Clause Barring Interest on Delayed Payments Bars Pre-Reference Interest, Harish Chandra Distinguished: Supreme Court in NEEPCO v. Astra Construction [2026 INSC 1036]

In North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited (2026 INSC 1036), the Supreme Court held that Clause 54 of the General Conditions of Contract bars the grant of interest for the pre-reference period, because it names delay in periodical or final payments as a separate, independent ground of bar, unlike the clause construed in State of U.P. v. Harish Chandra and Co. (paras 18–20, 23). A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that pre-reference interest rests on substantive law and must be traced to the contract, and that the Meghalaya High Court erred in equating Clause 54 with the Harish Chandra clause (paras 15–16, 21, 23).

Status: High Court of Meghalaya's judgment dated 19.06.2025 set aside to the extent it restored pre-reference interest; appeal allowed; no order as to costs (paras 2, 23–24).

Headnote: Contractual Bar on Pre-Reference Interest in Arbitration

Arbitration and Conciliation Act, 1996 – Section 31(7)(a) – "Unless otherwise agreed by the parties" – Pre-reference interest – Pendente lite interest – Contractual bar on interest – Clause 54, General Conditions of Contract (NEEPCO) – "Any delay on the part of the Engineer-in-Charge making periodical or final payments" – Harish Chandra distinguished – Sayeed Ahmed and THDC-II followed – Sections 34 and 37 – Waiver of plea.

Held: (i) Under the 1996 Act, the arbitrator's power to award interest under Section 31(7)(a) is subject to the parties' agreement; an express bar in the contract suffices to exclude it, even if it is not specifically addressed to the arbitrator (para 14).

(ii) Pendente lite interest is a matter of procedural law governed by Section 31(7)(a), whereas pre-reference interest is referable to substantive law and cannot be sourced in Section 31(7)(a) alone; whether it was barred depends on the contract (paras 15–16).

(iii) The clause in Harish Chandra barred interest only on money held back because of a dispute; the words "in making periodical or final payments" described the situation of the dispute and did not create a separate ground, so a claim arising purely from delay fell outside it (para 18).

(iv) Clause 54 adds, joined by "or", a second and independent ground, "any delay on the part of the Engineer-in-Charge making periodical or final payments", and so expressly shuts out interest arising from delayed payment, whether or not there was a dispute (para 19).

(v) The same structure appeared in the clauses construed in Sayeed Ahmed and THDC-II, which were held to be a complete bar on interest; that line of decisions, not Harish Chandra, governs (para 20).

(vi) The plea of waiver failed, as the appellant had raised Clause 54 in its Statement of Defence filed on 23.08.2012 before the Arbitral Tribunal (para 22).

(paras 14–23)

Case Details: NEEPCO v. Astra Construction (2026 INSC 1036)

Final Outcome: Appeal allowed; High Court's judgment set aside to the extent it restored pre-reference interest; Clause 54 held to bar pre-reference interest; no order as to costs.

Case: North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited

Neutral Citation: 2026 INSC 1036

Case No.: Civil Appeal No. ___ of 2026 (arising out of SLP (Civil) No. 24803 of 2025)

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable

Date of Decision: 22 September 2026

Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe (author)

Relevant Acts & Sections: Arbitration and Conciliation Act, 1996 – Sections 31(7)(a), 34 and 37; Arbitration Act, 1940; Clause 54 of the General Conditions of Contract

Impugned Order: High Court of Meghalaya at Shillong – judgment dated 19.06.2025 allowing the respondent's appeal under Section 37 and restoring pre-reference interest (para 2)

Counsel: Mr. Tushar Mehta, Solicitor General, and Mr. Raghavendra P. Shankar, Additional Solicitor General, for the appellant; Mr. Ritin Rai, Senior Advocate, for the respondent; Mr. C.S. Vaidyanathan, Senior Advocate, for the intervenors (paras 7–9)

Source: Supreme Court of India (official website)

Key Holdings of the Supreme Court

• Clause 54 of the GCC bars the grant of interest for the pre-reference period, and the Arbitral Tribunal exceeded its jurisdiction under Section 31(7)(a) in awarding it (para 23).
• Under the 1996 Act, the opening words of Section 31(7)(a), "unless otherwise agreed by the parties", subordinate the arbitrator's power to award interest to the contract (para 14).
• Pre-reference interest rests on substantive law and cannot be sourced in Section 31(7)(a) alone; it must be traced to the agreement, a statute or mercantile usage (paras 14–15).
• Clause 54 differs from the Harish Chandra clause because it names delay in payment as a separate ground of bar, not tied to any dispute; the difference "is decisive" (paras 18–19).
• Sayeed Ahmed and THDC-II, which construed clauses of the same structure, govern the case (para 20).
• The waiver argument failed because Clause 54 had been pleaded in the Statement of Defence before the Tribunal (para 22).

Brief Facts of the Case

On 12.06.1995, NEEPCO invited tenders for the civil works of the main plant and auxiliary building of a Gas Turbine Power Project at Ram Chandra Nagar, Tripura. Astra Construction's tender was accepted, and the agreement was executed on 23.05.1996. The estimated value of the work was Rs. 17,09,26,913, and the work was to be completed by 26.03.1997 (para 3).

Disputes were referred to arbitration. By its award dated 05.06.2015, the Arbitral Tribunal held that the delay was attributable to NEEPCO, allowed four claims and awarded a principal sum of Rs. 3.30 crores, with pre-reference interest at 12% per annum and pendente lite and future interest at 9% per annum (para 4).

In proceedings under Section 34, the Commercial Court, by its judgment dated 15.02.2024, relied on Sayeed Ahmed and held that Clause 54 barred interest, whether pre-reference or pendente lite. It set aside the pre-suit and pendente lite interest on claim nos. 2, 3, 4 and 5 and otherwise upheld the award (para 5).

On the contractor's appeal under Section 37, the High Court relied on Harish Chandra, held that its clause was identical to Clause 54 and that the bar was confined to interest on money held up owing to a dispute, and restored the award in its entirety (para 6). Before the Supreme Court, NEEPCO confined its challenge to the restoration of pre-reference interest (para 7).

Issues Before the Supreme Court

1. Whether Clause 54 of the GCC corresponds to the clause construed in Harish Chandra, or to the clauses construed in Sayeed Ahmed and THDC-II (paras 2, 17).
2. Whether Clause 54 bars the grant of pre-reference interest by the Arbitral Tribunal (paras 16, 23).
3. Whether NEEPCO waived its right to rely on Clause 54 by not raising it before the Arbitral Tribunal (paras 8, 22).

Court's Findings and Reasoning

Law under the 1940 Act (paras 11–12): The 1940 Act had no provision for interest. In G.C. Roy, a Constitution Bench presumed interest to be an implied term where the agreement did not forbid it, and contractual bars on interest were construed strictly against the party invoking them.

Change under the 1996 Act (paras 13–15): Section 31(7)(a) conferred the power to award interest but made it subject to the parties' agreement. Relying on Pam Developments, the Court reaffirmed that an express bar in the contract excludes the power and that pre-reference interest is referable to substantive law, a view also taken in G&T Beckfield Drilling Services.

Harish Chandra clause (para 18): The clause in that case barred interest only on money lying with the Government because of a dispute; the words about periodical or final payments described the situation of the dispute. It said nothing about money simply paid late, which is why the arbitrator could award interest on delay there.

Clause 54 is different (para 19): Clause 54 bars claims in two separate situations: money held back owing to a dispute, and, as an independent ground joined by "or", any delay by the Engineer-in-Charge in making periodical or final payments. Delay in payment, which fell outside the bar in Harish Chandra, is brought squarely inside the bar in Clause 54.

Sayeed Ahmed line governs (paras 20–21): The same structure appeared in the clauses in Sayeed Ahmed and THDC-II, which were held to be a complete bar on interest. The High Court erred in treating Clause 54 as no different from the Harish Chandra clause.

No waiver (para 22): The record showed that NEEPCO took the plea in its Statement of Defence dated 23.08.2012. The intervenors' argument that Clause 54 was similar to the Harish Chandra clause was also rejected.

Final Outcome and Directions

• Clause 54 of the GCC bars interest for the pre-reference period; the Arbitral Tribunal exceeded its jurisdiction under Section 31(7)(a) in awarding it (para 23).
• The High Court's judgment, to the extent it restored pre-reference interest, is set aside (para 23).
• The appeal is allowed in those terms, with no order as to costs; pending applications disposed of (paras 24–25).

Legal Principle Laid Down

Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, an arbitrator's power to award interest yields to the parties' agreement, and pre-reference interest must rest on substantive law, usually the contract. A clause that bars interest both on money held back owing to a dispute and, as a separate ground, on any delay in making periodical or final payments is a complete bar on pre-reference interest; such a clause follows Sayeed Ahmed and THDC-II, not Harish Chandra, whose clause covered only money withheld because of a dispute.

Precedents Relied Upon

• State of U.P. v. Harish Chandra and Co., (1999) 1 SCC 63 – Distinguished – clause barred interest only on money withheld owing to a dispute. Discussed at paras 2, 18–21.
• Sayeed Ahmed & Company v. State of U.P., (2009) 12 SCC 26 – Followed – clause with a separate bar on delayed payment is a complete bar on interest. Discussed at paras 5, 17, 20.
• Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd. (THDC-II), (2019) 17 SCC 786 – Followed – same clause structure. Discussed at paras 17, 20.
• Pam Developments Private Limited v. State of West Bengal, (2024) 10 SCC 715 – Relied upon – summary of the law on interest under the 1940 and 1996 Acts. Discussed at para 14.
• Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, (1992) 1 SCC 508 (Constitution Bench) – Referred to – arbitrator's power to award interest under the 1940 Act. Discussed at para 11.
• ONGC v. G & T Beckfield Drilling Services Pvt. Ltd., 2025 SCC OnLine SC 1888 – Relied upon – pre-reference interest rests on substantive law. Discussed at para 15.
• Union of India v. Ambika Construction, (2016) 6 SCC 36; Ambika Construction v. Union of India, (2017) 14 SCC 323; Reliance Cellulose Products Ltd. v. ONGC Ltd., (2018) 9 SCC 266; Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan, 2025 SCC OnLine SC 708 – Referred to – strict construction of bars under the 1940 Act. Discussed at para 12.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 15: "It is thus settled, and we reaffirm the position, that pendente lite interest stands on the footing of procedural law, and is governed by Section 31(7)(a)."

Para 15: "Interest for the pre-reference period stands on a different footing altogether: it is referable to substantive law and cannot be sourced in Section 31(7)(a) alone."

Para 19: "Clause 54 of the GCC is worded differently, and the difference matters. It bars claims for interest or damages in two separate situations, not one."

Para 20: "The two clauses are worded differently, and that difference in wording makes all the difference in law."

Para 22: "The appellant took the said plea in the Statement of Defence filed on 23.08.2012 before the Arbitral Tribunal."

Para 23: "The High Court erred in equating Clause 54 with the clause considered in Harish Chandra (supra), and in restoring the grant of pre-reference interest on that basis."

Practical Impact of the Ruling

• For public sector employers: A GCC clause that separately bars interest on delayed payments can be enforced to exclude pre-reference interest in arbitration (paras 19, 23).
• For contractors: Before claiming pre-reference interest, the exact wording of the no-interest clause must be compared with the clauses in Harish Chandra and Sayeed Ahmed; a separate "delay" limb is fatal to the claim (paras 18–20).
• For arbitral tribunals: Pre-reference interest cannot be granted under Section 31(7)(a) alone where the contract bars it; doing so exceeds jurisdiction (paras 15, 23).
• For courts under Sections 34 and 37: Clauses that look alike must be read closely; the presence of an independent ground on delayed payment changes the result (paras 19–21).
• For litigants raising waiver: A plea founded on a no-interest clause is not waived where it was taken in the Statement of Defence (para 22).

FAQs on Pre-Reference Interest and Contractual Bars

1. What did the Supreme Court decide in NEEPCO v. Astra Construction?

It held that Clause 54 of NEEPCO's General Conditions of Contract bars pre-reference interest, and set aside the Meghalaya High Court's judgment to the extent it restored such interest (para 23).

2. Why was Harish Chandra not applied?

Because the clause in Harish Chandra barred interest only on money withheld owing to a dispute, whereas Clause 54 separately bars interest on any delay in making periodical or final payments (paras 18–19).

3. What is the difference between pre-reference and pendente lite interest?

Pendente lite interest is a matter of procedural law under Section 31(7)(a); pre-reference interest rests on substantive law and must be traced to the contract, a statute or mercantile usage (paras 14–15).

4. Did NEEPCO waive its right to rely on Clause 54?

No. The record showed that it raised the plea in its Statement of Defence filed on 23.08.2012 before the Arbitral Tribunal (para 22).

5. Which earlier decisions did the Court follow?

It followed Sayeed Ahmed & Company v. State of U.P. and THDC-II, where clauses of the same structure were held to be a complete bar on interest (para 20).

Keywords: 2026 INSC 1036, NEEPCO v. Astra Construction, pre-reference interest, Section 31(7)(a) Arbitration and Conciliation Act, contractual bar on interest, Clause 54 GCC, Harish Chandra distinguished, Sayeed Ahmed, THDC-II, Pam Developments, delayed payment interest, Justice Alok Aradhe, Justice Pamidighantam Sri Narasimha, Supreme Court non-reportable judgment

Related on LegalTaxGuru

• More Corporate Law Supreme Court Non-Reportable judgments
• Corporate Law articles

Download Judgment PDF – NEEPCO v. Astra Construction

Judgment PDF: 2026 INSC 1036 – North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited (SLP (Civil) No. 24803 of 2025) – Download Judgment PDF

Source: Supreme Court of India (official website).