Summary
The Supreme Court modified only the interest component of an India-seated international commercial arbitral award. It deleted the escalation to fifteen percent after 120 days as unjustified and punitive. Nine percent continued on the rupee component until realisation, while the euro component carried LIBOR plus three percentage points at the award date until realisation. Interest had to be reasonable, compensatory and suited to the currency and economic circumstances.
Issues
- Whether the unexplained escalation of post-award interest was reasonable.
- Whether identical interest rates were appropriate for rupee and euro components of the award.
Provisions considered
- Section 31(7), Arbitration and Conciliation Act, 1996Interest discretion had to be exercised reasonably, with compensatory rather than punitive effect, taking account of currency, prevailing rates and proportionality. The Court distinguished pre-award and post-award interest. (¶¶ 4, 5, 6, 8, 9, 10, 12, 13)
Held
- The challenge was restricted to interest and considered in the case’s particular contractual circumstances. The contracts contained no interest stipulation, and the India-seated arbitration was governed by Part I of the Act. (¶¶ 2.5, 2.13, 4, 5)
- Interest compensates loss of use of money. The tribunal should consider the relevant period and sums, currency, international rates, inflation, commercial prudence and proportionality; it should not impose punitive or unconscionable interest. (¶¶ 3, 4, 6)
- The unexplained jump from nine to fifteen percent after 120 days was arbitrary, disproportionate and economically unjustified. It also penalised the award debtor in connection with exercise of the statutory challenge remedy. (¶¶ 8, 9, 10)
- A uniform rate for rupee and euro awards disregarded different currency-related interest conditions. The rupee component retained nine percent, but the euro component was modified to LIBOR plus three percentage points prevailing on the award date. (¶¶ 11, 12, 13)
- The appeal was disposed of by deleting the fifteen-percent escalation and prescribing those respective rates until realisation. (¶ 13)
Result
Appeal disposed of by modifying interest only: fifteen-percent escalation deleted; rupee component at nine percent and euro component at award-date LIBOR plus three percentage points, each until realisation.