Full Judgment Text
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PETITIONER:
THE BOARD OF TRUSTEES FOR THEPORT OF CALCUTTA
Vs.
RESPONDENT:
ENGINEERS-DE-SPACE-AGE
DATE OF JUDGMENT07/12/1995
BENCH:
AHMADI A.M. (CJ)
BENCH:
AHMADI A.M. (CJ)
SEN, S.C. (J)
CITATION:
1996 SCC (1) 516 1995 SCALE (7)274
ACT:
HEADNOTE:
JUDGMENT:
ORDER
This appeal came up before a bench of two learned
Judges on 7.11.1994 when it passed the following order :
"The question for decision in the
present case relates to the award of
interest pendent lite by the Arbitrator.
The effect of the decision in Secretary,
Irrigation Department, Govt. of Orissa
and Ors. Vs. G.C. Roy etc. [1992(1) SCC
508] is stated to be pending before a
three Judges Bench on a reference being
made to this effect. Accordingly,
Special Leave is granted in the present
matter."
Mr. K.K. Venugopal the learned senior counsel for the
respondent pointed out that the aforesaid order was passed
on the premise that the question regarding award of interest
pendent lite by the Arbitrator was referred to a three Judge
Bench. He pointed out that the question which was in fact
referred to the three Judge Bench was in regard to the Award
of interest in pendent lite but prior to the Arbitrator
entering upon the reference. He, therefore, submitted that
the aforesaid order and Special Leave had been granted
because it was not correctly represented that the reference
to the three Judge Bench was in relation to interest
accruing prior to the reference to Arbitration. That being
so, after hearing counsel for the appellant, we have thought
it proper to recall that part of the order and dispose of
the case on merits.
The short question which arises for consideration in
this case and which was canvassed before us by Mr. Salve the
learned senior counsel for the appellant was that the
Arbitrator had awarded interest pendent lite notwithstanding
the prohibition contained in the contract against the
payment of interest on delayed payments. Clause 13(g) of the
contract was relied upon in this behalf and that clause
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reads as under:
"No claim for interest will be
entertained by the Commissioners with
respect to any money or balance which
may be in their hands owing to any
dispute between themselves and the
Contractor or which respect to any delay
on the part of the Commissioners in
making interim or final payment or
otherwise."
The contention urged by the learned counsel for the
appellant was that this clause contained an absolute
prohibition against the payment of interest on account of
any delay on the part of the Commissioner in making interim
or final payment or otherwise. In support of this contention
he also invited our attention to a decision of this Court
rendered by two learned Judges in Associated Engineering Co.
Vs. Government of Andhra Pradesh & Another (AIR 1992 SCC
232). His emphasis, placing reliance on this decision was
that the Arbitrator has to function in terms of the contract
and not de hors the contract and he has no power to travel
beyond the contract and if he does so he would be acting
without jurisdiction. He invited our attention to the
observation in paragraphs 26 and 29 of that decision which
we have noticed.
A Constitution Bench of this Court in Secretary,
Irrigation Department, Government of Orissa & Others Vs.
G.C. Roy [1992(1) SCC 508] was called upon to consider
whether the decision of this Court in Executive Engineer
(Irrigation), Balimela & Ors. Vs. Abhaduta Jena & Ors.
[1988(1) SCC 418] correctly laid down the Rule in regard to
Arbitrator’s power to grant interest pendent lite. Dealing
with this question the Constitution Bench summed up the
legal position in regard to grant of interest pendent lite
in the following terms :
"The question still remains whether
arbitrator has the power to award
interest pendent 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 principle of
Section 34, Civil Procedure Code and
there 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
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the disputes or differences arising
between the parties. If the arbitrator
has no power to award interest pendent
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
the 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 pendent lite. The awards
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 Jena’s case almost all the courts
in the country had upheld the power of
the arbitrator to award interest pendent
lite. Continuity and certainty is a
highly desirable feature of law.
(v) Interest pendent lite is not a
matter of substantive law, like interest
for the people anterior to reference
(pre-reference period). For doing
complete justice between the parties,
such power has always been inferred."
It will appear from what the Constitution Bench stated
to be the legal position, that ordinarily a person who is
deprived of his money to which he is legitimately entitled
as of right is entitled to be compensated in deprivation
thereof, call it by whatever name. This would be in terms of
the principle laid down in Section 34 of the Code of Civil
Procedure. Their Lordships pointed out that there was no
reason or principle to hold otherwise in the case of an
arbitrator. Pointing out that arbitrator is an alternative
forum for resolution of disputes arising between the
parties, it said that he must have the power to decide all
disputes and differences arising between the parties and if
he were to be denied the power to award interest pendent
lite, the party entitled thereto would be required to go to
a Court which would result in multiplicity of proceedings, a
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situation which the Court should endeavor to avoid. Reliance
was, however, placed on the observation in sub-para (iii)
wherein it is pointed out that an arbitrator is a creature
of an agreement and if the agreement between the parties
prohibits the payment of interest pendent lite the
arbitrator must act in accordance therewith. In other words,
according to their Lordships the arbitrator is expected to
act and make his award in accordance with the general law of
the land but subject to an agreement, provided, the
agreement is valid and legal. Lastly, it was pointed out
that interest pendent lite is not a matter of substantive
law, like interest for the period anterior to reference.
Their Lordships concluded that where the agreement between
the parties does not prohibit grant of interest and where a
party claims interest and that dispute is referred to the
arbitrator, he shall have the power to award interest
pendent lite for the simple reason that in such a case it is
presumed that interest was an implied term of the agreement
between the parties; it is then a matter of exercise of
discretion by the arbitrator. The position in law has,
therefore, been clearly stated in the aforesaid decision of
the Constitution Bench.
We are not dealing with a case in regard to award of
interest for the period prior to the reference. We are
dealing with a case in regard to award of interest by the
Arbitrator post reference. The short question, therefore, is
whether in view of sub-clause (g) of Clause 13 of the
contract extracted earlier the Arbitrator was prohibited
from granting interest under the contract. Now the term in
sub-clause (g) merely prohibits the Commissioner from
entertaining any claim for interest and does not prohibit
the Arbitrator from awarding interest. The opening words ‘no
claim for interest will be entertained by the Commissioner’
clearly establishes that the intention was to prohibit the
Commissioner from granting interest on account of delayed
payment to the contractor. Clause has to be strictly
construed for the simple reason that as pointed out by the
Constitution Bench, ordinarily, a person who has a
legitimate claim is entitled to payment within a reasonable
time and if the payment has been delayed beyond reasonable
time he can legitimately claim to be compensated for that
delay whatever nomenclature one may give to his claim in
that behalf. If that be so, we would be justified in placing
a strict construction on the term of the contract on which
reliance has been placed. Strictly construed the term of the
contract merely prohibits the Commissioner from paying
interest to the contractor for delayed payment but once the
matter goes to arbitration the discretion of the Arbitrator
is not, in any manner, stifled by this term of the contract
and the Arbitrator would be entitled to consider the
question of grant of interest pendent lite and award
interest if he finds the claim to be justified. We are,
therefore, of the opinion that under the clause of the
contract the Arbitrator was in no manner prohibited from
awarding interest pendent lite.
Looked at from another point, if there was a dispute as
to whether under this term of the contract the Arbitrator
was prohibited from awarding interest pendent lite, that was
a matter which fell within the jurisdiction of the
Arbitrator, as the Arbitrator would have to interpret sub-
clause (g) of Clause 13 of the contract and decide whether
that clause prohibits him from awarding interest pendent
lite. In that case it cannot be said that the Arbitrator had
wandered outside the contract to deny to him jurisdiction to
decide the question regarding payment of interest pendent
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lite. Even if we were to accept the contention urged by the
learned counsel for the appellant placing reliance on
paragraphs 26 and 29 of the Associated Engineering Company
case (supra) we think, that the Arbitrator was well within
his jurisdiction in awarding interest pendent lite.
In view of the above we see no merit in this appeal and
dismiss the same.