Introduction:

The Supreme Court of India in the case of Oil and Natural Gas Corporation Ltd. versus M/s G & T Beckfield Drilling Services Pvt. Ltd., 2025 LiveLaw (SC) 868, delivered a significant judgment on September 2, 2025, addressing the scope of an arbitral tribunal’s power to grant pendente lite interest in arbitral proceedings. The matter revolved around the interpretation of Clause 18.1 of a contract between the Oil and Natural Gas Corporation Ltd. (ONGC) and M/s G & T Beckfield Drilling Services Pvt. Ltd., which stated that no interest shall be payable by ONGC on any delayed payment or disputed claim. The core dispute was whether such a clause prevented an arbitral tribunal from awarding pendente lite interest—the interest accruing during the pendency of arbitration proceedings. A division bench of Justices P.S. Narasimha and Manoj Misra authored the ruling, affirming the Gauhati High Court’s judgment which upheld the arbitral tribunal’s award of pendente lite interest in favor of the drilling company. The Court clarified that a contractual bar on interest for delayed payments cannot, in itself, take away the statutory discretion of an arbitral tribunal under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, unless expressly or by necessary implication prohibited.

Arguments Presented by the Petitioner:

The petitioner, ONGC, represented by Solicitor General Mr. Tushar Mehta and his team, argued that Clause 18.1 of the contract categorically barred the payment of any interest on delayed payments or disputed claims. According to ONGC, this clause should be interpreted broadly to include pendente lite interest, thereby removing the tribunal’s power to award such interest. The petitioner submitted that the contract is the foundation of the relationship between the parties, and since arbitration proceedings flow from that contract, the terms therein must govern every aspect of the arbitral process, including the question of interest. ONGC argued that the statutory power conferred upon arbitral tribunals under Section 31(7)(a) of the Arbitration and Conciliation Act is subject to the agreement between the parties, which means if parties contractually exclude interest in any form, the tribunal is bound by such an exclusion. The petitioner relied heavily on previous precedents, including Sayeed & Co. and THDC First, to demonstrate that where contracts explicitly bar interest, tribunals cannot override such provisions. ONGC submitted that allowing pendente lite interest despite an express bar in the contract would amount to rewriting the terms of the agreement and would dilute the sanctity of party autonomy, a cornerstone of arbitration jurisprudence. Further, it was contended that the tribunal’s award of pendente lite interest was not only contrary to the contract but also amounted to an error apparent on the face of the record. ONGC thus urged the Court to hold that Clause 18.1 constituted a complete prohibition against awarding any form of interest, including pendente lite interest, and consequently set aside the award to that extent.

Arguments Presented by the Respondent:

On the other side, the respondent M/s G & T Beckfield Drilling Services Pvt. Ltd., represented by counsel Ms. Bhargavi Kannan and her team, strongly contended that Clause 18.1 could not be stretched to include pendente lite interest. The respondent argued that the clause only dealt with contractual interest payable by ONGC on delayed invoices or disputed claims during the subsistence of the contract, but it did not explicitly or impliedly restrict the tribunal’s statutory discretion to award pendente lite interest during arbitration proceedings. The respondent relied on Section 31(7)(a) of the Arbitration and Conciliation Act, which empowers an arbitral tribunal to award interest for the whole or part of the period between the cause of action and the award unless the parties have agreed otherwise. The emphasis was on the fact that the words “unless otherwise agreed” must be interpreted strictly and narrowly; unless there is a clear and unequivocal exclusion of pendente lite interest, the tribunal retains its statutory power. The respondent further argued that arbitration is a quasi-judicial process, and pendente lite interest compensates a party for being deprived of the use of money during the prolonged course of dispute resolution. To deny such interest without a clear contractual bar would be unjust and contrary to the principles of equity. Additionally, the respondent highlighted that the Gauhati High Court had already correctly interpreted Clause 18.1 and found that the arbitral tribunal acted within its jurisdiction in awarding pendente lite interest. The drilling company therefore submitted that ONGC’s appeal was a mere attempt to escape its financial liability by misinterpreting the contract and undermining the arbitral tribunal’s discretion.

Court’s Judgment and Reasoning:

The Supreme Court, after carefully considering the submissions of both sides, dismissed ONGC’s appeal and affirmed the decision of the Gauhati High Court. Justice Manoj Misra, writing for the bench, clarified the scope of pendente lite interest in arbitration. The Court held that an arbitral tribunal can be denuded of its power to award pendente lite interest only if the contract between the parties is so worded that the award of pendente lite interest is either explicitly or by necessary implication barred. The Court emphasized that a clause merely barring interest on delayed payment or disputed claims cannot automatically be construed as a bar against pendente lite interest. Referring specifically to Clause 18.1, the Court observed that the clause only prohibited ONGC from paying contractual interest on delayed invoices or disputed claims, but it did not expressly or impliedly take away the tribunal’s power to grant pendente lite interest under Section 31(7)(a). The Court distinguished the present case from precedents such as Sayeed & Co. and THDC First, where the contractual language was much broader and clearly prohibited pendente lite interest. In contrast, Clause 18.1 was narrower in scope and did not explicitly extend to arbitration proceedings. The judgment reaffirmed the principle that party autonomy is respected in arbitration, but such autonomy must be exercised clearly and unambiguously if it is to curtail statutory rights. The Court reasoned that pendente lite interest is a form of compensatory relief intended to balance the equities between disputing parties, particularly when arbitration proceedings can be prolonged. To deprive a successful claimant of pendente lite interest without a clear contractual exclusion would be both inequitable and contrary to the legislative intent of Section 31(7)(a). The Court also addressed ONGC’s argument that arbitration proceedings stem directly from the contract and therefore every contractual clause should govern them. It clarified that while arbitration is indeed rooted in contract, the Arbitration and Conciliation Act confers statutory powers on tribunals that cannot be overridden by vague or general contractual wording. The requirement for clarity ensures that parties cannot later argue for a broader interpretation of contractual terms to deny statutory remedies. The bench concluded by holding that Clause 18.1 would not limit the statutory power of the arbitral tribunal to award pendente lite interest, and therefore no error was committed by the tribunal or the Gauhati High Court. Consequently, the appeal filed by ONGC was dismissed.

This judgment is significant as it provides clarity on the interplay between contractual clauses and statutory powers of arbitral tribunals, particularly in the context of pendente lite interest. It establishes that unless parties expressly or by necessary implication exclude pendente lite interest, arbitral tribunals retain the discretion to award it. The decision strengthens the equitable function of arbitration and underscores the need for precision in drafting contracts if parties intend to limit statutory remedies.