Legal Brief: Enforcement of Arbitral Award expressed in foreign currency.
Case: DLF Ltd. & Another Vs Koncar Generators and Motors Ltd.
Court: Hon’ble Supreme Court of India
Date of Judgment: 08.08.2024
By: Adv. Saksham Mathur
Facts:
- DLF (petitioner) and Koncar Generators and Motors Ltd. (respondent) entered a contract for the design, engineering, manufacturing, and supply of two generators by Koncar.
- Disputes arose, leading to arbitration before the International Chamber of Commerce (ICC) in Paris. On May 12, 2004, the ICC tribunal issued an award in Koncar’s favour, ordering DLF to pay Euros 10,93,989 plus
- Koncar filed for enforcement of the award in India in 2004. DLF filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act), which was dismissed on April 28,
- DLF then filed objections to the award under Section 48 of the Act and appealed the Section 34
- On October 15, 2010, the High Court dismissed DLF’s appeal, with DLF agreeing to deposit 7.5 crores. The High Court’s order allowed Koncar to withdraw the deposit if it provided a bank guarantee from a scheduled bank of India. Koncar did not withdraw the funds.
- DLF deposited the Rs. 7.5 crores on October 22, 2010. The Trial Court dismissed DLF’s Section 48 objections on April 2, 2011, and DLF filed a revision
- The High Court admitted the revision petition and stayed the Trial Court’s order, on the condition that DLF deposit an additional Rs. 50 DLF deposited the additional funds on July 15, 2011.
- The High Court dismissed DLF’s revision petition on July 1, 2014, at which point the award became final and
- In 2016, the Trial Court allowed Koncar to withdraw the entire deposit (Rs. 8 crores).
- The Trial Court ruled that the relevant exchange rate for converting the Euro award to Indian Rupees was the exchange rate on July 1, 2014, the date the award became final and
- DLF’s revision challenging the Trial Court’s determination of the applicable exchange rate was dismissed by the High Court on February 26,
- The Supreme Court, upon appeal, initially confined its examination to the applicable exchange rate for the Rs. 8 crores deposit. However, the Court ultimately examined the main issue in the case.
Issue:
Whether the correct date for determining the exchange rate when converting a foreign currency arbitral award to Indian Rupees, particularly when deposits are made by the award-debtor during the enforcement proceedings?
Legal Analysis:
- The Supreme Court in DLF Ltd. v. Koncar Generators and Motors Ltd relied heavily on its prior rulings in Forasol v. ONGC and Renusagar Power Ltd. v. General Electric Co. to reach its decision
- Forasol (1984) established the principle that the date a foreign currency award becomes enforceable is the appropriate date for Under the Act, this is when objections are dismissed, and the award is deemed a decree (Section 49 of the Act).
- Renusagar (1994) affirmed Forasol in the context of the Foreign Awards Act, Importantly, Renusagar addressed a situation where deposits were made during the proceedings. The Court held that deposits made by the award-debtor, which were allowed to be withdrawn by the award-holder, are converted at the exchange rate on the date of deposit. The remaining amount due under the award is converted using the exchange rate on the date of the judgment.
- The Court in DLF Ltd. v. Koncar Generators and Motors Ltd. held that the principles of Forasol apply to cases under the 1996 Act, even
though Forasol was decided under the 1940 Act. The Court disagreed with the High Court’s finding that Forasol did not apply to the case.
- Citing Renusagar, the Court reasoned that when deposits are made and are withdrawable by the award-holder (even with conditions such as providing a bank guarantee), the award-holder can benefit from that money from the date of
- The Court drew an analogy between the deposit in the case and Order 21, Rule 1 of the CPC, which deals with cessation of interest. Once the award-debtor deposits funds with the court and the award-holder is notified, interest ceases to accrue on the deposited This implies that the award-holder could have utilized the deposited funds, and benefitted from such use, from the date of deposit. This logic supports converting the deposit using the exchange rate on the date of deposit.
- The Court also considered the purpose of requiring the award-debtor to pay the award amount in the first The Court stated that the guiding principle in determining the proper exchange rate is to ensure that the award-holder receives the amount it would have received had the award-debtor paid the amount when it was obligated to do so.
- The Court recognized that the rupee-euro exchange rate fluctuates, and that such fluctuations could cause significant differences in the value of the award depending on the applicable exchange rate. For example, if the exchange rate is significantly lower on the date of the award than on the date of enforcement, the award-holder would receive a much lower amount in rupees if the date of the award exchange rate is used. Conversely, if the exchange rate is significantly higher on the date of the award than on the date of enforcement, the award-holder would receive a much higher amount in rupees if the date of the award exchange rate is Because of these potentially significant differences, it was important for the Court to carefully consider the issue.
Conclusion:
The Supreme Court held that the Rs. 7.5 crore deposit (made on October 22, 2010, and withdrawable subject to Koncar providing a bank guarantee) should be converted to Euros using the exchange rate on the date of deposit, October 22, 2010. The Court reasoned that because the High Court’s order allowed Koncar to withdraw the deposited funds, Koncar could have benefitted from the funds beginning on the date of deposit. Because Koncar
chose not to withdraw the funds, the Court found that it would be inequitable to allow Koncar to benefit from its inaction by using a more favorable exchange rate. The Rs. 50 lakh deposit, made under a different order that did not permit Koncar to withdraw the funds until the conclusion of the proceedings, was converted to Euros using the exchange rate on July 1, 2014, the date the award became final. The Court distinguished this deposit from the first deposit because Koncar was not allowed to withdraw, and therefore could not benefit from, the second deposit when it was deposited. The Court also held that the remaining amount due under the award should be converted to rupees using the exchange rate on July 1, 2014, the date the award became final. The Court based this holding on the principle established in Forasol that the proper date for conversion is the date on which the award becomes enforceable, which in this case was July 1, 2014, when the High Court dismissed DLF’s revision petition. The case was remanded to the Executing Court to calculate the total amount owed to Koncar.