Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-012234-012234 – 2025 |
| Diary Number | 20871/2024 |
| Judge Name | HON’BLE MR. JUSTICE SURYA KANT |
| Bench |
|
| Precedent Value | Binding authority |
| Overrules / Affirms |
|
| Type of Law |
|
| Questions of Law | Whether compound interest can be claimed under Section 31(7)(b) when the arbitral tribunal already awarded simple interest per a contractual provision |
| Ratio Decidendi |
Where parties have expressly agreed a rate and period of interest in their contract, the arbitral tribunal must incorporate that term under Section 31(7)(a) and that sum cannot be further enhanced under Section 31(7)(b). The discretion conferred by Section 31(7)(b) to award post-award interest applies only if the award is silent on post-award interest. An award fixing 21% simple interest until repayment precludes compound interest at execution, affirming party autonomy over statutory defaults. |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
Analysed Section 31(7)(a) as discretionary but subject to party agreement; Section 31(7)(b) as default post-award interest only if award silent. Applied MoU clause granting 21% simple interest until repayment. Distinguished cases where awards were silent (Hyder Consulting) and reaffirmed later clarifications (Morgan Securities, Delhi Airport, S.A. Builders). Emphasised that executing court cannot rewrite an award by introducing compound interest absent express contract or award provision. |
| Facts as Summarised by the Court |
Parties signed an MoU on 09.04.2014 for sale of Hyderabad land with Rs 15.5 crore advance and 21% interest on termination; MoU terminated 09.10.2014 and dispute referred to arbitration; award dated 08.09.2019 granted Rs 15.5 crore with simple 21% p.a. interest until repayment; Section 34 challenge dismissed and award became final; executing court accepted Rs 44.42 crore as full satisfaction and denied compound interest; High Court remanded interest issue; Supreme Court restored execution order. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts executing awards under Section 31(7) |
| Persuasive For | High Courts and tribunals in commercial arbitrations considering compound-interest claims |
| Follows |
|
| Distinguishes | Hyder Consulting (UK) Ltd v. Governor, State of Orissa (2015) where awards were silent on interest |
What’s New / What Lawyers Should Note
- The Supreme Court confirms that Section 31(7)(b) default post-award interest applies only when the award is silent on interest for the post-award period.
- A contractually agreed simple interest rate with a fixed period binds the tribunal and bars compound interest at execution.
- Executing courts cannot modify an award to introduce interest on interest absent explicit contractual or award terms.
- Emphasises party autonomy under Section 31(7)(a) over statutory defaults for pre-award interest.
- Reinforces requirement for clear agreement to claim compound interest on an arbitral award.
Summary of Legal Reasoning
- Section 31(7) analysis: Clause (a) allows tribunal to award pre-award interest subject to party agreement; Clause (b) provides default 18% p.a. post-award interest only if award is silent.
- MoU clause 6(b): Parties agreed 21% simple interest from disbursement until repayment, ousting statutory defaults.
- Arbitral award: Applied the MoU term to grant 21% simple interest till payment; no post-award or compound interest directed.
- Precedent review: Distinguished Hyder Consulting (compound interest only when award silent), reaffirmed Morgan Securities, Delhi Airport, S.A. Builders (party-agreed regimes prevail).
- Execution stage: Held executing court properly refused compound interest claims; remand by High Court was unwarranted.
- Conclusion: Award aligned with contractual regime cannot be supplemented at execution; restoring executing court’s order.
Arguments by the Parties
Petitioner (HLV Limited)
- Award granted only 21% simple interest until repayment; no compound or post-award interest was directed.
- Award is final; executing court correctly treated Rs 44.42 crore as full satisfaction.
- Section 31(7) inapplicable as tribunal followed the contractual interest provision; Hyder Consulting does not apply.
- Morgan Securities confirms default interest regime only when award silent.
- High Court’s remand order is an abuse of process and should be quashed.
Respondent (PBSAMP Projects Pvt Ltd)
- Appellant still owes over Rs 13 crore per respondent’s interest calculations as of 31.07.2023.
- Under Section 31(7)(a), pre-award interest must be capitalised into the ‘sum’ for Section 31(7)(b) compound interest.
- Relied on Hyder Consulting and North Delhi Municipal Corporation v. S.A. Builders to claim compound interest on the aggregated sum.
Factual Background
Parties signed an MoU on 09.04.2014 for sale of a 3-acre-28-gunta Hyderabad land parcel, with Rs 15.5 crore advance and contractual 21% interest on termination. The MoU was terminated on 09.10.2014 and the dispute referred to a three-member tribunal, which on 08.09.2019 awarded Rs 15.5 crore with simple 21% p.a. interest until repayment. The Special Court dismissed a Section 34 challenge and the award attained finality. In execution, HLV Limited paid Rs 44.42 crore; PBSAMP sought compound interest; the executing court refused, the High Court remanded, and the Supreme Court restored the execution order.
Statutory Analysis
- Section 31(7)(a): Empowers tribunal to include pre-award interest at reasonable rate on the whole or part of the sum, but “unless otherwise agreed by the parties” party autonomy prevails.
- Section 31(7)(b): Mandates default post-award interest at 18% p.a. on the sum directed by award, unless the award otherwise directs.
- Contractual override: MoU clause 6(b) fixed 21% simple interest until repayment, thereby supplanting both statutory clauses for the pre-award and post-award periods.
- No compounding: Neither contract nor award provided for interest on interest; Section 31(7) does not authorize judicial addition of compound interest at execution.
Alert Indicators
- ✔ Precedent Followed