Saturday, 24 November 2018

Whether it is permissible for arbitrator to grant uniform rate of interest on both INR and EUR component?

 During the course of hearing, a suggestion was made to apply Interest in accordance with LIBOR plus a margin (between 1 to 3%).

LIBOR is an average interest rate calculated from time to time, based on inputs given by major banks in London as to their interest rates. Under the LIBOR regime, banks give details vis-a-vis actual interest rate that they are paying, or would be required to pay for borrowing from other banks. LIBOR is a 3-month rate which has been adopted in some cases of a breach of contract (or other obligation)5.
12. The Award has granted a uniform rate of 9% S.I. on both the INR and the EUR component. However, 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. It is necessary for the arbitral tribunal to co-ordinate the choice of currency with the interest rate. A uniform rate of Interest for INR and EUR would therefore not be justified. The rate of 9% Interest on the INR component awarded by the arbitral tribunal will remain undisturbed. However, 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.

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.
Read full judgment here: Click here
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