Clause Restricting Interest on Delayed Payments Alone Cannot Bar Pendente-Lite Interest
- Background of the Case
- Parties & Dispute: ONGC (Oil and Natural Gas Corporation Ltd.) challenged an arbitral award in which an arbitral tribunal had granted pendente-lite interest—interest accruing during the arbitral proceedings—to M/s G & T Beckfield Drilling Services.
- Contractual Clause: Clause 18.1 in the contract stated:
“No interest shall be payable by ONGC on any delayed payment/disputed claim.”
ONGC contended this barred any interest, including pendente-lite.
- Supreme Court’s Key Finding
The Supreme Court held that a contractual clause barring interest on delayed payments does not, by itself, automatically bar pendente-lite interest. For the arbitral tribunal to lose the power to grant such interest, the contract must expressly or by necessary implication prohibit it—something absent in this case. Therefore, under Section 31(7)(a), tribunals retain discretion to award pendente-lite interest unless the contract clearly overrides that statutory authority.
- Legal Framework & Context
- a) Arbitration Act, 1996 – Section 31(7)
Sub-section (a) empowers the arbitrator to grant interest from the cause of action to the award date unless the parties agree otherwise.
Sub-section (b) mandates a higher post-award interest rate unless the award directs otherwise.
- b) Pre-1996 Act (Arbitration Act, 1940)
Under the 1940 Act, tribunals could award pendente-lite interest unless a clear, explicit clause barred it. Courts adopted a strict construction of such clauses.
- c) Evolving Jurisprudence
The Pam Developments v. State of West Bengal (2024) judgment reaffirmed that when the contract is silent, arbitrators retain the power to award pre-reference and pendente-lite interest.
Similarly, other cases under both Acts support the principle that mere general bar on interest does not automatically bar pendente-lite interest—absent express language.
- What the ONGC Judgment Adds
The Supreme Court in the ONGC case strengthens the prevailing interpretation:
A clause stating “no interest on delayed payments” does not prevent tribunals from awarding pendente-lite interest.
Only explicit contractual prohibitions or necessary implications—crafted with clear language—can override the tribunal’s statutory discretion.
- Implications for Contracts & Arbitration Practice
For Contract Drafters
Be explicit if the intent is to bar pendente-lite interest. General or ambiguous language may not suffice.
If that is the goal, use unambiguous clauses such as:
“No pendente-lite or pre-award interest shall be payable by either party in respect of any delayed payment or disputed claim under arbitration proceedings.”
For Arbitrators & Parties
Tribunals have the statutory power to award pendente-lite interest—even in contracts with generalized interest-bar clauses—unless explicitly excluded.
Claimants should assess whether the contractual language clearly precludes such interest; contracts silent or vague in this regard may merit interest awards.
- Concluding Thoughts
This judgment reinforces a core arbitration principle: tribunals enjoy a statutory discretion to award interest pending arbitration, safeguarding the rights of parties deprived of timely use of their money. Only explicit and clear contractual language can curtail this power. For practitioners, clarity in drafting and careful contract review remain essential to avoid unwelcome surprises in arbitration outcomes.
In summary: The Supreme Court’s September 2, 2025 ruling in ONGC v. G & T Beckfield confirms that a general clause barring interest on delays does not automatically bar pendente-lite interest—tribunals retain statutory discretion unless the contract expressly says otherwise.
— Published by S.K. Legal Asscoaites LLP —