M/s Sharma Enterprisesv.National Building Construction Corporation

Case Snapshot

· Case Name: M/s Sharma Enterprises v. National Building Construction Corporation

· Citation: 2026 INSC 1135

· Bench: Justice Vipul M. Pancholi

· Date of Judgment: October 15, 2026

· Area of Law: Arbitration and Conciliation Act, 1996 — Section 31(7)(a) — Contractual Bar on Interest — Pre-Reference and Pendente Lite Interest

The Judgment in One Line

The Supreme Court dismissed the appeal, holding that Clause 26 of the Special Conditions of Contract, concluding with the residuary phrase “or otherwise,” operates as a complete bar on pre-reference and pendente lite interest.

Why This Judgment Matters

This judgment is a significant clarification on the scope of contractual bars on interest under Section 31(7)(a) of the 1996 Act. The Supreme Court held that where a contract clause concludes with a residuary phrase like “or otherwise,” it operates as an all-inclusive prohibition on interest, covering both pre-reference and pendente lite periods. The ruling reinforces party autonomy and the primacy of contractual terms over the arbitrator’s discretion. It will guide courts in interpreting interest-bar clauses and prevent arbitrators from awarding interest contrary to the parties’ agreement.

Background

NBCC was awarded works by IRCON and sub-contracted flooring and cladding works to M/s Sharma Enterprises in 1991 for Rs. 9.50 crores. The work was delayed due to non-completion of civil works by another contractor. NBCC terminated the contract in 1992 and encashed the bank guarantees. The appellant invoked arbitration.

The Arbitrator, by award dated July 28, 2016, held the termination wrongful and allowed several claims, including interest at 10% per annum from September 22, 1992. NBCC challenged the award under Section 34. The Single Judge upheld the substantive claims but set aside pre-reference and pendente lite interest, relying on Sayeed Ahmed. The Division Bench affirmed. The appellant appealed to the Supreme Court.

Issues Before the Court

1. Whether Clause 26 of the SCC bars the Arbitral Tribunal from awarding pre-reference and pendente lite interest.

2. Whether the residuary phrase “or otherwise” is restricted by the preceding expressions through ejusdem generis and noscitur a sociis.

3. Whether the arbitrator exceeded jurisdiction by awarding interest contrary to the contract.

4. Whether post-award interest is also barred by the contract.

What Did the Supreme Court Hold?

Clause 26 Is a Complete Bar on Interest

· Clause 26 of the SCC states: “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.”

· The Court held that the residuary phrase “or otherwise” is of wide amplitude and operates as an all-inclusive bar on interest.

· The preceding expressions—balance payments, deposits, disputes, and delay in payments—do not constitute a single narrow genus. They are disjunctively joined by “or,” making each an independent ground.

· The residuary phrase “or otherwise” is a word of extension, not limitation, and cannot be restricted by ejusdem generis.

Ejusdem Generis Not Applicable

· The Court held that ejusdem generis applies only where the preceding terms form a distinct genus. Clause 26 covers multiple distinct situations, so the doctrine does not apply.

· The Court relied on Union of India v. Manraj Enterprises and Larsen & Toubro Limited v. Union of India.

Section 31(7)(a) Subordinates Arbitrator to Contract

· Section 31(7)(a) begins with “Unless otherwise agreed by the parties.”

· The Court reaffirmed that this statutory scheme subordinates the arbitrator’s discretion to the contractual provisions governing interest.

· Once the contract bars interest, the arbitrator cannot award pre-reference or pendente lite interest, even on equitable grounds.

Post-Award Interest Distinguished

· Section 31(7)(b) governs post-award interest and is not subject to party autonomy in the same way.

· The Court upheld the High Court’s decision to set aside only pre-reference and pendente lite interest while maintaining post-award interest.

Appeal Dismissed

· The arbitrator, being a creature of the contract, exceeded jurisdiction in awarding pre-reference and pendente lite interest contrary to Clause 26.

· The appeal was dismissed.

Key Legal Principles

1. Party autonomy under Section 31(7)(a): The opening words “unless otherwise agreed by the parties” subordinate the arbitrator’s power to award interest to the contract.

2. Contractual bar on interest: A clause concluding with a residuary phrase like “or otherwise” operates as an all-inclusive bar on pre-reference and pendente lite interest.

3. Ejusdem generis not applicable: The doctrine applies only where the preceding terms form a distinct genus; it does not apply where the terms are disjunctive and cover multiple situations.

4. Disjunctive terms: Expressions joined by “or” are read independently and disjunctively, with wide amplitude.

5. Arbitrator is a creature of contract: The arbitrator cannot award interest contrary to the express terms of the contract.

6. No equitable override: Equity cannot enlarge a contractual entitlement or override an express exclusion.

7. Post-award interest is distinct: Section 31(7)(b) is not subject to party autonomy in the same way as Section 31(7)(a).

Important Precedents

· Sayeed Ahmed & Company v. State of U.P. (2009): Held that a clause barring interest with a residuary phrase operates as a complete bar. Relied upon.

· Jaiprakash Associates Ltd. v. THDC (THDC-II) (2019): Held that ejusdem generis applies only where preceding terms form a distinct genus. Relied upon.

· Union of India v. Manraj Enterprises (2022): Held that expressions separated by “or” are independent and cannot be restricted by ejusdem generis. Relied upon.

· Union of India v. Larsen & Toubro Ltd. (2024): Reaffirmed that Section 31(7)(a) subordinates arbitrator’s discretion to the contract. Relied upon.

· Union of India v. Bright Power Projects (India) Pvt. Ltd. (2015): Held that where parties agree no interest is payable, the arbitrator cannot award interest. Relied upon.

· Lilavati Bai v. State of Bombay (1957): Held that “or otherwise” are words of extension, not limitation. Relied upon.

Practical Impact

For advocates, this judgment provides a clear precedent on the interpretation of interest-bar clauses in arbitration. It will be cited in Section 34 and Section 37 proceedings where the award of pre-reference or pendente lite interest is challenged. For litigants, it reinforces that contractual terms prevail over the arbitrator’s discretion. For law students, it illustrates the application of ejusdem generis, the distinction between Section 31(7)(a) and 31(7)(b), and the primacy of party autonomy. The ruling also cautions arbitrators against awarding interest contrary to the contract.

Lawcurb Quick Insight

The judgment clarifies that the residuary phrase “or otherwise” is not limited by the preceding expressions. It operates as an all-inclusive bar on interest, covering situations beyond delayed payments or withheld deposits.

Lawcurb Practice Note

When drafting interest-bar clauses, include a residuary phrase like “or otherwise” to ensure a complete bar on interest. When challenging an award of interest, highlight the contract’s express prohibition and the residuary words.

Remember This Ratio

A contractual clause concluding with the residuary phrase “or otherwise” operates as a complete bar on pre-reference and pendente lite interest under Section 31(7)(a).

Exam Lens

Question 1: When does a contractual bar on interest exclude the arbitrator’s power to award pre-reference and pendente lite interest?

Answer: Section 31(7)(a) begins with “unless otherwise agreed by the parties.” Where the contract contains an express bar, including a residuary phrase like “or otherwise,” the arbitrator cannot award pre-reference or pendente lite interest.

Question 2: Is the residuary phrase “or otherwise” restricted by ejusdem generis?

Answer: No. The Supreme Court held that ejusdem generis applies only where the preceding terms form a distinct genus. Where the terms are disjunctive and cover multiple distinct situations, the residuary phrase operates with wide amplitude and is not restricted.

Question 3: Does the contractual bar on interest also apply to post-award interest?

Answer: No. Section 31(7)(b) governs post-award interest and is not subject to party autonomy in the same way as Section 31(7)(a). The contractual bar applies to pre-reference and pendente lite interest only.

This report is prepared by Lawcurb for educational and informational purposes only. It is a concise summary of the judgment and should not be construed as legal advice. Readers are encouraged to refer to the original judgment before relying on any legal proposition.

Final Outcome

· The Supreme Court dismissed the appeal.

· The Division Bench’s judgment affirming the Single Judge’s order was upheld.

· Clause 26 of the SCC was held to be a complete bar on pre-reference and pendente lite interest.

· The award of post-award interest was maintained.

· The arbitrator was held to have exceeded jurisdiction by awarding interest contrary to the contract.

· Pending applications were disposed of.

Lawcurb Verdict

This judgment is a significant affirmation of party autonomy and the primacy of contractual terms in arbitration. By holding that Clause 26 of the SCC operates as a complete bar on pre-reference and pendente lite interest, the Supreme Court has reinforced that arbitrators cannot award interest contrary to the parties’ agreement. The ruling provides much-needed clarity on the interpretation of residuary phrases like “or otherwise” and the distinction between Section 31(7)(a) and 31(7)(b). A well-reasoned and legally sound judgment.