Party Autonomy Trumps Statutory Post‑Award Interest: No Compound or Additional Interest Where Award Grants Contractual Interest “Till Repayment” under Section 31(7)

Introduction

This decision addresses a recurring friction point in arbitral enforcement: whether a decree holder can, at the execution stage, claim compound or additional post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, when the arbitral award already grants interest at a specified contractual rate until repayment. The Supreme Court has answered in the negative, reinforcing that party autonomy under Section 31(7)(a) governs the pre-award and pendente lite interest regime and, where an award expressly stipulates a complete interest framework “till repayment,” there is no scope to engraft further statutory post-award interest or compounding.

The dispute arises from a Memorandum of Understanding (MoU) dated 9 April 2014 for sale of land at Banjara Hills, Hyderabad. PBSAMP (purchaser) paid Rs. 15.5 crores as advance to HLV (vendor). Upon termination, PBSAMP sought refund with interest. The arbitral tribunal awarded the principal with 21% per annum interest “from the date it was given to the date it is repaid,” aligned with the MoU. In execution, PBSAMP sought compound interest and a larger sum than HLV’s payments. The executing court rejected the claim; the High Court remanded. The Supreme Court set aside the remand and restored the executing court’s order, laying down a clear rule on the interplay of Section 31(7) and party autonomy.

Summary of the Judgment

• The arbitral tribunal awarded Rs. 15.5 crores with simple interest at 21% per annum from the date of disbursement to the date of repayment, conforming to Clause 6(b) of the MoU.
• Section 31(7)(a) permits the tribunal to include pre-award (including pendente lite) interest in the “sum” awarded, subject to party agreement; Section 31(7)(b) provides default post-award interest of 18% “unless the award otherwise directs.”
• Where the award expressly sets the interest rate and duration up to “actual repayment,” there is no residual room for additional post-award interest under Section 31(7)(b), nor for compound interest, absent contractual provision or a clear award direction to that effect.
• Hyder Consulting (2015) permits post-award interest on the “sum” (which may include pre-award interest) only where the award is silent or does not otherwise direct; it does not authorise compounding at execution when the award provides a complete regime till payment.
• Morgan Securities (2023) clarifies that arbitrators have discretion to fashion post-award interest (including on part of the sum), but the phrase “unless the award otherwise directs” in Section 31(7)(b) empowers the tribunal to modulate post-award interest. Here, the tribunal already directed interest till repayment under the contract.
• Execution courts cannot rewrite or enlarge an award to add compound interest or additional post-award interest. HLV’s payments (Rs. 44,42,05,254 up to 31.07.2023) satisfied the award as rendered; the High Court’s remand was erroneous.

Factual Background and Procedural History

• MoU and advance: HLV (vendor) and PBSAMP (purchaser) executed an MoU dated 9 April 2014 for sale of approx. 3 acres 28 guntas at Banjara Hills. PBSAMP paid Rs. 15.5 crores as advance.
• Contractual interest term (Clause 6(b)): If the purchaser terminates, the vendor must refund advances “together with 21% interest per annum from the respective dates of disbursement … till actual date of payment.”
• Arbitration: Following termination, a three-member tribunal (Presiding Arbitrator: Justice Arijit Pasayat) awarded on 8 September 2019: refund of Rs. 15.5 crores with 21% p.a. simple interest “from the date it was given to the date it is repaid”; immediate payment direction for Rs. 10 crores (admitted liability) with interest; balance Rs. 5.5 crores with interest as stipulated; counterclaim rejected.
• Section 34 challenge: Dismissed on 19 March 2021; the award attained finality.
• Execution: HLV paid Rs. 44,42,05,254 between 22.07.2022 and 31.07.2023, asserting full satisfaction. PBSAMP sought more, claiming compound/post-award interest on “sum” under Section 31(7).
• Executing court (02.11.2023): Rejected compound interest claim; held payments satisfied the award; closed execution.
• High Court (22.04.2024): Set aside as “cryptic”; remanded to reconsider interest under the award.
• Supreme Court (24.09.2025): Allowed appeal; set aside remand; restored executing court’s order.

Analysis

1) Statutory Framework: Section 31(7) of the Arbitration and Conciliation Act, 1996

At the relevant time, Section 31(7) provided:

The Court reiterates the dual architecture:

• Clause (a): party autonomy first. Tribunal’s discretion to grant pre-award (and pendente lite) interest is expressly subordinated to the parties’ agreement. If parties have agreed an interest regime, the tribunal must follow it.
• Clause (b): award primacy for post-award interest. Default post-award interest at 18% applies only if the award does not otherwise direct. Where the award has already directed interest—including scope, rate, or duration—the award governs.

2) The Contractual Interest Regime (MoU Clause 6(b)) and the Award

Clause 6(b) required HLV to refund the advances “together with 21% interest per annum from the respective dates of disbursement of the advances till actual date of payment.” The tribunal faithfully adopted this clause, awarding:

The Court treats this as a comprehensive interest direction covering pre-reference, pendente lite, and post-award periods—until actual repayment—at a simple rate of 21% p.a. As such, there is no “residual” post-award interest left to be supplied by Section 31(7)(b)’s default mechanism, nor any basis to superadd compounding.

3) Precedents and Their Influence

a) State of Haryana v. S.L. Arora (2010) 3 SCC 690

S.L. Arora read Section 31(7) as contemplating only simple interest and disallowed interest upon interest absent contractual provision. While its narrow reading was departed from by a later three-judge bench in Hyder Consulting, its core caution—that compounding needs contractual or award support—remains instructive in execution contexts.

b) Hyder Consulting (UK) Ltd. v. State of Orissa (2015) 2 SCC 189

• Ratio: The “sum” in Section 31(7) can include the principal plus pre-award interest; post-award interest may be granted on that “sum.” This effectively permits “interest on interest” for the post-award period, but not “compounding” in the mathematical sense unless so directed.
• Relevance here: The Supreme Court confines Hyder’s effect to cases where the award is silent or leaves post-award interest unqualified. Where the tribunal has already imposed a complete, contract-conforming interest regime “till repayment,” Hyder does not justify adding further layers of interest at execution.

c) Delhi Airport Metro Express Pvt. Ltd. v. DMRC (2022) 9 SCC 286

• Emphasises the opening words “unless otherwise agreed by the parties” in Section 31(7)(a): party agreement eliminates tribunal discretion on pre-award interest.
• Affirms that once parties have stipulated interest, that bargain governs; the tribunal may not override it.

d) Morgan Securities and Credits Pvt. Ltd. v. Videocon Industries Ltd. (2023) 1 SCC 602

• Clarifies arbitrator’s discretion under Section 31(7)(b) to award post-award interest on the whole or part of the “sum,” and that “unless the award otherwise directs” qualifies the post-award interest regime set by the tribunal.
• Critical point applied here: when an award clearly specifies the method, rate, and duration of interest—including post-award period—Hyder’s default logic is displaced; courts should not add further interest.

e) North Delhi Municipal Corporation v. S.A. Builders Ltd. (2025) 7 SCC 132

Reiterates the reading of Section 31(7) as a two-part scheme, aligning with Hyder Consulting on the notion of “sum” and confirming that party autonomy under clause (a) is paramount. In the present judgment, the Court treats S.A. Builders as a continuum with Delhi Airport Metro and Morgan Securities.

4) The Court’s Legal Reasoning Applied to the Facts

• Party Autonomy Controls: Clause 6(b) fixes 21% p.a. simple interest until actual repayment. Under Section 31(7)(a), this agreement binds the tribunal; the tribunal complied.
• No Residual Space for Section 31(7)(b): As the award directed interest until repayment, there is no scope to impose the statutory default 18% post-award interest. The award has “otherwise directed,” displacing the default.
• Hyder Consulting Limited to Silence: Hyder’s allowance for post-award interest on the “sum” is engaged when the award is silent or unqualified on post-award interest. It cannot be used to graft compound interest or additional post-award interest where the award already fixes a complete regime.
• No Compounding Absent Clear Provision: Neither Clause 6(b) nor the award stipulates compounding. Therefore, “interest upon interest” via periodic capitalisation is impermissible at execution. This maintains the principle that execution cannot rewrite an award.
• Execution Constrained by Award: The executing court correctly refused to go beyond the award. The High Court’s remand—on the premise of a “cryptic” order—was set aside because the executing court’s reasoning and calculations were grounded in the award and statute.
• Satisfaction of Award: HLV’s aggregate payment of Rs. 44,42,05,254 by 31.07.2023 satisfied the award as rendered (principal plus 21% p.a. simple interest till payment). PBSAMP’s additional claim of approx. Rs. 13 crores rested on an impermissible compounding/post-award interest theory.

5) Impact and Future Significance

On drafting arbitration clauses and contracts:

• Parties should be precise about interest: rate, period (pre-award, pendente lite, post-award), and whether compounding is intended. Silent or vague clauses may invite statutory defaults; explicit “till repayment” directions foreclose them.
• Include or exclude compounding expressly. Absent explicit terms, courts will not infer it.

On arbitral awards:

• Tribunals should clearly state the interest regime across periods and whether the post-award period is included in “till payment” formulations. Precision reduces enforcement disputes.
• If tribunals intend to award post-award interest on only part of the “sum,” Morgan Securities permits such tailoring—this should be made explicit.

On enforcement practice:

• Decree holders cannot, at execution, seek to alter the award by claiming compound interest or a different post-award regime when the award already directs interest until repayment.
• Executing courts must resist attempts to reopen interest computations inconsistent with the award; their remit is to enforce, not modify.

On calculation methodology and financial exposure:

• Simple interest “till repayment” means a linear accrual on principal until the actual payment date; payment schedules should reflect running interest without capitalisation.
• The decision curbs the inflation of decrees through compounding claims absent contractual/award mandate, aiding predictability for commercial parties.

Complex Concepts Simplified

• Pre-award interest: Interest from the cause of action (or agreed start) up to the date of the award. Under Section 31(7)(a), the tribunal may include this in the “sum,” subject to party agreement.
• Pendente lite interest: Interest accruing during the arbitration proceedings; treated as part of “pre-award” for Section 31(7)(a).
• Post-award interest: Interest from the date of the award until payment. Section 31(7)(b) provides a default 18% p.a. unless the award directs otherwise.
• “Sum” under Section 31(7): The amount awarded for payment, which may include principal plus pre-award interest. Post-award interest may run on this “sum,” as held in Hyder Consulting, if the award so provides or is silent.
• Simple vs. compound interest: Simple interest accrues only on principal. Compound interest (interest upon interest) capitalises accrued interest periodically. Courts will not impose compounding unless the contract or award clearly stipulates it.
• Party autonomy: A central arbitration principle. Where parties agree terms (e.g., interest rate/duration), the tribunal must follow; statutory discretion yields to the contract.
• Execution cannot go beyond the award: Enforcement courts implement the award as is; they cannot modify its substance (including interest terms) at the execution stage.

Conclusion

This judgment crystallises an important boundary in arbitral interest jurisprudence. It confirms that:

• Party autonomy under Section 31(7)(a) is paramount: a contractual interest clause—here, 21% p.a. simple “till actual repayment”—binds the tribunal and, when reflected in the award, governs enforcement.
• Section 31(7)(b)’s default post-award interest is a gap-filler; it does not operate where the award “otherwise directs,” including by setting a comprehensive “till payment” interest regime.
• Hyder Consulting does not authorise courts to graft compound or additional post-award interest when the award already addresses interest comprehensively; its enabling of post-award interest on the “sum” applies when the award is silent or unqualified.
• Execution cannot be a forum for reengineering the interest structure of an award. Attempts to add compounding or escalate the post-award rate contrary to the award fail.

By restoring the executing court’s order and rejecting a compounding claim, the Supreme Court strengthens predictability in arbitral enforcement and reaffirms that clear contractual bargains about interest—faithfully applied by the tribunal—control the outcome. For practitioners, the message is twofold: draft interest clauses with precision, and expect courts to enforce awards as written, without embellishment.