Legal Brief: Oil and Natural Gas Corporation Ltd. v. M/s G & T Beckfield Drilling Services Pvt. Ltd.

Citation: Civil Appeal No. 11324 of 2025

Date of Judgment: 2 September 2025

Bench: Pamidighantam Sri Narasimha and Manoj Misra, JJ.

Court: Supreme Court of India

Result: Appeal Dismissed

The Supreme Court held that an arbitral tribunal can be denuded of its power to award pendente lite interest (interest during the pendency of arbitration) only if the agreement between the parties is so worded that such interest is either explicitly or by necessary implication barred. 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.

Issue for Consideration

Whether Clause 18.1 of the agreement between ONGC and G & T Beckfield proscribed payment of pendente lite interest on the sum awarded by the arbitral tribunal.

Legal Framework

Section 31(7) of the Arbitration and Conciliation Act, 1996

Section 31(7) deals with the award of interest when an arbitral award is for the payment of money. It has two clauses:

Clause (a): Deals with interest for the period between the date on which the cause of action arose and the date on which the award is made. The arbitral tribunal may include interest at such rate as it deems reasonable on the whole or any part of the money. However, this power is subject to the agreement between the parties.

Clause (b): Deals with post-award interest. Prior to the 2015 amendment, it mandated payment of interest on the sum awarded at the rate of 18% per annum from the date of the award to the date of payment, unless the award directed otherwise. Importantly, clause (b) is not subject to an agreement between the parties.

Three Types of Interest

The arbitral tribunal has jurisdiction to award interest for three distinct periods:

Pre-reference interest: From the date of cause of action to the date the statement of claim is affirmed before the arbitral tribunal
Pendente lite interest: From the date the statement of claim is affirmed to the date of the award
Post-award interest: From the date of the award till the date of payment

Award of pre-reference and pendente lite interest is subject to the agreement between the parties, whereas post-award interest is statutorily governed and is not subject to the agreement.

Facts of the Case

Background

ONGC (appellant) entered into a contract with G & T Beckfield Drilling Services Pvt. Ltd. (respondent)
Disputes arose regarding payment of outstanding amounts under various invoices
The matter was referred to a three-member arbitral tribunal

Arbitral Award dated 21 November 2004

The arbitral tribunal:

Allowed claims totaling USD 6,56,272.34 in favor of the respondent
Rejected claims for interest on individual invoices
However, awarded interest at 12% per annum on the total sum from 12 December 1998 (the date when the statement of claim was affirmed) till recovery
Awarded costs of Rs. 5 lakhs

Subsequent Proceedings

ONGC filed an application under Section 34 of the Arbitration Act before the District Judge, Sivasagar, challenging the award
The District Judge set aside the award on grounds that it was non-reasoned and violated Section 31(3)
Respondent appealed to the Gauhati High Court under Section 37(1)(c), which was allowed, and the arbitral award was affirmed
ONGC filed a Special Leave Petition before the Supreme Court, which was limited to the issue of whether interest on the total awarded amount at the rate of 12% could be awarded or not

Key Contractual Clause

Clause 18.1 of the Agreement:

"Corporation agrees to arrange remittance of payment under this contract within 30 days from the date of receipt of invoice from contractor duly certified by the authorized representative of the Corporation subject always to Corporation's right to require contractor to furnish it with satisfactory evidence of the validity and prior payment by Contractor of all labor and material incurred by Contractor and charged to Corporation. Should corporation question any item or items of an invoice, it may withhold payment of the amount in dispute until such matter is resolved between the parties, but the amount not in dispute is to be paid within above period. No interest shall be payable by ONGC on any delayed payment /disputed claim."

Parties' Submissions

ONGC's Argument

Section 31(7) of the Arbitration Act clearly provides that the power of the arbitral tribunal to award interest for the period between the date the cause of action arose up to the date of the award is subject to the agreement between the parties. Therefore, in view of Clause 18.1, no interest could have been awarded. The arbitral award is liable to be set aside to the extent it awards interest.

Respondent's Argument

Clause 18.1, if read as a whole, indicates that payment is not to be withheld if the amount is not in dispute. Interest is not payable only when there is a dispute. The arbitral tribunal did not award interest on the pre-reference period but awarded interest from the date the claim was affirmed before the tribunal. Once it was found that the balance amount on the invoices was unjustifiably withheld, payment of interest is lawful.

Court's Analysis and Legal Principles

Position of Law on Pendente Lite Interest

The Supreme Court comprehensively reviewed the jurisprudence on when contractual clauses bar the award of pendente lite interest:

1. G.C. Roy (Constitution Bench)

In Irrigation Deptt., State of Orissa v. G.C. Roy (1992) 1 SCC 508, the Constitution Bench held:

If the agreement expressly provides for award of interest, the arbitrator has power to award interest pendente lite
Where the agreement expressly provides that no interest pendente lite shall be payable, the arbitrator has no power to award such interest
Where the agreement does not prohibit grant of interest and a party claims interest, the arbitrator has the power to award interest pendente lite
This does not mean that in every case the arbitrator must necessarily award interest pendente lite - it is within the arbitrator's discretion

2. Union of India v. Ambica Construction (Three-Judge Bench)

In Union of India v. Ambica Construction (2016) 6 SCC 36, the Court held:

The arbitrator is not a court and decides disputes as per the agreement
Where the agreement expressly provides that no interest pendente lite shall be payable, the arbitrator has no power to award such interest
The bar to award interest on delayed payment by itself will not be readily inferred as an express bar to award pendente lite interest
Ouster of power of the arbitrator has to be considered on various relevant aspects
Grant of pendente lite interest may depend upon phraseology used in the agreement, nature of claim, and on what items power to award interest has been taken away and for which period

3. Cases Where Interest Was Barred

The Court examined cases where the interest proscribing clause was held to bar pendente lite interest:

Sayeed Ahmed & Co. v. State of Uttar Pradesh:

"No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any becoming due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."

This clause was comprehensive and barred interest under any head in clear and categorical terms.

Tehri Hydro Development Corporation v. Jai Prakash Associates Ltd.:

The interest proscribing clauses in that case stated that no interest or damages would be payable for delay in payment, either interim or final, for works done or on any amount lying in deposit. The Court held that the clauses imposed a clear bar on either entertainment or payment of interest in any situation of non-payment or delayed payment.

4. Ferro Concrete Construction v. State of Rajasthan (2025)

In this recent decision, a Two-Judge Bench of which Justice P.S. Narasimha was a member held:

"The arbitrator's power to grant interest would depend on contractual clause in each case, and whether it expressly takes away the arbitrator's power to grant pendente lite interest. This would have to be determined based on the phraseology of the agreement, clauses conferring powers relating to arbitration, nature of claim and dispute referred to the arbitrator, and on what items the power to award interest is contractually barred and for which period. Further, a bar on award of interest for delayed payment would not be readily inferred as an express bar to the award of pendente lite interest by the arbitrator."

Application to the Present Case

After analyzing the precedents, the Supreme Court formulated the following principle:

"On a careful analysis of the decisions discussed above, we are of the view that arbitral tribunal can be denuded of its power to award pendente lite interest only if the agreement/contract between the parties is so worded that the award of pendente lite interest is either explicitly or by necessary implication (such as in the case of Sayeed & Co. and THDC First) barred. 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."

Interpretation of Clause 18.1

Applying these principles to Clause 18.1, the Court held:

Clause 18.1, when read as a whole, does not expressly or by necessary implication proscribe grant of pendente lite interest by the arbitral tribunal
The clause merely says that there would be no interest payable by ONGC on any delayed payment/disputed claim
It neither bars the arbitral tribunal from awarding pendente lite interest nor says that interest would not be payable in any respect whatsoever
The phraseology is not as comprehensive as in Sayeed Ahmed & Co. or THDC First cases
Therefore, Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente lite interest

Judgment and Conclusion

Supreme Court's Holding

The Supreme Court dismissed the appeal and upheld the award of pendente lite interest. The Court held:

No error was found in the award of pendente lite interest warranting interference
The rate of 12% per annum was reasonable, being lower than the statutorily prescribed rate of 18% under Section 31(7)(b) as it existed then
Post-award interest was in line with the statutory provision of Section 31(7)(b) as it then existed

Key Takeaways and Legal Significance

For Contract Drafting

Explicit and Comprehensive Language Required: To effectively bar pendente lite interest, the contractual clause must use explicit and comprehensive language that clearly indicates the intention to bar interest "in any respect whatsoever" or under "any circumstances"
General Bar on Delayed Payment Interest Insufficient: A clause that merely bars interest on delayed payment or disputed claims will not automatically be construed as barring pendente lite interest awarded by the arbitral tribunal
Phraseology Matters: The exact phraseology used in the agreement is critical. Courts will examine whether the clause expressly or by necessary implication takes away the arbitrator's power to grant pendente lite interest
Holistic Interpretation: The clause must be read as a whole, considering various factors such as: the phraseology used, clauses conferring power relating to arbitration, nature of claim, on what items power to award interest has been taken away, and for which period

Distinction Between Types of Interest

Type of Interest	Period	Subject to Agreement?	Can Parties Contract Out?
Pre-reference Interest	From date of cause of action to date of statement of claim	Yes	Yes
Pendente Lite Interest	From date of statement of claim to date of award	Yes	Yes, but only with explicit language
Post-award Interest	From date of award to date of payment	No	No - statutorily governed

Practical Implications

1. For Public Sector Undertakings and Government Contracts

This judgment is particularly relevant for government contracts and PSUs like ONGC. If they wish to avoid liability for pendente lite interest, they must ensure that their standard terms and conditions contain explicit and comprehensive clauses barring such interest, similar to the clauses in Sayeed Ahmed or THDC cases.

2. For Contractors and Suppliers

Contractors can challenge vague or general clauses that purport to bar interest. Unless the clause explicitly bars pendente lite interest, the arbitral tribunal retains discretion to award such interest.

3. For Arbitrators

Arbitrators must carefully examine the phraseology of interest-barring clauses. They should not readily infer a bar on pendente lite interest from a general clause barring interest on delayed payment. The clause must be interpreted holistically and in context.

4. Distinction from Post-Award Interest

Post-award interest under Section 31(7)(b) is statutorily mandated and parties cannot contract out of it. The agreement does not give parties the right to 'contract out' interest for the post-award period.

Judicial Precedent

This judgment relied on and synthesized the following key precedents:

Constitution Bench: Irrigation Deptt., State of Orissa v. G.C. Roy (1992) 1 SCC 508
Three-Judge Bench: Union of India v. Ambica Construction (2016) 6 SCC 36
Referred to: Sayeed Ahmed and Company v. State of Uttar Pradesh (2009) 12 SCC 26
Referred to: Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd. (2019) 17 SCC 786
Referred to: Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan 2025 SCC OnLine SC 708
Referred to: Pam Developments Private Limited v. State of West Bengal (2024) 10 SCC 715

Comparative Analysis with Similar Cases

Contrast with Sayeed Ahmed & Co.

Unlike the clause in Sayeed Ahmed which stated "no interest or damages will be entertained... with respect to... any other respect whatsoever", Clause 18.1 in the present case merely stated "No interest shall be payable by ONGC on any delayed payment/disputed claim." The absence of comprehensive language like "any other respect whatsoever" was crucial.

Contrast with THDC Cases

The THDC cases had clauses that barred interest "in any respect whatsoever" and covered both delayed payment and amounts lying in deposit. The clauses were comprehensive and covered all situations. In contrast, Clause 18.1 was limited to delayed payment and disputed claims.

Alignment with Ambica Construction

This judgment reinforces the principle laid down in Ambica Construction that a bar to award interest on delayed payment by itself will not be readily inferred as an express bar to award pendente lite interest. The Court must consider the phraseology, nature of claim, and context.

Conclusion

The judgment in ONGC v. G & T Beckfield Drilling Services provides important clarity on when contractual clauses can bar the award of pendente lite interest in arbitration. The Supreme Court has adopted a nuanced approach that balances contractual freedom with the statutory powers of arbitral tribunals under Section 31(7) of the Arbitration and Conciliation Act, 1996.

The key principle is that mere general language barring interest on delayed payment is insufficient to denude the arbitral tribunal of its power to award pendente lite interest. The contractual clause must either explicitly bar such interest or must do so by necessary implication through comprehensive language that covers interest "in any respect whatsoever" or "under any circumstances."

This decision will have significant implications for drafting commercial contracts, particularly in government and PSU contracts, and provides valuable guidance to arbitrators in interpreting interest-barring clauses. It reinforces the principle that ouster of statutory powers must be clear and unambiguous, and courts will not readily infer such ouster from general or vague contractual language.