India's Supreme Court clarifies the crucial role of deposit timing in applying exchange rates to foreign currency arbitral awards. Learn how the ability to withdraw deposited funds impacts the conversion date and final payout.

In the case of DLF Ltd. v. Koncar Generators and Motors Ltd., The Supreme Court of India clarified the rules for determining the conversion date for foreign currency arbitral awards. The Court emphasized that the timing of deposit by the award debtor and the award holder's ability to withdraw the funds play a crucial role in determining the applicable exchange rate.

Brief of Case: The case involves DLF LTD. (formerly DLF Universal LTD) and another company as appellants against the respondent, KONCAR GENERATORS AND MOTORS LTD., a Croatian company. This civil appeal, registered as NO. 7702 OF 2019, centers around enforcing an arbitral award initially made in a foreign currency, specifically Euros.

The crux of the case lies in two primary questions:

What is the proper date to determine the applicable foreign exchange rate when converting the awarded Euros to Indian Rupees?
If the party ordered to pay (the debtor) deposits funds with the court while the award is being challenged, what date governs the currency conversion?
These questions are further complicated by the inherent delay between an award's issuance and its enforceability and the ever-changing nature of global exchange rates.

The case originated from a contract dispute between the parties, ultimately leading to arbitration at the International Chamber of Commerce in Paris. The arbitration tribunal ruled in favor of KONCAR GENERATORS AND MOTORS LTD on May 12, 2004, ordering DLF and its co-appellant to jointly pay a sum exceeding 1 million Euros, plus interest.

DLF subsequently challenged the award's enforceability through various legal actions, leading to multiple court orders and deposits of funds. These actions resulted in a protracted legal battle that ultimately reached the Supreme Court of India, with the central issue being the appropriate exchange rate conversion date to apply to the deposited funds and the remaining balance.

The Apex Court provided a detailed analysis of the relevant statutory provisions and case law, particularly focusing on the landmark judgment in Forasol v. ONGC. The Court underscored the following key principles:

Enforceability as a Decree: A foreign arbitral award becomes enforceable as a decree of the court when objections against it are finally decided and dismissed under Section 49 of the Arbitration and Conciliation Act, 1996. The Supreme Court while summarising the judgment held that "Our conclusions from this judgment can be summarised as follows: 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."

Date of Decree as Conversion Date: Following the principle established in Forasol, the relevant date for determining the exchange rate for a foreign currency award is the date it becomes enforceable as a decree.

Impact of Deposit and Withdrawal: When the award debtor deposits funds during pending objections and the award holder is permitted to withdraw the sum, even if subject to security requirements, the deposited amount is converted as of the deposit date.

Rationale for Deposit Date Conversion: The Court reasoned that deposit allows the award holder to access and potentially benefit from the funds. It would be inequitable to disregard this access and apply a later conversion date solely because of pending legal proceedings.

Distinction for Non-Withdrawable Deposits: If the court order does not allow the award holder to withdraw the deposited amount until proceedings conclude, the deposit date is not the relevant conversion date. Instead, the conversion date is when the award becomes enforceable.

Applying the Principles to the Case: In DLF Ltd., the Court determined that the initial deposit of Rs. 7.5 crores, made with the consent of both parties and withdrawable by the award holder upon furnishing a bank guarantee, should be converted using the exchange rate on the deposit date (22.10.2010). The Court rejected the respondent's argument regarding difficulties in providing the bank guarantee, noting their initial consent and failure to seek modification from the court.

However, the second deposit of Rs. 50 lakhs, made pursuant to an interim court order that did not allow immediate withdrawal by the respondent, was subject to a different conversion date. The Court held that the relevant date for this deposit, and for the remaining balance under the award, was 01.07.2014, the date when the objections against the award were definitively dismissed.

Coram: Justice Pamidighantam Sri Narasimha.
Between: DLF LTD. (formerly DLF Universal LTD) Vs KONCAR GENERATORS AND MOTORS LTD
DOJ: 08/08/2024