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TMI Blog2018 (10) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... s identically worded, which reads as under: "Article 10 ARBITRATION 10.1 The parties hereto shall endeavor to settle all disputes and difference relating to and/or arising out of the Contract amicably. 10.2 In the event of the parties failing to resolve 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision on payment of Interest. 2.6 Disputes arose between the parties, which resulted in the termination of the EPC Contracts by the Respondent vide notice dated 25.02.2011. The Respondent called upon the Petitioner herein to pay the outstanding dues as mentioned in the said notice. 2.7 The Respondent Claimants 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 Rs. 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 Rs. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed the Appeal vide Order dt. 30.08.2018. 2.13 Aggrieved by the judgment of the Division Bench, the Appellant has preferred the present Special Leave Petition. At the time of arguments, the Appellant restricted the challenge to the rate of Interest awarded by the arbitral tribunal. The challenge on the Interest 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 Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revalent on the date of the award. 6. 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest, 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 120days. 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. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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