The Supreme Court has held that the words “or otherwise” at the end of a contractual clause barring interest are residuary words of extension and cannot be read down by the preceding expressions. The Court observed that an arbitrator, being a creature of the contract, acts beyond jurisdiction in awarding pre-reference and pendente lite interest in contravention of such a clause.

The Court explained that the power to award pre-award interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 is expressly subject to the words “unless otherwise agreed by the parties”. Post-award interest under Section 31(7)(b) is not subject to party autonomy. Ejusdem generis applies only where general words follow a specific class forming a genus, and phrases joined disjunctively by “or” must be examined independently.

A Bench of Justice Aravind Kumar and Justice Vipul M. Pancholi observed, “…the preceding terms of the phrase “or otherwise” do not constitute a single, narrow genus restricted to delayed running payments and also include balance payments, withheld deposits and amounts withheld due to disputes. Consequently, the expression “or otherwise” is residuary in nature and has been consciously incorporated with wide amplitude to encompass every other conceivable circumstance under which a claim for interest might be asserted against the Corporation”.

“…the learned Arbitrator, being a creature of the contract, acted beyond his jurisdiction in granting pre-reference and pendente lite interest in contravention of Clause 26 of the SCC, which 22 attracts Section 31(7)(a) of the 1996 Act. Thus, the High Court rightly acted under Sections 34 and 37 of the 1996 Act in setting aside the arbitral award dated 28.07.2016 to that limited extent, while maintaining the substantive claims of the appellant and post-award interest in favour of the appellant”, it further noted.

Senior Advocate Siddhartha Dave appeared for the appellant and Advocate Shilpi Chowdhary appeared for the respondent.

In 1991, NBCC awarded the appellant a sub-contract for flooring and cladding works at Vashi Railway Station complex for Rs. 9,50,73,603.20. NBCC terminated the contract on September 22, 1992 and encashed the bank guarantees. Clause 26 of the Special Conditions provided that no claim for interest would be entertained in respect of withheld balance payments or deposits, or delay in monthly or final payments, “or otherwise”.

An arbitrator was appointed by this Court on August 03, 2011, where his award dated July 28, 2016 held the termination wrongful, allowed the appellant’s claims and granted interest at 10% per annum from September 22, 1992. On December 15, 2021, this Court held that the 1996 Act governed the proceedings. By judgment dated November 19, 2025, a Single Judge of the Delhi High Court upheld the substantive claims but set aside pre-reference and pendente lite interest. A Division Bench dismissed the Section 37 appeal on March 20, 2026.

The Bench referring to Union of India v. Larsen & Toubro Limited 2026 INSC 203, held that Clause 26 enumerates three distinct events joined by “or”. The preceding terms do not form a narrow genus confined to delayed running payments. Following Lilavati Bai, “or otherwise” was held to be a residuary expression of wide amplitude, and confining it to delayed payments would amount to rewriting the contract. ONGC v. G&T Beckfield was distinguished, as that clause had no residuary expression. Clause 26 stood on the same footing as “any other respect whatsoever” in Sayeed Ahmed and Jaiprakash Associates. The Court affirmed the High Court’s retention of post-award interest, which cannot be contracted out.

Cause Title: MS Sharma Enterprises v. National Building Construction Corporation (Neutral Citation: 2026 INSC 1135)

Appearances:

Appellant: Siddhartha Dave, Senior Advocate.

Respondent: Shilpi Chowdhary, Advocate.

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