2024 (8) TMI 653 - SC - Indian Laws

Foreign currency arbitral awards convert at exchange rates from deposit dates during proceedings, not enforcement dates

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The SC held that for arbitral awards in foreign currency, the exchange rate conversion date depends on when amounts are deposited during proceedings. ... Enforcement of an arbitral award expressed in foreign currency - what is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees? - what would be the date of such conversion, when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award? HELD THAT:- In the present case, it is important to note the terms on which the two deposits of Rs. 7.5 crores and Rs. 50 lakhs were made. From the order of the High Court dated 15.10.2010, it is 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. The facts in this case are similar to Renusagar [1993 (10) TMI 232 - SUPREME COURT] for an analogy to be drawn. Here as well, the deposit was made during the pendency of the proceedings under the objections petition. It was permitted to be withdrawn against a bank guarantee of an Indian bank. Here the respondent was entirely unable to withdraw the amount, while the issue there was that it was only unable to convert the amount to US dollars. However, in both cases, the respondent failed to move the Court for necessary orders to be able to receive and utilise the amount. In this case, there is the added fact that the respondent consented to the deposit and the condition requiring security. In light of these similarities, it is appropriate to adopt the Court’s approach in Renusagar. The 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 the appellants is 1 euro = Rs. 59.17. The submission that the respondent was unable to furnish a bank guarantee of an Indian bank, also rejected. This argument is only to serve its own interest to be able to benefit from a higher exchange rate but does not address the principle that operates while enforcing a sum expressed in foreign currency. A similar logic underscores the statutory provisions in Order 21, Rule 1 and Order 24 of the Code of Civil Procedure, 190852 to determine whether interest will continue to operate on an amount deposited before a court - A constitution bench of this Court in Gurpreet Singh v. Union of India [2006 (10) TMI 493 - SUPREME COURT] extensively discussed the rules governing interest calculation when the defendant/ judgment-debtor deposits some part of the amount. Order 24 governs deposits at the pre-decretal stage and Order 21, Rule 1 at the post-decretal stage.54 The essence of these provisions is that on any amount deposited into the court, interest shall cease to run from the date when the depositor serves a notice to the plaintiff/decree-holder. Similarly, when payment is tendered to the decree-holder outside the court, interest ceases on such amount even if the payment is refused. Order 21, Rule 1 embodies a rule of prudence that once the amount is tendered to the decree-holder by the judgmentdebtor, 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. It is clear that the exchange rate on 22.10.2010 would apply to that extent and non-withdrawal by the respondent of Rs. 7.5 crores was in its own discretion and inaction. However, since the order of 03.06.2011 permits withdrawal of Rs. 50 lakhs on the completion of the proceedings, that would be the appropriate date for determining the exchange rate. Here, 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 statutory scheme of the Act makes a foreign arbitral award enforceable when the objections against it are finally decided. Therefore, as per the 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. Appeal allowed in part. Issues Involved:1. Correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees.2. Date of conversion when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award.Issue-Wise Detailed Analysis:1. Correct and Appropriate Date to Determine the Foreign Exchange Rate:The primary issue is to identify the correct date for determining the foreign exchange rate for converting an arbitral award expressed in foreign currency to Indian rupees. The court formulated twin principles based on statutory provisions and prior decisions:- The date when the arbitral award becomes enforceable is the date for conversion. Under the Arbitration and Conciliation Act, 1996, this is when objections against the award are dismissed, and the award attains finality.- If 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.2. Date of Conversion for Deposited Amounts:The court examined the specific circumstances under which the award debtor deposited amounts before the court. The relevant facts include:- The appellants deposited Rs. 7.5 crores on 22.10.2010 and Rs. 50 lakhs on 15.07.2011.- The Trial Court dismissed the objections filed under Section 48 by order dated 02.04.2011, and the High Court dismissed the revision on 01.07.2014, making the award final.Statutory Scheme:The court discussed the statutory scheme under the Arbitration and Conciliation Act, 1996, which provides that a foreign arbitral award is enforceable when 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.Case-Law on Relevant Date for Conversion:The court extensively discussed the precedent set in Forasol v. ONGC, where the date of the decree was determined as the most appropriate date for conversion. This principle was affirmed in Renusagar Power Co. Ltd v. General Electric Co., where the court held that the applicable law to determine the proper date for conversion is the lex fori (Indian law).Application of Principles:The court applied the principles established in Forasol and Renusagar to the present case under the 1996 Act. It concluded that:- The date when the objections against the award are finally decided (01.07.2014) is the relevant date for determining the exchange rate for the remaining amount of the award.- The deposit of Rs. 7.5 crores on 22.10.2010 should be converted using the exchange rate on that date (1 euro = Rs. 59.17).- The deposit of Rs. 50 lakhs should be converted using the exchange rate on 01.07.2014, as the respondent could only withdraw this amount after the completion of the proceedings.Conclusion:The court summarized its conclusions as follows:- The relevant date for determining the conversion rate of a foreign award expressed in foreign currency is the date when the award becomes enforceable.- Deposited amounts must be converted as on the date of deposit if the award holder is permitted to withdraw the same.- The remaining amount of the award must be converted on the date when the objections against it are finally decided.The court directed the Executing Court to determine the amount payable by taking into account the exchange rates as on 22.10.2010 for the first deposit and 01.07.2014 for the second deposit and the remaining amount. The appeal was partly allowed, and the findings of the High Court were set aside to the extent that Forasol does not apply under the 1996 Act. Pending applications were disposed of, and no order as to costs was made.