30 April 2024 Arbitration Law >> Business & Commercial Law   |   Business Laws >> Business & Commercial Law  

A US company involved in a cashew purchase gone wrong has been denied interest on a foreign arbitration award by an Indian court. The case centered on whether the company could claim interest when the arbitration award itself remained silent on the matter.

Background:

The US company entered into a contract with an Indian company to purchase a shipment of cashews. Dissatisfied with the quality of the delivered goods, the US company initiated arbitration under the rules of the Association of Food Industries Inc. (AFI). The AFI awarded the US company $10,225 but made no mention of interest on the awarded amount.

The Indian company challenged the award in Indian courts, ultimately losing the case. However, the fight wasn't over. The US company then sought to enforce the award and additionally claimed interest at a rate of 18% from the date the award was issued.

Arguments Presented:

The US company argued that Section 31(7)(b) of the Indian Arbitration Act, which deals with domestic awards, should be applied as the "lex fori" (law of the enforcing court) to determine the interest questão (question). Since the award was silent on interest, the company believed this provision entitled them to the claimed interest rate.

The Indian company countered this argument. They argued that the arbitrators' silence on interest signified a deliberate decision to not award any. They further contended that the US company should have challenged the lack of interest during the arbitration proceedings or before the court where the arbitration took place.

Legal Considerations and Court's Decision:

The crux of the court's decision hinged on the applicability of the Indian Arbitration Act. The Act has two parts: Part I governs domestic arbitrations, while Part II deals with enforcing foreign awards. A crucial Supreme Court precedent established that Part I does not apply to foreign awards enforced under Part II.

Based on this precedent, the court ruled in favor of the Indian company. The court reasoned that since Part I, which includes Section 31(7)(b), doesn't apply to foreign awards, the US company couldn't rely on it to claim interest. The court further highlighted that the law of the arbitration seat (lex arbitrai) governs the issue of interest on foreign awards. Finally, the court pointed out that the US company had the opportunity to challenge the lack of interest during the arbitration process or before the relevant court at the arbitration seat.

Conclusion:

This case underscores the importance of understanding the legal framework surrounding foreign arbitration awards. The US company's failure to address the interest issue during the arbitration proceedings ultimately resulted in their claim being denied by the Indian court.

  Arbitration and Conciliation Act, 1996