In Brief
BPL Limited challenged an arbitral award requiring payment of Rs. 27.89 crores plus interest at 36% per annum (compounded monthly) under a bill-discounting facility agreement with Morgan Securities. The appellant argued the interest clause was penal, unconscionable, and contrary to public policy. The Supreme Court upheld the award, holding that when commercial parties of equal bargaining strength freely agree to an interest rate, courts cannot substitute it with a 'reasonable' rate. Applying the modern 'Cavendish test' emphasizing legitimate business interest over rigid penalty rules, the Court found the 36% rate justified by the high-risk, short-term nature of bill-discounting and the lender's legitimate interest in compensation for default. The Court reaffirmed party autonomy as central to arbitration law, rejecting unconscionability and penalty challenges to agreed contractual terms. Dismissing the appeals, the judgment reinforces that sophisticated commercial parties' negotiations deserve strong judicial deference.
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