M/s Sharma Enterprises v. National Building Construction Corporation

What happened

On 11 January 1991 the respondent, National Building Construction Corporation, awarded the appellant, M/s Sharma Enterprises, a sub-contract for flooring and cladding works at Vashi Railway Station-cum-Commercial Complex, New Bombay, for an agreed sum of Rs.9,50,73,603.20, to be completed by 10 January 1993. The work depended on civil works by another contractor and was delayed; on 22 September 1992 the respondent terminated the contract and encashed the appellant's bank guarantees.

After several rounds of litigation, the Supreme Court by order of 3 August 2011 appointed an arbitrator. On 28 July 2016 the arbitrator held the termination wrongful, allowed the claims for executed work, extra items, bank guarantee extension charges, refund of the encashed guarantee amount of Rs.19,01,480 and costs of Rs.5,00,000, rejected the counter-claims, and awarded interest at 10 per cent per annum on the awarded sums, except costs, from 22 September 1992 until payment, covering the pre-reference, pendente lite and post-award periods. By decision of 15 December 2021 in Civil Appeal Nos. 7701-7702 of 2021 the Supreme Court held that the proceedings were governed by the 1996 Act.

On the respondent's petition under section 34, the Single Judge on 19 November 2025 upheld the award on all substantive claims but set aside the pre-reference and pendente lite interest because Clause 26 of the special conditions of contract operated as an absolute bar, relying on Sayeed Ahmed and Company v. State of Uttar Pradesh. The Division Bench dismissed the appeal under section 37 by judgment of 20 March 2026, holding that "or otherwise" in Clause 26 was analogous to "any other respect whatsoever" in Sayeed Ahmed.

Questions before the court

• Does Clause 26 of the special conditions, which refuses claims for interest on held-up balance payments or deposits, delayed monthly or final payments "or otherwise", amount to a contractual bar under section 31(7)(a) of the Arbitration and Conciliation Act, 1996 on pre-reference and pendente lite interest on the awarded claims?

Why the court ruled this way

The Court set out Clause 26, which provides for monthly running bills and ends: "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". Section 31(7)(a) allows the tribunal to award interest for the period between the cause of action and the award "unless otherwise agreed by the parties", and has to be read with section 28(3), under which the tribunal decides in accordance with the contract. Post-award interest under section 31(7)(b) is different and is not subject to party agreement.

The appellant argued that ejusdem generis and noscitur a sociis confine "or otherwise" to the delayed payments mentioned before it. The Court rejected this: ejusdem generis applies only where general words follow a specific class that forms a genus, and where items are joined disjunctively by "or" each is examined independently, as held in Union of India v. Manraj Enterprises and Union of India v. Larsen & Toubro Limited. Clause 26 lists three separate events joined by "or": held-up balance payments or deposits, delay in monthly or final payments, and "otherwise". The first of these is not confined to delayed running bills, so "or otherwise" is residuary and of wide amplitude. Citing Lilavati Bai v. State of Bombay, the Court said such words are words of extension, not limitation, and reading them narrowly would make them redundant and rewrite the contract.

Oil and Natural Gas Corporation Ltd. v. G&T Beckfield Drilling Services did not help the appellant, because the clause there barred interest only on delayed payments or disputed claims and had no residuary expression, and the Court there itself recognised that pendente lite interest is excluded where a contract bars it expressly or by necessary implication, as in Sayeed Ahmed and Jaiprakash Associates v. Tehri Hydro Development Corporation. Since the arbitrator is a creature of the contract, awarding pre-reference and pendente lite interest contrary to Clause 26 exceeded his jurisdiction, and the High Court rightly set it aside under sections 34 and 37 only to that extent.

Controlling point

Clause 26's closing words "or otherwise" operate as a contractual prohibition within section 31(7)(a), so the arbitrator had no power to award pre-reference and pendente lite interest, though the substantive claims and post-award interest remain.

Order and next steps

The Court found no error in the Division Bench judgment of 20 March 2026 in FAO(OS) (COMM) No. 18 of 2026 or the Single Judge's judgment of 19 November 2025 in O.M.P. (COMM) No. 215 of 2022, and dismissed the appeal. Pending applications were disposed of.

Practical implications

A contractor reviewing a sub-contract or general conditions before arbitration should read every interest clause, including any residuary phrase such as "or otherwise" or "any other respect whatsoever", and plan the claim on the footing that interest before the award may be barred, while interest after the award under section 31(7)(b) remains available. A party that wants to rely on such a clause should take the point before the tribunal and not leave it to the challenge stage.

Limits of this ruling

• The decision turns on the wording of Clause 26 and on the settled reading of section 31(7)(a); a clause that is confined to delayed payments and has no residuary phrase may be read differently, as the Court noted of the ONGC decision. It does not affect the substantive awards or post-award interest, and, although the appellant argued that the respondent had not relied on Clause 26 before the arbitrator, the Court's reasoning rests on the clause and the arbitrator's want of power.