DETERMINATION OF THE FOREIGN EXCHANGE RATE FOR CONVERTING THE AWARD AMOUNT IN FOREIGN CURRENCY TO INDIAN RUPEES

[Mr. M. GOVINDARAJAN]

Enforcement of foreign arbitral award

Part II of the Arbitration and Conciliation Act, 1996 provides for the enforcement of certain foreign award.  Section 46 of the Act provides that a foreign award which is enforceable shall be treated as binding for all the purposes on the persons between whom it is made.  Section 49 of the Act provides that where the court is satisfied that a foreign arbitration award is enforceable then it shall be deemed to be a decree.  A foreign award can be enforced when the objections filed against is are finally decided and dismissed.  At this time the award shall be deemed to be a decree.  It is not required to obtain a separate decree by a Court for making the award a rule of the Court. 

Relevant date for conversion

When the arbitral award is in foreign currency, then it is required to consider the date of conversion of foreign currency to Indian rupees. The principal for conversion of award in Indian rupees the same must be provided in the contract for rate of change.  The case laws discussed in the next paras provide the method to be adopted for conversion of foreign award amount in Indian rupees.

Case laws

In FORASOL VERSUS OIL & NATURAL GAS COMMISSION (ONGC) - 1983 (10) TMI 234 - SUPREME COURT, the Forasol was a French company.  It was awarded by the respondent company for structural drilling for oil exploration.  Since dispute arised the matter was referred to arbitration on 22.12.1974.  The award was passed in favor of Forasol.  The arbitral award was expressed in French Francs.  The Court held that the award can be enforced either in Franc or in Indian rupees.  Article IX-3.1 of the contract provided for the exchange rate of FF 1.033 = Re. 1.000, which the Court held as applying to only 20% of the fees and charges computed in French francs based on contractual interpretation.   Further, the arbitral award provided for an enhanced rate of conversion of FF 1.000 = Rs. 1.5178 as applicable to payments in Indian rupee on or after 30.11.1966 as the Indian rupee was depreciated at this time. The Court interpreted the arbitral award and held this exchange rate to apply in place of what was provided in article IX-3.1 to the extent of payments made in Indian rupee on and after 30.11.1966.

For the remaining amount that still required to be converted to Indian rupee for which no exchange rate was provided in the contract or the arbitral award, the Court considered six possible dates as the proper date for fixing the rate of exchange-

1. The date when the amount became due and payable;
2. The date of the commencement of the action;
3. The date of decree;
4. The date when the Court orders execution to issue;
5. The date when the decretal amount is paid or realized;
6. in cases where a decree is passed by the Court in terms of an arbitral award in foreign currency, the date of award.

The Court held that there is no bar on Courts in India to pass a decree for a sum expressed in foreign currency subject to the limitations and restrictions contained in the then Foreign Exchange Regulation Act, 1973.  The Supreme Court after a detailed analysis of the above six points and considered the third point, i.e., the date of decree is the most appropriate among them.

The law laid down in the above case has been widely considered and followed by this Court in various types of matters.   The Delhi High Court has also relied on Forasol (supra) in several cases on the enforcement of domestic and foreign arbitral

awards where the amount is expressed in foreign currency:

In DLF LTD. (FORMERLY KNOWN AS DLF UNIVERSAL LTD) AND ANR. VERSUS KONCAR GENERATORS AND MOTORS LTD. - 2024 (8) TMI 653 - SUPREME COURT, the appellant in this case, is an Indian company and the respondent is the Croatian company.   An agreement was entered into between the appellants and the respondent for the supply of two generators. Since dispute arised later on, the dispute was referred to arbitration before the International Chamber of Commerce, Paris.  The Arbitral Tribunal was constituted by three members.  The Tribunal after hearing the case awarded on 12.05.2004 in favor of the respondent. As per the award the appellants are liable to pay Euros 10,93, 989 euros. 

The respondent filed an execution petition in 2004 when the appellants filed an appeal under section 34 of the Act.  The appeal was dismissed.  The appellants filed an appeal against this order.  Then the appellants filed objections against the award under Section 48 of the Act.  The same was dismissed by the High Court on 15.10.2010.  In this case both the parties reached a consensus.  As per the agreement the appellant will withdraw the appeal and the appellant is to deposit Rs.7.5 crore before the Execution Court on or before 08.11.2010.  The application filed under section 48 would be decided on merits.  The deposited amount of Rs.7.5 crore will be released on production of bank guarantee. The appellant deposited the said amount on 22.10.2010.

The Trial Court dismissed the objections of the appellant under section 48 of the Act on 02.04.2011.  The appellant filed a revision petition against the said order before the High Court.  The High Court admitted the said petition subject to the condition that the appellant should deposit Rs.50 lakhs before the Executing Court.  The High Court further directed that Rs.50 lakhs would be disbursed to the successful party on the final adjudication of this case. The High Court rejected the request of the respondent that the amount shall be in euros.  The appellants deposited Rs.50 lakhs on 15.07.2011.  On 01.07.2014 the High Court dismissed the revision petition. Since the said order was not challenged by the appellant the order dated 01.07.2014 attained finality. 

The Trial Court ordered for the withdrawal of the deposited amount Rs.8 crore on 24.08.2016.  The respondent received Rs.11,60,12,100/- including interest that has been accrued on deposits.   

The Trial Court allowed the execution petition on 03.02.2017.  The Trial Court held that the relevant date for the conversion of award amount from Euros to Indian rupees is 01.07.2014, 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. The High Court rejected the contentions of the respondent that the date of decree shall be deemed as the relevant date for conversion and since the award dated 12.05.2004 is a deemed decree under the Act, the exchange rate as on the date of

the award should be applied.  

The appellant filed the present appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• 01.07.2014 would not be the relevant date for conversion for the entire amount.
• The rate on 02.04.2011 must be used, when the trial court dismissed the objections filed under section 48.
• The exchange rate is applicable when the appellant deposited Rs.8 crore on 22.10.2020 in compliance with the order dated 15.10.2020.
• Since the respondent consented to deposit Rs.7.5 crore and the amount was also permitted to be withdrawn by the Court, the amount stood converted on the date of its deposit i.e., 22.10.2020.  On that date the Euro value is Rs.59.17.
• As such the arbitral award along with interest would come to Rs.16.73 crore.  The deposit of Rs.7.5 crore would come to Rs.12.67 crore.  Thereby the balance of euros 4.06 crore is pending as on date.
• The appellant deposit additional amount of Rs.50 lakhs on 15.07.2011 when the value of Euro is Rs.62.89.
• The appellant’s deposit amounts to euros 79503.
• Therefore, a balance of euros 3.38 along with interest remains pending for which exchange rate as on 01.07.2014 would apply.
• Therefore, the appellant is liable to pay Rs.3.19 crore to the respondent.

The respondent submitted the following before the Supreme Court-

• The appellant had not consented to deposit Rs.7.5 crore.  The High Court did not convert the said amount but directed to deposit this lump sum amount.
• The arbitral award can be a decree only on 01.07.2014 when all the objections against the award stood dismissed. 
• Hence the relevant date for consideration for conversion is 01.07.2014 when the value of Euro is Rs.82.14.
• A sum of Rs.11.6 crore was withdrawn by him on 10.10.2016.
• After adjusting the said amount and after accounting for interest the respondent is entitled to receive Rs.6.58 crores from the appellant.

The Supreme Court considered the submissions of the parties to the present appeal.  The Supreme Court observed that there is no necessity to make the arbitral award to a decree as it is automatic under the new Act 1996.  The enforceability of the foreign award is automatic and deemed under section 49 after the objections against such award under Section 48 are finally decided and disposed of.  In the present case the Supreme Court observed that the High Court dismissed the revision petition against the Trial Court order dismissing the appellant’s objections.  The said order obtained finality since no appeal has been filed against the said order. 

In respect of the conversion of deposited amount the Supreme Court observed that in this case two deposits – Rs.7.5 crore and Rs.50 lakhs were made by the appellant.  For release of the deposit the respondent is to furnish a bank guarantee.  This order is with the consent of both the parties.  The Supreme Court did not accept the contention of the respondent that the appellant did not consent to deposit Rs.7.5 crore.  The deposit of Rs.50 lakhs was as per the directions of the Court but not with the consent of the two parties.  The Court directed that the amount shall be deposited in a Fixed deposit receipt and shall be paid to the successful party on the final adjudication on the objections.  In this case the deposit was made during the pendency of the proceedings under the objections petition. 

The said deposit 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 utilize the amount.  There is the added fact that the respondent consented to the deposit and the condition requiring security. The Supreme Court held that the deposit of Rs. 7.5 crores stand 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.

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 holder 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 holder could access and benefit from such deposit. It is then the burden of the award holder to furnish security, as required by the court’s orders, to utilize the amount or to make an application for modification of the condition if it is unable to fulfil the same.

The Supreme Court held that the deposit of Rs. 7.5 crores must be converted as on the date of such deposit, i.e., 22.10.2010, when the rate of exchange as submitted by the appellants was 1 euro = Rs. 59.17.  The second deposit of Rs. 50 lakhs pursuant to the High Court order dated 03.06.2011 which did not permit the respondent to withdraw this amount till the completion of the proceedings. Hence, the amount cannot be converted as on the date of deposit as the respondent 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 respondent withdrew the entire deposit of Rs. 8 crores, along with the interest that accrued on this amount, on 10.10.2016.    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.

Conclusion

From the above discussions we can infer the following-

• 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.