Party Autonomy Reigns Supreme in Arbitration Interest; Award Terms Override Statutory Post-Award Interest Under S.31(7) Arbitration Act: Supreme Court - 2025-09-25

Supreme Court: Arbitral Award's Interest Terms Override Statutory Post-Award Interest

New Delhi: The Supreme Court, in a significant ruling on arbitration law, has held that when an arbitral award, guided by the parties' own agreement, specifies the interest rate and its duration until full repayment, no additional compound or post-award interest can be claimed at the execution stage under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.

In the case of HLV Limited v. PBSAMP Projects Pvt. Ltd. , a bench led by Justice Ujjal Bhuyan set aside a Telangana High Court order, reinforcing the principle that party autonomy is paramount in arbitration proceedings. The Court restored an Executing Court's decision which had rejected a claim for compound interest, ruling that the amount already paid by HLV Limited was in full satisfaction of the arbitral award.

---

Background of the Dispute

The case originated from a Memorandum of Understanding (MoU) dated April 9, 2014, for the sale of land in Hyderabad by HLV Limited to PBSAMP Projects. After the deal fell through, PBSAMP terminated the MoU and initiated arbitration to recover an advance payment of Rs. 15.5 crores.

The arbitral tribunal, on September 8, 2019, passed an award in favor of PBSAMP. The award directed HLV to repay the Rs. 15.5 crores along with "interest at 21% p.a. from the date it was given to the date it is repaid." This award became final after HLV's challenge under Section 34 of the Act was dismissed.

During execution proceedings, HLV paid a total of Rs. 44,42,05,254.00, which it claimed fulfilled its obligation under the award. However, PBSAMP argued it was entitled to more, demanding compound interest. It contended that the pre-award interest should be capitalized into the principal sum, and post-award interest should be calculated on this new, larger sum, citing the precedent set in Hyder Consulting (UK) Limited Vs. Governor, State of Orissa .

The Executing Court rejected this claim, but the Telangana High Court set aside that order and remanded the matter for fresh consideration, prompting HLV to appeal to the Supreme Court.

---

Arguments Before the Supreme Court

• HLV Limited (Appellant) argued that the arbitral award provided for a composite simple interest of 21% p.a. covering the entire period from the cause of action until repayment. It contended that the award was not silent on future interest, and therefore, the statutory provision for post-award interest under Section 31(7)(b) was inapplicable. HLV asserted that allowing a claim for compound interest would amount to an impermissible modification of the award at the execution stage.

• PBSAMP Projects Pvt. Ltd. (Respondent) countered that based on the Hyder Consulting judgment, the pre-award interest should be merged with the principal amount to form the "sum" under Section 31(7)(a). This "sum," they argued, should then attract post-award interest until the date of payment as per Section 31(7)(b), effectively amounting to compound interest. They claimed an outstanding amount of over Rs. 13 crores.

---

Court's Analysis: Party Autonomy is Key

The Supreme Court undertook a detailed analysis of Section 31(7) of the Arbitration Act, which governs the payment of interest.

The bench highlighted the crucial phrase " unless otherwise agreed by the parties " at the beginning of Section 31(7)(a), which deals with pre-award interest. Justice Bhuyan, writing for the court, emphasized that this phrase gives precedence to the agreement between the parties over the arbitrator's discretion.

The judgment noted that Clause 6(b) of the MoU between the parties explicitly provided for a 21% per annum interest rate from the date of advance until the actual date of repayment. The arbitral tribunal had faithfully applied this contractual clause in its award.

The Court observed:

"As the arbitral tribunal had expressly provided interest till the date of repayment, question of additional or compound interest under clause (b) of sub-section (7) of Section 31 of 1996 Act would not arise... the arbitral tribunal exercised its discretion within the overall framework of Section 31(7) of the 1996 Act aligning with the legislative intent that the award, rather than the statutory default, should govern the parties..."

The Supreme Court clarified that the principle laid down in Hyder Consulting —allowing interest on the aggregate of principal and pre-award interest—applies only when an award is silent on post-award interest. In this case, the award was clear and comprehensive.

The judgment stated:

"Reliance placed by the respondent on Hyder Consulting (supra) to claim post-award interest is misplaced. That principle would apply only when the arbitral tribunal leaves a matter unqualified or is silent. In the present case the arbitral tribunal bound by the MoU and exercising its statutory discretion had already specified the interest rate (21% per annum) and the duration (until repayment)."

---

Final Decision and Implications

The Supreme Court concluded that allowing the claim for compound interest would amount to rewriting the arbitral award during execution, which is impermissible. The High Court was found to be unjustified in setting aside the reasoned order of the Executing Court.

By allowing the appeal and restoring the Executing Court's order, the Supreme Court has delivered a clear message: contractual terms regarding interest, when reflected in an arbitral award, are definitive and cannot be expanded by courts at the enforcement stage. This decision reinforces the pro-arbitration stance of Indian courts by upholding party autonomy and the finality of arbitral awards.