No dual rate of Interest in Arbitration Awards

By Azeez Nazar Sabri

In a recent Judgment Supreme Court has held that the rate of the interest for pre and post award period should be uniform. Court further held that there can’t be a uniform rate of interest for INR and EUR components. Supreme court passed this landmark judgment in the matter of Vedanta Ltd. Vs Shenzen Shandong Nuclear Power Construction Co. Ltd ( SSNCPL). ( SLP (Civil) No. 25819 of 2018).

Facts:

On 22^nd May, 2018, the Appellant ( Vendanta Ltd) and respondent (SSNPCL)entered into four inter related contracts for construction of 210 MW Co- Generation Power Plant.  Each of four contracts contained an arbitration clause. Certain disputed arose between the parties, which resulted in the termination of the EPC Contracts by SSNCPL and arbitration was invoked by the respondent (SSNPCL).

The arbitral Tribunal passed a detailed Award dated 09.11.2017, wherein the Tribunal awarded interest on the awarded sum @ 9% from the date of institution of the arbitration proceedings provided the awarded amount is paid/ deposited within 120 days of the award.  Tribunal further awarded post award interest @ 15% till dated of realization of awarded amount if amount is not paid within 120 days. Further tribunal awarded a uniform rate of interest on both the components of Award i.e. the amounts payable in INR and EUR.           

Aggrieved by the said Award Appellant (Vedanta) filed objections under section 34 of the Arbitration and Conciliation Act before Delhi High Court. Objections were rejected by High Court vide its order dated 12.02.2008.

Against the said order of single judge, appellant filed an appeal before a Division Bench of Delhi High Court under section 37 of the said Act. The said appeal was also dismissed on 30.08.2018.

Aggrieved by the judgment of the Division Bench, the Appellant filed SLP. 

Judgment/observations

The dual rate of Interest awarded by Arbitral Tribunal seems to be unjustified. The award of a much higher rate of Interest after 120 days is arbitrary, since the Award debtor is entitled to challenge the award within a maximum period of 120 days as provided by section 34( 3) of the 1996 Arbitration Act. If the award- debtor is made liable to pay a higher rate of interest after 120 days, it would foreclose or seriously affect his statutory right to challenge the Award by filing objections under section 34 of the said Act.

The imposition of a higher rate of interest @ 15% post 120 days is exorbitant, from an economic standpoint, and has no co- relation with the prevailing contemporary international rates of interest. The Award- debtor cannot be subject to a penal rates of Interest, either during the period when he is entitled to exercise the statutory right to challenge the Award, before a Court of law, or later. Furthermore, the arbitral tribunal has not given any reason for imposing a 15% rate of interest post 120 days. 

The award of interest @ 9% on the Euro component of the Claim is unjustified and unwarranted. The levy of such a high rate of interest on a claim made in a foreign currency would result in the Claimant being awarded compensation, contrary to the conditions stipulated in the contract. A uniform rate of interest for INR and EUR would therefore not be justified. The rate of 9% interest on the INR component awarded by the Tribunal will remain undisturbed. However, with respect to the EUR component, the award debtor will be liable to pay interest at the LIBOR rate + 3 percentage points prevailing on the date of the Award. Post award period Interest @ 15% stand deleted.   

Email: azeez_nazar@rediffmail.com