Analysis of the Indian Supreme Court Decision in ONGC Ltd. v. M/S G&T Beckfield Drilling Services Pvt. Ltd.
THE AUTHOR:
Surabhi Pandey, Independent Advocate
What factors affect an arbitrator’s determination of pendente lite interest under the Indian Arbitration Act, 1996 (Arbitration Act)?
This question came to be considered by the Supreme Court of India (SCI) in the case of ONGC v. G & T particularly, given that the pendente lite interest under the Arbitration Act may depend on the parties’ agreement, if any, and may therefore require an enquiry into their intention.
Section 31(7) of the Arbitration Act recognises an arbitrator’s power to award pre-reference, pendente lite, and future interest, i.e., post-award interest. Under clause (b) of Section 31(7), post-award interest is statutorily mandated, and even in the absence of an arbitrator’s determination, a party in whose favour an award is made is entitled to such interest. However, under clause (a) of Section 31(7), the power to award pre-reference and pendente lite interest is circumscribed by the contract. While the arbitrator has the discretion to award such interest, if the parties have contracted not to impose liability for pre-reference or pendente lite interest, this limits the arbitrator’s powers and binds her to the terms of the agreement. Though on the surface it may appear that an arbitrator has an easy task, agreements are often unclear as to the extent of such limitations; whether only pre-reference interest, only pendente lite interest, or both have been agreed not to be imposed.
In the present case, the relevant Clause 18.1 of the agreement stated:
“…Should corporation question any item or items of an invoice, it may withhold payment of the amount in dispute until such matter is resolved between the parties, but the amount not in dispute is to be paid within above period. No interest shall be payable by ONGC on any delayed payment/disputed claim.”
The appellant contended that because the agreement proscribed interest on delayed payment, including disputed claims, the award of interest for any period prior to the passing of the award was illegal. The respondent contended that because the clause does not proscribe pendente lite interest, the arbitrator retained the discretionary power to award the same. The interpretation of this clause was therefore determinative of whether the tribunal rightly exercised its jurisdiction to award pendente lite interest, or the award was illegal owing to the parties having exercised their autonomy and ousted the discretion available to the arbitrator under Section 31 (7) (a).
In the above mentioned clause, there is no express phrase limiting an arbitral tribunal’s power to award pendente liteinterest, and it fell upon the court to consider whether such a bar was intended. In the present case, the SCI found that Clause 18 did not bar the award of pendente lite interest.
The SCI referred to its previous decisions to ascertain the circumstances under which such a bar on the award of interest could be deduced or inferred from the terms of the agreement. One such case was the Irrigation Deptt. State of Orissa v. G.C. Roy (1992) 1 SCC 508, in which a Constitutional Bench of the SCI, in context of the Arbitration Act, 1940 (1940 Act), observed that in the absence of an express bar on the arbitrator’s power to award interest, such discretion shall vest in the arbitrator, who may in a fit case, award interest. The rationale for the same was that interest must be ‘presumed’ to be an ‘implied’ term of the agreement between the parties and that the discretionary power is vested to be exercised in light of the facts and circumstances and for meeting the ends of justice.
Reliance was also placed on the case of Union of India v. Ambica Construction (2016) 6 SCC 36, once again, in the context of the 1940 Act, the SCI held that if an agreement expressly bars pendente lite interest then the arbitrator has no powers to award interest. However, the bar to award interest on delayed payment by itself will not be presumed to be an express bar to award pendente lite interest. The court further determined that the power to grant pendente lite interest depends upon several factors including the construction of the agreement, clauses which delineate the arbitral tribunal’s powers, nature of claims and the dispute referred to the arbitrator and on the specific items on which the parties agreed to limit the tribunal’s power to award interest.
The SCI observed that these findings were also adopted in later decisions including Ambica Construction v Union of India(2017) 14 SCC 323 and Ferro Concrete Construction (India) Pvt. Ltd. v. State of Rajasthan and it was recognized that the discretionary power of an arbitrator to award interest under Section 31 (7) (a), particularly, pendente lite interest, may be barred either by an express provision in the contract or by necessary implication discerned from an analysis of the various provisions of the contract. For instance, if parties were to use a phrase that interest is not payable in “any other respect whatsoever,” then such a phrase will constitute a bar on the arbitrator’s discretion. In the absence of such express provision or necessary implication, a bar will not be readily inferred. As discussed earlier, the presumption is that the parties intended to award interest.
The decision in ONGC thus reaffirms a consistent line of authority of the SCI on the scope of an arbitral tribunal’s power to award pendente lite interest under Section 31(7)(a) of the Arbitration Act. Parties must be cautious of the fact that the Arbitration Act favors the award of pendente lite interest, but also is respectful of party autonomy. Therefore, the contract and/or the arbitration clause must clearly capture their intention with respect to pendente lite interest to save parties from unintended financial consequences.
ABOUT THE AUTHOR
Surabhi Pandey is an independent advocate based in Lucknow, India, with significant experience in disputes arising under Indian energy laws. She represents private and State entities across jurisdictions nationwide before courts and tribunals, advising on regulatory and commercial matters. Her practice includes extensive work in domestic arbitration, where she acts as both counsel and advisor. Surabhi regularly appears before High Courts across the country, handling a wide range of civil, commercial, and constitutional disputes. She completed her LL.M. in International Commercial Arbitration Law from Stockholm University and is an alumna of the Paris Arbitration Academy and the Hague Academy of International Law, where she studied Private International Law.
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