Section 33 Cannot Convert Simple Interest to Compound Interest, Supreme Court Rules
A Division Bench holds that a Commercial Court exceeded its jurisdiction by substituting compound interest for simple interest under Section 33, reversing a liability jump from Rs. 30 crores to Rs. 144 crores.
The Supreme Court has quashed a Commercial Court order that replaced “simple interest” with “compound interest” in an arbitral award, holding that Section 33(1)(a) of the Arbitration and Conciliation Act, 1996 permits only the correction of computational, clerical, or typographical errors and cannot be used to make substantive changes to an award. The substitution had inflated the Gujarat Water Supply and Sewerage Board’s liability from approximately Rs. 30.38 crores to Rs. 144.93 crores. The Court also rejected the Board’s challenge to the arbitral mandate and its natural justice grievance, finding that the Board’s own prolonged dilatoriness during three and a half years of proceedings precluded those complaints. Civil Appeal Nos. 769–770 of 2026 were disposed of on 26 May 2026.
The Dispute: PVC Pipes, Blacklisting, and a Decade-Long Wait for Arbitration
The Gujarat Water Supply and Sewerage Board was constituted under the Gujarat Water Supply and Sewerage Board Act, 1978 to provide water supply and sanitation services across Gujarat. Between 1998 and 2000, the Board awarded several rate contracts to Saryu Plastics Pvt. Ltd., a small-scale industrial unit registered with the District Industry Centre, Mehasana, for the supply of PVC pipes covering the years 1998–1999 to 2001–2002.
An internal audit by M/s. Pipara & Company, Chartered Accountants, for 1999–2000 flagged irregularities and alleged excess payments to PVC pipe suppliers. The Board commissioned a comprehensive audit on 3 October 2001. The audit report dated 19 June 2002 confirmed excess payments across divisions. On 29 August 2003, the Board blacklisted the Company.
More than a decade passed before the Company requested arbitration. On 3 April 2012, the parties executed an Arbitration Agreement appointing Mr. K.J. Wadher as Sole Arbitrator. Clause 4 of that agreement fixed the mandate at six months, requiring both parties to cooperate fully to conclude proceedings within that window.
Three and a Half Years of Proceedings: The Board’s Conduct on Record
The arbitration opened on 19 April 2012 when the Arbitrator communicated his consent. A preliminary meeting on 22 June 2012 directed the Company to file its Statement of Claim by 10 July 2012, with the Board’s reply due within one month. The Company filed its claim on 29 September 2012, raising an aggregate of Rs. 24,57,99,732/- on various counts, and revised it on 3 October 2012 at the Board’s request.
The six-month mandate expired on 18 October 2012. Extensions followed with party consent, initially to 31 March 2013 and then to 30 June 2013. Despite the Statement of Claim having been filed five months earlier, the Board had still not submitted a point-wise reply by the second arbitral meeting on 2 March 2013. The Arbitrator’s letter of 12 June 2013 specifically recorded that the Board had not been attending proceedings, indicating it was not serious about resolving the dispute.
The pattern continued. The Board was absent on 7 May, 11 May, 24 May, and 25 May 2013. At the third arbitral meeting on 27 June 2013, the Arbitrator noted that the Board had still not filed a point-wise factual reply despite repeated reminders. By September 2013, the Board had given only a vague letter citing what the Arbitrator described as invalid reasons. The Board eventually filed its final reply on 26 December 2013 more than a year after the Statement of Claim was filed.
From 30 September 2014 onward, the Arbitrator extended the mandate unilaterally on three occasions to 31 March 2015, then to 30 June 2015, then to 31 August 2015 citing the volume of documents (over 4,000 pages) and the Board’s incomplete factual submissions. The Board consented to an extension to 30 September 2015 by communication dated 4 September 2015.
On 29 September 2015, the Arbitrator requested a further extension to 15 November 2015. The Board did not respond to that request. On 7 October 2015, the Arbitrator fixed a hearing for 15 October 2015. On 14 October 2015, the Board emailed that it could not attend due to prior engagements, without seeking an adjournment or proposing another date. The Arbitrator treated the matter as heard and passed the Award on 27 October 2015, dispatching it by courier the same day. The Board received it on 30 October 2015. On 28 October 2015 after the Award had already been dispatched the Board emailed that it had not extended the mandate and would proceed under Section 14 of the Act.
Four Issues and How the Court Resolved Each
The Court identified four issues: whether the arbitral mandate validly subsisted when the Award was passed; whether the Award was dispatched before or after the Board’s email of 28 October 2015; whether the proceedings complied with natural justice; and whether the Commercial Court had jurisdiction under Section 33(1)(a) to substitute compound interest for simple interest.
Mandate: The Court found that the mandate, though extended unilaterally by the Arbitrator after 30 September 2014, was never objected to by the Board at any stage. The Board’s email of 14 October 2015 expressed only an inability to attend; it raised no objection to the mandate having expired. The Board had therefore tacitly agreed to the extensions and was estopped from challenging the Award on that ground after the Award was passed. The Court distinguished the Board’s reliance on Bharat Udyog Ltd. v. Ambernath Municipal Council, (2026) SCC OnLine SC 463, noting that in that case the Arbitrator lacked a mandate in the absence of a valid arbitration agreement, making estoppel against the statute inapplicable, a situation not present here. The Court also noted that Section 29A of the Act, which introduced statutory timelines for awards, was amended with retrospective effect from 23 October 2015 and did not apply to the facts of this case.
Dispatch of the Award: A courier receipt produced before the High Court and tendered to the Supreme Court showed that the Award was dispatched on 27 October 2015, before the Board’s email of 28 October 2015. The Board’s reliance on the courier tracking report showing delivery on 30 October 2015 went to receipt, not dispatch. The Court answered this issue in the negative: the Award was not dispatched after the Board’s email.
Natural justice: The Court held that the proceedings spanned more than three and a half years, during which the Board was given repeated opportunities to file pleadings, produce documents, and attend hearings. The Board failed to attend on multiple scheduled dates, failed to comply with directions to file point-wise replies, and repeatedly sought adjournments. When a hearing was fixed at the Board’s own request on 15 October 2015, the Board chose not to appear and did not seek a fresh date. The Court held that the Board’s failure to utilise the opportunities afforded to it could not be converted into a grievance about denial of natural justice, and that the Arbitrator was fully justified in treating the matter as heard.
The Core Holding: Section 33 Is Not a Review Power
The fourth issue produced the Court’s most consequential ruling. The Award as passed on 27 October 2015 and corrected on 8 November 2015 awarded Rs. 1.01 crores with simple interest at 21.675% per annum for the pendente lite period, and compound interest from the date of the Award until realisation. The Company filed an application under Section 33 of the Act seeking to replace “simple interest” with “compound interest” for the pendente lite period. After the Arbitrator declined to adjudicate in view of pending Section 34 proceedings, the Company pursued the matter before the Commercial Court. By order dated 25 September 2018, the Commercial Court purported to exercise review jurisdiction and made the substitution. The financial consequence was stark: the Board’s liability rose from Rs. 30.38 crores to Rs. 144.93 crores.
The Court held that Section 33(1)(a) confers only a limited power to correct computational, clerical, or typographical errors. It is not designed to serve as a vehicle for substantive modification of an award or review of its merits. The Court relied on State of Arunachal Pradesh v. Damani Construction Co., (2007) 10 SCC 742, and Gyan Prakash Arya v. Titan Industries Ltd., (2023) 1 SCC 153, for the settled position that Section 33 does not contemplate a review and that its corrective power extends only to arithmetical or clerical errors.
Applying those principles, the Court found that the Arbitrator had consciously and deliberately awarded simple interest for the pendente lite period, as the express terms of the Award and its corrected version made plain. The choice between simple and compound interest goes to the Arbitrator’s assessment of the equities of the case and reflects a substantive determination on the merits. It is “neither a slip of the pen, nor an inadvertent arithmetical mistake, nor a clerical oversight” that Section 33(1)(a) could remedy.
The Court held that the Commercial Court manifestly exceeded its jurisdiction. Its review jurisdiction could not be employed to achieve a result that was impermissible even under the limited corrective power of Section 33(1)(a). To hold otherwise, the Court said, would render Section 33 an instrument of appellate correction, contrary to the scheme of the Act and consistent judicial interpretation.
Outcome
The Supreme Court quashed and set aside the High Court’s judgment dated 11 November 2022 (as corrected on 16 December 2022) and the Commercial Court’s order dated 25 September 2018 substituting compound interest for simple interest for the pendente lite period. The Company is held entitled to simple interest at 21.675% per annum for the pendente lite period. Civil Appeal Nos. 769–770 of 2026 were disposed of with no order as to costs.