Document Fragment View

Matching Fragments

(v) 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.

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 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 therefore when the parties refer all their disputes - or refer the disputes as to interest as such - to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.
8. Generally, the question of award of interest by the arbitrator may arise in respect of three different periods, namely: i) for the period commmencing form 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 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 aforementioned periods. In Executive Engineer (Irrigation) Balimela v. Abhaduta Jena (1988) 2 SCC 721, 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 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 conferred power on the arbitrator for awarding interest pendente lite. The learned Judge observed that Section 34 of the Civil Procedure Code which provides 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.
9. For this proposition, the learned Judge relied upon the decision in Seth Thawardas Pherumal v. Unionof India . The learned Page 2093 Judge pointed out that in Thawardas 'question of payment of interest was not the subject matter of reference to the arbitrator' though the interest awarded by the arbitrator related to the period prior to the reference to arbitration as well as the period during the pendency of the arbitration. The learned Judge also noticed that the observations of Bose, J in Thawardas have given rise to considerable difficulty in later cases whrein they have been explained as having been never intended to lay down any such broad and unqualified proposition as they appear to lay down on first impression. The learned Judge then referred to various decisions including the decisions in Nachiappa Chettiar v. Subramaniam Chettiar , Satinder Singh v. Amrao Singh , Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. , Union of India v. Bungo Steel Furniture Pvt. Ltd. , Ashok Construciton Co. v. Union of India and State of MP v. Saith and Skelton (P) Ltd. wherein the power of the arbitrator to award interest was upheld and explained them on the basis that all those were 'cases in which the reference to arbitration was made by the court, of all the disputes in the suit'. It would be appropriate to reproduce the observations insofar as they are relevant:
The question of award of interest by an arbitrator was considered in the remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam Chettiar, Satinder Singh v. Amrao Singh, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd., Ashok Construciton Co. v. Union of India and State of MP v. Saith and Skelton (P) Ltd. were all cases in which the reference to arbitrator was made by the court, of all the disputes in the suit. It was held that the arbitrator must be assumed in these 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. Subramaniam Chettiar, Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Union of India v. Bungo Steel Furniture Pvt. Ltd and State of MP v. Saith and Skelton.