Arbitration - Agreement between parties regarding rate of interest prevails over tribunal's discretion under the Act
Supreme Court Upholds Arbitral Tribunal's Award; Denies Compound Interest Claim. Supreme Court Restores Executing Court's Order, Emphasizing Party Autonomy in Arbitration Agreements
In a landmark decision, the Supreme Court of India has set aside the High Court's order and reinstated the executing court's decision in the dispute between HLV Limited and PBSAMP Projects Pvt. Ltd. The apex court emphasized that the arbitral tribunal had correctly adhered to the memorandum of understanding (MoU) between the parties, which specified an interest rate of 21% per annum until repayment, thus ruling out any claim for compound interest.
HLV Limited had appealed against the High Court's decision to reconsider the matter of interest under the arbitral award dated 08.09.2019, which had been challenged by PBSAMP Projects Pvt. Ltd. The dispute arose from a terminated MoU regarding the sale of land in Hyderabad, leading to arbitration. The arbitral tribunal awarded Rs. 15.5 crores to PBSAMP Projects Pvt. Ltd., with interest as per the MoU.
PBSAMP Projects Pvt. Ltd. sought compound interest at the execution stage, which was rejected by the executing court. The High Court had initially set aside this rejection, prompting HLV Limited to approach the Supreme Court.
The Supreme Court, in its judgment dated 24.09.2025, reiterated the principle of party autonomy in arbitration, stating that the terms agreed upon by the parties take precedence over any discretion of the arbitral tribunal or courts. The court highlighted the lack of provision for compound interest in both the MoU and the arbitral award, thus making any claim for compound interest untenable.
Justice Manoj Misra and Justice Ujjal Bhuyan, presiding over the appeal, clarified that the arbitral tribunal's award was comprehensive and adhered to the MoU's terms, covering interest from the date of disbursement till repayment. The court underscored that introducing compound interest at the execution stage would effectively rewrite the award, which is impermissible.
The Supreme Court's decision brings finality to the dispute, emphasizing adherence to the specific terms set by parties in arbitration agreements, thereby upholding the integrity of arbitral awards and reinforcing the significance of party autonomy in arbitration processes.
Bottom Line:
Interest awarded under arbitral award - Claim for compound interest at execution stage not permissible when the award and agreement between parties are clear and unambiguous regarding interest.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 31(7)(a) and (b)
