Holding

Arbitrators are empowered and obligated to award reasonable interest for pre‑reference, pendente lite, and post‑award periods unless the arbitration agreement expressly bars such award.

Summary

The appellant, Indian Hume Pipe Co. Ltd., entered into a contract with the State of Rajasthan for laying a PSC pipeline, which contained an arbitration clause. A dispute led to arbitration, and the arbitrators awarded the appellant the claim along with interest for pre‑reference, pendente lite, and post‑award periods. The State objected under Sections 30 and 33 of the Arbitration Act, 1940, and the District Court and High Court disallowed the pendente lite and future interest, limiting interest to a simple rate. The Supreme Court held that arbitrators have the competence, jurisdiction, and duty to award interest at all stages unless the arbitration agreement expressly prohibits it, and that Section 34 of the CPC and Section 29 of the Arbitration Act support this power. Consequently, the Court quashed the lower courts' orders, restored the arbitrators' award with all interest, and allowed the appeal.

Issues considered

The extent of an arbitrator's power to award interest for pre‑reference, pendente lite, and post‑award periods under the Arbitration Act, 1940.
Whether the award of such interest is mandatory for arbitrators when the contract does not prohibit it.
The applicability of Section 34 of the Code of Civil Procedure, 1908 to arbitration proceedings.

Legislation cited

Arbitration Act, 1940s. 29, s. 3, s. 30, s. 33, s. 41
Code of Civil Procedure, 1908s. 34

Subjects

arbitrationinterest awardpendente lite interestpre‑reference interestpost‑award interestarbitrator jurisdictionSection 34 CPCArbitration Act 1940

Judgment

(2009] 15 (ADDL.) S.C.R. 254

A INDIAN HUME PIPE CO. LTD.
v.
STATE OF RAJASTHAN
(Civil Appeal No. 6971 of 2009)
1

OCTOBER 19, 2009
B
[V.S. SIRPURKAR AND DEEPAK VERMA, JJ.]

Arbitration Act, 1940 - s. 29 - Interest on arbitral award -
Competence, jurisdiction and power of arbitrator to award
C interest - Held: If certain amount was withheld wrongly and
without justification, then the aggrieved party would be. fully
justified in claiming interest - This is mandate of s.34 CPC
as also s. 29 of the Act - Power to award interest at all stages
vests with the arbitrator - If there is no embargo or legal hurdle
D in awarding interest, there cannot be any justifiable reason to
deny the same - Code of Civil Procedure, 1908 - s.34.

The parties .entered into an agreement for laying of
PSC pipeline. The agreement contained an arbitration
E clause. Dispute arose between the parties. The matter
was referred for arbitration.

The arbitrator passed award substantially allowing
the claim of appellant-contractor and also granted
interest on the outstanding payment at all the three
F stages i.e. p.-e-reference, pendente lite interest and future
interest from the date of the award till the date of payment
or the date 0f making of the award a rule of Court,
whichever is earlier. On Respondent-State filing
objections un Jer Section 30 read with Section 33 of the
G Arbitration Act, 1940, the District Court disallowed the
grant of pendente lite interest and future interest. The order
was upheld by the High Court. Hence the presen~ appeal. -} .

Allowing the appeal, the Court
H 254
.... INDIAN HUME PIPE CO. LTD. v. STATE OF 255
RAJASTHAN
HELD:1.1. It is well settled that arbitrators have the A
f competence, jurisdiction and power to award interest for
the period from the date of award to date of payment as
also for pre-reference, pendente lite and post award. The
<' only caveat is that the amount of interest so awarded
should be reasonable and agreement between the B
parties should not prohibit grant of such interest. [Para
14] [258-E-F]

... ~
1.2. The High Court erred in coming to the conclusion
that even though arbitrator was competent to award
interest but it was not mandatory on his part to do so. The
c
said reasoning does not appear to be legally tenable and
convincing, for the simple reason, if the amount has been
withheld wrongly and without any justification then of
course the aggrieved party would be fully justified in
claiming interest. This is the mandate of Section 34 CPC D
t- as also Section 29 of the Arbitration Act, 1940. Both the
aforesaid provisions make it abundantly clear that power
to award interest at all stages vests with the arbitrators.
Arbitrators are bound to make the award in accordance
with law and if there is no embargo or legal hurdle in E
awarding interest for the aforesaid three stages
mentioned hereinabove then there cannot be any
justifiable reason to deny the same. [Paras 20 and 21]
'Ii
[263-D-F]
1.3. The impugned orders passed by District Court F
, and the High Court insofar as they refused to grant
' interest pendente lite and future are quashed and the
amount together with interest as awarded by the
arbitrator is restored. [Para 23] [264-8]
G
Hindustan Construction Co. Ltd. Vs. State of Jammu &
-t Kashmir (1992) 4 SCC 217 and Bhagawati Oxygen Ltd. etc.
v. Hindustan Copper Ltd. etc. (2005) 6 SCC 462, relied on.

H
256 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.

A Case Law Reference:

(1992) 4 sec 211 relied on Para 16
(2005) 6 sec 462 relied on Para 17
\
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
B 6971 of 2009. ',..

From the Judgment & Order dated 15.5.2007 of the High
Court of Judicature for Rajasthan, Jaipur Bench, Jaipur in S.B.
Civil Misc. Appeal No. 1631 of 2006. ,....__ _,

c K. Ramamoorthy, N. Shoba, Sriam J. Thalapathy and Adhi
Venkataraman for the Appellant.
Mukul Kumar (for Milind Kumar) for the Respondent.
The Judgment of the Court was delivered by
D
DEEPAK VERMA, J. 1. Leave granted. -+
2. This appeal arises out of order and Judgment dated
15.5.2007 passed by learned Single Judge of High Court of
Judicature for Rajasthan, Jaipur Bench in SB Civil
E Miscellaneous Appeal No. 1631/2006, whereby and
whereunder the appeal preferred by appellant herein under
Section 39 of the Arbitration Act, 1940 (hereinafter shall be
referred to as 'the Act') has been dismissed, which arose out
of the orders dated 13.09.2005 & 26.11.2005 passed by y
F District Judge, Jaipur in Arbitration Case No. 143/1998 & Misc.
Arbitration ,A.µpilcation No. 443/2005 respectively.
3. Thumb nct;: sketch of the facts of the case is as under:-
4. Respondent/State of Rajasthan had issued notice
G inviting tender 011 0~.01.1981and11.02.1981 for grant of
contract for laying PSC pipeline in Kota Division. Appellant
herein, pursuant to the said notice submitted its tender.

5. The tender of the appellant being lowest was accepted
on 18.04.1982. The agreement, thereafter. was executed
H
INDIAN HUME PIPE CO. LTD. v. STATE OF 257
RAJASTHAN [DEEPAK VERMA, J.]

( between the parties on 13.12.1982. The said Agreement A
contained an arbitration clause, to be invoked in case of any
dispute arising between the parties.

6. Since a dispute between the parties arose, the said
arbitration clause was invoked and the matter was referred to B
three arbitrators.

7. They entered into the reference on 12.02.1995 and
+ gave their Award on 12.12.1997.

8. The arbitrators substantially allowed the claim of the C
appellant together with interest for pre-reference on outstanding
payment, pendente lite interest and future interest from the date
of award till the date of payment or the date of making of the
award a rule of Court, whichever is earlier.
D
9. Feeling aggrieved by the said award, respondent-State
of Rajasthan preferred objections under Section 30 read with
Section 33 of the Act before District Judge, Jaipur City. The
appellant herein filed its reply to the said objections and prayed
that the award be made rule of the Court.
E
10. The matter was heard by the learned District Judge
and vide order dated 13.09.2005 the objections preferred by
-. respondent were allowed only to the extent of awarding
pendente lite interest, future interest and compound interest on
the total amount awarded by the arbitrators. F

11. Since, while passing the said impugned order no
direction was made by the learned District Judge to make the
said award a rule of the Court and the pendente lite and future
interest awarded by the arbitrators were disallowed, thus, an G
application for review was filed by the appellant. The same
-+ came to be heard and dispose·d of on 26.11.2005. The award
was made rule of the Court and appellant was awarded only
simple interest at the rate of 9% per annum from the date of
decree of the award. It is against the aforesaid two orders and
H
258 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R

A judgments passed by learned District Judge, appellant was
constrained to carry the matter further before the learned Single '
Judge by filing Miscellaneous Appeal as mentioned
hereinabove.

12. Learned Single Judge considered the matter from all
B
angles and came to the conclusion that even ~hough the
arbitrators have got the power to grant interest at all the three
stages i.e. pre-reference, pendente lite interest and future
~-
interest but it is not mandatory for the arbitrators to have
awarded the same.
c
13. However, the learned Single Judge completely lost
sight of the fact that on the counterclaim having been preferred
by the respondent, the same, that is, pendente lite and future
interest was awarded by the arbitrators and the same was not
D disturbed either by the learned District Judge or by the learned -1
Single Judge, yet, on the same set of facts they were denied
to the appellant. Thus, feeling aggrieved by the said orders, this
appeal has been preferred.

14. By a long catena of cases decided by this Court from
E
time to time, it is too well settled that arbitrators have the
competence, jurisdiction and power to award interest for the
period from the date of award to date of payment as also for y
pre-reference, pendente lite and post award. The only caveat
..- is that the amount of interest so awarded should be reasonable
r
and agreement between the parties should not prohibit grant
of such interest.

15. In the light of several judgments cf this COl.1,·~. the
question projected in this appeal is no more it:;:; integra.
G
16. The question with regard to grant of interest by an
arbitrator for the period from the date of award to date of
,.
payment stands settled by a judgment of this Court in the case
of Hindustan Construction Co. Ltd. \ls. State of Jammu &
Kashmirmported in (1992) 4 SCC 217. The aforesaid question
H

l
.......-
INDIAN HUME PIPE CO. LTD. v. STATE OF 259
RAJASTHAN [DEEPAK VERMA, J.]
has been dealt with by this Court in para 5 of the said judgment A
I
reproduced hereinbelow:-

"5. The question of interest can be easily disposed of as
it is covered by recent decisions of this Court. It is sufficient
to refer to the latest decision of a five Judge bench of this
B
Court in Secretary, Irrigation Department, Govt. of Orissa
v. G.C. Roy (1992) 1 sec 508 : JT (1991) 6 SC 309.
Though the said decision deals with the power of the
+ arbitrator to award interest pendente lite, the principle of
the decision makes it clear that the arbitrator is competent
to award interest for the period commencing with the date
c
of award to the date of decree or date of realization,
whichever is earlier. This is also quite logical for, while
award of interest for the period prior to an arbitrator
entering upon the reference is a matter of substantive law,
the grant of interest for the post-award period is a matter D
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 E
connection, the decision in Union of India v. Bungo Steel
Furniture (P) Ltd. (1967) 1 SCR 324: AIR 1967 SC 1032
~
may be seen as also the decision in Gujarat Water Supply
& Sewerage Board v. Unique Erectors (Gujarat) P. Ltd.
(1989) 1 SCC 532: (1989) 1 SCR 318 which upholds the F
said power though on a somewhat different reasoning.
......, We, therefore, think that the award on Item No. 8 should
have been upheld."

17. The other question with regard to grant of interest by
G
the arbitrator at three different stages that is pre-reference,
-+- pendente lite and post award also stands settled by judgment
of this Court in the case of Bhagawati Oxypen Ltd. etc. v.
Hindustan Copper Ltd. etc. reported in (2005) 6 SCC 462. The
said question has succinctly been settled in paras 36, 37, 38
H
260 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A and 39 reproduced hereinbelow:-
..,
"36. The last question relates to payment of interest. The
arbitrator awarded interest to SOL at the universal rate of
eighteen per cent for all the three stages, pre-reference
period, pendente lite and post-award period. It is not
B
disputed that in the arbitration agreement there is no
provision for payment of interest. The learned Single Judge
as well as the Division Bench were right in observing that
the arbitrator, in the facts and circumstances, could have + ....
awarded interest. The arbitrator had granted interest at the
c rate of eighteen per cent on the ground of loan so
advanced by HCL to SOL at that rate.

37.' Now Section 34 of the Code of Civil Procedure has
no' application to arbitration proceedings since the
D arbitrator cannot be said to be a "court" within the meaning
of the Code. But an arbitrator has power and jurisdiction
to grant int~rest for all the three stages provided the rate
of interest is reasonable.

38. So far as interest for pre-reference period is
E
concerned, in view of the conflicting decisions of this Court,
the matter was referred to a larger Bench in Executive
Engineer, Dhenkanal Minor Irrigation Division v. N. C.
Budharaj (2001) 2 SCC 721. The Court, by majority, held 'y
that an arbitrator has power to grant interest for pre-
F reference period provided there is no prohibition in the
arbitration agreement excluding his jurisdiction to grant
interest. The forum of arbitration is created by the consent
of parties and is a substitute for conventional civil C':..Jrt. It
is, therefore, of unavoidable necessity thQt the parties be
G deemed to have agreed by implication that the arbitrator
would have power to award interest in the same way and
same manner as a Court.

39. Regarding interest pendente lite also, there was
H cleavage of opinion. The question was, therefore, referred
_..\
INDIAN HUME PIPE CO. LTD. v. STATE OF 261
RAJASTHAN [DEEPAK VERMA, J.]
to a larger Bench in Secy., Irrigation Deptt., Govt. of A
(
Orissa v. G.C. Roy (1992) 1 SCC 508. The Court
considered several cases and laid down the following
principles: (SCC pp. 532-33, para 43)

"43. The question still remains whether arbitrator
8
has the power to award interest pendente lite, and
if so on what principle. We must reiterate that we
are dealing with the situation where the agreement
does not provide for grant of such interest nor does
it prohibit such grant. In other words, we are dealing C
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 ·O
he is legitimately entitled has a right to be
compensated for the deprivation, call it by any
name. It may be called interest, compensation or
damages. This basic consideration is as valid for
the period the dispute is pending before the E
arbitrator as it is for the period prior to the arbitrator
entering upon the reference. This is the principle of
Section 34, Civil Procedure Code and there is no
reason or principle to hold otherwise in the case of
arbitrator. F
(ii) An arbitrator is an alternative forum for resolution
of disputes arising between the parties. If so, he
must have the power to decide all the disputes or
differences arising between the parties. If the
arbitrator has no power to award interest pendente G
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
H
.'
262 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.

A proceedings.

(iii) An arbitrator is the creature of an agreement. It
is open to the parties to confer upon him such
powers and prescribe such procedure for him to
s~
follow, as they think fit, so long as they are not
opposed to law. (The proviso to Section 41 and
Section 3 of the Arbitration Act illustrate this point.)
All the same, the agreement must be in conformity
with law. The arbitrator must also act and make his ~-
award in accordance with the general law of the
c land and the agreement.

(iv) Over the y~ars, the English and Indian courts
have acted on the assumption that where the
agreement does not prohibit and a party to the ~

D reference makes a claim for interest, the arbitrator --J
must have the power to award interest pendente
lite, Thawardas Pherumal v. Union of India (1955)
2 SCR 48 : AIR 1955 SC 468 has not been
followed in the later decisions of this Court. It has
E 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 observation in the said judgment y
were not intended to lay down any such absolute
or universal rule as they appear to, on first
F
impression. Until Executive Engineer (Irrigation) v.
Ab/1aduta Jena case (1988) 1 SCC 418 almost all
the courts in the country had upheld the power of
the arbitrator to award interest pendente lite. ~,

Continuity and certainty is a highly desirable feature
G
of law.

(v) Interest pendente lite is not a matter of
+
substantive law, like interest for the period anterior
to reference (pre-reference period). For doing
H
A
INDIAN HUME PIPE CO. LTD. v. STATE OF 263
RAJASTHAN [DEEPAK VERMA, J.]
complete justice between the parties, such power A
has always been inferred."

18. In the light of the aforesaid judgments of this Court we
have no hesitation t0 hold that impugned orders passed by
learned District Judge as also by learned Single Judge of High
B
Court cannot be sustained in law.

19. Even though learned counsel for respondent tried to
advance arguments that in this appeal no case for interference
has been made out but at last, in the teeth of aforesaid
judgments peevishly conceded that the impugned orders, c
cannot be sustained in law.

20. Learned Single Judge also committed a grave error
in coming to the conclusion that even though arbitrator was
competent to award interest but it was not mandatory on his
D
part to do so. The said reasoning does not appear to be legally
tenable and convincing, for the simple reason, if the amount has
been withheld wrongly and without any justification then of
course the aggrieved party would be fully justified in claiming
interest. This is the mandate of Section 34 of the Code of Civil
Procedure as also Section 29 of the Act.
E

21. Both the aforesaid provisions make it abundantly clear
'4
that power to award interest at all stages vests with the
arbitrators. Arbitrators are bound to make the award in
~ accordance with law and if there is no embargo or legal hurdle F
in awarding interest for the aforesaid three stages mentioned
hereinabove then there cannot be any justifiable reason to deny
the same.

22. It is also pertinent to mention here that the interest
G
awarded by learned District Judge and learned Single Judge
+ to the counter claim of respondent was not disturbed but it was
set aside only for the appellant. If appellant was not entitled to
claim interest then how respondent-State would get powers or
competence to receive it. Same doctrine should have been
H
264 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R

A made applicable for respondent's case also. Two persons,
similarly situated, could not have been treated differently as the
same may amount to discrimination.

23. In the light of the aforesaid discussion, we allow the
appeal and set aside and quash the impugned orders passed
8 by learned District Judge in so far as they refuse to grant interest
pendente lite and future and also by learned Single Judge of
High Court and restore the award together with interest as
awarded by the arbitrators.

c 24. Respondent to bear the cost of litigation throughout.
Counsel's fee Rs.10,000/-.

B.B.B. Appeal allowed.

-