Commercial contract interest clauses upheld where parties expressly agreed to default consequences and concessional rate withdrawal.

A commercial bill discounting arrangement was treated as governed by its contractual terms, not as a loan attracting the Usurious Loans Act. The agreed interest, monthly rests, and withdrawal of a concessional rate on default were upheld because party autonomy under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 required the tribunal to give effect to the bargain, and the stipulated interest was not penal or contrary to public policy merely because it was high. Clause 4 of the sanction letters was also upheld as clear and bilateral; contra proferentem did not apply, and no separate notice was required before withdrawing the concessional rate.

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Issues: (i) Whether the bill discounting transaction was a commercial arrangement governed by the contractual terms, so as to exclude application of the Usurious Loans Act and the plea that the agreed interest and monthly rests were unenforceable as penalty or as opposed to public policy. (ii) Whether clause 4 of the sanction letters could be construed against the respondent on the principle of contra proferentem, or treated as requiring a separate notice before withdrawal of the concessional rate of interest.

Issue (i): Whether the bill discounting transaction was a commercial arrangement governed by the contractual terms, so as to exclude application of the Usurious Loans Act and the plea that the agreed interest and monthly rests were unenforceable as penalty or as opposed to public policy.

Analysis: The facility was held to be a commercial bill discounting arrangement and not a loan or debt transaction. The contractual documents expressly provided for joint and several liability, withdrawal of the concessional rate on default, and payment of the normal rate with monthly rests thereafter. On the construction of Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, party autonomy controls the tribunal's discretion where the parties have otherwise agreed on interest. The agreed interest was therefore not open to challenge as unconscionable, excessive, or contrary to public policy merely because the default rate was high. The Court also treated compounding in a commercial contract of this kind as permissible and not penal, especially where the borrower had voluntarily entered the arrangement and derived benefit from it.

Conclusion: The issue was decided against the appellant and in favour of the respondent; the contractual interest stipulation was held enforceable.

Issue (ii): Whether clause 4 of the sanction letters could be construed against the respondent on the principle of contra proferentem, or treated as requiring a separate notice before withdrawal of the concessional rate of interest.

Analysis: The clause was found to be clear and bilateral, forming part of a negotiated commercial contract between parties of comparable bargaining strength. The contra proferentem rule was held to be inapplicable because it operates only where ambiguity exists and is especially confined to standard form or unequal-bargaining situations. The contention that a separate notice was required before the concessional rate could be withdrawn was also rejected, since no such plea had been consistently raised earlier and, in any event, the contractual text itself specified the consequence of delay or default. The Court further held that a party that has knowingly accepted the contractual benefit cannot later avoid the agreed consequences by alleging unfairness.

Conclusion: The issue was decided against the appellant and in favour of the respondent; clause 4 was upheld as written.

Final Conclusion: The appeals failed because the award and the concurrent High Court orders were sustained on the basis that the parties' commercial bargain governed the interest stipulation and related consequences of default.

Ratio Decidendi: Where sophisticated parties to a commercial contract have expressly agreed to the rate and consequences of default interest, the arbitral tribunal is bound by that agreement under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, and the stipulated interest cannot be struck down as penal or unconscionable merely because it is high.

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