1983 (10) TMI 234 - SC - Companies Law

Contractual Conversion Rate Applied to Indian Rupee Payments | Foreign Currency Conversion Date

The court held that the fixed conversion rate specified in the contract applied only to 20% of payments made in Indian Rupees, with the remaining 80% to ... Conversion rate applicable only to rupee portion of foreign currency priced fees - enhanced rate of exchange in arbitral award applies to rupee portion from specified date - proper date for converting foreign currency decree into Indian rupees is date of the decree - decree in foreign currency subject to foreign exchange permission; alternative rupee equivalent to be provided - finality of award merged in decree; court to pronounce judgment according to award under Arbitration Act, 1940 - claims for tax differential and interest under award negativedConversion rate applicable only to rupee portion of foreign currency priced fees - Contractual fixed conversion rate in Article IX 3.1 applied only to the 20% rupee part of the operational, standby and equipment charges and not to all payments under the contract. - HELD THAT: - The contract computed fees in French Francs and specified that 80% be paid in French Francs and the remaining 20% in Indian rupees using the fixed rate FF 1.033 = Re. 1.000. The Court emphasised the commercial context - a foreign supplier contracting with an Indian statutory undertaking and the separate invoicing and payment mechanisms for the French Franc portion. Accordingly the contractual conversion clause was interpreted as limited to converting the 20% rupee component, and not as a universal conversion rate for all payments denominated in French Francs under the contract.Contract rate FF 1.033 = Rs. 1.000 applies only to the 20% rupee portion of the fees.Enhanced rate of exchange in arbitral award applies to rupee portion from specified date - The enhanced exchange rate fixed by the Umpire (FF 1.000 = Rs. 1.5178) applied to the rupee portion of payments under Article IX 3.1 from 30 November 1966 and not merely to interest. - HELD THAT: - The Erratum to the award clarified that Forasol had sought an enhanced rate of exchange after the rupee devaluation; the Umpire directed that 'Rupee portion should be converted' at FF 1 = Rs. 1.5178 from 30.11.1966 and stated that 'this rate of exchange would apply to both the parties'. The Court rejected the Division Bench's narrower reading that the enhanced rate related only to interest, noting the Erratum deleted prior passages and substituted paragraphs applying the enhanced exchange rate (and also awarding higher interest thereafter) and expressly directing adjustment of income tax payments at the enhanced rate.Enhanced rate FF 1 = Rs. 1.5178 applies to rupee payments under the contract from 30 11 1966.Proper date for converting foreign currency decree into Indian rupees is date of the decree - finality of award merged in decree; court to pronounce judgment according to award under Arbitration Act, 1940 - When a court passes a decree in terms of an award expressed in foreign currency and the award/decree does not fix a conversion date, the appropriate date for converting the foreign currency sum into Indian rupees is the date of the judgment (date of the decree). - HELD THAT: - After surveying English authorities and considering Indian procedural realities (court fees assessed ad valorem, pecuniary jurisdiction limits, and execution mechanics under the Code of Civil Procedure and the Arbitration Act, 1940), the Court held that selecting the decree date best balances fairness and practicability. The Court explained that unlike English practice (where enforcement/leave dates may be used), under section 17 of the Arbitration Act, 1940 a court must pronounce judgment 'according to the award' after the period to set aside has expired, producing a decree which alone is enforceable; consequently conversion at the date of the judgment ensures the decree accurately reflects the rupee equivalent enforceable by execution. The Court also set out recommended practice for future suits and awards where foreign currency is claimed, including alternative rupee equivalents and procedures for proving the conversion rate at judgment.Foreign currency sums in a decree are to be converted into Indian rupees at the rate prevailing on the date of the judgment (date of the decree).Decree in foreign currency subject to foreign exchange permission; alternative rupee equivalent to be provided - A decree may order payment in the foreign currency adjudged, but any option given to the judgment debtor to discharge the decree in that foreign currency must be made subject to obtaining requisite permission from the foreign exchange authorities; in default the decree must provide for the rupee equivalent. - HELD THAT: - The Court recognised that a simpliciter decree for payment in foreign currency would, without qualification, direct an act possibly illegal under the Foreign Exchange Regulation Act, 1973. Therefore the correct form is a decree ordering payment of the foreign currency subject to necessary regulatory permission and, alternatively, payment of the rupee equivalent (to be converted at the rate of exchange prevailing on the date of the judgment). The Single Judge's direction allowing ONGC to pay in French Francs was therefore affirmed but modified to make that option conditional on obtaining the requisite foreign exchange permission.Payment in foreign currency permitted only after obtaining foreign exchange permission; otherwise the rupee equivalent at judgment date must be payable.Claims for tax differential and interest under award negatived - ONGC's counterclaims - (a) tax differential claim and (b) claim for interest on amounts payable by Forasol to ONGC - were rejected. - HELD THAT: - The tax differential contention was found to have been rendered irrelevant by the award which adjusted and credited the income tax amounts paid by ONGC; ONGC did not pursue this point on appeal and the Court declined to entertain it as raised belatedly. The interest claim failed because the award expressly allowed interest only on French Franc amounts and disallowed interest on rupee amounts until the date of the award; the amounts on which ONGC sought interest were rupee amounts and thus did not attract interest under the award.Both the tax differential and interest claims of ONGC were negatived.Final Conclusion: Forasol's appeal allowed and Division Bench order set aside; Single Judge's order in execution proceedings restored subject to qualification that payment by ONGC in French Francs is permissible only after obtaining requisite foreign exchange permission; ONGC's cross claims dismissed; decree conversion of French Francs to rupees to be at rate prevailing on date of the judgment (decree). Issues Involved:1. Applicability of the rate of exchange specified in the contract.2. Applicability of the enhanced rate of exchange specified by the Umpire.3. Date for converting the foreign currency amount into Indian Rupees.4. ONGC's claim for tax differential and interest.Detailed Analysis:1. Applicability of the Rate of Exchange Specified in the Contract:The primary issue was whether the rate of exchange mentioned in Article IX-3.1 of the contract (FF 1.033 = Rs. 1.000) applied to all payments or only to the 20% of the payments made in Indian Rupees. The court held that the fixed conversion rate applied only to 20% of the operational fee, standby fee, and equipment charges payable in Indian Rupees. The remaining 80% and other amounts were to be paid in French Francs, emphasizing that the foreign party desired payment in its own currency to avoid dependency on the stability of the Indian Rupee.2. Applicability of the Enhanced Rate of Exchange Specified by the Umpire:The contention was whether the enhanced rate of exchange (FF 1.000 = Rs. 1.5178) specified by the Umpire applied only to the interest payable to Forasol or to all payments. The court concluded that the enhanced rate of exchange applied to all payments in Indian Rupees from November 30, 1966, not just to the interest. This conclusion was based on the Umpire's award and the subsequent erratum which clarified that the enhanced rate of exchange applied to both parties and to all rupee payments.3. Date for Converting the Foreign Currency Amount into Indian Rupees:The court deliberated on various dates for converting the foreign currency amount into Indian Rupees: the date when the amount became due, the date of the commencement of the action, the date of the decree, the date when the court orders execution to issue, and the date of payment. The court ultimately decided that the proper date for conversion was the date of the decree, ensuring that the plaintiff is put in the same position as if the defendant had discharged the obligation on the due date. This selection avoids the complexities and uncertainties associated with other dates.4. ONGC's Claim for Tax Differential and Interest:ONGC's claim for tax differential was based on Article IV-1.2 of the contract, which stipulated adjustments in tax payments. The court found that this claim did not survive as the amounts paid by ONGC as tax on behalf of Forasol were already adjusted in the award. ONGC's claim for interest on amounts payable by Forasol was also rejected. The award clearly stated that there was no right to interest on amounts payable in Rupees, and ONGC's claim pertained to amounts payable in Rupees, not French Francs.Conclusion:The court allowed Forasol's appeal, setting aside the Division Bench's order and restoring the Single Judge's order with a modification that ONGC could pay in French Francs after obtaining the requisite permission under the Foreign Exchange Regulation Act, 1973. ONGC's appeal was dismissed, and ONGC was directed to pay Forasol the costs of both appeals in the Supreme Court and the appeal in the Delhi High Court.