August 30, 2011

Arbitrator must cite the reason of the award while passing Judgment

                              Secretary, Irrigation Department, Government of Orissa & ors Vs.  G. C. Roy, AIR 1992 SC 732
Facts: Appellant and Respondent entered into an agreement for construction works. Clause 23 of the contract states that all questions and disputes (before and after work completion) shall be referred to the sole arbitrator. The work was completed. Respondents claim was not entertained by the Government.  The Arbitrator held that the respondent was entitled to certain amount of money and in addition he was entitled to receive interest. 
Issues: (1) the Award was vitiated as it contained no reasons; and (2) the Arbitrator had no jurisdiction to award pendente lite interest.
Reversed Previous Land Mark Judgment:
This judgment by the Honorable Supreme Court has reversed the land mark case on this, where in it was stated that the powers of the Arbitrator to award interest for the period the dispute remained pending before him pendente lite. Since, the Court held that the Arbitrator had no jurisdiction or authority to award interest pendente lite, Bench held that neither the Interest Act 1839 nor the Interest Act 1978 conferred power on the Arbitrator for awarding interest pendente lite. Arbitrator cannot award interest during the pendency of the Suit.

The principle is that a person who has been deprived of the use of money should be compensated in that behalf. In short it is based upon the principle of compensation or restitution, as it may be called (Interest Pendente Lite).

Arguments Advanced: Shri Soli Sorabji submitted that there is no good reason why the arbitrator should be held to have no power to award interest pendente lite. Arbitrator is an alternative forum for resolution of disputes. The idea is to avoid going to Court. If so, the arbitrator must be held to possess all the powers as are necessary to do complete and full justice between the parties. If the arbitrator is held to have no power to award interest pendente lite, the party claiming such interest would still be required to go to the civil Court for such interest even though he may have obtained satisfaction in respect of his other claims from the arbitrator. Such a course is neither consistent with the concept of arbitration nor is conducive to the rule of avoidance of multiplicity of proceedings. After all, interest is nothing but another name for compensation for deprivation. Stated: it must be held that though Section 34, C.P.C. does not apply to arbitrators, its principle does.
According to opposite learned Counsel, a reading of Sections 317 and 41 of the Arbitration Act goes to establish that arbitrator is denied such a power.

In the present case, interest on the amount of the award from the date of the award till the date of the decree granted. The reason is that it is an implied term of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a court could give if it decided the dispute. 

Held: For Issue 1, The Constitution Bench held that an award is not liable to be set aside merely on the ground of absence of reasons. Court held that when agreement provides a clause that arbitrator will give reasons for award then he is bound to give reasons for his decisions. Else not. But as of 2011, this law is not applicable because of the reason that, this is based upon Arbitration Act 1940, while 1996 Act has made it mandatory for arbitrator to cite reasons for the award, unless and until it is agreed by both the parties.
For Issue 2, in the absence of agreement to the contrary, the Arbitrator has jurisdiction to award interest pendente lite. Where agreement between parties does not prohibit grant of interest and where party claims interest along with or without claim for principal amount and that dispute is referred to arbitrator, he shall power to award interest pendnte lite - he has discretion to decide such matter subject to conditions of agreement.
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.

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.

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