Supreme Court: While considering the appeal revolving around the issue of enforcement of an arbitral award expressed in foreign currency, the Division Bench of P.S. Narasimha* and Aravind Kumar, JJ., had to consider the following related questions-
The correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees;
The date of such conversion, when the award debtor deposits some amount before the Court during the pendency of proceedings challenging the award.
To resolve the afore-stated questions, and considering the uncertainties regarding time-lapse between the date of the award and its enforceability and the ever-fluctuating exchange rates, the Court formulated twin principles-
Following the principle in Forasol v. O.N.G.C., , the date when the arbitral award becomes enforceable shall be the date for conversion. Under the , this date is when the objections against the award are dismissed, and the award attains finality.
In the event that the award amount or part of it is deposited in Court pending objections, enabling withdrawal by the decree holder, the date of such deposit, shall be the relevant date for conversion as per the principle in Renusagar Power Co. Ltd. v. General Electric Co., .
Background:
DLF Ltd. (an Indian Company) and Koncar Generators (a Croatian Company) entered a contract for the design, engineering, manufacturing, and supply of two generators by the respondent. Certain disputes arose between them that were referred to arbitration before the International Chamber of Commerce, Paris. The Arbitral Tribunal passed its award dated 12-05-2004 in favour of Koncar Generators and held DLF Ltd. to be jointly and severally liable to pay 10,93,989 Euros, along with interest. Koncar filed for execution of the award in 2004, while DLF filed a petition under Section of the , which was dismissed on 28-04-2010.
In 2010 itself, DLF filed objections against the award under Section 48 of the Act and filed a Section 37 appeal against Section 34 order dated 15-10-2010 Punjab and Haryana High Court dismissed the appeal. Accordingly, DLF deposited Rs. 7.5 crores with the Executing Court on 22-10-2010. Due to lack of any challenge, the award had attained finality by 2014.
Vis-a-vis execution proceedings, which was allowed by the Trial Court by its order dated 03-02-2017, wherein it was held that the relevant date to convert the award amount expressed in euros to Indian rupees (the foreign exchange rate) is the date on which all the objections against the award were finally decided, as it was only on such date that the award was deemed to be a decree. DLF filed a revision against this order before the High Court, which was dismissed. The High Court further stated that DLF cannot be permitted to benefit from the fluctuation in exchange rates when the delay is attributable to them.
DLF reached the Supreme Court via special leave petition, wherein the Court confined the issue to determining whether the foreign exchange rate as on 15-10-2010 would apply to the deposit of Rs. 8 crores.
Court’s Assessment:
Statutory Scheme
Perusing the issues raised in the matter, the Court firstly examined the statutory scheme under for the enforcement of foreign arbitral awards in India. It was noted that Part II of A&C Act deals with the enforcement of certain foreign arbitral awards and Chapter I deals with awards under the New York Convention.
Taking note of Section 45 to 52, the Court stated that it is clear that a foreign arbitral award is binding between the parties when it is enforceable under Part II, Chapter I of A&C Act (Section 46). The enforceability of the award can be challenged under Section 48, and the order passed on such an application can be appealed under Section 50 only if it is allowed and the court refuses enforcement of the award.
Therefore, a foreign award can be enforced when the objections against it are finally decided and dismissed. At this point, the award is deemed to be a decree of the court as per Section 49. It was also pointed out that unlike under the , there is no requirement for a separate decree by a court for making the award a rule of the Court.
Case Law on relevant Date of Conversion
In Forasol (supra) case, vis-a-vis date of conversion, the Supreme Court had stated that “Court must select a date which puts the plaintiff in the same position in which he would have been had the defendant discharged his obligation when he ought to have done, bearing in mind that the rate of exchange is not a constant factor but fluctuates, and very often violently fluctuates, from time to time”.
It was further observed that in Forasol (supra) the Court had undertaken a detailed examination of each of the 6 dates that it set out earlier and by adopting the approach of eliminating other possible dates, held that the date of the decree was the most appropriate amongst them. It was also noted that the law laid down in this case was subsequently affirmed in Renusagar (supra) in the context of .
In Renusagar (supra) the Court had held that the applicable law to determine the proper date for conversion is the lex fori, which would be Indian law. After extensively discussing the principles under English law as well as the reasoning in Forasol (supra), the Court rejected the contention that Forasol (supra) required reconsideration.
Hence, the Division Bench in the instant case, opined that the principle and law laid down in Forasol (supra) had been widely considered and followed by the Supreme Court in various types of matters. There is no impediment regarding application of this decision to cases under the A&C Act, even though it was decided under the . The Court therefore, disagreed with the High Court that Forasol (supra) does not apply to cases under the 1996 Act.
Applying the principle in Forasol (supra) under A&C Act:
The statutory scheme under the A&C Act does not require such a judgment or decree to be passed for a foreign award to be enforceable. Rather, the enforceability of a foreign award is automatic and deemed under Section 49 after the objections against such an award under Section 48 are finally decided and disposed of. At this point, the award is enforceable as a decree of a court (Section 49). Hence, the date on which the objections are finally decided and dismissed would be the proper date for determining the exchange rate to convert an amount expressed in foreign currency.
Delving into the facts of the instant case, the Court pointed out that 01-07-2014 was the date on which the objections were finally decided and dismissed, and it was so because the High Court dismissed the revision petition against the Trial Court order dismissing DLF’s objections; no further appeal was preferred from this order and hence, it attained finality.
Conversion of deposited amounts
From the order of the High Court dated 15-10-2010, it was clear that such order for deposit of Rs. 7.5 crores and for furnishing a bank guarantee of an Indian bank for the release of the deposit was made in accordance with the consent of the parties.
Further deposit of Rs. 50 lakhs was made pursuant to an interim order of the High Court dated 03-06-2011. However, unlike the previous order, neither was this order passed on the consent of the parties nor did it permit the respondent to withdraw the money during the pendency of the proceedings.
Despite being permitted to withdraw Rs. 7.5 crores, Koncar did not do so until 2016 as it was unable to obtain a bank guarantee from an Indian bank. However, the order of 15-10-2010 clearly recorded Koncar’s consent to this condition. Further, when it was unable to comply with the same, it also did not apply for a modification or removal of the condition. Hence, Koncar, in its own discretion, did not withdraw Rs. 7.5 crores when it was deposited in 2010.
Noting similarities in afore-stated scenario with the facts in Renusagar (supra) the Court found it appropriate to adopt the approach in Renusagar (supra).
The Court further observed that it is important to appreciate the consequence and effect of deposit during the pendency of proceedings to understand the need to convert this amount on that date. Through a deposit, the award debtor parts with the money on that date and provides the benefit of that amount to the award holder. Provided that the award holder is permitted to withdraw this amount, it can convert, utilise, and benefit from the same at that point in time. “Considering that the deposited amount inures to the benefit of the award holder, it would be inequitable and unjust to hold that the amount does not stand converted on the date of its deposit”.
The Court further shed light on Order 21, Rule 1, CPC which embodies a rule of prudence that once the amount is tendered to the decree-holder by the judgment-debtor, whether in the form of a court deposit or other forms of payment such as demand draft or cheque, the judgment-debtor cannot be made liable to then pay interest on such amount.
Furthermore, relying on relevant precedents, the Court pointed out that once there is a deposit by the award debtor and the award holder is permitted to withdraw the same, even if such withdrawal is conditional and subject to the final decision in the matter, the court must consider that the award holder could access and benefit from such deposit. It is then the burden of the award holder to furnish security, as required by the Court’s orders, to utilise the amount or to make an application for modification of the condition if it is unable to fulfil the same.
Conclusions
The statutory scheme of the Act makes a foreign arbitral award enforceable when the objections against it are finally decided. Therefore, as per A&C Act and the principle in Forasol (supra), the relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable.
When the award debtor deposits an amount before the court during the pendency of objections and the award holder is permitted to withdraw the same, even if against the requirement of security, this deposited amount must be converted as on the date of the deposit.
After the conversion of the deposited amount, the same must be adjusted against the remaining amount of principal and interest pending under the arbitral award. This remaining amount must be converted on the date when the arbitral award becomes enforceable, i.e., when the objections against it are finally decided.
Decision:
The Court thus held that deposit of Rs. 7.5 crores stands converted as on the date of deposit (22-10-2010), when the rate of exchange as submitted by DLF was 1 euro = Rs. 59.17. It was further held that the second deposit of Rs. 50 lakhs pursuant to the High Court order dated 03-06-2011 stood on a different footing from the first deposit. This order did not permit the respondent to withdraw this amount till the completion of the proceedings. Hence, the amount cannot be converted as on the date of deposit as Koncar could not have benefitted from the same.
Exchange rate on 22-10-2010 would apply to that extent and non-withdrawal by Koncar of Rs. 7.5 crores was in its own discretion and inaction. Since the revision proceedings were complete on 01-07-2014, hence, it would be appropriate to apply the exchange rate as on this date to convert the deposit of Rs. 50 lakhs.
The Court thus partly allowed the appeal, and set aside the findings of the High Court in the impugned judgment to the extent that Forasol (supra) does not apply under A&C Act and that the exchange rate on 01-07-2014 must be used for converting the entire arbitral award and interest.
CASE DETAILS
| Citation: Appellants : DLF Ltd. Respondents : Koncar Generators & Motors Ltd. | Advocates who appeared in this case For Petitioner(s): Pinaki Mishra, Sr Advocate For Respondent(s): Abhay Mahajan, Advocate |
CORAM :
Buy Arbitration and Conciliation Act, 1996
The post appeared first on .