Execution Court Cannot Rewrite Arbitral Award to Include Compound Interest: Supreme Court Upholds Party Autonomy Under Arbitration Act

“Once parties agree on the interest regime, arbitrator’s role is confined to enforcing it—Courts cannot enlarge or rewrite the award at execution stage” – In a significant reaffirmation of party autonomy in arbitration, the Supreme Court of India on September 24, 2025, ruled that compound interest or post-award interest cannot be claimed during execution of an arbitral award if such interest was neither agreed upon in the contract nor awarded by the arbitral tribunal. The Court emphasized that Section 31(7) of the Arbitration and Conciliation Act, 1996 does not empower execution courts to expand or modify the award.

Setting aside the judgment of the Telangana High Court dated 22.04.2024, the Court restored the order of the executing court dated 02.11.2023, which had rejected the decree holder’s claim for compound interest and closed the execution case upon full satisfaction of the award amount.

“Once the Tribunal awards interest till repayment, Section 31(7)(b) is inapplicable”: Tribunal Awarded Composite Simple Interest as per Contract

"The arbitral tribunal faithfully complied with the MoU; interest was awarded from disbursement till repayment—no room for post-award or compound interest" – Supreme Court

The central dispute revolved around whether PBSAMP Projects Pvt. Ltd., the decree holder, was entitled to compound interest or post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996, despite the award itself granting simple interest at 21% per annum from the date of advance till repayment, as stipulated in the MoU dated 09.04.2014.

The three-member arbitral tribunal, comprising Justice Arijit Pasayat (Presiding Arbitrator), Justice TNC Rangarajan, and Justice A. Kulasekaran, rendered an award on 08.09.2019, directing that:

“The claimant is entitled to ₹15.5 crores with interest at 21% p.a. from the date it was given to the date it is repaid...”

The Tribunal applied Clause 6(b) of the MoU, which explicitly stipulated simple interest at 21% per annum from disbursement till actual repayment in case of termination.

Consequently, the Court held:

“As the arbitral tribunal had expressly provided interest till the date of repayment, question of additional or compound interest under clause (b) of sub-section (7) of Section 31... would not arise.” – Para 29

"Section 31(7)(b) Does Not Apply Where Tribunal Awards Interest Up to Repayment": Court Distinguishes Hyder Consulting

“Allowing a claim of compound interest at execution stage would amount to rewriting the award—an act wholly impermissible” – Supreme Court

The High Court had relied on Hyder Consulting (UK) Ltd. v. Governor, State of Orissa (2015) 2 SCC 189, to remand the matter for reconsideration. However, the Supreme Court distinguished Hyder Consulting, holding that the principle laid down therein applies only when the arbitral award is silent on post-award interest.

“Reliance placed by the respondent on Hyder Consulting... is misplaced. That principle would apply only when the arbitral tribunal leaves a matter unqualified or is silent.” – Para 30

The Court clarified that Section 31(7)(b) only applies when the award is silent on post-award interest and that execution courts cannot invoke statutory interest defaults to rewrite or extend an award:

“Execution court has no power to go beyond the award... Section 31(7)(b) applies only if the award is silent.” – Para 31

Party Autonomy Prevails: Arbitrator Must Follow Contractual Interest Terms

The ruling extensively analyzed Section 31(7)(a) of the Act, which governs pre-award interest, emphasizing that it is subject to party agreement. Once a contract stipulates interest terms, the arbitral tribunal has no discretion to alter or extend them, nor can courts modify them during execution.

“The discretion of the arbitral tribunal to award interest under Section 31(7)(a)... is subservient to the agreement between the parties.” – Para 28

In this case, the MoU explicitly stipulated 21% simple interest from advance disbursement to repayment. The award strictly followed this, granting no separate post-award interest. Thus, the respondent could not later claim compound interest or invoke statutory defaults under Section 31(7)(b).

Supreme Court Reverses High Court's Remand, Closes Execution

The executing court had accepted the appellant's calculation of ₹44.42 crores (including 21% interest), finding the award fully satisfied and accordingly closed execution proceedings on 02.11.2023. The High Court, however, reversed this, branding the executing court's order as "cryptic and cavalier."

The Supreme Court firmly disagreed: “The executing court’s reasoning cannot be faulted. The calculation offered by the appellant was accepted after due consideration... High Court was not justified in remanding.” – Paras 14.2, 32

Accordingly, the Court:

• Set aside the High Court’s judgment dated 22.04.2024

• Restored the order of the Executing Court dated 02.11.2023

• Held that no further amounts were payable by the appellant

• Dismissed the respondent’s claim for compound or post-award interest

“Allowing such a claim would amount to rewriting the award at the stage of execution which is impermissible.” – Para 31

Arbitration Awards Are Final—Execution Courts Cannot Modify Based on Misinterpretation of Law

The ruling delivers a strong reaffirmation of the sanctity of arbitral awards, highlighting that execution courts are bound by the four corners of the award, and cannot venture into expanding its scope, even under the guise of interpreting interest provisions.

By restoring the executing court’s closure of the case and rejecting further claims, the judgment upholds finality, contractual discipline, and the principle of party autonomy in arbitration, while providing much-needed clarity on the application of Section 31(7) of the Arbitration Act.

Date of Decision: 24 September 2025