Agreement Clause Barring Interest On Delayed Payments Does Not Bar Pendente-Lite Interest, Supreme Court Holds

A bench of Justices Pamidighantam Sri Narasimha and Manoj Misra heard an appeal by Oil and Natural Gas Corporation Ltd. against a Gauhati High Court judgment that had affirmed an arbitral award in favour of a contractor; the hearing was confined to the limited question whether pendente-lite interest at 12% from 12.12.1998 could lawfully be awarded. The Court examined whether clause 18.1 of the parties’ contract — which stated, “No interest shall be payable by ONGC on any delayed payment / disputed claim” — effectively proscribed the arbitral tribunal from awarding interest for the pre-award and pendente-lite periods.

The Court held that an arbitral tribunal could be deprived of the power to award pendente-lite interest only if the contract expressly or by necessary implication barred such an award, and that a clause merely barring interest on delayed payment would not, by itself, readily be inferred to oust that jurisdiction. The Court observed that the rate of 12% awarded by the tribunal was reasonable and that post-award interest was governed by statute. The Court, in its reasoning, observed: “On a careful analysis of the decisions discussed above, we are of the view that arbitral tribunal can be denuded of its power to award pendente lite interest only if the agreement/ contract between the parties is so worded that the award of pendente lite interest is either explicitly or by necessary implication (such as in the case of Sayeed & Co. (supra) and THDC First (supra)) barred. A clause merely barring award of interest on delayed payment by itself will not be readily inferred as a bar to award pendente-lite interest by the arbitral tribunal.” Applying that principle to clause 18.1, the Court found no ground to interfere with the arbitral award and dismissed the appeal.

Background: The dispute arose from a three-member arbitral award dated 21.11.2004 in favour of the claimant contractor for a total of US$6,56,272.34 plus interest and costs. The award allowed multiple invoice claims, dismissed counter-claims and directed interest at 12% per annum from 12.12.1998 (the date the statement of claim was affirmed) until payment, together with costs assessed at Rs.5 lakhs. The appellant ONGC moved under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award; the District Judge set aside the award on 15.11.2007 on two principal grounds — that the award was non-reasoned in breach of Section 31(3) and that a Section 16 objection had not been considered prior to continuation — and therefore could not stand. The respondent contractor successfully appealed under Section 37 to the Gauhati High Court, which restored the award.

On special leave the Supreme Court limited notice to the question whether interest from 12.12.1998 at 12% could be awarded; parties confined their submissions to that issue. The appellant relied on clause 18.1 to contend that no interest could be awarded for any period before the award. The respondent submitted that clause 18.1 applied only to disputed invoice items and did not preclude the tribunal from awarding interest from the date the claim was affirmed before it. The Court reviewed earlier precedents, including G.C. Roy, Ambica Construction (First and Second), Sayeed Ahmed & Co., the THDC line of authorities and more recent pronouncements, and reiterated the distinct treatment of pre-reference/pendente-lite interest (subject to agreement) and post-award interest (statutorily governed). Finding that clause 18.1, read as a whole, did not expressly or by necessary implication bar pendente-lite interest, the Court dismissed the appeal and disposed of pending applications.

Case Details: Case No.: Civil Appeal No. 11324 of 2025 (Arising out of SLP (C) No. 18331 of 2019) Case Title: Oil and Natural Gas Corporation Ltd. v. M/s G & T Beckfield Drilling Services Pvt. Ltd. Appearances: For the Petitioner(s): Not indicated in the reported judgment For the Respondent(s): Not indicated in the reported judgment