1993 (10) TMI 232 - SC - Indian Laws

Court Affirms Decision, Clarifies Scope of Enquiry in Foreign Award Enforcement

The court affirmed the decision in the case, dismissing the appeals and affirming the decree passed by the High Court. The court clarified the scope of ... Enforcement of foreign arbitral awards under the Foreign Awards Act - Scope of judicial enquiry in proceedings under section 5 read with section 7 of the Foreign Awards Act - Inability to present case / breach of natural justice under section 7(1)(a)(ii) - Public policy in section 7(1)(b)(ii) - meaning and limits (public policy of India) - Contravention of foreign exchange control law (Foreign Exchange Regulation Act) as a bar to enforcement - Award of compound interest / interest on interest and award of damages on damages - public policy challenge - Unjust enrichment objection to enforcement of an arbitral award - Conversion of foreign currency decretal amounts - lex fori rule and application of Forasol - Interest pendente lite and future interest on enforcement of foreign awards - Adjustment of interim deposits made in compliance with interlocutory court directionsEnforcement of foreign arbitral awards under the Foreign Awards Act - Scope of judicial enquiry in proceedings under section 5 read with section 7 of the Foreign Awards Act - Scope of the court's enquiry in proceedings for enforcement of a foreign award is confined to the grounds specified in section 7 of the Foreign Awards Act and does not permit a merits review of the arbitral award. - HELD THAT: - The court held that the New York Convention and the Foreign Awards Act limit the domestic forum's role to the grounds enumerated in section 7. Authorities and treatises were relied on to show that article V of the New York Convention does not permit review of errors of law or fact by the enforcing court. Consequently, challenges going to the correctness of the arbitrators' merits determinations (for example, alleged excessiveness of compensatory damages) are not maintainable in enforcement proceedings under the Act.Enforcement proceedings are confined to the statutory grounds in section 7; merits challenges to the award are not permissible.Inability to present case / breach of natural justice under section 7(1)(a)(ii) - Renusagar's complaint that it was unable to present its case before the Arbitral Tribunal (section 7(1)(a)(ii)) is rejected. - HELD THAT: - The court examined the chronology of notices, hearings and Renusagar's own communications asserting the arbitrators were functus officio and declining to appear. Renusagar had earlier participated in hearings and filed extensive written material; when it chose not to appear after repeatedly asserting the tribunal lacked jurisdiction, it cannot later claim denial of opportunity to present its case. Thus enforcement is not barred under section 7(1)(a)(ii).Renusagar was not shown to have been unable to present its case; section 7(1)(a)(ii) does not bar enforcement.Public policy in section 7(1)(b)(ii) - meaning and limits (public policy of India) - The expression 'public policy' in section 7(1)(b)(ii) of the Foreign Awards Act refers to the public policy of India and must be construed narrowly in the private international law context. - HELD THAT: - Parliament enacted the Foreign Awards Act to give effect to the New York Convention; the court found no intention to expand the public policy inquiry beyond the enforcing state's policy. Comparative materials (UK, US, France) and prior Indian jurisprudence were considered. The narrower conflict-of-laws conception applies: enforcement may be refused only if it would violate fundamental policy of Indian law, India's interests, or basic notions of justice or morality.Public policy under section 7(1)(b)(ii) means Indian public policy applied narrowly; foreign (New York) public policy is not a ground for refusal.Contravention of foreign exchange control law (Foreign Exchange Regulation Act) as a bar to enforcement - Enforcement is not barred on the ground that the award contravenes the Foreign Exchange Regulation Act (FERA); the award does not, on the material, involve a prohibited contravention amounting to breach of Indian public policy. - HELD THAT: - The court analysed whether FERA violations would import the public policy bar. It held exchange-control legislation may found a public-policy objection, but on facts the original government approval and earlier judicial findings (notably Renusagar I) and the legal effect of section 47(3) of FERA demonstrate that enforcement need not be refused. The government's earlier refusal to approve a proposed rescheduling did not relieve Renusagar of contractual obligations; section 47(3) contemplates legal proceedings and provides the mechanism for executive permission for payment, not an absolute bar to judicial enforcement.No breach of FERA was established that would render enforcement contrary to Indian public policy.Disregard of domestic court orders and interim judicial relief - Award of compensatory damages for amounts withheld while an interim order of the Delhi High Court was in force does not render the award contrary to public policy. - HELD THAT: - The Delhi High Court's interim orders restrained the Union from giving effect to the tax-withdrawal order and permitted Renusagar, upon furnishing security, to remit tax-free interest; those orders did not require Renusagar to retain the amounts or prevent deposit of tax with the treasury. Thus the arbitrators did not penalise Renusagar for compliance with judicial orders, and enforcement is not barred on that ground.Enforcement is not precluded by Renusagar's invocation of the Delhi High Court interim orders.Award of compound interest / interest on interest and award of damages on damages - public policy challenge - Granting compensatory damages calculated by compounding interest (interest on interest) and awarding damages on interest are not contrary to Indian public policy and do not bar enforcement. - HELD THAT: - The court reviewed common law, equitable practice and statutory provisions (including the Interest Act) and international jurisprudence. It concluded India does not adopt an absolute bar on compound interest where equitable compensation requires it; the arbitrators applied New York substantive principles in fashioning an equitable remedy and compounding to approximate the injured party's economic position. Given the limited enforcement inquiry, and absent a showing that such awards offend fundamental Indian policy, the public-policy objection fails.Award of compound interest/compensatory damages on interest is not contrary to Indian public policy and is enforceable.Unjust enrichment objection to enforcement of an arbitral award - Renusagar's contention that enforcement would cause unjust enrichment of General Electric is not a valid ground to refuse enforcement under section 7(1)(b)(ii). - HELD THAT: - The court observed that unjust enrichment arguments largely attack the quantum and merits of the award, which are not cognisable in enforcement proceedings under the Act. Moreover, on the merits the tribunal's approach (including non-deduction of anticipated US tax) was reasonable because compensatory awards would themselves be taxable in the US; there was no showing that General Electric had already been paid the sums which would produce double recovery.Unjust enrichment objection does not bar enforcement; it goes to merits which are not examinable in enforcement proceedings.Conversion of foreign currency decretal amounts - lex fori rule and application of Forasol - The rate and date for conversion of a foreign-currency decree into Indian rupees for enforcement is governed by lex fori; Forasol v. ONGC governs and the appropriate date is the date of the court's judgment (date of decree) unless otherwise prescribed. - HELD THAT: - The court treated the question as procedural and within the forum's domestic law. It examined comparative authorities (Miliangos and subsequent developments) but reaffirmed Forasol as applicable to enforcement proceedings in India: where an award is expressed in foreign currency, conversion to rupees for a decree should ordinarily use the exchange rate prevailing on the date of the court's judgment/decree (or nearest date), with directions for proof of the applicable rate. The court rejected the submission that the proper law of the contract (New York) should determine the conversion date.Conversion of the US$ decree to rupees is to be at the rate prevailing on the date of the Indian court judgment in accord with Forasol.Interest pendente lite and future interest on enforcement of foreign awards - Interest awarded by the Arbitral Tribunal for pre-award and arbitral periods is a merits matter; the court limited post-award interest for enforcement proceedings to (a) the period up to institution of the enforcement petition (law governing award), and (b) for future interest from the date of this judgment at 18% per annum on the balance after adjustment. - HELD THAT: - The court delineated periods for interest (pre-reference, during arbitration, between award and institution of enforcement proceedings, during court proceedings, post-decree). It held that interest for the latter two periods falls to be determined by lex fori. Exercising its discretion and having regard to interlocutory orders and changed exchange-rate realities, the court declined to award interest pendente lite for the High Court and Supreme Court proceedings, recalled the earlier interlocutory direction about 10% pendente lite interest, confined awardable post-award interest to up to October 15, 1986 (date of filing enforcement petition) as per the award, and fixed future interest from the date of this judgment at 18% per annum on the unpaid balance after adjustment.Pre-award and arbitral-period interest are matters for the tribunal; court awarded future interest at 18% p.a. from date of judgment on the adjusted balance and limited pendente lite interest as stated.Adjustment of interim deposits made in compliance with interlocutory court directions - Amounts deposited by Renusagar in compliance with this Court's interlocutory orders must be adjusted against the decretal amount and converted into US$ at the exchange rate prevailing on the dates of those deposits. - HELD THAT: - Renusagar had deposited rupee sums pursuant to interim orders; General Electric withdrew them but conversion and remittance to US$ is a matter for the Reserve Bank. The court held that discharge of decree in rupees is effective and conversion into dollars is the withdrawer's responsibility. Therefore the rupee sums are to be converted into US$ at the rupee-dollar rate prevailing when the deposits were made (Rs.17 per US$) and adjusted against the decretal amount.Deposits made pursuant to interlocutory orders are to be converted at the rate prevailing on deposit and adjusted against the decretal US$ obligation.Final Conclusion: The High Court's decree enforcing the ICC arbitral award is affirmed. The court held that enforcement proceedings under the Foreign Awards Act permit only the statutory defences in section 7 and do not allow a merits review; Renusagar's objections under section 7(1)(a)(ii) and section 7(1)(b)(ii) (including alleged FERA contravention, reliance on interim judicial orders, compound interest, damages-on-damages and unjust enrichment) were rejected. For conversion of the US$ decretal balance to rupees the Forasol rule applies and the decree amount is converted at the exchange rate prevailing on the date of this judgment; Renusagar's interim deposits are adjusted in US$ at the rates on the dates of deposit and the unpaid balance attracts interest at 18% per annum from the date of this judgment until payment. Issues Involved:1. Scope of enquiry in proceedings for recognition and enforcement of a foreign award.2. Whether Renusagar was unable to present its case before the Arbitral Tribunal.3. Whether enforcement of the award is contrary to the public policy of the State of New York.4. Meaning of 'public policy' in the context of the Foreign Awards Act.5. Whether the award is contrary to the public policy of India.6. Relevant date for conversion of the amount awarded from foreign currency to Indian currency.7. Reconsideration of the decision in Forasol v. Oil and Natural Gas Commission.8. Entitlement to interest pendente lite and future interest.9. Adjustment of the sum deposited by Renusagar against the decretal amount.Detailed Analysis:I. Scope of Enquiry in Proceedings for Recognition and Enforcement of a Foreign Award:The court emphasized that in proceedings for enforcement of a foreign award under the Foreign Awards Act, the scope of enquiry is limited to the grounds mentioned in section 7 of the Act. This does not allow a party to impeach the award on the merits. The grounds for refusal to enforce a foreign award are similar to those at common law, which include lack of jurisdiction, fraud, public policy, and natural justice.II. Whether Renusagar was Unable to Present its Case:The court found no substance in Renusagar's claim that it was unable to present its case before the Arbitral Tribunal. Renusagar had voluntarily refused to appear before the Arbitral Tribunal after raising a preliminary objection that the arbitrators had become functus officio. The court held that the enforcement of the award is not barred by section 7(1)(a)(ii) of the Foreign Awards Act on this ground.III. Whether Enforcement of the Award is Contrary to the Public Policy of the State of New York:The court rejected the contention that enforcement of the award could be refused if it is contrary to the public policy of the State of New York. It held that the words 'public policy' in section 7(1)(b)(ii) of the Foreign Awards Act refer to the public policy of India, not any other country.IV. Meaning of 'Public Policy' in the Context of the Foreign Awards Act:The court clarified that 'public policy' in section 7(1)(b)(ii) should be construed narrowly. It means the doctrine of public policy as applied by Indian courts, which includes fundamental policy of Indian law, interests of India, and justice or morality.V. Whether the Award is Contrary to the Public Policy of India:- Violation of Foreign Exchange Regulation Act (FERA): The court held that the provisions of FERA are enacted to safeguard the economic interest of India. Any violation would be contrary to public policy. However, it found no violation of FERA in the award.- Disregard of the Orders of the Delhi High Court: The court found that the orders of the Delhi High Court did not prevent Renusagar from remitting the interest amount to General Electric. Therefore, the award of compensatory damages was not penalizing Renusagar for complying with the court's orders.- Interest on Interest (Compound Interest): The court held that awarding compound interest is not contrary to public policy in India.- Damages on Damages: The court rejected the contention that awarding compensatory damages on delinquent interest amounts to awarding damages on damages, which is contrary to public policy.- Unjust Enrichment: The court found no substance in the contention that the award results in unjust enrichment of General Electric.VI. Relevant Date for Conversion of the Amount Awarded from Foreign Currency to Indian Currency:The court affirmed the principle laid down in Forasol's case that the relevant date for conversion of foreign currency into Indian currency is the date of the judgment.VII. Reconsideration of Forasol's Case:The court did not find any reason to reconsider the decision in Forasol's case, which laid down the principle that the date of judgment is the relevant date for currency conversion.VIII. Entitlement to Interest Pendente Lite and Future Interest:The court declined to award interest for the period the proceedings for enforcement of the award were pending in the Bombay High Court and in the Supreme Court. It awarded future interest at 18% on the balance amount from the date of the judgment till payment.IX. Adjustment of the Sum Deposited by Renusagar Against the Decretal Amount:The court directed that the amount of Rs. 10,69,26,590 deposited by Renusagar should be converted into US dollars at the exchange rate of Rs. 17 per dollar prevalent at the time of payment, amounting to US $6,289,800. The balance amount payable by Renusagar was determined to be US $6,043,555.14, which on conversion at the exchange rate of Rs. 31.53 per dollar comes to Rs. 19,05,53,293.56.The appeals were dismissed, and the decree passed by the High Court was affirmed with the specified directions regarding the conversion and payment of the balance amount.