Contract clause barring interest 'or otherwise' blocks pre-award interest, rules Supreme Court

The Supreme Court has held that a contractual bar on interest, phrased to cover 'any balance payments... or otherwise', is wide enough to bar an arbitrator from awarding pre-reference and pendente-lite interest. The dispute arose between M/s Sharma Enterprises and the National Building Construction Corporation over a works contract whose Clause 26 barred interest on delayed or withheld payments 'or otherwise'. An arbitral tribunal nonetheless awarded interest for the periods before and during the arbitration.

The National Building Construction Corporation challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, and the challenge succeeded before the Supreme Court. The Court, following the Constitution Bench's reading of similar residuary language in Lilavati Bai v. State of Bombay, held that 'or otherwise' is a word of extension, not limitation, so it swept in interest on all sums, not just the specifically listed balance payments. It explained that Section 31(7)(a) of the 1996 Act, which lets a tribunal award pre-reference and pendente-lite interest, operates only 'unless otherwise agreed by the parties' — so a clear contractual bar excludes it.

This is unlike interest for the post-award period under Section 31(7)(b), which the Act does not make subject to party agreement. An arbitrator who ignores an agreed bar on pre-award interest exceeds jurisdiction, justifying interference under Sections 34 and 37. The appeal against the award was dismissed.