Supreme Court Bars Pre-Reference Interest in NEEPCO Case

Supreme Court Bars Pre-Reference Interest Under NEEPCO's Clause 54

The Supreme Court of India has held that Clause 54 of NEEPCO's General Conditions of Contract bars pre-reference interest on delayed payments, setting aside the Meghalaya High Court's restoration of that interest in North Eastern Electric Power Corporation Limited (NEEPCO) v. Astra Construction Private Limited.

Justices Pamidighantam Sri Narasimha and Alok Aradhe confined the ruling to interest, leaving intact the June 2015 arbitral award that blamed NEEPCO for project delay and granted Astra Construction principal claims of Rs 3.30 crore.

Background: A Contract Signed in 1996

The dispute traces to a May 1996 contract for civil works on the main plant and auxiliary building of NEEPCO's gas turbine project at Ram Chandra Nagar, Tripura, estimated at Rs 17.09 crore and scheduled for completion by March 1997.

Clause 54 barred interest claims on money held due to a dispute 'or' delay by the Engineer-in-Charge in making periodical or final payments, closing with 'or in any other respect whatsoever.'

The Bench read the standalone 'or' as extending the bar to simple delayed payment, distinguishing State of U.P. v. Harish Chandra and Co. and aligning with Sayeed Ahmed & Company v. State of U.P.

What the Ruling Means for Contractors

For contractors, the signal is commercial:

- Interest on delayed government payment is now a contract term, not a default recovery guaranteed under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, which opens with "unless otherwise agreed by the parties."
- NEEPCO, a public-sector generator under the Ministry of Power, retains the upside by escaping interest liability on a dispute spanning nearly three decades.
- Astra Construction bears the working-capital cost.

The Drafting Lesson

The drafting lesson is precise. A single coordinating 'or' — joining dispute-related withholding to payment delay — broadened an interest bar far beyond the narrow reading contractors assumed.

For EPC and civil contractors chasing public-sector power, water and transport work, standard-form General Conditions must be priced at bid stage: where interest recovery is contractually extinguished, delayed-payment risk sits on the balance sheet, not in an arbitration claim.

A Contracting Environment That Caps Contractor Recovery

The broader shift is a contracting environment where public employers' boilerplate increasingly caps contractor recovery and courts defer to agreed terms.

Contractors that fail to negotiate carve-outs or build delay costs into bids will absorb a cost the contract never prices.