Case at a Glance
An arbitral tribunal awarded a contractor Rs 3.30 crore on four claims arising from a 1996 contract for a gas turbine power project in Tripura, along with 12% pre-reference interest. The Commercial Court cut down the interest, but the Meghalaya High Court restored the full award, relying on State of U.P. v. Harish Chandra & Co.. The Supreme Court held that Clause 54 of the General Conditions of Contract, which barred interest both on money withheld due to a dispute and on “any delay” in payments, was a bar on pre-reference interest, and set aside the High Court’s judgment to that extent.
NEEPCO invited tenders on 12 June 1995 for civil works of the main plant and auxiliary building of a gas turbine power project at Ram Chandra Nagar, Tripura. Astra Construction’s tender was accepted, and the agreement was executed on 23 May 1996 at an estimated value of Rs 17,09,26,913, with completion due by 26 March 1997. Disputes followed, and on 5 June 2015 the Arbitral Tribunal found the delay attributable to NEEPCO, allowed four claims for a principal sum of Rs 3.30 crore, and awarded pre-reference interest at 12% per annum and pendente lite and future interest at 9% per annum.
In Section 34 proceedings, the Commercial Court on 15 February 2024 relied on Sayeed Ahmed & Co. v. State of U.P., (2009) 07 SC CK 0043 to hold that Clause 54 of the GCC barred both pre-reference and pendente lite interest, and set aside that interest on four claims. In appeal under Section 37, the High Court of Meghalaya on 19 June 2025 treated Clause 54 as identical to the clause in Harish Chandra, read the bar as confined to interest on money held up because of a dispute, and restored the award in full. NEEPCO appealed, confining its challenge to the pre-reference interest.
The Key Question Before the Court
Does Clause 54 of the GCC — barring interest on money held back due to a dispute and on “any delay” in periodic or final payments — prevent an arbitral tribunal from awarding pre-reference interest under the Arbitration and Conciliation Act, 1996?
Two Limbs, One Bar: Why Harish Chandra Did Not Apply
Writing for the Bench, Justice Alok Aradhe traced the law: under the 1940 Act an arbitrator’s power to award interest could be implied, as recognised in Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, (1991) 12 SC CK 0032, and contractual bars were construed strictly. Section 31(7) of the 1996 Act confers the power expressly but opens with “unless otherwise agreed by the parties”, so an express contractual bar can exclude it, as held in Pam Developments Pvt. Ltd. v. State of West Bengal, (2024) 08 SC CK 0034. The Court explained that pre-reference interest rests on substantive law and cannot be sourced in Section 31(7)(a) alone.
Turning to the clause, the Court held that the clause in Harish Chandra addressed only money held back because of a dispute. Clause 54, by contrast, has two distinct limbs — money withheld due to a dispute, and “any delay” in periodic or final payments — and the second limb bars interest arising from delay whether or not there is a dispute. This difference was described as “decisive”. The same structure had been held a complete bar in Sayeed Ahmed and Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation, (2019) 02 SC CK 0029, and the High Court erred in treating Clause 54 as the Harish Chandra clause. The contractor’s waiver plea, based on Union of India v. Susaka Pvt. Ltd., (2017) 12 SC CK 0085, failed because NEEPCO had taken the Clause 54 objection in its Statement of Defence dated 23 August 2012; the intervenors’ narrower reading was also rejected.
What the Court Actually Held
- Clause 54 of the GCC bars pre-reference interest because its second limb expressly excludes interest on “any delay” in payments, with or without a dispute.
- State of U.P. v. Harish Chandra & Co. is distinguishable; the clause here is of the kind considered in Sayeed Ahmed and the second Jaiprakash Associates (THDC) decision.
- The Arbitral Tribunal exceeded its jurisdiction under Section 31(7)(a) in awarding pre-reference interest, and NEEPCO had not waived the objection.
- The High Court’s judgment was set aside to the extent it restored pre-reference interest; the appeal was allowed in those terms with no order as to costs.
Why This Judgment Matters
- It confirms that, under the 1996 Act, parties can contract out of a tribunal’s power to award interest, and courts will enforce clear bars.
- It provides a way to distinguish Harish Chandra: look for a separate limb barring interest on delayed payments.
- Public sector employers and contractors with similar GCC clauses will need to reassess interest claims in pending arbitrations.
What Should Advocates Take Away From the Judgment?
For Contractors
- Read the interest clause in the GCC before claiming pre-reference interest; a bar on interest for ‘any delay’ in payment can defeat the claim.
- Principal sums and claims for delay attributable to the employer can still be awarded — the ruling concerns pre-reference interest.
- Negotiate interest clauses at the bidding stage where possible.
For Counsel
- Plead a contractual interest bar in the Statement of Defence; NEEPCO’s plea of 2012 defeated the waiver argument here.
- Distinguish between the dispute-only clause in Harish Chandra and two-limb clauses as in Sayeed Ahmed.
- Note that pre-reference interest rests on substantive law, not on Section 31(7)(a) alone.
Key Takeaways
- Section 31(7) interest power yields to a contrary agreement.
- A bar on interest for “any delay” in payments bars pre-reference interest.
- Harish Chandra is distinguishable where a clause has a separate delay limb.
- The 12% pre-reference interest in the NEEPCO award was set aside.
Frequently Asked Questions
Can an arbitral tribunal award interest if the contract prohibits it?
Under Section 31(7) of the Arbitration and Conciliation Act, the tribunal’s power applies “unless otherwise agreed by the parties”. The Court held that Clause 54 here barred pre-reference interest and the tribunal exceeded its jurisdiction in awarding it.
What is pre-reference interest?
It is interest for the period before the dispute is referred to arbitration. The Court explained that it rests on substantive law and cannot be founded on Section 31(7)(a) alone.
Did the contractor lose its principal award?
No. The challenge before the Supreme Court was limited to pre-reference interest, and the High Court’s judgment was set aside only to the extent it restored that interest.
Conclusion
NEEPCO v. Astra Construction, (2026) 09 SC CK 3594 turns on careful reading of an interest clause. By identifying the separate ‘any delay’ limb in Clause 54, the Supreme Court aligned the case with Sayeed Ahmed and the THDC line rather than Harish Chandra, and removed the 12% pre-reference interest from a long-running power-project award.
Practical takeaway: In any arbitration under a government contract, check whether the GCC bars interest on delayed payments as well as on disputed sums — that distinction can decide whether pre-reference interest survives.
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