Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 lets an arbitrator award interest for the period up to the date of the award — but only "unless otherwise agreed by the parties." Government and public-sector contracts in particular frequently contain clauses barring interest on delayed payments or on claims.
In Union of India & Ors. v. Larsen & Toubro Limited (2026 INSC 203, decided 27 February 2026), the Supreme Court held that the provisions of the Arbitration Act categorically restrict the power of an arbitrator to award pre-award or pendente lite interest when the parties have agreed to the contrary.
Why it matters: pre-award interest can be a very large part of the total amount in a long-running dispute. A contractual bar, if clearly worded, removes it entirely, whatever the tribunal's view of the fairness of the result.
The practical takeaway for contractors and suppliers: read the interest and payment clauses before signing, especially in public tenders, because the arbitration clause will not rescue you from them later. Post-award interest under Section 31(7)(b) is treated separately and was not the subject of this ruling.
This note summarises the reported judgment for general information and is not legal advice on any specific matter.