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Supreme Court: A Broad No-Interest Clause Can Bar Pre-Reference and Pendente Lite Interest in Arbitration
Case: MS Sharma Enterprises v. National Building Construction Corporation
Neutral Citation: 2026 INSC 1135
Date: 15 October 2026
Bench: Justice Aravind Kumar and Justice Vipul M. Pancholi
Area of Law: Arbitration | Construction Contracts | Commercial Disputes
What was the issue?
Can an arbitral tribunal award interest for the period before commencement of arbitration and while the arbitration is pending when the underlying contract contains a clause excluding interest?
The Supreme Court considered the question in a long-running construction dispute between MS Sharma Enterprises and NBCC.
Section 31(7)(a) is subject to the parties’ agreement
Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 permits an arbitral tribunal to award interest for the pre-award period, but the provision expressly makes that power subject to the agreement of the parties.
The relevant contract contained an interest-exclusion clause covering specified categories and ending with the words “or otherwise.”
The Supreme Court rejected the argument that those words had to be narrowly confined to items similar to those specifically listed before them.
In the contractual setting before the Court, the expression was sufficiently wide to prohibit pre-reference as well as pendente lite interest.
The arbitrator, whose authority arises from the contract, could not disregard that contractual restriction.
Post-award interest stands on a different footing
The judgment carefully distinguishes two statutory periods:
- Section 31(7)(a): interest up to the date of the award, which is subject to the parties’ agreement; and
- Section 31(7)(b): post-award interest, which is governed by a different statutory rule.
The High Court had therefore been justified in interfering with the award of pre-reference and pendente lite interest while leaving the post-award position intact.
The appeal was dismissed.
The ruling is clause-specific
The judgment should not be read as holding that every clause mentioning interest automatically deprives an arbitral tribunal of power to award pre-award interest.
The contractual language has to be examined.
What mattered here was the breadth of the particular exclusion clause and, especially, the Court’s interpretation of the words “or otherwise.”
What this means for contractors and businesses
Interest can form a substantial part of a commercial claim, particularly where construction and infrastructure disputes remain unresolved for years.
Before commencing arbitration, parties should therefore separate:
- the principal claim;
- pre-reference interest;
- pendente lite interest; and
- post-award interest.
Each component should then be tested against the precise contractual language and Section 31(7).
For businesses negotiating contracts, a no-interest clause may have major financial consequences long after the commercial work itself has ended.
Key takeaway
An arbitrator’s power to award pre-award interest is not unlimited. Where the parties have clearly contracted out of such interest, Section 31(7)(a) requires the tribunal to respect that bargain.
Primary source: Official Supreme Court judgment viewer.
Related JLP resources: Dispute Resolution & Litigation · Corporate & Commercial Law
Disclaimer: This legal update is intended solely for general information and discussion of recent judicial developments. It does not constitute legal advice or create an advocate-client relationship. The application of any judgment depends upon the facts and legal circumstances of the individual matter. Persons requiring advice concerning a particular dispute should obtain professional legal advice.