Delhi High Court: Whether the Executing Court Can Change the Reference Date of Conversion Provided in a Foreign Currency Award?


In Shenzhen Shandong Nuclear Power Construction Company Limited v. Vedanta Limited OMP (ENF.) (COMM.) 225/2018 decided on 6 Jan 2020, the Delhi High Court was dealing with an award comprising of two components i.e. amount payable in INR and EURO along with interest at 9% on awarded amount and 15% for delayed payments for both components. Further the award specifically provided that the EURO component was payable at the value of exchange rate as prevalent at the time of filing of the claim petition.

Aggrieved award debtor objected the award in the Delhi High Court to the extent that interest rate on the EURO component of the award should be linked to LIBOR which was lower than the awarded rate of interest. The Delhi High Court decided against the award debtor and the matter went before the Supreme Court wherein the Court modified the interest awarded by the Arbitral Tribunal to a limited extent.

The Supreme Court noticed that the Award has granted a uniform rate of 9% on both the INR and the EURO component. However, when the parties do not operate in the same currency, it is necessary to take into account the complications caused by differential interest rates. Interest rates differ depending upon the currency. It is necessary for the arbitral tribunal to co-ordinate the choice of currency with the interest rate. A uniform rate of interest for INR and EURO would therefore not be justified. [Vedanta Ltd v. Shenzhen Shandong Nuclear Power Construction Co. Ltd. Civil Appeal No.10394 of 2018]

Based on the above reasoning, the Supreme Court reduced the rate of interest on the EURO component from 9% and 15% to LIBOR plus 3 percentage points which effectively comes to 2.5%. This was done considering that the part of the award amount was payable in EURO.

In execution proceedings, the award creditor filed an application before the Delhi High Court in the present proceedings inter alia contending that the date of conversion of EURO to INR be taken as on the date of payment. Per contra, the award debtor contended that the Supreme Court, while modifying the rate of interest awarded by the Arbitral Tribunal, did not interfere with the direction given in the award to convert the EURO in INR on the date of the filing of the claim petition. The rationale behind doing so, as per award debtor was that if a uniform rate of interest is taken for both components then award debtor will suffer losses due to fluctuation of value of EURO.

While deciding this issue, the Delhi High Court noticed that the Arbitral Tribunal has given a clear finding in the award that the amount in EURO would be of the value of exchange rate as prevalent on the date of filing of the claim petition. This finding was not interfered by the Supreme Court and has attained finality. Therefore, the High Court cannot go behind the award and change the date of reference for calculating the interest rate.

In this regard, it is pertinent to discuss the principles enunciated by the Supreme Court in Forasol v. ONGC 1984 (Supp) SCC 263. The facts of that case revolved around a drilling and exploration contract entered into between ONGC and Forasol. The contract mandated a part payment in the foreign currency i.e. French francs. Due to belligerent situation prevalent between India and Pakistan in 1965, the contract was suspended. In the meanwhile, the Indian currency was devalued resulting in Forasol claiming higher conversion rate. As the dispute was not settled, the matter was referred to an arbitration.

In the arbitral award, the arbitrator/Umpire mandated conversion at the rate of FF 1000 equal to 1517.80 instead of exchange rate of FF 1.033 equal to Re. 1.000. The aforesaid award was filed before the Delhi High Court, which accordingly passed the decree executing the award without any objections from the parties as to the form. Thereafter, the Forasol filed an application for execution of the award. ONGC objected to the aforesaid execution by contending that the rate specified in the award was to be limited to the interest granted thereon and the same does not affect the main contractual amount. The Ld. Single Judge negatived all the contentions of ONGC. On appeal before the Division Bench, the High Court accepted the contention of ONGC and therefore, Forasol appealed before the Supreme Court. The question before the Supreme court was concerning choosing the best date for the rate of conversion.

The Supreme Court recognized the principle that a determination of relevant date for conversion of currency would first take place in accordance with the contractual provision and thereafter, if such explicit determination is not available, then the court would have to determine the best possible date.

The Court further observed that in an action to recover an amount payable in a foreign currency, five dates compete for selection by the court as the proper date for fixing the rate of exchange at which the foreign currency amount has to be converted into the currency of the country in which the action has been commenced and decided. These dates are – the date on which the amount became due and payable; the date of the commencement of the action; the date of the decree; the date when the court orders execution to issue; and the date when the decretal amount is paid or realized. In a case where a decree has been passed by the court in terms of an award made in a foreign currency, a sixth date also enters the competition, namely, the date of the award. The court has to 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 a fluctuating factor.

In the light of the ratio laid down by the Supreme Court in determining the relevant date for conversion of currency, the first procedure to be adopted by the court is to decide the same in accordance with terms of the contract, if such a Clause is not available in the agreement, then the courts have to determine the best possible date amongst the six of the aforesaid dates.

But in the present case, that exercise may not be relevant as there is a specific reference provided in the arbitral award i.e. that the EURO component of the award was payable at the value of exchange rate as prevalent at the time of filing of the claim petition. However, it is pertinent to note that the ratio of Forasol provides that in determining the relevant date in the given scenario, the first preference should be given to the terms of contract, if any, providing such reference date.

In the instant case, the question then arises as to whether same preference will be given to the reference date provided in the arbitral award following the commonality of party autonomy in both concepts i.e. the appointment of arbitral tribunal and signing of contract by the parties. In the case in hand, although the award debtor cited Forasol, the Delhi High Court has not dealt with it and held that the Executing Court cannot go behind the decree/award. Thus, it can be inferred that in a foreign currency award if the award provides a reference date of conversion then the executing court cannot go behind the decree and change such reference date.


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