Can a court award interest on delayed payments under the Interest Act, 1978, if the underlying contract explicitly prohibits such a claim? This question arising was settled by the supreme court in the recent ruling, Kerala Water Authority & Ors. v. T.I. Raju & Ors.
(2026). This case centers around a contractor who completed a sewage treatment plant in 2014 but did not receive the principal payment of ₹86.64 lakh until 2016. While the Kerala High Court had initially granted the contractor 9% interest to compensate for this two-year delay, the Supreme Court bench, comprising Justices MM Sundresh and N Kotiswar Singh, set aside that decision.
The legal crux of the judgment lies in the Court’s strict interpretation of the Interest Act, 1978. Section 3(1) of the Act empowers courts to award interest on delayed payments to ensure equity, the Supreme Court pointed out that this power is not absolute. However, section 3(3) of the same Act, specifically dictates that its provisions do not apply where the payment of interest is "expressly barred" by the terms of the agreement. The Court clarified that the Interest Act is designed to fill a "legal vacuum" where a contract is silent; however, because the contract in this case specifically addressed and prohibited interest, no such vacuum existed for the Court to fill. Hence, the Supreme Court has signaled that parties cannot seek "equitable" relief that contradicts their own written bargain
This case serves as an impact on future litigation alarming anyone entering into government or commercial tenders. "Standard Terms" are never just standard they are binding. If you sign away your right to interest, the courts will not give it back to you, no matter how long the delay. Therefore, when the parties have agreed to a specific set of terms, the Court cannot rewrite the bargain to provide 'equitable' relief that contradicts the written agreement.