In a significant judgment delivered on September 2, 2025, the Hon’ble Supreme Court of India addressed the crucial question of whether contractual clauses can limit an arbitrator’s power to award interest during the pendency of arbitration proceedings. In Oil and Natural Gas Corporation Ltd. v. M/s G & T Beckfield Drilling Services Pvt. Ltd.¹, the Apex Court clarified the legal position regarding contractual bars on interest payments and their effect on an arbitrator’s statutory powers under the Arbitration and Conciliation Act, 1996 (“1996 Act”). This judgment provides important guidance on interpreting contractual clauses that attempt to restrict the payment of interest on delayed or disputed payments.

BACKGROUND OF THE CASE

A dispute arose between Oil and Natural Gas Corporation Ltd. (“ONGC”) and M/s G & T Beckfield Drilling Services Pvt. Ltd. (“G & T Beckfield”) concerning unpaid amounts under several invoices. A three-member Arbitral Tribunal, by its award dated 21.11.2004, directed ONGC to pay USD 6,56,272.34 to G & T Beckfield. Additionally, the Ld. Tribunal awarded interest at 12% per annum from 12.12.1998 (the date of affirmation of the statement of claim) until realization of the amount, along with costs of Rs. 5 lakhs.

Aggrieved by the award, ONGC filed an Application² under Section 34 of the 1996 Act before the Ld. District Judge, Sivasagar, seeking to set aside the award. Among other grounds, ONGC contended that Clause 18.1 of the agreement barred payment of interest on the claim. Vide order dated 15.11.2007, the Ld. District Judge allowed the application, citing two grounds:

1. the award was non-reasoned and violated Section 31(3) of the 1996 Act, and
2. objection under Section 16(2) of the 1996 Act was neither rejected prior to proceeding further nor considered in the final award.

G & T Beckfield preferred an appeal³ under Section 37(1)(c) of the 1996 Act before the Gauhati High Court. The Hon’ble High Court allowed the appeal, set aside the order of the Ld. District Judge and upheld the arbitral award in its entirety. ONGC thereafter approached the Hon’ble Supreme Court, which issued notice confined to the question of whether interest at 12% per annum on the total awarded amount from 12.12.1998 until recovery could be awarded or not.

ISSUES FOR CONSIDERATION

The primary issue before the Hon’ble Supreme Court was whether Clause 18.1 of the agreement between the parties proscribed the payment of pendente lite interest (interest during the pendency of proceedings) on the sum awarded. The Hon’ble Supreme Court had to determine whether the arbitral tribunal could award interest for the period between the date when the statement of claim was affirmed (12.12.1998) and the date of the award (21.11.2004).

SUBMISSIONS OF THE PARTIES

Appellant’s Submissions

1. ONGC (appellant) relied on Clause 18.1 of the agreement, which stated the following:

“No interest shall be payable by ONGC on any delayed payment/disputed claim.”

2. The appellant argued that Section 31(7) of the 1996 Act clearly provides that the power of an arbitral tribunal to award interest for the period between the date the cause of action arose, and the date of the award is subject to the agreement between the parties.
3. Therefore, in view of Clause 18.1, no interest could have been awarded, and the arbitral award was liable to be set aside to the extent it awarded interest.

Respondent’s Submissions

1. G & T Beckfield (respondent) contended that Clause 18.1, when read as a whole, only prevented payment of interest by ONGC for amounts that were under dispute, but did not prohibit the arbitral tribunal from awarding interest after determination of liability.
2. It was highlighted that the arbitral tribunal had not awarded interest for the pre-reference period but only from the date the claim was affirmed before the tribunal.
3. The respondent argued that once it was found that the balance amount on the invoices was unjustifiably withheld, payment of interest was lawful.

SUPREME COURT’S ANALYSIS AND FINDINGS

1. Legal Framework for award of interest

The Hon’ble Supreme Court began by examining Section 31(7) of the 1996 Act, which deals with the award of interest when an arbitral award is for the payment of money. This provision has two clauses:

• Clause (a) deals with interest for the period between the date on which the cause of action arose and the date of the award. This power is subject to the agreement between the parties. If the contract expressly excludes payment of interest, the tribunal cannot grant it. Such a waiver of interest is valid under Section 28 of the Contract Act. If the agreement is silent, the tribunal may award interest.
• Clause (b) deals with post-award interest, which is not subject to agreement between the parties and parties cannot contract out of post-award interest. The tribunal may specify the rate of interest and if it does not, the statutory rate (18% p.a., pre-2015 amendment) applies automatically.

The Hon’ble Supreme Court clarified that an arbitral tribunal has jurisdiction to award interest for three distinct periods: pre-reference, pendente lite, and future (post-award). While the award of pre-reference and pendente-lite interest is subject to the agreement between parties, post-award interest is statutorily governed and not subject to contractual limitations.

2. Rate of interest is reasonable

The rate of interest awarded was 12% per annum which was reasonable being lower than the statutorily prescribed rate then prevalent under Section 31(7)(b) of the 1996 Act.

3. Interpretation of Clause 18.1

The Hon’ble Supreme Court then analyzed Clause 18.1 of the agreement, which stated:

“Corporation agrees to arrange remittance of payment under this contract within 30 days from the date of receipt of invoice from contractor duly certified by the authorized representative of the Corporation subject always to Corporation’s right to require contractor to furnish it with satisfactory evidence of the validity and prior payment by Contractor of all labor and material incurred by Contractor and charged to Corporation. Should corporation question any item or items of an invoice, it may withhold payment of the amount in dispute until such matter is resolved between the parties, but the amount not in dispute is to be paid within above period. No interest shall be payable by ONGC on any delayed payment /disputed claim.”

To determine whether this clause barred the award of pendente lite interest, the Hon’ble Supreme Court reviewed several precedents dealing with contractual bars on interest payments.

Case Name	Key Principles Established
Irrigation Department, State of Orissa v. G.C. Roy4	Where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award pendente lite interest. Where the agreement is silent on grant of interest, the arbitrator shall have the power to award interest pendente lite.
Union of India v. Ambica Construction5 (Ambica First)	The bar to award interest on delayed payment by itself will not be readily inferred as express bar to award pendente-lite interest by the arbitral tribunal. Grant of pendente lite interest may depend upon several factors including phraseology used in the agreement.
Ambica Construction v. Union of India6 (Ambica Second)	The bar to award interest on the amounts payable under the contract would not be sufficient to deny payment of pendente lite interest.
Reliance Cellulose Products Limited v. Oil And Natural Gas Corporation7	A clause merely stating that delay in payment will not make a party liable for interest does not refer to the arbitrator’s power to grant interest.
Sayeed Ahmed & Co. v. State of Uttar Pradesh8	A comprehensive clause that bars interest “in any respect whatsoever” in clear and categorical terms prevents the arbitrator from awarding interest up to the date of the award.
Tehri Hydro Development Corpn. Ltd. v. Jai Prakash Associates Ltd.9 (THDC First)	Clauses that impose a clear bar on either entertainment or payment of interest in any situation of non-payment or delayed payment prevent the grant of pendente lite interest.
Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd.10 (THDC Second)	Reaffirmation that where identical interest-proscribing clauses exist, interest cannot be awarded by the arbitrator.
Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan11	The arbitrator’s power to grant interest depends on contractual clauses in each case and whether they expressly take away the arbitrator’s power to grant pendente lite interest.

The Hon’ble Apex Court distinguished the present case from those where contractual clauses explicitly or by necessary implication barred pendente lite interest. In the matter of Sayeed Ahmed and Co. and THDC First, the interest-proscribing clauses were comprehensive and categorically barred interest. The said interest proscribing clause in Sayeed Ahmed & Co. was in the following terms:

“Clause G. I.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any becoming due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever.”

The Hon’ble Supreme Court observed that a general clause merely barring award of interest on delayed payment would not automatically be inferred as a bar to award pendente lite interest by the arbitral tribunal.

DECISION OF SUPREME COURT

The Hon’ble Supreme Court concluded that Clause 18.1, when read as a whole, did not expressly or by necessary implication proscribe the grant of pendente lite interest by the arbitral tribunal. The clause merely stated that there would be no interest payable by the Corporation on any delayed payment or disputed claim, but it did not bar the arbitral tribunal from awarding pendente lite interest.

The Hon’ble Supreme Court held that Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente lite interest. Consequently, the Hon’ble Supreme Court found no error in the award of pendente lite interest that warranted interference with the award.

Since the post-award interest was also in line with the statutory provision of Section 31(7)(b) of the 1996 Act as was in effect at that time, the Hon’ble Supreme Court dismissed the appeal.

CONCLUSION

This judgment clarifies that to restrict an arbitrator’s power to award pendente lite interest, the contractual clause must explicitly or by necessary implication bar such interest. A general clause prohibiting interest on delayed payments is insufficient to restrict the arbitrator’s statutory powers. This ruling reinforces the principle that limitations on an arbitrator’s power must be clear and unambiguous, providing valuable guidance for drafting contracts and resolving disputes in arbitration proceedings.

Written By: Mitali Umat (Associate)

1 Civil Appeal No. 11324 of 2025

2 Misc. (Arbitration) Case No. 26 of 2005

3 Arb. A 3/2007

4 (1992) 1 SCC 508

5 (2016) 6 SCC 36

6 (2017) 14 SCC 323

7 (2018) 9 SCC 266

8 (2009) 12 SCC 26

9 (2012) 12 SCC 10

10 (2019) 17 SCC 715

11 2025 SCC OnLine SC 708