Case at a glance: The Supreme Court has held that a contract clause barring interest on balance payments, deposits or delayed payments “or otherwise” operates as a complete bar on pre-reference and pendente lite interest in arbitration. Refusing to read down “or otherwise” by ejusdem generis, it upheld the Delhi High Court's deletion of that interest, while post-award interest survived.
In 1991 NBCC sub-contracted flooring and cladding work at the Vashi Railway Station complex to the appellant. NBCC terminated the contract in 1992 and encashed the bank guarantees. In a 2016 award, the arbitrator held the termination wrongful and allowed several claims with 10 per cent interest from 1992.
The Delhi High Court upheld the award on merits but struck out pre-reference and pendente lite interest because of Clause 26 of the Special Conditions, which barred interest claims on specified payments “or otherwise”.
The Key Question Before the Court
Does the phrase “or otherwise” in a no-interest clause bar all pre-award interest, or is it limited by the ejusdem generis rule?
A Residuary Expression of Wide Amplitude
The Court held that the items listed in Clause 26, joined by “or”, formed no single genus, so ejusdem generis did not apply. Following Lilavati Bai, “or otherwise” is a residuary expression consciously used with wide amplitude, and reading it down would rewrite the contract. The clause was equivalent to the bars in Sayeed Ahmed and Jaiprakash Associates; ONGC v. G&T Beckfield was distinguished as lacking residuary words.
Section 31(7)(a) makes pre-award interest subject to the parties' agreement, so the arbitrator, as a creature of the contract, exceeded jurisdiction. Post-award interest under Section 31(7)(b) is not subject to party agreement and was rightly retained.
What the Court Actually Held
- The appeal was dismissed (para 19).
- Pre-reference and pendente lite interest barred by Clause 26.
- Post-award interest under Section 31(7)(b) retained.
- Award otherwise upheld.
Why This Judgment Matters
- It strengthens enforcement of no-interest clauses in public contracts.
- It limits the use of ejusdem generis to read down residuary words.
- It confirms the distinction between pre-award and post-award interest.
What Should Advocates Take Away From the Judgment?
For Contractors' Counsel
- Read interest clauses closely before claiming pre-award interest.
- Claim post-award interest, which cannot be contracted out.
For Employers' Counsel
- Draft no-interest clauses with residuary words to cover all heads.
Key Takeaways
- “Or otherwise” is not read down.
- Parties can bar pre-award interest.
- Post-award interest remains.
- Award interest deleted.
Frequently Asked Questions
Yes, for pre-award interest under Section 31(7)(a); not post-award interest under Section 31(7)(b).
The listed items formed no single genus, and “or otherwise” was a deliberate residuary expression.
ONGC v. G&T Beckfield, whose clause had no residuary words.
Conclusion
The ruling gives full effect to carefully drafted no-interest clauses.
Practical takeaway: Check for residuary words like “or otherwise” before advising on interest claims in arbitration.