2018 Supreme(SC) 1008

SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, INDU MALHOTRA, JJ.
Vedanta Ltd. – Appellant
Versus
Shenzen Shandong Nuclear Power Construction Co. Ltd. – Respondent
Civil Appeal No. 10394 of 2018 (Arising out of SLP (Civil) No. 25819 of 2018)
Decided On : 11-10-2018

IMPORTANT POINT
Rate of Interest must be compensatory and must not be punitive, unconscionable or usurious in nature.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 31(7) – Interest – The return or compensation for the use or retention by one person for a sum of money belonging to or owned by any reason to another – In international commercial arbitration, in the absence of an agreement between the parties on Interest, the rate of Interest awarded would be governed by the law of the Seat of arbitration – Rate of interest awarded must correspond to the currency in which the award is given, and must be in conformity with the laws in force in the lex fori – Instantly, arbitration having its seat in India, rate of interest to be awarded must be in accordance with the Arbitration and Conciliation Act, 1996. (Para 3, 4, 5)

       (b) Arbitration and Conciliation Act, 1996 – Section 31(7) r/w Clause 35.2.3 of the Conditions of Contract – Interest – Factors to be considered – (i) the ‘loss of use’ of the principal sum; (ii) the types of sums to which the Interest must apply; (iii) the time period over which interest should be awarded; (iv) the internationally prevailing rates of interest; (v) whether simple or compound rate of interest is to be applied; (vi) whether the rate of interest awarded is commercially prudent from an economic standpoint; (vii) the rates of inflation, (viii) proportionality of the count awarded as Interest to the principal sums awarded – Rate of Interest must be compensatory and must not be punitive, unconscionable or usurious in nature – LIBOR – Instantly arbitral tribunal awarding dual rate of interest – Up to 120 from date of award 2 9% and post 120 days @ 15% – Courts may reduce Interest rate it does not reflect the prevailing economic conditions or where it is nor found reasonable, or promotes the interests of justice – Grant of 15% interest held excessive and contrary to the principle of proportionality and reasonableness – Award of Interest @ 9% on the Euro component of the Claim also held unjustified and unwarranted – Award-debtor held liable to pay interest at LIBOR rate + 3 percentage points, prevailing on the date of the Award. (Para 6, 7, 10, 11, 12)

       (2009) 17 SCC 296; AIR 2007 SC 829 – Relied upon

       2007(4) Arb LR 84 (Delhi) – Cited with approval

       Facts of the case:

       The Appellant and the Respondent-Company entered into four interrelated contracts for the construction of a 210MW Co-Generation Power Plant.

       Each of the four contracts contained an Arbitration Clause which is identically worded.

       The Governing law of the Contracts was the Law of India and in the event of any litigation the courts in India were to have exclusive jurisdiction.

       Disputes arose between the parties, which resulted in the termination of the EPC Contracts by the Respondent vide notice dated 25.02.2011. The Respondent called upon the Petitioner herein to pay the outstanding dues as mentioned in the said notice.

       The Respondent-Claimants invoked the Arbitration Clause and the disputes emanating out of the EPC contracts were referred to arbitration by a three-member tribunal in terms of the agreement between the parties.

       The Claimant-Respondent herein raised various Claims in multiple currencies amounting to Rs. 4,472,106,315; US $ 2,380,000; and EUR 121,723,214 along with pendente lite and future Interest @ 18% p.a.

       The present Appellant filed a Counter Claim amounting to Rs. 2458,34,89,367 along with Interest @18% p.a. for determination before the arbitral tribunal.

       The arbitral tribunal by a detailed Award dated 09.11.2017 awarded Rs. 50,00,000.00/- (Rupees Fifty Lakh) towards costs and legal expenses to the claimant.

       The arbitral tribunal also awarded Rs. 50,00,000 (Fifty Lakhs Rupees) towards Costs and Legal Expenses to the Claimant/Respondent herein.

       The arbitral tribunal rejected the Counter-Claims filed by the Appellant/Award-Debtor.

       The present Appellant filed Objections under Section 34 before the Delhi High Court which came to be rejected.

       Finding of the Court:

       Award of interest @ 15% post 120 days granted on the entire sum awarded is unjustified and not sustainable.

       A uniform rate of Interest @ 9% will be applicable for the INR component in entirety till the date of realization.

       Interest payable on the EUR component of the Award will be as per LIBOR + 3 percentage points on the date of Award, till the date of realization.

       Result: Appeals disposed of.