The Supreme Court has ruled that courts cannot substantially modify arbitral awards under the guise of correcting errors, while setting aside a Commercial Court order that had converted simple interest into compound interest and dramatically increased the financial liability of the Gujarat Water Supply and Sewerage Board.
The bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe has observed that replacing “simple interest” with “compound interest” amounted to a substantive alteration of the award and exceeded the limited powers available under the Arbitration and Conciliation Act, 1996.
The judgment came in Gujarat Water Supply and Sewerage Board v. Saryu Plastics Pvt. Ltd., where a Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe examined multiple issues concerning the validity of arbitral proceedings, continuation of the arbitrator’s mandate, compliance with natural justice principles, and the scope of judicial intervention in arbitral awards.
The dispute originated from contracts awarded by the Gujarat Water Supply and Sewerage Board for supply of PVC pipes between 1998 and 2002. An internal audit conducted by a Chartered Accountant firm identified alleged excess payments made to PVC pipe suppliers. Following these findings, the Board initiated further scrutiny and eventually blacklisted Saryu Plastics Pvt. Ltd. in August 2003. The disputes between the parties remained unresolved for several years before the parties eventually entered into an arbitration agreement in April 2012.
Under the arbitration agreement, the arbitrator’s mandate was initially fixed for six months with an expectation that proceedings would be concluded within that period. However, the arbitration stretched over more than three and a half years due to repeated delays and extensions. During the proceedings, the claimant company sought more than ₹24.57 crore under different heads.
The Supreme Court noted that throughout the arbitration process, the Board repeatedly delayed proceedings. Records showed that the Board failed to submit timely replies, remained absent on several occasions, sought repeated extensions, and failed to furnish factual details requested by the arbitrator. The arbitrator repeatedly recorded dissatisfaction with the Board’s conduct and observed that it did not appear serious about resolving the dispute.
Eventually, on October 27, 2015, the arbitrator partly allowed the claims and awarded approximately ₹1.01 crore, comprising outstanding payments and escalation amounts, along with simple interest for the pendente lite period and compound interest after the award until realization.
The Board subsequently challenged the award under Section 34 of the Arbitration and Conciliation Act, while the company sought correction of the award under Section 33 by requesting substitution of “simple interest” with “compound interest.” Thereafter, the Commercial Court modified the award and extended compound interest even for the pendente lite period. This modification significantly increased the Board’s liability from approximately ₹30.38 crore to nearly ₹144.93 crore.
Before the Supreme Court, the Board argued that the arbitrator’s mandate had expired and that the award was rendered without jurisdiction. It also contended that the arbitration process violated natural justice because it had allegedly not been granted a proper opportunity to participate. Further, it challenged the Commercial Court’s authority to alter the nature of interest granted in the award.
Rejecting the Board’s challenge to the arbitrator’s authority, the Supreme Court held that the Board had itself acquiesced to continuation of the proceedings. The Court observed that although the arbitrator had extended the mandate on several occasions, the Board never objected to those extensions during the proceedings and raised objections only after the award had been passed. The Court said that having participated in the proceedings and accepted extensions through conduct, the Board was estopped from subsequently questioning the arbitrator’s mandate.
The Court also rejected the allegation of violation of natural justice. It observed that the Board had received multiple opportunities over several years to participate effectively in the proceedings and that any disadvantage suffered by it resulted from its own conduct rather than any procedural unfairness by the arbitrator.
The Court observed: “The Board cannot invoke the principles of natural justice to impugn an Award that was delayed substantially on account of its own conduct.”
On the issue of modification of the award, the Court emphasized that Section 33 only permits correction of computational, clerical or typographical mistakes and does not allow review of substantive findings. The distinction between simple and compound interest was held to be a conscious adjudicatory determination and not an accidental drafting error.
The Court held: “The characterisation of the mode of interest – whether simple or compound – goes to the very core of the Arbitrator’s assessment.”
The Supreme Court quashed the Commercial Court’s order and restored the original arbitral award to the extent it granted only simple interest at 21.675% for the pendente lite period.
Case Details
Case Title: Gujarat Water Supply And Sewerage Board Versus Saryu Plastics Pvt. Ltd.
Citation: JURISHOUR-1411-SC-2026
Case No.: CIVIL APPEAL NOS. 769-770 OF 2026
Date: 26/05/2026
