A Delhi High Court judgment in has clarified when the accrual of interest would cease on compensation amounts awarded in arbitration cases.
In this case, the question arose of when does the interest clock, acrrual of interest, stop for amounts granted in arbitration awards. During the 2012 arbitration between Shenzhen Shandong Nuclear Power Construction Company (Shenzhen) and Vedanta, Bombay High Court, while deciding on an element in their dispute, directed Vedanta to furnish security of INR1.87 billion (USD20.6 million).
On 14 August 2013, Vedanta furnished a bank guarantee to Shenzhen for INR1.87 billion, that continued during the arbitration proceedings. The final arbitration award was passed on 9 November 2017, granting Shenzhen an undisclosed amount.
Vedanta appealed the arbitration award before Delhi High Court and was directed to deposit the entire amount of the arbitration award along with interest with the court registry. The court also directed that the earlier bank guarantee be returned to Vedanta, once the full deposit was made.
On 23 March 2018, Vedanta deposited a partial amount of INR1.55 billion with the registry after seeking the court’s permission.
Vedanta’s appeal to the arbitration award was dismissed by the high court on 30 August 2018.
Following the dismissal, Shenzhen filed an execution petition on 14 September 2018 to enforce the award. Meanwhile, Vedanta filed a special leave petition (SLP) before the Supreme Court of India against the high court’s dismissal.
On 24 September 2018, Delhi High Court directed the registry to release INR600 million to Shenzhen, which was ordered to retain this amount in its bank account until Vedanta’s SLP was listed before the Supreme Court.
On 11 October 2018, the Supreme Court decided the matter and modified the interest rate on the euro-denominated component of the award, from 9% per annum and made it the London interbank offered rate (LIBOR) plus 3%.
On 8 August 2019, the high court ordered the release of an additional INR346.9 million to Shenzhen.
On 6 January 2020, the high court directed that the amounts deposited by Vedanta must be adjusted, towards applicable interest and, then the principal amount. The court said the euro component should be converted to Indian rupees based on the exchange rate on 17 October 2012, i.e. the date the claim petition was filed, in line with the Supreme Court’s directions.
On 12 September 2022, Shenzhen told the court that it was entitled to INR2.1 billion including interest up to 23 November 2022. However, Vedanta said Shenzhen was entitled to INR1.84 billion, which meant Vedanta was entitled to a refund of INR823.14 million.
Shenzhen argued before the court that since the deposit made by Vedanta was conditional and Shenzhen was not free to withdraw it, the interest would continue to accrue. It also argued that the bank guarantee was only a security and not actual payment. During the proceedings, Vedanta deposited a partial amount and only a part of that amount had been released to Shenzhen, making the interest accruable till 6 January 2020.
Vedanta argued that the interest should stop accruing the day the entire amount was deposited with the court. The bank guarantee was available to Shenzhen to encash and further deposits made by Vedanta totalled the required amount. Shenzhen had the opportunity to access the entire award amount since 23 March 2018, but did not take any steps to do so.
The court relied on (DDA case), observing that mere deposit of the decreed amount in court does not amount to payment. The Supreme Court while deciding the observed that even if partial payment towards the decree had been made, then interest would cease to accrue to the extent of the amount paid.
The court decided that since the amounts deposited by Vedanta, partial and as bank guarantee, were not available for Shenzhen to encash, the interest would continue to accrue. Bank guarantees are regarded only as security for amounts that may be due to a party later in arbitration proceedings.
