M/S INTERSTATE CONSTRUCTION versus NATIONAL PROJECTS CONSTRUCTION CORPORATION LTD.

Citation: [2025] 5 S.C.R. 2106 · Decided: 15-05-2025 · Supreme Court of India · Bench: ABHAY S. OKA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

[2025] 5 S.C.R. 2106 : 2025 INSC 699
M/s Interstate Construction 
v. 
National Projects Construction Corporation Ltd.
(Civil Appeal No. 3461 of 2025)
15 May 2025
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
Issue arose whether the Division Bench of High Court was justified 
setting aside the directions related to pendente lite interest, holding 
that it was not open for the arbitral tribunal to have carved out 
three periods for payment of interest: pre-reference, pendente lite 
and future.
Headnotes†
Arbitration and Conciliation Act, 1996 – s.37 – Arbitral award – 
Award of interest for pre-reference and pendente lite period – 
Respondent engaged services of the appellant for executing a 
contract relating to Power Project – Appellant disputed certain 
recoveries – Arbitration clause invoked – Arbitrator passed 
an award, while arbitral tribunal allowed the claims of the 
appellant under several heads, awarding pre-reference interest, 
pendente lite interest and future interest – In petition u/s.34 by 
the respondent for setting aside the award, the Single Judge 
of the High Court set aside the award with regard to future 
interest at a rate exceeding 9 percent pa from the date of the 
award till the date of payment – However, the Division Bench 
of High Court set aside the directions related to pendente lite 
interest, holding that it was not open for the arbitral tribunal 
to have carved out three periods for payment of interest-pre-
reference, pendente lite and future when the statute provides 
for only two periods, period being the period between the date 
on which the cause of action arose and the date on which the 
award is made, and the period from the date of the award till 
the date of payment – Sustainability:
Held: Not sustainable – Reasoning given by the Division Bench 
is fallacious – Arbitral tribunal has the discretion to include in the 
sum awarded, firstly, interest at such rate as it deems reasonable; 
* Author
[2025] 5 S.C.R. 
2107
M/s Interstate Construction v.  
National Projects Construction Corporation Ltd.
and secondly, for the whole or any part of the period between the 
date on which the cause of action arose and the date on which 
the award is made – This would mean that the arbitral tribunal 
can exclude a period from the date on which the cause of action 
arose till the date on which the award is made for the purpose of 
grant of interest as has been done in the instant case – It would 
also mean that the arbitral tribunal can grant interest for the whole 
or any part of the period between the date on which the cause of 
action arose and the date on which the award is made – It can be 
a composite period or the said period can be further sub-divided, 
as done in the instant case i.e. from the date of cause of action to 
filing of the claim and from the date of filing of the claim till the date 
of the award excluding the period when the appellant was found 
to be remiss – It would also mean that there can be one rate of 
interest for the whole period or one or more rates of interest for the 
sub-divided periods as has been done in the instant case – This 
would be the correct approach to interpret s.31(7)(a), given the 
scheme of the 1996 Act – Division Bench erred by holding that 
the arbitral tribunal had no jurisdiction to award interest for two 
periods-pre-reference and pendente lite when the statute provides 
for only one period, from the date when the cause of action arose 
till the date of the award – View expressed by the High Court 
not the correct interpretation of s.37(1)(a) – Sum awarded in  
s.31(7)(a) would mean principal amount plus the interest awarded 
from the date of cause of action upto the date of the award – As 
per s.31(7)(b) of the 1996 Act, the sum (principal amount + interest) 
would carry further interest at the rate of 2 per cent higher than 
the current rate of interest prevalent on the date of the award to 
the date of payment – Impugned judgment and order passed by 
the Division Bench of the High Court set aside. [Paras 26, 35, 
36, 44, 45]
Case Law Cited
Sayeed Ahmed and Company v. State of Uttar Pradesh [2009] 
10 SCR 841 : (2009) 12 SCC 26; Pam Developments Private 
Limited v. State of West Bengal [2024] 8 SCR 615 : (2024) 10 
SCC 715; North Delhi Municipal Corporation v. S.A. Builders Ltd. 
(2024) SCC Online SC 3768; State of Haryana v. S.L. Arora 
[2010] 2 SCR 297 : (2010) 3 SCC 690; Hyder Consulting (UK) 
Ltd. v. Governor, State of 

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