Currency Conversion Rate in Execution Proceedings: The Conundrum

[Garima Mehra and D Sharma are both Advocates]

The Supreme Court’s observations in its recent decision in Meenakshi Saxena v. ECGC Ltd. highlight the issues that arise whenever a decree is silent with regard to the reckoning date of conversion of foreign currency into Indian rupees and the methodology to be followed by the executing court in such cases.

In this case, a dispute arose with respect to payment of accrued losses covered under an insurance contract. The District Consumer Forum, by an order dated 12 October 2006, allowed the complaint and directed the insurer to pay the 11875.75 Euro together with interest. During the pendency of the execution petition, the insurer paid a sum of Rs. 11,23,906 to the decree holders calculated on the basis of conversion rate of 11,875.75 Euros as on date of bill of lading and the interest calculated thereon. The decree holders, while accepting the said payment, disputed that the payment satisfied the decree, mainly on the plea that value of the Euros payable should have been calculated on the conversion rate applicable on the date of payment. Unfortunately, it was the absence of clarity in the 2006 order of the District Forum regarding the reckoning date for conversion rate of currency that led to the litigation continuing until the conclusion of the present proceedings.

The Supreme Court held that in a contractual matter, when the decree is silent with regard to the reckoning date of conversion of foreign currency in to Indian rupees, what would be the methodology to be followed by the executing court is no more res integra, as it is dealt with elaborately in the case of Forasol v. ONGC, 1984 (Supp.) SCC 263. The facts of that case revolved around a contract entered into between ONGC and Forasol for carrying out structural drilling in relation to the exploration of oil in the Jaisalmer area. The contract mandated a part payment in the foreign currency i.e., French francs. Due to belligerent situation prevalent between India and Pakistan in 1965, the contract was suspended. In the meanwhile the Indian currency was devalued resulting in Forasol claiming higher conversion rate.

The question in that case was the date to be selected by the court for converting into Indian Rupees the French Franc part of the award in respect of which no rate of exchange was fixed either by the contract or the award. The Court recognized the principle that a determination of relevant date for conversion of currency would first take place in accordance with the contractual provision and thereafter, if such explicit determination is not available, then the court would have to determine the best possible date.

To do so, five dates compete for selection by the court, which are:

(1) the date when the amount became due and payable;

(2) the date of the commencement of the action;

(3) the date of the decree;

(4) the date when the Court orders execution to issue; and

(5) the date when the decretal amount is paid or realised.

In a case where a decree has been passed by the court in terms of an award made in a foreign currency, a sixth date also enters the competition, namely, the date of the award.

Option Before the Plaintiff

In suits in which a sum of money expressed in a foreign currency can legitimately be claimed by the plaintiff and decreed by the court, the plaintiff has two courses open to it. It can either claim the amount due to it in Indian currency or in the foreign currency in which it was payable.

If it chooses the first alternative, it can only sue for that amount as converted into Indian rupees and its prayer in the plaint can only be for a sum in Indian currency. For this purpose, the plaintiff would have to convert the foreign currency amount due to it into Indian rupees. It can do so either at the rate of exchange prevailing on the date when the amount became payable for it was entitled to receive the amount on that date or, at it option, at the rate of exchange prevailing on the date of the filing of the suit because that is the date on which it is seeking the assistance of the court for recovering the amount due. In either event, the valuation of the suit for the purposes of court fees and the pecuniary limit of the jurisdiction of the court will be the amount in Indian currency claimed in the suit. The plaintiff may, however, choose the second course open to it and claim in foreign currency the amount due to it.

Appropriate Prayer Clause

The proper prayer for the plaintiff to make in its plaint would be for a decree that the defendant do pay to it the foreign currency sum claimed in the plaint subject to the permission of the concerned authorities as may be required under the Foreign Exchange Management Act, 1999, being granted and that in the event of the foreign exchange authorities not granting the requisite permission, at the rate of exchange prevailing on the date of the judgment.

Valuation of Court Fees

For the purposes of court fees and jurisdiction, the plaintiff should value its claim in the suit by converting the foreign currency sum claimed by it into Indian rupees at the rate of exchange prevailing on the date of the filing of the suit or the date nearest or most nearly preceding such date, stating in its plaint what such rate of exchange is. It should further give an undertaking in the plaint that it would make good the deficiency in the court fees, if any, if at the date of the judgment, at the rate of exchange then prevailing, the rupee equivalent of the foreign currency sum decreed is higher than that mentioned in the plaint for the purposes of court fees and jurisdiction.

Burden of Proof Regarding Exchange Rate

At the hearing of such a suit, before passing the decree, the court should call upon the plaintiff to prove the rate of exchange prevailing on the date of the judgment or on the date nearest or most nearly preceding the date of the judgment. If necessary, after delivering judgment on all other issues, the court may stand over the rest of the judgment and the passing of the decree and adjourn the matter to enable the plaintiff to prove such rate of exchange.

Decree

The decree to be passed by the court should be one which orders the defendant to pay to the plaintiff the foreign currency sum adjudged by the court, subject to the requisite permission of the concerned authorities for foreign exchange management being granted. In the event of the foreign exchange authorities not granting the requisite permission or the defendant not wanting to make payment in foreign currency even though such permission has been granted or the defendant not making payment in foreign currency or in Indian rupees, whether such permission has been granted or not, the equivalent of such foreign currency sum converted into Indian rupees at the rate of exchange proved before the court as aforesaid.

Appeal

In the event of the decree being challenged in appeal or other proceedings and such appeal or other proceedings being decided in whole or in part in favour of the plaintiff, the appellate court or the court hearing the application in the other proceedings challenging the decree should follow the same procedure as the trial court for the purpose of ascertaining the rate of exchange prevailing on the date of its appellate decree or of its order on such application or on the date nearest or most nearly preceding the date of such decree or order.

If such rate of exchange is different from the rate in the decree which has been challenged, the court should make the necessary modification with respect to the rate of exchange by its appellate decree or final order. In all such cases, execution can only issue for the rupee equivalent specified in the decree, appellate decree or final order, as the case may be.

Decision in the Instant Case

Since the contract provided for a clause to determine the exchange rate, the Court held that the aforementioned exercise was irrelevant.The appeal was dismissed as it was from the NCDRC order which had also relied on the clause in the contract for determining the conversion rate.

Garima Mehra & D Sharma

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