The Bombay High Court has issued an interim stay on a Permanent Lok Adalat award that imposed monthly interest rates of 9% and 15% on an insurance claim, finding that such rates directly contradict the express terms of the underlying tripartite agreement. This order underscores the primacy of contractual language over arbitral interpretation, even in pre-litigation forums.
Background & Facts
The Dispute
The dispute arises from a claim under a motor insurance policy involving a third-party accident. The insured, Smt. Elizabeth Jujewas Dsouza, filed a Pre-Litigation Application No. 331 of 2022 before the Permanent Lok Adalat at Pune against the Branch Manager of Universal Sompo General Insurance Co. Ltd. The application sought compensation for damages and delay in settlement. The parties had entered into a Tripartite Agreement dated 10.12.2019, which governed the terms of settlement and interest obligations.
Key Facts
- The Tripartite Agreement (Exhibit at Page 25 of the Petition) was executed on 10.12.2019 between the insured, the insurer, and a third-party representative.
- Clause XI(9) of the agreement provides for interest on delayed payment of compensation.
- The clause states: "Interest shall be payable @ 9% and thereafter 15%" - without specifying a time basis.
- The Lok Adalat, in its award dated 17.12.2025, interpreted this to mean 9% per month for the first three months and 15% per month thereafter.
- This interpretation results in an annualized interest rate of 108%, which the petitioner contends is commercially absurd and legally unsustainable.
- No evidence was presented before the Lok Adalat to justify such an interpretation beyond the literal wording of the clause.
Procedural History
- 10.12.2019: Tripartite Agreement executed.
- 2022: Pre-Litigation Application No. 331 of 2022 filed before Permanent Lok Adalat, Pune.
- 17.12.2025: Lok Adalat passed award directing interest at 9% per month for first three months, then 15% per month until claim repudiation.
- 09.07.2026: Writ Petition No. 7030 of 2026 filed before Bombay High Court seeking stay of the award.
- 09.07.2026: Interim order passed by the Court staying the interest component of the award pending final hearing.
Relief Sought
The petitioner seeks: (a) stay of the Lok Adalat award’s interest component under Clause 4; (b) declaration that interest must be interpreted as 9% and 15% per annum, not per month; and (c) costs.
The Legal Issue
The central question is whether the Permanent Lok Adalat’s interpretation of interest as 9% and 15% per month - resulting in 108% per annum - is legally sustainable when the tripartite agreement merely states "@ 9% and thereafter 15%" without specifying a time basis, and whether such an interpretation violates the principle of contractual construction.
Arguments Presented
For the Petitioner
Ms. Yashika Jain, Advocate for the petitioner, argued that the Lok Adalat’s interpretation is a gross distortion of the contractual language. She emphasized that the tripartite agreement, being a binding contract, must be construed according to its plain meaning. The absence of the words "per month" in Clauses 9 and 10 renders the Lok Adalat’s reading legally untenable. She cited the doctrine of expressio unius est exclusio alterius and relied on Indian Oil Corporation v. Raja Ram Singh to argue that courts must not rewrite contracts under the guise of interpretation. She further contended that 108% annual interest is unconscionable and contrary to public policy under Section 23 of the Indian Contract Act, 1872.
For the Respondent
Mr. P.J. Gavhane, Additional Public Prosecutor for the respondents, did not contest the interpretation during the interim hearing. He submitted that the Lok Adalat, as a statutory forum, had the authority to determine fair compensation and that the interest rate was within its discretionary powers. He did not produce any evidence or legal authority supporting the monthly rate interpretation.
The Court's Analysis
Justice Milind N. Jadhav conducted a close textual analysis of the Tripartite Agreement. The Court observed that while the agreement mentions "9%" and "15%", it nowhere specifies "per month". The Court noted that in commercial contracts, interest rates are conventionally expressed on an annual basis unless explicitly stated otherwise. The Lok Adalat’s interpretation, if upheld, would lead to an outcome that is commercially irrational and legally indefensible.
"Therefore the interpretation attributed in operative Clause No.4 of the impugned award is prima facie contrary to the contractual Clause 9 and Clause 10 of the Tripartite agreement on the face of record."
The Court emphasized that Lok Adalats, while empowered to facilitate compromise, are bound by the terms of the underlying agreement. They cannot impose rates that are not supported by the contract or by any statutory provision. The Court further held that the absence of any justification for the monthly rate - even in the award itself - renders the interpretation arbitrary and unsustainable.
The Court also noted that the petitioner had made out a strong prima facie case, and the balance of convenience favored staying the award pending final adjudication, given the extraordinary financial impact of the interest rate.
The Verdict
The Court granted ad-interim relief, staying the interest component of the Lok Adalat award dated 17.12.2025. The direction to pay interest at 9% per month for three months and 15% per month thereafter is suspended until the final disposal of the writ petition. The Court directed the respondents to file an affidavit-in-reply within two weeks and the petitioner to file a rejoinder within one week thereafter. The matter is listed for final hearing on 30.07.2026.
What This Means For Similar Cases
Contractual Language Prevails Over Arbitral Assumption
- Practitioners must insist that Lok Adalats and arbitrators strictly adhere to the express terms of agreements - no implied or assumed meanings are permissible.
- Any deviation from contractual language must be supported by clear evidence or statutory authority, not judicial discretion.
Interest Rates Must Be Explicitly Stated
- In insurance and commercial contracts, interest rates must be clearly qualified as "per annum" or "per month". Ambiguity will be resolved against the party benefiting from the strained interpretation.
- Claims for interest exceeding 12% per annum require explicit contractual backing; otherwise, they risk being struck down as unconscionable under Section 23 of the Indian Contract Act.
Lok Adalats Are Not Unfettered Discretionary Bodies
- Lok Adalats must operate within the confines of the agreement they are meant to enforce.
- Awards that impose rates not found in the contract are vulnerable to judicial review under Article 226 of the Constitution.
