The enforcement of international arbitral awards can be significantly impacted by fluctuations in exchange rates, particularly when such awards are denominated in foreign currencies. Part II of the Arbitration & Conciliation Act, 1996 (“1996 Act”) deals with foreign arbitral awards, allowing enforcement under the provisions of the New York Convention (1958) or the Geneva Convention (1927). The 1996 Act was designed to align with the UNCITRAL Model Law on International Commercial Arbitration, promoting a pro-enforcement stance towards foreign awards. Sections 44-52 cover the enforcement of awards under the New York Convention, while Sections 53-60 address the Geneva Convention.

Section 49 states that a foreign award shall be deemed to be a decree of the court, which is crucial for the enforcement process. However, when an award is denominated in a foreign currency, it must be converted to Indian rupees (INR) for execution purposes. The enforcement of foreign awards in different currencies can lead to disputes over the question as to the exchange rate of which date should apply.

The Supreme Court of India, in its recent judgment in DLF Ltd. v. Koncar Generators and Motors Ltd., has sought to provide clarity on the enforcement of foreign arbitral awards denominated in foreign currencies. However, the ruling has left some lingering confusion regarding the applicable conversion rate, as the courts have followed varying standards in determining the relevant date for converting the award amount from euros to Indian rupees.

Three key takeaways from the Supreme Court's decision were as follows:

1. The relevant date for converting the award amount from foreign currency to Indian rupees is the date when the award becomes enforceable, i.e., when all objections against the award are dismissed and it attains finality.
2. If the judgment-debtor deposits some amount before the court during the pendency of proceedings for challenging the award, and the decree-holder is entitled to withdraw such amount, then the date of such deposit shall be the relevant date for conversion for that portion of the award that is deposited.
3. For the remaining part of the award, the aforesaid point 1 will apply and the date on which the award attains finality shall be the date of conversion of exchange rate.

However, the courts have not been consistent in applying this principle. In the present case, the High Court initially relied on the Delhi High Court's decision in Progetto Grano S.P.A. v. Shri Lal Mahal Limited, where it was held that the relevant date for conversion is when the objections filed under Section 48 are finally decided.

The Supreme Court, while upholding this, has also added a new layer of complexity, by determining the date of conversion based on the amount of the award deposited in the Court during pendency of the challenge proceedings. The conversion rate may now vary depending on when the judgment-debtor chooses to make partial deposits, leaving the Court to grapple with the practical implications of applying different conversion rates to different portions of the same award.

The Supreme Court in the present case also observed that the appellants delayed the execution of the award by initially filing a petition under Section 34, despite such application not being maintainable, and then filing an appeal against this order and subsequently withdrawing it. The Hon’ble Court stated that the appellants cannot be permitted to benefit from the fluctuation in exchange rates when the delay is attributable to them.

This raises the question of how will the appropriate conversion rate be determined when the delay is not solely attributable to the judgment-debtor. The Courts will need to develop guidelines for apportioning responsibility for delays and their impact on the conversion rate.

As international trade and investments continue to grow at a rapid pace, the ease of enforceability of awards denominated in foreign currencies will have to increase at the same rate. A comprehensive jurisprudence leading to standardizing the approach for determining the relevant date for conversion across different jurisdictions, could help mitigate the risks associated with currency fluctuations and provide greater certainty for parties involved in international arbitration.

By - Sayjal Deshpande