2026 INSC 203 _____________________________________________________________________________________________

Special Leave Petition (Civil) No. 14989 of 2023) Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

(CIVIL APPELLATE JURISDICTION)

CIVIL APPEAL NO. _______ OF 2026

(@ SPECIAL LEAVE PETITION (CIVIL) NO. 14989 OF 2023)

UNION OF INDIA & ORS. …APPELLANTS

VERSUS

LARSEN & TUBRO LIMITED (L&T) …RESPONDENT

J U D G M E N T

VIPUL M. PANCHOLI, J.

1. Leave granted.

2. This is an appeal challenging the final judgment and order

dated 25.05.2023 passed by the High Court of Judicature at

Allahabad in Appeal No. 433 of 2023 under Section 37 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to

as “the Act”) titled as “Union of India and 2 others v. Larsen &

Tubro Limited (L and T)”.

3. Vide the impugned judgment, the High Court dismissed the

appeal filed by the appellants herein and upheld the Order

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Special Leave Petition (Civil) No. 14989 of 2023) Page 2

dated 15.09.2022 passed by the Commercial Court, Jhansi, and

thereby upheld the Arbitral Award dated 25.12.2018 passed by

the learned Arbitral Tribunal.

FACTUAL MATRIX

4. The brief facts of the case are that the underlying dispute

originates from the Agreement dated 27.01.2011, bearing No.

CME/NCR/JHSW/MOD/2010 (Turnkey), executed between the

appellants (Union of India & North Central Railway

Administration) and the respondent (Larsen & Tubro Limited

[L&T]).

5. The contract stipulated the execution of work related to the

modernization of Jhansi Workshop of North Central Railways,

valued at a negotiated rate of Rs. 93,08,07,696/-. The original

date for the completion of the work was 18.07.2012 (a period of

18 months). However, the same was extended by the appellants

10 times until 30.11.2015. This resulted in a total delay of 40

months beyond the original deadline.

6. During this course, disputes concerning the execution of the

work and outstanding payments arose between the parties. The

General Conditions of Contract (hereinafter referred to as “the

GCC”) provided for the arbitration agreement, being Clause 64.

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The respondent submitted an application on 04.09.2017 for the

appointment of an Arbitral Tribunal. As per Clause 64(3) of the

GCC, the three-member Arbitral Tribunal was formally

constituted. The learned Arbitral Tribunal (hereinafter referred

to as “the AT”) entered into reference on 10.01.2018, with L&T

as claimant (respondent herein) and North Central Railway as

respondent (appellants herein).

7. L&T submitted a statement of claim, subsequently revised,

raising claims, inter alia, for Financing Charges towards

Inordinate Delay in release of payments against running

account bills (Claim No. 1), Cost incurred due to Variations in

Foreign Exchange Currency Component beyond original

contract period (Claim No. 2), Non-payment of Price Variation

Component (PVC) (Claim No. 3), Indirect Costs incurred during

extended stay in the project (Claim No. 4), Refund of the amount

recovered as token liquidated damages (Claim No. 5), Payment

due against the final bill / variation for the additional works as

per the contract (Claim No. 6), Interest on the claim amount

(Claim No. 7), and Costs of Arbitration (Claim No. 8). North

Central Railway made a counter claim for Losses to Railway due

to late commissioning of CNC Portal Wheel Lathe, MOD.

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8. After perusing the material available on record, the AT passed

the Arbitral Award on 25.12.2018. The operative part of the

Arbitral Award is reproduced as under:-

“5.0 Summary of the Claims / Counter-claim and award

declared:

Claims:

Sr. Particulars Claim Amount

in Rs.

Award sum in Rs.

Claim No.1 Financing charges towards

inordinate delay

2,26,25,891 1,77,78,727/-

Claim No.2 Claim for Variations in

Foreign Exchange Currency

2,21,00,586 Nil

Claim No.3 Claim for non payment of

PVC & INTEREST

98,44.886/- 1,70,18,577/-

Claim No.4 Claim for indirect costs

during extended stay in the

project

5,70,04,383 Nil

Claim No.5 Refund of the amount

recovered as token

liquidated damages

2,00,000 Nil

Claim No.6 Payment due against the

final bill & interest

1,67,51,576 2,28,70,261/-

Claim No.7 Interest on the claim amount

@ 18%

10,27,41,682 NIL

Claim No.8 Costs of arbitration 29,88,947/- 7,90,032/-

Total Award 5,84,57,597/-

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Counter Claim:

Sr. Particulars Claim Amount

in Rs.

Award sum in

Rs.

Counter

Claim

Losses to railway due to late

commissioning of CNC Portal

Wheel Lathe, MOD item No.6

8,95,25,520/- 31,00,000/-

Net Award sum payable to the Claimant is Rs.5,53,57,597/-

6.0 Costs of Arbitration:

The costs of arbitration worked out are as under:

In terms of Section 31A of the Act, Costs mean reasonable costs

relating to-

i) The fees & expenses of arbitrators etc.

ii) Legal fees & expenses

iii) Any other expenses incurred in connection with the

arbitral proceedings and the arbitral award.

i) Fees, incidental & travel expenses of Arbitrators.:

Entire sum towards fees & incidental expenses of three

Members of the Tribunal were deposited by the Claimant in

tranches under the provision of Section 38(2) of the Act as the

Respondent side declined to make deposit in advance of the

sums on equitable share basis despite repeated directions of

the Tribunal in its several arbitral notices & Order Sheets.

Tribunal therefore constrained to invoke the provision in Section

38 of the Act to direct the Claimant side to deposit Respondent’s

share too.

Fees of 3 Arbitrators: Rs.2,25,000(@ Rs 75,000 of each

Arbitrator)

Incidental expenses of Arbitrators (Sectt. Charges, TA & local

transportation): Rs. 49,500 (@16,500)

Travel expenses of Shri R.K. Bariar, Co-Arbitrator from Mumbai

(sittings held at Delhi): Rs 15,532 (incurred by the Claimant

fully)

a) Sub Total of fees, incidental & travel expenses:

Rs.2,90,032 (incurred by the Claimant fully)

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ii) Legal Fees & charges:

Legal expenses of the Claimant (considered on lumpsum basis):

Rs. 5,00,000 (as no corroborative documents furnished with the

statement)

Legal expenses of the Respondent: Nil (No statement filed by

Respondent with AT)

b) Sub Total of Legal expenses: Rs. 5,00,000

iii) Other expenses in connection with arbitral

proceedings held at Delhi:

c) Arbitration Venue bookings (4 sittings): Rs.81,195/-

Thus, Total costs of arbitration admitted by the Tribunal

(a+b+c): Rs 7,90,032/-

7.0 This award has been published on a non-judicial stamp

paper of Rs. 500/- provided by the claimant. Deficiency, if any,

shall be borne by the party claiming under this award.

8.0 The above award sum of Rs.5,53,57,597/- (Five crore

fifty-three lakh fifty seven thousand five hundred ninety-seven

rupees only) shall be paid by the Respondent to the Claimant

within 60 days failing which, the awarded sum shall carry

post-lite interest @12% per annum with effect from date of

award till actual payment.

This award accordingly is made & signed on this day of

25

th Dec. 2018 at New Delhi.”

9. Thus, the AT awarded a sum of Rs. 5,53,57,597/-, to be paid

by the appellants (North Central Railway) to the respondent

(L&T) within 60 days. In default, the awarded sum shall carry

post-award interest at 12% per annum with effect from date of

award.

10. Being aggrieved by the Arbitral Award, the appellants filed an

application under Section 34 of the Act before the learned

Commercial Court, Jhansi, primarily arguing that the award of

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interest / compensation violated the contractual prohibitions

contained in Clause 16(3) and Clause 64(5) of the GCC and also

challenged the award of legal fees as lump sum under Claim No.

8 of the Arbitral Award.

11. The learned Commercial Court dismissed the Section 34

application vide the order dated 15.09.2022, affirming the

Arbitral Award. The learned Commercial Court further held that

the scope of interference under Section 34 of the Act is limited

and since it was not a case wherein the Arbitral Award could

have been set aside on the basis of provision of Section 34 of

the Act, the application filed by the appellants was rejected.

12. Aggrieved by the Commercial Court Order, the appellants filed

an Arbitration Appeal under Section 37 of the Act before the

High Court of Judicature at Allahabad.

13. Vide the impugned judgment dated 25.05.2023, the High Court

dismissed the appeal filed by the appellants and upheld the

Arbitral Award passed by the AT, holding that Clause 16(3) of

the GCC related only to earnest money and security deposits

and Clause 64(5) of the GCC merely barred pendente lite

interest, which the AT had correctly interpreted.

14. Aggrieved by the impugned judgment, the appellants have filed

the present appeal.

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SUBMISSIONS ON BEHALF OF THE APPELLANTS

15. Ms. Aishwarya Bhati, learned Additional Solicitor General,

appearing on behalf of the appellants, contended that the

contractual scheme under Clauses 16(3) and 64(5) of the GCC

constitutes an absolute prohibition on the award of interest on

all contract amounts.

16. It is submitted that as per the agreement between the parties,

Clause 16(3) of the GCC provides that no interest shall be

payable upon the earnest money or the security deposit or “the

amounts payable to the contractor under the contract”. Thus, it

is submitted that the aforesaid clause specifically bars the

payment of interest not only on the earnest money or security

deposit but also on any amounts payable to the contractor

under the contract. It is submitted that the claims adjudicated

by the AT arise solely from delayed payments under the

contract, such as, final bill, PVC amounts, and withheld dues,

and therefore, falls squarely within the contractual prohibition.

17. It is also submitted that the respondent’s submission that the

interest may be granted as “compensation” is a direct attempt

to violate the contractual bar, and the said position has been

rejected by this Court in the case of Sree Kamatchi Amman

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Constructions v. Railway Administration, (2010) 8 SCC

767.

18. It is further submitted that since the parties are governed by

the contract and the AT and the arbitration proceedings are the

creatures of the contract, they cannot go beyond what has been

contemplated in the contract between the parties. Reliance is

placed on the decision rendered by a three-judge Bench of this

Court in Union of India vs. Bright Power Projects (India) (P)

Limited, (2015) 9 SCC 695, wherein this Court reiterated that

Section 31(7)(a) of the Act subordinates the arbitrator’s power

to the terms of the contract and held that once the parties have

agreed to bar interest, the arbitrator has no jurisdiction to

award it under any name.

19. Further reliance is placed on the decision of this Court in Union

of India vs. Manraj Enterprises, (2022) 2 SCC 331, wherein

this Court observed and held that in view of the specific contract

between the parties and the bar on awarding the interest, the

arbitrator lacks jurisdiction to award interest of any kind

including pre-reference, pendente lite, or future interest.

20. It is submitted that the reliance of the respondent on Section

73 of the Indian Contract Act, 1872, is misplaced. Section 73

deals with compensation for loss or damage caused by breach

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Special Leave Petition (Civil) No. 14989 of 2023) Page 10

of contract and expressly provides that “unless the contract

provides otherwise”. However, in the present case, the contract

expressly excluded the interest. It is therefore urged that

Section 73 cannot override the agreement between the parties.

21. It is further submitted that the reliance of the respondent on

the decision of this Court in the case of RP Garg vs. Chief

General Manager, Telecom Department & Ors., 2024 SCC

OnLine SC 2928 , in support of post-award interest, is

misconceived, as this decision is applicable only where the

contract does not prohibit interest on the category of sums

awarded. It is therefore urged that in the present case, the

contractual bar applies to all amounts payable under the

contract. It is also pointed out that Section 31(7)(b) of the Act is

expressly subject to Section 31(7)(a) of the Act. It is therefore

urged that where the parties have contractually agreed to

exclude interest altogether, post-award interest cannot be

awarded.

22. Lastly, it is submitted that the award of interest under Claim

Nos. 1, 3 and 6 of the Arbitral Award by the AT is contrary to

the contract, contrary to the referred judicial pronouncements

of this Court, and thus, the Arbitral Award as well the impugned

judgment is liable to be set aside.

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Special Leave Petition (Civil) No. 14989 of 2023) Page 11

SUBMISSIONS ON BEHALF OF THE RESPONDENT

23. Ms. Meenakshi Arora, learned senior counsel, appearing on

behalf of the respondent, at the outset, submitted that the

present case arises out of concurrent findings given by the

Commercial Court as well as the High Court while considering

the proceedings filed by the appellants under Section 34 and

Section 37 of the Act, respectively.

24. Learned counsel referred to Clause 16(3) as well as Clause 64(5)

of the GCC. It is contended that Clause 16(3) of the GCC would

be governed by the principle of ejusdem generis, meaning

thereby that, when a general word or phrase follows a list of

specific persons or things, the general word or phrase will be

interpreted to include only persons or things of the same type

as those listed. Reliance is placed on the decision rendered by

this Court in the case of Raveechee and Company vs. Union

of India, (2018) 7 SCC 664, wherein this Court was dealing

with a Clause exactly similar to present Clause 16(3) and

interpreted the clause to mean and include only the amounts

voluntarily deposited with the other contracting party in order

to be refunded or forfeited depending on the performance of the

contract. It is therefore urged that it is not in dispute that the

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Special Leave Petition (Civil) No. 14989 of 2023) Page 12

present matter does not involve any sums towards the release

of the earnest money or the security deposit and hence, Clause

16(3) of the GCC has no relevance to the facts of the present

case.

25. With respect to Clause 64(5) of the GCC, it is submitted that

this clause specifically restricts payment of interest on the

money payable under an award till the date of award. In this

regard, it is further submitted that the issue of arbitration has

been dealt under the heading “Settlement of Disputes” and an

award would mean adjudication or determination of a matter in

dispute by a person competent to adjudicate or determine the

dispute, thus, in order to be adjudicated, the existence of a

dispute is a must, and hence, only such sums which were in

dispute can be governed by this Clause and sums which are

already admitted will not be hit by this Clause. It is therefore

urged that in the present matter, Claim Nos. 3 and 6 are

admitted sums, and thus, will not be hit by Clause 64(5) of the

GCC, and therefore, the respondent will be entitled for full

interest on these admitted sums under Claim Nos. 3 and 6 from

the said sums becoming due and till the date of their payment

to the respondent.

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Special Leave Petition (Civil) No. 14989 of 2023) Page 13

26. Further, with respect to the post-award interest, reliance is

placed on the decision rendered by this Court in RP Garg

(supra), wherein this Court has categorically held that so far as

the entitlement of the post-award interest is concerned, Section

31(7)(b) of the Act provides that the sum directed to be paid by

the arbitral tribunal shall carry interest.

27. Lastly, it is submitted that the judicial pronouncements relied

upon by learned ASG for the appellants would not be applicable

to the facts of the present case. It is therefore urged that the AT

has specifically observed that “it would be travesty of justice if

this interest as compensation is not paid because principal

unpaid sum is an admitted amount by the Respondent but simply

not paid without any reason”.

28. Therefore, it is submitted that the present appeal filed by the

appellants is liable to be dismissed as it is devoid of merit.

ANALYSIS AND FINDINGS

29. We have heard learned counsel for the parties and perused the

material placed on record. The following issues are raised for

our consideration:-

A. Whether the AT is justified in awarding pre-

award/pendente lite interest, by way of compensation, while

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Special Leave Petition (Civil) No. 14989 of 2023) Page 14

passing the award in favour of the respondent-claimant, and

more particularly in view of Clause 16(3) and Clause 64(5) of

GCC.

B. Whether the AT is justified in awarding post award interest

in favour of the respondent-claimant.

C. Whether the Courts below committed any error while

dealing with Issue (A) and Issue (B) referred hereinabove while

exercising the powers under Section 34 and Section 37 of the

Act.

30. For considering the aforesaid issues raised in the present

matter, at the outset, we would like to refer to the relevant

provisions of GCC as well as the Act of 1996.

31. Clause 16(3) of the GCC reads as under:

“no interest will be payable upon the Earnest Money and Security

Deposit or amounts payable to the Contractor under the Contract,

but Government Securities deposited in terms of Sub-Clause (1)

of this clause will be payable with interest accrued thereon”.

32. Clause 64(5) of the GCC provides as under:

“where the arbitral award is for the payment of money, no

interest shall be payable on whole or any part of the money for

any period till the date on which the award is made.”

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33. Section 28(3) of the Act mandates that the arbitral tribunal shall

decide disputes in accordance with the terms of the contract,

which reads as under:-

“28. Rules applicable to substance of dispute.—

…………

(3) While deciding and making an award, the arbitral tribunal

shall, in all cases, take into account the terms of the contract

and trade usages applicable to the transaction.”

34. Section 31(7)(a) and 31(7)(b) further clarifies that the power of

the arbitral tribunal to award interest, which reads as under:-

“31. Form and contents of arbitral award.—

………….

(7) (a) Unless otherwise agreed by the parties, where and in

so far as an arbitral award is for the payment of money, the

arbitral tribunal may include in the sum for which the award

is made interest, at such rate as it deems reasonable, on the

whole or any part of the money, for the whole or any part of

the period between the date on which the cause of action arose

and the date on which the award is made.”

(b) A sum directed to be paid by an arbitral award shall,

unless the award otherwise directs, carry interest at the rate

of two per cent. higher than the current rate of interest

prevalent on the date of award, from the date of award to the

date of payment.

Explanation.—The expression “current rate of interest” shall

have the same meaning as assigned to it under clause (b) of

section 2 of the Interest Act, 1978 (14 of 1978).”

35. On perusal of Section 28(3) and Section 31(7)(a) of the Act, it is

clear that the statutory scheme itself subordinates the

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Special Leave Petition (Civil) No. 14989 of 2023) Page 16

discretion of the arbitrator to the contractual provisions

governing interest.

36. In the present case, Clause 16(3) of the GCC, as referred

hereinabove, expressly stipulates that no interest will be

payable upon earnest money and security deposits or amounts

payable to the contractor under the contract.

37. Learned counsel for the respondent has sought to restrict the

scope of Clause 16(3) of the GCC by invoking the principle of

ejusdem generis contending that the expression “amounts

payable to the contractor under the contract” must be confined

to deposits akin to earnest money and security deposits.

38. This Court in the decision rendered in the case of Manraj

Enterprises (supra) has considered a similar submission

canvassed on behalf of the party concerned and thereafter

observed and held in para 12.1 as under:

“12.1. It is required to be noted that Clause 16(1) is with respect

to earnest money/security deposit. However, Clause 16(2) is

specifically with respect to interest payable upon the earnest

money or the security deposit or amounts payable to the

contractor under the contract. The words used in Clause 16(2) is

“or”. Therefore, the expression “amounts payable to the

contractor under the contract” cannot be read in conjunction with

“earnest money deposit” or “security deposit” by applying the

principle of ejusdem generis. The expression “amounts payable

to the contractor under the contract” has to be read

independently and disjunctively to earnest money deposit and

security deposit as the word used is “or” and not “and” between

“earnest money deposit”, “security deposit” and “amounts

payable to the contractor under the contract”. Therefore, the

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Special Leave Petition (Civil) No. 14989 of 2023) Page 17

principle of ejusdem generis is not applicable in the present

case.”

39. Thus, it can be said that the rule of ejusdem generis is a tool of

interpretation and is applicable only where the general words

follow a specific class forming a genus. The expression “amounts

payable to the contractor under the contract” used in Clause

16(3) is independent, distinct and of wide amplitude, and

cannot be read down to defeat its plain meaning. Thus, the

submission canvassed by the learned counsel for the

respondent cannot be accepted.

40. At this stage, we would also like to refer to the decision rendered

by a three-judge bench of this Court in Bright Power Projects

(India) (P) Ltd. (supra), wherein in para 10, 11 and 13, it was

held as under:

“10. Thus, it had been specifically understood between the

parties that no interest was to be paid on the earnest money,

security deposit and the amount payable to the contractor under

the contract. So far as payment of interest on government

securities, which had been deposited by the respondent

contractor with the appellant is concerned, it was specifically

stated that the said amount was to be returned to the contractor

along with interest accrued thereon, but so far as payment of

interest on the amount payable to the contractor under the

contract was concerned, there was a specific term that no

interest was to be paid thereon.

11. When parties to the contract had agreed to the fact that

interest would not be awarded on the amount payable to the

contractor under the contract, in our opinion, they were bound by

their understanding. Having once agreed that the contractor

would not claim any interest on the amount to be paid under the

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Special Leave Petition (Civil) No. 14989 of 2023) Page 18

contract, he could not have claimed interest either before a civil

court or before an Arbitral Tribunal.

……………

13. Section 31(7) of the Act, by using the words “unless

otherwise agreed by the parties”, categorically specifies that the

arbitrator is bound by the terms of the contract so far as award

of interest from the date of cause of action to date of the award is

concerned. Therefore, where the parties had agreed that no

interest shall be payable, the Arbitral Tribunal cannot award

interest.”

41. In the case of Sree Kamatchi Amman Constructions (supra),

this Court has held in para 19 as under:

“19. Section 37(1)[Sic Section 31(7)] of the new Act by using the

words “unless otherwise agreed by the parties” categorically

clarifies that the arbitrator is bound by the terms of the contract

insofar as the award of interest from the date of cause of action

to the date of award. Therefore, where the parties had agreed

that no interest shall be payable, the Arbitral Tribunal cannot

award interest between the date when the cause of action arose

to the date of award.”

42. At this stage, we may also refer to the decision upon which

reliance has been placed by learned counsel for the respondent,

i.e., in the case of Raveechee and Company (supra) , this Court

observed, in para 16 and 17, as under:

“16. Further, this Court considered an identical clause in the

contract in Ambica Construction v. Union of India [Ambica

Construction v. Union of India, (2017) 14 SCC 323 : (2018) 1 SCC

(Civ) 257] , wherein it observed that the clause of GCC did not

bar the arbitrator from awarding interest pendente lite and

affirmed the award passed by the arbitrator. The three-Judge

Bench of this Court held that the contention raised by the Union

of India based on the clause of GCC that the arbitrator could not

award interest pendente lite was not a valid contention and the

arbitrator was completely justified in granting interest pendente

lite. Relying on the three-Judge Bench judgment in Union of

India v. Ambica Construction [Union of India v. Ambica

Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36] and

in Irrigation Deptt., State of Orissa [Irrigation Deptt., State of

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Special Leave Petition (Civil) No. 14989 of 2023) Page 19

Orissa v. G.C. Roy, (1992) 1 SCC 508] , this Court held that the

bar to award interest on the amounts payable under the contract

would not be sufficient to deny the payment of interest pendente

lite.

17. Thus, when a dispute is referred to for adjudication to an

arbitrator, a term of such a nature as contained in Clause 16(3)

of GCC, that is binding on the parties cannot be extended to bind

an arbitrator. The arbitrator has the power to award interest

pendente lite where justified. We, therefore, set aside the

judgment of the High Court and restore the award passed by the

Arbitral Tribunal in respect of Claim 12.”

43. Now, at this stage, it is pertinent to observe that this Court,

thereafter, in the case of Manraj Enterprises (supra) had an

occasion to consider similar issues involved in the present

matter and had considered all the aforementioned decisions,

including the decisions rendered in the cases of Bright Power

Projects (India) (P) Ltd. (supra), Raveechee and Company

(supra) and Ambica Construction vs. Union of India, (2017)

14 SCC 323 (a three-judge bench judgment of this Court). After

considering the aforesaid decisions as well as several other

decisions referred on the issue, this Court has observed in para

8 and 11 as under:

“8. After considering various decisions on award of interest

pendente lite and the future interest by the arbitrator and after

discussing the decisions of this Court in Ambica

Construction v. Union of India [Ambica Construction v. Union of

India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257]

and Raveechee & Co. [Raveechee & Co. v. Union of India, (2018)

7 SCC 664 : (2018) 3 SCC (Civ) 711] and other decisions on the

point, this Court has observed in paras 9 to 18 as under : (Garg

Builders [Garg Builders v. BHEL, (2022) 11 SCC 697 : 2021 SCC

OnLine SC 855] , SCC paras 9-19)

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“9. On the other hand, Mr Pallav Kumar, learned counsel for

the respondent, submitted that Section 31(7)(a) of the 1996

Act gives paramount importance to the contract entered into

between the parties and categorically restricts the power of

an arbitrator to award pre-reference and pendente lite

interest when the parties themselves have agreed to the

contrary. He argued that if the contract itself contains a

specific clause which expressly bars the payment of

interest, then it is not open for the arbitrator to grant

pendente lite interest. It was further argued that Ambica

Construction [Ambica Construction v. Union of India, (2017)

14 SCC 323 : (2018) 1 SCC (Civ) 257] is not applicable to the

instant case because it was decided under the Arbitration

Act, 1940 whereas the instant case falls under the 1996

Act. It was further argued that Section 3 of the Interest Act

confers power on the court to allow interest in the

proceedings for recovery of any debt or damages or in

proceedings in which a claim for interest in respect of any

debt or damages already paid. However, Section 3(3) of the

Interest Act carves out an exception and recognises the right

of the parties to contract out of the payment of interest

arising out of any debt or damages and sanctifies contracts

which bars the payment of interest arising out of debt or

damages. Therefore, Clause 17 of the contract is not

violative of any the provisions of the Contract Act, 1872. In

light of the arguments advanced, the learned counsel prays

for dismissal of the appeal.

10. We have carefully considered the submissions of the

learned counsel for both the parties made at the Bar. The

law relating to award of pendente lite interest by arbitrator

under the 1996 Act is no longer res integra. The provisions

of the 1996 Act give paramount importance to the contract

entered into between the parties and categorically restricts

the power of an arbitrator to award pre-reference and

pendente lite interest when the parties themselves have

agreed to the contrary.

11. Section 31(7)(a) of the 1996 Act which deals with the

payment of interest is as under:

‘31. (7)(a) Unless otherwise agreed by the parties, where

and insofar as an arbitral award is for the payment of

money, the Arbitral Tribunal may include in the sum for

which the award is made interest, at such rate as it deems

reasonable, on the whole or any part of the money, for the

whole or any part of the period between the date on which

the cause of action arose and the date on which the award

is made.’

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12. It is clear from the above provision that if the contract

prohibits pre-reference and pendente lite interest, the

arbitrator cannot award interest for the said period. In the

present case, clause barring interest is very clear and

categorical. It uses the expression “any moneys due to the

contractor” by the employer which includes the amount

awarded by the arbitrator.

13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed Ahmed

& Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ)

629] , this Court has held that a provision has been made

under Section 31(7)(a) of the 1996 Act in relation to the

power of the arbitrator to award interest. As per this section,

if the contract bars payment of interest, the arbitrator

cannot award interest from the date of cause of action till

the date of award.

14. In Sree Kamatchi Amman

Constructions v. Railways [Sree Kamatchi Amman

Constructions v. Railways, (2010) 8 SCC 767 : (2010) 3 SCC

(Civ) 575] , it was held by this Court that where the parties

had agreed that the interest shall not be payable, the

Arbitral Tribunal cannot award interest between the date on

which the cause of action arose to the date of the award.

15. BHEL v. Globe Hi-Fabs Ltd. [BHEL v. Globe Hi-Fabs

Ltd., (2015) 5 SCC 718 : (2015) 3 SCC (Civ) 287] , is an

identical case where this Court has held as under : (SCC p.

723, para 16)

‘16. In the present case we noticed that the clause barring

interest is very widely worded. It uses the words “any

amount due to the contractor by the employer”. In our

opinion, these words cannot be read as ejusdem generis

along with the earlier words “earnest money” or “security

deposit”.’

16. In Chittaranjan Maity v. Union of India [Chittaranjan

Maity v. Union of India, (2017) 9 SCC 611 : (2017) 4 SCC

(Civ) 693] , it was categorically held that if a contract

prohibits award of interest for pre-award period, the

arbitrator cannot award interest for the said period.

17. Therefore, if the contract contains a specific clause

which expressly bars payment of interest, then it is not open

for the arbitrator to grant pendente lite interest. The

judgment on which reliance was placed by the learned

counsel for the appellant in Ambica Construction [Ambica

Construction v. Union of India, (2017) 14 SCC 323 : (2018)

1 SCC (Civ) 257] has no application to the instant case

because Ambica Construction [Ambica

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Special Leave Petition (Civil) No. 14989 of 2023) Page 22

Construction v. Union of India, (2017) 14 SCC 323 : (2018)

1 SCC (Civ) 257] was decided under the Arbitration Act,

1940 whereas the instant case falls under the 1996 Act.

This has been clarified in Chittaranjan Maity [Chittaranjan

Maity v. Union of India, (2017) 9 SCC 611 : (2017) 4 SCC

(Civ) 693] as under : (SCC p. 616, para 16)

‘16. Relying on a decision of this Court in Ambica

Construction v. Union of India [Ambica

Construction v. Union of India, (2017) 14 SCC 323 : (2018)

1 SCC (Civ) 257] , the learned Senior Counsel for the

appellant submits that mere bar to award interest on the

amounts payable under the contract would not be sufficient

to deny payment on pendente lite interest. Therefore, the

arbitrator was justified in awarding the pendente lite

interest. However, it is not clear from Ambica

Construction [Ambica Construction v. Union of India, (2017)

14 SCC 323 : (2018) 1 SCC (Civ) 257] as to whether it was

decided under the Arbitration Act, 1940 (for short “the 1940

Act”) or under the 1996 Act. It has relied on a judgment of

Constitution Bench in Irrigation Deptt., State of

Orissa v. G.C. Roy [Irrigation Deptt., State of Orissa v. G.C.

Roy, (1992) 1 SCC 508] . This judgment was with reference

to the 1940 Act. In the 1940 Act, there was no provision

which prohibited the arbitrator from awarding interest for

the pre-reference, pendente lite or post-award period,

whereas the 1996 Act contains a specific provision which

says that if the agreement prohibits award of interest for

the pre-award period, the arbitrator cannot award interest

for the said period. Therefore, the decision in Ambica

Construction [Ambica Construction v. Union of India, (2017)

14 SCC 323 : (2018) 1 SCC (Civ) 257] cannot be made

applicable to the instant case.’

18. The decision in Raveechee & Co. [Raveechee &

Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ)

711] relied on by the learned counsel for the appellant is

again under the Arbitration Act, 1940 which has no

application to the facts of the present case.

19. Having regard to the above, we are of the view that the

High Court [Garg Builders v. BHEL, 2017 SCC OnLine Del

12871] was justified in rejecting the claim of the appellant

seeking pendente lite interest on the award amount.”

………..

11. In the said decision in Bright Power Projects [Union of

India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695 :

(2015) 4 SCC (Civ) 702] , this Court also considered Section

31(7)(a) of the 1996 Act. It is specifically observed and held that

Section 31(7) of the 1996 Act, by using the words “unless

otherwise agreed by the parties” categorically specifies that the

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Special Leave Petition (Civil) No. 14989 of 2023) Page 23

arbitrator is bound by the terms of the contract insofar as award

of interest from the date of cause of action to date of the award

is concerned. It is further observed and held that where the

parties had agreed that no interest shall be payable, the Arbitral

Tribunal cannot award interest. Thus, the aforesaid decision of

a three-Judge Bench of this Court is the answer to the

submission made on behalf of the respondent that despite the

bar under Clause 16(2) which is applicable to the parties, the

Arbitral Tribunal is not bound by the same. Therefore, the

contention raised on behalf of the respondent that dehors the bar

under Clause 16(2), the Arbitral Tribunal independently and on

equitable ground and/or to do justice can award interest

pendente lite or future interest has no substance and cannot be

accepted. Once the contractor agrees that he shall not be entitled

to interest on the amounts payable under the contract, including

the interest upon the earnest money and the security deposit as

mentioned in Clause 16(2) of the agreement/contract between

the parties herein, the arbitrator in the arbitration proceedings

being the creature of the contract has no power to award interest,

contrary to the terms of the agreement/contract between the

parties and contrary to Clause 16(2) of the agreement/contract

in question in this case.”

44. Thus, from the aforesaid decisions rendered by this Court, it

can be said that the decisions in Ambica Construction (supra)

and Raveechee and Company (supra) were rendered by this

Court while deciding under the Arbitration Act of 1940, whereas

the instant case falls under the Arbitration Act of 1996.

45. The provisions of the Act of 1996, including provisions

contained in Section 31(7)(a) give paramount importance to the

contract entered into between the parties and categorically

restrict the power of an arbitrator to award pre-award/pendente

lite interest when the parties have themselves agreed to the

contrary. Thus, the AT cannot award pre-award/pendente lite

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Special Leave Petition (Civil) No. 14989 of 2023) Page 24

interest, even in the form of compensation, in view of specific

Clause 16(3) of GCC read with Clause 64(5) of GCC.

46. At this stage, it is also relevant to observe that the AT itself

acknowledged this prohibition by rejecting Claim No. 7 seeking

pendente lite interest. The relevant paragraph of the Arbitral

Award reads as under:-

“The Interest so claimed is therefore not admissible as per

Section 31(7)(a) of the Act read with Clause 64(5) of the GCC

& Clause 7.35 of SCC of the contract agreement signed

between the two parties. Tribunal did not therefore consider

to award any interest on the award sum as claimed by the

Claimant. Therefore, Arbitral Tribunal declare Nil Award

against this claim.”

47. With regard to the post-award interest, Section 31(7)(b) of the

Act provides that unless the award otherwise directs, the sum

awarded shall carry interest from the date of the award till

payment. The legislative intent underlying this provision is

twofold: first, to compensate the successful party for delayed

realization of the award, and second, to ensure prompt

compliance with the award by the judgment-debtor.

48. Recently, this Court in the case of R.P. Garg (supra), has

observed and held in para 9, 11 and 12 as under:

“9. We are of the opinion that the judgment of High Court is

clearly erroneous. Firstly, the interest granted by the First

Appellate Court only related to post award period, and therefore,

for this period, the agreement between the parties has no

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Special Leave Petition (Civil) No. 14989 of 2023) Page 25

bearing. Section 31(7)(b) deals with grant of interest for post

award period i.e., from the date of the award till its realization.

The statutory scheme relating to grant of interest provided in

Section 31(7) creates a distinction between interest payable

before and after the award. So far as the interest before the

passing of the award is concerned, it is regulated by Section

31(7)(a) of the Act which provides that the grant of interest shall

be subject to the agreement between the parties. This is evident

from the specific expression at the commencement of the sub-

section which says “unless otherwise agreed by the parties”.

…………..

11. So far as the entitlement of the post-award interest is

concerned, sub-Section (b) of Section 31(7) provides that the sum

directed to be paid by the Arbitral Tribunal shall carry interest.

The rate of interest can be provided by the Arbitrator and in

default the statutory prescription will apply. Clause (b) of Section

31(7) is therefore in contrast with clause (a) and is not subject to

party autonomy. In other words, clause (b) does not give the

parties the right to “contract out” interest for the post-award

period. The expression ‘unless the award otherwise directs’ in

Section 31(7)(b) relates to rate of interest and not entitlement of

interest. The only distinction made by Section 31(7)(b) is that the

rate of interest granted under the Award is to be given

precedence over the statutorily prescribed rate. The assumption

of the High Court that payment of the interest for the post award

period is subject to the contract is a clear error.

12. The clear position of law that granting post-award interest is

not subject to the contract between the parties was recently

affirmed in the decision of this Court in Morgan Securities &

Credits (P) Ltd. v. Videocon Industries Ltd.,

6

wherein the court

observed as follows:

“24. The issue before us is whether the phrase “unless the

award otherwise directs” in Section 31(7)(b) of the Act only

provides the arbitrator the discretion to determine the rate

of interest or both the rate of interest and the “sum” it must

be paid against. At this juncture, it is crucial to note that

both clauses (a) and (b) are qualified. While, clause (a) is

qualified by the arbitration agreement, clause (b) is qualified

by the arbitration award. However, the placement of the

phrases is crucial to their interpretation. The words, “unless

otherwise agreed by the parties” occur at the beginning of

clause (a) qualifying the entire provision. However, in clause

(b), the words, “unless the award otherwise directs” occur

after the words “a sum directed to be paid by an arbitral

award shall” and before the words “carry interest at the

rate of eighteen per cent”. Thereby, those words only qualify

the rate of post-award interest.

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Special Leave Petition (Civil) No. 14989 of 2023) Page 26

25. Section 31(7)(a) confers a wide discretion upon the

arbitrator in regard to the grant of pre-award interest. The

arbitrator has the discretion to determine the rate of

reasonable interest, the sum on which the interest is to be

paid, that is whether on the whole or any part of the

principal amount, and the period for which payment of

interest is to be made — whether it should be for the whole

or any part of the period between the date on which the

cause of action arose and the date of the award. When a

discretion has been conferred on the arbitrator in regard to

the grant of pre-award interest, it would be against the

grain of statutory interpretation to presuppose that the

legislative intent was to reduce the discretionary power of

the arbitrator for the grant of post-award interest under

clause (b). Clause (b) only contemplates a situation where

the arbitration award is silent on post-award interest, in

which event the award-holder is entitled to a post-award

interest of eighteen per cent.”

49. At this stage, it is pertinent to note that Clause 16(3) of the GCC

is similar to the clause in question in Manraj Enterprises

(supra), wherein this Court also took into consideration the

three-judge bench decision in Bright Power Projects (India) (P)

Ltd. (supra), which barred the grant of pendente lite interest

only. However, in the case of Manraj Enterprises (supra), this

Court held that in view of the clause barring interest in the GCC,

“the arbitrator could not have awarded the interest, pendente lite

or future interest on the amount due and payable to the contractor

under the contract in the instant case.”

50. Considering the facts of the present case, a distinct legal regime

governs post-award interest, which operates independent of the

principles applicable to pre-award or pendente lite interest.

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Special Leave Petition (Civil) No. 14989 of 2023) Page 27

Clause 64(5) of the GCC bars interest only “till the date on which

the award is made”. It does not prohibit interest for the period

subsequent thereto.

51. Keeping in view the aforesaid provisions of GCC and the Act of

1996 coupled with the decisions rendered by this Court, now

the operative part of the Arbitral Award is carefully examined,

it is revealed that the AT has awarded pre-award/pendente lite

interest for Claim Nos. 1,3 and 6. The relevant part of the

Arbitral Award reads as under:

“Claims:

Sr. Particulars Claim Amount in

Rs.

Award sum in Rs.

Claim

No.1

Financing charges towards

inordinate delay

2,26,25,891 1,77,78,727/-

Claim

No.3

Claim for non payment of

PVC & INTEREST

98,44.886/- 1,70,18,577/-

Claim

No.6

Payment due against the

final bill & interest

1,67,51,576 2,28,70,261/-

… … …

8.0 The above award sum of Rs.5,53,57,597/- (Five crore

fifty-three lakh fifty seven thousand five hundred ninety-seven

rupees only) shall be paid by the Respondent to the Claimant

within 60 days failing which, the awarded sum shall carry

post-lite interest @12% per annum with effect from date of

award till actual payment.”

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Special Leave Petition (Civil) No. 14989 of 2023) Page 28

52. We are of the view that the AT has committed serious error by

awarding pre-award/pendente lite interest qua Claim Nos. 1, 3

& 6, though AT has observed that the said amount are awarded

by way of compensation, however, in view of the peculiar clause

of GCC as well as provisions contained in Section 31(7)(a) of the

Act of 1996 and the decisions rendered by this Court, the AT

could not have awarded the pre-award/pendente lite interest.

53. For the above stated reasons, the Commercial Court and the

High Court failed to appreciate that the AT had awarded

pendente lite interest in violation of an express contractual bar

and such failure attracts interference even within the limited

scope of Sections 34 and 37 of the Act.

54. Further, in the present case, the AT has expressly directed that

the awarded sum shall carry post-award interest at the rate of

12% per annum only in the event of default, i.e., if payment is

not made within the stipulated period of 60 days. The grant of

post-award interest is, therefore, conditional in nature and

operates as a deterrent against delayed payment, rather than

as an automatic or punitive imposition of post-award interest.

55. There is no provision in the GCC which expressly bars the grant

of post-award interest. In the absence of such an express

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Special Leave Petition (Civil) No. 14989 of 2023) Page 29

exclusion, the statutory mandate under Section 31(7)(b) of the

Act must prevail.

56. In RP Garg (supra), in paragraph 11, this Court reiterated that

post-award interest flows as a matter of law under Section

31(7)(b), unless the parties have unequivocally agreed to

exclude it.

57. The submission of the appellants that Section 31(7)(b) of the Act

stands overridden merely because the contract bars pre-award

interest cannot be accepted. Pre-award and post-award interest

operate in distinct fields and a contractual bar applicable to the

former cannot, by implication, be extended to the latter, and

thus, any exclusion of post-award interest must be explicit and

unambiguous.

58. Accordingly, the conditional grant of post-award interest in the

present case is consistent with the statutory framework and

serves the purpose of ensuring timely satisfaction of the award.

However, we are of the considered opinion that the rate of post-

award interest at 12% per annum, as awarded by the AT, is on

the higher side. It is pertinent to note that the AT has not

assigned any reasons whatsoever for fixing the rate of post-

award interest at 12% per annum. In the absence of any

justification in the award for fixing the rate at 12% per annum

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Special Leave Petition (Civil) No. 14989 of 2023) Page 30

and keeping in view the contemporary economic scenario, such

rate would result in an excessive financial burden and would

not subserve the principle of just compensation.

59. In this context, the decision of this Court in Gayatri Balasamy

v. M/s. ISG Novasoft Technologies Limited, (2025) 7 SCC 1,

is significant. In paragraphs 74 to 78, this Court has

categorically held that courts retain the power to modify post-

award interest under Section 31(7)(b) of the Act where the facts

justify such modification. It has been clarified that Section

31(7)(b) is a distinct legislative creation which prescribes a

statutory standard to guide the determination of post-award

interest and since such interest is inherently future-oriented,

the courts may increase or decrease the rate of post-award

interest where compelling reasons exist. The Court further

observed that when the statute itself benchmarks a standard,

such benchmark must weigh in the consideration of the rate

awarded and that the power of modification is necessary to

avoid unnecessary setting aside of the entire award merely on

the question of interest.

60. Thus, in the facts and circumstances of the present case, we

deem it appropriate to modify the rate of post-award interest

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Special Leave Petition (Civil) No. 14989 of 2023) Page 31

from 12% per annum to 8% per annum from the date of award

till realization.

CONCLUSION

61. Accordingly, the answer to the issues framed in the present

matter is that:

A. The AT is not justified in awarding pre-award/pendente

lite interest, by way of compensation, while passing the award

in favour of the respondent-claimant, and more particularly in

view of Clause 16(3) and Clause 64(5) of the GCC. The award of

such interest is not in accordance with the agreement, and

liable to be set aside.

B. The AT is justified in awarding post award interest in

favour of the respondent-claimant, however, the rate of post-

award interest is modified from 12% per annum to 8% per

annum from the date of award till realization.

C. The Courts below committed a serious error while dealing

with Issue (A) and Issue (B) referred hereinabove while

exercising the powers under Section 34 and Section 37 of the

Act.

62. In view of the aforesaid discussion, the impugned judgment

dated 25.05.2023 passed by the High Court of Judicature at

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Special Leave Petition (Civil) No. 14989 of 2023) Page 32

Allahabad, the order dated 15.09.2022 passed by the

Commercial Court, Jhansi, and the Arbitral Award dated

25.12.2018, are set aside, to the extent of the grant of pre-award

/ pendente lite interest or amounts in the nature of interest, qua

Claim No. 1, 3 and 6. The Arbitral Award dated 25.12.2018 is

further modified to the extent of the rate of the post-award

interest from 12% per annum to 8% per annum from the date

of award till realization.

63. Accordingly, the present appeal is partly allowed.

64. Pending applications, if any, shall stand disposed of.

....…….…………………….J.

[SANJAY KAROL]

..…………………………….J.

[VIPUL M. PANCHOLI]

NEW DELHI,

FEBRUARY 27, 2026