DATE: 24/09/2025
COURT: Supreme Court of India
BENCH: Justice Manoj Misra and Justice
Ujjal Bhuyan
FACTS:
The dispute arose out of a Memorandum of
Understanding (MoU) executed on April 9, 2014, between PBSAMP Projects Pvt.
Ltd. (appellant) and HLV Ltd. (respondent) concerning the sale of land in
Banjara Hills, Hyderabad. Under the MoU, the respondent paid an advance of Rs.15.5 crores to the
appellant. As disputes surfaced, the MoU was terminated, and the matter was
referred to arbitration. A three-member arbitral tribunal, presided over by Justice Arijit Pasayat, passed an award on September 8, 2019. The
tribunal directed the appellant to refund Rs.15.5 crores with interest at
21% per annum from the dates of payment until repayment. The tribunal expressly
noted that this rate and duration were in accordance
with the terms of the MoU and rejected the appellant’s counterclaim.
The appellant’s challenge to the award
under Section 34 of the Arbitration and Conciliation Act, 1996, was dismissed
in March 2021, and the award attained finality. During execution, the appellant
paid Rs.44.42
crores, claiming it was full satisfaction of the award. The respondent,
however, claimed entitlement to compound interest over and above the awarded
21% simple interest. The executing court rejected this plea, holding that the award had not granted compound interest and that the
paid amount satisfied the decree. On revision, the Telangana High Court set
aside the executing court’s order and remanded the matter for reconsideration.
Aggrieved, the appellant approached the Supreme Court.
ISSUES:
The central issue before the Supreme Court
was whether the respondent, as decree holder, was entitled to interest upon
interest (compound or post-award interest) under Section 31(7)(b) of the
Arbitration and Conciliation Act, 1996, despite the arbitral tribunal having
already awarded simple interest at 21% per annum until repayment in accordance
with the MoU.
JUDGEMENT WITH REASONING:
The Supreme Court set aside the Telangana
High Court’s order dated April 22, 2024, and restored the executing court’s
order dated November 2, 2023. It held that the respondent was not entitled to
compound interest or post-award interest, as the arbitral tribunal had already
determined the applicable rate and duration of interest under the terms of the
MoU.
The Court reasoned that Section 31(7)(a) of
the Arbitration Act explicitly gives primacy to party autonomy, allowing
parties to decide the interest regime in their agreement. In this case, Clause
6(b) of the MoU expressly provided for repayment of advances with simple
interest at 21% per annum until repayment in the event of termination. The
arbitral tribunal faithfully applied this contractual provision, awarding
interest until repayment, thereby exhausting its discretion under Section
31(7)(a). Once the tribunal specified both the rate and the duration, there was
no scope for invoking Section 31(7)(b) to grant any additional or compound
interest. The Court clarified that the principle in Hyder Consulting (UK) Ltd.
v. State of Orissa, where post-award interest was permitted, would apply only
where the tribunal had left the matter open or remained silent on interest.
Here, the tribunal was neither silent nor ambiguous.
The Court further emphasized that the MoU
did not contemplate compounding of interest, nor did the arbitral tribunal
grant such relief. To permit the respondent to claim compound interest at the
execution stage would effectively rewrite the award, which is impermissible.
The Court noted that arbitration is rooted in party autonomy and the finality
of awards, and courts cannot expand or alter the scope of an arbitral award
during enforcement. Reliance on S.A. Builders Ltd. and other precedents was
held to be misplaced, as those cases dealt with scenarios where the contractual
or arbitral silence necessitated statutory application of Section 31(7)(b). In
the present case, both the contract and the award explicitly settled the matter
of interest, leaving no room for judicial modification. Hence, the executing
court was correct in holding that the appellant’s payments discharged the award
in full.
ANALYSIS:
This case highlights the Supreme Court’s
strict adherence to the principle of party autonomy in arbitration and the
finality of arbitral awards. By holding that the respondent could not claim
compound or post-award interest, the Court reaffirmed that where the parties
have expressly agreed upon the interest regime, and the arbitral tribunal has
given effect to it, neither Section 31(7)(b) of the Arbitration and
Conciliation Act nor judicial interpretation can override those terms. The
decision draws a clear line between cases where an arbitral tribunal is silent
on interest, allowing statutory provisions to apply and cases where the
contract and award comprehensively address the rate and duration of interest.
This distinction is vital to maintaining the sanctity of contractual bargains
and the limited supervisory role of courts in arbitral enforcement.
The ruling also underscores the Court’s
commitment to preventing post-award litigation strategies that attempt to
expand the scope of arbitral awards during execution. By rejecting the
respondent’s plea for compound interest, the Court protected the efficiency and
certainty of arbitration, cautioning against reopening settled issues under the
guise of enforcement. The reliance on precedents such as Hyder Consulting and
S.A. Builders was carefully distinguished, emphasizing that judicial expansion
of interest provisions would not be permissible where the tribunal had already
acted within its mandate. In essence, the judgment strengthens predictability
in commercial arbitration, ensuring that enforcement proceedings remain
confined to the terms of the award rather than becoming a forum for
renegotiation.
info@adhwaitha.com