[Ankur Mishra is an advocate practising in the Delhi High Court]
In cases of enforcement of awards denominated in foreign currency, what should be the date of conversion of currency for the purpose of enforcement? Should it be the date of breach or should it be the date when decree is made against the judgment debtor? In case of foreign award, should the date of conversion be the date when the award is made or when the objections against the award are rejected by the Court? The date for conversion for foreign denominated award assumes significance as in the case of conversion of foreign currency until the final appeal/petition is decided, parties are exposed to risk associated with the fluctuation in rates of foreign currency with uncertain financial implications.
In the recent judgment of DLF Ltd v. Koncar Generators and Motors Ltd, (“Koncar Generators”) Supreme Court of India (“Court”) ruled that in case of foreign award, the date of conversion is the date when the award becomes enforceable i.e. when the objections against the foreign award are finally decided in terms of Section 49 of the Arbitration and Conciliation Act, 1996 (“Act” or “1996 Act”). In Koncar Generators, the Court further ruled that if the award amount or part of it is deposited in court pending objections and enabling withdrawal by the decree-holder, that date of such deposit shall be the relevant date for the conversion for such portion of the arbitral award which is deposited by the award-debtor.
Briefly, In Koncar Generators, the Appellant (an Indian company) and Respondent (Croatian company) entered into a contract for the design, engineering, manufacturing and supply of two generators by the Respondent. In dispute thereupon, the three-member tribunal by ICC Paris passed an award holding that the Appellant was liable to pay $10,93,989. Under the enforcement and execution proceedings, the Court directed that Appellant (Respondent) would deposit a sum of ₹7.5 Crore before the executing court which would be released only consequent to furnishing a bank guarantee of a scheduled bank of India. Subsequently, the High Court stayed the dismissal of objections u/s 48 subject to the Appellant depositing a further sum of ₹50 Lakhs with the executing court which shall be disbursed to the successful party on the final adjudication of the lis.
In the execution proceedings, the trial court held that the relevant date to convert the award amount is the date on which all the objections against the award were finally decided. However under revision jurisdiction, the Punjab & Haryana High Court ruled that the date of decree shall be deemed as the relevant date for conversion and since the award dated 12 May 2004 is a deemed decree under the Act, the exchange rate as on the date of the award should be applied.
Applicability of Forasol Judgment under the 1996 Act
The seminal judgment on the date of conversion of foreign currency for enforcement of the arbitral award is the judgment of Forasol v. ONGC. In Forasol, the Court held that the date of conversion must put the plaintiff in the same position in which he would have been had the defendant discharged its obligation. In Forasol, the Court undertook a detailed examination of six dates which can be considered as the date of conversion: (i) the date when the amount became due and payable; (ii) the date of the commencement of the action; (iii) the date of the decree; (iv) the date when the court orders execution to issue; (v) the date when the decretal amount is paid or realised; and (vi) and in cases where a decree is passed by the court in terms of an arbitral award in foreign currency, the date of the award.
After considering the same, the Supreme Court in Forasol held that the date of decree is the most appropriate date for conversion of foreign currency award into domestic currency. Forasol provides that the relevant date in case of appeal and revision is the date when the action is finally disposed of and when the decree becomes final and binding on both parties after exhausting all remedies. This is because Forasol was concerned with the Arbitration Act, 1940 (“1940 Act”) whereunder a judgment and decree are required to give an award the status of the decree and for the award to become enforceable. However, under the 1996 Act, the enforceability of a foreign award is automatic and deemed under Section 49 after the objections against such an award under Section 48 are finally decided and disposed of. Hence, an award is enforceable as a decree when the objection against the foreign award is finally decided and disposed of. Thus, the difference between the 1940 Act and the 1996 Act is that under the 1940 Act, the issuance of decree upon arbitral award created the enforceable right in favour of the award-holder. Whereas under the 1996 Act, rejection of objections to the foreign award would make the award itself enforceable as a decree under Section 49 of the Act.
The ruling of Forasol had also came up for consideration in Renusagar Power Co. Ltd v. General Electric Co. on the ground that the exchange rate for conversion of foreign currency to Indian currency should be on the date of actual payment and that the law laid down in Forasol case (that the conversion should be based on the exchange rate prevailing on the date of decree) does not lay down correct law. In Renusagar, the Court held that the reasoning of Forasol does not require reconsideration.
It is settled law that a foreign award is capable of being enforced as decree where the Court is satisfied that the foreign award is enforceable i.e. when the objections against enforceability of foreign award are rejected by the Court. In Progetti Grano S.P.A v. Shri Lal Mahal Limited, the Delhi High Court ruled that only after objections opposing the execution of the award under Section 48 of the Act are adjudicated upon by the Court and rejected, the award would become enforceable. In Fuerst Day Lawson v. Jindal Exports Ltd, Delhi High Court interpreted the applicability of Forasol under the 1996 Act and held that the crucial date would be the date on which the objections to the enforcement of the foreign award are finally rejected and the foreign award becomes enforceable as such.
The Court in Koncar Generators ruled that there was no impediment to applying the ruling of Forasol to cases under the 1996 Act. The Court observed that given the scheme of enforcement of foreign award under Section 49 of the Act, the date on which the objections are finally decided and dismissed would be the proper date for determining the exchange rate to convert an amount expressed in foreign currency.
Date of Conversion in Cases of Deposit Made During Execution Proceedings
Another issue that arose in Koncar Generators was the date of conversion for the deposit made before Courts under enforcement proceedings. As mentioned above, there were two deposits of ₹7.5 Crore and ₹50 Lakhs in Koncar Generators. However, the two deposits differed on the basis that the same were capable of being withdrawn by the Respondent. The question before the Court was whether deposits made in local currency stand converted and adjusted from the award as on the date of deposit or the date of decree in terms of Section 49 of the Act.
The Court held that through a deposit, the award debtor parts with the money and provides the benefit of the amount to the award holder even if such withdrawal is conditional and subject to the final decision in the matter. Hence, the Supreme Court held that the deposit of ₹7.5 Crore stands converted as on the date of deposit.
However, the date of conversion for deposits which do not permit the award holder to withdraw the amount till the completion of the proceeding stands on a different footing. The deposits that do not allow the award holder to withdraw the deposit amount do not stand converted on the date of deposit as the award debtor cannot benefit from a deposit which it is not able to withdraw till the completion of proceedings. Such deposits are converted on the date when the arbitral award becomes enforceable i.e. when the objections against it are finally decided.
Conclusion
In Koncar Generators, the Court after affirming the ruling of Forasol under 1996 Act clarified that the relevant date for the conversion rate of foreign award is the date when the award becomes enforceable i.e. when the objections against it are finally decided. In case of any deposits made during enforcement which are capable of being withdrawn by the award debtor, the same are converted from foreign currency to domestic currency on the date of 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. Thus, the award-holder in case of foreign award has to consider multiple dates for conversion of foreign denominated award into domestic currency and thereby manage the risk and financial uncertainty associated with currency fluctuation risk.
– Ankur Mishra