2001 Supreme(SC) 44

2001(1) Supreme 205
Supreme Court of India
(From Orissa High Court)
G.B. Pattanaik, S. Rajendra Babu, D.P. Mohapatra, Doraiswamy Raju & Shiva­raj V. Patil, JJ.
Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa, etc. etc. —Appellants
versus
N.C. Budharaj (Dead) by LRs. etc. etc. —Respondents
Civil Appeal No. 3586 of 1984
With
C.A. Nos. 710-711/1981, 6808-09/83, 6810/83, 10649/83, 779/82 and 2723/81
Decided on 10-1-2001
Counsel for the Parties :
For the Appellants : Gobind Das, Sr. Advocate, and Raj Kumar Mehta, Advo­cate.
For the Respondents : Anil B. Diwan, Sr. Advocate, A.K. Panda, K.K. Patel, R.P. Wadhwani, Vinoo Bhagat, Radha Shyam Jena, Advocates.

Very important point
Arbitrator appointed with or without the intervention of the court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest.

Headnote:Arbitration—Powers/jurisdiction of Arbitrator—To award interest—Interest for pre-reference period—Arbitrator appointed with or without intervention of Court has jurisdiction to award interest on sums found due and payable for pre-reference period in absence of any specific stipulation or prohibition in contract to claim or grant any such interest—Executive Engineer (Irrigation) Balimela & Ors. v. Abhaduta Jena & Ors., (1988) 1 SCC 418 overruled.

       Per majority (S. Rajendra Babu, Doraiswamy Raju and Shivaraj V. Patil, JJ.)

       There can be no controversy over the position that the Constitution Bench of this Court in G.C. Roy’s case while declaring that the decision in Jena’s case does not lay down good law upheld, as a consequence the jurisdiction of the Arbitrator to award only pendente lite interest, as explained and highlighted in the subsequent decisions of this Court. When the claim involved for consideration in G.C. Roy’s case was only with reference to pendente lite interest it cannot be expected of the Court to travel outside, except for analysing the general principles, to academically adjudicate the other aspects of the matter also decided by the Bench in Jena’s case and overrule the same on such other points, too. Be that as it may, the ratio or the basis of reasons and principles underlying a decision is distinct from the ultimate relief granted or manner of disposal adopted in a given case. While laying down principle No. (i) in para 43, it has been in unmistakable terms declared that the basic proposition that a person deprived of the use of money to which he is legitimately entitled to has a right to be compensated for the deprivation, by whatever name it may be called viz., interest, compensation or damages, “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.” The efficacy and binding nature of this declaration of law cannot be either diminished or whittled down even on any known principle underlying the doctrine of ‘stare decisis’. The same is the position with reference to the principle Nos. (ii) and (iii). It cannot be legitimately contended that these principles would either vary or could be different in a case relating to the award of interest for the pre-reference period and to assume such a contra position in juxta position would not only be destructive in nature but also illogical and self-contradictory resulting in grave miscarriage of justice. Some of the very reasons and principles which weighed with the Constitution Bench in G.C. Roy’s case to sustain the jurisdiction of the Arbitrator to award pendente lite interest in a claim arising out of an agreement which does not also prohibit the grant of interest, in our view would equally suffice and provide sound basis of reasoning for upholding the power of the Arbitrator to award interest in respect of the pre-reference period, too. The further fact that the decisions of this Court, including the Jena’s case, envisaged four circumstances or contingencies wherein such interest for pre-reference period can be countenanced by the Arbitrator, is by itself sufficient to confer jurisdiction upon the Arbitrator to entertain and consider the said claim also, and consequently there is no justification to thwart the same even at the threshold denying the Arbitrator power even to entertain the claim as such. (Para 38)

       What difference it would make and consequences would follow, if principle No. (i) is read along with principle No. (v), be it even that, interest for the pre-reference period is a matter of substantive law unlike the interest for the period pendente lite, which ultimately came to be allowed applying the principles engrafted in Section 34 of the Code of Civil Procedure would next deserve our consideration. ‘Substantive Law , is that part of the law which creates, defines and regulates rights in contrast to what is called adjective or remedial law which provides the method of enforcing rights. Decisions, including the one in Jena’s case while adverting to the question of substantive law has chosen to indicate by way of illustration laws such as Sale of Goods Act, 1930 [Section 61(2)], Negotiable Instruments Act, 1881 (Section 80) etc. The provisions of the Interest Act 1839, which prescribes the general law of interest and becomes applicable in the absence of any contractual or other statutory provisions specially dealing with the subject, would also answer the description of substantive law. This Act was excluded from consideration for the simple reason that unlike the inclusive definition of ‘Court’ in 1978 Act so as to include an Arbitrator, also the 1839 Act did not provide any ‘definition’ clause much less an expansive one. Not only, Section 1 of the Interest Act but even the provisions contained in Sale of Goods Act and Negotiable Instruments Act themselves only envisage and enable courts to grant or award interest. But on that ground alone it could not be reasonably postulated that such Acts applied only to proceedings before Courts and not to proceedings before forums created in lieu of conventional Civil Courts. Once it is construed and considered that the method of redressal of disputes by an alternative forum of arbitration as agreed to between the parties, with or without the intervention of Court is only a substitute of the conventional Civil Courts by forums created by consent of parties, it is but inevitably necessary that the parties must be deemed to have by implication also agreed that the arbitrator shall have power to award interest, the same way and in the same manner as courts do and would have done, had there not been an agreement for arbitration. It is in this connection that the practice followed by English Courts which came to be noticed and approved by this Court also lend support and strength to adopt such construction in order to render complete and substantial justice between the parties. That there is nothing in the Interest Act, 1839 to confine its operation and applicability only to proceedings before ordinary and conventional Courts, cannot also be ignored, in this connection. In our view any such restricted and literal construction which is bound to create numerous anomalies and ultimately defeat the ends of justice should be scrupulously avoided. On the other hand, that interpretation which makes the text not only match the context but also make a reading of the provisions of an Act, just, meaningful and purposeful and help to further and advance the ends of justice must alone commend for the acceptance of ethtics of law. Adopting a different construction to deny a claimant who opts for adjudication of disputes by arbitral process alone and that too when recourse to such process is made without the intervention of Court would amount to applying different and discriminatory norms and standards to situations which admits of no such difference and that too where there is no real distinction based upon any acceptable or tangible reason. (Para 39)

       It is not in dispute that an Arbitrator appointed in a pending suit or with the intervention of the Court, will have all the powers of the Court, in deciding the dispute and the dispute is only in respect of an Arbitrator to whom the reference has been made by the parties, under the agreement without the intervention of the Court. It would then mean that the parties have to be driven to vexatious litigation before Courts by passing an agreement of arbitration, to be ultimately told to abide by it and have the matter formally referred by staying such proceedings before Civil Court to secure to the Arbitrator power to award interest also. (Para 40)

       If that be the position, Courts which of late encourage litigants to opt for and avail of the alternative method of resolution of disputes, would be penalising or placing those who avail of the same in a serious disadvantage. Both logic and reason should counsel courts to lean more in favour of the Arbitrator holding to possess all the powers as are necessary to do complete and full justice between the parties in the same manner in which the Civil Court seized of the same dispute could have done. By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to Civil Court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise he could have successfully asserted before Courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of his substantive rights under the various laws in force, according to which only even the Arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the Arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the Arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the Arbitrator cannot have jurisdiction to award interest for the period prior to the date of his appointment or entering into reference which alone confers him power is too stale and technical to be countenanced in our hands, for the simple reason that in every case the appointment of an Arbitrator or even resort to Court to vindicate rights could be only after disputes have cropped up between the parties and continue to subsist unresolved and that if the Arbitrator has the power to deal with and decide disputes which cropped up at a point of time and for the period prior to the appointment of an Arbitrator, it is beyond comprehension as to why and for what reason and with what justification the Arbitrator should be denied only the power to award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same. (Para 41)

       Arbitrator appointed with or without the intervention of the court, has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. (Para 42)