The Supreme Court has held that an Arbitral Tribunal cannot award pre-reference interest when the contract between the parties expressly prohibits such interest. The Court clarified that Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, recognises the autonomy of contracting parties and makes an arbitrator's power to award interest subject to their agreement.
A Bench of Justice P.S. Narasimha and Justice Alok Aradhe set aside the judgment of the Meghalaya High Court to the extent that it had restored pre-reference interest awarded to Astra Construction Private Limited in its arbitration dispute with North Eastern Electric Power Corporation Limited (NEEPCO).
The Court held that Clause 54 of the General Conditions of Contract (GCC) expressly prohibited claims for interest arising from delayed payments, irrespective of whether the delay resulted from a dispute between the parties.
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The dispute arose from a contract awarded by NEEPCO to Astra Construction for civil works relating to the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura.
NEEPCO invited tenders on June 12, 1995, and the parties executed an agreement on May 23, 1996. The estimated contract value was approximately ₹17.09 crore, with the work scheduled for completion by March 26, 1997.
Following disputes over the execution of the project, the matter was referred to arbitration. On June 5, 2015, the Arbitral Tribunal held NEEPCO responsible for the delay and awarded Astra Construction approximately ₹3.30 crore against four claims.
The Tribunal also awarded pre-reference interest at 12% per annum, together with pendente lite and future interest at 9% per annum.
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NEEPCO challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act.
On February 15, 2024, the Commercial Court relied on the Supreme Court's decision in Sayeed Ahmed & Company v. State of Uttar Pradesh and held that Clause 54 prohibited the grant of pre-reference and pendente lite interest. It accordingly set aside the interest awarded on the relevant claims while otherwise upholding the award.
Astra Construction appealed under Section 37 of the Act.
On June 19, 2025, the Meghalaya High Court relied on State of U.P. v. Harish Chandra and Co. and held that Clause 54 was similar to the contractual provision considered in that case. It concluded that the prohibition was confined to interest on money withheld because of a dispute and did not extend to other claims.
The High Court consequently restored the arbitral award in its entirety. NEEPCO challenged that decision before the Supreme Court, limiting its challenge to the restoration of pre-reference interest.
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The Supreme Court examined the distinction between the legal position under the Arbitration Act, 1940, and the Arbitration and Conciliation Act, 1996.
It observed that the 1940 Act did not expressly empower arbitrators to award interest. Judicial decisions had therefore recognised an implied power to award interest in appropriate circumstances and required contractual prohibitions to be interpreted strictly.
However, Section 31(7)(a) of the 1996 Act expressly empowers an Arbitral Tribunal to award interest while making that power subject to any contrary agreement between the parties.
Referring to Pam Developments Private Limited v. State of West Bengal, the Court reiterated that an express contractual prohibition is sufficient to restrict an arbitrator's power to award pre-reference and pendente lite interest.
The Bench further clarified that while pendente lite interest is governed by procedural law, pre-reference interest is a matter of substantive law. An entitlement to pre-reference interest must therefore have a foundation in an express or implied agreement, a statutory provision or established mercantile usage.
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The central question before the Supreme Court was whether Clause 54 of the contract was comparable to the clause considered in Harish Chandra or to those examined in Sayeed Ahmed and Jaiprakash Associates Limited v. Tehri Hydro Development Corporation.
The Court found a material distinction.
It explained that the clause in Harish Chandra prohibited interest on money withheld because of a dispute. It did not independently prohibit interest arising solely from delayed payment.
Clause 54 of the NEEPCO contract, however, contained two separate prohibitions: one concerning money withheld because of a dispute and another concerning delays by the Engineer-in-Charge in making periodical or final payments.
The Court held that the second prohibition independently covered delayed payments, even where no dispute existed.
It consequently found that Clause 54 was materially similar to the provisions considered in Sayeed Ahmed and the later Tehri Hydro Development Corporation decision, rather than the clause examined in Harish Chandra.
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Astra Construction had also argued that NEEPCO failed to raise its objection based on Clause 54 before the Arbitral Tribunal and had therefore waived its right to rely on the contractual prohibition.
The Supreme Court rejected this argument after examining the record. It found that NEEPCO had specifically raised the objection in its Statement of Defence filed before the Tribunal on August 23, 2012.
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Allowing NEEPCO's appeal, the Supreme Court held that Clause 54 expressly barred pre-reference interest and that the Arbitral Tribunal had exceeded its jurisdiction under Section 31(7)(a) by granting such interest.
The Court set aside the Meghalaya High Court's judgment only to the extent that it restored pre-reference interest. The appeal was allowed without any order as to costs.
Case Details:-
Case: North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited
Citation: 2026 INSC 1036
Bench: Justice P.S. Narasimha and Justice Alok Aradhe
Judgment Date: September 22, 2026
Representation:-
For Petitioner(s) : Mr. Tushar Mehta, Solicitor General Mr. Raghavendra P. Shankar, A.S.G. Mr. Karan Lahiri, Adv. Mr. Prateek Arora, Adv. Mr. Neelabh Bist, Adv. Ms. Pallavi Mishra, Adv. Mr. Kanak Grover, Adv. Mr. Digvijay Dam, Adv. Mr. Aman Mehta, Adv. Ms. Pragya Choudhary, Adv. Ms. Nasadiya Singh, Adv. Mr. Kanishka Singh, Adv. Mr. Daksh Aggarwal, Adv. Ms. Anjali Singariya, Adv. Ms. Sonali Jain, AOR
For Respondent(s) : Mr. C. S. Vaidyanathan, Sr. Adv. Mr. Ritin Rai, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Aditya Swarup, Adv. Mr. Hiten Sampat, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Raunak Shankar Aggarwal, Adv. Mr. Vijay Valsan, Adv. Mr. Vinayak Mani, Adv. Mr. Tushar Bhardwaj, Adv. Mr. Prasouk Jain, Adv. Ms. Shalini Nair, Adv. Mr. Rohan Batra, AOR
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