Supreme court: Clause barring interest “Or Otherwise” excludes pre-reference and pendente lite interest under section 31(7)(a) of arbitration act

Supreme Court decision highlights clause excluding certain interests under Section 31(7)(a) of the Arbitration Act, as illustrated in a professional legal setting.

Case Name: Sharma Enterprises v. National Building Construction Corporation

Coram: Justice Aravind Kumar and Justice Vipul M. Pancholi (Judgment authored by Justice Pancholi)

Citation: (2026) ibclaw.in 671 SC

Case No.: Civil Appeal No. 13782 of 2026 (Special Leave Petition (C) No. 17072 of 2026)

Decided on: 15 October 2026

The Supreme Court has held that a contractual clause ending with the residuary words “or otherwise” operates as a bar on pre-reference and pendente lite interest within the meaning of Section 31(7)(a) of the Arbitration and Conciliation Act, 1996. The Bench dismissed the appeal of the contractor and upheld the Delhi High Court, which had set aside the interest portion of the award while retaining the substantive claims and post-award interest.

Background

On 11 January 1991, NBCC awarded a sub-contract to Sharma Enterprises for flooring and cladding works at Vashi Railway Station-cum-Commercial Complex for Rs. 9,50,73,603.20. The work depended on completion of civil works by another contractor, and delays meant that the appellant could execute only limited areas. NBCC terminated the contract on 22 September 1992 and encashed the bank guarantees.

After several rounds of litigation, the Supreme Court appointed an Arbitrator by order dated 3 August 2011. By award dated 28 July 2016, the Arbitrator held the termination wrongful, allowed the appellant’s claims for executed work, extra items, bank guarantee extension charges and refund of the encashed guarantee, awarded costs of Rs. 5,00,000, rejected the counter-claims, and awarded interest at 10% per annum from 22 September 1992 until payment.

In Section 34 proceedings, the Single Judge upheld the award on all substantive claims but set aside pre-reference and pendente lite interest, holding that Clause 26 of the Special Conditions of the Contract (SCC) was an absolute bar, relying on Sayeed Ahmed and Company v. State of Uttar Pradesh. The Division Bench dismissed the Section 37 appeal, holding that “or otherwise” in Clause 26 was analogous to “any other respect whatsoever” in Sayeed Ahmed.

Contentions

The appellant argued that Clause 26 could not be read in isolation, that ejusdem generis and noscitur a sociis applied, and that “or otherwise” only qualified the preceding words on delayed payments. It was also argued that Section 31(7)(a) permits exclusion of interest only through clear and express language, and reliance was placed on ONGC v. G&T Beckfield Drilling Services and Ferro Concrete Construction v. State of Rajasthan.

The respondent argued that Section 31(7)(a) is subject to the agreement of parties, that “or otherwise” is residuary, and that where expressions are separated by “or”, the latter cannot be restricted by ejusdem generis, relying on Union of India v. Manraj Enterprises, Jaiprakash Associates Ltd. v. THDC and Union of India v. Larsen & Toubro Ltd.

Court’s Analysis

The Court framed the question as whether Clause 26 operates as a contractual bar under Section 31(7)(a). It noted that the power to award interest for the period from the date the cause of action arose until the date of the award is subject to the opening words “unless otherwise agreed by the parties”, and that the provision must be read harmoniously with Section 28(3), under which the tribunal decides in accordance with the contract. Relying on Larsen & Toubro, it reiterated that the scheme of the Act gives paramount importance to the contract.

Rejecting the argument on ejusdem generis, the Court held that the doctrine applies only where general words follow a specific class forming a genus, and that where phrases are disjunctively joined by “or”, each must be examined independently. Clause 26 listed three separate events: balance payments or deposits held up due to a dispute, delay in monthly or final payments, and “otherwise”. The Court held that the preceding terms did not form a single narrow genus, and that “or otherwise” is residuary and was incorporated with wide amplitude to cover every other circumstance in which a claim for interest might be asserted. Citing the Constitution Bench in Lilavati Bai v. State of Bombay, it observed that these words are words of extension and not limitation, and that confining them to delayed monthly or final payments would render them redundant and rewrite the contract.

ONGC v. G&T Beckfield was distinguished because the clause there was narrowly worded for delayed payment or disputed claim and had no residuary expression. The Court held that “or otherwise” stands on an identical footing with “any other respect whatsoever” considered in Sayeed Ahmed and Jaiprakash Associates.

The Court also noted the distinction between Section 31(7)(a) and Section 31(7)(b). Pre-award interest is subject to the contract, whereas post-award interest is not subject to party autonomy. The High Court was therefore right in leaving the post-award interest undisturbed.

Decision

Holding that the Arbitrator, being a creature of the contract, acted beyond jurisdiction in granting pre-reference and pendente lite interest contrary to Clause 26, the Court found no error in the judgment of the Delhi High Court and dismissed the appeal.