Tacit Consent Can Sustain a Contractual Arbitral Mandate, but Section 33 Cannot Convert Simple Interest into Compound Interest

1. Introduction

In GUJARAT WATER SUPPLY AND SEWERAGE BOARD v. SARYU PLASTICS PVT. LTD., 2026 INSC 552, the Supreme Court of India examined important questions concerning arbitral mandate, waiver by conduct, natural justice in arbitral proceedings, and the limited scope of correction under Section 33 of the Arbitration and Conciliation Act, 1996.

The dispute arose from rate contracts awarded by the Gujarat Water Supply and Sewerage Board to Saryu Plastics Pvt. Ltd. for supply of PVC pipes between 1998 and 2002. After an audit alleged excess payments and the Board blacklisted the Company, the parties entered into an arbitration agreement in 2012. The agreement fixed a six-month period for completion of arbitration, but the proceedings continued for more than three years.

The Arbitrator eventually passed an award dated 27.10.2015, partly allowing the Company’s claims and awarding approximately Rs.1.01 crores with interest. Later, the Commercial Court modified the award by substituting “simple interest” with “compound interest” for the pendente lite period, increasing the Board’s liability dramatically. The Supreme Court was therefore called upon to determine whether the award itself was valid and whether such modification was legally permissible.

2. Summary of the Judgment

The Supreme Court partly allowed the appeals. It upheld the validity of the arbitral award but set aside the Commercial Court’s modification of interest.

  • The Court held that the Arbitrator’s mandate validly subsisted when the award was passed because the Board had tacitly consented to the continuation of proceedings and had not objected at the relevant time.
  • The Court rejected the Board’s contention that the award was dispatched after its objection dated 28.10.2015. It accepted that the award had been dispatched on 27.10.2015.
  • The Court held that the arbitral proceedings complied with principles of natural justice, since the Board had been given repeated opportunities but failed to effectively participate.
  • However, the Court held that the Commercial Court had no jurisdiction under Section 33 of the Act, or in review, to substitute “simple interest” with “compound interest” for the pendente lite period.

Accordingly, the Supreme Court restored the award to the extent that the Company was entitled only to simple interest at 21.675% for the pendente lite period, while compound interest remained applicable only from the date of the award till realisation as originally awarded.

3. Analysis

A. Precedents Cited

Bharat Oman Refineries Limited v. M/s. Mantech Consultants

This decision was cited by the Board in support of its challenge to the award on the ground that the Arbitrator had acted after expiry of mandate. The Supreme Court, however, did not treat this authority as controlling on the facts. The core distinction was that in the present case the Board had continued to participate in the proceedings and had not raised a timely objection to the Arbitrator’s continued authority.

NBCC Limited v. J.G. Engineering Pvt. Ltd.

The Board relied on this case to contend that once a contractually fixed arbitral mandate expires, an award rendered thereafter is vulnerable. The Supreme Court’s reasoning shows that such a proposition cannot be applied mechanically. Where the timeline is contractual and not statutory, and the party participates or remains silent despite knowledge of extensions, the objection may be lost by acquiescence.

Jayesh H. Pandya and Anr. v. Subhtex India Limited and Ors.

This case was also relied upon in relation to mandate and jurisdiction. The Supreme Court’s approach in the present case clarifies that objections to arbitral mandate must be timely and clear. A party cannot wait until after the award and then rely on an alleged expiry of mandate if its own conduct indicated acceptance of the proceedings.

Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

This precedent was relevant to the limits of judicial interference with arbitral awards. The Supreme Court’s final conclusion is consistent with the principle that courts cannot rewrite or materially alter arbitral awards under the guise of correction, review, or limited statutory supervision.

Bharat Udyog Ltd. v. Ambernath Municipal Council through Commissioner and Anr.

The Supreme Court expressly distinguished this case. In Bharat Udyog Ltd. v. Ambernath Municipal Council through Commissioner and Anr., the issue concerned absence of a valid arbitration agreement and therefore a statutory/jurisdictional defect. The Court held that there can be no estoppel against statute. In the present case, however, the defect alleged by the Board arose from a contractual timeline, not from absence of jurisdiction under the statute. Therefore, waiver, acquiescence, and estoppel could apply.

C. Velusamy v. K Indhera

This case was cited for the context of Section 29A of the Arbitration and Conciliation Act, 1996, which introduced statutory timelines for arbitral awards. The Court held that Section 29A did not apply to the present proceedings. This was significant because, at the relevant time, there was no statutory requirement prescribing a particular form for extension of mandate.

State of Arunachal Pradesh v. Damani Construction Co.

This authority was central to the Court’s reasoning on Section 33. It establishes that Section 33 does not permit review of an arbitral award. It allows only correction of computational, clerical, or typographical mistakes. The Supreme Court relied on this principle to hold that changing simple interest into compound interest was beyond the permissible scope of correction.

Gyan Prakash Arya v. Titan Industries Ltd.

This case reaffirmed that Section 33 cannot be used to make material changes to an award. The Supreme Court applied this principle directly, holding that altering the nature of interest from simple to compound was a substantive modification, not a clerical correction.

B. Legal Reasoning

i. Arbitral Mandate and Tacit Consent

The arbitration agreement originally provided a six-month mandate. Although the Arbitrator later extended the mandate on several occasions, the Board did not object contemporaneously. Even when a hearing was fixed on 15.10.2015, the Board merely stated that it could not attend due to pre-engagements. It did not say that the Arbitrator’s mandate had expired.

The Court treated this silence and conduct as tacit consent. Since the alleged defect arose from the contract and not from a statutory prohibition, the Board was held estopped from challenging the award after participating in the proceedings and allowing the Arbitrator to continue.

ii. Dispatch of the Award

The Board argued that the Arbitrator dispatched the award only after receiving the Board’s email dated 28.10.2015 objecting to continuation of the mandate. The Supreme Court rejected this argument. It accepted the courier receipt showing dispatch on 27.10.2015. The tracking report only showed delivery on 30.10.2015, not dispatch. Therefore, the Board’s objection came too late.

iii. Natural Justice

The Court held that natural justice requires reasonable opportunity, not endless indulgence. The Board had repeatedly failed to file point-wise replies, attend hearings, and provide documents. The Arbitrator had granted several extensions largely because of the Board’s conduct.

When the Board failed to attend the hearing fixed at its own request, without seeking adjournment or suggesting another date, the Arbitrator was justified in proceeding to pass the award. A party cannot create delay and then complain that it was denied a hearing.

iv. Section 33 and Impermissible Modification

The most significant part of the judgment concerns Section 33. The original award granted simple interest for the pendente lite period and compound interest only after the award. The Commercial Court later modified this by granting compound interest for the pendente lite period as well.

The Supreme Court held that this was not a correction of a clerical or typographical error. The choice between simple and compound interest is a substantive determination affecting rights and liabilities. Indeed, the modification increased the Board’s liability from approximately Rs.30.38 crores to Rs.144.93 crores. Such a drastic alteration could not be made under Section 33 or in review.

C. Impact of the Judgment

  • Timely objections are essential: A party that believes the arbitrator’s contractual mandate has expired must object immediately and clearly. Silence may amount to acquiescence.
  • Contractual mandate differs from statutory invalidity: Waiver may apply to contractual defects, but not to defects that go to statutory jurisdiction or absence of a valid arbitration agreement.
  • Section 33 remains narrow: Courts and tribunals cannot use Section 33 to alter the substance of an award.
  • Interest awards cannot be rewritten: Changing simple interest to compound interest is a material modification, not a correction.
  • Natural justice is not a shield for delay: A party that repeatedly defaults cannot later complain of denial of opportunity.

4. Complex Concepts Simplified

Arbitral Mandate

The “mandate” of an arbitrator means the authority to act as arbitrator and decide the dispute. If the mandate expires, the arbitrator may lose authority unless it is extended validly.

Tacit Consent

Tacit consent means consent inferred from conduct rather than express words. Here, the Board’s silence and continued participation showed acceptance of the extended proceedings.

Estoppel

Estoppel prevents a party from taking a position contrary to its earlier conduct if the other side acted on that conduct. The Board could not remain silent during arbitration and challenge the mandate only after the award.

Pendente Lite Interest

This means interest for the period during which the legal or arbitral proceedings are pending.

Simple Interest and Compound Interest

Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal plus accumulated interest. This is why substituting compound interest for simple interest caused a huge increase in liability.

Section 33 of the Arbitration and Conciliation Act, 1996

Section 33 allows correction of minor mistakes such as typing errors, clerical errors, or calculation mistakes. It does not allow the tribunal or court to change the substance of the award.

5. Conclusion

The Supreme Court’s judgment establishes a balanced rule. On the one hand, it protects arbitral finality by holding that a party cannot belatedly challenge a contractual mandate after acquiescing in the proceedings. On the other hand, it strictly limits post-award correction powers by holding that Section 33 cannot be used to transform simple interest into compound interest.

The key takeaway is that arbitration parties must act promptly and consistently. Procedural objections must be raised at the proper time, and courts must not alter arbitral awards under the guise of correction. The decision strengthens both efficiency and finality in Indian arbitration law.