Hume PIPE Co. Ltd. Vs. State of Rajasthan  INSC 1655 (19 October 2009)
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.
6971 OF 2009 [Arising out of S.L.P.(C)No.14269 of 2007] Indian Hume Pipe Co.
Ltd. ....Appellant Versus State of Rajasthan ....Respondent
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 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 District Judge, Jaipur in Arbitration Case No. 143/1998 & Misc.
Arbitration Application No. 443/2005 respectively.
Thumb nail sketch of the facts of the case is as under:-
Respondent/State of Rajasthan had issued notice inviting tender on
03.01.1981 and 11.02.1981 for grant of contract for laying PSC pipeline in Kota
Division. Appellant herein, pursuant to the said notice submitted its tender.
The tender of the appellant being lowest was accepted on 18.04.1982.
The agreement, thereafter, was executed between the parties on 13.12.1982. The
said Agreement contained an arbitration clause, to be invoked in case of any
dispute arising between the parties.
Since a dispute between the parties arose, the said arbitration
clause was invoked and the matter was referred to three arbitrators.
They entered into the reference on 12.02.1995 and gave their Award
The arbitrators substantially allowed the claim of the 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.
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.
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 C.A. @ S.L.P.(C)No.14269/07 -3- of awarding pendente lite interest,
future interest and compound interest on the total amount awarded by the
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 application for review was filed by the appellant. The
same came to be heard and disposed 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 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.
Learned Single Judge considered the matter from all angles and
came to the conclusion that even though 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.
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 disturbed either by the learned District Judge or by the
learned 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
By a long catena of cases decided by this Court from 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 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 parties should not prohibit grant of such interest.
In the light of several judgments of this Court, the question
projected in this appeal is no more res integra.
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 Kashmir reported in (1992) 4 SCC 217. The aforesaid question has been
dealt with by this Court in para 5 of the said judgment 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 Court in Secretary, Irrigation
Department, Govt. of Orissa v. G.C. Roy (1992) 1 SCC 508 : JT (1991) 6 SC 309.
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 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 of procedure.
34 of Code of Civil Procedure provides both for awarding of interest pendente
lite as well as for the post- C.A. @ S.L.P.(C)No.14269/07 -5- 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. (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 said power though on a somewhat different reasoning.
We, therefore, think that the award on Item No. 8 should have been
The other question with regard to grant of interest by 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 Oxygen 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 and 39
reproduced hereinbelow:- "36. The last question relates to payment of
interest. The arbitrator awarded interest to BOL 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 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 rate of eighteen per cent on the ground of loan so advanced by
HCL to BOL at that rate.
Section 34 of the Code of Civil Procedure has no application to arbitration
proceedings since the arbitrator cannot be said to be a "court"
within the meaning of the Code. But an arbitrator has power and jurisdiction to
grant interest for all the three stages provided the rate of interest is reasonable.
far as interest for pre-reference period is 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 that an arbitrator has power to
grant interest for pre-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 court. It is, therefore, of unavoidable necessity that the
parties be 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.
Regarding interest pendente lite also, there was cleavage of opinion. The
question was, therefore, referred to a larger Bench in Secy., Irrigation
Deptt., Govt. of Orissa v.
(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 has the power to award interest pendente lite, and
if so on what principle. We must reiterate that we are dealing with the
situation where the agreement does not provide for grant of such interest nor
does it prohibit such grant. In other words, we are dealing with a case where
the agreement is silent as to award of interest. On a conspectus of
aforementioned decisions, the following principles emerge:
person deprived of the use of money to which he is legitimately entitled has a
right to be compensated for the deprivation, call it by any name.
It may be
called interest, compensation or damages.
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 reason or principle to hold otherwise in the case of arbitrator.
S.L.P.(C)No.14269/07 -7- (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 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.
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 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 land and the agreement.
the years, the English and Indian courts have acted on the assumption that
where the agreement does not prohibit and a party to the reference makes a
claim for interest, the arbitrator 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 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 were not intended to lay down
any such absolute or universal rule as they appear to, on first impression.
Until Executive Engineer (Irrigation) v. Abhaduta 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 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 always been inferred."
In the light of the aforesaid judgments of this Court we have no
hesitation to hold that impugned orders passed by learned District Judge as
also by learned Single Judge of High Court cannot be sustained in law.
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, cannot be sustained in law.
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 part to do so. The said reasoning does not appeal 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
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 C.A. @ S.L.P.(C)No.14269/07 -9- awarding interest for the
aforesaid three stages mentioned hereinabove then there cannot be any
justifiable reason to deny the same.
It is also pertinent to mention here that the interest 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 made
applicable for respondent's case also. Two persons, similarly situated, could
not have been treated differently as the same may amount to discrimination.
In the light of the aforesaid discussion, we allow the appeal and
set aside and quash the impugned orders passed 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.
Respondent to bear the cost of litigation throughout. Counsel's
......................................J. [V.S. SIRPURKAR]
.........................................J. [DEEPAK VERMA]
October 19, 2009.