Case: Forasol Vs. Oil &amp; Natural Gas Commission (And Vice Versa)

These cross-appeals by special leave arise out of execution proceedings adopted by Forasol, a French company, having its principal office in Paris, France, against the Oil and Natural gas Commission, a statutory body incorporated under the Oil and Natural gas Commission Act, 1959 (Act XLIII of 1959), hereinafter for the sake of brevity referred to as " ONGC ". On July 30, 1962, the Government of India invited global tenders for structural drilling for exploration of oil in the Jaisalmer area of the State of Rajasthan. The tender of Forasol was accepted by the Government of India and in pursuance thereof, a contract dated February 17, 1964, headed " Structural drilling contract ", was entered into between ONGC and Forasol. Under the said contract, ONGC engaged Forasol to carry out structural drilling in relation to the exploration for oil in the Jaisalmer area of the State of Rajasthan on the terms and conditions contained in the said contract. The said contract was for a period of one year commencing from the date of the start of the drilling work. The said contract also gave an option to ONGC to extend the period by one more year, Article IX-3 of the said contract dealt with the currency of payment. It provided as followsIX-3.1. The operational fee, standby fee and equipment charges payable to FORASOL have been specified in French francs in articles 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 FF 1.033 = Re. 1.000.article IX-3.2, the cost as well as the insurance, packing, forwarding and clearing charges in respect of the materials provided by Forasol and the freight, insurance, packing, forwarding and clearing charges for transportation from a seaport or airport in France to India and back to a seaport in France or outside France if Forasol so chose, in respect of the rig, equipment, machinery, tools and other materials provided by Forasol were to be reimbursed to Forasol by ONGC in Indian rupees, if the expenditure was initially incurred by Forasol in Indian rupees, otherwise in French francs.Under a credit agreement arrived at between the Government of India and the Government of France, the Government of France had agreed to provide credit facilities to a limited extent to the Government of India for the import of plant, machinery, equipment and materials and for execution of certain projects including oil exploration. Under the said credit agreement, credit was to be given by the French suppliers to the Indian buyers in the form of acceptance of payments on deferred basis upon the conditions laid down in the letters dated February 5, 1962, exchanged between the Governments of India and France. Consequently, in respect of the said contract, Forasol had agreed under article X-1.1 thereof to accept payment of its fees, costs and charges payable in French francs on deferred basis under the overall conditions of the said letters exchanged between the two Governments and Forasol and ONGC had agreed upon the estimates of the payments to be made to Forasol in French francs under the said contract, the invoicing rules and the mode of payment. Articles X-2, X-3 and X-4 of the said contract set out such estimates, invoicing rules and the mode of payment. Under article X-3.3, Forasol was to indicate in each of its invoices the amount payable to it in French francs and the amount payable to it in Indian rupees under the said contract. So far as the mode of deferred payment in French francs was concerned, article X-4.1.1 provided for remittance by ONGC in French francs immediately following the signing of the said contract of a sum of FF 73, 437.49, being the 10/800ths part (i.e., 1.25 per cent.), of the total estimated amount of Forasols operational and standby fees and equipment charges, cost of the materials to be provided by Forasol and transportation charges in respect of Forasols rig, equipment, machinery and tools. Under article X-4.1.2, subsequent to the above remittance, ONGC was to remit to Forasol in French francs 15/800ths part (i.e., 1.875 per cent.) of the total estimated amount in respect of the said items mentioned above, that is, FF 110, 156.23, on each 5th day of August and February, the first of such payments to be made on August 5, 1962, and the last on February 5, 1965. Article X-4.2 provided for payment by ONGC to Forasol of the balance of the amount due to Forasol. Under article X-4.2.1. on receipt of each of Forasols invoices in respect of operational fees, standby fees and equipment charges accepted by ONGC, Forasol was to present to ONGC a set of 14 promissory notes payable to CNEP (Paris) of equal value totalling to 87.5% of the French francs portion of the amount for which each of the said invoices had been accepted by ONGC and maturing on the 5th day of August and of February, the first such date being August 5, 1965, and the last being February 5, 1972. Within fifteen days of the date of receipt of the said promissory notes, ONGC was to return the said promissory notes to Forasol (Paris) duly signed and stamped.Article X-4.2.2 provided for payment of the said promissory notes. The said article was as followsX-4.2.2. ONGC binds itself, irrevocably, to pay in French francs the promissory notes given by it to Forasol. Forasol shall present the promissory notes to CNEP (Paris) for collecting payment on the dates of maturity. ONGC shall place with CNEP (Paris), at least one day before each date of maturity, adequate funds to cover the total value of the promissory notes maturing on that date.article X-4.3, ONGC undertook to pay to Forasol in French francs simple interest at the rate of 5 per cent. per annum and also a credit insurance charge at the rate of 1.08 per cent. per annum. The other sub-articles of article X-4.3 provided for calculation of interest and insurance charges and for submission by Forasol every six months of invoices in respect thereof. Article X-4.3.2, inter alia, provided that " ONGC shall accept each invoice for the interest and insurance charge and shall remit the invoiced amount to Forasol in French francs as early as possible but not later than two months after receipt of the invoice ". Provision was also made by the said article X-4.3.2 for drawing of promissory notes payable at CNEP (Paris) maturing on each 5th day of August and of February, the first of such dates being August 5, 1965, and the last being August 5, 1971. Under article X-4.3.3, ONGC bound itself " irrevocably, to pay in French francs the promissory notes for interest and insurance charge given by it to Forasol ". Article XI provided for payments to be made to Forasol in Indian rupees. Under article XI-1.1, the rupee payment part of the operational and standby fees, equipment charges and transportation charges payable to Forasol under the said contract was estimated to be FF 1, 495, 216 and ONGC was to pay to Forasol as an advance 10 per cent. of the said amount, namely, 1, 49, 522, in Indian rupees using a conversion rate of FF 1.033 equal to rupee 1.000. The balance amount in respect of the aforesaid item was to be paid by ONGC to Forasol in Indian rupees using a conversion rate of FF 1.033 equal to rupee 1.000 in the manner set out in the other sub-articles of article XI.On account of the hostilities between Pakistan and India which broke out in September, 1965, the work under the said contract could not be completed and the operations to be carried out thereunder had to be suspended. The period of the said contract was thereupon extended by a supplementary agreement being Addendum No. 1, dated December 6, 1965, by a period of six months with effect from the date on which the drilling operations in the Jaisalmer area were resumed at the expiry of the period of suspension. By another supplementary agreement being Addendum No. 2, dated July 30, 1966, the period of the said contract was further extended by a period of five months from the moment at which all the equipment of Forasol then under repair at Jodhpur arrived, after completion of the repairs at the new drill-site, where ONGC might like to have drilling operations to be started under the said Addendum No. 2. Article 2.7 of the said Addendum No. 2 provided as follows2.7. In case Forasol has to refund to ONGC an amount which cannot be adjusted or has not been adjusted against Forasols invoices for the last two months of the five-month period of this Addendum, Forasol shall refund the amount in cash in the same currency in which ONGC had paid it earlier.another supplementary agreement being Addendum No. 3, dated February 23, 1967, the period of the contract was further extended till the completion of the drilling of Manhere Tibba Well No. 1 and in case ONGC should decide to test the said well till the completion of such test or till April 18, 1967, whichever was earlier. Article 2.5 of the said Addendum No. 3 provided as follows2.5. In case Forasol has to refund to ONGC an amount which cannot be adjusted or has not been adjusted against Forasols invoices for the period of extension stipulated in article 1.2 above, Forasol shall refund the amount in cash in the same currency in which ONGC had paid it earlier.may be mentioned that each of the said supplementary agreements provided that all the terms and conditions of the original contract which were not repugnant to the terms and conditions agreed to for such supplementary agreements were to continue to apply until the termination of the said contract.The extended period of the said contract expired on April 13,June, 1966, during the extended period of the said contract, the Indian rupee was devalued, and, consequently, in the course of correspondence which took place between the parties, Forasol made a claim for conversion of Indian rupees into French francs at a rate higher than the rate specified in article IX. 3 of the said contract.It may also be mentioned that ONGC paid to the income-tax authorities towards the income-tax liabilities of Forasol three sums aggregating to Rs. 11, 95, 304 as specified belowRs. 1, 25, 304 on September 14, 1967(2) Rs. 4, 70, 000 on February 14, 1968, and(3) Rs. 6, 00, 000 on March 23,the period of extension covered by the said addendum No. 3 and after the expiry of that period, disputes and differences arose between the parties. These were referred to arbitration as provided in the said contract. The parties appointed their respective arbitrators. The time for making the award was extended from time to time with the consent of the parties but as Forasol did not consent to any further extension, the disputes were referred for arbitration to Mr. N. Rajagopala Iyengar, a retired judge of this court, being the umpire appointed by the arbitrators. In the arbitration proceedings, Forasol made claims against ONGC and ONGC made counter-claims against Forasol. On March 8, 1972, the umpire entered upon the reference and on December 21, 1974, the umpire made his award. To the said award an erratum was annexed by which a particular portion of the said award was deleted and substituted by a fresh portion to which we will revert later. For the present, suffice it to say that by the said erratum the umpire awarded that from November 30, 1966, the rupee portion should be converted at the rate of FF 1, 000 equal to Rs. 1, 517.80 instead of the rate of exchange of FF 1, 033 equal to Re. 1.000 provided in article IX. 3.1 of the said contract and that this enhanced rate of exchange would apply to both Forasol and ONGC.The said award was filed in the Delhi High Court and on May 7, 1975, a decree in terms thereof was passed by that High Court with interest at the rate of 6 per cent. per annum from the date of the decree till the date of payment of the net decretal amount. It is pertinent to note that neither party raised any objection to the said award or to the form in which the said decree wasthe said decree was drawn up, Forasol filed in March, 1976, an application for execution of the said decree being Execution No. 77 of 1976. Under the said award certain amounts were directed by the umpire to be paid to Forasol by ONGC in French francs and certain amounts in Indian rupees, and the amounts payable by Forasol to ONGC were to be adjusted and set off against the amounts payable by ONGC to Forasol. In the said execution application, the rupee credit in favour of Forasol was converted into French francs at the rate of rupee 1.5178 equal to FF 1.000 being the enhanced rate of exchange specified in the said award. After deducting the amounts payable to ONGC, the balance payable to Forasol was shown as FF 5, 89, 727.51 being the equivalent of Rs. 11, 79, 455 with interest on the principal sum up to the date of payment and the costs of execution. The mode of execution specified in the said execution application was attachment and sale of the movable properties belonging to ONGC and specified in an annexure to the said execution application. In its objections to the said execution application, ONGC contended that the enhanced rate of exchange specified in the said award was only with respect to the interest payable to Forasol from November 30, 1966, and that to the rest of the payments to be made under the said award the rate of exchange mentioned in article IX-3.1, namely, FF 1.033 equal to rupee 1.000, was applicable and that this contract rate of exchange applied both to the French franc part as also the Indian rupee part of the said contract. ONGC also raised certain other contentions. On the basis of these contentions, it was submitted by ONGC that instead of any amount being due to Forasol, a sum of Rs. 6, 43, 831.44 was due by Forasol to ONGC. The learned single judge of the Delhi High Court who heard the said execution application rejected all the contentions of ONGC. He held that the contract rate of exchange applied only to the rupee part of the payment in respect of the items specified in article IX-3.1 of the said contract and that in respect of such payments from November 30, 1966, the enhanced rate of exchange provided in the said award was to apply but in respect of the other payments to be made to Forasol in French francs, the rate of exchange prevailing on the date of the decree, namely, FF 1.000 equal to Re. 1.938 would apply. The learned single judge directed that ONGC could satisfy the judgment debt by making payment in French francs or, if it so preferred, by paying the equivalent of it in Indian rupees at the rate of exchange prevailing at the date of the decree and further ordered that if the decretal amounts was not paid within two weeks, attachment as prayed for should issue. Against the said judgment and order of the learned single judge, ONGC filed an intra-court appeal being EFA. (OS) No. 5 of 1977. The Division Bench of the Delhi High Court, which heard the said appeal, upheld the contention of ONGC that the enhanced rate of exchange specified in the said award applied only to the interest payable to Forasol and that with respect to the rupee amount due to ONGC and which was to be adjusted against French francs payable to Forasol, the contract rate of exchange applied. It further held that as the said award was in French francs, by reason of the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), before executing the said award, the French francs would have to be converted into Indian rupees at the rate of exchange prevailing on the date of the said award, namely, FF 1.000, equal to Re. 1.831. The Division Bench negatived the other contentions raised by ONGC. It is against this judgment and order of the Division Bench of the Delhi High Court that the present cross-appeals have been filed.So far as Forasols appeal is concerned, four points were urged on its behalf before us. These points wereThe rate of exchange specified in article IX-3.1 of the said contract, namely, FF 1.033 equal to Re. 1.000, was applicable only to 20 per cent. of the payment to be made in Indian rupees by ONGC to Forasol.2. The umpire by the said award fixed the rate of exchange at FF 1.000 equal to Rs. 1.5178 as from November 30, 1966, in respect of such rupee payments only.3. The sum of Rs. 10, 19, 380.39, being the balance amount of the sum of Rs. 11, 95, 304 which remained payable to ONGC by Forasol in respect of the income-tax paid by ONGC on behalf of Forasol after making adjustments against the claim of Forasol, was to be adjusted, as directed by the said award, against Forasols claim in French francs on the respective dates of each payment of tax, namely, on September 14, 1967, February 14, 1968, and March 23, 1968, and as all these payments were made after November 30, 1966, and as under the said award the enhanced rate of exchange was directed to apply to both parties, the said sum of Rs. 10, 19, 380.39 was to be adjusted against the French franc claim of Forasol at the enhanced rate of FF 1.000 equal to Rs. 1.5178.4. So far as the payment to Forasol in French francs was concerned, neither the said contract nor the said award provided for conversion of French francs into Indian rupees and the said decree having been passed in foreign currency, in case ONGC did not or could not make payment in French francs, the rate of conversion of French francs into Indian rupees could only be at the rate of exchange prevailing at the date of the said decree, that is, on May 7, 1975, which was FF 1.000 equal to Rs.on the other hand, submitted that the said contract provided a fixed rate of exchange of FF 1.033 equal to Re. 1.000 for all amounts payable under the said contract, whether in rupees or in French francs, and, therefore, that rate alone should be taken as the correct conversion ratio except with respect to interest on the amount in French francs payable to Forasol in respect of which the umpire had enhanced the rate of exchange to FF 1.000 equal to Rs. 1.5178. In the alternative, it was submitted that the conversion rate should be the one prevailing at the date of the said award, that is, on December 21, 1974, namely, FF l.000, equal to Re. 1.831.Thus, there are four different rates of exchange which feature in this case, namely :--FF Rs.Rate provided in the said contract 1.033 = 1.000Rate fixed by the umpire 1.000 = 1.5178Rate at the date of the said award, namely, 1.000 = 1.831on December 21, 1974Rate at the date of the decree, namely, on 1.000 = 1.983May 7, 1975

Reasoning:
In the type of cases we are concerned with here, just as the courts have power to make a decree for a sum of money expressed in a foreign currency subject to the limitations and conditions we have set out above, the arbitrators or umpire have the power to make an award for a sum of money expressed in a foreign currency. The arbitrators or umpire should, however, provide in the award for the rate of exchange at which the sum awarded in a foreign currency should be converted in the events mentioned above. This may be done by the arbitrators or umpire taking either the rate of exchange prevailing on the date of the award or the date nearest or most nearly preceding the date of the award or by directing that the rate of exchange at which conversion is to be made would be the date when the court pronounces judgment according to the award and passes the decree in terms thereof or the date nearest or most nearly preceding the date of the judgment as the court may determine. If the arbitrators or umpire omit to provide for the rate of conversion, this would not by itself be sufficient to invalidate the award. The court may either remit the award under section 16 of the Indian Arbitration Act, 1940, for the purpose of fixing the date of conversion or may do so itself taking the date of conversion as the date of its judgment or the date nearest or most nearly preceding it, following the procedure outlined above for the purpose of proof of the rate of exchange prevailing on such date. If, however, the person liable under such an award desires to make payment of the sum in foreign currency awarded by the arbitrators or umpire without the award being made a rule of the court, he would be at liberty to do so after obtaining the requisite permission of the concerned authorities under the Foreign Exchange Regulation Act, 1973.In the case of the said award which had led to these appeals before us, the party entitled to receive the money--Forasol--was a foreign party. Under the said contract, the currency of account was a foreign currency and so was the currency of payment except for a portion thereof. Forasol was, therefore, entitled, on payment not being made to it by ONGC, to receive in French francs the amounts which become payable to it in that currency. The umpire was, therefore, justified in providing that the amounts payable under the said award to Forasol in French francs should be paid in French currency. The umpire has, however, neither provided that such payment would be subject to the permission of the foreign exchange authorities being obtained nor specified the conversion rate to be applied in the eventualities which we have set out above. That, however, does not make any difference because neither party has objected to the said award on this ground. On the contrary, both parties have accepted the said award as binding and conclusive. As mentioned above, this omission on the part of the umpire could have been corrected by the Delhi High Court when it came to pronounce judgment according to the said award and pass the said decree in terms thereof. The decree passed in terms of the said award, however, does not specify either the rupee equivalent of the amount in French francs payable to Forasol or the rate of exchange at which the conversion of such amount into Indian rupees should be made. To that extent, the decree passed in terms of the said award by the Delhi High Court was not a proper decree. Both the parties have, however, accepted the said decree and have not challenged it on this ground in any proceedings. In any event, the aforesaid mistake in the said decree was one which could have been got corrected by an application for review or by an application under section 152 or, in any event under section 151, of the Code of Civil Procedure, 1908. The decree has now become final and binding upon the parties. Both the parties have accepted the said decree and the said decree cannot, therefore, be said to be invalid on the ground of the above omission to specify either the rupee equivalent of the French franc portion of the said award or the rate of exchange at which such French franc portion was to be converted into its rupee equivalent.For the reasons set out above, we hold that the learned single judge rightly took the date of the decree as the date of conversion. In his order on the said execution application, he has, however, given a direction that ONGC could satisfy the judgment debt by making payment in French francs or if they so preferred, by paying the equivalent sum in rupees at the rate of exchange prevailing on the date of the decree. He was in error in not qualifying this direction by making the option given to ONGC to make payment in French francs subject to the permission of the concerned authorities under the Foreign Exchange Regulation Act, 1973. To this extent, the order passed by the learned single judge requires to benow to the appeal filed by ONGC, it was stated in the special leave petition filed by ONGC that it had two claims against Forasol, the first with respect to what was termed as " tax differential " and the second with respect to interest on the amounts payable by Forasol to ONGC. Both these claims were negatived by the learned single judge. It was expressly stated in paragraph 19 of the special leave petition of ONGC that except for the aforesaid two claims, the judgment and order of the Division Bench of the Delhi High Court should beclaim for tax differential was based on article IV-1.2 of the said contract under which Forasol was to pay income-tax, surcharge on income-tax and all other taxes which might be assessed and levied by the income-tax authorities in India on the income of Forasol under the said contract as well as on the income of Forasols personnel for the work performed by them under the said contract. Under the proviso to the said article, if subsequent to the date of the said contract, the tax rates in India were changed so as to be higher than what they were at the date of the signing of the said contract, ONGC was to pay the difference to Forasol and if the tax rates became lower, Forasol was to pay the difference to ONGC. This proviso was not to be applicable in respect of the taxes payable by Forasol on the income of its personnel. The learned single judge has pointed out in his judgment that the claim in respect of tax differential did not survive inasmuch as by the said award, the amounts paid by ONGC as tax on behalf of Forasol were adjusted and given credit for. ONGC did not challenge this finding in the appeal filed by it in the Delhi High Court. None the less ONGC sought to reagitate this point in its special leave petition. At the hearing of this appeal, learned counsel for ONGC stated that he was not pressing this point. In the written submission filed on behalf of ONGC after the hearing of both these appeals was concluded, ONGC has however, once again sought to raise this point. The point having been not urged in the intra-court appeal in the Delhi High Court and also having been given up at the hearing of these appeals before this court, ONGC cannot be permitted subsequently to agitate this point in the written submissions filed on its behalf. In any event, in our opinion, the learned single judge was right in rejecting this claim of ONGC.So far as ONGCs claim for interest is concerned, it has been negatived both by the learned single judge and the Division Bench of the Delhi High Court. We find no substance in this claim. The relevant provision of the said award which deals with payment of interest is as followsUnder the contract, there is no right to interest to either party except on French francs. If the amount paid by ONGC to the credit of Forasol in regard to income-tax and the several items of allowance and disallowance under this award are worked out and it is found that there is an amount payable to ONGC in French francs, that would carry interest, but if the amount is in rupees, then no interest could be allowed until the date of the award.amounts on which interest is claimed by ONGC were payable by Forasol in rupees and not in French francs. Therefore, by the express terms of the said award, there is no right in ONGC to claim any interest on these amounts and this claim for interest was rightly negatived.