Supreme Court Clarifies Scope of Arbitral Power to Grant Pendente Lite Interest

Introduction 

The Supreme Court of India in Oil and Natural Gas Corporation Ltd. v. M/s G&T Beckfield Drilling Services Pvt. Ltd. (Civil Appeal No. 11324 of 2025) gave a landmark judgment regarding the ambit of arbitral tribunals' jurisdiction to award interest under the Arbitration and Conciliation Act, 1996. The ruling, given by Justice Manoj Misra, reiterates that contractual provisions excluding interest on overdue payments or disputed claims do not necessarily exclude the arbitral tribunal's jurisdiction to award pendente lite interest unless the exclusion is express and unambiguous. This ruling settles the long-standing controversy surrounding contractual restraints and statutory control over arbitral interest, especially under Section 31(7) of the 1996 Act.

Background of the Case

The case arose from a contract between the petitioner ONGC and G&T Beckfield Drilling Services about drilling operations. The respondent company made multiple invoices for services performed, some of which were left unpaid. When the issue was submitted to arbitration, a three-member arbitral panel rendered an award dated 21 November 2004 ordering ONGC to pay USD 6,56,272.34 together with interest at the rate of 12% per annum from 12 December 1998 (the date of confirmation of claim) until realization and Rs. 5 lakhs as costs. Significantly, though the tribunal dismissed interest on the pre-reference period, it awarded pendente lite interest from the filing date of the claim before the tribunal.

ONGC challenged the award under Section 34 of the Arbitration Act before the District Judge, Sivasagar, who revoked the award on two grounds: (i) the award was non-speaking and therefore in violation of Section 31(3) of the 1996 Act; and (ii) the tribunal had failed to address ONGC's jurisdictional objection under Section 16(2). Aggrieved, G&T Beckfield went in appeal under Section 37 to the Gauhati High Court, which granted the appeal and revived the arbitral award. ONGC then went to the Supreme Court by way of special leave, but the Court restricted notice to the issue as to whether the arbitral tribunal was correct in granting interest at 12% per annum from the date of establishment of the claim.

Submissions Before the Court

ONGC depended on Clause 18.1 of the agreement, which stated that the corporation would not be liable to pay interest on late payment or claims in dispute. Counsel contended that the discretion of the tribunal to award interest under Section 31(7)(a) of the Arbitration Act is subject to agreement between the parties. As Clause 18.1 excluded interest, the grant of pendente lite interest was untenable, ONGC argued.

Conversely, the respondent's counsel argued that Clause 18.1 had to be read as a whole. The clause was only limiting payment of interest at the delayed or disputed payment stage, but did not exclude the tribunal's statutory discretion to grant pendente lite interest upon having already determined that ONGC unjustifiably withheld payments. Furthermore, the tribunal had deliberately avoided awarding pre-reference interest, going only up to pendente lite and post-award only, which accords with established law.

Legal Background and Precedents

The Court thoroughly scrutinized Section 31(7) of the Arbitration Act. Clause (a) gives power to arbitral tribunals to grant interest from the cause of action to the award, subject to the agreement of the parties. Clause (b), however, requires post-award interest at 18% per annum (pre-2015 amendment) save as may be otherwise specified by the award, and this does not require party agreement. Parties can therefore contract out of pre-reference and pendente lite interest but not post-award interest.

Drawing upon Union of India v. Bright Power Projects (2015), Sayeed Ahmed & Co. v. State of U.P. (2009), and Garg Builders v. BHEL (2022), the Court reaffirmed that contractual clauses excluding interest must be express or necessarily implied. The Constitution Bench judgment in the Irrigation Department. v. G.C. Roy (1992) was also revisited, which acknowledged arbitrators' jurisdiction to award pendente lite interest unless specifically barred. Also, in Union of India v. Ambica Construction (2016), the Court ruled that a blanket prohibition on interest in the case of delayed payment could not be held to automatically exclude pendente lite interest. On the contrary, in THDC v. Jaiprakash Associates Ltd. (2012), where the agreement had an absolute prohibition on interest "in any respect whatsoever," the Court upheld the bar.

Supreme Court's Analysis

The Court held that Clause 18.1 of the ONGC agreement did no more than state that ONGC would not be responsible for paying interest on delayed payments or claimed amounts. This, in the Court's view, was far from being a prohibition absolute like clauses examined in Sayeed Ahmed or THDC. It was a general protective clause against interest claims at the contractual phase of invoicing and payments. Importantly, the provision did not exclude by express words or by necessary implication the tribunal's statutory discretion to grant pendente lite interest.

Justice Misra asserted that the authority to grant pendente lite interest is inherent in the arbitral process except where the contract clearly excludes it. The arbitral tribunal in this case had acted reasonably in exercising its discretion by granting interest only from the date of confirmation of the statement of claim and not from the earlier date when the invoices were issued. The rate of 12% was also reasonable, being less than the statutory default rate of 18% under Section 31(7)(b).

Verdict

The Supreme Court decided that Clause 18.1 did not exclude pendente lite interest and that the arbitral tribunal was fully within its jurisdiction to grant the same. As the post-award interest granted agreed with statutory rules, interference was not warranted. Accordingly, the Court dismissed ONGC's appeal and affirmed the award in its entirety.

Significance of the Judgment

This judgment has major implications for arbitration in India. First, it reaffirms the pro-arbitration bias of the judiciary by supporting arbitral discretion unless the contract explicitly restricts it. Second, it distinguishes unequivocally between contractual restraints on interest for late payments and complete restraints for all phases, hence restricting parties from excluding pendente lite interest by contract. Third, it ensures that arbitral tribunals exercise discretion sensibly, so awards are not too generous or unfair.

For corporates and public sector units, the ruling is a warning against indiscriminate use of standard interest-exclusion provisions to deny liability. For service providers and contractors, it adds weight to the argument for payment of pendente lite interest when charges are arbitrarily withheld. Lastly, the ruling aligns Indian arbitration law with international best practices, which typically support compensation for loss of use of money during arbitral proceedings.

Case Reference: OIL AND NATURAL GAS CORPORATION LTD. VERSUS M/S G & T BECKFIELD DRILLING SERVICES PVT. LTD., Civil Appeal No.  11324 of 2025 in the Supreme Court of India