No-interest clauses limited: Supreme Court upholds arbitral power to grant pendente lite interest and affirms non-derogable post‑award interest under Section 31(7)(b)

Introduction

In Oil and Natural Gas Corporation Ltd v. M/s G & T Beckfield Drilling Services Pvt. Ltd. (2025 INSC 1066), the Supreme Court of India addressed a recurring question in arbitration law: when does a contractual “no-interest” clause oust an arbitral tribunal’s jurisdiction to award interest, particularly for the period during which the arbitration is pending (pendente lite)? The dispute arose out of a series of unpaid invoices and related claims under an ONGC contract, which culminated in an arbitral award directing payment of USD 656,272.34 with interest at 12% per annum from 12 December 1998 (the date the statement of claim was affirmed) until recovery, plus costs.

While the District Judge had set aside the award on grounds unrelated to interest, the Gauhati High Court reinstated it. In the Supreme Court, the Special Leave Petition was admitted only on a narrow issue: whether the arbitral tribunal could award interest at 12% per annum from 12.12.1998 on the total sum. This required interpretation of Clause 18.1 of the parties’ contract stating: “No interest shall be payable by ONGC on any delayed payment / disputed claim.”

The Court’s decision provides an authoritative synthesis of the law on interest under Section 31(7) of the Arbitration and Conciliation Act, 1996 (the 1996 Act), clarifies the threshold for contractual exclusion of pendente lite interest, and reaffirms the non-derogable character of post-award interest under Section 31(7)(b).

Summary of the Judgment

The Supreme Court dismissed ONGC’s appeal and upheld the arbitral tribunal’s grant of interest at 12% per annum from 12.12.1998 until recovery.
Clause 18.1, which states “No interest shall be payable by ONGC on any delayed payment / disputed claim,” does not, either expressly or by necessary implication, bar the award of pendente lite interest by an arbitral tribunal.
Under Section 31(7) of the 1996 Act, the power to award pre-reference and pendente lite interest is subject to the parties’ agreement; however, the power to award post-award interest under Section 31(7)(b) is statutory and parties cannot contract out of it.
The rate of 12% per annum was reasonable, being lower than the then statutory default for post-award interest.

Key Facts and Procedural Background

An arbitral tribunal (three-member) awarded G & T Beckfield USD 656,272.34 on multiple unpaid invoices and related claims, plus costs of INR 5 lakhs. It declined interest on the claims for the pre-reference period but awarded interest at 12% per annum from 12.12.1998 (date of affirmation of the statement of claim) “till recovery.”
Section 34 challenge by ONGC succeeded before the District Judge on grounds unrelated to interest (non-speaking award and Section 16(2) handling), but the High Court, in appeal under Section 37, restored the award.
Before the Supreme Court, notice was issued limited to the permissibility of the 12% interest award from 12.12.1998. The rest of the award amounts were not in dispute at that stage.

Analysis

A. Statutory framework: Section 31(7) of the 1996 Act

Section 31(7)(a) empowers tribunals to award interest for the period between the cause of action and the award, at a reasonable rate, “unless otherwise agreed by the parties.” This covers both pre-reference and pendente lite periods.
Section 31(7)(b) provides for post-award interest. For the period relevant to this case, the statute prescribed a default rate (if the award is silent) and, crucially, this provision is not subject to party agreement. Parties cannot contract out of post-award interest; the award may set a different rate, but an agreement cannot bar post-award interest altogether.

B. The contract: What does Clause 18.1 actually do?

Clause 18.1 required ONGC to pay certified invoices within 30 days, permitted withholding of disputed items while paying undisputed amounts, and ended with: “No interest shall be payable by ONGC on any delayed payment / disputed claim.”

The Court read the clause holistically and held:

It does not explicitly bar an arbitral tribunal from granting pendente lite interest.
It does not impose a comprehensive prohibition on interest “in any respect whatsoever.”
At most, it indicates ONGC’s administrative stance that it will not itself pay interest on delayed or disputed payments in the ordinary course; this is insufficient to oust an arbitral tribunal’s statutory discretion under Section 31(7)(a) to award pendente lite interest, absent clear exclusionary language.

C. Precedents cited and their influence

G.C. Roy, (1992) 1 SCC 508 (Constitution Bench): Under the 1940 Act, absent prohibition, arbitrators could award pendente lite interest; if the contract expressly barred such interest, arbitrators could not award it. This laid the conceptual foundation for the present approach: arbitrator’s power exists unless clearly excluded.
Union Of India v. Ambica Construction (2016) 6 SCC 36 (“Ambica First”): A three-judge bench clarified that a mere bar on interest for delayed payments is not readily to be inferred as an express bar against pendente lite interest. Whether the arbitrator’s power is ousted depends on contract phraseology, the arbitration clause, the nature of claims, and the period to which the bar applies.
M/s Ambica Construction v. Union of India (2017) 14 SCC 323 (“Ambica Second”): Clause stating “No interest will be payable… on amounts payable to the contractor under the contract” did not bar pendente lite interest. This supports a narrow reading of generic no-interest clauses.
Reliance Cellulose Products Ltd v. ONGC (2018) 9 SCC 266: Clause that “any delay in payment will not make ONGC liable for any interest” did not refer to the arbitrator’s power and did not bar pendente lite interest. The Court contrasted this with stronger, comprehensive bars in other cases.
Sayeed Ahmed & Co. v. State of U.P. (2009) 12 SCC 26: Clause G.1.09 barred interest for monies lying with the Government or becoming due owing to disputes or delay, “or any other respect whatsoever.” Held: a comprehensive bar, precluding even pendente lite interest. This illustrates the kind of language that suffices to oust the tribunal’s power.
THDC v. Jai Prakash Associates Ltd (2012) 12 SCC 10 (“THDC First”) and Jaiprakash Associates Ltd v. THDC (2019) 17 SCC 786 (“THDC Second”): Clauses 1.2.14 and 1.2.15 comprehensively barred interest in various situations of delayed payment “in any respect whatsoever.” Held: pendente lite interest could not be awarded in the face of such comprehensive clauses.
Ferro Concrete Construction (India) Pvt Ltd v. State of Rajasthan, 2025 SCC OnLine SC 708: Reiterated Ambica First: whether pendente lite interest is ousted depends on precise phrasing and context; a simple “no interest for delayed payment” is not automatically a bar to pendente lite interest.
Union of India v. Bright Power Projects (2015) 9 SCC 695; Sree Kamatchi Amman Constructions (2010) 8 SCC 767: If parties agree to waive interest for the pre-award period, the tribunal cannot award it; awards contrary to such clauses are vulnerable under Section 34.
Garg Builders v. BHEL (2022) 11 SCC 697: A contractual waiver of interest is not void under Section 28 of the Contract Act, 1872; parties may agree to exclude interest for specified periods.
Pam Developments Pvt Ltd v. State of West Bengal (2024) 10 SCC 715: If the contract is silent, tribunals retain discretion to award interest under Section 31(7)(a).
R.P. Garg v. Chief General Manager, Telecom Dept., 2024 SCC OnLine SC 2928: Parties cannot contract out of post-award interest under Section 31(7)(b); post-award interest is a statutory consequence unless the award itself directs otherwise as to rate.

Read together, these authorities frame a clear matrix: only a clearly worded contractual bar—expressly or by necessary implication—ousts the tribunal’s power to grant pendente lite interest. Clause 18.1’s wording falls short of that threshold.

D. The Court’s legal reasoning distilled

Section 31(7) distinguishes three time periods:
- Pre-reference interest: contract can exclude.
- Pendente lite interest (from reference/claim to award): contract can exclude, but only by clear language.
- Post-award interest: statutory; parties cannot exclude by contract, though the award may set the rate.
The arbitral tribunal expressly declined pre-reference interest and began interest from 12.12.1998 (the date the claim was affirmed)—i.e., from the pendente lite phase onwards. The only question, therefore, was whether Clause 18.1 ousted that power.
Clause 18.1’s final sentence—“No interest shall be payable by ONGC on any delayed payment / disputed claim”—is not a comprehensive exclusion of interest “in any respect whatsoever,” unlike the clauses in Sayeed Ahmed and THDC. It does not mention arbitration or curtailment of the arbitrator’s powers, nor does it expressly address pendente lite interest. Hence, it does not, by express terms or necessary implication, oust the tribunal’s pendente lite jurisdiction.
Post-award interest remains governed by Section 31(7)(b). For the relevant period, a statutory default applied unless the award otherwise directed. The tribunal set 12% per annum “till recovery,” which is lawful and, in fact, lower than the then statutory default.
Therefore, the interest award stands.

E. Reasonableness of the interest rate

The Court found 12% per annum to be reasonable, noting it was below the then default statutory rate for post-award interest. Given the long pendency and the nature of commercial claims, no interference was warranted.

F. Impact of the Judgment

Contract drafting: Standard “no interest on delayed payment/disputed claims” provisions will not, without more, prevent arbitrators from awarding pendente lite interest. Parties wishing to exclude pendente lite interest must draft comprehensive, unambiguous clauses that clearly bar interest for specified periods “in any respect whatsoever” and with explicit reference to the arbitrator’s powers.
Arbitration practice: Tribunals can confidently award pendente lite interest notwithstanding generic no-interest clauses. Where the contract is silent or non-comprehensive, tribunals should evaluate fairness and commercial justice to set a reasonable rate from the reference/claim date.
Public sector contracts: Government and PSU boilerplate clauses frequently mirror Clause 18.1. Post this ruling, such clauses will not automatically immunize them from pendente lite interest exposure. This may incentivize timely certification and payment of undisputed sums and careful drafting if comprehensive exclusion is truly intended.
Non-derogable post-award interest: The reaffirmation that parties cannot contract out of post-award interest under Section 31(7)(b) brings certainty to enforcement: once an award for money is made, interest will run to payment at the rate directed by the award (or at the statutory default if silent).
Litigation strategy: Claimants should plead interest distinctly for each period (pre-reference, pendente lite, post-award). Respondents relying on “no-interest” clauses must show explicit language that reaches pendente lite interest, not merely delayed-payment admonitions.

Complex Concepts Simplified

Pre-reference interest: Interest from the date the claim arose (e.g., invoice due date) until the arbitration begins. A contract may validly exclude this.
Pendente lite interest: Interest during the pendency of the arbitration—typically from filing/affirmation of the statement of claim or the date of reference, up to the date of award. Tribunals can award this unless the contract clearly excludes it.
Post-award interest: Interest from the date of the award until payment. This arises by statute. Parties cannot use a contract clause to eliminate it; the tribunal may specify the rate; if it does not, the statutory default applies.
“Unless otherwise agreed by the parties”: Language in Section 31(7)(a) that allows parties to contract out of pre-award interest; it does not appear in Section 31(7)(b), which is why post-award interest is non-derogable.
Express bar vs. necessary implication: An express bar says, in clear words, that no interest is payable for a specified period, including during arbitration. A bar “by necessary implication” arises when the clause is so comprehensive (e.g., “in any respect whatsoever”) that it covers pendente lite interest even without naming it.
Section 28, Contract Act: A clause waiving interest is not a void restraint under Section 28; parties may agree to exclude interest for identified periods. But such a clause must be clear if it is to reach pendente lite interest.

Why Clause 18.1 Failed to Oust Pendente Lite Interest

It speaks to ONGC’s liability for interest on delayed or disputed payments, but not to the arbitrator’s powers.
It does not contain comprehensive language like “in any respect whatsoever.”
It does not expressly address the pendente lite period or arbitration-specific interest.
Prior Supreme Court cases have upheld pendente lite interest in the presence of similar “no interest on delayed payment” wording (Reliance Cellulose; Ambica Second).

Guidance for the Future

For drafters wishing to exclude pendente lite interest:
- Use clear, comprehensive language indicating that “no interest whatsoever (including for pre-reference and pendente lite periods) shall be payable on any amounts due or found due under or in connection with the contract, whether prior to, during, or after arbitration.”
- Explicitly reference the arbitrator’s powers if the intent is to bar pendente lite interest. Even then, remember that post-award interest under Section 31(7)(b) cannot be contracted out.
For claimants:
- Plead interest separately for each period and justify the rate with market benchmarks and commercial justice.
- If pre-reference interest is barred, consider pegging pendente lite interest from the date of claim/reference, as the tribunal did here.
For respondents:
- Evaluate the exact language of any no-interest clause before contesting pendente lite interest; general clauses are unlikely to succeed after this ruling.
- Expedite payment of undisputed amounts to limit interest exposure, consistent with the contract structure recognized by the Court.

Conclusion

The Supreme Court’s decision in ONGC v. G & T Beckfield Drilling Services crystallizes a balanced and commercially sensible rule: generic clauses stating that no interest is payable on delayed or disputed payments do not, without more, strip an arbitral tribunal of its power to grant pendente lite interest under Section 31(7)(a). Only a clearly drafted, comprehensive exclusion—either express or by necessary implication—will achieve that result. Simultaneously, the Court reaffirms that post-award interest under Section 31(7)(b) is a statutory consequence that parties cannot waive by contract.

Practically, the ruling preserves arbitral discretion to do justice between commercial parties where money has been wrongfully withheld during the pendency of the proceedings, while signaling to contract drafters that exclusion of pendente lite interest requires exacting language. It will influence the drafting of public procurement contracts, arbitral pleadings on interest, and enforcement strategy, and serves as an important restatement of the tripartite structure of interest under Indian arbitration law.