SUPREME COURT UPHOLDS ARBITRAL TRIBUNAL’S POWER TO AWARD PENDENTE LITE INTEREST DESPITE CONTRACTUAL CLAUSE

The Supreme Court, in a recent judgment in Oil and Natural Gas Corporation Ltd. v. M/s G & T Beckfield Drilling Services Pvt. Ltd. [Civil Appeal No. 11324 of 2025], has clarified the scope of the Arbitral Tribunal’s power to award interest pendente lite (during arbitration proceedings), particularly when the contract contains clauses related to withholding interest on delayed or disputed payments.

Delivered by Justice Manoj Misra, this Judgement has important implications for Arbitration Law and commercial contracts, especially under the Arbitration and Conciliation Act, 1996.

BACKGROUND OF THE CASE

The dispute arose from a contract between ONGC and G&T Beckfield Drilling Services Pvt. Ltd., involving unpaid invoices and claims for interest. The Arbitral Tribunal had granted the Respondent’s claims including pendente lite interest at 12% per annum from the date the statement of claim was affirmed till the award date. The Appellant ONGC challenged this award on the ground that Clause 18.1 of the contract barred payment of interest on any delayed or disputed claims.

SUPREME COURT’S ANALYSIS AND FINDING

1. Statutory framework for Interest Awards: The Apex Court examined Section 31(7) of the Arbitration and Conciliation Act, 1996, which empowers Arbitral Tribunals to award interest on the sums due, covering three distinct periods: pre-reference, pendente lite and post-award interest. While post-award interest is statutory and non-negotiable, pre-reference and pendente lite interest are subject to the parties’ agreement.
2. Interpretation of Clause 18.1: The Court analysed Clause 18.1, which provided that ONGC could withhold payments on disputed items and explicitly stated that “No interest shall be payable by ONGC on any delayed payment/disputed claim.” The Court held that this clause does not expressly or by necessary implication exclude the Arbitral Tribunal’s authority to award pendente lite interest. Rather, it contemplates delayed or disputed payments without broadly barring interest pendente lite in every respect.
3. Precedents on pendente lite: The judgment reviewed an exhaustive line of precedents including Irrigation Department (Orissa) v. G.C. Royand Sayeed Ahmed & Co. v. State of U.P., emphasizing that arbitrators have no jurisdiction to award pendente lite interest only if the agreement explicitly or by necessary implication bars it. Mere silence or general clauses about delayed payment do not suffice to oust this power.
4. Discretion of Arbitral Tribunal: The Court reiterated that awarding pendente lite interest is a matter of discretion for the Tribunal, to be exercised considering the facts and justice in each case. The contract’s silence on interest cannot be equated with prohibition unless clear language appears in the Agreement.
5. Reasonableness of the Interest Rate:  The Court observed that the awarded rate of 12% per annum was reasonable, falling below the statutory post-award interest rate, and was not challenged as excessive.

KEY TAKEAWAYS FROM THE JUDGEMENT

1. The Arbitral Tribunal’s power to award pre-reference and pendente lite interest is subject to the agreement but cannot be lightly negated by generic contractual provisions on non-payment or disputed claims.
2. Contracts must contain clear and express provisions to exclude pendente lite interest awards, otherwise, the tribunal retains jurisdiction.
3. Post-award interest is governed strictly by statute and cannot be contracted out.
4. Pendente lite interest awards remain a matter of tribunal discretion, aimed at fairness and compensation during arbitration.
5. Mere contractual clauses forbidding interest on delayed or disputed payments do not automatically bar interest pendente lite unless expressly and unambiguously stated.

CONCLUSION

This Supreme Court ruling affirms the autonomy and discretion of Arbitral Tribunals in awarding interest during the arbitration process and clarifies that general contract clauses on withholding interest will not curtail this power unless explicitly intended. The decision provides critical guidance for commercial parties and arbitrators alike, reinforcing the balance between contractual freedom and equitable interest awards in arbitration.

Soumen Dash
(Legal Associate)

The Indian Lawyer & Allied Services

Please log onto our YouTube channel, The Indian Lawyer Legal Tips, to learn about various aspects of the law. Our latest Video, titled Legal Aspects of Export in India| Export Laws Explained| Advocate Sushila Ram Varma | can be viewed at the link below:

https://youtu.be/2PWPKz1yr-E?si=6tpqGOCC-fNdbh7D