Madras High Court Reduces Vedanta's Pre-Arbitration Interest From 14% To 9% In Masyc Projects Dispute

The Madras High Court on 31 July partly allowed Vedanta Limited's appeal arising from its dispute over the design, manufacture, supply and commissioning of a conveyor system for a copper concentrate warehouse at Tuticorin, while substantially upholding the arbitral award in favour of Masyc Projects Pvt. Ltd.

A Division Bench of Justices P. Velmurugan and K. Govindarajan Thilakavadi held that interest awarded for the pre-arbitration and pendente lite periods must be commensurate with the prevailing rate of interest and economic conditions during the relevant period, and reduced the rate in the present case from 14% to 9% per annum. The judges held:

“The learned Single Judge considering the prime lending / base rate of the State Bank of India form 27.06.2009 to date of Award (8.3.2016) as a reasonable bench mark for a business commercial transaction revised the rate of interest from 24% per annum to 14% per annum during the pre reference period and the pendente lite period. The learned Single Judge ought to have considered that the interest must commensurate with the prevalent rate of interest for the relevant period. No reason was stated by the learned Single Judge that the interest rate at 14% reflects the prevailing economic conditions. Admittedly the legal notice was issued in the year 2009 and the pleadings were submitted in the year 2013 and the award was passed in the year 2016. Hence, we are of the view that the interest awarded by the learned Single Judge at 14% for the pre arbitration period and for the pendente lite period be reduced to 9% per annum.”

The dispute arose from a Letter of Intent dated 18 January 2007 issued by Vedanta's predecessor, Sterlite Industries India Ltd., to Masyc Projects for the design, manufacture, supply, fabrication, erection, testing and commissioning of conveyors and related works for a copper concentrate warehouse at Tuticorin for about Rs. 7.22 crore. This was followed by a Purchase Order dated 18 February 2007 and two Work Orders dated 13 March 2007. Although the parties completed the equipment supply and civil works, they disagreed over the commissioning of the conveyor system.

Masyc Projects claimed that it fully commissioned the system in 2008, while Vedanta maintained that only “cold commissioning” had taken place and that on-load commissioning remained incomplete. Vedanta paid Rs. 5.75 crore towards material supply but withheld Rs. 81.90 lakh. Masyc Projects invoked arbitration on 20 June 2009.

The Arbitrator, by an award dated 8 March 2016, directed Vedanta to pay Masyc Projects Rs. 81,90,326 towards the outstanding amount for equipment supplied, Rs. 1,73,678 towards the balance payment for civil, erection and commissioning works, and Rs. 2,58,005 towards outstanding payment for revamping works. The tribunal awarded 24% interest per annum on these amounts from 27 June 2009 until the date of the award and 18% per annum thereafter until realisation. It also rejected Vedanta's counterclaims totalling Rs. 4,50,12,605 as barred by limitation.

Aggrieved by the award, Vedanta challenged it under Section 34 of the Arbitration and Conciliation Act, 1996, which permits a party to seek setting aside of an arbitral award on specified statutory grounds. A Single Judge dismissed the challenge on 4 October 2019 but reduced the pre-award interest from 24% to 14% per annum. Vedanta then preferred an appeal under Section 37 of the Act.

Before the Division Bench, Vedanta argued that the project was a composite turnkey contract and that the Arbitrator had ignored material showing that a continuous 24-hour on-load trial had not been completed. Masyc Projects maintained that the Arbitrator had based the findings on the evidence and contractual terms and that the scope of judicial review over an arbitral award was limited.

The High Court held that the Arbitrator had considered the pleadings, evidence and contractual terms before reaching a reasoned conclusion on the commissioning dispute. It reiterated that courts cannot reappraise evidence merely because another view is possible. It also upheld the rejection of Vedanta's counterclaims as barred by limitation.

On the question of interest, the Bench noted that the legal notice was issued in 2009, the pleadings were submitted in 2013 and the award was passed in 2016. It found that the 14% rate fixed by the Single Judge did not reflect the prevailing economic conditions during the relevant period.

Accordingly, the High Court's Division Bench reduced the pre-arbitration and pendente lite interest from 14% to 9% per annum and dismissed Vedanta's challenge to the award on all other grounds, thereby confirming the Single Judge's order in the remaining respects.

Appearances for appellant (Vedanta Limited): Advocate Rahul Balaji.

Appearances for respondent (Masyc Projects Pvt. Ltd.): Advocate Adithya Reddy.