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

62 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A or regular interest (item No. 2) under Issue 22(k). Rest of the matters convered by Issue 22(t) to 22(bb) related to counter claims of Renusagar and claims by General Electric against counter claims which have been disallowed by the Arbitral Tribunal.

We are, therefore, of the opinion that the enforcement of the arbitral B award is not barred by S. 7(i) (a) (ii) of the Foreign Awards Act on the ground that Renusagar was unable to present its case before the Arbitral Tribunal.

III OBJECTION TO THE ENFORCEABILITY OF THE AWARD c ON THE GROUND THAT IT IS CONTR4RYTO THE PUBLIC POLICY OF THE STATE OF NEW YORK

Shri Venugopal has urged that although under sub-clause (b) of t}le clause (2) of Article V of the New York Convention the recognition and D enforcement of an arbitral award can be refused if the competent authority in the country where recognition and enforcement is sought fiilds that the recognition or enforcement of the award would be contrary to the public policy ofthat country, i.e., the country where the award is sought to be enforced, a departure has been made in Section 7(1) (b) (ii) of the Foreign Awards Act which prescribes that the foreign award may not be enforced ·E under the said Act if the court dealing with the case is satisfied that the enforcement of the award would be contrary to public policy. The submis- sion of Shri Venugopal is that ins. 7(1) (b) (ii) of the Act, the Parliament has deliberately refrained from using the words "public policy of India" which implies that the words "public policy" are not restricted to the public policy of India but would cover the public policy of the country whose law _,_ (_ . governs the contract or of the country of the place of arbitration and the enforcement of an award would be refused if it is contrary to such public policy. In this context Shri Venugopal has invited our attention to the provisons of section 7(1) of the Arbitration (Protocol &Convention) Act, 1937 wherein' the words used are "and enforcement thereof must not be contrary to the public policy or law of India". According to Shri Venugopal while under the 1937 Act, objections to enforcement are limited to the public policy of India or law of India, there is no such limitation in section 7(1) (b) (ii) of the Foreign Awards Act. Shri Venugopal has also placed reliance on the decision of this Court in V/O Tractoroexport, Moscow v. Mis H Tarapore & Co. & Anr., [1970) 3 SCR 53 wherein this Court has held that ·-

RENUSAGARPOWERLTD. v. ELECTRICCO.(AGRAWAL,J.) 63

there was clear deviation from lht: rigid and strict rule that the courts must stay a suit whenever an international commercial arbitration as con- templated by the Protocol and the Conventions, was to take place and that it was open to the legislature to deviate from the terms of the Protocol and the Convention and that it appears to have given only a limited effect to the provisions of the 1958 Convention. we find it difficult to accept this contention. It cannot be held that by not using the words "public policy of India" and only using the words "public policy" in section 7(1) (b) (ii) of the Foreign Awards Act, Parliament intended to deviate from the provisions of the New York Convention contained in Article V(2) (b) which uses the words "public policy of that country" implying public policy of the country where recogniton and enforcement is sought. That Parlia- C ment did not intend to deviate from the terms of the New York Convention is borne out by the amendment which was introduced in the Act by Act 47 of i973 after the decision of this Court in Tractoroexpon case (supra) whereby section 3 was substituted to bring it in accord with the provisions of the New York Convention. The Fore\gn Awards Act has been enacted D to give effect to the New York Convention which seeks to remedy the defects in the Geneva Convention of 1927 that hampered the speedy settlement of disputes through arbitration.

The Foreign Awards Act is, therefore, intended to reduce the time taken in recognition and enforcement of foreign arbitral awards. The New E York Convention seeks to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avo~d the problem of "double exequatur". It also restricts the 'scope of enquiry before the court enforcing the ·award by eliminating the requirement that the award should not be contrary to the F principles of the law of the country in which it is sought to be relied upon. Enlarging the field of enquiry to include public policy of the courts whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation.

With regard to the provisions of the Arbitration (Protocol & Con- G vention) Act, 1937, it may be stated that Section 7(1) of the said Act, as originally enacted, read as under :

"7. CONDITIONS FOR ENFORCEMENT OF FOREIGN AWARDS~l) In order that a foreign award may be enforceable H

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

A under this Act is must have-

(a) been made in pursuance of an agreement for arbitration which was valid under the law by which it was governed,

(b) been made by the tribunal provided for in the agreement B or constituted in manner agreed upon by the parties.

( c) been made in conformity with the law governing the arbitra- tion procedure,

(d) become final in the country in which it was made. c ( e) been in respect of a matter which may lawfully be referred to arbitration under the law of British India,

and the enforcement thereof must not be contrary to the public policy or the law of British India. D (2) A foreign award shall not be enforceable under this Act if tlie Court dealing with the case is satisfied that-

(a) the award has been annulled in the country in which it was made, or E (b) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings insufficient time to enable him to present his case, or was under some legal in- capacity and was not properly represented or, F (c) the award does not deal with all the questions referred or contains decisions on matter beyond the scope of the agreement for arbitration :

Provided that if the award does not deal with all questions referred the Court may, if it thinks fit, either postpone the enfor- G cement of the award or order its enforcement subject to the giving of such security by the person seeking to enforce it as the Court may think fit,

H (3) if a party seeking to resist the enforcement of a foreign award proves that there is any ground other than the non- existence -1\-

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.) 65

of the conditions specified in clauses (a), (b) and (c) of sub-section A (1), or the existence of the conditions specified in clauses (b) and (c) of sub-section (2), entitling him to contest the validity of the award, the Court may, if it think fit, either refuse to enforce the award or adjourn the hearing until after the expiration of such period as appears to the Court to be reasonably sufficient to enable that party to take the necessary steps to have the award annulled by the competent tribunal."

By Indian Independence (Adaptation of Central Acts and Ordinan- ces) Order 1948, the words "British India" were substituted by the words "the Provinces", which words were substituted by the words "the States" by the Adaptation of Laws Order, 1950. By Part B States (Laws) Act, 1951 the words the States" were substituted by the word "India". The aforesaid amendments introduced from time to time indicate that the words "public policy" and "the law of India" are independent of each other and the words "public policy" are not qualified by the words " of India" which follow the word "law'' because there was no separate public policy for each Province or State in India. This means that even in the Protocol and Convention Act of 1937 the legislature had used the words "Public Policy" only and by the said words it was intended to mean "the public policy of India". The New York Convention has further curtailed the scope of enquiry by excluding contravention of law of the court in which the award is sought to be enforced as a ground for refusing recognition and enforcement of a foreign award. The words "law of India" have, therefore, been omitted in Section 7(1) (b) (ii) of the foreign Awards Act. It cannot, therefore, be said that by using the words "Public Policy" only Section 7(1) (b) (ii) of the Foreign Awards Act seeks to make a departure from the provisions contained in the Protocol and Convention Act of 1937 and, by using the words "Public Policy" without any qualification, Parliament intended to broaden the scope of enquiry so as to cover public policy of other countries, i.e., the country whose law governs the contract of the country of the place of arbitration. In the U.K., the Arbitration Act, 1975 has been enacted to give effect to the provisions of the New York Convention, Section 5(3) of the said Act G provides as under :

"Enforcement of a Convention award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to enforce H

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

A the award.''

Although the words "public policy" only are used without indicating whether they refer to public policy of England authors of authoritative tex1 books have expressed the view that they only mean "English public policy". In Russel on Arbitration, 12th Edn. at p. 384 it is stated : B "The New York Convention is to the same effect. Accordingly, though the 1975 Act does not so specify, it must be taken that reference is intended to English public policy-which indeed the only public policy into which the English courts can sensibly inquire." c The same view is expressed in Dicey & Morris on Conflict of Laws, 11th Edn., Vol.I at pp.586-7.

We are, therefore, of the view that the words "public policy" used in D section 7(1) (b) (ii) of the Foreign Awards Act refer to the public policy of India and the recognition and enforcement of the award of the Arbitral Tribunal cannot be questioned on the ground that it is contrary to the public policy of the State of New York.

IV MEANING OF 'PUBLIC POLICY' IN SECTION 7(1) (b) (ii) E OF THE ACT

While observing that "from the very nature of things, the expresions 'public policy' 'opposed to public policy' or 'contrary to public policy' are incapable of precise definition" this Court has laid down-

F "Public policy connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time." (See: Central Inland Water Transport Corporation Ltd. & G Anr. vs. Brojo Nath Ganguly and Anr., (1986) 2 SCR 278 at p.372).

The need for applying the touchstone of public policy has been thus explained by Sir William Holdsworth-

"In fact, a body of law like the common law,. which has grown up gradually with th~ ·growth of the nation, necessarily ifcquires some

RENU SAGAR POWER LID. v. ELECTRIC CO. (AGRAWAL, J.] 67

fixed principles and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them". (History of English Law, Vol.III, p.55).

Since the doctrine of public policy is somewhat open-textured and flexible, judges in England have shown certain degree of reluctance to invoke it in domestic law. There are two conflicting position which are referred as the 'narrow view' and the 'broad view'. According to the narrow view courts cannot create new heads of public policy whereas the broad view countenances judicial law making in this areas. (See : Chitty on Contracts, 26th Ed., Vol.I, para 1133, pp.685-686). Similar is the trend of the decision in India. In Gherulal Paraklt v. Mahadeodas Maiya & Ors., [1959) suppl. 2 SCR 392 this Court favoured the narrow view when it said:

"......though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is admissible in the interest of stability of society not to make any attempt to discover new heads in these days" (p.440)

In later decisions this Court has, however, leaned towards the broad view. (See : Murlidhar Agarwal & Anr. etc. v. State of UP & Ors., [1975) 1 E SCR 575 at p.584; Central Inland Water Transport Corporation v. Brojo Nath Ganguly (supra) at p.373 and Rattachand Hira Chand v. Askar Nawaz Jung (Dead) by LRs and Ors., [1991) 3 SCC 67 at pp.76-77).

In the field of private international law, courts refuse to apply a rule of foreign law or recognise a foreign judgment or a foreign arbitral award F if it is found that the same is contrary to the public policy of the country in which it is sought to be invoked or enforced. The English Courts follow the following principles :

"Exceptionally, the English court will not enforce or recognise a G right conferred or a duty imposed by a foreign law where, on the facts of the particular case, enforcement or, as the case may be, recognition, would be contrary to a fundamental policy of English law. The court has, therefore, refused in certain cases to apply foreign law where to do so would in the particular circumstances be contrary to the interests of the United Kingdom or contrary to H

68 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A justice or morality". (See : Halsbury's Laws of Englad, IV Ed., vol.8, para 418).

A distinction is drawn while applying the said rule of public policy between a matter governed by domestic law and a matter involving conflict of laws. The application of the doctrine of public policy in the field of B conflict of laws is more limited than that in the domestic law and the courts are slower to invoke public policy in case involving a foreign element than when a purely municipal legal issue is involved. (See : Vervaeka Vs. Smith, 1983 (1) AC. 145 at p. 164 Dicey & Morris, Conflict of Laws, 11th Ed., • \.

Vol.1 p.92; Cheshire & North, Private International Law, 12th Ed., p.128- C 129). The reason for this approach is thus explained by Professor Graveson:

"This concern of law in the protection of social institutions is reflected in its rules of both municipal and conflict of laws. Al- though the concept of public policy is the same in nature in these D two spheres of law, its application differs in degree and occasion, corresponding to the fact that transactions containing a foreign element may constitute a less serious threat to municipal institu- tions than would purely local transaction". (R.H. Graveson : Con- flict of Laws, 7th Ed, p.165). E In Louchs v. Standard Oil Co. of New York, 224 NY 99 (1918) Cordozo, J. has said:

".. :··The Courts are.not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion· of expedien- F cy or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal". (p.111).

The particular rule of public policy that the defendant invokes may be of this overriding nature and therefore enforceable in all actions, or it may be local in the sense that it represents some feature of internal policy. If so it must be confined to cases governed by the domestic law and it should not be extended to a case governed by foreign law. In order to ascertain whether the rule is all-pervading or merely local, it must be examined in the light of its history, the purpose of its adoption, the object

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

to be accomplished by it and the local conditions. (See: Cheshire and North 69

A ... Private International Law, 12th Ed., p.129)

The cases in which the English courts refuse to enforce a foreign· acquired right on the ground that its enforcement would affront some moral principle the maintenance of which admits of no possible com- promise, have been classified as under- B > "(i) Where the fundamental conceptions of English justice are disregarded;

(ii) Where the English conceptions of morality are infringed; C (iii) Where a transaction prejudices the interests of the United Kingdom or its good relations with foreign powers;

(iv) Where a foreign law or status offends the English conceptions of human liberty and freedom of action;" D

(See :Cheshire and North Private International Law, 12th Ed, p.131-133)

As observed by Lord Simon of Glaisdale "an English Court will exercise such a jurisdiction with extreme reserve". Vervaeka v. Smith, (1983) E 1 Ac 145 at pp.164.

In Dalmia Dairy Industries Ltd. v. National Bank of Pakistan, [(1978) 2 Lloyd's Law Reports 223) the Court Appeal extend the doctrine of public policy to embrace the principle that the English court& of should refuse to enforce an award arising out of a contract between persons who· are nationals of foreign states which were at war with each other but each of which was in friendly relationship with England. In support of the applicability of the doctrine, it was argued that it would be harmful to international relations of the United Kingdom with friendly countries if it were to allow the machinery of its courts to be used to enforce a judgment, or an arbitral award in favour of a national of one foreign state friendly to the United Kingdom, against the national of another foreign state, also friendly to the United Kingdom, when the two foreign states are enemies of one another. Negativing the said contention, the Court of Appeal (Mcgaw, LJ .) has held: H

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

A "If there is no authority binding on us which specifically adopts that supposed doctrine, or principle, we should unhesitatingly decline to make new law to that effect in this case. We should regard it, on balance, as being contrary to public policy for such a principle to apply." (p.300)

B In Deutsche Schachtbau-und Tiejbohrgesellschaft mbH v. Ras Al Khaimah National Oil Co., [1987) 2 All ER 769, decided by the Court of Appeal, Sir John Donaldson M.R. has said:

"Consideration of public policy can never be exhaustively defined, c but they should be approached with extre111e caution. As Burrough J. remarked in Richardson V. Mellish (1824) 2 Bing 229 at 252, (1824-34) All ER Rep 258 at 266: 'It is never argued at all but when other points fail.' It has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforce- D ment would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised". (p.779)

The approach of the American courts to the doctrine of public policy E in its application to recognition and enforcement of foreign arbitral awards under the New York Convention is reflected in the decision of the US Court of Appeals in Parsons & Whittemore Overseas Co. Inc. v. Societe Genera/a De L'lndustrie Du Papier (Rakta) and Bank of America, 508 F.2d 969 (1974), wherein it has been observed-

F fhe general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention points towards a narrow reading of the public policy defense. An expan- sive construction of this defense would vitiate the Convention's basic ,effort to remove per-existing obstacles to enforcement" . .......We conclude, therefore, that the convention's public policy G defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforce- ment would violate the forum state's most basic notions of morality and justice". (pp.973-974)

H Whil~ dealing with arbitration agreements in intern~tional business

RENUSAGARPOWERLID. v. ELECTRICCO.[AGRAWAL,J.] 71

transactions, the U.S. Supreme Court, has disapproved a parochial retus<.I A by the courts of ofone country to enforce an international arbitration agreement as well as the 'parochial concept that all disputes must be resolved under our laws and in our courts". It has been observed:

"We cannot have trade and commerce in world markets and international waters exclusively on our terms, goverfled by our 1a\vs, B a~d resolved in our Courts'. (Fritz Scherk v.AlbeTto-Culrer Co., 41 L.Ed.2d, 270 at pp.279 and 281}

Similarly in Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth Inc, 87 L Ed 2d 444, it was observed- C "We conclude that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predict- ability in the resolution of disputes require that we enforce the parties' agreement, when assuming that a c0ntrary result would be forthcoming in a domestic context'. (pp.456-457)

In France, a distinction is made between international public policy ('ordre public international'} and the national public policy. Under the new French Code of Civil Procedure, an international arbitral award can be set aside if the recognition or execution is contrary to international public policy. In doing so it recognises the existence of two levels of p'1blic policy-the national level, which may be concerned with purely <lo"'.lostic considerations, and the international level, which is IIB restrieb\/e in its approach. (See : Redfern and Hunter, Law and Practi..;e of-International Commercial Arbitration, 2nd Ed.p.445). F

According to Redfern and Hunter, 'If a workable definition of 'international public policy" could be found, it would be an effective way of preventing an award in an international arbitration from being set aside for purely domestic policy considerations~. But in the ab;;ence of such a G . definition 'there are bround to be practices whkh 5orne s!at.s "'11 ~1rd as contrary to international Public interest :md othersbl:es ~11 rt$11See: Redfern & Hunter (supra) pp. 445-446).

In view of the absence of a workable definition of 'international public policy" we find it difficult to costrue the expression 'public policy" H•

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

A in Article V (2) (b) of the New York Convention to mean international public policy. In our opinion the said expression must be construed to mean the doctrine of public policy as applied by the courts iu which the foreign award is sought to be enforced. Consequently, the expression 'public policy' in Section 7(1) (b) (ii) of the Foreign Awards Act means the doctrine of public policy as applied by the court in India. This raises the question B whether the narrower concept of public policy as applicable in the field of public international law should be applied or the wider concept of public policy as applicable in the field of municipal law.

Keeping in view the object underlying the enactment of the Foreign C Awards Act, this Court has also favoured a liberal construction of the provisions of the said Act. In Renusagar case I, it has been observed:

"It is obvipus that since the Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providmg for speedy settlement of disputes arising in D such trade through arbitration, any expression or phrase occurring therein should receive, consisting with its literal and grammatical sense, a liberal construction". (p.492).

This would imply that the defence of public policy which is perrnis- E sible under Section 7(1) (b) (ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I (e) - of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contrary to the pubµc policy or to the prin- ciples of the law of the country in which it is sought to be relied upon. To F the same effect is the provision in Section 7(1) of the Protocol & Conven- tion Act of 1837 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Since the expression "public policy" covers the field not covered by the words "and the law of India" which follow the said expression, contravention of law alone will not attract the bar of public policy and something more than contravention of law is required.

Article V (2) (b) of the New York Convention of 1958 and Section 7(1) (b) (ii) of the Foreign Awards Act do not postulate refusal of recog- nition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge iii

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.] 73

confined to the recognition and enforcement being to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression "public policy" in Article V(2) (b) of the New York Convention and Section 7(1) (b) (ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Conven- B tion Act of 1937. This would mean that "public policy" in Section 7(1) (b) (ii) has l;>een used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerr.ed with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression C "public policy" in Section 7(1) (b) (ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would D be contrary to (i) fundamental policy. of Indian law; or (ii) the interests of India; or (iii) justice or morality.

V. IS THE AWARD CONTRARY TO PUBLIC POLICY OF INDIA? E Having examined the scope of public policy un:der section 7(1) (b) (ii) of the Foreign Awards Act, we will now proceed to consider the various ground on the basis of which the said provision is invoked by Renusagar to bar the enforcement for the award of the Arbitral Tribunal. As indicated earlier, Renusagar has invoked the said provision on the ground that enforcement of the award would be contrary to the public policy for the reason that such enforcement.

(a) would involve contravention of the provisions of FERA;

(b) would amount to penalising Renusagar for not disregarding the interim orders passed by the Delhi High Court in the writ petition filed by Renusagar;

(c) w~uld enable recovery of compound interest on interest;

( d) would result in payment of damages on damages; H

74 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R. ..... A (e) would result in unjust enrichment by General Electric;

We will examine the submissions of learned counsel under each head ' separately.

(a) Violation of FERA B As mentioned in the Preamble, FERA is a law regulating certain payments, dealings in foreign exchange and securities, transactions in- directly affecting foreign exchange and the import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development c of the country. It was preceded by Foreign Exchange Regulation Act, 1947. Similar enactments providing for exchange control exist in other countries. In the United Kingdom, there is a similar enactment, viz., Exchange Control Act, 1947, which remains in force but its operation has been suspended since 1979. The view of the English courts is that the exchange D control legislation does not belong to the field of revenue laws and appllca- tion of such law is not obnoxious to English public policy. (See -Kahler V. Midland Bank Ltd., 1950 A.C. 24 at p. 27, 36, 46-47 and 57; Zivnostenska Bank National Coporation v. Frankman, 1950 A.C. 57, at p. 72 and 78). In re. Herbert Wasg & Co. Ltd., (1956) 1 Ch. 323, Upjohn J., has said : E "In cannot 'be doubted that legislation intended to protect the economy of the nation and the general welfare of its inhabitants regardless of their nationality by various measures of foreign ex- change control or by altering the value of its currency, is recognised by foreign courts although its effect is usually partially confiscatory. \. F Probably there is no civilized country in the world which has not at some stage in its history altered its currency or restricted the rights of its inhabitants to purchase the currency of another country. (p.349) ... In my judgment these courts must recognii.e the right of every foreign State to protect its economy by measures of foreign exchange control and by altering the value of its currency. G Effect must be given to those measures where the law of the foreign State is the proper law of the contract or where the movable is situate within the territorial jurisdiction of the State." (pp.351)

H The following principle of Private International Law is applicable in relation to such legislation : ,_

RENUSAGARPOWERLID. v. ELECTRICCO.[AGRAWAL,J.] 75

"Rule 212 (1).-A contractual obligation may be invalidated or A discharged by exchange control legislation if-

(a) such legislation is part of the proper law of the contract; or

(b) it is part of the law of the place of performance; or B (c) it is part of English law and the relevant statute or statutory instrument is application to the contract.

Provided that foreign exchange legislation will not be applied if it is used not with the object of protecting the economy of the foreign State, but as an instrument of oppression of discrimination." C (See: Dicey & Morris, the Conflict of Laws, 11th Ed., Vol. II, p. 1466)

In the comments on the said rule, it is stated: D "An English court would clearly refuse to enforce a contract the making or performance of which was prohibited by the Exchange Control Act 1947 (now suspended) or by any statutory instrument made in virtue of that Act, or which was prohibited -by earlier United Kingdom exchange control legislation. This would apply E irrespective of the proper law of the contract and irrespective of the place of performance. The question whether the Act or statutory instrument applied to the transaction would have to be answered by construing it in accordance with the· principles of statutory interpretation which are part of English law. If it did so apply, it would be an example of an "overriding salute". F (See : Dicey & Morris (supra) p. 1469)

In support of this statement of law reference has been made to the decision of House of Lords in Boissevain v. Weil, 1950 A.C. 327. In that case, the respondent, a British subject, and the appellant, a Dutch subject, G were involuntarily resident in Monaco .1D enemy occupied territory, in 1944, due to war conditions. The respondent borrowed a sum of 960,000 French francs from the appellant in Monaco on an undertaking to repay the money in sterling in London at an agreed rate of 160 francs to the pound and drew cheques in blank for· the full amount on English Bank. H

76 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R. ,i

A The appellant filed a suit in England claiming 6,000 pounds from the respondent. The said claim was opposed by the respondent on the ground that the loans given by the appellant to the respondent were invalid and illegal being contrary to Regulation 2(1) of ihe Defence (Finance) Regula- tions, 1939. The said claim of the appellant was allowed by the trial judge, but on appeal, it was dismissed by the Court of Appeal. The House of Lord B agreed with the view of the Court of Appeal that regulation 2(1) prohibited this borrowing and therefore rendered the appellant's claim for repayment unmaintainable. Lord Radcliffe, who delivered the main speech, has ob- served:

c "If reg. 2 did extend to this transaction it forbade the very act of borrowing, not merely the contractual promise to repay. The act itself being forbidden, I do not think that it can be a source of civil rights in the courts of this country. .... A court that extended a remedy in such circumstances would merit rather to be blamed for stultifying the law than to be applauded for extending it." (p.341) D ,, Another interesting case is that of Wilson, Smithett & Cope Ltd. v. Terrozzi, (1976) 1 Q.B. 683. In that case, the plaintiffs were b.rokers on the London Metal Exchange and the defendant, Terruzzi, was a dealer and s11eculator in metals who lived in Italy. The defendant entered into various ,E contracts for the sale and purchase of metals with the plaintiffs and a sum of 195,000 pounds was payable by the defendant to the plaintiffs in respect of those contracts. · Before entering the said contracts, defendant had, however, not obtained ministerial authorisation as required by the Italian Exchange Control Regulations. An action was brought in the English court by the plaintiffs against the defendant in which the defendant pleaded that '· it was milawful for him under Italian law to enter into any of the contracts which were "exchange contracts" within the meaning of Article VIII, section 2(b) of the Bretton Woods Agreement and unenforceable by reason of the Bretton Woods Agreements Order in Council, 1946. The said plea of the defendant was rejected by the trial judge who gave a judgment in favour of the plaintiffs and the said judgment was affirmed by the Court of Appeal. It appears that the judgment of the English court was sought to be enforced by the plaintiffs in Italy but the Italian Court refused to I'- recognise and enforce the said judgment of the view that since the contracts were entered in violation of the Italian Exchange Control R.fgulations their enforcement would amount to infringement of Italian public policy and the

RENUSAGARPOWERLTD. v. ELECTRICCO.[AGRAWAL,J.] 77

contracts were unenforceable in Italy (See : Mauro Rubino-Sammartano, A Public Policy in Transnational Relationships, p. 91).

Our attention has also been invited to a decision of the Supreme Court of Austria dated May 11, 1983 which is extracted, in brief, in YEARBOOK of Commercial Arbitration, Volume X (1985) pp. 421- 23. In that case, an award had been made in favour of the appellant who was B a national of Holland against the respondent who was an Austrian whereby the respondent was directed to pay to the appellant DM 667.500. The appellant sought enforcement of the award in Austria and the said enfor- cement was opposed by the respondent on the ground that the underlying contracts, though nominally delivery contracts, were in reality sales and purchases on a margin basis and such contracts are contrary to Austrian foreign exchange law, unless specific authorisation thereof was given by the competent authorities. The respondent invoked Article V(2) (b) of the New York Convention, 1958 to oppose the recognition and enforcement of the award. The Austrian Supreme Court dismissed the claim of the Dutch national and held that the award could not be recognised and enforced by the court in view of Article V(2) (b) of the New York Convention and, in that context, it was held :

"That the transactions concluded between the parties are not subject to Austrian but to Dutch law is irrelevant because domestic law is applicable to the examination whether there has been a sale and purchase on a margin basis, for determining whether enforce- ment is to be refused. According to Art, 81, para.4, of the Austrian Law on Enforcement ·Procedure, enforcement has to be refused if sought for award rendered in respect of claims which, under Austrian law, cannot be brought before Austrian courts. This is a F specific, special provision of domestic Austrian law on public policy." (p.422)

Dr. FA.. Mann has also expressed view to the same effect. He has said: G "There remains the question whether a foreign judgment rendered in disregard of foreign exchange regulations operating in the ' ,., country in which it is to be enforced, may or must be reflected by the courts of the latter country as being contrary to order public. Subject to local regulations the answer would seem to be in the H

78 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A affirmative."

(See : F.A. Mann, The Legal Aspect of Money, 5th Ed., (1992) p. 403 note 31)

As laid dt>wn by this Court, FERA is a statute enacted for the B "national economic interest" and the object of various provisions in the said Act is to.ensure that the national does not lose foreign exchange which is very much essential for the economic survival of the nation [See : L.I. C. v. Escorts, [1986) Supp. 3 SCR 909, at p.981 and M.S Wagh & Ors. v. Jay Engineering Works Ltd., [1987) 1 SCR 981, at p. 987). c Keeping in view the aforesaid objects underlying FERA and the principles governing enforcement of exchange control laws followed in other countries, we are of the view that the provisions contained in FERA have been enacted to safeguard the economic interests of India and any · violation of the said provisions would be contrary to the public policy of D India as envisaged in section 7(1) (b) (ii) of the Act. The submissions urgeil by Shri Venugopal to show that there has been a violation of the provisions of FERA, therefore, need examination.

Shri Venugopal has made a two-fold submission in this regard. In the first place, he has urged that in awarding delinquent interest, under item E No. 3 the ·Arbitral Tribunal has acted in disregard of the provisions of FERA and secondly the enforcement of the award of the Arbitral Tribunal would result in violation of the provisions of FERA. As regards the first submission relating to award of delinquent interest, it may be stated that the said submission involves an attack on the merits of the award which is impermissible at the stage of enforcement. We have, however, examined this submission on merits and are of the view that it is without substance. Shri Venugopal has urged that under the ~riginal approval of January 2, 1964 by the Government of India of the tenns of the loan by General Electric to Renusagar the total amount of loan was to be repai<Vm 16 equal semi-annual instalments between the 30th and the 120th month from the effective date of the contract with specific provision for interest from the 16th to the 30th month to be capitalised and the interest was specifically \..restricted to the period from the 16th to the 30th month and thereafter on f"' I

capitalisation from the 30th month to the 120th month and that no interest was payable without FERA sanction after the due date of each instalment. H This contention is no longer open to Renusagar in view of the earlier

. RENUSAGARPOWERLTD. v. ELECfRICCO.[AGRAWAL,J.] 79

decision of this Court in Renusagar Case I, wherein this court has con- A sidered the question whether there was an obligation to pay further interest after June 30, 1967 till payment under the contract. This Court has referred to Articles 111-A(C) (iii) and XIV(b) of the contract and has held:

"In our view these provisions which are to be found in the contract clearly show that the promissory notes are not sole and exclusive repository of GEC's right to claim and receive future interest on unpaid price after June 30, 1967 but that the contract itself provides for the obligation to pay such interest after that date till payment. ...... It is, therefore, clear that the Contract contains the obligation to pay future interest from June 30, 1967 onwards till payment and that these two claims have been preferred by GEC before the Court of Arbitration of I.C.C. as arising not merely "out of' but under the contract." (pp. 477-478)

Shri Venugopal has, however, urged that the earlier approval to the terms of the contract was of no consequence in view of the subsequent refusal by the Government on August 1, 1969 to approve the agreement between General Electric and Renusagar with regard to the rescheduling of the dates of payment of inStalments 1, 2, 4 and 5. This contention also stands concluded by the decision in Renusagar Case I wherein it has been observed: E "In July 1969 Renusagar sought the Central Government's approval to the rescheduling of the dates of payment as embodied in October 1968 Amendment as also in the Memorandum of the Meeting held in December 1968 but by letters dated August 1, 1969 and August 4, 1969 the Central Government declined to approve the rescheduling of the dates of payment on the ground that it would result in larger out-flow of foreign exchange and advised Renusagar to effect payments as per the original schedule including instalments which had since fallen due. The result was that the original schedule of payment remained operative and there was delay on the part of the Renusagar to m~e payment of certain instalments on due dates." (p.457)

From the observations aforementioned in Renusagar Case I it appar- ent that the original contract postulates payment of interest till payment and the effect of the order of the Government of India dated August 1, H

80 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A 1969 was that the original schedule of payment remained operative. Since the original contract had been approved by the Government of India it cannot be said that the award of interest for delayed payment of instal- ments involved violation of the provisions of FERA.

Shri Venugopal has submitted that in Renusagar Case I this Court B was only required to consider the question of arbitrability of the disputes and was not concerned with the merits of the claim and, therefore, the said decision cannot be held to conclude the matter. We are unable to agree. It is true that in that case this Court was considering the question of arbitrability of the disputes but for the purpose of deciding that issue it was C necessary to consider whether disputes arose out of or are related to the contract and for that purpose it was necessary to construe the terms of the contract and it cannot, therefore, be said that the said decision does not conclude this aspect of the matter. In this context, it may also be pointed out that after the decisio~ ~ Renusagar Case I an application for clarifica- D tion of the said judgment was moved by Renusagar in this Court wherein clarification was sought in respect of certain paragraphs in the judgment and in the said application no objection was raised with regard to the observation quoted above. Moreover, the said application was dismissed by this Court by order dated October .29, 1988.

E As regards the second submission of Shri Venugopal that the enfor- cement of the Arbitral award would constitute violation to section 9(1) of FERA which imposes prohibition to make any payment to or for the credit of any person resident outside India except in accordance with any general or special exemption from the provisions of this sub-section which may be F granted conditionally or unconditionally by the Reserve Banlc. The submis- sion is that in view of the earlier order of the Government of India dated 1, 1969 refusing to approve rescheduling of payments the oar of section 9 will operate and no order enforcement of the award can be made. The High Court in this regard has placed reliance on the provisions of section 47(3) of FERA. which provides as follows: G "Neither the provisions of this Act nor any term (whether expressed or implied) contained in any contract that anything for which the permission of .the Central Governm'ent or the Reserve Banlc is required by the said provisions shall, not be done without that permission, shall '.prevent legal proceedings being brought in India

RENUSAGARPOWERLTD. v. ELECfRICCO.(AGRAWAL,J.) 81

to recover any sum which, apart from the said provisions and any such term, would be due, whether as debt, damages or otherwise, but-

(a) the said provisions shall apply to sums required to be paid by any judgment or order of any court as they apply in relation to other sums; B

· (b) no steps shall be taken for the purpose of enforcing any judgment or order for the payment of any sum to which the said provisions apply except as respects so much thereof as the Central Government or the Reserve Bank, as the case may be, may permit to be paid; and

(c) for the purpose of considering whether or not to grant such permission, the Central Government or the Reserve Bank, as the case may be, may require the person entitled to the benefit of the judgment or order and the debtor under the judgment or order, to produce such documents and to give such infor- mation as may be specified in the requisition."

In Mis Dhanrajamal Gobindram v. Mis Shamji Kalidas & Co., [1961) 3 SCR 1020, this Court has construed the provisions of section 21 of the E Foreign Exchange Act, 1947. Sub- section (3) of se~ion 21 of the said Act was more or less similar to section 47(3) of FERA. This Court has held:

"Sub-section (3) allows legal proceedings to be brought to recover sum due as a debt, damages or otherwise, but no steps shall be taken to enforce the judgment, etc., except to the extent permitted F by the Reserve Bank.

The effect of these provisions is to prevent the very thing which is claimed here, namely, that the Foreign Excha~ge Regulation Act arms persons against performance Act arms persons against per- formance of their contracts by setting up the shield of illegality. G An implied term is engrafted upon the contract of parties by the second part of sub-s. (2), and by sub-s. (3), the responsibility of obtaining the permission of the Reserve Bank before enforcing judgment, decree or order of court, is transferred to the decree- holder. The section is perfectly plain, though perhaps it might have H.

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

A been worded better for which -a model existed in England."- (p.1031)

To the same effect is the Jaw laid down by the House of Lords in England in Contract and Trading Co. v. Barbey, (1960) AC 244 wherein in following observations from the judgment of Somerwell LI in Cummings v. B London Bullion Company Ltd., (1952) 1 KB 327, have been quoted with approval:

"The person entitled to the payment issues a writ.The fact that permission has not been obtained is not a defence to the action. c On the one hand, the Plaintiff can obtain judgment, the money due under the judgment being subject to Part II of the Act and the Rules to which I have referred. The defendant assuming that the admitting liability, apart from the provisions of the Act, can make a payment into court. The Act is not to be used to enable the Defendant to retain the money in his pocket ·but to control its reaching its destination, namely, the plaintiff." (p.253)

Shri Venugopal has urged that section 47(3) cannot be applied in the present case because it postulates a situation where permission of the Central Government has not been sought and that in the present case permission was sought but was refused earlier. In 'our view the earlier refusal by the Government by give its approval to the rescheduling of payment of instalments does not in any way preclude the Government of

F India from considering the matter in the light of the subsequent develop- ments and it cannot be said that merely because the Government of India had refused to give its approval to rescheduling of payment of instalments it would not grant permission under section 47(3) of FERA to the enfor- - cement of the judgment that may be passed in these proceedings. It has also been urged that section 47(3) of FERA is applicable where the legal proceedings are brought in India to recover a sum which is 'due', i.e., as liquidated sum presently owing and the said provision would not apply to an obligation to pay on a future date. We do not find atiy support for this submission from the language of section 47(3) of FERA wherein the words used are "to recover any sum which, apart from the said provisions and any such term, would be due, whether as debt, damages or otherwise". The words "would be" which precede the word "due" indicate that the quantum of the amount has to be fixed in the legal proceedings and that it need not

RENU SAGAR POWER LID. v. ELECTRIC CO. (AGRAWAL, J.] 83

be a pre-determined amount. Moreover in the present case, we are con- A cerned with the proceedings for the enforcement of the award wherein the amount due has already been determined by the Arbitral Tribunal. We are, therefore, unable to hold that the enforcement of the award would involve violation of any of the provisions of FERA and for that reason it would be contrary to public p0licy of India so as to render the award unenforceable in view of section 7(1) (b) (ii) of the Act. B

(b) DISRE.GARD OF THE ORDERS OF DELHI HIGH COURT

It is the fundamental principle of law that orders of courts must be complied with for any action which involves disregard for such order would adversely effect the administration of justice and would be destructive of the rule of law and would be contrary to public policy. The question, however, is whether the enforcement of the award of the Arbitral Tribunal would involve disregard of any order of a court. The submission of Shri Venugopal is that in the matter of withholding of payment of regular interest Renusagar were acting in accordance with the interim orders that were passed by Delhi High Court in the writ petition filed by Renusagar which remained in operation from 1970 to 1980 and, therefore, the Arbitral Tribunal was in error in awarding compensatory damages for retention by Renusagar of the amount of income tax payable on the regular interest during the period the writ petition was pending in the Delhi High Court E and enforcement of the award of compensatory damages on regular inter- est under item 2 is, therefore, contrary to public policy. We find it difficult to accept this contention. Renusagar had filed an application, C.M. No. 286-W/70, in C.W. 170/70 in the Delhi High Court. Prayer (i) of C.M. No. 286-W/70 was as under : F "Pending the hearing and final disposal of this petition for an interim order an injunction restraining the Respondent and its officers, servants and agents from taking any steps on proceedings in enforcement furtherance, pursuance or implementation or in and manner giving effect to the said order both dated 11.9.69 or G from preventing the payment by the petitioner of tax-free interest of 6% per annum to IGE in accordance with the approval granted by the Respondent Orders dated 8.9.65 and 7.6.67 and to grant an ex-parte order pending notice."

On February 24, 1970, the following interim order was passed in C.M. H

84 SUPREME COURT REPORTS [1993] SUPP, 3 s.c.R.'.

A No. 286-W/70:

"There shall be interim injunction as prayed for Mr. Kirpal to file his counter by 24.3.70."

The matter came before the court after notice on May 18, 1970 on B which ·date the following order was passed :

"Mr. Ravinder Narain stated that he will give security, of the assets of the company to the satisfaction of the Commissioner of Income Tax, Lucknow for Rs. four lacs. Let this be done within a month from today. Interim injunction and stay to continue. In default of c compliance, as above, petition for stay will stand dismissed."

From the prayer contained in C.M.286-W and the orders dated February 24, 1970 and May 18, 1970 passed on the said application, it would appear that pending the hearing and final disposal of the writ D petition, there was an interim injunction restraining the Union of India, the- respondent in the said writ petition, and its officers, servants and agents from taking any steps on proceedings in enforcement, furtherance, pur- suance or implementation or in any manner giving effect to the said orders ·dated September 11, 1969 whereby t:pr exemption had been withdrawn and ~so restraining from preventing Renusagar from paying tax on interest of E 6% per annum to General Electric in accordance with the approval granted under orders dated September 3, 1965 and June 7, 1967. The only condition imposed by the Court was the Renusagar was required to give

- security for Rs. 4,00,000/- to the satisfaction of Commissioner of Income- Tax, Lucknow within one month. These orders would, therefore, show that on furnishing of the said security Renusagar was free to remit regular interest @ 6% per annum to General Electric as per the approval granted under orders dated September 8, 1965 and June 7, 1967. The said orders of the Delhi High Court did not also prevent Renusagar from depositing in the Government Treasury the income tax payable on the amount of regular interest payable @ 6.1/2% per annum. The said orders instead of preventing Renusagar from remitting the said amount of tax free interest in fact permitted Renusagar to make Ole said ·payments to General Electric. It cannot, therefore, be said that in retaining the_ said amount With itself while the writ petition was pending in the Delhi High Court during ,... the period from 1970 to 1980 Renusagar was acting in accot;pance with the orders passed by the Delhi High Court and the payment of the said amount

} RENU SAGAR POWER LID. v. ELECTRIC CO. [AGRAWAL,J.] 85 )

by Renusagar to General Electric or depositing in the Government A Treasury the income tax on the amount of regular interest payable to General Electric would have amounted to disregard of the said orders. In the circumstances, it is not possible to hold that in awarding compensatory damages under item No. 2 for wrongfully withholding the amount of regular interest during the period from 1970 onwards the Arbitral Tribunal B has penalised Renusagar for not disregarding the order of Delhi High Court of the enforcement of the said award would be contrary to public policy of India.

(c) Interest on Interest (Compound Interest) c This relates.to award of compensatory damages under items Nos. 2,4 and 6. It has been urged that the award of interest on interest (compound interest) is not. permissible under the law of New York as well as the law in India and is also contrary to public policy of the State of New York as well as the public policy of India. While construing the provisions of D Section 7(1) (b) (ii) of the Foreign Awards Act, we have held that under the said provisions the enforcement of a foreign award can be objected only on the ground of such enforcement being contrary to public policy of India and that public policy of other countries e.g. country of the law of contract of the courts of the place of arbitration cannot be taken into consideration. For that reason an objection to the enforceability of the award of the Arbitration Tribunal cannot be entertained on the ground it is contrary to the public policy of the State of New York. We would, however, examine v. ·1ether award of interest on interest or compound .. interest is contrary to public policy of India. Before we refer to the law in India in this regard, we may take note of the law in England to which reference has been made by Shri Venugopal during the course of his submissions. At common law in England the principle that is applied is that laid down in "the reluctant decision" of the House of Lords in London Chatham and Dover Rly Co. v. South Eastern Rly Co., 1893 A.C. 429, that in the absence of any agreement or statutory provision for the payment of interest, a court has no power to award interest, simple or compound, by way of damages for the detention (i.e., the late payment) of a debt. The injustice resulting from this rule has been sought to be removed by legis- lative intervention. By Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934 power was conferred on the Court of record to award interest in proceedings for recovery of any debt or damages where the debt H

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

A remained unpaid until the judgment was given. Section 3 of the 1934 Act was repealed and replaced by Section 35-A inserted in the Supreme Court Act, 1981 by the Administration of Justice Act, 1982 and power to award interest was extended to cover a case where the debt is paid late, after proceedings for its recovery has begun but before they have been con- B eluded. The power to award interest does not extend to a case where a debt is paid .later but before any proceeding for its recovery have begun. The rule in London Chatham and Dover Rly. Case has been qualified by the Court of Appeal in Wadsworth v. Lyda/I, [1981) 2 All. E.R. 401 to apply only to claims for interest by way of general damages and does not extend to claims for special damages. In the field of admiralty law simple interest c. is awarded, as a matter of course, on damages recovered in a damage action. In the area of equity the Chancery Courts, differing from the common law courts, have regularly awarded simple interest as ancillary relief in respect of equitable remedies, such as specific performance, rescission and the taking of an account and the Chancery courts have D regularly awarded interest, including not only simple interest but also compound interest, when they thought that justice so demanded, that is to say in cases where money had been obtained and retained by fraud or where it had been withheld or misapplied by a trustee or anyone else in a fiduciary position. [See : President of India v. La Pintada Cia Naveqacion SA, (1984) 2 All. E.R.773). E In Australia, the matter has been considered by the Australian High Court in the recent decision in Hungerfords v. Walker, (1989) 63 Aus. UR

210. Mason, CJ and Wilson,J ., after referring to the decisions of the House

- of Lords in London chatham and Dover Rly Co. v. South Easterin Rly. Co. (supra) and President of India v. La Pintada Cia (supra) have observed- F "But we see no reason for allowing the reluctance of the common law to extend to cases where the defendant's breach of contract or r,~gligence has caused the p!aintiff to pay away or the defendant to wit~hold money and, as a result, the plaintiff has been deprived G of the use of the money so paid away or withheld". (p.218)

They upheld the decision of the full court of South Australia awarding damages for the added cost of funding the business with borrowed money as a result of the loss of the use of money overpaid in tax by awarding compound interest for reason that simple interest would not reflect ac- H curately the extent of the respondent's loss since simple interest almost

RENUSAGARPOWERLTD. v. ELECfRICCO.[AGRAWAL,J.] 87

undercompensates the injured party's true loss. It was observed : A "The disdain of the common law for interest especially compound interest, is a relic from the days when interest was regarded as necessarily usurious". (p.218)

Brennan and Deane JJ. have expressed their general agreement with the reasons given by Mason, C.J. and Wilson, J. but Dawson, J. has given a dissenting judgment.

It appeals that in Canada also, the Candian Federal Court of Appeal has expressed the view that there is no longer any reason to retain the common law rule against interest as damages and the said rule has been described as "a judge-made limitation on the awarding of interest which is clearly no longer seel} to be good public policy". (See : Algonquin Mercantile Corp. v. Dart Industries Canada Ltd. (1987) 16 CPR (3d) 193 at 201).

This would show that award of interest on damages or interest on interest i.e. compound interest is not regarded as being against public policy in these countries. ·

We may now examine the law governing award of interest in India. Shri Venugopal has placed reliance on the provisions of Section 3 (3) (c) of the Interest Act, 1978. Section 3 empowers a court to allow interest and sub-s. (3) of the said section provides.exceptions fo the main provision. In · clause (c) of sub-section (3) it is laid down that nothing in this section shall empower the court to ·award interest upon interest. Shri Venugopal has also placed reliance on the decision of the Judicial Committee of the Privy Council m Bengal Nagpur Rly. Co. Ltd. v. Ruttanji Ramji, AIR (1938) PC F 67; and the decisions of this Court in Union of Indi.a v. West Punjab Factories, (1966) 1 SCR 580; Union of India v. Watkins Mayor & Co., AIR (1996) SC 275; Union of India v. Rallia Ram, (1964) 3 SCR 164 and Thowardas v. Union of India, AIR (1955) SC 468. The decision of the Judicial Committee of the Privy Council in Bengal Nagpur Rly. Co. v. Ruttanji Ramji (supra) is based on London Chatham & Dover Rly. Co. case G (supra) and following the said decision, it has been laid down that "interest for the period prior to the date of the suit may be awarded, if there is an agreement for the payment of interest at a fixed rate, or it is payable by the usage of trade having the force of law, or in the provision of any substantive law entitling the plaintiff to recover interest". The said decision H

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

A of the Privy Council has been followed by this Court in Thawardas v. Union of India (supra), Union of India v. Rallia Ram (supra) and Union of India v. Watkins Mayor& Co. (supra) and Union of India v. West Punjab Fact01ies (supra), and it has been held that in the absence of any agreement, express or implied, or for any provision of law, it is not possible to award interest by way of damages. This would show that there is no absolute bar on the award of interest by way of damages and it would be perfilissible to do so if there is usage or contract, express or implied, or of any provision of law to justify the award of such interest. Merely because in Section 3(3) (c) of the Interest Act, 1978, the court is precluded from awarding interest on interest does not mean that it is not permissible to award such interest under a contract or usage or under the statute. It is common knowledge that provision is made for the payment of· compound interest in contracts for loans advanced by banks and financial institutions and the said con- tracts are enforced· by courts. Hence, it cannot be said that award . of interest on interest, i.e., compound interest, is against the public policy of D India. We are, therefore, unable to accept the contention that award of interest on interest, i.e., compound interest is contrary to public policy of India and the award in respect of compensatory damages awarded under item nos. 2, 4 and 6 cannot be enforced under Section 7(1) (b) (ii) of the Act.

E (d) Damages on Damages

This objection relates to award of compensatory damages under item no.4. The submission of Shri Venugopal is that since the contract did not provide for payment of interest for the period subsequent to the date of maturity, the delinquent interest that has been awarded under item no.3 is in the nature of damages and the award of compensatory damages under item no.4 amounts to award of damages on damages which is impermissible and is contrary to public policy of India. In support of this submission, Shri Venugopal has placed reliance on the decision of this Court in Trojen & Co.Ltd. v. R.M. N.N. Nagappa Chettiar, [1953) SCR 789, wherein interest had been allowed on damages and it was contended before this Court that the said interest could not be allowed on damages because it would amount to awarding damages on damages which is opposed to precedent and principle. The court rejected the said contention and held that interest is allowed by court of equity in the case of money obtained or detained by fraud and in that case, the plaintiff had paid the money to defendants on account of fraudulent practices by the defendants on the plaintiffs.

-~ RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.) 89 _,, In the present case, the said decision has no application because the basic postulate of the contention of Shri Venugopal is that the contract did not make any provision for payment of interest for the period subsequent to the date of maturity of the promissory notes. This contention has been considered by us and it has been negatived and in view of the earlier decision of this Court in Renusagar Case I we have held that the contract provided for payment of interest for the period subsequent to the date of maturity of the promissory notes till actual payment was made. In the circumstances, it cannot be said that the delinquent interest that has been awarded under item no.3 has been awarded by way of damages and not by way of interest. Once it is held that delinquent interest awarded under item no. 3 is by way of interest than there is no question of damages being c awarded on damages and it is, therefore, not necessary to go into the ~ question whether awarding damages on damages is contrary to public policy of India.

(e) Unjust Enrichment D Relying upon the decision of the Supreme .Court of Romania dated February 16, 1985, which is extracted, in brief, in the Year Book of Commercial Arbitration, VoLXIV, 1989, pp.689 to 691, Shri Venugopal has submitted that unjust enrichment is contrary to public policy of India and since the enforcement of award of the Arbitral Tribunal would result in E unjust enrichment of General Electric it cannot be enforced under Section 7(1) (b) (ii) of the Foreign Awards Act. This contention of Shri Venugopal has a bearing on the award of deliquent interest under item no. 3, as well as on the award of compensatory damages under item nos. 2 and 4 and award of costs under item no. 7. F In the case decided by the Romanian Supreme Court, a Lebanese shipowner had agreed by a charter party with the Romanian State enterprise to transport from Costantza (Romania) to Bandar Abbas (Iran) certain goods which had been sold C&F to an Iranian buyer. The voyage was interrupted at Tripoli (Labanon) where· the shipowner had its seat. At Tripoli all merchandise disappeared, according to the shipowner because G

' of war, and according to the Romanian enterprise because of a local fraudulent sale. The dispute was referred to arbitration and in the arbitra- ~ tion award, the shipowner was directed to refund to the Romanian enterprise part of the freight it had received as well as the value of the lost goods. The Romanian enterprise sought enforcement ~f the arbitration H "\

90 SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.

A award in Romania. The Labanese shipowner objected to the request on , various grounds including the ground that it was not obliged to refund the value of the goods since they had been fully paid for by the Iranian buyer. It was submitted that the enforcement of the award was contrary to Romanian public policy since it resulted in unjust enrichment of the . Romanian enterprise inasmuch as the said enterprise was allowed to B receive for the second time the price of goods which had already been paid by the Iranian buyers. Rejecting the said objection the Romanian Supreme Court held that the arbitral award showed that the Romanian enterprise meant to obtain repayment of the value of the cargo and the freight on behalf of the Iranian buyer acting as agent or trust and since the Romanian C enterprise did not act on its own behalf, although it had no express mandate, the conditions for unjust enrichment were not met in the case at issue and, consequently, the public policy of Romanian international private law had not been violated. The said decision had proceeded on the basis that unjust enrichment was part of the public policy of Romai:iian international private law but in that case it was found that there was no violation of the said principle of public policy.

The principle of unjust enrichment proceeds on the basis that. it would be unjust to allow one person to retain a benefit received at the expense of another person. It provides the theoretical foundation for the law governing restitution. The principle has, however, its crities as well as its supporters. In the words of Lord Diplock : ".... there is no general doctrine of unjust enrichment in English law. What it does is to provide specific remedies in particular cases of what might be classed as unjust enrichment in a legal system that is based upon civil law." [See: Orakpo v. F Manson investments Ltd., 1978 A.C. 95 at p.104). In the law of Restitution by Goff and Jones, it has, however, been stated "that the case law is now sufficiently mature for the courts to recognise a generalised right of res- titution" {3rd Edn., p.15). In Chitty on Contracts, 26th Edn., Vol. I, p. 1313, para 2037, it has been stated that "the principle of unjust enrichment is not yet clearly established in English law". The learned editors have, however, expressed the View :

"Even if the ·Jaw has not yet developed to that extent, it does not follow from the absence of a general doctrine of unjust enrichment that the specific remedies provided are not justifiable by reference to the principle of unjust enrichment even if they were originally

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.] 91

found without primary reference to it." (pp.1313-1314--para 2037) A

In Indian law the principle of unjust enrichment finds recognition in the Indian Contract Act, 1872 (Sections 70 and 72)

y.le do not consider it necessary to go into the question whether the principle of unjust enriclup.ent is a pa~t of the public policy of India since B we are of the opinibn that even if it be assumed that unjust enrichment is contrary to pub1ic policy of India, Renusagar cannot succeed because the unjust enrichment must relate to the enforcement of the award and not to its merits in view of the limited scope of enquiry in proceedings for the enforcement of a foreign award under the Foreign Award Act. The Objec- C tions raised by Renusagar based on unjust enrichment do not relate to the enforcement of the award because it is not the case of Renusagar that General Electric ·has already received the amount awarded under the arbitration award and is seeking to obtain enforcement of the award to obtain further payment and would thus be unjustly enriching itself. The D objections about unjust enrichment raised by Renusagar go to the merits of the award, that is, with regard to the quantum awarded by the Arbitral Tribunal under item nos. 2, 3, 4 and 7, which is beyond the scope of the. objections that can be raised under Section 7(1) (b) (ii) of the Foreign Awards Act. To hold otherwise would mean that in every case where the arbitrators award an amount which is higher than the amount that should E have been awarded, the award would be open to challenge on the grond of unjust enrichment. Such a course is not permissible under the New York Convention and the Foriegn Awards Act. We have, however, examined the objections rised by Renusagar relating to unjust enrichment even on merits and we are not satisfied that the amounts awarded under items Nos. 2, 3, F 4 and 7 are so excessive as to result in unjust enrichment of General Electric.

One of the contentions that was urged by Shri Venugopal in support of the objections.relating to uD.jl,lst enrichment was that the compensatory damages should have been awarded after deducting the US tax payable by G General Electric on the amount of regular interest as well as delinquent interest. Reliance, in this regard, has been placed on the decision of the House of Lords in British Transport Commission vs. Gourley, [1955] 3 All Eng. R. 796, wherein it has been laid down that when assessing damages for loss of actual or prospective earnings allowance must be made for any H

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

A income tax 'an the earnings. This rule in Gourley's case (supra) will, . however, apply only where two conditions are satisfied : (1) the money, for the loss of which damages are awarded, would have been subjected to tax as income; and (2) the damages awarded to the plaintiff are not ~ubject to tax in his hands. [See : Chitty on Contracts, 26th Edn., Vol. I, pp. 1186-87, para 1841]. B In Hanover Shoe v. United Shoe Machinery Corporation, (1968) 20 L.Ed. (2d) 1231, the Court of Appeal had remanded the matter to the District Court to take account of the additional taxes Hanover would have paid for computation of damages, on the view that since only after-tax C profits can be reinvested or distributed to shareholders, Hanover was damaged only to the exteIJ.[ of the after-tax profits that it failed to receive. The U.S. Supreme Court reversed the said decision of the Court of Appeal and held that the.District Court did not err on the question of computation. The Court observed :

D "As Hanover points out, since it will be taxed when it recovered damages from United for both the actual and the trebled damages, to diminish the actual damages by the amount of the taxes that it would have paid had it received greater profits in the years it was damaged would be to apply. a double deduction for taxation, E leaving Hanover with less income than-it would have had if United had not injured it;" (p.1247)

Since General Electric would be liable to pay U.S. tax oh the amount of compensatory damages awarded under item ~os. 2 and 4 of the Award, it cannot be said that there would be unjust enrichment by General Electric """' F on account of non-deduction of U.S. tax payable on the amount of regular interest and delinquent interest while assessing compensatory damages under item nos. 2 and 4.

As regards amount of delinquent interest awarded under item no. 3, G it has been submitted that since interest is not payable under the contract in respect of the period subsequent to the date of maturity of the promis- sory notes, the award of delinquent interest for the said period would result in unjust enrichment. This argument about liability for such interest has already been considered by us and we have found that under the contract interest is payable for the period subsequent to the maturity of the promis· H sory notes till payment. There is, therefore, no substance in the contention

RENU SAGAR POWER LTD. v. ELECTRIC CO. (AGRAWAL, J.) 93

about unjust enrichment on this account. With regard to the award of delinquent interest under item no. 3 and compensatory damages on the delinquent interest under item no. 4 it has been contended that in view of the agreement between General Electric and Renusagar for rescheduling of the instalments Renusagar were not required to pay the instalments as per the original schedule and, therefore, Renusagar could not be held liable for interest for delayed payment of the instalments which fall due till August _1, 1969, and they could not also be saddled with compensatory damages for non-payment of instalments that fall due till August 1, 1969 as per the original schedule. We have dealt with the effect of order of the Government of India dated August 1, 1969, refusing to give its approval to the proposed arrangement for rescheduling of-payment of instalmente and we have held that as a result of such refusal the original contract regarding payment of those instalments would revive and Renusagar were required to pay the instalments in accordance with the terms of the said contract and were required to pay interest for delayed payment of those instalments and therefore it cannot be said that award of delinquent interest for the period during which the matter was pending consideration with the Government of India, would result in unj:ust enrichment of General Electric.

As regards item no.7 relating to costs, the case of Renusagar is that the costs awarded by the arbitrators are excessive and unconscionable and further that the costs incurred in relation to the litigation in India1 which was been found inadmissible earlier by the Arbitral Tribunal ha~ been included in the costs of arbitration that have been awarded resulting in unjust emichment of General Electric. We have considered this objec- - tion of Renusagar and we do not feel that it can be a ground for refusal of enforcement of award under Section 7(1)(b)(ii) of the Foreign Awards F

Act.

For the reasons aforesaid, none of the objectipns raised by the Renusagar against the enforcement of the award under Section 7(1)(b)(ii) of the Foreign Awards Act for the reason that such enforcement is contrary G to public policy of India merits acceptance.

VI RELEVANT DATE FOR CONVERSION OF 'l'HE AMOUNT AWARDED FROM FOREIGN CURRENCY TO INDIAN CUR- RENCY H

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

A In the field of conflict of laws money serves a two-fold fun~tion, viz., (i) as a means of measurement; and (ii) medium of payment. The currency in which a debt is expressed or a liability to pay damages is calculated is called the "money of account" or "money of contract" or "money of meas- ure~ent" and the currency in which the said debt or liability is to be discharged is called the "money of payment". The money of account is to B be ascertained from the terms of the contr.act construed in accordance with the proper law of the contract and the money of payment is determined by the law of the country in which such debt or liability is payable i.e. lex loci solutionis. [See : Dicey & Morris "The Conflict of Laws", 11th Edn., Vol.2, Rules 209 and 210). c Where the money of account and the money of payment are not identical the amount of units of the currency of account owed by the debtor must, by an exchange operation, be translated into the currency in which he is obliged to pay. This is a matter of substance and the rate of exchange D for such conversion is determined by the proper law of the contract or the law governing the liability. (See : Dicey & Morris, "The Conflict of Laws" pp.1442 and 1453). By this process the quantum of the monetary obligation is determined. The questions relating to conversion of currency often arise at the stage of discharge of the monetary obligation when the debtor makes the payment in a currency other than the money of payment. Such conver- E sion is to be made on the basis of the exchange rate prevailing on the date of payment at the place of payment. (See : Dicey & Morris, the Conflict of Laws, Rule 210(2) at pp. 1453-54: Mann : The Legal Aspect of Mo'1ey, 5th Ed., p.323). Conversion of the currency is also necessary in cases where legal proceedings have to be instituted by the creditor. In some legal systems the judgment can be given by the courts in the currency of that country only and, therefore, it becomes necessary to convert the monetary obligation into the currency of that country at the time of institution of the legal proceedings. The exchange for such conversion will depend on the lex Jori, i.e., the law of the forum and in many legal system it is the date the cause of action arose, i.e., the date of breach while in some system it is the date of judgment. In legal systems where it is permissible to obtain a judgment in foreign currency conversion would be necessary at the stage of enforcement or execution of the judgment. Same problem would arise when a judgment of a foreign court is sought to be enforced. The relevant date for applying the exchange rate for such conversion depends upon the lex fori, i.e., the law of the forum because it is a matter relating to the

RENU SAGAR POWER LTD. v. ELECTRIC CO. (AGRAWAL, J.] 95 • procedure. (See : Cheshire & North, Private International Law, 12th Ed., A p.106). What applies to enforcement of judgments equally applies to en- forcement ofarbitral awards.

In the instant case, there is no dispute that the money of account as well as the money of payment is the same, nameiy, U.S. dollar. Here, the question of convertibility from U.S. dollar to Indian rupees arises in the B context of enforcement of the award of the Arbitral Tribunal which is in U.S. dollar. We are, therefore, required to examine the position under the Indian law with reference to conversion of foreign currency into Indian currency at the stage of enforcement of a judgment or award in foreign currency. c Prior to 1975, the law in England, was that an English court will not give judgment for the payment of an amount expressed in foreign currency . and the amount of any foreign currency had to be converted in sterling on or before !he date of judgment and the date for the purpose of such D conversion was the date when the cause of action arose. This was the law laid down by the House of Lords in Re.United Railways of Havana & Regla Warehouses Ltd., 1961 AC. 1007. This decision was overruled by the House of Lords (by majority) in 1975 in Miliangos v. George Frank (Textiles) Ltd., 1976 A.C. 443. In that case, a Swiss seller had agreed to supply English buyers with goods at a price expressed in the contract in Swiss francs. The E good and invoices were delivered but the price was not paid and bills of exchange drawn in Switzerland and accepted by the buyers were dishonoured on presentation. The seller throught action in England wherein he claimed the sums due in Swiss francs. Originally he had asked for conversion of Swiss francs into sterling at the breach date in view of the law laid down Re. United Railways of Havana's case (supra) but subsequently in view of the decision of the Court of Appeal in Schorsch Meire G.M.B.H. v. Bennin, 1975 Q.B. 416, the seller amended his statement of claim so as to claim the amount due to him in Swiss francs as an alternative to claiming judgment in sterling. Bristow, J. gave judgment for the money due expressed in sterling, holding that the rule that the English courts could express their judgments only in discussion the question whether the rule applying to money obligation should apply as regards claims for damages for breach of contract or for tort. In his dissenting opinion, Lord Simon, has reitreated the law laid down in Havana Railways case (supra). It may be of interest to note that Lord Wilberforce, who gave H

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

A the leading speech in Miliangos case (supra) had appeared in Havana Railway case (supra) but failed to persuade the House of Lords to accept his contention. He, however, succeeded 15 years later, in having his views accepted by the House of Lords. Subsequently in Owners of M. V. Elef- therot1ia v. Owners of M. V. Despina and Services Europe At/antique Sub (Seas) of Paris v. Stockhoims Rederiaktiebolag Svea of Stockholm, 1979 A.C. B 685, the House of Lords has extended the rule laid down in Miliangos case (supra) to claims for damages for tort and breach of contract. The rule laid down in Miliangos case has been held to be applicable to an action at common law on a foreign judgment {See : Dicey & Morris's 17ie Conflict of I.Laws, 11th Edn., Vol.2, p. 1461). In relation to arbitral awards the matter chad come up before the Court of Appeal in Jugoslavenska Oceanska Plovidba v. Castle Investment Co. Inc., {1974) Q.B. 292 wherein it was held that an award could be made by the arbitrators in England in terms of U.S. sterling had not been altered either by Parliament or by any decision of the House of Lords. The Court of Appeal reversed the said decision and, D following Schorsch Meier G.m.b.H v. Hennin, (supra), gave judgment for the seller ordering the buyers to pay the sum due in Swiss francs, or the equivalent in sterling at the time of payment. Affirming the said decision of the Court of Appeal and departing from its earlier decision in the Havana Railways case (supra), the House of Lords has held that it was legitimate for the House of Lords to·depart from the "breach date conver- E sion" rule and recognise that an English court was entitled to give judgment for a sum of money expressed in a foreign currency in the case of obliga- tions of a money character to pay foreign currency arising under a contract, the proper law of which was that ?f a foreign country and where the money of account and payment is that of that country, or possibly ofsome other country but not of the United Kingdom. It was further held that the claim had to be specifically for the foreign currency or its sterling equivalent and the conversion shall be at the date of payment, i.e., the date when the courts authorise enforcement of the judgment in terms of sterling. The said decision was, however, confined in its application to foreign money obliga- tion and the court left open for future dollar and that same could be enforced by converting the foreign currency into sterling at the rate prevail- ing at the date of the award. While referring the said decision, Lord Wilberforce, in Wiliangos case (supra), has said:

"In the case of arbitration, there may be a minor discrepancy, if the practice which is apparently adopted (see the '!ugoslavenska

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL,J.] 97

case [1974) Q.B. 292, 305 remains as it is, but I can see no reason why, if desired, that practice should not be adjusted so as toenable conversion to be made as at the date when leave to enforce in sterling is given." (p. 469)

The impact of Miliangoes case was not confined to the British :,,hores. It has been felt across the Atlantic and there is a perceptible change in the law in Canada as well as in the United States.

Following the law in England the Supreme Court of Canada had applied the Breach date rule for convreting foreign currency into Candian dollar in two earlier decisions. (See: The Custodian v. Bhucher, [1927] SCR C 420 at p.427; Gatineau Power Co. v. Crown Life Insurance Co., [1945] SCR 655 at p.658 But subsequent to Miliangos case (supra), Carruthers J. of the High Court of Ontario, in Batavia Times Publishing Co. v. Davis, [1978] DLR (3d) 144, applied the judgment date rule in a suit for enforcement of a foreign judgment. Distinguishing the earlier judgments of the Supreme Court as dealing with actions based on the original cause of action, the learned judge held that in a proceeding to enforce a foreign judgment he was free to adopt that conversion date which is his view "avoids an injustice" and is "in step with commercial needs". The said judgment was affirmed by the Court of Appeal. [(1980) 102 DLR (3d) 192). In Clinton v. Ford, [1982) 137 DLR (3d) 281 the Court of Appeal of Ontario affirmed the order of the trial judge applying the rate prevailing at the date of the Statement of Claim on the view that in awarding judgment on a foreign judgment the trial judge should be free to adopt a date for the conversion of foreign currency into domestic currency which avoids injustice and which.is in step with commercial needs. F The federal law in the United States is thus explained by Prof. P.A. Mann:

"Where the breach or wrong occurred in a foreign country (espe- cially by non-payment of money due there), the damages are measured in the currency of that country and the dollar equivalent G calculated at the rate of exchange obtaining at the date of judgment can be recovered; where the breach or wrong occurred in the United States (especially by non-payament of foreign money due there), the damages, being measured in dollars, are to be converted at the rate of exchange of the date of breach or wrong". (Mann: H

98 SUPREME COURT REPORTS [1993] SUPP. 3 S.CR.

A Legal Aspects of Money, 5th Ed., p.347)

According to the learned author the first part of the above statement ~s based on the decision of the U.S. Supreme Court in Deutsche Bank Filiale Nurenberg v. Humphrey, (1926) 272 US 517 and the latter part of the. statement is supported by the decision of the U.S. Supreme Court in Hicks B v. Guiness, (1925) 271 US 711.

. Most of the States, including State of New York (till recently), follow the old English rule and apply the rate of exchange prevailing at the date of breach. In the State of New York, however, there has been a departure in some cases where the jµdgment-date ru.le has been applied. (See : John S. Metcalf Co. v. Mayer, (1925) 211 N.Y. Supp. 53, and Sirie v. Godfrey, (1921) 186 N.Y. Supp. 52. Even in the matter of application of the breach date rule in actions for enforcement of a foreign judgment, the New York courts have applied the breach date rule with effect from the date of the judgment sought to be enforced. In Indaq v. lrridelco Corpn., (1987) 658 F.Supp. 763, one of the cases on which reliance was placed by Shri Venugopal, the action was brought to enforce a judgment entered in favour of the plaintiff by the courts of Switzerland and the United States District Court in New York held that the date of entry of Swiss judgment, rather than the date of breach of underlying obligation, i.e., its agreement to repay certain notes, was controlling as to application of breach-day conversion rule. It was held that the date of award for damages by Cantonal Court was relevant date for applic!ltion of breach date conversion rule even though that judgment was subsequently appealed. In taking this view, the court relied upon the decision in Competex SA. V. Lalord (1986) 783 F.Zd

F 333. It appears that the provisions in this regard contained in section 27 of the Judiciary Law of the State of New York have now been amended in

1987. Earlier section 27 provided that all judgment or decrees rendered by any court for any debt, damages or costs, all executions issued thereupon, and all accounts arising from judicial proceedings .shall be computed, as near as may be, in U.S. dollars and cents, rejecting lesser fractions, and no G judgment or other proceeding, shall be considered erroneous for such means. Section 27 as amended reads us under :

"27. (a) Except as provided in subdivision (b) of this section, judgments and accounts must be computed in dollars and cents. H In all judgments or decrees rendered by any court for any debt,

RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL,J.] 99

damages or costs, all execution issued thereupon, and all accounts arising from judicial proceedings shall be computed, as near as may be, in U.S. dollars and cents, rejecting lesser fractions, and no judgment or other proceedings, shall be considered erroneous for such means.

(b) In any case in which the cause of action is based upon an obligation denominated in a currency other than currency of the United States, a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation. Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment c or decree."

As a result of this amendment, instead of breach-daterule which was prevailing earlier the judgment-date rule has been introduced. This amend- ment came into operation on July 20, 1987. It was introduced at the request of New York State bar Association and the Erie County Bar Association D and it was supported by the Association of the Bar of the City of New York. According to the chairman of the Committee on International Trade alid Transactions of the New York State Bar Association the said amend- ment was necessary because in view of the decision of House of Lords in Miliangos case "a number of transactions which would otherwise by E governed by New York, and, involve professional and financial advisors in New York, have been structured in England and covered by English law."

In India, the law relating to conversion of foreign currency into Indian currency in the matter of enforcement of judgments or awards is governed by the decision of this Court in Forasol case (supra). That case p arose out of a contract between Forasol, a foreign company and the Oil and Natural Gas Commission, a Government oflndia Undertaking. Certain disputes arose between the parties which were referred to arbitration in accordance with the arbitration clause contained in the contract. The said arbitration was governed by the Indian Arbitration Act, 1940. The award directed certain payment to be made in French Francs but did not specify G the rate of exchange at which the French Francs were to be converted into ludian rupees. Proceedings were initiated in Delhi High Court for passing ,a decree in terms of the award and a question arose as to the exchange rate . for conversion of French Francs into Indian rupees. This Court examined the question with reference to the following dates - H

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

A (1) the date when the amount become due and payable ;

(2) the date of the commencement of the action;

(3) the date of the decree;

B (4) 'the date when the court orders execution to issue; and

(5) the date when the decretal amount is paid or realised.

The court also pointed out that in a case where a decision has been passed by the Court in· terms of an award made in a foreign currency a C sixth date, namely, the date of award also enters the competition. As there was lack of authority of any Indian court, this Court has considered the decision of English Courts including the Miliangos case (supra).

The first date, i.e., the date when the amount became due and payable, was not accepted by the Court for the reason that it cannot be said to be just, fair or equitable because in a case where the rate of exchange has gone against the plaintiff, the defendant escapes by paying a lesser sum than what he was bound to and thus is the gainer by his default while in the converse case where the rate of exchange has gone against the defendant, the defendant would be subjected to a much greater burden than what he should bear. The Court felt that the same criticism would apply to the second of the dates, namely, the date of the commencement of the action or suit because suits are not often· disposed of for an unconscionably long tline and if we take into account the time that wowd be spent in appeals, further appeals, and revision and review applications which may be filed, the longevity of the litigation is doubled, if not tripled, so that none can with any certainty predict even a probably date for its termination. As regards the third date, namely, the date of the decree, the Court observed that a decree crystallizes the amount payable by the defendant to the plaintiff and it is the decree which entitles the judgment- creditor to recover the judgment debt through the processes of law. Deal- G ing with the objection that the date of the decree of the trial court is not final decree for there may be appeals or other proceedings against it in superior courts and by the time the matter is finally determined, the rate of exchange prevailing on that date may be nowhere near that which prevailed at the dak of the decree of the trial court, it was observed that this difficulty is easily overcome by selecting the date when the action is finally disposed of, in the sense that the decr.ee becomes final and binding

- RENUSAGARPOWERLTD. v. ELECTRICCO.[AGRAWAL,J.] 101

between the parties after all remedies against it are exhausted. As regards the fourth date, i.e., the date when the court orders execution lo issue, it was felt that execution of a decree is not a simple matter because it involves execution of a money decree and the judgment-debtor's property has to be attached and pending attachment a third party, at times set up by the judgment-debtor, may prefer a claim to the attached property which will have to be investigated and determined by the executing court and even where no claim is preferred the attached property cannot be brought to sale immediately and certain formalities have to be complied with and even after the sale has taken place, the judgment-debtor may further hold up the receipt of the sale proceeds by the decree-holder by raising objection to the conduct of the sale and at time, a fresh auction sale may be have to be held if the auction purcha:er commits default in paying the balance of the purchase price and a considerable time would thus elapse between the date when the court orders execution to issue and the date of the receipt of the sale proceeds by the decree-holder. It was also pointed out that at times the judgment debt is not recovered in full when the attached property is sold in execution and further application for execution may become nece~sary and this would lead to an anamolous position for the Court would have to fix the rate of exchange, which may be different from each application for execution. A further difficulty that was pointed out by the court was that execution can only issue for a sum expressed in Indian currency and it cannot be for a sum which would be determined and fixed by executing court at the time of granting an execution application. With E regard to the fifth date, namely, the date of payment, the Court felt that there were three practical and procedural difficulties namely, payment of court fees, the pecuniary limits f?f the jurisdiction of courts and execution. Keeping in view the consideration referred to above, this Court -declined to adopt the rule laid down in Miliangos case (supra) and held that it would be fair to both the parties to take the date of passing the decree, i.e., the date of judgment. The said date was also held applicable to a case where a decree is made in terms of an award made in a foreign currency.

The practice which ought to be followed in suits in which a sum of money expressed in a foreign currency can legitimately be claimed by the plaintiff and decreed by the court, has been thus indicated :

"•.... the plaintiff, who has not received the amount due to him in a foreign currency and, therefore, desires to seek the assistance of the court to recover that amount, has two courses open to him. He H

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

- A can either claim the amount due to him in Indian currency or in the foreign currency in which it was payable. If he chooses the first alternative, he can only sue for that amount as converted into . Indian rupees and his prayer in the plaint can only be for a sum in Indian currency: For this· purpose, the plaintiff would have to convert the foreign currency amount due to him into Indian rupees. B He can do so either at the rate of exchange prevailing on.the date when the amount became payable for he was entitled to receive the amount on that date or, at his option, at he rate of exchange prevailing on the date of the filing of the suit because that is the date which he is seeking the assistance of the court for recovering c the amount due to him. In either event; the valuation of the suit for the. purposes of court-fees and the pecuniary limit of the jurisdiction of the court will be the amount in Indian currency claimed in the suit. The plaintiff may, however, choose the second course open to him and claim in foreign currency the amount due to him. In such a suit, the proper prayer for ,the plaintiff to make in his plaint would be for a decree that the defendant do pay to him the foreign currency sum claimed in the plaint subject to the permission of the concerned authorities under the Foreign Ex- change Regulation Act, 1973, being granted and that in the event of the foreign exchange authorities not granting the requisite permission or the defendant not wanting to make payment in foreign currency even though such permission has been granted or the defendant not making payment in foreign currency or in Indian rupees, whether such permission has been granted or not,. the defendant do pay to the plaintiff the rupee equivalent of the foreign currency sum claimed at the rate of exchange prevailing on the date of the judgment. For the purposes of court-fees and jurisdic- tion the plaintiff should, however, value his claim in the suit by converting the foreign currency sum claimed by him into Indian rupees at the rate of exchange prevailing on the date of the filing of the suit or the date nearest or most nearly preceding such date, stati~g his plaint what such rate of ~xchange is. He should further give an undertaking in the plaint that he would make good the deficiency in the court-fees, if any, if at the date of the judgment, at the rate of exchange then prevailing, the rupee equivalent of the foreign currency sum decreed is higher than that mentioned in the plaint for the purposes of court-fees and jurisdiction. At the