The Judicial Stance on Contractual Bars and Pendente Lite Interest in Arbitration

In the realm of commercial disputes, debates pertaining to awarding of interest remains constant. For every business that deals with contracts, clauses pertaining to ‘No Interest’ are meticulously drafted to avoid financial liabilities that may arise in future. However, the real test of the clause begins when the claim is before an arbitral tribunal. Recently, the Supreme Court in Oil and Natural Gas Corporation Ltd. v. G & T Beckfield Drilling Services Pvt. Ltd.[1] analysed Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”)[2] to understand the question of whether an arbitral tribunal possesses the power to grant pendente lite interest, when dealing with cases where the contractual clauses disallow the grant of such interest. The analysis of the Court demonstrates that the precise language of the contract is the determinative factor to assess the power of the arbitral tribunal and that the arbitral tribunal cannot override the contract between the parties.

Background

Section 31(7)(a) of the Arbitration Act empowers an arbitral tribunal to award interest at a rate it deems reasonable unless otherwise agreed by the parties. Granting interest during the pendency of a dispute (pendente lite interest) is an essential element relating to arbitration law.

The Appellant, Oil and Natural Gas Corporation Ltd (ONGC) entered a contract for drilling services with the Respondent, M/s G & T Beckfield Drilling Services Pvt. Ltd. Disputes arose between the parties, and the matter was heard before the arbitral tribunal, who passed an award in favour of the respondents directing ONGC to pay sum with interest of 12% p.a. The award was challenged before the District Court of Sivasagar under Section 34 of the Arbitration Act, which had set aside the arbitral award. Thereafter, the High Court of Gauhati allowed the appeal against the decision of the District Court under Section 37 of the Arbitration Act and affirmed the arbitral award. As a result, a Special Leave Petition was preferred by the Appellant before the Supreme Court, on the ground that the arbitral tribunal did not have the jurisdiction to grant awards for pendente lite interest. This was owing to Clause 18.1 of the contract between parties which stated that “No interest shall be payable by ONGC on any delayed payment/disputed payment”. The Supreme Court accordingly examined whether the Clause 18.1 proscribed payment of pendente lite interest on the sum awarded by the arbitral tribunal.

Court’s Analysis and Findings

The Supreme Court affirmed the power of the Arbitral Tribunal to award pendente lite interest in the absence of a contract between parties which explicitly prohibits it. The Court held that Clause 18.1 does not foreclose the grant of pendente lite interest by an arbitral tribunal but bars ONGC from paying interest on any delayed/disputed payment. The Court placed reliance on the following precedents to arrive to its conclusion:

• In Irrigation Deptt., State of Orissa v G.C. Roy[3], it was held that an arbitrator has the jurisdiction to grant pendente lite interest unless the arbitration agreement or the contract between parties explicitly prohibits it.
• The Court in Union of India v Ambica Construction (First)[4] and Ambica[5] Construction v Union of India (Second) held that, where there is an agreement which expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award such an interest. The phraseology of the agreement and the nature claim need to expressly bar the Arbitrator’s power.
• In Reliance Cellulose Products Limited v Oil and Natural Gas Corporation[6] the dispute revolved around clause 16 of the agreement between parties which stated that –

“Our standard terms of payment are within 30 days of receipt of stores and inspection at site. But any delay in payment will not make the Commission liable for any interest”. The court held that the clause did not even obliquely refer to the powers of an arbitrator to grant interest, which fails to constitute a bar on the arbitrator.

• The court in Jai Prakash Associates Ltd. v. Tehri Hydro Development Corpn. Ltd.[7] reaffirmed that the reading of the two clauses of the contract entered by the parties, was sufficient for a clear bar on payment of any interest. The clauses stated that “– The contractor agrees that no claim for interest on damages will be entertained or payable by the Government in respect of any money or balances which may be lying with the Government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the Engineer-in-Charge in making immediate or final payments or in any respect whatsoever.” The phrase “in any respect whatsoever” is an explicit denial of interest where there is a delay.
• Similarly, in Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan[8], the court held that the power of an arbitrator to grant interest depends on the contractual clause which may expressly bar the arbitrator from exercising its powers.

In view of the precedents above, it becomes apparent that it is the language of the clause in the contract which determines whether or not an arbitrator has the power to grant pendent lite interest. The Court insists on a strict exclusion of pendente lite interest in the contract and emphasizes that a broadly worded clause to this effect would not be adequate.

Takeaways

The Supreme Court has reaffirmed the notion that the power of the arbitral tribunal to grant pendente lite interest is contingent upon its statutory obligations under Section 31(7)(a) of the Arbitration Act and the language contained in the contract between the parties. As a result, the Supreme Court upheld the arbitral award and held that Clause 18.1 did not expressly bar the grant of pendente lite interest by the arbitral tribunal, in light of the fact that only an explicit fetter contained in the contractual clause can restrict such powers of the arbitral tribunal.

[1] 2025 SCC OnLine SC 1888.

[2] Arbitration and Conciliation Act, 1996, § 31(7)(a).

[3] (1992) 1 SCC 508.

[4] (2016) 6 SCC 36.

[5] (2017) 14 SCC 323.

[6] (2018) 9 SCC 266.

[7] (2019) 17 SCC 786.

[8] 2025 SCC OnLine SC 708.