Contractual Interest Bar Ending “Or Otherwise” Excludes Pre-Reference and Pendente Lite Interest: Supreme Court Upholds NBCC Award’s Partial Setting Aside, Preserves Post-Award Interest

Case Name: M/s Sharma Enterprises v. National Building Construction Corporation

Date of Judgment: 15 October 2026

Citation: 2026 INSC 1135

Bench: Justice Aravind Kumar and Justice Vipul M. Pancholi.

Held: The Supreme Court held that Clause 26 of the Special Conditions of Contract, which prohibited interest claims concerning withheld payments, deposits, delayed monthly or final payments “or otherwise”, barred the award of pre-reference and pendente lite interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996. In the context of this clause, the concluding expression operated as a broad residuary prohibition and could not be confined to delayed running-account payments.

The Court reiterated that an arbitral tribunal’s power to award pre-award interest is subject to the parties’ agreement. Where the contract excludes such interest, the arbitrator cannot override that prohibition. Post-award interest under Section 31(7)(b), however, stands on a different statutory footing. The Court therefore upheld interference with the pre-reference and pendente lite components while preserving the substantive award and post-award interest.

Summary: The Supreme Court dismissed an appeal by M/s Sharma Enterprises challenging the Delhi High Court’s decision to set aside pre-reference and pendente lite interest awarded against National Building Construction Corporation. The dispute arose from a 1991 subcontract for flooring and cladding works at the Vashi Railway Station-cum-Commercial Complex in Navi Mumbai.

The subcontract, valued at approximately ₹9.51 crore, required completion within two years. Execution depended on civil works being completed by another contractor engaged by NBCC. Following delays in making work fronts available, NBCC terminated the subcontract on 22 September 1992 and encashed the contractor’s bank guarantees.

After several rounds of litigation, an arbitrator appointed by the Supreme Court held that the termination was wrongful and that NBCC had failed to provide the required work fronts. The award dated 28 July 2016 allowed claims for executed work, extra items, bank guarantee extension charges and refund of the encashed security guarantee. It also awarded ₹5 lakh in litigation costs, rejected NBCC’s counterclaims and granted interest at 10% per annum on the awarded sums, excluding costs, from 22 September 1992 until payment.

The Delhi High Court upheld the substantive claims but set aside pre-reference and pendente lite interest on the ground that Clause 26 prohibited it. The Division Bench affirmed that decision, leading to the contractor’s appeal before the Supreme Court.

The contractor argued that the words “or otherwise” had to take their meaning from the preceding references to withheld payments and delayed bills. It maintained that the clause did not expressly exclude interest during arbitration and could not be expanded into a comprehensive prohibition.

Rejecting that interpretation, the Supreme Court held that the preceding expressions covered distinct circumstances and did not constitute a single narrow category attracting the rule of ejusdem generis. The residuary words “or otherwise” extended the prohibition beyond the specifically listed situations. Restricting them to delayed monthly or final payments would render them redundant and rewrite the agreement.

The Court distinguished Oil and Natural Gas Corporation Ltd. v. G&T Beckfield Drilling Services Pvt. Ltd., where the clause concerned delayed payments or disputed claims without a comparable residuary expression. It held that the present clause instead operated like the wider prohibitions considered in Sayeed Ahmed and Company v. State of Uttar Pradesh and Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd.

Reading Section 31(7)(a) with Section 28(3), the Court concluded that the arbitrator had exceeded his jurisdiction by awarding pre-reference and pendente lite interest contrary to the contract. It separately affirmed that the contractual restriction did not displace the statutory treatment of post-award interest under Section 31(7)(b).

Decision: The appeal was dismissed. The Supreme Court upheld the Delhi High Court Division Bench judgment dated 20 March 2026 affirming the Single Judge’s judgment. The arbitral award remained set aside only insofar as it granted pre-reference and pendente lite interest. The substantive monetary reliefs, litigation costs and post-award interest at 10% per annum on the awarded sums excluding costs remained undisturbed.