Section 31(7) Arbitration Act: SC Says No Extra or Compound Interest Beyond Agreement

The Supreme Court on September 24, 2025, held that when parties have agreed on an interest regime, the arbitrator's role is limited to enforcing that agreement. The bench of Justices Manoj Misra and Ujjal Bhuyan clarified that courts cannot rewrite or enlarge an arbitral award by introducing further interest at the execution stage. 

The bench observed that the discretion to grant interest, available to the arbitral tribunal under Section 31(7)(a) of the Arbitration and Conciliation Act, applies only in the absence of an agreement to the contrary between the parties.

"When the parties agree with regard to any of the aspects covered under the said clause, the arbitral tribunal would cease to have any discretion with regard to the aspects mentioned in the said provision. Only in the absence of such an agreement, the arbitral tribunal would have the discretion to exercise its powers under the said clause," the bench said.

Court was dealing with an appeal filed by HLV Limited (formerly known as Hotel Leelaventure Pvt) against a Telangana High Court judgment of April 20, 2024.

Court noted that the memorandum of understanding (MoU) did not stipulate the compounding of interest, and the arbitral tribunal did not award compound interest. Therefore, the respondent, PBSAMP Projects Pvt Ltd, could not seek to introduce a claim for compound interest at the stage of execution based on general principles. "Allowing such a claim would amount to rewriting the award at the stage of execution which is impermissible," the bench held.

Setting aside the high court's division bench decision, the apex court restored a 2023 order by the executing court.

Court examined whether the decree holder (the respondent) was entitled to interest upon interest in terms of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, or if the interest awarded by the arbitral tribunal in its 2019 award, in terms of the 2014 MoU, satisfied the requirements of Section 31(7)(a) and (b) of the Act.

The MoU was for the sale and transfer of land at Banjara Hills, Hyderabad, measuring approximately 3 acres and 28 guntas. Under the MoU, the respondent had paid Rs. 15.5 crores as an advance to the appellant. Differences arose, and the MoU was terminated in 2024, after which the dispute was referred to arbitration. The arbitral tribunal awarded Rs 15.5 crores to the claimant (the respondent) with interest at 21 per cent per annum from the date it was given until the date of repayment. The award was final as an appeal by the appellant was dismissed.

The respondent then filed an execution petition. During the proceedings, the appellant paid a total of Rs 44,42,05,254 on various dates between 2022 and 2023, which it claimed was in full compliance with the award, including interest. The respondent, however, filed a calculation sheet before the executing court, claiming compound interest on top of the 21 per cent awarded by the arbitral tribunal. The executing court rejected this, holding that the decree holder’s claim for compound interest was not sustainable and that the executing court could not go beyond the arbitral award.

The respondent then approached the high court, which concluded that the executing court had reached its decision "in a cryptic and cavalier manner" and remitted the matter for reconsideration of the interest issue. The Supreme Court, in its examination of the appeal, referred to clause 6(b) of the 2014 MoU, which expressly stipulated that in the event of termination, the appellant must refund all advances with "interest at the rate of 21% per annum from the respective dates of disbursement till repayment".

Court held, "Thus, in the light of the express provision contained in clause (a) of subsection (7) of Section 31, the arbitral tribunal awarded interest in terms of the MoU from the date of the cause of action till the date of repayment. 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 bench found that the arbitral tribunal, in its 2019 award, had "faithfully complied" with the MoU agreed between the parties. "Thus, 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, more so in a case as in the present one where the parties have themselves made provision for interest throughout," the bench observed.

Court thus held that the high court was not justified in setting aside the executing court's order and remanding the matter for fresh determination.

Case Title: HLV Limited Vs PBSAMP Projects Pvt Ltd

Judgment Date: September 24, 2025

Bench: Justices Manoj Misra and Ujjal Bhuyan