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.
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 conditions2 or where it is nor found reasonable 3, or promotes the interests of justice4.
IN THE SUPREME COURT OF INDIA
Civil Appeal No. 10394 of 2018 (Arising out of SLP (Civil) No. 25819 of 2018)
Decided On: 11.10.2018
Vedanta Ltd. Vs. Shenzen Shandong Nuclear Power Construction Co. Ltd.
Hon'ble Judges/Coram:
Rohinton Fali Nariman and Indu Malhotra, JJ.
Citation: AIR 2018 SC 4773.
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