SUDHIR BROTHERS vs. D.D.A.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4 PETITIONER: SUDHIR BROTHERS Vs. RESPONDENT: DELHI DEVELOPMENT AUTHORITY & ANR. DATE OF JUDGMENT16/11/1995 BENCH: ANAND, A.S. (J) BENCH: ANAND, A.S. (J) MUKHERJEE M.K. (J) CITATION: 1996 SCC (1) 32 1995 SCALE (6)546 ACT: HEADNOTE: JUDGMENT: O R D E R Leave granted. The only issue involved in this appeal relates to the power and jurisdiction of an Arbitrator to award interest for the period between the making of the reference to the arbitrator and his entering upon the reference (pre- reference period) after the coming into force of The Interest Act, 1978 (post Interest Act era). A reference to brief facts for deciding the issue would be apropos. The first respondent - Delhi Development Authority - awarded certain work of construction of middle income group houses at Pitam Pura, New Delhi to the appellant and entered into a contract with him. Differences and disputes arose between the parties relating to the execution of the contract on 1.4.1984, when a reference to arbitration was sought by the appellant and in terms of Clause 25 of the General Conditions of Contract, the same were referred to arbitration of the second respondent. The arbitrator entered upon the reference on 8.2.1985. He made an award on 15.7.1987. The award together with the proceedings was filed in the court by the learned arbitrator. The award was substantially in favour of the appellant. The arbitrator also awarded 12% simple interest on the amount awarded from 1.4.1984 to the date of payment. The appellant filed an application under Section 14 and 17 of the Arbitration Act for making the Award a Rule of the Court. On notice being issued to respondent No. 1, objections were filed to the award being made a Rule of the Court. On 21.12.1990, the learned Single Judge of the Delhi High Court made the award Rule of he Court except in respect of claims under Clauses 1, 3 and 4. The court also rejected the claim of the appellant relating to both the award of pendente-lite interest as well as the pre-reference interest and set aside the award to that extent. On appeal before the division bench, pendente-lite interest, (between 8.2.1985 and 15.7.1987) as awarded by the arbitrator, was restored http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4 but the order of the learned Single Judge refusing the pre- reference interest as well as the claims under Clauses 1, 3 and 4 amounting to Rs. 23,685/- was upheld. The division bench opined : "In view of the decision of the Supreme Court in Secretary, Irrigation Department, Government of Orissa and Others Vs. G.C. Roy JT 1991 (6) SC, 349, the Arbitrator had the jurisdiction to award interest during the pendency of the reference before him i.e. from 8th February, 1985 till 15th July, 1987 when he gave the Award. However, the Arbitrator had no jurisdiction to award interest from 1st April, 1984 till before 8th February, 1985, the date when he entered into reference". This order of the Division Bench has been put in issue in this appeal. Learned counsel for the appellant submitted that the division bench fell in error in interpreting the judgment in G.C. Roy’s case (supra) to have laid down that the arbitrator had no jurisdiction to award interest from 1.4.1984 to 8.2.1985 (pre-reference period) because no such proposition of law was either under consideration or decided in G.C. Roy’s case (supra). In our opinion, the grievance projected by Dr. Singhvi is well founded. In Executive Engineer (Irrigation), Balimela And Others Vs. Abhaduta Jena & Others (1988 (1) SCC, 418), a three Judge Bench of this Court while dealing with pre-reference interest observed : "Out of the remaining cases, we find that in all cases except two (Civil Appeal Nos.6019-22 of 1983 and Civil Appeal No. 2257 of 1984, the reference of arbitration were made prior to the commencement of the new Act which was on August 19, 1981. In the cases to which the Interest Act, 1978 applies, it was argued by Dr. Chitale, learned counsel for the respondents, that the amount claimed was a sum certain payable at a certain time by virtue of a written instrument and, therefore, interest was payable under the Interest Act for the period before the commencement of the proceedings. In support of his contention that the amount claimed was a sum certain payable at a certain time by virtue of a written instrument, the learned counsel relied upon the decision of this Court in State of Rajasthan Vs. Raghubir Singh. The case certainly supports him and in the cases to which the 1978 Interest Act applies the award of the interest prior to the proceeding is not open to question" (Emphasis ours) The Constitution Bench in G.C. Roy’s Case (supra) was dealing with the question relating to the award of interest pendente-lite and not with the question of the award of interest for the pre-reference period and it was in that context that the Constitution Bench held that the view expressed in Jena’s Case with regard to award of pendente- lite interest could not be said to have laid down good law. http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4 The Constitution Bench did not deal with the question of pre-reference interest in cases coming after the enforcement of Interest Act, 1978, which came into force from 19.8.1981. IN G.C. Roy’s case itself, it is stated that the reference to the Constitution Bench had been necessitated only for deciding the question whether the decision in Jena’s case was correct in so far as it held that arbitrator had no power to award interest pendente lite. On a doubt being raised whether the Constitution Bench in G.C. Roy’s case had over-ruled the law laid down in Jena’s case relating to the power of the arbitrator to award interest for the pre- reference period in the post Interest Act, 1978 era, the position was clarified by a three Judge Bench in Jugal Kishore Prabhatilal Sharma & Ors. Vs. Vijayendra Prabhatilal Sharma & Anr. [1993 (1) SCC 114], wherein it was specifically held that the decision in G.C. Roy’s case was concerned only with the power of arbitrator to award interest pendente-lite and that it was not concerned with his power to award interest for the pre-reference period. Again, ’in State of Orissa Vs. B.N. Agarwala [1993 (1) SCC 140], Jeevan Reddy, J. clarified the matter and speaking for the Bench observed : "The next contention of learned counsel for the appellant/State relates to the power of the arbitrator to award interest for the pre-reference period. Reliance is placed upon the decision of this Court in Executive Engineer (Irrigation) Vs. Abhaduta Jena, Shri Bhagat, learned counsel appearing for the respondent, however, submits that the said decision is no longer good law in view of the Constitution Bench decision in Secretary, Irrigation Department, Govt. of Orissa Vs. G.C. Roy. We cannot agree with Shri Bhagat. Both of us were members of the Constitution Bench which decided G.C. Roy. It was confined to the power of the arbitrator to award interest pendente lite. It did not pertain to nor did it pronounce upon the power of the arbitrator to award interest for the period prior to his entering upon the reference (pre-reference period). This very aspect has been clarified by one of us, (B.P. Jeevan Reddy, J.) in his concurring order in Jugal Kishore Prabhatilal Sharma Vs. Vijayendra Prabhatilal Sharma. Accordingly, we hold following the decision in Jena that the arbitrator had no power to award interest for the pre-reference period in this case inasmuch as the award was made prior to coming into force of the Interest Act, 1978. (The Interest Act, 1978 came into force with effect from August 19, 1981)." Thus, the law is now well settled that the arbitrator has the power and jurisdiction to grant pre-reference interest in references made after the coming into force of the Interest Act, 1978. The division Bench of the High Court was thus clearly in error in holding that the arbitrator had no jurisdiction to award interest from 1.4.84 till 8.2.1985 (pre-reference period ) in the post Interest Act, 1978 era. http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4 So far as the grievance of the appellant pertaining to the dis-allowance of the claim of Rs. 23,685/- under Clauses 1, 3 & 4 is concerned, we do not find any error to have been committed by the High Court. The above view of the division Bench therefore, cannot be sustained. We accordingly set aside the order of the division Bench in so far as it disallows the award of interest to the appellant for the pre-reference period i.e. w.e.f. 1.4.84 to 8.2.1985 and restore the award of the arbitrator in that behalf. The appeal, accordingly succeeds to the above extent and is allowed. No costs.