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2018 (10) TMI 708 - SC - Indian LawsInterest awarded by the Tribunal - international commercial arbitration - Section 37 of the Arbitration & Conciliation Act, 1996- Held that:- The 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 - In the present case, the international commercial arbitration having its seat in India, the rate of interest to be awarded must be in accordance with the Arbitration and Conciliation Act, 1996. 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 standpoint; (vii) the rates of inflation, (viii) proportionality of the count awarded as Interest to the principal sums awarded - 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. 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 120 days’ is arbitrary, since the Awarddebtor is entitled to challenge the award within a maximum period of 120 days’ as provided by Section 34(3) of the 1996 Act. The imposition of a high rate of interest @ 15% post 120 days is exorbitant, from an economic standpoint, and has no corelation with the prevailing contemporary international rates of Interest. The Awarddebtor cannot be subjected to a penal rate 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 120days. The Interest awarded by the arbitral tribunal is modified - appeal disposed off.
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