Relevant date for determining the foreign exchange rate applicable to an arbitral award : High Court of Delhi
The exchange rate as applicable on the date when the petition of challenge to an arbitral award is dismissed, will be the relevant date for ascertaining the exchange rate applicable for determining the INR equivalent to the amounts awarded in foreign currency. This was held in VOITH HYDRO LTDA &amp; ORS v. NTPC LIMITED[OMP (ENF.) (COMM.) 64/2018] in the High Court of Delhi by single bench consisting of HON’BLE JUSTICE VIBHU BAKHRU. Facts of the case are that an arbitral award was passed in the context of dispute between the parties in connection with an agreement for execution of a Hydro Electric Project. Compensation was awarded in favor of petitioner with interest. Respondent filed petition under S.34 and a SLP to set aside the Award, both of which were dismissed.  Learned  Counsel appearing for decree holder submitted that NTPC had paid an amount the shortfall of ₹12,09,16,391.27 which was primarily due two reasons, incorrect reliance on the exchange rate, NTPC erroneously deducted tax deducted at source(TDS) and was also liable to pay charges incurred by them for extending the Bank Guarantees. Counsel for decree debtor contended the award amount was correctly paid. Voilth was required to open Escrow Account and obtain specific approval from RBI which they delayed. The exchange rate was consented and accepted in Indian currency in Escrow Account. Payment of TDS and any extra charges will be unfair.  The High Court referred to the precedent laid down in Forasol v. Oil and Natural Gas Commission, wherein the Supreme Court had held that, “The exchange rate prevalent on the date on which the decree is passed would be the applicable exchange rate. It further clarified that if the decree is challenged in an appeal and such appeal is decided wholly or in part, the exchange rate prevailing on the date on which the decree or order is passed, would be applicable. Insofar as the arbitral awards are concerned, the date on which the challenge to the arbitral award is finally rejected, would be the date for determining the foreign exchange applicable to an award made in foreign currency.” Court also referred to the decision of the Supreme Court in All India Reporter Ltd. v. Ramchandra D. Datar wherein it was held,“when amounts becomes part of a judgment-debt, they lose their original character and assume the character of a judgment debt. Once such an amount assumes the character of judgment debt, the decree passed by the civil court must be executed subject only to the deductions and adjustments permissible under the Code of Civil Procedure.”
IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment delivered on: 19.03.2021 OMP (COMM.) 64 2018 & IA No. 5231 2018 EA 960 2019 EA 194 2020 EA 196 2020 EA 988 2020 & EA VOITH HYDRO LTDA & ORS. .... Decree Holders NTPC LIMITED .... Judgment Debtor Advocates who appeared in this case: For the Decree Holders : Mr Ciccu Mukhopadhaya Senior Advocate with Mr Omar Ahmad Mr Ishan Gaur Mr Vikram Shah Mr Amol Gupta and Ms Simran Khorana Advocates. For the Judgment Debtor: Ms Pinky Anand Senior Advocate with Ms Sangeeta Bharti Mr Ashish Kumar and Ms Saudamini Sharma Advocates. HON’BLE MR JUSTICE VIBHU BAKHRU VIBHU BAKHRU J By this order this Court shall dispose of the application filed by the Decree Holders Ex. Appl. 988 2020 whereby the Decree Holders have inter alia sought directions against the Judgment Debtor to pay a sum of ₹21 17 72 890.83 . According to Voith the OMP(COMM.) 64 2018 said sum remains to be paid by NTPC to discharge the Arbitral Award dated 23.08.2016 which is sought to be enforced under Section 36 of the Arbitration and Conciliation Act 1996. In addition Voith also prays that directions be issued to NTPC to forthwith pay it ₹2 88 31 380 which is the cost incurred by Voith to extend the Bank Guarantees furnished to NTPC. The Award was passed in the context of disputes that had arisen between the parties in connection with an agreement for execution of a Hydro Electric Project to be constructed on the river Bhagirathi known as Loharinag Pala Hydro Electric Power Project(2 362 164.00) 10 688 455.95 3 341 171.32 153 495 177.90 OMP(COMM.) 64 2018 The Arbitral Tribunal awarded pre award interest at the rate of 2.5% per annum compounded annually on the amount of USD 10 688 455.95 and EUR 3 341 171.32 from 08.05.2013 till the date of the Award. The Arbitral Tribunal also awarded pre award interest at the rate 8.5% per annum compounded annually on the amount of INR 153 495 177 90 from 08.05.2013 till the date of the Award. The Arbitral Tribunal also awarded post award interest from the date of the Award till the date of payment at the same rates. NTPC was further directed to return all Advance Bank Guarantees furnished by Voith. NTPC challenged the aforesaid Award under Section 34 of the A&C Act in OMP16 2017 which was dismissed by this Court on 02.07.2019. In compliance with the order dated 06.02.2017 passed by this Court in OMP 16 2017 Voith had extended the Bank Guarantees furnished by it to the Judgment Debtor against the advance received by them during the term of the contract. Concededly the said advance was adjusted in determining the amounts awarded. The details of the said Bank Guaranteesare set out below: Guarantee No. Bank Date of Expiry date GO191148450 ANZ Bank USD 1 528 614 EUR 900 961 16 February OMP(COMM.) 64 2018 GO191128450 ANZ Bank GO191158450 ANZ Bank GO191138450 ANZ Bank 203 828 127 EUR 280 121 USD 1 528 614 EUR 900 961 16 February 16 February 203 828 127 EUR 280 121 16 February The Advance BGs were valid till 16.02.2020. In the proceedings pertaining to NTPC’s challenge to the Award OMP(COMM) 16 2017 a statement was made on behalf of NTPC stating that it was willing to release 75% of the awarded amount against an Unconditional Bank Guarantee in view of the Circular issued by Niti Aayogfurnished by BNP Paribas whereby it guaranteed a sum of ₹9 86 74 263.87 EUR 24 70 794.28 USD 85 67 414.33 and GBP 76 798.13 16 3017) a Coordinate Bench OMP(COMM.) 64 2018 of this Court by orders dated 10.12.2019 and 17.10.2019 passed in EX. APPL.960 2019 directed NTPC todeposit the set of the Bank Guarantees which were issued during the performance of the contract as well as the Niti Aayog BG anddeposit the balance 25% of the awarded amount alongwith upto date interest with the Registrar General of this Court. The Judgement Debtor challenged the aforesaid order in EFA (COMM) 21 2019. But the Division Bench of this Court dismissed the said appeal by an order dated 17.12.2019. 07.02.2020. Thereafter in part compliance with the orders of this Court NTPC depositedboth set of Bank Guarantees on 06.01.2020 and 05.02.2020 anda Demand Draft for a sum of ₹54 42 72 662 on 10. NTPC preferred an appeal being FAO No. 329 2019 against the decision of this Court dismissing NTPC’s application for setting aside the Award O.M.P.16 3017 under Section 34 of the A&C Act. The said appeal was dismissed by the Division Bench of this Court by an order dated 02.03.2020. NTPC challenged the said order before the Hon’ble Supreme Court by filing a Special Leave Petition SLP(C) No. 7312 2020. The said SLP was dismissed by the Supreme Court by an order dated 22.09.2020. 11. Whilst NTPC was availing of its remedies against the Arbitral Award it insisted that the Bank Guaranteesbe extended. OMP(COMM.) 64 2018 It is Voith’s case that the amount paid by NTPC falls short of the amount payable by it for discharge of the Arbitral Award. 13. Voith has filed a chart indicating the calculation of the amount payable today of ₹3 92 89 836. Out of which ₹2 58 55 348 was deducted while making remittance made under the Niti Aayog Circular and ₹1 34 34 488 was deducted on 07.02.2020 while making a deposit of the 25% balance of the awarded amount. 15. He relied upon the decision of the Supreme Court in All India Reporter Ltd. vs. Ramchandra D. Datar AIR 1961 SC 943 and decisions of the High Court of Bombay in Islamic Investment Co. vs. OMP(COMM.) 64 2018 Union of India 2002Mah LJ 555 Sino Ocean Limited vs. Salvi Chemicals Industries Ltd. SCC OnLine Bom 9401 and DSL Enterprises Pvt. Ltd vs. Maharashtra State Electricity Distribution Co. Ltd Execution Application No. 422 of 2018 decided on 13 March 2018 in support of his contention that a deduction on account of TDS could not be made on payments in discharge of judgement debt. 16. He also submitted that interest had accrued on the shortfall amount of ₹12 09 16 391.37 and thus the applicable interest on this amount which was due on 15.09.2017 till 17.10.2019 amounts to ₹2 24 57 027.11. 17. He submitted that against the balance amount which was due to be paid by NTPC in accordance with the order of this Court dated 17.10.2019 it had deposited only ₹56 42 71 662 on 06.01.2020 18. He submitted that the amount due to Voith on 17.10.2019 was ₹74 86 34 859.42. A detailed calculation of the balance amount is set out as below: September 2017 Remaining 25% amount as on 15 INR 16 38 25 209.56 EUR 15 71 300.52 USD 37 37 271.86 GBP OMP(COMM.) 64 2018 Interest on this remaining 25% INR 3 04 26 207.19 EUR 83 052.31 USD 1 97 536.42 GBP 1 287.86 Shortfall in the payment under ₹ 12 09 16 391.27 Interest on the Shortfall under the ₹ 2 24 57 027.11 Niti Aayog Office Memorandum TOTAL AMOUNT IN INR ₹ 74 86 34 859.42 EXCHANGE RATE AS ON In addition to the above Mr Mukhopadhaya further submitted that NTPC was also liable to pay Bank Guarantee Charges incurred by Voith for extending the Bank Guarantees. He submitted that in terms of the Award the said Advance BGs were to be released. However Voith was compelled to keep the Bank Guarantees alive and therefore Voith ought to be reimbursed for the cost incurred by it in doing so. OMP(COMM.) 64 2018 20. Ms Pinky Anand learned senior counsel appearing for NTPC countered the aforesaid submission. She submitted that NTPC had correctly calculated 75% of the awarded amount and had paid the same. She submitted that in terms of the Niti Aayog Circular Voith was required to open an Escrow Account and since the awarded amount was in multiple currencies Voith was required to obtain specific approvals from the Reserve Bank of India(COMM.) 64 2018 petitioner acknowledged the receipt of the remittances and requested NTPC to issue a consent letter to enable withdrawal of amounts from the escrow account. A draft of the said consent letter which was forwarded by Voith to NTPC also indicated the exchange rate applied for computing the amount deposited by NTPC. 22. She further submitted that insofar as the TDS is concerned the same was deducted as Voith had agreed to receive the payments in Indian currency. She stated that directions to pay the TDS amount would unfairly prejudice NTPC as it would amount to requiring NTPC to pay the said amount twice. She submitted that it is not disputed that the amounts were to be paid to foreign companies but Voith had consciously opened the Escrow Account and accepted that the money be paid in Indian currency. 23. Lastly she submitted that NTPC cannot be called upon to pay the cost of the Bank Guarantees. She submitted that the Advance Bank Guarantees were given by Voith to NTPC in terms of the contractual provisions and against advances made by NTPC. The said Bank Guarantees had been kept alive in view of NTPC’s challenge to the Award. The Award did not contemplate payment of any charges for the bank guarantees till the same were returned. She submitted that the charges for the Niti Aayog BG would necessarily have to be borne by Voith as it had volunteered to furnish the said guarantees to avail the benefit of the Niti Aayog Circular. She submitted that in terms of the Niti Aayog Circular Voith was required to furnish the Bank Guarantees against which 75% of the awarded amount could be OMP(COMM.) 64 2018 released. She stated that Voith complied with the said condition by also accounting for the Advance BGs and furnished the Niti Aayog BG for the remaining amount. She contended circumstances the Advance BGs were essentially kept alive to secure NTPC against the amount disbursed in terms of the Niti Aayog Circular. Thus Voith was not entitled for reimbursement of any cost for the said Bank Guarantee. Reasons and Conclusion 24. As is apparent from the above the following three principal questions fall for consideration before this Court: i) Whether there is any binding agreement between the parties whereby they have agreed that the amounts awarded in foreign currency would be computed at the exchange rate as prevalent on 15.09.2017 If not the exchange rate to be applied for discharge of the amounts awarded in foreign currency. ii) Whether it was open for NTPC to deduct TDS on the awarded amounts and whether the deduction of the said amount and deposit of the same with the Income Tax Authorities constitutes a discharge of the amounts awarded iii) Whether Voith is entitled to charges for extending the Bank to the aforesaid extent Guarantees as claimed OMP(COMM.) 64 2018 Re: Exchange Rate 25. The question as to which is the exchange rate applicable for determining the amounts payable in Indian currency in execution of an award made in foreign currencies is no longer res integra. Concededly the said issue is covered by the decision of the Supreme Court in Forasol v. Oil and Natural Gas Commission: 1984SCC 263 as followed by the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co. Ltd.: 1994 SuppSCC 644. In Forasol v. Oil and Natural Gas Commission the Supreme Court had held that the exchange rate prevalent on the date on which the decree is passed would be the applicable exchange rate. It further clarified that if the decree is challenged in an appeal and such appeal is decided wholly or in part the exchange rate prevailing on the date on which the decree or order is passed would be applicable. Insofar as the arbitral awards are concerned the date on which the challenge to the arbitral award is finally rejected would be the date for determining the foreign exchange applicable to an award made in foreign currency. In Furest Day Lawson Limited v. Jindal Exports Limited:194 DLT 439 and Progetto Grano S.P.A. v. Shri Lal Mahal Limited: Ex.P. No. 52 2012 decided on 29.05.2014 this Court had considered the date on which the Special Leave Petition against the order rejecting objections to recognition and enforcement of a foreign award was dismissed as the relevant date for determining the exchange rate to be applied for enforcing the awards made in foreign currency. OMP(COMM.) 64 2018 27. Ms Anand did not dispute the above. She however rested NTPC’s case on the ground that the parties had arrived at a settlement and Voith was bound by the same. According to NTPC the parties had agreed that 15.09.2017 would be the cut off date for determining the exchange rate. Ms Anand relied on the Minutes of the Meeting dated 11.09.2017 and Voith’s letter dated 16.11.2018 in support of her contention that the parties had agreed to the exchange rate as prevailing on 15.09.2017. The said contention is unmerited. A plain reading of the Minutes of the Meeting dated 11.09.2017 indicates that it does not record any agreement regarding the applicable exchange rate. The said minutes relate to the amounts that were required to be released in terms of the Office Memorandum of Niti Aayog dated 05.09.2016issued on 24.11.2016 for release of the payments in terms of Niti Aayog’s Circular also makes it amply clear that the payments released under the said Circular would be without prejudice to the rights to the Departments PSUs. Furthermore the same would be required to be secured by bank guarantees and in the event the OMP(COMM.) 64 2018 departments PSUs prevail in their challenge to the arbitral award the amount disbursed would be liable to be recovered with interest. 29. Thus in the present case the exchange rate as applicable on the date when the NTPC’s Special Leave Petition was dismissed by the Supreme Court that is 22.09.2020 will be the relevant date for ascertaining the exchange rate applicable for determining the INR equivalent to the amounts awarded in foreign currency. However according to Voith as part payment had been received on 06.11.2018 the exchange rate applicable on that date may be considered for determining the awarded amounts paid by NTPC. Since the value of foreign currencies as on 22.09.2020 was higher than on 06.11.2018 this Court considers it apposite to bind Voith to its concession in this regard. In view of the above the exchange rate as applicable on 06.09.2018 would be considered relevant for the amounts released on 06.11.2018 being the part payment released by NTPC in terms of the Niti Aayog Circular and the exchange rate as applicable on 22.09.2020 would be considered for discharging the remaining amount awarded in foreign currency. Re: TDS 31. The next question to be addressed is whether NTPC is entitled to credit for the TDS deducted from the payments made to Voith. OMP(COMM.) 64 2018 32. Mr Mukhopadhaya had referred to the decision of the Supreme Court in All India Reporter Ltd. v. Ramchandra D. Datarwherein the Supreme Court had held that once a claim in that case a claim for compensation to an employee for wrongful termination of an employment is decreed “the claim assumes the character of a judgment debt by a Civil Court and must be executed subject to deductions and adjustments permissible under the Code of Civil Procedure”. The Court further observed as under: “The rule that the decree must be executed according to its tenor may be modified by a statutory provision. But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced the debtor is entitled to deduct income tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary”. In Islamic Investment Company v. Union of India and Anr.: supra) the Bombay High Court following the decision in All India Reporter Ltd. v. Ramchandra D. Datar rejected the contention that the Judgment Debtor must be allowed to deduct TDS on the interest payable to a non resident. The Court observed that: “when such amounts becomes part of a judgment debt they lose their original character and assume the character of a judgment debt. Once such an OMP(COMM.) 64 2018 amount assumes the character of judgment debt the decree passed by the civil court must be executed subject only to the deductions and adjustments permissible under the Code of Civil Procedure”. 34. The Court further observed that there was no provision under the Income Tax Act or under the Code of Civil Procedure 1908 where an amount of interest payable under a decree would be subject to TDS. In Glencore International AG v. Dalmia Cement Limited: Ex. P. 75 2015 dated 31.07.2019 this Court inter alia referred to the following decisions: i) All India Reporter v. Ramachandra D. Datar 2 SCR High Court. ii) V.K. Dewan v. DDA Execution Petition No. 194 2005 Delhi iii) Sino Ocean Limited v. Salvi Chemical Industries Limite Chamber Summons No. 76 2013 in Execution Application Lodg.) No. 263 2012. iv) American Home Products Corporation v. MAC Laboratories Pvt. Ltd. and Anr. 1 SCC 465. v) Islamic Investment Company v. Union of Indiaand Anr. 2002BOMCR 685. vi) S.S. Miranda Ltd. v. Shyam Bahadur Singh 154 ITR 849. OMP(COMM.) 64 2018 After referring to the aforesaid decision this Court observed as “I may however note that these judgments do enunciate the principle which is that once a claim merges into a decree of the Court it transcends into a judgment debt and therefore only those adjustments and deductions can be made which are permissible under the Code of Civil Procedure 1908. The judgments encapsulate the theme that a decree should be executed according to its tenor unless modified by a statute such as the 1962 Act.” 37. Ms Anand also did not dispute that TDS was not liable to be deducted on judgment debts. However she contended that the payments had been made in Indian currency and therefore were subjected to TDS and that the same had been accepted by Voith without any protest. 38. Mr Mukhopadhaya submitted that Decree Holder nos. 2 and 3 state that they are not assessees under the Income Tax Act 1961 and are not required to file their Income Tax return in India. He also contended that Decree Holder nos. 2 and 3 are not liable to pay any tax in India. This Court is not required to examine whether Decree Holder nos. 2 and 3 are liable to pay tax in India. However it is clear that tax was not required to be deducted at source since the payments made by NTPC were in discharge of the Award or as ad hoc payments under a mechanism evolved under the Niti Aayog Circular. 39. The contention that Voith had agreed to such deduction is also unmerited. Decree Holder no.1 had accepted the said payments not only on its behalf but also on behalf of other Decree Holders and OMP(COMM.) 64 2018 therefore this Court finds it difficult to accept that the Decree Holder no.1 had accepted and agreed to NTPC deducting tax at source. However there is merit in the contention that Voith knew as way back in 2018 that NTPC had deducted TDS and it does not appear that Voith had raised any objection to the same at the material time. 40. This Court is of the view that failure of Voith to object at the material time would not amount to accepting deduction and deposit of TDS as payment towards the awarded amount. It is relevant to note that NTPC had deducted TDS in two tranches. It had deducted ₹2 58 55 348 and had deposited the same on 07.12.2018. This amount was deducted at the time of remission of money in terms of the Niti Aayog Circular. The second tranche of ₹1 34 488 was deducted by NTPC while depositing the balance amount. Out of the aforesaid amount ₹1 10 84 032 was deducted on account of the principal amount and ₹23 50 456 on account of interest. The said TDS was deposited on 07.01.2020. During the course of arguments Mr Mukhopadhaya submitted that a sum of ₹1 06 42 438 could be absorbed by Decree Holder No.1 against the TDS of ₹2 58 55 138 deducted and deposited by NTPC. He further stated that a further sum of ₹55 29 831 could be absorbed by Decree Holder No.1 out of the sum of ₹1 34 488 deducted and deposited by NTPC on 07.01.2020. OMP(COMM.) 64 2018 In view of the above this Court considers it apposite to direct that NTPC be credited to the extent of TDS amounting to ₹1 61 72 269 against TDS deducted and deposited by NTPC. The said amount would be considered as discharged by NTPC on the dates when these amounts were deposited to the credit of Decree Holder No.1. Insofar as the remaining amount of TDS is concerned NTPC is entitled to apply to the Income Tax Authorities for refund of the same. It is further directed that the Income Tax Authorities shall process NTPC’s request for refunding of the TDS incorrectly deposited on the strength of this order. Re: Bank Guarantee Charges 44. The third question to be addressed is whether Voith is entitled to cost allegedly incurred by it for extending the bank guarantees Arbitration BGs and Niti Aayog BGs). Insofar as the Advance BGs are concerned the same had been extended in terms of the orders passed by this Court pending consideration of NTPC’s challenge the Arbitral Award. Indisputably NTPC’s challenge to the Arbitral Award cannot be stated to be insubstantial. In the circumstances this Court does not consider it apposite to entertain Voith’s prayer for such charges. It is also relevant to mention that Voith had voluntarily furnished Bank Guarantees for release of the part of the awarded amount in terms of the Niti Aayog Circular. The Niti Aayog Circular does not provide OMP(COMM.) 64 2018 for payment of any charges for furnishing Bank Guarantees. Voith had elected to receive payments in terms of the Niti Aayog Circular and therefore this Court does not consider it apposite to accede to its prayer for Bank Guarantee Charges which were incurred by Voith for furnishing the Bank Guarantees against payments in terms of the Niti Aayog Circular. It was also pointed out that NTPC had released the payment under the Niti Aayog Circular while accepting the Advance BGs to cover part of the amount so released. It was submitted that in this view the Advance BGs should also be considered as Bank Guarantees furnished in terms of the Niti Aayog Circular. This contention is merited. In any view of the matter as stated above given the facts and circumstances of the case this Court does not consider it apposite to accede to the prayers for reimbursement of bank charges. The prayer made by Voith in this regard is rejected. In addition to the questions as discussed above NTPC had also raised an objection regarding the calculation of the shortfall as claimed by Voith. It was submitted that Voith has also calculated interest on the interest component by adjusting the advances against the amount due against the interest awarded. According to NTPC Voith had added the advances which were directed to be adjusted under the Arbitral Award to the amount awarded. It had calculated the interest on the resultant amount by considering the same as the awarded amount. It had thereafter adjusted the advance from the said amounts. OMP(COMM.) 64 2018 In this regard this Court considers it necessary to clarify that the calculations for discharge of the amount would be in accordance with the tabular statement in the Arbitral Award setting out the amounts awarded in different currencies. It is seen that the Arbitral Tribunal had deducted the advances and had computed the total amount payable after such deduction. Thus the total amount as awarded after deduction of the advances would necessarily have to be considered as the awarded amount and the amounts paid by NTPC would be adjusted against the awarded amounts and the interest thereon. The amounts paid by NTPC are required to be first appropriated towards interest and the remaining against principal. 49. NTPC shall recompute the shortfall payable by NTPC and shall pay the shortfall as computed. 50. The parties shall file their respective calculations made in view of the above within a period of one week from today. 51. List on 26.03.2021 for reconciliation of the amount and for consideration of any further issues that arises in connection with the aforesaid calculations. MARCH 19 2021 VIBHU BAKHRU J OMP(COMM.) 64 2018 