1983 (10) TMI 234 - SC - Companies Law

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

FORASOL Versus OIL & NATURAL GAS COMMISSION (ONGC)

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 ... Whether the rate of conversion mentioned in the said Article IX-3.1 applied only to 20 per cent of the amounts in French Francs payable by ONGC to Forasol in Indian rupees in respect of Forasol's operational fee, standby fee and equipment charges as contended by Forasol or whether it applied to all payments to be made under the said contract, whether in rupees or in French Francs, as contended by ONGC? Whether the enhanced rate of exchange specified by the Umpire in the said award applied only to the amount payable by way of interest to Forasol as contended by ONGC? What date to be selected by the Court for converting into Indian rupees the French Franc part of the said award in respect of which no rate of exchange has been fixed either by the said contract or the said award? Held that:- It is pertinent to note that under Article IX-3.1 the amount of fees and charges payable to Forasol were to be computed in French Francs and thereafter 80 per cent thereof was to be paid in French Francs and the remaining in Indian rupees. Even with respect to such twenty per cent Forasol did not want to be dependent upon a possible fluctuation in the exchange rate of rupee and, therefore, the 20 per cent part of the amount computed in French Francs was covenanted to be converted at a fixed rate provided in the said Article IX-3.1. It is thus only the 20 per cent of the said fees and charges computed in French Francs in Forasol's invoices but payable in Indian rupees which was to be converted at the aforesaid rate of exchange specified in the said contract. The contention of ONGC that the fixed rate of conversion provided in Article IX-3.1 applied to all payments to be made under the said contract to Forasol must, therefore, be rejected. The Division Bench of the Delhi High Court was, the in error in holding that the enhanced rate of exchange specified in the said award applied only to the amount of interest payable to Forasol. Thus this enhanced rate of exchange applied to the payments in Indian rupees under Article IX-3.1 of the said contract to be made by ONGC to Forasol from and after November 30,1966. The learned Single Judge rightly took the date of the decree as the date of conversion. The amounts on which interest is claimed by ONGC were payable by Forasol in rupees and not in French Francs. Therefore, by the express terms of the said award, there is no right in ONGC to claim any interest on these amounts and this claim for interest was rightly negatived. 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.