Forasol Vs. Oil & Natural Gas
Commission [1983] INSC 162 (25 October 1983)
MADON, D.P.
MADON, D.P.
MUKHARJI, SABYASACHI (J)
CITATION: 1984 AIR 241 1984 SCR (1) 526 1983
SCALE (2)1110
CITATOR INFO :
RF 1986 SC 137 (63) RF 1991 SC 351 (3)
ACT:
Code of Civil Procedure, 1908-s. 47-Decree
passed according to award in foreign currency without fixing rate of
exchange-In execution proceedings court must decide and select proper date for
fixing rate of exchange-Criteria for selection of date-Date which puts plaintiff
in same position in which he would have been had the defendant discharged his
obligation when he ought to have done. Proper date is the date of decree.
Arbitration Act, 1940-s. 17-Judgment
according to the award-When it is. Provisions of s. 17 are different from the
provisions of s. 26 (1) of the English Arbitration Act.
Precedents-English decisions not binding but
have high pursuasive value.
Practice & procedure-General practice
& procedure to be followed by plaintiff while claiming sum in foreign
currency, arbitrator while making the award and court while passing decree-Laid
down.
HEADNOTE:
Forasol, a French Company having its
principal office in Paris, France, entered into a contract on February 17, 1964
with Oil and Natural Gas Commission (ONGC), a Government of India undertaking,
for carrying out structural drilling in relation to the exploration for oil in
India.
Article IX-3 of the contract provided that
the amount payable to Forasol on account of operational fee, standby fee, and
equipment charges shall be computed in French Francs and ONGC shall pay 80% of
that amount in French Francs in Paris, France, and the remaining 20% in Indian
rupees using a fixed conversion rate of FF. 1.033=Re. 1.000.
Art IX-3.2 provided that certain other charges,
e.g., insurance, freight, etc., incurred by Forasol were to be reimbursed to
Forasol by ONGC in Indian rupees if the expenditure was initially incurred by
Forasol in Indian rupees, otherwise in French Francs. Article X-2, X-3 and X-4
of the contract set out estimates of the payments to be made to Forasol in
French Francs, the invoicing rules and the rate of payment. Under Art. X-3.3,
Forasol was to indicate in each of its invoices, the amount payable to it in
French Francs and the amount payable to it in Indian rupees under the contract.
Art. XI provided for payments to be made to Forasol in Indian rupees. The
contract which was initially for a period of one year was extended twice and
Addendum Nos. 1, 2 & 3 were added to the Contract. During the extended
period of the contract the Indian rupee was devalued in June 1966 and
consequently Forasol made a claim for conversion of Indian rupees into French
527 Francs at a rate higher than the rate specified in Art. IX - 3. The
disputes and differences which arose between the parties were referred to
arbitration. The Umpire who made the award directed certain payments to be made
in French Francs, but did not specify the rate of exchange at which the French
Francs were to be converted into Indian rupees.
The award further directed that from November
30, 1966, the rupee portion should be converted at the higher rate of FF. 1,000
equal to rupees 1,517.80. The award was filed in the Delhi High Court and the
High Court passed a decree in terms of the award simpliciter without fixing any
date for conversion of the French Francs into Indian rupees, with interest at
the rate of 6% per annum from the date of the decree till the date of payment
Neither party raised any objection to the said award or to the form in which the
said decree was passed. Forasol filed an application in the High Court for
execution of the decree. ONGC contended that the enhanced rate of exchange
specified in the award was applicable only with respect to the interest payable
to Forasol from November 30, 1966 and that to the rest of the payments to be
made under the award either in French Francs or in Indian rupee, the contract
rate of exchange was applicable. A single Judge of the High Court held that the
contract rate of exchange applied only to the rupee part of the payment in
respect of the items specified in Art. IX .3.1 and that in respect of the other
payments to be made to Forasol in French Francs the rate of exchange prevailing
at the date of the decree would apply. In appeal, a Division Bench of the High
Court held that the enhanced rate of exchange specified in the award applied
only to the interest payable to Forasol and that with respect to the rupee
amount the contract rate of exchange applied. It further held that as the award
was in French Francs, by reasons of the provisions of the Foreign Exchange
Regulation Act, 1973, before executing the award the French Francs would have
to be converted into Indian rupees at the rate of exchange prevailing on the
date of the said award. This judgment and order of the Division Bench was
challenged in these cross appeals. The questions which arose for consideration
were:
(1) Whether the rate of conversion mentioned
in the contract applied to all the payments to be made under the contract
whether in Indian rupees or in French Francs, or only to 20 per cent of the
amount in French Francs, payable by ONGC to Forasol in Indian rupees in respect
of Forasol's operational fee, standby fee and equipment charges; (2) whether
the enhanced rate of exchange specified in the award was applicable to all the
payments in Indian rupees under Art.
IX-3.1 of the contract to be made by ONGC to
Forasol or only to the interest on the amount in French Francs payable to
Forasol by ONGC; and (3) which was the proper date to be selected for
converting into Indian rupees the French Francs part of the award in respect of
which no rate of exchange had been fixed either by the contract or by the award
? Two further questions which were inextricably linked with question No. (3) above
were: (1) whether an arbitrator or umpire can make an award in a foreign
currency; and (2) whether a court can simpliciter pass a decree in terms of
such an award without specifying the rate of exchange at which the foreign
currency amount will have to be converted into Indian rupees.
Allowing the appeal of Forasol and dismissing
that of ONGC, 528
HELD: 1. Under Art. IX-3.1 of the contract
Forasol had agreed to accept 20 per cent of its operational fee, standby fee
and equipment charges in Indian rupees but wanted that the remaining 80 per
cent of these fees and charges as also the other amounts which were payable to
it under the contract should be paid to it in French Francs only. If Forasol
were to indicate separately in its invoices the payment to be made to it in
French Francs and in Indian rupees and if the payment of such Francs was to be
made in Paris, France, in French Francs, the question of providing for a rate
of exchange in the said contract for converting French Francs into Indian
rupees cannot arise. Such conversion rate could only be in respect of the
amount payable to Forasol in Indian rupees. It is thus only the 20 per cent of
the said fees and charges computed in French in Forasol's invoices but payable
in Indian rupees which was to be converted at the rate of exchange specified in
the contract. This interpretation receives further support from Art. 2.2 of
Addendum No. 2 and Art. 2.5 of Addendum No. 3 under which amounts refundable by
Forasol to ONGC were to be refunded in the same currency in which ONGC had paid
them earlier. [544 C-F]
2. The Division Bench of the High Court was
in error in holding that the enhanced rate of exchange specified in the award
applied only to the amount of interest payable to Forasol. The enhanced rate of
exchange applied to the payments in Indian rupees under Art. IX-3.1 of the
contract to be made by ONGC to Forasol from and after November 30, 1966. [548
D-E]
3. In an action to recover an amount payable
in a foreign currency, five dates compete for selection by the Court as the
proper date for fixing the rate of exchange at which the foreign currency
amount has to be converted into the currency of the country in which the action
has been commenced and decided. These dates are:
(1) the date when the amount became due and
payable;
(2) the date of commencement of the action;
(3) the date of the decree;
(4) the date when the court orders execution
to issue;
and (5) the date when the decretal amount is
paid or realized.
In a case where a decree had been passed by
the court in terms of an award made in a foreign currency a sixth date also
enters the competition, namely, the date of the award.
[548G-549B] The question which one out of the
dates mentioned above is the proper date to be selected by the Court does not
appear to have been decided in this country. The question, however, has formed
the subject-matter of decisions in England. The English decisions are of Courts
of a country from which we have derived our jurisprudence and a large part of
our laws and in which the judgments were delivered by judges held in high
repute. Undoubtedly, none 529 of these decisions are binding upon this Court
but they are authorities of high pursuasive value to which we may legitimately
turn for assistance. Whether the rule laid down in any of these cases can be
applied by our Courts must, however, be judged in the context of our own laws
and legal procedure and the practical realities of litigation in our country.
[549G; 568G] Miliangos v. George Frank (Textiles) Ltd., L.R. [1976] A.C. 443;
Tomkinson and Anr. v. First Pennsylvania Banking & Trust Co., L.R [1961] A
C. 1007; [1960] 2 All E.R. 332; Sub- nom in re United Railways of Havana and
Regla Warehouses Ltd., L.R. [1960] Ch. 52; [1959] 1 All E.R. 214;
Jugoslavenska Oceanska Plovibda v. Castle
Investment Co. Inc., [1973] 3 All E.R. 498' Beswick v Beswick, L.R. [1968] A.C
58; [1967] 2 All E.R. 1197; Dr. Mann, The legal Aspect of Money, 3rd Edn.
[1971], p. 363; Schorsch Meier G.m.b H. v. Hennin, [1975] 1 All E.R. 152;
Miliangos v. George Frank (Textiles) Ltd., [1975] 1 All E.R. 1076; Practice
Statement (Judicial Precedent), (1966) 1 W.L.R 1234; Owners of M.V. Eleftherotria
v. The owners of M.V. Despina R-The Dispina R and Services Europe Atlantique
Sud (Seas) of Paris v. Stockholms. Redriaktiebolag Svea of Stockholm, L.R.
[1979] A.C. 685; Practice directions, [1976] 1 W.L.R. 83; [1976] 1 All E.R.
669; The Zafuo, John Carllom & Co. Ltd v. Owners of S.S. Zafiro, L.R.
(1960) p. 1 at 14; [1959] 2 All F.R. 537 at 544; E.D. & F. Man v. Socite
Annonyme Tripolitiane Das Usines De Raffinage De Sucre, [1970] 2 Lyod's L.Rep.
416 and Russel on Arbitration 20th edn. page 375, referred to.
4. When a foreigner has to receive a sum of
money which should justly be payable to him in a foreign currency and because
of the default of the paying party, seeks to recover its payment through the
court, the first question which arises is whether a court in India would have
jurisdiction to pass a decree for a sum expressed in a foreign currency.
Though on principle there is no reason why a
court should not be able to do so, no court can pass a decree directing a
defendant to do an impossible or an illegal act and in view of the provisions
of our Foreign Exchange Regulation Act, 1973, and the restrictions contained
therein on making payments in a foreign currency, if a decree were to be passed
simpliciter for a sum expressed in a foreign currency, it would be to direct
the defendant to do an act which would be in violation of the Foreign Exchange
Regulation Act, 1973. Such a decree can, therefore, only be passed by making
the payment in foreign currency subject to the permission of the foreign
exchange authorities being granted. If, however, the authorities do not grant
permission for payment of the judgment debt in foreign currency, it would not
be possible for the defendant to make such payment, resulting in the decree
becoming infrutuous and the plaintiff getting nothing under it. The court must,
therefore, provide for the eventuality of the foreign exchange authorities not
granting the requisite permission or even if such permission is given, the
defendant not paying the decretal debt, or not wanting to discharge the decree
by making payment in foreign currency or in Indian rupees. This can only be done
by the decree providing in the alternative for payment of a sum of money in
Indian rupees, which will be equivalent to the sum decreed in foreign currency.
It is but just that a man, who is in law entitled to receive a sum of money in
a foreign currency, should either receive it in such currency or should receive
its equivalent in Indian rupees. It is here that the question 530 of the date
which the court should select for converting foreign currency into Indian
rupees arise. The court must select a date which puts the plaintiff in the same
position in which he would have been had the defendant discharged his
obligation when he ought to have done, bearing in mind that the rate of
exchange is not a constant factor but fluctuates, and very often violently fluctuates,
from time to time.
The date when the amount became due and
payable, does not have the effect of putting the plaintiff in the same position
in which he would have been had the defendant discharged his obligation when he
should have done because between that date and the date when the suit is
decreed the rate of exchange may have fluctuated to the plaintiff s prejudice,
resulting in the amount decreed in rupees representing only a fraction of what
he was entitled to receive. Equally, the possibility of the plaintiff getting
more than what he had bargained for in case the rate of exchange had fluctuated
in his favor cannot be ruled out.
To select the date when the amount became due
or the "breach date", as the English courts have termed it, is thus to
expose the parties to the unforeseeable changes in the international monetary
market. The selection of the "breach date" cannot, therefore, be said
to be just, fair or equitable. [568H 569D] The date of the commencement of the
action or suit, is equally subject to the same criticism. The selection of the
date of the filing of the suit would, therefore, leave the parties in as
uncertain and precarious a position as the selection of the date when the
amount became payable or the "breach date". [569 E-H] To select the
date of the decree as the conversion date would be to adopt as unrealistic a
standard as the "breach date" because a money decree and the payment
by the judgment debtor of the judgment debt under it are two vastly different
matters widely separated by successive execution applications and objections
thereto unless the judgment debtor chooses to pay up the judgment debt of his
own accord which is generally not the case. In the vast majority of cases a
money decree is required to be enforced by execution. [570 A-E] The selection
of the date when the court orders execution to issue is equally beset with
difficulties. [570 G] In selecting the date of payment as the proper date of
conversion there are three practical and procedural difficulties, namely,
payment of court fees, the pecuniary limit of the jurisdiction of courts and
execution. [572 B-E] This then leaves the court with only three dates from
which to make the selection, namely, the date when the amount became payable,
the date of the filing of the suit and the date of the judgment, that is, the
date of passing the decree. It would be fairer to both the parties for the
court to take the latest of these dates, namely, the date of passing the
decree, that is, the date of the judgment. [575 F] 531
5. Under section 17 of the Arbitration Act,
1949 the judgment which the court pronounces is to be "according to the
award". Where the award directs a certain sum of money to be paid and the
court, in a case where it has not modified or corrected the award under section
15, pronounces judgment for a different sum, the judgment cannot be said to be
"according to the award". In the same way, where an award directs
payment of a sum of money in foreign currency and the court while pronouncing
judgment provides for its rupee equivalent at the rate of exchange prevailing
on the date of the award, the court will not be pronouncing judgment
"according to the award" if in the meantime the rate of exchange has
varied, because at the date of the judgment the foreign currency equivalent of
the amount in rupees provided in the judgment would be different from the
foreign currency sum directed to be paid by the award. The judgment, therefore,
can only be said to be "according to the award" if it directs payment
of the rupee equivalent at the rate of exchange prevailing on the date of
pronouncing the judgment which date is the same as the date of the passing of
the decree. [584G-585B]
6. The Division Bench of the High Court has
committed an error in equating s. 26 (1) of the English Arbitration Act with s.
17 of our Arbitration Act. The reason for this error is that the Division Bench
has proceeded upon a wrong assumption that the procedural scheme of the English
Arbitration Act is the same as that of our Arbitration Act.
The provisions for enforcing an award under
the English Act and under our Act are different. Granting leave under s. 26 of
the English Act and pronouncing judgment according to the award and passing a
decree under s. 17 of our Act mean different things and have different results.
A judgment according to the award under s 17 of our Act will speak only from
the date of the judgment which will not be the case under s. 26 (1) of the
English Act, for while in the first case what will be enforceable by the processes
by law, namely execution, will be the decree passed in terms of the award, in
the second case it will be the award itself, unless the applicant desires to
have judgment entered in terms of the award. [585C, 585E] Satish Kumar and ors.
v. Surinder Kumar and ors., [1969] 2 S.C.R. 244, distinguished.
The practice, which ought to be followed in
suits in which a sum of money expressed in a foreign currency can legitimately
be claimed by the plaintiff and decreed by the court is as follows. In such a
suit, the plaintiff, who has not received the amount due to him in a foreign
currency and, therefore, desires to seek the assistance of the court to recover
that amount, has two courses open to him. He can either claim the amount due to
him in Indian currency or in the foreign currency in which it was payable. If
he chooses the first alternative, he can only sue for that amount as converted
into Indian rupees and his prayer in the plaint can only be for a sum in Indian
currency. For this purpose, the plaintiff would have to convert the foreign
currency amount due to him into Indian rupees. He can do so either at the rate
of exchange prevailing on the date when the amount became payable for he was
entitled to receive the amount on that date or, at his option, at the rate of
exchange prevailing on the date of the filling of the suit because that is the
532 date on which he is seeking the assistance of the court for recovering the
amount due to him. In either event, the valuation of the suit for the purposes
of court-fees and the pecuniary limit of the jurisdiction of the court will be
the amount in Indian currency claimed in the suit. The plaintiff may, however,
choose the second course open to him and claim in foreign currency the amount
due to him. In such a suit, the proper prayer for the plaintiff to make in his
plaint would be for a decree that the defendant do pay to him the foreign
currency sum claimed in the plaint subject to the permission of the concerned
authorities under the Foreign Exchange Regulation Act, 1973, being granted and
that in the event of the foreign exchange authorities not granting the
requisite permission or the defendant not wanting to make payment in foreign
currency even though such permission has been granted or the defendant not making
payment in foreign currency or in Indian rupees, whether such permission has
been granted or not, the defendant do pay to the plaintiff the rupee equivalent
of the foreign currency sum claimed at the rate of exchange prevailing on the
date of the judgment.
For the purposes of court-fees and
jurisdiction the plaintiff should, however, value his claim in the suit by
converting the foreign currency sum claimed by him into Indian rupees at the
rate of exchange prevailing on the date of the filing of the suit or the date
nearest or most nearly preceding such date, stating in his plaint what such
rate of exchange is. He should further give an undertaking in the plaint that
he would make good the deficiency in the court- fees, if any, if at the date of
the judgment, at the rate of exchange then prevailing, the rupee equivalent of
the foreign currency sum decreed is higher than that mentioned in the plaint
for the purposes of court-fees and jurisdiction. At the hearing of such a suit,
before passing the decree, the court should call upon the plaintiff to prove
the rate of exchange prevailing on the date of the judgment or on the date
nearest or most nearly preceding the date of the judgment. If necessary, after
delivering judgment on all other issues, the court may stand over the rest of
the judgment and the passing of the decree and adjourn the matter to enable the
plaintiff to prove such rate of exchange. The decree to be passed by the court
should be one which orders the defendant to pay to the plaintiff the foreign
currency sum adjudged by the court subject to the requisite permission of the
concerned authorities under the Foreign Exchange Regulation Act, 1973, being
granted, and in the event of the Foreign Exchange authorities not granting the
requisite permission or the defendant not wanting to make payment in foreign
currency even though such permission has been granted or the defendant not
making payment in foreign currency or in Indian rupees, whether such permission
has been granted or not, the equivalent of such foreign currency sum converted
into Indian rupees at the rate of exchange proved before the court as
aforesaid. In the event of the decree being challenged in appeal or other
proceedings and such appeal or other proceedings being decided in whole or in
part in favour of the plaintiff, the appellate court or the court hearing the
application in the other proceedings challenging the decree should follow the
same procedure as the trial court for the purpose of ascertaining the rate of
exchange prevailing on the date of its appellate decree or of its order on such
application or on the date nearest or most nearly preceding the date of such
decree or order. If such rate of exchange is different from the rate in the
decree which has been challenged, the court should make the necessary
modification with respect to the rate of exchange by its appellate decree or
final 533 order. In all such cases, execution can only issue for the rupee
equivalent specified in the decree, appellate decree or final order, as the case
may be. These questions, of course, would not arise if pending appeal or other
proceedings adopted by the defendant the decree has been executed or the money
there under received by the plaintiff.
[587D-589C]
8. Just as the courts have power to make a
decree for a sum of money expressed in a foreign currency subject to the
limitations and conditions set out above, the arbitrators or umpire have the
power to make an award for a sum of money expressed in a foreign currency. The
arbitrators or umpire should, however, provide in the award for the rate of
exchange at which the sum awarded in a foreign currency should be converted in
the events mentioned above. This may be done by the arbitrators or umpire
taking either the rate of exchange prevailing on the date of the award or the
date nearest or most nearly preceding the date of the award or by directing
that the rate of exchange at which conversion is to be made would be the date
when the court pronounces a judgment according to the award and passes the decree
in terms thereof or the date nearest or most nearly preceding the date of the
judgment as the court may determine. If the arbitrators or umpire omit to
provide for the rate of conversion, this would not by itself be sufficient to
invalidate the award. The court may either remit the award under section 16 of
the Arbitration Act, 1940, for the purpose of fixing the date of conversion or
may do so itself taking the date of conversion as the date of its judgment or
the date nearest or most nearly preceding it, following the procedure outlined
above for the purpose of proof of the rate of exchange prevailing on such date.
If, however, the person liable under such an award desires to make payment of
the sum in foreign currency awarded by the arbitrators or umpire without the
award being made a rule of the court, he would be at liberty to do so after
obtaining the requisite permission of the concerned authorities under the
Foreign Exchange Regulation Act, 1973, 9, In the instant case the party
entitled to receive the money-Forasol-was a foreign party. Under the said
contract, the currency of account was a foreign currency and so was the
currency of payment except for a portion thereof.
Forasol was, therefore, entitled, on payment
not being made to it by ONGC, to receive in French Francs the amounts which
became payable to it in that currency. The Umpire was, therefore, justified in
providing that the amounts payable under the said award to Forasol in French
Francs should be paid in French currency. The Umpire has, however, neither
provided that such payment would be subject to the permission of the foreign
exchange authorities being obtained nor specified the conversion rate to be
applied in the eventualities set out above. That, however, does not make any
difference because neither party has objected to the said award on this ground.
On the contrary, both parties have accepted the said award as binding and
conclusive, As mentioned above, this omission on the part of the Umpire could
have been corrected by the High Court when it came to pronounce judgment
according to the said award and pass the said decree in terms thereof. The
decree passed in terms of the said award, however, does not specify either the
rupee equivalent of the amount in French Franch payable to Forasol or the rate
of exchange at which the conversion of such amount into Indian rupees should be
made. To that extent, the decree passed in terms of the said award by the High
Court was not 534 a proper decree. Both the parties have, however, accepted the
said decree and have not challenged it on this ground in any proceedings. In
any event, the aforesaid mistake in the said decree was one which could have
been got corrected by an application for review or by an application under
section 152 or, in any event under section 151, of the Code of Civil Procedure,
1908. The decree has now become final and binding upon the parties. Both the
parties have accepted the said decree and the said decree cannot, therefore, be
said to be invalid on the ground of the above omission to specify either the
rupees equivalent of the French Franc portion of the said award or the rate of
exchange at which such French Franc portion was to be converted into its rupee
equivalent.
For these reasons we hold that the learned
Single Judge rightly took the date of the decree as the date of conversion.
[590C-591B]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 628 & 629 of 1981.
Appeals by Special Leave from the Judgment
and Order dated the 21st December, 1979 of the Delhi High Court in E.F.A.(O.S.)
No. 5 of 1977.
Shankar Ghosh, and D.N. Gupta, for the
Appellant in CA.
628/81 & for Respondent in CA. No.
629/81.
B. Dutta for the Respondent in CA. 628/81 and
for appellants in CA. No. 629/81.
The Judgment of the Court was delivered by
MADON, J. These cross appeals by special leave arise out of execution
proceedings adopted by Forasol, a French Company, having its principal office
in Paris, France, against the Oil and Natural Gas Commission, a statutory body
incorporated under the oil and Natural Gas Commission Act, 1959 (Act XLIII of
1959), hereinafter for the sake of brevity referred to as 'ONGC'.
On July 30, 1962 the Government of India
invited global tenders for structural drilling for exploration of oil in the
Jaisalmer area of the State of Rajasthan. The tender of Forasol was accepted by
the Government of India and in pursuance thereof a contract dated February 17,
1964, headed "Structural Drilling Contract", was entered into between
ONGC and Forasol. Under the said contract, ONGC engaged Forasol to carry out
structural drilling in relation to the exploration for oil in the Jaisalmer
area of the State of Rajasthan on the terms and conditions contained in the said
contract.
535 The said contract was for a period of one
year commencing from the date of the start of the drilling work. The said
contract also gave an option to ONGC to extend the period by one more year.
Article IX-3 of the said contract dealt with the currency of payment. It
provided as follows:
"IX-3.1. The operational fee, standby
fee and equipment charges payable to FORASOL have been specified in French
Francs in Article IX-1.1.1. to IX- 1.1.1. Above. The amount payable to FORASOL
on account of aforesaid fees and charges shall be computed in French Francs
ONGC shall pay 80% of the aforesaid amount in French Francs and the remaining
20% in Indian Rupees using a fixed conversion rate of FF. 1.033=Re.
1.000." Under Article IX-3.2 the cost as
well as the insurance, packing, forwarding and clearing charges in respect of
the materials provided by Forasol and the freight, insurance, packing,
forwarding and clearing charges for transportation from a sea port or air port
in France to India and back to a sea port in France or outside France if
Forasol so chose, in respect of the rig, equipment, machinery, tools and other
materials provided by Forasol were to be reimbursed to Forasol by ONGC in
Indian rupees, if the expenditure was initially incurred by Forasol in Indian
rupees, otherwise in French Francs.
Under a Credit Agreement arrived at between
the Government of India and the Government of France, the Government of France
had agreed to provide credit facilities to a limited extent to the Government
of India for the import of plant, machinery, equipment and materials and for
execution of certain projects including oil exploration.
Under the said Credit Agreement, credit was
to be given by the French suppliers to the Indian buyers in the form of
acceptance of payments on deferred basis upon the conditions laid down in the
letters dated February 5, 1962, exchanged between the Governments of India and
France. Consequently, in respect of the said contract, Forasol had agreed under
Article X-1.1 thereof to accept payment of its fees, costs and charges payable
in French Francs on deferred basis under the overall conditions of the said
letters exchanged between the two Governments and Forasol and ONGC had agreed
upon the estimates of the payments to be made to Forasol in French Francs under
the said contract, the invoicing rules and the mode of payment. Articles X-2,
X-3 and X-4 of the 536 said contract set out such estimates, invoicing rules
and the mode of payment. Under Article X-3.3, Forasol was to indicate in each
of it invoices the amount payable to it in French Francs and the amount payable
to it in Indian rupees under the said contract. So far as the mode of deferred
payment of French Francs was concerned, Article X-4.1.1 provided for remittance
by ONGC in French Francs immediately following the signing of the said contract
of a sum of FF 73, 437.49, being the 19/800th part (i.e. 1.25 per cent) of the
total estimated amount of Forasol's operational and stadby fees and equipment
charges, cost of the materials to be provided by Forasol and transportation
charges in respect of Forasol's rig, equipment, machinery and tools. Under
Article X-4.1.2, subsequent to the above remittance ONGC was to remit to
Forasol in French amount 15/800th part (i.e. 1.875 per cent) of the total
estimated amount in respect of the said items mentioned above, that is FF
110,156.23 on each 5th day of August and February, the first of such payments
to be made on August 5, 1962 and the last on February 5, 1965. Article X-4.2
provided for payment by ONGC to Forasol of the balance of the amount due to
Forasol.
Under Article X-4.2.1, on receipt of each of
Forasol's invoices in respect of operational fees, standby fees and equipment
charges accepted by ONGC, Forasol was to present to ONGC a set of 14 promissory
notes payable to CNEP (Paris) of equal value totalling to 87.5% of the French
Franc Portion of the amount for which each of the said invoices had been
accepted by ONGC and maturing on the 5th day of August and of February, the
first such dates being August 5, 1965 and the last being February 5, 1972.
Within fifteen days of the date of receipt of the said promissory notes, ONGC
was to return the said promissory notes to Forasol (Paris) duly signed and
stamped.
Article X-4.2.2 provided for payment of the
said promissory notes. The said Article was as follows:
"X-4.2.2. ONGC binds itself,
irrevocably, to pay in French Francs the promissory notes given by it to
Forasol. Forasol shall present the promissory notes to CNEP (Paris) for
collecting payment on the dates of maturity ONGC shall place with CNEP (Paris),
at least one day before each date of maturity, adequate funds to cover the
total value of the promissory notes maturing on that date." 537 Under
Article X-4.3 ONGC undertook to pay to Forasol in French Francs simple interest
at the rate of 5 per cent per annum and also a credit insurance charge at the
rate of 1.08 per cent per annum. The other sub-articles of Article X-4.3
provided for calculation of interest and insurance charges and for submission
by Forasol every six months of invoices in respect thereof. Article X-4.3.2,
inter alia, provided that- "ONGC shall accept each invoice for the
interest and insurance charge and shall remit the invoiced amount to Forasol in
French Francs as early as possible but not later than two months after receipt
of the invoice." Provision was also made by the said Article X-4.3.2 for
drawing of promissory notes payable at CNEP (Paris) maturing on each 5th day of
August and of February, the first of such dates being August 5, 1965 and the
last being August 5, 1971. Under Article X-4.3.3 ONGC bound itself,
"irrevocably, to pay in French Francs the promissory notes for interest
and insurance charge given by it to Forasol." Article XI provided for payments
to be made to Forasol in Indian rupees. Under Article XI.1.1. the rupee payment
part of the operational and standby fees, equipment charges and transportation
charges payable to Forasol under the said contract was estimated to be FF
1,495,216 and ONGC was to pay to Forasol as an advance 10 per cent of the said
amount, namely, FF 149,522, in Indian rupees using a conversion rate of FF
1.033 equal to Rupee 1.000. The balance amount in respect of the aforesaid item
was to be paid by ONGC to Forasol in Indian rupees using a conversion rate of
FF 1.033 equal to Rupee 1.000 in the manner set out in the other sub- articles
of Article XI.
On account of the hostilities between
Pakistan and India which broke out in September 1965 the work under the said
contract could not be completed and the operations to be carried out there
under had to be suspended. The period of the said contract was thereupon
extended by a supplementary agreement being Addendum No. 1 dated December 6,
1965, by a period of six months with effect from the date on which the drilling
operations in the Jaisalmer area were resumed at the expiry of the period of
suspension. By another supplementary agreement being Addendum No. 2 dated July
30, 1966, the period of the said contract was further extended by a period of
five months from the moment at which all the equipment of 538 Forasol then
under repair at Jodhpur arrived, after completion of the repairs at the new
drill-site, where ONGC might like to have drilling operations to be started
under the said Addendum No. 2. Article 2.7 of the said Addendum No.2 provided
as follows:
"2.7. In case Forasol has to refund to
ONGC an amount which cannot be adjusted or has not been adjusted against
Forasol's invoices for the last two months of the five months period of this
Addendum, Forasol shall refund the amount in cash in the same currency in which
ONGC had paid it earlier." By another supplementary agreement being
Addendum No. 3 dated February 23, 1967, the period of the contract was further
extended till the completion of the drilling of Manhere Tibba Well No. 1 and in
case ONGC should decide to test the said well till the completion of such test
or till April 18.1967. Whichever was earlier? Article 2.5 of the said Addendum
No. 3 Provided as follows:
"2.5, In case Forasol has to refund to
ONGC an amount which cannot be adjusted or has not been adjusted against
Forasol's invoices for the period of extension stipulated in Article 1.2 above,
Forasol shall refund the amount in cash in the same currency in which ONGC had paid
it earlier." It may be mentioned that each of the said supplementary
agreements provided that all the terms and conditions of the original contract
which were not repugnant to the terms and conditions agreed to for such
supplementary agreements were to continue to apply until the termination of the
said contract.
The extended period of the said contract
expired on April 13, 1967.
In June 1966, during the extended period of
the said contract, the Indian rupee was devalued, and consequently in the
course of correspondence which took place between the parties Forasol made a
claim for conversion of Indian rupees into French Francs at a rate higher than
the rate specified in Article IX. 3 of the said contract.
539 It may also be mentioned that ONGC paid
to the income- tax authorities towards the income-tax liabilities of Forasol
three sums aggregating to Rs. 11,95,304 as specified below:
(1) Rs. 1,25,304 on September 14, 1967, (2)
Rs. 4,70,000 on February 14, 1968, and (3) Rs. 6,00,000 on March 23, 1968.
During the period of extension covered by the
said Addendum No. 3 and after the expiry of that period disputes and
differences arose between the parties. These were referred to arbitration as
provided in the said contract.
The parties appointed their respective
arbitrators. The time for making the award was extended from time to time with
the consent of the parties but as Forasol did not consent to any further
extension, the disputes were referred for arbitration to Mr. N. Rajagopala
Iyyangar, a retired judge of this Court, being the Umpire appointed by the
arbitrators. In the arbitration proceedings Forasol made claims against ONGC
and ONGC made counter-claims against Forasol. On March 8, 1972, the Umpire
entered upon the Reference and on December 21, 1974, the Umpire made his award.
To the said award an erratum was annexed by which a particular portion to the
said award was deleted and substituted by a fresh portion to which we will
revert later. For the present, suffice it to say that by the said Erratum the
Umpire awarded that from November 30, 1966 the rupee portion should be
converted at the rate of FF 1, 000 equal to Rs. 1,517. 80 instead of the rate
of exchange of FF 1,033 equal to Re. 1,000 provided in Article IX. 3.1 of the
said contract and that this enhanced rate of exchange would apply to both
Forsal and ONGC.
The said award was filed in the Delhi High
Court and on May 7,1975, a decree in terms thereof was passed by that High
Court with interest at the rate of 6 per cent per annum from the date of the
decree till the date of payment of the net decretal amount. It is pertinent to
note that neither party raised any objection to the said award or to the form
in which the said decree was passed.
After the said decree was drawn up, Forasol
filed in March 1976 an application for execution of the said decree being
Execution No. 77 of 1976. Under the said award certain amounts were directed by
the Umpire to be paid to Forasol by ONGC in French 540 Francs and certain
amounts in Indian rupees, and the amounts payable by Forasol to ONGC were to be
adjusted and set off against the amounts payable by ONGC to Forasol. In the
said execution application the rupee credit in favour of Forasol was converted
into French Francs at the rate of Rupee 1.
5178 equal to FF 1.000 being the enhanced
rate of exchange specified in the said award. After deducting the amounts
payable to ONGC the balance payable to Forasol was shown as FF 5, 89, 727.51
being the equivalent of Rs. 11, 79, 455 with interest on the principal sum upto
the date of payment and the costs of execution. The mode of execution specified
in the said execution application was attachment and sale of the movable
properties belonging to ONGC and specified in an annexure to the said execution
application. In its objections to the said execution application ONGC contended
that the enhanced rate of exchange specified in the said award was only with
respect to the interest payable to Forasol from November 30, 1966, and that to
the rest of the payments to be made under the said award the rate of exchange
mentioned in Article IX-3.1, namely, FF 1.033 equal to Rupee 1.000, was
applicable and that this contract rate of exchange applied both to the French
Franc part as also the Indian rupee part of the said contract. ONGC also raised
certain other contentions. On the basis of these contentions, it was submitted
by ONGC that instead of any amount being due to Forasol a sum of Rs. 6,
43,831.44 was due by Forasol to ONGC. The learned Single Judge of the Delhi
High Court who heard the said execution application rejected all the
contentions of ONGC. He held that the contract rate of exchange applied only to
the rupee part of the payment in respect of the items specified in Article
IX-3. 1 of the said contract and that in respect of such payments from November
30, 1966, the enhanced rate of exchange provided in the said award was to apply
but in respect of the other payments to be made to Forasol in French Francs the
rate of exchange prevailing at the date of the decree, namely, FF 1.000 equal
to Rs. 1.938 would apply. The learned Single Judge directed that ONGC could
satisfy the judgment debt by making payment in French Francs or, if it so
preferred, by paying the equivalent of it in Indian rupees at the rate of
exchange prevailing at the date of the decree and further ordered that if the
decretal amount was not paid within two weeks, attachment as prayed for should
issue. Against the said judgment and order of the learned Single Judge ONGC
filed an intra-court appeal being E.F. A. (OS) 5 of 1977.
The Division Bench of the Delhi High Court,
which heard the said appeal, upheld the contention of ONGC that the 541
enhanced rate of exchange specified in the said award applied only to the
interest payable to Forasol and that with respect to the rupee amount due to
ONGC and which was to be adjusted against French Francs payable to Forasol, the
contract rate of exchange applied. It further held that as the said award was
in French Francs, by reason of the provisions of the Foreign Exchange Regulation
Act, 1973 (46 of 1973), before executing the said award the French Francs would
have to be converted into Indian rupees at the rate of exchange prevailing on
the date of the said award, namely, FF 1.000 equal to Rupee 1.831. The Division
Bench negatived the other contentions raised by ONGC. It is against this
judgment and order of the Division Bench of the Delhi High Court that the
present cross appeals have been filed.
So far as Forasol's appeal is concerned, four
points were urged on its behalf before us.
These points were:
1. The rate of exchange specified in Article
IX-3. 1 of the said contract, namely, FF 1.033 equal to Rs. 1.000, was
applicable only to 20 per cent of the payment to be made in Indian rupees by
ONGC to Forasol.
2. The Umpire by the said award fixed the
rate of exchange at FF 1.000 equal to Rs. 1.5178 as from November 30, 1966, in
respect of such rupee payments only.
3. The sum of Rs. 10,19,380.39, being the
balance amount of the sum of Rs. 11,95,304 which remained payable to ONGC by
Forasol in respect of the income-tax paid by ONGC on behalf of Forasol after
making adjustments against the claim of Forasol, was to be adjusted, as
directed by the said award, against Forasol's claim in French Francs on the
respective dates of each payment of tax, namely, on September 14, 1967,
February 14, 1968, and March 23, 1968, and as all these payments were made
after November 30, 1966, and as under the said award the enhanced rate of
exchange was directed to apply to 542 both parties, the said sum of Rs.
10,19,383.39 was to be adjusted against the French Franc claim of Forasol at
the enhanced rate of FF 1.000 equal to Rs. 1.5178.
4. So far as the payment to Forasol in French
Francs was concerned, neither the said contract nor the said award provided for
conversion of French Francs into Indian rupees and the said decree having been
passed in foreign currency, in case ONGC did not or could not make payment in
French Francs, the rate of conversion of French Francs, into Indian rupees
could only be at the rate of exchange prevailing at the date of the said
decree, that is, on May 7, 1975, which was FF 1.000 equal to Rs. 1.938.
ONGC, on the other hand, submitted that the
said contract provided a fixed rate of exchange of FF 1.033 equal to Re. 1.000
for all amounts payable under the said contract, whether in rupees or in French
Francs, and, therefore, that rate alone should be taken as the correct
conversion ratio except with respect to interest on the amount in Franch Francs
payable to Forasol in respect of which the Umpire had enhanced the rate of
exchange to FF 1.000 equal to Rs. 1.5178. In the alternative, it was submitted
that the conversion rate should be the one prevailing at the date of the said
award, that is, on December 21, 1974, namely, FF 1.000 equal to Rs. 1.831.
Thus, there are four different rates of
exchange which feature in this case, namely,- Rate provided in the FF 1.033 =
Rs. 1.000 said contract Rate fixed by the FF 1.000 = Rs. 1.5178 Umpire Rate at
the date of the FF 1.000 = Rs. 1.831 said award namely on December 21, 1974
Rate at the date of FF 1.000 = Rs. 1.938 the decree, namely, on May 7, 1975 543
We shall first examine the said contract to determine whether the rate of
conversion mentioned in the said Article IX-3.1 applied only to 20 per cent of
the amounts in French Francs payable by ONGC to Forasol in Indian rupees in
respect of Forasol's operational fee, standby fee and equipment charges as
contended by Forasol or whether it applied to all payments to be made under the
said contract, whether in rupees or in French Francs, as contended by ONGC.
In doing so, a cardinal fact must be borne in
mind, namely, that it was a contract entered into between a foreign party and a
Government of India undertaking and that under the said contract the foreign
party had agreed to carry out structural drilling in relation to the
exploration for oil, discovery of oil being of vital importance to the national
interests of India. From the nature of things, the foreign party would not
desire payment for the services to be rendered and the equipment to be supplied
by it in a currency with which it had no connection and of the continuous
stability of which it could not be certain. The foreign party would, therefore,
naturally desire and bargain for payment in the currency of its own country,
namely, in French currency. The more so, as under the Credit Agreement entered
into between the Government of France and the Government of India the
Government of France had agreed that credit should be given by French suppliers
to Indian buyers by accepting payment on deferred basis for the import of
plant, machinery, equipment and materials and execution of certain projects
including oil exploration, and, accordingly, under Article X-1.1. of the said
contract the French party, Forasol, had agreed to accept on deferred basis
payment of the amounts due to it in French Francs. We have earlier referred to
the relevant Articles of the said contract as also extracted some of them in
order to emphasize that though under the said Article IX-3.1 Forasol had agreed
to accept 20 per cent of its operational fee, standby fee and equipment charges
in Indian Rupees, it wanted that the remaining 80 per cent of these fees and
charges as also the other amounts which were payable to it under the said
contract should be paid to it in French Francs only and should not be made
dependent upon the stability of the Indian rupee in the international monetary
market. To recapitulate, the invoicing rules provided that in each of its
invoices Forasol should indicate separately the amount payable to it in French
Francs and the amount payable to it in Indian rupees and that so far as the
French Franc part was concerned, an initial payment was to be made immediately
upon the signing of the said contract and the balance was to be paid by
remittances in French Francs. Such remittances were to be made by Forasol
presenting 544 to ONGC a set of promissory notes payable in Paris and under
Article X-4 2.2 of the said contract ONGC irrevocably bound itself to pay in
French Francs the promissory notes given by it to Forasol, Similar provisions
were made in the said contract for payment of interest and insurance charges to
Forasol. If Forasol were to indicate separately in its invoices the payment to
be made to it in French Francs and in Indian rupees and if the payment of such
French Francs was to be made in Paris in French Francs, the question of
providing for a rate of exchange in the said contract for converting French
Francs into Indian rupee cannot arise.
Such conversion rate could only be in respect
of the amounts payable to Forasol in Indian rupees. It is pertinent to note
that under Article IX-3.1 the amount of fees and charges payable to Forasol
were to be computed in French Francs and thereafter 80 per cent thereof was to
be paid in French Francs and the remaining in Indian rupees. Even with respect
to such twenty per cent Forasol did not want to be dependent upon a possible
fluctuation in the exchange rate of rupee and, therefore, the 20 per cent part
of the amount computed in French Francs was covenanted to be converted at a
fixed rate provided in the said Article IX-3.1. This is made abundantly clear
by the express terms of the said Article IX-3.1 when it states that "ONGC
shall pay 80% of the aforesaid amount in French Francs and the remaining 20% in
Indian Rupees using a fixed conversion rate of FF 1.033=Re.
1.000." It is thus only the 20 per cent
of the said fees and charges computed in French Francs in Forasol's invoices
but payable in Indian rupees which was to be converted at the aforesaid rate of
exchange specified in the said contract.
This interpretation receives further support
from Article
2.2 of Addendum No. 2 and Article 2.5 of
Addendum No. 3 extracted above under which amounts refundable by Forasol to
ONGC were to be refunded in the same currency in which ONGC had paid them
earlier. The contention of ONGC that the fixed rate of conversion provided in
Article IX-3.1 applied to all payments to be made under the said contract to
Forasol must, therefore, be rejected.
What next falls to be considered is whether
the enhanced rate of exchange specified by the Umpire in the said award applied
only to the amount payable by way of interest to Forasol as contended by ONGC.
This contention was rejected by the learned Single judge but found favour with
the Division Bench of the Delhi High Court. It is necessary to set out some
further facts in order to decide this point During the course of the hearing
before the Umpire, ONGC had 545 filed a statement showing the adjustment of the
amount of French Francs due to Forasol against the amount of income- tax paid
by ONGC on behalf of Forasol. It was, however, erroneously assumed by the
Umpire that the said statement was an agreed one. After the Umpire had drafted
his award he handed over a copy of it to the parties in order that they might
point out to him any incorrect statements or mistakes of a clerical or similar
nature so that he could correct the same before the award was made and
published. Accordingly, both the parties appeared before the Umpire and agreed
that there were certain errors in the draft award and requested the Umpire to
correct these errors before he made and Published his award. The Umpire
thereupon corrected the errors jointly pointed out to him by appending an
Erratum to the said award. In the said Erratum the Umpire pointed out that the
aforesaid statement was not an agreed one and he directed that certain portions
of the award should be deleted and substituted by fresh paragraphs set out in
the said Erratum. In the said Erratum the Umpire first pointed out certain
errors of calculation and in the mentioning of figures which had been occurred.
He then proceeded to state:
"Incidentally it was pointed out that
the statement on pages 145-6 and in the penultimate and last two paragraphs on
page 149 regarding the document filed before me, as regards the adjustment of
FF claims due to Forasol against the income-tax paid by ONGC was not an agreed
statement, but a statement prepared by O.N, G.C. on their own to which Forasl
had not consented, As a result of this, the question of adjustment of the
income-tax paid against FF claims, as set out in the last para on page 149 and
in the first two paragraphs on page 150 would be deleted and in their place the
Award would state that 'the amounts of income-tax paid by ONGC shall be
adjusted against the FF claims due to Forasol on the date when each amount was
paid in the manner set out earlier in the Award.' "To achieve this purpose
the paragraphs on pages 149 and 150 beginning with the words 'In the
calculation of the interest on the several invoices' and ending with 'I have
already dealt with the conversion rate and there is no need to go into it
again' on page 150 shall be deleted and a new paragraph inserted, which will
read as follows:
546 X X X X X '...as a result the aggregate
figure of interest payable to Forasol by O.N.G.C. upto 30-6-1974 would be FF
12,91,290,06. From this a small adjustment has to be made...when these are
adjusted the amount due for interest by O.N.G.C. to Forasol would be FF
12.88.185.35.' 'This figure of FF 12,91,290,06 has been calculated on the basis
of conversion rate of FF 1.033 to a rupee (or FF 1033 for every Rs. 1,000/-)
which was the rate of exchange agreed to between thee parties under Article XI.
1.1.1 of the Agreement. Messrs Forasol have put forward before me a claim for
enhanced rate of interest and their claim is that this should be Rs. 1,5178 for
every FF or Rs. 1517,80 for every FF 1,000, I find that there is considerable
correspondence in the course of which they have made a claim that after
devaluation of the rupee there should be a change in the rate of exchange,
Though there is no specific letter in the file agreeing to the enhancement I
find that in the later invoices demand has been made subject to the claim for
enhanced rate of exchange. In view of this I consider that from 30,11,1966
Rupee portion should be Converted at FF 1 = Rs. 1.5178 or FF 100= Rs. 1.517.80.
Of course this rate of exchange would apply to both the parties, Farasol and
the O.N.G.C.' 'As stated earlier this has been worked out only upto 30.6.1974
and in accordance with the directions contained in this award interest shall be
calculated on the principal amount right upto 21.12.1974 on the entire amount
of principal and the entire sum of principal and interest would thereafter
carry interest at 6% per annum, as stated in the other portion of the
award." (The emphasis has been supplied by us.) Article XI-1.1 of the said
contract referred to in the said Erratum provided as follow:- "XI-1.1.1 On
the basis of the figures arrived at in Articles IX-2.1 and IX-2.2 above and in
accordance with the condition laid down in Article IX-3.1 above, the total 547
of FORASOL's operational and standby fees, equipment charges and transportation
charges payable in Indian Rupees under this contract, is estimated to be FF
1,495, 216, Following signature of this contract, ONGC shall pay to FORASOL, as
an advance, 10a/c of this amount i.e. FF 149,522 in Indian Rupees using a
conversion rate of FF 1.033 = Rs. 1.000." In order to reach the conclusion
which it did, the Division Bench of the Delhi High Court relied upon that
portion of the said Erratum where the Umpire has stated that Forasol has put
forward before him a claim for "enhanced rate of interest",
overlooking the other portions of the said Erratum, particularly the portion
emphasized by us in the above extract as also the fact that by the said Erratum
certain portions of the said award were deleted and substituted by fresh
paragraphs. On a perusal of the above extract from the said Erratum, it is
obvious that the claim made by Forasol was not for an enhanced rate of interest
but for an enhanced rate of exchange by reason of the devaluation of the rupee.
This is made clear by the rest of the very same sentence in the said Erratum in
which this claim made by Forasol was referred to, namely, "and their claim
is that this should be Rs. 1.5178 for every FF or Rs. 1.5178 for every FF
1,000," If the claim of Forasol was for an enhanced rate of interest, the
claim would have been that interest should be payable to it not at the contract
rate of five per cent per annum but at a higher rate and not that a higher rate
of exchange should be provided. The very next sentence which also we have
emphasized clarifies that in the correspondence which took place between the
parties, Forasol had made a claim that after devaluation of the rupee there
should be a change in the rate of exchange. Obviously, this change would be
with respect to the rupee payment to be made to Forasol. The very direction of
the Umpire in this behalf makes it clear that he was not dealing only with the
rate of interest for by the said direction, which too we have emphasized in the
above extract, the Umpire awarded that from November 30, 1966, "Rupee
portion should be converted at FF 1 = Rs. 1.5178 or FF 1,000 = Rs. 1,5178"
and he further awarded that "this rate of exchange would apply to both the
parties, Forasol and the O.N.G.C." The question of the enhanced rate of
exchange applying to both the parties would not arise if the enhanced rate of
exchange was with respect only to the interest payable to Forasol.
548 We are fortified in the conclusion we
have reached by the fact that so far as the adjustment of claim of ONGC with
respect to income-tax paid by it was concerned, the Umpire by the said Erratum
expressly deleted from the said award the portion in which such adjustment was
made at the contract rate of FF 1.033 equal to Re. 1,000 and substituted it by
fresh paragraphs. Under the said Erratum these amounts were directed to be
adjusted from November 30, 1966 at the enhanced rate of exchange provided in
the said Erratum as all these amounts were paid by ONGC after the said date.
Another fact which fortifies this conclusion
is that by the last paragraph of the portion of the said Erratum extracted
above, in addition to an enhanced rate of exchange, the Umpire has also awarded
a higher rate of interest, namely, six per cent, on the entire sum of principal
and interest from December 22, 1974.
The Division Bench of the Delhi High Court
was, the in error in holding that the enhanced rate of exchange specified in
the said award applied only to the amount of interest payable to Forasol. For
the reasons stated above we find that this enhanced rate of exchange applied to
the payments in Indian rupees under Article IX-3.1 of the said contract to be
made by ONGC to Forasol from and after November 30,1966.
The question which now remains to be
considered in Forasol's appeal is the date to be selected by the Court for
converting into Indian rupees the French Franc part of the said award in
respect of which no rate of exchange has been fixed either by the said contract
or the said award.
In an action to recover an amount payable in
a foreign currency, five dates compete for selection by the Court as the proper
date for fixing the rate of exchange at which the foreign currency amount has
to be converted into the currency of the country in which the action has been
commenced and decided.
These dates are:
(1) the date when the amount become due and
payable;
(2) the date of the commencement of the
action;
549 (3) the date of the decree;
(4) the date when the court orders execution
to issue;
and (5) the date when the decretal amount is
paid or realized.
In a case where a decree has been passed by
the court in terms of an award made in a foreign currency a sixth date also
enters the competition, namely, the date of the award.
The case before us is one in which a decree in
terms of such an award has been passed by the court.
The said award directed certain payments to
be made in a foreign currency, namely, French Francs, and did not specify the
rate of exchange at which the French Francs were to be converted into Indian rupees
and the decree which was passed by the Delhi High Court was in terms of the
said award simpliciter without fixing any date for conversion of the French
Francs into Indian rupees. As mentioned earlier, neither party filed any
objection to the said award or to the passing of the said decree in the terms
in which it was passed. The question whether an arbitrator or umpire can make
an award in a foreign currency is, therefore, not directly in issue before us
nor the question whether a court can simpliciter pass a decree in terms of such
an award without specifying the rate of exchange at which the foreign currency
amount will have to be converted into Indian rupees. Though at the first blush
these questions do not appear to arise for our determination, they are
inextricably linked with the question which we have to decide and we will,
therefore, have to address ourselves to them in due course.
The question which one out of the dates
mentioned above is the proper date to be selected by the court does not appear
to have been decided in this country, and no authority of any Indian court on
this point has been brought to our notice. The question, however, has formed
the subject-matter of decisions in England and both the learned Single Judge as
also the Division Bench of the Delhi High Court have referred to the decision
of the House of Lords in Miliangos v. George Frank (Textiles) Ltd.(1) and other
English cases. They have however, reached differing conclusions, the learned
Single Judge holding that the conversion of French Francs into Indian 550
rupees should be made at the rate of exchange prevailing on the date of the
said decree and the Division Bench holding that such conversion should be at
the rate of exchange prevailing at the date of the said award. It will be
convenient, therefore, to turn now to the English decisions on the point to
ascertain whether we can find some guidance from them in arriving at our
conclusion. The judicial view on this point in England has undergone a radical
change and it will not be out of place to ascertain the earlier view which the
courts in England took and the view which now prevails with them and to take a
brief survey of how this change in view came about.
In Tomkinson and another v. first
Pennsylvania Banking & Trust Co.(1) (better known as the Havana case) on
appeal from the decision of the Court of Appeal, sub-nom In re United Railways
of Havana and Regla Warehouses Ltd.,(2) after reviewing the earlier
authorities, the House of Lords held that an English court cannot give judgment
for payment of an amount in foreign currency, and that for the purposes of
litigation in England a debt expressed in a foreign currency must be converted
into sterling with reference to the rate of exchange prevailing on the date
when the debt was payable. Lord Denning, who was then a member of the House of
Lords, delivered a concurring judgment in which he pointed out that the origin
of this rule was that sterling was for a long time regarded as a stable
currency, the constant unit of value by which, in the eye of the law,
everything else was measured, and that so long as sterling was regarded as
stable while other currencies fluctuated, justice was best done by taking the
rate of exchange at the date of the breach; the creditor being entitled to be
put into as good a position as if the debtor had done his duty and paid the
debt on the due date and the creditor was only truly put into such a position
if the debt was converted into sterling at that date. At the same time Lord
Denning also posed a question whether the rule was still to be applied when
sterling had lost the value which it once had by reason of the devaluation of
the pound. He however, came to the conclusion that though such a rule was apt
to produce an injustice to a foreign creditor who was owed money in the
currency of his own country if he chose to sue in English courts instead of his
own, he must put up with the consequences. The rule affirmed in the Havana case
is known as the "breach date rule".
551 The next decision which requires to be
noticed is that of the Court of Appeal in Jugoslavenska Oceanska Plovibdo v. Castle
Investment Co. Inc.(1) As this authority was relied upon by the Division Bench
of the Delhi High Court in order to arrive at its decision on this part of the
case and as it formed the sheet-anchor of the submission made on behalf of ONGC
that the proper date of conversion should be the date of the award, it is
necessary to examine what was decided in this case in some detail. In that
case, the plaintiffs were awarded a sum expressed in United States dollars in
an arbitration held in London. The defendants having failed to pay the sum
awarded, the plaintiffs sought leave of the court under section 26 of the
Arbitration Act, 1950, of England to enforce the award. In support of their
application the plaintiffs filed an affidavit showing the rate of exchange
prevailing at the date of the award and the amount of the award in pound
sterling and claimed the amount due under the award on the said basis. The
questions which fell for determination were whether an award expressed in a
currency other than sterling was valid and lawful and, if so whether it was
enforceable under the said section 26. The Master dismissed the application and
the order of dismissal was affirmed by Kerr J. On appeal, the court of Appeal
held that the award was valid and leave should be granted to enforce it, On the
question whether English arbitrators have jurisdiction to make an award for
payment in a foreign currency, the Court held that in a proper case they could
do so and that in the case before them since the money of account and the money
of payment under the charter party out of which the disputes between the
parties arose were expressed in United States dollars the arbitrators were
entitled to make their award in the same currency. It was further held that
leave should be granted to enforce an award expressed in a foreign currency
provided the applicant had filed an affidavit showing the rate of exchange
prevailing at the date of the award and giving the amount of the award
converted into sterling. When that case fell to be decided Lord Denning was a
member of the Court of Appeal, having accepted appointment as Master of the
Rolls. In the course of his judgment in that case, Lord Denning M.R. said (at
pages 501-2):
"The reason why some people have thought
that an award by English arbitrators must be in sterling is because they have
regarded it as equivalent to a judgment by an 552 English judge which must be
in sterling. But there is this difference. When commercial men are in dispute
and go to arbitration, they wish to have the dispute resolved. They want a
decision one way or the other.
Once given, they abide by it, The losing
party pays up.
There is rarely any need to call in the
sheriff or his officer to enforce the award. So it is perfectly fair, as
between them, for the arbitrator to make his award in the currency which is
appropriate to their dealings.
But, when a plaintiff goes to a court of law,
it is, as often as not, because the defendant cannot pay or will not pay, The
plaintiff wants to get judgment against him and, if need be, levy execution on
his effects.
This is so much in the mind of the courts
that they have ruled that they will give judgment only in sterling. That is the
one currency which is known to the court and to the sheriffs and their
officers. I venture to suggest that this view of the courts should be open for
reconsideration. If the money payable under a contract is payable in a foreign
currency, it ought to be possible for an English court to order specific
performance of it in that foreign currency; and then let the exchange be made
into sterling when it comes to be enforced. I know that this is not yet the
law. There is high authority against it: see Re United Railways of Havana and
Regla Workhouses Ltd. But the House of Lords have since then held that specific
performance can be, ordered of a contract to make a money payment: see Beswlck
v. Beswick.(1) This may point the way to a relaxation of the old rule and enable
the courts, in proper circumstances, to order payment into a foreign currency,
such as is suggested by Dr. Mann in his book.(2) At any rate, there is no
reason why the rule about judgments of the courts should be extended to awards
by arbitrators, I think we should hold that arbitrators have jurisdiction to
make an award in a foreign currency whenever that is the proper currency in
which payments under the contract should be made.
553 "The next question is the manner of
enforcing such an award. It would, no doubt, be possible to bring an action on
the award and seek a judgment from the courts in sterling. In that case the
rate of exchange would be taken at the date of the award. But another way is to
seek the leave of the court under s. 26 of the Arbitration Act 1950 which says:
'An award on an arbitration agreement may, by
leave of the High Court or a judge thereof, be enforced in the same manner as a
judgment or order to the same effect, and where leave is so given, judgment may
be entered in terms of the award.
"If the words 'to the same effect' are
read as meaning 'in the same terms', there would be some difficulty in applying
this section to an award in a foreign currency, but I do not think they mean
'in the same terms They only mean that the judgment or order must have 'the
same effect'. If the sum awarded is converted into sterling at the rate of
exchange at the date of the award, it does have the same effect. The proper
course is for the applicant to file an affidavit showing the rate of exchange
at the date of the award and giving also the amount of the award converted into
sterling. Then leave will be given to enforce payment of that sum," (The
emphasis has been supplied by us.) It may be mentioned that the defendants did
not appear at any stage of the proceedings and were not represented and there
was no appeal to the House of Lords from this judgment.
Whether we should accept the decision in the
Jugoslavenska case as laying down the correct rule to be applied so far as
courts in this country are concerned is a matter which we will discuss after
completing our survey of English authorities.
The question again arose before the Court of
Appeal in Schorsch Meier G.m.b.H. v. Hennin. That was not a case of an
arbitration but it was an action by a German company against an 554 English
firm in an English court for the price of goods in German deutschmarks in which
currency the contract stipulated that payment of the price should be made. The
action was commenced by the plaintiffs in the West London County Court for the
sum of DM 3,756.03 being the amount of the price of goods sold and delivered.
Under the contract, the money of account and the money of payment were both
German deutschmarks. At the time when the sum had become due the rate of
exchange was $ 1 equal to DM 8.30. At that rate the sterling equivalent of DM
3,756.03 was $ 452 sterling.
Sometime later sterling was devalued. As a
result $ 1 sterling was only worth DM 5.85 and consequently the value of $ 452
had fallen to DM 2,664. If the rule in the Havana case applied the plaintiffs
would have got judgment for $ 452 which would have meant only a sum of DM
2,664. whereas if they were able to claim and get judgment in deutschmarks the
sterling equivalent of DM 3756.03 would be $ 641. In other words, by getting
judgment in sterling, the plaintiffs would lose one-third of the money due to
them; whereas by getting it in deutschmarks they would recover the full amount.
The plaintiffs declined to give any evidence with reference to the rate of exchange
but asked for judgment only in deutschmarks as the Federal Republic of Germany
was a member of the European Economic Community, They did so by relying upon
article 106 of the Treaty of Rome which by section 2(1) of the European
Communities Act, 1972, had been made part of the law of England. The County
Court judge held that the said article 106 had no bearing on the rule of common
law and that he could give judgment only in sterling and accordingly dismissed
the action. The plaintiffs filed an appeal. In this case to the defendant did
not appear and was not represented before the Court of Appeal. The appeal was
allowed. With reference to the English law on the subject, apart from the
Treaty of Rome, Lord Denning M.R., the afther referring to the rule in the
Havana case, held that the reasons for the rule had ceased to exist and,
therefore, the court was at liberty to discard the rule itself on the
principle, "cessante ratione legis cessat ipsa lex" He further said
(at pages 156-7):
"Only last year we refused to apply the
rule to arbitrations. We held that English arbitrators have jurisdiction to
make their awards in a foreign currency, when that currency of the contract:
see jugoslavenska Oceanska plovibda v. Castle Investment Co. Inc. The time has
now come when we should say that when the currency of a contract is a foreign
currency- that is to say, when 555 the money of account and the money of
payment is a foreign currency-the English courts have power to give judgment in
that foreign currency, they can make an order in the form: 'It is adjudged this
day that the defendant do pay to the plaintiff' so much in foreign currency
(being the currency of the contract)' or the sterling equivalent at the time of
payment'. If the defendant does not honour the judgment, the plaintiff can
apply for leave to enforce it. He should file an affidavit showing the rate of
exchange at the date of the application and give the amount of the debt
converted into sterling at that date. Then leave will be given to enforce payment
of that sum.
(The emphasis has been supplied by us.) So
far as the Treaty of Rome was concerned, the Court held that the purpose of the
said article 106 was to ensure that the creditor in one member State should
receive payment for his goods in his own currency if it was the currency of the
contract without any impediment or restriction by reason of changes in the rate
of exchange. With respect to the form of the judgment, Lord Denning, with whom
Foster J. concurred, held that he would "adjudge that the debtor do pay to
the plaintiff DM 3,756.03 or the sterling equivalent at the time of
payment" meaning thereby, as Lord Wilberforce pointed out in the Miliangos
case (at page 468), the date when the court authorizes enforcement of the
judgment in terms of sterling.
Lawton L.J., the third member of the court,
on the other hand, was of the opinion that the judgment should be in the form
in which the plaintiffs had asked for it, namely, in deutschmarks and the
plaintiffs must be left to extricate themselves from the intricacies of the law
relating to execution and exchange control. There was no appeal to the House of
Lords against this judgment of the Court of Appeal.
We now come to the case of Miliangos v.
George Frank (Textiles) Ltd. How that case reached the House of Lords makes
interesting reading by itself. Prior to the judgment being delivered in the
Schorsch Meier case, Miliangos, a Swiss, brought an action against George Frank
(Textiles) Ltd., an English company, claiming the sum of Swiss Francs 415, 522.45
due to him for the price of polyester yarn sold and dilivered to the English
company under a written contract. The claim of the Swiss plaintiff was based
upon invoices sent to the English company and accepted by that company 556 and
alternatively on two bills of exchange drawn in Switzerland by the plaintiff
and accepted by the defendants but which had been dishonoured on presentation
on their respective due dates. This alternative claim was for the amounts of
the said bills of exchange, namely, Swiss Francs 273,619.45 and Swiss Francs
27,394 respectively, and the cost of protesting the bills and interest. The
plaintiff apparently had been advised about the position in English law and had
accordingly claimed judgment in sterling as at the breach date. The defendants
claimed that the plaintiff had committed a breach of contract inasmuch as a
part of the yarn dilivered to them was unifit for the purpose and filed a
counter-claim for damages. Thereafter, the plaintiff filed a second suit on
another contract in which the claim was on the same alternative counts. Both
the actions were consolidated and set down for hearing, but before they reached
hearing by their letter dated November 22, 1974, the defendants abandoned their
defence and counter-claim and stated that they would submit to judgment. Four
days later, on November 26, 1974, the Court of Appeal delivered judgment in the
Schorsch Meirer case. Thereupon the plaintiff amended the statement of claim in
the first action and claimed the amount due in Swiss Francs as an alternative
to the claim in sterling. Bristow J. held that the Schorsch Meirer case so far
as it related to countries which were not members of the European Economic
Community was obiter and had been decided per incuriam in that only one party
had been represented and all the relevant authorities had not been cited. He
further held that the decision in that case was inconsistent with what the
House of Lords had held in the Havana case and accordingly he gave judgment for
the sum claimed in sterling. The plaintiff went in appeal (Miliangos v. George
Frank (Textiles) Ltd. The Court of Appeal held that the Schorsch Meier case was
not decided per incuriam and was binding upon the trial court and gave judgment
for the plaintiff in Swiss Francs. The English company went in appeal to the
House of Lords. We are not concerned with what was said in that case with
respect to whether the Schorsch Meier case was decided per incuriam or not and
whether an English court could depart from the rule in the Havana case.
Suffice it to say that the House of Lords by
a majority (Lords Simon of Glaisdale dissenting) held that it was legitimate
for the House of the Lords to depart from the "breach date
conversion" rule and recognize that an English court was entitled to give
judgment for a sum of money expressed in a foreign 557 currency in the case of
obligations of a money character to pay foreign currency under a contract, the
proper law of which was that of a foreign country, and when the money of
account was that of that country or possibly of some country other than the
United Kingdom. The House of Lords further held that the instability which had
overtaken the pound sterling and other major currencies since its earlier
decision in the Havana case as well as the procedures evolved in consequence
thereof by the English courts and by arbitrators in the City of London to
secure payment of foreign currency debts in foreign currency, justified
departure from that decision in terms of the Practice Statement (Judicial Precedent)
(under which the House affirmed its power to depart from a previous decision
when it appeared right to do so, recognizing that too rigid an adherence to
precedent might lead to injustice in a particular case and unduly restrict the
development of the law) since a new and more satisfactory rule could be stated
to enable the courts to keep step with commercial needs and would not involve
undue practical and procedural difficulties.
We are concerned here with what was said in
that case with respect to the date to be taken for converting foreign currency
into English currency. Lord Wilberforce held (at pages 468-9) that the claim
should be made specifically for the foreign currency and to this might be added
the alternative "or the sterling equivalent at the date of....." and
that as regards the conversion date to be inserted in the claim or in the
judgment of the court, though the date of judgment was a workable date, he
would favour the date of payment meaning thereby the date when the court authorizes
enforcement of the judgment in terms of sterling, because in some cases,
particularly where there was an appeal, the date of judgment might impose upon
the creditor a considerable currency risk, Lord Wilberforce further observed
(at page 469):
In the case of arbitration, there may be a
minor discrepancy, if the practice which is apparently adopted (see the
Jugoslavenska case (1974) Q.B. 292, 305) remains as it is, but I can see no
reason why, if desired, that practice should not be adjusted so as to enable conversion
to be made as at the date when leave to enforce in sterling is given."
(The emphasis has been supplied by us.) 558 Lord Cross of Chelsea pointed out
(at pages 497-8) that it would be absurd to have one rule with regard to
arbitrations on debts expressed in a foreign currency and another with regard
to actions on similar debts and that in a case where the defendant failed to
deliver foreign currency for the payment of which the judgment was given, the
date for its conversion into sterling should be the date when the plaintiff was
given leave to levy execution for a sum expressed in sterling. Lord
Edmund-Davies, referring to the Jugoslavenska case, said (at page 501) that
being governed by section 26 and sub-section (1) of section 36 (which deals with
enforcement of foreign awards) of the Arbitration Act, 1950, the award of
American dollars in that case of necessity had to be converted into sterling at
the rate of exchange prevailing on the date when the award was made and that
but for that fact, the most just rate would be that prevailing when the award
was being enforced, for the plaintiff had been kept out of his money until then
and there was no reason why this latter rate should not be the one adopted when
judgments expressed in a foreign currency are being enforced. According to Lord
Edmund-Davies, Miliangos should have been given judgment mutatis mutandis in
the form approved of by Lord Denning M.R. in Schorsch Meier case, namely, that
"it is this day adjudged that the defendant do pay to the plaintiff
416,144.20 Swiss francs or the sterling equivalent at the time of
payment", which would mean, as pointed out by Lord. Wilbeforce (at page
368), the date when the court authorizes enforcement of the judgment in terms
of sterling, Lord Fracer of Tullybelton opined (at page 502) that to take the
date of the commencement of the action might result in consequences as unjust
as taking the breach date because between the commencement of an action a
period of a year or more might easily elapse, allowing for appeals, before
payment was made and that the date of judgment would be better but there seemed
no reason why the latest practicable date, namely, the date when the court
authorizes the enforcement of the judgment should not be taken. Lord Simon of
Glaisdale held in his dissenting judgment that there was no reason for
departing from the rule laid down in the Havana case and that this should only
be done by Parliament on executive or expert advice. With reference to the
Jugoslavenska case Lord Simon observed (at page 489):
"If the sterling judgment rule and the
breach date rule were to be reconsidered by a properly qualified body, no doubt
the Jugoslavenska case would come within its purview." 559 The principle
laid down by the House of Lords in the Miliangos case was extended by it to
include a claim based on damages for torts and for breaches of contract in its
decision in Owners of M.V. Eleftherotria v. The Owners of M.V. Despina R-The
Despina R and Services Europe Atlantique Sud (Seas) of Paris v. Stockholms
Rederiahtiebolag Svea of Stockholm, better known as The Despina R, in two
appeals heard one after the other and disposed of by a common judgment.
The first appeal arose out of a collision
between two Greek ships, the Despina R and the Eleftherotria in which the
latter was damaged. The Eleftherotria was owned by a Liberian company which had
its head office in Piracus. The managing agents had their principal place of
business in New York and the bank account used for moneys received and payments
made on behalf of the owners was a U.S. dollar account in New York. An
agreement was reached under the terms of which the owners of the Despina R were
to pay to the owners of the Eleftherotria 85 per cent or the loss and damage
suffered as a result of the collision. The expenses of repair had been incurred
in various currencies. The question whether the damages were to be paid in
sterling or some other currency was referred to the Admiralty judge.
Brandon J. held that he had jurisdiction to
award damages in a foreign currency, but that he was bound by authority to
award them in the currency of expenditure. The Court of Appeal, dismissing an
appeal by the owners of the Despina R and allowing a cross appeal, held that
here was jurisdiction to award damages in tort in sterling or in a foreign
currency, and that, in the circumstances of the case, the appropriate currency
was the plaintiffs' currency rather than the currency of the expenditure.
The second appeal was in respect of a cargo
of onions shipped to Brazil by the French charterers of a Swedish- owned motor
vessel, the Folias. The cargo arrived damaged, and the cargo receivers' claim
for damages was settled by the charterers in Brazilian cruzeiros, which they
purchased with French Francs, their normal business currency. The hire under
the charter party was payable in U.S. dollars and the proper law of the
contract was English law. In arbitration proceedings the owners admitted their
liability to the charterers, but contended that payment should be made in cruzeiros.
By then the 560 value of the cruzeiro against the French Francs was half what
it had been when the charterers had paid the cargo receivers. The arbitrators
made their award in French Francs, On a special case stated Robert Goff J. held
that the award should have been made in cruzeiros as being the currency of the
loss. On appeal by the charterers the Court of Appeal restored the award of the
arbitrators.
The owners of the Despina R as also the
Swedish ship owners went in appeal to the House of Lords. Both the appeals were
dismissed. The House held that in a claim based on tort, it was fairer to give
judgment in the currency in which the loss was sustained than in the sterling
equivalent at the date of the breach or loss; that the principles to be applied
in ascertaining the currency of the loss were those of restitution in integrum
and reasonable foreseeability and, therefore, where a plaintiff proved that he
conducted his business in a specific currency and it was reasonably foreseeable
that he would the that currency to purchase the necessary currency to meet the
immediate and direct expenditure caused by the defendant's tort, then judgment
should be expressed in the plaintiff's currency and, accordingly, the Court of
Appeal had properly varied the order from a judgment expressed in the
currencies of expenditure to the currency of the business conducted on behalf
of the owners of the Eleftherotria, namely, U.S.
dollars. The following passage from the
opinion of Lord Wilberforce (at pages 696-7) is instructive:
"I do not think that there can now be
any doubt that given the ability of an English court (and of arbitrators
sitting in this country) to give judgment or make an award in a foreign
currency, to give a judgment in the currency in which the loss was sustained
produces a juster result than one which fixes the plaintiff with a sum in
sterling taken at the date of the breach or of the loss." It was further
held that where the terms of a contract governed by English law did not
expressly or by implication show that the parties had intended that payments
arising from a breach of contract were to be paid in the currency of account or
other named currency, the court should give judgment in the currency that best
expressed the party's loss; that, although the appeal in the second case
concerned a charterparty which expressly stated that certain contractual
payments should be made in U.S. dollars, the terms of the charterparty did not
show that payment for damage arising out of a breach of contract 561 was to be
made in that currency; that, arising from the owners, breach the charterers had
used French Francs to purchase the necessary cruzeiros to settle the receivers'
claim and, in those circumstances, the Court of Appeal had correctly affirmed
the arbitrators' decision that the currency that best expressed the charterers'
loss was the currency of their business, namely, French Francs. With respect to
the arbitrators jurisdiction to make an award in a foreign currency, Lord
Wilberforce said (at pages 702-3);
"In my opinion a decision in what
currency the loss was borne or felt can be expressed as equivalent to finding
which currency sum appropriately or justly reflects the recoverable loss. This
is essentially a matter for arbitrators to determine. A rule that arbitrators
may make their award in the currency best suited to achieve an appropriate and
just result should be a flexible rule in which account must be taken of the
circumstances in which the loss arose, in which the loss was converted into a
money sum, and in which it was felt by the plaintiff. In some cases the
'immediate loss' currency may be appropriate, in others the currency in which
it was borne by the plaintiff. There will be still others in which the
appropriate currency is the currency of the contract. Awards of arbitrators
based upon their appreciation of the circumstances in which the foreign
currency came to be provided should not be set aside for, as such, they involve
no error of law." It will also be useful to refer at this stage to certain
Practice Directions given, following upon the Miliangos case, with respect to
claims and judgments in foreign currency and enforcement of such judgments. The
Miliangos case was decided on November 5,1975, and the Practice Directions in
question were issued by the Senior Master of the Supreme Court of judicature
(Queen's Bench Division) on December 18,1975, with the concurrence of the Chief
Chancery Master acting on the authority of the Vice- Chancellor so far as they
applied to the practice in the Chancery Division, and of the Senior Registrar
of the Family Division. So far as they applied to the practice in that
Division. As pointed out in Halsbury's Laws of England, 4th 562 ed., vol. 37,
para. 12, practice directions "provide directions as to matters of practice
and procedure for the assistance and guidance of litigants in the conduct of
their proceedings, and in the administration of civil justice generally, and,
although they lack the force of law they are of enormous value, to the courts,
to practitioners and to all who are involved in the civil judicial
process". Under the Practice Directions dated December 18,1975, mentioned
above, before a writ of summons is issued in which the plaintiff makes a claim
for a debt or a liquidated demand expressed in a foreign currency, the writ
must be endorsed with a certificate signed by or on behalf of the solicitor of
the plaintiff or by the plaintiff, if he is acting in person, certifying the
rate current in London for the purchase of the unit of the foreign currency
claimed at the close of business on the date next or most nearly preceding the
date of the issue of the writ and stating whether at that rate of exchange the
debt or liquidated demand claimed in the writ amounts to "$.. or exceeds $
650 (as the case may be)", This certificate is required for the purpose of
ascertaining the proper amount of the costs to be endorsed on the writ. The
judgment which would be entered in respect of such a claim would show that it
has been adjudged that the defendant do pay the plaintiff the sum in foreign
currency for which the court has ordered judgment to be entered or its sterling
equivalent at the time of payment.
Where a defendant desires to pay into court a
sum of money in satisfaction of the claim in foreign currency he may do so
subject to the requirements of the Exchange Control Act, 1947. Where, however,
a plaintiff desires to enforce a judgment expressed in a foreign currency by
the issue of the writ of fieri facias, the praecipe for the issue of the writ
must first be endorsed and signed by or on behalf of the solicitor of the
plaintiff or by the plaintiff, if he is acting in person, with a certificate
certifying the rate of exchange current in London for the purpose of the unit
of the foreign currency in which the judgment is expressed, at the close of the
business on the date nearest or most nearly preceding the date of the issue of
the writ and mentioning what the amount in pound sterling at that rate would
be. The amount so certified will then be entered in the writ of fi.fa. A
similar certificate is required where the plaintiff desires to enforce a
judgment debt expressed in a foreign currency by adopting garnishee proceedings
or other modes of execution.
The above survey shows the position in
English law to be as follows:
563 (1) Until recently the rule that was
firmly established was that an English court could give judgment only in
English currency and that for the purposes of litigation in England to recover
a debt expressed in a foreign currency, such debt had to be converted into
sterling with reference to the rate of exchange prevailing on the date when the
debt was payable. This rule was affirmed by the House of Lords in the Havana
case.
(2) The reason for this rule was that
sterling was regarded as a stable currency and a constant unit of value; and
that by taking the rate of exchange at the date of the breach, the creditor was
being put into as good a position as if the debtor had done his duty and paid
the debt on the due date.
(3) After sterling ceased to be a stable
currency and became subject to fluctuations in the international monetary
market a new line of thinking began to emerge, particularly in commercial
arbitrations where foreign currencies were involved, and the arbitrators in the
City of London started making awards expressed in foreign currency.
(4) This new trend found judicial recognition
in the Jugoslavenska case in which the Court of Appeal held that arbitrators in
England had jurisdiction to make an award in a foreign currency in a case in
which the money payable under a contract is payable in a foreign currency. The
Court of Appeal further held that section 26, now section 26(1), of the English
Arbitration Act, 1950, should be construed having regard to section 36(1) of
that Act, which deals with enforcement of foreign awards, and that the words
"to the same effect" in the expression "an award...may.. be
enforced in the same manner as a judgment or order to the same effect" in
section 26(1) did not mean a judgment or order "in the same terms"
but meant a judgment or order having "the same effect" this would be
achieved if the sum awarded were 564 converted into sterling at the rate of
exchange prevailing on the date of the award, and that leave to enforce an
award expressed in a foreign currency should be given by the court provided the
applicant had filed an affidavit showing the rate of exchange as at the date of
the award and giving the amount of the award converted into sterling.
(5) In the Jugoslavenska case, the Court of
Appeal took the date of the award as the date of conversion by reason of the
interpretation placed by it upon the words "to the same effect" in
section 26(1) of the Arbitration Act, 1950, because an award could for the
purpose of enforcement have the same effect as a judgment in an action on the
award only if the date of the award were taken as the date of conversion as, by
reason of the decision in the Havana case, which was then the law, in such an
action the date of conversion would have to be the due date of payment which,
the debt being crystallized by the award, would be the date of the award, and
the judgment, therefore, in such an action would have to be given on that
basis.
(6) The development in law was carried yet
one step further in the Schorsch Meier case where in an action for the price of
goods, the plaintiff being a member of the European Economic Community, the
Court of Appeal held that the court could give judgment to the creditor in a
foreign currency if that was the currency of the contract, that is to say, if
the money of account and the money of payment is foreign currency. The court
also held that the date of conversion should be the date of payment meaning
thereby as Lord Wilberforce pointed out in the Miliangos case (at page 468),
the date when the court authorizes enforcement of the judgment in terms of
sterling.
(7) The Schorsch Meier case was not decided
purely upon Article 106 of the Treaty of Rome which by section 2(1) of the
European Communities Act, 1972, had 565 been made part of the law of England,
but it was also decided upon the general principle that the reasons for the
rule in the Havana case having ceased to exist, the court was at liberty to
discard the rule itself. Thus, what the Schorsch Meier case decided was
directly contrary to the decision of the House of Lords in the Havana case.
(8) Both the Jugoslavenska case and the
Schorsch Meier case were decided without the other side being represented. From
this it does not follow that the judgments delivered in those cases were not folly
considered judgments. The leading judgment in each of these two cases was that
Lord Denning M.R. who at the date when the Havana case was decided was a member
of the House of Lords. In his concurring opinion in the Havana case he had
already expressed a doubt and posed a query whether the "breach date"
rule should continue to be applied when sterling had lost the value it once had
by reason of the devaluation of the pound.
(9) The question again fell for consideration
by the House of Lords in the Miliangos case. In that case, the House of Lords
departed from the rule in the Havana case, namely, "the breach date
conversion" rule and recognized that an English court could give judgment
in a foreign currency in a case where under a contract the money was to be paid
in that currency if the proper law of the contract was that of a foreign
country and the money of account was of that country. So far as the date of
conversion was concerned, all the Law Lords, except Lord Simon of Glaisdale,
were of the opinion that it should be the date when the court authorizes the
enforcement of the judgment in terms of sterling.
(10) Though the Jugoslavenska case was not
expressly overruled in the Miliangos case, in all the opinions delivered in
that case except in the opinion of Lord Frasser of Tullybelton where no
reference is made to that case, it was doubted whether in the future the 566
rule in the Jugoslavenska case should or would hold the field. Lord Wilberforce
opined that he saw no reason why, if desired, the practice adopted in that case
should not be adjusted so as to enable coversion to be made at the date when
leave to enforce the award in sterling is given.
Lord Cross of Chelsea thought it absurd that
there should be one rule for arbitrations with respect to debts expressed in a
foreign currency and another rule with respect to actions on similar debts.
Lord Edmund-Davis said that in the Jugoslvenska case the rate of exchange
prevailing on the date of the award had to be adopted by the court because of
the provisions of sections 26 and 36(1) of the English Arbitration Act and that
but for such provisions the most just rate would be that prevailing when the
award was being enforced.
Even Lord Simon of Glaisdale in his
dissenting opinion expressed the view that if Parliament were to reconsider the
sterling judgment rule and the breach date rule, the rule in the Jugoslavenska
case would come within the purview of such reconsideration.
(11) The principle laid down in the Millangos
case was extended by the House of Lords in the case of The Despina R to actions
in tort and for damages for breach of contract on the ground that it was fairer
to give judgment in the currency in which the loss was sustained than in its
sterling equivalent at the date of the breach or loss, the principles to be
applied in ascertaining the currency of the loss being those of restitution in
integrum and reasonable foreseeability of the plaintiff using a particular
foreign currency to purchase the necessary currency to meet the immediate and direct
expenditure caused by the defendant's tort or breach of contract. It was
further held that in the case of arbitrations it was for the arbitrators to
determine in what currency the loss was borne or felt and that the rule that
arbitrators may make their award in the currency best suited to achieve an
appropriate and just result should be a flexible rule in which regard should be
had to the 567 circumstances in which the loss arose, in which the loss was
converted into a money sum, and in which it was felt by the plaintiff.
(12) So far as practice and procedure is
concerned, under the Practice Directions dated December 18, 1975, for the
purpose of ascertaining the proper amount of the costs to be endorsed on the
writ of summons the plaintiff's solicitor or the plaintiff, if he is acting in
person, is to certify the rate of exchange current in London at the close of
the business on the date next or most nearly preceding the date of the issue of
the writ and to mention the sterling equivalent at the rate of the sum in
foreign currency claimed in the action. The judgment is to be entered for the
sum in foreign currency adjudged by the court to be payable by the defendant to
the plaintiff or its sterling equivalent at the time of payment. None the less
if a judgment is to be enforced by execution, the application for execution is
to state the rate of exchange current in London on the date nearest or most
nearly preceding the date when the application is made.
We have spent some time in ascertaining the
English law on the subject by reason of the absence of any authority of any
Indian court on this point and because the learned Single Judge has based his
decision on the Miliangos case while the Division Bench of the Delhi High Court
has based its on the Jugoslavenska case. Further, the English decisions
referred to by us are of courts of a country from which we have derived our
jurisprudence and a large part of our laws and in which the judgments were
dilivered by judges held in high repute. Undoubtedly, none of these decisions
are binding upon this Court but they are authorities of high persuasive value
to which we may legitimately turn for assistance. Whether the rule laid down in
any of these cases can be applied by our courts must, however, be judged in the
context of our own law and legal procedure and the practical realities of
litigation in our country. When a foreigner has to receive a sum of money which
should justly be payable to him in a foreign currency and, because of the
default of the paying party, seeks to recover its payment through the court,
the first question which arises is whether a court in India would have 568
jurisdiction to pass a decree for a sum expressed in a foreign currency. Though
on principle there is no reason why a court should not be able to do so no
court can pass a decree directing a defendant to do an impossible or an illegal
act and in view of the provisions of our Foreign Exchange Regulation Act, 1973,
and the restrictions contained therein on making payments in a foreign currency,
if a decree were to be passed Simpliciter for a sum expressed in a foreign
currency, it would be to direct the defendant to do an act which would be in
violation of the Foreign Exchange Regulation Act, 1973. Such a decree can,
therefore, only be passed by making the payment in foreign currency subject to
the permission of the foreign exchange authorities being granted. If however,
the authorities do not grant permission for payment of the judgment debt in
foreign currency, it would not be possible for the defendant to make such
payment, resulting in the decree becoming infructuous and the plaintiff getting
nothing under it. The view of Lawton L.J. in the Schorsch Meier case that the
plaintiff should be given judgment in the form in which he asked for it and
must be left to extricate himself from the intricacies of the law relating to
execution and exchange control does not commend itself to us for it does not
appear to us to be conducive to the ends of justice. The court must, therefore,
provide for the eventuality of the foreign exchange authorities not granting
the requisite permission or even if such permission is given, the defendant not
paying the decretal debt, or not wanting to discharge the decree by making
payment in foreign currency or in Indian rupees. This can only he done by the
decree providing in the alternative for payment of a sum of money in Indian
rupees, which will be equivalent to the sum decreed in foreign currency. It is
but just that a man, who is in law entitled to receive a sum of money in a
foreign currency, should either receive it in such currency or should receive
its equivalent in Indian rupees. It is here that the question of the date which
the court should select for converting foreign currency into Indian rupees
arises. The court must select a date which puts the plaintiff in the same
position in which he would have been had the defendant discharged his
obligation when he ought to have done, bearing in mind that the rate of
exchange is not a constant factor but fluctuates, and very often violently
fluctuates, from time to time. With these considerations in mind, we will now
examine the feasibility of the several dates set out by us at the beginning of
our discussion on this point.
The first of the five dates listed earlier by
us, namely, the date when the amount became due and payable, does not have the
effect 569 of putting the plaintiff in the same position in which he would have
been had the defendant discharged his obligation when he should have done
because between that date and the date when the suit is decreed the rate of
exchange may have fluctuated to the plaintiff's prejudice, resulting in the
amount decreed in rupees representing only a fraction of what he was entitled
to receive. Equally, the possibility of the plaintiff getting more than what he
had bargained for in case the rate of exchange had fluctuated in his favour
cannot be ruled out. To select, as the English courts had done earlier, the
date when the amount became due or the "breach date", as the English courts
have termed it, is thus to expose the parties to the unforeseeable changes in
the international monetary market. The selection of the "breach date"
cannot, therefore, be said to be just, fair or equitable because in a case
where the rate of exchange has gone against the plaintiff, the defendant
escapes by paying a lesser sum than what he was bound to and thus is the gainer
by his default while in the converse case where the rate of exchange has gone
against the defendant, the defendant would be subjected to a much greater
burden than what he should be.
The second of the dates mentioned above,
namely, the date of the commencement of the action or suit, is equally subject
to the same criticism. This date was rejected in the Miliangos case because,
according to Lord Wilberforce (at page 469), it placed "the creditor too
severely at the mercy of the debtor's obstructive defences.. Or the law's
delay" In that case Lord Fraser of Tullybelton pointed out (at page 502)
that if the date of the commencement of the action "were to be taken for
conversion, a period of a year or more might easily elapse. Allowing for
appeals, before payment was made." In our country, it is the misfortune of
litigants that by reason of ever-increasing volume of litigation, overcrowded
court dockets and undermanned courts, suits are often not disposed of for an
unconscionably long time and if we take into account the time that would be
spent in appeals, further appeals, and revision and review applications which
may be filed, the longevity of the litigation is doubled, if not tripled, so
that none can with any certainty predict even a probable date for its
termination. The selection of the date of the filing of the suit would,
therefore, leave the parties in as uncertain and precarious a position as the
selection of the date when the amount became payable or the "breach
date".
570 We will now consider the feasibility of
selecting the third date, namely, the date of the decree. A decree crystallizes
the amount payable by the defendant to the plaintiff and it is the decree which
entitles the judgment- creditor to recover the judgment debt through the
processes of law. An objection which can, however, be taken to selecting this
date is that the decree of the trial court is not the final decree for there
may be appeals or other proceedings against it in superior courts and by the
time the matter is finally determined, the rate of exchange prevailing on that
date may be nowhere near that which prevailed at the date of the decree of the
trial court. To select the date of the decree of the trial court as the
conversion date would, therefore, be to adopt as unrealistic a standard as the
'breach date". This difficulty is, however, easily overcome by selecting
the date when the action is finally disposed of, in the sense that the decree
becomes final and binding between the parties after all remedies against it are
exhausted. This can be achieved by the court which hears the appeal providing
that the date of its decree or other proceeding in which the decree is
challenged would be the date for conversion of the foreign currency sum into
Indian rupees in cases where the decree has not been executed in the meantime.
The real objection to selecting this date, however, is that a money decree and
the payment by the judgment debtor of the judgment debt under it are two vastly
different matters widely separated by successive execution applications and
objections thereto unless the judgment-debtor chooses to pay up the judgment
debt of his own accord which is generally not the case. In the vast majority of
cases a money decree is required to be enforced by execution.
Would the proper date of conversion then be
the date when the court-orders execution to issue ? This date appears to have
found favour with all the Law Lords who decided the Miliongos case, except Lord
Simon of Glaisdale. We, however, find the selection of this date equally beset
with difficulties. Execution of a decree is not a simple matter.
In execution of a money decree, first the
judgment-debtor's property has to be attached. Pending attachment a third
party, at times set up by the judgment-debtor, may prefer a claim to the
attached property. Such claim will have to be investigated and determined by
the executing court. Even where no claim is preferred the attached property
cannot be brought to sale immediately. A proclamation giving the prescribed
particulars has to be first made. Even after such proclamation, the property
cannot be put up for sale until after the expiry of the period prescribed by O.
21 r. 68 of 571 the Code of Civil Procedure, 1908 (V of 1908), unless it is
subject to speedy and natural decay or when the expense of keeping it in
custody is likely to exceed its value. Even after the sale has taken place the
judgment-debtor may further hold up the receipt of the sale proceeds by the
decree-holder by raising objection to the conduct of the sale. Even otherwise,
at times, a fresh auction sale may have to be held if the auction purchaser
commits default in paying the balance of the purchase price. A considerable
time would thus elapse between the date when the court orders execution to
issue and the date of the receipt of the sale proceeds by the decree-holder.
This passage of time would as much expose the decree-holder to the hazards of
fluctuations in the rate of exchange as selection of any of the three dates we
have discussed above. Yet another difficulty in selecting the date when the
court orders execution to issue is that at times the judgment debt is not
recovered in full when the attached property is sold in execution. This
necessitates a second application in execution for attaching other properties
of the judgment- debtor and even the sale of these properties may not cover the
deficit, thus necessitating yet another execution application. They would lead
to an anomalous position for the court would have to fix the rate of exchange
for the entire decretal debt at the time of granting the first application for
execution and then, if the rate of exchange has varied in the meantime, to fix
a different rate of exchange for the unrealized balance of the decretal amount
at the time of granting the second application for execution, and equally so
with respect to successive applications for execution. Thus, with respect to
portions of the same decretal debt different rates of exchange would come to be
fixed at different times.
A further difficulty in selecting the date of
granting an execution application is that execution can only issue for a sum
expressed in Indian currency. What is being is executed is the decree and the
sum for which execution is to issue in a money decree must, therefore, be for
the particular sum specified in the decree, that is, the judgment debt. It
cannot be for a sum which would be determined and fixed by the executing court
at the time of granting the execution application, for under o.21 r. 11(2) (g)
of the Code of Civil Procedure, 1908, an application for execution has to state
"the amount with interest (if any) due upon the decree".
The above difficulties would rule out the
taking of the date when the court grants an application for execution as the
date of 572 conversions and would make inapplicable to our courts the rule laid
down in the Miliangos case.
As regards the selection by the court of the
date of payment as the proper date of conversion, that was the date taken in
the Schorsch Meier case; but as Lord Wilberforce pointed out (at page 468) in
the Miliangos case, this only means the date when the court authorizes
enforcement of the judgment in terms of sterling. As we have seen, in England,
according to the Practice Directions dated December 18, 1975, the form of the
judgment to be entered requires the defendant to pay the sterling equivalent of
the foreign currency sum adjudged at the time of payment. This would be the
most logical date and one which does justice to a plaintiff who has come to
court to recover a sum of money payable to him in a foreign currency. If the
principle to be applied is that the plaintiff should be put in the same position
in which he would have been had the defendant discharged his obligation on the
due date, then that principle is best served by the court taking the date of
payment as the date of conversion. In adopting this date we, however, find
ourselves faced with three practical and procedural difficulties, namely,
payment of court-fees, the pecuniary limit of the jurisdiction of courts and
execution.
So far as court-fees are concerned, we have a
Central Act, namely, the Court-fees Act, 1870 (VII of 1870), which applies,
either with or without amendments, to those States and Union Territories which
have not repealed and replaced it by their own legislation. The States and
Union Territories which have their own legislation on the subject are Andhra
Pradesh, Gujarat, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala,
Maharashtra, Pondicherry, Rajasthan, Tamil Nadu and West Bengal. Under all
Court-fees Acts, no plaint can be filed in any court without payment of court
fees. The plaintiff, therefore, has to value his claim in the suit and pay the
court-fees thereon computed in the manner provided in the relevant Court-fees
Act. So far as money suits are concerned, the court-fees payable are ad valorem
court-fees according to the amount claimed which may or may not be subject to a
ceiling depending upon which Court-fees Act applies. A suit for a sum of money
expressed in a foreign currency is also a money suit and the plaintiff in such
a suit will have to pay court-fees according to the amount claimed. As,
however, a court in India cannot, as we have pointed out above, pass a decree
simpliciter for payment of a sum in a foreign currency in such a suit, the
plaintiff will have to make an alternative 573 claim in his plaint for the
rupee equivalent of the foreign currency sum claimed. He will, therefore, have
to pay court- fees on the amount of the rupee equivalent. Such rupee equivalent
as at the date of the institution of the suit can only be at the rate of
exchange prevailing on that date. If, therefore, a plaintiff were to make the
alternative claim on the basis of the rupee equivalent at the time of payment,
the value of the suit for the purposes of court-fees would be incapable of
computation for it would not be possible to say what the rate of exchange on
that date would be. It may be argued on the analogy of a suit for accounts or
for partition or for administration or for winding up and accounts of a
partnership that the plaintiff can put a tentative valuation in his plaint
computed according to the rate of exchange prevailing on the date of the
institution of the suit and give an undertaking to pay the deficit court-fees
if at the time of payment of the amount decreed, the rate of exchange has
fluctuated in his favour so that the amount realized in rupee equivalent is more
than the amount mentioned in the plaint. There is, however, a basic difference
between a money suit and a suit for accounts, a partition suit, an
administration suit or a partnership suit. In these types of suits, a
preliminary decree is passed to ascertain the amount due to the plaintiff and
when such amount is ascertained, a final decree for the ascertained sum is
passed. In a money suit, however, there can be only one decree. It is,
therefore neither permissible in law nor feasible for the plaintiff in a suit
in which his claim is for a sum of money in a foreign currency to give an
undertaking to make good the deficiency in court-fees when he receives payment.
In fact, a part or even the whole of the judgment debt may not be recovered at
all. Even in the other types of suits mentioned above, it is not when the
ascertained amount is received by the plaintiff that the deficit court-fees are
to be paid by him. They are to be paid when the amount due to the plaintiff is
ascertained. In the type of suits we are concerned with in these appeals, the
plaintiff can at the highest give an undertaking to pay the deficit, if any, in
the court-fees if at the time when the judgment is given and the decree passed,
the rupee equivalent is more than at the date of the suit by reason of the
fluctuation in the rate of exchange, but it would not be permissible for him to
give such an undertaking for any date subsequent to the date of the passing of
the decree. An additional difficulty would be that it is the court in which a
suit is instituted which has to ensure at the time of the institution of the
suit that the proper court-fees have been paid. The deficit court-fees,
therefore, cannot be calculated and the balance 574 thereof recovered by the
executing court. These difficulties would rule out both the date when the court
orders execution to issue and the date of payment of the decretal debt to be
taken as the date of conversion.
These difficulties do not arise in England.
Under the English law, the Lord Chancellor has power, with the consent of at
least three Judges of the Supreme Court of Judicature and the concurrence of
the Treasury, to fix fees to be taken in the High Court and the Court of Appeal
(see Halsbury's Laws of England, 4th ed., vol. 10, para. 908). In the exercise
of this power, Supreme Court Fees Orders have been made from time to time. The
order currently in force is the Supreme Court Fees Order, 1980 (S. I. 1980 No.
821), under which the fee payable in the case of a writ endorsed with a claim
for a liquidated sum not exceeding & 2,000 is & 35 and in any other
case it is & 40, civil proceedings in England being commenced by issuing a
writ. Thus, in England, a fixed court-fee is payable, the amount thereof
varying dependant only upon whether it is an action for a liquidated sum not
exceeding & 2,000 or not. In England, therefore, as the court-fees payable
are not ad valorem court-fees in an action to recover a sum of money expressed
in a foreign currency, it would be immaterial for the purposes of court- fees
whether the plaintiff claims in the alternative the sterling equivalent of that
amount as at the date of the judgment or as at the date when the court gives
leave to enforce the judgment or as at the date of payment because in any of
these cases, the court-fees payable by the plaintiff will not vary except where
by reason of the fluctuation in the rate of exchange the amount adjudged or the
amount for which leave to enforce the judgment is given or the amount paid
exceeds & 2,000 in a case where less than that has been claimed in the
action. It should be noted that English practice also recognizes the difficulty
which would be encountered in issuing execution for a sum in sterling to be
determined at the date of payment or realization and accordingly the Practice
Directions dated December 18, 1975, require that where a plaintiff desires to
enforce a judgment, he must mention in the application made for that purpose
the sterling equivalent of the foreign currency sum adjudged calculated at the
rate of exchange prevailing on the date nearest or most nearly preceding the
date of the application for execution, and the writ of execution would then
issue for such sterling equivalent.
So far as the limit of pecuniary jurisdiction
of courts is concerned, under section 15 of the Code of Civil Procedure, 1908,
every 575 suit is to be instituted in the court of the lowest grade competent
to try it. We have in India a large number of courts of various grades with
different pecuniary limits of jurisdiction. In money suits, it is the amount
claimed in the suit which will determine the particular court in which the suit
is to be instituted, This determination cannot be done with reference to a
foreign currency. It can only be done with reference to Indian currency. This is
an additional reason why thy plaintiff must in his plaint give the rupee
equivalent of the foreign currency sum claimed by him in the suit by converting
it into Indian rupees at the rate of exchange prevailing at the date of the
institution of the suit.
The difficulty with respect to execution
which would arise if the court were to select the date of payment as the date
of conversion is that execution must issue for a specific sum expressed in
Indian currency "due upon the decree." It cannot issue for a sum
which would become ascertainable only when realized or paid as would be the
case were execution to issue for the rupee equivalent at the time of payment in
rupees of a foreign currency sum.
Further, as pointed our earlier, execution
can issue only with respect to the amount due upon the decree.
For the above reasons, it is not possible for
us to accept the date of payment or realization of the decretal debt as the
proper date for the rate of conversion.
This then leaves us with only there dates
from which to make our selection, namely, the date when the amount became
payable, the date of the filing of the suit and the date of the judgment, that
is, the date of passing the decree. It would be fairer to both the parties for
the court to take the latest of these dates, namely, the date of passing the
decree, that is, the date of the judgment.
The learned Single Judge of the Delhi High
Court also reached the same conclusion. He, however, did so relying upon the
Miliangos case under an erroneous belief that when in that case it was held
that the proper date should be the date when the judgment becomes enforceable
what was meant was the date when the judgment was given, that is, when the
decree was passed. The learned Single Judge was in error in so reading the
judgment of the House of Lords. when the majority in the Miliangos case spoke
of the date when the court gives leave to enforce the judgment what they were
576 referring to was not the date of the judgment but the date on which the
court gives leave to execute the judgment. In Halsbury's Laws of England (4th
ed, vol. 17, para 401) the word 'execution' is defined as follow:
"The word 'execution' in its widest
sense signifies the enforcement of or giving effect to the judgments or orders
of courts of justice. In a narrower sense, it means the enforcement of those
judgments or orders by a public officer under the writs of fieri facias,
possession, delivery, sequestration, fieri facias de bonis ecclesiasticis,
etc." (The emphasis has been supplied by us.) This definition also
appeared in the Third Edition of Halsbury's Laws of England and was cited with
approval by Hewson J. in The Zafiro, John Carllon & Co. Ltd v. Owners of
S.S. Zafiro.(1) The most usual method of enforcement of a money judgment in
England is by writ of fieri facial commonly called fi.fa. (see Halsbury's Laws
of England, 4th ed., vo, 17, para. 462). In certain cases, a writ of execution
to enforce a judgment or order cannot issue without leave of the court. It is
unnecessary to go into the details of the procedure relating to execution in
England for what we have stated above is sufficient to show that what the
majority in the Miliangos case meant by the date when the court gives leave to
enforce the judgment or the date when the court authorizes enforcement of the
judgment was the date when the court gives leave to execute the judgment.
Does the fact that the decree sought to be
executed is one passed in terms of an award which directs payment of a sum of
money in a foreign currency make any difference to the date of conversion to be
selected by the court ? According to the Division Bench of the Delhi High Court
it does because, relying upon the Jugoslavenska case, it held that in such a
case the proper date for conversion of the foreign currency sum awarded would
be the date of the award in as much as there was no difference between the
relevant provisions of the English Arbitration Act, 1950 (14 Geo 6, c.27), and
our Arbitration Act, 1940 (X of 1940), particularly section 26(1) of the English
Act and section 17 of our Act. For reasons which we will presently set out, the
Division Bench of the Delhi High Court erred in reaching this conclusion.
577 We have set out earlier the facts of the
Jugoslavenska case and have extracted the relevant passage from the judgment of
Lord Denning M.R. To recapitulate, in the Jugoslavenska case, the plaintiffs
had been awarded a sum expressed in United States dollars in an arbitration
held in London and had sought leave of the court under section 26, now section 26(1),
of the Arbitration Act, 1950, to enforce that award. In support of this
application, the plaintiffs had filed an affidavit showing the rate of exchange
as at the date of the award and the equivalent in pound sterling at that rate
of the amount awarded to him and had claimed to enforce the amount awarded on
that basis. Two questions, therefore, fell for the court's determination. They
were thus put by Roskill L.J. in his judgment in that case (at page 504):
"The first is whether an arbitrator or
umpire sitting in England or Wales can lawfully make an award in a currency
other then sterling. The second is whether if such an award can be so lawfully
made, it is enforceable under s. 26.
To understand the decision of the Court of
Appeal so far as concerns the first question, we must bear in mind the then
prevailing state of the law in England and so far as concerns the second
question the provisions of the English law relating to enforcement of awards.
At that time the old rule affirmed by the House of Lords in the Havana case was
the law. Under it an English court could give judgment only in English currency
and in an action in England to recover a debt expressed in a forcing currency,
such debt had to be converted in to sterling at the rate of exchange prevailing
on the date when the debt was payable. So far as the provisions of English law
relating to enforcement of an award are concerned, the mode would depend
whether or not it was a foreign award as defined in section 35 of the
Arbitration Act, 1950, which definition is mutatis mutandis the same as the
definition of "foreign award" given in section 2 of our Arbitration
(Protocol and Convention) Act, 1937 (VI of 1937). Sub-section (1) of section 36
of the English Act provides for enforcement of foreign awards. That section is
in the following terms:
"36. Effect of foreign awards.- (1) A
foreign awards shall, subject to the provisions of this Part of this Act, be
enforceable in England 578 either by action or in the same manner as the award
of an arbitrator is enforceable by virtue of section twenty-six of this Act.
(2) Any foreign award which would be
enforceable under this Part of this Act shall be treated as binding for all
purposes on the persons as between whom it was made, and may accordingly be relied
on by any of those persons by way of defence, set off or otherwise in any legal
proceedings in England, and any references in this Part of this Act to
enforcing a foreign award shall be construed as including references to relying
on an award." Though section 36 is headed 'Effect of foreign awards', it
will be seen that sub-section (1) of that section deals with enforcement of
foreign awards while only sub-section (2) deals with the effect of foreign
awards. Thus, under section 36 (1) there are two alternative modes provided for
enforcing a foreign award in England, namely, (1) by action at law on the
award, and (2) by leave of the court in the same manner as the award of an
arbitrator made in England is enforceable under section 26. Since, according to
the law then prevailing, an English court could only give judgment in sterling
and required a debt expressed in a foreign currency to be converted into
English currency at the rate of exchange prevailing on the date when the debt
was payable in an action on a foreign award the plaintiff would have to make
his claim in English currency in respect of the sum of money awarded to him in
a foreign currency. In such an action the debt in respect of which the
plaintiff would be seeking judgment would be the sum of money payable to him
under the award which had by virtue of the award become payable to him on the
date of the award. He would, therefore, have to convert the foreign currency
sum awarded to him into English currency at the rate of exchange prevailing on the
date of the award.
Before we deal with the second mode of
enforcing a foreign award provided in section 36(1), it will be convenient to
reproduce here the provisions of section 26 of the English Arbitration Act
which are as follows:
"26. Enforcement of award.- (1) An award
on an arbitration agreement may by, leave of the High Court or a judge thereof,
be enforced in 579 the same manner as a judgment or order to the same effect,
and where leave is so given, judgment may be entered in terms of the award.
(2) If- (a) the amount sought to be recovered
does not exceed the current limit on jurisdiction in section 40 of the County
Courts Act, 1959, and (b) a county court so orders, it shall be recoverable (by
execution issued from the county court or otherwise) as is payable under an
order of that court and shall not be enforceable under sub-section (1) above.
(3) An application to the High Court under
this section shall preclude an application to a county court and an application
to a county court under this section shall preclude an application to the High
Court." Originally section 26 consisted only of sub-section (1).
Subsection (2) and (3) were inserted in section 26 and the original section
renumbered as sub-section (1) by section 17(2) of the Administration of Justice
Act, 1977.
The new sub-sections (2) and (3) are
immaterial for our purpose for it was the old section 26, now section 26(1).
which formed the basis of the decision in the
Jugoslavenska case.
Kerr J., from whose judgment the appeal in the
Jugoslavenska ease was carried to the Court of Appeal, had before deciding the
matter made enquiries of the Central Office of the High Court as to the
practice in dealing with applications under section 36(1). Roskill L.J. in his
judgment in the Court of Appeal has referred to this and has thus set out (at
page 507) the information which Kerr J. had received:
"He was told that the practice on
applications under that section is that the sum awarded in the foreign currency
in question is converted into sterling at the rate prevailing at the date of
the award and that, in the absence of any other objection, an order is then
made giving leave to enforce the foreign award in the same manner as a judgment
for that resulting sterling sum." (The emphasis has been supplied by us.)
580 The award in the Jugoslavenska case was not a foreign award within the
meaning of section 35 of the English Act for it was made in England, though the
sum awarded there under was expressed in a foreign currency, namely, United
States dollars. In English law, an application to enforce an award under
section 26(1) is only one of the modes of enforcing an award which is not a
foreign award. Where such an application is granted, it is not necessary that
judgment must be entered in terms of the award. Lord Denning M.R., in the
course of his judgment in the Jugoslavenska case, pointed out (at page 502)
that in most cases it would be unnecessary to enter judgment, for once leave
was given, the award could be enforced by the ordinary means of execution, but
it might be necessary to enter judgment in order to issue a bankruptcy notice
and the latter words of section 26 enabled judgment to be so entered. Roskil
L.J. also pointed out (at page 507) that under section 26(1) there are two
different steps which must be taken. First, the obtaining of leave to enforce
the award in the same manner as a judgment, and secondly and independently,
when leave is so given, the entering of judgment in the terms of the award.
Section 26(1) is not exhaustive of the modes
in which an award, which is not a foreign award, can be enforced.
Such an award can also be enforced by
bringing an action on it in which case, as pointed out earlier, if the sum
awarded were expressed in a foreign currency, the judgment would have to be
sought in sterling for which purpose the rate of exchange would be taken as at
the date of the award. In the Jugoslavenska case the court held that an
arbitrator or umpire in England had jurisdiction to make an award for a sum of
money expressed in a foreign currency when that particular currency was the
appropriate currency in which to express it. The difficulty which faced the
court was the manner of enforcing such an award by reason of the decision in
the Havana case under which an English court could give judgment only in
sterling. This difficulty was resolved by the court by referring to section
36(1) and holding that it would be unreasonable that an award in a foreign
currency made aboard could be enforced by an application under section 26(1) while
the same award, if made in England, could not be so enforced. It was for this
reason that the court interpreted the words "to the same effect"
occurring in section 26(1) as meaning "having the same effect" and
not as meaning "in the same terms", because, as Lord Denning M.R.
pointed out, if it were to be so interpreted, there would be some difficulty in
applying the section to an award in a foreign currency but if the words were
interpreted to mean that the judgment 581 or order must have "the same effect",
it would follow that if the sum awarded were converted into sterling at the
rate of exchange as at the date of the award it would have the same effect as a
judgment or order in an action on the award. We may point out that Cairns L.J.,
however, felt some doubt whether the sum awarded must be converted into
sterling before leave to enforce the award was given but he did not dissent
because both Lord Denning M.R. and Roskill L.J. considered that it should be so
converted. As emphasized by us earlier, in the Jugoslavenska case the date of
the award was taken as the date of conversion because in an action on such an
award the due date for payment of the debt would be the date of the award. We
have seen that in the Miliangos case, though the Jugoslavenska case was not
expressly over-ruled none of the Law Lords who had occasion to refer to it were
happy with what had been held there;
Lord Wilberforce opining that there was no
reason why, if desired, the practice should not be adjusted so as to enable
conversion to be made at the date when leave to enforce the award in sterling
is given; Lord Cross of Chelsea thinking it absurd that there should be one
rule for arbitrations with respect to foreign currency debts and another with
respect to actions on similar debts; Lord Edmund-Davies expressing his view
that no basic distinction could be drawn for the purposes of a conversion date
between judgments and awards; and even Lord Simon of Glaisdale in his
dissenting judgment stating his belief that if Parliament were to reconsider
the sterling judgment rule and the breach date rule, the Jugaslavenska case
would come within the purview of such reconsecration. In view of these
observations and the fact that the Havana case is no longer the law in view of
the decision in the Miliangos case, it is highly doubtful whether today in
England if the matter were carried higher, it would be decided in the same way.
In view of the Miliangos case it cannot be said today that in an action on an
award the foreign currency sum directed to be paid under the award must be
converted at the date of the award when it was payable. It would have to be
converted at the date when the court gives leave to enforce the judgment. On
principle there can be no difference between an action on an award and a case
where instead of filing an action the plaintiff files an application under
section 26(1) for leave to enforce the award. If in an action on the award the
proper date of conversion would be the date when the court gives leave to
enforce the judgment, where an application under section 26(1) is filed the
proper date of conversion should also be the same, for then alone can the
award, when leave is given, "be enforced in the same manner as a judgment
or order to the same effect".
582 We find that the Division Bench of the
Delhi High Court has not correctly appreciated the ratio of the decision in the
Jugoslavenska case nor the reasoning upon which that decision was based. We
also find that the Division Bench of the Delhi High Court has committed an
error in equating section 26(1) of the English Arbitration Act with section 17
of our Arbitration Act. The reason for this error is that the Division Bench of
the Delhi High Court has proceeded upon a wrong assumption that the procedural
scheme of the English Arbitration Act is the same as that of our Arbitration
Act. In this connection, the Division Bench has referred to section 22 of the
English Act, under which the court has power from time to time to remit the
matters referred or any of them for reconsideration of the arbitrator or
umpire, and section 23(1) of the English Act, under which the court has power
to remove any arbitrator or umpire for misconduct. These sections correspond to
sections 16 and 11 our Act, We fail to see what relevance either of these
sections had to the question in issue. Before we proceed further to discuss
this aspect of the case, it will be convenient to set out section 17 of our Arbitration
Act, 1940. That section provides as follows:
"17. Judgment in terms of award.- Where
the Court sees no cause to remit the award or any of the matters referred to
arbitration for reconsideration or to set aside the award, the Court shall,
after the time for making an application to set aside the award has expired, or
such application having been made, after refusing it, proceed to pronounce
judgment according to the award, and upon the judgment so pronounced a decree
shall follow and no appeal shall lie from such decree except on the ground that
it is in excess of, or not otherwise in accordance with, the award." What
seems to have impressed the Division Bench of the Delhi High Court is the fact
that in England the court is not bound to grant leave to enforce the award but
can, when such an application is made, on objection being raised by the
respondent, either remit the award or set it aside, and that the same can also
be done by a court in India when an award has been filed in court. We find that
in adopting this line of approach the Division Bench has overlooked the basic
differences between the English procedure and the procedure under our Act. The
provisions for enforcing an award under the 583 English Act and under our Act
are different. Under the English Act, if it is sought to enforce an award by
making an application under section 26(1), such application has to be made
under O. 73 r. 3 of the Rules of the Supreme Court, 1965, by an originating summons.
There is no time-limit provided for taking out such a summons. There is,
however, a time-limit provided for making an application to the court to remit
an award under section 22 or to set aside an award under section 23(2), under
O. 73 r. 5(1) of the Rules of the Supreme Court, 1965, the period of limitation
being 21 days after the award has been made and published to the parties.
An application for leave to enforce the award
under section 26(1) can, however, be made even before the expiry of the time
for moving to set aside the award. In such a case, however, it can be resisted
upon the ground that a motion to set aside the award to be made. It is opined
in Russel on Arbitration, 20th ed. page 375, that in such a case, the party
resisting the application would be required to show, upon affidavit, a
substantial case for contesting the validity of the award, as well as to swear
to his intention of doing so. Under section 17 of our Act, an application for a
judgment according to the award can only be made after the time for making an
application to set aside the award has expired, or if such application has been
made, only after it is refused. Under the English Act, the court is not bound
to grant leave to enforce, the award. In doubtful cases, it would ordinarily
leave the party to pursue his remedy by filing an action on the award. The
court may also give leave to enforce the award only upon terms. An instance of
this is the case of E.D. & F, Man v. Societe Annonyme Triaolitaine Des
Usines De Raffinage De Sucre(1) where the applicant, who had throughout
admitted that he owed a certain sum on a cross-claim, which was not a
subject-matter of the reference, was awarded a larger sum which made no
reference to the cross-claim, was given leave to enforce the whole award as a
judgment on an undertaking given by him to accept the difference between the
two sums in satisfaction of the award and the extinction of the cross-claim.
Further, in answer to an application for leave under section 26(1) the
respondent may set up the defence that the award is a nullity, or is wholly or
in part ultra vires, or is bad on the face of it. If, however, his objection to
the award is that arbitrator has misconducted himself, or that the award was
improperly procured, his proper course would be to move to set the award aside,
and, if necessary, to have the 584 application to enforce the award adjourned
in the meantime (see Halsbury's Laws of England, 4th ed., vol. 2, para 630).
None of these contentions are available to a
respondent where an application for a judgment according to the award is made
under section 17 of our Arbitration Act, 1940. They can only be raised by way
of an application to set aside or remit the award after the award has been
filed in court and notice thereof issued to the parties under section 14 of the
Arbitration Act, 1940. The period of limitation for such an application is prescribed
by Article 119(b) of the Limitation Act, 1963 (XXXVI of 1963). If the period of
limitation expires without any such application being made, the court, on
application made to it for that purpose, must proceed to "pronounce
judgment according to the award" whereupon a decree has to follow. Section
17 expressly provides that in such a case "the Court shall ... proceed to
pronounce judgment according to the award and upon the judgment so pronounced a
decree shall follow". The only ground upon which such a decree can be
challenged in appeal is that "it is in excess of, or not otherwise in
accordance with the award". The court before which an application for
judgment in terms of the award is made, has, therefore, no discretion in the
matter except possibly in a case where the award is on the face of it patently
illegal or violative of a provision of the law. Under section 26(1) of the
English Act, when leave is given to enforce the award, it is not necessary that
judgment should be entered in terms of the award for the purpose of enforcing
the award by execution.
Under our Arbitration Act, before an award
can be enforced, a judgment has to be pronounced according to the award, a
decree has thereupon to follow and it is that decree which alone can be
enforced by an application for execution made under O. 21 r. 11 of the Code of
Civil Procedure, 1908.
It is pertinent to note that the judgment,
which the court pronounces under section 17, is to be "according to the
award". Where the award directs a certain sum of money to be paid and the
court, in a case where it has not modified or corrected the award under section
15, pronounces judgment for a different sum, the judgment cannot be said to be
"according to the award". In the same way, where an award directs
payment of a sum of money in a foreign currency and the court while pronouncing
judgment provides for its rupee equivalent at the rate of exchange prevailing
on the date of the award, the court will not be pronouncing judgment
"according to the award" if in the meantime the rate of exchange has
varied, because at the date of the judgment the foreign currency equivalent of
the 585 amount in rupees provided in the judgment would be different from the
foreign currency sum directed to be paid by the award. The judgment, therefore,
can only be said to be "according to the award" if it directs payment
of the rupee equivalent at the rate of exchange prevailing on the date of
pronouncing the judgment which date is the same as the date of the passing of
the decree. For this purpose, the applicant must satisfy the court, either on
affidavit or otherwise, as to the rate of exchange prevailing on the date of
the judgment or on the date nearest or most nearly preceding the date of the
judgment.
Under section 17 of our Arbitration Act,
judgment is to be pronounced "according to the award". The marginal
note to the section speaks of "judgment in terms of award". Under
section 26(1) of the English Act, once leave is given, an award becomes
enforceable in the same manner as a judgment or order "to the same
effect". The words "to the same effect" were interpreted in the
jugoslavenska case not as meaning "in the same terms" but as meaning
having "the same effect", that is, as having the same effect as a
judgment or order given in an action brought on the award. Granting leave under
section 26(1) of the English Act and pronouncing judgment according to the
award and passing a decree under section 17 of our Act, therefore, mean
different things and have different results. A judgment according to the award
under section 17 our Act will speak only from the date of the judgment which
will not be the case under section 26(1), for while in the first case what will
be enforceable by the processes of law, namely, execution, will be the decree
passed in terms of the award, in the second case it will be the award itself,
unless the applicant desires to have judgment entered in terms of the award
which he is not required to do as pointed out above.
On behalf of ONGC reliance was placed upon
the decision of this Court in Satish Kumar and others v. Surinder Kumar and
others.(1) On the strength of this decision it was submitted that an award was
not a mere waste paper until a decree in terms of the award has been passed but
an award created rights and liabilities and, therefore, since the award in the
instant case provided that a certain sum should be paid in a foreign currency
to Forasol, it spoke from the date when it was made and published and the rate
of conversion could, therefore, only be the date of the said award. We are
unable to see how the above decision in any way bears out this proposition or
lends support 586 to it In that case, an award, made on a reference to
arbitration by the parties without the intervention of the court, was filed in
court under section 14 of the Arbitration Act, 1940. In an application made
under section 30 to set aside the award, one of the objections taken was that
the award required registration as it affected immovable property worth more
than Rs.100 in value and as the award was not registered, it was not admissible
in evidence. This contention was upheld. It was in this context that this Court
observed (at page 249) that "an award has some legal force and is not a
mere waste paper. If the award in question is not a mere waste paper but has
some legal effect it plainly purports to or affects property within the meaning
of s. 17 (1) (b) of the Registration Act". The question before the Court
in that case was whether a decree in terms of an unregistered award could be
passed by the court in a case where under the Registration Act, 1908 (XVI of
1908), the registration of the award was compulsory. This question is very
different from the one which we are called upon to decide.
It was also submitted on behalf of ONGC that
an award, unless it is set aside by the court, is a final adjudication of the
rights and liabilities of the parties in respect of the matters referred to
arbitration and, therefore, Forasol could not claim to convert the French Franc
part of the said award into Indian rupees at the rate of exchange prevailing on
the date of the decree but can only do so at the rate of exchange prevailing on
the date of the award. We find this submission wholly untenable. Undoubtedly,
the said award, not having been set aside or modified by the court, is final and
binding on the parties and, in respect of the matters referred to arbitration,
Forasol cannot claim any amount from ONGC other than that awarded by the
Umpire. Forasol is, however, not making any such claim. It is claiming only the
sum in French Francs which it has become entitled to receive from ONGC under
the said award. All that Forasol wants is that ONGC should pay to it the sum of
FF. 5,89,727.51 due to it under the said award or its rupee equivalent as at
the date when the court pronounced judgment according to the said award and
passed the decree in terms thereof. This is a very different thing from making
a claim de hors the said award. The claim made by Forasol is actually one under
the said award for if the sum awarded to it in French Francs was not paid or
could not be paid by ONGC, Forasol would be entitled to receive its rupee
equivalent. On the decree being passed in terms of the said award the said
award became merged in the said decree and the sum of FF,5,89,727.51 payable to
Forasol under 587 the said award became a judgment debt payable to Forasol
under the said decree and, as pointed out above, at the time of passing the
decree the court would have to direct payment of the rupee equivalent of this
foreign currency debt only at the rate of exchange prevailing on the date of
the decree.
For the reasons set out above, we are of the
opinion that the rule in the jugoslavenska case cannot be applied to this
country and the fact that a decree is in terms of an award for a sum of money
expressed in a foreign currency makes no difference to the date to be taken by
the court for converting into Indian currency the foreign currency sum directed
to be paid under the award and that such date should also be the date of the
decree.
It would be convenient if we now set out the
practice, which according to us, ought to be followed in suits in which a sum
of money expressed in a foreign currency can legitimately be claimed by the
plaintiff and decreed by the court. It is unnecessary for us to categorize the
cases in which such a claim can be made and decreed. They have been
sufficiently indicated in the English decisions referred to by us above. Such
instances can, however, never be exhausted because the law cannot afford to be
static but must constantly develop and progress as the society to which it
applies, changes its complexion and old ideologies and concepts are discarded
and replaced by new. Suffice it to say that the case with which we are
concerned was one which fell in this category. In such a suit, the plaintiff,
who has not received the amount due to him in a foreign currency and,
therefore, desires to seek the assistance of the court to recover that amount,
has two courses open to him. He can either claim the amount due to him in
Indian currency or in the foreign currency in which it was payable. If he
chooses the first alternative, he can only sue for that amount as converted
into Indian rupees and his prayer in the plaint can only be for a sum in Indian
currency. For this purpose, the plaintiff would have to convert the foreign
currency amount due to him into Indian rupees. He can do so either at the rate
of exchange prevailing on the date when the amount became payable for he was
entitled to receive the amount on that date or, at his option, at the rate of
exchange prevailing on the date of the filing of the suit because that is the
date on which he is seeking the assistance of the court for recovering the
amount due to him. In either event, the valuation of the suit for the purposes
of court- fees and the pecuniary limit of the jurisdiction 588 of the court
will be the amount in Indian currency claimed in the suit. The plaintiff may,
however, choose the second course open to him and claim in foreign currency the
amount due to him. In such a suit, the proper prayer for the plaintiff to make
in his plaint would be for a decree that the defendant do pay to him the
foreign currency sum claimed in the plaint subject to the permission of the
concerned authorities under the Foreign Exchange Regulation Act, 1973, being
granted and that in the event of the foreign exchange authorities not granting
the requisite permission or the defendant not wanting to make payment in
foreign currency even though such permission has been granted or the defendant
not making payment in foreign currency or in Indian rupees, whether such
permission has been granted or not, the defendant do pay to the plaintiff the
rupee equivalent of the foreign currency sum claimed at the rate of exchange
prevailing on the date of the judgment. For the purposes of court-fees and
jurisdiction the plaintiff should, however, value his claim in the suit by
converting the foreign currency sum claimed by him into Indian rupees at the
rate of exchange prevailing on the date of the filing of the suit or the date
nearest or most nearly preceding such date, stating in his plaint what such
rate of exchange is. He should further give an undertaking in the plaint that
he would make good the deficiency in the court-fees, if any, if at the date of
the judgment, at the rate of exchange then prevailing, the rupee equivalent of
the foreign currency sum decreed is higher than that mentioned in the plaint
for the purposes of court-fees and jurisdiction. At the hearing of such a suit,
before passing the decree, the court should call upon the plaintiff to prove
the rate of exchange prevailing on the date of the judgment or on the date
nearest or most nearly preceding the date of the judgment.
If necessary, after delivering judgment on
all other issues, the court may stand over the rest of the judgment and the
passing of the decree and adjourn the matter to enable the plaintiff to prove
such rate of exchange. The decree to be passed by the court should be one which
orders the defendant to pay to the plaintiff the foreign currency sum adjudged
by the court subject to the requisite permission of the concerned authorities
under the Foreign Exchange Regulation Act, 1973, being granted, and in the
event of the Foreign Exchange authorities not granting the requisite permission
or the defendant not wanting to make payment in foreign currency even though
such permission has been granted or the defendant not making payment in foreign
currency or in Indian rupees, whether such permission has been granted or not,
the equivalent of such foreign currency sum converted into 589 Indian rupees at
the rate of exchange proved before the court as aforesaid. In the event of the
decree being challenged in appeal or other proceedings and such appeal or other
proceedings being decided in whole or in part in favour of the plaintiff, the
appellate court or the court hearing the application in the other proceedings
challenging the decree should follow the same procedure as the trial court for
the purpose of ascertaining the rate of exchange prevailing on the date of its
appellate decree or of its order on such application or on the date nearest or
most nearly preceding the date of such decree or order. If such rate of
exchange is different from the rate in the decree which has been challenged,
the court should make the necessary modification with respect to the rate of
exchange by its appellate decree or final order. In all such cases, execution
can only issue for the rupee equivalent specified in the decree, appellate
decree or final order, as the case may be. These questions, of course, would
not arise if pending appeal or other proceedings adopted by the defendant the
decree has been executed or the money there under received by the plaintiff.
Turning now to arbitrations, on principle
there can be and should be no difference between an award made by arbitrators
or an umpire and a decree of a court. In the type of cases we are concerned
with here just as the courts have power to make a decree for a sum of money
expressed in a foreign currency subject to the limitations and conditions we
have set out above, the arbitrators or umpire have the power to make an award
for a sum of money expressed in a foreign currency. The arbitrators or umpire
should, however, provide in the award for the rate of exchange at which the sum
awarded in a foreign currency should be converted in the events mentioned
above. This may be done by the arbitrators or umpire taking either the rate of
exchange prevailing on the date of the award or the date nearest or most nearly
preceding the date of the award or by directing that the rate of exchange at
which conversion is to be made would be the date when the court pronounces
judgment according to the award and passes the decree in terms thereof or the
date nearest or most nearly preceding the date of the judgment as the court may
determine. If the arbitrators or umpire omit to provide for the rate of
conversion, this would not by itself be sufficient to invalidate the award. The
court may either remit the award under section 16 of the arbitration Act, 1940,
for the purpose of fixing the date of conversion or may do so itself taking the
date of conversion as the date of its judgment or the date nearest or most
nearly preceding it, 590 following the procedure outlined above for the purpose
of proof of the rate of exchange prevailing on such date. If however, the
person liable under such an award desires to make payment of the sum in foreign
currency awarded by the arbitrators or umpire without the award being made a
rule of the court, he would be at liberty to do so after obtaining the
requisite permission of the concerned authorities under the Foreign Exchange
Regulation Act, 1973.
In the case of the said award which had led
to these appeals before us, the party entitled to receive the money-
Forasol-was a foreign party. Under the said contract, the currency of account
was a foreign currency and so was the currency of payment except for a portion
thereof. Forasol was, therefore, entitled, on payment not being made to it by
ONGC, to receive in French Francs the amounts which became payable to it in
that currency. The Umpire was, therefore, justified in providing that the
amounts payable under the said award to Forasol in French Francs should be paid
in French currency. The Umpire has, however, neither provided that such payment
would be subject to the permission of the foreign exchange authorities being
obtained nor specified the conversion rate to be applied in the eventualities
which we have set out above. That, however, does not make any difference
because neither party has objected to the said award on this ground. On the
contrary, both parties have accepted the said award as binding and conclusive.
As mentioned above, this omission on the part of the Umpire could have been
corrected by the Delhi High Court when it came to pronounce judgment according
to the said award and pass the said decree in terms thereof. The decree passed
in terms of the said award, however, does not specify either the rupee
equivalent of the amount in French Francs payable to Forasol or the rate of
exchange at which the conversion of such amount into Indian rupees should be
made. To that extent, the decree passed in terms of the said award by the Delhi
High Court was not a proper decree. Both the parties have, however, accepted
the said decree and have not challenged it on this ground in any proceedings.
In any event, the aforesaid mistake in the said decree was one which could have
been got corrected by an application for review or by an application under
section 152 or, in any event under section 151, of the Code of Civil Procedure,
1908. The decree has now become final and binding upon the parties. Both the
parties have accepted the said decree and the said decree cannot, therefore, be
said to be invalid on the ground of the above omission to specify either the
rupee equivalent of the French Franc 591 portion of the said award or the rate
of exchange at which such French Franc portion was to be converted into its
rupee equivalent.
For the reasons set out above, we hold that
the learned Single Judge rightly took the date of the decree as the date of
conversion. In his order on the said execution application he has, however,
given a direction that ONGC could satisfy the judgment debt by making payment
in French Francs or if they so preferred, by paying the equivalent sum in
rupees at the rate of exchange prevailing on the date of the decree. He was in
error in not qualifying this direction by making the option given to ONGC to
make payment in French Francs subject to the permission of the concerned
authorities under the Foreign Exchange Regulation Act, 1973.
To this extent, the order passed by the
learned Single Judge requires to be modified.
Turning now to the appeal filed by ONGC, it
was stated in the Special Leave Petition filed by ONGC that it had two claims
against Forasol, the first with respect to what was termed as "tax
differential" and the second with respect to interest on the amounts
payable by Forasol to ONGC. Both these claims were negatived by the learned Single
Judge. It was expressly stated in paragraph 19 of the Special Leave Petition of
ONGC that except for the aforesaid two claims, the judgment and order of the
Division Bench of the Delhi High Court should be affirmed.
ONGC's claim for tax differential was based
on Article IV-1.2 of the said contract under which Forasol was to pay
income-tax, surcharge on income tax and all other taxes, which might be
assessed and levied by the income-tax authorities in India on the income of
Forasol under the said contract as well as on the income of Forasol's personnel
from the work performed by them under the said contract.
Under the proviso to the said Article, if
subsequent to the date of the said contract, the tax rates in India were
changed so as to be higher than what they were at the date of the signing of
the said contract, ONGC was to pay the difference to Forasol and if the tax
rates became lower, Forasol was to pay the difference to ONGC. This proviso was
not to be applicable in respect of the taxes payable by Forasol on the income
of its personnel. The learned Single Judge has pointed out in his judgment that
the claim in respect of tax differential did not survive in as much as by the
said award the amounts paid by ONGC as tax on behalf of Forasol were adjusted
and given credit for. ONGC did not challenge this finding in the appeal filed
by it 592 in the Delhi High Court. None the less ONGC sought to reagitate this
point in its Special Leave Petition. At the hearing of this appeal, learned
Counsel for ONGC stated that he was not pressing this point. In the written
submission filed on behalf of ONGC after the hearing of both these appeals was
concluded, ONGC has, however, once again sought to raise this point. The point
not having been urged in the intra-court appeal in the Delhi High Court and
also having been given up at the hearing of these appeals before this Court,
ONGC cannot be permitted subsequently to agitate this point in the written
submissions filed on its behalf. In any event, in our opinion, the learned
Single Judge was right in rejecting this claim of ONGC.
So far as ONGC's claim for interest is
concerned, it has been negatived both by the learned Single Judge and the
Division Bench of the Delhi High Court. We find no substance in this claim. The
relevant provision of the said award which deals with payment of interest is as
follows:
"Under the contract there is no right to
interest to either party except on French Francs. If the amount paid by ONGC to
the credit of Forasol in regard to Income Tax and the several items of
allowance and disallowance under this award are worked out and it is found that
there is an amount payable to ONGC in French Francs that would carry interest,
but if the amount is in rupees then no interest could be allowed until the date
of the award." The amounts on which interest is claimed by ONGC were
payable by Forasol in rupees and not in French Francs.
Therefore, by the express terms of the said
award, there is no right in ONGC to claim any interest on these amounts and this
claim for interest was rightly negatived.
In the result, we allow Civil Appeal No. 628
of 1981 filed by Forasol and set aside the order passed by the Division Bench
of the Delhi High Court in the appeal filed by the oil and Natural Gas
Commission, namely, E.F.A. (O.S.) 5 of 1977 and we restore and confirm the
order passed and directions given by the learned Single Judge of the Delhi High
Court in the Execution Application filed by Forasol, namely, Execution No. 77
of 1976, with this modification that if the Oil and Natural Gas Commission
wants to pay in French 593 Francs the amount due by it under the said decree,
it will be at liberty to do so after obtaining the requisite permission of the
concerned authorities under the Foreign Exchange Regulation Act, 1973.
We dismiss Civil Appeal No. 629 of 1981 filed
by the Oil and Natural Gas Commission.
The Oil and Natural Gas Commission will pay
to Forasol the costs of both the Appeals in this Court as also of the Appeal
E.F.A. (O.S.) 5 of 1977 in the Delhi High Court.
H.S.K. CA No. 628/81 allowed and CA No.
629/81 dismissed.
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