Arbitration Award Final: SC Upholds 24% Interest Rate Despite Usurious Loans Act Challenge

Lakshmi Hotel Pvt. Ltd. & Anr. Vs Sriram City Union Finance Ltd. & Anr. (Supreme Court of India)

SC Upholds 24% Interest in Commercial Loan Arbitration Award & Rejects Challenge Based on Usurious Loans Act/Public Policy

Background

• Appellants borrowed ₹1.57 crore from the Respondent NBFC at 24% p.a. (two agreements – 2006).
• Only ₹44.66 lakh repaid; thereafter continuous default.
• Appellants issued a ₹1.89 crore cheque, which bounced (NI Act proceedings initiated).
• Arbitration invoked; Arbitrator awarded ₹2.21 crore + 24% p.a.
• Section 34 challenge dismissed; Section 37 appeal dismissed; liquidation of borrower company also initiated.

Appellants’ Key Arguments

• 24% interest is unconscionable, usurious & contrary to RBI guidelines.
• Agreements were allegedly signed on blank papers; interest inserted later.
• Usurious Loans Act, 1918 & public policy grounds invoked.

Respondent’s Key Contentions

• Borrowers were already defaulters of Indian Bank, making the loan high-risk → justified higher rate.
• Contractually agreed interest cannot be reopened.
• NBFCs are not governed by State usury laws (as per SC in Nedumpilli Finance).

Supreme Court’s Findings

• Post-award interest under Section 31(7)(b) is mandatory unless Arbitrator specifies otherwise.
• Arbitrator has full discretion to award the contractual rate; courts cannot interfere unless perverse.
• Both courts below found loan agreements genuine- SC refused re-appreciation of evidence (bar under Section 34(2A)).
• Borrowers showed consistent non-payment: defaults, false assurances, dishonoured cheque, failure even during CIRP.
• High interest in a commercial loan is not against public policy unless it “shocks the conscience”—24% does not.
• Usurious Loans Act, 1918 is outdated & overridden by the Arbitration Act framework; not applicable to NBFC lending.

Conclusion

• No error by High Court under Sections 34 or 37.
• Contractual 24% interest upheld for both pre-award & post-award periods.
• Appeal dismissed by Supreme Court.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER