Case: OIL AND NATURAL GAS CORPORATION LTD. v. M/s G & T Beckfield Drilling Services Pvt. Ltd.
Court: Supreme Court of India
Date of Judgment: 2 September 2025
Coram: Hon’ble Justices P.S. Narasimha and Manoj Misra
Citation: 2025 LiveLaw (SC) 868

Summary

The Supreme Court clarified that an Arbitral Tribunal can grant pendente lite interest unless the contract expressly or by necessary implication bars it. A contractual clause prohibiting interest on delayed payments cannot, by itself, be read as a bar on pendente lite interest under Section 31(7)(a) of the Arbitration & Conciliation Act, 1996.

Background

ONGC entered into a contract with M/s G & T Beckfield Drilling Services Pvt. Ltd. A dispute arose regarding delayed payments, and the Arbitral Tribunal awarded pendente lite interest (interest accruing during the pendency of arbitration). ONGC challenged this award, relying on Clause 18.1 of the contract:

“No interest shall be payable by ONGC on any delayed payment/disputed claim.”

ONGC argued that this clause barred the Tribunal from granting pendente lite interest. The Gauhati High Court upheld the award, leading ONGC to appeal before the Supreme Court.

Key Issues

• ONGC’s Argument: The contractual clause (18.1) barred any award of interest, including pendente lite interest, making the Tribunal’s award unsustainable.
• Respondent’s Argument: The clause only prohibited contractual interest on delayed invoices and did not restrict the Tribunal’s discretion under the Arbitration Act.

Supreme Court Findings

• Scope of Clause 18.1: The clause only prohibited ONGC from paying contractual interest on delayed payments but did not extend to pendente lite interest.
• Tribunal’s Power: Under Section 31(7)(a) of the Arbitration Act, an arbitral tribunal has statutory discretion to award pendente lite interest unless explicitly or impliedly barred by the contract.
• No Explicit Bar: Since the clause did not expressly or impliedly bar pendente lite interest, the Tribunal’s award was upheld.
• The Court concluded:

“Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente-lite interest. Consequently, we find no such error in the award of pendente lite interest as may warrant interference with the award.”

Cited Precedents

• Sayeed & Co. v. State of Orissa (2009) – where the contract expressly prohibited pendente lite interest.
• THDC First Case – interpreting contractual bars on interest.
• Section 31(7)(a) Arbitration & Conciliation Act, 1996 – statutory provision enabling arbitral tribunals to grant interest.

Important Observations

• A bar on contractual interest cannot automatically be read as a bar on pendente lite interest.
• Only express wording or necessary implication can remove the Tribunal’s discretion.
• Courts should uphold arbitral awards unless a clear error of law or jurisdiction is found.

Legal Partners’ Views

This ruling strengthens the autonomy of arbitral tribunals by reaffirming their statutory power under the Arbitration Act. It clarifies that parties must use clear contractual language if they wish to exclude pendente lite interest. Otherwise, arbitral tribunals retain wide discretion to award it in the interest of fairness.

Outcome

• ONGC’s appeal was dismissed.
• The Arbitral Tribunal’s award of pendente lite interest was upheld.

Final Thoughts

This ruling is crucial for arbitration practice in India, as it settles recurring disputes around contractual bars on interest. It reinforces that mere prohibition of interest on delayed payments is insufficient to oust arbitral discretion on pendente lite interest, thereby safeguarding claimants’ rights during prolonged arbitration proceedings.

SOURCE: LiveLaw