Division
Vs. N.C.Budharaj [2001] Insc 13 (10 January 2001)
G.B.Pattanaik
Pattanaik,J.
Appeal (civil) 710-711 of 1981 Appeal (civil) 6808-009 of
1983 Appeal (civil) 6810 of 1983 Appeal (civil) 10649 of 1983 Appeal (civil)
779 of 1982 Appeal (civil) 2723 of 1983
L.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, 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.
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 Thowardas, 1955(2) SCR 48, and also by the
Privy Council in Bengal Nagpur Railway co. Ltd. vs. Ruttanji Ramji, 65 IA 66. Between
1960 and 1972 in several decisions, which have been referred to by the
Constitution Bench in G.C.Roys case, 1992(1)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 conclusion that on the
application of the principle 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 jurisdiction of the arbitrator but
the earlier decision of the Court either in Thawardas or in Bengal Nagpur
Railway, deciding to the contrary, had not been noticed and in fact the
question had been disposed of in one sentence in paragraph(6). While this was
the position, for the first time, this Court made an in- depth examination of
the question in Jenas case, 1988(1) 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, 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 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 arbitrator 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 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 deciding the
dispute, but not otherwise. In other words, in case of an arbitration
proceeding, where a reference is made to the arbitrator, not by the Court in a
pending suit, but otherwise, in accordance with the arbitration clause in
agreement, then the arbitrator also did not 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, operated the
field till the Constitution Bench decision in G.C.Roys case, 1992(1) SCC 508.
The Constitution Bench over-ruled the conclusion in Jenas case, so far as it
related to the power of the arbitrator pendente lite is concerned. Even in G.C.Roys
case, the Constitution Bench, itself held that the earlier decisions of the
Court in Rallia Ram, 1964(3) SCR, 164, Bengal 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 matter of substantive law, like interest for
the period anterior to reference. The Constitution Bench also very carefully
expressed Untill Jenas 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 vs. West
Punjab Factories Ltd., 1966(1) 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 vs.
West 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 would 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 vs.
West Punjab Factories Ltd., so far as the power of award of 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(1) SCC 114, B.N.Agarwala,
1993(1) 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.Roy'scase)
and B.N.Agarwala, 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 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 tantamount to legislation in that respect
and would be contrary to the well reasoned and well discussed decisions of this
Court, starting from Thowardas as well as the decision of Privy Council in
Bengal Nagpur Railway, which decisions though noticed in G.C.Roys 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 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
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 Mohapatra,J.
So, the appeals must be allowed.
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