STATE OF ORISSA versus B.N. AGARWALLA

Citation: [1997] 1 S.C.R. 704 · Decided: 29-01-1997 · Supreme Court of India · Bench: A.M. AHMADI · Disposal: Dismissed

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Judgment (excerpt)

A 
STATE OF ORISSA 
v. 
B.N. AGARWALLA 
JANUARY 29, 1997 
B 
[AM. AHMADI, C.JI., S.P. BHARUCHA AND B:N. KIRPAL, JJ.] 
Arbitration Act, 1940: Section 29. 
Interest-Award of-Pre-reference period i.e., for the period commenc-
e ing from the date of dispute till the date arbitrator entered upon refer-
ence-Held: Arbitrator had jurisdiction to award Interest in cases which arose 
after the Interest Act, 1978 came into force i.e., after 19-8-1981-ln regard to 
cases pertaining to pe1iod prior to applicability of Interest Act, in absence of 
any substantive law, contract or usage, arbitrator had no jurisdiction to award 
interest-Decision in Abhaduta Jena's case 011 this aspect not overruled in 
D G. C.Roy's case-Stipulation in the contract that "no interest was payable on 
the amounts withheld under the item of the agreement" ref e1red to the amount 
of the cont•actor withheld by the principal towards retention money for defect 
'"" 
liability period and did not pertain to claim of contractor before arbitrator for 
interest 011 balance amount payable out of final bill w.e.f date of completion 
E of work till date of payment-Contractor entitled to interest w.e.f 19-8-1981 
when Interest Act came into force-17ze said stipulation in the contract did 
not relate to such interest-Interest Act, 1978 .. 
F 
Interest-Award of-Pendente lite - for period during which arbitration 
proceedings were pending-Held: Arbitrator had jurisdiction to award interest. 
Interest-Award of-Future interest - for post-award period-Held: Ar-
bitrator had jwisdiction to award future interest from date of passing of the 
award--Wlzen award filed in court and decree passed in ·tenns thereof, court 
G has to detennine whether interest could be awarded from date of decree and 
what should be rate of interest. 
The appellant, in Civil Appeal No. 9233 of 1994, had invited tenders · 
for construction of certain quarters. The respondent had submitted his 
tender, which was accepted. The respondent completed the work on 31-5-
H 1977. As certain differences had arisen between the parties, an arbitrator 
704 
.-
STATE v. B.N. AGAR WALLA 
705 
was appointed and disputes between the parties were referred to the said A 
arbitrator. The arbitrator made his award whereby the appellant was liable 
to pay interest from 31-8-1977 till the date of payment on the principal sum 
or the date of decree, whichever was later. The High Court, however, 
restricted the grant of interest for the pre-reference period w.e.f. 19-8-1981, 
on which date the Interest Act, 1978 came into force. 
B 
The appellant in Civil Appeal No. 9234 of 1994, entered into an 
agreement with the respondent for improvement of a road. As disputes had 
arisen between the parties an arbitrator was appointed. The arbitrator 
awarded interest in respect of all the three periods, viz., pre-reference, 
pendente lite and future interest. In the appeal filed before the High Court, C 
the appellant challenged the decision of the arbitrator in allowingpendente 
lite interest. The High Court dismissed the appeal on the ground that 
pendente lite interest could be granted by the arbitrator under the Interest 
Act, 1978. 
The question before this Court was whether the Arbitrator had D 
power to award interest. 
On behalf of the appellants it was contended that as per the Special 
Terms and Conditions of the contract neither pre-reference interest nor 
pe11de11te lite interest could be awarded on the amount withheld under the E 
item of agreement; and that under Section 29 of the Arbitration Act, 1940 
the Arbitrator had no jurisdiction to award interest for the period after 
the passing of the decree till the date of payment, i.e., future interest. 
Dismissing the appeal, this Court 
F 
HELD: 1.1. Regarding Civil Appeal No. 9233 of.1994, the arbitrator 
has jurisdiction to award pre-reference interest, i.e., for the period com-
mencing from the date of dispute till the date the arbitrator entered upon 
reference, in cases which arose after the Interest Act, 1978 has become 
applicable i.e., after 19-8-1981. With regard to those cases pertaining to G 
- period prior to the applicability of the1 Interest Act, 1978, in the absence 
of any substantive law, contract or usage, the arbitrator has no jurisdiction 
to award interest. The decision in Abhaduta Jena's case on this aspect is 
_ _. 
not overruled in G.C. Roy's case. [717-A-B] 
1.2. The stipulation in the contract that "no interest is payable on H 
706 
SUPREME COU

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