Whether arbitrator can grant penal rate of interest affecting right of award debtor to challenge said award?

 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 Award-debtor is entitled to challenge the award within a maximum period of 120 days' as provided by Section Achieving Coherence Through Purpose, Indian Journal of Arbitration Law, Volume 7, Issue 1 (July 2018) 34(3) of the 1996 Act6. If the award-debtor is made liable to pay a higher rate of Interest after 120 days, it would foreclose or seriously affect his statutory right to challenge the Award by filing objections Under Section 34 of the said Act.

9. The imposition of a high rate of interest @ 15% post-120 days is exorbitant, from an economic standpoint, and has no co-relation with the prevailing contemporary international rates of Interest. The Award-debtor 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 120-days.

10. The Petitioner in his Written Submissions submitted a chart which shows that the Interest component of the 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.

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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