TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1329
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.....P. No. 137 of 2015 preferred by the appellants under Section 34 of the Act, 1996, seeking to challenge the arbitral award. A. FACTUAL MATRIX 3. Appellant no. 1, viz., M/s Sri Lakshmi Hotels Pvt. Limited, is a Private Limited company registered under the Companies Act, 1956. Appellant no. 2 viz., V.S. Palanivel is the Managing Director of appellant no. 1. Respondent no. 1 viz., Sriram City Union Finance Ltd. is a Non-Banking Financial Company (for short, "the NBFC"). Respondent no. 2 viz., Mr. K. Balasubramanian is a retired District Judge who was appointed as the arbitrator and who had passed the arbitral award. 4. Appellant no. 1 through appellant no. 2 had availed a loan facility amounting to INR 1,50,00,000/- (Rupees One Crore and Fifty Lakh) from respondent no. 1 vide a loan agreement dated 03.04.2006 ("First Agreement"). Additionally, appellant No. 2 had also obtained one another loan facility from respondent no. 1 amounting to INR 7,25,000/- (Rupees Seven Lakhs Twenty-Five Thousand) vide a loan agreement dated 03.07.2006 ("Second Agreement"). Thus, in total an amount of INR 1,57,25,000 (Rupees One Crore Fifty-Seven Lakhs and Twenty-Five Thousand) was borrowed by the....
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....red and Forty-Four) along with interest at the rate of 24% p.a. The appellants filed their respective statement of defense on 22.08.2009 inter alia disputing the rate of interest as usurious. However, there was no challenge as to the factum of the loan. 10. During the pendency of the arbitration proceedings, the appellants challenged the validity of the loan agreements before the respondent no. 2 by way of filing an application being I.A. No. 1 of 2012 inter alia, seeking a direction from respondent no. 2 for expert verification of the handwritings and signatures on the loan agreements. However, the said application was rejected by respondent no. 2, and the appellants never challenged the said rejection order. Accordingly, the said decision of rejection attained finality. 11. After cogitating the pleadings and submissions of both the parties, the respondent no. 2 passed an Award dated 27.12.2014, wherein, while partly allowing the claim of the respondent no. 1, the appellants were directed to pay a sum of INR. 2,21,08,244/- (Rupees Two Crore Twenty One Lakh Eight Thousand Two Hundred and Forty Four) with interest at the rate of 24% p.a. from the date of filing of the statemen....
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....BEHALF OF THE APPELLANTS 17. Ms. Nina Nariman, the learned counsel appearing for the appellant no. 2 vehemently submitted that the interest component of 24% in the loan agreement could be termed as unconscionable and usurious. She would submit that the Reserve Bank of India guidelines have repeatedly stressed the need for banks and financial institutions to keep the customers' welfare in mind and not charge excessively high or usurious interest rates. The interest rate of 24% in fact violates these binding guidelines. 18. She relied upon the guidelines on fair practices "for lenders" dated 05.05.2023 to make good her submission as regards unconscionable rates of interest. The learned counsel further submitted that this Court in two of its decisions (i) Central Bank of India v. Ravindra and Others reported in (2002) 1 SCC 367 and (ii) Sardar Associates v. Punjab and Sindh Bank reported in (2009) 8 SCC 257 respectively, has said in so many words that the RBI guidelines are binding in nature. 19. She further submitted that Section 3 of the Usurious Loans Act, 1918 allows the court to determine what constitutes excessive interest and relieve the debtor of its liability in case....
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.... of the loan" was "to clear bank loan (bridge loan)". 26. He also drew our attention to the letters addressed by the appellant no. 1 company to the respondent dated 28.03.2006 and 03.07.2006 respectively. He would submit that the two letters would clearly indicate that the loans were sought to settle a pre-existing debt owed by the appellant company to the Indian Bank on which it had defaulted. In such circumstances, according to the learned counsel, the loans sanctioned by the respondent could be said to be a high-risk transaction entered into with a defaulting borrower necessitating a higher security and a higher rate of interest. 27. The learned counsel further submitted that the contention raised on behalf of the appellants that the interest rate of 24% awarded by the learned arbitrator was usurious under the applicable State Usurious Statute, namely, the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003, has no merit worth the name. In this regard, the learned counsel relied upon the decision of this Court in Nedumpilli Finance Company Limited v. State of Kerala reported in (2022) 7 SCC 394 wherein this court is said to have held that the State's statute g....
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....Form and contents of arbitral award - * * * * * (7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum from the date of award to the date of payment." 34. The plain reading of sub-section (7) would make it clear that it is in two parts, the first part i.e., clause (a) deals with passing of an award which would include interest upto the date on which the award is made, while the second part, i.e., clause (b) deals with the grant of interest on the sum awarded by the arbitral tribunal. 35. In the present litigation, we are more concerned with the interpretation of clause (b), which deals with the post-award interest. What clause (b) provides for is that t....
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....ourt allowed the revision against the said order and set aside the District Court's order while holding that the contract between the parties did not permit the grant of post-award interest. While allowing the appeal, this Court held that the sum directed to be paid under the arbitral award must carry interest. While taking note of the decision of this Court in Morgan Securities & Credits Pvt Ltd. v. Videocon Industries Ltd. reported in 2022 INSC 898, this Court held as under: "11. So far as the entitlement of the post-award Interest is concerned, sub-Section (b) of Section 31(7) provides that the sum directed to be paid by the Arbitral Tribunal shall carry interest. The rate of interest can be provided by the Arbitrator and in default the statutory prescription will apply. Clause (b) of Section 31(7} is therefore in contrast with clause (a) and is not subject to party autonomy. In other words, clause (b) does not give the parties the right to "contract out" interest for the post-award period. The expression 'unless the award otherwise directs' in Section 31(7)(b) relates to rate of interest and not entitlement of interest. The only distinction made by Section 31(7....
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....t-award interest, in which event the award holder is entitled to a post-award interest of eighteen per cent."" (Emphasis supplied) 39. In view of the aforesaid, the interpretation of clause (b) of Section 31(7) of the Act, 1996 is no more res integra. The grant of post-award interest under Section 31(7)(b) is mandatory. The only discretion which the arbitral tribunal has is to decide the rate of interest to be awarded. Where the arbitrator does not fix any rate of interest, then the statutory rate, as provided in Section 31(7)(b), shall apply. In the present case the two agreements itself provided the rate of interest to be 24% p.a. (See: Union of India and Anr. v. Sudhir Tyagi : 2025 DHC 2621) 40. In the case of North Delhi Municipal Corpn. v. S.A. Builders Ltd., reported in (2025) 7 SCC 132, this Court has held as thus:- "39. Generally, going by the provisions contained in Section 31(7) of the 1996 Act, it is evident that an Arbitral Tribunal has the power to grant: (i) pre-award, (ii) pendente lite, and (iii) post-award interest. Intention behind awarding pre-award interest is primarily to compensate the claimant for the pecu....
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....tion and authority to award interest for all the three periods-pre-reference, pendente lite and future (vide decisions of the Constitution Bench in Irrigation Deptt., Govt. of Orissa v. G.C. Roy [(1992) 1 SCC 508], Dhenkanal Minor Irrigation Division v. N.C. Budharaj [(2001) 2 SCC 721] and the subsequent decision in Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd.[(2005) 6 SCC 462]). In the present case as there was no express bar in the contract in regard to interest, the arbitrator could award interest." (Emphasis supplied) 43. However, on the point of awarding interest, Section 31(7)(a) of the Act, 1996 stipulates that the arbitrator's discretion while awarding pre-award interest is subject to the agreement between the parties. In the case of HLV Limited (Formerly Known as Hotel Leelaventure Pvt. Ltd.) v. PBSAMP Projects Pvt. Ltd reported in 2025 INSC 1148, this Court inter alia held that: "25.3. From the above, the view of the court is clearly discernible in that the discretion to grant interest would be available to the arbitral tribunal under clause (a) of sub-section (7) of Section 31 only when there is no agreement to the contrary between the parties. Whe....
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.... the courts below have concurrently held after a detailed analysis of the evidence as regards the genuineness of the loan agreement, thereby affirming the rate of interest at 24% p.a. To take a view contrary would amount to re-appreciation of evidence, which is prohibited under the scheme of the Act, 1996. The proviso to Section 34(2A) of the Act, 1996 explicitly prohibits re-appreciation of evidence. The said provision is reproduced herein below: "Section 34 Application for setting aside arbitral awards.- xxx xxx xxx (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence." (Emphasis supplied) 46. The aforesaid statutory bar has been consistently upheld by this Court in Swan Gold Mining Ltd. v. Hindustan Copper Ltd., reported in (2015) 5 SCC 739, P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd....
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....ase of a purely commercial transaction is morally wrong entails a complex web of issues that would be contingent upon a variety of factors and perspectives. Although at first glance, the charging of interest at the rate of 24% could be considered as exploitative, unfair and morally blameworthy, high interest rates reflect the lenders risk of default due to highly competitive and uncertain market conditions, besides the fact that high interest rates might discourage borrowers from taking unnecessary risks. In the commercial world, justifiability or reasonability of high interest rates would depend on the transparency of the terms and conditions of the contract entered into between the lender and the borrower, as well as the informed consent of the borrower. Ultimately, morality is inherently dependent on context, shaped by a complex interplay of cultural norms, as well as individual values. The moral implications of high interest rates are not absolute, rather they must be assessed through a nuanced lens that considers the inter-relationship between economic, social, and regulatory factors. 50. The expression "public policy in the context of challenge to an arbitral award has com....
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....t. It was observed as under: "92.... What is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and, similarly, where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy." (Emphasis supplied) 52. This Court in OPG Power Generation Private Limited (supra) further held as under: "34. In Renusagar Power Co. Ltd. v. General Electric Co. a three-Judge Bench of the Supreme Court observed that the doctrine of public policy is somewhat open-textured and flexible. By citing earlier decisions, it was observed that there are two conflicting positions, which are referred to as the "narrow view" and the "broad view". According to the narrow view, courts cannot create new heads of public policy whereas the broad view countenances judicial law making in these....
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....of Indian law, including a law meant to serve public interest or public good. xxx xxx xxx 52.The legal position which emerges from the aforesaid discussion is that after the '2015 amendments' in Section 34 (2)(b)(ii) and Section 48(2)(b) of the 1996 Act, the phrase "in conflict with the public policy of India" must be accorded a restricted meaning in terms of Explanation 1. The expression "in contravention with the fundamental policy of Indian law" by use of the word 'fundamental' before the phrase 'policy of Indian law' makes the expression narrower in its application than the phrase "in contravention with the policy of India law", which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in ....