BPL Limited v. Morgan Securities and Credits Pvt. Ltd.; 2025 INSC 1380 - Arbitration Act - Interest - Party Autonomy - Commercial Contract

Arbitration and Conciliation Act 1996 - Section 31 - The discretion to grant interest would be available to the Arbitral Tribunal under clause (a) of sub section (7) of the Section 31 only when there is no agreement to the contrary between the parties. When the parties agree with regard to any of the aspects covered in clause (a) of sub section (7) of the Section 31 , the arbitral tribunal would seize to have any discretion with regard to the aspects mentioned in the said provision. Once there is an agreement between the parties which provides that interest shall be at a particular rate, the arbitral tribunal thereafter is left with no discretion. In such circumstances, the arbitral tribunal would be bound by the terms of the agreement. - The express use of “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 nonderogable in nature e.g. the bar of limitation. The principle of unconscionability is inapplicable to voluntary commercial agreements between parties of equal bargaining strength. (Para 140(iv-vii))

Legal Maxim -“Verba chartarum fortius accipiuntur contra proferentem’ - It is a rule of interpretation that contracts are to be interpreted based on their plain meaning, as a whole and in accordance with the language used- In case of any ambiguity, a contract will have to be interpreted taking into consideration the surrounding facts and circumstances -This principle would not apply in case of commercial contracts for the simple reason that a clause in a commercial contract is bilateral and has mutually been agreed upon- Where there are ambiguities, especially in cases of insurance contracts, the principle of contra proferentem steps in to aid the interpretation- It means the words of deeds are to be taken most strongly against he who uses them- The rule of contra proferentem thus protects the insured from the vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree. The rule assumes special significance in standard form insurance policies, called contract d’ adhesion or boilerplate contracts, in which the insured has little to no countervailing bargaining power. (Para 117-121) Contra proferentem is not a principle of universal application. Where the terms of the contract are clear, there will be no occasion to apply the contra proferentem rule-The contra proferentem principle does not merit applicability in case of commercial contracts, for the reason that a clause in a commercial contract is bilateral. The true construction of a commercial contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.(Para 126-128)

Principle Of Unconscionability - Indian Contract Act 1870 - Section 74 -The principle of unconscionability is inapplicable to voluntary commercial agreements between parties of equal bargaining strength (Para 140(vii)) - Any question as to the unconscionableness of a stipulation contained in an agreement would probably arise for consideration only if it is shown that the relationship between the contracting parties was such that one of them was in a position to dominate the will of the other and that he had made use of such position to obtain an unfair advantage over the other. It is only in cases where both the conditions mentioned above are clearly established by the person who seeks to avoid the transaction and the court further finds that the bargain is in itself unconscionable that the impugned provision will be held to be unenforceable on the ground of unconscionableness. If people with their eyes open choose wilfully and knowingly to enter into a contractual transaction the court will not step in to relieve them of their obligations under such contract on the ground that the terms thereof are unconscionable. (Para 132) Where in a contract under which interest is payable it is agreed between the parties that if such interest be not paid punctually the defaulter shall be liable to pay interest at an enhanced rate, whether from the time of default or from the time when interest first became payable under the contract such agreement does not come within Section 74 of the Indian Contract Act, and is to be construed according to the intentions of the parties as expressed therein and not as a stipulation for a penalty. Such agreement is to be enforced according to its terms, unless it be found to have been when made unconscionable or fraudulent. (Para 136)