Facts
The dispute in HLV Limited (formerly Hotel Leelaventure Pvt. Ltd.) v. PBSAMP Projects Pvt. Ltd. arose from a Memorandum of Understanding (MoU) dated 9 April 2014 for selling a prime land parcel in Banjara Hills, Hyderabad. HLV Limited offered the land for sale, as it had initially planned for a five-star hotel. PBSAMP Projects paid an advance of ₹ 15.5 crores. The MoU stated that if it was terminated, the advance would be paid back with 21% interest per year from the payment date until repayment. Due to differences between the parties, the MoU was terminated on 9 October 2024, and the dispute went to arbitration according to the contract.
The matter was referred before three members of an arbitral tribunal who had awarded PBSAMP Projects a refund of ₹ 15.5 crores with simple interest at 21% p.a. till the date of payment in terms of agreement on collaboration entered into. The parties, however, also specified that the title documents would be put into escrow as security and not delivered without receipt of payment. HLV Limited’s petition under Section 34 of the Arbitration and Conciliation Act against the award was dismissed, thereby making the award final. The HLV Limited has also paid ₹ 44.42 crores on up front basis including interest. PBSAMP Projects, however, sought enhanced compound interest pursuant to Section 31(7)(b) of the Act and contended for post-award interest on the entire amount awarded. The executing court rejected this, but the High Court sent the matter back, resulting in the current Supreme Court appeal. The Supreme Court clarified that no further compound interest could be claimed since the award already specified a combined interest rate until repayment.
Issues
- Whether the decree-holder (PBSAMP Projects) was entitled to interest on interest (compound interest) on the arbitral award according to Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.
- Whether, taking into consideration the specific nature of arbitral award and parties’ contract compound or post-award interest could have been claimed over and above the simple interest which has already been paid by judgment debtor.
- Whether the High Court was justified in law and on facts to direct the sending back of the case for a fresh decision on interest.
Legal Provisions Involved
- Section 31(7) of the Arbitration and Conciliation Act, 1996: Empowers arbitral tribunals to grant interest and provides statutory default rates and periods unless otherwise directed.
- Section 34 of the Arbitration and Conciliation Act, 1996: Provides for setting aside an arbitral award by a court only on limited grounds e.g. fraud, corruption etc which ensures that court does not interfere in the awards passed by arbitrators and ensures finality to arbitration awards.
Arguments
Appellant (HLV Limited):
- The arbitral award allowed only simple interest at 21% per year according to the MoU. There was no mention of post-award or compound interest.
- HLV Limited paid the full awarded amount with interest as directed by the tribunal. This settled its liability. Any request for compound interest by PBSAMP Projects seeks an improper change in the award during execution.
- Section 31(7)(a) and (b) of the Arbitration Act support party autonomy. The tribunal applied the agreed rate and previous judgements prevent courts from adding additional statutory interest when the award specifies terms.
Respondent (PBSAMP Projects Pvt. Ltd.):
- PBSAMP Projects argued that the High Court’s remand only allowed for a review of interest and did not consider the rights of the parties. They contended that they were entitled to have the pre-award interest capitalized. This would permit more post-award compound interest under Section 31(7)(b).
- PBSAMP stated there was an outstanding balance from these calculations, which warranted further action against HLV Limited.
Analysis
The Supreme Court focused on Section 31(7) of the Arbitration and Conciliation Act. It focused on the principle of party autonomy to determine an appropriate rate of interest and a duration in awards. The Court said that it is the rule to award simple interest except as may be implied in law, compilation and otherwise will not be presumed where there is none. In Hyder Consulting UK v. State of Orissa (2015) 2 SCC 189, the Court observed that compound interest may only be awarded if the tribunal decides to include interest on a separate award of damages (it is not something that automatically occurs). Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Ltd., (2024) SCC Online SC 522 also observed that the discretion of a tribunal is circumscribed when the parties contractually agree on certain terms and party autonomy becomes the predominant principle.
The Court referred to Morgan Securities Pvt. Ltd. v. Videocon Industries Ltd. (2022) 5 SCC 431, which determined that post-award interest is only available as stated in the award. If the decree sets a rate for full compensation up to the time of actual payment, no further interest can be allowed. In this case, the MoU with HLV Limited and PBSAMP Projects provide for simple interest at 21% per annum without mentioning about compounding. The arbitral tribunal stuck to this and excluded further statutory interest. The executing court properly refused PBSAMP’s request for compound interest since it would alter the award and undermine the freedom of the parties. Thus, the Supreme Court concluded that efforts to introduce compound interest during the execution phase are not allowed unless clearly stated in the award or contract.
Judgment
The Supreme Court allowed the appeal and overturned the High Court’s order that had sent the case back for a review of compound interest. The Court reinstated the executing court’s decision, which had ended the execution process after HLV Limited fulfilled the arbitral award according to the MoU and the tribunal’s instructions. It stated that claims for extra or compound interest not included in the agreement or award cannot be considered, as this would mean changing the award during the execution phase. No ruling on costs was made.
Conclusion
The Supreme Court’s decision in HLV Limited v. PBSAMP Projects Pvt. Ltd. strongly supports party autonomy in arbitration. It clarifies that courts cannot extend relief beyond what is clearly stated. Under Section 31(7) of the Arbitration and Conciliation Act, there is no compound or post-award interest if the interest regime is expressly provided for in the arbitral award. The change of these awards during their execution is not permitted by the Court, because to do so would be constantly changing its final judgment. It thus strictly constrains judicial interference with the award. It ensures that payment fulfilling the award completely settles the parties’ obligations and prevents any further recalculation of interest during enforcement.
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WRITTEN BY Stuti Vineet
For reading more please click here: HLV Limited (Formerly Known as Hotel Leelaventure Pvt. Ltd.) v. PBSAMP Projects Pvt. Ltd.
