Bangladesh Agricultural Development Corporation (BADC), represented by its Secretary (Appellant)
Vs.
Kibria and Associates Ltd. represented by its Managing Director Syed Golam Kibria (Respondent)
Supreme Court
Appellate Division
(Civil)
Present:
Shahabuddin Ahmed C J
MH Rahman J
ATM Afzal J
Mustafa Kamal J
Latifur Rahman J.
Judgment
February 28th, 1994.
Cases Referred to-
Chandris Vs. Isbrandtsen Moller Co.1950 in 1950 (2) All England Reports 618; Eddowes Vs. Hopkins (1780) 99 All England Reports, 242; Arnott Vs. Redfern, (1826) 130 All England Reports 549; Page Vs. Newman, (1829) 109 All England Reports 140; London, Chathaim and Dover Rly Co. Vs. Southern Rly Co. (1893) AC. 429; Podar Trading Co. Ltd. Bombay Vs. Franco is Tagher, Barcelona (1949) (2) All England Reports 62; Tehno-Impex Vs. Van Welde, (1981) 2, All England Reports 672; Finnix Case (Lloyd’s Law Reports 1974 Vol. 1); Bengal Nagpur Rly Co. Vs. Rattanji Ramji, AIR (1938) (PC) 70; AZ Co. Vs. SM Bakhsh, 17 DLR (SC) 404; (17 DLR, SQ; Engineer Galimala Vs. Abnaduta Jena, AIR 1988 (SC) 1520; Secretary, Irrigation Department V GC Roy, AIR 1992 (SC) 723; Jena’s case (AIR, 1988); Jugal Kishore Sharma Vs. Vijayendra Sharma, AIR 1993, (SC) 864; State of Orissa Vs. Lalchand Kapani, AIR 1993, (SC) 2464 and State of Orissa Vs. BN Agarwalla, AIR 1993, (SC) 2521; Md. Eunus Vs. University of Chittagong, 44 DLR (AD) 296; Kamaphuli Works Ltd. Vs. Sonali Bank 46 DLR (AD) 55; KM Shafi Ltd. Vs. Government of Bangladesh, (1983) BLD (AD) Page 109; Chamsey Bhara Co. Vs. Jibraj Ballo Co. Ltd. (1923) AIR, PC 66; Addams Vs. Great North of Scotland RY. (198 1) AC 31.
Lawyers Involved:
Syed Ishtiaq Ahmed, Senior Advocate (Mohamad Hossain, Advocate with him) instructed by Md. Aftab Hossain, Advocate-on-Record-For the Appellant (in both the appeals)
Dr. Kamal Hossain, Senior Advocate (Shah Abu Nayem, Advocate, Supreme Court with him), instructed by Kazi Shahabuddin Ahmed, Advocate-on-Record. For the Respondent (in both the appeals).
Civil Appeals Nos. 43 and 44 of 1993.
(From the judgment and order dated 6 September 1992 passed by the High Court Division in FMA Nos. 695 of 1991 and 21 of 1992 respectively).
Judgment:
Shahabuddin Ahmed J.- These two appeals by special leave are from two judgments of the High Court Division of the same date 6 September 1992 passed respectively in FMA Nos. 695 of 1991 and 21 of 1992. By these judgments the High Court Division modified a judgment of the Subordinate Judge, Dhaka, dated 26 September 1991 in TS No. 321 of 1990, under sections 30 and 33 of the Arbitration Act, 1940. The learned Subordinate Judge had, in his judgment, modified an award dated 20 September 1990 made by an Arbitrator appointed by the parties to a contract for construction work. The main question raised for determination in these two appeals before us relates to the Arbitrator’s power to award interest on the award made by him.
2. Facts leading to these appeals are briefly set out below.
The appellants before us in both the appeals are the Bangladesh Agricultural Development Corporation, briefly, the BADC; and the respondents area construction company, Kibria and Associates Ltd. There was an Agreement between the appellants and the respondents for construction of a low cost Fertilizer Ware House at Tepakhola, Faridpur. Value of the work was estimated at Taka 39 lacs and odd. The work was taken up by the contractorsrespondents from 21 January 1983 and they submitted completion report on 1 July 1984 stating therein that the work had been completed on 30 April 1984. But though the work had started from 21 January 1983, it was suspended for 47 days from 2.2.83 to 20.3.83 due to a dispute arising between the appellants, BADC, and the Ministry of Land at whose instance the Deputy Commissioner, Faridpur, by applying Police Force, took over possession of the construction site. After prolonged negotiations between the concerned Ministries, the dispute was resolved and the respondents resumed the work from 21 March 1983. The respondents, in addition to their bill for the main construction work under the Agreement, submitted a Bill (Bill No. 1) demanding compensation for their business?loss caused due to the suspension of the work for 47 days; they held the appellants responsible for this partial breach of the contract since, in terms of the contract, the appellants were bound to give undisputed possession of the site of construction. The compensation claimed in Bill No. 1 was estimated at Taka 15,63,737. The respondents submitted three more Bills Nos. 2, 3 and 4 claiming thereunder their dues for some Non?Tender items of work, which they had admittedly done by verbal instructions of the BADC’ s Chairman. The claim under these four Bills was Taka 24,51,570.00 and upon this amount they claimed interest at the rate of 18% from 1 July 1984. Their total claim including interest was Taka 70,54,068.00 upto June 30, 1990. So far as the claim for the main work under the Agreement was concerned, there was no dispute, and it was paid in full including incidental charges. But the claim to Taka 24,51,570.00 along with interest, was disputed particularly, the amount of compensation of Taka 15,63,757.00. The BADC did not seriously dispute the bills for Non?tender works but disputed the interest thereupon. Claim to compensation was disputed on the ground that the BADC had no hand in the matter of dispossession from the site which was a matter between two Ministries concerned. After fruitless negotiation over the Bills between the parties, the dispute was ultimately referred to an Arbitrator in terms of an arbitration clause (Clause No. 17) of the Agreement. A retired Judge of the Supreme Court was appointed the Arbitrator by mutual consent of the parties, and the Arbitrator entered upon the arbitration proceeding from 30 June 1990 and gave his Award on 20 September 1990. By his award, the Arbitrator reduced the respondent’s claim of Taka 24,51,570.00 to Taka 20,40,712.00 and thereon he allowed interest at the rate of 16%, from 1 July 1984 till realisation of the money.
3. The first party to the Arbitration Proceeding, namely these respondents (contractors) filed an application before the Subordinate Judge for making the award a rule of the Court; the second party to the said proceeding (the BADC) filed an application for setting aside the award under section 33 read with section 30 of the Arbitration Act taking a number of grounds including a ground of limitation. The learned Subordinate Judge, by his judgment as mentioned above, refused to interfere with the award as to the principal sum, but set aside the order for interest altogether taking the view that the Arbitrator got no power to grant interest. Both the parties went to the High Court Division with their respective appeals. The contractors, in their Appeal No. 695 of 1991, challenged the judgment striking off interest; and the BADC, in their Appeal No. 21 of 1992, challenged the judgment maintaining the award in respect of Bill No.1 regarding the compensation for suspension of the work. The con tractors’ Appeal was allowed and that of the BADC was dismissed. The ultimate result of the two Appeals was that the Arbitration Award for the principal sum due along with interest was red. In coming to their conclusion the learned judges of the High Court Division noticed that there was no statutory law in Bangladesh empowering an Arbitrator to allow interest on his award, but held that under a doctrine known as doctrine of “implied term of the Agreement” the Arbitrator got power to award interest on his award. In support of their views, they referred to a great number of decisions from English and Indian Jurisdictions, in particular a decision of the Court of Appeal in England in the case of Chandris Vs. Ishrandisen Moller Co. reported in 1950 (2) All England Reports 618 and held :
“Thus, in view of our discussions we are of the opinion that even where the reference to arbitration to settle disputes is not in Court and section 34 CPC is not applicable and the Interest Act, 1839 is not on the statute book, the Arbitrator is not deprived of his power to award interest in that he derives such power impliedly from the very submission to him of the arbitration ……”.
Accordingly, the learned Judges found that the learned Subordinate Judge “erroneously struck off the award of interest granted by the Arbitrator”. The learned Judges did not find any error in the award and refused to set it aside.
4. The BADC, in Appeal No. 43 of 1993, questioned the Arbitrator’s power to grant interest on his award for any period, such as the pre?reference period, the period during which the reference was pending and the period from the date of the award till realisation of the money. In the other appeal CA No. 44 of 1993 they questioned the legality and propriety of the award in respect of the respondents’ claim for compensation for their alleged business?loss and damage during the period of suspension of the work. In that appeal they reiterated their contention that the arbitration reference was barred by limitation under section 65 of the Arbitration Act, read with Article 115 of the Limitation Act; they also questioned the maintainability of the reference since, according to them, there was no dispute raised as to interest. The appellants contended that the respondents did not demand any interest on their claim even in their Notice for the reference and appointment of the Arbitrator. As to the claim for compensation, their contention is that the award was made without any evidence and, as such, it is liable to be set aside. We shall first examine the principal question before us which relates to the Arbitrator’s power to grant interest on his award.
5. Mr. Syed Ishtiaq Ahmed, learned Counsel, has appeared for the appellants, and Dr. Kamal Hossain, learned Counsel, has appeared for the respondents, in both the appeals, which have been heard together by us and are going to be disposed of by this judgment.
6. It may be mentioned at the outset that in Bangladesh there is no law providing for granting of interest by an Arbitrator on his award. Section 29, Arbitration Act, 1940, of course, provides for grant of interest in arbitration proceedings, but it is the Court only which has been empowered thereunder to award interest from the date of its decree when the Arbitrator’s award is made a rule of the court. There was no such law in India also till 1978, when the Interest Act, 1839 was repealed and re-enacted by the Interest Act 1978. This Act primarily governs payment of interest by a Court. But in the definition of “Court”, “Arbitrator” has been included and in this way the Arbitrator has got statutory power to grant interest on an award made by him. Before this Act of 1978, Superior Courts of India, in particular the Supreme Court, held the view that in certain circumstances the Arbitrator got power, by necessary implication and analogy with Court’s power, to allow interest on the award made by him. But contrary views were also there and in due course I shall refer to some of their recent decisions, particularly from 1988 upto 1993.
7. In England there was no statutory law empowering an Arbitrator to grant interest on the principal sum found due till the Administration of Justice Act, 1982, which, by amending the Supreme Court Act, 1981, empowered an Arbitrator to allow interest on his award, Prior to this Act the English Courts took divergent views on an Arbitrator’s power to award interest. The Chandris Case, relied upon by the High Court Division in the instant case, is one among those cases in which Courts allowed interest in arbitration proceedings. In England the first statute governing payment of interest is the Civil Procedure Code, 1833, which is also called Lord Tenterden’s Act. This Act authorised common law Courts, in which actions were tried by juries, to award interest in certain circumstances to which I shall refer soon. Before this Act was made there were some cases in which the common law Courts had awarded interests as “damages”. One such case is Eddowes Vs. Hopkins (1780) 99 All England Reports, 242 and another such case is Arnott Vs, Redfern, (1826) 130 All England Reports 549. In the former, Lord Mansfied, CJ, and in the latter, Lord Best, CJ, allowed the Juries to award interest as damages. But three years later, in the case of Page Vs. Newman, (1829) 109 All England Reports 140, Lord Tenterden CJ, took a different view saying grant of interest by the Juries “would be productive of great inconvenience” and held that “unless it appears on the face of an instrument that interest was intended to be paid or unless it be implied from the usage of trade, as in the case of “mercantile instrument” interest could not be awarded by the Court”. It is in these circumstances that the Civil Procedure Act, 1833 was made by Parliament, at the initiative of Lord Tenterden, authorising the Juries in Common law Courts to allow interest (a) upon all debts or sums certain. payable at a certain time” or (b) otherwise if a notice in writing were given to the debtor demanding interest” (underlines are mine’). By this Act, however, an Arbitrator was not given such power. For the purpose of clarification, it is mentioned here, that on the pattern of this English Civil Procedure Code, 1833, the Indian Interest Act, 1839 was passed during the rule of the East India Company. In 1893 the House of Lords, in London, Chatham and Dover Rly Co. Vs. Southern Rly Co. (1893) AC. 429, affirmed the principles inserted in the 1833 Act, and reaffirmed the view that interest could not be allowed as damages for detention of a debt.
8. This Act (1833) was repealed and re?enacted by the Act of 1934, which is called the Law Reform (Miscellaneous Provisions) Act. This Act allowed interest to be given on debts or damages, but only by a Court of Record and not by an Arbitrator. In Podar Trading Co. Ltd. Bombay Vs. Francois Tagher, Barcelona (1949) (2) All England Reports 62, a Divisional Court, presided over by Lord Goddard, CJ, held that an Arbitrator got no power to allow interest on his award for damage unless it was provided by any agreement or a mercantile custom. The decision in the Podar’s case was overruled in Chandris’ case (1950) upon a view that the power of an Arbitrator to allow interest was not derived from any statute like Act of 1833 but was derived from the submission of a dispute to the Arbitrator by the parties to the dispute themselves, that such submission to arbitration gave the Arbitrator the power to decide the rights of the parties in accordance with the law which would have been applicable if the parties had litigated the matter in a Court. In this way the doctrine of “implied power” of an Arbitrator began to develop. This “implied power” was fully explained in the judgment in Tehno?Impex Vs. Van Weelde, (1981) 2, All England Reports 672.
9. Lord Denning, MR, who is well known for his progressive ideas, which sometimes appear to be on the verge of revolutionary changes in law, was all along holding the view that an Arbitrator got full discretion to award interest on the sum found by him as due but not paid in time and that the Arbitrator was not bound by the old rules and practices followed by the Juries. His Lordship was also of the view that the Arbitrator got power to award interest on the ground of equity, justice, fairness and good conscience. In the Techno?Impex Vs. Van Weedel, Lord Denning, no matter his views were not shared by his companion justices, observed:
“During the last twenty years the monetary systems of the world have changed radically. Sterling is no longer a stable currency. It floats in the wind. It changes like a weathercock with every gust that blows. Likewise, all foreign currencies. The value of money in every country depreciates every year. Inflation is the order of the day. In England, recently over 20% a year. Now down to 12%. Interest on bank over-drafts is up to 15% or more. If a debtor deliberately delays payment for year, he is nothing more o less than a cheat. At any rate in commercial transactions where traders conduct their business on over-drafts. By withholding the sum due, the debtor saves himself from paying interest on the sum, and compels the creditor to Day it instead,” (emphasis supplied).
Similar views were taken by Lord Denning in some earlier cases also including the Finnix Case (Lloyd’s Law Reports 1974 Vol. 1). The principle propounded by Lord Denning is that when a creditor is deprived of the use of his money he should be compensated for the deprivation, whether it is called interest, compensation or damage. Where the law was in this uncertain position, the statutory provisions were made in 1982, as stated above. Under these provisions the High Court got power to award interest on debts and damages and the Arbitrator got power to allow interest on his award.
10. In Pakistan, as in Bangladesh up to 1971, the Interest Act, 1839 was a substantive law governing the payment of interest, but interest thereunder was to be allowed only by a Court in a suit or proceeding before it. Interest thereunder was awardable in some specified cases, such as “upon all debts or sums certain. payable at a certain time or if such sums or debts be payable by virtue of instrument at a certain time, or otherwise payable if demand of payment has been made in writing” with a notice that interest will be claimed or interest is payable by law, (Emphasis supplied) Section 34 Civil PC provides that when a Court passes a money decree, “it may order interest on the principal sum adjudged from the date of the suit to the date of decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit with further interest on the aggregate sum from the date of the decree to the date of payment” (emphasis supplied), Under section 34 CP Code the Court may, in its discretion, award interest for the second and the third period, as mentioned above in the Interest Act, but it cannot allow interest for the first period mentioned therein, that is, the pre?suit period. This is what was held by the Privy Council in Bengal Nagpur Rly Co. Vs. Ratanji Ramji, AIR (1938) (PC) 70. The Privy Council held that the Interest Act, 1839 was a substantive law in relation to section 34, Civil Procedure Code which was held to be a procedural law. Interest for any period prior to the institution of a suit can be granted by a Court only in any of the cases as specified in the Interest Act, 1839. Laws under which interest is payable as referred to in this Act includes section 61 of the Sale of Goods Act, section 73 of the Contract Act and section 80 of the Negotiable Instruments Act.
11. In AZ Co. Vs. SM Bakhsh, 17 DLR (SC) 404, the Supreme Court of Pakistan considered, among other things, the question whether an Arbitrator got power to allow interest on his award for the pre?reference period and its answer was in the negative. The dispute that led to the arbitration proceeding in that case (17 DLR SC) arose from failure of the buyer of cotton to take delivery of the cotton though tendered by the seller in due time in terms of an agreement. Payment of interest on the price of goods supplied was provided in section 61(2)(a) of the Sale of Good Act 1930. In the said proceeding, payment of interest was also provided in a bye?law of the Karachi Cotton Association at whose instance the arbitration agreement between the parties had been made. The Arbitrator allowed interest for the pre?reference period of nine years, whereas the parties had expressly agreed that interest was to be granted only after the award. The Supreme Court, when the award ultimately went to it, struck off the interest for the pre?reference period. In this connection, the Supreme Court also observed that a great number of decisions under the Interest Act were not” easily reconcilable”.
12. In India, the Interest Act, 1893 was repealed and re?enacted by the Interest Act, 1978 with effect from August 1981. In this Act “Court” includes “Arbitrator” and consequently an Arbitrator has got power to allow interest on his award. But even before this Act of 1978, the Indian Courts held in some cases that Arbitrators had got such powers; but contrary views were also held in a few cases. In Engineer Galimala Vs. Abnaduta Jena, AIR 1988 (SC) 1520, the Indian Supreme Court held that an Arbitrator, to whom a reference was made without the intervention of the Court, “does not have jurisdiction to award interest pendente lite (i.e. for the period during the pendency of the arbitration proceeding). But in a later case?Secretary, Irrigation Department Vs. GC Roy, AIR 1992 (SQ 723?a larger Bench of five Judges of the Supreme Court overruled the decision in Jena’s case and held that the Arbitrator got power to allow pendente lite interest. The Supreme Court in that case propounded a few principles which were intended to give much wider powers to an Arbitrator including power to award interest for any pre?reference period, though this question was not an issue in the said case. Some of these principles are: 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, interest, damage or compensation. 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 CPC and there is no reason to hold otherwise in the case of an arbitrator. An arbitration is an alternative form of resolution of disputes between parties and, as such, the arbitrator must have power to decide all the differences and disputes between them. Where the arbitration agreement does not prohibit the grant of interest pendente lite interest or interest for pre?reference period, or where it is silent a?bout it, the arbitrator should allow interest on his award if such interest is demanded. In such cases, it must be assumed that the arbitrator has got “implied power to award interest to do complete justice”. As it appears, these principles and views are based on a long series of decisions and views of the English Courts to which we have referred already.
13. Even after this decision in the case of Secretary, Irrigation Department Vs. GC Roy, the Arbitrator’s power to grant interest for the pre?reference period remained disputed and the question that was again raised was to what extent the decision in Jena‘s case (AIR, 1988) was overruled. This question came up for fresh consideration in three successive cases, all reported in AIR, 1993 (SC). These cases are Jugal Kishore Sharma Vs. ViJayendra Sharma, AIR 1993, (SC) 864; State of Orissa Vs. Lalchand Kapani, AIR 1993, (SC) 2464 and State of Orissa Vs. BN Agarwalla, AIR 1993, (SC) 2521. Some of the learned Judges who were parties to the decision in the 1992 case, were also parties to the three later decisions in the 1993 cases. In the first case of 1993, it was held that the decision in Secretary, Irrigation Dept. Vs. GC Roy was concerned only with the power of the Arbitrator to award interest pendente lite. “It was not concerned with his power to award interest for the pre?reference period. Therefore, it would not be correct to read the first of the five principles set out in the case of GC Roy as overruling the Jena’s case (1988), so far as it dealt with the arbitrator’s power to award interest for the pre?reference period”. In the second case of 1993, it was pointed out that interest for the pre?reference period could be allowed by an arbitrator provided on the date of award the Interest Act 1978 was in force. This view was followed in the third case reported in the same year. The final conclusion of the Supreme Court in these decisions is that before the coming into force of the Interest Act, 1978, an arbitrator has no power to allow interest on his award for “the pre?reference period” in the absence of any law or agreement, that he got power to allow interest pendente lite and also from the date of award till realisation of the dues under the award on the analogy of the Court’s power to award interest under section 34 CPC.
14. As has been mentioned above, in Bangladesh just after Independence, the Interest Act 1839 was repealed by the Bangladesh (Revisions and Declaration) Act 1972 (Act VIII of 1972) without re-enacting any of its provisions; consequently, there is no substantive law left providing for grant of interest by a Court for any period prior to the institution of any suit. Of course, specific provisions in certain laws as to payment of interest for such period are still there. In Md. Eunus Vs. University of Chittagong, 44 DLR (AD) 296 the question as to an Arbitrator’s power to allow interest was raised. A contract between the parties provided for grant of interest on the award if the sum thereunder was not paid within thirty days from its date. This interest was disallowed by the High Court Division on the ground that the respondent furnished a bank guarantee for the award; but an observation was also made to the effect that in an appropriate case the question of the Arbitrator’s power to award interest might be considered. In a recent case?Karnaphuli Works Ltd. Vs. Sonali Batik (CA No. 46 of 1991) judgment of which has not yet been reported, we have held that even after the repeal of the Interest Act 1839 the Court has got power, under the General Principles as well as under specific laws, to award interest for pre?suit period more or less in the cases as described in the repealed Act of 1839. In the suit which led to the appeal before us CA 46 of 1991 the seller (plaintiff) claimed the price of goods sold along with interest thereon as the buyer (defendant) did not pay it in terms of an Agreement that governed the transaction. The trial Court decreed the suit and allowed interest on the principal sum by way of compensation, using the prevailing rate of interest as a yardstick for measurement of the compensation for detention of the plaintiffs dues. The appellate Court (High Court Division) found that what was awarded by the trial Court was in fact “compensation” and upheld the decree. In the appeal before us we found that the money decreed was a definite sum, payable at a certain date as provided by an Agreement and that the interest allowed thereon for the period from the date the principal sum fell due till the institution of the suit was ?both an interest as provided by General Principle as well as by section 61 of the Sale of Goods Act and also compensation under section 73 of the Contract Act. Our conclusion was; “The general principles governing interest of this nature, as elaborated above, are that (interest for this period is payable when) the principal sum is definite, payable at a definite time and the payment is provided by any written instrument, such as an agreement or by any law or by any usage of trade having the force of law”. In that case it was, however, pointed out that an Arbitrator’s power to award interest was not an issue and as such no view was expressed on this point.
15. The instant case relates to an Arbitrator’s power to allow interest on his award for all the three periods. Mr. Syed Ishtiaq Ahmed contends that the views and decisions of the English and Indian Courts should not be followed by us. He is of the view that as regards interest for the pre?reference period, the doctrine of implied power of an Arbitrator or the assumption that the very submission of a dispute to the Arbitrator gives him all powers to decide all the differences between the parties who appoint the Arbitrator or the power to do complete justice to the parties are neither contemplated in our law, nor will be safe and convenient in the context of our socio?economic condition. He, however, does not seriously contend that on the analogy of the Court’s power under section 34 CPC, an Arbitrator may exercise power to allow interest on his award in appropriate cases; but as to pendente lite interest, he contends that, in view of section 29 of the Arbitration Act which enables a court to award interest from the date of decree, interest for any period prior to the decree stands, excluded. If an Arbitrator is at all empowered, by analogy with the Court’s power, to allow interest pendente lite or for any future period, then under no circumstances the Arbitrator can exercise greater or wider power than the Court. The grant of interest for pre?reference period cannot be included in an Arbitrator’s jurisdiction, learned Counsel further contends. He, however, agrees that if pre?reference period?interest is expressly provided in an arbitration?agreement, then the Arbitrator may allow such interest.
16. Dr. Kamal Hossain, on the other hand, is in full agreement with the recent English and Indian decisions and strongly defends the principle of an Arbitrator’s power “implied in terms of an arbitration?agreement”. He is of opinion that we have, in our Judgment in CA No. 46 of 1991, appreciated this progressive trend in interpreting the law and practices governing an Arbitrator’s power. Learned Counsel contends that this Court is not fettered by the shackles of the English Court’s decision in the London, ChAtham and Dover Rly case, nor is it bound by any of the constraints resulting from practices of the English common law Courts; those practices, he contends, led the English Courts in the nineteenth century to introduce artificial and unwarranted restrictions on an Arbitrator’s power to award interest. Referring to the development of the law as to interest during the last two centuries in England, America and Australia, learned Counsel has pointed out how this law has been freed from the stigma and opprobrium attached to interest by religion and social tradition and has argue that interest on money due to a creditor is an essential element in commercial transactions of modem day world. This historical development, he goes on, is marked by the “the gradual weaning away of the law from the stigma attached by religion and thought of an earlier day to the taking of usury”. Quoting from McGregor on Damage, learned Counsel has said “The ancient evil of unconscionable extortion is wholly absent where interest is to be extracted by a Court and not by a money lender ……….The ancient prejudice has been singularly unfortunate in restricting the rational development of the practice of interest as damages”.
17. Again, the learned Counsel has referred to the following paragraph from Russel on Arbitration (29Lh Edition, 1982).
“In a commercial transaction if the plaintiff has been out of his money for a period, the usual order is that the defendant should pay interest for the time for which the sum has been outstanding”.
The Australian High Court has, it is pointed out, followed the Chandris’ decision and justified the grant of interest by an Arbitrator saying:
“Not only is it in conformity with the great weight of authority; that authority appears to me to involve no error of principle. Moreover, it is wholly beneficial in its operation, conferring, as it does, upon arbitrators power to do justice as between parties to a submission by enabling them to award interest, upto the date of the award, upon amounts found due. This is a power the need for which is the greater in times of dear money, reflected in prevailing high rates of interest. The Myron (28)“.
The learned Counsel has then referred to the development of law as to interest in America where perhaps traditional theology was not so dominant and mercantile influence was stronger than traditional theology and recognised the Courts power to award interest on money due or on damages. Looking at the development of this law in international arbitral jurisdiction he has said that the creditor whose cum is admitted should be fully compensated for the loss that he has suffered by reason of being deprived of money owed to him as from the date when such money was due to be paid until actual payment is made. Learned Counsel concludes that we may also recognise these established practices and hold that an Arbitrator has got implied power to grant interest on his award from the date the money falls due and to give full relief and to do complete justice to the creditor who has been deprived of his right to use his money.
18. We have seen with keen interest the historical development of the law as to interest and also we have taken into consideration various decisions and views of high judicial authorities of England, India and Australia as placed before us by the learned Counsels of both the parties. As to the doctrine or principle of “implied power” of an Arbitrator which is to be read in the terms of an Agreement, when the Agreement is either silent on his power to award interest or when the Agreement does not refuse him this power, we find it difficult to accept it as safe and sound principle, particularly when this principle will empower an Arbitrator to award interest even on an unascertained sum of claim. The submission of a dispute to an Arbitrator is primarily intended to have the dispute settled expeditiously and at the lowest possible cost, and from this submission it can hardly be inferred that the parties while submitting their dispute to the Arbitrator have given him full power to settle all kinds of differences between them. As to Judge?made law, it is true that authoritative decisions of the superior Court, if uniformly followed, ripen into law, in which case legislative backing is not necessary. But where such decisions are not uniform and they leave scope for divergent views, then suitable legislation becomes necessary, all the more to dispel any doubt or resolve any confusion. That is why the statutory laws were made Administration of Justice Act, 1982 in England and the Interest Act, 1978 in India. No such law has yet been made in Bangladesh, and, as far as we know, in Pakistan also. Dr. Kamal Hossain has tried to explain that those “subsequent legislations by statutes (in England and India) have been made just to confirm and declare the position already developed and established by judicial decisions”. We do not agree, and we are of the view that on very important matters like this legislation is necessary. The implied power of an Arbitrator, as spoken of, is, in our opinion, the power which may be exercised by him in his discretion on the analogy of the Court’s power under section 34 CPC. We have therefore reached the following conclusions:
(a) Pre?reference period interest-
In the absence of any law or agreement providing for payment of interest by an Arbitrator on an award made by him it will not be proper and safe to vest in him power to award interest for the pre-reference period; for this period the Arbitrator may allow interest only if it is provided in any agreement or law.
(b) Pendente lite interest:
An Arbitrator may allow pendente lite interest on the analogy of the Court’s power to grant interest if the dispute were agitated before it. In the case of Arbitrator, this interest should be for a period not exceeding four months. This period of four months, as referred to in section 3 of the First Schedule of the Arbitration Act, is fixed for concluding an arbitration proceeding; this period for concluding the proceeding may, of course, be extended by Court; but such extension will not necessarily empower the Arbitrator to allow interest for a period beyond four months, unless the Arbitrator finds that the debtor or the person from whom money is due, has deliberately prolonged the arbitration proceeding. In other words, the Arbitrator may allow interest pendente lite for a period beyond four months if the prolongation of the proceeding is caused by circumstances beyond his control. Again, to avoid any controversy, the period for pendente lite interest will start from the date on which the Arbitrator enters upon the arbitration proceedings and end on the day the award is made.
(c) As to interest for the future, that is, from the date of the award till realisation of the money, though section 29 of the Arbitration Act did not give the Arbitrator this power, he may allow interest on his award till realisation on the same analogy to Court’s power. This will be in accord with justice and fairness.
19. Thus the question raised in Civil Appeal No. 43 of 1993 is answered. But whether the respondents are entitled to interest under the principles (b) and (c), as described above, on the facts and circumstances of this case, we shall see to it after we consider whether the award itself for the principal sum for compensation is liable to be set aside on the grounds urged in the other Appeal (CA No. 44 of 1993).
20. In this appeal the appellants are contending that the dispute as to interest was not arbitrable and the Arbitrator had no jurisdiction to award interest on the compensation or damage for the stoppage of the work. It is contended that the claim to interest was never a dispute between the parties. Under the arbitration clause (clause 17) of the Agreement not all disputes were referable to an Arbitrator; under this clause only that dispute “which cannot be amicably settled by negotiation” which can be referred to the Arbitrator. Learned Counsel for the appellants contends that even in their notice demanding a reference the respondents did not state that interest would be claimed on the amount of their bills, and as such, the arbitration proceeding was without jurisdiction. But on perusal of the correspondence between the parties and their conduct, we do not think that the appellants’ contention is correct for, when the entire claim for the sum of Taka 15 lac and odd, as compensation or unliquidated damage, was disputed, any interest thereon was necessarily a matter of dispute. We, therefore, do not find any substance in this contention.
21. The award has been challenged on the ground of limitation also. there is no dispute that in the case of any reference to an Arbitrator the provisions of the Limitation Act will apply and that the period of limitation for this reference is three years. Mr. Syed Ishtiaq Ahmed contends that there are two separate parts of the contractors’ claim. One part relates to the unliquidated damage for temporary breach of the contract, (i.e. suspension of the work), which ceased on 20.3.83, but the notice for the reference to arbitration was given on 21.9.87; as such, it was clearly barred under Article 115 of the Limitation Act. The other part of the claim was for payment of the work done. This claim was made on 1.7.84, whereas the notice for the reference was given on 21.9.87 that is, beyond the period of three years. Learned Counsel contends that the Arbitrator as well as the Courts below erroneously held that both these claims were to be taken as one. The Arbitrator rejected this contention and found that the limitation would start from 20.11.84, when the appellants (BADC) by their letter Annexure?S informed the respondents that their claim was not entertained as a whole and advised the respondents to receive a reduced amount of the bill subject to “protest if any”. The Courts below also concurred in this finding, which we find correct. As such, the contention as to limitation is rejected.
22. Lastly, the award in respect of the compensation has been sought to be set aside under section 33, read with section 30 of the Arbitration Act, on the ground that it was based on “no evidence”. It has been contended before us that no witness was examined and no other evidence was also recorded in support of the claim of the respondents and that when the BADC, in their written objection to the Arbitrator, disputed the claim onus was upon the claimants to adduce evidence to prove their claim. The Arbitrator observed in his award that the lawyer who had appeared before him at the time of hearing of the reference admitted the claim of the first party contractors and did not press for taking any evidence. In these circumstances the claim was accepted by the Arbitrator.
23. Dr. Kamal Hossain, learned Counsel for the respondents, contends that in view of the limited scope of interference by the Court with an award the submission of the appellants’ lawyer to the Arbitrator that he would not contest the claim was quite sufficient for coming to a decision and that non?recording of evidence in this position is not at all an error on the face of the record. Learned Counsel has argued that in a proceeding under section 30 the Court does not sit as a Court of Appeal over the Arbitrator’s award and that when the claims under different items of the work done and damage were not disputed before the Arbitrator at the time of hearing, the Arbitrator’s finding cannot be questioned before the Court on the ground of “no evidence”. He has emphasised the well?recognized principle that an award can be set aside only on the three limited grounds, as specifically described in section 30 of the Arbitration Act and, in this connection, has relied upon this Court’s decision in the case of KM Shafi Ltd. Vs. Government of Bangladesh, (1983) BID (AD) 109. Relevant part of this decision is quoted below:
“The dispute is over a contract and the Arbitrator is a sole judge. Unless the award of the Arbitrator can be assailed on any of the three grounds mentioned in section 33 of the Arbitration Act, the long line of cases show that the Court will not interfere even though courts may take a different view of the interpretation of the particular terms of contract. Ibis is a sound principle. Otherwise such disputes should be brought within the jurisdiction of the civil Court and thereby opening a flood-gate of litigation nullifying the very spirit of the arbitration as mentioned in the Arbitration Act.”
The learned Counsel has also placed reliance on the Privy Council’s decision in Chamsey Bhara Co, Vs. Jibraj Ballo Co. Ltd. (1923) AIR, PC 66, and Lord Halsbury’s observation in Addams Vs. Great North of Scotland RY. (1981) AC 31. A relevant part of the latter is quoted below.
“Where the parties have selected their judge in such cases you have to show a great deal more than a mere error on the part of the arbitrator in the conclusion at which he has arrived before the Court can interfere with his award. The parties have agreed to accept the arbitrator decision upon the question of law as well as his decision upon facts”.
Lastly, Dr. Hossain contends that in the facts and circumstances of the case, as found above, it cannot be said that the Arbitrator misconducted himself in regulating the procedure of the Arbitration matter.
24. On careful consideration of the submissions of Mr. Syed Ishtiaq Ahmed and of Kamal Hossain, we are clearly of the view that there is hardly any scope of Court’s interference with the award which has been found valid all through. Result, therefore, is that this appeal (CA No. 44 of 1993) is dismissed and the award is upheld.
25. Now as to interest, as indicated above, since the Agreement’ between the parties did not provide for payment of interest for the pre?reference period?from 1.7.84 to 30.6.90?the Arbitrator got no authority to allow it. As such this interest is struck off and the Arbitrator’s order to this effect, which was restored by the High Court Division, is set aside. As to interest pendente lite, from 30.6.90 the date on which the Arbitrator entered upon the proceeding, to 20.9.90 the date on which he gave his award, this is allowed and his order in this respect is modified. As to interest from the date of the award till realisation of the money thereunder, though it is permissible and within the power of the Arbitrator, but in the circumstances of the case, we do not think that this interest should be allowed to the respondents. The award was filed in Court for making it a rule of the court by passing a decree. Any interest from the date of the decree till realisation may be allowed only by the Court under section 29 of the Arbitration Act. In other words, the learned Subordinate Judge, in his discretion, could have allowed interest from the date of the decree till realisation of the money thereunder. This period partially coincides with the period from the date of the award till realisation. Therefore interest from the date of the award fill realisation, when the award has been brought to the court, falls within the court’s discretion. In this case, the learned Subordinate Judge, having not allowed any interest fill realisation the respondents are not entitled to it. The order of the High Court Division as to interest for this period i.e. from the date of award till realisation, is set aside. The respondents will now get interest pendente lite only as described above.
26. Appeal No. 43 of 1993 is thus allowed in part in these terms. There will be no cost for either of these appeals.
Latifur Rahman J.- I am writing this judgment agreeing with the main judgment of my Lord the Chief Justice as in the case of Md. Younus & Brothers Ltd. Vs. University of Chittagong, 44 DLR (AD) 296, Held that in an appropriate case the authority of an Arbitrator to award interest may be considered. The present case appears to me to be the most appropriate case as in this case the Arbitrator has awarded interest for three different periods, namely-
(i) From the period commencing from the date of dispute till entering into reference by the arbitrator;
(ii) From the date of reference till the date of making the award;
(iii) From the period of the date of award till the date of the realisation.
28. There is no need to restate the facts of the case as the same has been narrated in the main judgment. Broadly speaking, a work was given to the respondent?contractor by the appellant?BADC under a contract for construction of a low cost fertilizer warehouse and ancillary building at Tepakhola, Faridpur. The said contract contained an Arbitration clause (clause 17) and the dispute was referred in accordance with that clause to the Arbitrator and consequently the award.
29. In this case; the sole Arbitrator awarded a sum of Taka. 20,40,712.06 to the Contractor -respondent to be recovered from appellant, (BADC) with an interest of 16% thereon from 1.7.84 till the date of realisation. The trial Court modified the award by deleting the interest on the recoverable amount as awarding of the interest according to it appeared to be an error apparent on the face of the record. The learned Judges of the High Court Division set aside the judgment of the Subordinate Judge and restored the interest as awarded by the Arbitrator and held that the Arbitrator derived his power impliedly from the very submission to him to arbitrate and the power of the Arbitrator to award interest is not excluded.
30. Mr. Syed Ishtiaq Ahmed, learned Advocate appearing for the appellant, submits that in the instant case the arbitrator has awarded pre?reference interest, interest during the pendency of the Arbitration proceeding and interest after making of the award till realisation of the same which he is not legally authorised to do.
31. In view of his submission, the pertinent question comes up for consideration, as to whether, the Arbitrator could award interest during these 3 periods under the law.
32. In the present case, the contract does not provide either for grant or denial of interest on the amount due and consequently, the question arises whether in such a case the Arbitrator has the power or authority to grant interest pending the Arbitration proceeding.
33. So far the question of awarding pre?reference interest by the Arbitrator, it can be said following our decision in the case of Sonali Bank Vs. Karnafully Works Ltd, in Civil Appeal No. 46 of 1991, that the Arbitrator has no power to award interest for the said pre?reference period as it is a matter purely of substantive law, usage or agreement. Hence I have no hesitation in holding that the interest as awarded by the sole arbitrator for the pre?reference period must be rejected in this cage. The decisions of Privy Council and of Indian jurisdiction cited at die Bar are also of the same view that the Arbitrator has no power to award interest for the pre?reference period.
34. In deciding the question of Arbitrator’s power to award interest pendente lite it can be said that the Arbitrator is an alternative forum for resolution of disputes. In a court of law the proceeding is time consuming. In commercial transactions, if the proceeding in court is avoided then the parties can easily and quickly settle the matter outside the court by taking, recourse to arbitration. The question necessarily arises as to whether the arbitrator before whom the entire dispute is placed by the parties can award pendente lite interest as the arbitrator is in fact adjudicating on the dispute as the Court could have decided the matter. In broad sense, Arbitration is a substitute by consent of a domestic tribunal for the civil Court where a dispute of a civil nature could be adjudicated. It is an alternative to litigation in court and includes provisions which are lawful but cannot oust jurisdiction of the court completely. In the field of modern international trade and commerce all advanced countries of the world have given due importance to the efficacy of such Arbitration proceeding as the procedure is simple, convenient, cheap and the result of the proceeding is much less time consuming than a procedure in a court of law. It is to be kept in mind that in our Arbitration Act there is no provision for the Arbitrator to award interest nor there is any statute authorising the Arbitrator as Arbitrator to award interest. The question of interest arises in two ways firstly, the arbitrator derives his authority to decide the dispute under the agreement or consent of the parties. If, in the agreement it is stated the interest is to be given from a point of time then the arbitrator will have no difficulty in awarding interest from that period as the parties agree. Secondly, though the Arbitration Act does not speak of awarding of interest, but as the arbitrator adjudicates on a matter which could well be adjudicated by a court of law he derives his authority from the implied power of the Court to award interest, which one may call interest, compensation or damages. Section 34 of the Code of Civil Procedure shows that a court has got the power to award interest during the period in which the suit remains pending and the period from the date of decree till the payment of the decretal amount. Section 34 of the Code does not in terms apply to an arbitration proceeding as the Arbitrator is not a civil Court. But it is undeniable that the arbitrator though not a civil Court, but sits as an alternative forum for resolution of the disputes brought by the parties before him and in that sense arbitrator impliedly possesses the power of section 34. The principle of section 34 of the Code of Civil Procedure applies by way of analogy to an arbitrator who decides a matter in dispute completely and fairly between the parties.
35. The decision of the constitution Bench of Six Judges of the Indian Supreme Court is the case of Secretary, Irrigation Department, Government of Orissa and others Vs. G C Roy, (AIR 1992 (SQ 732). In that reported decision the main question for consideration was whether the arbitrator had jurisdiction to award pendente lite interest. It has been observed in that decision after elaborate discussion of various decisions of different jurisdictions at paragraph 45 as under:
“Where the agreement between the parties I does not prohibit grant of interest and where a I party claims interest and that dispute (along with the claim for principal amount or 1; independently) is referred to the arbitrator, he shall have the power to award 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.”
36. In the above decision at paragraph 46 it has been further observed as follows:
“For the reason aforesaid we must hold that the decision in Jena (AIR 1988 (SC) 1520), in so far it runs counter to the above proposition, did not lay down correct law.”
(In AIR 1992 Supreme Court?732), the only question for consideration was, the period from entering upon reference till the date of making of the award i.e. (Pendente lite interest). In Jena (AIR 1988 (SQ 1520) two questions were mooted, namely, (i) interest prior to entering upon reference by the Arbitrator i.e. Preference interest, and (ii) Pendente lite interest during Arbitration proceeding. Following the ratio decidendi of the case of AIR 1992 (SQ 732, 1 hold that the Arbitrator has got the power to grant pendente lite interest. Various ‘decisions have been cited at the Bar from different jurisdictions, but I do not like to burden my judgment as those have been noticed in the main judgment. It is found from those decisions that uniformly it has been held by English courts, the courts of India, the courts of Australia that pendente lite interest can be granted by the Arbitrator. Hence, keeping the principle of section 34 of the Code of Civil Procedure, I find that the Arbitrator has got the implied authority to award pendente lite interest in commercial transaction as a party is deprived of his good money for non?payment by the other party during which period it remains outstanding.
37. Now remains the question of granting interest from the time the award is made the Rule of the Court and the decree is passed. Section 29 of the Arbitration Act reads as follows-
“Interest on awards.-
Where and in so far as an award is for the payment of money the Court may in the decree order interest from the date of the decree at such rate as the court deems reasonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree.”
This section gives specific power to the court to award interest from the date of decree. This section shows that if the award is for the payment of money the court may grant interest from the date of the decree and with regard to the rate of interest the court has a discretion to allow such interest by an order as the court considers reasonable. In section 2(c) under the Arbitration Act, “Court means a civil Court having jurisdiction to decide the question forming the subject?matter of a suit, but does not, except for the purpose of arbitration proceedings under section 21, include a Small Cause Court”. Strictly speaking in an arbitration proceeding where the court decides to grant interest it can do so only under section 29 of the Act and not under section 34 of the Code of Civil Procedure. Section 29 of the Act simply gives power to the court to grant interest only from the date of the decree.
38. This section of the Arbitration Act of 1940, is based on the provisions of section 11 of the (English) Arbitration Act, 1934 which runs as follows:
“A sum directed to be paid by an award shall unless the award otherwise directs, carry interest as from the date of award and at the same rate as a judgment date.”
in accordance with the analogous provision in the Civil Procedure Code, the Court is empowered under this section to fix the rate of interest from the date of the decree. Section 20 of the (English) Arbitration Act, 1950 is the same as section 11 of the (English) Arbitration Act, 1934. Under this section an arbitrator may award interest by virtue of the implied authority conferred on him. Section 29 gives specific power to the court to grant interest from the date of decree on the principal sum adjudicated by the award and confirmed by the decree. In the Arbitration Act there is no provision which confers power on the Court to grant interest prior to the date of the decree by the Court itself. Hence on the basis of section 29 of the Act it is palpably clear that in the instant case the Arbitrator could not grant future interest beyond the date of passing of the award. This part of the award about further interest was beyond the powers of the Arbitrator because it is only the Court which could award interest. But if in a given case the arbitration agreement or the contract itself provides for award of interest on the amount found due from one party to the other till the date of realisation, no question for absence of arbitrator’s jurisdiction to award interest can arise in that case as the parties agree to award such interest till the date of realisation. The parties may confer more or additional powers on the arbitrator by consent or agreement. It is the agreement which is the foundation of the power to the arbitrator. Hence in this case the Arbitrator had no jurisdiction to grant interest beyond the date of the decree as the power to grant interest after passing of the decree vests exclusively in the court under section 29 of the Act.
Ed.
Source: 46 DLR (AD) (1994) 97