Supreme Court Held That Interest Cannot Be Awarded Where Contract Expressly Prohibits Payment Of Interest

The Supreme Court, through its judgement dated 09.02.2026 in The Kerala Water Authority &Ors. v. T I Raju & Ors.,¹ held that where a contract expressly prohibits payment of interest on delayed payments, such contractual stipulation is binding, and interest cannot be awarded contrary to the agreed terms.

The Court held that Section 3 of the Interest Act, 1978 (“Interest Act”) applies only in the absence of a contractual provision and cannot override an express contractual bar on payment of interest.

The Court clarified that the objective of the Interest Act is to mandate the payment of interest to the parties in the absence of, or any vacuum in the agreement, or where the interest so fixed is contrary to law. The Court held that where parties have expressly agreed to either to give away the interest or to receive the belated payment, the parties in such cases are to be governed by the terms of the agreement.