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Union of India & Ors. v. Larsen & Tubro Limited (L&T)

Civil Appeal · 2026 INSC 203Decided 27 Feb 2026
C.A. No.-003136-003136 - 2026
Justice Sanjay Karol · Justice Vipul M. Pancholi

Background

Union of India (North Central Railway) had contracted L&T in 2011 to modernise the Jhansi railway workshop, a project that ran 40 months late. Disputes over payments and delay led to arbitration, and in 2018 a three-member Arbitral Tribunal awarded L&T roughly Rs. 5.53 crore, including pre-award (pendente lite) interest on some claims and 12% post-award interest. Both the Commercial Court, Jhansi and the Allahabad High Court upheld this award, prompting the Union of India to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the Arbitral Tribunal had wrongly awarded pre-award/pendente lite interest on Claim Nos. 1, 3 and 6, because the contract's General Conditions (Clauses 16(3) and 64(5)) expressly barred such interest, and this error fell within the limited grounds for interference under Sections 34 and 37. However, the Court held the tribunal was justified in awarding post-award interest since the contract did not exclude it and Section 31(7)(b) of the Act permits it by default. Relying on Gayatri Balasamy v. ISG Novasoft Technologies (2025) 7 SCC 1, the Court held it has the power to modify (not just set aside) an unreasoned post-award interest rate, and reduced the rate from 12% to 8% per annum as excessive and unjustified on the record. The appeal was accordingly partly allowed.

Lesson Learnt

Courts can modify specific components of an arbitral award, such as an unjustified interest rate, rather than being forced to strike down the whole award; and a contractual bar on pre-award interest does not automatically extend to bar post-award interest, since the two operate under different legal provisions.

Official source (sci.gov.in)View Judgment (PDF)

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