The Supreme Court has held that a contract clause saying that “no claim for interest will be entertained… or otherwise” bars an arbitrator from awarding interest for the period before the award, even if the interest is only meant as compensation for a wrongful termination.
Under Section 31(7)(a) of the Arbitration Act, an arbitrator cannot award pre-reference or pendente lite interest where the parties have contractually agreed that no interest will be payable. A clause barring interest on withheld balances, deposits or delayed payments “or otherwise” is a wide residuary bar, and it is not read down by ejusdem generis when the items are joined by “or” and do not form a single category. The bar applies even if the interest is claimed as compensation. Post-award interest under Section 31(7)(b) is not subject to party autonomy, and the rate can be set by the tribunal but the entitlement cannot be contracted out.
The dispute began in 1991, when NBCC gave M/s Sharma Enterprises a sub-contract for flooring and cladding work at Vashi Railway Station for about Rs 9.5 crore. The work depended on the civil contractor finishing its part, but this was delayed, and in September 1992 NBCC terminated the contract and encashed the bank guarantees. After years of litigation, the Supreme Court appointed an arbitrator in 2011, who held the termination wrongful, allowed several claims and awarded 10% interest from 22 September 1992 until payment. The Delhi High Court’s Single Judge and Division Bench upheld all the substantive claims, but set aside the interest for the pre-reference and pendente lite periods, because of Clause 26 of the Special Conditions. This clause said that no claim for interest would be entertained for balances or deposits held up because of a dispute, or for delay in monthly or final payments, “or otherwise”. The contractor argued that the words “or otherwise” should be read in the light of the preceding words on delayed payments, using ejusdem generis. Justices Aravind Kumar and Vipul M. Pancholi dismissed the appeal. They held that Section 31(7)(a) of the Arbitration Act allows the tribunal to award pre-award interest only “unless otherwise agreed by the parties”, and the arbitrator is a creature of the contract. Ejusdem generis does not apply because the three situations in Clause 26 are joined by “or” and do not form a single class. Relying on Lilavati Bai, the court said that “or otherwise” are words of extension and not limitation, and that this clause is on the same footing as “any other respect whatsoever” in Sayeed Ahmed and Jaiprakash Associates, unlike the narrower clause in the ONGC case. It also drew a distinction that post-award interest under Section 31(7)(b) is not subject to the contract, so the post-award interest was rightly kept in favour of the contractor.
Citation: M/s Sharma Enterprises v. National Building Construction Corporation, Civil Appeal No. 13782 of 2026 (arising out of SLP (C) No. 17072 of 2026), Supreme Court (Justices Aravind Kumar and Vipul M. Pancholi), decided on 15.10.2026 | 2026 INSC 1135
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