MS Sharma Enterprises v. National Building Construction Corporation
Background
NBCC sub-contracted flooring and cladding work on a Navi Mumbai railway complex to Sharma Enterprises in 1991. Delays by NBCC's own civil contractor held up the work; NBCC terminated the contract in 1992 and encashed bank guarantees. After decades of litigation, an arbitrator in 2016 found NBCC had wrongfully terminated, awarding Sharma Enterprises its claims plus 10% interest from 1992. NBCC challenged only the interest award, and the High Court set it aside, holding a contract clause barred such interest.
Decision Breakdown
The Supreme Court dismissed Sharma Enterprises' appeal, upholding removal of pre-reference and pendente lite interest. The issue was whether the contract clause's closing words "or otherwise" acted as a blanket bar on interest. The Court held that under Section 31(7)(a) of the Arbitration Act, an arbitrator's power to award pre-award interest is subject to contrary agreement by the parties, and found the clause's "or otherwise" was a broad residuary term excluding such interest entirely, the arbitrator, being "a creature of the contract," had no power to award it once the contract excluded it. Post-award interest remained payable since that provision isn't subject to party contract.
Lesson Learnt
A broadly worded contract clause barring interest "or otherwise" can strip an arbitrator of the power to award pre-reference and pendente lite interest even decades into a dispute: parties should scrutinize such boilerplate clauses carefully before signing.