The Supreme Court of India, in Oil and Natural Gas Corporation Ltd. vs. G & T Beckfield Drilling Services Pvt. Ltd., dismissed ONGC’s appeal challenging the award of interest granted by an arbitral tribunal. The ruling clarifies the interpretation of contractual clauses regarding interest and reinforces arbitral powers under Section 31(7) of the Arbitration and Conciliation Act, 1996.
Background of the Case
- In 2004, a three-member arbitral tribunal directed ONGC to pay USD 6,56,272.34 to G & T Beckfield Drilling Services Pvt. Ltd., along with 12% annual interest from 12 December 1998 (the date when the statement of claim was affirmed) until recovery.
- The tribunal also awarded ₹5 lakhs in costs, while ONGC’s counter-claims were dismissed.
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ONGC challenged this award before the District Judge, Sivasagar, under Section 34 of the Arbitration Act, arguing that Clause 18.1 of the contract prohibited payment of interest. In 2007, the District Judge set aside the award citing lack of reasoning and improper handling of objections.
However, in 2019, the Gauhati High Court restored the arbitral award. ONGC then moved the Supreme Court, restricting its appeal to the question of whether interest could be granted despite Clause 18.1.
ONGC relied on Clause 18.1 of the agreement, which stated:
“No interest shall be payable by ONGC on any delayed payment/disputed claim.”
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Based on this, ONGC argued that the arbitral tribunal had no authority to grant interest for the period before the award (pendente lite).
The drilling company argued that Clause 18.1 only prevented payment of interest on disputed invoices during the contract period. Since the arbitral tribunal awarded interest from the date of filing the claim, the award was valid.
The Bench of Justice P.S. Narasimha and Justice Manoj Misra held:
- Arbitral tribunals can award interest for three periods:
- Pre-reference (before filing of claim)
- Pendente lite (while proceedings are ongoing)
- Post-award (after award until payment)
- Pre-reference and pendente lite interest depend on contractual terms, but post-award interest is mandatory under Section 31(7)(b).
- Clause 18.1 did not explicitly bar pendente lite interest. It only prevented ONGC from paying interest on delayed or disputed claims. Unlike stricter clauses in earlier cases (Sayeed Ahmed & Co. and THDC), this clause did not limit the tribunal’s statutory powers.
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“Clause 18.1, when read as a whole, does not expressly or by necessary implication proscribe grant of pendente lite interest by the arbitral tribunal.” – Supreme Court
The Court also noted that the 12% rate of interest was reasonable, being lower than the statutory 18% prescribed earlier.
The Supreme Court dismissed ONGC’s appeal and upheld the arbitral tribunal’s award of interest and costs in favor of G & T Beckfield Drilling Services Pvt. Ltd.
Case: Oil and Natural Gas Corporation Ltd. vs. G & T Beckfield Drilling Services Pvt. Ltd.
Case No.: Civil Appeal No. 11324 of 2025 (Arising out of SLP (C) No. 18331 of 2019)
Date of Judgment: September 2, 2025
