Legal provisions involved: Section 31(7)(a), 34 and 37 of the Arbitration and Conciliation Act, 1996; Section 13 of the Commercial Courts Act, 2015
Judgement by: The Supreme Court
Judge/Bench: Justice J.B. Pardiwala and Justice Sandeep Mehta
Facts
BPL Display Device Ltd. sold goods to BPL Limited. Due to payment delays, both parties availed a bill discounting facility from Morgan Securities. On default of dues worth over ₹25 crores, arbitration was initiated. The Sole Arbitrator awarded principal and interest. Challenges under Sections 34 and 37 failed before the High Court.
Key legal provisions
Issues raised
Whether the Arbitral Tribunal could award interest contrary to the contractual terms, and whether the contract was unconscionable?
Arguments of the case
The appellant argued that the interest clause was punitive and unconscionable. The respondent contended that parties of equal bargaining power had freely agreed to contractual terms, limiting the tribunal’s discretion.
Legal Reasoning
The bench observed that.“Unless otherwise agreed by the Parties……” as the opening words of Section 31(7) (a) of the Act, 1996 is a clear instance of “Party Autonomy” which forms the bedrock of the arbitral process and will prevail in all cases, except where the legal provision is strictly non- derogable in nature e.g. the bar of limitation. The principle of unconscionability is inapplicable to voluntary commercial agreements between parties of equal bargaining strength.”
Judgement
The Supreme Court held that unconscionability does not apply to voluntary commercial contracts between equal parties. It ruled that the arbitral tribunal’s discretion to award interest arises only in the absence of a contrary agreement. Upholding party autonomy, the Court dismissed the appeals and affirmed the contractual interest terms.
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