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In the matter of Oil and Natural Gas Corporation Ltd. vs. G & T Beckfield Drilling Services Pvt. Ltd. [2025 INSC 1066],  the Hon’ble Apex Court held that post-award interest, being statutorily provided under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“1996 Act“), cannot be contracted out of by the parties and further even if there is a clause excluding interest, simpliciter, on delayed or disputed payments, it does not, by itself, bar the arbitral tribunal from awarding pendente lite interest. The statutory power of arbitral tribunal to grant  pendente lite interest can be curtailed only by an express necessary implied prohibition in the contract.

When the disputes were referred to arbitration, a three-member arbitral tribunal passed an award in favour of the respondent, directing ONGC to pay, inter alia, the principal amount along with interest at 12% per annum from 12^th December 1998 i.e. from the date of filing of the statement of claim till recovery. Aggrieved, ONGC filed an objection under Section 34 of the Act before the Ld. District Judge, Sivasagar, seeking to set aside the award inter alia on the grounds that the arbitral tribunal had not properly addressed its jurisdictional objection under Section 16(2) of the Act. The District Judge set aside the award. The respondent preferred an appeal under Section 37 before the Hon’ble Gauhati High Court, where the arbitral award was restored. ONGC challenged this decision before the Supreme Court. The limited ground of challenge was whether the arbitral tribunal was justified in awarding interest at 12% per annum despite clause 18.1 of the agreement prohibiting interest on delayed or disputed payments.

The Supreme Court confined its analysis to the question of interest and the scope of Section 31(7) of the 1996 Act. It observed by the Court that Section 31(7) empowers the arbitral tribunal to award interest for separately for pre-reference, pendente lite, and post-award period. While the power to grant pre-reference and pendente lite interest is subject to the agreement between the parties, the post-award interest is statutory and cannot be contracted out of.

The Supreme Court noted that in the instant case, the tribunal had awarded interest at 12% per annum not from the date of the cause of action but from the date of affirmation of the statement of claim before the tribunal, and thus the 12% interest amounted to pendente lite interest.

Clause 18.1 stated that “no interest shall be payable by ONGC on any delayed payment/disputed claim.” The Supreme Court interpreted this clause in light of established precedents in Irrigation Deptt. vs. G.C. Roy [(1992) 1 SCC 508], Union of India vs. Ambica Construction[(2016) 6 SCC 36], Reliance Cellulose Products Ltd. vs. ONGC [(2018) 9 SCC 266], Sayeed Ahmed & Co. vs. State of U.P. [(2009) 12 SCC 26], and THDC vs. Jaiprakash Associates Ltd.[(2012) 12 SCC 10] wherein it has been held that only an express or necessarily implied bar can restrict the arbitrator’s power to grant pendente lite interest. Such a restriction must be an absolute prohibition like those in Sayeed Ahmed & Co. or THDC, where interest was explicitly barred in the contract by using the expression “in any respect whatsoever“. Clause 18.1, in the present case on the other hand, merely provided that ONGC would not pay interest on delayed or disputed payments. Therefore, clause 18.1 could not be construed as barring the arbitral tribunal’s authority to award pendente lite interest. The Supreme Court further found the rate of 12% awarded as reasonable, being lower than the statutory post-award rate of 18% prescribed under Section 31(7)(b) at the time.

Accordingly, the SLP was dismissed.