The Supreme Court has held that a contractual clause expressly barring interest on delayed payments can prevent an arbitral tribunal from awarding pre-reference interest. The Court clarified that the wording of the contract must be examined carefully, particularly where the agreement separately refers to disputes and delays in payment.
The judgment was delivered by Justice P. Sri Narasimha and Justice Alok Aradhe on September 22, 2026, in a dispute between North Eastern Electric Power Corporation Limited (NEEPCO) and Astra Construction Private Limited.
Background
NEEPCO had invited tenders in 1995 for civil works connected with a Gas Turbine Power Project at Ram Chandra Nagar, Tripura. Astra Construction’s tender was accepted, and the parties executed the agreement on May 23, 1996. The contract was valued at more than Rs. 17 crore, with completion scheduled for March 26, 1997.
Disputes later arose between the parties and were referred to arbitration. In its June 5, 2015 award, the Arbitral Tribunal held that the delay in executing the project was attributable to NEEPCO. It awarded Astra Construction approximately Rs. 3.30 crore towards four claims, along with 12% annual pre-reference interest and 9% interest for the period after the reference and for the subsequent period.
NEEPCO challenged the award before the Commercial Court. The Court relied upon the Supreme Court’s decision in Sayeed Ahmed & Company v. State of U.P. and held that Clause 54 of the General Conditions of Contract barred the grant of interest. It accordingly set aside the pre-suit and pendente lite interest while otherwise upholding the award.
The High Court of Meghalaya, however, restored the interest awarded by the Tribunal. It relied on the earlier decision in State of U.P. v. Harish Chandra and Co., finding the relevant contractual clauses similar.
The Supreme Court focused on the precise language of Clause 54. The clause stated that no claims for interest or damages would be entertained concerning money lying with the Corporation because of disputes or misunderstandings, or because of any delay by the Engineer-in-Charge in making periodical or final payments.
The Court explained that this wording was materially different from the clause considered in Harish Chandra. According to the Court, the earlier clause primarily dealt with money withheld because of a dispute, whereas Clause 54 separately addressed delay in making payments.
The Bench observed:
“By naming delay in payment as a separate ground, standing on its own and not tied to any dispute, Clause 54 does what the clause in Harish Chandra (supra) never did: it expressly shuts out a claim for interest arising from delayed payment, whether or not there was any dispute about it at all.”
The Court also examined the distinction between the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996. It noted that Section 31(7) of the 1996 Act expressly recognises the arbitral tribunal’s power to award interest, but that power operates subject to the parties’ agreement.
The Supreme Court reaffirmed that under the 1996 Act, an express contractual prohibition on interest can restrict the arbitral tribunal’s power to grant pre-reference and pendente lite interest. It further noted that pre-reference interest has a substantive-law basis and cannot be awarded solely by relying on Section 31(7)(a).
The Court rejected the argument that NEEPCO had waived its right to rely upon Clause 54. The record showed that the clause had specifically been invoked in NEEPCO’s Statement of Defence before the Arbitral Tribunal on August 23, 2012.
The Supreme Court held that Clause 54 barred the grant of pre-reference interest and that the Arbitral Tribunal had exceeded its jurisdiction in awarding it. The Court therefore set aside the High Court judgment to the extent that it restored the pre-reference interest.
The appeal was allowed, with no order as to costs.
Case Details:
Case Title: North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited
Case Number: Civil Appeal No. of 2026 (@ Special Leave Petition (Civil) No. 24803 of 2025)
Judges: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Decision Date: September 22, 2026
