SUPREME COURT HOLDS CONTRACTUAL CLAUSE CAN BAR ARBITRATOR FROM AWARDING PRE-REFERENCE INTEREST IN PUBLIC WORKS DISPUTE
North Eastern Electric Power Corporation Limited v. Astra Construction Private Limited, 2026 INSC 1036
The Supreme Court, in a judgment delivered by Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe on 22.09.2026, has set aside a Meghalaya High Court judgement that allowed an arbitral award of pre-reference interest in a public works contract dispute. The Court held that Clause 54 of the General Conditions of Contract (GCC) governing the parties barred the grant of such interest and that the Arbitral Tribunal exceeded its jurisdiction under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 in awarding it.
Background
The dispute arose from a 1996 contract between NEEPCO and Astra Construction for civil works on a Gas Turbine Power Project in Tripura. Following delays, the matter went to arbitration. The Arbitral Tribunal’s 2015 Award attributed the delay to NEEPCO, granted the contractor Rs. 3.30 crores on four claims and included pre-reference interest at 12% per annum along with pendente lite and future interest at 9%.
The Commercial Court, relying on Sayeed Ahmed & Company v. State of U.P. (2009) 12 SCC 26, set aside the pre-reference and pendente lite interest component, holding that Clause 54 of the GCC barred it. The High Court, in appeal under Section 37, took the opposite view. Relying on State of U.P. v. Harish Chandra and Co. (1999) 1 SCC 63, it held that Clause 54 was confined to interest on money withheld due to a dispute and did not extend to interest on the award itself. It restored the Tribunal’s award in full.
The Legal Framework
The Judgment traces the evolution of an arbitrator’s power to award interest across the 1940 and 1996 Acts. Under the 1940 Act, which contained no express provision on interest, the Constitution Bench in Secretary, Irrigation Department, Government of Orissa v. G.C. Roy (1992) 1 SCC 508 held that interest was an implied term of the bargain absent a contrary stipulation, and that a contractual bar had to be strict and specific to be effective.
Section 31(7) of the 1996 Act altered this position. Clause (a) empowers the Tribunal to award interest for the period between the accrual of the cause of action and the award, “unless otherwise agreed by the parties.” The Court reaffirmed, following Pam Developments Private Limited v. State of West Bengal (2024) 10 SCC 715, that this qualifying phrase subordinates the Tribunal’s power to party autonomy. An express bar in the agreement now suffices to exclude the power, even where it is not addressed specifically to the arbitrator’s jurisdiction. The Court also reaffirmed the settled distinction that pendente lite interest is procedural, governed by Section 31(7)(a), while pre-reference interest is substantive, sourced in agreement, statute, or mercantile usage rather than Section 31(7)(a) alone.
Construction of Clause 54
The outcome turned entirely on the wording of Clause 54, which bars claims for interest or damages with respect to money or balances held up “owing to any dispute, difference or misunderstanding,” and separately, “with respect to any delay on the part of the Engineer-in-Charge making periodical or final payments,” and further, “in any other respect whatsoever.”
The Court distinguished this from the clause in Harish Chandra, which barred interest only in respect of money withheld due to a dispute in making payments. In that clause, the phrase “in making periodical or final payments” described the circumstance of the dispute rather than creating an independent ground, so a claim for interest on delayed payment unconnected to any dispute fell outside the bar.
Clause 54, by contrast, sets out delay in payment as an independent and additional ground for the bar, joined to the dispute-based ground by “or.” This structural difference, the Court held, is decisive: it brings within the bar precisely the situation that Harish Chandra left untouched, namely delayed payment simpliciter. The Court found this structure identical to the clauses considered in Sayeed Ahmed and Jaiprakash Associates Limited v. Tehri Hydro Development Corporation (India) Limited (2019) 17 SCC 786, both of which had been held to completely bar interest, pre-reference and pendente lite. The Court adopted the same reasoning here.
The Court also rejected the Contractor’s argument that NEEPCO had waived the Clause 54 defence by not raising it before the Tribunal, noting that the plea had in fact been taken in the Statement of Defence filed on 23.08.2012.
Holding
The Supreme Court held that Clause 54 of the GCC bars the grant of pre-reference interest, that the Arbitral Tribunal exceeded its jurisdiction in awarding it and that the High Court erred in equating Clause 54 with the clause in Harish Chandra. The Impugned Judgment was set aside to the extent it restored pre-reference interest. The appeal was allowed, with no order as to costs.
Shomdeepta Chanda
Associate
The Indian Lawyer & Allied Services
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