Case Note & Summary
The Supreme Court considered appeals filed by the State of Orissa against B.N. Agarwalla and others arising from arbitration awards where arbitrators had awarded interest for different periods. The main question was the power of the arbitrator to award interest for three distinct periods: pre-reference period (from date of dispute to date arbitrator entered upon reference), pendente lite period (from entering upon reference to date of award), and post-award period (from date of award to date of decree or realization). The appellants contended that in Executive Engineer (Irrigation) v. Abhaduta Jena, (1988) 1 SCC 418, this Court held that an arbitrator has no power to award interest for the pre-reference period in the absence of a right under contract or substantive law. The respondents relied on Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, (1992) 1 SCC 508, a Constitution Bench decision, arguing that Abhaduta Jena was overruled in its entirety and that an arbitrator could award interest for all periods. The Court examined Abhaduta Jena, which had held that an arbitrator is not a court under Section 34 CPC and therefore could not award pendente lite interest, and also that pre-reference interest could not be awarded unless the claimant had a substantive right under contract or law; however, after commencement of Interest Act, 1978, an arbitrator could award interest up to the date of institution of proceedings because the Act defines 'court' to include an arbitrator. The Court then considered Gujarat W.S. & S.B. v. Unique Erectors, AIR 1989 SC 973, which followed Abhaduta Jena but allowed pre-reference interest under Interest Act, 1978 and post-award interest under Sections 15-17 of Arbitration Act. The Court analyzed G.C. Roy and found that the Constitution Bench was only considering the correctness of Abhaduta Jena insofar as it held that arbitrator has no power to award pendente lite interest. G.C. Roy did not overrule Abhaduta Jena on pre-reference interest. The Constitution Bench summarised principles: a person deprived of use of money has a right to be compensated; an arbitrator is an alternative forum and must have power to decide all disputes to avoid multiplicity; arbitrator is creature of agreement but must act in accordance with law; and historically courts have upheld arbitrator's power to award pendente lite interest. It concluded that where the agreement does not prohibit grant of interest and a party claims interest and that dispute is referred to the arbitrator, the arbitrator shall have power to award pendente lite interest. The excerpt of the judgment ends before the final application of these principles to the specific appeals, so the final operative order is not available in the provided text.
Headnote
A) Arbitration - Interest - Pre-reference Period - Arbitrator's power to award interest for pre-reference period is governed by substantive law or contract; Interest Act 1978 applies only to references made after its commencement - Arbitration Act, 1940; Interest Act, 1978 - The question was whether arbitrator can award interest for period before entering upon reference. The Court in Abhaduta Jena held that arbitrator has no such power unless claimant has right under contract or law. G.C. Roy did not overrule this aspect; it only overruled Jena on pendente lite interest. Held: arbitrator cannot award pre-reference interest in absence of agreement or substantive law provision. (Paras 1-14) B) Arbitration - Interest - Pendente Lite - Arbitrator has power to award pendente lite interest where agreement silent and claim made - Arbitration Act, 1940; Code of Civil Procedure, 1908 Section 34; Interest Act, 1978 - In G.C. Roy, Constitution Bench overruled Abhaduta Jena on this point and held that arbitrator, as alternative forum, must have power to decide all disputes including interest pendente lite to avoid multiplicity. Principles include compensation for deprivation of money, implied term of agreement, and continuity of law. Held: arbitrator can award pendente lite interest if not prohibited by agreement and claim referred. (Paras 1-14) C) Arbitration - Interest - Post-award Period - Arbitrator/courts can grant interest from date of award to decree/realization under Sections 15-17 of Arbitration Act and Section 34 CPC - Arbitration Act, 1940 Sections 15-17; Code of Civil Procedure, 1908 Section 34 - The court in Unique Erectors held that interest for period from date of award to date of decree could be granted because court can grant interest pending litigation before it under Arbitration Act proceedings. Held: post-award interest may be awarded by court in proceedings under Sections 15-17. (Paras 1-14) D) Arbitration - Interest - Interest Act 1978 - Arbitrator as 'court' under Interest Act 1978 can award interest up to date of institution of proceedings - Interest Act, 1978 Section 3(1)(a); Interest Act, 1839 - The distinction: prior to 1978 Act, arbitrator not included as court, so no power for pre-reference interest; after 1978, arbitrator can award interest up to institution of proceedings. Held: Interest Act 1978 provides statutory power for arbitrator to award pre-reference interest for references after commencement. (Paras 1-14)
Issue of Consideration
Whether arbitrator has power to award interest for pre-reference period, pendente lite period, and post-award period.
Law Points
- Arbitrator has same power as court to award interest under Interest Act 1978 for period up to institution of proceedings
- arbitrator can award pendente lite interest where agreement silent and claim made
- pre-reference interest depends on substantive right under contract or law
- post-award interest can be granted by court under Sections 15-17 Arbitration Act
- Abhaduta Jena overruled only on pendente lite by G.C. Roy
