(MENAFN- KNN India) New Delhi, Dec 6 (KNN) The Supreme Court has upheld an arbitral award enforcing a 36 percent annual interest rate on British Physical Laboratories (BPL) Limited's dues to Morgan Securities and Credits Pvt Ltd, ruling that commercial entities cannot challenge interest rates they willingly accepted in a contract.

A Bench of Justice JB Pardiwala and Justice Sandeep Mehta dismissed BPL's appeals, holding that once parties mutually agree to an interest rate, they are strictly bound by those terms.

The Court said the arbitral tribunal and the Delhi High Court were correct in permitting monthly compounding as specified in the agreement.“A borrower cannot later call the rate unconscionable or contrary to public policy after availing the facility,” the Bench noted.

The dispute stemmed from a 2002-03 bill discounting facility under which Morgan Securities offered BPL a 36 percent 'normal' interest rate, with a 22.5 percent concessional rate for timely payments.

BPL contended that the 36 percent interest rate was penal and unconscionable, but the Supreme Court rejected the argument, emphasizing that party autonomy under Section 31(7)(a) of the Arbitration and Conciliation Act leaves no room for tribunals to alter interest rates when they are contractually agreed upon.

The Court held that the doctrine of unconscionability does not apply to commercial entities negotiating on equal footing, and noted that the Usurious Loans Act, 1918, was inapplicable since the transaction was not a traditional loan.

It further ruled that withdrawing a concessional interest rate upon default is a valid commercial incentive rather than a penalty, and clarified that the contra proferentem rule cannot be invoked for clauses in mutually negotiated commercial contracts.

The Court also noted that monthly compounding was consistent with Morgan Securities' business model, which depended on rapid fund rotation.

(KNN Bureau)

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