The Supreme Court has dismissed BPL Limited’s challenge to an arbitral award directing payment of over ₹27 crore with contractual interest, holding that the 36% p.a. rate under the Bill Discounting facility was part of a voluntary commercial bargain and could not be interfered with. A Bench of Justice J.B. Pardiwala and Justice Sandeep Mehta held that the agreed contractual interest between parties of equal bargaining strength could not be termed unconscionable or contrary to public policy.
The case stemmed from a commercial arrangement in which BPL Display Devices Ltd. (BDDL) sold goods to BPL Limited, but delays in payment led both companies to jointly approach Morgan Securities for a Bill Discounting facility. Morgan sanctioned two facilities under which BDDL (Drawer) and BPL (Drawee) were made jointly and severally liable to repay the discounted amounts with interest with a concessional interest rate of 22.5% that would escalate to 36% upon default. M/s Electronic Research Pvt. Ltd./ERPL stood surety for the repayment of ₹6.4 Crore in the event the Drawer and Drawee failed to repay the amount due in terms of the sanction letter. When BPL and BDDL failed to clear dues exceeding ₹25 crore despite reminders and partial payments, Morgan initiated arbitration in 2007 based on BPL’s written acknowledgement of outstanding liability.
The arbitral tribunal held BPL liable for the outstanding sums and awarded interest at the contractual rate until the date of the award, followed by 10 per cent post-award interest. It discharged the guarantor, Electronic Research Pvt. Ltd., on limitation grounds. The Delhi High Court, hearing the application u/s 34 of the Arbitration and Conciliation Act, 1996, upheld the findings, noting that the transaction was a commercial bill-discounting facility and not a loan, rendering the Usurious Loans Act inapplicable. It also observed that BPL, a sophisticated commercial entity, had never objected to the interest clause during the contractual period and had consistently defaulted in repayment.
This led to an appeal u/s Section 37(1)(b) of the Act. The division bench of the Delhi High Court, however, refused to revisit issues that BPL attempted to reframe, including its assertion that the concessional interest could not have been withdrawn without specific notice. The Court held that such arguments had never been raised before the arbitrator or in earlier challenges, and therefore could not be considered at the review stage.
Before the Supreme Court, BPL contended that the 36 percent rate amounted to penal interest and violated Section 74 of the Contract Act, and further that the arbitrator had failed to exercise independent discretion under Section 31(7)(a) of the Arbitration and Conciliation Act. Morgan Securities argued that the rate was part of an expressly negotiated commercial arrangement and reflected the risk inherent in bill-discounting transactions, which differ fundamentally from ordinary loans.
The Supreme Court agreed with the High Court’s analysis, holding that bill discounting is a short-term, high-risk commercial financing mechanism where elevated interest rates are neither unusual nor inherently unfair. The court held that the appellant was not in a position of disadvantage vis-à-vis the respondent.
The Supreme Court rejected BPL’s reliance on the maxim verba chartarum fortius accipiuntur contra proferentem, holding that it had no application because the sanction letters were clear, unambiguous commercial contracts negotiated between parties of equal bargaining strength, leaving no scope to construe any clause against the drafter.
The Court noted the Respondent’s explanation that its business model was posited on the grant of such unsecured facilities for very short periods of time, allowing rapid redeployment of funds, and that a default disrupted this cycle for decades, resulting in loss. This made the compensatory contractual requirement of compounding in the case of defaulters neither penal nor improper. It further emphasised that Section 31(7)(a) embodies party autonomy, which governs arbitral interest unless a non-derogable legal bar applies. The Court further held that the contract deliberately offered a concessional rate as an incentive for punctual repayment. “Withdrawal of such concession and the consequential levy of a higher rate, with compounding, cannot be faulted as being penal.”
Finding no violation of public policy or fundamental legal principles, the Court upheld the arbitral award in full and dismissed the appeals.
Appearances
Petitioner- Mr. Gopal Subramanium, Sr. Adv. Mr. Pinaki Mishra, Sr. Adv. Mr. Ashok Panigrahi, Sr. Adv. Mr. Manu Nair, Adv. Mr. Arjun Perikal, Adv. Mr. Neelabh Shreesh, Adv. Mr. Pavan Bhushan, Adv. Mr. Jayavardhan Singh, Adv. Mr. R. Chandrachud, Adv. Ms. Gauri Subramanium, Adv. Mr. Shashank Jwalakumar, Adv. Ms. Aishwarya Prasad, Adv. Mr. Aryan Roy, Adv. Ms. Samridhi Shukla, Adv. Mr. Siddhant Juyal, Adv. Mr. Ankit Malhotra, Adv. Mr. Surajit Bhaduri, Adv. Mr. J.s. George, Adv. Mr. Pranav Diesh, Adv. Mr. Dharmendar Singh, Adv. Mr. Anmol Tayal, Adv. Mr. S. S. Shroff, AOR
Respondent- Ms. Aruna Gupta, AOR Mr. Simran Mehta, Adv. Mr. Ramesh Allanki, Adv.
