1. Dispute over enforcement of arbitral award — claim for compound and post-award interest — interpretation of Section 31(7) of the Arbitration and Conciliation Act, 1996. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 )
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2025 Supreme(SC) 1727
SUPREME COURT OF INDIA
MANOJ MISRA, UJJAL BHUYAN, JJ.
HLV Limited (Formerly Known as Hotel Leelaventure Pvt. Ltd.) – Appellant
Versus
PBSAMP Projects Pvt. Ltd. – Respondent
Civil Appeal No. 12234 of 2025 [Arising Out of SLP (Civil) No. 10732 of 2024]
Decided On : 24-09-2025
Important Points
An arbitral award's stipulations on interest must be strictly enforced as per the parties' agreement, disallowing claims for compound interest unless explicitly provided, reinforcing party autonomy in arbitration agreements.
Subject
Arbitration - Arbitral Awards
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 31(7)(a) and (b) - Enforcement of arbitral award - Dispute over entitlement to compound interest - Arbitral tribunal awarded simple interest at 21% per annum; executing court rejected claim for compound interest - High Court set aside executing court's order and remanded case for reconsideration - Court found that parties had agreed on interest provisions in the MoU and the tribunal had exercised discretion accordingly - Law established by prior judgments clarified that unless the award specifies otherwise, compound interest is not permissible at execution stage, maintaining party autonomy in arbitration agreements. (Paras 10, 18, 20, 30, 34)
Facts of the case:
The parties entered a MoU regarding land sale, followed by arbitration due to disputes over interest payments. The tribunal granted simple interest at 21%, which the appellant contended covered all dues. The executing court accepted this, leading to a dispute when the respondent claimed additional interest.
Findings of Court:
The tribunal's award conformed to the MoU; compound interest claims were impermissible as they contradicted the agreed terms and the tribunal’s discretion. The execution order was restored based on existing legal principles regarding awards.
Issues: Entitlement to interest upon interest in the context of arbitration awards and the interpretation of Section 31 of the Arbitration Act.
Ratio Decidendi: The court emphasized that agreements between parties govern interest provisions while ruling out compound interest, ensuring that tribunal discretion in awards must align with established agreements. The High Court’s remand order conflicted with this legal principle.
Result: Appeal allowed; High Court's order set aside and executing court's order restored.
Facts of the case:
The parties entered a MoU regarding land sale, followed by arbitration due to disputes over interest payments. The tribunal granted simple interest at 21%, which the appellant contended covered all dues. The executing court accepted this, leading to a dispute when the respondent claimed additional interest.
Findings of Court:
The tribunal's award conformed to the MoU; compound interest claims were impermissible as they contradicted the agreed terms and the tribunal’s discretion. The execution order was restored based on existing legal principles regarding awards.
Issues: Entitlement to interest upon interest in the context of arbitration awards and the interpretation of Section 31 of the Arbitration Act.
Ratio Decidendi: The court emphasized that agreements between parties govern interest provisions while ruling out compound interest, ensuring that tribunal discretion in awards must align with established agreements. The High Court’s remand order conflicted with this legal principle.
Result: Appeal allowed; High Court's order set aside and executing court's order restored.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Hemandranath Reddy, Sr. Adv. Mr. M Srinivas R Rao, Adv. Mr. M.V. Mukunda, Adv. Mr. Abid Ali Beeran P, AOR Mr. Sarath S Janardanan, Adv. Mr. Saswat Adhyapak, Adv. Ms. Namita Kumari, Adv.
For the Respondent(s): Mr. P.b. Suresh, Sr. Adv. Mr. Mayank Jain, Adv. Mr. Madhur Jain, Adv. Ms. Aakriti Dhawan, Adv. Mr. Arpit Goel, Adv. Mr. Deepak Jain, Adv. Mr. Parmatma Singh, AOR
For the Petitioner(s): Mr. Dama Seshadri Naidu, Sr. Adv. Mr. Hemandranath Reddy, Sr. Adv. Mr. M Srinivas R Rao, Adv. Mr. M.V. Mukunda, Adv. Mr. Abid Ali Beeran P, AOR Mr. Sarath S Janardanan, Adv. Mr. Saswat Adhyapak, Adv. Ms. Namita Kumari, Adv.
For the Respondent(s): Mr. P.b. Suresh, Sr. Adv. Mr. Mayank Jain, Adv. Mr. Madhur Jain, Adv. Ms. Aakriti Dhawan, Adv. Mr. Arpit Goel, Adv. Mr. Deepak Jain, Adv. Mr. Parmatma Singh, AOR
Table of Contents
2. Whether the decree holder is entitled to compound interest and post-award interest despite the award specifying simple interest from disbursement until repayment. (Para 14 , 15 )
3. Party autonomy takes precedence over tribunal discretion under Section 31(7)(a); where the award specifies interest until repayment per agreement, additional post-award interest is impermissible. (Para 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 )
4. When an arbitral award specifies a rate and duration of interest based on party agreement, the statutory default for post-award interest under Section 31(7)(b) is superseded. (Para 28 , 29 , 30 )
5. Appeal allowed — High Court order set aside — Executing Court order restoring the rejection of compound interest restored. (Para 32 , 33 , 34 )
6. Does the Arbitral Tribunal have discretion to award interest if the parties have already agreed on the interest rate?
No. Under Section 31(7)(a), the tribunal's discretion to award interest is subject to any agreement between the parties. Party autonomy takes precedence, and the tribunal must be guided by the agreement between the parties. (Para 20 , 28 )
7. When does the statutory rate of 18% post-award interest under Section 31(7)(b) apply?
It applies to the sum directed to be paid by the award from the date of the award to the date of payment, unless the award otherwise directs. (Para 19 , 20 )
8. Can an arbitral tribunal award compound interest or interest on interest in the absence of a contractual provision?
In the absence of any provision for interest upon interest in the contract, arbitral tribunals do not have the power to award compound interest either for the pre-award period or for the post-award period. (Para 23 )
9. If an award specifies interest from the cause of action until the date of repayment, is the decree holder entitled to additional post-award interest?
No. If the award specifies the interest rate and duration until repayment, it is considered a complete interest regime. Additional or compound interest cannot be introduced at the execution stage as it would amount to rewriting the award. (Para 29 , 30 , 31 )
JUDGMENT :
UJJAL BHUYAN, J.
1. Leave granted.
2. This appeal by special leave is directed against the judgment and order dated 22.04.2024 passed by the High Court for the State of Telangana at Hyderabad (High Court) in Civil Revision Petition No. 60 of 2024 ( PBSAMP Projects Private Limited vs. HLV Limited ). By the impugned judgment and order, the Division Bench of the High Court set aside the order dated 02.11.2023 passed by the Principal Special Court in the cadre of District Judge for trial and disposal of commercial disputes at Hyderabad (referred to hereinafter as ‘the Executing Court’) in CEP No. 05 of 2021 rejecting the petition filed by the respondent for enforcement of the arbitral award dated 08.09.2019 on the ground that respondent is not entitled to compound interest and that the amount paid by the judgment debtor (appellant) to the decree holder (respondent) i.e. Rs. 44,42,05,254.00 was in full satisfaction of the award.
3. Question for consideration in this appeal is whether in the facts and circumstances of the case, the decree holder (respondent) would be entitled to interest upon interest in terms of Section 31 (7)(b) of the Arbitration and Conciliation Act, 1996 or the interest awarded by the arbitral tribunal in the award dated 08.09.2019 in terms of the memorandum of understanding dated 09.04.2014 entered into between the parties i.e. between the appellant and the respondent fulfil the requirement of Section 31 (7)(a) and (b) of the said Act?
4. The above question arises in the following factual backdrop.
5. The two parties had entered into a memorandum of understanding (MoU) on 09.04.2014. The MoU was with regard to sale and transfer of land situated at Road No. 10, Banjara Hills, Hyderabad admeasuring approximately 3 acres and 28 guntas. The details of the land are mentioned in the schedule to the MoU.
5.1. It may be mentioned that appellant as the vendor had acquired absolute ownership of the schedule land under different sale deeds which was to be used for construction of a five star hotel but for various reasons did not go ahead with the project and instead decided to sell the land to the respondent. Under the aforesaid MoU, respondent paid a sum of Rs. 15.5 crores as advance to the appellant. As differences arose between the parties, the MoU was terminated on 09.10.2024 whereafter the dispute was referred to arbitration. The arbitral tribunal comprised of three arbitrators: Mr. Justice TNC Rangarajan being nominated by the claimant i.e. the respondent and Mr. Justice A Kulasekaran being nominated by the appellant. The two arbitrators in turn nominated Justice Arijit Pasayat as the presiding arbitrator.
6. The arbitral tribunal passed an award dated 08th September, 2019, the operative portion of which reads as under:
The claimant is entitled to Rs. 15.5 crores with interest at 21% p.a. from the date it was given to the date it is repaid. The respondent has kept the documents of title in escrow for security purposes The respondent has admitted liability for Rs. 10 crores and disputed only the sum of Rs. 5.5 crores. Hence we direct that the respondent pay immediately the sum of Rs. 10 crores with interest The escrow arrangement will be limited to the disputed amount of Rs. 5.5 crores only. The claimant shall give the consent letter for release of the balance of Rs. 5.5 crores simultaneously with the tender of the amount by way of DD or certified cheque, NEFT/RTGS to a designated account by the respondent within 3 months from the date of the award. The amount will carry interest at 21% p.a. from the date it was received till the date of exchange of the DD, certified cheque, NEFT/RTGS with the consent letter. The respondent's counterclaim stands rejected. In the peculiar facts of the case, it is directed that the parties shall bear their respective costs.
7. Thus, the arbitral tribunal awarded Rs. 15.5 crores to the claimant (respondent) with interest at the rate of 21 percent per annum from the date it was giv
