PETITIONER: RENUSAGAR POWER CO. LTD. Vs. RESPONDENT: GENERAL ELECTRIC CO. DATE OF JUDGMENT07/10/1993 BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) VENKATACHALLIAH, M.N.(CJ) ANAND, A.S. (J) CITATION: 1994 AIR 860 1994 SCC Supl. (1) 644 JT 1993 Supl. 211 1993 SCALE (4)44 ACT: HEADNOTE: JUDGMENT:
The Judgment of the Court was delivered by
S.C. AGRAWAL, J.- The decision in these appeals would,
we hope, mark the culmination of the protracted litigation
arising out of a contract entered into by the parties on
August 24, 1964 for the supply and erection of a thermal
power plant at Renukoot in District Mirzapur, U.P.
2. Renusagar Power Co. Ltd. (for short ‘Renusagar’),
the appellant in C.A. Nos. 71 and 71-A of 1990 and the
respondent in C.A. No. 370 of 1992, is a company
incorporated under the Indian Companies Act, 1956 engaged in
the production and sale of electric power. General Electric
Company (for short ‘General Electric’), respondent in C.A.
Nos. 71 and 71-A and appellant in C.A. No. 370 of 1992, is a
company incorporated under the laws of the State of New York
in United States of America and is engaged in the business
of manufacturing, selling and servicing electrical products
and various ancillary activities. After negotiations, the
parties arrived at an arrangement whereunder General
Electric was to supply to Renusagar the equipment and power
services for setting up a thermal power plant to be known as
‘Renusagar Power Station’ at Renukoot and, on November 27,
1963, Renusagar moved the Government of
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India for its approval. By its letter dated January 2,
1964, the Government of India gave its approval to the
proposals and thereafter a formal contract was executed by
the parties on August 24, 1964. Under the said contract,
General Electric undertook to supply equipment and services
for a plant having a capacity of 135,800 K.W. The total
price for the electrical and mechanical equipment, spare
parts, freight forwarding services, plant design and
consulting services was US $ 13,195,000. The contract price
for all electrical and mechanical equipment and spare parts
was FAS vessel, U.S.A. port so selected by seller (Article
11). All items of the equipment were to be delivered along
with vessel at New York not later than 15 months from the
contract effective date (which was December 31, 1964) and
the erection of the plant was to be completed within 30
months from the contract effective date (Article IV-A 1). 10
per cent of the total contract basic price (US $ 1,319,500)
was to be paid either in cash or by Letter of Credit. The
balance 90 per cent of the price (US $ 11,875,500) plus
interest at the rate of 6 1/2 per cent per annum from the
16th to the 30th month of the contract effective date (US $
900,558.75) totalling US $ 12,776,058.75 was to be paid in
16 equal six monthly instalments commencing from the date of
the expiry of 30 months from the contract effective date,
and the last instalment was payable on the date of expiry of
120 months from the contract effective date (Article III).
Since the contract effective date was December 31, 1964 the
first instalment was payable on June 30, 1967 and the last,
i.e., 16th instalment was payable on December 31, 1974. In
the contract, it was also provided that Renusagar would
execute unconditional negotiable promissory notes in four
series (A-B-C-D) in respect of the 16 instalments [Article
111-A 3(a)] and that the notes shall be prepared
substantially in the form shown in the attached Ext. ‘B’
entitled “Promissory Note” and shall bear interest, at the
rate of 6 1/2 per cent per annum on the outstanding
principal balance commencing from 30 months after contract
effective date [Article III-A 3(c)]. A provision was also
made that the payment of the full amount of each note shall
be unconditionally guaranteed by the United Commercial Bank
or other mutually acceptable bank. [Article III-A 3(e)].
The contract contained an arbitration clause which provides
that any disagreement arising out of or related to the
contract which the parties are unable to resolve by sincere
negotiation shall be finally settled in accordance with the
Arbitration Rules of the International Chamber of Commerce
(for short ‘ICC’). Each party would appoint one arbitrator
and the Court of Arbitration of the ICC would appoint a
third arbitrator (Article XVII). It was also agreed that
the rights and obligations of the parties under the Contract
shall be governed in all respects by the laws of the State
of New York, USA (Article XIX-A).
3. It was, also, provided that if General Electric
received an exemption from the Government of India from the
payment of income tax levied by the Government of India on
interest payments made by Renusagar then the interest rate
on that series of promissory notes as exempted shall be
reduced from 6 1/2 per cent to 6 per cent per annum
commencing on the date such exemption is made effective and
the notes so affected shall be replaced by new notes
[Article III-A 3(b)]. In the contract it was stated that
General Electric intended to apply to the Central Government
of India for exemption from income tax on the interest
(including capitalised interest and interest thereon) and
Renusagar undertook to assist General Electric in expediting
the application of General
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Electric for exemption. It was also agreed that should the
application of General Electric be denied Renusagar may
withhold the Indian income tax applicable to any payments of
interest, but Renusagar was to furnish General Electric with
receipts on all withheld amounts paid to the Government of
India. [Article XIV-B].
4. By its orders dated September 3, 1965 and June 7, 1967
the Government of India gave their approval under Section
10(15)(iv)(c) of the Income Tax Act, 1961 to the loan
obtained by Renusagar from General Electric and thereby
exempted the interest paid on the said loan from payment of
income tax. The said exemption was, however, withdrawn by
the order of the Government of India dated September 11,
1969 whereby the orders granting exemption were cancelled
retrospectively and General Electric was held liable to pay
Indian income tax on the interest payable @ 6.5 per cent per
annum.
5. Renusagar filed a writ petition (C.W. No. 179 of 1970)
before Delhi High Court on February 24, 1970 wherein it
challenged the above order of the Government of India dated
September 11, 1969 relating to cancellation or revocation of
the tax exemption. In the said writ petition, the Delhi
High Court on February 24, 1970 passed an ad interim order
restraining the Government of India and its officers from
enforcing or implementing the said order dated September 11,
1969. The said order was continued by order dated May 18,
1970 subject to Renusagar furnishing security for Rs 4 lakhs
to the satisfaction of Commissioner of Income Tax, Lucknow.
Renusagar furnished the necessary security and as a result,
the operation of the order dated September 11, 1969 was
suspended. Renusagar, however, did not remit the amount of
interest calculated @ 6 per cent per annum payable to
General Electric in terms of the contract. Renusagar only
remitted 27 per cent of the amount of interest calculated @
6 1/2 per cent per annum and it did not deposit the balance
amount of 73 per cent by way of tax with the Government but
retained the same with themselves. It, however, sent
letters to General Electric to the effect that they had
deducted the said amount towards tax and had retained the
same with itself. Originally General Electric was not
impleaded as a party in the writ petition before the Delhi
High Court and it got itself impleaded as a respondent in
the writ petition by moving an application dated October 28,
1977. The writ petition was decided by the Delhi High Court
by its judgment dated November 17, 1980 whereby the writ
petition was allowed and the order dated September 11, 1969
was set aside. As a result the exemption from the payment
of income tax on the interest payable by Renusagar was
restored and the liability of Renusagar for interest was
reduced from 6 1/2 per cent to 6 per cent. On June 3, 1981,
Renusagar moved the Reserve Bank of India for permission to
remit the balance amount of regular interest calculated @ 6
per cent per annum to General Electric and on February 3,
1982, the Income Tax Officer, Bombay issued “No Objection
Certificate” for repatriating the balance regular interest
amount of US $ 2.130 million. The said amount was, however,
not remitted by Renusagar to General Electric.
6. It appears that there was some delay on the part of the
General Electric in adhering to the time schedule for the
supply of equipment and keeping the same in view General
Electric by their letter dated January 5, 1967 agreed to
defer the payment of the first instalment payable on June
30, 1967 by six months and suggested that the promissory
notes shall be recast into 15 notes instead of 16
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which would commence on the 36th month from the contract
effective date and capitalised interest shall be calculated
for 20 months instead of 14 months and the said interest
would then be reduced by a sum of 132,500 US $. By another
letter dated October 4, 1967, General Electric agreed to
recast the note structure to provide for 14 notes with the
first note becoming due on June 30, 1968 instead of December
31, 1967 and the capitalised interest was to be calculated
for 20 months instead of 14 months and it would be reduced
to 132,500 US $. It appears that during the course of supply
of equipment and erection of the plant, some disputes arose
between the parties and Renusagar made certain claims
against General Electric some of which were accepted by
General Electric and a settlement was arrived at on December
10, 1968 whereunder General Electric agreed that the payment
of the instalments due on December 30, 1968 and June 30,
1969 with accrued interest would be deferred for payment
with the result that there would be no payment on December
31, 1968 and June 30, 1969 both of interest and principal
and that the interest accrued up to December 31, 1968 and to
accrue up to June 30, 1969 on the outstanding balance due
would be calculated at the rate provided for in the contract
and capitalised and that the entire sum, namely, the
principal and interest to be so capitalised would be recast
in 13 notes, the first of which would be payable on December
31, 1969 and the last on December 31, 1975. As a result of
these discussions and settlement, instalments Nos. 1, 2, 4
and 5 were not paid by Renusagar on the due dates.
Renusagar moved the Government of India for approval of the
revised schedules regarding the payments of the instalments
to General Electric. The said request of Renusagar was,
however, not accepted by the Government of India and by
their letter dated August 1, 1969, the Government of India
expressed their inability to agree to the revised proposals
for repayment in view of the larger outgo of foreign
exchange (by way of interest) which was not contemplated
when the loan was approved originally. Renusagar were,
therefore, asked to take necessary action to effect payments
of the past instalments immediately. The request for review
of the said decision was rejected by the Government of India
by their letter dated August 4, 1969. The first instalment
which was payable on June 30, 1967 under the original
contract was paid by Renusagar in instalments by July 1970,
the second instalment which was payable on December 31, 1967
was paid in instalments by December 1971, the fourth
instalment which was payable on December 31, 1968 was paid
in instalments by December 1973 and the fifth instalment
which was payable on June 30, 1969 was paid in instalments
by February 1976.
7. On March 1, 1982, General Electric served a notice on
Renusagar indicating its intention to arbitrate pursuant to
clause XVII of the Contract. On March 2, 1982, General
Electric made a request to the Court of Arbitration of ICC
for arbitration of the disputes between General Electric and
Renusagar. ICC, after taking cognizance of the said request
for arbitration made by General Electric, called upon
Renusagar to nominate their arbitrator, file its reply and
remit certain sums towards administrative expenses and
arbitration fees. Renusagar raised an objection that the
claims of General Electric did not fall within the purview
of arbitration clause in the Contract and challenged the
arbitrability of the claims. The Arbitration Court of ICC
accepted that there was a prima facie dispute within the
agreement and appointed Rt. Hon. Peter Thomes, Q.C. MP as
Chairman of the Arbitral Tribunal and confirmed the
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appointment of Prof. Boris 1. Bittker as arbitrator
nominated by General Electric and Dr R.K. Dixit as
arbitrator nominated by Renusagar.
8. On June 11, 1982, Renusagar filed a suit (Suit No. 832
of 1982) in the Bombay High Court, on its original side,
against General Electric and the ICC seeking a declaration
that the claims referred to the arbitration of ICC by
General Electric were beyond the purview and scope of
Article XVII of the Contract dated August 24, 1964 and that
General Electric was not entitled to refer the same to
arbitration with consequential prayers for injunctions
restraining the ICC and General Electric to proceed further
with the reference and restraining ICC from requiring
Renusagar to make any deposit towards administrative
expenses and arbitration fees. Renusagar obtained an ex
parte ad interim relief in the said suit. General Electric
filed Arbitration Petition No. 96 of 1982 under Section 3 of
the Foreign Awards (Recognition and Enforcement) Act, 1961
(hereinafter referred to as ‘the Foreign Awards Act’)
seeking stay of Suit No. 832 of 1982 and all proceedings
therein with a prayer for vacating the ad interim ex parte
reliefs obtained by Renusagar in the said suit. Both the
matters, namely, stay petition of General Electric under
Section 3 of the Foreign Awards Act and Renusagar’s notice
of motion for confirmation of ad interim relief were heard
together and disposed of by a learned Single Judge of the
Bombay High Court by a common judgment and order dated April
20, 1983 whereby the prayer for stay of the suit filed by
General Electric under Section 3 of the Foreign Awards Act
was allowed and all proceedings in the said suit were stayed
and all the interim reliefs which were granted earlier by ad
interim order were vacated. C.A. Nos. 404-405 of 1983 filed
by Renusagar against the said judgment of the learned Single
Judge were dismissed by a Division Bench of the High Court
by judgment dated October 21, 1983. The appeals filed by
Renusagar against the said decision of the High Court were
dismissed by this Court on August 16, 1984. (See : Renusagar
Power Co. Ltd. v. General Electric Co. 1 hereinafter
referred to as ‘Renusagar Case 1’.) In the said case, this
Court (Tulzapurkar and Pathak, JJ.) has held that the three
claims referred by General Electric to the ICC do ‘arise out
of’ and are ‘related to the contract’ and squarely fall
within the widely-worded arbitration clause contained in
Article XVII of the Contract.
9. On August 19, 1982, General Electric filed a suit in
the Calcutta High Court against United Commercial Bank to
enforce the bank guarantee given by the said Bank at the
instance of Renusagar. As a counter to the said suit,
Renusagar, on November 25, 1982, filed a suit (No. 127 of
1982) in the Court of Civil Judge, Mirzapur, U.P. praying
for a declaration that the guarantee given by United
Commercial Bank for and on behalf of Renusagar stood
discharged and had become ineffective and unenforceable and
for a mandatory injunction directing and ordering General
Electric to settle the claim of Renusagar regarding 75 MVA
Transformers and to satisfy the settlement validly arrived
at of the claim of Renusagar as mentioned in the plaint of
the said suit. General Electric filed an application in the
Mirzapur Court whereby it was prayed that the suit was
liable to be stayed under Section 10 and/or Section 151 CPC
in respect of the first relief and under Section 3 of the
Foreign Awards Act in respect of the second relief claimed
by Renusagar in the plaint. The said
1 (1 984) 4 SCC 679 : (1985) 1 SCR 432
658
application was rejected by Mirzapur Court and thereupon
General Electric filed a petition under Article 227 of the
Constitution before the Allahabad High Court for quashing
the proceedings in the suit. The said petition was,
however, dismissed by the High Court by order dated April 4,
1985. Thereupon General Electric filed Civil Appeal No.
2319 of 1986 in this Court which was allowed by this Court
(Chinnappa Reddy and Jagannatha Shetty, JJ.) by judgment
dated August 11, 1987 reported as General Electric Co. v.
Renusagar Power Co.2 hereinafter referred to as ‘Renusagar
Case II’. As a result of the said judgment, the proceedings
in Suit No. 127 of 1982 in the court of Civil Judge,
Mirzapur were stayed under Section 3 of the Foreign Awards
Act.
10. We may now revert to the arbitration proceedings.
After the decision of the learned Single Judge of the Bombay
High Court staying further proceedings in Suit No. 832 of
1992 and vacating the interim order passed in the said suit,
Renusagar entered into the arbitration proceedings on June
9, 1983 under protest and without prejudice to its claim on
arbitrability and gave answer to the claims of General
Electric and also made counter-claims. On February 7 and 8,
1984 both the parties met with the Arbitral Tribunal in
Paris and agreed to sign the Terms of Reference, though
Renusagar did so under protest and without prejudice.
Certain amendments were subsequently made in the Terms of
Reference. In the said Terms of Reference the issues to be
determined were defined in clauses (a) to (cc) of para 22.
Issues in clauses (a) to (f) of para 22 of the Terms of
Reference were determined by an interim award on December
11, 1984 wherein the Arbitral Tribunal found that General
Electric and Renusagar were parties to a valid agreement to
arbitrate all disputes between them arising out of or
related to the 1964 Contract and that the issues referred to
the Arbitral Tribunal, apart from two minor exceptions which
were reserved for determination, were such arbitral disputes
and that the Arbitral Tribunal had jurisdiction to
adjudicate on them. The Arbitral Tribunal also held that
the applicable law was that of the State of New York, U.S.A.
11. After the decision of this Court in Renusagar Case II,
both the parties appeared before the Arbitral Tribunal in
Paris for a hearing which lasted for ten days between
February 25 and March 8, 1985. Each party was represented
by counsel and legal and other advisers and issues (g) to
(p) of para 22 of the Terms of Reference were argued and
submitted for consideration by both the sides and the
hearing was adjourned to a later date for more detailed
consideration to be given to the remaining issues and for
further written submissions to be made by both parties. The
next hearing was fixed to be in London to begin on October
1, 1985 and both parties were summoned to appear before the
Arbitral Tribunal. Khaitan & Partners, lawyers for
Renusagar sent a letter dated July 24, 1985 to the Arbitral
Tribunal, wherein they stated that an Indian Civil Court had
seisin of the whole of the subject-matter of the reference
in this arbitration and submitted that in consequence the
Arbitral Tribunal and ICC had become functus officio and
that no further proceedings in this arbitration should be
taken by the Arbitral Tribunal. The said submission by
Renusagar was disputed by General Electric and the Arbitral
Tribunal informed the parties that the matter would be
considered as a preliminary issue at the scheduled meeting
in London on October 1, 1985. The scheduled meeting took
2 (1987)4SCC137:(1987)3SCR858
659
place in London on October 1, 1985. General Electric,
represented by counsel and advisers, appeared before the
Arbitral Tribunal but Renusagar failed to appear. The
Arbitral Tribunal considered the written submissions of
Renusagar on the issue of the jurisdiction of the Arbitral
Tribunal and heard the arguments of General Electric and by
majority (Dr Dixit dissenting), the Arbitral Tribunal ruled
that their jurisdiction remained and that the arbitration
should proceed in the absence of Renusagar. It appears that
before the meeting on October 1, 1985, each Arbitrator had
received from the parties during the course of the
arbitration a total of 33 bound volumes of typed
submissions, exhibits and legal authorities, (General
Electric having presented 19 and Renusagar 14) and in
addition each party had put before the Arbitral Tribunal a
large number of papers. On October 2, 3 and 4, 1985 the
Arbitral Tribunal considered the said documents as well as
the written submissions of Renusagar on issues (q) to (bb)
of the Terms of Reference and heard the arguments of counsel
for General Electric in reply. The Arbitral Tribunal also
considered the submissions of Renusagar on the validity of
the claim of entitlement of General Electric to ‘dollar for
dollar’ foreign tax credit at the relevant period in this
action and also heard General Electric on the question of
costs. Thereafter, the Arbitral Tribunal by a majority (Dr
Dixit dissenting) made the award on September 16, 1986.
12. The Arbitral Tribunal upheld the claim of GEC for US $
2,130,785.52 towards regular interest which was withheld by
Renusagar. It was not disputed by Renusagar that it had
retained the said amount. The issue was whether by doing so
Renusagar acted wrongfully. The Arbitral Tribunal has found
that the said withholding or retention of the amount of
interest by Renusagar was wrongful since the failure on the
part of Renusagar to pay the taxes over to the Indian tax
authorities rendered it impossible for General Electric to
get the U.S. foreign tax credit to which it would otherwise
have been entitled for the amount withheld. It was also
held that nothing in the 1964 contract authorises nonpayment
of either the interest or the withheld taxes for tactical
reasons arising out of litigation brought by Renusagar. The
Arbitral Tribunal rejected the contention of Renusagar that
the claim in respect of regular interest was barred by
limitation and held that the applications submitted by
Renusagar to Reserve Bank of India on June 3, 1981 and
August 29, 1981 for permission to remit the said amount to
General Electric amount to acknowledgement. It was also
held that the said sum had to be computed in U.S. dollars
regardless of variation in dollar-rupee exchange rate
prevailing from time to time. As regards claim for
compensatory damages on the said amount of regular interest,
which was withheld by Renusagar, the Arbitral Tribunal,
after referring to the decisions of New York Courts, has
held that an arbitrator’s paramount responsibility is to
reach an equitable result and that it is a basic principle
of damages for breach of contract applicable throughout the
U.S. (including New York) that a party to a contract who is
injured by its breach is entitled to compensation for the
injury sustained and is entitled to be placed insofar as
this can be done by money in the same position he would have
occupied if the contract had been performed. The Arbitral
Tribunal found that General Electric would have benefited
from ‘dollar for dollar’ from the foreign tax credits that
it could have claimed had Renusagar paid the disputed
amounts over to the Indian tax authorities and supplied
General Electric with the appropriate tax certificate. The
Arbitral Tribunal, therefore, awarded compensatory damages
and computed the same by applying
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the average prime rate to the amounts withheld and observed
that although General Electric was entitled to interest from
the due dates of the various notes but the interest that had
been claimed by General Electric in the Terms of Reference
was computed from the later dates set out in a detailed
computation supplied to the Arbitral Tribunal and since
General Electric had accepted these later dates in its
submission, the Arbitral Tribunal awarded compensatory
damages computed by applying the average prime rate to the
amounts withheld commencing with the dates listed in the
statement and compounded annually commencing with the last
day of the calendar year for each amount. The Arbitral
Tribunal rejected the contention urged on behalf of
Renusagar that award of interest on regular interest as
compensatory damages would violate public policy of the
State of New York against ‘interest on interest’. Relying
upon the decision of the New York Court of Claims in City of
New York v. State of New York3 the Arbitral Tribunal held
that interest on interest is not against public policy in
the State of New York. The Arbitral Tribunal also rejected
the contention of Renusagar that it would violate New York’s
public policy to award compound interest as compensatory
damages and, after referring to the various decisions of the
courts in the State of New York, the Arbitral Tribunal has
held that compounding of interest is equally appropriate in
actions of an equitable nature and in the circumstances of
this case compounding of interest would not violate the
public policy of the State of New York. In this context the
Arbitral Tribunal has pointed out that they were not
concerned with a contract to pay compound interest but with
the propriety of compounding interest in fashioning a remedy
for a breach of contract in order to put the injured party
in the same economic position it would have occupied if the
contract had been duly performed. As regards the claim for
delinquent interest on late payment of instalments by
Renusagar, the Arbitral Tribunal held that Renusagar was
liable to pay such delinquent interest. The Arbitral
Tribunal found that under the 1964 Contract the notes
evidencing the obligation of Renusagar to pay the purchase
price ‘shall bear interest, at the rate of 6.5 per cent per
annum on the outstanding principal balance’, subject to the
agreed reduction to 6 per cent commencing with the date when
tax exemption, if granted, is made effective and that the
rescheduling negotiations on which Renusagar relied never
resulted in an effective agreement and there was no evidence
of a waiver by General Electric of its right to be paid on
the original due dates when the rescheduling plan collapsed
and further that Renusagar had acknowledged in telex dated
March 25, 1976 that they were liable for interest on the
delayed payment of the principal. The Arbitral Tribunal
also rejected the contention that the claim of General
Electric in this regard was barred by the statute of
limitation. Taking into account the acknowledgement
contained in the telex dated March 25, 1976, the Arbitral
Tribunal deducted a sum of US $ 316,610 from the amount of
US $ 783,686.20 computed as interest @ 6 per cent and held
that General Electric was entitled to net amount of US $
467,076.20 by way of delinquent interest. The Arbitral
Tribunal rejected the contention urged on behalf of
Renusagar that even if period of limitation is computed from
telex of March 25, 1976 the claim was barred by limitation
in view of the four-year limitation prescribed by Section 2-
275(1) of New York’s version of the Uniform Commercial Code
which came into force with effect from September 27, 1964.
The Arbitral
3 408 NYS 2d 702, 707 (1978)
661
Tribunal held that the said provision was not applicable to
the present case and that it is governed by the 6-year
period of limitation that was prescribed in the State of New
York prior to the commencement of the said provision. The
Arbitral Tribunal further held that General Electric was
entitled to compensatory damages on the aforesaid amount of
delinquent interest in the same manner as damages were to be
computed on the unpaid amount of regular interest. The
Arbitral Tribunal also upheld the claim of General Electric
for US $ 119,053.31 towards purchase price of spare parts
and further held that the said claim was not barred by
limitation in view of the acknowledgement by Renusagar in
the telex dated March 25, 1976. The Arbitral Tribunal also
held that compensatory damages were payable on account of
Renusagar’s failure to pay for spare parts in the same
manner as damages for failure of Renusagar to pay regular
interest. With regard to the counter-claim made by
Renusagar, the Arbitral Tribunal had earlier rejected the
purported withdrawal of the said counter-claim in respect of
items 2 to 8 by Renusagar and after considering the said
counter-claim on merits, the Arbitral Tribunal rejected the
same in respect of all the eight items. In view of the
rejection of counter-claim of Renusagar, the Arbitral
Tribunal rejected the claim made by General Electric by way
of reply to the claim of Renusagar. In the matter of costs,
the Arbitral Tribunal held that Renusagar must pay the costs
of arbitration and apart from the amount which General
Electric was required to pay towards administrative expenses
and arbitration fees, the Arbitral Tribunal held that
Renusagar must also pay the normal legal costs incurred by
General Electric. The Arbitral Tribunal awarded the
following amounts against various heads of claims:
1. Regular interest wrongfully withheld US $2,130,785.52
2. Compensatory damages up to March 31, US $6,347,748.50
1986 on the above regular interest
continuing at the annual rate of 8 per
cent on the said regular interest until payment.
3. Delinquent interest on late payments of US $467,076.20
principal
4.Compensatory damages up to
March 31, 1986 US $1,324,357.75
on the above delinquent interest continuing
at the annual rate of 8 per cent on the said
delinquent interest until payment
5. Spare parts US $ 119,053.00
6. Compensatory damages up to March 31, 1986 US $276,702.17
on the above spare parts continuing at the
annual rate of 8 per cent on the said
sum for the spare parts until payment.
7. Towards costs of General Electric Us $1,549,899.00
Total US $12,215,622.14
The Arbitral Tribunal has awarded interest at the annual
rate of 8 per cent on items 1, 3 and 5.
13. On October 15, 1986, General Electric instituted
proceedings for enforcement of the award of the Arbitral
Tribunal by filing Arbitration Petition 7 No. 159 of 1986
under Section 5 of the Foreign Awards Act in the Bombay High
Conn. On October 17, 1986, Renusagar instituted a suit
(Suit No. 265 of 1986) in the Court of Civil Judge,
Mirzapur, seeking a declaration that the
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award made by the Arbitral Tribunal was a nullity and for
restraining General Electric by a perpetual injunction from
denying Renusagar’s rights and taking any action affecting
Renusagar’s rights in any manner whatsoever on the basis of
the said award. General Electric filed a Transfer Petition
(No. 388 of 1986) in this Court seeking transfer of the suit
filed by Renusagar in the Mirzapur Court to the original
side of the Bombay High Court. By order dated September 10,
1987, this Court stayed further proceedings in the suit
filed by Renusagar in the Mirzapur Court and the stay was to
remain in operation during the pendency of the petition
filed by General Electric for enforcement of the award. by
General Electric in the Bombay High Court and submitted :
(i) the award could not be filed as it did not become
binding on the parties in the country in which the award was
made as prescribed under Section 7(1)(a)(v) of the Foreign
Awards Act and Rule 801(c) of the Rules framed by the Bombay
High Court under the Foreign Awards Act; (ii) the Bombay
High Court did not have the territorial jurisdiction to
entertain the petition of General Electric under Section 5
of the Act; (iii) General Electric had failed to comply with
the mandatory requirement of Section 8(1)(a) of the Foreign
Awards Act and Rule 801(a) of the Rules framed by the Bombay
High Court under the Foreign Awards Act inasmuch as neither
the original award nor a copy thereof duly authenticated as
required by the law of the country had been produced along
with the application; (iv) the award sought to be enforced
was a nullity and should be ignored as the arbitrators had
become functus officio in view of institution of Suit No.
127 of 1982 by Renusagar in the Court of Civil Judge,
Mirzapur and refusal by the Mirzapur Court to stay the suit
under Section 3 of the Foreign Awards Act; (v) the award
could not be enforced in view of Section 7(1)(b)(ii) of the
Foreign Awards Act because its enforcement was contrary to
public policy; (vi) the claim for regular interest was
barred by limitation; (vii) the claim for delinquent
interest had been wrongly accepted by the arbitrators;
(viii) the award of interest on interest or compensatory
damages in lieu of interest on regular interest and
delinquent interest and the award of compound interest is
contrary to public policy; (ix) the compensatory damages
were excessive and unusual; (x) the Chairman of the Arbitral
Tribunal was biased against Renusagar; and (xi) the costs of
arbitration were unconscionable and excessive.
15. The learned Single Judge (Pendse, J.) has considered
all the aforesaid objections raised on behalf of Renusagar
in his very comprehensive judgment dated October 21, 1988
wherein after rejecting the said objections, he has held
that the award is enforceable under the provisions of the
Foreign Awards Act and on that basis a decree in terms of
the award was drawn.
16. Renusagar filed an appeal (Appeal No. 680 of 1989)
under clause 15 of the Letters Patent of the Bombay High
Court against the said judgment of the learned Single Judge
which was disposed of by a Division Bench of the said High
Court (C. Mookerjee, C.J. and Mrs Sujata Manohar, J.) by
judgment dated October 12, 1989. The learned Judges of the
High Court held that the said appeal was not maintainable in
view of Section 6(2) of the Foreign Awards Act. The learned
Judges, however, examined the matter on merits and found
that there was no substance in the appeal. In this context
the learned Judges have dealt with the objection about the
arbitrators having become functus officio on
663
account of the pendency of the civil suit filed by
Renusagar in the Mirzapur Court; the award being contrary to
public policy; the award being not binding; the failure to
file the authenticated copy of the award and the
jurisdiction of the Bombay High Court to entertain the
petition and they have rejected the contentions urged by
Renusagar in respect of the said objections. Since the
learned Single Judge had not specified the rate of exchange
for conversion of the decretal amount expressed in U.S.
dollars to Indian rupees, the learned Judges have dealt with
the said question and taking into consideration the decision
of this Court in Forasol v. ONGC4 they have directed that
the date of conversion of decretal amount which is in U.S.
dollars to Indian rupees shall be the date on which the
learned Single Judge completed pronouncing of judgment,
i.e., October 21, 1988 and that opening the rate of exchange
shall be the selling rate of U.S. dollars as ascertained by
the State Bank of India. The learned Judges have granted a
certificate for appeal to this Court under Article 134-A
read with Article 133 of the Constitution since they felt
that the case involves substantial questions of law of
general importance which need to be decided by this Court.
17. Civil Appeal No. 71 of 1990 has been filed by Renusagar
on the basis of the said certificate against the judgment of
the Division Bench of High Court dated October 12, 1989.
Renusagar has also filed Civil Appeal No. 71-A of 1990
against the judgment of the learned Single Judge dated
October 21, 1988 after obtaining the special leave to appeal
from this Court. General Electric has filed Civil Appeal
No. 379 of 1992 against the judgment of the Division Bench
of High Court dated October 12, 1989 after obtaining special
leave to appeal. The said appeal of General Electric has
been filed by way of abundant caution and is confined to the
directions given by the Division Bench of High Court in
paras 117 to 119 of the judgment with regard to rate of
exchange for conversion of the decretal amount from U.S.
dollars to Indian rupees. According to General Electric the
said rate of exchange should have been the rate prevailing
on the date of payment.
18. During the pendency of these appeals this Court, by
Order dated February 21, 1990 on I.A. No. 1 of 1990 in Civil
Appeal No. 71 of 1990, stayed the operation of the judgment
and decree under appeal subject to Renusagar depositing in
the original side of the Bombay High Court, the sums
equivalent to one-half of the decretal amount calculated as
on date and furnishing security to the satisfaction of the
High Court in respect of the decretal amount. General
Electric was permitted to withdraw the deposit upon
furnishment of security by way of bank guarantee for the sum
to be withdrawn in excess of Rupees four crores to the
satisfaction of the High Court. In the said order it was
also directed that interest @ 10 per cent per annum would be
payable by Renusagar on the balance of the decretal amount
in the event of its failing in the appeal and
correspondingly General Electric would be liable to pay
interest at the same rate on amount withdrawn by it in the
event of the appeal succeeding. In pursuance of this order,
Renusagar deposited, a sum of Rs 9,69,26,590.00 on March 20,
1990 which was withdrawn by GEC after furnishing necessary
bank guarantee. By another order dated November 6, 1990 on
I.A. No. 3 of 1990 in Civil Appeal No. 71 of 1990, this
Court directed Renusagar to deposit a further sum of Rs 1
4 1984 Supp SCC 263 :(1984) 1 SCR 526
664
crore and to furnish a bank guarantee for Rs 1.92 crores.
In pursuance of the said order, Renusagar deposited, on
December 3, 1990, a sum of Rs 1 crore which amount has also
been withdrawn by General Electric. Thus, a total sum of Rs
10,69,26,590.00 has been deposited by Renusagar and the same
has been withdrawn by General Electric.
19. Shri K.K. Venugopal, learned Senior Counsel appearing
for Renusagar, and Shri Shanti Bhushan, learned Senior
Counsel appearing for General Electric, have made elaborate
submissions before us. The oral submissions have been
supplemented by written submissions.
20. During the course of his submissions, Shri Venugopal
did not pursue some of the objections that were raised by
Renusagar before the High Court. But at the same time he
has raised certain objections which were not raised before
the High Court. Shri Venugopal has not disputed the
liability of Renusagar for US $ 2,130,785.52 awarded under
item No. 1 towards regular interest withheld by Renusagar
and US $ 119,053.00 awarded under item No. 5 towards price
of spare parts. The submissions of Shri Venugopal are
confined to the award of compensatory damages under item
Nos. 2, 4 and 6, delinquent interest under item No. 3 and
costs under item No. 7. The submissions of Shri Venugopal
broadly fall under two heads : (i) enforceability of the
award; and (ii) the rate of exchange for conversion of the
decretal amount from U.S. dollars to Indian rupees.
21. Before we proceed to examine the submissions made by
learned counsel, we consider it necessary to briefly
refer to the background in which the Foreign Awards Act was
enacted because it would have a bearing on the
interpretation of the provisions of the said Act.
22. Arbitration is a well-recognised mode for resolving
disputes arising out of commercial transactions. This is
equally true for international commercial transactions.
With the growth of international commerce there was an
increase in disputes arising out of such transactions being
adjudicated through arbitration. One of the problems faced
in such arbitrations related to recognition and enforcement
of an arbitral award made in one country by the courts of
other countries. This difficulty has been sought to be
removed through various international conventions. The
first such international convention was the Geneva Protocol
of 1923 which was drawn up on the initiative of ICC under
the auspices of the League of Nations. The Geneva Protocol
had two objectives, first, it sought to make arbitration
agreements, and arbitration clauses in particular,
enforceable internationally; and secondly, it sought to
ensure that awards made pursuant to such arbitration
agreements would be enforced in the territory of the State
in which they were made. The Geneva Protocol of 1923 was
followed by the Geneva Convention of 1927 which was also
drawn up under the auspices of the League of Nations. The
purpose of this Convention was to widen the scope of the
Geneva Protocol of 1923 by providing recognition and
enforcement of protocol awards within the territory of
contracting States, (not merely the State in which the award
was made). (See : Alen Redfern and Martin Hunter: Law &
Practice of International Commercial Arbitration, 2nd Edn.
pp. 61-62). India was a signatory to the Protocol of 1923
and the Convention of 1927. With a view to implementing the
obligations undertaken under the said Protocol and
Convention, the Arbitration (Protocol & Convention) Act,
1937 was enacted. A number of problems were encountered
665
in the operation of the aforesaid Geneva treaties inasmuch
as there were limitations in relation to their field of
application and under the Geneva Convention of 1927, a party
seeking enforcement had to prove the conditions necessary
for enforcement and in order to show that the awards had
become final in its country of origin the successful party
was often obliged to seek a declaration in the countries
where the arbitration took place to the effect that the
award was enforceable in that country before it could go
ahead and enforce the award in the courts of the place of
enforcement. ICC, in 1953, promoted a new treaty to govern
international commercial arbitration. The proposals of ICC
were taken up by the United Nations Economic and Social
Council and it led to the adoption of the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards at
New York, 1958 (hereinafter referred to as ‘the New York
Convention’). The New York Convention is an improvement on
the Geneva Convention of 1927 in the sense that it provides
for a much more simple and effective method of obtaining
recognition and enforcement of foreign arbitral awards and
it replaces Geneva Convention of 1927 as between the States
which are parties to both the Conventions. The New York
Convention also gives much wider effect to the validity of
arbitration agreements than does the Geneva Protocol of
1923. [See : Alan Redfern and Martin Hunter, Law & Practice
of International Commercial Arbitration, (1 991) 2nd Edn.
pp. 62-63.]
23. India was a party to the New York Convention. The
Foreign Awards Act has been enacted to give effect to the
New York Convention and for purposes connected therewith. In
the Statement of Objects and Reasons, reference has been
made to the defects in the Geneva Convention of 1927 which
“hampered the speedy settlement of disputes through
arbitration and hence no longer met the requirements of
international trade” and which led to the adoption of the
New York Convention. Section 2 of the Act defines the
expression ‘foreign award’. Section 3 makes provision for
stay of proceedings in respect of matters to be referred to
arbitration. Section 4 deals with effect of foreign awards.
Sub-section (1) of Section 4 provides that a foreign award
shall, subject to the provisions of this Act, be enforceable
in India as if it were an award made on a matter referred to
arbitration in India. Sub-section (2) prescribes that any
foreign award which would be enforceable under this Act
shall be treated as binding for all purposes on the persons
as between whom it was made and may be relied on by any of
those persons by way of defence, setoff or otherwise in any
legal proceedings in India. Section 5 makes provision for
filing of foreign awards in Court. In sub-section (1) it is
laid down that any person interested in a foreign award may
apply to any court having jurisdiction over the subject-
matter of the award that the award be filed in Court. Sub-
section (2) requires that such an application shall be in
writing and shall be numbered and registered as a suit
between the applicant as plaintiff and the other parties as
defendants. Sub-section (3) requires the court to give
notice to the parties to the arbitration other than the
applicant requiring them to show cause within a time
specified why the award should not be filed. Section 6 deals
with enforcement of foreign awards. Sub-section (1) lays
down that where the Court is satisfied that the foreign
award is enforceable under the Act, the Court shall order
the award to be filed and shall proceed to pronounce
judgment according to the award. Sub-section (2) provides
that upon the judgment so pronounced a decree shall follow,
no appeal shall lie from such decree except
666
insofar as the decree is in excess of or not in accordance
with the award. Section 7 contains the conditions for
enforcement of foreign awards and prescribes the
circumstances under which foreign awards will not be
enforced. Section 8 requires the production of the original
award or a duly authenticated copy thereof as well as
original agreement for arbitration or a duly certified copy
thereof and the production of evidence to prove that the
award is a foreign award. Section 9 is a saving clause
which excludes the applicability of the Act to matters
specified therein. Section 10 provides for repeal of the
Arbitration (Protocol and Convention) Act, 1937, in relation
to foreign awards to which the Act applies. Section 11
provides for rule-making power of the High Court. The New
York Convention is appended as a schedule to the Foreign
Awards Act.
24. In the present case, we are concerned with conditions
of enforcement laid down in Section 7, which provides as
follows:
“7. Conditions for enforcement of foreign
awards.- (1) A foreign award may not be
enforced under this Act-(a) if the party against whom it is sought
to enforce the award proves to the court
dealing with the case that-(i) the parties to the agreement were under
the law applicable to them, under some
incapacity, or the said agreement is not valid
under the law to which the parties have
subjected it, or failing any indication
thereon, under the law of the country where
the award was made; or(ii) that party was not given proper notice
of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise
unable to present his case; or(iii) the award deals with questions not
referred or contains decisions on matters
beyond the scope of the agreement: Provided
that if the decisions on matters submitted to
arbitration can be separated from those not
submitted, that part of the award which
contains decisions on matters submitted t
o
arbitration may be enforced; or(iv) the composition of the arbitral
authority or the arbitral procedure was not in
accordance with the agreement of the parties
or failing such agreement, was not in
accordance with the law of the country where
the arbitration took place; or(v) the award has not yet become binding on
the parties or has been set aside or suspended
by a competent authority of the country in
which, or under the law of which, that award
was made; or(b) if the Court dealing with the case is
satisfied that-(i) the subject-matter of the difference is
not capable of settlement by arbitration under
the law in India; or(ii) the enforcement of the award will be
contrary to public policy;(2) If the Court before which a foreign
award is sought to be relied upon is satisfied
that an application for the setting aside or
suspension of the award has been made to a
competent authority referred to in sub-clause(v) of clause (a) of sub-section (1), the
Court may, if it deems proper, adjourn
667
the decision on the enforcement of the award
and may also, on the application of the party
claiming enforcement of the award, order the
other party to furnish suitable security.”25. The objection of Renusagar against enforceability of
the award is based on (i) Section 7(1)(a)(ii) of the Foreign
Awards Act, on the ground that Renusagar was unable to
present its case; and (ii) Section 7(1)(b)(ii) of the
Foreign Awards Act, on the ground that the enforcement of
the award would be against public policy.26. In support of his submission that Renusagar was unable
to present its case, Shri Venugopal has urged that after the
Mirzapur Court had refused to stay the civil suit filed by
Renusagar on the application submitted by General Electric
under Section 3 of the Foreign Awards Act on July 9, 1985,
Renusagar had raised a preliminary objection before the
Arbitral Tribunal that it had become functus officio and on
the said objection raised by Renusagar, the Arbitral
Tribunal had issued a further notice on September 2, 1985
stating that the effect of the rejection of the application
under Section 3 of the Foreign Awards Act would be
considered as a preliminary issue at the scheduled meeting
of the Arbitral Tribunal fixed for October 1, 1985. The
submission of Shri Venugopal is that Renusagar was not
informed by the Arbitral Tribunal that if the decision of
the Arbitral Tribunal on the objection that the Arbitral
Tribunal had become functus officio were to go against
Renusagar, the Arbitral Tribunal would straight away proceed
to hear the case on merits without informing Renusagar about
its decision and that if Renusagar had been put on notice,
it would have been able to decide whether to proceed with
the merits or not and that the action of the Arbitral
Tribunal in going into the merits of the dispute without
notice to Renusagar was a gross, blatant and unpardonable
violation of principles of natural justice and the
elementary tenets of fair play inasmuch as on account of the
said procedure adopted by the Arbitral Tribunal, Renusagar
was deprived of an opportunity to meet and deal with the
entirety of claims of General Electric.27. As regards bar to the enforcement of the award under
Section 7(1)(b)(ii) of the Foreign Awards Act, Shri
Venugopal has argued that : (i) under Section 7(1)(b)(ii),
enforcement of the award could be refused by the courts in
India not only on the ground that the award is against the
public policy of India but also that it is against the
public policy of the State of New York; (ii) the expression
“public policy” in Section 7(1)(b)(ii) of the Act has to be
construed in a liberal sense and not narrowly and it would
include within its ambit disregard of the provisions of the
Foreign Exchange Regulation Act, 1973 (hereinafter referred
as FERA) and would also cover unjust enrichment; (iii) it
would be contrary to the public policy of India as well as
of the State of New York to award interest on interest and
compounding it further and to award damages on damages; (iv)
under the contract, interest was payable only up to the date
of maturity of each promissory note and no interest was
payable for the period subsequent to the said date and the
only remedy available to General Electric in the event of
default in payment of an instalment on the due date was to
enforce the bank guarantee or to recall all the promissory
notes; (v) under the original approval dated January 2, 1964
given by the Government of India the total amount of loan
was to be repaid in sixteen semi-annual instalments between
30 and 120 months from contract effective date and payment
of interest was specifically
668
restricted for the period from 16th to 30th month and
thereafter upon capitalisation from the 30th month to the
120th month and no interest was payable without FERA
sanction after due date of each instalment; (vi) no
liability for interest for delayed payment of instalments
would accrue in respect of the period from June 30, 1967 to
August 1, 1969 while the application for approval under FERA
was pending before the Government of India; (vii) after the
refusal by the Government to give its approval to the
rescheduling of the instalments the award of interest was in
breach of the prohibition contained in FERA and was contrary
to public policy of India; (viii) while awarding
compensatory damages under item Nos. 2 and 4 the Arbitral
Tribunal has failed to deduct 46 per cent U.S. tax payable
by General Electric on the amount of regular interest and
delinquent interest and compensatory damages could only be
awarded on the amount receivable by General Electric after
deducting the said tax and this has resulted in unjust
enrichment which is contrary to public policy; (ix)
compensatory damages have been awarded by way of interest on
interest and that too by compounding the rate of interest
which is contrary to public policy of India and New York;(x) compensatory damages awarded on delinquent interest
under item No. 4 constitutes award of damages upon damages
which is contrary to public policy of India; (xi) award of
compensatory damages on regular interest under item No. 2 in
respect of the period from 1970 to 1980 when the interim
order passed by the Delhi High Court in the writ petition
was operative was impermissible and against public policy;(xii) the amount awarded as costs is unconscionable and
constitutes unjust enrichment inasmuch as it includes the
amount which was admitted as part of the legal fees and
expenses for proceedings in India and which was found to be
inadmissible by the Arbitral Tribunal and the same amount
was transposed into cost of the arbitration on the pretext
that the material collected for litigation in India was also
used in the arbitration proceedings; and (xiii) there has
been violation of principles of natural justice inasmuch as
the vouchers of costs regarding legal fees and expenses were
never shown or given to Renusagar nor were its objections
heard in this regard.28. With regard to rate of exchange for conversion of the
decretal amount in U.S. dollars to Indian rupees, the
submission of Shri Venugopal is that the date with reference
to which conversion of foreign currency is to be made is a
matter of substance and is governed by lex contractus, i.e.,
the law of the contract, and not by lexfori, i.e., the law
of the forum. It has been urged that the law of the State
of New York is the law of the contract and that the said law
provides the date of breach as the date of conversion and
therefore, the amount awarded in U.S. dollars under the
award of the Arbitral Tribunal must be converted into Indian
currency on the basis of the rate prevalent on the date of
the breach. It has been submitted that the decision of this
Court in Forasol v. O.N.G.C.4 on which reliance has been
placed by the Division Bench of the High Court, has no
application to the present case because in that case the
Court was not dealing with a foreign award but was dealing
with an award made under the Indian Arbitration Act, 1940.29. Shri Shanti Bhushan, has, on the other hand, submitted
that : (i) the scope of enquiry in proceedings under Section
5 of the Foreign Awards Act is confined to questions
relating to the enforcement of the award and does not
comprehend a challenge to the merits and even if a question
of law decided by
669
the Arbitrators is incorrect, it is not a ground of
challenge under Section 7 of the Foreign Awards Act; (ii)
Renusagar cannot have any grievance that they were unable to
present its case because it had voluntarily refused to
appear before the Arbitral Tribunal when it met on October
1, 1985 and further that in the sittings of the Arbitral
Tribunal from February to March 1985 in which Renusagar had
participated it had made oral submissions and had also
produced documents before the Arbitral Tribunal, with regard
to issues 22(g) to (p) and that in the sittings held from
October 1, 1985 onwards, the Arbitral Tribunal had dealt
with rest of the issues which related to the counter-claim
of Renusagar as well as the claim made by General Electric
against the counter-claim which claims have been rejected by
the Arbitral Tribunal; (iii) public policy, comprehended in
Section 7(1)(b)(ii) of the Foreign Awards Act is the public
policy of India and does not cover the public policy of New
York State; (iv) for the purpose of Section 7(1)(b)(ii) of
the Foreign Awards Act the expression ‘public policy’ has a
narrower connotation than in domestic law; (v) the regular
interest was wrongfully withheld by Renusagar because as a
result of the failure on the part of Renusagar to deposit
the amount of tax with the Government of India. General
Electric was not able to claim relief under the U.S. tax
laws in respect of the amount payable as tax in India on the
interest and that the interim order passed by the Delhi High
Court in the writ petition filed by Renusagar did not
preclude Renusagar from either depositing the tax amount
with the Government or remitting the interest amount to
General Electric at the rate of 6 per cent; (vi) for
awarding compensatory damages for withholding of regular
interest and on delinquent interest for delayed payment of
instalments the tax payable in United States on the amount
of regular interest and delinquent interest could not be
deducted since tax would be payable in the United States by
General Electric on the amount awarded as compensatory
damages; (vii) the amount of compensatory damages awarded by
the Arbitral Tribunal relates to the merits of the award and
the same cannot be questioned in proceedings for enforcement
of the award under Section 7 of the Foreign Awards Act;(viii) the challenge to the award on the basis of unjust
enrichment, award of compound interest, award of damages on
damages does not fall within the ambit of permissible
objections on the ground of violation of public policy in
Section 7(1)(b)(ii) of the Foreign Awards Act; (ix) there is
no violation of the provisions of FERA because in view of
the approval that had already been granted by the Government
of India to the original contract, there was no prohibition
against remittance of regular interest on the instalments
which had become due and payable and the refusal on the part
of the Government to give approval to rescheduling of the
payment of instalments did not in any way preclude the
Government of India from granting necessary permission for
remittance of the interest on the unpaid instalments under
Section 9 of FERA; (x) in any event, the bar of Section 9 of
FERA is not applicable to the proceedings for enforcement
for the award in view of Section 47(3) of FERA and the
enforcement of the award does not involve contravention of
the provisions of FERA; (xi) the costs that have been
awarded are reasonable and that three copies of the
supporting vouchers except for the vouchers relating to fees
of M/s Amarchand Mangaldas, a Bombay/Delhi firm of
Solicitors, were sent to all the three arbitrators and that
one set of billings of M/s Amarchand Mangaldas was sent to
the Chairman but copies of the letter addressed to Chairman
were sent to the other Arbitrators and that the
670
bills of M/s Amarchand Mangaldas were in respect of fees of
Indian lawyers in Bombay High Court and Supreme Court which
claim of costs has been disallowed by the Arbitral Tribunal;(xii) the rate of exchange for conversion of foreign
currency in proceedings for enforcement of a foreign award
is governed by lexfori, i.e., law of the forum in which the
proceedings have been instituted and not by the proper law
of contract or law of place of performance; (xiii) the
relevant date for conversion of U.S. dollars into Indian
rupees in proceedings for enforcement of a foreign award is
the date of actual payment and not the date of judgment as
held by the Division Bench of the High Court; (xiv) the
decision of this Court in Forasol v. O.N.G.C.4 on which the
reliance has been placed by the Division Bench has no
application and in any event the said decision does not lay
down the correct law and needs reconsideration; (xv)
although under the award interest has been awarded at 8 per
cent in respect of items 1, 3 and 5 only but in view of the
interim order passed by this Court on February 21, 1990
interest at the rate of 10 per cent is payable on the entire
amount; (xvi) since the permission was not granted to
General Electric by the Reserve Bank of India to transfer
the sum of Rs 10.92 crores deposited by Renusagar in
pursuance to the orders of this Court dated February 21,
1990 and November 6, 1990 the said amount should be adjusted
against the decree that is ultimately passed after
converting the decretal amount in U.S. dollars to Indian
rupees on the basis of the rate of exchange prevailing on
the date of the judgment of this Court.30.Having regard to the foregoing submissions of the learned
counsel the questions that arise for consideration in these
appeals can be thus formulated:(1) What is the scope of enquiry in
proceedings for enforcement of a foreign award
under Section 5 read with Section 7 of the
Foreign Awards Act?(II) Were Renusagar unable to present their
case before the Arbitral Tribunal and
consequently the award cannot be enforced in
view of Section 7(1)(a)(ii) of the Foreign
Awards Act?(III) Does Section 7(1)(b)(ii) of the Foreign
Awards Act preclude the enforcement of the
award of the Arbitral Tribunal for the reason
that the said award is contrary to the public
policy of the State of New York?(IV) What is meant by ‘public policy’ in
Section 7(1)(b)(ii) of the Foreign Awards Act?
(V) Is the award of the Arbitral Tribunal
unenforceable as contrary to public policy of
India on the ground that-(a) it involves contravention of the
provisions of FERA;(b) it penalises Renusagar for acting in
accordance with the interim order passed by
the Delhi High Court in the writ petition
filed by Renusagar challenging the withdrawal
of exemption from income tax on the interest
paid to General Electric;(c) it results in charging of interest on
interest which is compounded and also damages
on damages;(d) it would lead to unjust enrichment for
General Electric.671
(VI) Which law would govern the rate of
exchange for conversion of foreign currency in
proceedings for enforcement of a foreign
arbitral award?(VII) Does Forasol v. O.N.G.C4 need reconsideration? (VIII) Is General Electric entitled tointerest pendente lite and future interest and
if so, at what rate?(IX) What should be the rate for conversion
into U.S. dollars of the amount of Rs 10.92
crores deposited by Renusagar in pursuance to
the interim orders passed by this Court on
February 21, 1990 and November 6, 1990 and
which has been withdrawn by General Electric?1. Scope of enquiry in proceedings for
recognition and enforcement of a foreign award
under the Foreign Awards Act31. During the course of his submissions, Shri Venugopal
has assailed the award of the Arbitral Tribunal on grounds
touching on the merits of the said award insofar as it
relates to the award of compensatory damages on regular
interest (item No. 2), delinquent interest (item No. 3),
compensatory damages on delinquent interest (item No. 4) and
compensatory damages on the price of spare parts (item No.6). This gives rise to the question whether in proceedings
for enforcement of a foreign award under the Foreign Awards
Act it is permissible to impeach the award on merits.32. With regard to enforcement of foreign judgments, the
position at common law is that a foreign judgment which is
final and conclusive cannot be impeached for any error
either of fact or of law and is impeachable on limited
grounds, namely, the court of the foreign country did not,
in the circumstances of case, have jurisdiction to give that
judgment in the view of English law; the judgment is
vitiated by fraud on part of the party in whose favour the
judgment is given or fraud on the part of the court which
pronounced the judgment; the enforcement or recognition of
the judgment would be contrary to public policy; the
proceedings in which the judgment was obtained were opposed
to natural justice. (See : Dicey & Morris, The Conflict of
Laws, 11th Edn., Rules 42 to 46, pp. 464 to 476; Cheshire &
North, Private International Law, 12th Edn., pp. 368 to392.)
33. Similarly in the matter of enforcement of foreign
arbitral awards at common law a foreign award is enforceable
if the award is in accordance with the agreement to
arbitrate which is valid by its proper law and the award is
valid and final according to the arbitration law governing
the proceedings. The award would not be recognised or
enforced if, under the submission agreement and the law
applicable thereto, the arbitrators have no justification to
make it, or it was obtained by fraud or its recognition or
enforcement would be contrary to public policy or the
proceedings in which it was obtained were opposed to natural
justice (See: Dicey & Morris, The Conflict of Laws, 11th
Edn., Rules 62-64, pp. 558 & 559 and 571 & 572; Cheshire &
North, Private International Law, 12th Edn., pp. 446-447).
The English courts would not refuse to recognise or enforce
a foreign award merely because the arbitrators (in its view)
applied the wrong law to the dispute or misapplied the right
law. (See : Dicey & Morris, The Conflict of Laws, 11th Edn.,
Vol. II, p. 565.)34. Under the Geneva Convention of 1927, in order to obtain
recognition or enforcement of a foreign arbitral award, the
requirements of clauses (a) to (e) of
672
Article I had to be fulfilled and in Article 11, it was
prescribed that even if the conditions laid down in Article
I were fulfilled recognition and enforcement of the award
would be refused if the Court was satisfied in respect of
matters mentioned in clauses (a), (b) and (c). The
principles which apply to recognition and enforcement of
foreign awards are in substance, similar to those adopted by
the English courts at common law. (See : Dicey & Morris, The
Conflict of Laws, 11th Edn., Vol. I, p. 578). It was,
however, felt that the Geneva Convention suffered from
certain defects which hampered the speedy settlement of
disputes through arbitration. The New York Convention seeks
to remedy the said defects by providing for a much more
simple and effective method of obtaining recognition and
enforcement of foreign awards. Under the New York
Convention the party against whom the award is sought to be
enforced can object to recognition and enforcement of the
foreign award on grounds set out in sub-clauses (a) to (e)
of clause (1) of Article V and the court can, on its own
motion, refuse recognition and enforcement of a foreign
award for two additional reasons set out in sub-clauses (a)
and (b) of clause (2) of Article V. None of the grounds set
out in sub-clauses (a) to (e) of clause (1) and subclauses(a) and (b) of clause (2) of Article V postulates a
challenge to the award on merits.35. Albert Jan van den Berg in his treatise The New York
Arbitration Convention of 1958 : Towards a Uniform Judicial
Interpretation, has expressed the view:“It is a generally accepted interpretation of
the Convention that the court before which the
enforcement of the foreign award is sought ma
y
not review the merits of the award. The main
reason is that the exhaustive list of grounds
for refusal of enforcement enumerated in
Article V does not include a mistake in fact
or law by the arbitrator. Furthermore, under
the Convention the task of the enforcement
judge is a limited one. The control exercised
by him is limited to verifying whether an
objection of a respondent on the basis of the
grounds for refusal of Article V(1) is
justified and whether the enforcement of the
award would violate the public policy of the
law of his country. This limitation must be
seen in the light of the principle of
international commercial arbitration that a
national court should not interfere with the
substance of the arbitration.” (p. 269)36. Similarly Alan Redfern and Martin Hunter
have said:“The New York Convention does not permit any
review on the merits
of an award to which the Convention applies
and in this respect, therefore, differs from
the provisions of some systems of national law
governing the challenge of an award, where an
appeal to the courts on points of law may be
permitted.” (Redfern & Hunter, Law and
Practice of International Commercial
Arbitration, 2nd Edn., p. 46 1.)37. In our opinion, therefore, in proceedings for
enforcement of a foreign award under the Foreign Awards Act,
1961, the scope of enquiry before the court in which award
is sought to be enforced is limited to grounds mentioned in
Section 7 of the Act and does not enable a party to the said
proceedings to impeach the award on merits.
II. Bar to the enforcement of the award under Section
7(1)(a)(ii) of the Act38. As indicated earlier, the grievance of Renusagar is
that the Arbitral Tribunal on October 1, 1985 decided the
preliminary objection raised by
673
Renusagar that the Arbitrators had become functus officio
and were not entitled to proceed with the arbitration
proceedings on merits and that the Arbitral Tribunal
thereafter proceeded to deal with the merits of the claim of
General Electric without any further notice to Renusagar and
as a result Renusagar was unable to present its case before
the Arbitral Tribunal. This objection was not raised by
Renusagar either before the learned Single Judge or before
the Division Bench of the High Court. We have, however,
considered the same and we do not find any substance in it.
After the Terms of Reference had been drawn before the
Arbitral Tribunal on February 8, 1984, the parties had
appeared before the Arbitral Tribunal at Paris for hearing
which lasted for ten days between February 25 to March 8,
1985 and during the course of the said hearing Renusagar
presented typed submissions and legal authorities before the
Arbitral Tribunal. In these hearings, the Arbitral Tribunal
concluded hearing on issues 22(g) to (p) and the matter was
thereafter adjourned by the Arbitral Tribunal to June 10 but
on account of sudden illness of Dr Dixit, one of the
arbitrators, the matter had to be adjourned and it was
ultimately fixed for October 1, 1985. On June 26, 1988, the
Chairman of the Arbitral Tribunal sent a notice to the
parties wherein it was stated that the adjourned hearing
would take place in London on Tuesday from October 1 to 4
and to continue if necessary during the following week from
October 7 to 11. In the said communication, it was further
stated:“5. At the beginning of the hearing, the
Tribunal will be prepared to hear submissions
if necessary on the adequacy of the evidence
before us on the relevant issues of U.S.
foreign tax credit. But the main purpose of
the meeting is to deal with the respondent’s
counter-claims together with the claimant’s
claims for 119,053 U.S. dollars (unpaid
purchase price of spare parts) and 103,500
U.S. dollars (unpaid repairs on 75 M.V.A.
Transformers).6. All the above counter-claims and claims
are old, so before going into details as to
merit, the Tribunal will wish to consider
submissions on the raised issues of
limitation, laches, estoppel, abandonment and
whether the right party is being sued.”39. On July 23, 1985, M/s Khaitan & Partners, on behalf of
Renusagar, sent a communication to the Arbitrators giving
notice that Renusagar was abandoning and withdrawing items(ii) to (vi) and (viii) of its claim set forth in para 19(g)
of the Terms of Reference as amended by Paris hearings. On
August 10, 1985, M/s Khaitan & Partners, on behalf of
Renusagar, sent a communication to the Arbitrators wherein a
reference was made to the notice issued by Renusagar to the
effect that the ICC Arbitration Tribunal had become functus
officio and neither the ICC Arbitration Tribunal could
proceed with the arbitration nor Renusagar could participate
in the same on the ground that the application submitted by
General Electric under Section 3 of the Foreign Awards Act
had been rejected by Mirzapur Civil Court and the said order
of the court had not yet been set aside or stayed by the
Allahabad High Court in the revision petition filed by
General Electric. Renusagar, through their advocates (M/s
Khaitan & Partners) also sent petition dated August 23, 1985
to the Secretary-General, ICC as well as Secretariat, ICC of
Arbitration reiterating their objection that the arbitrators
had become flinctus officio and could not proceed and/or
function. In his communication to M/s Khaitan & Partners
dated
674
September 2, 1985 the Chairman of the Arbitral Tribunal
intimated that the question as to the effect of the suit
filed in the Mirzapur Court on the arbitration would be
considered as a preliminary issue at the scheduled meeting
on October 1, 1985. On September 23, 1985, M/s Khaitan &
Partners, on behalf of Renusagar, addressed a communication
to Mr Roberto Power in the ICC (copies of the same were sent
to the Arbitrators as well as to General Electric) wherein
it was stated: “Our plea is totally different. It is that
the Arbitrators have become functus officio in the facts and
law stated by us in the 23rd August, 1985 document and our
telexes to the Arbitrators copies of which have been sent to
ICC. Therefore, the question of our appearing before the
Arbitrators or their determining the plea raised by us
cannot and does not arise.” In the communication dated
September 28, 1985 from M/s Khaitan & Partners, it is
stated: “We have been repeatedly informing you that the
Arbitrators have become functus officio. Therefore, be so
kind as not to communicate with us any further regarding the
arbitration which has become infructuous.” From these
documents, it would appear that the stand of Renusagar was
that the Arbitrators had become functus officio and they
could not proceed with the arbitration and there was,
therefore, no question of Renusagar appearing before the
Arbitral Tribunal on the dates fixed for hearing. In these
circumstances, it is not open to Renusagar to say that the
Arbitral Tribunal, after having rejected, (by majority) the
said objection raised by Renusagar, by order dated October
1, 1985 should have given a further notice to Renusagar
asking them to appear to make their submission before the
Arbitral Tribunal on the merits on issues 22(q) to 22(bb).
In this context, it may also be stated that issues 22(q) and
22(r) relate to the claim of US $ 119,053.91 for purchase
price of spare parts which is not disputed by Renusagar and
issue 22(s) relates to claim for compensatory damages on the
said amount which has been allowed on the same basis as the
claim for compensatory damages on regular interest (Item No.2) under issue 22(k). Rest of the matters covered by issues
22(t) to 22(bb) related to counter-claims of Renusagar and
claims by General Electric against counter-claims which have
been disallowed by the Arbitral Tribunal.40. We are, therefore, of the opinion that the enforcement
of the arbitral award is not barred by Section 7(1)(a)(ii)
of the Foreign Awards Act on the ground that Renusagar was
unable to present its case before the Arbitral Tribunal.
III. Objection to the enforceability of the award on the
ground that it is contrary to the public policy of the State
of New York41. Shri Venugopal has urged that although under sub-clause
(b) of clause (2) of Article V of the New York Convention
the recognition and enforcement of an arbitral award can be
refused if the competent authority in the country where
recognition and enforcement is sought finds that the
recognition or enforcement of the award would be contrary to
the public policy of that country, i.e., the country where
the award is sought to be enforced, a departure has been
made in Section 7(1)(b)(ii) of the Foreign Awards Act which
prescribes that the foreign award may not be enforced under
the said Act if the court dealing with the case is satisfied
that the enforcement of the award would be contrary to
public policy. The submission of Shri Venugopal is that in
Section 7(1)(b)(ii) of the Act, the Parliament has
deliberately refrained from using the words “public policy
of India” which implies that the words “public policy” are
not restricted
675
to the public policy of India but would cover the public
policy of the country whose law governs the contract or of
the country of the place of arbitration and the enforcement
of an award would be refused if it is contrary to such
public policy. In this context Shri Venugopal has invited
our attention to the provisions of Section 7(1) of the
Arbitration (Protocol & Convention) Act, 1937 wherein the
words used are “and enforcement thereof must not be contrary
to the public policy or law of India”. According to Shri
Venugopal while under the 1937 Act, objections to
enforcement are limited to the public policy of India or law
of India, there is no such limitation in Section 7(1)(b)(ii)
of the Foreign Awards Act. Shri Venugopal has also placed
reliance on the decision of this Court in V/0
Tractoroexport, Moscow v. Tarapore & Co.5 wherein this Court
has held that there was clear deviation from the rigid and
strict rule that the courts must stay a suit whenever an
international commercial arbitration as contemplated by the
Protocol and the Conventions, was to take place and that it
was open to the legislature to deviate from the terms of the
Protocol and the Convention and that it appears to have
given only a limited effect to the provisions of the 1958
Convention. We find it difficult to accept this contention.
It cannot be held that by not using the words “public policy
of India” and only using the words “public policy” in
Section 7(1)(b)(ii) of the Foreign Awards Act, Parliament
intended to deviate from the provisions of the New York
Convention contained in Article V(2)(b) which uses the words
“public policy of that country” implying public policy of
the country where recognition and enforcement is sought.
That Parliament did not intend to deviate from the terms of
the New York Convention is borne out by the amendment which
was introduced in the Act by Act 47 of 1973 after the
decision of this Court in Tractoroexport case5 whereby
Section 3 was substituted to bring it in accord with the
provisions of the New York Convention. The Foreign Awards
Act has been enacted to give effect to the New York
Convention which seeks to remedy the defects in the Geneva
Convention of 1927 that hampered the speedy settlement of
disputes through arbitration. The Foreign Awards Act is,
therefore, intended to reduce the time taken in recognition
and enforcement of foreign arbitral awards. The New York
Convention seeks to achieve this objective by dispensing
with the requirement of the leave to enforce the award by
the courts where the award is made and thereby avoid the
problem of “double exequatue’. It also restricts the scope
of enquiry before the court enforcing the award by
eliminating the requirement that the award should not be
contrary to the principles of the law of the country in
which it is sought to be relied upon. Enlarging the field
of enquiry to include public policy of the courts whose law
governs the contract or of the country of place of
arbitration, would run counter to the expressed intent of
the legislation.42. With regard to the provisions of the Arbitration
(Protocol & Convention) Act, 1937, it may be stated that
Section 7(1) of the said Act, as originally enacted, read as
under:“7. Conditions for enforcement of foreign
awards.- (1) In order that a foreign award may
be enforceable under this Act it must have-(a) been made in pursuance of an agreement
for arbitration which was valid under the law
by which it was governed,
5 (1969) 3 SCC 562: (1970) 3 SCR 53
676(b) been made by the Tribunal provided for
in the agreement or constituted in manner
agreed upon by the parties,(c) been made in conformity with the law
governing the arbitration procedure,(d) become final in the country in which it
was made,(e) been in respect of a matter which may
lawfully be referred to arbitration under the
law of British India,
and the enforcement thereof must not be
contrary to the public policy or the law of
British India.(2) A foreign award shall not be enforceable
under this Act if the Court dealing with the
case is satisfied that-(a) the award has been annulled in the
country in which it was made, or(b) the party against whom it is sought to
enforce the award was not given notice of the
arbitration proceedings in sufficient time to
enable him to present his case, or was under
some legal incapacity and was not properly
represented or,(c) the award does not deal with all the
questions referred or contains decisions on
matters beyond the scope of the agreement for
arbitration:Provided that if the award does not deal with
all questions referred the Court may, if it
thinks fit, either postpone the enforcement of
the award or order its enforcement subject to
the giving of such security by the person
seeking to enforce it as the Court may think
fit.(3) If a party seeking to resist the
enforcement of a foreign award proves that
there is any ground other than the non-
existence of the conditions specified in
clauses (a), (b) and (c) of sub-section (1),
or the existence of the conditions specified
in clauses (b) and (c) of sub-section (2),
entitling him to contest the validity of the
award, the Court may, if it thinks fit, either
refuse to enforce the award or adjourn the
hearing until after the expiration of such
period as appears to the Court to be
reasonably sufficient to enable that party to
take the necessary steps to have the award
annulled by the competent tribunal.”43. By Indian Independence (Adaptation of Central Acts and
Ordinances) Order, 1948 the words “British India” were
substituted by the words “the Provinces”, which words were
substituted by the words “the States” by the Adaptation of
Laws Order, 1950. By Part B States (Laws) Act, 1951, the
words “the States” were substituted by the word “India”.
The aforesaid amendments introduced from time to time
indicate that the words “public policy” and “the law of
India” are independent of each other and the words “public
policy” are not qualified by the words “of India” which
follow the word “law” because there was no separate public
policy for each Province or State in India. This means that
even in the Protocol and Convention Act of 1937 the
legislature had used the words “Public Policy” only and by
the said words it was intended to mean “the public policy of
India”. The New York Convention has further curtailed the
scope of enquiry by excluding contravention of law of the
court in which the award is sought to be enforced as a
ground for refusing recognition and enforcement of a foreign
award. The words “law of India” have, therefore, been
omitted in Section 7(1)(b)(ii) of the Foreign Awards Act.
It cannot,
677
therefore, be said that by using the words “Public Policy”
only Section 7(1)(b)(ii) of the Foreign Awards Act seeks to
make a departure from the provisions contained in the
Protocol and Convention Act of 1937 and, by using the words
“Public Policy” without any qualification, Parliament
intended to broaden the scope of enquiry so as to cover
public policy of other countries, i.e., the country whose
law governs the contract or the country of the place of
arbitration. In the U.K., the Arbitration Act, 1975 has
been enacted to give effect to the provisions of the New
York Convention. Section 5(3) of the said Act provides as
under:“Enforcement of a Convention award may also be
refused if the award is in respect of a matter
which is not capable of settlement by
arbitration, or if it would be contrary to
public policy to enforce the award.”44. Although the words “public policy” only are used
without indicating whether they refer to public policy of
England, authors of authoritative textbooks have expressed
the view that they only mean “English public policy”. In
Russel on Arbitration, 12th Edn. at p. 384 it is stated:“The New York Convention is to the same
effect. Accordingly, though the 1975 Act does
not so specify, it must be taken that
reference is intended to English public policy
which indeed is the only public policy into
which the English courts can sensibly
inquire.”The same view is expressed in Dicey & Morris
on The Conflict of Laws, 11th Edn., Vol. I at
pp. 586-7.45. We are, therefore, of the view that the
words “public policy” used in Section
7(1)(b)(ii) of the Foreign Awards Act refer to
the public policy of India and the recognition
and enforcement of the award of the Arbitral
Tribunal cannot be questioned on the ground
that it is contrary to the public policy of
the State of New York.IV. Meaning of ‘public policy’ in Section
7(1)(b)(ii) of the Act46. While observing that “from the very
nature of things, the expressions ‘public
policy’, ‘opposed to public policy’ or
‘contrary to public policy’ are incapable of
precise definition” this Court has laid down:
(SCC p. 217, para 92)
“Public policy … connotes some matter which
concerns the public good and the public
interest. The concept of what is for the
public good or in the public interest or what
would be injurious or harmful to the public
good or the public interest has varied from
time to time.” (See : Central Inland Water
Transport Corpn. Ltd. v. Brojo Nath Ganguly6.)47. The need for applying the touchstone of
public policy has been thus explained by Sir
William Holdsworth:“In fact, a body of law like the common law,
which has grown up gradually with the growth
of the nation, necessarily acquires some fixed
principles, and if it is to maintain
these principles it must be able, on the
ground of public policy or some other like
ground, to suppress practices which, under
ever new disguises, seek to weaken or negative
them.”(History of English Law, Vol. III,
p. 55)48. Since the doctrine of public policy is
somewhat open-textured and flexible, Judges
in England have shown certain degree of
reluctance to invoke it in domestic law.
There are two conflicting positions which are
referred as the
6(1986)3SCC 156, 217: 1986 SCC (L&S) 429:(1986) 1 ATC 103: (1986)2 SCR 278 ,372
678
,narrow view’ and the ‘broad view’. According to the narrow
view courts cannot create new heads of public policy whereas
the broad view countenances judicial law making in this
areas. (See : Chitly on Contracts, 26th Edn., Vol. I, para
1133, pp. 685-686). Similar is the trend of the decision in
India. In Gherulal Parakh v. Mahadeodas Maiya7 this Court
favoured the narrow view when it said:“… though the heads are not closed and
though theoretically it may be permissible to
evolve a new head under exceptional
circumstances of a changing world, it is
admissible in the interest of stability of
society not to make any attempt to discover
new heads in these days” (p. 440)49. In later decisions this Court has, however, leaned
towards the broad view. [See : Murlidhar Agarwal v. State of
U.P.8; Central Inland Water Transport Corpn. v. Brojo Nath
Ganguly6 at p. 373; Rattan Chand Hira Chand
v. Askar Nawaz Jung9.]50. In the field of private international law, courts
refuse to apply a rule of foreign law or recognise a foreign
judgment or a foreign arbitral award if it is found that the
same is contrary to the public policy of the country in
which it is sought to be invoked or enforced. The English
courts follow the following principles:“Exceptionally, the English court will not
enforce or recognise a right conferred or a
duty imposed by a foreign law where, on the
facts of the particular case, enforcement or,
as the case may be, recognition, would be
contrary to a fundamental policy of English
law. The court has, therefore, refused in
certain cases to apply foreign law where to do
so would in the particular circumstances be
contrary to the interests of the United
Kingdom or contrary to justice or morality.”
(See : Halsbury’s Laws of England, 4th Edn.,
Vol. 8, para 418.)51. A distinction is drawn while applying the said rule of
public policy between a matter governed by domestic law and
a matter involving conflict of laws. The application of the
doctrine of public policy in the field of conflict of laws
is more limited than that in the domestic law and the courts
are slower to invoke public policy in cases involving a
foreign element than when a purely municipal legal issue is
involved. (See : Vervaeka v. Smith10; Dicey & Morris, The
Conflict of Laws, 11 th Edn., Vol. I p. 92; Cheshire &
North, Private International Law, 12th Edn., pp. 128-129).
The reason for this approach is thus explained by Professor
Graveson:“This concern of law in the protection of
social institutions is reflected in its rules
of both municipal and conflict of laws.Although the concept of public policy is the
same in nature in these two spheres of law,
its application differs in degree and
occasion, corresponding to the fact that
transactions containing a foreign element may
constitute a less serious threat to municipal
institutions than would purely local
transactions.” (R.H. Graveson : Conflict of
Laws, 7th Edn., p. 165)
7 1959 Supp 2 SCR 406: AIR 1959 SC 781
8 (1974) 2 SCC 472, 482: (1975) 1 SCR 575, 584
9 (1991) 3 SCC 67, 76-77
10 (1983) 1 AC 145,164: (1982) 2 All ER 144,158
67952. In Louchs v. Standard Oil Co. of New
York’ I Cordozo, J. has said:“The courts are not free to refuse to enforce
a foreign right at the pleasure of the judges,
to suit the individual notion of expediency or
fairness. They do not close their doors
unless help would violate some fundamental
principle of justice, some prevalent
conception of good morals, some deep-rooted
tradition of the common weal.” (p. 111)53. The particular rule of public policy that the defendant
invokes may be of this overriding nature and therefore
enforceable in all actions, or it may be local in the sense
that it represents some feature of internal policy. If so
it must be confined to cases governed by the domestic law
and it should not be extended to a case governed by foreign
law. In order to ascertain whether the rule is allpervading
or merely local, it must be examined in the light of its
history, the purpose of its adoption, the object to be
accomplished by it and the local conditions. (See : Cheshire
and North, Private International Law, 12th Edn., p. 129.)54. The cases in which the English courts refuse to enforce
a foreign acquired right on the ground that its enforcement
would affront some moral principle the maintenance of which
admits of no possible compromise, have been classified as
under:“(i) Where the fundamental conceptions of
English justice are disregarded;(ii) Where the English conceptions of
morality are infringed;(iii) Where a transaction prejudices the
interests of the United Kingdom or its good
relations with foreign powers;(iv) Where a foreign law or status offends
the English conceptions of human liberty and
freedom of action;”(See : Cheshire and North, Private
International Law, 12th Edn.,pp. 131-133.)55. As observed by Lord Simon of Glaisdale “an English
Court will exercise such a jurisdiction with extreme
reserve”. (Vervaeka v. Smith10)56. In Dalmia Dairy Industries Ltd. v. National Bank of
Pakistan12 the Court of Appeal refused to extend the
doctrine of public policy to embrace the principle that the
English courts should refuse to enforce an award arising out
of a contract between persons who are nationals of foreign
States which were at war with each other but each of which
was in friendly relationship with England. In support of
the applicability of the doctrine, it was argued that it
would be harmful to international relations of the United
Kingdom with friendly countries if it were to allow the
machinery of its courts to be used to enforce a judgment, or
an arbitral award in favour of a national of one foreign
State friendly to the United Kingdom, against the national
of another foreign State, also friendly to the United
Kingdom, when the two foreign States are enemies of one
another. Negativing the said contention, the Court of
Appeal (Megaw, L.J.) has held:” If there is no authority binding on us which
specifically adopts that supposed doctrine, or
principle, we should unhesitatingly decline to
make
11 224 NY 99 (1918)
12 (1978) 2 Lloyd’s LR 223
680
new law to that effect in this case. We
should regard it, on balance, as being
contrary to public policy for such a principle
to apply.” (p. 300)57. In Deutsche Schachtbau-und
Tiefbohrgesellschaft mbH v. Ras Al Khaima
h
National Oil Co.13 decided by the Court of
Appeal, Sir John Donaldson M.R. has said:
“Consideration of public policy can never be
exhaustively defined, but they should be
approached with extreme caution. As Burrough
J. remarked in Richardson v. Mellish14: ‘It is
never argued at all but when other points
fail.’ It has to be shown that there is some
element of illegality or that the enforcement
of the award would be clearly injurious to the
public good or, possibly, that enforcement
would be wholly offensive to the ordinary
reasonable and fully-informed member of the
public on whose behalf the powers of the State
are exercised.” (p. 779)58. The approach of the American courts to
the doctrine of public policy in its
application to recognition and enforcement of
foreign arbitral awards under the New York
Convention is reflected in the decision of the
US Court of Appeals in Parsons & Whittemore
Overseas Co. Inc. v. Societe Generale De
L’Industrie Du Papier (Rakta) and Bank of
America15 wherein it has been observed:
“The general pro-enforcement bias informing
the Convention and explaining its supersession
of the Geneva Convention points toward a
narrow reading of the public policy defense.
An expansive construction of this defense
would vitiate the Convention’s basic effort to
remove preexisting obstacles to
enforcement. … We conclude, therefore, that
the convention’s public policy defense should
be construed narrowly. Enforcement of foreign
arbitral awards may be denied on this basis
only where enforcement would violate the forum
State’s most basic notions of morality and
justice.” (pp. 973-974)59. While dealing with arbitration
agreements in international business
transactions, the U.S. Supreme Court, has
disapproved a parochial refusal by the courts
of one country to enforce an international
arbitration agreement as well as the
“parochial concept that all disputes must be
resolved under our laws and in our courts”.
It has been observed:“We cannot have trade and commerce in world
markets and international waters exclusively
on our terms, governed by our laws, and
resolved in our Courts.” (Fritz Scherk v.
Alberto-Culver Co. 16)60. Similarly in Mitsubishi Motors Corpn. v.
Soler Chrysler-Plymouth Inc. 17 it was
observed:“We conclude that concerns of international
comity, respect for the capacities of foreign
and transnational tribunals, and sensitivity
to the need of the international commercia
l
system for predictability in the resolution of
disputes require that we enforce the parties’
agreement, even assuming that
13 (1987) 2 All ER 769
14 (1824) 2 Bing 229, 252: (1824-34) All ER
Rep 258, 266
15 508 F 2d 969 (1974)
16 41 L Ed 2d 270, 279, 281 : 417 US 506
(1974)
17 87 L Ed 2d 444
681
a contrary result would be forthcoming in a
domestic context.” (pp. 456457)61. In France, a distinction is made between international
public policy (“order public international”) and the
national public policy. Under the new French Code of Civil
Procedure, an international arbitral award can be set aside
if the recognition or execution is contrary to international
public policy. In doing so it recognises the existence of
two levels of public policy the national level, which may
be concerned with purely domestic considerations, and the
international level, which is less restrictive in its
approach. (See : Redfern and Hunter, Law and Practice of
International Commercial Arbitration, 2nd Edn., p. 445.)62. According to Redfern and Hunter, “if a workable
definition of ‘international public policy’ could be found,
it would be an effective way of preventing an award in an
international arbitration from being set aside for purely
domestic policy considerations”. But in the absence of such
a definition “there are bound to be practices which some
States will regard as contrary to international public
interest and other States will not” [See : Redfern & Hunter
(supra) pp. 445-446.]63.In view of the absence of a workable definition of
“international public policy” we find it difficult to
construe the expression “public policy” in Article
V(2)(b) of the New York Convention to mean international
public policy. In our opinion the said expression must be
construed to mean the doctrine of public policy as applied
by the courts in which the foreign award is sought to be
enforced. Consequently, the expression ‘public policy’ in
Section 7(1)(b)(ii) of the Foreign Awards Act means the
doctrine of public policy as applied by the courts in India.
This raises the question whether the narrower concept of
public policy as applicable in the field of public
international law should be applied or the wider concept of
public policy as applicable in the field of municipal law.64. Keeping in view the object underlying the enactment of
the Foreign Awards Act, this Court has also favoured a
liberal construction of the provisions of the said Act. In
Renusagar case I1 it has been observed: (SCC p. 723, para50)
“It is obvious that since the Act is
calculated and designed to subserve the cause
of facilitating international trade and
promotion thereof by providing for speedy
settlement of disputes arising in such trade
through arbitration, any expression or phrase
occurring therein should receive, consisting
with its literal and grammatical sense, a
liberal construction.” (p. 492)65. This would imply that the defence of public policy
which is permissible under Section 7(1)(b)(ii) should be
construed narrowly. In this context, it would also be of
relevance to mention that under Article I(e) of the Geneva
Convention Act of 1927, it is permissible to raise objection
to the enforcement of arbitral award on the ground that the
recognition or enforcement of the award is contrary to the
public policy or to the principles of the law of the country
in which it is sought to be relied upon. To the same effect
is the provision in Section 7(1) of the Protocol &
Convention Act of 1837 which requires that the enforcement
of the foreign award must not be contrary to the public
policy or the law of India. Since the expression “public
policy” covers the field not covered by the words “and the
law of India” which follow the said expression,
682
contravention of law alone will not attract the bar of
public policy and something more than contravention of law
is required.66. Article V(2)(b) of the New York Convention of 1958 and
Section 7(1)(b)(ii) of the Foreign Awards Act do not
postulate refusal of recognition and enforcement of a
foreign award on the ground that it is contrary to the law
of the country of enforcement and the ground of challenge is
confined to the recognition and enforcement being contrary
to the public policy of the country in which the award is
set to be enforced. There is nothing to indicate that the
expression “public policy” in Article V(2)(b) of the New
York Convention and Section 7(1)(b)(ii) of the Foreign
Awards Act is not used in the same sense in which it was
used in Article 1(c) of the Geneva Convention of 1927 and
Section 7(1) of the Protocol and Convention Act of 1937.
This would mean that “public policy” in Section 7(1)(b)(ii)
has been used in a narrower sense and in order to attract to
bar of public policy the enforcement of the award must
invoke something more than the violation of the law of
India. Since the Foreign Awards Act is concerned with
recognition and enforcement of foreign awards which are
governed by the principles of private international law, the
expression “public policy” in Section 7(1)(b)(ii) of the
Foreign Awards Act must necessarily be construed in the
sense the doctrine of public policy is applied in the field
of private international law. Applying the said criteria it
must be held that the enforcement of a foreign award would
be refused on the ground that it is contrary to public
policy if such enforcement would be contrary to (i)
fundamental policy of Indian law; or (ii) the interests of
India; or (iii) justice or morality.V. Is the award contrary to public policy of India?
67. Having examined the scope of public policy under
Section 7(1)(b)(ii) of the Foreign Awards Act, we will now
proceed to consider the various grounds on the basis of
which the said provision is invoked by Renusagar to bar the
enforcement for the award of the Arbitral Tribunal. As
indicated earlier, Renusagar has invoked the said provision
on the ground that enforcement of the award would be
contrary to the public policy for the reason that such
enforcement-(a) would involve contravention of the
provisions of FERA;(b) would amount to penalising Renusagar for
not disregarding the interim orders passed by
the Delhi High Court in the writ petition
filed by Renusagar;(c) would enable recovery of compound
interest on interest;(d) would result in payment of damages on
damages;(e) would result in unjust enrichment by
General Electric;We will examine the submissions of learned counsel under
each head separately.(a) Violation of FERA
68. As mentioned in the Preamble, FERA is a law regulating
certain payments, dealings in foreign exchange and
securities, transactions indirectly affecting foreign
exchange and the import and export of currency for the
conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests
of the economic development of the country. It was preceded
by Foreign Exchange Regulation Act, 1947. Similar
enactments
683
providing for exchange control exist in other countries. In
the United Kingdom, there is a similar enactment, viz.,
Exchange Control Act, 1947, which remains in force but its
operation has been suspended since 1979. The view of the
English courts is that the exchange control legislation does
not belong to the field of revenue laws and application of
such law is not obnoxious to English public policy. (See :
Kahler v. Midland Bank Ltd.18; Zivnostenska Banka National
Corpn. v. Frankman19.) In Herbert Wagg & Co. Ltd., Re2O,
Upjohn J., has said:“It cannot be doubted that legislation
intended to protect the economy of the nation
and the general welfare of its inhabitant
s
regardless of their nationality by various
measures of foreign exchange control or by
altering the value of its currency, is
recognised by foreign courts although its
effect is usually partially confiscatory.
Probably there is no civilized country in the
world which has not at some stage in its
history altered its currency or restricted the
rights of its inhabitants to purchase the
currency of another country. (p. 349)
In my judgment these courts must recognize the
right of every foreign State to protect its
economy by measures of foreign exchange
control and by altering the value of its
currency. Effect must be given to those
measures where the law of the foreign State is
the proper law of the contract or where the
movable is situate within the territorial
jurisdiction of the State.”(p.351)69.The following principle of Private
International Law is applicable in relation to
such legislation:“212. (1) A contractual obligation may be
invalidated or discharged by exchange control
legislation if-(a) such legislation is part of the proper
law of the contract; or(b) it is part of the law of the place of
performance; or(c) it is part of English law and the
relevant statute or statutory instrument is
applicable to the contract:Provided that foreign exchange legislation
will not be applied if it is used not with the
object of protecting the economy of the
foreign State, but as an instrument of
oppression or discrimination.” (See : Dicey &
Morris, The Conflict of Laws, 11 th Edn., Vol.
II, 1466.)70. In the comments on the said rule, it is
stated:“An English court would clearly refuse to
enforce a contract the making or performance
of which was prohibited by the Exchange
Control Act, 1947 (now suspended) or by any
statutory instrument made in virtue of that
Act, or which was prohibited by earlier United
Kingdom exchange control legislation. This
would apply irrespective of the proper law of
the contract and irrespective of the place of
performance. The question whether the Act or
statutory instrument applied to the
transaction would have to be answered by
construing it in accordance with the
principles of statutory interpretation which
are part of English law. If it did so apply
,
it would be an example of an ‘overriding
statute’.”18 1950 AC 24, 27, 36, 46-47, 57 : (1949) 2 All ER 621
19 1950 AC 57,72, 78: (1949) 2 All ER 671
20 (1956) 1 Ch 323
684
(See: Dicey & Morris, op. cit. p. 1469.)71. In support of this statement of law reference has been
made to the decision of House of Lords in Boissevain v.
Weil21. In that case, the respondent, a British subject,
and the appellant, a Dutch subject, were involuntarily
resident in Monaco an enemy-occupied territory, in 1944, due
to war conditions. The respondent borrowed a sum of 960,000
French francs from the appellant in Monaco on an undertaking
to repay the money in sterling in London at an agreed rate
of 160 francs to the pound and drew cheques in blank for the
full amount on English Bank. The appellant filed a suit in
England claiming 6000 pounds from the respondent. The said
claim was opposed by the respondent on the ground that the
loans given by the appellant to the respondent were invalid
and illegal being contrary to Regulation 2(1) of the Defence
(Finance) Regulations, 1939. The said claim of the
appellant was allowed by the trial Judge, but on appeal, it
was dismissed by the Court of Appeal. The House of Lords
agreed with the view of the Court of Appeal that Regulation
2(1) prohibited this borrowing and therefore rendered the
appellant’s claim for repayment unmaintainable. Lord
Radcliffe, who delivered the main speech, has observed:“If Regulation 2 did extend to this
transaction it forbade the very act of
borrowing, not merely the contractual promise
to repay. The act itself being forbidden, I
do not think that it can be a source of civil
rights in the courts of this country. … A
court that extended a remedy in such
circumstances would merit rather to be blamed
for stultifying the law than to be applauded
for extending it.” (p. 341)72. Another interesting case is that of Wilson, Smithett &
Cope Ltd. v. Terruzzi22. In that case, the plaintiffs were
brokers on the London Metal Exchange and the defendant,
Terruzzi, was a dealer and speculator in metals who lived in
Italy. The defendant entered into various contracts for the
sale and purchase of metals with the plaintiffs and a sum of
195,000 pounds was payable by the defendant to the
plaintiffs in respect of those contracts. Before entering
the said contracts, defendant had, however, not obtained
ministerial authorisation as required by the Italian
Exchange Control Regulations. An action was brought in the
English court by the plaintiffs against the defendant in
which the defendant pleaded that it was unlawful for him
under Italian law to enter into any of the contracts which
were “exchange contracts” within the meaning of Article
VIII, Section 2(b) of the Bretton Woods Agreement and
unenforceable by reason of the Bretton Woods Agreements
Order in Council, 1946. The said plea of the defendant was
rejected by the trial Judge who gave a judgment in favour of
the plaintiffs and the said judgment was affirmed by the
Court of Appeal. It appears that the judgment of the
English court was sought to be enforced by the plaintiffs in
Italy but the Italian courts refused to recognise and
enforce the said judgment on the view that since the
contracts ‘ were entered in violation of the Italian
Exchange Control Regulations their enforcement would amount
to infringement of Italian public policy and the contracts
were unenforceable in Italy. (See : Mauro Rubino-Sammartano,
Public Policy in Transnational Relationships, p. 91.)
21 1950 AC 327: (1950) 1 All ER 728
22 (1976) 1 QB 683 :(1975) 2 All ER 649
68573. Our attention has also been invited to a decision of
the Supreme Court of Austria dated May 11, 1983 which is
extracted, in brief, in Yearbook of Commercial Arbitration,
Volume X (1985) pp. 421-23. In that case, an award had been
made in favour of the appellant who was a national of
Holland against the respondent who was an Austrian whereby
the respondent was directed to pay to the appellant DM
667,500. The appellant sought enforcement of the award in
Austria and the said enforcement was opposed by the
respondent on the ground that the underlying contracts,
though nominally delivery contracts, were in reality sales
and purchases on a margin basis and such contracts are
contrary to Austrian foreign exchange law, unless specific
authorisation therefor was given by the competent
authorities. The respondent invoked Article V(2)(b) of the
New York Convention, 1958 to oppose the recognition and
enforcement of the award. The Austrian Supreme Court
dismissed the claim of the Dutch national and held that the
award could not be recognised and enforced by the court in
view of Article V(2)(b) of the New York Convention and, in
that context, it was held:“That the transactions concluded between the
parties are not subject to Austrian but to
Dutch law is irrelevant because domestic law
is applicable to the examination whether there
has been a sale and purchase on a margin
basis, for determining whether enforcement is
to be refused. According to Article 81, para
4, of the Austrian Law on Enforcement
Procedure, enforcement has to be refused if
sought for awards rendered in respect of
claims which, under Austrian law, cannot be
brought before Austrian courts. This is a
specific, special provision of domestic
Austrian law on public policy.” (p. 422)74. Dr F.A. Mann has also expressed views to
the same effect. He has said: “There remains
the question whether a foreign judgment
rendered in disregard of foreign exchange
regulations operating in the country in whic
h
it is to be enforced, may or must be rejected
by the courts of the latter country as being
contrary to order public. Subject to local
regulations the answer would seem to be in the
affirmative.”(See: F.A. Mann, The Legal Aspect of
Money, 5th Edn., (1992) p. 403,note 31.)75. As laid down by this Court, FERA is a statute enacted
for the “national economic interest” and the object of
various provisions in the said Act is to ensure that the
nation does not lose foreign exchange which is very much
essential for the economic survival of the nation. (See :
LIC of India v. Escorts Ltd. 23 and M.G. Wagh v. Jay
Engineering Works Ltd. 24)76. Keeping in view the aforesaid objects underlying FERA
and the principles governing enforcement of exchange control
laws followed in other countries, we are of the view that
the provisions contained in FERA have been enacted to
safeguard the economic interests of India and any violation
of the said provisions would be contrary to the public
policy of India as envisaged in Section 7(1)(b)(ii) of the
Act. The submissions urged by Shri Venugopal to show that
there has been a violation of the provisions of FERA,
therefore, need examination.23 (1986) 1 SCC 264, 314: 1985 Supp 3 SCR 909, 981
24 (1987) 1 SCC 542, 546: (1987) 1 SCR 981, 987
68677. Shri Venugopal has made a two-fold submission in this
regard. In the first place, he has urged that in awarding
delinquent interest, under item No. 3 the Arbitral Tribunal
has acted in disregard of the provisions of FERA and
secondly the enforcement of the award of the Arbitral
Tribunal would result in violation of the provisions of
FERA. As regards the first submission relating to award of
delinquent interest, it may be stated that the said
submission involves an attack on the merits of the award
which is impermissible at the stage. of enforcement. We
have, however, examined this submission on merits and are of
the view that it is without substance. Shri Venugopal has
urged that under the original approval of January 2, 1964 by
the Government of India of the terms of the loan by General
Electric to Renusagar the total amount of loan was to be
repaid in 16 equal semi-annual instalments between the 30th
and the 120th month from the effective date of the contract
with specific provision for interest from the 16th to the
30th month to be capitalised and the interest was
specifically restricted to the period from the 16th to the
30th month and thereafter on capitalisation from the 30th
month to the 120th month and that no interest was payable
without FERA sanction after the due date of each instalment.
This contention is no longer open to Renusagar in view of
the earlier decision of this Court in Renusagar Case 11,
wherein this Court has considered the question whether there
was an obligation to pay further interest after June 30,
1967 till payment under the contract. This Court has
referred to Articles IIIA3(c) and XIV-B of the contract and
has held: (SCC p. 710, paras 32 and 33)
“In our view these provisions which are to be
found in the contract clearly show that the
promissory notes are not sole and exclusive
repository of GEC’s right to claim and receive
future interest on unpaid price after June 30,
1967 but that the contract itself provides for
the obligation to pay such interest after that
date till payment.obligation to pay future interest from June
30, 1967 onwards till payment and that these
two claims have been preferred by GEC before
the Court of Arbitration of I.C.C. as arising
not merely ‘out of’ but ‘under the contract’.”
(pp. 477-478)78. Shri Venugopal has, however, urged that the earlier
approval to the terms of the contract was of no consequence
in view of the subsequent refusal by the Government on
August 1, 1969 to approve the agreement between General
Electric and Renusagar with regard to the rescheduling of
the dates of payment of instalments 1, 2, 4 and 5. This
contention also stands concluded by the decision in
Renusagar Case II wherein it has been observed: (SCC p. 691,
para 7)
“In July 1969 Renusagar sought the Central
Government’s approval to the rescheduling of
the dates of payment as embodied in October
1968 Amendment as also in the Memorandum of
the Meeting held in December 1968 but by
letters dated August 1, 1969 and August 4,
1969 the Central Government declined to
approve the rescheduling of the dates of
payment on the ground that it would result in
larger outflow of foreign exchange and advised
Renusagar to effect payments as per the
original schedule including instalments which
had since fallen due. The result was that the
original schedule of payment remained
operative and there was delay on the part of
the Renusagar to make payment of certain
instalments on due dates.” (p. 457)
68779. From the observations aforementioned in Renusagar Case
II it is apparent that the original contract postulates
payment of interest till payment and the effect of the order
of the Government of India dated August 1, 1969 was that the
original schedule of payment remained operative. Since the
original contract had been approved by the Government of
India it cannot be said that the award of interest for
delayed payment of instalments involved violation of the
provisions of FERA.80. Shri Venugopal has submitted that in Renusagar Case I1
this Court was only required to consider the question of
arbitrability of the disputes and was not concerned with the
merits of the claim and, therefore, the said decision cannot
be held to conclude the matter. We are unable to agree. It
is true that in that case this Court was considering the
question of arbitrability of the disputes but for the
purpose of deciding that issue it was necessary to consider
whether disputes arose out of or are related to the contract
and for that purpose it was necessary to construe the terms
of the contract and it cannot, therefore, be said that the
said decision does not conclude this aspect of the matter.
In this context, it may also be pointed out that after the
decision in Renusagar Case I, an application for
clarification of the said judgment was moved by Renusagar in
this Court wherein clarification was sought in respect of
certain paragraphs in the judgment and in the said
application no objection was raised with regard to the
observations quoted above. Moreover, the said application
was dismissed by this Court by order dated October 29, 1988.81. As regards the second submission of Shri Venugopal that
the enforcement of the Arbitral award would constitute
violation of Section 9(1) of FERA which imposes prohibition
to make any payment to or for the credit of any person
resident outside India except in accordance with any general
or special exemption from the provisions of this sub-section
which may be granted conditionally or unconditionally by the
Reserve Bank. The submission is that in view of the earlier
order of the Government of India dated August 1, 1969
refusing to approve rescheduling of payments the bar of
Section 9 will operate and no order for enforcement of the
award can be made. The High Court in this regard has placed
reliance on the provisions of Section 47(3) of FERA which
provides as follows:“Neither the provisions of this Act nor any
term (whether express or implied) contained in
any contract that anything for which the
permission of the Central Government or the
Reserve Bank is required by the said
provisions shall not be done without that
permission, shall prevent legal proceedings
being brought in India to recover any sum
which, apart from the said provisions and any
such term, would be due, whether as debt,
damages or otherwise, but-(a) the said provisions shall apply to sums
required to be paid by any judgment or order
of any court as they apply in relation to
other sums;(b) no steps shall be taken for the purpose
of enforcing any judgment or order for the
payment of any sum to which the said
provisions apply except as respects so much
thereof as the Central Government or the
Reserve Bank, as the case may be, may permit
to be paid; and
688(c) for the purpose of considering whether
or not to grant such permission, the Central
Government or the Reserve Bank, as the case
may be, may require the person entitled to the
benefit of the judgment or order and the
debtor under the judgment or order, to produce
such documents and to give such information as
may be specified in the requisition.”82. In Dhanrajamal Gobindram v. Shamji
Kalidas & Co.25 this Court has construed the
provisions of Section 21 of the Foreign
Exchange Regulation Act, 1947. Sub-section
(3) of Section 21 of the said Act was more or
less similar to Section 47(3) of FERA. This
Court has held:“Sub-section (3) allows legal proceedings to
be brought to recover sum due as a debt,
damages or otherwise, but no steps shall be
taken to enforce the judgment, etc., except to
the extent permitted by the Reserve Bank.
The effect of these provisions is to prevent
the very thing which is claimed here, namely,
that the Foreign Exchange Regulation Act arms
persons against performance of their contracts
by setting up the shield of illegality. An
implied term is engrafted upon the contract of
parties by the second part of sub-section (2),
and by sub-section (3), the responsibility of
obtaining the permission of the Reserve Bank
before enforcing judgment, decree or order of
Court, is transferred to the decree-holder.
The section is perfectly plain, though perhaps
it might have been worded better for which a
model existed in England.” (p. 1031)83. To the same effect is the law laid down
by the House of Lords in England in Contract
and Trading Co. (Southern) Ltd. v. Barbey26
wherein the following observations from the
judgment of Somerwell LJ in Cummings v. London
Bullion Co. Ltd.27 have been quoted with
approval:“The person entitled to the payment issues a
writ. The fact that permission has not been
obtained is not a defence to the action. On
the one hand, the plaintiff can obtain
judgment, the money due under the judgment
being subject to Part 11 of the Act and the
Rules to which I have referred. The defendant
assuming that he is admitting liability, apart
from the provisions of the Act, can make a
payment into court. The Act,is not to be used
to enable the defendant to retain the money in
his pocket but to control its reaching its
destination, namely, the plaintiff.” (p. 253)84.Shri Venugopal has urged that Section 47(3) cannot be
applied in the present case because it postulates a
situation where permission of the Central Government has not
been sought and that in the present case permission was
sought but was refused earlier. In our view the earlier
refusal by the Government to give its approval to the
rescheduling of payment of instalments does not in any way
preclude the Government of India from considering the matter
in the light of the subsequent developments and it cannot be
said that merely because the Government of India had refused
to give its approval to rescheduling of payment of
instalments it would not grant permission under Section
47(3) of FERA to the enforcement of the judgment that may be
passed in these proceedings. It has also been urged that
Section 47(3) of FERA is applicable where the legal
proceedings are brought in India to recover a sum
25 (1961) 3 SCR 1020: AIR 1961 SC 1285
26 1960 AC 244: (1959) 3 All ER 846
27 (1952) 1 KB 327 :(1952) 1 All ER 383
689
which is ‘due’, i.e., as liquidated sum presently owing and
the said provision would not apply to an obligation to pay
on a future date. We do not find any support for this
submission from the language of Section 47(3) of FERA
wherein the words used are “to recover any sum which, apart
from the said provisions and any such term, would be due,
whether as debt, damages or otherwise”. The words “would
be” which precede the word “due” indicate that the quantum
of the amount has to be fixed in the legal proceedings and
that it need not be a predetermined amount. Moreover in the
present case, we are concerned with the proceedings for the
enforcement of the award wherein the amount due has already
been determined by the Arbitral Tribunal. We are,
therefore, unable to hold that the enforcement of the award
would involve violation of any of the provisions of FERA and
for that reason it would be contrary to public policy of
India so as to render the award unenforceable in view of
Section 7(1)(b)(ii) of the Act.(b) Disregard of the orders of Delhi High Court
85. It is the fundamental principle of law that orders of
courts must be complied with for any action which involves
disregard for such orders would adversely affect the
administration of justice and would be destructive of the
rule of law and would be contrary to public policy. The
question, however, is whether the enforcement of the award
of the Arbitral Tribunal would involve disregard of any
order of a court. The submission of Shri Venugopal is that
in the matter of withholding of payment of regular interest
Renusagar were acting in accordance with the interim orders
that were passed by Delhi High Court in the writ petition
filed by Renusagar which remained in operation from 1970 to
1980 and, therefore, the Arbitral Tribunal was in error in
awarding compensatory damages for retention by Renusagar of
the amount of income tax payable on the regular interest
during the period the writ petition was pending in the Delhi
High Court and enforcement of the award of compensatory
damages on regular interest under item No. 2 is, therefore,
contrary to public policy. We find it difficult to accept
this contention. Renusagar had filed an application, C.M.
No. 286-W/70, in C.W. No. 170 of 1970 in the Delhi High
Court. Prayer (i) of C.M. No. 286-W/70 was as under:“Pending the hearing and final disposal of
this petition for an interim order an
injunction restraining the respondent and its
officers, servants and agents from taking any
steps on proceedings in enforcement
furtherance, pursuance or implementation or in
any manner giving effect to the said orders
both dated September 11, 1969 or from
preventing the payment by the petitioner of
tax free interest of 6 per cent per annum to
IGE in accordance with the approval granted by
the respondent Orders dated September 8, 1965
and June 7, 1967 and to grant an ex parte
order pending notice.”86. On February 24, 1970, the following
interim order was passed in C.M. No. 286-W/70:
“There shall be interim injunction as prayed
for. Mr Kirpal to file his counter by March
24, 1970.”87. The matter came before the court after
notice on May 18, 1970 on which date the
following order was passed:“Mr Ravinder Narain states that he will give
security, of the assets of the company to the
satisfaction of the Commissioner of Income
Tax,
690
Lucknow for Rs Four lakhs. Let this be done
within a month from today. Interim injunction
and stay to continue. In default of
compliance, as above, petition for stay will
stand dismissed.”88. From the prayer contained in C.M. 286-W and the orders
dated February 24, 1970 and May 18, 1970 passed on the said
application, it would appear that pending the hearing and
final disposal of the writ petition, there was an interim
injunction restraining the Union of India, the respondent in
the said writ petition, and its officers, servants and
agents from taking any steps on proceedings in enforcement,
furtherance, pursuance or implementation or in any manner
giving effect to the said orders dated September 11, 1969
whereby tax exemption had been withdrawn and also
restraining from preventing Renusagar from paying tax on
interest of 6 per cent per annum to General Electric in
accordance with the approval granted under orders dated
September 3, 1965 and June 7, 1967. The only condition
imposed by the Court was that Renusagar was required to give
security for Rs 4,00,000 to the satisfaction of Commissioner
of Income Tax, Lucknow within one month. These orders
would, therefore, show that on furnishing of the said
security Renusagar was free to remit regular interest @ 6
per cent per annum to General Electric as per the approval
granted under orders dated September 8, 1965 and June 7,
1967. The said orders of the Delhi High Court did not also
prevent Renusagar from depositing in the Government Treasury
the income tax payable on the amount of regular interest
payable @ 6 1/2 per cent per annum. The said orders instead
of preventing Renusagar from remitting the said amount of
tax free interest in fact permitted Renusagar to make the
said payments to General Electric. It cannot, therefore, be
said that in retaining the said amount with itself while the
writ petition was pending in the Delhi High Court during the
period from 1970 to 1980 Renusagar was acting in accordance
with the orders passed by the Delhi High Court and the
payment of the said amount by Renusagar to General Electric
or depositing in the Government Treasury the income tax on
the amount of regular interest payable to General Electric
would have amounted to disregard of the said orders. In the
circumstances, it is not possible to hold that in awarding
compensatory damages under item No. 2 for wrongfully
withholding the amount of regular interest during the period
from 1970 onwards the Arbitral Tribunal has penalised
Renusagar for not disregarding the orders of the Delhi High
Court and the enforcement of the said award would be
contrary to public policy of India.(c) Interest on Interest (Compound Interest)
89. This relates to award of compensatory damages under
item Nos. 2, 4 and 6. It has been urged that the award of
interest on interest (compound interest) is not permissible
under the law of New York as well as the law in India and is
also contrary to public policy of the State of New York as
well as the public policy of India. While construing the
provisions of Section 7(1)(b)(ii) of the Foreign Awards Act,
we have held that under the said provisions the enforcement
of a foreign award can be objected to only on the ground of
such enforcement being contrary to public policy of India
and that public policy of other countries e.g. country of
the law of contract of the courts of the place of
arbitration cannot be taken into consideration. For that
reason an objection to the enforceability of the award of
the Arbitration Tribunal cannot be entertained on the ground
it is contrary to the public policy of the State of New
York. We
691
would, however, examine whether award of interest on
interest or compound interest is contrary to public policy
of India. Before we refer to the law in India in this
regard, we may take note of the law in England to which
reference has been made by Shri Venugopal during the course
of his submissions. At common law in England the principle
that is applied is that laid down in “the reluctant
decision” of the House of Lords in London Chatham and Dover
Rly. Co. v. South Eastern Rly. Co.28 that in the absence
of any agreement or statutory provision for the payment of
interest, a court has no power to award interest, simple or
compound, by way of damages for the detention (i.e., tile
late payment) of a debt. The injustice resulting from this
rule has been sought to be removed by legislative
intervention. By Section 3 of the Law Reform Miscellaneous
Provisions) Act, 1934 power was conferred on the court of
record to award interest in proceedings for recovery of any
debt or damages where the debt remained unpaid until the
judgment was given. Section 3 of the 1934 Act was repealed
and replaced by Section 35-A inserted in the Supreme Court
Act 1981 by the Administration of Justice Act 1982 and power
to award interest was extended to cover a case where the
debt is paid late, after Proceedings for its recovery have
begun but before they have been concluded. The power to
award interest does not extend to a case where a debt is
paid later but before any proceeding for its recovery have
begun. The rule in Lo don Chatham and Dover Rly V. case 28
has been qualified by the Court of Appeal in Wadsworth v.
Lydall29 to apply only to claims for interest by way of
general damages and does not extend to claims for special
damages. In the field of Admiralty law simple interest is
awarded, as a matter of course, on damages recovered in a
damage action. In the area of equity the Chancery Courts,
differing from the common law courts, have regularly awarded
simple interest is ancillary relief in respect of equitable
remedies, such as specific Performance, recession and the
taking of an account and the Chancery Courts gave regularly
awarded interest, including not only simple interest but
also compound interest, when they thought that justice so
demanded, that is to say in cases where money had been
obtained and retained by fraud or where it had been withheld
or misapplied by a trustee or anyone else in a fiduciary
position. See : President of India v. La Pintada Cia
Navegacion SA 30.)90. In Australia, the matter has been considered by the
Australian High Court in the recent decision in Hungerfords
v. Walker31. Mason, CJ and Wilson, I., after referring to
the decisions of the House of Lords in London Chatham and
Dover Rly. Co. v. South Eastern Rly. Co. 28 and President
of India v. La Pintada, Cia30) have observed:“But we see no reason for allowing the
reluctance of the common law to extend to
cases where the defendant’s breach of contract
or negligence has caused the plaintiff to pay
away or the defendant to withhold money and,
as a result, the plaintiff has been deprived
of the use of the money so paid away or
withheld.” (p. 218)
28 1893 AC 429 : (1891-94) All ER Rep Ext 1610
29 (1981) 2 All ER 401
30 (1984) 2 All ER 773
31 (1989) 63 Aus LJR 210
692
They upheld the decision of the Full Court of South
Australia awarding damages for the added cost of funding the
business with borrowed money as result of the loss of the
use of money overpaid in tax by awarding compound interest
for the reason that simple interest would not reflect
accurately the extent of the respondent’s loss since simple
interest almost undercompensates the injured party’s true
loss. It was observed:“The disdain of the common law for interest
especially compound interest, is a relic from
the days when interest was regarded as
necessarily usurious.” (p. 218)
Brennan and Deane JJ. have expressed their general agreement
with the reasons given by Mason, C.J. and Wilson, J. but
Dawson, J. has given a dissenting judgment.
91. It appears that in Canada also, the Canadian Federal
Court of Appeal has expressed the view that there is no
longer any reason to retain the common law rule against
interest as damages and the said rule has been described as
“a judge-made limitation on the awarding of interest which
is clearly no longer seen to be good public policy”. (See :
Algonquin Mercantile Corp. v. Dart Industries Canada Ltd.32)
92. This would show that award of interest on damages or
interest on interest i.e. compound interest is not regarded
as being against public policy in these countries.
93. We may now examine the law governing award of interest
in India. Shri Venugopal has placed reliance on the
provisions of Section 3(3)(c) of the Interest Act, 1978.
Section 3 empowers a court to allow interest and sub-section
(3) of the said section provides exceptions to the main
provision. In clause (c) of sub-section (3) it is laid down
that nothing in this section shall empower the court to
award interest upon interest. Shri Venugopal has also
placed reliance on the decision of the Judicial Committee of
the Privy Council in Bengal Nagpur Rly. Co. Ltd. v.
Ruttanji Ramji33 and the decisions of this Court in Union of
India v. West Punjab Factories Ltd.34; Union of India v.
Watkins Mayor & Co.35; Union of India v. A.L. Rallia Ram36
and Thawardas Pherumal v. Union of India37. The decision of
the Judicial Committee of the Privy Council in Bengal Nagpur
Rly. Co. v. Ruttanji Ramji33 is based on London Chatham &
Dover Rly. Co. case28 and following the said decision, it
has been laid down that “interest for the period prior to
the date of the suit may be awarded, if there is an
agreement for the payment of interest at a fixed rate, or it
is payable by the usage of trade having the force of law, or
in the provision of any substantive law entitling the
plaintiff to recover interest”. The said decision of the
Privy Council has been followed by this Court in Thawardas
Pherumal v. Union of India37, Union of India v. Rallia
Ram36, Union of India v. Watkins Mayor & Co.35 and Union of
India v. West Punjab Factories34 and it has been held that
in the absence of any agreement, express or implied, or any
provision of law, it is not
32 (1987) 16 CPR (3d) 193, 201
33 AIR 1938 PC 67: 65 IA 66: (1938) 1 MLJ 640
34 (1966) 1 SCR 580: AIR 1966 SC 395
35 AIR 1966 SC 275
36 (1964) 3 SCR 164: AIR 1963 SC 1685
37 AIR 1955 SC 468 : (1955) 2 SCR 48
693
possible to award interest by way of damages. This would
show that there is no absolute bar on the award of interest
by way of damages and it would be permissible to do so if
there is usage or contract, express or implied, or any
provision of law to justify the award of such interest.
Merely because in Section 3(3)(c) of the Interest Act, 1978,
the court is precluded from awarding interest on interest
does not mean that it is not permissible to award such
interest under a contract or usage or under the statute. It
is common knowledge that provision is made for the payment
of compound interest in contracts for loans advanced by
banks and financial institutions and the said contracts are
enforced by courts. ‘Hence, it cannot be said that award of
interest on interest, i.e., compound interest, is against
the public policy of India. We are, therefore, unable to
accept the contention that award of interest on interest,
i.e., compound interest is contrary to public policy of
India and the award in respect of compensatory damages
awarded under item Nos. 2, 4 and 6 cannot be enforced under
Section
7(1)(b)(ii) of the Act.
(d) Damages on Damages
94. This objection relates to award of compensatory damages
under item No. 4. The submission of Shri Venugopal is that
since the contract did not provide for payment of interest
for the period subsequent to the date of maturity, the
delinquent interest that has been awarded under item No. 3
is in the nature of damages and the award of compensatory
damages under item No. 4 amounts to award of damages on
damages which is impermissible and is contrary to public
policy of India. In support of this submission, Shri
Venugopal has placed reliance on the decision of this Court
in Trojan & Co. Ltd. v. Nagappa Chettiar38 wherein interest
had been allowed on damages and it was contended before this
Court that the said interest could not be allowed on damages
because it would amount to awarding damages on damages which
is opposed to precedent and principle. The Court rejected
the said contention and held that interest is allowed by
court of equity in the case of money obtained or retained by
fraud and in that case, the plaintiff had paid the money to
defendants on account of fraudulent practices by the
defendants on the plaintiffs.
95. In the present case, the said decision has no
application because the basic postulate of the contention of
Shri Venugopal is that the contract did not make any
provision for payment of interest for the period subsequent
to the date of maturity of the promissory notes. This
contention has been considered by us and it has been
negatived and in view of the earlier decision of this Court
in Renusagar Case 11 we have held that the contract provided
for payment of interest for the period subsequent to the
date of maturity of the promissory notes till actual payment
was made. In the circumstances, it cannot be said that the
delinquent interest that has been awarded under item No. 3
has been awarded by way of damages and not by way of
interest. Once it is held that delinquent interest awarded
under item No. 3 is by way of interest then there is no
question of damages being awarded on damages and it is,
therefore, not necessary to go into the question whether
awarding damages on damages is contrary to public policy of
India.
38 1953 SCR 789 : AIR 1953 SC 235 : (1953) 23 Comp Cas 307
694
(e) Unjust Enrichment
96. Relying upon the decision of the Supreme Court of
Romania date( February 16, 1985, which is extracted, in
brief, in the Year Book of Commercial Arbitration, Vol. XIV
(1989) pp. 689 to 691, Shri Venugopal has submitted that
unjust enrichment is contrary to public policy of India and
since the enforcement of award of the Arbitral Tribunal
would result in unjust enrichment of General Electric it
cannot be enforced under Section 7(1)(b)(ii) of the Foreign
Awards Act. This contention of Shri Venugopal has a bearing
on the award of delinquent interest under item No. 3, as
well as on the award of compensatory damages under item Nos.
2 and 4 and award of costs under item, No. 7.
97. In the case decided by the Romanian Supreme Court, a
Lebanese shipowner had agreed by a charter party with the
Romanian State enterprise to transport from Costantza
(Romania) to Bandar Abbas (Iran) certain goods which had
been sold C&F to an Iranian buyer. The voyage was
interrupted at Tripoli (Lebanon) where the shipowner had its
seat. At Tripoli all merchandise disappeared, according to
the shipowner because of war, and according to the Romanian
enterprise because of a local fraudulent sale. The dispute
was referred to arbitration and in the arbitration award,
the shipowner was directed to refund to the Romanian
enterprise part of the freight it had received as well as
the value of the lost goods. The Romanian enterprise sought
enforcement of the arbitration award in Romania. The
Lebanese shipowner objected to the request on various
grounds including the ground that it was not obliged to
refund the value of the goods since they had been fully paid
for by the Iranian buyer. It was submitted that the
enforcement of the award was contrary to Romanian public
policy since it resulted in unjust enrichment of the
Romanian enterprise inasmuch as the said enterprise was
allowed to receive for the second time the price of goods
which had already been paid by the Iranian buyers.
Rejecting the said objection the Romanian Supreme Court held
that the arbitral award showed that the Romanian enterprise
meant to obtain repayment of the value of the cargo and the
freight on behalf of the Iranian buyer acting as agent or
trust and since the Romanian enterprise did not act on its
own behalf, although it had no express mandate, the
conditions for unjust enrichment were not met in the case at
issue and, consequently, the public policy of Romanian
international private law had not been violated. The said
decision has proceeded on the basis that unjust enrichment
was part of the public policy of Romanian international
private law but in that case it was found that there was no
violation of the said principle of public policy.
98. The principle of unjust enrichment proceeds on the
basis that it would be unjust to allow one person to retain
a benefit received at the expense of another person. It
provides the theoretical foundation for the law governing
restitution. The principle has, however, its critics as
well as its supporters. In the words of Lord Diplock : “…
there is no general doctrine of unjust enrichment in English
law. What it does is to provide specific remedies in
particular cases of what might be classed as unjust
enrichment in a legal system that is based upon civil law.”
(See : Orakpo v. Manson Investments Ltd.39) In The Law of
Restitution by Goff and Jones, it has, however, been stated
“that the case-law is now sufficiently mature for the courts
to recognise a generalised right of
39 1978 AC 95, 104: (1977) 3 All ER 1
695
restitution” (3rd Edn., p. 15). In Chitty, on Contracts,
26th Edn., Vol. I, p. 1313, para 2037, it has been stated
that “the principle of unjust enrichment is not yet clearly
established in English law”. The learned editors have,
however, expressed the view:
” Even if the law has not yet developed to
that extent, it does not follow from the
absence of a general doctrine of unjust
enrichment that the specific remedies provided
are not justifiable by reference to the
principle of unjust enrichment even if they
were originally found without primary
reference to it.” (pp. 1313-1314, para 2037)
99. In Indian law the principle of unjust enrichment finds
recognition in the Indian Contract Act, 1872 (Sections 70
and 72).
100. We do not consider it necessary to go into the
question whether the principle of unjust enrichment is a
part of the public policy of India since we are of the
opinion that even if it be assumed that unjust enrichment is
contrary to public policy of India, Renusagar cannot succeed
because the unjust enrichment must relate to the enforcement
of the award and not to its merits in view of the limited
scope of enquiry in proceedings for the enforcement of a
foreign award under the Foreign Awards Act. The objections
raised by Renusagar based on unjust enrichment do not relate
to the enforcement of the award because it is not the case
of Renusagar that General Electric has already received the
amount awarded under the arbitration award and is seeking to
obtain enforcement of the award to obtain further payment
and would thus be unjustly enriching itself. The objections
about unjust enrichment raised by Renusagar go to the merits
of the award, that is, with regard to the quantum awarded by
the Arbitral Tribunal under item Nos. 2, 3, 4 and 7, which
is beyond the scope of the objections that can be raised
under Section 7(1)(b)(ii) of the Foreign Awards Act. To
hold otherwise would mean that in every case where the
arbitrators award an amount which is higher than the amount
that should have been awarded, the award would be open to
challenge on the ground of unjust enrichment. Such a course
is not permissible under the New York Convention and the
Foreign Awards Act. We have, however, examined the
objections raised by Renusagar relating to unjust enrichment
even on merits and we are not satisfied that the amounts
awarded under item Nos. 2, 3, 4 and 7 are so excessive as to
result in unjust enrichment of General Electric.
101. One of the contentions that was urged by Shri
Venugopal in support of the objections relating to unjust
enrichment was that the compensatory damages should have
been awarded after deducting the US tax payable by General
Electric on the amount of regular interest as well as
delinquent interest. Reliance, in this regard, has been
placed on the decision of the House of Lords in British
Transport Commission v. Gourley40 wherein it has been laid
down that when assessing damages for loss of actual or
prospective earnings allowance must be made for any income
tax on the earnings. This rule in Gourley case40 will,
however, apply only where two conditions are satisfied : (
1) the money, for the loss of which damages are awarded,
would have been Subjected to tax as income; and (2) the
damages awarded to the plaintiff are not subject to tax in
his hands. (See : Chitty on Contracts, 26th Edn., Vol. I,
pp. 1186-87, para 1841.)
40 (1955) 3 All ER 796 : 1956 AC 185
696
102. In Hanover Shoe v. United Shoe Machinery v
Corpn.41 the Court of Appeal had remanded the matter to the
District Court to take account of the additional taxes
Hanover would have paid for computation of damages, on the
view that since only after-tax profits can be reinvested or
distributed to shareholders, Hanover was damaged only to the
extent of the after-tax profits that it failed to receive.
The U.S. Supreme Court reversed the said decision of the
Court of Appeal and held that the District Court did not err
on the question of computation. The Court observed:
“As Hanover points out, since it will be taxed
when it recovers damages from United for both
the actual and the trebled damages, to
diminish the actual damages by the amount of
the taxes that it would have paid had it
received greater profits in the years it was
damaged would be to apply a double deduction
for taxation, leaving Hanover with less income
than it would have had if United had not
injured it.” (p. 1247)
103. Since General Electric would be liable to pay U.S. tax
on the amount of compensatory damages awarded under item
Nos. 2 and 4 of the Award, it cannot be said that there
would be unjust enrichment by General Electric on account of
non-deduction of U.S. tax payable on the amount of regular
interest and delinquent interest while assessing
compensatory damages under item Nos. 2 and 4.
104. As regards amount of delinquent interest awarded under
item No. 3, it has been submitted that since interest is not
payable under the contract in respect of the period
subsequent to the date of maturity of the promissory notes,
the award of delinquent interest for the said period would
result in unjust enrichment. This argument about liability
for such interest has already been considered by us and we
have found that under the contract interest is payable for
the period subsequent to the maturity of the promissory
notes till payment. There is, therefore, no substance in
the contention about unjust enrichment on this account.
With regard to the award of delinquent interest Linder item
No. 3 and compensatory damages on the delinquent interest
under item No. 4 it has been contended that in view of the
agreement between General Electric and Renusagar for
rescheduling of the instalments Renusagar were not required
to pay the instalments as per the original schedule and,
therefore, Renusagar could not be held liable for interest
for delayed payment of the instalments which fall due till
August 1, 1969, and they could not also be saddled with
compensatory damages for non-payment of instalments that
fall due till August 1, 1969 as per the original schedule.
We have dealt with the effect of order of the Government of
India dated August 1, 1969, refusing to give its approval to
the proposed arrangement for rescheduling of payment of
instalments and we have held that as a result of such
refusal the original contract regarding payment of those
instalments would revive and Renusagar were required to pay
the instalments in accordance with the terms of the said
contract and were required to pay interest for delayed
payment of those instalments and therefore, it cannot be
said that award of delinquent interest for the period during
which the matter was pending consideration with the
Government of India, would result in unjust enrichment of
General Electric.
41 20 L Ed 2d 1231 : 392 US 481 (1968)
697
105. As regards item No. 7 relating to costs, the case of
Renusagar is that the costs awarded by the arbitrators are
excessive and unconscionable and further that the costs
incurred in relation to the litigation in India, which has
been found inadmissible earlier by the Arbitral Tribunal has
been included in the costs of arbitration that have been
awarded resulting in unjust enrichment of General Electric.
We have considered this objection of Renusagar and we do not
feel that it can be a ground for refusal of enforcement of
award under Section 7(1)(b)(ii) of the Foreign Awards Act.
106. For the reasons aforesaid, none of the objections
raised by Renusagar against the enforcement of the award
under Section 7(1)(b)(ii) of the Foreign Awards Act for the
reason that such enforcement is contrary to public policy of
India merits acceptance.
VI. Relevant date for conversion of the amount awarded
front foreign currency to Indian currency
107. In the field of conflict of laws money serves a two-
fold function, viz., (i) as a means of measurement; and (ii)
medium of payment. The currency in which a debt is
expressed or a liability to pay damages is calculated is
called the ” money of account” or “money of contract” or
“money of measurement” and the currency in which the said
debt or liability is to be discharged is called the ” money
of payment”. The money of account is to be ascertained from
the terms of the contract construed in accordance with the
proper law of the contract and the money of payment is
determined by the law of the country in which such debt or
liability is payable i.e. lex loci solutionis. (See : Dicey
& Morris, The Conflict of Laws, 11 th Edn., Vol. 2, Rules
209 and 210.)
108. Where the money of account and the money of payment are
not identical the amount of units of the currency of account
owed by the debtor must, by an exchange operation, be
translated into the currency in which he is obliged to pay.
This is a matter of substance and the rate of exchange for
such conversion is determined by the proper law of the
contract or the law governing the liability. (See : Dicey &
Morris, The Conflict of Laws pp. 1442 and 1453.) By this
process the quantum of the monetary obligation is
determined. The questions relating to conversion of
currency often arise at the stage of discharge of the
monetary obligation when the debtor makes the payment in a
currency other than the money of payment. Such conversion
is to be made on the basis of the exchange rate prevailing
on the date of payment at the place of payment. (See : Dicey
& Morris, The Conflict of Laws, Rule 210(2) at pp. 1453-54;
Mann: The Legal Aspect of Money, 5th Edn., p. 323.)
Conversion of the currency is also necessary in cases where
legal proceedings have to be instituted by the creditor. In
some legal systems the judgment can be given by the courts
in the currency of that country only and, therefore, it
becomes necessary to convert the monetary obligation into
the currency of that country at the time of institution of
the legal proceedings. The exchange for such conversion
will depend on the lex fori, i.e., the law of the forum and
in many legal systems it is the date the cause of action
arose, i.e., the date of breach while in some systems it is
the date of judgment. In legal systems where it is
permissible to obtain a judgment in foreign currency
conversion would be necessary at the stage of enforcement or
execution of the judgment. Same problem would arise when a
judgment of a foreign court is sought to be enforced. The
relevant date for applying the
698
exchange rate for such conversion depends upon the lex for,
i.e., the law of the forum because it is a matter relating
to the procedure. (See : Cheshire & North, Private
International Law, 12th Edn., p. 106.) What applies to
enforcement of judgments equally applies to enforcement of
arbitral awards.
109. In the instant case, there is no dispute that the money
of account as well as the money of payment is the same,
namely, U.S. dollar. Here, the question of convertibility
from U.S. dollars to Indian rupees arises in the context of
enforcement of the award of the Arbitral Tribunal which is
in U.S. dollars. We are, therefore, required to examine the
position under the Indian law with reference to conversion
of foreign currency into Indian currency at the stage of
enforcement of a judgment or award in foreign currency.
110. Prior to 1975, the law in England, was that an
English court will not give judgment for the payment of an
amount expressed in foreign currency and the amount of any
foreign currency had to be converted in sterling on or
before the date of judgment and the date for the purpose of
such conversion was the date when the cause of action arose.
This was the law laid down by the House of Lords in United
Railways of Havana & Regla Warehouses Ltd., Re42. This
decision was overruled by the House of Lords (by majority)
in 1975 in Miliangos v. George Frank (Textiles) Ltd.43 In
that case, a Swiss seller had agreed to supply English
buyers with goods at a price expressed in the contract in
Swiss francs. The goods and invoices were delivered but the
price was not paid and bills of exchange drawn in
Switzerland and accepted by the buyers were dishonoured on
presentation. The seller brought action in England wherein
he claimed the sums due in Swiss francs. Originally he had
asked for conversion of Swiss francs into sterling at the
breach date in view of the law laid down in United Railways
of Havana, Re, case42 but subsequently in view of the
decision of the Court of Appeal in Schorsch Meier G.m.b.H.
v. Hennin44 the seller amended his statement of claim so as
to claim the amount due to him in Swiss francs as an
alternative to claiming judgment in sterling. Bristow, J.
gave judgment for the moneys due expressed in sterling,
holding that the rule that the English courts could express
their judgments only in sterling had not been altered either
by Parliament or by any decision of the House of Lords. The
Court of Appeal reversed the said decision and, following
Schorsch Meier G.m.b.H. v. Hennin44 gave judgment for the
seller ordering the buyers to pay the sum due in Swiss
francs, or the equivalent in sterling at the time of
payment. Affirming the said decision of the Court of Appeal
and departing from its earlier decision in the Havana
Railways case42 the House of Lords has held that it was
legitimate for the House of Lords to depart from the “breach
date conversion” rule and recognise that an English court
was entitled to give judgment for a sum of money expressed
in a foreign currency in the case of obligations of a money
character to pay foreign currency arising under a contract,
the proper law of which was that of a foreign country and
where the money of account and payment is that of that
country, or possibly of some other country but not of the
United Kingdom. It was further held that the claim had to
be specifically for the
42 1961 AC 1007 : (1960) 2 All ER 332 sub nom Tomkinson v.
First Pennsylvania Banking and Trust Co.
43 1976 AC 443: (1975) 3 All ER 801
44 1975 QB 416: (1975) 1 All ER 152
699
foreign currency or its sterling equivalent and the
conversion shall be at the date of payment, i.e., the date
when the courts authorise enforcement of the judgment in
terms of sterling. The said decision was, however, confined
in its application to foreign money obligations and the
court left open for future discussion the question whether
the rule applying to money obligations should apply as
regards claims for damages for breach of contract or for
tort. In his dissenting opinion, Lord Simon, has reiterated
the law laid down in Havana Railways case 42. it may be of
interest to note that Lord Wilberforce, who gave the leading
speech in Miliangos case 43 had appeared in Havana Railway
case 42 but failed to persuad the House of Lords to
accept his contention. He, however, succeeded 15 years
later, in having his views accepted by the House of Lords.
Subsequently in Services Europe Atlantique Sud (Seas) of
Paris v. Stockholms Rederiaktiebolag Svea of Stockholm45
the House of Lords has extended the rule laid down in
Miliangos case 43 to claims for damages for tort and breach
of contract. The rule laid down in Miliangos case 43 has
been held to be applicable to an action at common law on a
foreign judgment (See : Dicey & Morris, The Conflict of
Laws, 11 th Edn., Vol. 2, p. 146 1.) In relation to arbitral
awards the matter had come up before the Court of Appeal in
Jugoslavenska Oceanska Plovidba v. Castle Investment Co.
InC.46 wherein it was held that an award could be made by
the arbitrators in England in terms of U.S. dollar and that
the same could be enforced by converting the foreign
currency into sterling at the rate prevailing at the date of
the award. While referring the said decision, Lord
Wilberforce, in Miliangos case 43 has said:
“In the case of arbitration, there may be a
minor discrepancy, if the practice which is
apparently adopted (see the Jugoslavenska
case(46) 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.” (p. 469)
111. The impact of Miliangos case43 was not confined to the
British shores. It has been felt across the Atlantic and
there is a perceptible change in the law in Canada as well
as in the United States.
112. Following the law in England, the Supreme Court of
Canada had applied the breach date rule for converting
foreign currency into Canadian dollar in two earlier
decisions. (See : The Custodian v. Bhucher47; Gatineau Power
Co. v. Crown Life Insurance Co.48) But subsequent to
Miliangos cas43 Carruthers J. of the High Court of Ontario,
in Batavia Times Publishing Co. v. Davis49 applied the
judgment date rule in a suit for enforcement of a foreign
judgment. Distinguishing the earlier judgments of the
Supreme Court as dealing with actions based on the original
cause of action, the learned judge held that in a proceeding
to enforce a foreign judgment he was free to adopt that
conversion date which in his view “avoids an injustice” and
is “in step with commercial needs”. The said judgment was
affirmed by the Court of Appeal.50 In Clinton v.
45 1979 AC 685 : (1979) 1 All ER 421 sub nom
Eleftherotria (M. V.) (Owners) v. Despina (M. V.) (Owners)
sub nom Despina R. The
46 1974 QB 292 :(1973) 3 All ER 498
47 1927 SCR 420, 427 (Can)
48 1945 SCR 655, 658 (Can)
49 1978 DLR 3d 144
50 (1980) 102 DLR (3d) 192
700
Ford51 the Court of Appeal of Ontario affirmed the order of
the trial Judge applying the rate prevailing at the date of
the Statement of Claim on the view that in awarding judgment
on a foreign judgment the trial Judge should be free to
adopt a date for the conversion of foreign currency into
domestic currency which avoids injustice and which is in
step with commercial needs.
113. The federal law in the United States is
thus explained by Prof. F.A. Mann:
“Where the breach or wrong occurred in a
foreign country (especially by non-payment of
money due there), the damages are measured in
the currency of that country and the dollar
equivalent calculated at the rate of exchange
obtaining at the date of judgment can be
recovered; where the breach or wrong occurred
in the United States (especially by non-
payment of foreign money due there), the
damages, being measured in dollars, are to be
converted at the rate of exchange of the date
of breach or wrong.”
(Mann: Legal Aspects of Money, 5th Edn.,
p. 347)
114. According to the learned author the first part of the
above statement is based on the decision of the U.S. Supreme
Court in Deutsche Bank Filiale Nurenberg v. Humphrey52 and
the latter part of the statement is supported by the
decision of the U.S. Supreme Court in Hicks v. Guinness53.
115. Most of the States, including the State of New York
(till recently), follow the old English rule and apply the
rate of exchange prevailing at the date of breach. In the
State of New York, however, there has been a departure in
some cases where the judgment-date rule has been applied.
(See : John S. Metcalf Co. v. Mayer54 and Sirie v.
Godfrey55.) Even in the matter of application of the breach
date rule in actions for enforcement of a foreign judgment,
the New York courts have applied the breach date rule with
effect from the date of the judgment sought to be enforced.
In Indag v. Irridelco Corpn.56 one of the cases on which
reliance was placed by Shri Venugopal, the action was
brought to enforce a judgment entered in favour of the
plaintiff by the courts of Switzerland and the United States
District Court in New York held that the date of entry of
Swiss judgment, rather than the date of breach of underlying
obligation, i.e., its agreement to repay certain notes, was
controlling as to application of breach-day conversion rule.
It was held that the date of award for damages by Cantonal
Court was the relevant date for application of breach date
conversion rule even though that judgment was subsequently
appealed. In taking this view, the Court relied upon the
decision in Competex S.A. v. Lalord57. It appears that the
provisions in this regard contained in Section 27 of the
Judiciary Law of the State of New York have now been amended
in 1987. Earlier Section 27 provided that all judgments or
decrees rendered by any court for any debt, damages or
costs, all executions issued thereupon, and all accounts
arising from judicial proceedings shall be computed, as near
as may be, in U.S.
51 (1982) 137 DLR 3d 192
52 272 US 517 : 71 L Ed 383 (1926)
53 269 US 71 : 70 L Ed 168 (1925)
54 (1925) 211 NY Supp 53
55 (1921) 188 NY Supp 52
56 (1987) 658 F Supp 763
57 (1986) 783 F 2d 333
701
dollars and cents, rejecting lesser fractions, and no
judgment or other proceeding, shall be considered erroneous
for such means. Section 27 as amended reads as under:
“27. (a) Except as provided in sub-division
(b) of this section, judgments and accounts
must be computed in dollars and cents. In all
judgments or decrees rendered by any court for
any debt, damages or costs, all executions
issued thereupon, and all accounts arising
from judicial proceedings shall be computed,
as near as may be, in U.S. dollars and cents,
rejecting lesser fractions, and no judgment or
other proceeding, shall be considered
erroneous for such means.
(b) In any case in which the cause of action
is based upon an obligation denominated in a
currency other than currency of the United
States, a court shall render or enter a
judgment or decree in the foreign currency of
the underlying obligation. Such judgment or
decree shall be converted into currency of the
United States at the rate of exchange
prevailing on the date of entry of the
judgment or decree.”
116. As a result of this amendment, instead of breach-date
rule which was prevailing earlier the judgment-date rule has
been introduced. This amendment came into operation on July
20, 1987. It was introduced at the request of New York
State Bar Association and the Erie County Bar Association
and it was supported by the Association of the Bar of the
City of New York. According to the chairman of the
Committee on International Trade and Transactions of the New
York State Bar Association the said amendment was necessary
because in view of the decision of House of Lords in
Miliangos case 43 ” a number of transactions which would
otherwise be governed by New York law, and, involve
professional and financial advisors in New York, have been
structured in England and covered by English law”.
117. In India, the law relating to conversion of foreign
currency into Indian currency in the matter of enforcement
of judgments or awards is governed by the decision of this
Court in Forasol case 4. That case arose out of a contract
between Forasol, a foreign company and the Oil and Natural
Gas Commission, a Government of India Undertaking. Certain
disputes arose between the parties which were referred to
arbitration in accordance with the arbitration clause
contained in the contract. The said arbitration was
governed by the Indian Arbitration Act, 1940. 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. Proceedings
were initiated ill Delhi High Court for passing a decree in
terms of the award and a question arose as to the exchange
rate for conversion of French francs into Indian rupees.
This Court examined the question with reference to the
following dates:
(1) the date when the amount become due and
payable;
(2) the date of the 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 realised.
118. The court also pointed out that in a case where a
decision has been passed by the court in terms of an award
made in a foreign currency a sixth date, namely, the date of
award also enters the competition. As there was lack of
702
authority of any Indian court, this Court has considered the
decision of English Courts including the Miliangos case43.
119. The first date, i.e., the date when the amount became
due and payable, was not accepted by the Court for the
reason that it cannot 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 subject to a much greater burden than what he should
bear. The Court felt that the same criticism would apply to
the second of the dates, namely, the date of the
commencement of the action or suit because suits are not
often 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. As regards the
third date, namely, the date of the decree, the Court
observed that a decree crystallizes the amount payable by
the defendant to the plaintiff and it is the decree which
entities the judgment-creditor to recover the judgment debt
through the processes of law. Dealing with the objection
that the date of tile decree of the trial court is not 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, it was observed that this
difficulty is 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. As regards the fourth
date, i.e., the date when the court orders execution to
issue, it was felt that execution of a decree is not a
simple matter because it involves execution of a money
decree and the judgment-debtor’s property has to be attached
and pending attachment a third party, at times set up by the
judgment-debtor, may prefer a claim to the attached property
which will have to be investigated and determined by the
executing court and even where no claim is preferred the
attached property cannot be brought to sale immediately and
certain formalities have to be complied with and 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 and
at times, a fresh auction sale may be have to be held if the
auction-purchaser commits default in paying the balance of
the purchase price and 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. It was also pointed out that at times the
judgment debt is not recovered in full when the attached
property is sold in execution and further application for
execution may become necessary and this would lead to an
anomalous position for the Court would have to fix the rate
of exchange, which may be different from each application
for execution. A further difficulty that was pointed out by
the court was that execution can only issue for a sum
expressed in Indian currency and it cannot be for a sum
which would be determined and fixed by the executing court
at the time of granting an execution application. With
regard to the fifth date, namely, the date of payment, the
Court felt that there were three practical and procedural
703
difficulties namely, payment of court fees, the pecuniary
limits of the jurisdiction of courts and execution. Keeping
in view the considerations referred to above, this Court
declined to adopt the rule laid down in Miliangos case 43
and held that it would be fair to both the parties to take
the date of passing the decree, i.e., the date of judgment.
The said date was also held applicable to a case where a
decree is made in terms of an award made in a foreign
currency.
120. 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, has been thus indicated:
“… 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. I
f
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 oil 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 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
704
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 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
thereunder received by the plaintiff.” (pp.
587-589)
121. Referring to arbitrations, this Court
has held that, 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 and has observed:
“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 th
e
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, 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
705
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 FERA.” (pp.
589-590)
122. While passing the decision in terms of U.S. dollars the
learned Single Judge has not considered the matter of
conversion of US dollars into Indian currency. The Division
Bench has, however, adverted to this aspect and applying the
law laid down in Forasol case4 the decree has been passed in
terms of US dollars as well as Indian rupees on the basis of
the rupee-dollar exchange rate prevailing on the date of the
decree passed by the learned Single Judge. The said date
was applied for the reason, that according to the Division
Bench the letters patent appeal filed by Renusagar was not
maintainable.
123. It appears that both the parties are not satisfied
with said view of the Division Bench of the High Court in
applying the decision in Forasol case4 to the present case.
124. Shri Venugopal has urged that in Forasol case4 this
Court was dealing with the enforcement of an award governed
by the Indian Arbitration Act and that the principles laid
down in the said decision cannot be applied to the present
case arising out of a foreign award which is not governed by
the provisions of the Indian Arbitration Act but is”
governed by the provisions of the Foreign Awards Act. It is
no doubt true that in the Forasol case4 this Court was
dealing with an award governed by Indian Arbitration Act but
that does not affect the applicability of the said decision
to proceedings for enforcement of a foreign award in Indian
courts because the matter of conversion of foreign currency
into Indian currency at the stage of enforcement of an award
is governed by the same principle irrespective of the fact
whether the award is governed by the Indian Arbitration Act
or a foreign award governed by the Foreign Awards Act.
Moreover the position has been made clear by Section 4(1) of
the Foreign Awards Act which lays down that a foreign award
shall subject to the provisions of this Act be enforceable
in India as if it were an award made on a matter referred to
arbitration in India. The said provision equates a foreign
award to an Indian award for the purpose of enforcement with
the exception that such enforcement will be subject to the
provisions of the Foreign Awards Act. There is nothing in
the provisions of the Foreign Awards Act which excludes the
applicability of the principles laid down in Forasol case4
with regard to enforcement of foreign awards. In our
opinion, therefore, the enforcement of the award in the
instant case is governed by the law laid down in Forasol
case4.
125. Shri Venugopal has further urged that the matter of
conversion of foreign currency and the rate of exchange for
such conversion is not a matter of procedure but is a matter
of substance and it is governed by the proper law and that
since the contract as well as performance of the contract
are both governed by the New York law, the breach-date rule
which was applicable in the State of New York at the
relevant time, should be applied for the purpose of
ascertaining the exchange rate for conversion of U.S.
dollars into Indian rupees and that the rule in Forasol
case4 can have no application to the present case. Shri
Venugopal has in this regard placed reliance on certain
observations in Legal Aspects of Money by F.A. Mann, 5th
Edn. at pp. 326-327 and The Conflict of Laws by Dicey &
Morris, 11th Edn., Vol. II, p. 1454. We are unable to agree
with this submission of Shri Venugopal. The manner in which
the court should
706
pass the decree in a case where a foreign award is sought to
be enforced is a matter of procedure and not of substance
and is governed by lex fori, i.e., the law of the forum.
The rule laid down in Miliangos case43 has been described as
a rule of procedure. (See : Services Europe Atlantique Sud
(Seas) of Paris v. Stockholms Rederiaktiebolag Svea of
Stockholms45 at p. 704; Cheshire & North, Private
International Law, 12th Edn., p. 100). For the same
reasons, the principles laid down in Forasol case4 must be
held to be rule of procedural law and would be applicable to
the proceedings for enforcement of a foreign award under the
Foreign Awards Act.
126. The passage from Legal Aspects of Money
by F.A. Mann, on which reliance has been place
d
by Shri Venugopal reads thus:
“This situation involves two distinct
questions: which is the legal system that
determines whether there exists a right or a
duty to convert the money of account into the
(local) money of payment? Which is the legal
system that governs the mechanics of the
conversion (the type of the rate of exchange
to be employed, tile date and the place with
reference to which the rate is to be
ascertained)?
As regards the first point it is necessary to
repeat that, except in unusual circumstances,
the creditor suffers no prejudice from payment
in the moneta loci solutionis. It is
suggested, therefore, that in general, i.e.,
where no problem of construction arises, the
question of the right or duty of conversion
may be treated as one relating to the mode of
performance and, consequently, subject to the
lex loci solutionis. The decision on the
second point, however, is liable to encroach
severely upon the substance of the obligation:
whether the creditor who is entitled to be
paid 1000 Spanish pesetas in Gibraltar must
accept the pound equivalent calculated at the
rate of peseta notes or of cable transfers to
Madrid, or calculated with reference to the
rate prevailing at the date of maturity or
payment, or calculated at the Gibraltar or
Madrid rate these are substantial matters on
which the quantum eventually received by the
creditor depends, if payment is not made in
actual pesetas. These aspects, therefore,
cannot be described as relating merely to the
mode of performance, but ought to be subject
to the proper law of the contract.” (pp. 326-
327)
127. We find that in the said passage which falls in Chapter
XI relating to “The Payment of Foreign Money Obligations”
the learned author is dealing with the conversion of the
money of account to the money of payment and he has not
considered the matter of convertibility of the foreign
currency at the stage of enforcement of a judgment or award.
We have already indicated that convertibility of the money
of account into the money of payment involves determination
of the liability and is a matter of substance governed by
tile proper laws of contract. This question arises prior to
the stage of the judgment or award. Here we are dealing
with a case where the award has already been made and is
sought to be enforced in India and the question is about the
conversion of the foreign currency in which the award has
been made into Indian currency. This question has been
dealt with by Dr F.A. Mann in Chapter XII relating to “The
Institution of Legal Proceedings and its effect upon Foreign
Money Obligations” and the learned author has stated:
” It is now clear that English law does not
require any foreign money obligation to be
converted into sterling for the purpose of
instituting
707
proceedings or of the judgment; on the
contrary, where the plaintiff claims a sum of
foreign money, he is both entitled and bound
to apply for judgment in terms of such foreign
money and it is only at the stage of payment
or enforcement that conversion into sterling
at the rate of exchange then prevailing takes
place. This is so whether the claim is for
payment of a specific sum contractually due or
for damages for breach of contract or tort or
for a just sum due in respect of unjustified
enrichment or for restitution. Nor does it
matter whether the contract sued upon is
governed by English or by foreign law. Nor is
it necessary to ask for specific performance
rather than payment: in either case the
defendant will be ordered to pay foreign
money. Moreover an award in an English
arbitration may be expressed and enforced in
foreign currency and a foreign award or
judgment so expressed may be enforced like the
English award or judgment.” (p. 352)
128. The entire position has been thus summed
up by Dr Mann:
“As regards the date with reference to which
the rate of
exchange is to be ascertained, the law is to a
large extent
settled. In connection with conversion for
the purpose of proceedings the payment-date
rule is firmly established. Outside
proceedings the date depends on the
construction of the contract, but there exists
a strong tendency to apply the payment-date
rule.” (p. 436)
129. Same is the position with regard to the
passage at p. 1454 of The Conflict of Laws by
Dicey & Morris, 11th Edn., Vol. II, which
reads thus:
“The quantum of money tokens to be tendered
is, however, always a matter of substance and
not a question of the manner of performance.
Hence it should always be governed by the
proper law, irrespective of the place of
payment.” (p. 1454)
130.The said passage falls under Rule 210
relating to discharge of foreign currency
obligations which is in following terms:
“210. Irrespective of the currency in which a
debt is expressed or damages are calculated
(money of account), the currency in which th
e
debt or liability can and must be discharged
(money of payment) is determined by the law of
the country in which such debt or liability is
payable, but (semble) the rate of exchange at
which the money of account must be converted
into the money of payment is determined by the
proper law of the contract or other law
governing the liability.
If a sum of money expressed in a foreign
currency is payable in England, it may be paid
either in units of the money of account or in
sterling at the rate of exchange at which
units of the foreign legal tender can, on the
day when the money is paid, be bought in
London in a recognised and accessible market,
irrespective of any official rate of exchange
between that currency and sterling. Quaere,
whether this rate of exchange also applies if
English law is not the proper law of the
contract.”
At the beginning of the comment on the said rule, it has
been stated: “This Rule deals with the question whether a
debtor has, by making a payment in a given currency
discharged the debt. The effect of proceedings in English
court on a foreign currency obligation is not considered in
this rule but in Rule 21 1.” (pp. 1453-54). This would
indicate that the observations relied upon (at p. 1454)
which follow this statement have no bearing to the
proceedings in a court on
708
foreign currency obligations and have to be confined to
payments by a debtor in discharge of the debt.
Reconsideration of Forasol Case
131. Shri Shanti Bhushan also does not wish to go by the
principles laid down in Forasol case4 and has submitted that
the exchange rate for conversion of foreign currency to
Indian currency should be that prevailing on the date of
actual payment and that the law laid down in Forasol case4
that the conversion should be on the basis of exchange rate
prevailing on the date of judgment does not lay down the
correct law and that it needs reconsideration. In this
regard Shri Shanti Bhushan has urged that the purpose of the
rule relating to conversion of foreign currency into Indian
rupees at the stage of enforcement of a foreign award should
be to ensure that the amount that has been awarded under the
award in foreign currency is available in full to the
creditor and this can be achieved only if the exchange rate
for the purpose of such conversion is that prevailing on the
date of payment as held by the House of Lords in Miliangos
case43. According to Shri Shanti Bhushan the practical and
procedural difficulties pointed out by this Court for
rejecting the date of, payment rule are not of such
significance so as to render the said rule inapplicable.
Shri Shanti Bhushan has also relied on the following passage
from The Conflict of Laws by Dicey & Morris:
“If a debt or other liability expressed in a
foreign currency is payable in England, the
debtor may tender pounds in discharge. This
is ‘primarily a rule of construction’ which
was ‘understandable at a time when foreign
exchange was freely obtainable’. Where this
is not the case, the rule may defeat the
intention of the parties, and it may therefore
‘require reconsideration. Despite a number of
dicta to the contrary, the debtor may also
discharge his liability by tendering the
foreign currency in specie, but the creditor
cannot compel him to do so. The rate of
exchange to be applied is that of the day when
the debt is paid.” (11th Edn., Vol. II, p.
1454)
132. These observations have been made in
comment under Rule 210 and, as pointed out
earlier, the said rule relates to payment made
by a debtor in discharge of the debt and does
not deal with proceedings in courts for
enforcement of foreign currency obligations
which have been dealt with in Rule 211, which
is in following terms:
“211. (1) An English court can give judgment
for an amount expressed in foreign currency.
(2) For procedural reasons the amount of the
judgment must be converted into sterling
before execution can be levied. The date for
conversion will be the date of payment, i.e.,
the date when the court authorises enforcement
of the judgment, unless some other date is
prescribed by statute.”
133. As regards the submissions of Shri Shanti Bhushan
assailing the correctness of the decision in Forasol case4
it may be stated that even Miliangos case43 does not provide
for conversion on the basis of the exchange rate prevailing
on the date of actual payment and it postulates conversion
on the basis of the date when the court authorises
enforcement of the judgment. The rule in Miliangos case43
has not been adopted in Section 27 of the Judiciary Act of
New York, as amended in 1987 and it provides that a judgment
or decree in foreign currency shall be converted into
currency of the United States at the rate
709
of exchange prevailing on the date of entry of the judgment
or decree. “The Legislature’s concern of how this could be
effected by a sheriff’ appears to be the reason for not
adopting the date of execution of the judgment in the
amended provision. The practical and procedural
difficulties pointed out by this Court in Forasol case 4
against adopting the date of payment cannot, therefore, be
ignored. As at present advised, we are not satisfied that
the decision in Forasol case4 calls for reconsideration.
Since this is the only question raised in C.A. No. 379/92
filed by General Electric, the said appeal must fail.
VIII. Interest pendente lite and future interest
134. In an international commercial arbitration, like any
domestic arbitration, the award of interest would fall under
the following periods:
(i) period prior to the date of reference to
arbitration;
(ii) period during which the arbitration
proceedings were pending before the
arbitrators;
(iii) period from the date of award till the
date of institution of proceedings in a court
for enforcement of the award;
(iv) period from the date of institution of
proceedings in a court till the passing of the
decree; and
(v) period subsequent to the decree till
payment.
135. The interest in respect of the period covered by item
(i), namely, prior to the date of reference to arbitration
would be governed by the proper law of the contract and the
interest covered by items (ii) and (iii), i.e., during the
pendency of the arbitral proceedings and subsequent to the
award till the date of institution of the proceedings in the
court for the enforcement of the award would be governed by
the law governing the arbitral proceedings. These are
matters which have to be dealt with by the arbitrators in
the award and the award in relation to these matters cannot
be questioned at the stage of enforcement of the award. At
that stage the court is only required to deal with interest
covered by items (iv) and (v). The award of interest in
respect of these periods would be governed by lex fori,
i.e., the law of the forum where the award is sought to be
enforced. According to Alen Redfern and Martin Hunter “once
an arbitral award is enforced in a particular country as a
judgment of a court, the arbitral post-award interest rate
may be overtaken by the rate applicable to civil judgments.”
[See : Redfern & Hunter, Law and Practice of International
Commercial Arbitration, 2nd Edn., p. 406.]
136. Moreover, Section 4(1) of the Foreign Awards Act lays
down that the foreign award shall, subject to the provisions
of this Act, be enforceable in India as if it were an award
made on a matter referred to arbitration in India. The
provisions of the Arbitration Act, 1940 would, therefore,
apply in the matter of enforcement of awards subject to the
provisions of the Foreign Awards Act. With regard to
interest, the following provision is made in Section 29 of
the Indian Arbitration Act:
“Interest on Awards.- Where and insofar as
award is for the payment of money the Court
may in the decree order interest, from the
date of the decree at such rate as the Cour
t
deems reasonable, to be paid on the principal
sum as adjudged by the award and confirmed by
the decree.”
137. Unlike Section 34 of the Code of Civil Procedure,
whereunder the Court can award interest for the period of
pendency of the suit as well as for the
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period subsequent to the decree till realisation, Section 29
of the Arbitration Act empowers the court to award interest
from the date of decree only. It has, however, been held
that while passing a decree in terms of the award, the Court
can award interest for the period during which the
proceedings were pending in the Court, i.e., the period from
the date of institution of proceedings for the enforcement
of the award in the court till the passing of the decree in
cases arising after the Interest Act, 1978. (See : Gujarat
Water Supply & Sewerage Board v. Unique Erectors (Gujarat)
(P) Ltd. 58
138. In the instant case, the Arbitral Tribunal has awarded
interest by way of compensatory damages in respect of the
period prior to the date of reference as well as for the
period covered by the arbitral proceedings up to March 31,
1986. In respect of the period subsequent to March 31,
1986, the Arbitral Tribunal has awarded interest only on
item No. 1 (regular interest), item No. 3 (delinquent
interest) and item No. 5 (costs of spare parts) until the
payment. No direction with regard to the payment of
interest pendente lite, i.e., for the period the proceedings
were pending in the Bombay High Court till the date of
decree as well as for the period subsequent to the decree,
has been given either by the learned Single Judge or by the
Division Bench of the High Court. Taking into consideration
the facts and circumstances of the case we are not inclined
to interfere with that part of judgment of the High Court
and to award interest for the period the proceedings for
enforcement of the award were pending in the Bombay High
Court and in this Court.
139. Shri Shanti Bhushan has, however, placed reliance on
the interim order passed by this Court on February 21, 1990
whereby this Court stayed the operation of decree and order
under appeal subject to Renusagar depositing the sum
equivalent to one-half of the decretal amount calculated as
on date and furnishing security to the satisfaction of the
High Court in respect of the balance of the decretal amount
and further directed that interest in respect of the rest of
the one-half of the decretal amount which was not
recoverable by General Electric by virtue of the said order
would be @ 10 per cent per annum calculated from this day on
the entirety of the balance irrespective of the terms as to
the rate and mode of calculation of interest granted in or
permitted by the decree under appeal. Shri Shanti Bhushan
has urged that in view of the said order passed by this
Court on February 21, 1990, General Electric is entitled to
award of interest @ 10 per cent per annum on the decretal
amount after deducting the amounts deposited by Renusagar in
pursuance to the orders dated February 21, 1990 and November
6, 1990. The order dated February 21, 1990 was, in our
opinion, in the nature of an interlocutory order and the
directions contained therein were also interlocutory in
nature which are subject to the final orders that are passed
in the appeals. We ought, here, to take notice of the
developments in the international monetary exchange system
insofar as Indo American currencies are concerned. The
effect of these changes in the exchange rates made a
landslide change in the size of the financial obligations of
Renusagar under the Award. The liability thereunder in
terms of Indian rupees virtually became double. It is,
however, true that that so far General Electric is
concerned, it secures no more than what the Award gave it in
terms of U.S. dollars. This judgment assures to General
Electric that quantum of U.S.
58 (1989) 1 SCC 532, 541-42: (1989) 1 SCR 318, 328
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currency. But the area of the discretion of the court is in
the interlocutory dispensation. We are, therefore, not
inclined to award interest pendente lite, i.e., during the
pendency of the proceedings for enforcement of the award in
the High Court as well as this Court and we hereby recall
the directions contained in the order dated February 21,
1990 as regards payment of interest on the balance of the
decretal amount. The award of interest for the period
subsequent to the date of passing of the award till the
passing of this judgment in these appeals is, therefore,
confined to the period till the date of institution of the
proceedings for enforcement of the Arbitration Award in the
Bombay High Court i.e. up to October 15, 1986.
140. As regards future interest, we are inclined to take the
view that for the period subsequent to the date of this
judgment Renusagar should pay interest @ 18 per cent on the
decretal amount that remains due after adjusting the sum of
Rs 10,69,26,590 paid by Renusagar to General Electric in
pursuance to the directions given by this Court on February
21, 1990 and November 6, 1990 till the payment of the said
balance amount.
IX. Adjustment of the sum of Rs 10,69,26,590 deposited by
Renusagar against the decretal amount:
141. As indicated earlier, in pursuance to the orders of
this Court dated February 21, 1990, Renusagar deposited a
sum of Rs 9,69,26,590 on March 20, 1990 and a further amount
of Rs 1,00,00,000 was deposited by Renusagar in pursuance to
the order dated November 6, 1990 on December 3, 1990. These
amounts have been withdrawn by General Electric. The
question is how and at what rate the said amount should be
adjusted against the decretal amount. It is not disputed
that on the date when the said deposits were made by
Renusagar and were withdrawn by General Electric, rupee-
dollar exchange rate was Rs 17 per dollar. Shri Shanti
Bhushan has, however, submitted that although General
Electric had withdrawn the amount deposited by Renusagar, it
was not able to use the same because the Reserve Bank of
India did not grant the permission to General Electric to
remit the amount by converting the same into U.S. dollars on
account of the pendency of these appeals in this Court. In
this regard, Shri Shanti Bhushan has placed before us copies
of the letters dated April 30, 1990, June 25, 1990,
September 10, 1990 and November 29, 1990 of the Reserve Bank
of India. On the basis of the said letters, Shri Shanti
Bhushan has submitted that out of a sum of Rs 10.69 crores
which was received by General Electric it was permitted by
the Reserve Bank of India to utilise only Rs 3.52 crores for
meeting administrative and operational expenses of the
Liaison Office of General Electric and the rest of the
amount would be converted only after the decision in these
appeals. Shri Shanti Bhushan has, therefore, submitted that
the amounts deposited by Renusagar should be converted from
Indian rupees into U.S. dollars at the exchange rate
prevalent on the date of the judgment of this Court and not
on the basis of the rate of exchange prevalent at the time
of the said payments by Renusagar. We are unable to agree
with this submission. The convertibility into U.S. dollars
of money paid by Renusagar in Indian rupees is not the
condition for discharge of the decree and as laid down in
Forasol case the decree can be discharged by payment in
Indian rupees and it is for General Electric to obtain the
necessary permission from the Reserve Bank of India for such
conversion of Indian rupees to U.S. dollars and the transfer
thereof to the United States. If General Electric were
finding a difficulty in such transfer on
712
account of the pendency of these appeals in this Court they
could have moved this Court and obtained necessary
clarification in this regard. They did not choose to do so.
In these circumstances, the amount of Rs 10,69,26,590 which
has been paid by Renusagar in pursuance to the orders dated
February 21, 1990 and November 6, 1990 has to be converted
into U.S. dollars on the basis of the rupee-dollar exchange
rate of Rs 17.00 per dollar prevalent at the time of such
payment and calculated on that basis the said amount comes
to US $ 6,289,800.00.
142. The judgment of the High Court passing a decree in
terms of the award is, therefore, affirmed. This would
cover the amount awarded by the Arbitral Tribunal in U.S.
dollars and interest on amounts awarded under item Nos. 1, 3
and 5 for the period from April 1, 1986 to October 15, 1986,
the date of filing of the petition by General Electric for
enforcement of the award in the Bombay High Court. The
amount paid by Renusagar during the pendency of these
appeals will have to be adjusted against the said decretal
amount and the present liability of Renusagar under this
decision has to be determined accordingly. Calculating on
this basis the amount payable by Renusagar under the decree
in terms of U.S. dollars is:
Amount awarded by the Arbitral Tribunal : 12,215,622.14
Interest on US $ 2,716,914.72 (the
total amount awarded under item
Nos. 1, 3 and 5) @ 8% per annum from
1-4-1986 to 15-10-1986 in terms of theaward 117,733.00
————
12,333,355.14
Less: Amount paid by Renusagar in pursuance
of the orders dated 21-2-1990 and 6-11-1990
during the pendency of the appeals in this
Court 6,289,800.00
————-
6,043,555.14
143.In accordance with the decision in Forasol case the
said amount has to be converted into Indian rupees on the
basis of the rupee-dollar exchange rate prevailing at the
time of this judgment. As per information supplied by the
Reserve Bank of India, the Rupee-Dollar Exchange (Selling)
Rate as on October 6, 1993 was Rs 31.53 per dollar.
144.At this stage it may be mentioned that after the
arguments were concluded and the judgment had been reserved,
an application [I.A. No. 9 of 1993 in C.A. Nos. 71 and 71-A
of 1990] was filed on behalf of Hindalco Industries Ltd. for
amendment of the cause title to substitute the applicant as
appellant in C.A. No. 71 of 1990 in place of Renusagar. The
said application has been moved on the ground that after the
filing of the said appeal the Bombay High Court, by its
order dated April 22, 1993, has sanctioned a scheme of
amalgamation of Renusagar with Hindalco Industries Ltd. and
the said scheme has also been sanctioned by the Allahabad
High Court by its order dated March 26, 1993. A true copy
of the said scheme of amalgamation has been filed along with
the said application. In clause (i) of para 4 of the
scheme, it is stated:
“(i) If any suit, appeal or other proceedings
of whatever nature (hereinafter called ‘the
proceedings’) by or against the Transferor
Company be pending, the same shall not be
abate, be discontinued or be in any way
prejudicially affected by reason of the
transfer or the undertaking of the Transferor
Company or of anything contained in this
Scheme but the said
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proceedings may be continued, prosecuted and
enforced by or against the Transferor Company
as if this Scheme had not been made.”
145.In view of the aforesaid provision in the scheme, all
pending suits, appeals or other proceedings of whatever
nature by or against the transferor company, viz., Renusagar
shall not abate or be discontinued or in any way be
prejudicially affected by reason of the transfer of the
undertaking of Renusagar and that the said proceedings may
be continued, presented and enforced by or against Renusagar
as if the scheme had not been made. The scheme of
amalgamation does not, therefore, in any way affect the
continuance of the proceedings in the above appeals in this
Court by Renusagar and in these circumstances, we find no
ground for substituting the name of Hindalco Industries Ltd.
as the appellant in place of Renusagar in C.A. No. 71 of
1990. The said application is, therefore, rejected.
146.In the result, C.A. Nos. 71 and 71-A of 1990 and C.A.
No. 379 of 1992 are dismissed and the decree passed by the
High Court is affirmed with the direction that in terms of
the award an amount of US $ 12,333,355.14 is payable by
Renusagar to General Electric out of which a sum of US $
6,289,800.00 has already been paid by Renusagar in discharge
of the decretal amount and the balance amount payable by
Renusagar under the decree is US $ 6,043,555.14 which amount
on conversion in Indian rupees at the rupee-dollar exchange
rate of Rs 31.53 per dollar prevalent at the time of this
judgment comes to Rs 19,05,53,293.56. Renusagar will be
liable to pay future interest @ 18 per cent on this amount
of Rs 19,05,53,293.56 from the date of this judgment till
payment. The parties are left to bear their own costs.
714