Negotiable Instruments Act, 1881 – s. 138 – The respondent-accused, being a subscriber of the appellant-chitfund company, borrowed loan amounts on several dates from appellant totaling Rs. 21,09,000/- – In order to partly discharge the aforesaid loan amounts, a cheque was issued by the accused for a sum of Rs.19,00,000/- – However, the cheque was returned with the endorsement ‘Account Closed’ – The Trial Court convicted the accused for the offence u/s. 138, N.I. Act and sentenced him to undergo one year simple imprisonment and to pay a fine of Rs. 38,00,000/- as compensation to the complainant – However, the Appellate Court acquitted the respondent and same was upheld by the High Court – Correctness: Held: It is settled that an offence u/s. 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount exceeds the arrangement made with the bank – The fact that the cheque was issued as a consequence of failure to repay the loan taken by the respondent from the appellant to which the interest was added would more or less settle the issue – However, in the present case, a discrepancy apropos the rate of interest, whether it be 1.8%, 2.4% or 3% per month was not sufficient to disbelieve the claim of the appellant – Though the respondent before the Trial Court had contended that there was no loan transaction between the parties, but still, before the Appellate Court, by way of additional evidence, he marked receipts to show the re-payment of loan – Even there, the respondent did not produce all the receipts showing total discharge of the loan amount, as was noted by the Appellate Court, and only the difference in the rates of interest as well as the finding that substantial amount has been repaid led to the acquittal of the respondent – Neither in the pronotes nor in the Statement of Accounts, the principal amount has been disputed – When the respondent does not dispute that he has handed over the cheques or signed on them, it was incumbent upon him, the moment he claims the amount(s) were repaid to the appellant to have either taken back the cheques or instructed the bank concerned to not honour the concerned cheques – However, closure of the bank accounts within a few weeks of issuance of the cheque raises serious questions about the conduct and intent of the respondent – The Trial Court has meticulously gone into each and every issue while holding in favour of the appellant – The Appellate Court as also the High Court have only gone by scrutiny of the interest amount mentioned on the pronote and effected in the Statement of Accounts of the appellant and the evidence produced before the Appellate Court by the respondent to indicate that some repayment(s) was/were made – This is erroneous and cannot be sustained – Thus, the order of the Trial Court is restored with certain modifications. [Paras 15, 16]

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[2024] 8 S.C.R. 322 : 2024 INSC 602

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

(Criminal Appeal No. 3369 of 2024)

13 August 2024

[Hima Kohli and Ahsanuddin Amanullah,* JJ.]

Issue for Consideration

In order to partly discharge the loan amount, a cheque was issued by the respondent-accused for a sum of Rs.19,00,000/-. However, the cheque was returned with the endorsement ‘Account Closed’. Whether a discrepancy apropos the rate of interest, whether it be 1.8%, 2.4% or 3% per month was sufficient to disbelieve the claim of the appellant-chitfund company.

Headnotes

Negotiable Instruments Act, 1881 – s. 138 – The respondent-accused, being a subscriber of the appellant-chitfund company, borrowed loan amounts on several dates from appellant totaling Rs. 21,09,000/- – In order to partly discharge the aforesaid loan amounts, a cheque was issued by the accused for a sum of Rs.19,00,000/- – However, the cheque was returned with the endorsement ‘Account Closed’ – The Trial Court convicted the accused for the offence u/s. 138, N.I. Act and sentenced him to undergo one year simple imprisonment and to pay a fine of Rs. 38,00,000/- as compensation to the complainant – However, the Appellate Court acquitted the respondent and same was upheld by the High Court – Correctness:

Held: It is settled that an offence u/s. 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount exceeds the arrangement made with the bank – The fact that the cheque was issued as a consequence of failure to repay the loan taken by the respondent from the appellant to which the interest was added would more or less settle the issue – However, in the present case, a discrepancy apropos the rate of interest, whether it be 1.8%, 2.4% or 3% per month was not sufficient to disbelieve the claim of the appellant – Though the respondent before the Trial Court had contended that there was no loan transaction between the parties, but still, before the Appellate Court, by way of additional evidence, he marked receipts to show the re-payment of loan – Even there, the respondent did not produce all the receipts showing total discharge of the loan amount, as was noted by the Appellate Court, and only the difference in the rates of interest as well as the finding that substantial amount has been repaid led to the acquittal of the respondent – Neither in the pronotes nor in the Statement of Accounts, the principal amount has been disputed – When the respondent does not dispute that he has handed over the cheques or signed on them, it was incumbent upon him, the moment he claims the amount(s) were repaid to the appellant to have either taken back the cheques or instructed the bank concerned to not honour the concerned cheques – However, closure of the bank accounts within a few weeks of issuance of the cheque raises serious questions about the conduct and intent of the respondent – The Trial Court has meticulously gone into each and every issue while holding in favour of the appellant – The Appellate Court as also the High Court have only gone by scrutiny of the interest amount mentioned on the pronote and effected in the Statement of Accounts of the appellant and the evidence produced before the Appellate Court by the respondent to indicate that some repayment(s) was/were made – This is erroneous and cannot be sustained – Thus, the order of the Trial Court is restored with certain modifications. [Paras 15, 16]

Negotiable Instruments Act, 1881 – s. 138 – Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 – Proceedings under N.I. Act – Interest rates not in conformity with the 2003 Act – Appropriate forum:

Held: The reasoning given by the Appellate Court, having taken note of the Tamil Nadu Act, fails to appreciate that even going by what has been written on the pronote i.e., 1.8% per month would lead to the interest being 21.6% per annum, which also is above the cap of 12% per annum prescribed in the Tamil Nadu Act – Thus, if the parties amongst themselves, agreed to a rate which is not in conformity with the Tamil Nadu Act, it was for the respondent to raise an objection or move the appropriate forum for getting the same corrected/taken care of, so that the interest rate did not exceed 1% per month but having agreed to a rate of 1.8% per month, the subsequent amount of interest calculated @ 3% per month does not have much force for it was upon the respondent to challenge the rate of interest – The respondent also cannot be said to be a layman, and being a subscriber to a chitfund company, he is expected to be aware of the laws and also of what is beneficial for him – Having issued the pronotes, he cannot now take a plea in these collateral proceedings under the N.I. Act to contend that the rate of interest was more than what was permissible under the Tamil Nadu Act. [Para 17]

Case Law Cited

Dashrath Rupsingh Rathod v State of Maharashtra [2014] 11 SCR 921 : (2014) 9 SCC 129 – relied on.

List of Acts

Negotiable Instruments Act, 1881; Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003; Code of Criminal Procedure, 1973.

List of Keywords

Section 138 of Negotiable Instruments Act, 1881; Partly discharge of loan amount; Issuance of cheque; Return of cheque with endorsement ‘Account Closed’; Discrepancy apropos the rate of interest; Marked receipts showing the re-payment of loan; Discharge of the loan amount; Agreement between the parties; Appropriate forum.

Case Arising From

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 3369 of 2024

From the Judgment and Order dated 29.01.2020 of the High Court of Judicature at Madras in CRLA No. 582 of 2012

Appearances for Parties

B. Ragunath, Mrs. N.C. Kavitha, Vijay Kumar, Advs. for the Appellant.

S Nagamuthu, Sr. Adv., S Ravishankar, Mrs. S. Yamunah Nachiar, Ms. Ruhini Dey, Advs. for the Respondent.

Judgment / Order of the Supreme Court

Judgment

Ahsanuddin Amanullah, J.

Heard Mr B. Ragunath, learned counsel for the appellant and Mr. S. Nagamuthu, learned senioar counsel for the respondent.

2.Leave granted.

3.The present appeal arises out of the Final Judgment dated 29.01.2020 (hereinafter referred to as the “impugned judgment”), passed by the learned Single Judge of the High Court of Judicature at Madras (hereinafter referred to as the “High Court”) in Criminal Appeal No.582/ 2012, whereby the appeal filed by the appellant was dismissed and the judgment dated 20.06.2012 of the Vth Additional District and Sessions Judge, Coimbatore (hereinafter referred to as the “Appellate Court”) in Criminal Appeal No.186/2010, was upheld.

BRIEF FACTS:

4.The sole Respondent (hereinafter also referred to as the “accused”), being a subscriber of the Appellant-chitfund company (hereinafter also referred to as the “complainant”), borrowed loan amounts on several dates from the Appellant over a period of about two years which swelled to a sum of Rs.21,09,000/- (Rupees Twenty One Lakhs and Nine Thousand) including interest, after eight years. The loans were advanced in the following manner: Rs.1,50,000/- (Rupees One Lakh and Fifty Thousand) was given on 09.03.1995; Rs.6,00,000/- (Rupees Six Lakhs) on 29.12.1995; Rs.1,00,000/- (Rupees One Lakh) on 22.03.1995; Rs.3,00,000/- (Rupees Three Lakhs) on 11.03.1996; Rs.1,00,000/- (Rupees One Lakh) on 09.04.1997; and finally, Rs.2,00,000/- (Rupees Two Lakhs) on 24.04.1997. In order to partly discharge the aforesaid loan amounts, Cheque No.0150573 dated 03.02.2003 was issued by the accused for a sum of Rs.19,00,000/- (Rupees Nineteen Lakhs) in favour of the complainant drawn on Indian Overseas Bank, District Court Extension Counter, Coimbatore. The complainant, on 04.02.2003, presented the cheque in Bank of India, Kurichi Industrial Estate Branch, Coimbatore which came to be returned on 05.02.2003 with the endorsement ‘Account Closed’. Thereafter, a statutory notice was issued by the complainant on 20.02.2003, reply to which was issued by the accused on 27.02.2003 repudiating the debt. Aggrieved, the complainant filed C.C.No.379/2003 before the Judicial Magistrate Court No.VII, Coimbatore (hereinafter referred to as the “Trial Court”) for the offence under Section 1381 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the “N.I. Act”).

5.Before the learned Trial Court, on behalf of the complainant, the manager of the chit-fund company was examined as PW1 and nineteen exhibits were marked. On behalf of the accused, no witness was examined, however, five exhibits were marked. The learned Trial Court, after perusing the evidence on record and hearing the parties, passed judgment dated 16.08.2010 whereby it convicted the accused for the offence under Section 138, N.I. Act and sentenced him to undergo one year simple imprisonment and to pay a fine of Rs.38,00,000/- (Rupees Thirty Eight Lakhs) as compensation to the complainant.

6.The accused filed Criminal Appeal No.186/2010 in the Appellate Court, challenging the conviction and sentence, along with a petition under Section 3912 of the Code of Criminal Procedure (hereinafter referred to as the “Code”), for letting in additional evidence. The Appellate Court allowed the petition filed under Section 391 of the Code. This order was challenged by the complainant before the High Court, which negatived such challenge and confirmed the order passed by the Appellate Court to let in additional evidence. Before the Appellate Court, the accused examined himself as DW1 and marked thirteen exhibits in order to show that substantial amounts were repaid by him to the complainant.

7.The Appellate Court, by judgment dated 20.06.2012, allowed the accused’s appeal and acquitted the respondent holding that the cheque was not issued towards a legally enforceable liability. The appellant filed Criminal Appeal No.582/2012 in the High Court impugning the judgment passed by the Appellate Court. The High Court dismissed such appeal vide the impugned judgment.

SUBMISSIONS BY THE APPELLANT-COMPANY:

8.Learned counsel for the appellant submitted that the basic folly committed by the Appellate Court as well as the High Court was that they failed to appreciate that once issuance of cheque is admitted/established, there is a presumption under Sections 138, 139 and 118(a) of the N.I. Act, which is a rebuttable presumption but the respondent has not discharged this burden. It is contended that the burden on the respondent to rebut the presumption by introducing evidence was initially not done for no justifiable/valid reason before the learned Trial Court and, even upon the plea for adducing additional evidence under Section 391 of the Code, the presumption has not been dislodged as required under law, and still the accused has been acquitted.

9.Learned counsel submitted that the Appellate Court has given benefit of doubt to the respondent by raising question about the figure in the cheque not fully tallying as per the Statement of Accounts inasmuch as in Exhibit D4 for Loan No.175, the total amount borrowed was shown as Rs.6,00,000/- (Rupees Six Lakhs) and the rate of interest is mentioned as Rs.1.80 paise per Rs.100 per month, whereas in the Statement of Accounts, the balance amount is calculated at the rate of 3% per month.

10.It was submitted that the issue of interest was not a matter to be decided and even the learned Trial Court has not disputed the principal amount. Further, learned counsel submitted that the learned Trial Court has also not accepted that the respondent was able to show that substantial amounts were returned. Thus, according to him, the dues still remained to be repaid against the respondent to be made good and so it cannot be said that the amount mentioned in the cheque which was returned was not a legally-due amount. Learned counsel submitted that on such flimsy and tenuous grounds, the amount which in law was due to the appellant from the respondent, for which the N.I. Act has been brought into existence by the Parliament so that such dues which the accused denies but for which cheques have been issued by him are not honoured, a quick procedure has been prescribed to ensure that financial disputes reach finality, has been totally frustrated by the Appellate Court and erroneously upheld by the High Court. For some receipts shown by the respondent as part re-payment of the loan amount, the contention of the appellant is that one relates to a transaction by one Shri Laxmi Finance and the rest are not genuine due to there being omissions of signature of the cashier, Manager, etc. This aspect, it is submitted, has been brushed aside.

11.He summed up his arguments by submitting that when the respondent also could not show any proof with regard to what was the rate of interest decided inter-se the parties, such an issue unilaterally could not be decided against the appellant and further that the logic of the Appellate Court that the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 (hereinafter referred to as the “Tamil Nadu Act”) prohibits charging of interest on any unsecured loan beyond a maximum of 12% per annum, in itself, was unsound as even if it is accepted that the rate of interest was only 1.8% per month, the amount over and above the maximum rate of interest would stand excluded. It was urged that this was no ground to disbelieve that the amount was legally due to the appellant from the respondent.

SUBMISSIONS BY THE SOLE RESPONDENT-ACCUSED:

12.Per contra, the learned senior counsel for the respondent raised a preliminary objection that the present appeal is devoid of any question of law, much less a substantial question of law of public importance, and does not warrant interference of this Court in exercise of discretionary jurisdiction vested under Article 136 of the Constitution of India.

13.On merits, it was his stand that when two Courts have taken the view that the appellant was not able to show that the cheque amounts were legally due to him from the respondent, this Court may not reverse such finding. It was submitted that upon further evidence being produced before the Appellate Court, it was noticed that as there is difference in the rates of interest mentioned in the pronotes issued and the Statement of Accounts of the appellant, it has rightly been concluded that the claim of the appellant that the amount mentioned in the cheque was legally due to him was not sustainable and thus, the same was not relied upon and the respondent was acquitted. It was contended by the learned Senior counsel that the proceeding under the N.I. Act being more or less summary in nature, the Court has rightfully discharged its duty of being strict in scrutiny of evidence so as not to disadvantage the accused leading to miscarriage of justice. He submitted that the present appeal does not merit any consideration and sought its dismissal.

ANALYSIS, REASONING AND CONCLUSION:

14.Having considered the rival contentions, we find that the impugned judgment upholding the order of the Appellate Court requires interference.

15.This Court in Dashrath Rupsingh Rathod v State of Maharashtra, (2014) 9 SCC 129 held that “An offence under Section 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount exceeds the arrangement made with the bank.” The fact that the cheque was issued as a consequence of failure to repay the loan taken by the respondent from the appellant to which the interest was added would more or less settle the issue. However, in the present case, a discrepancy apropos the rate of interest, whether it be 1.8%, 2.4% or 3% per month was not sufficient to disbelieve the claim of the appellant. Though the respondent before the learned Trial Court had contended that there was no loan transaction between the parties, but still, before the Appellate Court, by way of additional evidence, he marked receipts to show the re-payment of loan. Even there, the respondent did not produce all the receipts showing total discharge of the loan amount, as was noted by the Appellate Court, and only the difference in the rates of interest as well as the finding that substantial amount has been repaid led to the acquittal of the respondent.

16.On this issue, we would like to indicate that neither in the pronotes nor in the Statement of Accounts, the principal amount has been disputed and the amount arrived at, as reflected in the cheque whether it is in respect of 1.8% interest or 3% interest per month cannot be given undue importance for the reason that the pronotes indicated that under normal circumstances, when there would be repayment by the respondent, the rate would be 1.8% per month but in the event of non-repayment, how much interest by way of an added burden would lie on the respondent has not been specified. Thus, if the rate of interest of 3% instead of 1.8% per month has been added on the principal amount and the amount in the cheques reflects the same, it cannot be said that the cheques were not for repayment of the principal amount, totalling Rs.14,50,000/- (Rupees Fourteen Lakhs and Fifty Thousand). When the respondent does not dispute that he has handed over the cheques or signed on them, it was incumbent upon him, the moment he claims the amount(s) were repaid to the appellant to have either taken back the cheques or instructed the bank concerned to not honour the concerned cheques. However, closure of the bank accounts within a few weeks of issuance of the cheque raises serious questions about the conduct and intent of the respondent. The learned Trial Court, in our view, has meticulously gone into each and every issue while holding in favour of the appellant and the Appellate Court as also the High Court have only gone by scrutiny of the interest amount mentioned on the pronote and effected in the Statement of Accounts of the appellant and the evidence produced before the Appellate Court by the respondent to indicate that some repayment(s) was/were made. This, according to us, is erroneous and cannot be sustained.

17.Furthermore, the reasoning given by the Appellate Court, having taken note of the Tamil Nadu Act, fails to appreciate that even going by what has been written on the pronote i.e., 1.8% per month would lead to the interest being 21.6% per annum, which also is above the cap of 12% per annum prescribed in the Tamil Nadu Act. Thus, if the parties amongst themselves, agreed to a rate which is not in conformity with the Tamil Nadu Act, it was for the respondent to raise an objection or move the appropriate forum for getting the same corrected/taken care of, so that the interest rate did not exceed 1% per month but having agreed to a rate of 1.8% per month, the subsequent amount of interest calculated @ 3% per month does not have much force for it was upon the respondent to challenge the rate of interest. The respondent also cannot be said to be a layman, and being a subscriber to a chitfund company, he is expected to be aware of the laws and also of what is beneficial for him. Having issued the pronotes, he cannot now take a plea in these collateral proceedings under the N.I. Act to contend that the rate of interest was more than what was permissible under the Tamil Nadu Act.

18.For reasons aforesaid, the Appellate Court’s order as also the impugned judgment are set aside. The order of the learned Trial Court stands restored albeit with certain modifications. It is considered appropriate to direct the respondent to pay fine amounting to one and a half (1½) times the amount mentioned in the cheque. Accordingly, the respondent is held liable to pay an amount of Rs.28,50,000/- (Rupees Twenty Eight Lakhs and Fifty Thousand). Further, as has been averred by the respondent in his compliance affidavit that he is 86 years old and living with his wife who is also advanced in age and without issue, the sentence of imprisonment is waived, however, subject to payment, in terms of the present judgment within eight months from today, failing which such sentence of simple imprisonment for one year shall stand revived.

19.The appeal, accordingly, stands allowed in the aforesaid terms.

20.Parties are left to bear their own costs.

Result of the case: Appeal allowed.

1 ‘138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a)the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b)the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, 69[within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c)the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.’

2 ‘391. Appellate Court may take further evidence or direct it to be taken.—(1) In dealing with any appeal under this Chapter, the Appellate Court, if it thinks additional evidence to be necessary, shall record its reasons and may either take such evidence itself, or direct it to be taken by a Magistrate, or when the Appellate Court is a High Court, by a Court of Session or a Magistrate.

(2) When the additional evidence is taken by the Court of Session or the Magistrate, it or he shall certify such evidence to the Appellate Court, and such Court shall thereupon proceed to dispose of the appeal.

(3) The accused or his pleader shall have the right to be present when the additional evidence is taken.

(4) The taking of evidence under this section shall be subject to the provisions of Chapter XXIII, as if it were an inquiry.’

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Arbitration and Conciliation Act, 1996 – Arbitral Award – Enforcement of an arbitral award expressed in foreign currency – What is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees: Held: 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 case, the relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable. [Para 20(i)] Arbitration and Conciliation Act, 1996 – Arbitral Award – Enforcement of an arbitral award expressed in foreign currency – What would be the date of such conversion, when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award: Held: 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 – 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. [Para 20(ii)(iii)] Arbitration and Conciliation Act, 1996 – Appellants are Indian companies and the respondent is a Croatian company – Dispute arose between the parties – Matter referred to arbitration before the International Chamber of Commerce – Arbitral tribunal passed its award dated 12.05.2004 in favour of the respondent-claimant – Appellants then filed objections against the award u/s. 48 – The appellants deposited Rs. 7.5 crores with the Executing Court on 22.10.2010 – Trial Court dismissed the objections filed u/s. 48 – Appellants filed a revision, which the High Court admitted by order dated 03.06.2011 – The High Court stayed the operation of the Trial Court order dismissing objections, subject to the appellants depositing a further amount of Rs. 50 lakhs, in addition to Rs. 7.5 crores, with the Executing Court – The revision came to be dismissed by the High Court on 01.07.2014, by which the award attained finality as this order was not challenged any further – What would be relevant conversion date of the amount: Held: The deposit of Rs. 7.5 crores was permitted for withdrawal by furnishing a bank guarantee – So, 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 pursuant to the High Court order dated 03.06.2011 stands on a different footing from the first deposit – This order did not permit the respondent to withdraw this amount till the completion of the proceedings – Hence, the amount cannot be converted as on the date of deposit as the respondent could not have benefitted from the same – Here, the revision proceedings were complete on 01.07.2014 – Thus, 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. [Paras 11.2, 18, 19, 21]

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[2024] 8 S.C.R. 291 : 2024 INSC 593

DLF Ltd. (Formerly Known as DLF Universal Ltd) and Anr. v. Koncar Generators and Motors Ltd.

(Civil Appeal No. 7702 of 2019)

08 August 2024

[Pamidighantam Sri Narasimha* and Aravind Kumar, JJ.]

Issue for Consideration

The issue arising in the present appeal relates to enforcement of an arbitral award expressed in foreign currency. In this context, two questions arise for consideration. First, what is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees. Second, what would be the date of such conversion, when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award.

Headnotes

Arbitration and Conciliation Act, 1996 – Arbitral Award – Enforcement of an arbitral award expressed in foreign currency – What is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees:

Held: 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 case, the relevant date for determining the conversion rate of foreign award expressed in foreign currency is the date when the award becomes enforceable. [Para 20(i)]

Arbitration and Conciliation Act, 1996 – Arbitral Award – Enforcement of an arbitral award expressed in foreign currency – What would be the date of such conversion, when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award:

Held: 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 – 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. [Para 20(ii)(iii)]

Arbitration and Conciliation Act, 1996 – Appellants are Indian companies and the respondent is a Croatian company – Dispute arose between the parties – Matter referred to arbitration before the International Chamber of Commerce – Arbitral tribunal passed its award dated 12.05.2004 in favour of the respondent-claimant – Appellants then filed objections against the award u/s. 48 – The appellants deposited Rs. 7.5 crores with the Executing Court on 22.10.2010 – Trial Court dismissed the objections filed u/s. 48 – Appellants filed a revision, which the High Court admitted by order dated 03.06.2011 – The High Court stayed the operation of the Trial Court order dismissing objections, subject to the appellants depositing a further amount of Rs. 50 lakhs, in addition to Rs. 7.5 crores, with the Executing Court – The revision came to be dismissed by the High Court on 01.07.2014, by which the award attained finality as this order was not challenged any further – What would be relevant conversion date of the amount:

Held: The deposit of Rs. 7.5 crores was permitted for withdrawal by furnishing a bank guarantee – So, 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 pursuant to the High Court order dated 03.06.2011 stands on a different footing from the first deposit – This order did not permit the respondent to withdraw this amount till the completion of the proceedings – Hence, the amount cannot be converted as on the date of deposit as the respondent could not have benefitted from the same – Here, the revision proceedings were complete on 01.07.2014 – Thus, 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. [Paras 11.2, 18, 19, 21]

Case Law Cited

Gurpreet Singh v. Union of India [2006] Supp. 7 SCR 422 : (2006) 8 SCC 457 – followed.

Forasol v. Oil and Natural Gas Commission [1984] 1 SCR 526 : (1984) Supp SCC 263 – relied on.

Renusagar Power Co Ltd v. General Electric Co [1993] Supp. 3 SCR 22 : (1994) Supp 1 SCC 644; P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M [1968] 3 SCR 367; Fuerst Day Lawson v. Jindal Exports Limited [2001] 3 SCR 479 : (2001) 6 SCC 356; United India Insurance Co. Ltd. v. Kantika Colour Lab [2010] 6 SCR 204 : (2010) 6 SCC 449; Meenakshi Saxena v. ECGC Limited [2018] 5 SCR 421 : (2018) 7 SCC 479; United India Insurance Co. Ltd v. Patricia Jean Mahajan [2002] 3 SCR 1176 : (2002) 6 SCC 281; Jiju Kuruvila v. Kunjujamma Mohan [2013] 7 SCR 276 : (2013) 9 SCC 166; Triveny Kodkany v. Air India Limited (2021) 19 SCC 214; KL Suneja v. Dr Manjeet Kaur Monga [2023] 1 SCR 1079 : (2023) 6 SCC 722; Nepa Limited v. Manoj Kumar Agrawal [2022] 14 SCR 446 : (2022) SCC OnLine SC 1736; Delhi Development Authority v. Bhai Sardar Singh and Sons (C.A. 3867 of 2010) – referred to.

Progetto Grano S.P.A. v. Shri Lal Mahal Limited (2014) SCC OnLine Del 3348; Fuerst Day Lawson v. Jindal Exports Ltd (2012) SCC OnLine Del 5647; Trammo AG v. MMTC Limited (2019) SCC OnLine Del 7337; Voith Hydro v. NTPC Limited (2021) SCC OnLine Del 1325; Karamchand Thapar & Bros. (Coal Sales) Ltd. v. MMTC Ltd. (2022) SCC OnLine Del 949 – referred to.

Jugoslavenska Oseanska Plovidba v. Castle Investment Co. Inc. [1973] 3 All E.R. 498; In re United Railways of the Havana and Regia Warehouses, Ltd. [1959] 1 All E.R. 214 (CA); Schorsch Meier GmbH v. Hennin [1975] 1 All E.R. 152; Miliangos v. George Prank (Textiles) Ltd. 1976 AC 443 – referred to.

List of Acts

Arbitration and Conciliation Act, 1996; Arbitration Act, 1940; Foreign Exchange Regulation Act, 1973; Arbitration Act, 1950 (UK); Foreign Awards (Recognition and Enforcement) Act, 1961; Code of Civil Procedure, 1908.

List of Keywords

Arbitration; Arbitral award; Foreign arbitral award; Enforcement of an arbitral award expressed in foreign currency; Foreign Exchange; Foreign exchange rate for converting award; Date to determine the foreign exchange rate for converting the award; Enforcement of an arbitral award expressed in foreign currency; Relevant conversion date of amount; Section 48 of the Arbitration and Conciliation Act, 1996; Section 17 of the Arbitration Act, 1940.

Case Arising From

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7702 of 2019

From the Judgment and Order dated 26.02.2018 of the High Court of Punjab and Haryana at Chandigarh in CR No.1827 of 2017

Appearances for Parties

Pinaki Misra, Sr. Adv., Pravin Bahadur, Ms. Ruby Singh Ahuja, Ms. Kritika Gomber, Ms. Akanksha Thapa, Vishnu Kant, Ms. Uzma Sheikh, M/s. Karanjawala & Co., Advs. for the Appellants.

Abhay Mahajan, Shivam Malhotra, Manoranjan Kumar, Advs. for the Respondent.

Judgment / Order of the Supreme Court

Judgment

Pamidighantam Sri Narasimha, J.

1.The issue arising in the present appeal relates to enforcement of an arbitral award expressed in foreign currency. In this context, two questions arise for consideration. First, what is the correct and appropriate date to determine the foreign exchange rate for converting the award amount expressed in foreign currency to Indian rupees. Second, what would be the date of such conversion, when the award debtor deposits some amount before the court during the pendency of proceedings challenging the award. Two uncertainties have a direct bearing on the question to be answered, the time lapse between the date of the award and its enforceability- a local factor, and the ever-fluctuating exchange rates- a global factor.

1.1Taking into account these two factors and the statutory provisions, coupled with the decisions of this Court, we have formulated twin principles: First, following the principle in Forasol v. Oil and Natural Gas Commission,1 the date when the arbitral award becomes enforceable shall be the date for conversion. Under the Arbitration and Conciliation Act, 19962 this date is when the objections against the award are dismissed, and award attains finality. Second, in the event that the award amount or part of it is deposited in court pending objections, enabling withdrawal by the decree holder, that date of such deposit shall be the relevant date for conversion as per the principle in Renusagar Power Co Ltd v. General Electric Co.3 Before we consider the submissions of the counsels representing the parties, followed by our reasons and decision, we will refer to the relevant facts of the case.

2.Facts: The relevant facts are that the appellants are Indian companies and the respondent is a Croatian company. The parties entered a contract for the design, engineering, manufacturing, and supply of two generators by the respondent. Certain disputes arose between them that were referred to arbitration before the International Chamber of Commerce,4 Paris. The three-member arbitral tribunal passed its award dated 12.05.2004 in favour of the respondent-claimant and held the appellants to be jointly and severally liable to pay Euros 10,93,989, along with interest, as follows:

i.Euros 9,60,308.41 with interest of 5% p.a. starting on 31.10.1999 until final repayment;

ii.Euros 18,411.40 for the storage and maintenance of the goods with interest of 5% p.a. starting from the date of the award;

iii.Euros 5,545.40 relating to lawyer expenses of the claimant, euros 99,482.70 relating to arbitration fees paid to the ICC, euros 3,389.57 as guaranty expenses relating to the repayment of the appellants’ arbitration fee to the ICC, euros 6,852 relating to the arbitration costs in Paris, all these amounts with interest of 5% p.a. from the date of the award.

2.1The respondent filed for execution of the award in 2004, while the appellants filed a petition under Section 34 of the Act, which was dismissed on 28.04.2010. In 2010, the appellants then filed objections against the award under Section 48 of the Act and also filed a Section 37 appeal against the Section 34 order. The High Court dismissed the appeal by its order dated 15.10.2010, the terms of which are important for our purpose and are hence extracted:

“After arguing for some time learned counsel have reached a consensus on the present appeal. It has been agreed by learned counsel for the appellants that the appeal as well as the application under Section 34 of the Arbitration and Conciliation Act, 1996 would be dismissed as withdrawn. It has been further agreed that the appellants would deposit an amount of Rs.7.5 Crores before the Executing Court on or before 08.11.2010.

It has been agreed by learned counsel for the respondent that the application under Section 48 which has been filed by the appellants would be decided on its own merits without being influenced by any findings or observations in the order on the application under Section 34 dated 28.04.2010. It has further been agreed by learned counsel for the respondent that the amount of Rs. 7.5 Crores which would be deposited by the appellants would be released to it only consequent to furnishing a bank guarantee of a scheduled bank of India in the amount of Rs. 7.5 Crores in favour of the Executing Court and the said bank guarantee would be kept alive during the proceedings under Section 48 and for a period of 60 days thereafter. The final order thereon would obviously be passed by the Executing Court after the conclusion of the proceedings under Section 48.”

2.2In accordance with the above, the appellants deposited Rs. 7.5 crores with the Executing Court on 22.10.2010.

2.3The Trial Court dismissed the objections filed under Section 48 by order dated 02.04.2011. The appellants filed a revision, which the High Court admitted by order dated 03.06.2011. By this order, the High Court also stayed the operation of the Trial Court order dismissing objections, subject to the appellants depositing a further amount of Rs. 50 lakhs, in addition to Rs. 7.5 crores, with the Executing Court. The Court directed that the amount shall be disbursed to the successful party on the final adjudication of this lis. It also rejected the respondent’s prayer for deposit of the amount in euros. Pursuant to this order, the appellants deposited Rs. 50 lakhs on 15.07.2011. Subsequently, the revision came to be dismissed by the High Court on 01.07.2014, by which the award attained finality as this order was not challenged any further.

2.4In the execution proceedings, the Trial Court by order dated 24.08.2016 permitted the respondent to withdraw the entire deposit of Rs. 8 crores as per the direction of the High Court. On 10.10.2016, the respondent received Rs. 11,60,12,100, including the interest that had accrued on the deposited amount.

2.5The execution petition was allowed by the Trial Court by its order dated 03.02.2017, wherein it was held that the relevant date to convert the award amount expressed in euros to Indian rupees (the foreign exchange rate) is 01.07.2014, i.e., the date on which all the objections against the award were finally decided as it is only on such date that the award is deemed to be a decree. The Trial Court accepted the calculation as submitted by the respondent.

2.6The appellants filed a revision petition against this order, which was dismissed by the High Court by order dated 26.02.2018,5 which is impugned herein. The High Court rejected the appellant’s reliance on this Court’s decision in Forasol (supra) to submit that the date of decree shall be deemed as the relevant date for conversion and since the award dated 12.05.2004 is a deemed decree under the Act, the exchange rate as on the date of the award should be applied. The Court reasoned that this Court’s judgment in Forasol (supra) was passed under the Arbitration Act, 1940 and hence, does not apply in the present case. Instead, the High Court referred to the Delhi High Court’s decision in Progetto Grano S.P.A. v. Shri Lal Mahal Limited,6 against which this Court dismissed the SLP,7 where it was held that the relevant date for conversion is when the objections filed under Section 48 are finally decided. Further, the Court referred to Section 49 of the Act8 that provides that the foreign arbitral award shall be deemed to be a decree of the court when it is satisfied that it is enforceable under Part II, Chapter I of the Act. It reasoned that such satisfaction required under Section 49 is complete only when the objections filed under Section 48 are finally decided, which was on 01.07.2014 in the present case (when the High Court dismissed the revision). It also observed that the appellants delayed execution of the award by initially filing under Section 34, despite such application not being maintainable and then filing an appeal against this order and subsequently withdrawing it. The appellants cannot be permitted to benefit from the fluctuation in exchange rates when the delay is attributable to them. Therefore, the relevant date for conversion is 01.07.2014.

2.7While issuing notice on the special leave petition filed by the appellant on 10.09.2018,9 this Court confined the issue to determining whether the foreign exchange rate as on 15.10.2010 would apply to the deposit of Rs. 8 crores.

3.Submissions: Learned senior counsel Mr. Pinaki Mishra appeared on behalf of the appellants. Initially, he submitted that 01.07.2014 would not be the relevant date for conversion for the entire amount and argued for using the exchange rate on 02.04.2011, when the Trial Court dismissed objections under Section 48. However, he later restricted his submissions to the exchange rate that applies when the amount of Rs. 8 crores was deposited by the appellants on 22.10.2010 as per the order dated 15.10.2010. The crux of his argument is that the deposited amount stands converted as on the date of its deposit, and this amount then cannot be converted again as per the exchange rate prevailing on 01.07.2014. He has submitted that the High Court passed an order dated 15.10.2010 directing the appellants to deposit Rs. 7.5 crores on the consent of both parties, and also permitted the respondent to withdraw this amount on furnishing a bank guarantee in Indian rupee for the entire amount, to which the respondent had agreed at the time. He further submitted that the appellants cannot be faulted for the respondent not withdrawing the amount when it was deposited. In response to the respondent’s contention regarding their inability to furnish a bank guarantee of a scheduled Indian bank, he submitted that the respondent had agreed to this condition when the order was passed, and in any case, it could have applied for a modification but did not do so. Since the respondent consented to the deposit of Rs. 7.5 crores and it was also permitted to withdraw the same, the amount stood converted as on the date of its deposit on 22.10.2010. The exchange rate on this date was 1 euro = Rs. 59.17. While the arbitral award along with interest was euros 16,73,469.07, the deposited amount of Rs. 7.5 crores gets converted to euros 12,67,534.22 at that exchange rate, and the balance of the award would be euros 4,05,934.85 that remained pending as on this date. Subsequently, pursuant to the High Court’s interim order dated 03.06.2011 in revision against the Trial Court dismissing the objections petition, the appellant deposited an additional amount of Rs. 50 lakhs on 15.07.2011. As on this date, the amount of arbitral award including interest pending payment was euros 4,17,278.78, i.e., after converting and adjusting the earlier deposit against the award. Using the prevailing exchange rate of 1 euro = Rs. 62.89 as on 15.07.2011, the appellant’s deposit amounts to euros 79,503.90. Therefore, a balance of euros 3,37,774.88, along with interest, remains pending for which the exchange rate as on 01.07.2014 would apply.

3.1Mr. Mishra concluded by submitting that the appellants would be required to pay only Rs. 3.19 crores if their calculation is accepted. On the other hand, if the impugned judgment is upheld, they would be required to be pay more than double the amount, i.e., Rs. 6.48 crores.

3.2Mr. Abhay Mahajan, learned counsel, appearing for the respondent submitted that the exchange rate on 01.07.2014 would apply to the entire award amount. He submitted that the respondent had not consented to the deposit of Rs. 7.5 crores and that the High Court did not convert the amount but only directed deposit of a lump sum amount. He relied on this Court’s decision in P.S.L. Ramanathan Chettiar v. O.R.M.P.R.M. Ramanathan Chettiar10 where it was held that the judgment debtor depositing a sum in court during the pendency of the appeal does not pass the title and vest the money with the decree-holder. The decree-holder may withdraw the amount only on furnishing security, which means that the payment is not in satisfaction of the decree. Further, the judgment debtor can proceed against the security in case he succeeds in the appeal. Rather, the purpose of the deposit is to obtain a stay of execution and to put the money beyond the reach of the parties pending the disposal of the appeal. On this basis, Mr. Mahajan submitted that the deposit of Rs. 8 crores during the pendency of the objections under Section 48 does not pass the title of this amount to the respondent and such deposit was not under the arbitral award as the award can be deemed to be a decree only on 01.07.2014 when all the objections to the award stood dismissed. Hence, this is the relevant date for conversion.

3.3As per the calculation sheet submitted by the respondent, the exchange rate as on this date is 1 euro = Rs. 82.21 and this rate must be used for converting the entire arbitral award and interest. The amount of Rs. 11.6 crores withdrawn by the respondent on 10.10.2016 must first be appropriated towards interest and then towards the principal sum. After adjusting this amount and after accounting for interest, the respondent submits that it is entitled to Rs. 6,57,62,057 from the appellants.

4.Analysis – Statutory Scheme: It is important to first set out the statutory scheme for the enforcement of foreign arbitral awards in India. Under the Act, Part II deals with the enforcement of certain foreign arbitral awards. Chapter I deals with awards under the New York Convention. Section 45 provides for the power of a court to refer parties to arbitration.11 Section 46 provides that a foreign award which is enforceable under this Chapter shall be treated as binding for all purposes on the persons between whom it is made.12 Section 47 provides for the evidentiary requirements for enforcement of a foreign award.13 Section 48 sets out various grounds on which the court may refuse the enforcement of a foreign award.14 Section 49 provides that where the court is satisfied that a foreign award is enforceable under this Chapter, it shall be deemed to be a decree of that court. Section 50 provides for appeal against certain orders, i.e., orders refusing to refer parties to arbitration under Section 45 and orders refusing to enforce a foreign award under Section 48.15 Finally, Section 5116 is a savings clause and Section 5217 provides that Chapter II of Part II shall not apply to awards governed under this Chapter.

4.1From the statutory scheme, it is clear that a foreign arbitral award is binding between the parties when it is enforceable under Part II, Chapter I of the Act (Section 46). The enforceability of the award can be challenged under Section 48, and the order passed on such an application can be appealed under Section 50 only if it is allowed and the court refuses enforcement of the award. Therefore, a foreign award can be enforced when the objections against it are finally decided and dismissed. At this point, the award is deemed to be a decree of the court as per Section 49.18 Unlike under the Arbitration Act, 1940, there is no requirement for a separate decree by a court for making the award a rule of the court.19

5.Case-law on Relevant Date for Conversion: Now, we will discuss the case-law on the relevant date of conversion, both in the context of arbitral awards and judgments where the decretal amount is expressed in a foreign currency. The seminal case that first decided this question was Forasol v. ONGC (supra). Forasol was a French company that was awarded a tender for structural drilling of oil for exploration by ONGC. Pursuant to certain disputes that arose between the parties, the matter was referred to arbitration and on 21.12.1974, an arbitral award was passed in Forasol’s favour where the amount was expressed in French francs. This award was made under the Arbitration Act, 1940. The Court held that the award can be enforced either in foreign currency or in Indian rupee. The principles for determining conversion to Indian rupee are as follows:

5.1Where the contract provides for a rate of exchange, the same must be used to convert the amount in accordance with the wording of the contractual clause. In this case, article IX-3.1 of the contract provided for the exchange rate of FF 1.033 = Re. 1.000, which the Court held as applying to only 20% of the fees and charges computed in French francs based on contractual interpretation.20 Further, the arbitral award provided for an enhanced rate of conversion of FF 1.000 = Rs. 1.5178 as applicable to payments in Indian rupee on or after 30.11.1966 as the Indian rupee was depreciated at this time. The Court interpreted the arbitral award and held this exchange rate to apply in place of what was provided in article IX-3.1 to the extent of payments made in Indian rupee on and after 30.11.1966.21

5.2For the remaining amount that still required to be converted to Indian rupee for which no exchange rate was provided in the contract or the arbitral award, the Court considered six possible dates as the proper date for fixing the rate of exchange22:

i.the date when the amount became due and payable;

ii.the date of the commencement of the action;

iii.the date of the decree;

iv.the date when the court orders execution to issue;

v.the date when the decretal amount is paid or realised;

vi.and in cases where a decree is passed by the court in terms of an arbitral award in foreign currency, the date of the award.

5.3After an extensive discussion of English jurisprudence on the point, the Court noted the position of law in England at the time.23 Briefly stated, the position is as follows: Both courts and arbitrators in England have the jurisdiction to make a judgment/ award in foreign currency in certain circumstances. In the Jugoslavenska case,24 the Court of Appeal held that in cases of arbitral awards, the date of award is the relevant date for determining the exchange rate. This was a departure from the ‘breach date rule’, i.e., the conversion must be as per the exchange rate on the date when the debt was payable, which principle was laid down by the House of Lords in the Havana case.25 Subsequently, in the Schorsch Meier case26 (this was not a case of arbitration but a claim for payment of price of goods in a foreign currency filed before English courts), the Court of Appeal held that the date of conversion should be the date of payment, i.e., the date on which the court authorises enforcement of the judgment in terms of sterling. Finally, in the Miliangos case,27 the House of Lords also held that the date of conversion should be the date when the court authorises enforcement of the judgment in terms of sterling pound. While Jugoslavenska (supra) was not expressly overruled by the House of Lords, its correctness was doubted.

5.4The Court held that there is no bar on courts in India to pass a decree for a sum expressed in foreign currency. However, for the purpose of payment of such amount, the limitations and restrictions under the Foreign Exchange Regulation Act, 1973 (that was in force at the time) must be considered. If permission is not granted by the authorities to pay the decretal amount in foreign currency, the amount would have to be converted to Indian rupees for payment of an equivalent amount. The date of conversion becomes relevant here, as the “court must select a date which puts the plaintiff in the same position in which he would have been had the defendant discharged his obligation when he ought to have done, bearing in mind that the rate of exchange is not a constant factor but fluctuates, and very often violently fluctuates, from time to time.”28 These are the guiding principles and considerations for the Court to determine the relevant date, which are apposite even today.

5.5The Court then undertook a detailed examination of each of the 6 dates that it set out earlier and held that the date of the decree (the third option) is the most appropriate amongst them. The Court adopted the approach of eliminating other possible dates, on the following grounds:

i.The date when the amount becomes due and payable does not have the same effect of putting the plaintiff in the same position that he would have been in if the defendant had discharged his obligation. Due to the fluctuations in exchange rate, using this date could result in the decree-holder only receiving a fraction of or a lot more than what he is entitled to.29

ii.The second date – when the action or suit commenced – was rejected for the same reason as above, considering that there is usually a large period of time between the filing of the suit, the decree by the Trial Court, subsequent appeals, revisions, and reviews, and the final decision.30

iii.The Court favourably discussed the third option, i.e., the date of the decree or judgment. It held that the decree crystallises the amount payable to the decree-holder. To account for appeals and revisions, the date when the action is finally disposed of and when the decree becomes final and binding on both parties, after exhausting all remedies, can be used. However, it observed that the only objection to be considered against this date is that there is a significant lapse of time between the decree and its execution.31

iv.The Court rejected the fourth date, i.e., the date of court order for execution, despite the same being used in English law as per the decision in Miliangos (supra). It noted that the process of execution in India is a lengthy one that may require attachment of property, deciding third party claims to such property, proclamation with particulars, and auction sale. Moreover, multiple applications for execution may be required if the initial attachment and sale does not cover the decretal amount. Hence, it may lead to a situation where there are multiple execution orders, meaning multiple exchange rates would have to be considered. Another difficulty is that the execution application itself requires the amount to be expressed in Indian currency.32

v.The date of payment was also rejected as the proper date due to practical and procedural difficulties of having to pay court fees on a determined amount in Indian rupee; the pecuniary limit of the jurisdiction of courts would depend on the amount claimed, which must again be in Indian rupee; and execution is for a specific sum expressed in Indian rupee. For these reasons, the Court held that the conversion of the amount to the domestic currency cannot be left to the date of payment as the legal procedures in India require the amount to be determined in domestic currency before that.33

vi.Among the remaining dates, the Court was of the opinion that the date of the judgment/decree is the most appropriate.34 It rejected the date of the arbitral award as the proper date while observing that the Jugoslavenska case (supra), where this date was used, was doubted even by the House of Lords in Miliangos (supra). If the law laid down in Miliangos (supra) were to be applied to arbitral awards, the date of conversion would be when the court grants leave under Section 26(1) of the Arbitration Act, 1950 (UK) to enforce such award in the same manner as a judgment or to the same effect.35 Further, noting the differences between the statutory scheme for enforcement of foreign arbitral awards in the UK and in India, it held that the Jugoslavenska case (supra) will not apply in the Indian context considering the procedure under Section 17 is different from the procedure under English law.36 Section 17 of the Arbitration Act, 194037 required a judgment and decree to give an award the status of a decree, i.e., making it a rule of court, for the award to become enforceable. On the other hand, English law38 did not require a judgment to be passed in all cases and it was sufficient for the court to grant leave to enforce the award in the same manner as a judgment. In Indian law, it was not the arbitral award but only the decree of the court that could be enforced by an application for execution.39 Hence, the Court found that rather than the date of the arbitral award, the date of the judgment and decree under Section 17 is the most appropriate one to determine the conversion rate as it was only then that the arbitral award became enforceable.

6.The above extensive discussion on Forasol (supra) is necessary to understand the principles set out by this Court to determine the relevant date for conversion. The law laid down in this case was subsequently affirmed by a 3-judge bench of this Court in Renusagar Power Co. Ltd v. General Electric Co40 in the context of the Foreign Awards (Recognition and Enforcement) Act, 1961. A foreign arbitral award in favour of the respondent-claimant, which is an American company, was passed where the amount was expressed in US dollars. The respondent then filed for enforcement of this award before the Bombay High Court under the Foreign Awards (Recognition and Enforcement) Act, 1961 as the appellant was an Indian company. Both the single judge and division bench of the High Court allowed the enforcement of the award and dismissed Renusagar’s objections under Section 7 of this Act. The matter was then appealed to this Court, which dealt with several issues on objections to the enforceability of foreign awards, including the scope of inquiry under Section 7 and the meaning of ‘public policy’. The most relevant issues framed by the Court, for our purpose, are which law would govern the rate of exchange for conversion in proceedings for enforcement of a foreign arbitral award and whether Forasol (supra) required reconsideration. The Court held that the applicable law to determine the proper date for conversion is the lex fori,41 which would be Indian law. After extensively discussing the principles under English law as well as the reasoning in Forasol (supra), the Court rejected the contention that Forasol (supra) required reconsideration.42

7.The law laid down in Forasol (supra) has also been used in other cases though they do not pertain to arbitration but involved an issue of a debt expressed in foreign currency that required to be converted to Indian rupee. United India Insurance Co. Ltd. v. Kantika Colour Lab43 involved a consumer complaint for payment of an insurance claim due to the damage of a printer in transit. This Court did not cite Forasol (supra) but used the date of its judgment as the proper date for conversion of the cost of the printer that was expressed in Singaporean dollars. In Meenakshi Saxena v. ECGC Limited,44 again was a consumer complaint for payment under an insurance contract for loss suffered during export of goods, the Court noted that the contract provided for a date on which the exchange rate must be determined and followed Forasol (supra) to hold that this is the proper date.

7.1In certain other cases, the principle in Forasol (supra) has been considered but not applied due to the peculiar facts of those cases. For example, in cases of motor accident deaths where the deceased was earning in foreign currency, the Court has refused to use the date of the judgment as the proper date and has instead used the date of filing the claim as the claims in these cases were filed in Indian rupee and the Tribunal also decided the cases in Indian rupee. Hence, it was held that the amount already stood converted in the claim itself.45 Similarly, in Triveny Kodkany v. Air India Limited 46 involving claim for compensation due to the death of an airline passenger, the Court considered Forasol (supra) and Renusagar (supra) but did not apply them. It differentiated the facts in those cases as in both of them, the award holders were foreign companies. However, in this case, the claimants seeking compensation were residing in India. Further, like in motor accident cases, it found that the claim for payment was itself in Indian rupees and interest was also provided on such amount. Hence, it found that the date of filing the complaint is the proper date for conversion.

8.It is therefore clear from the above-referred analysis of judicial determinations that the principle and law laid down in Forasol (supra) has been widely considered and followed by this Court in various types of matters. There is no impediment for us to apply this decision to cases under the 1996 Act, even though it was decided under the Arbitration Act, 1940. We therefore disagree with the High Court that Forasol (supra) does not apply to cases under the 1996 Act.

9.The Delhi High Court has also relied on Forasol (supra) in several cases on the enforcement of domestic and foreign arbitral awards where the amount is expressed in foreign currency:

9.1In Fuerst Day Lawson v. Jindal Exports Ltd,47 the High Court relied on Forasol (supra) and analogised that the date on which the objections to the enforcement of the award are finally rejected and the foreign award becomes enforceable would be the date that it is deemed to be a decree under Section 49. Hence, this would be the relevant conversion date.

9.2This case was followed in Progetto (supra), where the relevant date was held to be when this Court dismissed the SLP in the objections petition. The award debtor herein had deposited the entire amount only after the dismissal of the SLP by using the exchange rate as on the date of deposit, which was higher than the rate as on date of dismissal of SLP. Hence, the High Court while deciding the execution petition directed refund of the excess amount by using the date of this Court’s order as the relevant date. In so far as the present appeal is concerned, we have already mentioned that the respondent was permitted to withdraw 7.5 crores during the pendency of the proceedings.

9.3Similarly, in Trammo AG v. MMTC Limited,48 the date of dismissal of review by this Court in the proceedings to set aside the award was held to be the relevant date.

9.4In Voith Hydro v. NTPC Limited,49 the award debtor had paid some part of the arbitral award amount during the pendency of proceedings to set aside the award. It paid 75% of the amount on 06.11.2018, against bank guarantees by the award holder, in accordance with a Niti Aayog Circular. Subsequently, this Court dismissed the SLP in the 22.09.2020. The High Court held that the exchange rate as on 06.11.2018 would apply insofar as 75% of the deposit is concerned as the claimant had received this part-payment and the exchange rate on 22.09.2020 was higher than on 06.11.2018. Relying on Forasol (supra), Renusagar (supra), and Fuerst Day Lawson (supra), it held that the exchange rate on 22.09.2020 would apply to the remaining amount.

9.5In Karamchand Thapar & Bros. (Coal Sales) Ltd. v. MMTC Ltd.,50 the date on which the arbitral award attained finality (when the SLP in the Sections 34 and 37 proceedings was dismissed) was determined as the relevant date for the exchange rate. Here, the award debtor had deposited an amount subsequent to the dismissal of the SLP at the exchange rate as on date of deposit, which was higher than the exchange rate when the SLP was dismissed. The High Court therefore also directed the award holder to refund the excess amount paid by the award debtor. This case does not involve deposit during the pendency of the objections.

10.Applying the Principle in Forasol under the 1996 Act: The reason that this Court in Forasol (supra) determined the date of the decree under Section 17 of the 1940 Act as the proper date is that it is only then that the arbitral award becomes enforceable. However, as set out earlier, the statutory scheme under the 1996 Act does not require such a judgment or decree to be passed for a foreign award to be enforceable. Rather, the enforceability of a foreign award is automatic and deemed under Section 49 after the objections against such an award under Section 48 are finally decided and disposed of. At this point, the award is enforceable as a decree of a court (Section 49). Hence, the date on which the objections are finally decided and dismissed would be the proper date for determining the exchange rate to convert an amount expressed in foreign currency.

10 .1In the present case, this date is 01.07.2014 – when the High Court dismissed the revision petition against the Trial Court order dismissing the appellants’ objections. No further appeal was preferred from this order and hence, it attained finality. While the learned counsels have not contested this issue, it was necessary for us to delve into the reason and principle behind selecting this date and to settle the position of law on the applicability of Forasol (supra) under the 1996 Act.

11.Conversion of Deposited Amounts: The primary contention by the learned counsels was regarding the proper date to determine the exchange rate to the extent of Rs. 8 crores that was deposited in the court pursuant to certain orders. The learned counsels have both referred to decisions by the Delhi High Court on this point. Mr. Mishra heavily relied on Voith Hydro (supra), where the arbitral award was partly paid against bank guarantees under a Niti Ayog circular, before the objections were finally decided. The High Court here held that the paid amount stood converted as on the date of payment as it was received by the award-holder and the exchange rate increased by the time the objections were finally decided. On the other hand, Mr. Mahajan has relied on Karam Chand Thapar (supra), where again a deposit of some part of the amount was made, albeit after the final decision on objections. Here the High Court held that the date on which the SLP in the objections was dismissed would be the proper date.

11.1In the present case, it is important to note the terms on which the two deposits of Rs. 7.5 crores and Rs. 50 lakhs were made. From the order of the High Court dated 15.10.2010, it is clear that such order for deposit of Rs. 7.5 crores and for furnishing a bank guarantee of an Indian bank for the release of the deposit was made in accordance with the consent of the parties. Mr. Mahajan’s submission that the respondent did not consent to the deposit hence cannot be accepted. The further deposit of Rs. 50 lakhs was made pursuant to an interim order of the High Court dated 03.06.2011, which stayed the Trial Court order dated 02.04.2011 and directed the deposit. However, unlike the previous order, neither was this order passed on the consent of the parties nor did it permit the respondent to withdraw the money during the pendency of the proceedings. Rather, it directed that the amount shall be deposited in a fixed deposit receipt and shall be disbursed to the successful party on the final adjudication of the objections.

11.2We will first deal with the deposit of Rs. 7.5 crores. Despite being permitted to withdraw this amount by furnishing a bank guarantee, the respondent did not do so until 2016. Mr. Mahajan contended that being a foreign company, it was unable to obtain a bank guarantee from an Indian bank. However, the order of 15.10.2010 clearly records the respondent’s consent to this condition. Further, when it was unable to comply with the same, it also did not apply for a modification or removal of the condition. Hence, the respondent, in its own discretion, did not withdraw Rs. 7.5 crores when it was deposited in 2010.

11.3A similar situation arose in this Court’s decision in Renusagar (supra) as well. This Court was deciding an appeal against the dismissal of Renusagar’s objections under Section 7 of the Foreign Awards Act, 1961. During the pendency of the appeal, by order dated 21.02.1990, this Court stayed the operation of the High Court order subject to deposit of one-half of the decretal amount calculated as on date. General Electric was permitted to withdraw the deposited amount by furnishing security by way of bank guarantee for the sum to be withdrawn in excess of Rs. 4 crores. It also directed that 10% interest p.a. would be payable by Renusagar on the balance of the decretal amount in case the appeal is dismissed, and the same interest would be payable by General Electric on the amount withdrawn by it if the appeal is allowed. Pursuant to this order, Renusagar deposited Rs. 9.69 crores on 20.03.1990, which was withdrawn by the respondent on furnishing necessary bank guarantee. In a subsequent order, this Court directed a further deposit of Rs. 1 crore and bank guarantee of Rs. 1.92 crores to be furnished by Renusagar. The deposit was made on 03.12.1990, which was also withdrawn.51 However, General Electric contended that it was unable to use a large part of this amount as it had not received permission from the Reserve Bank of India to convert the same into US dollars due to the pendency of the appeals.

11.4After rejecting various submissions by the appellant regarding the enforceability of the award, this Court decided the question of the amount in Indian rupee that was to be paid. The relevant portion on this point is extracted:

“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… 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 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… 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 the award

:

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.”

11.5From the above, it is clear that the Court adjusted the amounts deposited during the pendency of the proceedings and against security by converting them to US dollars as on the date of their deposit. It applied the date of its own judgment only for converting the remaining portion of the award in accordance with Forasol’s (supra) ruling that the date of decree or judgment, after exhausting all remedies, is the proper date. It rejected the respondent’s argument regarding its inability to convert the amount on the grounds that a decree in foreign currency can be validly satisfied by payment in Indian rupee and the respondent did not move the Court for necessary clarification.

12.The facts in this case are similar to Renusagar (supra) for an analogy to be drawn. Here as well, the deposit was made during the pendency of the proceedings under the objections petition. It was permitted to be withdrawn against a bank guarantee of an Indian bank. Here the respondent was entirely unable to withdraw the amount, while the issue there was that it was only unable to convert the amount to US dollars. However, in both cases, the respondent failed to move the Court for necessary orders to be able to receive and utilise the amount. In this case, there is the added fact that the respondent consented to the deposit and the condition requiring security. In light of these similarities, it is appropriate for us to adopt the Court’s approach in Renusagar (supra).

13.We therefore hold that the deposit of Rs. 7.5 crores stands converted as on the date of deposit (22.10.2010), when the rate of exchange as submitted by the appellants is 1 euro = Rs. 59.17. We also reject the submission by Mr. Mahajan that the respondent was unable to furnish a bank guarantee of an Indian bank. This argument is only to serve its own interest to be able to benefit from a higher exchange rate but does not address the principle that operates while enforcing a sum expressed in foreign currency.

14.It is important to appreciate the consequence and effect of deposit during the pendency of proceedings to understand the need to convert this amount on that date. Through a deposit, the award debtor parts with the money on that date and provides the benefit of that amount to the award holder. Provided that the award holder is permitted to withdraw this amount, it can convert, utilise, and benefit from the same at that point in time. Considering that the deposited amount inures to the benefit of the award holder, it would be inequitable and unjust to hold that the amount does not stand converted on the date of its deposit.

15.A similar logic underscores the statutory provisions in Order 21, Rule 1 and Order 24 of the Code of Civil Procedure, 190852 to determine whether interest will continue to operate on an amount deposited before a court. It would be relevant for us to briefly discuss the law on this point:

15.1A constitution bench of this Court in Gurpreet Singh v. Union of India53 extensively discussed the rules governing interest calculation when the defendant/ judgment-debtor deposits some part of the amount. Order 24 governs deposits at the pre-decretal stage and Order 21, Rule 1 at the post-decretal stage.54 The essence of these provisions is that on any amount deposited into the court, interest shall cease to run from the date when the depositor serves a notice to the plaintiff/decree-holder. Similarly, when payment is tendered to the decree-holder outside the court, interest ceases on such amount even if the payment is refused.55

15.2Order 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.56

15.3The rationale for this rule has been explained in Nepa Limited v. Manoj Kumar Agrawal 57 through a similar logic of the decree-holder being able to benefit from the deposited amount. In this case, the award-debtor deposited 50% of the awarded amount before the executing court to obtain a stay on the execution proceedings of the arbitral award during the pendency of appeal under Section 37 of the 1996 Act. This amount was withdrawn by the award holder, and the issue before this Court was whether interest is payable on the deposited amount even after the date of deposit. The Court held as follows:

“21. In the present case, the appellate court, on the appeal preferred under Section 37 of the Act did grant stay, subject to the condition that the appellant would deposit 50% of the amount. Rs. 7,78.280/- was deposited by the appellant on 05.11.2001. The stay, therefore, only operated for the balance amount. On the balance amount, certainly, the appellant would be liable to pay interest @ the rate of 18% per annum till the date of actual payment. However, on Rs. 7,78,280/- paid, after adjusting/appropriating payment due on the interest accrued, on the balance principal amount paid to the respondent, interest would not be payable.

24. The respondent submits that the payment of Rs. 7,78,280/- being conditional, the respondent would have been under an obligation to refund the said amount in case the appellant had succeeded in the appeal under Section 37 of the Act, 1996. This argument does not impress, as in the event the appellant had succeeded in their appeal, the entire amount paid would have been refundable. The undertaking was not onerous, and was to operate only if the amount of Rs. 7,78,280/- was not refunded by the respondent. The respondent had obviously used and utilized the money. The appellant did not have any right on the money paid to the respondent, who could use it in a manner and way he wanted. There was no charge. Money is fungible and would have gotten mixed up with the other amounts available with the respondent. Right to restitution would not make the payment conditional. Interest has been jurisprudentially defined as the price paid for money borrowed, or retained, or not paid to the person to whom it is due, generally expressed as a percentage of amount in one year. It is in the nature of the compensation allowed by law or fixed by parties, for use or forbearance or damage for its detention. In the context of the present case, interest would be the compensation payable by the appellant to the respondent, for the retention or deprivation of use of money. Therefore, once the money was paid to the respondent, interest as compensation for deprivation of use of money will not arise.”

(emphasis supplied)

15.4Therefore, 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.

15.5Here, the Court also differentiated P.S.L. Ramanathan Chettiar (supra), which has also been relied on by the respondent in the present matter, and another decision by this Court in Delhi Development Authority v. Bhai Sardar Singh and Sons58. P.S.L. Ramanathan Chettiar (supra) holds that a deposit is only a way to obtain a stay on execution and does not pass title to the decree-holder, and hence, is not in satisfaction of a decree. The decree-holder in Delhi Development Authority (supra) was not permitted to withdraw the deposited amount and hence, interest was calculated on the same. The Court in Nepa Limited (supra) however held that these cases do not apply in its facts as the respondent here was permitted to withdraw the deposited sum and did so. Hence, the Court instead relied on the ability of the respondent to use the deposited money as it deems fit.

16.These cases demonstrate that once there is a deposit by the award debtor and the award holder is permitted to withdraw the same, even if such withdrawal is conditional and subject to the final decision in the matter, the court must consider that the award holder could access and benefit from such deposit. It is then the burden of the award holder to furnish security, as required by the court’s orders, to utilise the amount or to make an application for modification of the condition if it is unable to fulfil the same.

17.In furtherance of the above, we therefore reiterate that the deposit of Rs. 7.5 crores must be converted as on the date of such deposit, i.e., 22.10.2010, when the rate of exchange as submitted by the appellants was 1 euro = Rs. 59.17.

18.The second deposit of Rs. 50 lakhs pursuant to the High Court order dated 03.06.2011 stands on a different footing from the first deposit. This order did not permit the respondent to withdraw this amount till the completion of the proceedings. Hence, the amount cannot be converted as on the date of deposit as the respondent could not have benefitted from the same. This amount could be withdrawn only in 2016, pursuant to the Executing Court’s order dated 24.08.2016. The respondent withdrew the entire deposit of Rs. 8 crores, along with the interest that accrued on this amount, on 10.10.2016.

19.From the above discussion on the first deposit, it is clear that the exchange rate on 22.10.2010 would apply to that extent and non-withdrawal by the respondent of Rs. 7.5 crores was in its own discretion and inaction. However, since the order of 03.06.2011 permits withdrawal of Rs. 50 lakhs on the completion of the proceedings, that would be the appropriate date for determining the exchange rate. Here, the revision proceedings were complete on 01.07.2014. Hence, it would be appropriate to apply the exchange rate as on this date to convert the deposit of Rs. 50 lakhs.

20.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.

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.

21.As per these conclusions, 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.

22.In light of the above, we partly allow the appeal, and set aside the findings of the High Court in the impugned judgment to the extent that Forasol (supra) does not apply under the 1996 Act and that the exchange rate on 01.07.2014 must be used for converting the entire arbitral award and interest.

23.Pending applications, if any, stand disposed of.

24.No order as to costs.

Result of the case: Appeal partly allowed.

1 [1984] 1 SCR 526 : 1984 Supp SCC 263

2 Hereinafter ‘the Act’.

3 [1993] Supp. 3 SCR 22 : 1994 Supp (1) SCC 644

4 Hereinafter “ICC”.

5 In CR No. 1827 of 2017 (O&M), Punjab and Haryana High Court (hereinafter “impugned judgment”).

6 2014 SCC OnLine Del 3348

7 SLP No. 27041/2014, order dated 21.11.2014.

8 Section 49 of the Act reads:

“49. Enforcement of foreign awards.—Where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court.”

9 By order 10.09.2018, this Court ordered: “Issue notice, returnable within four weeks, limited to the conversion rate that would be applicable on 15.10.2010 insofar as the deposit of Rs. 7.5 Crores is concerned. The same will apply to the further deposit of Rs. 50,00,000/-.”

10 [1968] 3 SCR 367

11 Section 45 reads:

“45. Power of judicial authority to refer parties to arbitration.—Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, [unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed.”

12 Section 46 reads:

“46. When foreign award binding.—Any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as including references to relying on an award.”

13 Section 47 reads:

“47. Evidence.—(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court—

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.

[Explanation.—In this section and in the sections following in this Chapter, “Court” means the High Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral award if the same had been the subject-matter of a suit on its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to such High Court.]”

14 Section 48 reads:

“48. Conditions for enforcement of foreign awards.—(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44 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

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) 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

(e) 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.

(2) Enforcement of an arbitral award may also be refused if the Court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

[Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice. ]

[Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn 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 give suitable security.”

15 Section 50 reads:

“50. Appealable orders.—(1) [Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the order refusing to—

(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48, to the court authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

16 Section 51 reads:

“51. Saving.—Nothing in this Chapter shall prejudice any rights which any person would have had of enforcing in India of any award or of availing himself in India of any award if this Chapter had not been enacted.”

17 Section 52 reads:

“52. Chapter II not to apply.—Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter applies.”

18 See Fuerst Day Lawson v. Jindal Exports Limited (2001) 6 SCC 356, paras 30 and 31.

19 ibid.

20 Forasol (supra), para 16.

21 ibid, paras 17-22.

22 ibid, paras 24-2 5.

23 ibid, para 39.

24 Jugoslavenska Oseanska Plovidba v. Castle Investment Co. Inc., [1973] 3 All E.R. 498.

25 In re United Railways of the Havana and Regia Warehouses, Ltd.,[1959] 1 All E.R. 214 (CA).

26 Schorsch Meier GmbH v. Hennin, [1975] 1 All E.R. 152

27 Miliangos v. George Prank (Textiles) Ltd., 1976 AC 443.

28 Forasol (supra), para 40.

29 ibid, para 41.

30 ibid, para 42.

31 ibid, para 43.

32 ibid, paras 44-46.

33 ibid, paras 47-52.

34 ibid, para 53.

35 ibid, paras 61-62.

36 ibid, paras 63-65.

37 Section 17 reads:

“17. Judgment in terms of award.—Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.”

38 See Section 26(1) of the Arbitration Act, 1950, which provides:

“26. Enforcement of award.—(1) An award on an arbitration agreement may, by leave of the High Court or a Judge thereof, be enforced in the same manner as a judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award…”

39 Forasol (supra), paras 65-66.

40 Renusagar (supra), see paras 131-133.

41 ibid, paras 107-108.

42 [2010] 6 SCR 204 : ibid, para 133.

43 [2010] 6 SCR 204 : (2010) 6 SCC 449

44 [2018] 5 SCR 421 : (2018) 7 SCC 479

45 See United India Insurance Co. Ltd v. Patricia Jean Mahajan (2002) 6 SCC 281; Jiju Kuruvila v. Kunjujamma Mohan (2013) 9 SCC 166.

46 (2021) 19 SCC 214

47 2012 SCC OnLine Del 5647

48 2019 SCC OnLine Del 7337

49 2021 SCC OnLine Del 1325

50 2022 SCC OnLine Del 949

51 Renusagar (supra), para 18.

52 Hereinafter “CPC”.

53 [2006] Supp. 7 SCR 422 : (2006) 8 SCC 457

54 ibid, para 14.

55 ibid, paras 15, 25 and 26.

56 KL Suneja v. Dr Manjeet Kaur Monga (2023) 6 SCC 722, para 36.

57 [2022] 14 SCR 446 : 2022 SCC OnLine SC 1736

58 C.A. 3867 of 2010.

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Suit for Specific Performance of Contract – Limitation for filing – Determination of: Held: The limitation under Article 54 of the Limitation Act, 1963 for instituting a suit for specific performance of a contract is three years from the date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused – In the agreement dated 17.12.1989, it is specifically mentioned that the sale deed would be executed within one month from the date of the said agreement – The period of one month would expire on 16.01.1990, and once there is a specific date fixed for performance, the limitation period would be three years from the said date, which would expire on 16.01.1993 – The First Appellate Court and the High Court went on the consideration that the agreement further recorded that it would remain valid for a period of five years from date of the execution of the agreement to sell – Placing reliance on this clause is totally irrelevant – The performance was to take place within one month – The validity of the agreement is something different and does not change the date of performance – As such, the suit was liable to be dismissed on the ground of limitation alone – Accepting that the plaintiffs-respondents paid an amount of Rs. 80,000/- to the defendant-appellant, and there being no relief claimed for refund of this money, in order to do complete justice between the parties, the amount of Rs. 80,000/- be returned to the plaintiffs along with 12% simple interest by the appellants within three months. [Paras 8, 9, 10, 11 and 12]

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[2024] 8 S.C.R. 501 : 2024 INSC 599

Usha Devi & Ors. v. Ram Kumar Singh & Ors.

(Civil Appeal No. 8446 of 2024)

(Arising out of SLP (C) No. 2997 of 2023)

05 August 2024

[Vikram Nath and Prasanna Bhalachandra Varale, JJ.]

Issue for Consideration

Respondents had filed a suit for specific performance in September 1993 inter alia seeking execution of sale deed on the basis of an agreement to sell dated 17.12.1989. As per the said agreement, the sale deed was to be executed and registered within one month, i.e. up to 16.01.1990. The agreement to sell incorporated a clause that the said agreement was valid for five years. The said suit for specific performance was dismissed with costs by the Trial Court. The first appellate court set aside the order of Trial Court and decreed the suit in favour of the Respondents. In second appeal, the High Court passed the impugned order confirming the order of the First Appellate Court.

Whether the High Court was justified in upholding the judgment of the first Appellate court vide which Respondents’ suit for specific performance of contract was decreed in their favour even though the suit for specific performance was filed after more than three years from the date fixed for the performance of the contract, on the basis of a clause in the agreement which stated that the agreement will be valid for five years.

Headnotes

Suit for Specific Performance of Contract – Limitation for filing – Determination of:

Held: The limitation under Article 54 of the Limitation Act, 1963 for instituting a suit for specific performance of a contract is three years from the date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused – In the agreement dated 17.12.1989, it is specifically mentioned that the sale deed would be executed within one month from the date of the said agreement – The period of one month would expire on 16.01.1990, and once there is a specific date fixed for performance, the limitation period would be three years from the said date, which would expire on 16.01.1993 – The First Appellate Court and the High Court went on the consideration that the agreement further recorded that it would remain valid for a period of five years from date of the execution of the agreement to sell – Placing reliance on this clause is totally irrelevant – The performance was to take place within one month – The validity of the agreement is something different and does not change the date of performance – As such, the suit was liable to be dismissed on the ground of limitation alone – Accepting that the plaintiffs-respondents paid an amount

of Rs. 80,000/- to the defendant-appellant, and there being no relief claimed for refund of this money, in order to do complete justice between the parties, the amount of Rs. 80,000/- be returned to the plaintiffs along with 12% simple interest by the appellants within three months. [Paras 8, 9, 10, 11 and 12]

List of Acts

Limitation Act, 1963.

List of Keywords

Suit for specific performance; Limitation; Article 54 of the Limitation Act, 1963; Agreement to sell; Validity period of agreement; Date of performance.

Case Arising From

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8446 of 2024

From the Judgment and Order dated 14.12.2022 of the High Court of Jharkhand at Ranchi in SA No. 349 of 2005

Appearances for Parties

Ajay Kumar, Nirmal Kishore, Keshav Maheshwari, Advs. for the Appellants.

Rohit Kumar Singh, Abhishek Sharma, Shivam Sharma, Akash Kumar, Advs. for the Respondents.

Judgment / Order of the Supreme Court

Order

1.Leave granted. This is the defendant’s appeal against the judgment and order dated 14.12.2022, passed by the High Court of Jharkhand at Ranchi in Second Appeal No. 349 of 2005, Usha Devi & Ors. versus Ram Kumar Singh & Ors., confirming the judgment and decree of the First Appellate Court, decreeing the suit for specific performance filed by the respondents.

2.According to the plaint allegations, the facts are as follows:

2.1The dispute relates to plot No. 2339, situated at Purulia Road, Kumhar Toli, Gali No. 2, Namkum, District Ranchi, which belonged to Kisun Ram, the grandfather of the appellants. However, the plot was sub-divided amongst the co-sharers, and plot No. 2339B of Khata No. 252 came into the share of Bihari Lal, succeeded by the defendants after his death.

2.2During his lifetime, Bihari Lal is said to have entered into an agreement with the plaintiff on 22.07.1983, for the sale of the land along with superstructure for a total sale consideration of Rs. 70,000/-. Out of the said amount, Rs. 1,000/- was paid in advance.

2.3As per the said agreement, the sale deed was to be executed upon payment of the remaining amount of Rs. 69,000/- within a period of nine months. The sale deed was not executed within the time stipulated.

2.4According to the respondents, the balance amount of Rs. 69,000/- was paid on 20.09.1985, for which an endorsement was made on the agreement dated 20.09.1985, and it was agreed that the sale deed would be executed by 30.11.1985. The plaintiffs-respondents were put in possession of the property at that stage.

2.5The sale deed was still not executed, and a fresh agreement came to be executed between the parties on 17.12.1989.

2.6The land in question, covered by the initial agreement to sell, was 10 katthas. However, in 1989, a fresh measurement exercise was undertaken according to which it came to only 9 katthas, and the price was enhanced from Rs. 7,000/- per kattha to Rs. 9,000/- per kattha.

2.7At the time of the execution of the agreement dated 17.12.1989, an initial amount of 10,000/- was paid. Thus, out of the total sale consideration of 81,000/-, only Rs. 1,000/- remained as balance to be paid at the time of the execution of the sale deed.

2.8As per this agreement to sell, the sale deed was to be executed and registered within one month i.e. up to 16.01.1990. It is interesting to note that agreement to sell also incorporated a clause at the end of the document stating that the said agreement would be valid for five years. Since the sale deed was not executed, the respondents instituted a suit for specific performance of the contract in September, 1993.

2.9The affidavit filed along with the plaint was sworn and attested on 13.09.1993.

3.The appellants filed a written statement denying the plaint allegations.

3.1According to the defendants, the said agreement to sell was a forged and fabricated document and did not bear the signatures of their father, Bihari Lal, who had since died in 1990.

3.2The appellants further alleged that the suit was barred by limitation inasmuch as it was filed beyond the period of three years from the date of performance of the sale deed as per the agreement.

3.3Various other issues were raised which we may not enter into, as primarily, it is the issue of limitation which will decide this appeal.

4.Based on the pleadings, the Trial Court framed the following issues:

a)Is the suit as framed maintainable?

b)Have the plaintiffs got any valid cause of action of the suit?

c)Is the suit barred by limitation?

d)Is the suit bad due to non-joinder of necessary parties?

e)Whether so-called agreements were done between the plaintiffs and late Bihari Lal, husband of defendant No. 1 and whether those agreements are binding on Defendant Nos. 1,2,4 and 5?

f)Are the alleged agreements forged, fabricated and concocted, which do not bear the signature of Bihari Lal?

g)Whether at the time of agreement, Bihari Lal was the absolute owner in possession of the suit property or whether the suit property was joint?

h)Is Ashok Kumar-defendant No.3 is the adopted son of Bihari Lal or the son of Shivlal and whether he has the right to contest this suit?

i)Whether the plaintiffs are entitled to the reliefs sought in the plaint and other reliefs?”

5.Both parties led evidence. The Trial Court, vide judgment dated 13.06.2004, dismissed the suit with costs. All the issues except the issue nos. 1, 2 and 3 were decided in favour of the plaintiffs. Insofar as issue no.3 is concerned it was held that the suit was barred by limitation.

6.The plaintiffs-respondents preferred an appeal registered as Title Appeal No. 50 of 2004. The said appeal came to be allowed, vide judgment dated 03.09.2005, and the suit was decreed. The defendants were directed to execute and register the sale deed as per the terms and conditions of the agreement dated 17.12.1989, after receiving the balance consideration within 30 days.

7.Aggrieved by the same, the defendants-appellants preferred a second appeal before the High Court, which has since been dismissed by the impugned order, giving rise to the present appeal.

8.We need not enter into the other issues as we are convinced that the suit was barred by limitation. The limitation under Article 54 of the Limitation Act, 1963 for instituting a suit for specific performance of a contract would be three years from the date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused. Article 54 of the Limitation Act, 1963 is reproduced hereunder:

“ ***

54.

For Specific performance of a contract

Three Years

The date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused.

9.Coming to the facts of the present case, we find that in the agreement dated 17.12.1989, it is specifically mentioned that the sale deed would be executed within one month from the date of the said agreement. The period of one month would expire on 16.01.1990, and once there is a specific date fixed for performance, the limitation period would be three years from the said date, which would expire on 16.01.1993. The Trial Court thus held that the suit was barred by limitation as it was filed in September 1993.

10.The First Appellate Court and the High Court went on the consideration that the agreement further recorded that this agreement would remain valid for a period of five years from today’s date i.e. date of the execution of the agreement to sell. Placing reliance on this clause, in our considered opinion, is totally irrelevant. The performance was to take place within one month. The validity of the agreement is something different and does not change the date of performance. What was the reason for incorporating this clause of validating the agreement for five years is not spelled out in the agreement, but in any case, it does not change the date fixed for the performance.

11.As such, the suit was liable to be dismissed on the ground of limitation alone. The appeal is thus liable to be allowed. Therefore, we have not entered into the other issues regarding the agreement to sell being valid or invalid.

12.Accepting that the plaintiffs-respondents paid an amount of Rs. 80,000/- to the defendant-appellant, and there being no relief claimed for refund of this money, in order to do complete justice between the parties, we feel it appropriate that the said amount of Rs. 80,000/- be returned to the plaintiffs along with 12% simple interest by the appellants within three months from today.

13.The appeal is accordingly allowed. The impugned order is set aside, and the suit is dismissed. However, it is directed that the appellants shall return the advance amount of Rs. 80,000/- with interest at the rate of 12 % per annum from the date it was paid to the appellants till the date it is paid. There shall however be no order as to costs.

Result of the case: Appeal Allowed.

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