VEDANTA LTD. versus SHENZEN SHANDONG NUCLEAR POWER CONSTRUCTION CO. LTD.

Citation: [2018] 12 S.C.R. 829 · Decided: 11-10-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Leave Granted & Disposed off

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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VEDANTA LTD.
v.
SHENZEN SHANDONG NUCLEAR POWER CONSTRUCTION
CO. LTD.
(Civil Appeal No.10394 of 2018)
OCTOBER 11, 2018
[R. F. NARIMAN AND INDU MALHOTRA, JJ.]
Arbitration and Conciliation Act, 1996 – ss.34 and 37 –
Appellant and the Respondent-Company entered into four inter-
related contracts for construction of a Co-Generation Power Plant
– Dispute arose between the parties – Respondent-Claimant invoked
the Arbitration clause and raised claims in multiple currencies i.e.
Indian Rupee (INR), United States Dollar ($) and European Union
(EUR) – Arbitral Tribunal awarded the amounts in favour of the
Claimant in INR and EUR, but rejected the claim made in $ – Arbitral
Tribunal awarded interest on the amounts payable in INR and EUR
at the rate of 9% with a condition that if the awarded amounts were
not paid within 120 days, a higher rate of further interest @ 15%
till the date of realization of the amount would be imposed – Propriety
of – Held: Not proper – The adoption of dual rate of interest in
award was not justified – The award of a much higher rate of interest
after 120 days was arbitrary, since the Award-debtor was entitled
to challenge the award within a maximum period of 120 days’ as
provided by s.34(3) of the 1996 Act – If the award-debtor was 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 u/s.34 of the said Act – Also, imposition
of a high rate of interest @ 15% post-120 days was exorbitant,
from an economic standpoint, and has no co-relation with the
prevailing contemporary international rates of interest – Therefore,
interest rate of 15% granted on the entire sum awarded not justified –
Furthermore, a uniform rate of 9% interest for INR and EUR was
not justified, as parties operated in different currency, it was
necessary to take into account the complications caused by
differential interest rates – Thus, a uniform rate of interest @ 9%
would be applicable for the INR component in entirety till the date
of realization, however, interest payable on the EUR component of
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[2018] 12 S.C.R. 829
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SUPREME COURT REPORTS
[2018] 12 S.C.R.
the Award would be as per LIBOR + 3 percentage points on the
date of award, till the date of realization.
Banks/Banking – LIBOR – Held: LIBOR is an average interest
rate calculated from time to time, based on inputs given by major
banks in London as to their interest rates – Under the LIBOR regime,
banks give details vis-a-vis actual interest rate that they are paying,
or would be required to pay for borrowing from other banks – LIBOR
is a 3-month rate which has been adopted in some cases of a breach
of contract (or other obligation).
Disposing of the appeal, the Court
HELD: 1.1  The discretion of the arbitrator to award interest
must be exercised reasonably. An arbitral tribunal while making
an award for Interest must take into consideration a host of
factors, such as: (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
stand-point; (vii) the rates of inflation, (viii) proportionality of the
count awarded as Interest to the principal sums awarded.  [Para
6]  [838-E-G]
1.2 On the one hand, the rate of Interest must be
compensatory as it is a form of reparation granted to the award-
holder; while on the other it must not be punitive, unconscionable
or usurious in nature. Courts may reduce the Interest rate
awarded by an arbitral tribunal where such Interest rate does not
reflect the prevailing economic conditions or where it is not found
reasonable, or promotes the interests of justice. [Para 6] [838-
G-H; 839-A]
2. In the present case, the arbitral tribunal has adopted a
dual rate of Interest in the Award. The Award directs payment of
Interest @ 9% for 120 days post award; if the amount awarded is
not paid within 120 days’, the rate of Interest is scaled up to 15%
on the sum awarded. The dual rate of Interest awarded seems to
be unjustified. The award of a much higher rate of Interest after
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120 days’ is arbitrary, since the Award-debtor is entitled to
challenge the award within a maximum period of 120 

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