Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, the parties' agreement governs interest for the pre-award period — and on 22 September 2026 the Supreme Court showed how decisive that opening phrase can be. In North Eastern Electric Power Corporation Ltd. v. Astra Construction Private Limited (arising out of SLP (C) No. 24803 of 2025), a Bench of Justice P.S. Narasimha and Justice Alok Aradhe held that Clause 54 of NEEPCO's General Conditions of Contract, which named delay in payment as an independent head on which no interest would be payable, barred the award of pre-reference interest to the contractor.
The dispute
NEEPCO engaged Astra Construction in 1996 for civil works on a gas turbine power project in Tripura. The project ran into delays, disputes followed, and arbitration resulted in a 2015 award of about Rs. 3.30 crores to the contractor together with pre-reference and pendente lite interest at stipulated rates. The Commercial Court, in Section 34 proceedings, disallowed the interest components, holding them contrary to Clause 54 of the General Conditions of Contract. The High Court reversed, reasoning that Clause 54 resembled the clause considered in State of U.P. v. Harish Chandra, which the Supreme Court had read narrowly. NEEPCO appealed.
The textual distinction that decided the case
Harish Chandra\'s clause
Barred interest only on amounts withheld from the contractor on account of disputes — leaving other delayed payments untouched, which is why the bar was read narrowly.
NEEPCO\'s Clause 54
Separately prohibited interest on delayed payments as an independent head, unconnected to any dispute. "By naming delay in payment as a separate ground, standing on its own and not tied to any dispute, Clause 54 does what the clause in Harish Chandra never did."
What the Court held
The Bench acknowledged the equitable pull of interest claims — "a party kept out of money that is justly due to it ought, in the absence of a contrary stipulation, to be compensated" — but held that a contrary stipulation is precisely what Clause 54 supplied. Under Section 31(7)(a) of the 1996 Act, the parties\' agreement governs interest for the whole pre-award period; the tribunal\'s power is residual. The Court traced the line of authority through Sayeed Ahmed & Co. v. State of U.P. (2009) and subsequent decisions, examined the contractor\'s argument that the employer had waived the clause, found no waiver on the record, allowed the appeal and set aside the High Court\'s judgment to the extent it restored pre-reference interest. No costs were awarded.
The decision does not disturb the principal award in the contractor\'s favour. Its significance lies in the method: the Court compared the clause before it, word by word, against the clause in the precedent relied upon — and let the difference decide the appeal.
Drafting and litigation checklist
| For whom | Point of practice |
|---|---|
| Employers / buyers | If the commercial intent is to exclude interest, say so in independent terms covering delayed payments generally — not merely disputed withholdings. |
| Contractors / suppliers | Price the interest-exclusion clause into the bid, or negotiate it out. Arbitral sympathy will not override Section 31(7)(a). |
| Counsel in Section 34 / 37 proceedings | Challenge or defend interest awards on the precise text of the clause. Arguments built on analogies to Harish Chandra will fail where the clause is textually broader. |
| All parties | Remember the three interest periods — pre-reference, pendente lite, post-award — and check which the clause actually reaches. Post-award interest under Section 31(7)(b) stands on a different statutory footing. |
The larger trend
The judgment continues a consistent Supreme Court approach to interest under the 1996 Act: party autonomy first, arbitral discretion second. For standard-form government contracts — where interest-exclusion clauses are near universal — the practical consequence is that pre-reference interest claims must be tested against the clause before they are pleaded, and tribunals that award interest in the teeth of such clauses invite interference under Section 34. For commercial parties in Delhi\'s courts, where a large share of Section 34 and Section 37 work involves precisely these clauses, the decision offers a clean analytical template: read the clause, map it against the statutory default, and let the text govern.
This article is for general information only and is not legal advice or a solicitation.
Frequently Asked Questions
Can an arbitral tribunal always award interest?
No. Under Section 31(7)(a) of the 1996 Act, the tribunal's power to award interest for the period between the cause of action and the award operates only "unless otherwise agreed by the parties". Where the contract contains a clear stipulation excluding interest, the tribunal is bound by it. Party autonomy is the rule; the tribunal's discretion is the default that yields to it.
What was special about Clause 54 in this case?
The clause did not merely bar interest on amounts withheld due to disputes — the situation covered by State of U.P. v. Harish Chandra under the 1940 Act. It separately and independently prohibited interest on delayed payments as such. The Supreme Court held that by naming delay in payment as a stand-alone ground, the clause did what the Harish Chandra clause never did, and therefore operated as a complete bar to pre-reference interest.
Does the 1940 Act case law still apply to the 1996 Act?
Only with care. The Court emphasised the shift between the two regimes: under the 1996 Act, Section 31(7)(a) expressly subordinates the interest power to the parties' agreement for the entire pre-award period. Judgments interpreting narrower clauses under the 1940 Act, including Harish Chandra, cannot be transposed mechanically; the actual text of the clause controls, as recognised in Sayeed Ahmed and later cases.
What should contractors negotiating government contracts take from this?
Interest-exclusion clauses in standard-form GCCs are enforced as written. A contractor who signs a clause excluding interest on delayed payments will ordinarily be unable to recover pre-reference interest in arbitration, whatever the equities of being kept out of its money. The time to address the clause is at the drafting table, not before the tribunal.