Union Of India vs. Larsen And Tubro Limited (L And T)

REPORTABLE
2026 INSC 203
IN THE SUPREME COURT OF INDIA
(CIVIL APPELLATE JURISDICTION)

CIVIL APPEAL NO. _______ OF 2026
(@ SPECIAL LEAVE PETITION (CIVIL) NO. 14989 OF 2023)

UNION OF INDIA & ORS. …APPELLANTS
VERSUS
LARSEN & TUBRO LIMITED (L&T) …RESPONDENT
J U D G M E N T
VIPUL M. PANCHOLI, J.

1. Leave granted.
2. This is an appeal challenging the final judgment and order
dated 25.05.2023 passed by the High Court of Judicature at
Allahabad in Appeal No. 433 of 2023 under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as “ the Act ”) titled as “ Union of India and 2 others v. Larsen &
Tubro Limited (L and T) ”.
Signature Not Verified
Digitally signed by
ASHA SUNDRIYAL
Date: 2026.02.27
16:34:40 IST
Reason:
3. Vide the impugned judgment, the High Court dismissed the
appeal filed by the appellants herein and upheld the Order
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Special Leave Petition (Civil) No. 14989 of 2023) Page 1

dated 15.09.2022 passed by the Commercial Court, Jhansi, and
thereby upheld the Arbitral Award dated 25.12.2018 passed by
the learned Arbitral Tribunal.
FACTUAL MATRIX

4. The brief facts of the case are that the underlying dispute
originates from the Agreement dated 27.01.2011, bearing No.
CME/NCR/JHSW/MOD/2010 (Turnkey), executed between the
appellants (Union of India & North Central Railway
Administration) and the respondent (Larsen & Tubro Limited
[L&T]).
5. The contract stipulated the execution of work related to the
modernization of Jhansi Workshop of North Central Railways,
valued at a negotiated rate of Rs. 93,08,07,696/-. The original
date for the completion of the work was 18.07.2012 (a period of
18 months). However, the same was extended by the appellants
10 times until 30.11.2015. This resulted in a total delay of 40
months beyond the original deadline.
6. During this course, disputes concerning the execution of the
work and outstanding payments arose between the parties. The
General Conditions of Contract (hereinafter referred to as “ the
GCC ”) provided for the arbitration agreement, being Clause 64.
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The respondent submitted an application on 04.09.2017 for the
appointment of an Arbitral Tribunal. As per Clause 64(3) of the
GCC, the three-member Arbitral Tribunal was formally
constituted. The learned Arbitral Tribunal (hereinafter referred
to as “ the AT ”) entered into reference on 10.01.2018, with L&T
as claimant (respondent herein) and North Central Railway as
respondent (appellants herein).

7. L&T submitted a statement of claim, subsequently revised,
raising claims, inter alia , for Financing Charges towards
Inordinate Delay in release of payments against running
account bills (Claim No. 1), Cost incurred due to Variations in
Foreign Exchange Currency Component beyond original
contract period (Claim No. 2), Non-payment of Price Variation
Component (PVC) (Claim No. 3), Indirect Costs incurred during
extended stay in the project (Claim No. 4), Refund of the amount
recovered as token liquidated damages (Claim No. 5), Payment
due against the final bill / variation for the additional works as
per the contract (Claim No. 6), Interest on the claim amount
(Claim No. 7), and Costs of Arbitration (Claim No. 8). North
Central Railway made a counter claim for Losses to Railway due
to late commissioning of CNC Portal Wheel Lathe, MOD.
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8. After perusing the material available on record, the AT passed
the Arbitral Award on 25.12.2018. The operative part of the
Arbitral Award is reproduced as under:-
“5.0 Summary of the Claims / Counter-claim and award
declared:
Claims:

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Counter Claim:

Net Award sum payable to the Claimant is Rs.5,53,57,597/-
6.0 Costs of Arbitration:
The costs of arbitration worked out are as under:
In terms of Section 31A of the Act, Costs mean reasonable costs
relating to-
i) The fees & expenses of arbitrators etc.
ii) Legal fees & expenses
iii) Any other expenses incurred in connection with the
arbitral proceedings and the arbitral award.
i) Fees, incidental & travel expenses of Arbitrators.:
Entire sum towards fees & incidental expenses of three
Members of the Tribunal were deposited by the Claimant in
tranches under the provision of Section 38(2) of the Act as the
Respondent side declined to make deposit in advance of the
sums on equitable share basis despite repeated directions of
the Tribunal in its several arbitral notices & Order Sheets.
Tribunal therefore constrained to invoke the provision in Section
38 of the Act to direct the Claimant side to deposit Respondent’s
share too.
Fees of 3 Arbitrators: Rs.2,25,000(@ Rs 75,000 of each
Arbitrator)
Incidental expenses of Arbitrators (Sectt. Charges, TA & local
transportation): Rs. 49,500 (@16,500)
Travel expenses of Shri R.K. Bariar, Co-Arbitrator from Mumbai
(sittings held at Delhi): Rs 15,532 (incurred by the Claimant
fully)
a) Sub Total of fees, incidental & travel expenses:
Rs.2,90,032 (incurred by the Claimant fully)


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ii) Legal Fees & charges:
Legal expenses of the Claimant (considered on lumpsum basis):
Rs. 5,00,000 (as no corroborative documents furnished with the
statement)
Legal expenses of the Respondent: Nil (No statement filed by
Respondent with AT)
b) Sub Total of Legal expenses: Rs. 5,00,000
iii) Other expenses in connection with arbitral
proceedings held at Delhi:
c) Arbitration Venue bookings (4 sittings): Rs.81,195/-
Thus, Total costs of arbitration admitted by the Tribunal
(a+b+c): Rs 7,90,032/-
7.0 This award has been published on a non-judicial stamp
paper of Rs. 500/- provided by the claimant. Deficiency, if any,
shall be borne by the party claiming under this award.
8.0 The above award sum of Rs.5,53,57,597/- (Five crore
fifty-three lakh fifty seven thousand five hundred ninety-seven
rupees only) shall be paid by the Respondent to the Claimant
within 60 days failing which, the awarded sum shall carry
post-lite interest @12% per annum with effect from date of
award till actual payment.
This award accordingly is made & signed on this day of
th
25 Dec. 2018 at New Delhi. ”

9. Thus, the AT awarded a sum of Rs. 5,53,57,597/-, to be paid
by the appellants (North Central Railway) to the respondent
(L&T) within 60 days. In default, the awarded sum shall carry
post-award interest at 12% per annum with effect from date of
award.
10. Being aggrieved by the Arbitral Award, the appellants filed an
application under Section 34 of the Act before the learned
Commercial Court, Jhansi, primarily arguing that the award of
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interest / compensation violated the contractual prohibitions
contained in Clause 16(3) and Clause 64(5) of the GCC and also
challenged the award of legal fees as lump sum under Claim No.
8 of the Arbitral Award.
11. The learned Commercial Court dismissed the Section 34
application vide the order dated 15.09.2022, affirming the
Arbitral Award. The learned Commercial Court further held that
the scope of interference under Section 34 of the Act is limited
and since it was not a case wherein the Arbitral Award could
have been set aside on the basis of provision of Section 34 of
the Act, the application filed by the appellants was rejected.
12. Aggrieved by the Commercial Court Order, the appellants filed
an Arbitration Appeal under Section 37 of the Act before the
High Court of Judicature at Allahabad.
13. Vide the impugned judgment dated 25.05.2023, the High Court
dismissed the appeal filed by the appellants and upheld the
Arbitral Award passed by the AT, holding that Clause 16(3) of
the GCC related only to earnest money and security deposits
and Clause 64(5) of the GCC merely barred pendente lite
interest, which the AT had correctly interpreted.
14. Aggrieved by the impugned judgment, the appellants have filed
the present appeal.
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SUBMISSIONS ON BEHALF OF THE APPELLANTS

15. Ms. Aishwarya Bhati, learned Additional Solicitor General,
appearing on behalf of the appellants, contended that the
contractual scheme under Clauses 16(3) and 64(5) of the GCC
constitutes an absolute prohibition on the award of interest on
all contract amounts.
16. It is submitted that as per the agreement between the parties,
Clause 16(3) of the GCC provides that no interest shall be
payable upon the earnest money or the security deposit or “ the
amounts payable to the contractor under the contract ”. Thus, it
is submitted that the aforesaid clause specifically bars the
payment of interest not only on the earnest money or security
deposit but also on any amounts payable to the contractor
under the contract. It is submitted that the claims adjudicated
by the AT arise solely from delayed payments under the
contract, such as, final bill, PVC amounts, and withheld dues,
and therefore, falls squarely within the contractual prohibition.
17. It is also submitted that the respondent’s submission that the
interest may be granted as “compensation” is a direct attempt
to violate the contractual bar, and the said position has been
rejected by this Court in the case of Sree Kamatchi Amman
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Constructions v. Railway Administration, (2010) 8 SCC
767 .
18. It is further submitted that since the parties are governed by
the contract and the AT and the arbitration proceedings are the
creatures of the contract, they cannot go beyond what has been
contemplated in the contract between the parties. Reliance is
placed on the decision rendered by a three-judge Bench of this
Court in Union of India vs. Bright Power Projects (India) (P)
Limited, (2015) 9 SCC 695 , wherein this Court reiterated that
Section 31(7)(a) of the Act subordinates the arbitrator’s power
to the terms of the contract and held that once the parties have
agreed to bar interest, the arbitrator has no jurisdiction to
award it under any name.
19. Further reliance is placed on the decision of this Court in Union
of India vs. Manraj Enterprises, (2022) 2 SCC 331 , wherein
this Court observed and held that in view of the specific contract
between the parties and the bar on awarding the interest, the
arbitrator lacks jurisdiction to award interest of any kind
including pre-reference, pendente lite , or future interest.
20. It is submitted that the reliance of the respondent on Section
73 of the Indian Contract Act, 1872, is misplaced. Section 73
deals with compensation for loss or damage caused by breach
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of contract and expressly provides that “ unless the contract
provides otherwise ”. However, in the present case, the contract
expressly excluded the interest. It is therefore urged that
Section 73 cannot override the agreement between the parties.
21. It is further submitted that the reliance of the respondent on
the decision of this Court in the case of RP Garg vs. Chief
General Manager, Telecom Department & Ors., 2024 SCC
OnLine SC 2928 , in support of post-award interest, is
misconceived, as this decision is applicable only where the
contract does not prohibit interest on the category of sums
awarded. It is therefore urged that in the present case, the
contractual bar applies to all amounts payable under the
contract. It is also pointed out that Section 31(7)(b) of the Act is
expressly subject to Section 31(7)(a) of the Act. It is therefore
urged that where the parties have contractually agreed to
exclude interest altogether, post-award interest cannot be
awarded.
22. Lastly, it is submitted that the award of interest under Claim
Nos. 1, 3 and 6 of the Arbitral Award by the AT is contrary to
the contract, contrary to the referred judicial pronouncements
of this Court, and thus, the Arbitral Award as well the impugned
judgment is liable to be set aside.
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SUBMISSIONS ON BEHALF OF THE RESPONDENT

23. Ms. Meenakshi Arora, learned senior counsel, appearing on
behalf of the respondent, at the outset, submitted that the
present case arises out of concurrent findings given by the
Commercial Court as well as the High Court while considering
the proceedings filed by the appellants under Section 34 and
Section 37 of the Act, respectively.
24. Learned counsel referred to Clause 16(3) as well as Clause 64(5)
of the GCC. It is contended that Clause 16(3) of the GCC would
be governed by the principle of ejusdem generis , meaning
thereby that, when a general word or phrase follows a list of
specific persons or things, the general word or phrase will be
interpreted to include only persons or things of the same type
as those listed. Reliance is placed on the decision rendered by
this Court in the case of Raveechee and Company vs. Union
of India, (2018) 7 SCC 664 , wherein this Court was dealing
with a Clause exactly similar to present Clause 16(3) and
interpreted the clause to mean and include only the amounts
voluntarily deposited with the other contracting party in order
to be refunded or forfeited depending on the performance of the
contract. It is therefore urged that it is not in dispute that the
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present matter does not involve any sums towards the release
of the earnest money or the security deposit and hence, Clause
16(3) of the GCC has no relevance to the facts of the present
case.
25. With respect to Clause 64(5) of the GCC, it is submitted that
this clause specifically restricts payment of interest on the
money payable under an award till the date of award. In this
regard, it is further submitted that the issue of arbitration has
been dealt under the heading “ Settlement of Disputes ” and an
award would mean adjudication or determination of a matter in
dispute by a person competent to adjudicate or determine the
dispute, thus, in order to be adjudicated, the existence of a
dispute is a must, and hence, only such sums which were in
dispute can be governed by this Clause and sums which are
already admitted will not be hit by this Clause. It is therefore
urged that in the present matter, Claim Nos. 3 and 6 are
admitted sums, and thus, will not be hit by Clause 64(5) of the
GCC, and therefore, the respondent will be entitled for full
interest on these admitted sums under Claim Nos. 3 and 6 from
the said sums becoming due and till the date of their payment
to the respondent.
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26. Further, with respect to the post-award interest, reliance is
placed on the decision rendered by this Court in RP Garg
(supra) , wherein this Court has categorically held that so far as
the entitlement of the post-award interest is concerned, Section
31(7)(b) of the Act provides that the sum directed to be paid by
the arbitral tribunal shall carry interest.
27. Lastly, it is submitted that the judicial pronouncements relied
upon by learned ASG for the appellants would not be applicable
to the facts of the present case. It is therefore urged that the AT
has specifically observed that “ it would be travesty of justice if
this interest as compensation is not paid because principal
unpaid sum is an admitted amount by the Respondent but simply
not paid without any reason ”.
28. Therefore, it is submitted that the present appeal filed by the
appellants is liable to be dismissed as it is devoid of merit.
ANALYSIS AND FINDINGS
29. We have heard learned counsel for the parties and perused the
material placed on record. The following issues are raised for
our consideration:-
A. Whether the AT is justified in awarding pre-
award/ pendente lite interest, by way of compensation, while
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passing the award in favour of the respondent-claimant, and
more particularly in view of Clause 16(3) and Clause 64(5) of
GCC.

B. Whether the AT is justified in awarding post award interest
in favour of the respondent-claimant.

C. Whether the Courts below committed any error while
dealing with Issue (A) and Issue (B) referred hereinabove while
exercising the powers under Section 34 and Section 37 of the
Act.
30. For considering the aforesaid issues raised in the present
matter, at the outset, we would like to refer to the relevant
provisions of GCC as well as the Act of 1996.
31. Clause 16(3) of the GCC reads as under:
“ no interest will be payable upon the Earnest Money and Security
Deposit or amounts payable to the Contractor under the Contract,
but Government Securities deposited in terms of Sub-Clause (1)
of this clause will be payable with interest accrued thereon ”.

32. Clause 64(5) of the GCC provides as under:
“ where the arbitral award is for the payment of money, no
interest shall be payable on whole or any part of the money for
any period till the date on which the award is made. ”

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33. Section 28(3) of the Act mandates that the arbitral tribunal shall
decide disputes in accordance with the terms of the contract,
which reads as under:-
“ 28. Rules applicable to substance of dispute.—
…………
(3) While deciding and making an award, the arbitral tribunal
shall, in all cases, take into account the terms of the contract
and trade usages applicable to the transaction. ”

34. Section 31(7)(a) and 31(7)(b) further clarifies that the power of
the arbitral tribunal to award interest, which reads as under:-
“ 31. Form and contents of arbitral award.—
………….
(7) (a) Unless otherwise agreed by the parties, where and in
so far as an arbitral award is for the payment of money, the
arbitral tribunal may include in the sum for which the award
is made interest, at such rate as it deems reasonable, on the
whole or any part of the money, for the whole or any part of
the period between the date on which the cause of action arose
and the date on which the award is made. ”
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the rate
of two per cent. higher than the current rate of interest
prevalent on the date of award, from the date of award to the
date of payment.
Explanation.—The expression “current rate of interest” shall
have the same meaning as assigned to it under clause (b) of
section 2 of the Interest Act, 1978 (14 of 1978). ”

35. On perusal of Section 28(3) and Section 31(7)(a) of the Act, it is
clear that the statutory scheme itself subordinates the
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discretion of the arbitrator to the contractual provisions
governing interest.
36. In the present case, Clause 16(3) of the GCC, as referred
hereinabove, expressly stipulates that no interest will be
payable upon earnest money and security deposits or amounts
payable to the contractor under the contract.
37. Learned counsel for the respondent has sought to restrict the
scope of Clause 16(3) of the GCC by invoking the principle of
ejusdem generis contending that the expression “ amounts
payable to the contractor under the contract ” must be confined
to deposits akin to earnest money and security deposits.
38. This Court in the decision rendered in the case of Manraj
Enterprises (supra) has considered a similar submission
canvassed on behalf of the party concerned and thereafter
observed and held in para 12.1 as under:
“12.1. It is required to be noted that Clause 16(1) is with respect
to earnest money/security deposit. However, Clause 16(2) is
specifically with respect to interest payable upon the earnest
money or the security deposit or amounts payable to the
contractor under the contract. The words used in Clause 16(2) is
“or”. Therefore, the expression “amounts payable to the
contractor under the contract” cannot be read in conjunction with
“earnest money deposit” or “security deposit” by applying the
principle of ejusdem generis. The expression “amounts payable
to the contractor under the contract” has to be read
independently and disjunctively to earnest money deposit and
security deposit as the word used is “or” and not “and” between
“earnest money deposit”, “security deposit” and “amounts
payable to the contractor under the contract”. Therefore, the
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principle of ejusdem generis is not applicable in the present
case.”


39. Thus, it can be said that the rule of ejusdem generis is a tool of
interpretation and is applicable only where the general words
follow a specific class forming a genus. The expression “ amounts
payable to the contractor under the contract ” used in Clause
16(3) is independent, distinct and of wide amplitude, and
cannot be read down to defeat its plain meaning. Thus, the
submission canvassed by the learned counsel for the
respondent cannot be accepted.
40. At this stage, we would also like to refer to the decision rendered
by a three-judge bench of this Court in Bright Power Projects
(India) (P) Ltd. (supra) , wherein in para 10, 11 and 13, it was
held as under:
“10. Thus, it had been specifically understood between the
parties that no interest was to be paid on the earnest money,
security deposit and the amount payable to the contractor under
the contract. So far as payment of interest on government
securities, which had been deposited by the respondent
contractor with the appellant is concerned, it was specifically
stated that the said amount was to be returned to the contractor
along with interest accrued thereon, but so far as payment of
interest on the amount payable to the contractor under the
contract was concerned, there was a specific term that no
interest was to be paid thereon.

11. When parties to the contract had agreed to the fact that
interest would not be awarded on the amount payable to the
contractor under the contract, in our opinion, they were bound by
their understanding. Having once agreed that the contractor
would not claim any interest on the amount to be paid under the
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contract, he could not have claimed interest either before a civil
court or before an Arbitral Tribunal.
……………
13. Section 31(7) of the Act, by using the words “unless
otherwise agreed by the parties”, categorically specifies that the
arbitrator is bound by the terms of the contract so far as award
of interest from the date of cause of action to date of the award is
concerned. Therefore, where the parties had agreed that no
interest shall be payable, the Arbitral Tribunal cannot award
interest.”


41. In the case of Sree Kamatchi Amman Constructions (supra),
this Court has held in para 19 as under:
“19. Section 37(1)[Sic Section 31(7)] of the new Act by using the
words “unless otherwise agreed by the parties” categorically
clarifies that the arbitrator is bound by the terms of the contract
insofar as the award of interest from the date of cause of action
to the date of award. Therefore, where the parties had agreed
that no interest shall be payable, the Arbitral Tribunal cannot
award interest between the date when the cause of action arose
to the date of award.”

42. At this stage, we may also refer to the decision upon which
reliance has been placed by learned counsel for the respondent,
i.e., in the case of Raveechee and Company (supra) , this Court
observed, in para 16 and 17, as under:
“16. Further, this Court considered an identical clause in the
contract in Ambica Construction v. Union of India [Ambica
Construction v. Union of India, (2017) 14 SCC 323 : (2018) 1 SCC
(Civ) 257] , wherein it observed that the clause of GCC did not
bar the arbitrator from awarding interest pendente lite and
affirmed the award passed by the arbitrator. The three-Judge
Bench of this Court held that the contention raised by the Union
of India based on the clause of GCC that the arbitrator could not
award interest pendente lite was not a valid contention and the
arbitrator was completely justified in granting interest pendente
lite. Relying on the three-Judge Bench judgment in Union of
India v. Ambica Construction [Union of India v. Ambica
Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36] and
in Irrigation Deptt., State of Orissa [Irrigation Deptt., State of
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Orissa v. G.C. Roy, (1992) 1 SCC 508] , this Court held that the
bar to award interest on the amounts payable under the contract
would not be sufficient to deny the payment of interest pendente
lite.

17. Thus, when a dispute is referred to for adjudication to an
arbitrator, a term of such a nature as contained in Clause 16(3)
of GCC, that is binding on the parties cannot be extended to bind
an arbitrator. The arbitrator has the power to award interest
pendente lite where justified. We, therefore, set aside the
judgment of the High Court and restore the award passed by the
Arbitral Tribunal in respect of Claim 12.”

43. Now, at this stage, it is pertinent to observe that this Court,
thereafter, in the case of Manraj Enterprises (supra) had an
occasion to consider similar issues involved in the present
matter and had considered all the aforementioned decisions,
including the decisions rendered in the cases of Bright Power
Projects (India) (P) Ltd. (supra) , Raveechee and Company
(supra) and Ambica Construction vs. Union of India, (2017)
14 SCC 323 (a three-judge bench judgment of this Court). After
considering the aforesaid decisions as well as several other
decisions referred on the issue, this Court has observed in para
8 and 11 as under:
“8. After considering various decisions on award of interest
pendente lite and the future interest by the arbitrator and after
discussing the decisions of this Court in Ambica
Construction v. Union of India [Ambica Construction v. Union of
India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257]
and Raveechee & Co. [Raveechee & Co. v. Union of India, (2018)
7 SCC 664 : (2018) 3 SCC (Civ) 711] and other decisions on the
point, this Court has observed in paras 9 to 18 as under : (Garg
Builders [Garg Builders v. BHEL, (2022) 11 SCC 697 : 2021 SCC
OnLine SC 855] , SCC paras 9-19)
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12. It is clear from the above provision that if the contract
prohibits pre-reference and pendente lite interest, the
arbitrator cannot award interest for the said period. In the
present case, clause barring interest is very clear and
categorical. It uses the expression “any moneys due to the
contractor” by the employer which includes the amount
awarded by the arbitrator.

13. In Sayeed Ahmed & Co. v. State of U.P. [Sayeed Ahmed
& Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ)
629] , this Court has held that a provision has been made
under Section 31(7)(a) of the 1996 Act in relation to the
power of the arbitrator to award interest. As per this section,
if the contract bars payment of interest, the arbitrator
cannot award interest from the date of cause of action till
the date of award.

14. In Sree Kamatchi Amman
Constructions v. Railways [Sree Kamatchi Amman
Constructions v. Railways, (2010) 8 SCC 767 : (2010) 3 SCC
(Civ) 575] , it was held by this Court that where the parties
had agreed that the interest shall not be payable, the
Arbitral Tribunal cannot award interest between the date on
which the cause of action arose to the date of the award.

15. BHEL v. Globe Hi-Fabs Ltd. [BHEL v. Globe Hi-Fabs
Ltd., (2015) 5 SCC 718 : (2015) 3 SCC (Civ) 287] , is an
identical case where this Court has held as under : (SCC p.
723, para 16)
‘16. In the present case we noticed that the clause barring
interest is very widely worded. It uses the words “any
amount due to the contractor by the employer”. In our
opinion, these words cannot be read as ejusdem generis
along with the earlier words “earnest money” or “security
deposit”.’

16. In Chittaranjan Maity v. Union of India [Chittaranjan
Maity v. Union of India, (2017) 9 SCC 611 : (2017) 4 SCC
(Civ) 693] , it was categorically held that if a contract
prohibits award of interest for pre-award period, the
arbitrator cannot award interest for the said period.

17. Therefore, if the contract contains a specific clause
which expressly bars payment of interest, then it is not open
for the arbitrator to grant pendente lite interest. The
judgment on which reliance was placed by the learned
counsel for the appellant in Ambica Construction [Ambica
Construction v. Union of India, (2017) 14 SCC 323 : (2018)
1 SCC (Civ) 257] has no application to the instant case
because Ambica Construction [Ambica
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Construction v. Union of India, (2017) 14 SCC 323 : (2018)
1 SCC (Civ) 257] was decided under the Arbitration Act,
1940 whereas the instant case falls under the 1996 Act.
This has been clarified in Chittaranjan Maity [Chittaranjan
Maity v. Union of India, (2017) 9 SCC 611 : (2017) 4 SCC
(Civ) 693] as under : (SCC p. 616, para 16)
‘16. Relying on a decision of this Court in Ambica
Construction v. Union of India [Ambica
Construction v. Union of India, (2017) 14 SCC 323 : (2018)
1 SCC (Civ) 257] , the learned Senior Counsel for the
appellant submits that mere bar to award interest on the
amounts payable under the contract would not be sufficient
to deny payment on pendente lite interest. Therefore, the
arbitrator was justified in awarding the pendente lite
interest. However, it is not clear from Ambica
Construction [Ambica Construction v. Union of India, (2017)
14 SCC 323 : (2018) 1 SCC (Civ) 257] as to whether it was
decided under the Arbitration Act, 1940 (for short “the 1940
Act”) or under the 1996 Act. It has relied on a judgment of
Constitution Bench in Irrigation Deptt., State of
Orissa v. G.C. Roy [Irrigation Deptt., State of Orissa v. G.C.
Roy, (1992) 1 SCC 508] . This judgment was with reference
to the 1940 Act. In the 1940 Act, there was no provision
which prohibited the arbitrator from awarding interest for
the pre-reference, pendente lite or post-award period,
whereas the 1996 Act contains a specific provision which
says that if the agreement prohibits award of interest for
the pre-award period, the arbitrator cannot award interest
for the said period. Therefore, the decision in Ambica
Construction [Ambica Construction v. Union of India, (2017)
14 SCC 323 : (2018) 1 SCC (Civ) 257] cannot be made
applicable to the instant case.’

18. The decision in Raveechee & Co. [Raveechee &
Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ)
711] relied on by the learned counsel for the appellant is
again under the Arbitration Act, 1940 which has no
application to the facts of the present case.
19. Having regard to the above, we are of the view that the
High Court [Garg Builders v. BHEL, 2017 SCC OnLine Del
12871] was justified in rejecting the claim of the appellant
seeking pendente lite interest on the award amount.”
………..
11. In the said decision in Bright Power Projects [Union of
India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695 :
(2015) 4 SCC (Civ) 702] , this Court also considered Section
31(7)(a) of the 1996 Act. It is specifically observed and held that
Section 31(7) of the 1996 Act, by using the words “unless
otherwise agreed by the parties” categorically specifies that the
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Special Leave Petition (Civil) No. 14989 of 2023) Page 22

arbitrator is bound by the terms of the contract insofar as award
of interest from the date of cause of action to date of the award
is concerned. It is further observed and held that where the
parties had agreed that no interest shall be payable, the Arbitral
Tribunal cannot award interest. Thus, the aforesaid decision of
a three-Judge Bench of this Court is the answer to the
submission made on behalf of the respondent that despite the
bar under Clause 16(2) which is applicable to the parties, the
Arbitral Tribunal is not bound by the same. Therefore, the
contention raised on behalf of the respondent that dehors the bar
under Clause 16(2), the Arbitral Tribunal independently and on
equitable ground and/or to do justice can award interest
pendente lite or future interest has no substance and cannot be
accepted. Once the contractor agrees that he shall not be entitled
to interest on the amounts payable under the contract, including
the interest upon the earnest money and the security deposit as
mentioned in Clause 16(2) of the agreement/contract between
the parties herein, the arbitrator in the arbitration proceedings
being the creature of the contract has no power to award interest,
contrary to the terms of the agreement/contract between the
parties and contrary to Clause 16(2) of the agreement/contract
in question in this case.”

44. Thus, from the aforesaid decisions rendered by this Court, it
can be said that the decisions in Ambica Construction (supra)
and Raveechee and Company (supra) were rendered by this
Court while deciding under the Arbitration Act of 1940, whereas
the instant case falls under the Arbitration Act of 1996.
45. The provisions of the Act of 1996, including provisions
contained in Section 31(7)(a) give paramount importance to the
contract entered into between the parties and categorically
restrict the power of an arbitrator to award pre-award/ pendente
lite interest when the parties have themselves agreed to the
contrary. Thus, the AT cannot award pre-award/ pendente lite
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Special Leave Petition (Civil) No. 14989 of 2023) Page 23

interest, even in the form of compensation, in view of specific
Clause 16(3) of GCC read with Clause 64(5) of GCC.
46. At this stage, it is also relevant to observe that the AT itself
acknowledged this prohibition by rejecting Claim No. 7 seeking
pendente lite interest. The relevant paragraph of the Arbitral
Award reads as under:-
“ The Interest so claimed is therefore not admissible as per
Section 31(7)(a) of the Act read with Clause 64(5) of the GCC
& Clause 7.35 of SCC of the contract agreement signed
between the two parties. Tribunal did not therefore consider
to award any interest on the award sum as claimed by the
Claimant. Therefore, Arbitral Tribunal declare Nil Award
against this claim. ”

47. With regard to the post-award interest, Section 31(7)(b) of the
Act provides that unless the award otherwise directs, the sum
awarded shall carry interest from the date of the award till
payment. The legislative intent underlying this provision is
twofold: first , to compensate the successful party for delayed
realization of the award, and second , to ensure prompt
compliance with the award by the judgment-debtor.
48. Recently, this Court in the case of R.P. Garg (supra), has
observed and held in para 9, 11 and 12 as under:
“9. We are of the opinion that the judgment of High Court is
clearly erroneous. Firstly, the interest granted by the First
Appellate Court only related to post award period, and therefore,
for this period, the agreement between the parties has no
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Special Leave Petition (Civil) No. 14989 of 2023) Page 24

bearing. Section 31(7)(b) deals with grant of interest for post
award period i.e., from the date of the award till its realization.
The statutory scheme relating to grant of interest provided in
Section 31(7) creates a distinction between interest payable
before and after the award. So far as the interest before the
passing of the award is concerned, it is regulated by Section
31(7)(a) of the Act which provides that the grant of interest shall
be subject to the agreement between the parties. This is evident
from the specific expression at the commencement of the sub-
section which says “unless otherwise agreed by the parties”.
…………..
11. So far as the entitlement of the post-award interest is
concerned, sub-Section (b) of Section 31(7) provides that the sum
directed to be paid by the Arbitral Tribunal shall carry interest.
The rate of interest can be provided by the Arbitrator and in
default the statutory prescription will apply. Clause (b) of Section
31(7) is therefore in contrast with clause (a) and is not subject to
party autonomy. In other words, clause (b) does not give the
parties the right to “contract out” interest for the post-award
period. The expression ‘unless the award otherwise directs’ in
Section 31(7)(b) relates to rate of interest and not entitlement of
interest. The only distinction made by Section 31(7)(b) is that the
rate of interest granted under the Award is to be given
precedence over the statutorily prescribed rate. The assumption
of the High Court that payment of the interest for the post award
period is subject to the contract is a clear error.
12. The clear position of law that granting post-award interest is
not subject to the contract between the parties was recently
affirmed in the decision of this Court in Morgan Securities &
6
Credits (P) Ltd. v. Videocon Industries Ltd., wherein the court
observed as follows:
“24. The issue before us is whether the phrase “unless the
award otherwise directs” in Section 31(7)(b) of the Act only
provides the arbitrator the discretion to determine the rate
of interest or both the rate of interest and the “sum” it must
be paid against. At this juncture, it is crucial to note that
both clauses (a) and (b) are qualified. While, clause (a) is
qualified by the arbitration agreement, clause (b) is qualified
by the arbitration award. However, the placement of the
phrases is crucial to their interpretation. The words, “unless
otherwise agreed by the parties” occur at the beginning of
clause (a) qualifying the entire provision. However, in clause
(b), the words, “unless the award otherwise directs” occur
after the words “a sum directed to be paid by an arbitral
award shall” and before the words “carry interest at the
rate of eighteen per cent”. Thereby, those words only qualify
the rate of post-award interest.
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Special Leave Petition (Civil) No. 14989 of 2023) Page 25

25. Section 31(7)(a) confers a wide discretion upon the
arbitrator in regard to the grant of pre-award interest. The
arbitrator has the discretion to determine the rate of
reasonable interest, the sum on which the interest is to be
paid, that is whether on the whole or any part of the
principal amount, and the period for which payment of
interest is to be made — whether it should be for the whole
or any part of the period between the date on which the
cause of action arose and the date of the award. When a
discretion has been conferred on the arbitrator in regard to
the grant of pre-award interest, it would be against the
grain of statutory interpretation to presuppose that the
legislative intent was to reduce the discretionary power of
the arbitrator for the grant of post-award interest under
clause (b). Clause (b) only contemplates a situation where
the arbitration award is silent on post-award interest, in
which event the award-holder is entitled to a post-award
interest of eighteen per cent.”

49. At this stage, it is pertinent to note that Clause 16(3) of the GCC
is similar to the clause in question in Manraj Enterprises
(supra) , wherein this Court also took into consideration the
three-judge bench decision in Bright Power Projects (India) (P)
Ltd. (supra) , which barred the grant of pendente lite interest
only. However, in the case of Manraj Enterprises (supra) , this
Court held that in view of the clause barring interest in the GCC,
“ the arbitrator could not have awarded the interest, pendente lite
or future interest on the amount due and payable to the contractor
under the contract in the instant case. ”
50. Considering the facts of the present case, a distinct legal regime
governs post-award interest, which operates independent of the
principles applicable to pre-award or pendente lite interest.
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Clause 64(5) of the GCC bars interest only “ till the date on which
the award is made ”. It does not prohibit interest for the period
subsequent thereto.
51. Keeping in view the aforesaid provisions of GCC and the Act of
1996 coupled with the decisions rendered by this Court, now
the operative part of the Arbitral Award is carefully examined,
it is revealed that the AT has awarded pre-award/pendente lite
interest for Claim Nos. 1,3 and 6. The relevant part of the
Arbitral Award reads as under:
“Claims:

… … …
8.0 The above award sum of Rs.5,53,57,597/- (Five crore
fifty-three lakh fifty seven thousand five hundred ninety-seven
rupees only) shall be paid by the Respondent to the Claimant
within 60 days failing which, the awarded sum shall carry
post-lite interest @12% per annum with effect from date of

award till actual payment.”
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52. We are of the view that the AT has committed serious error by
awarding pre-award/ pendente lite interest qua Claim Nos. 1, 3
& 6, though AT has observed that the said amount are awarded
by way of compensation, however, in view of the peculiar clause
of GCC as well as provisions contained in Section 31(7)(a) of the
Act of 1996 and the decisions rendered by this Court, the AT
could not have awarded the pre-award/pendente lite interest.

53. For the above stated reasons, the Commercial Court and the
High Court failed to appreciate that the AT had awarded
pendente lite interest in violation of an express contractual bar
and such failure attracts interference even within the limited
scope of Sections 34 and 37 of the Act.
54. Further, in the present case, the AT has expressly directed that
the awarded sum shall carry post-award interest at the rate of
12% per annum only in the event of default, i.e., if payment is
not made within the stipulated period of 60 days. The grant of
post-award interest is, therefore, conditional in nature and
operates as a deterrent against delayed payment, rather than
as an automatic or punitive imposition of post-award interest.
55. There is no provision in the GCC which expressly bars the grant
of post-award interest. In the absence of such an express
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Special Leave Petition (Civil) No. 14989 of 2023) Page 28

exclusion, the statutory mandate under Section 31(7)(b) of the
Act must prevail.
56. In RP Garg (supra) , in paragraph 11, this Court reiterated that
post-award interest flows as a matter of law under Section
31(7)(b), unless the parties have unequivocally agreed to
exclude it.
57. The submission of the appellants that Section 31(7)(b) of the Act
stands overridden merely because the contract bars pre-award
interest cannot be accepted. Pre-award and post-award interest
operate in distinct fields and a contractual bar applicable to the
former cannot, by implication, be extended to the latter, and
thus, any exclusion of post-award interest must be explicit and
unambiguous.
58. Accordingly, the conditional grant of post-award interest in the
present case is consistent with the statutory framework and
serves the purpose of ensuring timely satisfaction of the award.
However, we are of the considered opinion that the rate of post-
award interest at 12% per annum, as awarded by the AT, is on
the higher side. It is pertinent to note that the AT has not
assigned any reasons whatsoever for fixing the rate of post-
award interest at 12% per annum. In the absence of any
justification in the award for fixing the rate at 12% per annum
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and keeping in view the contemporary economic scenario, such
rate would result in an excessive financial burden and would
not subserve the principle of just compensation.
59. In this context, the decision of this Court in Gayatri Balasamy
v. M/s. ISG Novasoft Technologies Limited, (2025) 7 SCC 1 ,
is significant. In paragraphs 74 to 78, this Court has
categorically held that courts retain the power to modify post-
award interest under Section 31(7)(b) of the Act where the facts
justify such modification. It has been clarified that Section
31(7)(b) is a distinct legislative creation which prescribes a
statutory standard to guide the determination of post-award
interest and since such interest is inherently future-oriented,
the courts may increase or decrease the rate of post-award
interest where compelling reasons exist. The Court further
observed that when the statute itself benchmarks a standard,
such benchmark must weigh in the consideration of the rate
awarded and that the power of modification is necessary to
avoid unnecessary setting aside of the entire award merely on
the question of interest.
60. Thus, in the facts and circumstances of the present case, we
deem it appropriate to modify the rate of post-award interest
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from 12% per annum to 8% per annum from the date of award
till realization.
CONCLUSION
61. Accordingly, the answer to the issues framed in the present
matter is that:
A. The AT is not justified in awarding pre-award/ pendente
lite interest, by way of compensation, while passing the award
in favour of the respondent-claimant, and more particularly in
view of Clause 16(3) and Clause 64(5) of the GCC. The award of
such interest is not in accordance with the agreement, and
liable to be set aside.
B. The AT is justified in awarding post award interest in
favour of the respondent-claimant, however, the rate of post-
award interest is modified from 12% per annum to 8% per
annum from the date of award till realization.

C. The Courts below committed a serious error while dealing
with Issue (A) and Issue (B) referred hereinabove while
exercising the powers under Section 34 and Section 37 of the
Act.
62. In view of the aforesaid discussion, the impugned judgment
dated 25.05.2023 passed by the High Court of Judicature at
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Special Leave Petition (Civil) No. 14989 of 2023) Page 31

Allahabad, the order dated 15.09.2022 passed by the
Commercial Court, Jhansi, and the Arbitral Award dated
25.12.2018, are set aside, to the extent of the grant of pre-award
/ pendente lite interest or amounts in the nature of interest, qua
Claim No. 1, 3 and 6. The Arbitral Award dated 25.12.2018 is
further modified to the extent of the rate of the post-award
interest from 12% per annum to 8% per annum from the date
of award till realization.
63. Accordingly, the present appeal is partly allowed.
64. Pending applications, if any, shall stand disposed of.


....…….…………………….J.
[SANJAY KAROL]


..…………………………….J.
[VIPUL M. PANCHOLI]


NEW DELHI,
FEBRUARY 27, 2026
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