Sri Lakshmi Hotel Pvt. Limited v. Sriram City Union Finance Ltd. 2025 INSC 1327 - Arbitration Act - Exorbitant Interest - Public Policy
Arbitration and Conciliation Act 1996 - Section 34 - Any difference or controversy as to rate of interest clearly falls outside the scope of challenge on the ground of conflict with the public policy of India unless it is evident that the rate of interest awarded is so perverse and so unreasonable so as to shock the conscience of the Court sans which no interference is warranted in the award, whereby interest is awarded by the Arbitrator (Para 53)- The question as to whether the charging of a high rate of interest in the case of a purely commercial transaction is morally wrong entails a complex web of issues that would be contingent upon a variety of factors and perspectives - In the commercial world, justifiability or reasonability of high interest rates would depend on the transparency of the terms and conditions of the contract entered into between the lender and the borrower, as well as the informed consent of the borrower. Ultimately, morality is inherently dependent on context, shaped by a complex interplay of cultural norms, as well as individual values. The moral implications of high interest rates are not absolute, rather they must be assessed through a nuanced lens that considers the inter-relationship between economic, social, and regulatory factors. (Para 49) [Context: In this case, SC held that interest at the rate of 24% as provided in the agreements between the parties could not be said to be against public policy and observed: It cannot be said that the imposition of an exorbitant interest in the background of contemporary commercial practices, would be against the fundamental policy of Indian Law, or against the basic notions of morality or justice]
Arbitration and Conciliation Act 1996 - Section 31 -The grant of post-award interest under Section 31(7)(b) is mandatory. The only discretion which the arbitral tribunal has is to decide the rate of interest to be awarded. Where the arbitrator does not fix any rate of interest, then the statutory rate, as provided in Section 31(7)(b), shall apply.- unless there is an express bar contained in the agreement, the arbitrator possesses the discretion and has jurisdiction to award interest including the post-award interest.
Case Info
Case Details
- Case name: Sri Lakshmi Hotel Pvt. Limited & Anr. v. Sriram City Union Finance Ltd. & Anr.
- Neutral citation: 2025 INSC 1327
- Coram: J.B. Pardiwala, J.; K.V. Viswanathan, J.
- Judgment date: 18 November 2025
Caselaws and citations referred
- Central Bank of India v. Ravindra and Others: (2002) 1 SCC 367.
- Sardar Associates v. Punjab and Sindh Bank: (2009) 8 SCC 257.
- Nedumpilli Finance Company Limited v. State of Kerala: (2022) 7 SCC 394.
- Morgan Securities & Credits (P) Ltd. v. Videocon Industries Ltd.: (2023) 1 SCC 602; also referenced as 2022 INSC 898.
- R.P. Garg v. The General Manager, Telecom Department & Ors.: 2024 INSC 743.
- North Delhi Municipal Corpn. v. S.A. Builders Ltd.: (2025) 7 SCC 132.
- State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd.: (2009) 12 SCC 1.
- Irrigation Deptt., Govt. of Orissa v. G.C. Roy: (1992) 1 SCC 508.
- Dhenkanal Minor Irrigation Division v. N.C. Budharaj: (2001) 2 SCC 721.
- Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd.: (2005) 6 SCC 462.
- Hyder Consulting (UK) Ltd. v. State of Orissa: (2015) 2 SCC 189; (2015) 2 SCC (Civ) 38.
- Ssangyong Engg. & Construction Co. Ltd. v. NHAI: (2019) 15 SCC 131.
- PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust Tuticorin: (2023) 15 SCC 781.
- OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd.: 2024 SCC OnLine SC 2600.
- Gherulal Parakh v. Mahadeodas Maiya: AIR 1959 SC 781.
- Central Inland Water Transport Corp. v. Brojo Nath Ganguly: (1986) 3 SCC 156.
- Renusagar Power Co. Ltd. v. General Electric Co.: (1994 Supp (1) SCC 644).
- Union of India v. Sudhir Tyagi: 2025 DHC 2621 (Delhi High Court).
Statutes/laws referred
- Arbitration and Conciliation Act, 1996: Section 31(7)(a) and (b); Section 34(2A) and Explanation; Section 37.
- Insolvency and Bankruptcy Code, 2016: Sections 7 and 33(2); CIRP/liquidation context.
- Negotiable Instruments Act, 1881: Section 138.
- Reserve Bank of India Act, 1934: Chapter IIIB (NBFC regulation).
- Usurious Loans Act, 1918.
- Punjab Relief of Indebtedness Act, 1934.
- Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003.
- Indian Contract Act, 1872: Section 23 (public policy).
#SupremeCourt clarifies on the issue whether imposition of high rate of interest can attract public policy of India ground under Section 34 Arbitration Act.
— CiteCase 🇮🇳 (@CiteCase) November 18, 2025
Holds thus: Any difference or controversy as to rate of interest clearly falls outside the scope of challenge on the… https://t.co/plbf32xv6n pic.twitter.com/ce2ffp49D6