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Sudhir Brothers v. Delhi Development Authority And Another
Factual and Procedural Background
The Delhi Development Authority (Respondent 1) awarded a contract for the construction of middle-income group houses at Pritam Pura, New Delhi to the appellant-contractor. Disputes arose, and on 1 April 1984 the appellant invoked the arbitration clause (Clause 25 of the General Conditions of Contract). The matter was referred to the second respondent-arbitrator, who entered upon the reference on 8 February 1985 and delivered an award on 15 July 1987 in favour of the appellant. The award included 12 % simple interest from 1 April 1984 until the date of payment.
The appellant moved the Delhi High Court under Sections 14 and 17 of the Arbitration Act for making the award a rule of the court. A Single Judge (21 December 1990) upheld most of the award but set aside both pre-reference and pendente lite interest and disallowed claims under Clauses 1, 3 and 4 (₹ 23,685). On appeal, the Division Bench restored pendente lite interest (8 February 1985 to 15 July 1987) but maintained the denial of pre-reference interest (1 April 1984 to 8 February 1985) and the disallowance of the ₹ 23,685 claim, relying on Secy., Irrigation Deptt., Govt. of Orissa v. G.C. Roy (1992) 1 SCC 508.
The present Supreme Court appeal challenges the Division Bench decision only insofar as it refused pre-reference interest.
Legal Issues Presented
- Whether, after the commencement of the Interest Act, 1978, an arbitrator possesses the jurisdiction to award interest for the period between the making of the reference and the date on which the arbitrator enters upon the reference (the “pre-reference” period).
Arguments of the Parties
Appellant's Arguments
- The Division Bench misread G.C. Roy; that judgment dealt exclusively with pendente lite interest and did not curtail an arbitrator’s power to grant pre-reference interest in the post-Interest Act era.
- Under Executive Engineer (Irrigation) v. Abhaduta Jena (1988) 1 SCC 418, read with the Interest Act, 1978, such pre-reference interest is permissible when the reference is made after 19 August 1981.
No specific arguments from the respondents are recorded in the opinion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Secy., Irrigation Deptt., Govt. of Orissa v. G.C. Roy (1992) 1 SCC 508 | Arbitrator’s power to award pendente lite interest. | Clarified that G.C. Roy concerns only pendente lite interest; it neither addresses nor restricts pre-reference interest. |
| Executive Engineer (Irrigation) v. Abhaduta Jena (1988) 1 SCC 418 | Pre-reference interest not permissible for awards predating the Interest Act, 1978; impliedly permissible thereafter. | Relied upon to affirm that, post-19 August 1981, arbitrators can award pre-reference interest. |
| State of Rajasthan v. Raghubir Singh (1979) 3 SCC 102 | Where a “sum certain” is payable at a certain time under a written instrument, interest is allowable under the Interest Act. | Cited in Jena and accepted as supporting the grant of pre-reference interest when the Interest Act, 1978 applies. |
| Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma (1993) 1 SCC 114 | Clarified that G.C. Roy dealt only with pendente lite interest. | Used to rebut the High Court’s understanding that G.C. Roy barred pre-reference interest. |
| State of Orissa v. B.N. Agarwala (1993) 1 SCC 140 | Reaffirmed that G.C. Roy is confined to pendente lite interest and does not disturb Jena on pre-reference interest. | Further supports the conclusion that arbitrators have authority to grant pre-reference interest after the Interest Act, 1978. |
Court's Reasoning and Analysis
The Supreme Court reviewed the precedent chain beginning with Abhaduta Jena and observed that, although Jena denied pre-reference interest for awards predating 19 August 1981, it expressly permitted such interest where the Interest Act, 1978 is applicable. The Constitution Bench decision in G.C. Roy was examined and found to address solely pendente lite interest; subsequent clarifications in Jugal Kishore and B.N. Agarwala reiterated this limited scope. Consequently, the Division Bench’s reliance on G.C. Roy to deny pre-reference interest was misplaced.
Having established that the reference in the present case occurred after the Interest Act came into force, the Court held that the arbitrator indeed had jurisdiction to award interest from 1 April 1984 (when arbitration was sought) to 8 February 1985 (when the arbitrator entered upon the reference). The Court found no merit in disturbing the High Court’s rejection of the ₹ 23,685 claim under Clauses 1, 3 and 4.
Holding and Implications
Appeal Allowed in Part. The Supreme Court set aside the Division Bench order to the extent that it disallowed pre-reference interest and restored the arbitrator’s award of 12 % simple interest for the period 1 April 1984 to 8 February 1985. The remainder of the High Court’s decision, including the disallowance of ₹ 23,685 under Clauses 1, 3 and 4, stands affirmed. No order as to costs.
Implications: The judgment reaffirms that, in references made after 19 August 1981, arbitrators have statutory authority under the Interest Act, 1978 to grant pre-reference interest. It clarifies the proper reading of G.C. Roy and strengthens the legal position of contractors and other claimants seeking compensation for delayed payments during the pre-reference phase.
Order
1. Leave granted.
2. 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).
3. 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 Pritam 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 Sections 14 and 17 of the Arbitration Act for making the award a rule of the court. On notice being issued to Respondent 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 the 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 but the order of the learned Single Judge refusing the pre-reference interest as well as the claim 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 Secy., Irrigation Deptt., Govt. of Orissa v. G.C Roy (1992) 1 SCC 508, JT (1991) 6 SC 349, the Arbitrator had the jurisdiction to award interest during the pendency of the reference before him i.e from 8-2-1985 till 15-7-1987 when he gave the award. However, the Arbitrator had no jurisdiction to award interest from 1-4-1984 till before 8-2-1985, the date when he entered into reference.”
4. This order of the Division Bench has been put in issue in this appeal.
5. Learned counsel for the appellant submitted that the Division Bench fell in error in interpreting the judgment in G.C Roy case (1992) 1 SCC 508, JT (1991) 6 SC 349 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 case (1992) 1 SCC 508, JT (1991) 6 SC 349. In our opinion, the grievance projected by Dr Singhvi is well-founded.
6. In Executive Engineer (Irrigation) v. Abhaduta Jena (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 Appeals Nos. 6019-22 of 1983 and Civil Appeal No. 2257 of 1984), the reference to arbitration were made prior to the commencement of the new Act which was on 19-8-1981. 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 v. Raghubir Singh (1979) 3 SCC 102. 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)
7. The Constitution Bench in G.C Roy case (1992) 1 SCC 508, JT (1991) 6 SC 349 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 case (1988) 1 SCC 418 with regard to award of pendente lite interest could not be said to have laid down good law. The Constitution Bench did not deal with the question of pre-reference interest in cases coming after the enforcement of the Interest Act, 1978, which came into force from 19-8-1981. In G.C Roy case (1992) 1 SCC 508, JT (1991) 6 SC 349 itself, it is stated that the reference to the Constitution Bench had been necessitated only for deciding the question whether the decision in Jena case (1988) 1 SCC 418 was correct insofar 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 case (1992) 1 SCC 508, JT (1991) 6 SC 349 had overruled the law laid down in Jena case (1988) 1 SCC 418 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 v. Vijayendra Prabhatilal Sharma (1993) 1 SCC 114, wherein it was specifically held that the decision in G.C Roy case (1992) 1 SCC 508, JT (1991) 6 SC 349 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.
8. Again, in State of Orissa v. 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) v. Abhaduta Jena (1988) 1 SCC 418. 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 Secy., Irrigation Deptt., Govt. of Orissa v. G.C Roy (1992) 1 SCC 508, JT (1991) 6 SC 349. We cannot agree with Shri Bhagat. Both of us were members of the Constitution Bench which decided G.C Roy (1992) 1 SCC 508, JT (1991) 6 SC 349. 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 v. Vijayendra Prabhatilal Sharma (1993) 1 SCC 114. Accordingly, we hold following the decision in Jena (1988) 1 SCC 418 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 19-8-1981.)”
(emphasis supplied)
9. 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 1-4-1984 till 8-2-1985 (pre-reference period) in the post-Interest Act, 1978 era. So far as the grievance of the appellant pertaining to the disallowance of the claim of Rs 23,685 under clauses 1, 3 and 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.
10. We accordingly set aside the order of the Division Bench insofar as it disallows the award of interest to the appellant for the pre-reference period i.e w.e.f 1-4-1984 to 8-2-1985 and restore the award of the arbitrator in that behalf.
11. The appeal, accordingly succeeds to the above extent and is allowed. No costs.
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