Bar on Interest Must Be Clear and Unambiguous to Oust Tribunal's Power: Supreme Court Resolves Critical Arbitration Clause Ambiguity in ONGC Case

"Mere Denial of Interest on Disputed Claims Does Not Bar Pendente Lite Interest": Today, In a landmark ruling on 2nd September 2025, the Supreme Court of India in Oil and Natural Gas Corporation Ltd. vs M/s G & T Beckfield Drilling Services Pvt. Ltd., decisively clarified the legal threshold required to oust an arbitral tribunal’s power to grant pendente lite interest under the Arbitration and Conciliation Act, 1996. The Court held that a contract clause must expressly or necessarily imply exclusion of interest for the tribunal to be restricted, and a vague or general denial of interest on delayed or disputed payments does not suffice.

The ruling came in the context of ONGC challenging an arbitral award which had granted interest at the rate of 12% per annum from the date of claim affirmation till payment. ONGC argued that Clause 18.1 of the contract prohibited interest on all delayed and disputed claims, but the Supreme Court found otherwise, stating emphatically: “Clause 18.1, when read as a whole, does not expressly or by necessary implication proscribe grant of pendente lite interest.”

The bench comprising Justice P.S. Narasimha and Justice Manoj Misra dismissed ONGC’s appeal, reaffirming the tribunal's authority and emphasizing that commercial fairness and statutory mandate must guide arbitration jurisprudence unless expressly ousted by clear contractual language.

Arbitral Tribunal Awards Payment with Interest Against ONGC

The genesis of the case lay in a contractual dispute between ONGC and G & T Beckfield Drilling Services Pvt. Ltd. The contractor raised multiple invoices for drilling services, which ONGC failed to clear. This led to arbitration proceedings, culminating in an award dated 21 November 2004, in which the arbitral tribunal directed ONGC to pay a total of USD 656,272.34 along with 12% interest per annum from 12 December 1998, the date on which the statement of claim was affirmed.

ONGC challenged the award under Section 34 of the Arbitration Act, primarily contesting the tribunal’s power to grant interest in light of Clause 18.1 of the agreement. The District Judge, Sivasagar, accepted ONGC’s objection and set aside the award. However, the Gauhati High Court reversed that decision and upheld the arbitral award entirely.

The matter reached the Supreme Court via SLP (C) No. 18331 of 2019, where the only issue considered was whether the arbitral tribunal had the authority to award pendente lite interest in light of the contract’s provisions.

Does Clause 18.1 Oust the Tribunal's Power to Grant Pendente Lite Interest?

The Supreme Court framed the central legal issue as follows:

“Whether clause 18.1 proscribes payment of even pendente lite interest on the sum awarded.”

ONGC’s counsel argued that the contractual provision explicitly prohibited the payment of interest on “delayed payment/disputed claims” and therefore stripped the arbitral tribunal of power to grant interest from the date of claim affirmation to the date of award.

The respondent, however, countered that Clause 18.1 was merely a commercial payment condition, not a bar on the tribunal’s adjudicatory discretion. The arbitral tribunal, they noted, had already refrained from awarding pre-reference interest, but was well within its authority to grant pendente lite interest.

Clause 18.1 Not a Bar—Interest Awarded Rightfully

The Supreme Court conducted a detailed examination of Section 31(7) of the Arbitration and Conciliation Act, 1996. The Court reiterated that an arbitral tribunal's authority to award interest covers three distinct periods—pre-reference, pendente lite, and post-award.

It emphasized that interest during the pendente lite period is subject to contract, but any restriction must be express or necessarily implied. In this regard, the Court held:

“Clause 18.1, which appellant relies upon to canvass that the agreement between the parties proscribes grant of pendente-lite interest, when read as a whole, does not expressly or by necessary implication proscribe grant of pendente lite interest by the arbitral tribunal.”

The Court further noted that the clause did not contain language broad or definitive enough, unlike other cases where arbitral discretion was clearly excluded, such as in Sayeed Ahmed & Co. and THDC v. Jai Prakash Associates, where the clauses categorically barred any form of interest “in any respect whatsoever.”

Comparing ONGC's clause with those, the Court observed: “A clause merely barring award of interest on delayed payment by itself will not be readily inferred as a bar to award pendente-lite interest by the arbitral tribunal.”

Additionally, the Court found that the 12% interest rate awarded was reasonable, especially as it was lower than the statutorily prescribed 18% post-award rate then applicable under Section 31(7)(b).

Judicial Precedents Upheld: Arbitral Powers Cannot Be Undermined Without Clear Contractual Bar

Relying on a string of prior rulings—G.C. Roy (1992), Ambica Construction, Sayeed Ahmed & Co., and Ferro Concrete (2025)—the Court reaffirmed the principle that:

“The arbitrator is not denuded of power to award pendente lite interest unless the contract contains an express or necessarily implied bar.”

In doing so, it rejected ONGC’s plea to interpret commercial payment clauses as barring adjudicatory discretion of an arbitral tribunal. The Court concluded that such interpretation would unfairly tilt the scales against claimants and violate the spirit of the Arbitration Act.

Interest Clause Failed to Meet Threshold for Denying Tribunal’s Authority

In dismissing the appeal, the Supreme Court held that Clause 18.1 did not oust the tribunal’s power to grant interest from the date the claim was filed, and therefore, there was no error in the award warranting judicial interference.

The Court pronounced: “Consequently, we find no such error in the award of pendente lite interest as may warrant interference with the award.”

Accordingly, ONGC’s appeal was dismissed in entirety, and the arbitral award—including the interest component and litigation costs—stood confirmed.

Date of Decision: 2nd September 2025