1. Appeal against High Court order restoring pre-reference interest in arbitration award under public works contract. (Para 1 , 2 , 3 , 4 )
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2026 Supreme(SC) 1166
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, ALOK ARADHE, JJ.
North Eastern Electric Power Corporation Limited (NEEPCO) – Appellant
Versus
Astra Construction Private Limited – Respondent
Civil Appeal No. 13081 of 2026 (@ Special Leave Petition (Civil) No. 24803 of 2025)
Decided On : 22-09-2026
Important Points
Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, a contractual clause expressly barring interest for both disputed payments and delays in payment constitutes a complete bar, excluding the Arbitral Tribunal's power to award pre-reference and pendente lite interest.
Subject
Arbitration Law - Interest Awards
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 31(7) - Power of Arbitral Tribunal to grant interest - Section 31(7)(a) allows an arbitrator to include interest unless otherwise agreed by the parties - This provision subordinates the statutory power to the parties' bargain; thus, an express bar in the agreement suffices to exclude the power, even where the bar is not specifically addressed to the arbitrator's jurisdiction (Paras 14, 23.4).
(B) Pre-reference and pendente lite interest - Pendente lite interest is a matter of procedural law governed by Section 31(7)(a), whereas pre-reference interest is governed by substantive law and cannot be sourced in Section 31(7)(a) alone; it must be based on an agreement between the parties, a statutory provision, or proof of mercantile usage (Paras 14, 15, 23.6).
(C) Interpretation of contractual bar on interest - Where a contract clause prohibits claims for interest in two separate and independent situations: first, money lying with the corporation owing to a dispute, difference or misunderstanding; and second, any delay in making periodical or final payments, such a clause constitutes a complete bar on the power to award interest, whether for the pre-reference period or pendente lite (Paras 19, 20).
Facts of the case:
An agreement was executed for civil works of a power project. Following disputes, an Arbitral Tribunal awarded a principal sum alongside pre-reference interest at 12% per annum and pendente lite and future interest at 9% per annum. The Commercial Court modified the award, setting aside the interest based on a clause in the General Conditions of Contract (GCC) that barred interest claims for money held due to disputes or delays in payment. The High Court restored the interest, holding that the bar was confined to money held up owing to a dispute and did not extend to interest arising purely from delay.
Findings of Court:
The court found that the relevant clause in the GCC specifically named "delay in payment" as an independent ground for barring interest, distinct from "money lying due to a dispute." This specific drafting expressly shuts out claims for interest arising from delayed payment, regardless of whether there was a dispute.
Issues: Whether the clause in the GCC barring interest for money held due to disputes or delays in payment operates as a complete bar to the grant of pre-reference interest, and whether such a clause is limited only to situations involving disputes.
Ratio Decidendi: The court ruled that by listing "delay in payment" as a separate ground from "dispute, difference or misunderstanding," the contract explicitly excludes any claim for interest arising from delayed payment. Under the 1996 Act, the "unless otherwise agreed" language in Section 31(7)(a) ensures that party autonomy prevails over the arbitrator's discretion to award interest.
Result: Appeal allowed.
(B) Pre-reference and pendente lite interest - Pendente lite interest is a matter of procedural law governed by Section 31(7)(a), whereas pre-reference interest is governed by substantive law and cannot be sourced in Section 31(7)(a) alone; it must be based on an agreement between the parties, a statutory provision, or proof of mercantile usage (Paras 14, 15, 23.6).
(C) Interpretation of contractual bar on interest - Where a contract clause prohibits claims for interest in two separate and independent situations: first, money lying with the corporation owing to a dispute, difference or misunderstanding; and second, any delay in making periodical or final payments, such a clause constitutes a complete bar on the power to award interest, whether for the pre-reference period or pendente lite (Paras 19, 20).
Facts of the case:
An agreement was executed for civil works of a power project. Following disputes, an Arbitral Tribunal awarded a principal sum alongside pre-reference interest at 12% per annum and pendente lite and future interest at 9% per annum. The Commercial Court modified the award, setting aside the interest based on a clause in the General Conditions of Contract (GCC) that barred interest claims for money held due to disputes or delays in payment. The High Court restored the interest, holding that the bar was confined to money held up owing to a dispute and did not extend to interest arising purely from delay.
Findings of Court:
The court found that the relevant clause in the GCC specifically named "delay in payment" as an independent ground for barring interest, distinct from "money lying due to a dispute." This specific drafting expressly shuts out claims for interest arising from delayed payment, regardless of whether there was a dispute.
Issues: Whether the clause in the GCC barring interest for money held due to disputes or delays in payment operates as a complete bar to the grant of pre-reference interest, and whether such a clause is limited only to situations involving disputes.
Ratio Decidendi: The court ruled that by listing "delay in payment" as a separate ground from "dispute, difference or misunderstanding," the contract explicitly excludes any claim for interest arising from delayed payment. Under the 1996 Act, the "unless otherwise agreed" language in Section 31(7)(a) ensures that party autonomy prevails over the arbitrator's discretion to award interest.
Result: Appeal allowed.
Legal Category Hierarchy
- arbitration
- contract law
- practice and procedure
Advocates appeared:
For the Petitioner(s): Mr. Tushar Mehta, Solicitor General Mr. Raghavendra P. Shankar, A.S.G. Mr. Karan Lahiri, Adv. Mr. Prateek Arora, Adv. Mr. Neelabh Bist, Adv. Ms. Pallavi Mishra, Adv. Mr. Kanak Grover, Adv. Mr. Digvijay Dam, Adv. Mr. Aman Mehta, Adv. Ms. Pragya Choudhary, Adv. Ms. Nasadiya Singh, Adv. Mr. Kanishka Singh, Adv. Mr. Daksh Aggarwal, Adv. Ms. Anjali Singariya, Adv. Ms. Sonali Jain, AOR
For the Respondent(s): Mr. C. S. Vaidyanathan, Sr. Adv. Mr. Ritin Rai, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Aditya Swarup, Adv. Mr. Hiten Sampat, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Raunak Shankar Aggarwal, Adv. Mr. Vijay Valsan, Adv. Mr. Vinayak Mani, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Prasouk Jain, Adv. Ms. Shalini Nair, Adv. Mr. Rohan Batra, AOR
For the Petitioner(s): Mr. Tushar Mehta, Solicitor General Mr. Raghavendra P. Shankar, A.S.G. Mr. Karan Lahiri, Adv. Mr. Prateek Arora, Adv. Mr. Neelabh Bist, Adv. Ms. Pallavi Mishra, Adv. Mr. Kanak Grover, Adv. Mr. Digvijay Dam, Adv. Mr. Aman Mehta, Adv. Ms. Pragya Choudhary, Adv. Ms. Nasadiya Singh, Adv. Mr. Kanishka Singh, Adv. Mr. Daksh Aggarwal, Adv. Ms. Anjali Singariya, Adv. Ms. Sonali Jain, AOR
For the Respondent(s): Mr. C. S. Vaidyanathan, Sr. Adv. Mr. Ritin Rai, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Aditya Swarup, Adv. Mr. Hiten Sampat, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Raunak Shankar Aggarwal, Adv. Mr. Vijay Valsan, Adv. Mr. Vinayak Mani, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Prasouk Jain, Adv. Ms. Shalini Nair, Adv. Mr. Rohan Batra, AOR
Table of Contents
2. Appellant: Clause bars pre-reference interest. Respondent: clause not raised; clause does not bar interest. (Para 7 , 8 , 9 )
3. Clause 54 bars interest for delayed payment unconditionally, unlike clause in Harish Chandra; Sayeed Ahmed line governs. (Para 14 , 15 , 18 , 19 , 20 , 21 )
4. A contractual bar on pre-reference interest is effective when clause explicitly covers delay in payment, not just disputed amounts. (Para 18 , 19 , 20 , 23 )
5. Appeal allowed; High Court judgment restoring pre-reference interest set aside. (Para 23 , 24 )
6. What is the test for a contractual clause to bar an arbitrator from awarding pre-reference interest under the 1996 Act?
The clause must expressly exclude interest, and under Section 31(7) the parties' agreement governs; strict construction under 1940 Act does not apply. (Para 14 , 15 , 23 )
7. How does Clause 54 of the GCC differ from the clause in Harish Chandra?
Harish Chandra clause barred interest only on money held due to dispute; Clause 54 separately bars interest on delayed payment even without any dispute. (Para 18 , 19 )
8. Does a contractual bar on interest need to specifically address the arbitrator's jurisdiction to be effective under the 1996 Act?
No, an express bar in the agreement suffices to exclude the arbitrator's power under Section 31(7)(a), even if not addressed to the arbitrator. (Para 14 )
9. What is the legal distinction between pre-reference and pendente lite interest under the 1996 Act?
Pendente lite interest is procedural, governed by Section 31(7)(a). Pre-reference interest is substantive, based on agreement, statute, or usage. (Para 15 )
JUDGMENT :
Alok Aradhe, J.
1. Leave granted.
2. This appeal calls in question the judgment dated 19.06.2025 rendered by the High Court1[High Court of Meghalaya at Shillong], whereby the appeal preferred by the respondent under Section 37 of the Arbitration and Conciliation Act, 1996 (1996 Act) was allowed and the grant of pre-reference interest by the Arbitral Tribunal, earlier disallowed by the Commercial Court, was restored. The controversy, though narrow in compass, bears materially upon public works contracts generally, and turns upon the true meaning of Clause 54 of the General Conditions of Contract (GCC) governing the parties' agreement, and upon whether the said clause corresponds, in substance, to the clause construed by a three-Judge Bench of this Court in State of U.P. v. Harish Chandra and Co. , (1999) 1 SCC 63 or, instead, to the clauses considered in the later line of authority commencing with Sayeed Ahmed & Company v. State of U.P. & Ors., (200G) 12 SCC 26.
FACTS
3. The facts, shorn of unnecessary detail, may be briefly noticed. On 12.06.1995, the appellant invited tenders for the civil works of the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura. The respondent's tender was accepted, and a formal agreement was executed between the parties on 23.05.1996. The estimated value of the work under the contract was Rs. 17,09,26,913/- (Rupees Seventeen Crore Nine Lakhs Twenty-Six Thousand Nine Hundred and Thirteen only), and the work was stipulated to be completed by 26.03.1997.
4. Disputes having arisen between the parties, the matter was referred to arbitration. The Arbitral Tribunal, by its award dated 05.06.2015, held that the delay in execution of the project was attributable to the appellant. Four claims preferred by the respondent were allowed, and a principal sum of Rs. 3.30 crores was awarded. The Tribunal further awarded pre-reference interest at the rate of 12% per annum on each of the claims, together with pendente lite and future interest at the rate of 9% per annum.
5. The appellant assailed the award before the Commercial Court under Section 34 of the Act. The Commercial Court, by its judgment dated 15.02.2024, placed reliance on the decision of this Court in Sayeed Ahmed (supra), and held that Clause 54 of the GCC bars the grant of interest, whether pre-reference or pendente lite. The award was modified accordingly, and the grant of pre-suit and pendente lite interest on claim nos. 2, 3, 4 and 5 was set aside as being contrary to Clause 54 of the GCC read with Section 31(7) of the Act, the award being otherwise upheld.
6. Aggrieved, the respondent preferred an appeal under Section 37 of the 1996 Act. The High Court, by the impugned judgment, relying upon Harish Chandra (supra), held that the clause considered therein was identical to Clause 54 of the GCC; that the bar under Clause 54 was confined to interest claimed on money or balances held up owing to a dispute; and that it did not extend to interest on any other head of claim, including interest upon an award itself. The High Court accordingly restored the award of the Arbitral Tribunal in its entirety.
SUBMISSIONS
7. Mr. Tushar Mehta, learned Solicitor General and Mr. Raghavendra P. Shankar, learned Additional Solicitor General, appearing for the appellant at the outset confined the challenge to that part of the impugned judgment which restores the grant of interest for the pre-reference period. He submitted that the plea that Clause 54 bars interest for the pre-reference and pendente lite period was specifically raised before the Arbitral Tribunal, and that the High Court erred in relying upon Harish Chandra (supra), a decision rendered under the Arbitration Act, 1940 (1940 Act), without appreciating that the question stood authoritatively settled, in the context of the 1996 Act, in Sayeed Ahmed (supra) and Jai Prakash Associates Limited v. Tehri Hydro Development Corporation Limited (THDC-I), (2012) 12 SCC 10, a
