A clause barring interest on money lying in dispute also bars pre-reference interest, Supreme Court holds

An arbitral tribunal that awarded 12 per cent for the pre-reference period exceeded its jurisdiction, and the High Court was wrong to equate the contract clause with an earlier one.

The dispute was narrow, and the Court said so — but it noted in the same breath that the point bears materially upon public works contracts generally. On 22 September 2026, in North Eastern Electric Power Corporation Limited v. Astra Construction Private Limited, a Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that Clause 54 of the General Conditions of Contract bars the grant of interest for the pre-reference period, and that an arbitral tribunal which awarded it exceeded its jurisdiction under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.

A power project, and thirty years of disputes

On 12 June 1995 the appellant invited tenders for the civil works of the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura. The respondent’s tender was accepted and a formal agreement executed on 23 May 1996. The estimated value of the work was Rs 17,09,26,913, and it was to be completed by 26 March 1997.

Disputes arose and went to arbitration. By an award dated 5 June 2015 the Arbitral Tribunal held that the delay in executing the project was attributable to the appellant. It allowed four of the respondent’s claims, awarding a principal sum of Rs 3.30 crore, and granted pre-reference interest at 12 per cent a year on each claim, with pendente lite and future interest at 9 per cent.

The Commercial Court disallowed the pre-reference interest. On the respondent’s appeal under Section 37, the High Court of Meghalaya at Shillong allowed the appeal by its judgment of 19 June 2025 and restored that component. The appellant brought the matter to the Supreme Court.

What Clause 54 says

The clause is headed “No Claim for Delayed Payment due to Dispute Etc.” and provides that no claims for interest or damages will be entertained by the Corporation with respect to any money or balance which may be lying with the Corporation owing to any dispute, difference or misunderstanding between the parties.

The High Court had read that clause as identical to the one considered in Harish Chandra and Co., and reasoned that the bar was confined to interest claimed on money or balances held up owing to a dispute, not extending to interest under any other head including interest on an award itself. On that footing it restored the award in its entirety.

For the appellant, Solicitor General Mr Tushar Mehta and Additional Solicitor General Mr Raghavendra P. Shankar confined the challenge to the pre-reference interest alone. They submitted that the Clause 54 plea had been specifically raised before the Tribunal, and that the High Court erred in relying on Harish Chandra — a decision rendered under the Arbitration Act, 1940 — without appreciating how the question stands under the 1996 Act.

The Bench framed the question of construction precisely: whether Clause 54 corresponds to the clause in Harish Chandra, as the High Court held, or to those considered in the later line beginning with Sayeed Ahmed & Company v. State of U.P. and continuing through Jaiprakash Associates Limited v. Tehri Hydro Development Corporation. It set the competing clauses out side by side in tabular form and answered that Clause 54 belongs with the latter.

Underlying that is a distinction the judgment reaffirms and which explains why only part of the award fell. Pendente lite interest stands on the footing of procedural law and is governed by Section 31(7)(a). Interest for the pre-reference period stands on a different footing altogether: it is referable to substantive law and cannot be sourced in Section 31(7)(a) alone. Whether the parties have agreed to prohibit it therefore turns on the terms of their contract.

The waiver argument

The respondent’s answer was that the appellant had waived the point by not urging Clause 54 before the Tribunal. That did not survive scrutiny of the record. The plea had been specifically taken in the pleadings: the appellant raised it in the Statement of Defence filed before the Tribunal on 23 August 2012.

An intervenor contended that Clause 54 was similar to the clause considered in Harish Chandra. The Bench held that submission also to be without merit.

Why it matters beyond this contract

Clauses of this kind are boilerplate across government and public sector construction contracts, which is why the judgment pauses to say that the controversy, though narrow in compass, bears materially upon public works contracts generally. The question is not whether a contractor who has been kept out of its money is entitled to compensation for that delay, but whether the parties have agreed in advance that no such claim will be entertained — and, where they have, the tribunal’s power to award interest is measured by that agreement rather than by fairness at large.

The practical consequence for a contractor is that the pre-reference period, often the longest stretch in a construction dispute, may carry no interest at all where the contract contains a clause in these terms. Here the work was to finish in March 1997, the award came in June 2015, and the final word arrived in September 2026 — which gives some sense of what that period can be worth.

Order

The Court held that Clause 54 bars the grant of interest for the pre-reference period and that the Tribunal exceeded its jurisdiction in awarding it. The High Court’s judgment, to the extent it restored the grant of pre-reference interest, could not be sustained and was set aside. There was no order as to costs, and pending applications were disposed of.