Whether rate of interest in international commercial Arbitration will be governed by law of seat of arbitration?

 '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"1. 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 Interest, the rate of Interest awarded would be governed by the law of the Seat of arbitration.

The rate of interest awarded must correspond to the currency in which the award is given, and must be in conformity with the laws in force in the lex fori.

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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Whether Indian court can execute foreign decree for interest on costs?

 In re Issue No. 5 — It is the case of the appellant that the claim for
interest on costs is not recognized in the Indian law. It is to be noted that
matters of procedure are to be governed by the lex fori, whereas the
matters of the substance are governed by lex causae. In this case, the
question whether the interest on sum of decree of costs to be executed in
India is a matter of substance as the interest on decree is a substantive
right of the decree holder and does not concern itself with the procedural
law of the forum.
32. The appellant relied upon Section 35 of the CPC which enables Courts in
India to impose litigation costs at the discretion of the Court. However,
there is no provision under the CPC or the Interest Act, 1978 which

permits imposition of interest on litigation costs.

In India, although the interest on costs are not available due to
exclusion of Section 35(3), the same does not mean that Indian Courts
are powerless to execute the decree for interest on costs. Indian Courts
are very much entitled to address the issue for execution of the interest
amount. The right to 8% interest as per the Judgments Act, 1838 of UK
can be recognized and as well as implemented in India.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10106 OF 2016
ARISING OUT OF
SPECIAL LEAVE PETITION (CIVIL) NO. 19791 OF 2013
M/S ALCON ELECTRONICS PVT. LTD
V
CELEM S.A. OF FOS 34320 ROUJAN, FRANCE & ANR. 
Dated:DECEMBER 09, 2016
Citation:(2017) 2 SCC253

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