Validity of Arbitral Award for Interest Despite Contractual Clause on Delayed Payment.


02-September-2025 Arbitration Law >> Business & Commercial Law  

This appeal is from the judgment of the Gauhati High Court dated 8 March 2019 affirming an arbitral award dated 21 November 2004 made by a three-member tribunal in favor of G & T BecField Drilling Services (P) Ltd against the Oil & Natural Gas Corporation Ltd (ONGC). The award ordered payment of certain outstanding bills amounting to $656,272.34 with interest at 12% per annum from 12 December 1998 (the date the statement of claim was confirmed before the tribunal) and Rs. 5 lakhs as costs. The appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award on the grounds of non-reasoned award and that clause 18.1 of the contract excluded payment of interest.

The District Judge set aside the award, declaring it as non-reasoned and observing non-adherence to Section 16(2) with respect to objections before arbitration. In respondent's appeal, the High Court restored the award.


 

 

Appellant's Special Leave Petition was granted on the limited question of whether the arbitral tribunal could legally award interest at 12% from the date of affirmation of the statement of claim.

Clause 18.1 of the agreement provided that no interest would be payable by ONGC on any payment that is delayed or disputed. The appellant contended this excluded interest pendente lite (interest accruing from the date of dispute until the award).

Judicial examination was focused on the extent of Section 31(7) of the 1996 Act, which enables an arbitral tribunal to grant interest over three periods: (a) pre-reference (cause of action to date of award), (b) pendente lite (from admission of claim to date of award), and (c) post-award (from date of award to payment), subject to agreement of parties for (a) and (b); post-award interest is statutory and not waivable.

Precedents established that there must be an express or necessary implication in the contract clause to preclude pendente lite interest. Clauses that merely exclude interest on late or disputed payments do not ipso facto preclude pendente lite interest.

The Supreme Court's uniform line of cases held:

  • The arbitration tribunal has jurisdiction to grant pendente lite interest unless contractually excluded.
  • Clauses preventing "interest on delayed payment" do not ipso facto prevent pendente lite interest unless language explicitly shows such purpose.
  • The grant of pendente lite interest is fact-dependent and discretionary.
Using these principles, the Court held that Clause 18.1 did not preclude pendente lite interest because it merely waived interest on overdue and contested payments but did not waive statutory interest on amounts paid from affirmance date to award. The arbitral tribunal therefore exercised discretion judiciously in granting 12% pendente lite interest.

The appeal was rejected, upholding the award and interpreting the limited and precise nature of interest clauses in arbitration agreements with regard to pendente lite interest.

The ruling highlights the tension between contractual freedom and statutory provisions under the Arbitration and Conciliation Act, 1996 regarding the grant of interest, affirming that contractual provisions excluding interest must be clearly expressed to preclude pendente lite interest from the discretion of the tribunal.


Section 31, Arbitration and Conciliation Act - 1996  

Section 34, Arbitration and Conciliation Act - 1996  

Arbitration and Conciliation Act, 1996