In a recent judgment, the Supreme Court clarified critical aspects regarding the accrual of interest on amounts deposited in court and the appropriate exchange rate for converting foreign currency deposits in the context of enforcing arbitral awards.
The Court addressed the legal issues arising from the application of Order 21, Rule 1 and Order 24 of the Code of Civil Procedure (CPC) and the relevant principles for determining exchange rates.
Brief Facts:
The dispute involves the enforcement of a foreign arbitral award requiring the appellants, Indian companies, to pay the respondent, a Croatian company, Euros 10,93,989. The key facts relevant to the issues are that the award was dated May 12, 2004, and objections to the award were dismissed on April 28, 2010. During the pendency of objections, the appellants deposited Rs. 7.5 crores on October 22, 2010, and an additional Rs. 50 lakhs on July 15, 2011. The Trial Court allowed execution using the exchange rate as of July 1, 2014, when the objections were finally resolved, which was upheld by the High Court. The issues pertain to determining the correct date for applying the foreign exchange rate for the award amount and for the deposits made during the proceedings.
Issues:
- What is the correct date for determining the foreign exchange rate to convert the arbitral award amount from Foreign Currency to Indian Rupees?
- What is the appropriate date for conversion when an amount is deposited in court during the pendency of objections against the award?
Contentions of the Appellants:
The appellants contended that interest should cease to accrue once the amount was deposited in court as per Order 21, Rule 1 CPC. They argued that foreign currency deposits should be converted based on the exchange rate on the date of deposit, as the decree-holder had access to these funds.
Contentions of the Respondents:
The respondents argued that interest should continue to accrue on the deposited amounts as the decree-holder had not fully benefited from the funds. They also contended that the appropriate exchange rate for converting foreign currency should be the rate on the date the arbitral award became enforceable, not the date of deposit.
Observations of the Court:
1. Interest on Deposits: According to Order 21, Rule 1 CPC, once the judgment-debtor deposits the amount in court or tenders it to the decree-holder, interest on the deposited amount ceases. The reasoning is that the decree-holder, having the opportunity to access and use the deposited funds, should not benefit from further interest accrual. This principle aligns with judicial precedents such as Nepa Limited v. Manoj Kumar Agrawal, where the Court emphasized that interest ceases once the funds are accessible to the decree-holder. In respect to the above, the court stated “Order 21, Rule 1 embodies a rule of prudence that once the amount is tendered to the decree-holder by the judgment debtor, whether in the form of a court deposit or other forms of payment such as demand draft or cheque, the judgment-debtor cannot be made liable to then pay interest on such amount.
Therefore, the ability of the decree-holder to access and use the money in a manner he deems fit was considered by this Court while deciding the issue.”
2. Application of Exchange Rates: The Court observed that the date of conversion for any deposit made during the pendency of objections is the date on which the deposit was made.
“i. The statutory scheme of the Act makes a foreign arbitral award enforceable when the objections against it are finally decided. Therefore, as per the Act and the principle in Forasol (supra), the relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable.
ii. When the award debtor deposits an amount before the court during the pendency of objections and the award holder is permitted to withdraw the same, even if against the requirement of security, this deposited amount must be converted as on the date of the deposit.
iii. After the conversion of the deposited amount, the same must be adjusted against the remaining amount of principal and interest pending under the arbitral award. This remaining amount must be converted on the date when the arbitral award becomes enforceable, i.e., when the objections against it are finally decided.”
The Decision of the Court:
The Supreme Court partially allowed the appeal, confirming that:
- Interest on amounts deposited ceases upon tender or deposit, as per Order 21, Rule 1 CPC.
- The appropriate exchange rate for converting foreign currency deposits should be the rate on the date when the arbitral award becomes enforceable, aligning with the principles established in the Forasol case.
- The first deposit of Rs. 7.5 crores must be converted as on the date of deposit being 22.10.2010. The second deposit of Rs. 50 lakhs as well as the remaining amount due under the award must be converted when the objections proceedings attained finality on 01.07.2014. The Executing Court, being the Additional District Judge cum Commercial Court, must determine the amount payable by taking into account the exchange rate as on 01.07.2014.
Case Title: DLF Ltd. (Formerly Known as DLF Universal Ltd) and Anr. v. Koncar Generators and Motors Ltd
Coram: Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar
Case No.: Civil Appeal No. 7702 of 2019
Citation: 2024 Latest Caselaw 502 SC
Date: August 08, 2024
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