Can an arbitrator award interest for the period before the award when the contract says "no claim for interest will be entertained"? In MS Sharma Enterprises v. National Building Construction Corporation Ltd., 2026 INSC 1135, decided on 15 October 2026, the Supreme Court has answered with a clear no. A bench of Justice Vipul M. Pancholi and Justice Aravind Kumar held that the words "or otherwise" in such a clause are words of extension, not limitation — they sweep in every category of withheld payment, and with it, every claim to interest for the pre-award period.
The dispute: a 1991 subcontract, a 1992 termination
NBCC engaged MS Sharma Enterprises in 1991 for flooring and cladding work at Vashi Railway Station. In September 1992 NBCC terminated the contract and encashed the contractor's bank guarantees. The arbitrator found the termination wrongful and awarded the contractor several sums, together with interest at 10% from 22 September 1992 — covering the pre-reference period, the pendente lite period while the arbitration ran, and the post-award period.
The interest component ran into trouble in court. A learned Single Judge set aside the pre-reference and pendente lite interest, and the Division Bench dismissed the contractor's appeal. The contractor carried the question to the Supreme Court: could Clause 26 of the Special Conditions of Contract really strip the arbitrator of the power to award interest for the period before the award?
Clause 26 and the statutory default
Clause 26 provided that no claim for interest would be entertained by the corporation in respect of balance payments or deposits held up due to disputes, delays in monthly or final payments, "or otherwise". The statutory backdrop is Section 31(7) of the Arbitration and Conciliation Act, 1996:
| Provision | What it says | Can parties contract out? |
|---|---|---|
| Section 31(7)(a) | The tribunal may award interest on the whole or part of the money awarded, for the whole or part of the period between the cause of action and the date of the award. | Yes — the provision applies "unless otherwise agreed by the parties". |
| Section 31(7)(b) | The sum directed to be paid carries post-award interest until payment, unless the award directs otherwise. | No — the parties' contract cannot exclude it; only the award itself can modulate it. |
The contractor's argument was essentially one of construction: Clause 26, read narrowly, dealt only with interest on delayed running payments and deposits, not with interest on damages for wrongful termination awarded in arbitration. On the ejusdem generis approach, "or otherwise" should take colour from the specific situations preceding it.
What the Supreme Court held
"Or otherwise" extends, it does not limit
The Court held that the phrase is residuary and cannot be cut down to situations resembling delayed payments. It operates as a bar on interest for amounts withheld for any reason — including sums caught up in arbitral disputes.
The arbitrator exceeded his jurisdiction
Because Section 31(7)(a) yields to the parties' agreement, the award of pre-reference and pendente lite interest travelled beyond the arbitrator's mandate. The courts below were right to sever it.
Post-award interest survives
Section 31(7)(b) is not subject to contractual exclusion. The post-award interest in the contractor's favour was maintained, as were the principal sums awarded.
The Court anchored its reasoning in its earlier line of authority on contractual interest bars, and dismissed the appeal, finding no error in the Division Bench's judgment.
Why the decision matters in commercial practice
Interest is often the largest single head in old construction and supply claims — in this very case the principal dispute dated to 1992, so three decades of interest dwarfed the principal. The judgment confirms that the battle over interest is frequently won or lost at the drafting stage, years before any dispute arises.
- For contractors and suppliers: read the interest clause before signing. A bar framed with sweeping words such as "or otherwise" will likely be enforced literally, leaving only post-award interest.
- For employers and buyers: a well-drafted exclusion clause remains one of the most effective limits on arbitral exposure, since it binds the tribunal itself.
- For award-holders: where the contract contains such a clause, build the claim on heads the clause does not touch, and do not treat pendente lite interest as automatic.
- For challenges under Section 34: an award of interest contrary to a contractual bar is a recognised ground of interference, because it goes to the tribunal's jurisdiction rather than the merits.
The position after the judgment
Contract silent on interest
The arbitrator retains full discretion under Section 31(7)(a) to award pre-reference and pendente lite interest at a reasonable rate.
Contract bars interest "or otherwise"
No pre-award interest can be granted at all. Post-award interest under Section 31(7)(b) remains payable from the date of the award until realisation.
This article summarises a reported judgment of the Supreme Court of India for general information. It is not legal advice. The judgment text is available from the official source linked below.
Frequently Asked Questions
Does a "no interest" clause in a contract bind the arbitrator?
Yes, for the pre-award period. Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 opens with the words "unless otherwise agreed by the parties". Where the contract contains a clear agreement excluding interest, the arbitrator has no jurisdiction to award interest for the pre-reference or pendente lite period, and an award granting it can be set aside to that extent.
Can post-award interest also be excluded by contract?
No. The Supreme Court in MS Sharma Enterprises reaffirmed that post-award interest under Section 31(7)(b) stands on a different footing. It is not made subject to the parties' agreement, so the award-holder remains entitled to post-award interest even where the contract bars interest claims generally.
What do the words "or otherwise" in an exclusion clause mean?
The Court held that "or otherwise" is a residuary expression of extension. It is not confined, on the ejusdem generis principle, to situations resembling delayed monthly or final payments. It covers amounts withheld for any reason, including amounts held up due to arbitral disputes, and therefore bars interest across the board for the pre-award period.
Does this affect sums already awarded on the merits?
No. In the case itself, the arbitrator's findings that the termination was wrongful, and the principal sums awarded to the contractor, were not disturbed. Only the pre-reference and pendente lite interest fell; the substantive award and post-award interest were maintained.