'Or Otherwise' Clause In Contract Bars Arbitral Interest Awards Beyond Delayed Payments: Supreme Court

On 15 October, the Supreme Court held that the expression “or otherwise” in a contractual clause prohibiting interest claims extends the bar to all circumstances in which interest may be claimed against the contracting party, preventing an arbitral tribunal from awarding pre-reference and pendente lite interest.

A Division Bench of Justices Aravind Kumar and Vipul M. Pancholi dismissed an appeal filed by Sharma Enterprises against National Building Construction Corporation Limited (NBCC), challenging the Delhi High Court's decision to set aside the interest awarded by an arbitral tribunal. They held:

“On careful consideration, it can be inferred that the preceding terms of the phrase 'or otherwise' do not constitute a single, narrow genus restricted to delayed running payments and also include balance payments, withheld deposits and amounts withheld due to disputes. Consequently, 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.”

The dispute arose from a subcontract dated 11 January 1991, under which NBCC engaged Sharma Enterprises to carry out flooring and cladding works at the Vashi Railway Station-cum-Commercial Complex in Navi Mumbai for approximately Rs. 9.50 crore. The work was scheduled for completion by 10 January 1993.

Sharma Enterprises could execute only limited work due to delays caused by another contractor. Although it completed priority platform areas before the complex's inauguration on 9 May 1992, NBCC terminated the contract on 22 September 1992 and encashed its bank guarantees.

Invoking arbitration, Sharma Enterprises approached the Delhi High Court under the Arbitration Act, 1940, after NBCC failed to appoint an arbitrator. Following prolonged litigation, the Supreme Court appointed an arbitrator on 3 August 2011.

On 28 July 2016, the arbitrator held NBCC's termination wrongful and awarded Sharma Enterprises Rs. 48.28 lakh towards its substantive claims, Rs. 5 lakh in litigation costs and interest at 10% annually from 22 September 1992 until payment. The arbitrator rejected NBCC's counterclaims.

NBCC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. On 19 November 2025, a Single Judge of the Delhi High Court upheld the substantive claims but set aside pre-reference and pendente lite interest, relying on Clause 26 of the contract.

Sharma Enterprises challenged the decision under Section 37 of the Act. On 20 March 2026, a Division Bench dismissed the appeal, holding that the expression “or otherwise” imposed a comprehensive contractual prohibition on interest claims.

Before the Supreme Court, it argued that Clause 26 restricted interest only on delayed payments. NBCC maintained that the expression “or otherwise” extended the prohibition to all circumstances in which interest could be claimed against the Corporation. Rejecting Sharma Enterprises' argument, the judges held:

“The doctrine of ejusdem generis becomes applicable only where the preceding terms of the general phrase follow a specific class forming a genus, thereby imparting the specific character to the subsequent general phrase. At this stage, it is relevant to note that where the provisions in a contract are disjunctively joined by the word 'or', every such phrase has to be examined independently due to its wide amplitude.”

Further, the Bench held that the preceding expressions in Clause 26 did not form a single, narrow class that could restrict the meaning of “or otherwise”. The phrase was residuary in nature and covered other circumstances in which interest could be claimed against NBCC. Limiting it to delayed payments would render the expression redundant and amount to rewriting the contract.

It clarified that Section 31(7)(a) of the Act makes the award of pre-award interest subject to the parties' agreement, whereas Section 31(7)(b) governs post-award interest.

Accordingly, the Supreme Court dismissed Sharma Enterprises' appeal, upholding the contractual bar on pre-reference and pendente lite interest while leaving the substantive monetary awards and post-award interest undisturbed.

Appearances for appellant (M/s Sharma Enterprises): Senior Advocate Siddhartha Dave.

Appearances for respondent (National Building Construction Corporation Limited): Advocate Shilpi Chowdhary.