Limits of Correction: Why Courts Cannot Substitute Simple Interest with Compound Interest in Arbitral Awards and the Finality of Tacit Consent.

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Case: GUJARAT WATER SUPPLY AND SEWERAGE BOARD v. SARYU PLASTICS PVT. LTD.
Court: Supreme Court of India
Date: 26-05-2026
Law: Arbitration and Conciliation Act, Commercial Courts Act.

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In the world of commercial disputes, arbitration is often hailed as the faster, more flexible alternative to traditional litigation. However, a recent Supreme Court of India judgment in Gujarat Water Supply and Sewerage Board v. Saryu Plastics Pvt. Ltd. serves as a stark reminder that flexibility has its limits. The ruling clarifies the boundaries of "correcting" an award and the consequences of a party’s own delay.

The Trap of Tacit Consent

One of the most significant takeaways is how a party can lose the right to challenge an arbitrator’s authority through silence. In this case, the Board argued that the arbitrator’s mandate had expired. However, the Court found that because the Board continued to participate and failed to raise a timely objection when extensions were sought, they had "tacitly agreed" to the extension.

"The Board participated in the proceeding before the Arbitrator and had acquiesced with the alleged invalidity and cannot be allowed to turn around after the Award was passed and is estopped from challenging the Award on the ground that the mandate of the Arbitrator had expired."

This underscores that in arbitration, silence in the face of a procedural lapse is often legally interpreted as consent.

Natural Justice is Not a Shield for Delay

The Board attempted to set aside the award by claiming a violation of natural justice, arguing they weren't given a fair hearing. The Court was unimpressed, noting that the proceedings lasted over three years and the Board repeatedly failed to file replies or attend meetings. The Court ruled that a party cannot intentionally delay proceedings and then claim a "denial of natural justice" when the arbitrator finally decides to close the matter and pass an award. Natural justice ensures an opportunity to be heard, not an infinite license to procrastinate.

The "Simple" vs. "Compound" Interest Divide

Perhaps the most impactful part of the judgment concerns the limits of Section 33 of the Arbitration and Conciliation Act. The Commercial Court had modified the arbitrator’s award, changing "simple interest" to "compound interest" for the pendente lite period (the duration of the dispute). This seemingly small change in wording caused the Board’s liability to skyrocket from approximately Rs. 30.38 crores to a staggering Rs. 144.93 crores.

Correction vs. Modification

The Supreme Court clarified that Section 33 is strictly for "clerical or typographical errors" and not for substantive changes. Changing the type of interest is a substantive decision on the merits of the case, not a "slip of the pen".

"The power vested in the Tribunal under that provision is confined strictly to the correction of typographical, arithmetic, and clerical errors, and cannot be stretched to re-examine or revise the substantive findings of the Award."

By reversing this modification, the Court protected the finality of arbitral awards and prevented the "correction" process from becoming a back-door appeal.

This judgment reinforces a disciplined approach to arbitration: parties must be proactive in raising objections, and courts must resist the urge to tinker with the substantive outcomes of an award under the guise of clerical corrections.