Determination of Reference date of Currency Conversion for the Enforcement of a Foreign Currency Awards in India – Ananya Pratap Singh

Supreme Court of India: Determination of Reference date of Currency Conversion for the Enforcement of a Foreign Currency Awards in India

In DLF Ltd. (Formerly Known As DLF Universal Ltd) & Anr v. Koncar Generators and Motors Ltd, the Supreme Court of India decided some important questions of law pertaining with 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. Further, 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.

While considering the scheme of the (Indian) Arbitration & Conciliation Act, 1996 (‘Act’), the Supreme Court held that the date when the arbitral award becomes enforceable shall be the date for conversion as under the Act, this date is when the objections against the award are dismissed, and award attains finality. Further, in the event that the award amount or part of it is deposited in court pending objections, enabling withdrawal by the decree holder, that date of such deposit shall be the relevant date for conversion.

FACTUAL MATRIX

• The Award Debtor (Indian party) entered into a supply contract with the Award Creditor (Croatian party).
• Disputes arose between the parties which were referred to arbitration under the aegis of ICC in Paris.
• On 12.05.2004, the award was passed in favor of Award Creditor, Croatian party, in Euros.
• The Award Creditor filed for execution of award (foreign) in India in 2004.
• The Award Debtor filed its objections under Section 34 of the Act (incorrectly as Section 34 pertains with India seated arbitrations) which were dismissed in 2010.
• Subsequent appeal under Section 37 of the Act (again incorrectly) filed by the Award Debtor was also dismissed in 2010.
• Simultaneously, the Award Debtor filed a correct petition under Section 48 of the Act objecting the enforcement of award (foreign) in India.
• In these proceedings, the Court directed the Award Debtor to deposit a partial amount of INR 7.5 Crores and permitted the Award Creditor to withdraw this amount on furnishing a bank guarantee in Indian rupee for the entire amount. However, the Award Creditor neither furnished bank guarantee nor withdrew this amount.
• In 2011, the objections of the Award Debtor were dismissed.
• Award Debtor filed a revision before the High Court. This was allowed subject to Award Debtor making another deposit of INR 50 Lakhs.
• Pertinently the Court prohibited the Award Creditor from withdrawing this amount (INR 50 Lakh) till the completion of the proceedings.
• The High Court ultimately rejected the revision on 01.07.2014 and the Award Creditor was allowed to withdraw the entire INR 8 Crores.
• The Award Creditor then filed execution of award proceedings in India which was allowed in 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 01.07.2014, i.e., the date on which all the objections against the award were finally decided as it is only on such date that the award is deemed to be a decree.
• In 2018, the Award Debtor filed a revision in High Court against this decision which was dismissed.
• This decision of the High Court was challenged before the Supreme Court of India in the present proceedings.

ISSUES

• 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?

PARTIES CONTENTIONS

Award Creditor

• The deposited amount (INR 8 Crores) stands converted as on the date of its deposit, and this amount then cannot be converted again as per the exchange rate prevailing on 01.07.2014 (i.e., the date on which all the objections against the Award were finally decided).
• Since the Award Creditor consented to the deposit of INR 7.5 Crores and it was also permitted to withdraw the same, the amount stood converted as on the date of its deposit on 22.10.2010.
• By same analogy, the date of reference for additional INR 50 Lakhs would be 15.07.2011 (i.e., the date of which the additional deposit was made by the Award Debtor)

Award Creditor

• The exchange rate on 01.07.2014 (i.e., the date on which all the objections against the Award were finally decided) would apply to the entire award amount.
• The Award Creditor had not consented to the deposit of INR 7.5 crores and that the High Court did not convert the amount but only directed deposit of a lump sum amount.
• In normal court proceedings, judgment debtor depositing a sum in court during the pendency of the appeal does not pass the title and vest the money with the decree-holder. The decree-holder may withdraw the amount only on furnishing security, which means that the payment is not in satisfaction of the decree.
• The deposit of INR 8 crores during the pendency of the objections under Section 48 does not pass the title of this amount to the Award Debtor and such deposit was not under the arbitral award as the award can be deemed to be a decree only on 01.07.2014 when all the objections to the award stood dismissed. Hence, this is the relevant date for conversion.

ANALYSIS

• 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.
• The date when the arbitral award becomes enforceable shall be the date for conversion. Under the Act, this date is when the objections against the award are dismissed, and award attains finality.
• In the present case, this date is 01.07.2014 – when the High Court dismissed the revision petition against the Trial Court order dismissing the Award Creditors’ objections. No further appeal was preferred from this order and hence, it attained finality.
• In the event that the award amount or part of it is deposited in court pending objections, enabling withdrawal by the decree holder, that date of such deposit shall be the relevant date for conversion.
• 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.
• Once there is a deposit by the award debtor and the award creditor 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 creditor could access and benefit from such deposit.
• It is then the burden of the award creditor 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.
• In the instant case, the deposit of INR 7.5 crores stands converted as on the date of deposit (i.e., 22.10.2010).
• The second deposit of INR 50 lakhs pursuant to the High Court order dated 03.06.2011 stands on a different footing from the first deposit. This order did not permit the Award Creditor   to withdraw this amount till the completion of the proceedings. Hence, the amount cannot be converted as on the date of deposit as the Award Creditor could not have benefitted from the same. This amount could be withdrawn only in 2016, pursuant to the executing court’s order dated 24.08.2016. The Award Creditor withdrew the entire deposit of INR 8 crores, along with the interest that accrued on this amount, on 10.10.2016.
• Since the order of 03.06.2011 permits withdrawal of INR 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 INR 50 lakhs.

HELD

• 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 v. Oil and Natural Gas Commission 1984 Supp SCC 263, 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.