Determination of date for conversion of arbitral award expressed in Foreign Currency into Indian Currency

In International Commercial Arbitration between an Indian and Foreign entity, when an arbitral award amount is rendered in foreign currency, the Award debtor, who belongs to a country of another origin, for example, India, is required to convert foreign currency into its domestic currency, in accordance with the prevailing foreign exchange rate, in order to satisfy the Award rendered by the Tribunal.  When the Award so rendered by the Arbitral Tribunal is challenged before the court, its enforcement gets stalled subject to the outcome of the challenge before the court. There may also be a situation when the court stays the enforcement of the foreign arbitral award subject to the award debtor depositing certain amount with the court to secure the Arbitral Award. In the above facts and circumstances two issues arise for adjudication viz.

1. 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.
2. 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.

DLF Ltd. (Formerly known as DLF Universal Ltd.) & Anr. vs Koncar Generators & Motors Ltd. 2024 INSC 593

In Koncar Generators (supra) the Supreme Court was concerned with the aforementioned fact situation and was called on to adjudicate the above two issues.  In order to succinctly put forth the facts of the case, it is pertinent to note the following list of dates which have a bearing on the conclusion reached by the Supreme Court-

1. 05.2004- The Arbitral Tribunal passed award in favour of the Respondent/Claimant inter alia directing the Appellant/Award Debtor to pay a sum of Euros 10,93,989/- to the Respondent/Claimant.
2. 2004- The Respondent/Claimant filed execution of Award.
3. 28.04.2010- The Appellant/Award Debtor filed application u/s 34 of the Arbitration and Conciliation Act, 1996 [“the Act”] for setting aside the award which came to be dismissed by the High Court.
4. 15.10.2010- The Appellant/Judgment Debtor filed appeal u/s 37 of the Act against dismissal of Section 34 Application. The said appeal was also dismissed by the High Court with inter alia following directions-
   1. Appellant would deposit Rs 7.5 Crs. before executing court.
   2. The amount of Rs 7.5 Crs. deposited by the Appellant would be released to the Respondent/Claimant upon furnishing a bank guarantee in favour of the executing court
5. .22.10.2010- The Appellant/Award Debtor deposited Rs 7.5 Crs. before the executing court.
6. 2010- The Appellant/Award Debtor also filed objections before the executing court u/s 48 of the Act.
7. 02.04.2011- The Trial Court dismissed the objections filed by Appellant/Award Debtor u/s 48 of the Act.
8. 03.06.11- The Appellant/Award Debtor filed a Revision Petition before the High Court against the above order of dismissal of objections. The High Court ordered stay of the order subject to the Appellant/Award Debtor depositing Rs 50 lakhs in addition to Rs 7.5 Crs. deposited with the Trial Court. The High Court directed that the said amount of Rs 50 Lakhs shall be disbursed to the successful party on the final adjudication of the Lis.
9. 15.07.2011- The Appellant/Award Debtor deposited Rs 50 Lakhs with the Trial Court.
10. 01.07.2014- The Revision Petition was dismissed by the High Court and the Award attained finality as this order was not challenged further.
11. 24.08.2016- The Trial Court permitted the Respondent/Claimant to withdraw the entire deposit of Rs 8 Crores.
12. 10.10.2016- The Respondent/Claimant received an amount of Rs 11,60,12,100/- including interest that had accrued on the deposited amount.
13. 03.02.2017- The Trial Court allowed the execution petition and held that the relevant date to convert the award amount expressed in euros to Indian Rupees is 01.07.2014, i.e. the date on which the High Court dismissed the Revision Petition against the order of Trial Court dismissing the objections filed by the Appellant. As it is on this date the award is deemed to be a decree.
14. 26.02.2018– The Appellant/Award Debtor filed a Revision Petition before the High Court against the above order relying upon the judgment of the Supreme Court in the matter of Forasol v. Natural Gas Commission, stating that the date of decree i.e. 12.05.2004 when the award was passed is the relevant date for conversion of the Arbitral Award. The Court however, rejected the contention of the Appellant stating that the order in Forasol (supra) was under the old Arbitration Act i.e. Arbitration and Conciliation Act, 1940. The High Court ultimately held that the relevant date would for conversion would be 01.07.2014 when the objections were finally dismissed by the High Court and the award became deemed decree u/s 49 of the Act.

When does the Award become enforceable

A foreign arbitral award is governed by Part II of the 1996 Act. Section 48 of the Act stipulates that an aggrieved party can file objections in the competent court against enforcement of a foreign arbitral award on the grounds enlisted therein. If the objections are dismissed by the Court, then, in terms of Section 49 of the Act, an award becomes a “deemed decree” of that court. It is pertinent to note that enforcement of a foreign arbitral award under the 1996 Act is automatic i.e. when the objections u/s 48 are dismissed by the court, then in terms of Section 49, the Award become a “deemed decree”. Contrary to the scheme of Arbitration and Conciliation Act, 1940, wherein as per Section 17 of the Act, once an Arbitral Award is passed, the Award Creditor has to first obtain a judgment from the court following which a separate decree has to be obtained from the court in order to enforce the Award. Similarly, the 1996 Act, adopted the same scheme, albeit, without the need of a separate judgment from the court, insofar the domestic awards are concerned. Section 36 of the Act provides that a domestic award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the court. This is subject to Section 34, wherein if an aggrieved party has obtained a stay on the Award. However, post 2015 Amendment, merely because there is an application u/s 34 pending, the same does not render the award unenforceable unless a stay has been granted by the court.

In the above case, the Respondent/Claimant filed execution proceedings for enforcement of the Foreign Award. In response, the Appellant/Creditor filed objections u/s 48. On 02.04.2011, the objections filed by the Appellant were dismissed by the Trial Court. Subsequently, the Appellant challenged the said order before High Court in Revision Petition, which stayed the operation of the said order vide order dated 03.06.2011. However, on 01.07.2014, the High Court dismissed the Petition and since the said order was not further challenged by the Appellant, the award attained finality on 01.07.2014 and in terms of Section 49 of the Act, became a “deemed decree”.

Determination of date for conversion of the amount into Indian Currency

The Supreme Court discussed the application of the principle laid down in Forasol (supra) wherein the Supreme Court held that the date which is relevant to convert the amount into Indian currency is the date of the decree or the judgment. It is pertinent to note that the judgment in Forasol (supra) was rendered under the scheme of the Old Act. Hence, the court held that the relevant date would be the date of decree or the judgment as per Section 17 of the Old Act. The principle laid down in Forasol (supra) was subsequently affirmed by a three judge of the Supreme Court in the landmark judgment viz. Renusagar Power Co. Ltd. vs General Electric Co AIR 1994 SC 860. After a detailed analysis of the principle laid down in Forasol (supra), the Supreme Court held that there is no impediment to apply the same to cases under 1996 Act even though it was decided under the 1940 Act. The Supreme Court further clarified that the court in Forasol (supra) determined the date of the decree under Section 17 of 1940 Act as the proper date for conversion of the award amount, because it is only on that date the award become enforceable. However, as set out earlier, the statutory scheme under the 1996 Act does not require such a judgment or decree to be passed for a foreign award to be enforceable. Rather, the enforceability of a foreign award is automatic and deemed under Section 49 after the objection against such an award under Section 48 are finally decided and disposed of. At this point, the award is enforceable as a decree of a court (Section 49). Hence, 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.

Thus, the Supreme Court disagreed with the reasoning given by the High Court that Forasol (supra) does not apply to cases under 1996 Act.

Determination of date for conversion of the amount into Indian Currency when the awarded amount is deposited before the Court

In this regard, it is pertinent to note that in the above case, the Appellant was directed to deposit the amount by the High Court on two separate occasions viz.

1. 22.10.2010- When the High Court dismissed the Appeal filed by the Appellant u/s 37 of the Act and directed the Appellant to deposit Rs 7.5Cr. before the executing court which would be released to the Respondent/Claimant upon furnishing a bank guarantee. The Appellant, accordingly, deposited the amount on 22.10.2010.
2. 03.06.2011- When the High Court stayed the operation of the order of Trial court dismissing the objections filed by the Appellant u/s 48, subject to Appellant depositing an additional amount of Rs 50 Lakhs.However, on this occasion, the High Court did not give liberty to the Respondent/Claimant to withdraw the deposited amount and directed that the said amount be released to the successful party upon final adjudication of the Lis.

The deposited amount stands on a different footing than a complete non-compliance of the Award. In the case of the former, the amount stands released from the hands of the Award Debtor and becomes a subject of court’s directions. As per the law laid down in Forasol (supra) if the date of the decree i.e. 01.07.2014 is applied for conversion of the amount that was deposited by the Award debtor on 22.10.2010, then the Award creditor would be unjustly enriched.

In the aforesaid facts and circumstances, the Supreme Court observed that insofar the deposited amount of Rs 7.5Crs is concerned, the same ought to be converted in accordance with the prevailing rate of exchange as on the date of deposit i.e. on 22.10.2010 as the High Court, vide its order dated 15.10.2010 gave all the liberty to the Respondent/Claimant to withdraw the said amount but it did not due to its own failure. Insofar the amount of 50 lakhs is concerned, the court observed that the High Court vide order dated 03.06.2011 did not allow the Respondent/Claimant to withdraw this amount until the completion of the execution proceedings. Therefore, for this amount and the remaining amount, the correct date to convert the currency is when the award became a “deemed decree” as per Section 49 of the Act i.e. on 01.07.2004 when the Revision Petition challenging the dismissal of objections filed by the Appellant/Award Debtor was dismissed by the High Court.

Conclusion

The Court concluded as follows-

1. 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.
2. 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.
3. After 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.