Authority: Supreme Court of India

Order Date: 15 October 2026

Case Overview

  • Parties: Appellant – MS Sharma Enterprises; Respondent – National Building Construction Corporation Limited (NBCC).
  • Origin: The dispute stems from a subcontract awarded by NBCC (via IRCON) on 11‑01‑1991 for flooring and cladding works at Vashi Railway Station‑cum‑Commercial Complex, New Bombay, for a contractual sum of Rs 9,50,73,603.20, to be completed by 10‑01‑1993.
  • Contractual Background: Execution depended on civil works by M/s Mohinder Singh & Co. Delays led NBCC to terminate the subcontract on 22‑09‑1992 and encash the bank guarantees.
  • Arbitration: Clause 10 of the Special Conditions of the Contract (SCC) invoked arbitration. NBCC failed to appoint an arbitrator; Sharma Enterprises sought appointment under Section 20 of the Arbitration Act, 1940. The Supreme Court, by order dated 03‑08‑2011 (Civil Appeal No. 6341 of 2011), appointed an arbitrator.
  • Arbitral Award (28‑07‑2016): The arbitrator held NBCC’s termination wrongful and awarded:
  • Claim 1(a): Executed work – Rs 45,653.15
  • Claim 1(b): Extra items (granite shades, specialised cladding) – Rs 26,03,465
  • Claim 2: Bank‑guarantee extension charges – Rs 2,77,500
  • Claim 3: Refund of encashed bank guarantee (security deposit) – Rs 19,01,480
  • Claim 6: Litigation costs – Rs 5,00,000
  • Claim 7: Interest at 10% p.a. on all awarded sums (except costs) from 22‑09‑1992 until payment (pre‑reference, pendente lite, and post‑award periods).
  • Subsequent Litigation:
  • Civil Appeal Nos. 7701‑7702 of 2021: Supreme Court held arbitration governed by the Arbitration and Conciliation Act, 1996 (the “1996 Act”), not the 1940 Act.
  • O.M.P. (COMM) No. 215 of 2022 (Delhi High Court): Single Judge upheld the award on substantive claims but set aside the pre‑reference and pendente lite interest, relying on Clause 26 of the SCC as an absolute bar (citing Sayeed Ahmed & Co. v. State of Uttar Pradesh).
  • FAO(OS) (COMM) No. 18 of 2026 (Delhi High Court Division Bench): Dismissed Sharma Enterprises’ appeal under Section 37 of the 1996 Act, holding that the phrase “or otherwise” in Clause 26 operates as a comprehensive bar on pendente lite interest, analogous to “or any other respect whatsoever” in Sayeed Ahmed.
  • Arguments:
  • Appellant (Counsel Siddhartha Dave): Contended that Clause 26 does not expressly bar pendente lite interest; urged application of ejusdem generis and noscitur a sociis to limit the phrase “or otherwise”; cited Oil & Natural Gas Corp. Ltd. v. G&T Beckfield and Ferro Concrete Construction for distinction; argued statutory power under Section 31(7)(a) can be excluded only by clear contractual language.
  • Respondent (Counsel Shilpi Chowdhary): Asserted Section 31(7)(a) allows exclusion of pre‑award interest when parties agree; argued “or otherwise” is residuary and covers all circumstances, thus constituting an absolute prohibition; relied on Union of India v. Manraj Enterprises, Jaiprakash Associates Ltd., and Larsen & Toubro Ltd. decisions.
  • Legal Provisions Discussed:
  • Clause 26 of the SCC (no claim for interest on balance payments, deposits, or delays, “or otherwise”).
  • Section 31(7)(a) of the 1996 Act – interest subject to “unless otherwise agreed”.
  • Section 31(7)(b) – post‑award interest (not subject to party agreement).
  • Section 28(3) – arbitral tribunal must decide in accordance with contractual terms.
  • Precedents: Sayeed Ahmed, Jaiprakash Associates, Larsen & Toubro, Manraj Enterprises, Bright Power Projects, R.P. Garg.

Final Outcome

  • The Supreme Court dismissed the appeal, affirming the Delhi High Court Division Bench judgment dated 20‑03‑2026.
  • The High Court’s setting aside of pre‑reference and pendente lite interest is upheld; the clause “or otherwise” in Clause 26 is deemed a contractual bar under Section 31(7)(a).
  • Post‑award interest under Section 31(7)(b) remains payable to Sharma Enterprises.
  • All pending applications, if any, are disposed of.

Topics: Arbitration, Contractual Interest Bar