TMI Blog2018 (10) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... point; (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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchaser shall be entitled to retain any sum or portion of Contract Price which has become due and payable, for any unfinished works or any subject matter under arbitration. 2.3 The Governing law of the Contracts is the Law of India. The relevant Clause is set out herein below for ready reference: Article 12 GOVERNING LAW AND JURISDICTION 12.1 This contract shall be construed in accordance with and governed by the laws of India and in the event of any litigation the courts in India shall be exclusive jurisdiction. 2.4 The EPC Contracts contained a termination clause which reads as under : 35.2.1The Purchaser may suspend the work in whole or in part at any time by giving Supplier notice in writing to such effect stating the nature, the date and the anticipated duration of such suspension. On receiving the notice of suspension, the Supplier shall stop all such work which the Purchaser has directed to be suspended with immediate effect. The Supplier shall continue to perform other work in terms of the Contract which the Purchaser has not suspended. The Supplier shall resume the suspended work as expeditiously as possible after receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination before the arbitral tribunal. 2.10 The arbitral tribunal passed a detailed Award dated 09.11.2017, wherein the Tribunal awarded the following amounts: 134. Thus, in light of the aforesaid, the following amounts are awarded in favour of the Claimant and the Respondent is liable to pay the same to the Claimant within a period of 120 days from the date of this award: I. Under the First Claim: a) ₹ 46,71,41,942/and Euro 23,717,437; and b) ₹ 12,19,69,047 II. Under the Second claim: a) ₹ 25,47,325/; and b) ₹ 6,06,707/7 c) ₹ 1,31,10,990/135. The aforesaid amount shall be payable along with interest at the rate of 9% from the date of institution of the present arbitration proceedings provided the amount is paid/deposited within 120 days of the award. 136. In case the respondent fails to pay the aforesaid amounts within 120 days from the date of the Award, the claimant shall be entitled to further interest at the rate of 15% till the date of realization of the amount. 137. Considering the overall facts and circumstances of the case and the expenditure incurred in the arbitration pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is riddled with inconsistencies, and is criticized for lack of uniformity In international contracts, there is no consensus on the method or rate of awarding Interest. 4. In an 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. 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. 5. 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. Section 31(7) of the 1996 Act which provides for Interest, is set out herein below for ready reference: 31. Form and content of arbitral award- (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onscionable 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 IOC v. Lloyds Steel Industries Ltd 2007(4) Arb LR 84 (Delhi) @ Pg. 103 or where it is nor found reasonable (2009) 17 SCC 296, or promotes the interests of justice FCI v. AM Ahmed AIR 2007 SC 829. 7. During the course of hearing, a suggestion was made to apply Interest in accordance with LIBOR plus a margin (between 1 to 3%). 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 visavis actual interest rate that they are paying, or would be required to pay for borrowing from other banks. LIBOR is a 3month rate which has been adopted in some cases of a breach of contract (or other obligation)5 Gisele Stephens Chu Joshua Kelly, Awards of Interest in International Arbitration: Achieving Coherence Through Purpose, Indian Journal of Arbitration Law, Volume 7, Issue 1 (July 2018) . 8. In the present case, the arbitral tribunal has adopted a dual rate of Interest in the Awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 105% of the costs incurred under the EPC Contracts by the arbitral tribunal. 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. 12. The Award has granted a uniform rate of 9% S.I. on both the INR and the EUR component. However, when the parties do not operate in the same currency, it is necessary to take into account the complications caused by differential interest rates. Interest rates differ depending upon the currency. It is necessary for the arbitral tribunal to coordinate the choice of currency with the interest rate. 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 arbitral tribunal will remain undisturbed. However, with respect to the EUR component, the awarddebtor will be liable to pay Interest at the LIBOR rate + 3 percentage points, prevailing on the date of the Award. 13. In light of the abovementioned discussion, the Interest awarded by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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