The Supreme Court of India has held that an arbitral tribunal has no power to grant pre-reference and pendente lite interest when contractual clauses contain a residuary bar using the phrase “or otherwise.” A Bench comprising Justice Aravind Kumar and Justice Vipul M. Pancholi dismissed an appeal filed by M/s Sharma Enterprises against National Building Construction Corporation (NBCC), ruling that under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, party autonomy reigns supreme and the arbitrator, being a creature of the contract, cannot award pre-award interest contrary to agreed contractual terms.
Background of the Case
The dispute traces its origin back more than three decades to 11 January 1991, when NBCC awarded a sub-contract valued at Rs 9,50,73,603.20 to M/s Sharma Enterprises for executing flooring and cladding works at Vashi Railway Station-cum-Commercial Complex in New Bombay (now Navi Mumbai). The work was to be completed within two years, with the scheduled completion date fixed as 10 January 1993.
The sub-contracted work depended intrinsically on the civil works executed by another civil contractor engaged by NBCC, M/s Mohinder Singh & Co. Owing to delays in the civil works, the appellant could only execute limited portions, though it finished priority platform areas in time for inauguration on 9 May 1992. However, on 22 September 1992, NBCC terminated the contract and subsequently encashed the appellant’s bank guarantees.
After the appellant invoked arbitration under Clause 10 of the Special Conditions of Contract (SCC), NBCC failed to appoint an arbitrator. Following several rounds of litigation, the Supreme Court, on 3 August 2011, appointed a sole arbitrator to adjudicate all claims and counter-claims.
On 28 July 2016, the arbitrator rendered an award holding the termination illegal and wrongful. The tribunal awarded:
- Rs 45,653.15 for executed work under Claim No. 1(a);
- Rs 26,03,465 towards extra items under Claim No. 1(b);
- Rs 2,77,500 for bank guarantee extension charges under Claim No. 2;
- Rs 19,01,480 towards refund of encashed bank guarantees under Claim No. 3;
- Rs 5,00,000 as litigation costs under Claim No. 6; and
- Interest at 10% per annum under Claim No. 7 on all awarded sums (except costs) from 22 September 1992 until actual payment, covering pre-reference, pendente lite, and post-award periods.
While the Supreme Court in 2021 settled that the arbitration was governed by the 1996 Act, NBCC challenged the award under Section 34 before the Delhi High Court. On 19 November 2025, a Single Judge upheld the substantive claims but set aside the pre-reference and pendente lite interest, citing the bar under Clause 26 of the SCC. On 20 March 2026, a Division Bench of the High Court dismissed the appellant’s Section 37 appeal, prompting the sub-contractor to approach the Supreme Court.
Arguments of the Parties
Senior counsel Siddhartha Dave, appearing for the appellant, argued that Clause 26 of the SCC dealt merely with delays in releasing interim running bills or holding up balance payments, and could not be stretched into an absolute bar against pendente lite interest. Applying the statutory interpretation doctrines of ejusdem generis and noscitur a sociis, the words “or otherwise” must take colour from the preceding expressions relating to withheld payments.
The appellant relied on Oil and Natural Gas Corporation Ltd. v. G&T Beckfield Drilling Services Pvt. Ltd., Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan, and Union of India v. Larsen & Toubro Limited, contending that Section 31(7)(a) requires a clear and express exclusion to strip an arbitrator of statutory jurisdiction to award pendente lite interest.
Opposing the appeal, counsel Shilpi Chowdhary for NBCC argued that Section 31(7)(a) explicitly opens with the words “Unless otherwise agreed by the parties,” subordinating arbitral discretion to contractual stipulations. Relying on Union of India v. Manraj Enterprises, Jaiprakash Associates Limited v. Tehri Hydro Development Corporation (India) Limited, Union of India v. Bright Power Projects (India) Private Limited, and Larsen & Toubro Limited, NBCC contended that the expression “or otherwise” is residuary, independent, separated by the disjunctive word “or,” and wide in amplitude. Consequently, ejusdem generis cannot be applied to read down a comprehensive contractual prohibition.
The Court’s Analysis
Examining the statutory framework of Section 31(7)(a) read with Section 28(3) of the 1996 Act, the Supreme Court highlighted that the power to grant pre-award interest is circumscribed by party autonomy:
“On perusal of Section 28(3) and Section 31(7)(a) of the Act, it is clear that the statutory scheme itself subordinates the discretion of the arbitrator to the contractual provisions governing interest.”
The Court reaffirmed that an arbitrator, as a creature of contract, cannot grant interest on equitable grounds if barred by the agreement:
“Once the contractor agrees that he shall not be entitled to interest on the amounts payable under the contract, including the interest upon the earnest money and the security deposit as mentioned in Clause 16(2) of the agreement/contract between the parties herein, the arbitrator in the arbitration proceedings being the creature of the contract has no power to award interest, contrary to the terms of the agreement/contract between the parties and contrary to Clause 16(2) of the agreement/contract in question in this case.”
Rejecting the appellant’s invocation of ejusdem generis, the Bench noted that the terms preceding “or otherwise” in Clause 26 of the SCC do not form a distinct genus, and are disjunctively separated by the conjunction “or.” Citing the Constitution Bench ruling in Lilavati Bai v. State of Bombay, the Court held that the phrase “or otherwise” is one of extension rather than limitation:
“Thus, it can be said that the rule of ejusdem generis is a tool of interpretation and is applicable only where the general words follow a specific class forming a genus. The expression ‘amounts payable to the contractor under the contract’ used in Clause 16(3) is independent, distinct and of wide amplitude, and cannot be read down to defeat its plain meaning.”
The Court distinguished the narrow clause present in ONGC v. G&T Beckfield Drilling Services, observing that the residual term “or otherwise” in NBCC’s contract matches the legal effect of the phrase “or any other respect whatsoever” interpreted in Sayeed Ahmed and Company v. State of Uttar Pradesh and Jaiprakash Associates Limited.
Addressing post-award interest, the Bench maintained the distinction under Section 31(7)(b), noting that while pre-award interest can be contracted out, post-award interest cannot:
“Clause (b) is therefore in contrast with clause (a) and is not subject to party autonomy. In other words, clause (b) does not give the parties the right to ‘contract out’ interest for the post-award period. The expression ‘unless the award otherwise directs’ in Section 31(7)(b) relates to rate of interest and not entitlement of interest.”
Decision of the Court
The Supreme Court concluded that the sole arbitrator exceeded his jurisdiction by granting pre-reference and pendente lite interest in direct contravention of Clause 26 of the SCC. Finding no error in the High Court’s decisions under Sections 34 and 37, which set aside pre-award interest while leaving substantive claims and post-award interest intact, the Bench dismissed the appeal.
Case Details
Case Title: M/s Sharma Enterprises v. National Building Construction Corporation
Case No.: Civil Appeal No. 13782 of 2026 (Arising out of SLP (C) No. 17072 of 2026)
Bench: Justice Aravind Kumar and Justice Vipul M. Pancholi
Date: October 15, 2026
