RENUSAGAR POWER CO. LTD. ETC. v. GENERAL ELECTRIC CO. ETC.

The Judgment of the Court was delivered by E S.C. AGRAWAL. J.: The decision in these appeals would, we hope, mark the culmination of the protracted litigation arising out of a contract entered into by the parties on August 24, 1964 for the supply and erection of a thermal power plant at Renukoot in District Mirzapur, U.P.

p · Renusagar Power Co. Ltd (for short 'Renusagar'), the appellant in C.A.. Nos. 71 and 71A for 1990 and the respondent in C.A. No. 370/92, is a company incorporated under the Indian Companies Act, 1956 engaged in the production and sale of electric power. General Electric Company (for short 'General Electic'), respondent in CA.Nos. 71 and 71A and appellant in C.A. No. 370/92, is a company incorporated under the laws of the State of New York in United States of America and is engaged in the business of manufacturing, selling and servicing electircal products and various ancillary activities. After negotiations, the parties arrived at an arrangement whereunder General Electric was to supply to Renusagar the equipment and power services for setting up a thermal power plant to be known as 'Renusagar Power Station' at Renukoot and, on November 27,

RENUSAGARPOWERLTD. v.ELECTRICCO.[AGRAWAL,J.) 33

1963, Renusagar moved the Government of India for its approval. By its letter dated January 2, 1964, the Government of India gave its approval to the proposals and thereafter a formal contract was executed by the parties on August 24, 1964. Under the said contract, General Electric undertook to supply equipment and services for a plant having a capacity of 135,800 K.W. The total price for the electrical and mechanical equipment, spare parts, freights forwarding services, plant design and consulting services was ,. US $ 13,195,000. The contract price for all electrical and mechanical equipment and spare parts was FAS vessel, U.S.A port so selected by seller (Article II). All items of the equipment were to be delivered alongwith vessel at New York not later than 15 months from the contract effective date (which was December 31, 1964) and the erection of the plant was to be completed within 30 months from the contract effective date (Article IV A 1). 10% of the total contract basic price (US $ 1,319,500) was to be paid either in cash or by Letter of Credit. The balance 9J% of the price (US $ 11,875,500) plus interest at the rate of 6-1/2% per annum from the 16th to the 30th month of the contract effective date (US $ 900,558,75) D totalling US $ 12,776,058.75 was to be paid in 16 equal six monthly instalments commencing from the date of the expiry of 30 months from the contract effective date, and the last instalment was payable on the date of expiry of 120 months from the contract effective date (Article III). Since the contract effective date was December 31, 1964 the first instalment was payable on June 30, 1967 and the last, i.e., 16th instalment was payable on E December 31, 1974. In the contract, it was also provided the Renusagar would execute unconditional negotiable promissory notes in four series (A-B-C-D) in respect of the 16 instalments (Article III A 31 (a)] and that the notes shall be prepared substantially in the form shown in the attached ' )II Exhibit 'B' entitled "Promissory Note" and shall bear interest, at the rate of 6.1/2% per annum on the outstanding principal balance commencing from 30 months after contract effective date (Article IIl-3 (a)]. A provision was also made that the payment of the full amount of each note shall be unconditionally guaranteed by the United Commercial Bank or other mutually acceptable bank. (Article III-A 3 (e)]. The contract contained an arbitration clause which provides that any disagreement arising out of or related to the contract which the parties are unable to resolve by sincere negotiation shall be finally settled in accordance with the Arbitration Rules of the International Chamber of Commerce (for short 'ICq). Each party would appoint one arbitrator and the Court of Arbitration of the ICC H

34 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.

A would appoint a third arbitrator (Article XVII). It was also agreed that the rights and obligations of the parties under the Contract shall be governed in all respects by the laws of the State of New York, USA (Article XIX A).

It was, also, provided that if General electric received an exemption from the Government of India from the payment of income-tax levied by the Government of India on interest payments made by Renusagar then the interest rate on that series of promissory notes as exempted shall be reduced from 6.1/2% to 6% per annum commencing on the date such exemption is made effective and the notes so affected shall be replaced by new notes [Article III A:> (b)]. In the contract it was stated that General Electric intended to apply to the Central Government of India for exemp- tion from income tax on the interest (Including capitalisation interest and interest thereon) and Renusagar undertook to assist General Electric in expediting the application of General Electric for exemption. It was also agreed that should the application of General Electric be denied Renusagar may withhole the Indian income-tax applicable to any payment of interest, but Renusagar was, to furnish General Electric with receipts on ,, all withheld amounts apid to the Goverllm.ent of India. (Article XIV B].

By its orders dated September 3, 1965 and June 7, 1967 the Govem- E ment of India gave their approval under Section 10(15)(iv)(c) of the Income Tax Act, 1961 to the loan obtained by Renusagar from General electric and thereby exempted the interest paid on the said loan from payment of income tax. The said exemption was, however, withdrawn by the order of the Government of India dated September 11, 1969 whereby F the orders granting exemption were cancelleq retrospectively and General Electric was held liable to pay Indian income tax on the interest payable @ 6.5.% per annum.

Renusagar filed a writ petition (C.W. No. 179nO) before Delhi High Court on February 24, 1970 wherein it challenged the above order of the G Government of India dated September 11, 1969 relating to cancellation or revocation of the tax exemption. In the said writ petition, the Delhi High Court on February 24, 1970 passed an ad-interim order restraining the ,Government, of India and its officers from enforcing, or implementing the said order dated September 11, 1969. The said order was continued by H order dated May 18, 1970 subject to Renusagar furnishing st!t:urity for Rs.

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.) 35

4 lakhs to the satisfaction of Commissioner of Income-Tax, Lucknow.· A Renusagar furnished the necessary security and as a result, the operation of the order dated September 11, 1969 was suspended. Renusagar, how- ever, did not remit the amount of interest calculated @ 6% per annum payable to Gene.rat Electric in terms of the contract. Renusagar only remitted 27% of the amount of interest calculated @ 6-1/2% per annum and it did not deposit the balance amount of 73% by way of tax with the Government but retained the same with themselves. It, however, sent letters to General.Electric to the effect that they had deducted the said amount towards tax and had retained the same with itself. Originally General Electric was not impleaded as a party in the writ petition before the Delhi High Court and it got itself impleaded as a respondent in the writ petition by moving an application dated October 28, 1977. The writ petition was decided by the Delhi High Court by its judgment dated November 17, 1980 whereby the writ petition was allowed and the order a dated September 11, 1%9 was set aside. As result the exemption from the payment of income-tax on the interest payable by Renusagar was restored and the liability of Renusagar for interest was reduced from 6.1/2% to 6%. On June 3, 1981, Renusagar moved the Reserve Bank of India for permission to remit the balance amount of Regular interest calculated @ 6% per annum to General Electric and on February 3, 1982, the Income-tax Officer, Bombay issued "No Objection Certificate" for repatriating the balance regular interest amount of US $ 2.130 million. The E said amount was, however, not remitted by Renusagar to General Electric.

It,. appe~s that there was. some delay on the part of the General Electric in adhering to the time schedule for the supply of equipment and keeping the same in view General Electric by their letter dated January 5, F 1%7 agreed to defer the payment of the first instalment payable of June 30, 1967 by six months and suggested that the promissory notes shall be recast into 15 notes instead of 16 which would commence on the 36th month from the contract effective date and capitalised interest shall be calculated for 20 months instead of 14 months and the said interest would then be reduced by a sum of 132,500 US $. By another letter dated October G 4, 1967, General Electric agreed to recast the note structure to provide for 14 notes with the first note becoming due on June 30, 1%8 instead of December 31, 1967 and the capitalised interest was to be calculated for20 months instead of 14 months and it would be reduced to 132,500 US $. It appears that during the course of supply of equipment and erection of the H

36 SUPREME COURT REPORTS [1993) SUPP. 3 S.CR.

A plant, some disputes arose between the parties and Renusagar made certain claims against General Electric some of which were accepted by General Electric and a settlement was arrived at on December 10, 1968 whereunder General Electric agreed that the payment of the instalments due on December 30, 1968 and June 30, 1969 with accrued interest would B be deferred for payment with the result that there would be no payment on December 31, 1968 -and June 30, 1969 been on interest and principal and that the interest accrued upto December 31, 1968 and to accrue upto June 30. 1969 on the oustanding balance due would.be calculated at the rate provided for in the contract and capitalised and that the entire sum, namely, the principal and interest to be so capitalised would be recast in C 13 notes, the first of which would be payable on December 31, 1969 and the last on December 31, 1975. As a result of these discussions and settlement, instalments nos. 1,2,4 and 5 were not paid by Renusagar on the due dates. Renusagar moved the Government of India for approval to the revised schedules regardiD.g the payments of the instalments to General D Electric. The said request of Renusagar was, however, not accepted by the Government of India and by their letter dated August 1, 1969, the govern- ment of India expressed their inability to agree to the revised proposals for repayment in view of the larger outgo of foreign exchange (by way of inte.rest) which was not contemplated when the loan was approved original- ly. Renusagar were, therefore, asked to take necessary action to effect · E payments of the past instalments immediately. The request for review of the said decision was rejected by the Government of India by their letter dated August 4, 1969. The first instalment which was payable on June 30, 1967 under the original contract was paid by Renusagar in instalments by July, 1970, the second instalment which was payable on December 31, 1967 F was paid in instalments by December, 1971, the fourth instalment which was payable on December 31, 1968 was paid in instalments by December, 1973 and the fifth instalement which was payable on June 30, 1969 was paid in instalments by February, 1976.

On March, 1, 1982, General Electric served a notice on Renusagar G indicating its intention to arbitrate pursuant to clause XVII of the Contract. On March 2, 1982, General Electric .tn.a~e a request to. the Court of Arbitration of ICC for arbitration of the disputes between General electric and Renusagar. ICC, after taking: cognizance of the said request for ar- bitration made by General Elecrtric, called upon Renusagar to nominate their arbitrator, file its reply and remit certairi sums towards administrative

RENUSAGARPOWERLID. v. ELECTRICCO.(AGRAWAL,J.) 37

expenses and arbitration fees. Renusagar raised an objection that the claims of General Electric did not fall within the purview of a~bitration clause in the contract and challenged the arbitrability of the claims. The Arbitration Court of ICC accepted that there was a prima facie dispute within the agreement and appointed Rt. Hon. Peter Thomes, Q.C MP as Chairman of the Arbitral Tribunal and confirmed the appointment of Prof. B Boris I. Bittker as arbitrator nominated by General Electric and Dr. R.K. Dixit as arbitrator nominated by Renusagar.

On June 11, 1982, Renusagar filed a suit {Suit No. 832/82) in the Bombay High Court, on its original side, against General Electric and the ICC seeking a declaration that the claims referred to the arbitration of ICC C by General Electric were beyond the purview and scope of Article XVII of the contract dated August 24, 1964 and that General electric was not entitled to refer to same to arbitration with consequential prayers for injunctions restraining the ICC and General Electric to proceed further with the reference and restraining ICC from requiring Renusagar to make any deposit towards administrative expenses and arbitration fees. Renusagar obtained an ex-parte ad-interim relief in the said suit. General Electric filed Arbitration Petition No. 96 of 1982 under section 3 of the Foreign Awards {Recognition and Enforcement) Act, 1961 {hereinafter referred to as 'the Foreign Awards Act') seeking stay of suit No. 832 of 1982 and all proceedings therein with a prayer for vacting the ad-interim ex-parte reliefs obtained by Renusagar in the said suit. Both the matters, namely, stay petition of General Electric under section 3 of the Foreign Awards Act and Renusagar's notice of motion for confirmation of ad-in- terim relief were heard together and disposed of 1,Jy a learned Single Judge of the Bombay High Court by a common judgment and order dated April F 20, 1983 t- whereby the prayer for stay of the suit filed by General Electric under section 3 of the Foreign Awards Act was allowed and all proceedings in the said suit were stayed and all the interim reliefs which were granted earlier by ad-interim order were vacated. C.A. Nos. 404-405 of 1983 filed by Renusagar against the said judgment of the learned Single Judge were dismissed by a division of the High Court b)ijudgment dated October 21, G

1983. The appeals filed by Renusagar against the said decision of the High Court were dismissed by this Court on August 16, 1984. [See : Renusagar Power Co. Ltd. v. General Elecrtric Co. & Anr., (1985] 1 SCR 432], hereinafter referred to as 'Renusagar Case I'. In the said case, this Court (Tulzapurkar & Pathak, JJ) has held that the three claims referred by H

38 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R. . ( A Genral Electfic to the ICC do 'arise out of' and are 'related to the contract' and squarely fall within the widely worded arbitration clause contained in Article XVII of the Contract.

On August, 19, 1982, General Electric filed a suit in the Calcutta B High Court against United Commercial Bank to enforce the bank guaran- tee given by the said Bank at the instance of Renusagar. As a counter to, the said suit, Renusagar, on November 25, 1982, filed a suit (no. 127 of· 1982) in the Court of Civil Judge, Mirzapur, U.P. praying for a declaration that the guarantee given by United Commercial Bank for and on behalf of Renusagar stood discharged and had become ineffective and unenforce- C able and for a mandatory injunction directing and ordering General Electric to settle the claim of Renusagar regarding 75 MVA Transformers and to satisfy the settlement validly arrived at the the .claim of Renusagar as mentioned in the plaint of the said suit. General Electric filed an application in the Mirzapur Court whereby it was prayed that the suit was liable to be stayed under section 10 and/or section 151 CPC in respect of the first relief and under section 3 of the Foreign Awards Act in respect of the second relief claimed by Renusagar in the plaint. The said applica- tion was rejected by Mirzapur Court and thereupon General Electric filed a petition under Article 227 of the Co11$titution before the Allahbad High Court for quashing the proceedings in the suit. The said petition was, however, dismissed by the High Court by order dated April 4, 1985. Thereupon General Electric filed Civil Appeal No. 2319/86 in this Court - which was allowed by this Court ( Chinnappa Reddy & J agannatha Shetty, JJ.) by judgment dated August 11, 1987 reported as General Electric Co. Ltd v. Renusagar Power Co., (1987] 3 SCR 858, hereinafter referred to as F 'Renusagar Case II'. As a result of the said judgment, the proceedings in the Suit No. 127/82 in the Court of Civil Judge, Mirzapur were stayed under sectiol} 3 of the Foreign Awards Act.

We may now revert to the arbitration proceedings. After the decision G of the learned Single Judge of the Bombay High Court staying further proceedings in Suit No. 832/92 and vacating the interim order passed in the said suit, Renusagar entered into the arbitration proceedings on June 9, 1983 under protest and without prejudice to its claim on arbitrability and gave answer to the claims of General Electric and also made counter claims. On February 7 and 8, 1984 both the parties met with the· Arbitral H Tribunal in Paris and agreed to sign the terms of reference, though

RENUSAGARPOWERLTD. v. ELEC'IRICCO.(AGRAWAL,J.] 39

Renusagar did so under protest and without prejudice. Certain amend- A ments were subsequently made in the terms of reference. In the said Terms of Reference the issues to be determined were defined in clauses (a) to (cc) of para 22. Issues in clauses (a) to (t) of para 22 of the Terms of Reference were determined by an interim award on December 11, 1984 wherein the Arbitral Tribunal found that General Electric and Renusagar B were parties to a valid agreement to arbitrate all disputes between them .. arising out of or related to the 1964 Contract and that the issues referred to the Arbitral Tribunal, apart from two minor exceptions which were reserved for determination, were such arbitral disputes and that the Ar- bitral Tribunal had jurisdiction to adjudicate on them. The Arbitral Tribunal also held that the applicable law was that of the State of New C York, U.S.A.

After the decision of this Court in Renusagar Case I, both the parties appeared before the Arbitral Tribunal in Paris for a hearing which lasted for ten days between February 25 and March 8, 1985. Each party was represented by counsel and legal and other advisers and Issues Nos. (g) to D (p) of para 22 of the Terms of Reference were argued and submitted for consideration by both the sides and the hearing was adjourned to a later date for more detailed consideration to be given to the remaining issues and for further written submissions to be made by both parties. The next hearing was fixed to be in London to begin on October 1, 1985 and both parties were summoned to appear before the Arbitral Tribunal. Khaitan & partners, lawyers for Renusagar sent a letter dated July 24, 1985 to the Arbitral Tribunal, wherein they stated that an Indian Civil Court has seisin of the whole of the subject matter of the reference in this arbitration and submitted that in consequence the Arbitral Tribunal and ICC had become functus officio and that no further proceedings in this arbitration should be taken by the Arbitral Tribunal. The said submission by Renusagar was disputed by General Electric and the Arbitral Tribunal informed the parties that the matter would be considered as a perliminary issue at the scheduled meeting in London on October 1, 1985. The scheduled meeting took place in London on October 1, 1985. General Electric, represented by counsel and ·advisers, appeared before the Arbitral Tribunal but Renusagar failed to appear. The Arbitral Tribunal considered the written submissions of Renusagar on the issue of the jurisdiction of the Arbitral Tribunal and heard the arguments of General Electric and by majority (Dr. Dixit dissenting), the Arbitral Tribunal ruled that their jurisdiction. remained and that the arbitration should proceed in the absence of H

40 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A Renusagar. It appears that before the meeting on October 1, 1985, each Arbitrator had received from the parties during the course of the arbitra- tion a total of 33 bound volumes of typed submissions, exhibits and legal authorities, (General Electric having presented 19 and Renusagar 14) and in addition each party had put before the Arbitral Tribunal a large number of papers. On October 2, 3 and 4, 1985 the Arbitral Tribunal considered the said documents as well as the written submissions of Renusagar on issues (q) to (bb) of the Terms of Reference and heard the argumetns of counsel for General Elecrtric in reply. The Arbitral Tribunal also con- " sidered the submissions of Renusagar on the validity of the claim of entitlement of General Elecrric to 'dollar for dollar' foreign tax credit at the relevant period in this action and also heard General Electric on the question of costs. Thereafter, the Arbitral Tribunal by a majority (Dr. Dixit dissenting) made the award on Septem_!'er 16, 1986.

The Arbitral Tribunal upheld the claim of GEC for US$ 2,130,785.52 towards regular interest which was withheld by Renusagar. It was not disputed by Renusagar that it had retained the said amount. The issue was whether by doing to Renusagar acted wrongfully. The Arbitral Tribunal has found that the said withholding or retention of the amount of interest by Renusagar was wrongful since the failure on the part of Renusagar to pay the taxes over to the Indian tax authorities rendered it impossible for E General Electric to get the U.S. Foreign tax credit to which it would otherwise have been entitled for the amount withheld. It was also held that nothing in the 1964 contract authorises non- payment of either the interest or the withheld taxes for tactical reasons arising out of litigation brought by Renusagar. The Arbitral Tribunal rejected the contention of Renusagar that the claim in respect of regular interest was barred by limitation and held that the applications submitted by Renusagar to Reserve Bank of India on June 3, 1981 and August 29, 1981 for permission to remit the said amount to General Electric amount to acknowledgement. It was also held that the said sum had to be computed in U.S. dollars regardless of variation in dollar-rupee exchange rate prevailing from time to time. As regards claim for compensatory damages on the said amount of regular interest, which was withheld by Renusagar, the Arbitral Tribunal, after referring to the decisions of New York Courts, has held that an arbitrator's paramount responsibility is to reach an equitable result and that it is a basic principle of damages for breach of contract applicable throughout the U.S., (includ- ing New York) that a party to a contract who is injured by its breach is entitled to compensation for the injury sustained and is entitled to be

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.) 41

placed is so far as this can be done by money in the same position he would have occupied if the contract had been performed. The Arbitral Tribunal found that General Electric would have benefitted from 'dollar for dollar' from the foreign tax credits that it could have claimed had Renusagar paid the disputed amounts over to the Indian tax authorities and supplied General Electric with the appropriate tax certificate. The Arbitral Tribunal, therefore, awarded compensatory damages and computed the same by applying the average prime rate to the amounts withheld and observed that although General Electric was entitled to interest from the due dates of the various notes but the interest that had been claimed by General Electric in the Terms of Reference was computed from the later dates set out in a detailed computation supplied to the Arbitral Tribunal C and since General Electric had accepted these later dates in its submission, the Arbitral Tribunal awarded compensatory damages computed by apply- ing the average the prime rate to the amounts withheld commencing with the dates listed in' the statement and compounded annually commencing with the last day of the calendar year for each amount. The Arbitral Tribunal rejected the contention urged on behalf of Renusagar that award D

-· of interest on regular interest as compensatory damages would violate public policy of the State of New York against 'interest on interest'. Relying upon the decision of the New York Court of Oaims in City of New York vs. State of New York, 408 N.Y.S. 2d 702, 707 (1:978), the Arbitral Tribunal held that interest on interest is not against public policy in the State of New E York. The Arbitral Tribunal also rejected the contention of Renusagar that it would violate New York's public policy of award compound interest as compensatory damages and, after referring to the various decisions of the courts in the State of New York, the Arbitral Tribunal has held t!tat compounding of interest is equally appropriate in actions of an equitable nature and in the circumstances of this case compounding of interest would not violate the public policy of the State of New York. In this context the Arbitral Tribunal has pointed out that they were not concerned with a contract to pay compound interest but with the propriety of compounding interest in fashioning a remedy for a breach of contract in order to put the injured party in the same economic position it would have occupied if the contract had been duly performed. As regards the claim for delinquent interest on late payment of instalments by Renusagar, the Arbitral Tribunal held that Renusagar was liable to pay such delinquent interest. The Ar- bitral Tribunal found that under the 1%4 Contract the notes evidencing the obligation of Renusagar to pay the purchase price 'shall bear interest, at the rate of 6.5% per annum on the outstanding principal balance', H

42 SUPREME COURT REPORTS [1993} SUPP. 3 S.C.R.

A subject to the agreed reduction to 6% commencing with the date when tax exemption, if granted, is made effective and that the rescheduling negotia- tions on which Renusagar relied never resulted in an Effective Agreement and there was no evidence of a waiver by General electric of its right to be paid on the original due dates when the rescheduling plan collapsed and further that Renusagar had acknowledged in telex dated March 25, B 1976 that they were liable for interest on the delayed payment of the principal. The Arbitral Tribunal also rejected the contention that the claim of General Electric in this ·regard was haired by the statute of limitation. Taking into account the acknowledgement contained in the telex dated March 25, 1976, the Arbitral Tribunal deducted a sum of USS 316, 610 C from the amount of USS 783,686.20 computed as interest @ 6% and held that General Electric was entitled to net amount of USS 467, 076.20 by way of delinquent interest. The Arbitral Tribunal rejected the contention urged on behalf of Renusagar that even if period of limitation is computed from telex of March 25, 1976 the claim was barred by limitation in view of the four-year limitation prescribed by Section 2-275(1) of New York's Version D of the Uniform Commercial Code which came into force with effect from September 27, 1964. The Arbitral Tribunal held that the said provision was not applicable to the present case and that it is governed by the 6-year period of limitation that was prescribed in the State of New York prior to the commencement of the said proyision. The Arbitral Tribunal further B '1eld that General Electric was entitled to compensatory damages on the aforesaid amount of delinquent interest in the same manner as damages were to be computed on the unpaid amount of regular interest. The Arbitral Tribunal also upheld the claim of General Electric for US$ 119,053.31 towards purchase. price of spare parts and further held that the said claim was not barred by limitation in view of the acknowledgement by F Renusagar in the telex dated March 25, 1976. The Arbitral Tribunal also held that compensatory damag~s were payable on account of Renusagar's failure to pay for spare parts in the same manner as damages for failure of Renusagar to pay regular interest. With regard to the counter-claim made by Renusagar, the Arbitral Tribunal had earlier rejected the pur- G ported withdrawal of the said counter-claim in respect of items 2 to 8 by Renusagar and after considering the said counter-claim on merits, the Arbitral Tribunal rejected the same in respect of all the eight items. In view of the rejection of counter-claim of Renusagar, the Arbitral Tribunal rejected the claim made by General Electric by way of reply to the claim of Renusagar. In the matter of costs, the Arbitral Tribunal held that H Renusagar must pay the· costs of arbitration. and apart fr~ the am~unt

RENUSAGARPOWERLTD. v. ELECTRICCO.(AGRAWAL,J.] 43

which General Electric was required to pay towards administrative expen• A ses and arbitration fees, the Arbitral Tribunal held that Renusagar must also pay the normal legal costs incurred by General Electric. The Arbitral Tribunal awarded the following amounts against various heads of claims:

1Copy pinpoint1. Regular interest wrongfully withheld US$ 2,130,785.52

2Copy pinpoint2. Compensatory damages to March 31, B US$ 6,347, 748.50 1~86 on the above regular interest continuing at the annual rate of 8% ' on the said _regular interest until payment.

3Copy pinpoint3. Delinquent interest on late payments US$ 467,076.20 c of principal

4Copy pinpoint4. Compensatory damages to 31 March, US$ 1,324,357.75 1986 on the above delinquent interest continuing at the annual rate of 8% D on the said delinquent interest until payment

5Copy pinpoint5. Spare parts US$ 119,053.00

6Copy pinpoint6. Compensatory damages to 31 March US$ 276,702.17 1986 on the above spare parts E continuing at the annual rate of 8% on the said sum for the spare parts until payment. • 7. Towards costs of General electric US$ 1,549,899.00 F Total US$ 12,215,622.14

The Arbitral Tribunal has awarded interest at the annual rate of 8% of items 1,3 and 5

On October 15, 1986, General Electric instituted proceedings for G enforcement of the award of the Arbitral Tribunal by filing Arbitration Petition No. 159/86 under section 5 of the Foreign Awards Act in the Bombay High Court. On October 17, 1986, Renusagar instituted a suit (Suit No. 256/86) in the Court of Civil Judge, Mirzapur, seeking a declaration that the award made by the Arbitral Tribunal was a nullity and for H

44 SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.

A restraining General Electric by a perpetual injuction from denying Renusagar's rights and taking any action affecting Renusagar's rights in any manner whatsoever on the basis of the said award. General Electric filed a Transfer Petition (No. 388/86) in this Court seeking transfer of the suit filed by Renusagar in the Mirzapur Court to the original side of the Bombay High Court. By order dated September 10, 1987, this Court stayed B· further proceedings in the suit filed by Renusagar in the Mirzapur Court and the stay was to remain in operation during the pendency of the petition filed by General Electric for enforcement of the award.

Renusagar contested the proceedings for enforcement of the award C filed by General Electric in the Bombay High Court and submittted: (i) the award could not be filed as it did not become binding on the parties in the country in which the award was made as prescribed under Section 7(1) (a) (v) of the Foreign Awards Act and rule 801 (c) of the Rules framed by the Bombay High Court under the Foreign Award Act; (ii) the Bombay D High Court did not have the territorial jurisdiction to entertain the petition of General Electric under section 5 of the Act; (iii) General Electric had failed to comply with the mandatory requirement of Section 8(1) (a) of the Foreign Award Act and Rule 801(a) of the Rules framed by the Bombay High Court under the Foreign Awards Act inasmuch as neither the original · B award nor a copy thereof duly authenticated as required by the law of the country had been produced along with the application; (iv) The award sought to be enforced was a nullity and should be ignored as the arbitrators had be.come functus officio in view of institution of Suit No. 127/82 by Renusagar in the Court of Civil Judge, Mirzapur and refusal by the F Mirzapur Court to st4y the suit under section 3 of the Foreign Awards Act;. (v) The award could ncit be enforced in view of section 7(1) (b) (ii) of the Foreign Awards Act because its enforcement was contrary to public policy; (iv) The claim for r~gular interest was barred by limitation; (vii) the claim for delinquent interest had been wrongly accepted by the arbitrators; (viii) G the award of interest on interest or compensatory damages in lieu of interest on regular interest and delinquent interest and the award of compound interest is contrary to public policy; (ix) the compensatory damages were excessive and unusual; (x) the Chairman of the Arbitral Tribunal was biased against Renusagar; and (xi) the costs of arbitration were unconcionable and excessive.

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.] 45

The learned Single Judge (Pendse, J.) has considered all the aforesaid objections raised on behalf of Renusagar in his very comprehen- sive judgment dated October 21, 1988 wherein after rejecting the said objections, he had held that the award is enforceable under the provisions of the Foreign Awards Act and on that basis a decree in terms of the award was drawn. B Renusagar filed an appeal (Appeal No. 680/89) under clause 15 of the Letters Patent of the Bombay High Court against the said judgment of the learned Single Judge which was disposed of by a division bench of the said High Court (C. Mookerjee, CJ and Mrs. Sujata Manoha, J.) by judgment dated October 12, 1989. The learned Judges of the High Court C held that the said apeal was not maintainable in view of section 6(2) of the Foreign Awards Act. The learned Judges, however, examined the matter on merits and found that there was no substance in the appeal. In this context the learned Judges have dealt with the objection about the ar- bitrators having become functus officio on account of the pendency of the civil suit filed by Renusagar in the Mirzapur Court; the award being contrary to public policy; the award being not binding; the failure to file the authenticated copy of the award and the jurisdiction of the Bombay High Court to entertain the petition and they have rejected the contentions urged by Renusagar in respect of the said objections. Since the learned Single Judge had not specified the rate of exchange for conversion of the decretal amount expressed in U .s; dollars to Indian Rupees, the learned Judges have dealt with the said question and taking into consideration and decision of the court in Forasol v. Oil and Natural Gas Commission, [1984) 1 SCR 526 they have directed that the date of conversion of decretal amount which is in U.S. dollars to Indian rupees shall be the date on which p the learned Single Judge completed pronouncing of judgment, i.e., October 21, 1988 and that· opening the rate of exchange shall be the selling rate of U~S .. Dollars as ascertained by the State Bank of India. The learned Judges have granted a certificate for appeal to this Court under Article 134-A read.· with Article 133 of the Constitution since they felt that the case involves substantial questions of law of general importance which need to be G decided by this Court.

Civil Appeal No. 71 of 1990 has been filed by Renusagar on the basis of the said certificate against the judgment of the division bench of High Court dated October 12, 1989. Renusagar has also filed Civil Appeal No; H

46 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R..

A 71A of 1990 against the judgment of the learned Single Judge dated October 21,1988 after obtaining the special leave to appeal from this Court. General Electric has filed Civil Appeal No. 379 of 1992 against the judg- ment of the division bench of High Court dated October 12, 1989 after obtaining special leave to appeal. The said appeal of General Electric has B been filed by way of abundant caution and is confined to the directions given by the division bench of High Court in paras il7 to 119 of the judgment with regard to rate of exchange for conversion of the decretal amount from U.S. dollars to Indian rupees. According to General Electric the said rate of exchange should have been the rate prevailing on the date of payment. c During the pendency of these Appeals this Court, by Order dated February 21, 1990 on I.A.No. 1 of 1990 in Civil Appeal No. 71of1990, stayed the operation of the judgment and decree under appeal subject to Renusagar depositing in the Original side of the Bombay High Court, the sums equivalent to one-half of the decretal amount calculated as on date and furnishing security to the satisfaction of the High Court in respect of the decretal amount. General Electric was permitted to withdraw the deposit upon furnishment of security by way of bank guarantee for the sum to be withdrawn in excess of Rupees four crores to the satisfaction of the High Court. In the said order it was also directed that interest @ 10% per annum would be payable by Renusagar on the balance of the decretal _ amount in the event of its failing in the appeal and correspondingly General Electric would be liable to pay interest at the same rate on amount withdrawn by it in the event of the appeal succeeding. In pursuance of this order, Renusagar deposited, a sum of Rs 9,69,26,590.00 on March 20, 1990 F which was withdrawn by GEC after furnishing necessary bank guarantee. By another order dated Novemer 6, 1990 on I.A No. 3/90 in Civil Appeal No. 71/90, this Court directed Renusagar to deposit a further sum of Rs. 1 crore and to furnish a bank gtiarantee for Rs. 1.92 crores. In pursuance of the said order, Renusagar deposited, on December 3, 1990, a sum of Rs. 1 crore which amount has also been withdrawn by General Electric. G Thus, a total, sum of Rs. 10,69,26,590 = 00 has been deposited by Renusagar and the same has been withdrawn by General Electric.

19. Shir K.K. Venugopal, learned Senior Counsel appearing for Renusagar, and Shri Shanti Bhushan, learned Senior Counsel appearing H for General Electric, have made elaborate submissions before us. The oral

RENUSAGARPOWERLTD. v. ELECTRICCO.(AGRAWAL,J.) 47

submissions have been supplemented by written submissions. A During the course of his submissions, Shri Venugopal did not pursue some of the objections that were raised by Renusagar before the High Court. But at the same time he has raised certain objections which were not raised before the High Court. Shri Venugopal not disputed the liability of Renusagar for US$ 2,130, 785 =52 awarded under irem No. 1 towards B regular interest withheld by Renusagar and US$ 119,053 =00 awarded , '"' under item No. 5 towards price of spare parts. The submissions of Shri Venugopal are confined to the award of compensatory damages under item Nos. 2, 4 and 6, delinquent interest under item No. 3 and costs under item No. 7. The submissions of Shri Venugopal broadly fall under two heads: C (i) enforceability of the award; and (ii) the rate of exchange for conversion of .the decretal amount from U.S. dollars to Indian rupees.

Before we proceed to examine the submissions made by learned counsel, we consider it necessary to briefly refer to the background in which the Foreign Awards Act was enacted because it would have a D bearing on the interpretation of the provisions of the said Act.

Arbitration is a well recognised mode for resolving disputes arising out of commercial transactions. This is equally true for international com- mercial transactions. With the growth of international commerce there was E an increase in disputes arising out of such transactions being adjudicated though arbitration. One of the problems faced in such arbitrations related to recognition and enforcement of an arbitral award made in one country by the Courts of other countries. This difficulty has been sought to be removed through various international conventions. The first such interna- F tional convention was the Geneva Protocol of 19f3 which was drawn up on the initiative of ICC under the auspices of the League of Nations. The Geneva Protocol had two objectives, first, it sought to make arbitration agreements, and arbitration clauses in particular, enforceable internation- ally; and secondly, it sought to ensure that awards made pursuant to such ~rbitratiun agreements would be enforced in the territory of the state in G which they were made. The Geneva Protocol of 1923 was followed by the Geneva Convention of 1927 which also drawn up under the auspices of the League of Nations. The purpose of this Convention was to widen the scope of the Geneva Protocol of 1923 by providing recognition and enforcement of protocol awards within the territory of contracting states, (not merely H·

48 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.

A the state in which the award was made). [See : Alen Redfern and Martin Hunter to Law & Practice of International Commercial Arbitration, 2nd Ed. p.61-62]. India was a signatory to the protocol of 1923 and the Con- vention of 1927. With a view to implementing the obligations undertaken under the said protocol and Convention, the Artibtration (Protocol & B Convention) Act 1937 was enacted. A number of problems were en- countered in the operation of the aforesaid Geneva treaties inasmuch as there were limitations in relation to their field of application and under the •. )

Geneva Convention of 1927, a party seeking enforcement had to prove the. conditions necessary for enforcement and in order to show that the awards had become final in its country of origin the successful party was often c obliged to seek a declaration in the countries where the arbitration took place to the effect that the award was enforceable in that country before it could go ahead and enforce the award in the courts of the place of enforcement. ICC, in 1953, promoted a new treaty to govern international commercial arbitration. The proposals of ICC were taken up by the United D Nations Economic and Social Council and it led to the adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards at New York, 1958 (hereinafter referred to as 'the New York Convention'). The New York Convention is an improvement on the Geneva Convention of 1927 in the sense that it provides for a much more simple E ·and- effective method of obtaining recognition and enforcement of foreign arbitral awards and it replaces Geneva Convention of 1927 as between the States which are parties to both the Conventions. The New York Conven- tion also gives much wider effect to the validity of arbitration agreements than does the Geneva Protocol of 1923. [See : Alan Redfern the Martin F Hunter, Law & Practice of International Commercial·Artibitration, (1991) 2nd Ed.p.62-63).

India was a party to the New York Convention. The Foreign Awards Act has been enacted to give effort to the New york Convention and for purposes connected therewith. In the Statement of Objects and Reasons, reference has been made to the defects in the Geneva Convention of 1927 which "hampered the speedy settlement of disputes through arbitration and hence no longer met the requirements of international trade" and which led to the adoption of the New York Convention. Section 2 of the Act defines the expression 'foreign award'. Section 3 makes provision for stay of proceedings in respect of matters to be referred to arbitration. Section

RENUSAGARPOWERLID. v. ELECTRICCO.[AGRAWAL,J.) 49

4 deals with effect of foreign awards. Sub-s. (1) of Section 4 provides that A a foreign award shall, subject to the provisions of this Act, be enforceable in India as if it were an award made on a matter referred to arbitration in India. Sub-s.(2) prescribes that any foreign award which would be enfor- ceable under this Act shall be treated as binding for all purposes on the persons as between whom it was made and may be relied on by any of B those persons by way of defence, set off or otherwise in any legal proceed- ~- ings in India. Section 5 makes provision for filing of foreign award in Court. In sub-s.(1) it is laid down that any person interested in a foreign award may apply to any court having jurisdiction over the subject matter of the award that the award be filed in Court. Sub-s.(2) requires that such an appliation shall be in writing and shall be numbered and registered as a C suit between the applicant as plaintiff and the other parties as defendants. Sub-s.(3) requires the court to give notice to the parties to the arbitration other than the applicant requiring them to show cause, within a time specified why the award shoud not be filed. Section 6 deals with enforce- ment of foreign awards. Sub-s.(1) lays down that where the Court is satisfied that the foreign award is enforceable under the Ac~, the Court shall order the award to be filed and shall proceed to pronounce judgment acc;ording to the award. Sub-s.(2) provides that upon the judgment so pronounced a decree shall follow, no appeal shall lie from such decree except insofar as the decree is in excess of or not in accordance with the award. Section 7 contains the conditions for enforcement of foreign awards and prescribes the circumstances under which foreign awards will not be enforced. Section 8 requires the production of the original award or a duly authenticated copy thereof as well as original agreement for arbitration or a duly certified copy thereof and the production of evidence to prove that the award is a foreign award. Section 9 is a saving clause which excludes the applicability of the Act to matters specified therein. Section 10 provides for repeal of the Arbitration (Protocol and Convention) Act, 1937, in relation to foreign awards to which the Act applies. Section 11 provides for rule making power of the High Court. The New York Convention is appended as a schedule to the Foreign Awards Act. G In the present case, we are concerned with conditions of enforcement laid down in Section 7, which provides as follows.

"7. CONDITIONS FOR ENFORCEMENT OF FOREIGN AWARDS.--{1) A foreign award may not be enforced under this H

50 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A Act-

(a) If the party against whom it is sought to enforce the award proves to the court dealing with the case that -

(i) The parties to the agreement were under the law ap- B plicable to them, under some incapacity, or the said agreement is not vaid 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 c (ii) that party was not given proper notice of the appoint- ment of the arbitrator or of the arbitration proceedings • or was otherwise unable to present his case; or

(iii) the award deals with questions not referred or contains D decisions on matters beyond the scope of the agree- ment: ' Provided that if the dec~ions on matters submitted to arbitra- tion can be separated from those not submitted, that part of the award which contains decisions on matters submitted to arbitra- E tions may be enforced; or

(iv) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or failing such agreement, was not in accordance with the law of the country where the ar- bitration took place; or

(v) the award has not yet become binding on the parties or has been set aside or suspended by a competent autority of the country in which, or under the law of which, that award was made; or

(b) if the Court dealing with the case is satisfied. that-

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

RENUSAGARPOWERLID. v. ELECTRIC CO. [AGRAWAL,J.] 51

-( . (ii) the enforcement of the award will be contrary to public policy;

(2) If the Court before which a foreign award is sought to be relied upon is satisfied that an application for the setting aside or suspen- sion of the award has been made to a competent authority referred to in sub-clause (v) of clause (a) of sub-section (1), the Court may, if it deems proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to furnish suitable security." c The objection of Renusagar against enforceability of the award is based on (i) section 7(i) (a) (ii) of the Foreign Awards Act, on the ground that Renusagar was unable to present its case; and (ii) section 7(1) (b) (ii) of the Foreign Awards Act, on the ground that the enforcement of the award would be against public policy. D

In support of his submission that Renusagar was unable to present its case, Shri Venugopal has urged that after the Mirzapur Court had refused to stay the civil suit filed by Renusagar on the application sub- mitted by General Electric under section 3 of the Foreign Awards Act on July 9, 1985, Renusagar had raised a preliminary objection before the E Arbitral Tribunal that it had become funcrus officio and on the said objection raised by Renusagar, the Arbitral Tribunal had issued a further notice on September 2, 1985 stating that the effect of the rejection of the application under section 3 of the Foreign Awards Act would be Con- sidered as a preliminary issue at the scheduled meeting of the Arbitral p Tribunal fixed for October 1, 1985. The submission of Shri Venugopal is that Rcnusagar was not informed by the Arbitral Tribunal that if the decision of the Arbitral Tribunal on the objection that the Arbitral Tribunal had become functus officio were to go against Renusagar, the Arbitral Tribunal would straightaway proceed to hear the case on merits without informing Renusagar about its decision and that if Renusagar had G been put on notice, it would have been able to decide whether to proceed with the merits or not and that the action of the Arbitral Tribunal in going into the merits of the dispute without notice to Renusagar was a gross, blatant and unpardonable violation of principles of natural justice and the elementary tenets of fair play inasmuch as on account ~f the said procedure H

52 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R. ·y

I\ adopted by the Arbitral Tribunal Renusagar was deprived of an oppor- tunity to meet and deal with the entirety of claims of General Electric.

As regards bar to the enforcement of the award undt!r ~t!clion 7(1) (b) (ii) of the Foreign Awards Act, Shri Venugopal has argued that : (i) under section 7 (i) (b) (ii), enforcement of the award could be refused by B the courts in India not only on the ground that the award is against the public policy of India but also that it is against the public policy of the State "' of New York; (ii) thP- expression "public policy" in section 7(1) (b) (ii) of the Act has to be construed in a liberal sense and not narrowly and it would include within its ambit disregard of the provisions of the Foreign Ex- c change Regulation Act, 1973 (hereinafter referred as FERA) and would also cover unjust enrichment; (iii) it would be contrary to the public policy of India as well as of the State of New York to award interest on interest and compounding it further and to award damages on damages; (iv) under the contract interest was payable only upto the date of maturity of each D promissory note and no interest was payable for the period subsequent to the said date and the only remedy available to General Electric in the event of default in payment of an instalment on the due date was to enforce the bank guarantee or to recall all the promissory notes; (v) under the original approval dated January 2, 1964 given by the Gover~ent oflndia the total amount of loan was to be repaid in sixteen semi-aruiual instalments be- E tween 30 and 120 months from contract effective date and payment of interest was specifically restricted for the period from 16th to 30th month and thereafter upon capitalisation from the 30th month to the !20th month and no interest was payable without FERA sanction after due date of each instalment; (vi) no liability for interest for delayed payment of instalments F would accrue in respect of the period from June 30, 1967 to August 1, 1969 while the application for approval under FERA was pending before the Government of India; (vii) after the refusal by the Government to give its approval to the rescheduling of the instalments the award of interest was in breach of, the prohibition contained in FERA and was contrary to public policy of India; (viii) While awarding compensatory damages under items G Nos.2 and 4 the Arbitral Tribunal has failed to deduct 46 per cent U.S. tax payable by General Electric on the amount of regular interest and delin- quent interest and compensatory damgaes could only be awarded on the ~ amount receivable by General Electric after deducting the said tax and this has resulted in unjust enrichment which is contrary to public policy; (ix) H compensatory damages have been awarded by way of interest on interest

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.] 53

1· and thaUoo by compounding the rate of interest which is contrary to public policy of India and New York; (x) compensatory damages awarded on delinquent interest under item No. 4 constitutes award of damages upon damages which is contrary to public policy of India; (xi) award of compen- satory damages on regular interest under item No. 2 in respect of the period from 1970 to 1980 when the interim order passed by the Delhi High Court in the writ petition was operative was impermissible and against public policy; (xii) the amount awarded as costs is unconscionable and constitutes unjust enrichment inasmuch as it includes the amount which was admitted as part of the legal fees and expenses for proceedings in India and which was found to be inadmissible by the Arbitral Tribunal and the same amount was transposed into cost of the arbitration on the pretext that c the material collected for litigation in India was also used in the arbitration proceedings; and (xiii) there has been violation of principles of natural justice inasmuch as the vouchers of costs regarding legal fees and expenses were never shown or given to Renusagar nor were its objection heard in this regard. D With regard to rate of exchange for conversion of the decretal amount in U.S. dollars to Indian rupees, the submission of Shri Venugopal is that the date with reference to which conversion of foreign currency is to be made is a matter of substance and is governed by lex contractus, i.e., the law of the contract, and not by lex Jori i.e., the law of the forum. It has been urged that the law of the State of New York is the law of the contract and that the said law provides the date of breach as the date of conversion and therefore, the amount awarded in U.S. dollars under the award of the Arbitral Tribunal must be converted into Indian currency on the basis of the rate prevalent on the date of the breach. It has been submitted that the decision of this Court in Forasol v. O.N.G.C. (supra) on which relian-ce has been placed by the division bench of the High Court, has no application to the present case because in that case the court was not dealing with a foreign award but was dealing with an award made under the Indian Arbitration Act, 1940. G Shri Shanti Bhushan, has, on the other hand, submitted that : (i) the scope of enquiry in proceedings under section 5 of the Foreign Awards Act is confined to questions relating to the enforcement of the award and does not comprehend a challenge to the merits and even if a question of law decided by the Arbitrators is incorrect,it is not a ground of challenge H

54 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R. t

A under Section 7 of the Foreign Awards Act; (ii) Renusagar cannot have any grievance that they were unable to present its case because it had voluntarily refused to appear before the Arbitral Tribunal when it met on October 1, 1985 and further that in the sittings of the Arbitral Tribunal from February to March, 1985 in which Renusagar had participated it had made oral submissions and had also produced documents before the B Arbitral Tribunal, with regard to issues .22(g) to (p) and that in the sittings held from October 1, 1985 onwards, the Arbitral Tribunal had dealt with rest of the issues which related to the counterclaim of Renusagar as well as the claim made by General Electric against the counter claim which claims have been rejected by the Arbitral Tribunal; (iii) public policy, c comprehended in section 7(1) (b) (ii) of the Foreign Awards Act is the public policy of India and does not cover the public policy of New York State; (iv) for the purpose of Section 7(1) (b) (ii) of the Foreign Awards Act the expression 'public policy' has a narrower connotation than in domestic law; (v) the regular interest was wrongfully withheld by D Renusagar because as a result of the failure on the part of Renusagar to deposit the amount of tax with the Government of India. General Electric was not able to claiin relief under the U.S. tax laws in respect of the amount payable as tax in India on the interest and that the interim order passed by the Delhi High Court in the writ petition filed by Renusagar did not preclude Renusagar from either depositing the tax amount with the E Government or remitting the interest amount to General Electric at the rate of 6 per cent; (vi) for awarding compensatory damages for withholding of regular interest and on delinquent interest for delayed payment of instalments the tax payable in United States on the amount of regular interest and delinquent interest could not be deducted since tax would be payable in the United States by General Electric on the amount awarded as compensatory damages; (vii) the amount of compensatory damages awarded by the Arbitral Tribunal relates to the merits of the award and the same cannot be questioned in proceedings for enforcement of the award under Section 7 of the Foreign Awards Act; (viii) the challenge to the Award on the basis of unjust enrichment, award of compound interest, award of damages on damages does not fall within the ambit of permissible objeCtions on the ground of violation of public policy in Section 7(1) (b) (ii) of the Foreign Awards Act; (ix) there is no violation of the provisions of FERA because in view of the approval that had already been granted by the Government of India to the original contract, there was no prohibi- H

RENUSAGARPOWERLTD. v. ELECTRICCO.[AGRAWAL,J.) 55

tion against remittance of regular interest on the instalments which had become due and payable and the refusal on the part of the Government to give approval to rescheduling of the payment of instalments did not in any way preclude the Government of India from granting necessary permission for remittance of the interest on the unpaid instalments under section 9 of FERA; (x) in any event, the bar of section 9 of FERA is not applicable to the proceedings for enforcement for the award in view of section 47(3) of FERA and the enforcement of the award does not involve contravention of the provisions of FERA; (xi) the costs that have been awarded are reasonable and that three copies of the supporting vouchers except for the vouchers relating to fees of M/s Amarchand Mangaldas, a Bombay/Delhi firm of Solicitors, were sent to all the three arbitrators and that one set of billings of M/s Amarchand Mangaldas was sent of the Chariman but copies of the letter addressed to Chairman were sent to the other Arbitrators and that the bills of M/s Amarchand Mangaldas were in respect or fees of Indian lawyers in Bombay High Court and Supreme Court which claim of costs has been disallowed by the Arbitral Tribunal; (xii) the rate of ex- D change for conversion of foreign currency in proceedings for enforcement of a foreign award is governed by lex fori, i.e., law of the forum in which the proceedings have been instituted and not by the proper law of contract or law of place of performance; (xiii) the relevant date for conversion of U.S. dollars into Indian rupees in proceedings for enforcement of a foreign award is the date of actual payment and not the date of judgment as held E by the division bench of the High Court; (xiv) the decision of this Court in Forasol v. O.N.G.C. (supra) on which the reliance has been placed by the division ben~h has no applicat.ion and in any event the said decision does not lay down the correct law and needs reconsideration; (xv) although under the award interest has been awarded at 8 per cent in respect of items F 1, 3 and 5 only but in view of the interim order passed by this C~:mrt on February 21, 1990 interest at the rate of 10% is payable on the entire amount; (xvi) since the permission was not granted to General Electric by the Reserve Bank of India to transfer the sum of Rs. 10.92 crores deposited by Renusagar in pursuance to the orders of this Court dated February 21, 1990 and November 6, 1990 the said amount should be adjusted against the G decree that is ultimately passed after converting the decretal amount in U.S. dollars to Indian rupees on the basis of the rate of exchange prevailing on the date of the judgment of this Court.

Having regard to the foregoing submissions of the learned counsel H

56 SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R. t A the questions that arise for consideration. in these appeals can be thus formulated : ·

(I) What is the scope of enquiry in proceedings for enforcement of a foreign award under Section 5 read with Section 7 of the Foreign Awards Act? B (II) Were Renusagar unable to present their case before the Arbitral Tribunal and consequently the award cannot be enforced in view of Section 7(1) (a) (ii) of the Foreign Awards Act?

(III) Does Section 7(1) (b) (ii) of the Foreign Awards Act preclude c the enforcement of the award of the Arbitral Tribunal for the reason that the said award is contrary to the public policy of the State of New York?

(IV) What is meant by 'public policy' in section 7(1) (b) (ii) of the Foreign Awards Act? D (V) Is the award of the Arbitral Tribunal unenforcable as contrary to public policy of India on the ground that-

(a) it involves contravention of the provisions of FERA; E (b) it penalises Renusagar for acting in accordance with the interim order passed by the Delhi High Court in the writ petition filed by Renusagar challenging the withdrawal of exemption from income-tax on the inter- est paid to General Electric; F (c) it results in charging of interest on interest which· is compounded and also damages on damages;

(d) it would lead to unjust enrichment for General Electric.

G (VI) Which law would govern the rate of exchange for conversion of foreign currency in proceedings for enforcement of a foreign arbitral award?

(VII) Does Foraso/ v. O.N.G.C (supra) need reconsideration?

H (~) Is General Electric entitled to interest pendente lite and

RENUSAGARPOWERLID. v. ELECTRICCO.(AGRAWAL,J.] 57

future interest and if so, at what rate? A (IX) What should be the rate for conversion into U.S. dollars of the amount of Rs. 10.92 crores deposited by Renusagar in pursuance to the interim orders passed by this Court on February 21, 1990 and November 6, 1990 and which has been withdrawn by General Electric? B

1. SCOPE OF ENQUIRY IN PROCEEDINGS FOR RECOGNI- TION AND ENFORCEMENT OF A FOREIGN AWARD UNDER THE FOREIGN AWARDS ACT

During the course of his submissions, Shri Venugopal has assailed c · the award of the Arbitral Tribunal on grounds touching on the merits of the said award insofar as it relates to the award of compensatory damages on regular interest (item no.2), delinquent interest (item 3), compensatory damages on delinquent interest (item 4) and compensatory damages on the price of spare parts (item 6). This gives rise to the question whether in proceedings for enforcement of a foreign award under the Foreign Awards Act it is permissible to impeach the award on merits.

With regard to enforcement of foreign judgments, the position at common law is that a foreign judgment which is final and conclusive cannot be impeached for any error either of fact or of law and is impeachable on limited grounds, namely, the court of the foreign country did not, in the circumstances of case, have jurisdiction to give that judgment in the view of English law; the judgment is vitiated by fraud on part of the party in whose favour the judgment is given or fraud on the part of the court which pronounced the judgment; the enforcement or recognition of the judgment would be contrary to public policy; the proceedings in which the judgment was obtained were opposed to natural justice. (See : Dicey & Morris, the Conflict of Laws, 11th Ed., Rules 42 to 46. pp. 464 to 476; Cheshire & L North, Private International Law, 12th Ed, pp.368 to 392).

Similarly in the matter of enforcement of foreign arbitral awards at common law a foreign award is enforceable if the award is in accordance with the agreement to arbitrate which is valid by its proper law and the award is valid and final according to the arbitration law governing the proceedings. The award would not be recognised or enforced if, under the submission agreement and the law applicable thereto, the arbitrators have H

50 SUPREME Cl1~THI t'ORTS (1993} SUPP. 35.C.R.

ft~ Do ju~tification to make it, or it was obtained by fraud or its recognition or enforcement woultl be contrary to public policy or the proceedings in which it was obtained were oppo;e<I to natural justice [See : Dicey & Morris, the Conflict of Laws, 11th Ed., Rule$ 62-64, pp.558 & 559 and 571 & 572; Cheshire & North, Private i11lemational Law, 12th Edn., p. 446- 447]. The English courts would not rtfuse !o recognise or enforce a foreign B Jward merely because the arbitrators (i" ils view) appli<d the wrong law to the dispute or misapplied the rigki law L!)cc : Dicey & Morris, Conflict o[ Laws, 11th Edn., Vol.II, p.565}.

Under the Geneva Convention of 1'.127, in order to obtain recognition C on enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article I had to be fulfilled and in Article 2, it was prescribed that even if the conditions laid down in Article I were fulfilled recognition and enforcement of the award would be refused if the Court was satisfied in respect of matters mentioned in clauses (a), (b) and (c). The principles ·o which apply to recognition and enforcement of foreign awatds are in substance, similar to thsoe adopted by the English courts at Common law. [See : Dicey & Morris, Conflict of Laws, 11th Edn., Vol.I, p.578]. It was, however, felt that the Geneva Convention suffered from certain defects which hampered !he speedy settlement of disputes through arbitration. The E New York Convention seeks to remedy the said defects by providing for a much more simple and effective method of. obtaining recognition and enforcement of foreign awards. Under the New Yark Convention the party against v.-·hom the award is sought to be enforced can object to recognition and enforcement of the foreign a\\"Jrd on grounds set out in sub-clauses (a) to (e) of clause (1) of Article V and !he court can, on its owo motion, F refuse recognition and enforcement of a foreign award for two additional reasons set out in sub-clauses (a) and (b) of Article V. None of the grounds set out in sub-clauses (a) to (e) of clause (1) and sub-clauses (a) and (b) of Clause (2) of Article V postulates a challenge to the award on merits.

G Albert Jan van den Ber~ in his treatise, The New York Arbitration Convention of 1958 : Towards a Uniform Judicial Interpretation, has expressed the view:

'It is a generally. accepted interpretation of the ~nvention that H !he court before which the enforcement of !he foreign award is

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.] 59

sought may not review the merits of the award. The main reason is that the exhaustive list of grounds for refusal of enforcement enumerated in Article V does not include a mistake in fact of law by the arbitrator. Furthermore, under the Convention the task of the enforcement judge is a limited one. The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of ~tide V(l) is justified and whether the enforcement of the award "Wpuld violate the public policy of the law of his country. This limit~,ion must be seen in the light of the principle of international commercial arbitration that a national court should not interfere with the substance of the arbitration". (p.269) C Similarly Alan Redfern and Marting Hunter have said·:

"The New York convention does not permit any review on the merits of an award to which the Convention applies and in this respect, therefore, differs from the provisions of some systems of D national law governing the challenge of an award, where an appeal to the courts on points on law may be permitted." [Redfern & Hunter, Law and Practice of International Commercial Arbitra- tion, 2nd End., p.461). E In our opinion, therefore, in · proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to

. ~ grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merit. F II. BAR TO THE ENFORCEMENT OF THE AWARD UNDER SECTION 7(1) (a) (ii) OF THE ACT

As indicated earlier, the grievancl of Renusagar is that the Arbitral Tribunal on October 1, 1985 decided the perliminary objection raised by Renusagar that the Arbitrators had become functus officio and were not G entitled to proceed with the arbitration proceedings on merits and that the Arbitral Tribunal thereafter proceeded to deal with the merits of the claim of General Electric without any further notice to Renusagar and as a result Renusagar was unable to present its case before the Arbitral Tribunal. This objection was not raised by Renusagar either before the learned Single H

60 SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A Judge or before the division bench of the High Court. We have, however, considered the same and we do not find- any substance in it. After the Terms of Reference had been drawn before the Arbitral Tribunal on February 8,1984, the parties had appeared before the Arbitral Tribunal at Paris for hearing which lasted for ten days between February 25 to March 8, 1985 and during the course of the said hearing Renusagar presented B typed submissions and legal authorities before the Arbitral Tribunal. In these hearings, the Arbitral Tribunal concluded hearing on Issues 22(g) to (p) and the matter was thereafter adjourned by the Arbitral Tribunal to June 10 but on account of sudden illness of Dr. Dixit, One of the ar- bitrators, the matter had to be adjourned and it was ultimately fixed for ' C October 1, 1985. On June 26, 1988, the Chairman of the Arbitral Tribunal sent a notice to the parties wherein it was stated that the adjourned hearing would take place in London on Tuesday from October 1 to 4 and to continue if necessary during the following week from October 7 to 11. In the said communication, it ·was further stated : D "5. At the beginning of the hearing, the Tribunal will be prepared to hear submissions if necessary on the adequacy of the evidence before us on the relevant issues of U.S. foreign tax credit. But the main purpose of the meeting is to deal with the respondent's counter claims together with the claimant's claims for 119,053 U.S. E dollars (unpaid purchase price of spare parts) and 103,500 U.S. ·, dollars (unpaid repairs on 75 M.V.A. Transformers).

6. All the above counter claims and claims are old, so before going into details ·as to merit, the Tribunal will wish to consider- submis- '·• F sions on the raised issues of limitation, laches, estoppel, abandone- ment and whether the right party is being sued."

On July 22, 1985 M/s Khaitan & Partners, on behalf of Renusagar, sent a communication to the Arbitrators giving notice that Renusagar was abandoning and withdrawing items (ii) to (vi) and (viii) of its claim set forth in para 19(g) of the Terms of Reference as amended by Paris hearings. On August 10, 1985 Mis Khaitan Partners, on behalf of Renusagar, sent a conuilunication to the Arbitrators wherein a reference was made to the notice issued by Renusagar to the effect that the ICC Arbitration Tribunal had become functus officio and neither the ICC Arbitration Tribunal could proceed with the arbitration nor Renusagar could participate in the same

RENUSAGARPOWERLTD. v. ELECTRICCO.(AGRAWAL,J.) 61

on the ground that the application submitted by General Electric under section 3 of the Foreign Awards Act had been rejected by Mirzapur Civil Court and the said order of the court had not yet been set aside or stayed by the Allahabad High Court in the revision petition filed by General Electric Renusagar, through their advocates (M/s Khaitan & Partners) also sent petition dated August 23, 1985 to the Secretary General ICC as well as Secretariat, ICC of Arbitration reiterating their objection that the ar- bitrators had become functus officio and could not proceed and/or func- tion. In his communication to M/s Khaitan & Partners dated September 2, 1985 the Chairman of the Arbitral Tribunal intimated that the question as to the effect of the suit filed in the Mirzapur Court on the arbitration would be considered as a preliminary issue at the scheduled meeting on October C 1, 1985. On September 23, 1985, M/s Khaitan & Partners, on behalf of Renusagar, addressed a communication to Mr. Roberto Power in the ICC (copies of the same were sent to the Arbitrators as well as to General Electric) wherein it was stated : "Our plea is totally different. It is that the Arbitrators have become functus officio in the facts and law stated by us in the 23rd August, 1985 document and our telexes to the Arbitrators copies of which have been sent to ICC. Therefore, the question of our appearing before the Arbitrators or their determining the plea raised by us cannot and does not arise." In the communication dated September 28, 1985 from M/s Khaitan & Partner, it is stated : "We have been repeatedly informing you that the Arbitrators have become functus officio. Therefore, be so kind as not to communicate with us any further regarding the arbitration which has become infructuous". From these documents, it would appear that the stand of Renusagar was that the Arbitrators had become functus officio and they could not proceed with the arbitration and there was, therefore, no question of Renusagar appearing before the Arbitral F Tribunal on the dates fixed for hearing. In these circumstances, it is not open to Renusagar to say that the Arbitral Tribunal, after having rejected, (by majority) the said objection raised by Renusagar, by order dated October 1, 1985 should have given a further notice to Renusagar asking them to appear to make their submission before the Arbitral Tribunal on G the merits on issues 22(q) to 22(bb). In this context, it may also be stated that issue 22(q) and 22(r) relate to the claim of US$ 119,053=91 for purchase price of spare parts which is not disputed by Renusagar and issue 22(s) relates to claim for compensatory damages on the said amount which has been allowed on the same basis as the claim for compensatory damages H