North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited, 2026

NEEPCO invited tenders for civil construction work relating to the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura.

Astra Construction Private Limited's tender was accepted and a formal agreement was executed between the parties on 23 May 1996.

The estimated value of the project was approximately ₹17.09 crore, with the work stipulated to be completed by 26 March 1997.

Disputes subsequently arose between the parties concerning execution of the project.

The disputes were referred to an Arbitral Tribunal.

The Tribunal concluded that the delay in execution of the project was attributable to NEEPCO.

Four claims raised by Astra Construction were allowed and the Tribunal awarded a principal amount of approximately ₹3.30 crore.

In addition to the principal amount, the Tribunal awarded pre-reference interest at 12% per annum on the relevant claims.

The Tribunal also awarded pendente lite and future interest at 9% per annum.

NEEPCO challenged the award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996.

NEEPCO relied upon Clause 54 of the GCC, which stated that no claims for interest or damages would be entertained in relation to money or balances lying with the Corporation because of disputes, differences or misunderstandings, or because of delay by the Engineer-in-Charge in making periodical or final payments, or in any other respect.

The Commercial Court concluded that Clause 54 constituted a contractual bar against the award of interest and modified the arbitral award accordingly.

The Commercial Court therefore set aside the award of pre-reference and pendente lite interest on the relevant claims.

Astra Construction challenged the Commercial Court's decision before the Meghalaya High Court under Section 37 of the Arbitration Act.

The High Court restored the interest awarded by the Arbitral Tribunal.

The High Court relied principally upon State of U.P. v. Harish Chandra & Co. (1999) and held that the contractual clause before it was materially similar to the clause considered in that case.

According to the High Court, the contractual prohibition was essentially directed towards interest on money or balances withheld because of a dispute and did not independently prohibit interest arising from delayed payments.

NEEPCO approached the Supreme Court against the High Court's judgment.

Before the Supreme Court, the principal controversy concerned the proper interpretation of Clause 54 and whether it constituted a contractual bar to the award of pre-reference interest under Section 31(7)(a).

The Supreme Court allowed NEEPCO's appeal and set aside the Meghalaya High Court's judgment insofar as it restored the grant of pre-reference interest.

The Court explained that Section 31(7)(a) of the 1996 Act makes the arbitral power to award interest subject to the parties' agreement, using the expression “unless otherwise agreed by the parties.”

The Court distinguished the legal position under the earlier Arbitration Act, 1940 from the position under the 1996 Act.

Under the 1996 Act, party autonomy has particular significance: where the parties have agreed to exclude interest, the arbitral tribunal cannot disregard that contractual restriction merely because Section 31(7)(a) otherwise confers power to award interest.

The Supreme Court further clarified that pre-reference interest and pendente lite interest do not stand on exactly the same legal footing.

Pre-reference interest concerns the period before commencement of arbitration and is a matter of substantive law; it cannot be sourced solely from Section 31(7)(a).

Pre-reference interest must instead have a basis in an agreement, statutory provision or applicable mercantile usage.

The Court then examined the precise language of Clause 54 of the GCC.

It found that the clause contained two distinct situations in which claims for interest or damages were barred.

The first concerned money or balances lying with NEEPCO because of a dispute, difference or misunderstanding between the parties.

The second independently concerned delay by the Engineer-in-Charge in making periodical or final payments.

The Court held that this second reference to delayed payments was not merely an explanation of the first situation.

Instead, it constituted an independent contractual bar against interest arising from delayed periodical or final payments.

The Court therefore rejected the Meghalaya High Court's conclusion that Clause 54 was materially identical to the clause considered in Harish Chandra.

In Harish Chandra, the contractual language was interpreted as primarily addressing money or balances lying with the Government because of a dispute, and did not separately bring ordinary delay in payment within the prohibition.

By contrast, Clause 54 expressly identified delay in payment as a separate ground for excluding interest.

The Supreme Court therefore held that the very situation which had fallen outside the contractual bar in Harish Chandra—delay in payment without the additional requirement of a dispute—was expressly covered by Clause 54 in the present case.

The Court found that the contractual language was materially closer to the clauses considered in Sayeed Ahmed and THDC-II.

In those cases, a separate contractual prohibition concerning delayed payments had been treated as sufficient to restrict the arbitral tribunal's power to award interest.

The Supreme Court agreed with that line of reasoning and held that it governed the present dispute.

Accordingly, the Arbitral Tribunal had exceeded the limits of its jurisdiction in awarding pre-reference interest despite the contractual prohibition contained in Clause 54.

The Supreme Court also rejected the argument that NEEPCO had waived its right to rely upon Clause 54, noting that the contractual objection had in fact been raised before the Arbitral Tribunal.

The High Court's judgment was therefore set aside to the extent that it restored the award of pre-reference interest.

The appeal was consequently allowed, with no order as to costs.

The central significance of the judgment lies in its emphasis on contractual autonomy in arbitration. Section 31(7)(a) does not confer an unrestricted power upon an arbitral tribunal to award interest regardless of the parties' agreement.

The phrase “unless otherwise agreed by the parties” gives decisive importance to the contractual terms governing the arbitral relationship.

The Court's analysis also clarifies an important distinction between pre-reference interest and pendente lite interest.

Pre-reference interest relates to the period before arbitration commenced and is treated as a matter of substantive law. Consequently, the tribunal cannot simply derive such interest from Section 31(7)(a) without an independent legal basis.

The judgment therefore prevents Section 31(7)(a) from being interpreted as an automatic source of pre-reference interest.

The Court's interpretation of Clause 54 turned primarily on textual structure.

The clause first referred to money or balances withheld because of disputes, differences or misunderstandings and then separately referred to delay in making periodical or final payments.

The use of the separate expression relating to delayed payments was treated as legally significant.

This meant that the contractual bar was not confined to situations where money remained unpaid because of a dispute.

The clause also covered a separate category: delay in payment itself.

This textual distinction was decisive in separating the case from Harish Chandra.

The judgment illustrates that seemingly similar “no-interest” clauses cannot be interpreted mechanically. Courts must examine the precise wording, structure and context of each contractual provision.

The Court's reliance on Sayeed Ahmed and THDC-II demonstrates the development of Supreme Court jurisprudence under the 1996 Act towards giving effect to express contractual restrictions on arbitral interest.

This is particularly relevant in government and public works contracts, where GCC provisions frequently contain detailed provisions concerning interest on delayed payments.

The judgment also demonstrates that the 1996 Arbitration Act represents a significant shift from aspects of the earlier 1940 Act regime.

Under the earlier regime, contractual restrictions on interest were construed within a different statutory and jurisprudential framework. Under Section 31(7)(a) of the 1996 Act, party autonomy is expressly incorporated into the statutory provision itself.

The decision does not establish that every clause mentioning delayed payments will automatically exclude interest. The precise contractual language must still be examined.

The Court's reasoning instead establishes that where a contract clearly and separately bars interest arising from delayed payments, an arbitral tribunal cannot circumvent that prohibition by treating Section 31(7)(a) as an independent source of power.

The judgment also rejects an overly broad reading of Harish Chandra. The fact that two contractual clauses contain broadly similar expressions does not make them legally identical where one contains an additional independent prohibition.

Another important aspect is the Court's treatment of waiver. Because NEEPCO had actually raised the contractual objection before the Arbitral Tribunal, there was no basis to conclude that it had abandoned or waived reliance upon Clause 54.

The ruling therefore provides guidance not only on the substantive interpretation of interest clauses but also on the importance of preserving contractual objections during arbitral proceedings.

For arbitral tribunals, the judgment reinforces that the power to grant interest must remain within the boundaries established by the parties' agreement.

For courts exercising jurisdiction under Sections 34 and 37, the decision underscores the need to examine whether the arbitral award conforms to an express contractual limitation on interest.

The broader principle is that arbitration is consensual in origin, and the tribunal's authority is consequently constrained by the terms of the arbitration agreement and the substantive contract between the parties.

In practical terms, the judgment means that contractors seeking pre-reference interest must first examine whether the underlying contract contains a sufficiently clear exclusion of such interest.

Conversely, a contractual bar must be interpreted according to its actual language rather than merely by reference to the general presence of a “no-interest” clause.

The judgment therefore places contractual wording at the centre of the determination of pre-reference interest under the 1996 Act.