Supreme Court | Clause Barring Interest on Delayed Payments Does Not Bar Pendente Lite Interest | Arbitral Tribunal Empowered Under S.31(7) Arbitration Act
Kiran Raj
The Supreme Court of India Division Bench of Justice Pamidighantam Sri Narasimha and Justice Manoj Misra dismissed an appeal challenging the award of pendente lite interest under the Arbitration and Conciliation Act, 1996. The Court held that Clause 18.1 of the underlying contract did not bar the arbitral tribunal from granting interest on the awarded sum from the date of filing of the claim until the date of award. The Court affirmed the Gauhati High Court’s judgment, upheld the arbitral award in favour of the contractor, and directed dismissal of the appeal filed by the public sector undertaking.
The dispute arose out of a contractual relationship between a public sector corporation and a private drilling services company engaged in providing equipment and services in the oil and natural gas sector. Pursuant to performance of contractual obligations, the contractor raised multiple invoices against the corporation. These invoices remained unpaid either wholly or partly, leading to invocation of the arbitration clause contained in the contract.
A three-member arbitral tribunal delivered its award on 21 November 2004. The tribunal rejected the preliminary objection of the corporation regarding maintainability and proceeded to allow various claims raised by the contractor. The tribunal accepted claims relating to outstanding invoices numbered 2 through 10, which cumulatively amounted to USD 656,272.34. The claims were admitted largely without interest. The tribunal also directed refund of an improperly deducted performance bond amounting to USD 55,050.
In addition to the principal award, the tribunal held that the contractor would be entitled to interest at the rate of 12 per cent per annum on the aggregate sum from 12 December 1998, being the date of affirmation of the statement of claim, until the date of recovery. The tribunal also awarded litigation costs of INR 5 lakhs in favour of the contractor and dismissed all counter-claims raised by the corporation.
The corporation challenged the award by filing Miscellaneous Arbitration Case No. 26 of 2005 before the District Judge, Sivasagar, under Section 34 of the Arbitration and Conciliation Act, 1996. The objections raised included absence of reasons in the award contrary to Section 31(3) of the Act, and failure of the arbitral tribunal to rule on a jurisdictional objection raised under Section 16(2).
By order dated 15 November 2007, the District Judge set aside the award on two principal grounds: (a) lack of reasons, rendering it contrary to Section 31(3), and (b) non-compliance with Section 16 regarding the objection to jurisdiction. Aggrieved by this decision, the contractor preferred an appeal before the Gauhati High Court under Section 37(1)(c) of the 1996 Act.
On 8 March 2019, the Gauhati High Court allowed the appeal, reversed the District Judge’s decision, and affirmed the arbitral award in its entirety. The High Court restored the award in favour of the contractor, including the grant of pendente lite interest.
The public sector corporation challenged this decision by filing a Special Leave Petition before the Supreme Court of India. On 25 November 2019, while issuing notice, the Supreme Court confined the scope of appeal to the limited question of whether interest at 12 per cent per annum could be awarded from 12 December 1998, the date of affirmation of the claim, until the award. The corporation expressed its willingness to pay the principal sum awarded but disputed liability for pendente lite interest. Execution proceedings were stayed subject to payment of the principal amount.
During the hearing before the Supreme Court, the appellant corporation relied heavily on Clause 18.1 of the contract, which stipulated that the corporation would not be liable for payment of interest on delayed or disputed claims. Counsel for the appellant argued that under Section 31(7)(a) of the 1996 Act, the arbitral tribunal’s discretion to award interest for the pre-award period was subject to the parties’ agreement. Since Clause 18.1 expressly barred interest on delayed or disputed payments, it was contended that the award of pendente lite interest was unsustainable.
The respondent contractor, on the other hand, submitted that Clause 18.1 only prohibited payment of interest on delayed payments at the hands of the corporation during the subsistence of the dispute. It did not restrict the arbitral tribunal’s statutory power to award pendente lite interest once the dispute had been adjudicated. It was argued that the tribunal had consciously not awarded interest for the pre-reference period and had granted interest only from the date of filing of the claim until recovery. According to the respondent, the tribunal’s approach was justified since the sums due under the invoices had been withheld without basis.
The matter thus reached the Supreme Court for determination of the narrow issue: whether Clause 18.1 of the contract operated as a bar against grant of pendente lite interest by the arbitral tribunal.
The Court commenced its analysis by framing the central issue as: “whether clause 18.1 proscribes payment of even pendente lite interest on the sum awarded.” It noted that the arbitral tribunal had declined interest for the pre-reference period but had awarded pendente lite interest from the date the statement of claim was affirmed before the tribunal.
On the scope of Section 31(7) of the Arbitration and Conciliation Act, 1996, the Court recorded: “Clause (a) deals with interest for the period between the date on which the cause of action arose and the date on which the award is made. … arbitral tribunal’s power to award interest for the aforesaid period is subject to the agreement between the parties. … However, if the agreement is silent on award of interest, the arbitral tribunal can award interest in terms of clause (a).”
It further explained that “clause (b) is not subject to an agreement between the parties and, therefore, if the arbitral award is with regard to payment of money, it would carry interest at such rate as the arbitral award directs and if it is not so directed, it would carry statutorily prescribed rate of interest.”
Turning to Clause 18.1 of the contract, the Court reproduced the clause in full, noting the sentence: “No interest shall be payable by ONGC on any delayed payment /disputed claim.” The Court observed that while the clause relieved the corporation from paying interest on delayed or disputed claims during the contract’s operation, it did not explicitly bar the arbitral tribunal from awarding pendente lite interest.
To determine the scope of such contractual clauses, the Court revisited prior precedents. It cited Irrigation Deptt., State of Orissa v. G.C. Roy, where a Constitution Bench had held that if an agreement does not prohibit grant of interest, the arbitrator has power to award pendente lite interest. Similarly, in Union of India v. Ambica Construction (2016), it was held that the bar on delayed payment interest does not automatically translate into a bar on pendente lite interest unless clearly stated.
The Court contrasted these decisions with cases like Sayeed Ahmed & Co. v. State of Uttar Pradesh and Tehri Hydro Development Corporation Ltd. v. Jaiprakash Associates Ltd., where the contractual clauses comprehensively barred interest “in any respect whatsoever.” In those cases, the Court had upheld the prohibition against pendente lite interest.
Applying these principles, the Court stated: “Clause 18.1 … does not expressly or by necessary implication proscribe grant of pendente lite interest by the arbitral tribunal. The clause merely says that there would be no interest payable by the Corporation on any delayed payment / disputed claim. Neither it bars the arbitral tribunal from awarding pendente lite interest nor it says that interest would not be payable in any respect whatsoever.”
It thus concluded: “Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente-lite interest. Consequently, we find no such error in the award of pendente lite interest as may warrant interference with the award.”
The Court also noted that the rate of 12 per cent per annum awarded by the tribunal was lower than the statutory default rate of 18 per cent provided in Section 31(7)(b) at the time, and therefore reasonable.
The Supreme Court dismissed the appeal filed by the corporation. It affirmed the arbitral tribunal’s award of pendente lite interest at 12 per cent per annum from 12 December 1998 until recovery, along with post-award interest as statutorily prescribed.
The Court directed that the arbitral award, as affirmed by the Gauhati High Court, stands valid and binding. It clarified that Clause 18.1 of the contract did not oust the tribunal’s jurisdiction to award pendente lite interest.
The Court recorded its final conclusion in the following terms: “Seen in light of the discussion above, Clause 18.1 … would not limit the statutory power of the arbitral tribunal to award pendente-lite interest. … Since post-award interest is in line with the statutory provision of clause (b) of sub-section (7) of Section 31 as was in vogue then, we find no merit in the appeal, and the same is, accordingly, dismissed.”
All pending applications were also disposed of.
Advocates Representing the Parties
For Petitioner(s): Mr. Tushar Mehta, Solicitor General (NP) Mr. Akshay Amritanshu, AOR Ms. Drishti Saraf, Adv. Ms. Pragya Upadhyay, Adv. Ms. Swati Mishra, Adv.
For Respondent(s): Ms. Bhargavi Kannan, Adv. Ms. Shivani Karmakar, Adv. Ms. Kavya Sarin, Adv. Ms. S. Ambica, Adv. Mr. Hardeep Singh Anand, AOR
Case Title: Oil and Natural Gas Corporation Ltd. v. G & T Beckfield Drilling Services Pvt. Ltd.
Neutral Citation: 2025 INSC 1066
Case Number: Civil Appeal No. 11324 of 2025 (Arising out of SLP (C) No. 18331 of 2019)
Bench: Justice Pamidighantam Sri Narasimha, Justice Manoj Misra
