Brothers Vs. Delhi Development Authority & Anr
 INSC 691 (16
A.S. (J) Anand, A.S. (J) Mukherjee M.K. (J)
1996 SCC (1) 32 1995 SCALE (6)546
O R D
only issue involved in this appeal relates to the power and jurisdiction of an
Arbitrator to award interest for the period between the making of the reference
to the arbitrator and his entering upon the reference (pre- reference period)
after the coming into force of The Interest Act, 1978 (post Interest Act era).
reference to brief facts for deciding the issue would be apropos. The first
respondent - Delhi Development Authority - awarded certain work of construction
of middle income group houses at Pitam Pura, New Delhi to the appellant and entered into a contract with him.
Differences and disputes arose between the parties relating to the execution of
the contract on 1.4.1984, when a reference to arbitration was sought by the
appellant and in terms of Clause 25 of the General Conditions of Contract, the
same were referred to arbitration of the second respondent. The arbitrator
entered upon the reference on 8.2.1985. He made an award on 15.7.1987. The
award together with the proceedings was filed in the court by the learned arbitrator.
The award was substantially in favour of the appellant. The arbitrator also
awarded 12% simple interest on the amount awarded from 1.4.1984 to the date of
appellant filed an application under Section 14 and 17 of the Arbitration Act
for making the Award a Rule of the Court. On notice being issued to respondent
No. 1, objections were filed to the award being made a Rule of the Court. On
21.12.1990, the learned Single Judge of the Delhi High Court made the award
Rule of he Court except in respect of claims under Clauses 1, 3 and 4. The
court also rejected the claim of the appellant relating to both the award of pendente-lite
interest as well as the pre-reference interest and set aside the award to that
extent. On appeal before the division bench, pendente-lite interest, (between
8.2.1985 and 15.7.1987) as awarded by the arbitrator, was restored but the
order of the learned Single Judge refusing the pre- reference interest as well
as the claims under Clauses 1, 3 and 4 amounting to Rs. 23,685/- was upheld.
The division bench opined :
view of the decision of the Supreme Court in Secretary, Irrigation Department,
Government of Orissa and the Arbitrator had the jurisdiction to award interest
during the pendency of the reference before him i.e. from 8th February, 1985 till 15th July, 1987 when he gave the Award. However, the Arbitrator had no
jurisdiction to award interest from 1st April, 1984 till before 8th February, 1985, the date when he entered into
order of the Division Bench has been put in issue in this appeal.
counsel for the appellant submitted that the division bench fell in error in
interpreting the judgment in G.C. Roy's case (supra) to have laid down that the
arbitrator had no jurisdiction to award interest from 1.4.1984 to 8.2.1985
(pre-reference period) because no such proposition of law was either under
consideration or decided in G.C. Roy's case (supra). In our opinion, the
grievance projected by Dr. Singhvi is well founded.
Executive Engineer (Irrigation), Balimela And Others Judge Bench of this Court
while dealing with pre-reference interest observed :
of the remaining cases, we find that in all cases except two (Civil Appeal
Nos.6019-22 of 1983 and Civil Appeal No. 2257 of 1984, the reference of
arbitration were made prior to the commencement of the new Act which was on
August 19, 1981. In the cases to which the Interest Act, 1978 applies, it was
argued by Dr. Chitale, learned counsel for the respondents, that the amount
claimed was a sum certain payable at a certain time by virtue of a written
instrument and, therefore, interest was payable under the Interest Act for the
period 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 decision Raghubir
Singh. The case certainly supports him and in the cases to which the 1978
Interest Act applies the award of the interest prior to the proceeding is not
open to question" (Emphasis ours) The Constitution Bench in G.C. Roy's
Case (supra) was dealing with the question relating to the award of interest pendente-lite
and not with the question of the award of interest for the pre-reference period
and it was in that context that the Constitution Bench held that the view
expressed in Jena's Case with regard to award of pendente- lite interest could
not be said to have laid down good law.
Constitution Bench did not deal with the question of pre-reference interest in
cases coming after the enforcement of Interest Act, 1978, which came into force
G.C. Roy's case itself, it is stated that the reference to the Constitution
Bench had been necessitated only for deciding the question whether the decision
in Jena's case was correct in so far as it held that arbitrator had no power to
award interest pendente lite. On a doubt being raised whether the Constitution
Bench in G.C. Roy's case had over-ruled the law laid down in Jena's case
relating to the power of the arbitrator to award interest for the pre-
reference period in the post Interest Act, 1978 era, the position was clarified
by a three Judge Bench in Jugal Sharma & Anr. [1993 (1) SCC 114], wherein
it was specifically held that the decision in G.C. Roy's case was concerned
only with the power of arbitrator to award interest pendente-lite and that it
was not concerned with his power to award interest for the pre-reference
140], Jeevan Reddy, J. clarified the matter and speaking for the Bench observed
next contention of learned counsel for the appellant/State relates to the power
of the arbitrator to award interest for the pre-reference period.
is placed upon the decision of this Court in Executive Engineer Bhagat, learned
counsel appearing for the respondent, however, submits that the said decision
is no longer good law in view of the Constitution Bench decision in Secretary,
Irrigation Roy. We cannot agree with Shri Bhagat.
of us were members of the 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 to 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 us, (B.P. Jeevan Reddy,
J.) in his concurring order in Jugal Kishore Prabhatilal 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 from
August 19, 1981)." Thus, the law is now well settled that the arbitrator
has the power and jurisdiction to grant pre-reference interest in references
made after the coming into force of the Interest Act, 1978. The division Bench
of the High Court was thus clearly in error in holding that the arbitrator had
no jurisdiction to award interest from 1.4.84 till 8.2.1985 (pre-reference
period ) in the post Interest Act, 1978 era.
as the grievance of the appellant pertaining to the dis-allowance of the claim
of Rs.23,685/- under Clauses 1, 3 & 4 is concerned, we do not find any
error to have been committed by the High Court. The above view of the division
Bench therefore, cannot be sustained.
accordingly set aside the order of the division Bench in so far as it disallows
the award of interest to the appellant for the pre-reference period i.e. w.e.f.
1.4.84 to 8.2.1985 and restore the award of the arbitrator in that behalf.
accordingly succeeds to the above extent and is allowed. No costs.