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Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Co. Ltd.

Civil Appeal · 2018 INSC 959Decided 11 Oct 2018
Civil Appeal No. 10394 of 2018
Justice Rohinton Fali Nariman · Justice Indu Malhotra

Background

Vedanta and the Chinese respondent-company had four inter-related EPC contracts for a power plant, each containing an identical arbitration clause. After disputes arose and the contracts were terminated, an arbitral tribunal awarded the respondent various sums in Indian Rupees and Euros, plus a "dual rate" of interest: 9% simple interest if paid within 120 days of the award, rising to 15% if not paid within that period. Vedanta's objections to this award were rejected by a single judge and then by a Division Bench of the Delhi High Court, leading to this appeal, in which Vedanta confined its challenge only to the rate of interest awarded.

Decision Breakdown

The Supreme Court held that the tribunal's dual-rate structure was unjustified because imposing a steep 15% rate after 120 days effectively penalized the award-debtor for exercising its statutory right to challenge the award within that same 120-day window under Section 34 of the Arbitration and Conciliation Act, 1996. The Court also held that applying a uniform interest rate to both the Rupee and Euro components of the award was improper, since interest rates must correspond to the currency in which sums are awarded. It accordingly modified the award: the 15% post-120-day rate was deleted and a uniform 9% rate was retained for the INR component until realization, while the EUR component would instead carry interest at LIBOR plus 3 percentage points from the date of the award. The appeal was disposed of on this modified basis.

Lesson Learnt

An arbitral tribunal's award of interest must be tailored to the currency of each component of the award and must not be structured so as to penalize a party merely for exercising its statutory right to challenge the award within the time the law allows.

Official source (sci.gov.in)View Judgment (PDF)

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