Chajju Ram vs National Insurance Company Ltd.

Bhawani Singh, Chief Justice

This appeal is directed against the judgment of Single Judge dated 03111998 passed in CMP No. 419/1986.

The short question for determination is, whether an arbitrator has the power to direct payment of interest pendente lite and future. It is

contended by Sh. B.S. Manhas, learned counsel for the appellant, that learned Single Judge has committed an error by modifying the award, so for

as it allowed pendente lite and future interest to the appellant. Learned Judge has placed reliance on AIR 1988, SC 1520,(Executive Engineer,

Irrigation, Galimala and others V/s Abnaduta Jena), which is not correct law, in view of decision of the Apex Court on this question. This

contention appears to be correct, if reference is made to AIR 1992, SC 732 (Secretary Irrigation Department, Government of Orissa and others

V/s G.C.Roy and others). After dealing with the question, the Apex Court stated the position in para 43 (page 748) as under:

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:

(i) A 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. This basic 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 principal of S. 34 C. RC, and there is no reason or principle to

hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form 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.

(iii) An 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 S.41 and S.3 of 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.

(iv) Over the years, the English and Indian Courts have ""acted on the assumption that where the agreement does not prohit and a party to the

reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. The award as (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 observations in the said judgment were not intended to lay down

any such absolute or universal rule as they appear to, on first impression. Until Jenna's case (AIR 1988 sc 1520)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.

(v)Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (prereference period) For doing

complete justice between the parties, such power has always been inferred.

Same view has been taken in AIR 1993 SC, 864 (Jugal Kishore Prabhatilal Sharma and Others Vs. Vijendra Prabhatilal Sharma and others)

wherein the court has held:

Where the reference to arbitration is not only of all the disputes n the suits pending between the partners but also of all the disputes arising out of

the deed of dissolution and the deed of dissolution envisages the payment of interest and also specified the point of time from which interest is

payable, the arbitrator is competent to grant interest on the amount becoming payable under the pending adjudication in a suit have been referred

for arbitrator in the instant case and therefore the arbitrator had all the powers which the courts itself would have in deciding the issues in the suit.

Further, the court confirmed the principle laid down in G.C.Roy's case entensively referred to in para 26 of the judgment. Same view has been

taken by the Divisin Bench of this court in AIR 1994, J and K 56 (Smt. Manjit Johl Vs. Dewan Modern Breweries Ltd), and also by the Delhi

High Court in two judgments, AIR 2995, Delhi 82 (KuWip Kumar Suri Vs. Delhi Development Authority and others) and AIR 1995 Delhi, 87

(M/S Jagan Nath Ashok Kumar Vs. Delhi Development Authority).

Shri D.S.Thakur contended that the appellant is not entitled to Rs. 10.000/ since he has not delivered solvage to the respondents. This

contention has force. The appellant is not entitled to this amount unless he offered the solvage to the respondents. Therefore, we direct that the

appellant would be entitled to the amount of Rs. 2,24,500/with interest at the rate allowed by the arbitrator, pendente lite as well as future till the

realisation of the award and the payment of Rs. 10,000/ on the restoration of the solvage to the respondents. The appeal and the cross objections

are accordingly disposed of in terms aforesaid.