India: Rate Of Interest To Be Governed By Seat In An International Commercial Arbitration

Last Updated: 15 October 2018
Article by AMLEGALS  

In an international commercial arbitration, in the absence of an agreement between the parties on interest, the rate of interest shall be governed by the law of the Seat of arbitration.

Vedanta Ltd. v. Shenzen Shandong Nuclear Power Construction Co. Ltd.
(Arising out of SLP (Civil) No. 25819 of 2018)
[JUDGEMENT ON 11.10.2018]


The Appellant and Respondent Company had entered into four inter-related contracts for construction of a 210MW Co-Generation Power Plant. These four contracts together comprised of EPC contracts between the appellant and respondent.

All the EPC contracts provided for an Arbitration clause. The Arbitration clause specified the seat of arbitration as India and also specified applicability of Arbitration & Conciliation Act 1996 with all modifications and re-enactments.

The EPC Contracts contained a termination clause that specified that after giving due written notice, the purchaser may suspend work, wholly or partly and the supplier, in accordance with the terms of notice, would continue or abstain from work specified under terms of the contract and the notice.

If such suspension continues for more than 180 days, at the end of the period, the Supplier shall be by a further 30 days prior notice, entitled to terminate the Contract and Purchaser shall pay to the Supplier 105% of the cost incurred by the Supplier till the date of termination as compensation after adjusting payments already made till the termination.

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 Appellant to pay the outstanding dues.

The Respondent invoked the Arbitration Clause vide Notice dated 18.04.2012. The disputes were then emanating out of the EPC contracts were referred to arbitration.

The Respondent 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.

In response, the Appellant filed a Counter Claim amounting to Rs. 2458, 34, 89,367 along with Interest @18% p.a. before the arbitral tribunal.

On 9/11/2017, the arbitral tribunal passed an award in favor of the Respondents and directed the Appellant to pay within 120 days @9% interest the following amounts:

I. Under First Claim

  • Rs. 46,71,41,942/and Euro 23,717,437;
  • Rs. 12,19,69,047

II. Under the Second claim:

  • Rs. 25,47,325/; and
  • Rs. 6,06,707/
  • Rs. 1,31,10,990/

The Arbitral tribunal also awarded 50 lakhs rupees as cost and legal expense to the Respondent and also specified that if the appellant did not pay the amount within 120 days then interest would be applicable @15% till the date of realization.

Aggrieved by the said Award, the Appellant filed an appeal under Section 34 before the Delhi High Court which came to be rejected vide Order dated 12/02/2018.

Aggrieved by the judgment of the Single Judge, the Appellant filed an Appeal before a Division Bench of the Delhi High Court under Section 37 of the said Act. The Division Bench too dismissed the Appeal vide Order dated 30/08/2018.

Hence the Appellant preferred a Special Leave Petition in the Supreme Court.


The Appellant restricted the challenge to the rate of Interest awarded by the arbitral tribunal.

Thus the issue before the Supreme Court was whether the dual rate of interest adopted by the tribunal in their award is justified in law?


The Court observed that a reasonable discretion must be exercised by the arbitrator while awarding interest.

The court noted that an award debtor cannot be subjected to a penal rate of interest, even during the period when he is entitled to exercise his statutory right to challenge the award before a court and not even after that period.

The Court also observed that:

"An arbitral tribunal while making an award for Interest must take into consideration a host of factors, such as:

  1. the 'loss of use' of the principal sum;
  2. the types of sums to which the Interest must apply;
  3. the time period over which interest should be awarded;
  4. The internationally prevailing rates of interest;
  5. Whether simple or compound rate of interest is to be applied;
  6. Whether the rate of interest awarded is commercially prudent from an economic standpoint;
  7. The rates of inflation;
  8. Proportionality of the count awarded as Interest to the principal sums awarded.


The Court, according to the factual position, concluded that it would be contrary to the principle of proportionality and reasonableness if grant of 15% Interest is allowed as it is excessive.

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 Respondent being awarded compensation, contrary to the conditions stipulated in the Contract.

With respect to the EUR component, the award debtor will be liable to pay Interest at the LIBOR rate +3 percentage points, prevailing on the date of the Award.


The Court reasoned that

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.

"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 34(3) of the 1996 Act, and 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."


This judgement has brought about much needed clarity in arbitral awards by giving guidelines and factors for arbitrators to consider when deciding upon rate of interest over an arbitral award.

Further, the readiness of court in referral of LIBOR exchange rates also signifies judiciary's inherent interest in bringing local proceedings in sync with international standards.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions