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Case Snapshot
Case Name: North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited
Citation: 2026 INSC 1036
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Date of Judgment: September 22, 2026
Area of Law: Arbitration and Conciliation Act, 1996 — Section 31(7)(a) — Arbitrator’s power to award pre-reference interest — Contractual bar
The Judgment in One Line
A contractual clause that separately bars interest on delayed payments, in addition to money withheld due to disputes, validly excludes the arbitrator’s power to award pre-reference interest under Section 31(7)(a).
Why this Judgement Matters
This judgment resolves a recurring dispute in public works contracts: whether a “no interest” clause covers only dispute-related withholdings or also delayed payments. By distinguishing Clause 54 of the GCC from Harish Chandra and aligning it with Sayeed Ahmed and THDC-II, the Supreme Court has made the contract wording decisive. If the clause expressly names “delay in payment” as a separate ground, the bar is complete. Arbitrators, advocates, and contract drafters must now closely examine the exact language of interest-bar clauses. The ruling will influence Section 34 and Section 37 challenges across infrastructure and public sector contracts.
Background
NEEPCO invited tenders in 1995 for civil works at a Gas Turbine Power Project in Tripura. Astra Construction’s tender was accepted, and an agreement was executed on May 23, 1996. The estimated value was about Rs. 17.09 crores, with completion due by March 26, 1997.
Disputes arose and the matter went to arbitration. The Arbitral Tribunal, by award dated June 5, 2015, held NEEPCO responsible for delays and allowed four claims, including pre-reference interest, with a principal sum of Rs. 3.30 crores.
NEEPCO challenged the award under Section 34. The Commercial Court relied on Sayeed Ahmed and held that Clause 54 bars both pre-reference and pendente lite interest. The award was modified accordingly.
Astra Construction appealed under Section 37. The High Court relied on Harish Chandra, found Clause 54 identical to that case, and restored the award in full. NEEPCO approached the Supreme Court.
Issues Before the Court
Whether Clause 54 of the GCC corresponds to the clause in Harish Chandra or to the clauses in Sayeed Ahmed and THDC-II.
Whether Clause 54 validly excludes the Arbitral Tribunal’s power to award pre-reference interest under Section 31(7)(a).
Whether NEEPCO waived its right to invoke Clause 54 by not raising it before the Arbitral Tribunal.
What Did the Supreme Court Hold?
Clause 54 is differently worded from Harish Chandra
In Harish Chandra, the clause barred interest on money or balances lying with the Government owing to a dispute or misunderstanding. The words “in making periodical or final payments” described the dispute situation; they did not create a separate ground. Mere delayed payment was outside the bar.
Clause 54 of the GCC, however, bars interest in two separate situations. First, money or balance lying with the Corporation owing to a dispute, difference, or misunderstanding. Second, independently, “any delay on the part of the Engineer-in-Charge making periodical or final payments.”
Because delay in payment is a standalone ground, Clause 54 covers the very situation that fell outside the bar in Harish Chandra.
The line of authority in Sayeed Ahmed and THDC-II applies
The same structure — a separate, additional bar on interest for delayed payments — appeared in Sayeed Ahmed and THDC-II.
In both cases, the Court held that such a clause is a complete bar on the arbitrator’s power to award interest for the pre-reference and pendente lite periods.
The High Court erred in equating Clause 54 with the clause in Harish Chandra. The difference in wording is decisive.
Section 31(7)(a) and party autonomy
Under the 1996 Act, Section 31(7)(a) begins with the words “unless otherwise agreed by the parties.”
This gives primacy to party autonomy. An express contractual bar excludes the arbitrator’s power even if it is not specifically directed at the arbitrator’s jurisdiction.
This marks a departure from the strict-construction approach under the Arbitration Act, 1940.
No waiver
NEEPCO had specifically raised the Clause 54 plea in its Statement of Defence filed on August 23, 2012, before the Arbitral Tribunal.
The contention that the plea was never urged was factually incorrect.
Conclusion
Clause 54 bars the grant of pre-reference interest.
The Arbitral Tribunal exceeded its jurisdiction under Section 31(7)(a) in awarding such interest.
The High Court’s restoration of pre-reference interest was set aside.
Key Legal Principles
Party autonomy under Section 31(7)(a): An express contract bar excludes the arbitrator’s power to award pre-reference and pendente lite interest.
Pre-reference vs. pendente lite interest: Pendente lite interest is procedural; pre-reference interest is substantive and must be sourced in agreement, statute, or mercantile usage.
Drafting specificity matters: A clause separately naming “delay in payment” is different from one that only bars dispute-related interest.
Contextual reading: Residuary words like “or in any other respect whatsoever” take colour from the specific preceding language.
1996 Act shifts from 1940 Act: Strict construction of interest-bar clauses under the 1940 Act gives way to party autonomy under the 1996 Act.
Waiver needs record: If the plea was raised in pleadings before the arbitrator, waiver cannot be presumed.
Comparative clause analysis: Courts compare the exact contractual wording with precedents to decide which line of authority applies.
Important Precedents
State of U.P. v. Harish Chandra and Co. (1999) 1 SCC 63: Clause barred interest only on money withheld due to disputes; mere delayed payment was not covered. Distinguished.
Sayeed Ahmed & Company v. State of U.P. (2009) 12 SCC 26: Clause separately barred interest on delayed payments, making it a complete bar. Followed.
Jai Prakash Associates Ltd. v. THDC (THDC-II) (2019) 17 SCC 786: Same structure as Sayeed Ahmed; complete bar on interest. Followed.
Pam Developments Pvt. Ltd. v. State of West Bengal (2019): Explained the shift from the 1940 Act to the 1996 Act and affirmed party autonomy. Relied upon.
Secretary, Irrigation Dept. v. G.C. Roy (1992): Under the 1940 Act, arbitrator could award interest where the agreement was silent. Explained in context.
Practical Impact
For advocates, this judgment provides a clear test: check whether the interest-bar clause contains a standalone reference to “delay in payment.” If it does, pre-reference interest is barred. The ruling will be cited in Section 34 and Section 37 proceedings where an award grants pre-reference interest despite such a clause. For contract drafters, it highlights the need to word interest-bar clauses precisely. Public sector undertakings can rely on Clause 54-type provisions with greater confidence. Litigants challenging or defending awards must now focus on the exact contractual language rather than general principles alone.
Lawcurb Quick Insight
The judgment does not overrule Harish Chandra. It distinguishes it. Clauses without a separate delay-in-payment bar may still allow arbitrators to award pre-reference interest for delayed payments.
Lawcurb Practice Note
Always read the interest-bar clause word by word. A standalone bar on “delay in payment” is enough to exclude pre-reference interest. If absent, Harish Chandra may still protect the claimant.
Remember this Ratio
A contractual clause that independently bars interest on delayed payments, in addition to money withheld due to disputes, excludes the arbitrator’s power to award pre-reference interest under Section 31(7)(a).
Final Outcome
NEEPCO’s appeal was allowed.
The High Court’s restoration of pre-reference interest was set aside.
Clause 54 of the GCC was held to be a complete bar on the arbitrator’s power to award pre-reference interest.
The arbitral award, to the extent it granted pre-reference interest, was beyond jurisdiction under Section 31(7)(a).
No order as to costs.
Lawcurb Verdict
This judgment is a strong affirmation of party autonomy in arbitration. By holding that a clearly worded contractual bar on interest for delayed payments excludes the arbitrator’s power to award pre-reference interest, the Supreme Court reinforces the primacy of the contract. It provides clarity for public works contracts and will guide arbitrators and courts in distinguishing between clauses that only bar dispute-related interest and those that comprehensively exclude interest for delayed payments.
Exam Lens
Question 1: What is the key difference between the clause in Harish Chandra and Clause 54 of the GCC?
Answer: In Harish Chandra, the clause barred interest only on money withheld due to a dispute. Delay in payment was not a separate ground. Clause 54, however, separately bars interest on “any delay on the part of the Engineer-in-Charge making periodical or final payments.” This makes the bar complete and independent of any dispute.
Question 2: How does Section 31(7)(a) of the 1996 Act affect an arbitrator’s power to award interest?
Answer: Section 31(7)(a) begins with “unless otherwise agreed by the parties.” This gives primacy to party autonomy. If the contract expressly bars interest, the arbitrator cannot award pre-reference or pendente lite interest, even if the bar is not specifically directed at the arbitrator’s jurisdiction.
Question 3: What is the difference between pre-reference and pendente lite interest?
Answer: Pendente lite interest is procedural and governed by Section 31(7)(a). Pre-reference interest is substantive and must be sourced in an agreement, statutory provision, or mercantile usage. It cannot be awarded solely on the basis of Section 31(7)(a).
This report is prepared by Lawcurb for educational and informational purposes only. It is a concise summary of the judgment and should not be construed as legal advice. Readers are encouraged to refer to the original judgment before relying on any legal proposition.