M/s. Sree Gopikrishan Engineering Pvt. Ltd. and Another vs United India Insurance Co. Ltd.

Baboolall Jain, J.—This is an application by Sree Gopi Kishan Engineering (P) limited, inter alia, praying that opinion be given by this Court on the special cast stated in the award of the joint arbitrators dated 25th August, 1993. The relevant portion of the award is as follows:

We award that the Respondent, United India Insurance Co. Ltd., is liable to pay to the Claimant No. 1 a sum of Rs, 8,32.700/- (Rupees Eight Lakhs Thirty Two Thousand and Seven Hundred Only in full and final settlement of all claims of the Claimant No. 1 which, were referred to us.

With regard to Award on Interest and cost, we state the Award in part, in the form of a Special case, for the opinion of the appropriate Court as under:

A. Whether the Joint Arbitrators are empowered to Award interest and/or cost to the Claimant?

If the opinion of the Hon''ble Court, to be obtained by any of the parties, is in the affirmative, our Award as regards Interest and Cost is as under:

The ''Claimant No.l will be entitled to Interest @ 12% p.a. on the amount of loss Awarded above, i.e. on Rs. 8,32,700/- from 1st September, 1986 till the date of this Award.

Parties are left to bear their own costs of Arbitration.

It appears from the said award, that the Joint Arbitrators made an award in favour of the petitioners for a sum of Rs. 3-32,700/.-. They also stated the award in part in the form of a special case for the opinion of the court as mentioned in paragraph (2)(A) as mentioned above. They also stated in the award that if the opinion of the Court is in the affirmative then their award as regarding interest and costs is as (sic) in paragraphs 3 and 4 of the said award.

Though there are other prayers in the said petition of the petitioner. Inter alia for modifying the award, for allowing interest at higher rate, for allowing costs of arbitration etc.. the learned Counsel appearing on behalf of the petitioner did not press the same. The petitioner relied on the judgment reported in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, and also another judgment of the Supreme Court reported in Jugal Kishore Prabhatilal Sharma and others Vs. Vijayendra Prabhatilal Sharma and another,

In the said Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , the Supreme Court after consideririg the earlier judgment of the Supreme Court reported in AIR 1988 SC J520 (Executive Engineer. Irrigation, Balimela & Ors. vs. Abhdula Jena) held as follows:

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 indepetidentty) 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 dispute is 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.

For the reason aforesaid we must hold that the decision in Jena, insofar as it runs counter-to the above proposition, did not lay down the correct law.

In view of the above diseassion we hold that in two-appeals namely Civil Appeal No. 1403 of 1986 and civil Appeal No. 2586 of 1985 the arbitrator acted with jurisdiction in awarding pendente lite interest and the High Court rightly upheld the award. In, the result both the appeals fail and are, accordingly, dismissed but there will be no order as to costs. Even though we have held that lite decision in Jena case does not lay down good law, we would like to direct that our decision shall only be prospective in operation, which means that this decision shall not entitle any party nor shall it empower any court to reopen proceedings which have already become final. In other words, the law declared herein shall apply only to pending proceedings.

The Supreme Court by the aforesaid judgment overruled the decision in the case of Execuiitx Engineer (Irrigation) Balimela vs. Abhdula Jena (1988) I SCC 418, prospectively, in so far as it related to the power of. the arbitrator to award pendente lite interest.

The next case relied upon by the petitioner was the case reported in (1993) 1 SCC 114 (Supra).

In the said ease, the Supreme Court held as follows:

The decision in G.C. Roy was concerned only with the power of arbitrator in award interest pendente lite. It was not concerned with his power to award interest for the pre-reference period. This was made clear at more than one place in. the judgment, in para 2 it is stated that reference to the Constitution Bench was only for deciding the question whether the decision in Jena was correct in so for as it held that arbitrator has no power to award interest pendente lite. In para 8 it is stated : (SCC pp-514-15).

Generally, the question of award of interest by the arbitrator may arise in respect of three different periods, namely. : (i) for the period commencing from 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.

Then after reviewing a number of decisions, the (sic). emerging there from were stated in para 43 in the following words; (SCC pp. 532-33)

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 no? 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 conspeetus of aforementioned derisions, the following principles emerge:

(i) A person deprived of the use of money to which he 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 a valid tor 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 principle of.Section 34, CPC and here is no reason or principle to hold otherwise in the case of arbitrator.

(ii) An arbitrator is an alternative form (sic forum) 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 Section 41 and Section 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 prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It explained and distinguished on the basis that in that ease there was no claim for interest but only a claim for unliquidated damages. It lias 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 Jena case 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 (preference period). For doing complete justice between the parties, such power has always been inferred.

The conclusion was then stated in para 44 in the following words: (SCC pp. 533-34)

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 lice. 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 dispute 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.

"28. Sri B. K. Mehta contends that the powers of the arbitrator to grant pendente lite interest can be exercised, as stated in para 44 of the above judgment only "where the agreement between the parties does not prohibit the grant of interest and where a party claims interest and that dispute is referred to the arbitrator" and that those conditions are not fulfilled here. We do not agree. In the face of clause (5) of the agreement which envisages the payment of interest, it is futile to contend that. it prohibits the grant of interest.'' The claims in the suit and the claims under the deed of dissolution, were comprehensive enough to include the claim of interest and its reference to the arbitrator. The arbitrator was therefore with in his rights in granting interest pendente lite i.e. from the date of has been reference (September 26, 1980} till the date of decree in terms of the award."

In the instant case, the question which has been stated for opinion of this Court is as to whether the Joint Arbitrators are empowered to award interest and cost to the claimant. The Arbitrators after stating the award partially in terms of Section 13(b) of the Arbitration Act 1940 have in fact subject to the opinion of court, awarded pendente lite interest to the petitioner at 12% p.a. on the amount awarded. So far as the costs are concerned, parties have been left to bear their own cost of arbitration. In the instant case the agreement does not. provide for grant of such interest nor does it prohibit such grant.

In the instant case the joint Arbitrators have allowed'' interest pendente lite i.e. for a period commencing from the date of the Arbitrators entering upon reference, till the date of the making of the Award. As decided by the Supreme Court in the case of Jugal K. P. Sharma vs. Vijayendra P. Sharma (Supra) there is no doubt that the Arbitrators in the instant case had the power to award pendente lite interest as they have done in the said Award, subject, of course, to the opinion of the Court. So far as the costs of arbitration are concerned, the Arbitrators have the discretion to make such order as to costs of arbitration as they may think fit and proper.

I am unable to accept the submissions made on behalf of the : respondent that the Arbitrators in the instant case were not entitled to award interest pendente lite or that the judgments of the Supreme Court in the cases referred to above i.e. Secretary, Irrigation Department vs.. G. C. Roy (Supra) and in the case of Jugal K.P. Sharma vs. Vijayendra P. Sharma (Supra) have no manner of application to the facts of this case.

17 I am also unable to accept the submissions made on behalf of the respondent insurance Company that a Suit has to be filed after, the award There is a specific bar u/s 32 of the Arbitration Act, 1940 which clearly prescribes that no suit shall lie on any ground whatsoever for a decision upon existence, effect or validity of award nor shall any award be enforced, set aside, amended modified or in any way affected otherwise than as provided in the said Act i.e. The Arbitration Act, 1940.

So far the question referred to for the opinion of the Court is concerned, the same is answered in the affirmative in the sense that the Arbitrators were empowered to award interest and costs in the manner as they have done in paragraphs 3 and 4 of the said Award i.e. they were empowered to award pendente lite interest and to make such order as to costs as they thought fit and proper.

Before concluding this judgment, I make it clear that so far as the questions as to interest from the date of the Award till the date of the passing of the Decree and/or the, question of interest from the date of the Decree until the date of payment and/or the question with regard to the costs of filing the Award and/or of obtaining judgment upon Award are concerned. This Court has not gone into nor considered the same and the same are left open and may be urged or raised if the parties or either of them so desire or are so advised at the time when the matter as to judgment upon award, is taken up by the Court.

As provided u/s 14(3) of the Arbitration Act, 1940 this judgment containing the opinion of the Court as stated hereinabove shall be added to and shall form part of the award The parties will pay and bear their respective costs of this application. This application is disposed of in terms of the judgment.