Title: How to Determine “REASONABLE” Rate of Interest for Interest Claim in Arbitration Matters?

Author(s): Amit Bansal, Shruti Gupta, Surabhi Dubey & Shaurya Gupta (View Profiles)

Journal: Indian Review of International Arbitration

Source: www.iriarb.com

In arbitration matters pertaining to relief for claims/damages, claim for interest also forms an integral part of total claim. This claim referred as “pre-award” interest claim may arise from varied dispute situations such as return on money invested by the affected party, loss due to breach of contract, opportunity loss, additional costs incurred, loss of profits etc. Additionally, interest may also be awarded by the Arbitrator for delay in payment of award and is referred as “post-award” interest. The Arbitration & Conciliation Act, 1996 empowers the Arbitral Tribunal to grant both interest claims. However, based on our review of arbitration awards appealed in higher courts of law, we understand that there is considerable subjectivity and inconsistency involved around the determination of rate of interest. The pre-award interest is typically governed by the contractual terms of agreement and in its absence, the Act empowers the Arbitral Tribunal to grant interest claim at a rate which it deems ‘reasonable’. However, the Act neither explains the factors that indicate reasonableness of interest rates nor provides any guidance on the approach. In practice, affected parties often apply their own analysis for determination of interest claims which at times is arbitrary in nature and results into disagreements. In case of post-award interest, although the Act stipulates the mechanism for computing rate of interest, yet it is riddled with practical challenges related to rate of interest, whether interest should be on principal amount alone or entire sum due including pre- award interest (i.e., interest on interest) etc. The objective of this paper is to enumerate some of the key approaches for determination of rate of interest in interest claims based on the nature of damages claim. We have also referred to the factors laid down by Supreme Court in a recent judgment 1 which in our view, provides a foundation for determining any interest claim. With this paper, we anticipate adoption of a more rationalized approach towards determination of interest claims which shall assist the parties in reducing the inconsistencies and its related anomalies thereby benefiting the parties with accelerated resolutions / conclusions to dispute matters.

Keywords: Post- Award Interest, Pre-Award Interest, Appropriate Rate of Interest, Interest Claim

Cite this as: Amit Bansal, Shruti Gupta, Surabhi Dubey & Shaurya Gupta, How To Determine “Reasonable” Rate Of Interest For Interest Claim In Arbitration Matters?,
2 IRIArb (2022).

*The views expressed are of author(s) only.

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