Contractor Gets ₹3.30 Crore Award With 12% Pre-Reference Interest; Supreme Court Says Contractual Bar on Delayed-Payment Interest Overrides Arbitrator’s Power
High Court Restores Contractor’s 12% Interest on Arbitral Claims; Supreme Court Reverses, Says Clause 54 Completely Bars Pre-Reference Interest
Facts
The dispute arose between North Eastern Electric Power Corporation Limited (NEEPCO) and Astra Construction Private Limited concerning civil works for the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura.
NEEPCO invited tenders on 12 June 1995. Astra’s tender was accepted and the parties executed an agreement on 23 May 1996. The estimated contract value was approximately ₹17.09 crore, and the work was scheduled for completion by 26 March 1997.
Disputes subsequently arose and were referred to arbitration. The Arbitral Tribunal, by an award dated 5 June 2015, held NEEPCO responsible for the delay and allowed four claims of Astra, awarding approximately ₹3.30 crore as principal.
In addition, the Tribunal awarded:
- 12% per annum pre-reference interest on each claim; and
- 9% per annum pendente lite and future interest.
NEEPCO challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.
The Commercial Court held that Clause 54 of the General Conditions of Contract barred interest, and accordingly set aside the pre-suit and pendente lite interest while otherwise maintaining the award.
The Meghalaya High Court reversed that conclusion. Relying on State of U.P. v. Harish Chandra & Co., it held that Clause 54 only prohibited interest on money withheld because of a dispute and did not prohibit interest on other claims. It therefore restored the arbitral award in its entirety.
NEEPCO approached the Supreme Court, ultimately confining its challenge to the restoration of pre-reference interest.
Issues
The central issue was whether Clause 54 of the GCC contractually prohibited the Arbitral Tribunal from granting pre-reference interest.
The Court also had to decide whether Clause 54 was comparable to the narrower clause considered in Harish Chandra, or instead resembled the broader no-interest clauses considered in Sayeed Ahmed and Jaiprakash Associates/THDC.
Appellant’s Arguments
NEEPCO argued that the High Court had wrongly relied upon Harish Chandra, which arose under the Arbitration Act, 1940.
It contended that under the Arbitration and Conciliation Act, 1996, Section 31(7)(a) expressly makes the arbitrator’s power to grant interest subject to what the parties have agreed.
According to NEEPCO, Clause 54 expressly prohibited claims for interest not merely where money was withheld because of a dispute but also where there was delay in making periodical or final payments.
Respondent’s Arguments
Astra argued that NEEPCO had not raised Clause 54 before the Arbitral Tribunal and had therefore waived its right to rely upon it.
It further contended that the High Court had correctly applied Harish Chandra.
The intervenors similarly argued that Clause 54 did not prohibit pre-award interest on every kind of claim. According to them, the prohibition should be confined to interest on money or balances lying with NEEPCO rather than extending to other claims such as damages.
Analysis of the Law
The Supreme Court drew an important distinction between the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996.
Under the 1940 Act, there was no express statutory provision empowering arbitrators to award interest. Courts therefore recognised an implied power to award interest unless the agreement specifically prohibited it.
The 1996 Act materially changed the position.
Section 31(7)(a) begins with the words:
“Unless otherwise agreed by the parties…”
Therefore, the arbitrator’s statutory power to award interest is expressly made subject to party autonomy and the contractual bargain.
An express contractual prohibition on interest can consequently restrict the Tribunal’s power.
The Court further clarified an important distinction:
Pendente lite interest is treated as a matter of procedural law governed by Section 31(7)(a), whereas pre-reference interest is governed by substantive law and cannot be sourced from Section 31(7)(a) alone.
Precedent Analysis
State of U.P. v. Harish Chandra & Co.
The High Court had treated the contractual clause in Harish Chandra as identical to Clause 54.
The Supreme Court disagreed.
The clause in Harish Chandra essentially prohibited interest on money withheld because of a dispute or misunderstanding. It did not separately and independently prohibit interest simply because payment was delayed.
Sayeed Ahmed & Company v. State of U.P.
The contractual clause considered in Sayeed Ahmed separately covered delay in making periodical or final payments.
That wording created a broader prohibition and therefore prevented an arbitrator from awarding interest within the scope of the contractual bar.
Jaiprakash Associates / THDC
The Supreme Court found Clause 54 materially similar to the provision considered in the THDC line of cases.
Those decisions recognised that where the contract independently prohibits interest for delayed payments, the arbitrator’s power is contractually restricted.
Pam Developments
The Court reiterated the distinction between the 1940 and 1996 statutory regimes and the significance given to party autonomy under Section 31(7).
Under the 1996 Act, an express contractual bar can prevent the award of pre-reference and pendente lite interest even where the provision is not framed specifically as a restriction upon the arbitrator’s jurisdiction.
Court’s Reasoning
1. Exact Wording of Clause 54 Was Decisive
Clause 54 stated that no claim for interest or damages would be entertained concerning money lying with NEEPCO due to a dispute “or with respect to any delay on the part of the Engineer-in-Charge making periodical or final payments or in any other respect whatsoever.”
The Court treated the words relating to delay in payment as crucial.
2. Clause 54 Creates Two Independent Prohibitions
The first part concerns money or balances withheld because of a dispute, difference or misunderstanding.
But the clause then uses “or” and introduces a second independent category:
delay by the Engineer-in-Charge in making periodical or final payments.
Therefore, the interest bar was not restricted to disputed amounts. It separately covered delayed payments even where there was no dispute about the underlying amount.
3. Harish Chandra Was Distinguishable
This drafting distinction was decisive.
The Supreme Court explained that although the two clauses appeared similar at first sight, they did not have the same legal effect.
The Harish Chandra clause did not independently identify delayed payments as a separate category. Clause 54 did.
Accordingly, the Court said that the difference in wording “makes all the difference in law.”
4. Contractual Bar Bound the Arbitrator
Since the parties had expressly agreed that interest would not be payable in respect of delayed payments, the Tribunal could not disregard that contractual allocation.
The Court held that Clause 54 therefore barred pre-reference interest.
5. Waiver Argument Rejected
Astra’s contention that NEEPCO had waived Clause 54 by failing to raise it before the Tribunal was factually incorrect.
The record showed that NEEPCO had specifically invoked the clause in its Statement of Defence dated 23 August 2012 before the Arbitral Tribunal.
Conclusion
The Supreme Court held that Clause 54 expressly barred pre-reference interest and that the Arbitral Tribunal exceeded the permissible bounds of its jurisdiction by granting such interest.
The Meghalaya High Court had incorrectly equated Clause 54 with the narrower clause considered in Harish Chandra.
Accordingly, the Supreme Court set aside the High Court judgment only to the extent that it restored pre-reference interest. The appeal was allowed with no order as to costs.
Case Details
Case: North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited
Court: Supreme Court of India
Case: Civil Appeal arising out of SLP (Civil) No. 24803 of 2025
Citation: 2026 INSC 1036
Bench: Justice Pamidighantam Sri Narasimha & Justice Alok Aradhe
Judgment by: Justice Alok Aradhe
Date: 22 September 2026
Result: Appeal allowed; High Court order set aside insofar as it restored pre-reference interest.
