Supreme Court Denies Contractor Pre-Award Interest After 34-Year Fight Over 'Or Otherwise'
NEW DELHI, October 15, 2026: The Supreme Court has held that two words at the end of a contract clause, "or otherwise", were enough to bar an arbitrator from awarding pre-reference and pendente lite interest to a sub-contractor who had won a dispute dating back to 1992. It dismissed the appeal of M/s Sharma Enterprises against National Building Construction Corporation (NBCC) and upheld the Delhi High Court, which had struck down the interest while leaving the substantive award and post-award interest intact.
Case at a Glance
Case: M/s Sharma Enterprises v. National Building Construction Corporation
Citation: 2026 INSC 1135, Civil Appeal No. 13782 of 2026 (arising out of SLP (C) No. 17072 of 2026)
Bench: Justice Aravind Kumar and Justice Vipul M. Pancholi (author)
Challenged order: Delhi High Court Division Bench judgment dated 20.03.2026 in FAO(OS)(COMM) No. 18 of 2026, affirming the Single Judge's judgment dated 19.11.2025 in O.M.P. (COMM) No. 215 of 2022
Date of judgment: October 15, 2026
Outcome: Appeal dismissed. Interest before the award is barred by Clause 26. Post-award interest stays.
Background: A 1991 Sub-Contract and Three Decades of Litigation
NBCC had works from Indian Railway Construction Company Limited (IRCON). On 11.01.1991, NBCC sub-contracted flooring and cladding work at the Vashi Railway Station-cum-Commercial Complex in New Bombay to Sharma Enterprises for Rs. 9,50,73,603.20, with completion due by 10.01.1993. The work depended on civil works by another contractor, which were delayed, so Sharma Enterprises could execute only limited areas. It completed the priority platform areas in time for the inauguration on 09.05.1992. On 22.09.1992, NBCC terminated the contract and encashed the bank guarantees.
Timeline
11.01.1991: Sub-contract awarded to Sharma Enterprises
09.05.1992: Priority platform areas completed for inauguration
22.09.1992: Contract terminated and bank guarantees encashed
03.08.2011: Supreme Court appoints an arbitrator in Civil Appeal No. 6341 of 2011
28.07.2016: Arbitral award in favour of Sharma Enterprises
15.12.2021: Supreme Court holds the 1996 Act, not the 1940 Act, governs the arbitration
19.11.2025: Single Judge sets aside only the interest
20.03.2026: Division Bench dismisses the Section 37 appeal
October 15, 2026: Supreme Court dismisses the appeal
What the Arbitrator Awarded
The Arbitrator held that NBCC had wrongfully terminated the contract and failed to provide work fronts. It allowed Rs. 45,653.15 for executed work, Rs. 26,03,465 for extra items, Rs. 2,77,500 for bank guarantee extension charges, a refund of the encashed guarantee of Rs. 19,01,480, and costs of Rs. 5,00,000. It rejected NBCC's counter-claims and awarded 10% interest per annum from 22.09.1992 until payment on the awarded sums except costs.
Who Argued What
For Sharma Enterprises: Mr. Siddhartha Dave, learned senior counsel, argued that Clause 26 deals only with delayed contractual payments and cannot be read in isolation or expanded artificially. He said the phrase "or otherwise" must be read through ejusdem generis and noscitur a sociis, that NBCC never relied on Clause 26 before the Arbitrator, and that a bar on interest needs clear and express language. He relied on ONGC v. G&T Beckfield Drilling Services, Ferro Concrete Construction v. State of Rajasthan and Union of India v. Larsen & Toubro.
For NBCC: Ms. Shilpi Chowdhary argued that Section 31(7)(a) opens with "unless otherwise agreed by the parties", so an agreed exclusion binds the Arbitrator. She said "or otherwise" is residuary and covers situations beyond the preceding words, relying on Union of India v. Manraj Enterprises, Jaiprakash Associates v. THDC and Larsen & Toubro.
The Clause at the Heart of the Case
Clause 26 of the Special Conditions of Contract provided for running bills and then added:
No claim for interest will be entertained by the corporation in respect of any balance payments or any deposit which may be held up with the corporation due to any dispute between the Corporation and sub-contractor or in respect of any delay on the part of the corporation in making monthly or final payments or otherwise.
Issue One: Does Section 31(7)(a) Let the Contract Override the Arbitrator?
Yes. The Court held that the power to award interest for the period from the cause of action to the date of the award, covering both pre-reference and pendente lite periods, is expressly subject to "unless otherwise agreed by the parties". Section 31(7) must be read with Section 28(3), under which the Tribunal decides in accordance with the contract. Quoting Larsen & Toubro, the Court noted that the statutory scheme subordinates the arbitrator's discretion to the contractual provisions governing interest.
Issue Two: Can Ejusdem Generis Shrink "Or Otherwise"?
No. The Court said ejusdem generis applies only where general words follow a specific class forming a genus. Clause 26 lists separate events joined by "or": (i) balance payments or deposits held up due to a dispute, (ii) delay in monthly or final payments, and (iii) otherwise. These are not a single narrow genus limited to delayed running payments.
The expression "or otherwise" is residuary in nature and has been consciously incorporated with wide amplitude to encompass every other conceivable circumstance under which a claim for interest might be asserted against the Corporation.
Relying on Lilavati Bai v. State of Bombay, where a Constitution Bench held that "or otherwise" words are of extension and not limitation, the Court said that confining the phrase to delayed payments would make it redundant and amount to rewriting the contract.
Issue Three: Why the Contractor's Precedents Did Not Help
ONGC v. G&T Beckfield: The clause there was narrow, "no interest on any delayed payment / disputed claim", with no residuary words.
Sayeed Ahmed and Jaiprakash Associates: Their clauses ended with "or any other respect whatsoever". The Court held "or otherwise" stands on the same footing.
Ferro Concrete: Argued by NBCC to be based on the 1940 Act with no residual clause, unlike here.
Post-Award Interest Survives
The contractor did not lose everything. Section 31(7)(b) governing post-award interest is not subject to party autonomy. The Court quoted Larsen & Toubro and R.P. Garg, holding that clause (b) does not let parties contract out of interest for the post-award period, and that "unless the award otherwise directs" relates only to the rate. The High Court rightly set aside only the pre-reference and pendente lite interest and maintained post-award interest.
The learned Arbitrator, being a creature of the contract, acted beyond his jurisdiction in granting pre-reference and pendente lite interest in contravention of Clause 26 of the SCC, which attracts Section 31(7)(a) of the 1996 Act.
What the Court Did Not Do
It did not disturb the substantive claims, including the finding that NBCC wrongfully terminated the contract.
It did not set aside post-award interest.
It did not accept the argument that the long delay and several rounds of litigation justified interest in equity.
The judgment does not state what post-award rate applies, beyond holding that post-award interest is maintained.
What It Means Going Forward
For Contractors and Sub-Contractors
Read every interest clause before signing. A no-interest stipulation with a residuary tail like "or otherwise" can wipe out years of pre-award interest.
For Arbitrators
Check the contract before granting interest for the period up to the award. The power under Section 31(7)(a) yields to the parties' agreement.
For Drafting Lawyers
If you act for the paying party, a broad residuary phrase may protect the client. If you act for the claimant, push for narrow wording and a clear carve-out for interest on adjudicated claims.
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Frequently Asked Questions
What did the Supreme Court decide in M/s Sharma Enterprises v. NBCC?
It dismissed the contractor's appeal and upheld the Delhi High Court's decision that Clause 26 barred pre-reference and pendente lite interest, while post-award interest stays.
Can a contract bar an arbitrator from awarding interest?
For the period up to the award, yes. Section 31(7)(a) is subject to "unless otherwise agreed by the parties". For the post-award period under Section 31(7)(b), parties cannot contract out of interest.
What does "or otherwise" mean in an interest clause?
The Court held it is a residuary phrase of wide amplitude that covers every other circumstance in which interest might be claimed, not just delayed monthly or final payments.
Does ejusdem generis apply to "or otherwise"?
Only where the preceding words form a distinct genus. Here the listed events were separate and joined by "or", so the rule did not narrow the phrase.
Did the contractor lose the arbitral award?
No. The substantive claims and post-award interest were maintained. Only pre-reference and pendente lite interest was set aside.
Keywords
M/s Sharma Enterprises v. NBCC, 2026 INSC 1135, pendente lite interest arbitration, Section 31(7)(a) Arbitration Act, or otherwise clause interpretation, ejusdem generis, contractual bar on interest, Section 34 and 37 arbitration, post-award interest Section 31(7)(b), Justice Vipul M. Pancholi, Justice Aravind Kumar
Case Title: M/s Sharma Enterprises v. National Building Construction Corporation
Case No.: Civil Appeal No. 13782 of 2026 (arising out of SLP (C) No. 17072 of 2026)
Citation: 2026 INSC 1135
Bench: Justice Aravind Kumar and Justice Vipul M. Pancholi
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