Supreme Court’s take on rate of conversion of foreign currency awarded in arbitral award
In keeping with India’s aim to become an arbitration friendly jurisdiction, courts have consistently adopted a pro-arbitration approach while recognizing foreign arbitral awards. An important aspect that has substantial bearing during enforcement of a foreign arbitral award is the appropriate date for conversion of awarded foreign currency into Indian Rupees (“INR”). The ever-fluctuating conversion rates could prove to be either a benefit or a loss for the award holder. In this article, the authors discuss the decision in DLF Ltd. & Anr. v. Koncar Generator & Motors Ltd. wherein the Supreme Court of India (“SC”) has formulated twin principles for determining the appropriate foreign exchange rate in cases where the arbitral award is expressed in foreign currency for the purpose of enforcement.
Brief Facts
Certain disputes arose out of a contract entered between an Indian company, DLF Ltd. (“DLF”) and a Croatian company, Koncar Generator & Motors Ltd. (“KGML”) under which KGML was required to manufacture, design, engineer and supply 2 (two) generators to DLF Ltd. The disputes were referred for arbitration to the International Chamber of Commerce, Paris and an arbitral award came to be passed on 12 May 2004 in favour of KGML (“Arbitral Award”). Under the Arbitral Award, DLF was required to pay a sum of Euros 10,93,989 along with interest as provided (totaling to Euros 16,73,469.07).
KGML filed for enforcement of the Arbitral Award in the Indian court (“Executing Court”) whereas DLF Ltd. filed its objections to the enforcement. Moreover, DLF challenged the Arbitral Award. DLF’s challenge and subsequent appeal came to be rejected on 15 October 2010 on the following grounds:
- DLF’s appeal and challenge was dismissed as withdrawn by DLF.
- DLF was required to deposit an amount of INR 7,05,00,000 on or before 08 November 2010 in the Executing Court.
Accordingly, DLF deposited INR 7,05,00,000 on 22 October 2010. The objections filed by DLF in the Executing Court also came to be dismissed. Being aggrieved by this, DLF filed a revision before the High Court. The High Court directed DLF to deposit a further amount of INR 50,00,000 in addition to INR 7,05,00,000 (total deposit = INR 8,00,00,000) with the Executing Court. DLF deposited the same on 15 July 2011. Subsequently, the said revision also came to be dismissed and the Arbitral Award attained finality on 01 July 2014.
On 24 August 2016, the Executing Court allowed KGML to withdraw the amount deposited by DLF i.e., INR 8,00,00,000 along with interest accrued. Accordingly, KGML received a total amount of INR 11,60,12,100 on 10 October 2016 from DLF. The Executing Court had clarified that the relevant date for conversion of foreign currency is 01 July 2014 i.e., the date on which the objections to the Arbitral Award were finally rejected and the Arbitral Award had attained finality. DLF’s challenge to the said order came to be rejected. Dissatisfied by this, DLF filed the present special leave petition before the SC.
Submissions
Before the SC, DLF raised the following points:
- That DLF’s appeal was rejected on 15 October 2010 and was asked to deposit an amount of INR 7,05,00,000. Accordingly, the date on which the said amount was deposited i.e., 22 October 2010 should be the relevant date for conversion of foreign currency into INR. As on 22 October 2010, Euro 1 = INR 59.17. Therefore, upon deposit of INR 7,05,00,000 on 22 October 2010, DLF has satisfied the Arbitral Award to the extent of Euros 12,67,534.22 out of Euros 16,73,469.07.
- Similarly, DLF deposited a further amount of INR 50,00,000 on 15 July 2011. Given that on 15 July 2011, Euro 1 = INR 62.89, upon deposit of INR 50,00,000, DLF has further satisfied the Arbitral Award to an extent of Euros 79,503.90.
Accordingly, DLF contended that Euros 12,67,534.22 + Euros 79,503.90 out of Euros 16,73,469.07 stood satisfied. Therefore, as on 01 July 2014 i.e., the date on which Arbitral Award attained finality, only an amount Euros 3,37,774.88 remains to be satisfied.
On the other hand, KGML contended that the relevant date for conversion of foreign currency on the entire amount of Euros 16,73,469.07 should be 01 July 2014.
Supreme Court’s ruling
The SC placed reliance on past precedents and culled out 3 (three) important guiding factors for determining the relevant date for conversion of foreign currency into INR awarded under an arbitral award:
- The limitations and restrictions as applicable under India’s foreign exchange laws must be considered. In the event, the foreign exchange laws or the regulatory authority disallows the payment of amount in foreign currency, then the same will have to be converted into INR for payment of equivalent amount.
- For the purpose of conversion, the courts must select a date which puts the award holder in the same position as he would have been in, had the award debtor fulfilled his obligations and never breached the contract.
- The law of the forum where the action is brought will determine the rate of conversion.
On the basis of the above, SC laid down the following principles:
- The relevant date for conversion of foreign currency into INR is the date on which the arbitral award attains finality. In this case, the Arbitral Award attained finality on 01 July 2014.
- The date of conversion for amounts deposited prior 01 July 2014 (i.e., INR 7,05,00,000), and liberty is granted to withdraw the said amounts, the date of conversion will be the date on which the amount was deposited i.e., 22 October 2010. It was noted that this is because upon deposit of amount, the award debtor parts with the same and the said amount become available for the award holder to withdraw and utilize for its benefit. Moreover, once the amount which is deposited is withdrawn, the award holder stands in the same position as he would have been in case the award debtor had performed his obligations to that extent.
- The date of conversion for amounts that are deposited, but not allowed to be withdrawn (INR 50,00,000), the date of conversion will be the date on which Arbitral Award attained finality i.e., 01 July 2014.
Authors: Purvi Doctor and Richa Phulwani
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