“Or Otherwise” Clause Bars Pre-Award Interest: Supreme Court of India

Independently written and published by Shahbaz Shah Legal Journal.

The interest period made the difference

The Supreme Court of India has upheld a contractual prohibition on pre-reference and pendente lite interest in Sharma Enterprises v. National Building Construction Corporation, 2026 INSC 1135. It held that the words or otherwise, read in the setting of Clause 26 of the Special Conditions of Contract, extended the interest exclusion beyond delays in monthly and final bills. The contractor’s appeal was dismissed, but its substantive award and post-award interest remained intact. Judgment, paragraphs 13–19.

Justice Vipul M. Pancholi wrote the reportable judgment for a bench with Justice Aravind Kumar on 15 October 2026. The proceeding was Civil Appeal No. 13782/2026, arising from SLP (C) No. 17072/2026. The Court affirmed the Delhi High Court’s limited interference with an arbitral award dated 28 July 2016. Judgment, first page, paragraphs 2 and 18–20, and final page.

This is an Indian arbitration decision under the Arbitration and Conciliation Act, 1996. Its central lesson is to examine the exact contractual prohibition and the period for which interest is sought. A successful claim for money does not, by itself, establish entitlement to interest for every period. Judgment, paragraphs 6–10 and 17–18.

The construction dispute behind the interest claim

NBCC had received works from IRCON and awarded Sharma Enterprises a subcontract on 11 January 1991 for flooring and cladding at Vashi Railway Station-cum-Commercial Complex, in what is now Navi Mumbai. The agreed price was INR 9,50,73,603.20, and the stipulated completion date was 10 January 1993. Judgment, paragraph 3.1.

The subcontractor’s work depended on civil works being completed by another contractor. Delays in those works limited the areas available to Sharma Enterprises, although it completed priority platform areas for inauguration in May 1992. NBCC terminated the contract on 22 September 1992 and subsequently encashed bank guarantees. Judgment, paragraph 3.2.

After a prolonged dispute over appointment of an arbitrator, the Supreme Court appointed one in August 2011. The arbitrator’s 2016 award found wrongful termination and failure to provide the necessary work fronts. It allowed claims for executed work, extra items, bank-guarantee extension charges, refund of the encashed security guarantee and litigation costs, while rejecting NBCC’s counterclaims. Judgment, paragraphs 3.3–3.4.

Under Claim No. 7, the arbitrator awarded interest at ten per cent per year on the awarded sums other than costs, running from 22 September 1992 until payment. That combined several distinct periods in one direction. The surviving dispute concerned whether the contractual prohibition permitted the interest before the award. Judgment, paragraphs 3.4 and 6.

Why the 1996 Act governed an older contract

The contract and the original request for an arbitrator dated back to the period of the Arbitration Act, 1940. But an earlier Supreme Court decision between these parties, delivered on 15 December 2021 in Civil Appeal Nos. 7701–7702/2021, had already settled that these arbitration proceedings were governed by the 1996 Act. Judgment, paragraphs 3.3 and 3.5.

The 2026 Court therefore applied the interest scheme in section 31(7) of the 1996 Act. It did not reopen the choice of statutory framework merely because the construction dispute originated in 1992. Judgment, paragraphs 3.5 and 8–10.

That procedural history matters when using older arbitration authorities. A decision concerning the 1940 Act cannot simply be transferred to a proceeding governed by the 1996 Act without checking the governing statute and the particular clause.

What the High Court had set aside

The Single Judge, deciding NBCC’s section 34 challenge on 19 November 2025, maintained the award on the substantive claims. The interference was limited to pre-reference and pendente lite interest, which the Judge considered barred by Clause 26. Judgment, paragraph 3.6.

The Division Bench dismissed the contractor’s section 37 appeal on 20 March 2026. It treated the residual expression or otherwise as equivalent in effect to the wider language examined in Sayeed Ahmed and Company v. State of Uttar Pradesh, (2009) 12 SCC 26. Sharma Enterprises then appealed to the Supreme Court. Judgment, paragraphs 3.7–3.8.

The Supreme Court was therefore not deciding whether the contractor should lose all relief because its interest claim failed. The principal claims had survived below, and the final judgment expressly preserved them. Judgment, paragraphs 18–19.

Pre-reference, pendente lite and post-award interest

The judgment separates the claim into legally different periods:

• Pre-reference interest concerns the period before the dispute enters the arbitral reference.
• Pendente lite interest concerns the period while the arbitration is pending, before the award.
• Post-award interest concerns the period after the award until payment.

The first two fall within the pre-award inquiry under section 31(7)(a). The third is addressed separately by section 31(7)(b). The distinction controlled the limited relief maintained in this case. Judgment, paragraphs 8–9 and 17–18.

The statute reproduced by the Court permits the tribunal to award reasonable pre-award interest unless the parties have agreed otherwise. The Court read that qualification with section 28(3), which requires regard to the contractual terms. The tribunal’s statutory discretion over pre-award interest was therefore subject to an effective contractual exclusion. Judgment, paragraphs 8–10.

What Clause 26 actually covered

Clause 26 first dealt with monthly running bills, measurement, advances and the timing of payment after NBCC received money from its client. It then excluded interest claims in respect of balance payments or deposits held up due to disputes, delays in monthly or final payments, and other situations through its concluding residual words. The complete text appears in paragraph 7 of the judgment. Judgment, paragraph 7.

The contractor argued that the concluding words had to take their meaning from the payment-delay matters immediately before them. It invoked ejusdem generis and noscitur a sociis and contended that the clause was not a comprehensive prohibition on interest awarded through arbitration on the successful substantive claims. Judgment, paragraphs 4.1–4.7 and 11.

NBCC’s response was that the clause deliberately listed separate situations and then added a broad residual category. On its interpretation, limiting the last category to delayed running bills would remove the additional reach the parties had agreed. Judgment, paragraphs 5.1–5.5.

Why ejusdem generis did not narrow the clause

Ejusdem generis is the interpretive method by which general words may take a limited meaning from a preceding specific class. The Court explained that the preceding expressions must actually form a relevant genus before the method can restrict the general wording. It relied on the approach discussed in Union of India v. Manraj Enterprises, (2022) 2 SCC 331, and Union of India v. Larsen & Toubro Limited, 2026 INSC 203. Judgment, paragraph 12.

The Court then identified three disjunctive parts of Clause 26: disputed balance payments or deposits; delays in monthly or final payments; and the residual category. It held that the preceding terms did not form a single narrow class confined to delays in running bills. They also covered withheld deposits and amounts held up because of disputes. Judgment, paragraphs 13–14.

In that setting, the residual words extended the prohibition. Reading them as doing no more than repeating the monthly-payment restriction would make them redundant and rewrite the parties’ contract. The Court also referred to Lilavati Bai v. State of Bombay, (1957) 1 SCC 411, in its discussion of words of extension. Judgment, paragraph 14.

The holding is about this clause read as a whole. It should not be reduced to a rule that the word or, or the expression or otherwise, has the same unlimited effect wherever it appears. The Court’s analysis depended on the separate categories, their breadth and the placement of the residual language. Judgment, paragraphs 12–16.

The ONGC decision was distinguished

Sharma Enterprises relied on Oil and Natural Gas Corporation Ltd. v. G&T Beckfield Drilling Services Pvt. Ltd., 2025 SCC OnLine SC 1888. The Supreme Court distinguished its narrower clause, which dealt with delayed payments or disputed claims and lacked a residual expression of the kind present here. Judgment, paragraph 15.

The Court explained that a restriction limited to delayed payment need not amount to an absolute prohibition on pendente lite interest. At the same time, its discussion of ONGC recognized that an express prohibition, or one arising by necessary implication, can exclude the power under section 31(7)(a). The question remains what the parties’ actual words achieve. Judgment, paragraph 15.

The 2026 judgment thus did not treat all interest clauses as interchangeable. It accepted that a narrower clause may lead to a different result and held that Clause 26 was materially wider. Judgment, paragraphs 15–16.

Why Sayeed Ahmed and Jaiprakash supported NBCC

In Sayeed Ahmed and in Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd., (2019) 17 SCC 786, the Court had considered broadly expressed exclusions extending beyond particular payment delays. The present bench treated Clause 26’s residual language as operating on the same footing as the broader formulation in those cases. Judgment, paragraph 16.

It also relied on Larsen & Toubro’s discussion of the primacy of contract under sections 28(3) and 31(7)(a). The quoted reasoning, including its treatment of Bright Power Projects and Manraj Enterprises, explained why an arbitrator cannot award pre-award interest contrary to the agreement, even by relabelling the relief as compensation. Judgment, paragraph 10.

These earlier authorities are described here as discussed and applied in Sharma Enterprises. The important task for the reader is to compare the precise language and statutory setting rather than selecting a case only because it concerns interest.

Wrongful termination did not remove the interest restriction

The arbitrator had found against NBCC on termination and had granted substantive monetary relief. The contractor relied on that result and on the exceptional length of the dispute when supporting the interest award. Those points did not answer the distinct contractual limitation on pre-award interest. Judgment, paragraphs 3.4, 4.1 and 4.8.

The Court held that the arbitrator exceeded his jurisdiction by granting pre-reference and pendente lite interest in contravention of Clause 26. The consequence was removal of that part of the award, not reversal of the substantive findings already maintained by the High Court. Judgment, paragraph 18.

For a claimant, the practical distinction is between proving that money is due and proving the legal basis for adding interest over a particular period. An entitlement under the first inquiry does not automatically establish the second. Judgment, paragraphs 6–10 and 18.

Why post-award interest survived

Paragraph 17 expressly contrasts the two limbs of section 31(7). Pre-award interest under clause (a) is subject to the parties’ agreement. The Court’s discussion of clause (b), through Larsen & Toubro and its quotation of R.P. Garg, explains the different statutory basis of post-award interest and the precedence given to the rate directed in the award. Judgment, paragraph 17.

The Court endorsed the High Court’s decision to preserve post-award interest. The contractual bar that defeated the pre-reference and pendente lite claim was therefore not treated as eliminating interest for the period after the award. Judgment, paragraphs 17–18.

This also prevents a misleading reading of the outcome. Saying that the Supreme Court barred all interest would be wrong. Saying that the contractor’s appeal restored all the original interest would also be wrong. The award remained effective for its substantive claims and post-award interest, while the pre-award component remained set aside. Judgment, paragraphs 18–19.

The judgment did not replace the award’s rate with a newly calculated statutory rate. Its account records the original ten per cent direction, except on costs, and its final reasoning maintains the post-award component. Calculations in a particular enforcement matter still require the actual award, the sums to which the surviving direction applies and the relevant payment dates. Judgment, paragraphs 3.4 and 17–18.

The exact result

Civil Appeal No. 13782/2026 was dismissed. The Supreme Court found no error in the Delhi High Court Division Bench’s judgment affirming the Single Judge. The arbitral award remained set aside only to the extent of pre-reference and pendente lite interest; the substantive claims and post-award interest survived. Pending applications were disposed of. Judgment, paragraphs 18–20.

Practical lessons for contract and arbitration work

The judgment suggests a focused method for examining an interest dispute:

• Identify the statute governing the arbitration, including any earlier decision settling that question.
• Separate the amount claimed from the interest sought on it.
• Divide the interest claim into pre-reference, pendente lite and post-award periods.
• Read the entire exclusion clause, including its separate categories and any residual words.
• Compare the contractual wording with the wording in the authorities relied on.
• Distinguish a submission recorded in the judgment from a point the Court actually decided.

These are practical lessons drawn from the Court’s reasoning, not an additional statutory checklist. In particular, the contractor’s assertion that NBCC had not relied on Clause 26 before the tribunal appears among its submissions; this judgment should not be used to invent a separate general ruling on waiver or preservation that its reasons do not formulate. Judgment, paragraphs 3.5, 4.1 and 6–18.

For lawyers drafting contracts, the case shows why a narrowly framed payment-delay restriction and a wider pre-award interest exclusion may produce different outcomes. For lawyers reading awards, it shows why losing one interest component need not undo the principal award or the post-award direction. For a related method of reading statutory qualifications and exceptions, see our guide to reading a bare act. The governing legislation in this case remains India’s 1996 Act.

Frequently asked questions

What did the Supreme Court decide in Sharma Enterprises v. NBCC?

It dismissed the contractor’s appeal and maintained the removal of pre-reference and pendente lite interest under Clause 26, while preserving the substantive award and post-award interest. Judgment, paragraphs 18–20.

Why did the words “or otherwise” matter?

Read with the separate situations listed in Clause 26, the residual words extended the interest prohibition beyond delayed monthly or final bills. The Court rejected a construction that made them redundant. Judgment, paragraphs 13–16.

Can an arbitrator award pre-award interest contrary to the contract?

Under the 1996 Act as applied here, section 31(7)(a) is subject to the parties’ agreement. The Court held that the arbitrator could not grant the excluded interest contrary to Clause 26. Judgment, paragraphs 8–10 and 18.

Was post-award interest also cancelled?

No. The Court expressly preserved post-award interest and distinguished its statutory basis under section 31(7)(b) from the contractual qualification in clause (a). Judgment, paragraphs 17–18.

Did Sharma Enterprises lose the principal award?

No. The substantive claims remained intact. The unsuccessful appeal concerned the pre-reference and pendente lite interest component. Judgment, paragraphs 3.6 and 18–19.

Does every delayed-payment clause bar pendente lite interest?

No. The Court distinguished the narrower ONGC clause and examined the wider residual language of Clause 26. The precise wording matters. Judgment, paragraphs 15–16.

Why did the Court apply the 1996 Act to a 1991 contract?

An earlier Supreme Court judgment between the parties, dated 15 December 2021, had already settled that the arbitration proceedings were governed by the 1996 Act. Judgment, paragraph 3.5.

Sources and case reference

• Complete supplied 22-page judgment PDF.
• Official Supreme Court of India judgment PDF.
• Supreme Court of India judgment-date search. Search 15 October 2026, Civil Appeal 13782/2026 or 2026 INSC 1135.
• Searchable judgment summary and full case particulars.

Case: M/s Sharma Enterprises v. National Building Construction Corporation. Citation: 2026 INSC 1135. Court: Supreme Court of India. Decision: 15 October 2026. Bench: Justices Aravind Kumar and Vipul M. Pancholi. Author: Justice Vipul M. Pancholi. Status: Reportable. Earlier authorities are discussed as used in this judgment.