Supreme Court Rules Against Compound Interest in HLV Limited vs PBSAMP Projects Pvt. Ltd.

Background of the Dispute

The case arose out of a Memorandum of Understanding (MoU) dated 09.04.2014 between HLV Limited (formerly Hotel Leelaventure Pvt. Ltd.) and PBSAMP Projects Pvt. Ltd.. The agreement related to the sale of land at Banjara Hills, Hyderabad, where PBSAMP paid ₹15.5 crore as advance.

When disputes emerged, the MoU was terminated, and arbitration proceedings began.

The Arbitral Award (2019)

On 08.09.2019, the arbitral tribunal directed HLV Limited to:

  • Refund ₹15.5 crore with 21% simple interest per annum from the date of advance until repayment.

  • Reject the counterclaim by HLV Limited.

This award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, but the Special Court dismissed the challenge in 2021, making the award final.

Execution and Dispute Over Interest

PBSAMP initiated execution proceedings (CEP No. 05 of 2021). HLV Limited paid ₹44.42 crore by July 2023, claiming full compliance.

PBSAMP, however, argued that they were entitled to compound interest/post-award interest under Section 31(7)(b) of the Arbitration Act, estimating dues at ₹57.74 crore, leaving an alleged shortfall of over ₹13 crore.

Executing Court’s Ruling

On 02.11.2023, the executing court held:

  • The arbitral tribunal awarded only simple interest at 21% until repayment.

  • There was no award of compound or post-award interest.

  • Payments made by HLV Limited satisfied the award in full.

Thus, the execution case was closed.

High Court Intervention

PBSAMP challenged this before the Telangana High Court, which on 22.04.2024:

  • Termed the executing court’s reasoning as “cryptic.”

  • Set aside the order and remanded the matter for reconsideration of the interest claim.

Supreme Court’s Analysis

HLV Limited appealed to the Supreme Court. The key question was:

“Whether the decree holder is entitled to interest upon interest under Section 31(7)(b) of the Arbitration Act?”

The Supreme Court, relying on precedents like S.L. Arora (2010), Hyder Consulting (2015), Delhi Airport Metro Express (2022), Morgan Securities (2023), and S.A. Builders (2025), clarified:

  • Section 31(7)(a) gives discretion to tribunals to award pre-award interest, subject to party agreement.

  • Section 31(7)(b) applies only when the award is silent; here, the tribunal had expressly fixed 21% simple interest until repayment.

  • The MoU did not provide for compound interest, and the tribunal did not award it.

  • Seeking compound interest at the execution stage would amount to rewriting the award, which is impermissible.

Final Verdict

On 24.09.2025, the Supreme Court:

  • Set aside the High Court order.

  • Restored the executing court’s decision (02.11.2023).

  • Declared that PBSAMP Projects Pvt. Ltd. was not entitled to compound or post-award interest.

  • Allowed the appeal by HLV Limited with no order as to costs.

Key Takeaways

  1. Party Autonomy is Supreme – Where contracts specify interest terms, tribunals and courts must respect them.

  2. No Automatic Compound Interest – Section 31(7) does not authorize “interest on interest” unless expressly provided in the contract or award.

  3. Execution Courts Cannot Modify Awards – They must enforce awards as written, not expand or reinterpret them.

Conclusion

The Supreme Court has reinforced that arbitral awards must be enforced strictly in line with the terms agreed by parties and the directions of the tribunal. This judgment strengthens finality of awards and limits post-award litigations over interest, ensuring predictability in commercial dispute resolution.


Location: Pune, Maharashtra, India

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