Case Note & Summary
The appeal before the Supreme Court arose from an arbitration dispute between Sudhir Brothers, a contractor, and Delhi Development Authority (DDA). DDA awarded construction work for middle income group houses at Pitam Pura, New Delhi to the appellant. Differences and disputes arose during execution of the contract. On 1 April 1984, the appellant sought reference to arbitration under Clause 25 of the General Conditions of Contract. The arbitrator entered upon the reference on 8 February 1985 and made an award on 15 July 1987, substantially in favour of the appellant, awarding 12% simple interest on the awarded amount from 1 April 1984 to the date of payment. The appellant filed an application under Sections 14 and 17 of the Arbitration Act, 1940 for making the award a rule of the court. DDA filed objections. The learned Single Judge of the Delhi High Court made the award rule of court except in respect of claims under Clauses 1, 3 and 4, and also set aside the award of pendente lite interest and pre-reference interest. On appeal, the Division Bench restored pendente lite interest (8 February 1985 to 15 July 1987) but upheld the refusal of pre-reference interest (1 April 1984 to 8 February 1985) and the disallowance of claims under Clauses 1, 3 and 4 amounting to Rs. 23,685. The Division Bench relied on Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, holding that the arbitrator had no jurisdiction to award interest for the pre-reference period. The appellant challenged this order before the Supreme Court. The sole issue was whether an arbitrator has power and jurisdiction to award interest for the pre-reference period after the coming into force of the Interest Act, 1978. The appellant argued that the Division Bench misread G.C. Roy, which dealt only with pendente lite interest. The respondent relied on the Division Bench's reasoning. The Supreme Court examined the law: in Executive Engineer (Irrigation), Balimela v. Abhaduta Jena, a three-judge Bench held that in cases to which the Interest Act, 1978 applies, award of interest prior to the proceeding is not open to question. The Constitution Bench in G.C. Roy dealt only with pendente lite interest and did not overrule Jena on pre-reference interest. Subsequent clarifications in Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma and State of Orissa v. B.N. Agarwala confirmed that G.C. Roy was confined to pendente lite interest. The Supreme Court held that the law was well settled: an arbitrator has power and jurisdiction to grant pre-reference interest in references made after the Interest Act, 1978 came into force on 19 August 1981. The Division Bench was therefore in error in disallowing pre-reference interest. The Supreme Court set aside the Division Bench order insofar as it disallowed interest from 1 April 1984 to 8 February 1985 and restored the arbitrator's award for that period. The Court found no error in the disallowance of the claim of Rs. 23,685 under Clauses 1, 3 and 4. The appeal was allowed in part, with no costs.
Headnote
A) Arbitration Law - Pre-Reference Interest - Arbitrator's Jurisdiction to Award Interest Post Interest Act, 1978 - Interest Act, 1978; Arbitration Act, 1940 Sections 14 and 17 - The dispute concerned arbitrator's power to award interest for the pre-reference period in a construction contract arbitration where reference was made on 1.4.1984 after the Interest Act, 1978 came into force. The Supreme Court held that the Constitution Bench in G.C. Roy dealt only with pendente lite interest and did not overrule the law in Jena regarding pre-reference interest in the post-Interest Act era. The Court clarified through Jugal Kishore and B.N. Agarwala that the arbitrator has jurisdiction to award pre-reference interest in references made after 19.8.1981. The Division Bench erred in disallowing pre-reference interest. Held that the arbitrator's award of pre-reference interest from 1.4.1984 to 8.2.1985 was restored (Paras 1-4). B) Arbitration Law - Judicial Review of Arbitral Award - Disallowance of Contractual Claims - Arbitration Act, 1940 Sections 14 and 17 - The appellant also challenged the High Court's disallowance of a claim of Rs. 23,685 under Clauses 1, 3 and 4 of the contract. The Supreme Court found no error in the High Court's disallowance of that amount and upheld that part of the decision, as the claim was not sustained. Held that the appeal succeeded only to the extent of pre-reference interest, and the disallowance of the contractual claim remained undisturbed (Paras 1-4).
Issue of Consideration
Whether an arbitrator has power and jurisdiction to award interest for the period between making of the reference to arbitration and entering upon the reference (pre-reference period) after the coming into force of the Interest Act, 1978.
Final Decision
Appeal allowed in part. The order of the Division Bench of the Delhi High Court was set aside insofar as it disallowed the award of pre-reference interest from 1.4.1984 to 8.2.1985. The arbitrator's award of interest for that period was restored. The disallowance of the claim of Rs. 23,685 under Clauses 1, 3 and 4 was upheld. No order as to costs.
Law Points
- Arbitrator has power to award pre-reference interest for references made after Interest Act
- 1978 came into force
- G.C. Roy decision limited to pendente lite interest and did not overrule Jena's law on pre-reference interest
- pre-reference interest period is from date of reference to date arbitrator enters upon reference
- Interest Act
- 1978 effective from 19.8.1981
- high court's disallowance of contractual claims not erroneous
