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India – Delhi High Court Ruling On Currency Conversion And Interest When Enforcing A Foreign Award.

23 December, 2014

 

 

Background

 

The dispute arose between an Indian supplier (Shri Lal Mahal) and an Italian buyer (Progetto Grano) in a contract for the supply of wheat. Progetto Grano commenced arbitration proceedings against Shri Lal Mahal in London, citing quality deficiencies. Two awards were subsequently rendered in favour of Progetto Grano, expressed mostly in US dollars. Progetto Grano proceeded to bring enforcement proceedings against Shri Lal Mahal in the Delhi High Court, under Part II of the Act.

 

Shri Lal Mahal had attempted to resist enforcement on public policy grounds, but those submissions were rejected by the Delhi High Court on 9 February 2012, and by the Supreme Court on 3 July 2013.

 

In the continuing enforcement proceedings, a dispute arose as to the exchange rate to be used when converting the US dollar debt to Indian rupees. Progetto Grano submitted that the correct rate was that applicable on the date on which the final judgment was passed to enforce the foreign award, i.e. the date of the Supreme Court decision (3 July 2013). On the other hand, Shri Lal Mahal argued that the relevant date was the date of the award, 21 September 1998.

 

Further, given that the award had made no provision for post-award interest, Progetto Grano asked the Court to order interest at 18% per annum for the period from commencement of the enforcement proceedings until payment, relying on the Supreme Court decision inRenusagar Power Co. Ltd v General Electric Co. (where interest was granted on this basis), and on section 31(7) of Part I of the Act (which provided for interest at 18% per annum from the date of a domestic award until payment). For its part, Shri Lal Mahal argued that the Delhi High Court was an executing court and was hence not permitted to add or vary the award or the decree passed, including as regards interest, and that Part I of the Act did not apply.

 

Judgment of the Delhi High Court

 

1. Relevant date for conversion of currency in a foreign arbitral award

 

The Court noted that the relevant date for conversion of the foreign currency sums would be the date of the decree, and that, per section 49 of the Act “where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court“.

 

Relying on the Supreme Court decision in Forasol v Oil and Natural Gas Commission and the Delhi High Court decision in Fuerst Day Lawson Ltd. v Jindal Exports Ltd., it was held that, for the purposes of section 49, the Court had only become “satisfied that the foreign award is enforceable” at the point that the Supreme Court dismissed Shri Lal Mahal’s challenge, on 3 July 2013. Accordingly, the award was only deemed to be a decree of the Court on that date, and the exchange rate applicable as of that date should be applied to determine the Indian rupee amount payable.

 

2. Granting of interest for certain periods during the arbitration

 

The Court noted that the decision in Renusagar was based on older legislation that had been repealed by the Act, and that the jurisprudence on the current Act (primarily the seminal decision inBharat Aluminium Co. v Kaiser Aluminium) made clear that the Act is a “self-contained code” and that “there can be no overlapping or intermingling” between Part I of the Act (which deals with domestic awards) and Part II (which deals with foreign awards).

 

On that basis, the Court found that it had no legal basis to grant any interest that had not been provided for in the award itself.

 

Analysis

 

Whilst the decision regarding the applicable exchange rate is to be welcomed – a party is only in a position to enforce once all appeals have been disposed of, and in a volatile environment, even a matter of months could make a substantial difference to the amount recovered – the decision regarding interest identifies a serious gap in the mechanism of Part II of the Act. As noted by the Court in its decision, the lack of any power in Part II of the Act to award interest is likely to create incentives for parties to delay payment on grounds which may be less than meritorious. This may, of course, be less of a concern where the award contains provision for post-award interest.

 

However, this case also demonstrates the extent to which the Bharat Aluminium decision is becoming increasingly entrenched in Indian jurisprudence.

 

 

herbert smith Freehills

 

For further information, please contact:

 

Nicholas Peacock, Partner, Herbert Smith Freehills

nicholas.peacock@hsf.com

 

Alistair Henderson, Partner, Herbert Smith Freehills

alastair.henderson@hsf.com

 

Dispute Resolution Law Firms in India

 

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