Oil And Natural Gas Corporation Ltd. Vs & T Beckfield Drilling Services Pvt. Ltd. (Supreme Court of India)
Pendente Lite Interest Survives Contractual Bar- Contract Clause Not Enough to Deny Interest Supreme Court Upholds Contractor’s Right Against ONGC
In a significant ruling, the Supreme Court dismissed ONGC’s appeal & upheld the arbitral award granting interest @12% p.a. from the date of filing of claim before the arbitral tribunal.
FACTS
ONGC had suffered an arbitral award dated 21.11.2004 directing payment of USD 6,56,272.34 along with 12% interest per annum from 12.12.1998 (date of statement of claim) till recovery, besides ₹5 lakhs towards costs. ONGC challenged the award under Section 34 of the Arbitration & Conciliation Act, 1996. The District Judge, Sivasagar set aside the award on grounds of non-reasoned findings & jurisdictional infirmities. On appeal, the Gauhati High Court (08.03.2019) restored the arbitral award in toto. When ONGC approached the Supreme Court, notice was confined to the limited question whether arbitral tribunal could award pendente lite interest @12% from 12.12.1998.
ISSUE
Whether Clause 18.1 of the contract prohibited the arbitral tribunal from awarding pendente lite interest i.e., interest from the date of filing of claim till the date of award.
ONGC’S ARGUMENTS
- Clause 18.1 stipulated that no interest would be payable by ONGC on delayed payment / disputed claims.
- Under Section 31(7)(a) of the 1996 Act, arbitral power to grant pre-award interest is subject to agreement between parties.
- Hence, arbitral tribunal exceeded its jurisdiction in awarding interest from 12.12.1998.
CONTRACTOR’S ARGUMENTS
- Clause 18.1, read as a whole, only barred interest on amounts genuinely in dispute or withheld, not pendente lite interest.
- Tribunal awarded interest not from the cause of action date but from filing of claim, which was justified once ONGC’s withholding of undisputed invoices was found unjustified.
SUPREME COURT’S FINDINGS
- Section 31(7) of 1996 Act allows arbitral tribunal to award interest for three periods: pre-reference, pendente lite & post-award.
1.Pre-reference & pendente lite interest are subject to parties’ agreement.
2.Post-award interest under Section 31(7)(b) is statutory & cannot be contracted out.
