Sri Lakshmi Hotel Pvt. Limited vs. Sriram City Union Finance Ltd.

REPORTABLE
2025 INSC 1327

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 13785 OF 2025
(Arising out of SLP(C) No. 12300 of 2020)

SRI LAKSHMI HOTEL PVT. LIMITED & ANR. ….Appellant(s)

VERSUS

SRIRAM CITY UNION FINANCE LTD. & ANR. ….Respondent(s)


J U D G M E N T

J.B. PARDIWALA, J.

1. Leave granted.
2. This appeal arises from the judgment and order passed by the Division
Bench of the High Court of Judicature at Madras dated 07.01.2020 by
which the original side appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (for short, “ the Act, 1996 ”) filed by the appellants
herein being O.S.A. No. 202 of 2019 came to be dismissed thereby
Signature Not Verified
Digitally signed by
VISHAL ANAND
affirming the order passed by the learned Single Judge dismissing O.P.
Date: 2025.11.18
16:37:55 IST
Reason:
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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 appellants from respondent no.1
5. The salient features of the loan agreements relevant for the adjudication
of the subject in issue are as follows: -
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i. Under the First Agreement, the appellants were to repay the loan
amount within a period of 12 months along with an interest rate of
th
24% p.a. on monthly rest on the 4 of every month commencing from
04.05.2006.
ii. Under the Second Agreement, the appellants were to repay the loan
amount within a period of 6 months along with an interest rate of
th
24% p.a. on monthly rest on the 4 of every month, commencing
from 04.08.2006.

6. The appellants paid an amount of INR 44,66,250/- (Rupees Forty-Four
Lakh Sixty-Six Thousand Two Hundred and Fifty only) till 04.04.2007
and thereafter, stopped making any further payment.
7. In view of the continuing default by the appellants, the respondent no.1
issued several demand notices upon the appellants to regularize their
default. However, no further payments were made. Pertinently, in all
their replies to the demand notices, the appellants never disputed the
principal amount borrowed. Notably in a reply dated 06.09.2007, the
appellants, inter alia, had assured the respondent no.1 that they were on
war footing to repay the outstanding amount. However, even after such
assurance no payment was made. In fact, for the first time, the appellants
vide the letter dated 25.01.2008, objected to the interest rate of 24% p.a.
and contended that only 12% p.a. was payable on the loan amount.
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8. Pertinently, appellant no.2 had issued a cheque in 2008 amounting to INR
1,89,92,538/- (Rupees One Crore Eighty Nine Lakh Ninety-Two
Thousand Five Hundred and Thirty Eight only) towards the full and final
settlement of the loan amount. However, the said cheque was dishonored
due to insufficiency of funds. Consequently, respondent no.1 initiated
proceedings under Section 138 of the Negotiable Instruments Act,1881.
9. Since the appellants failed to repay the complete loan amount, the
respondent no.1 invoked the arbitration clause under the First and Second
loan agreements respectively and accordingly, the respondent no.2 was
appointed as the sole arbitrator in Arbitration Case No. 01 of 2009. The
respondent no.1 filed its Statement of Claim on 26.03.2009 inter alia
claiming an amount of INR 2,21,08,244 (Rupees Two Crore Twenty-One
Lakh Eight Thousand Two Hundred 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
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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 statement of the claim
till the date of its realization (“ Award ”).
12. Being aggrieved by the said Award, the appellants herein challenged the
same by filing a petition under Section 34 of the Act, 1996 before the Ld.
Single Judge of the High Court. However, the same came to be dismissed
by the Ld. Single Judge vide judgment dated 16.11.2017, whereby it was
held that the respondent no.2 had passed the Award after a thorough
appreciation of facts of the matter and the terms of the agreement. Further,
the Ld. Single Judge observed that the ambit of interference under section
34 the Act, 1996 being limited to the conditions mentioned therein, no
interference was warranted. The court further noted that an arbitrator is
the final judge of facts and the findings in the award should not be
interfered merely on the ground that the terms of contract were not
correctly interpreted. Since, the view of the Ld. Single was that none of
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the conditions under Section 34 were made out, the Award passed by the
respondent no.2 was upheld and the petition, was accordingly dismissed.
13. As the appellants failed to pay the decretal amount in terms of the
judgement passed by the Ld. Single Judge, the respondent no.1 filed a
petition under Section 7 of the Insolvency and Bankruptcy Code, 2016
(“ IBC ”) being CP/1140/(IB)/CB/2018 before the National Company Law
Tribunal, Special Bench, Chennai, (“ NCLT ”). The said petition was
admitted by the NCLT vide its order dated 28.02.2019 and an Interim
Resolution Professional (“ IRP ”) was appointed.
14. Since no resolution applicant submitted a resolution plan, the IRP filed an
application under section 33(2) of the IBC, seeking initiation of
liquidation proceedings against the appellant no.1. By an Order dated
17.07.2019 the NCLT allowed the aforesaid application to liquidate the
assets of appellant no.1
15. Being aggrieved by the judgment dated 16.11.2017 passed by the Ld.
Single Judge dismissing the Section 34 petition, the appellants herein
preferred an appeal under Section 37 of the Act, 1996 being O.S.A. No .
202 of 2019. However, the same came to be dismissed by a Division
Bench of the High Court, inter alia affirming the order passed by the Ld.
Single Judge and the respondent no.2 respectively.
16. In such circumstances referred to above, the appellants are here before this
Court with the present appeal.
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B. SUBMISSIONS ON 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 the interest component is beyond
what is reasonable and deemed to be accessible. She brought to our notice
Section 3(b)(i) and Section 3(b)(ii) of the Usurious Loans Act, 1918
respectively.
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20. According to her, the Usurious Loans Act, 1918 applies to all statutes,
which, given the beneficial intent of the legislation, should be read as
including claims in arbitration.
21. The learned counsel further argued that the alleged rate of interest of 24%
was never agreed between the parties, since the appellant no. 2 was made
to sign on blank documents, and doing so the respondent later
manipulated/interpolated the said rate. This according to her amounts to
fraud and fraud vitiates all.
22. In such circumstances referred to above, the learned counsel prayed that
there being merit in her appeal, the same may be allowed accordingly.
C. SUBMISSIONS ON BEHALF OF THE RESPONDENT
23. On the other hand, Mr. Krishnan Venugopal, the learned Senior Counsel
appearing for the respondent, vehemently submitted that no error not to
speak of any error of law could be said to have been committed by the
High Court in passing the impugned judgment and order.
24. He would submit that it is within the discretion of the arbitrator under
Section 31(7)(b) of the Act, 1996 to rely on the rate of interest stipulated
in the loan agreements. He would submit that assuming for the moment,
without admitting, that the arbitrator has failed to exercise his discretion
judiciously, and the interest at the rate of 24% deserves to be reduced
appropriately in view of the expressed provision for post-award interest at
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the default rate of 18% as provided in Section 31(7)(b) of the Act, 1996
(prior to the 2015 Amendment to the Act, 1996), the respondent in fact
could recover much less than it could have even at the mandatory rate of
18% interest.
25. The learned counsel submitted that the respondent initiated arbitration
proceedings under the loan agreements and in accordance with the
provision of the Act, 1996 owing to the appellant no. 1 company’s
persistent and deliberate refusal to repay the loans it availed from the
respondent cumulatively amounting to INR 1,57,25,000. The loan
agreements categorically provided for interest at the rate of 24% p.a. The
learned counsel invited the attention of this Court to clause 15 of the loan
agreement which expressly provided that the “purpose 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.
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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 governing interest rates
will have no application to the NBFCs such as the respondent herein. The
respondent is a NBFC registered under and solely governed by Chapter III
B of the Reserve bank of India Act, 1934.
28. In such circumstances referred to above, the learned counsel prayed that
there being no merit in the appeal the same may be dismissed.
D. ANALYSIS
29. Having heard the learned counsel appearing for the parties and having
gone through the materials on record, the only question that falls for our
consideration is whether the High Court committed any error in
dismissing the Section 37 appeal filed by the appellants herein, thereby
affirming the order passed by the High Court in Section 34 proceedings?
30. It is relevant for us to take into consideration the fact that despite the
award, the respondent has not been in a position to recover the full amount
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irrespective of the fact whether the interest should be calculated at the rate
of 24% or the statutory rate of 18%.
31. In the aforesaid context, we should look into the table set out below as
provided by the learned counsel appearing for the respondent:

32. The arbitral award in this case was passed on 27.12.2014.
33. Section 31 of the Act, 1996 deals with the form and contents of the arbitral
award. Section 31 has 8 Sub-sections. Sub-section (7) is relevant for the
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purpose of deciding the present appeal. Sub-section (7) as it stood at the
relevant point of time read as under:
“ 31. 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 the arbitral tribunal may award interest on the sum
adjudged under clause (a). But if no such interest is awarded, then there
shall be interest at the rate of 18% on the sum awarded by the arbitral
tribunal from the date of the award to the date of payment. The intent
behind granting the pre-award interest is to compensate the claimant for
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the loss suffered from the time the cause of action arose till the passing of
the arbitral award. This is also with a view to ensure that the arbitral
proceedings are concluded expeditiously. Similarly, the intent behind
grant of post-award interest is to discourage the award-debtor from
delaying the payment of the arbitral amount to the award-holder.
36. The law with regard to the power of an Arbitrator to award interest for pre-
reference period, pendent lite period and post-award period is well settled.
Section 31(7)(a) provides that the arbitrator has the power to award
interest at such rate as it deems reasonable, on the whole or on 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.
The grant of such interest during the pre-award period is subject to the
agreement as regard the rate of interest or unpaid sum between the parties.
37. Clause (b) of Section 31(7) of the Act, 1996 confers discretion upon the
Arbitral Tribunal to award interest for the post-award period but that
discretion is not subject to any contract. If such discretion is not exercised
by the Arbitral Tribunal, then the statute steps in and mandates the
payment of interest at the rate specified for the post-award period. While
clause (a) gives parties an option to contract out of interest, no such option
is available in regard to the post-award period.
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38. In R.P. Garg v. The General Manager, Telecom Department & Ors. ,
reported in 2024 INSC 743 , this Court had the occasion to deal with the
question as to whether the appellant was entitled to post-award interest on
the sum awarded by the Arbitrator. In that case, the Arbitrator had denied
payment of interest under a misplaced impression that the contract
between the parties prohibited it. The executing court affirmed the finding
of the arbitrator and rejected the prayer. However, allowing the appeal, the
District Judge held that the appellant will be entitled to post-award
interest. The High Court 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)(b) is that the rate of interest granted under the Award is
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to be given precedence over the statutorily prescribed rate. The
assumption of the High Court that payment of the interest for
the post award period is subject to the contract is a clear error.

12. The clear position of law that granting post-award interest
is not subject to the contract between the parties was recently
affirmed in the decision of this Court in Morgan Securities &
Credits (P) Ltd. v. Videocon Industries Ltd.,® wherein the
court observed as follows:

"24. The issue before us is whether the phrase "unless the
award otherwise directs" in Section 31(7)(b) of the Act only
provides the arbitrator the discretion to determine the rate
of interest or both the rate of interest and the "sum" it must
be paid against At this juncture, it is crucial to note that both
clauses (a) and (b) are qualified. While, clause (a) is
qualified by the arbitration agreement, clause (b) is
qualified by the arbitration award. However, the placement
of the phrases is crucial to their interpretation. The words,
"unless otherwise agreed by the parties" occur at the
beginning of clause (a) qualifying the entire provision.
However, in clause (b), the words, "unless the award
otherwise directs" occur after the words "a sum directed to
be paid by an arbitral award shall" and before the words
"carry interest at the rate of eighteen per cent". Thereby,
those words only qualify the rate of post-award interest.

25. Section 31(7)(a) confers a wide discretion upon the
arbitrator in regard to the grant of pre-award interest The
arbitrator has the discretion to determine the rate of
reasonable interest, the sum on which the interest is to be
paid, that is whether on the whole or any part of the
principal amount, and the period for which payment of
interest is to be made — whether it should be for the whole
or any part of the period between the date on which the
cause of action arose and the date of the award. When a
discretion has been conferred on the arbitrator in regard to
the grant of pre-award interest it would be against the grain
of statutory interpretation to presuppose that the legislative
intent was to reduce the discretionary power of the
arbitrator for the grant of post-award interest under clause
(b). Clause (b) only contemplates a situation where the
arbitration award is silent on post-award interest, in which
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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 pecuniary loss
suffered from the time the cause of action arose till passing of the
arbitral award. Further, this is also to ensure that the arbitral
proceeding is concluded within a reasonable period to minimise
the impact of the pre-award interest as well as interest pendente
lite; thereby promoting efficiency in the arbitration process.
Similarly, grant of post-award interest also serves a salutary
purpose. It primarily acts as a disincentive to the award debtor not
to delay payment of the arbitral amount to the award-holder.”
(Emphasis supplied)

41. In the case of Morgan Securities & Credits (P) Ltd. v. Videocon
Industries Ltd., reported in (2023) 1 SCC 602 , this Court has held as thus:
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“21. The purpose of granting post-award interest is to ensure
that the award-debtor does not delay the payment of the
award. With the proliferation of arbitration, issues involving
both high and low financial implications are referred to
arbitration. The arbitrator takes note of various factors such
as the financial standing of the award-debtor and the
circumstances of the parties in dispute before awarding
interest. The discretion of the arbitrator can only be restricted
by an express provision to that effect. Clause (a) subjects the
exercise of discretion by the arbitrator on the grant of pre-
award interest to the arbitral award. However, there is no
provision in the Act which restricts the exercise of discretion
to grant post-award interest by the arbitrator. The arbitrator
must exercise the discretion in good faith, must take into
account relevant and not irrelevant considerations, and must
act reasonably and rationally taking cognizance of the
surrounding circumstances.”
(Emphasis supplied)

42. Thus, it is now well established that unless there is an express bar
contained in the agreement, the arbitrator possesses the discretion and has
jurisdiction to award interest including the post-award interest. In the case
of State of Rajasthan and Another v. Ferro Concrete Construction
Private Limited , reported in (2009) 12 SCC 1 , this Court held as follows:

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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:

grants post-award interest at 18% p.a., save and except in cases where the
arbitral award itself specifies a different rate of interest. This goes on to
show that discretion vested on the Arbitral Tribunal at the time of
awarding post-award interest in unfettered. It, however, goes without
saying that such discretion ought to be exercised judiciously and after a
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thorough consideration of all the relevant factors. In the case of Morgan
Securities & Credits (supra) it was held as under:

45. The nature of transaction between the parties is purely commercial. It is
undisputed that the appellants (borrowers) had by way of executing two
separate loan agreements borrowed monies from the respondent no.1
(lender), for the purpose of repaying a previously availed loan facility
from an Indian Bank wherein the appellants had already defaulted. This
by itself evinces the high degree of risk associated with these loan
transactions. Accordingly, a high rate of interest was charged to secure the
debt. Although the appellants have challenged the rate of interest stated in
the loan agreement by inter alia questioning the genuineness of the loan
agreements, yet both 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
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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. reported in (2012) 1 SCC 594 , Ssangyong Engg. &
Construction Co. Ltd. v. NHAI reported in (2019) 15 SCC 131 and PSA
Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust
Tuticorin and others reported in (2023) 15 SCC 781 . Accordingly, we
refrain from entering into the merits of the issue, particularly when the
findings of the learned Arbitrator have been concurrently upheld.
47. The conduct of the appellants has consistently been non-committal
towards the payment of the loans. The appellants, by way of a letter dated
06.09.2007 addressed to respondent no.1, had assured that they were on a
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war footing to repay the loans. However, the same was merely a hollow
assurance as the loans remained unpaid. Thereafter, in the year 2008 by
way of cheque amounting to Rs.1,89,92,538/- the appellants attempted to
settle the loan, but the said cheque bounced on account of insufficient
funds. In such circumstances, it is evident that the appellants were in a
constant breach of the terms of the loan agreements and did not take
adequate steps to repay the loan. Such constant and continuing defaults
adversely affected the financial health of the respondent no.1 and deprived
the respondent no.1 from its right to use and enjoy monies for several
years.
48. Additionally, even after the arbitral award was passed, the respondent no.1
was unable to execute the same, as the appellants failed to comply with
the arbitral award and continued to default in their payments. Having been
left with no other option, the respondent no.1 initiated the CIRP
proceedings against appellant no.1, which also failed. It was only upon
the commencement of liquidation proceedings against the appellant no.
1 that the respondent No. 1 was able to recover a portion of its dues.
Particularly, the amount recovered from the liquidation process was much
less than the amount actually due and payable to the respondent no.1, in
terms of the award. Having undergone numerous hardships and going
through several round of litigations it will be manifestly unjust to deprive
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the respondent no.1 from its rightful entitlements of post award interest at
this stage.
I. Whether interest at the rate of 24% as provided in the agreements
between the parties could be said to be against public policy?
49. There is no gainsaying that the question as to whether the charging of a
high rate of interest in the case 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.
Special Leave Petition (C) No.12300 of 2020 Page 22 of 28


50. The expression “public policy in the context of challenge to an arbitral
award has come to be discussed in plethora of cases. This Court in OPG
Power Generation Private Limited v. Enexio Power Cooling Solutions
India Private Limited , reported in 2024 SCC OnLine SC 2600 , had the
occasion to consider the concept of ‘public policy’, in the background of
a challenge to an arbitral award. Referred was a decision of three-Judge
Bench of this Court in the case of Gherulal Parakh v. Mahadeodas Maiya
reported in AIR 1959 SC 781 , wherein the doctrine of public policy was
discussed in the context of Section 23 of the Indian Contract Act, 1872,
and the position of law was summarized as under:
“Public policy or the policy of law is an elusive concept; it
has been described as untrustworthy guide, variable quality,
uncertain one, unruly horse, etc; the primary duty of a court
of law is to enforce a promise which the parties have made
and to uphold the sanctity of contracts which formed the
basis of society, but in certain cases, the court may relieve
them of their duty on a rule founded on what is called the
public policy; for want of better words Lord Atkin describes
that something done contrary to public policy is a harmful
thing, but the doctrine is extended not only to harmful cases
but also to harmful tendencies; this doctrine of public policy
is only a branch of common law, and, just like any other
branch of common law, it is governed by precedents; the
principles have been crystallized under different heads and
though it is permissible for courts to expound and apply them
to different situations, it should only be invoked in clear and
incontestable cases of harm to the public; Though the heads
are not closed and though theoretically it may be permissible
to evolve a new head under exceptional circumstances of a
changing world, it is advisable in the interest of stability of
society not to make any attempt to discover new heads in
these days.”
(Emphasis supplied)
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51. Another decision to which reference was made is Central Inland Water
Transport Corporation v. Brojo Nath Ganguly reported in (1986) 3 SCC
156 wherein this Court observed that the expressions ‘public policy’,
‘opposed to public policy’, or ‘contrary to public policy’ are incapable of
a precise definition. It was observed that public policy is not the policy of
a particular government, rather it connotes some matter which concerns
the public good and the public interest. 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.15,
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 areas. In the field of private international law, it was
pointed out, courts refuse to apply a rule of foreign law or
recognize a foreign judgment or a foreign arbitral award if it
is found that the same is contrary to the public policy of the
Special Leave Petition (C) No.12300 of 2020 Page 24 of 28


country in which it is sought to be invoked or enforced.
However, it was clarified, a distinction is to be drawn while
applying the rule of public policy between a matter governed
by domestic law and a matter involving conflict of laws. It
was observed that the application of the doctrine of public
policy in the field of conflict of laws is more limited than that
in the domestic law, and the courts are slower to invoke
public policy in cases involving a foreign element than when
a purely municipal legal issue is involved. It was held that
contravention of law alone will not attract the bar of public
policy, and something more than contravention of law is
required.

35. In fact, in Renusagar (supra), this Court was dealing with
the enforceability of a foreign award. For that end, it had to
interpret the expression “contrary to public policy” in the
context of Section 7(1)(b)(ii) of Foreign Awards (Recognition
and Enforcement) Act, 1961. While doing so, it was held that
(a) contravention of law alone will not attract the bar of
public policy, and something more than contravention of law
is required; and (b) The expression ‘public policy’ must be
construed in the sense the doctrine of public policy is applied
in the field of private international law. Applying the said
criteria, it was held that enforcement of a foreign award
could be refused on the ground of being contrary to public
policy if such enforcement would be contrary to (a)
fundamental policy of Indian law or (b) the interests of India
or (c) justice or morality. The Court thereafter proceeded to
hold that a contravention of the provisions of the Foreign
Exchange Regulation Act would be contrary to the public
policy of India as that statute is enacted for the national
economic interest to ensure that the nation does not lose
foreign exchange which is essential for the economic survival
of the nation.

36.What is clear from the above discussion is that for an
award to be against public policy of India, a mere infraction
of the municipal laws of India is not enough. There must be,
inter alia, infraction of a fundamental policy of Indian law,
including a law meant to serve public interest or public good.

xxx xxx xxx

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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 India or the binding effect of the judgment
of a superior court; and (c) violating law of India linked to
public good or public interest, are considered contravention
of the fundamental policy of Indian law. However, while
assessing whether there has been a contravention of the
fundamental policy of Indian law, the extent of judicial
scrutiny must not exceed the limit as set out in Explanation 2
to Section 34(2)(b)(ii).”
(Emphasis supplied)

53. In the light of the aforesaid discussion, reverting back to the instant
matter, on a plain and grammatical construction of clauses (ii) and (iii)
of Explanation 1 to Section 34(2)(b) of the Act, 1996 it cannot be said
that the imposition of an exorbitant interest in the background of
contemporary commercial practices, would be against the fundamental
policy of Indian Law, or against the basic notions of morality or justice.
It is well-settled that fundamental policy of Indian law does not refer to
violation of any Statue but fundamental principles on which Indian law
Special Leave Petition (C) No.12300 of 2020 Page 26 of 28


is founded. Any difference or controversy as to rate of interest clearly
falls outside the scope of challenge on the ground of conflict with the
public policy of India unless it is evident that the rate of interest awarded
is so perverse and so unreasonable so as to shock the conscience of the
Court sans which no interference is warranted in the award, whereby
interest is awarded by the Arbitrator.

II. Usurious Loans Act, 1918
54. We have no hesitation in saying that there is no merit worth the name in
the plea advanced by the learned counsel appearing for the appellants
that the transaction in question falls foul of the Usurious Loans Act,
1918. The Usurious Loans Act, 1918 was followed by the Punjab Relief
of Indebtedness, 1934 (hereinafter called, the “ 1934 Act ”). The said 1934
Act is applicable to the Union Territory of Delhi. Section 2(3) of the 1934
Act defines “loan” to mean “loan whether of money or kind”.
55. The Usurious Loans Act, 1918 as followed by the 1934 Act were
promulgated in a different era and the power of the Court to adjudicate
if the interest on a loan amount is excessive has to give way in view of
the plenary powers of the Courts provided under the later enactment, i.e.,
the Act, 1996.


Special Leave Petition (C) No.12300 of 2020 Page 27 of 28


E. CONCLUSION


56. In the overall view of the matter, we have reached the conclusion that we
should not interfere with the impugned order passed by the High Court.
57. In the result, this appeal fails and is hereby dismissed.


……………………………J.
(J.B. Pardiwala)


……………………………J.
(K.V. Viswanathan)
New Delhi.
th
18 November, 2025.
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