SC: Arbitral tribunal can grant pendente lite interest unless expressly barred

The Supreme Court has on September 2, 2025 held that an arbitral tribunal can be denuded of its power to award pendente lite interest only if the agreement or contract between the parties is so worded that the award of it is either explicitly or by necessary implication barred.

A bench of Justices P S Narasimha and Manoj Misra explained that 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.

In the case at hand, the court noted Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente-lite interest.

"Consequently, we find no such error in the award of pendente lite interest as may warrant interference with the award. Since post-award interest is in line with the statutory provision of clause (b) of subsection (7) of Section 31 as was in vogue then, we find no merit in the appeal,'' the bench said.

Referring to the law regarding payment of interest by arbitral tribunal, the bench said, if the agreement stipulates that no interest is payable, the arbitral tribunal cannot award interest for the period and an award contrary to the terms of the contract would be vulnerable to a challenge under Section 34 of 1996 Act.

Moreover, such an agreement to waive interest is not ultra vires in terms of Section 28 of the Contract Act, 1872, the court said.

However, if the agreement is silent on award of interest, the arbitral tribunal can award interest in terms of clause (a) of subsection (7) of Section 31. As far as clause (b) of subsection (7) of Section 31 is concerned, it deals with post award interest, the court pointed out.

"In a nutshell, the arbitral tribunal has jurisdiction to award interest for three distinct periods, namely, pre-reference, pendente lite, and future i.e., post-award. Award of pre-reference and pendente-lite interest is subject to the agreement between the parties whereas post award interest is statutorily governed and is not subject to the agreement between the parties. In other words, clause (b) does not give the parties the right to ‘contract out’ interest for the post award period,'' the bench said.

The court here dismissed an appeal from a judgment and order of the Gauhati High Court of March 08, 2019.

The High Court allowed an appeal of the respondent, M/s G & T Beckfield Drilling Services Pvt Ltd under Section 37 of the Arbitration and Conciliation Act, 1996. It set aside the judgment and order of the District Judge, Sivasagar, of November 15, 2007, under Section 34 of 1996 Act and affirmed the arbitral award of November 21, 2004.

The appellant suffered an arbitral award, passed by a three member arbitral tribunal. It sought setting aside the award by taking various pleas including the one that clause 18.1 of the agreement does not allow payment of interest on the claim.

The District Judge allowed the application and set aside the award. The High Court, however, affirmed the arbitral award in toto.

On appeal, the court in 2019 issued notice only to the extent whether interest on the total amount at the rate of 12 per cent could be awarded or not.

Relying on clause 18.1 of the agreement, the appellant contended the arbitral award is liable to be set aside to the extent it awards interest on the amount awarded from the date of the claim up to the date of the award.

The counsel for the respondent submitted that clause 18.1, if read as a whole, would indicate that payment is not to be withheld if the amount is not in dispute.

It is only when there is a dispute, interest is not payable on delayed payment. However, here, the arbitral tribunal has not awarded interest on pre-reference period. It awarded interest not from the date the cause of action arose, but from the date the claim was affirmed before the arbitral tribunal. In such circumstances, once it was found that balance amount on the invoices was unjustifiably withheld, payment of interest is lawful, the counsel said.

In the instant case, the court pointed out, the rate of interest awarded is 12% per annum. This appears reasonable being lower than the statutorily prescribed rate then prevalent under clause (b) of sub-section (7) of Section 31.

The bench also found the arbitral tribunal has awarded interest not from the date of the award (i.e., 21.11.2004), but from 12.12.1998 (i.e., the date when the statement of claim was affirmed before the arbitral tribunal).

The counsel for the appellant contended that the agreement proscribed payment of interest on any delayed payment including disputed claim, therefore, the award of interest for any period before making of the award is illegal.

On the contrary, submission on behalf of the respondent was that the clause does not proscribe payment of pendente lite interest, therefore, the arbitral tribunal has discretion to award interest from the date the statement of claim is affirmed before it.

After hearing the counsel, the bench said, Clause 18.1, which appellant relies upon to canvass that the agreement between the parties proscribes grant of pendente-lite interest, when read as a whole, does not expressly or by necessary implication proscribes grant of pendente lite interest by the arbitral tribunal.

"The clause merely says that there would be no interest payable by the Corporation on any delayed payment / disputed claim. Neither it bars the arbitral tribunal from awarding pendente lite interest nor it says that interest would not be payable in any respect whatsoever,'' the bench said.

Case Title: Oil And Natural Gas Corporation Ltd Vs M/s G & T Beckfield Drilling Services Pvt Ltd

Bench: Justices PS Narasimha & Manoj Misra

Judgment Date: September 2, 2025