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Oil and Natural Gas Commission Vs. Forasol - Court Judgment

LegalCrystal Citation
CourtDelhi High Court
Decided On
Case NumberElection First Appeal No. 5 of 1977
Reported inAIR1982Delhi184; ILR1981Delhi233
ActsForeign Exchange Regulation Act, 1947 - Sections 8
AppellantOil and Natural Gas Commission
Advocates: B. Dutt,; Rishikesh,; P.R. Mridual,;
Cases ReferredKedar Nath v. Ambika Prasad
(i) foreign exchange regulation act - section 8--decree mentioning amount due to decree holder in french francs--dispute as to rate of exchange--rate for conversion mentioned in the agreement is applicable while calculating adjustments--for rest of the claim date of conversion will be the rate prevailing on the date the award was made--a decree cannot be executed in foreign exchange for the purpose of execution--it has to be converted into rupees.; (ii) indian arbitration act--english arbitration act--position of awards under both the acts--distinction, if any.; an agreement for the exploration of oil in jaisalmer desert in rajasthan was entered into between government of india and m/s forasol. in the agreement, clause ix-3.1 provided for currency of payment as follows :--; 'ix-3.1 ; the..........operational fee, standby fee and equipment charges payable to forasol have been specified in french francs in article ix-1, 1-1 to ix 1-1-10 above. the amount payable to forasol. on account of aforesaid fees and charges shall be, computed in french francs. ongc shall pay 80% of the aforesaid amount in french francs and the remaining 20% in indian rupees using a fixed conversion rate of f.f. 1.033== rs. 1,000'.the agreement also contained an arbitration clause in case of dispute between the parties. disputes having been arisen the matter was referred to the arbitration, and the umpire gave his award on december 21, 1974. (3) on may 7, 1975 the award of the umpire was made rule of the court on an application made by the appellant, without any objection having been raised by the.....

Sachar, J.

(1) This is an appeal against the order of the learned single Judge since reported in : AIR1978Delhi35 by which he held that the respondent is entitled to Rs. 11,10,780 as claimed by it in the execution petition and interest from the date of the execution petition till the payment (r) 6 per cent. The further direction given was that the appellant Ongc will satisfy the Judgment debt by paying the French Francs, or if they prefer they can satisfy it by paying the equivalent sum in rupees, that is equivalent at the time of the passing of the decree because the rate of exchange will be the rate ruling at the date of the decree.

(2) The background of this litigation is that on 30-7-1962 the Government of India called for Global Tenders for drilling for the exploration of oil in Jaisalmer desert in Rajasthan. The tender of the respondent was accepted by the Government of India. An agreement was entered into between the Government of India and the Company. In the agreement between the parties clause IX-3.1 provided for currency of payment as follows :

'9-3.1The operational fee, standby fee and equipment charges payable to Forasol have been specified in French Francs in Article IX-1, 1-1 to Ix 1-1-10 above. The amount payable to FORASOL. On account of aforesaid fees and charges shall be, computed in French Francs. Ongc shall pay 80% of the aforesaid amount in French Francs and the remaining 20% in Indian rupees using a fixed conversion rate of F.F. 1.033== Rs. 1,000'.

The agreement also contained an arbitration clause in case of dispute between the parties. Disputes having been arisen the matter was referred to the arbitration, and the Umpire gave his award on December 21, 1974.

(3) On May 7, 1975 the award of the Umpire was made rule of the court on an application made by the appellant, without any objection having been raised by the respondent. A decree was passed in terms of the award.

(4) On 8.10.1976 the respondent made an application for execution claiming that it was entitled to recover from Ongc under the Award Rs. 11,10,780. The appellant disputed this claim but its objections were dismissed by the learned single Judge and that is why the Ongc has come up in appeal before us. It is common case that under the Umpire's award FF. 21,11,704.01 has been found due to Forasol from ONGC. It is also not disputed that the appellant is entitled .under the Umpire's award to adjust a sum of Rs. 10,19,380.39 (which Ongc paid to the Income Tax Authorities on account of Income Tax due from FORASOL) against the French Francs payable by the appellant to the FORASOL.

(5) This amount of FF. 21,11,704.01 due to respondent has been awarded as due on account of F.F. 898,750.36 as the balance of their outstanding fees and Ff 12,88,185.35 on account of interest up to 10-6-1974. The appellant on the other hand is entitled to claim an adjustment of Rs. 10,19,380.39 against French Francs. The controversy before the single Judge was at what rate of exchange the amount of Rs. 10,19,380.39 was to be converted into French Francs. The appellant' wanted a rate for conversion as provided in clause IX-3.1 of the agreement i.e. F.F. 1033 = Rs. 1,000. The learned Judge rejected this contension as according to him the rate for conversion turn this purpose had been directed by the Umpire, namely FF. 1000=Rs. 1517.80. Applying this rate the amount of Rs. 10,19,380.39 would come to FF. 6,70,349.68. This amount was reduced from 'FF. 21,11,704.01 leaving a balance of FF. 14,41,354.33 asstill due to the respondent. The learned Judge also took the view that the rate of exchange for the purpose of converting this Ff amount should be on the date when the award was made a rule of court, i.e. May 7, 1975 (i.e. FF. l=Rs. 1.938). He specifically rejected the appellant's contention that rate of exchange to be applied should be either as per agreement i.e. FF. 1033= Rs. 1000 or one prevailing on the date of award. 21,12.1974 i.e. FF. 1 = Rs. 1.831.

(6) The appellant being aggrieved has come up in appeal. The respondent has filed no cross-appeal or cross-objections.

(7) The first contention of Mr. Dutta was that rate of exchange for adjusting Rs. 10,19,380.39 against Ff should have been taken at the agreed rate of FF. 1033 = Rs. 1000. We find great force in it. The agreement specifically provides that the amount payable to Forasol on account of fee, charges shall be computed in French Francs and ON6C shall pay 80% in French Francs and remaining 20 per cent in Indian Rupees using a fixed rate of exchange. Now according to Clause IX-3.1 the currency of payment had to be specified in French Francs. The amount payable was to be computed in French Francs. 80% of the aforesaid amount was to be paid in Franch Francs and the remaining 20% in Indian Rupees using a fixed conversion rate. To take an illustration if I lakh French Francs were due to the respondent 80,000 FFs were to be paid to Forasol, the rate of exchange was irrelevant, because as per agreement 80% was payable in French Francs. It was only with regard to the remaining 20% that a fixed conversion rate was agreed to so that irrespective of the rate of exchange prevailing at the time when rupee payment was payable and irrespective of whether the gain is of the appellant or respondent in terms of rate of exchange, the fixed rate of conversion would be applied. But a situation has arisen where the income tax paid by Ongc has to be adjusted against French Francs payable to the FORASOL. Some rate of exchange has to be found out. The learned Judge has fixed the rate of exchange for this income tax payment as FF. 1000=Rs. 1517.80, because he thought that this was the rate directed by the award and the matter was thus not open to argument. This inference Mr. Dutta seriously contends and urges that the Umpire had only fixed this conversion rate for the purpose of payment of interest on account of the amount which though it became due had not been paid to the respondent. It is his contention that the Umpire did not fix any such conversion rate for the purpose of converting the amount of Income Tax for adjusting against French Francs and the same has to be decided by the Court. A reference to the award at page 133 shows that it is noted that there is no right to interest to either party except on French Francs- The Umpire has however, provided that if the amount paid by Ongc to the credit of Forasol in regard to income tax and several items of allowance are worked out and there is an amount payable in French Francs that would carry interest. But if the amount is in rupees then no interest would be allowed. The award further at page 145 and 146 when dealing with the calculation showing interest due to Forasol notes the claim of Forasol to be paid the enhanced rate of interest because of the devaluation and the subsequent correspondence on this subject. It is in this context that the Umpire thereforee directed at page 157-C.of the Award that from 30-11-1966 the rupee portion should be converted at F.F. 1517.80 = Rs. 1,000. It is important to note that this rate of exchange was specifically being fixed only for the amount on account of interest that was payable to FORASOL. Mr. Dutta is thereforee right in his contention that insofar as the learned Judge has held that the above rate of exchange was also fixed for converting the amount paid on account of income tax, which is adjustable against French Francs, the Judge has fallen in error because it is apparent from the award that the said rate of esxchange was fixed by the Umpire specifically Only for the amount of interest. So far as the amount of income tax paid by Ongc is concerned the same was dealt with at page 146 of the award when a claim of the Ongc for a payment of Rs. 11,95,304 paid by them on behalf of Forasol to the income tax department was dealt with. These payments had been made by the appellant as follows :

14-9-1967 Rs. 1,25,304 14-2-1968 Rs. 4,70,000 23-3-1968 Rs. 6,00,000 ______________ Total : Rs. 11,95,304 ______________

(8) The award also notes in the first instance at page 149 to 150 (which was later o.n substituted at page 157-B-C) that when the amount of Rs. 1,25,304 was paid by the appellant after adjusting the rupee available to the account of respondent a balance of Rs. 74,402,07 needed for adjustment against French Francs. .-

(9) Similarly when a sum of Rs. 4,70,000 was paid, after adjusting the amount of rupees standing to the credit of Forasol, there was an outstanding balance of Rs. to be adjusted against the French Francs claims.

(10) Similarly when Rs. 6,00,000 was paid the rupee liability of the appellant was only Rs. 34,276.32 which meant that an amount of Rs. 5,65,723.68 had to be adjusted against the French Francs.It would thus be seen that after the three amount of Rs. 52,284.33, Rs. 90,745.36, Rs. 34,276.32 for which rupee claim of Forasol against Ongc was available were deducted from Rs. 11,95,304 due to ONGC. Thus it left a balance of Rs. 10,19,380 payable to Ongc which had to be adjusted against the French Francs due to FORASOL. It is relevant to note that while working this amount at page 149 the Umpire itself had taken the exchange rate of FF. 1033 =Rs. 1000. This is dear because while working the liability in the first item .at FF. 77495.32 it was put as equivalent to Rs. 74,402.07 which amount was to be adjusted. Similarly the FF. liability of Ongc on 23-3-1968 as against the third item of Rs. 6,00,000 after finding that an amount of Rs. 5,65,723-68 had to be adjusted against the French Francs, it was converted into FF. 584392.56 as representing that amount. These calculations were indubitably done on the basis of rate of exchange of 1033 FF. per one thousand rupees. In the errata at page 157 B-C there is no contrary direction that the rate of exchange is to be worked out as FF. 1000 per Rs. 1517.80 as is contended for by the respondent. There was thus no warrant for holding that the Umpire had fixed the rate of interest for the waaount of income tax paid on behalf of FORASOL.

(11) So what is the correct rate of exchange to be applied for adjusting this amount of Rs. 10,19,380.39, against French Francs.

(12) Mr. Mridul the learned counsel for the respondent contends that the fixed conversion rate in the agreement is only attracted when there is some rupee payment to be made. He also. referred us to the Addendum No. 2 dated 13-7-1966 at para 2.7 which provides that in case Forasol has to refund to Ongc an amount which .cannot be adjusted or has not been adjusted against FORASOL's invoices for the last 2 months of the five months period of this addendum, Forasol shall refund the amount in cash in the same currency in which Ongc had paid it earlier, and also refers to a similar addendum No. 3 dated 23-2-1967 at para 2.5 which provides that Forasol shall refund the same amount in cash in the same currency in which the Ongc had paid it earlier. The argument is that the obligation under the .contract on Forasol was to refund the amount in cash in the same currency in which the Ongc had paid it earlier and as Rs. 10,19,380.39 on account of income tax was paid in rupees Forasol had to refund the amount in the same currency. This argument is correct in so far that if Forasol had any amount available in its rupee account, it had the right to get this amount adjusted out of rupee account and not out of French Francs. But Forasol did not have sufficient funds in its rupee account as has been found by the Umpire, and that is why he directed the adjustment to be made against the French Francs. The only way in which adjustment can be made is by converting part of their French Francs into rupees . so as to wipe out the outstanding liability of Rs.: 10,19,380.39. Now as fixed conversion rate of FF. 1033 per rupees 1000 is provided for converting the French Francs into rupees, it must logically follow that the same rate must be applied when Forasol wants that more than 20% be paid in rupees, so that it could discharge its liability on account of income tax payment. It is no doubt true that the agreement provides for conversion rate for that 20% which-was to be paid by Ongc to the Forasol but when now. the things are being finalised and Forasol needs rupees the appellant can legitimately claim that Rs. 10,19,380.39 due to it and adjustable against French Francs should on any rational basis be the conversion rate fixed in the agreement. It is agreed that Forasol has no balance in its rupee account from which Rs. 10,19,380.39 can be adjusted and the only manner of providing the rupee account is for the respondent to make French Francs available. The Umpire has given no such decision about the conversion rate with regard to this amount. One the liability for payment of income tax has been found that of Forasol it is apparent that the same has to be .discharged by the respondent for that purpose it would have to convert French Francs into rupee account. The claim of the respondent-that the conversion rate should be FF. 1000 per Rs. 1517.80 is clearly on attempt to take advantage of its own default in not paying the income tax at the time when it fall due. As the award has made Forasol liable for the adjusting this amount of Rs. 10,19.380.39 against French Francs the same can in law only be done by applying the agreed fixed rate of exchange i.e. FF. 1033 =Rs. 1000. To fix any other rate is both contrary to law and equity. We would thereforee set aside th& finding of the learned Judge that the rate of exchange to be applied should be FF. 1000=Rs. 1517.80. The order of single Judge will be modified to this extent.

(13) The next contention of Mr. Dutta was that in calculating the interest no consideration has been given for the reduction of the amount due from the appellant by giving a deduction of Rs. 10,19,380.39. The argument was that this Rs. 10,19,380.39 was to be adjusted out of the amount due to the respondent. Correspondingly the principal amount due to the respondent would have become less and interest should have been calculated on that smaller amount. The difficulty in the way of this argument however, is that as per the award at page 157-C, loth the parties worked out the liability of French Francs on which the above interest was to be paid at FF. 12,91,290.26 (the interest having been brought up to June 30, 1974). Mr. Dutta has sought to point out that error has arisen because the agreed statement had been given prior to correction and revision' of this amount of Rs. 10,19,380.39 in the errata and no interest had been calculated for this amount. We are afraid it is not possible for the court to go beyond the award. More so because this was an agreed statement of interest given before the Umpire. We have however, no doubt that if this was a genuine mistake the respondent which is a well known respectable and responsible commercial party, it may on its own be persuaded by the appellant which is a public corporation and has no instance of private greed in putting forth this mistake; to look into this aspect for the purpose of finalisation of the matter. We say nothing more on this aspect, and leave it to the good sense and gentlemenliness of the parties.

(14) The next aspect argued was as to the rate of exchange which should be applied for payment of the balance of French Francs to the respondent. We have not worked out whether in view of our finding that the rate for the conversion of Rs. 10,19,380.39 is to be applied as FF. 1033 =Rs. 1,000, any amount will still be outstanding. But we are dealing with this aspect of law on the assumption that some amount nevertheless may still be outstanding to the respondent. The learned Judge has applied the rate of exchange prevailing on the date the award was made a rule of the court and decree pased i.e. 7-5-1975. Mr. Dutta has tried to persuade us to hold that the fixed conversion rate given in the agreement should also be applicable to the French Francs payable by the appellant. We cannot agree. A reference to the clause shows that the fixed conversion rate was only for converting 20% of French Francs on account of fees and charges. That fixed rate of exchange cannot be invoked for payments which in term of contract had to be in French Francs. For that purpose different considerations apply.

(15) We may note that no argument was raised before us that the award could not have been made in French Francs. Considering that the currency of payment as mentioned in the agreement was French Francs, -it would have been futile for Mr. Dutta to argue otherwise.

(16) At one time in England the view prevailed that an English court could not order payment of debts or damages except in English Currency. But that rule has been finally abandoned since-the. decision in .1976 Ac 443, Miliangos v. George Frank (Textiles) Ltd.(1.) where it was held that Judgment can be given for a sum in foreign currency as notice in ('Private and International Law' 10th Edition by Cheshire North's page 713). Although a Judgment may be given in foreign currency, and failing satisfaction by payment of the foreign currency, if the plaintiff seeks to enforce the Judgment this will necessitate conversion of Judgment into sterling (Cheshire & North's page 716(8)).

(17) So far as arbitration awards are concerned even earlier to Miliangos Judgment in England it has been settled beyond controversy that Arbitrators have the jurisdiction to make their awards in a foreign currency where that currency was the currency of the contract. The agreement in the present case also provide that the currency of payment is French Francs and thereforee the Umpire rightly felt himself free to award the amount in French Francs. The question however, is to the conversion rate which should be applied for the purpose of executing the said award. In 1974(1) QB 292 Jugoslavenska Oceanska v. Castro Invests.,(2) Lord Denning held that an award which directed the payment of amount in foreign currency could be enforced by the court by converting the award into sterling at the rate of exchange ruling at the date of the award, and then obtaining leave to enforce the award.

(18) That an award expressed in foreign currency was valid and that it should be converted into that sum of .sterling on the date of the award was reiterated in (1978 (2) Wlr 887 Services Europe Atlantique Sud (Seas) v. Stockholms Rederiaktiebolag Svea(3).

(19) The learned Judge, though pressed with this argument of adopting the rate of exchange of the date of award, did not accept this plea because according to him the date when the court made the award a rule of the court i.e. 7-5-1975 and passed adecree is when the award became enforceable. He distinguished the precedents under the English Law as according to him under Indian Law the award is not enforceable, without being embodied in a decree, while under English law, the award can be enforced as a Judgment under section 26 of the Arbitration Act. It is thus apparent that the reason why the learned Judge has gone against the settled principle laid down in English law for applying the rate of exchange as at the date of award and has applied the rate of exchange as on the date the award was made a rule of court, was on the understanding as if the awards under the English law are straightaway enforceable as decree and as if the awards are immune from being looked into by the court Just as the executing court in India can not go behind a decree. With respect, we are of. the view that that understanding of the position of award under English Law is not correct in law. Now Section 26 of the Arbitration Act 1950 provides :

'ANaward on an arbitration agreement may, by leave of the High Court or a Judge thereof, be enforced in the same manner as a Judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award.'

Under Section 26, thereforee, there are two different steps which may be taken First leave may be obtained to enforcement the award in the same manner as a Judgment and secondly and evidently where leave is so given judgment may be entered in terms of the award, 1974 Q.B. 292 Jugoslavenske Oceanska v. Castle Invest. (CA) (4) It is important however, to note that before an award may be enforced in the same manner as a Judgment leave of the High Court is necessary. Thus an award under the English Law may be enforced either by resort to section 26 or by bringing an action for enforcing the award. It is apparent that if the latter course is adopted the award is not immediately enforceable. Even if a resort is made to section 26 the leave has to be obtained from the High Court for enforcing the award. This leave is not automatic and mechanical. It has been held that there is power under section 2 to refuce leavs and remit the award on certain circumstances. Thus an award may be remitted if it is bad on the face of it;(2) that there has been misconduct on the part of the arbitrator; (3) that there has been admitted mistake and the arbitrator asksed that the matter be remitted; '(4) where additional evidence has been discovered after the malking of the award or that award is uncertain on its face as it does not specify a particular amount due with the result that it was not in a form capable of being enforced in the same manner as in a Judgment. 1971 AER 774. Also Halsbury's Laws of England, 4th Edition, Volume 2, Para 617.

(20) There is by Section 22 and 23 of the English Arbitration Act the same power to remit an award to the arbitrator and also for removal of the arbitrator as is to be found in the Indian Act. An application to remit or set aside an award can be made with- in 6 weeks after the award has been made and obtained by the parties (vide para 616, Halsbury's laws of England, supra.). The court has also power to set aside the award if it has been improperly procured or the Umpire has misconducted himself (vide para 615 Halsbury's Laws of England Supra.). In answer to an application for leave to enforce an award the respondent may set up that the award is a nulity or bad on the face of it or that the arbitrator has misconducted himself : he may in a proper case move to set aside the award and if necessary to have the application to enforce the award adjourned in the meantime. (Vide para 630 Halsbury's Laws of England Supra.) He may also plead that the court may give leave to enforce only upon terms. An interesting instance of that is to be given in Foot Note (2) in para 630 of Halsbury (Sirpra) where claimants, who .throughout admitted that they owed a certain sum on a cross-claim were awarded a larger sum which made no reference to the crossclaim. The claimants were given leave to enforce the whole. award as a judgment on an undertaking to accept the difference between the two sums in satisfaction of the award and the extinction of the cross-claim : thus the award even under the English Law is not automatically enforceable as if it was a decree. Leave has to be obtained which may be refused. The award may be remitted and it is only thereafter that it may be enforced in the same manner as a Judgment. No doubt in our Indian law under section 17 when the court sees no cause to remit the award it shall proceed to pronounce the judgment according to the award and upon the judgment so pronounced a decree shall follow. It may be that till the award is made a rule of court it is not enforceable, but it does not mean that the award which cannot be enforced is not a valid award and the same does not create any right in the property. The award does create rights in that property but those rights cannot be enforced until the award is made a decree of the court. It is one thing to say that a right is not created, it is an entirely different thing to say that the right created cannot be enforced without further steps. (Vide : [1969]2SCR244 ) Satish Kumar v. Surinder Kumar (6). In that case the Supreme Court at page 336 referred with approval to the earlier observations given an unreported Judgment of the Supreme Court, winch had approved 'the observation of Mukherjee, J. in 33 Cal 881 Bhajahari Saha Banikya v. Behary Lal Basak (7), to the effect that, 'in reality an award possesses all the elements of vitality even though it has not been formally enforced and it may be relied upon in a litigatioa between the parties relating to the same subject matter'. These observations were followed in a Division Bench judgment in : AIR1974All37 Kedar Nath v. Ambika Prasad (8), where it was held that an award even though has not been made a rule of the court is not a waste paper and can be set up as a defense to a suit..

(21) Thus the position both under the English law and Indian law seems to be that an award does create rights. It is only in the manner of enforceability that is somewhat different. Power of the court to remit, set aside the award are the same under both Indian and English Arbitration Acts. We, thereforee, do not think that there is any sufficient distinction as to the vitality and enforceability of award under the Indian and English Law, so as not to follow consistently accepted view in England that the rate of exchange for the purpose of conversion of the amount awarded in foreign currency is the rate of exchange ruling-at the date of award.

(22) WE-WOULD, thereforee, set aside the direction of the learned single judge that the rate of exchange for purpose of converting into rupees for the execution purpose will be the rate prevailing on the date of decree i.e. FF.1 1.938. In our view the rate of exchange for converting the French Francs into Indian Currency would be the rate which prevailed on the date of the award dated 21-12-1974 which was FF.1 1.831. We would, thereforee allow the appeal with the modification mentioned above. This would necessitate changes in details and working out, which will obviously be worked out by the executing court. Or as indicated by the learned Judge, he gathered that it is not desired to levy the execution but to have the matters clarified. The parties may now sort out the matters in terms of the modifications made herein above by our judgment.

(23) We may make it clear and as the learned Judge has already said that the decree cannot be executed in french francs and for the purpose of execution it has to be converted into rupee. Apart from the general common law prohibition Section 8 of the Foreign Exchange Regulation Act also places restrictions on dealing with the foreign exchange and prevents any person from acquiring, purchasing, borrowing or otherwise transferring or lending any foreign exchange except with the previous general or special permission of the Reserve Bank of India. The question of the assistance of the court's in India in executing the decree cannot obviously be asked for in terms of foreign exchange that is French Francs as it is prohibited by law. The court help can only be invoked by getting the decree in foreign currency and then getting it converted into Indian currency. In the present case award being in French Francs, before execution is done it will have to be converted into Indian Rupees, in the manner indicated in the Judgment above. As a result of the above the appeal is allowed as indicated above with costs.

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