The Supreme Court has held that where parties have expressly agreed to a contractual rate of interest in a commercial bill-discounting arrangement, the arbitral tribunal is bound by such stipulation under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, and the award cannot be interfered with on the ground that the agreed interest is excessive, unconscionable, or contrary to public policy.
The Bench emphasized that a bill-discounting transaction is not a “loan” within the meaning of the Usurious Loans Act, 1918, and therefore the statutory controls on excessive interest under that legislation have no application. “When parties of equal commercial standing consciously enter into a contract providing for 36% interest with monthly rests, the Court cannot rewrite the bargain or dilute the contractual rate under the guise of fairness or equity,” the Court observed, particularly noting that the appellant enjoyed the benefits of the arrangement for years without objection.
Reiterating the limited scope of judicial interference with arbitral awards under Sections 34 and 37 of the Arbitration Act, the Court held that concurrent findings of the Arbitrator, the Single Judge, and the Division Bench—upholding joint and several liability of the parties, acknowledgment of debt, and absence of limitation bar—did not warrant reappreciation in an appeal under Article 136.
Upholding the imposition of 36% pre-award interest and 10% post-award interest, the bench led by Justice J.B. Pardiwala observed that the arbitral tribunal had merely enforced the express terms of the sanction letters governing the bill-discounting facility. “The charging of a higher rate of interest in a purely commercial transaction, based on mutual agreement, cannot be branded as immoral or opposed to public policy,” the Court noted, rejecting the appellant’s plea that the stipulation amounted to penal interest.
The Court also approved the High Court’s finding that part-payments and acknowledgment of liability extended limitation, and that the failure of the lender to present certain post-dated cheques did not absolve the drawee from liability under the contract.
Finding no patent illegality or perversity in the arbitral award or in the High Court’s concurrent affirmations, the Supreme Court dismissed the appeals.
Case Title: BPL Limited v. Morgan Securities and Credits Private Limited
Citation: 2025 INSC 1380