How To Determine Conversion Of Arbitral Award In Foreign Currency To Indian Currency? Supreme Court Explains

In a significant judgment relating to International Commercial Arbitration, the Supreme Court has decided the two important questions on the enforcement of an arbitral award expressed in foreign currency to Indian Currency.The two questions that appeared for the Court's consideration were:Firstly, 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? The Court said that the relevant date for determining the conversion rate of foreign awards expressed in foreign currency is the date when the award becomes enforceable. It was held that the award is deemed to be enforceable from the date on which the objections against its enforceability are finally decided. “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.”, the bench comprising Justices PS Narasimha and Aravind Kumar answered. Reference was made to the case of Forasol v. Oil and Natural Gas Commission reported in 1984 Supp SCC 263 where the court held that the proper date to determine the currency exchange rate is the date on which the arbitral award becomes enforceable “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.”, the court said referring to Forasol. Secondly, 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? Regarding the second question, the court said when the award holder withdraws a certain amount deposited by the award debtor during the arbitral proceedings, then the date of conversion of the award from foreign currency to Indian currency would be the date on which the award debtor deposited the amount. “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.”, the court answered. However, the court clarified that once the award holder withdraws the award amount deposited by the award debtor than the exchange rate of the remaining award amount to be payable in a future course of action would be determined based on the date on which the arbitral award gets enforceable. “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.”, the court clarified In the present case, since the respondent/award holder had not withdrawn the partial award amount of Rs. 7.5 crores deposited in 2010 by the award debtor during the proceedings, therefore it claimed that the rate of currency exchange shouldn't be the date on which Rs. 7.5 crores were deposited before the court but the rate of exchange should be decided on the date of enforcement of the award on the entire amount. In essence, the respondent argued that the amount deposited by the award debtor during the proceedings does not stand converted on the date of its deposit. Rejecting such an approach, the court said that irrespective of the fact that the respondent/award holder had not withdrawn the deposited amount the date of determining the currency exchange rate on Rs. 7.5 crores would be the date on which the amount was deposited before the court. The Court said that the award holder cannot claim the benefit of the higher exchange rate to convert the entire award amount on the rate determined at the date of enforcement of the award to fetch more money. “We therefore hold that the deposit of Rs. 7.5 crores stands 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. We also reject the submission by Mr. Mahajan that the respondent was unable to furnish a bank guarantee of an Indian bank. This argument is only to serve its own interest to be able to benefit from a higher exchange rate but does not address the principle that operates while enforcing a sum expressed in foreign currency.”, the judgment authored by Justice PS Narasimha said. “It is important to appreciate the consequence and effect of deposit during the pendency of proceedings to understand the need to convert this amount on that date. Through a deposit, the award debtor parts with the money on that date and provides the benefit of that amount to the award...

How To Determine Conversion Of Arbitral Award In Foreign Currency To Indian Currency? Supreme Court Explains

Yash Mittal

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