Interest @ 36% p.a. with Monthly Rests — Commercial Bill Discounting — Not Unconscionable / Not Against Public Policy Held, clause 4 of the sanction letters validly provides for (i) normal interest @ 36% p.a. with monthly rests, (ii) concessional rate @ 22.5% p.a. payable upfront, revocable upon default. Such stipulation in a high-risk bill-discounting finance contract between sophisticated corporates is enforceable and does not shock conscience. (Paras 46-50, 69-72, 140(ii), 140(vi)-(viii))

1. Arbitration — Section 31(7)(a) — Party Autonomy — Contractual Interest — Scope of Interference

Held, Section 31(7)(a) begins with “unless otherwise agreed by the parties” and this expression controls the entire clause. Where parties mutually stipulate an interest regime, the arbitral tribunal has no discretion to re-determine interest on reasonableness grounds. The contractual rate governs. (Paras 51-66, 140(iv), 140(vii))

2. Interest @ 36% p.a. with Monthly Rests — Commercial Bill Discounting — Not Unconscionable / Not Against Public Policy

Held, clause 4 of the sanction letters validly provides for (i) normal interest @ 36% p.a. with monthly rests, (ii) concessional rate @ 22.5% p.a. payable upfront, revocable upon default. Such stipulation in a high-risk bill-discounting finance contract between sophisticated corporates is enforceable and does not shock conscience. (Paras 46-50, 69-72, 140(ii), 140(vi)-(viii))

3. Contract Act — Section 74 — Default Interest and Compounding — Not a Penalty

Applying Cavendish (UK) proportionality test, Held, enhanced / compounded interest on default is commercially justified where the lender’s legitimate interest is risk-protection in short-term receivable finance. A clause withdrawing concession and restoring higher contractual rate is not penal. (Paras 90-98, 133-139, 140(ii), 140(vi))

4. Arbitration — Award of Interest — “Sum” Includes Principal + Pre-Award Interest

Explained that “sum” under Section 31(7) may include principal plus interest as per Hyder Consulting. Thus interest on interest is permissible where expressly contracted in commercial agreements. S.L. Arora applied—compound interest is not statutorily implied, but may be contractually valid. (Paras 57-62, 67-68, 140(iv))

5. Negotiable Instruments Act — Ss. 64 & 80 — Inapplicable

Held, claim arises from sanction letters forming contractual framework; bills of exchange are part of the mechanism but the interest regime flows from the sanction contract, not NI Act. Failure to present PDCs did not discharge BPL’s liability in view of admitted joint/several liability; ERPL was discharged purely on limitation and absence of acknowledgment. (Paras 11-18, 20(i), 140(i))

6. Usurious Loans Act, 1918 — Punjab Relief of Indebtedness Act, 1934 — Inapplicable

Held, transaction was bill-discounting — not a “loan” — and is outside statutes intended for relief against oppressive lending. High commercial interest in bill discounting reflects risk pricing. (Paras 12, 50, 140(i))

7. Limitation — Section 19 — Extension Valid

Part-payments in August 2005 and written acknowledgment dated 02-02-2007 extended limitation. Arbitration invoked within six months thereafter — claims in time. Attempts to re-argue limitation in review rejected. (Paras 16-27, 34, 140(i))

8. Contra-Proferentem — No Application

Maxim rejected — sanction letters were commercial contracts negotiated between corporates; not unilateral standard forms. (Paras 36(e), 45-46, 140(v))

9. Review Jurisdiction — Re-Argument on Merits Impermissible

Review plea attempting to reopen findings on payments, independent bills, and interest reasonableness was impermissible. Findings already adjudicated through arbitral award, Section 34 ruling, and Section 37 affirmation. (Paras 18-28, 34)

10. Result

Appeals dismissed. Award affirmed directing BPL to pay Rs. 7.27 crore and Rs. 20.62 crore with contractual interest @ 36% p.a. with monthly rests till award and 10% thereafter till realization. No grounds made out under public policy or patent illegality. (Paras 18, 24-25, 140, 141-142)

 ANALYSIS OF FACTS AND LAW

I. Core Commercial Background 

The Court emphasises the character of bill discounting — distinct from a loan. It is unsecured, short-term cash-flow finance where financier purchases receivables and bears default risk. High interest compensates (i) inability to recycle funds, (ii) default risk, and (iii) operational costs. Therefore, the interest clause reflects risk pricing rather than oppression. (Paras 47-50)

The bills were drawn by BDDL on BPL and discounted by Morgan against accepted invoices. BPL availed concession and continued in contract without objection. Default stretched for years. The arbitrator’s finding of default and acknowledgment (letter dated 02-02-2007) forms the foundation for limitation and liability conclusions, which were consistently affirmed. (Paras 16-27)

II.  Interest and Section 31(7)

Party Autonomy Controls — Tribunal Has No Discretion Once Rate Agreed

Section 31(7)(a) confers discretion only if no contrary agreement exists. Here, the parties contractually stipulated:
36% p.a. monthly rests — with concession of 22.5% upfront withdrawn on default.

Thus the Court held the arbitrator was bound to apply the agreed rate. Judicial intervention to rewrite commercial bargains would undermine certainty. (Paras 51-66)

III. Why 36% Was Not Considered Oppressive or Penal

The Court applied modern penalty doctrine (Cavendish) and Indian jurisprudence to conclude:

• Higher default interest protects legitimate commercial interest.

• Enhancement upon default is proportionate, not punitive — particularly where the borrower used the facility without objection.

• BPL, being a sophisticated corporate, cannot invoke public policy to rewrite a contract it benefited from. (Paras 69-72, 133-139)

IV. Statutory Arguments Rejected

Usurious Loans Act Argument

Rejected — because bill discounting ≠ loan; statutes do not apply. (Paras 12, 50)

NI Act Arguments

Sections 64 and 80 NI Act do not displace contractual interest regime. Clauses of joint liability override PDC presentment arguments. (Paras 15, 20(i), 140(i))

V. Limitation — 

Part-payment and acknowledgment extended limitation under Section 19. Arbitration commenced within permissible period. Review attempt to recast facts was impermissible. (Paras 16-27)

VI. Limited Judicial Review Applied

Where arbitral award, Section 34 and Section 37 decisions are concurrent and reasoned, Article 136 interference is reserved for patent illegality or violation of fundamental policy. The Court found neither. (Paras 40-41)

CONCLUSION 

The Supreme Court reinforces party autonomy, risk-pricing in commercial finance, and judicial reluctance to rewrite negotiated contracts. The award stands — interest clause upheld — appeals dismissed.