A broadly worded “or otherwise” clause bars pre-award interest under Section 31(7)(a).

On 11 January 1991, NBCC subcontracted flooring and cladding work at Vashi Railway Station-cum-Commercial Complex to Sharma Enterprises. Delays in the underlying civil works restricted the appellant’s work, and NBCC terminated the contract on 22 September 1992.

After protracted proceedings, the arbitrator found the termination wrongful, allowed several monetary claims, and awarded interest at 10% per annum from 22 September 1992, including pre-reference, pendente lite and post-award interest.

The High Court, acting under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, set aside the pre-reference and pendente lite interest, but left the substantive claims and post-award interest undisturbed.

Sharma Enterprises appealed to the Supreme Court.

1. Whether Clause 26 of the Special Conditions of Contract barred the arbitral tribunal from awarding pre-reference and pendente lite interest under Section 31(7)(a) of the 1996 Act

2. Whether the contractual bar also excluded post-award interest under Section 31(7)(b)

Section 31(7)(a) of the 1996 Act makes an arbitral tribunal’s power to award pre-award interest subject to the parties’ agreement; read with Section 28(3), the tribunal must give effect to the contract.

A contractual prohibition on interest may exclude pre-award interest where its language does so expressly or by necessary implication.

The ejusdem generis rule applies only where general words follow specific words forming a distinct genus; disjunctively joined expressions may require independent interpretation.

The Court relied on Sayeed Ahmed and Company v. State of Uttar Pradesh, Union of India v. Manraj Enterprises, and Union of India v. Larsen & Toubro Limited on contractual restrictions on pre-award interest.

Section 31(7)(b), by contrast, provides for post-award interest unless the award directs otherwise; the parties cannot contract out of entitlement to that interest.

Clause 26 provided that no claim for interest would be entertained for balances or deposits held up because of a dispute, delays in monthly or final payments, “or otherwise”.

The Court held that “or otherwise” was a broad residuary expression, not confined by ejusdem generis to delayed contractual payments, and covered other circumstances in which interest might be claimed against NBCC.

The clause was therefore materially similar to the broad prohibition considered in Sayeed Ahmed and Jaiprakash Associates Limited v. THDC, and barred pre-reference and pendente lite interest.

That bar did not extend to post-award interest, which is governed by Section 31(7)(b).

Finding no error in the High Court’s decision to set aside the award only to the extent of pre-reference and pendente lite interest, the Court dismissed the appeal.