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2018 (10) TMI 708

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. - .....

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any dispute amicably the same shall be referred to Arbitration in accordance with the Arbitration & Conciliation Act 1996 with all modifications and reenactments thereto, as is prevalent in India. Each party shall be entitled to nominate an Arbitrator and the two Arbitrators so nominated shall jointly nominate a third presiding Arbitrator. The Arbitrators shall give a reasoned award. 10.3 The place of arbitration shall be Mumbai and the language of the arbitration shall be English. 10.4 The parties further agree that any arbitration award shall be final and binding upon the parties. 10.5 The parties hereto agree that the Supplier shall be obliged to carry out its obligations under the Contract even in the event a dispute is referred to Arbitration. It is clarified that the purchaser 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 .....

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mants invoked the Arbitration Clause vide Notice dated 18.04.2012. 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. At the first sitting of the arbitral tribunal on 17.10.2012, the parties mutually agreed to a change of the seat/place of arbitration from Mumbai to New Delhi. 2.8 The Claimant Respondent herein raised various Claims in multiple currencies amounting to ₹ 4,472,106,315; US $ 2,380,000; and EUR 121,723,214 along with pendent lite and future Interest @ 18% p.a. 2.9 The present Appellant filed a Counter Claim amounting to ₹ 2458,34,89,367 along with Interest @18% p.a. for determination 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 Sec .....

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awarded by the Tribunal is being considered in the peculiar facts and circumstances of the present case, and the specific clauses of the Contracts in question. 3. Interest is defined as 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 32 HALSBURY S LAWS OF ENGLAND para 106 (4th Ed., 1980). In essence, an award of Interest compensates a party for its forgone return on investment, or for money withheld without a justifiable cause. The current practice of awarding Interest in international commercial arbitrations 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 sea .....

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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. 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 .....

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Award amounts to almost 50% of the sum awarded. The grant of 15% Interest is excessive and contrary to the principle of proportionality and reasonableness. 11. It is also relevant to note that as per Clause 35.2.3 (supra) of the Conditions of Contract, it was expressly provided that there would be no consequential damages payable by the Purchaser to the Supplier in the event of termination of the contract, as the supplier would get 105% of the costs incurred. The Claimant/Respondent has, in fact been awarded 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 .....

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