if there
are other provisions of the substantive law enabling the award of interest,
.-· is satisfied. The claim for interest for pre-reference period can be made only
if there is a firm basis giving the claimants a cause of action for claim of
such interest and in the absence of such basis for such claim an arbitrator G
is not competent to award interest. Though an arbitrator discharges the
functions of a Court while adjudicating the dispute raised by the parties he
cannot be said to be a substitute for the Court in all respects. An arbitrator
is not bound to follow the strict procedure applicable in a case before the
Court. Therefore, it is necessary that in judging the claim of interest for
pre-reference period he should ascertain whether such claim is permitted .H
268 SUPREME COURT REPORTS [2001] I S.C.R.

A under the terms of the contract between the parties or there is a usage of
trade having force of law in support of such claim or there is any other
provision of the substantive law enabling the award of such interest.
1301-B-C-D; 302-A-BI

Executive Engineer (Irrigation), Balime/a and Others v. Abhaduta
B Jena and Others, 119881 I sec 418, reaffirmed.
State of Orissa v. B.N. Agarwal/a, 1199712 SCC 469; Seth Thawardas
Pherumal and another v. Union of India, AIR 119551SC468=1195512 SCR
48; Union of India v. West Punjab Factories Ltd.. 119661 I SCR 580 =AIR
(1966) SC 395; Jugal Kishore Prabhatilal Sharma & Ors. v. Vijayendra P.
C Sharma & Anr., 119931 I SCC 114 and State ofOrissa v. B.N. Aganrnla,
119931 I SCC 140, relied on.

Secret my, Irrigation Department. Government of Orissa and Others v.
G.C. Roy, 119921 I SCC 508, distinguished.

D Bengal Nagpur Railway Co. Ltd. v. R1111anji Ramji, 119651 IA 66;
Nachiappa Cheuiar v. Subramanium Che/liar, 119621 2 SCR 209; Satinder
Singh v. Amrao Singh, 119611 3 SCR 676; Union of India v. Watkins Mayor
& Co., AIR 119661 SC 275; AHs Asl10k Construction Co. v. Union of India,
119711 3 SCC 66 and State of M.P. v. Mis Saith & Skelton Pvt. Ltd., 119721
E 3 SCR 233 = 119721 I SCC 702 =AIR 119721SC1507, referred to.

1.2. The two periods, the period during which the proceeding was
pending before the arbitrator (pendente lite) and the period before the
arbitrator entered upon the reference (pre-reference) stand on different
footing. While the former refers to a period when the arbitrator was ceased
F of the matter for adjudication, the latter refers to the period before the
arbitrator came into picture. Further during the period when the arbitrator
is ceased of the proceeding the parties are aware of the claims made by the
applicant against the opposite party and the matter is pending adjudication;
but during the pre-reference period neither the claims are crystallized nor
has the opposite party any notice that it may be required to pay certain
G amount to the claimant depending on the adjudication of the dispute by the
Arbitrator.1300-F-GI

Per Pattanaik, J. (Dissenting)

I. An arbitrator does not possess power to award interest for pre-
H reference period. It is unimaginable that an arbitrator does possess the
MINOR IRRIGATION DIVISION. ORISSA "· N.C. i3UtlHARAJ 269
power on the ground that otherwise it would lead to multiplicity of proceedings. A
To hold that an arbitrator possesses the power to award interest even for the
pre-reference period, would tantamount to legislation in that respect. The
fact that the arbitrator has the power to deal with and decide disputes which
cropped up at a point of time, would certainly not clothe the arbitrator with
any power, which neither any law confers upon him ttor there is any usage B
of trade having the force of law nor is there any agreement between the
parties conferring that power. It is difficult to conceive that such power could
be conferred upon an arbitrator for the pre-reference period on the supposition
that he must be ·presumed to have the power to grant interest as an accessory
or incidental to the sum awarded as due and payable.
1304-D-E-G-H; 305-A-B-C) C
Seth Thawardas Pherumal and another v. Union of India, 119551 2
SCR 48; Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and others,
119651 IA 66; SecretW)', Irrigation Department, Government of Orissa and
Others v. G.C. Roy, 11992] I SCC 508; Mis. Ashok Construction Company
v. Union of India, 11971] 3 SCC 66; Executive Engineer (Irrigation), Balimela D
and Others v. Abhaduta Jena and Others, j1988) 1 SCC 418; Union of India
v. A.l. Ral/ia Ram, 11964] 3 SCR 164; Union of India v. West Punjab
Factories ltd., 11966] I SCR 580; Jugal Kishore Prabhatilal Sharma & Ors.
v. Vijayendra P. Sharma & Anr., 11993] I SCC 114 and State ofOrissa v. B.N.
Agarwalla, (1997( 2 sec 469, referred to. E
Chandris v. lsbrandtsen Moller Co. Inc., (1950] 2 All England Law
Reports 618 = 119501 I All E.R. 768, referred to.

CIVIL APPEL LA TE JURISDICTION: Civil Appeal No.. 3586 of
1984.
F
From the Judgment and Order dated 15.5.82 of the Orissa High Court
in Misc. A.No. 254of1981.

With

- ~
C.A Nos. 710-711/ 1981, 6808-6809/1983, 6810/1983, 10649/1983, 779/
1982, and 2723/1981.
G

Gobind Das and Raj Kumar Mehta for the Appellants.

Anil B. Diwan, A.K. Panda, K.K. Patel, R.P. Wadhwani and Vinoo Bhagat
and Radhe Shyam Jena for the Respondents. H
I
·~

270 SUPREME COURT REPORTS [2001] 1 S.C.R.

A The Judgments of the Court were delivered by

RAJU, J. The principal question arising in all these civil appeals and
stand referred to for the consideration of the Constitution Bench is as to
whether the Arbitrator has got jurisdiction to award interest for the pre-
reference period in cases which arose prior to the commencement into force
B on 19.8.1981 of the Interest Act, 1978, when the provisions of the Interest Act
I 839 was holding the field. The cases before us relate to the appointment of
the Arbitrators concerned by the specified authority, on a demand made
therefor by the contractor concerned without the intervention of the Court.
The Arbitrators concerned, while sustaining portions of the claim made in the
C Awards also allowed on those amounts interest from the due date of the
amount till date of Award. On the Awards being made the Rule of Court, as
per the determination made by the Civil Court, the State pursued the matter
before the High Court unsuccessfully and the High Court sustained the claim y·
of the contractor for interest from the due date up to the date of the Award.
Aggrieved, the above appeals came to be filed and entertained on certain
D limited and specified grounds, inclusive of the dispute relating to the Award
of interest for the period prior to the date of the Award.
The Bench of three learned judges, who heard the appeals initially,
considered it necessary to refer to a larger Bench for an authoritative
pronouncement, the following question of law:
E "Jn the absence of any prohibition to claim or grant interest under the
arbitration agreement whether Arbitrator has no jurisdiction to award
interest for the pre-reference period under the general law or equitable
principles, although such claim may not strictly fall within the
provisions of Interest Act, 1839?" (since reported in [ 1999] 9 SCC
F 514).

The order of reference also further indicated that there is no clause in
the agreement as regards the payment of interest for the pre-reference period
and that there is also no clause prohibiting the payment of interest for the
pre- reference period.
G
Before adverting even to the respective contentions of parties on either
side and undertaking a consideration of the same, it would be necessary to
refer to some of the decisions of this Court and highlight the principles laid
down therein, since the chore of controversy centres around the efficacy and
effect of those principles on the issue raised and stand referred to this Bench. '
H The leading decision which undertook an analysis of the case law on the
•
MINOR IRRIGATION DIVISION, ORISSA v. N.C. BUIJHARAJ [RAJU, J.] 271
subject and laid down certain propositions of Jaw is reported in Executive A
Engineer (Irrigation), Ba/imela and Others, v. Abhaduta Jena and Others,
[ 1988] 1 SCC 418 (to be referred to hereinafter aS "Jena's Case"). In paragraph
4 of the judgment, the general state of law is found stated 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 B
to the date of the institution of the proceedings. Neit~er the Interest
Act of 1839 nor the Interest Act of 1978 provides fot 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 C
34, however, applies 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 D
interest before the institution of thP- 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 E
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 commencement
of the 1978 Act the arbitrator has no such power un'der 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 F
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
bef~~ the commencement of the proceedings. Ifthe agreement between
the parties entitles the arbitrator to award interest no further question G
arises and the arbitrator may award interest. Similarly if there is a
usage of trade having the force of law the arbitrator may award
interest. Again if there are any other provisions of the substantive law
enabling the award of interest the arbitrator may award interes.t. By
way of an illustration, we may mention Section 80 of the Negotiable
Instruments Act as a provision of the substantive law under which H
272 SUPREME COURT REPORTS [200 I] I S.C.R.

A the court may award interest even in a case where no rate of interest
is specified in the promissory note or bill of 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
B give specific performance and to award interest. We may a.lso 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.
C 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."

After considering the earlier cases on the subject. it has been observed
thus:
D
"16. The question of award of interest by an arbitrator was considered
in the remaining cases to which we have referred earlier. Nachiappa
Che/liar v. Subramaniam Che/liar, Satinder Singh v. Amrao Singh,
Firm Madan/al Roshanlal Mahajan v. Hukwnchand Mills ltd., Union
of India v. Bungo Steel Furniture Pvt. ltd., Ashok Cons/ruction Co.
E
v. Union of India and Stale of Madhya Pradesh v. Mis Saith & Skelton
Pvt. ltd. were all cases in which the reference to arbitration was made
by the court, of all the disputes in the suit. It was held that the
arbitrator must be assumed in those circumstances to have the same
power to award interest as the court. It was on that basis that the
F award of pendente lite interest was made on the principle of Section
34 Civil Procedure Code in Nachiappa Chelliar v. Subramaniam
Chettiar, Firm Madan/al Roshanlal Mahajan v. Hukumchand Mills ltd.,
Union of India v. Bungo Furniture Pvt. ltd. and Stale of Madhya
Pradesh v. Ml~ Saith & Skelton Pvt. Ltd. In regard to interest prior to
the suit, it was held in these cases that since the Interest Ac:t, 1839
G
was not applicable, interest could be awarded ifthere was an agreement
to pay interest or a usage of trade having the force of law or any other
provision of substantive law entitling the claimant to recover mterest.
Illustrations of the provisions of substantive law under which the
arbilrator could award interest were also given in some of the cases.
H It was said. for instance, where an owner was deprived of his property,
MINOR IRRIGATION DIVISION, ORISSA v. N.C. IlUDHARAJ [RAJU, J.] 273
the right to receive interest took the place of the righi to retain A
possession, and the owner of immovable property who lost possession
of it was, therefore, entitled to claim interest in the place of right to
retain possession. It was further said that it would be so whether
possession of immovable property was taken away by private treaty
or by compulsory acquisition. Another instance where interest could B
be awarded was under Section 61 (2) of the Sale of Goods Act which
provided for the award of interest to the seller or the buyer, as the
case may be, under the circumstances specified in that section.

17. Section 80 of the Negotiable Instruments Act was mentioned as
an instance of a provision of the substantive law under which interest C
prior to the institution of the proceedings could be awarded. Interest
could also be awarded in cases of non- performance of a contract of
which equity could give specific performance. Seth Thawardas
Pherumal was a case of direct reference to arbitration without the
intervention of a court. Neither the Interest Act, 1839 nor the Civil
Procedure Code applied as an arbitrator was not a court. Interest D
could, therefore, be awarded only if there was an agreement to pay
interest or a usage of trade having the force of law or some other
provision of the substantive law which entitled the plaintiff to receive
interest. In that case, interest had been awarded on the ground that
it was reasonable to award interest and the court, therefore, held that
E
the arbitrator was wrong in awarding the interest.

- 18. While this is the position in cases which arose prior to the coming
into force of the Interest Act, 1978, in cases arising after the coming
into force of the Act, the position now is that though the award of
pendente lite interest is still governed by the same principles, the F
award of interest prior to the suit is now governed by the Interest Act,
1978. Under the Interest Act, 1978, an arbitrator is, by definition, a
court and may now award interest in all the cases to which the
Interest Act applies" .
.·
Thereupon, dealing with the cases before them, the general principles G
noticed were applied and they were disposed of in the following terms:

"20. Coming to the cases before us, we find that in Civil Appeal Nos.
120 and 121 of 1981 before the arbitrator, there was no answer to the
claim for interest and we see no justification for us at this stage to
go into the question whether interest was rightly awarded or not. Out H
274 SUPREME COURT REPORTS [200 I] I S.C.R.

A of the remaining cases we find that in all cases except two (Civil
Appeal Nos. 6019-22of1983 and Civil Appeal No. 2257of1984), the
reference to arbitration were made prior to the commencement of the
new Act which was on August 19, 198 l. In the cases to which the
Interest Act, I978 applies, it was argued by Dr. Chitale, learned counsel
for the respondents, that the amount claimed was a sum certain
B payable at a certain time by virtue of a written instrument and, therefore,
interest was payable under the Interest Act for the p~riod before the
commencement of the proceedings. In support of his contention that
the amount claimed was a sum certain payable at a certain time by
virtue of a written instrument, the learned counsel relied upon the
C decision of this Court in State of Rajasthan v. Raghubir Singh. The
case certainly supports him and in the cases to which the 1978
Interest Act applies the award of interest prior to the proceeding is
not open to question. In regard to pendente lite interest, that is,
interest from the date of reference to the date of the award, the
claimants would not be entitled to the same for the simple reawn that
D the arbitrator is not a court within the meaning of Section 34 of the
CPC, nor were the references to arbitration made in the course of
suits. In the remaining cases which arose before the commencement .
of the Interest Act, 1978, the respondents are not entitled to claim
interest either before the commencement of the proceedings or during
E the pendency of the arbitration. They are not entitled to claim interest
for the period prior to the commencement of the arbitration proceedings
for the reason that the Interest Act, 1839 does not apply to their cases
and there is no agreement to pay interest or any usage of trade having
the force of law or any other provision of law under which the
claimants were entitled to recover interest. They are not entitled to
F claim pendente lite interest as the arbitrator is not a court nor were
the references to arbitration made in suits. One of the submissions
made on behalf of the respondents was that in every case, all disputes
were referred to arbitration and the jurisdiction of the arbitrator to
award interest under certain circumstances was undeniable. The award
G not being a speaking award, it was not permissible to speculate on the
reasons for the award of interest and the court was not entitled to go
behind the award and disallow the interest. It is difficult to agree with
this submission. The arbitrator is bound to make his award in
accordance with law. If the arbitrator could not possibly have awarded
interest on any permissible ground because such ground did not exist,
H it would be open to the court to set aside the award relating to the
MINOR IRRIGATION DIVISION, ORISSA v. N.C. 13UDl-IARA.I [RAJU. J.] 275

award of interest on the ground of an error apparent on the record. A
On the other hand, if there was the slightest possibility of the
entitlement of the claimant to interest on one or other of the legally '
permissible grounds, it may not be open to the court to go behind the
award and decide whether the award of interest was justifiable. We do
not want to enter into a discussion on the legality or propriety of a B
non- speaking award as we understand the question is now awaiting
the decision of a Seven Judge Bench. In the light of what we have
... -+ said above, Civil Appeal Nos. 120 and 121of1981 are dismissed, Civil
Appeal Nos. 6019-22of1983 and Civil Appeal No. 2257of1984 are
allowed to this extent that interest during the pendency of the
arbitration proceedings is disallowed and the rest of the civil appeals C
are allowed to the extent that both interest prior to the proceedings
and interest during the pendency of the proceedings are disallowed.
There will be no order as to costs. S.L.P. 8640/81 is disposed of on
the same lines".

The decision, which equally need a detailed reference, is that of D
Constitution Bench reported in Secretary, Irrigation Department, Government
ofOrissa and Others v G.C. Roy, [1992] I SCC 508 (hereinafter referred to as
"Roy's case"). Of the two issues raised in the appeal therein, the one which
related to the jurisdiction of the Arbitrator to award pendente lite interest
when taken up for hearing before a Bench, the correctness of Jena's case E
(supra) insofar as it held that the Arbitrator had no power to award interest
pendente lite was contested and on the view taken by that Bench that the
said question required further consideration by a larger Bench, the matter was
placed before the Constitution Bench. Ultimately, the Constitution Bench held
that the decision in Jena's case (supra) does not lay down good law and
where the agreement between the parties does not prohibit grant of interest F
and where a party claims interest and that dispute (along with the claim for
principal amount or independently) is referred to the Arbitrator, he will have
the power to award interest pendente lite, 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 the parties refer all their disputes - or refer G
the dispute as to interest as such to the Arbitrator- which he shall have power
to decide. It was also emphasised therein that the matter being one within the
discretion of the Arbitrator - the same requires to be exercised in the light of
all facts and circumstances of the case, keeping the ends of justice in view.

The Constitution Bench, which decided Roy's case (supra) after a H
276 SUPREME COURT REPORTS [200111 S.C.R.

A critical analysis of the earlier decisions includii1g the one in Jena's case
(supra), held as follows:

"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
B 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
c 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
D
reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (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
E. 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
F
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
G 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 prohioit and a
party to the reference makes a claim for interest, the arbitrator
H must have the power to award interest pendente lite. Thawardas
MINOR IRRIGATION DIVISION, ORISSA v, N,C, BUDHARAJ [RAJU, J.] 277
has not been followed in the later decisions of this Court. It has A
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 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 B
Jena case almost all the courts in the country had upheld the

-+ (v)
power of the arbitrator to award interest pendente lite. Continuity
and certainty is a highly desirable feature of law.
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 C
always been inferred''.

While overruling Jena's case on the above principles, this Court applied
the principle of prospective overruling making it clear that their decision
shrill not entitle any party nor shall it empower any Court to re-open D
proceedings which have already become final and that the law declared shall
apply only to pending proceedings.

The area of consideration and the questions which fell for the
determination of the cases in Jena's case and Roy's case have been adverted
to in Roy's case itself and in para 8 of the judgment it has been observed E
as follows:

"Generally, the question of award of interest by the arbitrator may
arise in respect of three different periods, namely: (i) for the period
commencing from the date of dispute till the date the arbitrator
enters upon the reference; (ii) for the period commencing from the F
date of the arbitrator's entering upon reference till the date of making
the award; 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, whichever is earlier. In the appeals
before us we are concerned only with the second of the three G
aforementioned periods. In Jena Case, two questions arose for
consideration of the Court, namely: (i) the power of the arbitrator to
award interest for the period prior to his entering upon reference, and;
(ii) the powers of the arbitrator to award interest for the period the
dispute remained pending before him pendente lite. Since, the Court
dealt with the second question in detail and held that the arbitrator H
278 SUPREME COURT REPORTS [200 I] I S.C.R.

A had no jurisdiction or authority to award interest pendente lite, we
think it necessary to consider the reasons for the decision. Justice
Chinnappa Reddy, J. speaking for the bench held that neither the
+
Interest Act, 1839 nor the Interest Act, 1978 <:onferred power on the
arbitrator for awarding interest pendente lite. The learned Judge
observed that Section 34 of the Civil Procedure Code which provides
B for the same did not apply to arbitrator inasmuch as an arbitrator is
not a court within the meaning of the said provision. Consequently
the arbitrator could not award interest pendente lite". + ....
In Jugal Kishore Prabhatilal Shanna & Ors. v. Vijayendra P. Sharma
C & Anr., [1993] 1SCC114 a Bench of three learned judges to which B.P. Jeevan
Reddy, J. was a party observed that there was force in the contention that
the decision in Roy's case did not affect the position of law relating to the
power of the Arbitrator in respect of the period prior to reference in respect
of a pre 1978 Act period. B.P. Jeevan Reddy, J. who was also a member of
the Constitution Bench which decided Roy's case, wrote a separate concurring
D opinion clarifying the position that Roy's case was concerned with the power
of the Arbitrator to award interest pendente lite unlike Jena's case which
considered the question both for the pre-reference period as well as the
pendente lite period and therefore, it may not be right to read the decision
in Roy's case as overruling Jena's case insofar as it dealt with the power of
E the arbitrator to award interest for the pre-reference period. The learned Judge
(Jeevan Reddy, J.) speaking for another Bench in the decision reported in
State of Orissa v B.N. Agarwala, [1993] I SCC 140 reaffirmed the same
position and even rejected a request for reference of the matter to a larger
Bench of this Court. The decision in State of Orissa v B. N. Agarwalla, [ 1997]
2 sec 469, also reaffirmed the above position.
F in B.N. Agarwalla's case (supra) [1997] 2 SCC 469, B.N. Kirpal, J.,
speaking for a Bench of three learned judges of this Court, adverted to the
earlier decisions some of which rendered even after those noticed above and
held as follows:

"18. In view of the aforesaid decisions there can now be no doubt
G
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 award pre- reference interest in cases
which arose after the Interest Act, 1978 had become aprilicabk. With
regard to those cases pertaining to the period prior to the applicability
H of the Interest Act, 1978, in the absence of any substantive law,
MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDl-IARAJ [RAJU, J.] 279
contraCt or usage, the arbitrator has no jurisdiction to award interest. A
For the period during which the arbitration proceedings were pending
in view of the decision in G. C. Roy case and Hindustan Construction
ltd case, 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 B
Appeal No. 9234 of 1994 in the later part of this judgment".

As to what should happen for the post Award period, Section 29 of the
- + Arbitration Act, 1940, itself provides clue for an answer by stipulating that
where and insofar as an award is for the payment of money, the Court may
in the decree order interest from the date of the decree at such rate as the
Court deems reasonable to be paid on the principal sum as adjudged by the c
award and confirmed by the decree. This question has been specifically dealt
with in Hindustan Construction Company ltd. v State of Jammu & Kashmir,
[1992] 4 SCC 217, by a Bench of three learned judges and it was held therein
as follows :

"5. The question of interest can be easily disposed of as it is covered
D
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 E
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 enter:ng upon the reference is a matter of
substantive law, the grant of interest for the post-award period is a F
matter of procedure. Section 34 of Code of Civil Procedure provides
both for awarding of interest pendente lite as well as for the post-
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. may be seen as also the decision in Gujarat G
Water Supply & Sewerage Board v. Unique Erectors (Gujarat) P. ltd.
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".

This aspect was also specifically dealt with and it was held in B.N. H
280 SUPREME COUTU' REPORTS [200 I] I S.C.R.

A Agarwalla 's case (Supra), as hereunder:

·•3 7. 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
1
thereof, is passed. It does happen that when an award is made, the
party against whom it is made, may accept the award and comply with
B 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) Lid. and
Hindustan Construction Co. ltd. The correct procedure which should
be adopted by the arbitrator is to award future interest ti II the date of
C the decree or the date of payment, whichever is earlier. The effect of
this would be that ifthe 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,
y
as in the present case, the award is filed in the court and a decree is
passed in terms thereof, then Mr. Sanyal has rightly contended that
D 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".

It is in the above backdrop of the legal principles enunciated and
E considered holding the field that this reference came to be made for determining
the jurisdiction of the Arbitrator to award interest for the pre-reference period,
in the circumstances stated in the very question of reference.

Shri Gobind Das, learned senior counsel for the appellants, submitted
that having regard to the principles and ratio laid down in Jena's case and
F B.N. Agarwala's case (Supra) and the other decisions wherein the position
came to be re-affirmed and followed consistently, the Arbitrator will have no
jurisdiction to award interest for the pre-reference period in a matter relating
to the pre 1978 Act, period. The decision of this Court in G.C. Roy's case,
according to the learned counsel, has no relevance to the case pertaining to
G 'pre-reference' period, the same being only concerned with pendente lite
period and therefore the authority of the Jena's case in respect of the pre-
reference period holding that no interest is payable for pre-reference period
never stood undermined or overruled by the decision of the Constitution
Bench rendered in G.C. Roy's case. Emphasis has been laid to derive support
to this stand on the decisions reported in Bengal Nagpur Railway Co. ltd.
H v. Ruttanji Ramji and others, AIR (1938) PC 67: Seth Thawardas Pnerumal
':>-.

MINOR IRRIGATION DIVISION. ORIS SA v. N.C. BUDHARAJ [RAJU, .I.] 281
and another v. Union of India, AIR (1955) SC 468 = [l 955] 2 SCR 48; Union A
of India v AL Ra//ia Ram, [1964] 3 SCR I64; Union of India v. Watkins
Mayor & Co., AIR (1966) SC 275; Union of India v: West Punjab Factories
ltd, [I966] 1 SCR 580 =AIR (1966) SC 395; M/s AshokConstruction Company's
case (Supra) and State of Madhya Pradesh v. Mis Saith & Skelton (P) ltd.,
[ 1972] 3 SCR 233. According to the learned counsel for the appellants, the B
principles laid down in Jena's case as affinned in G.C. Roy's case and as
clarified and declared in the subsequent decisions of this Court including the
one in B.N. Agarwala's case (Supra), do not call for any change or modification
or alteration and the reference should be answered in favour of the appellants.

Per contra, Shri Anil B. Divan, learned Senior Counsel spear heading the C
arguments on behalf of the respondents followed by Sharvashri V. Bhagat and
-..,.- A.K. Panda strenuously contended that the ratio or the reasons which fonned
the basis for the judgment and the principles laid down in G.C. Roy's case
dehors their ultimate application to the actual case before court for according
relief, renders the decision in Jena's case, insofar as it related to award of
interest for pre-reference period also bad even for the very reasons on which D
the Court in G.C. Roy's case found the judgment in Jena's case bad or
unsustainable in respect of award of interest for pendente lite period. The
conclusions in Jena's case are said to be directly in conflict with the earlier
three judges' judgment of this Court and all these cases having been quoted
with approval in G.C. Roy's case, Jena's case must be held to be no longer E
good law even in respect of award of interest for the pre-reference period.
Argued the learned senior counsel further that inasmuch as the principles laid
down in the English cases (Chandris case, Edwards case) came to be approved
in G.C. Roy's case, it becomes inevitably necessary to hold that the Arbitrator
has jurisdiction to award interest for pre-reference period as long as there is
no specific prohibition as such in the agreement/contra:. between parties F
restraining the claim/payment of interest, on the principle of an implied term
of the agreement between the parties, that the Arbitrator could award interest
in a case where the Court could award it and that as a consequence thereof
when the parties refer all their disputes/ or the dispute as to interest as such
- to the Arbitrator, he shall have the necessary power to award interest - G
though such power may be exercised in his discretion in the light of all the
facts and circumstances of the case and in the interests of justice. Our
attention has also been invited in this regard to certain English cases: Chandris
v. lsbrandtsen Moller Co. Inc., (1950) 2 All England Law Reports 618;
President of India v. la Pintada Compania Navigacion SA. (Law Reports
(1985) 1 A.C. 104) and Food Corporation of India v. Marastro Compania H
282 SUPREME COURT REl'ORlS [200 I] I SC.R.

A Navieru S.A. of Panama. (1986) 3 All England Law Repo1ts 500=11987) 1
Weekly Law Reports 134, and those of the Supreme Court in G.C. Roy's case
and some of the decisions referred to therein.

We have carefully considered the submissions of the learned counsel
appearing on either side. The mere reference and reliance placed by the
B counsel for the appellants on the earlier decisions which have been already
considered by this Court in deciding Jena's case and G.C. Roy's case and
explained, does not help to improve the position of the appellants in any
manner to sustain their plea. The Constitution Bench which dealt with G.C.
Roy's case while adverting to the English cases reported in Edwards v. Great
C Western Railway Company, ( 1851) 138 ER 603; Podar Trading Co. Ltd. v.
Francois Tagher, ( 1949) 2 All E.R. 62 and Chandris v. lsbrandste11- Moller
Co. Inc. (1950) I All E.R. 768, observed, while quoting with approval the
decision in Ashok Construction Company's case (supra), that the principles
laid down by this Court it only accorded with the principles laid down in
Edwards case (Supra) as understood in Chandris case (Supra). Reference has
D also been made in G.C. Roy's case to the decision reported in Union of India
v. Bungo Steel Furniture Pvt. Lid., AIR (1967) SC 1032, wherein also this
Court accorded approval to the principles laid down in the English cases,
observing as follows:

"26. The above passages show that the Court laid down two principles:
E (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 Code of Civil Procedure 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
F a suit having jurisdiction of the subject matter covered by Section 34
could grant a decree for interest. It is also relevant to notice that this
decision refers with approval to both the English decisions in Edwards
and Chandris case besides the decision of this Court in Firm Madanlal
Roshanlal. It is noteworthy that the decision explains and
G distinguishes the decision in Thawardas on the same lines as was
done in Firm Madan/al Roshanlal case".

The subsequent development and march of law in England, in this
connection also deserve to be noticed. In President of India v. La Pintada
Compania Navigacion SA. (supra), the House of Lords approved the rule in
H Chandris case as follows:
MINOR IRRIGATION DIVISION, ORISSA v. N.C. BUDHARAJ [RAJU. J.] 283
"The true position in law is, in my opinion, not in doubt. It is this. A
Where parties refer a dispute between them to arbitration in England,
they impliedly agree that the arbitration is to be conducted in
accordance in all respects with the law of England, unless, which
seldom occurs, the agreement of reference provides otherwise. It is on
this basis that it was held by the Court of Appeal in Chandris v.
lsbrandtsen-Mol/er Co. Inc., [L95 I) 1 K.B. 240 that. although section B
- 3( I) of the Act 1934, by its terms, empowered only courts of record
to include interest in sums for which judgment was given for damages
or debt, arbitrators were nevertheless empowered, by the agreement
of reference, to apply English law, including so much of that law as
is to be found in section 3( I) of the Act of 1934." (At page 119.) C

In Food Corporation of India v. Marastro Compania Naviera SA. of
Panama (supra), it was held by the Court of Appeal as hereunder:

"Before section I 9A there was no general statutory provision
empowering arbitrators to award interest on the sums they awarded. D
But it was held by this court in Chandris v. lsbrandtsen-Mo/ler Co.
Inc. (1951) I K.B. 240 that, just as before the Act of 1934 came into
force an arbitrator had been held entitled to award interest in the
circumstances in which, under the Civil Procedure Act 1933, a jury
could have awarded interest, so equally, after the Act of 1934 came EI
into force, an arbitrator had impliedly the power to award interest
which section 3 had conferred upon courts of record.

The decision in the Chandris case was approved by the House of
Lords in President of India v. la Pintada Compania Navigacion
S.A., (1985) A.C. 104. There, Lord Brandon of Oakbrook said that, F
where parties refer a dispute between them to arbitration in England,
they impliedly agree that the arbitration is to be conducted in
accordance in all respects with the faw of England, unless the agreement
of reference provides otherwise. Thus, although section 3 of the Act
of 1934 by its terms empowered only courts of record to include G
interest in sums for which judgment was given for damages or debt,
arbitrators were nevertheless empowered, by the agreement of
reference, to apply English law, including so much of that Jaw as was
to be found in section 3 of the Act of 1934.

In my judgment, this implied agreement in the arbitration agreement H
284 SUPREME COURT REPORTS (2001] I S.C.R.

A is naturally to be understood as empowering arbitrators to apply
English Jaw as it is from time to time during the course of the reference
(and in particular in the context of the present case as it wa> at the
time of the hearing and the award) and not as an agreement empowering
the arbitrator to apply English law crystallised as at the date of the
arbitration agreement. As it was put by Cohen L.J in the Chandris
B case ( 1951) I K.B. 240, 264 (though admittedly without having his
mind addressed to transitional problems):

"In my opinion, the right of arbitrators to award interest was not
derived from sections 28 and 29 of the Civil Procedure Act,
1833, but from the rule that arbitrators had the powers of the
c appropriate court in the matter of awarding interest. In my
opinion, therefore, the effect of the Act of 1934 is that, after it
came into force, an arbitrator had no longer the powers of
awarding interest on damages conferred on juries by sections
28 and 29 of the Civil Procedure Act, 1833, but he had the
D power conferred on the appropriate court in the act of 1934
described as a court of record".
In the present case, the power of the court under section 3 of the Act
of 1934 to award interest on a judgment at the trial of proceedings
which the arbitrator would by implication prospectively have had at
E the time of the arbitration agreement had been superseded by the
time of the hearing, and afortiori by the date of the award, by the
wider powers of the court as a result of section 15 of the Act of 1982.
It is those wider powers which, by the Chandris process of implication,
the arbitrator would have had when he made the award if section I9A
had not been inserted into the Arbitration Act 1950. The purpose of
F section 19A is to make explicit powers to award interest which had
previously rested on implication. There is thus a further strong pointer
to holding that section 19A has retrospective effect and applies to
pending and future arbitrations under arbitration agreements whenever
made. just as the powers of the High Court and of the county courts
G under section 35A of the Act of 1981 and section 97 A of the Act of
1959 apply to proceedings whenever instituted".
(At pages 141 & 142)

The Constitution Bench in G.C. Roy's case also recognised and accorded
approval to this principle in para 43 (iii) by stating, "The Arbitrawr must also
H act and make his award in accordance with the general law of the land and
- MINOR IRRIGATION DIVISION_ ORISSA v. N.C 13UDl-IARAJ [RAJU, J.]

the agreement".
285

As for the reliance placed for the appellants upoii the decisions reported
A

in AIR ( 1938) PC 67; AIR (I 955) SC 468 and [ 1966] I SCR 5SO, we are of the
view that the observations contained in those judgments have to be construed
in the factual context and nature of the claims involved therein and not in the

- abstract and out of their context. Thawardas case (Supra) is one where the
Arbitrator awarded interest on unliquidated damages for a period before the
reference to arbitration as well as for the period subsequent to reference. The
B

Bengal Nagpur Railway Company Ltd. case (Supra) dealt with the claim of
interest by way of damages under Section 73 of the Contract Act and it was
- observed therein that Section 73 is merely declaratory of the common law as C
to damages and that it was riot available to the plaintiff therein. In West
Punjab Factories Ltd. Case (Supra) also the suit claim was for damages for
loss of goods destroyed by fire, and issue No. (iv) considered therein related
to the question of awarding interest for the period before the suit on the
i amount of damages decreed. A careful analysis of the principles underlying
those decisions would show that the claim of interest for the period prior to D
the commencement of proceedings was not countenanced in view of the
settled ar.d indisputable position of law that damages till quantified is not and
cannot be said to be an ascertained or definite sum and until it is ascertained
and crystalised into a definite sum and decreed, no question of payment of
interest for the period prior to such quantification would either arise or be E
permissible in law, even if made before regular civil courts, in ordinary suits
filed.

There can be no controversy over the position that the Constitution
-~- Bench of this Court in G.C. Roy's case while declaring that the decision in
Jena's case does not lay down good law upheld, as a consequence the F
jurisdiction of the Arbitrator to award only pendente lite interest, as explained
and highlighted in the subsequent decisions of this Court. When the claim
involved for consideration in G.C. Roy's case was only with reference Jo
pendente lite interest it cannot be expected of the Court to travel outside,
except for analysing the general principles, to academically adjudicate the G
other aspects of the matter also decided by the Bench in Jena's case and
overrule the same on such other points, too. Be that as it may, the ratio or
the basis of reasons and principles underlying a decision is distinct from the
ultimate relief granted or manner of disposal adopted in a given case. While
laying down principle No. (i), in para 43, it has been in unmistakable terms
declared that the basl~ propo\ition that a person deprived of the use of H
286 SUPREME COURT REPORTS [200 I] I S.C.R.

A money to which he is legitimately entitled to has a right to be compensated
for the deprivation, by whatever name it may be called viz., interest,
+
compensation or damages, 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". The efficacy and binding nature of this declaration of
law cannot be either diminished or whittled down even on any known principle
B underlying the doctrine of 'stare decisis'. The same is the position with ....
reference to the principle Nos. (ii) and (iii). It cannot be legitimately contended
that these principles would either vary or could be different in a case relating
to the award ·of interest for the pre-reference period and to assume such a
contra position in juxta position would not only be destructive in nature but
C also illogical and self-contradictory resulting in grave miscarriage of justice. •
Some of the very reasons and principles which weighed with the Constitution
Bench in G.C. Roy's case to sustain the jurisdiction of the Arbitrator to award
pendente lite interest in a claim arising out of an agreement which does not
also prohibit the grant of interest, in our view would equally suffice and
provide sound basis of reasoning for upholding the power of the Arbitrator
D to award interest in respect of the pre- reference period, too. The further fact
that the decisions of this Court, including the Jena's case, envisaged four
circumstances or contingencies wherein such interest for pre-reference period
can be countenanced by the Arbitrator, is by itself sufficient to confer
jurisdiction upon the Arbitrator to entertain and consider the said claim also,
E and consequently there is no justification to thwart the same even at the
threshold denying the Arbitrator power even to entertain the claim as such.

What difference it would make and consequences would follow, if
principle No. (i) is read along with principle No. (v), be it even that, 'interest
for the pre-reference period is a matter of substantive law' unlike the interest
F for the period pendente lite, which ultimately came to be allowed applying the
principles engrafted in Section 34 of the Code of Civil Procedure would next
deserve our consideration'. 'Substantive Law', is that part of the law which
creates, defines and regulates rights in contrast to what is called adjective or
remedial law which provides the method of enforcing rights'. Decisions,
G including the one in Jena's case while adverting to the question of substantive
law has chosen to indicate by way of illustration laws such as Sale of Goods ,,.
Act, 1930 [Section 61 (2)), Negotiable Instruments Act, 1881 (Section 80) etc.
"The provisions of the Interest Act 1839, which prescribes the general law of
interest and becomes applicable in the absence of any contractual or other
statutory provisions specially dealing with the subject, would also answer the
H description of substantive law'. This Act was excluded from consideration for
MINOR IRRIGATION DIVISION. ORISSA v. N.C. BUDMARA.I [RAJU. J.] 287
the simple reason that unlike the inclusive definition of 'Court' in 1978 Act A
so as to include an Arbitrator, also the 1839 Act did not provide any 'definition'
clause much less an expansive one. Not only, Section I of the Interest Act
but even the provisions contained in Sale of Goods Act and Negotiable
Instruments Act themselves' only envisage and enable courts to grant or
award interest. But on that ground alone it could not be reasonably postulated B
that such Acts applied only to proceedings before Courts and not to
proceedings before forums created in lieu of conventional Civil Courts. Once
it is construed and considered that the method of redressal of disputes by
an alternative forum of arbitration as agreed to between. the parties, with or
without the intervention of Court is only a substitute of the conventional Civil
Courts by forums created by consent of parties, it is but inevitably necessary C
that the parties must be deemed to have by implication also agreed that the
arbitrator shall have power to award interest, the same way and in the same
manner as courts do' and would have done, had there not been an agreement
for arbitration. It is in this connection that the practice followed by English
Courts which came to be noticed and approved by this Court also lend
support and strength to adopt such construction in order to render complete D
and substantial justice between the parties. 'That there is nothing in the

- .._
..
Interest Act, 1839 to confine its operation and applicability only to proceedings
before ordinary and conventional Courts, cannot also be ignored, in this
connection'. In our view any such restricted and literal construction which
is bound to create numerous anomalies and ultimately defeat the ends of E
justice should be scrupulously avoided. On the other hand, that interpretation
which makes the text not only match the context but also make a reading of
the provisions of an Act, just, meaningful and purposeful and help to further
and advance the ends of justice must alone commend for the acceptance of
courts of law. Adopting a different construction to deny a claimant who opts
for adjudication of disputes by arbitral process alone and that too when F
recourse to such process is made without the intervention of Court would
amount to applying different and discriminatory norms and standards to
situations which admits of no such difference and that too where there is no
real distinction based upon any acceptable or tangible reason.
G
It is not in dispute that an Arbitrator appointed in a pending suit or with
the intervention of the Court, will have all the powers of the Court, in deciding
the dispute and the dispute is only in respect of an Arbitrator to whom the
reference has been made by the parties, under the agreement without the
intervention of the Court. It wou Id then mean that the parties have to be
driven to vexatious litigation before Courts by passing an agreement of H
288 SUPREME COURT REPORTS [2001] I S.C.R.

A a·rbitration, to be ultimately told to abide by it and have the matter formally
referred by staying such proceedings before Civil Court to secure to the
Arbitrator power to award interest also. In G.C. Roy's case while emphasising
the importance and need for availing arbitration process, it has been observed
as follows:

B "4. A dispute between two parties may be determined b) court
through judicial process or by arbitrator through a non-judicial process.
The resolution of dispute by court, through judicial process is costly
and time consuming. Therefore, generally the parties with a view to
avoid delay and cost, prefer alternative method of settlement of
C dispute through arbitration proceedings. In addition to these two
known process of settlement of dispute there is another alternative
method of settlement of dispute through statutory 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
D regarding the method, mode and procedure of the r<!solution 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
E 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
F settlement of disputes by Panches has been a common process for
resolution of disputes in an informal manner. But now arbitration is
regulated by statutory provisions".

If that be the position, Courts which of late encourage litigants to opt
G for and avail of the alternative method of resolution of disputes, would be
penalising or placing those who avail of the same in a serious disadvantage. J.-~
'Both logic and reason should counsel courts to lean more in favour of the
Arbitrator holding to possess all the powers as are necessary to do complete
and full justice between the parties in the same manner in which the Civil
Court seized of the same dispute could have done. By agreeing to settle all
H the disputes and claims arising out of or relating to the contract between the
MINOR IRRIGATION DIVISION. ORISSA v. N.C. 13UDHARAJ [RAJU, J.) 289
parties through arbitration instead of having i·ecourse to Civil Court to vindicate A
their rights the party concerned cannot be considered to have frittered away
and given up any claim which otherwise he could have successfully asserted
before Courts and obtained relief. By agreeing to have settlement of disputes
through arbitration, the party concerned must be understood to have only
opted for a different forum of adjudication with less cumbersome procedure, B
delay and expense and not to abandon all or any of his substantive rights
under the various laws in force, according to which only even the Arbitrator
is obliged to adjudicate the claims referred to him'. As long as there is nothing
in the arbitration agreement to exclude the jurisdiction of the Arbitrator to
entertain a claim for interest on the amounts due under the contract, or any
prohibition to claim interest on the amounts due and become payable under C
the contract, the jurisdiction of the Arbitrator to consider and award interest
in respect of all periods subject only to Section 29 of the Arbitration Act, 1940
and that too the powers of the Court thereunder, has to be upheld'. The
submission that the Arbitrator cannot have jurisdiction to award interest for
the period prior to the date of his appointment or entering into reference
which alone confers him power is too stale and technical to be countenanced D
in our hands, for the simple reason that in every case the appointment of an
Arbitrator or even resort to Court to vindicate rights could be only after
disputes have cropped up between the parties and continue to subsist
unresolved and that if the Arbitrator has the power to deal with and decide
disputes which cropped up at a point of time and for the period prior to the E
appointment of an Arbitrator, it is beyond comprehension as to why and for
what reason and with what justification the Arbitrator should be denied only
the power to award interest for the pre-reference period when such interest
becomes payable and has to be awarded as an accessory or incidental to the
sum awarded as due and payable, taking into account the deprivation of the
use of such sum to the person lawfully entitled to the same. F

For all the reasons stated above, we answer the reference by holding
that the 'Arbitrator appointed with 'or without the intervention of the court,
has jurisdiction to award interest, on the sums found due and payable, for
the pre-reference period, in the absence of any specific stipulation or G
prohibition in the contract to claim or grant any such interest: The decision
in Jena's case [ 1988] I SCC 418, taking a contra view does not lay down the
correct position and stands overruled, prospectively, which means that this
decision shall not entitle any party nor shall it empower any Court to reopen
proceedings which have already become final, and apply only to any pending
proceedings. No costs. H
290 SUPREME COURT REPORTS [2001] I S.C.R.

A D.P. MOHAPATRA, J. l have had the privilege of reading the draft
judgment prepared by my learned brother Justice Doraiswamy Raju. He has
come to the conclusion that the arbitrator appointed with or without intervention
of Court, has jurisdiction to award interest on the sums found due and
payable, for the pre-reference period, in the absence of any specific stipulation
B or prohibition in the contract to claim or grant any such interest. With respect,
I am unable to agree with the said conclusion.

This case stood referred by a bench of three learned Judges of this
Court by the order dated 29.10.1999 for consideration by a larger Bench. In
paragraph l 5 of the said order the question to be considered has been
C formulated as : "In the absence of any prohibition to claim or grant interest
under the arbitration agreement whether the arbitrator has no jurisd 1ction to
award interest for the pre-reference period under the general law or on
equitable principles although such claim may not strictly fall within the ~--
provisions of the Interest Act, 1839. ?"

D From the discussions in the reference order it appears that it was urged
by Mr. Anil Divan, learned senior counsel appearing for the respondents that
in view of the judgments of this Court in Secy. Irrigation Deplt. Govt. of
Orissa V. G.C. Rny, [1992] l sec 508 (hereinafter referred to as 'G.C. Roy
case'); Executive Engineer (frri.) v. Abhaduta Jena, [1988] 1 SCC 418
E (hereinafter referred to as 'Abhaduta Jena's case') and in the case of State
...... -
ofOrissa v. B.N. Agarwal/a, [1997) 2 SCC 469, requires reconsideration.

The question of competence of an arbitrator to award interest has
engaged the attention of this Court in umpteen cases. The claim of interest
can be broadly split up into 3 periods - (a) for the period before the arbitrator
F enters upon the reference, in other words, pre-reference period; (b) for the )I( -
period during which the proceeding is pending before the arbitrator which is
otherwise called pendente lite period; (c) for the period from the date of the
award till the award is made rule of the aourt. The question to be considered
in the present case is confined to the jurisdiction of the arbitrator to award
G interest for the pre-reference period only. After hearing the learned counsel
appearing for the appellants and the respondents it appears to me that the
moot question to be answered by this Bench is whether the decision in
Abhaduta Jena case (supra) holding that the arbitrator has no competence to
award interest for the pre-reference period unless any of the three conditions
namely - (I) if the agreement between the parties entitles the arbitrator to r
H award interest: (2) ifthere is a usage of trade having the force of law for award
MINOR IRRIGATION DIVISION, ORISSA 1·. N.C. BUDHARAJ [D.P. MOHAPATRA . .I.] 291

of interest and (3) if there are other provisions of the substantive law enabling A
....,. the award of interest; 'requires re-consideration, particularly in view of the
decision of the Constitution Bench in G.C. Roy case (supra). Therefore it will
be convenient to notice at the outset the principles of law and the reasons
which persuaded the learned Judges in Abhaduta Jena case to hold as noted
above. Therein this Court took note of the important changes brought in by
Br
the Interest Act, 1978 particularly the inclusion of an arbitrator in the definition
of section 2(a) which was absent in the Interest Act of 1839. This Court,also
took note of the position that Section 34 of the Civil Procedure Code applies
to arbitration in a suit for the 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 and that Section 34 does not otherwise apply to arbitration c
.. as arbitrators are not 'courts' within the meaning of Section 34 CPC. As 0 .
Chinappa Reddy, J speaking for the Court has observed "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, 1978". In this regard the D
following observations in paragraph 4 of the judgment may be noticed:
"'
"It is important to notice at this stage that both the Interest Act 1839
- ,..4._ 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 E
of l 839 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,
- ')( applies to arbitrations in suit for the simple reason that where a matter
F
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 G
-~ 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 H
292 SUPREME COURT REPORTS (200 I] I S.C.R.

A power as the court to award interest up to the date of institution of
the proceedings in cases which arose prior to the 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
B 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 lo award
interest no further question arises and the arbitrator may award
c interest. Similarly, if there is a usage of trade having the force of law
the arbitrator may award interest. Again if there are any other
provisions of the substantive law enabling the award of i111e,-est the
arbitrator may award interest. By way of an illustration, we may
mention Section 80 of the Negotiable Instruments Act as a provision
D 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 of 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- perfonnance
E
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 fulfiliing the
obligation of paying the amount due to them. In such a case also
F 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."
(emphasis sJpplied)
G This Court discussed a number of decisions of the Privy Council and
Supreme Court including the case of Bengal Nagpur Railway Co. Ltd. v. J..--
R1111anji Ramji, ( 1965) IA 66; Seth Thawardas Pherumal v. Union of India
(1955] 2 SCR 48: AIR (1955) SC 468; Nachiappa Che/liar v. Subrumanium
Che/liar, [1962] 2 SCR 209; Satinder Singh v. Amrao Singh, [ 1961] 3 SCR 676;
H Union oflndia v. Watkins Mayor & Co., AIR ( 1966) SC 275; Union of India
MINOR IRRIGATION DIVISION, ORISSA '" N.C BUDHARAJ [D.P. MOHAPATRA,J,] 293

v. West Punjab Factories, [1966] l SCR 580: AIR 1966 SC 3'95; Mis. Ashok A
Construction Co, V, Union of India, [1971] 3 sec 66 and State of MP. V,
MA Saith& Skelton Pvt. ltd, [1972] 3 SCR233: [1972] 1SCC702: AIR(1972)
SC 1507.

After discussing in detail the facts and the principles laid down in the
decided cases this Court summed up the position in the following words: B
"15. As a result of the discussion of the various cases, we see that
Bengal Nagpur Railway Co. Ltd v, Rullanji Ramji, Union of India,
v. West Punjab Factories and U1iion of India v. Watkins & Co. were
cases of award of interest not by an arbitrator, but by the Court. It
was laid down in those three cases that interest could not be awarded C
for the period prior to the suit in the absence of an agreement for
the payment of interest or any usage of trade having the force of law
or any provision of the substantive law entitling the plaintiff to
recover interest. Interest could also be awarded by the court under
the Interest Act if the amount claimed was a sum certain payable at D
a certain time by virtue of a written instrument In regard to pendente
lite interest, the provisions of the Civil Procedure Code governed the
same.

-- 16. The question of award of interest by an arbitrator was considered
in the remaining cases to which we have referred earlier. Nachiappa E
Chettiar v, Subramanium Chettiar, Satinder Singh v. Amrao Singh,
Firm Madan/a/ Roshanlal Mahajan v, Hukumchand Mills Ltd, Union
of India v. Bungo Steel Furniture Pvt. ltd Ashok Construction Co.
v. Union of India and State of Madhya Pradesh v. Mis Saith &
Skelton Pvt. Ltd. were all cases in which the reference to arbitration
was made by the court, of all the disputes in the suit. It was held that F
the arbitrator must be assumed in those circumstances to have the
same power to award interest as the court. It was on that basis that
the award of pendente lite interest was made on the principle of
Section 34 Civil Procedure Code in Nachiappa Chettiar v.
Subramanium Chettiar, Firm Madan/al Roshanlal Mahajan v. G
Hukumchand Mills Ltd., Union of India v. Bungo Furniture Pvt. Ltd.
and State of Madhya Pradesh v. Mis Saith & Skelton Pvt, Ltd. In
regard to interest prior to the suit, it was held in these cases that since
the Interest Act, 1839 was not applicable, interest could be awarded
if there was an agreement to pay interest or a usage of trade having
the force of law or any other provision of substantive law entitling the H
294 SUPREME COURT REPORTS (200 I] I S.C.R.

A claimant to recover interest. Illustrations of the provisions of
substantive law under which the arbitrator could award interest were ...
also given in some of the cases. It was said, for instance, where an
owner was deprived of his property, the right to receive interest took
the place of the right to ~etain possession, and the owner of immovable
property who lost possession of it was, therefore, entitled to claim
B interest in the place of right to retain possession. It was further said
that it would be so whether possession of immovable property was
taken away by private treaty or by compulsory acquisition. Another
instance where interest could be awarded was under Sec. 61 (2) of the
Sale of Goods Act which provided for the award of interest to the
C seller or the buyer, as the case may be, under the circumstances
specified in that section.

17. Section 80 of the Negotiable Instruments Act was mentioned as
an instance of a provision of the substantive law under which interest --._
prior to the institution of the proceedings could be awarded. Interest
D could also be awarded in cases of non- performance of a contract of
which equity could give specific performance. Seth Thawardas
Pherumal was a case of direct reference to arbitration without the
intervention of a court. Neither the Interest Act, 1839 nor the Civil
Procedure Code applied as an arbitrator was not a court. Interest
could, therefore, be awarded only if there was an agreement to pay
E interest or a usage of trade having the force of law or some other
provision of the substantive law which entitled the plaintiff to receive
interest. In that case, interest had been awarded on the ground that
it was reasonable to award interest and the court, therefore, held that
the arbitrator was wrong in awarding the interest."
F (emphasis supplied)

The ultimate conclusions reached fly the Court were summed up in
these words:

"In regard to pendente lite interest, that is, interest from the date of
G
reference to the date or the award, the claimants would not be entitled
to the same for the simple reason that the arbitrator is not a court )..•
within the meaning of Section 34 of the CPC, nor were the references
to arbitration made in the course of suits. In the remaining cases
which arose before the commencement of the Interest Act, 1978,
H the respondents are not entitled to claim interest either before the
MINOR IRRIGATION DIVISION, ORI SSA 1• N.C. BUDHARAJ [MOHAPATRA, J.] 295

commencement of the proceedings or during the pendency of the 1';
arbitration. They are not entitled to claim interest for the period 1

prior to the Qommencement of the arbitration proceedings for the
reason that the Interest Act, I839 does not apply to their cases and
there is no agreement to pay interest or any usage of trade having
the force of law or any other provision of law under which the
claimants were entitled to recover interest. They are not entitled to B
claim pendente lite interest as the arbitrator is not a court nor were
the references to arbitration made in suits."
(Emphasis supplied)

The Constitution Bench of this Court in G.C. Roy case (supra) considered C
the correctness of the decision in Abhaduta Jena case (supra) so far as award
of pendente lite interest is concerned. Indeed while stating the two grounds
on which the award before the Court was challenged it was stated "(2) the
arbitrator had no jurisdiction to award pendente lite interest". The conclusion
on that point was stated in paragraphs 44-45 of the judgment in the following
words: D
"44. Having regard to the above consideration, we think that the
following is the correct principle which should be followed in this
behalf:

Where the agreement between the parties does not prohibit grant of E
interest and where a party claims interest and that dispute (along with
the claim for 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 F
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. Th is does not 111ean that in every case the arbitrator
should necessarily award interest pendente lite. It is a matter within
his direction to be exercised in the light of all the facts and
circumstances of the case, keeping the ends of justice in view. G
45. For the reasons aforesaid we must hold that the decision in Jena,
insofar as it runs counter to the above proposition, did not lay down
correct law."

In the present proceedings we are not concerned with the co111petence H
296 SUPREME COURT REPORTS [200 I] I S C.R.

A of an arbitrator tu award pendente lite interest.

From the discussion in the judgment in G.C. Roy case (supra) it is clear
that the Constitution Bench confined its consideration to the ques1ion of
pendente lite interest only. Therefore, this decision can be of little assistance
in deciding the question raised in the present proceedings which relates to
B power of an arbitrator to award interest for the pre-reference period. A decision
is an authority on the question that is raised and decided by the Court. It
cannot be taken as an authority on a different question though in some cases
the reason stated therein may have a persuasive value.

C A Bench of three learned Judges of this Court in the case of Jugal
Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma, [1993] I SCC
114 considered the question of power of an arbitrator to award interest for
pre-reference period in a case where reference of a dispute to arbitrator was
made prior to coming into force of the Interest Act, 1978. The Bench had
occasion to consider the decision in Abhaduta Jena case (supra) and also
D G.C. Roy case (supra). The Bench rejected the contention that the decision
in Abhaduta Jena case had been overruled in G.C. Roy case on the aspect
of award of interest for pre-reference period also. B.P. Jeevan Reddy, J., in his
concurring judgment specifically dealt with the question. The relevantportions
of the judgment are quoted hereunder:

E "During the course of arguments, two different interpretations were
placed upon the principles enunciated by the Constitution Bench in
Secretary Irrigation Department v. G.C. Roy. On one hanc it was •
contended, relying upon the first of the five principles set out in para
43 that the said decision lays down that even for the pre-reference
period, interest can be granted in all cases and that the earlier decision
F of this Court in Executive Engineer (Irrigation), Balimela v. Abhaduta
Jena has been overruled in that behalf as well. On the other side, it
was contended that it was not so and that so far as the pre-reference
period is concerned, the Constitution Bench decision does not say
anything contrary to what was said in Jena. It is in view of the said
G contentions that l thought it appropriate to clarify the matter since l
was the member of the Bench which decided Secretary, Irrigation >--•.
Department v. G.C. Roy.

36. The decision in G.C. Roy was concerned only with the power of
arbitrator to award interest pendente lite. It was not concemed with
H his power to award interest for the pre-reference period. This was
MINOR IRRIGATION DIVISION, ORISSA 1·. N.C. BUDH/\R/\.I [MOH/\PA TRA, J.] 297 .
m·ade clear at more than one place in the judgment. In para 2 it is A
stated that reference to the Constitution Bench was only for deciding
the questidn whether the decision in Jena was correct insofar as it
held that arbitrator has no power to award interest pendente lite. Iii
para 8 it is stated (SCC pp. 514- I 5) :

"Generally, the question of award of interest by the arbitrator B
may arise in respect of three different period, namely: (i) for the
period commencing from the date of dispute till the date the
arbitrator enters upon the reference; (ii) for the period commencing
from the date of the arbitrator's entering upon reference till the
date of making the award; •and (iii) for the period commencing C
from the date of making of the award till the date the award is
mad!! the rule of the cou11 or till the date of realisation, whichever
is earlier. In the appeals before us we are concerned only with
the second of the three aforementioned periods"
(emphasis supplied)

A Bench of two learned Judges of this Cuurt in the case of State of
D
Orissa v. B.N. Agarwala, [1993] 1 SCC 140, considered the question relating
to the power of the arbitrator to award interest for the pre-reference period.
While on behalf of the appellant the contention was raised that the arbitrator
has no power to award interest for pre-reference period relying on the decision
in Abhaduta Jena case (supra); the contention on behalf of the respondent E
was that the said decision was no longer good law in view of the Constitution
Bench decision in G.C. Roy case (supra). This Court also declined to refer the
matter to a larger Bench. The relevant observations in para 10 of the Judgment
are quoted hereunder :

"We cannot agree with Shri Bhagat. Both of us were members of the F
Constitution Bench which decided G.C. Roy. It was confined to the
power of the arbitrator to award interest pendente lite. It did not
pertain lo nor did it pronounce upon the power of the Arbitrator to
award interest for the period prior to his entering upon the reference
(pre-reference period). this very aspect has been clarified by one of
G
us (B.P. Jeevan Reddy, J.) in his concurring order in Jugal Kishore
Prabhatifal Sharma v. Vijayendra Prahhatifal Sharma. Accordingly,
we hold following the decision in Jena that the arbitrator had no
power to award interest for the pre-reference period in this case
inasmuch as the award was made prior to coming into force of the
Interest Act, 1978 (The Interest Act, 1978 came into force with effect H
,

298 SUPREME COURT REPORTS [200 l] I S.C.R.

A from August 19, 1981 ). So far as interest for the period during which
the arbitration proceedings were pending (pendente lite interest) is
concerned, the arbitrator does have the power to award the same as
held in G.C. Roy. A request is made by Shri Bhagat to refer the matter
to a larger Bench to decide the question relating to the power of the
arbitrator to award interest for the pre-reference period even in cases
B where the award is made before the coming into force of the Interest
Act, 1978. Jena was decided by a Bench of three Judges. We do not
also feel persuaded to refer the matter to a larger Bench."
(emphasis supplied)

Again a Bench of three learned Judges in the case of State of Orissa
C v. B.N. Agrawalla, [1997] 2 SCC 469, had occasion to deal with the question
whether the decision in Abhaduta Jena case (supra) was overruled in entirety .'6~
in the decision of the Constitution Bench in G.C. Roy case (supra). This Court
held that the decision in Abhaduta Jena case with regard to award of interest
for pre-reference period was not overruled in G.C. Roy case. The relevant
D observations made in paragraph 12 of the judgment read as follows:
"The perusal of the aforesaid passages clearly shows that Abhaduta
Jena case, was not overruled in its entirety by the decision in G.C.
Roy case. It is only with regard to the award of pendente lite interest
that the Constitution Bench came to a conclusion which was contrary
E to the one arrived at in Abhaduta Jena case with regard to award of
interest for pre-reference period was not overruled in G.C. Roy case."
On the question whether the arbitrator had jurisdiction to award pre-
reference interest in case which arose prior to the applicability of the Interest
Act, 1978 this Court held :
F "With regard to those cases pertaining to the 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."
In the case of Seth Thawardas Pherumal v. Union of India (supra) a
G Bench of three learned Judges of this Court considered the question of
validity of the award of interest by the arbitrator in the light of the provisions
of the Interest Act, 1839 and Section 34 of the CPC. The views of the Court
on that aspect were expressed in the following words:
"The arbitrator held - The contractor's contention that his claims
H should have been settled by January 1948 is. in my opinion reasonable.
MINOR IRRIGATION DIVISION, ORI SSA 1·. N.C. BUDHARA.I [MOHArATRA, J.] 299
I therefore award interest at 6 per cent for 16 months on the total A
amount of the award given i.e., Rs. 17,363."

Then the arbitrator sets out the amounts awarded under each head
of claim. A perusal of them shows that each head relates to a claim
for an unliquidated sum. The Interest Act, 1839 applies as interest is
not otherwise payable by law in this kind of case (see Bengal Nagpur B
Ry Co. v. Ruttanji Ramji) but even if it be assumed that an arbitrator
is a "court" within the meaning of that Act, (a fact that by no means
appears to be the case), the following among other conditions must
be fulfilled before interest can be awarded under the Act:

"(I) there must be a debt or a sum certain; c
-jt
(2) it must be payable at a certain time or otherwise;

(3) these debts or sums must be payable by virtue of some written
contract at a certain time;

(4) there must have been a demand in writing stating that interest D
will be demanded from the date of the demand.
Not one of these elements is present, so the arbitrator erred in law.
in thinking that he had the power to allow interest simply because he
thought the demand was reasonable."
E
In the case of Union of India v. West Punjab Factories ltd. (supra) a
Constitution Bench of this Court considered the question of an award of
interest for a period prior to filing of the suit and held that in the absence
of any usage or contract. expressed or implied, or of any provision of law to
justify the award of interest it is not possible to award interest by way of
damages, and therefore, no interest should have been awarded in the present F
two suits upto the date of the filing of either of the suit. The relevant
observations on that aspect read as follows:

"The next contention is that no interest could be awarded for the
period before the suit on the amount of damages decreed. Legal G
position with respect to this is well-settled : (see Bengal Nagpur
Railway co. limited v. Ruttanii Ramji and others). That decision of
the Judicial Committee was relied upon by this Court in Seth Thawardas
Pherumal v. The Union of lndia. The same view was expressed by
this Court in Union of India v. A.L. Raffia Ram. Jn the absence of any
usage or contract. express or implied, or of any provision of law to H
300 SUPREME COURT REPORTS [200 I] I S.C.R.

A justifi• the award of interest, ii is not possible lo award interest by
way of damages. Also see recent decision of this Court in Union of
India v. Watkins Mayor & Company. In view of these decisions no
interest could be awarded for the period upto the date of the suit and
the decretal amount in the two suits will have to be reduced by the
amount of such interest awarded."
B (emphasis supplied)
The discussions in the decisions referred to in the foregoing paragraphs
show the conspectus of the views expressed on the question of competence
of an arbitrator to award interest for a period before he enters upon a
reference. The question has been examined in the light of the ratio in Abhaduta
C Jena case (supra) even after the Constitution Bench decision in G.C. Roy case
(supra). The consistent view taken by this Court is that the decision in
Abhaduta Jena case, so far as it relates to the aspect of pre-reference interest
has not been overruled by the Constitution Bench. The question to be
considered is whether the decision in Abhaduta Jena case should now be
D overruled on that aspect also. The contention was advanced before us by
Shri Anil Divan learned senior counsel for the respondent that though
Abhaduta Jena case has not been expressly overruled on this aspect by the
decision in G.C. Roy case the reasons given in the judgment for overruling
Abhaduta Jena on the point of pendente lite interest should be applied in the
present case and the said decision should be overruled on the aspect of pre-
E reference interest also. At the cost of repetition I may state here that this
contention was not accepted by this Court in Jugal Kishore Prabhatilal
Sharma & Ors., v. Vijayendra Prabhatilal Sharma and another (supra), Stale
ofOrissa v. B.N. Agarwala, (supra), Stale ofOrissa v. 8.N. Agarwal/a, [1997]
2 SCC 469 (supra). In my view this contention cannot be accepted for the
F reason that the two periods, the period during which the proceeding was
pending before the arbitrator (pendente lite) and the period before the arbitrator
entered upon the reference (pre-reference) stand on different footing. While
the former refers to a period when the arbitrator was ceased of the matter for
adjudication, the latter refers to the period before he (arbitrator) came into the
picture. Further during the period when the arbitrator is ceased of the
G proceeding the parties are aware of the claims made by the applicant against
the opposite party and the matter is pending adjudication; but during the pre-
reference period neither the claims are crystallised nor has the opposite party
any notice that it may be required to pay certain amount to the claimant
.. ·-
depending on the adjudication of the dispute by the Arbitrator.
H In Abhaduta Jena case (supra) this Court held that the arbitrator has
MINOR IRRiGA TION DIVISION. ORI SSA v. N.C. BUDllARAJ [MOHAPATRA,J.] 3QJ

no competence to award inierest for a period prior to reference unless agreement A
between the parties entitles the arbitrator to award interest or there is a usage
or trade having the force of law for award of interest or there is any other
provision of the substantive law enabling the award of interest. In that
decision as I read it, this Court has emphasised the position that 'the claim
for interest for pre- reference period can be made only if there is a firm basis B
giving the claimants a cause of action for claim of such interest and in the
absence of such basis for such claim an arbitrator is not competent to award
interest'. The position is well-settled that arbitrator is a creature of agreement
between the parties. He is vested with the power of adjudication of disputes
in terms of such agreement. He has to act in accordance with law. 'Though
he discharges the functions of a Court while adjudicating the dispute raised C
by the parties he cannot be said to be a substitute for the Court in all
respects. An arbitrator is not bound to follow the strict procedure applicable
in a case before the Court'. In many cases the arbitrator, though nominated
as a judge by the parties, may not have the requisite experience in the field
of law which a presiding officer of a Court possesses. Therefore, it is necessary
that in judging 'the claim of interest for pre-reference period he should D
ascertain whether such claim is permitted under the terms of the contract
between the parties or there is a usage of trade having force of law in support
of such claim or there is any other provision of the substantive law enabling
the award of such interest'. In Abhaduta Jena case this court did not rule that
an arbitrator was not competent to award interest for pre-reference period in E
any circumstance. This court only held that award of such interest was not
permissible unless any one of the conditions laid down in the decision is
satisfied. The ratio of Abhaduta Jena case (supra) is based on sound legal
principles which have been tested in the subsequent decisions in the light
of the principles enunciated in G.C. Roy case (supra) also.
F
In this connection I may notice another contention which was raised by
Shri Anil Divan that the jurisdiction to award interest for pre-reference period
will only compel the claimant to a civil suit for interest and that would result
in multiplicity of proceedings. This contention is based on the assumption
that a Ci vi 1 Court can award interest for a period prior to the institution of G
the suit without being satisfied that any of the conditions laid down in
Abhaduta Jena's case is satisfied. This assumption, in my view is incorrect.
The plaintiff in a suit has to base his claim on a cause of action in law and
in the absence of a firm basis in law the Court cannot entertain such aclaim.
The plaintiff has to lay a firm basis for the claim in the pleading. That position
has only been reiterated by this Court in Abhaduta Jena case (supra). H
302 SUPREME COURT REPORTS [2001] I S.C.R.

A On the discussions in the foregoing paragraphs I am of the view that ·
the decision in Abhaduta Jena case (supra) lays down the correct position
of law and does not require reconsideration'. An arbitrator has no competence
+- --
to award interest for the pre-reference period unless any of the conditions
namely - (I) if the agreement between the parties entitles the arbitrator to
B award interest; (2) if there is a usage of trade having the force of law for award
of interest, and (3) if there are other provisions of the substantive law
enabling the award of interest, is satisfied. Therefore, the question formulated
in the reference order is answered in the negative. Accordingly, the appeals >
are allowed in so far as the award of interest for the pre~reference period is
concerned. No costs.
c
PATTANAIK, J. I have gone through the two judgments of two of my
Brother Judges, on the question of the jurisdiction of the Arbitrator to grant
interest for the period prior to the reference. While Brother Justice Raju has
come to the conclusion that the arbitrator does possess the said power,
D Brother Justice Mohapatra, has taken a contrary view. Having considered
both the view points, I have not been able to persuade myself to agree with
the conclusion of Brother Raju, J>and I entirely agree with the conclusion of
Brother Mohapatra, J. But in view of the importance of the point, I am tempted
to indicate my views in few paragraphs.

E The power of the arbitrator to award interest for the period prior to
entertaining upon the reference as well as the period the reference was
pending before him pendente lite was considered by this Court in Thawardas,
fl 955] 2 SCR 48, and also by the Privy Council in Bengal Nagpur Railway
co. ltd. v. Ruttanji Ramji, 65 IA 66. Between 1960 and 1972 in several
decisions, which have been referred to by the Constitution Bench in G. C.
F Roy's case, [ 1992] I SCC 508, the question of power of the arbitrator to award
interest has been considered but without any detailed discussion, it has been
held that the arbitrator possesses the power since the reference to arbitrator
was made by the Court and all the disputes in the suit stood referred. This
Court, therefore, came to the co_nclusion that on the application of the principle
G of Section 34 of the Civil Procedure Code, pendente lite interest could be
awarded by the arbitrator. But so far as the power to award interest for the
period prior to the reference is concerned, only in the case of Ashok
Construction Co., (1971) 3 SCR 66, this court no doubt held that the arbitrator
has the power to award interest from the date the amount is due under the
contract, on the ground that the arbitration agreement did not exclude the
H jurisdiction of the arbitrator but the earlier decision of the Court either in
MINOR IRRIGA TIO~ DIVISION, ORISSA v. N.C BUDHARAJ [PA TTANAIK, J) 303
Thawardas or in Bengal Nagpur Railway, deciding to the contrary, had not A
been noticed and in fact the question had been disposed of in one sentence
in paragraph (6). White this was the position, for the first time, this Court
made an in- depth examination of the question in Jena's case, [ 1988] I SCC
418. Three learned judges considered the competence of the arbitrator on
reference made without intervention of the Court and came to the conclusion
that in cases, which arose prior to the commencement of the Interest Act, B
1978, the arbitrator did not have the power to grant interest either pendente
lite or for the period prior to the reference. In this case, though several
English cases have been cited, including the case of Chandris, but the Court
refrained from referring, in view of the abundance of authoritative
pronouncement of the Supreme Court. Since the Interest Act of 1839 did not C
confer power on the arbitrator to award interest, the Court looked elsewhere
for that power of the arbitrator to award interest up to the institution of the
proceeding but could Not find any such power, and, therefore, ultimately came
to the conclusion that the arbitt!ltor did not possess any power to award
interest for the pre-reference period. So far as the power of arbitrator to grant
interest pendente lite is concerned, the Court held that Section 34 of the Civil D
Procedure Code could be made applicable to arbitrations in suit and, therefore,

- .. when a dispute is referred to arbitrator in suit, the arbitrator will have the
power of the Court in decidlilg the dispute, but not otherwise. In other words,
in case of an arbitration proceeding, where !I reference is made to the arbitrator,
not by the Court in a pending suit, but otherwise; in accordance with the E
arbitration clause in agreement, then the arbitrator also did ttot possess the
power to award pendente lite interest as the arbitrator cannot be held to be
a Court. It is necessary to bear in mind, it was held in no uncertain terms that
there is no substantive law which can be said to have conferred power on
the arbitrator to award interest, before the commencement of the proceedings,
that is for the pre-reference period. This decision of the three Judge Bench, F
operated the field till the Constitution:-Bench decision in G.C. Roy's case,
[ 1992] I SCC 508. The Constitution Bench over-ruled the conclusion in Jena's
case, so far as it related to the power of the arbitrator pendente lite is
concerned. Even in G.C. Roy's case, the Constitution Bench, itself held that
the earlier decisions of the Court in Ra/lia Ram, [ 1964] 3 SCR, 164; Bengal G
Nagpur Railway, 65 IA 66, and Thawardas, (1955] 2 SCR 48, what was held
in relation to the power of the arbitrator to award interest for pre-reference
period is because of the fact, as a matter of substantive law, no such power
was available and as such, the ratio in that case cannot have any relevance
on the question of arbitrators power to award interest pendente lite. The
Constitution Bench did record a finding that interest pendente lite is not a H
304 SUPREME COURT REPORTS [200 I] I S.C.R.

A mat/er of substantive law, like interest for the period anterior to reference.
The Constitution Bench also very carefully expressed - "Until Jena's case,
almost all the Courts in the country had upheld the power of the arbitrator
+ -
to award interest pendente lite." Even when the earlier Constitution Bench
decision in the case of Union of India v. West Punjab Factories Ltd., [1966]
B I SCR 580, approving Thawardas, Bengal Nagpur Railway Co., and Rallia
Ram, was brought to the notice of the Court, it was observed that not only
the said case was not a case under Arbitration Act but also it approved
Thawardas only so far as the power to grant interest prior to the institution
of the suit and not so far as the power to award interest pendente lite is
concerned. If the Constitution Bench in the case of Union of India v. West
C Punjab Factories ltd., approved Thawardas, Bengal Nagpur Railway and
Rallia Ram and held that even in a suit, interest prior to the institution of
the suit cannot be granted, following the principles in Thawardas and two
others, which decided the power of 'the arbitrator in relation to the grant of
interest for pre-reference period, it is unimaginable on my part to think that
an arbitrator does possess the power on the ground that otherwise it wou Id
D lead to multiplicity of proceedings. It would be appropriate for me to indicate
that in G.C. Roy, the ratio of Thawardas, Bengal Nagpur Railway and Rallia
Ram had not been doubted even, and possibly could not have been doubted
in view of its acceptance by the earlier Constitution Bench decision in Union
of India v. West Punjab Factories Ltd., so far as the power of award of
E interest for the pre-reference period is concerned. Even subsequent to Roys
case, there have been decisions of three Judge Bench and two Judge Bench,
which have been noticed by Mohapatra, J in his judgment, including the
judgment of Justice Jeevan Reddy, who was a party to the Constitution Bench
in G. C. Roy, reiterating the principle that an arbitrator does not possess the
power to award interest for a pre- reference period. [see Jugal Kishore, [ 1993]
F I SCC 114, B.N. Agarwala, [1993] I SCC 140 (in this case both the learned
judges, Justice Jeeval Reddy and Justice G.N. Ray were party to the
Constitution Bench decision in G.C. Ro;• 's case) and B.N. Agarwal/a, [ 1997]
2 SCC 469. The arbitration proceeding has been a racket in this country and
in construing the law in relation. to the powers of the arbitrator, the Courts
G must construe the provisions of the law rather strictly. Courts would not be
justified in construing the provisions and providing for something which is
not there in the Act and it is in this context, I express my utter inability to
construe the provisions of the Interest Act, 1839 and interpret the same to
have a meaningful and purposeful object'. To hold that an arbitrator possesses
the power to award interest even for the pre-reference period, would
H tantamount to legislation in that respect and would be contrary to the well
MINOR IRRIGATION DIVISION, ORI SSA v. N.C. BUDHARAJ [PATTANAIK, J.] 305
reasoned and well discussed decisions of this Court, starting from Thawardas A
. as well as the decision of Privy Council in Bengal Nagpur Railway, which
decisions though noticed in G.C. Roy's case, but have the approval of the
Constitution Bench in West Punjab Factories case, though the case· was not
on arbitration but was of a five Judge Bench decision and possibly, it would
not be proper for this Bench to take a view contrary to the same. The fact
that the arbitrator has the power to deal with and decide disputes which B
cropped up at a point of time, would certainly not clothe the arbitrator with
any power, which neither any law confers upon him nor there is any usage
of trade having the force of law nor is there any agreement between the.
parties conferring that power. It is difficult for me to conceive that such power
could be conferred upon an arbitrator for the pre-reference period on the C
supposition that he must be presumed to have the power to grant interest as
an accessory or incidental to the sum awarded as due and payable'. It is not
the question of absence of any specific stipulation in the contract but the
correct criteria should be whether there is a positive provision in the contract,
conferring the power to the arbitrator to award interest for pre-reference
period. I need not discuss any further in view of my concurrence with Brother D
Mohapatra, J. So, the appeals must be allowed.

M.P. Appeals dismissed.