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

- **Citation:** [1993] Supp. 3 S.C.R. 22
- **Court:** Supreme Court of India
- **Decided:** 1993-10-17
- **Bench:** M.N. Venkatachaliah C.J, S.C. Agarawal, Dr. As. Anand
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/renusagar-power-co-ltd-etc-v-general-electric-co-etc-12005
- **Pages:** 95

## Headnote

Foreign Awards (Recognition and Enforceme!Jt} Act, 1961 Ss.5, 7
'Scope of Enquiry in proceedings for enforcement of ward-Held, limited to
c grounds mentioned in S. 7; does not pennit impeachm-ent of award on merits.
Foreign Awards (Recognition and Enforcement) Act, 1961 s.7 (1) (b)
(ii)-Enforcement of award objected to as being contrary to public policy of
India as well as State of New York-Held, the words 'public' refer to the public
D
policy of India and not of the State of New York whose law governs t~e
contract.
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7 (1) (b)
~-
(ii)-Enforcement of award objected to as violating the Foreign public policy
of India-Held, violation of FERA would be contrary to public policy but on
E facts the present award would not involve any such violation.
Foreign Exchange Regulation Act,-Ss.9(1), 47(3)-Government approving foreign contract but not approving rescheduling of payments thereunder-Whether payments made would violate FERA-Held, no; government
not precluded from granting pennission under S.47(3) for enforcement of
""
F
award. -
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7(1) (b)
(ii)-Interest Act, 1978 S.3(3) (c)-Foreign award providing for compound
interest-En/ orcement of award objected to as being contrary to public
G policy-Held, awarding of compound interest not against public policy of
India.
' {·
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7 (1) (b)
(ii }-Non-deduction from the final amount awarded of tax payable by foreign
~
party to its government on regular and delinquent interest-Held, does not
H amount to unjust enrichment.
22
RENU SAGAR POWER LTD. v. ELECTRIC CO.
23
·Foreign Awards (Recognition and Enforcement) Act, 1961 S.7(1) (a)
A
(ii)--Bar to enforcement of foreign award on the ground that patty unable to
present its case before arbitral ttibwiaf-Patty staying away from heating on
the ground that ttibunal had become functus officio-Ttibunal proceeding
with heating after ovenuling the objection-Held, Ttibunal not required to give
patty further notice of hearing.
Foreign Award (Recognition and Enforcement) Act, 1961
S.4( 1)-Relevant date for conversion of amount awarded in foreign cu"ency
to Indian cu"ency-Held, a matter of procedure; conversion should be on the
basis of exchange rate prevailing on date of decree made in terms of the
B
award.
C
.
Pursuant to negotiations and approval by the Government of India
on January 2, 1964? Renusagar Power Co. Ltd. ('Renusagar') and General
Electric Company, U.S.A. ('General Electric') entered into a contract on
August 24, 1964 under which General Electric was to supply Renusagar D
equipment and power services for setting up a thermal power plant at
Renukoot in Uttar P.radesh. All items of equipment were to be delivered at
New York not later than fifteen months from the contract effective date
i.e.December 31, 1964. Ten per cent of the total contract price of U.S.$
13,195,000 was to be paid in cash or by Letter of Credit. The balance ninety
per cent together with interest at 6-1/2 % per annum from the 16th to 30th E
month of the contract effective data totalling US $ 12,176,058.75 was to be
· paid in sixteen equal six- monthly instalments commencing from the expiry
of 30 months from the contract effective date i.e from June 30, 1967, the
last instalment payable on the expiry of the 120th month thereafter i.e. on
December 31, 1974. Renusagar was to execute unconditional negotiable F
promissory notes in respect of the instalments each note being unconditionaly guaranteed by United Commercial Bank.
In the event of General Electric receiving exemption from Government of India from payment of income tax on interest payments by
Renusagar, the interest rate on such of those promissory notes exempted G
would be reduced to 6%. If no exemption was granted, Renusagar would
furnish General Electric receipts on all withheld amounts paid to Government of India. The rights and obligations of the parties were

## Text

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..
A
RENUSAGAR POWER CO. LTD. ETC.
~
v.
GENERAL ELECTRIC CO. ETC.
OCTOBER 17, 1993
B
[M.N. VENKATACHALIAH C.J., S.C. AGARAWAL
AND DR. AS. ANAND, JJ.]
Foreign Awards (Recognition and Enforceme!Jt} Act, 1961 Ss.5, 7
'Scope of Enquiry in proceedings for enforcement of ward-Held, limited to
c grounds mentioned in S. 7; does not pennit impeachm-ent of award on merits.
Foreign Awards (Recognition and Enforcement) Act, 1961 s.7 (1) (b)
(ii)-Enforcement of award objected to as being contrary to public policy of
India as well as State of New York-Held, the words 'public' refer to the public
D
policy of India and not of the State of New York whose law governs t~e
contract.
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7 (1) (b)
~-
(ii)-Enforcement of award objected to as violating the Foreign public policy
of India-Held, violation of FERA would be contrary to public policy but on
E facts the present award would not involve any such violation.
Foreign Exchange Regulation Act,-Ss.9(1), 47(3)-Government approving foreign contract but not approving rescheduling of payments thereunder-Whether payments made would violate FERA-Held, no; government
not precluded from granting pennission under S.47(3) for enforcement of
""
F
award. -
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7(1) (b)
(ii)-Interest Act, 1978 S.3(3) (c)-Foreign award providing for compound
interest-En/ orcement of award objected to as being contrary to public
G policy-Held, awarding of compound interest not against public policy of
India.
' {·
Foreign Awards (Recognition and Enforcement) Act, 1961 S.7 (1) (b)
(ii }-Non-deduction from the final amount awarded of tax payable by foreign
~
party to its government on regular and delinquent interest-Held, does not
H amount to unjust enrichment.
22
RENU SAGAR POWER LTD. v. ELECTRIC CO.
23
·Foreign Awards (Recognition and Enforcement) Act, 1961 S.7(1) (a)
A
(ii)--Bar to enforcement of foreign award on the ground that patty unable to
present its case before arbitral ttibwiaf-Patty staying away from heating on
the ground that ttibunal had become functus officio-Ttibunal proceeding
with heating after ovenuling the objection-Held, Ttibunal not required to give
patty further notice of hearing.
Foreign Award (Recognition and Enforcement) Act, 1961
S.4( 1)-Relevant date for conversion of amount awarded in foreign cu"ency
to Indian cu"ency-Held, a matter of procedure; conversion should be on the
basis of exchange rate prevailing on date of decree made in terms of the
B
award.
C
.
Pursuant to negotiations and approval by the Government of India
on January 2, 1964? Renusagar Power Co. Ltd. ('Renusagar') and General
Electric Company, U.S.A. ('General Electric') entered into a contract on
August 24, 1964 under which General Electric was to supply Renusagar D
equipment and power services for setting up a thermal power plant at
Renukoot in Uttar P.radesh. All items of equipment were to be delivered at
New York not later than fifteen months from the contract effective date
i.e.December 31, 1964. Ten per cent of the total contract price of U.S.$
13,195,000 was to be paid in cash or by Letter of Credit. The balance ninety
per cent together with interest at 6-1/2 % per annum from the 16th to 30th E
month of the contract effective data totalling US $ 12,176,058.75 was to be
· paid in sixteen equal six- monthly instalments commencing from the expiry
of 30 months from the contract effective date i.e from June 30, 1967, the
last instalment payable on the expiry of the 120th month thereafter i.e. on
December 31, 1974. Renusagar was to execute unconditional negotiable F
promissory notes in respect of the instalments each note being unconditionaly guaranteed by United Commercial Bank.
In the event of General Electric receiving exemption from Government of India from payment of income tax on interest payments by
Renusagar, the interest rate on such of those promissory notes exempted G
would be reduced to 6%. If no exemption was granted, Renusagar would
furnish General Electric receipts on all withheld amounts paid to Government of India. The rights and obligations of the parties were to be governed
by the laws of the State of New York, U.S.A. Unresolvable disputes arising
out of the contract were to be settled in accordance with the Arbitration H
24
SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.
A
Rules of the International Chamber of Commerce (ICC).
B
c
After initially granting exemption from payment of income_ tax by
General Electric on the interest payments by Renusagar, the Government
of India on September J.1, 1969 withdrew the exemption. Renusagar then
moved the Delhi High Court which on May 18, 1970 suspended the
withdrawal of exemption on Renusagar furnishing security. Renusagar,
however, remitted to General Electric only 27% of amount of interest at
6-1/2 % while withholding 73% being the amount of tax exempted. The High
Court allowed the writ petition on November 17, 1980 as a result of which
the interest liability of Renusagar was reduced to 6%. Despite the IncomeTax Department issuing a no-objection certificate for repatriation of the
regular interest amounts, Renusagar did not remit the same to General
Electric.
Due to delay in delivery of equipments, the parties agreed that the
promissory notes would. be recast to a lesser number and payment
D schedules revised. However, the Government of India did not agree and in
the meanwhile the payment by Renusagar of the first, second, forth and
fifth instalments was delayed. On March 1, 1982 General Electric gave
Renusagar notice of its intention to arbitrate and requested the Court of
Arbitration of ICC for arbitration ofthe disputes. Accepting that there was
E
~ prima facie dispute, the ICC appointed the Chairman of the Arbitral
Tribunal which also comprised the two arbitrators nominated by General
. 'Electric and Renusagar respectively.
Contending that the claims referred to arbitration were beyond the
scope of the contract, Renusagar filed a suit in· the Bombay High Court.
F
After initially granting a stay, the High Court vacated it on the application
made by General Electric. Ultimately this court in Renusagar Power Co.
Ltd. v. General Electric Co. & Anr., (1985) 1 SCR 432 ('Renusagar I') while
dismissing the appeal by Renusagar held that the claims referred by
General Electric to arbitration arose out of and were related to the
G contract.
As a counter move to the suit filed by General Electric in the Clacutta
High Court against United Commercial Bank for enforcement of the Bank
guarantee, Renusagar filed a suit in the court of the Civil Judge, Mirzapur
for a declaration that the said guarantee was unenforceable. With the Civil
H Judge turning down the plea of General Electric for stay of the suit,
...
r
....
,..
RENU SAGAR POWER LTD. v. ELECTRIC CO.
25
General Electric approached first the Allahabad High Court and then this A
Court. In General Electlic Co. v. Renusagar Power Co., [1987] 3 SCR 858
('Renusagar II'), this Court allowed the appeal of General Electric and
stayed the suit in the court of the Civil Judge, Mirzapur.
After the decision in Renusagar I, the parties appeared before the
Arbitral Tribunal in Paris for a hearing between February 25 and March B
8, 1995. Prior to next hearing on October 1, 1995, Renusagar's lawyers
informed the Arbitral Tribunal that since the Civil Court, Mirzapur was
in seisin of the whole of the subject matter of the reference, the Tribunal
had become functus officio and no further procededings should be undertaken by it. At the meeting of the Tribunal on October 1, 1985, General C
Electric appeared but Renusagar did not. After considering the written
submissions of Renusagar, the Tribunal ruled that its jurisdiction
remained and the arbitration would proceed in the absence of Renusagar.
Thereafter the Tribunal gave its award on September 16, 1986 whereunder
Renusagar was to pay General Electric a sum of US $ 12,215,622.14 under D
various heads including regular interest wrongfully withheld, delinquent
interest on late payments of principal, cost of spare parts, compensatory
damages at 8% apart from interest at 8% per annum on each of the above
amounts and costs.
General Electric instituted proceedings in the Bombay High Court E
under S.5 of the Foreign Awards (Recognition and Enforcement) Act, 1961
('Act') for enforcement of the award. This was resisted by Renusagar inter
alia on the grounds that the enforcement of the award as well as the award
of compensatory damages on various heads would be contrary to public
policy. A Single Judge of the High Court rejected Renusagar's objections F
and held the award to be enforceable and a decree was drawn in terms
thereof. The Division Bench of the High Court, while dismissing
Renusagar's appeal, directed that the date of conversion of the decretal
amount which was in U.S.dollars to Indian rupees shall be the date on
which the Single Judge completed pronouncement of the judgment. The
Division Bench granted Renusagar certificate for appeal to this court. G
Contending that the rate of conversion should be that prevalent on the
date of payment, General Electric also appealed.
In this Court Renusagar contended that the award was unenforceable as it had been unable to present its case before the Arbitral Tribunal. H
26
SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.
A
Had it been put on notice that in the event of the Tribunal negativing its .
objections the Tribunal would proceed with the matter on merits, it would
have been able to decide whether or not to proceed with the merits of the
matter. Secondly the enforcement of the award would be against public
policy. The words' public policy in S.7 (1) (b) (ii) of the Act would include
B the public policy of the State of New York which prohibits the awarding of
compound interest and damages on' damages. No interest was payable for
the period' subsequent to the maturity of the promissory notes. It was also
-.
contrary to public policy to not deduct U.S. tax payable by General Electric
from the award amount resulting in unjust enrichment; to award interest
for the period during which the stay granted by the Delhi High Court was
C · operative; to award interest for period during which FERA approval was
awaited and to award unconscionably high costs. Renusagar further con·
tended that the date of breach was the relevant date for conversion of the
amount awarded from U.S.dollars to Indian rupees.
General Electric in reply contended that the scope of enquiry under
D S.S of the Act did not permit a challenge to the award on merits. Public
policy under the Act was that of India and not of the State of New York.
Challenge to the award of compensatory damages, compound interest,
damages on damages pertained to the merits of the award and therefore
impermissible. The Government of India having already approved the
- E
original contract, there was no bar to its granting permission under FERA
for remittance o~ interest payments under S.47 (3) thereof. 'The relevant
date for conversion was the date of payment.
:Qismissing the appeals, this court
F
HELD: 1. The scope of enquiry before the court in which award is ·
sought to be enforced is limited to grounds mentioned in Section 7 of the
Act and does not enable a party to the said proceedings to impeacli the
award on merits. (59-FJ
.
Alen Redfern and MaTtin Hunter : Law & Practice of International
G commercial Arbitration, 2nd Ed.pp.61-62, 461; Dicey & Morris, The Conflict
of Laws, 11th Ed., Rules 42 to 46, 62 to 64 pp.464 to 476, 558, 559, 572, 578
vol. Il p. 565; Cheshire & North, Private International Law, 12th Ed. pp.368
to 369, 446 and 447; Geneva Convention of 1927 clauses (a) to (e) of Article
I,· Convention on the .8ecognition and Enforcement of Foreign Arbiiral
H Awqrds at New York, 1958 ('New York Convention') Article V (1) (a) to (e)
RENUSAGARPOWERLTD. v. ELECTRICCO.
27
and (2) (a) and (b) and Albe1t Jan van den Berg, New York Arbitration A
Convention of 1958: Towards a Uniform Judicial lmerpretation, p.269,
referred to.
2.1. The expression 'public policy' in Section 7(1) (b) (ii) of the Act
means the dl'Ctrine of public policy as applied by the courts in India.
Enlarging the field of enquiry to include public policy or the courts whose B
law governs the contract or or the country of place or arbitration, would
run counter to the expressed intent of the legislation. (72-B]
2.2. By using only the words "public policy" in section 7(1) (b) (ii)
and not 'public policy of India' Parliament did not intend to deviate from C
the provisions of the New York Convention contained in Article V (2) (b)
which was the words "public policy of that country" implying public policy
of that country where recognition and enforcement is sought.· (63-CJ
2.3. The enforcement of a foreign award would be refused on the D
ground that it is contrary to public policy if such enforcement would be
contrary to (i) fundamental policy of Indian law; or (ii) the interests of
India; or (iii) justice of morality. Since the expression "public policy"
covers the field not covered by the words " and the law of India" which
follows the said expression, contravention of law alone willl not attract the
bar of public policy and something more than contravention of law is E
required. (73-D, 72-G]
V/0 TractoroexpoT1, Moscow v. Mis. Tarapore & Co., (1970~ 3 SCR
53; Central Inland Water Transpo11 Corporation Ltd. & Anr. v. Barojo Nath
Ganguly, (1986) 2 SCR 278; Gherulal Parekh v. Mahadeodas Maiya & Ors.,
p
(1959) Suppl. 2 SCR 392; Murlidhar Agarwal v. State of U.P., (1975) 1 SCR
515; Rattanchand Hira Chand v. Askar Nawaz Jung (dead) by LRs., (1991]
3 SCC 67; Vervaeka v. Smith, (1983) 1 A.C. 145 at 164; Louchs v. Standard
Oil Co. of New York, 224 NY 99 (1918); Dalmia Dairy Industries Ltd. v.
National Bank of Pakistan, (1978] 2 Lloyd's Law Reports 233; Deutsche
Schachtabau-und Tiejbohrgesellschaft mbH v. Ras Al Khaimah National Oil G
Co., (1987] 2 All ER 769; Parsons & Whittemore Overseas Co. Inc. v. Societe
Generate De L'lndustrie Du Papier (Rakta) and Bank of America, 508 F.2d
.
969 (1974); Fritz Scherk v. Albeno-Culver Co., 41 L.Ed.2d, 270 and 281;
Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth Inc.; 87 L Ed. 2d
444 and Renusagar Case I, (1985] 1 SCR 432, referred to.
H
l
28
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.
A
Russel 011 Arbitratio11, 12th Edn. p.384; Dicey and Moms on Conflict
of Laws, pp.586-87; Sir William Holdsworth, History of English Law, 1.111,
p.55; HalsbW)''s Laws of E11gla11d, IV, Ed., vol.8, para 418; Chitty on Contracts, 26th Edn., Vol I para 1133, pp.685-686; R.H. Graveso11: Co11flict of
Laws, 7th Ed, p.165; Cheshire a11d North Private I11temational Law, 12th Ed.,
B · p.129; Red/em a11d Hu11ter, Law and Practice of lntemational Commercial
Arbnitration, 2nd Ed.p.445, referred to.
Arbitration (Protocol and Convention) Act, 1837, S.1 (1); New York
Convention (supra); Indian Independence (Adaptation of Central Acts and
Ordinances) Order, 1948; Part B States (Laws) Act, 1951; Arbitration Act
C
(U.K), 1975, referred to •.
D
E
F
G
3.1. FERA having been enacted to safeguard the economic interests
of India, any violation of the its provisions would be contrary to the public
policy of India as envisaged in section 7(1) (b) (ii) of the Act. [78-D]
Kahler v. Midland Bank Ltd., 1950 A.C.24 at 27, 36, 46-47, 57; Zivnostenska Bank National Corporation v. Frankman, 1950 A.C. 57 at 72, 78; In
re: Herbert Wagg & Co. Ltd., 1956 (1) Ch.323 at 351; Boiseevain v. Wei~ 2950
A.C. 327; Wilson Smithett & Cope Ltd. v. Terruzzi, 1976 1 Q.B. 683; A
decision of the Supreme Court of Austria dated May 11, 1983-Yearbook of
Commercial Arbitration, Volume X (1985) pp.421-23; LIC v. Escorts, [1986)
Supp. 3 SCR 909 and M.S. Wagh & Ors. v. lay Engineering Works Ltd.,
[1987) SCR 981, referred to.
Dicey & Moms, The Conflict of Laws, 11th Ed., Vol. II, p.1466; Dicey
& Moms, (supra) p.1469; Mauro Rubino-Sammartano, Public Policy in
Transnational Relationaships, p. 91; FA. Mann, The Legal Aspect of Money,
5th Ed., (1992) p.403 note 31, referred to.
3.2. Since the Original contract had been approved by the Government of India, the award of interest for delayed payment of instalments
would not involve violation of the provisions of FERA. [82-F]
Renusagar I, [1985) 1 SCR 432, relied on.
3.3. The language of Section 47 (3) does not support the submission
that government having· refused to give its reschedule of payment of
instalments, would not grant permission for enforcement of the judgement
H to be passed in the present proceedings. The words "would le" preceding
. ~.
RENU SAGAR POWER LTD. v. ELECTRIC CO.
29
the word "due" indicate that the quantum of the amount has to be fixed in A
the legal proceedings and need not be a pre-determined amount. (82-F, H]
Mis Dhanrajamal Gobindram v. M/s. Shamji Kalidas & Co., [1961] 3
SCR 1020; Contract and Trading Co. Ltd. v. Barbey, (1960) AC 244 and
Cummings v. London Bullion Company Ltd., (1952) 1 KB 327, referred to.
4. The submission that awarding of delinquent interest is in disregard of FERA and the enforcement of this part of the award would result
B
in violation of FERA is without substance. Since the original contract had
been approved by the Government of India, and award of interest for
delayed payment does not involve violation of FERA. This submission C
involves an attack on the merits of the award which is impermissible at
the stage of enforcement. (78-E-F]
5. The orders of the Delhi High Court did not prevent Renusagar
from depositing in the Government treasury the income tax payable on the
amount of regular interest. By retaining the said amount with itself while D
the Writ Petition was pending Renusagar was not acting in accordance
with the orders of the Delhi High Court: Payment by Renusagar of the said
amount to General Electric would not have amounted to disregard of the
orders of the High Court. [84-G, H, 85-A]
6. The award of interest on interest, i.e., compound interest, is not E
against the public policy of India. There is no absolute bar on the award
of interest by way of damages and it would be permissible 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, 1987, the court is precluded from awarding interest on F
interest does not mean that it is not permissible to award such interest
under a contract or usage or under the statute. [88·-B, C]
London Chatham and Dover Rly Co. v. South Eastern Rly. Co., 1893
A.C. 429; Wadsworth v.Lydal~ [1981] 2 All. E.R. 401; Hungeifords v. Walker,
(1989) 63 Aus. I.JR 210; Bengal Nagpur Rly Co. Ltd. v. Ruttanji Ramji, AIR G
1938 PC 67; Union of India v. West Punjab Factories, [1966) 1 SCR 580;
Union of India v. Watkins Mayor & Co., AIR (1966) SC 275; Union of India
v. Rallia Ram, [1964) 3SCR164; Thawardas v. Union of India, AIR (1955)
SC 468; President of India v. La Pintada Cia Navegacion SA, (1984) 2 All
E.R. 773; Algonquin Mercantile Corp. v. Dart Industries Canada Ltd., [1987] H
30
SUPREME COURT REPORTS (1993) SUPP. 3 S.C.R.
A 16 CPR (3d) 193, referred to.
7. Delinquent interest under item no.3 has been awarded not by way
of damages but by way of interest. Once it is held that delinquent interest
is by way of interest than there is no question of damages being awarded
on damages and it is, therefore, not necessary to go into the question
B wbether awarding damages on damages is contrary to public policy of
India. (89-C]
c
Trojen & Co. Ltd. v. R.M.N.N. Nagappa Chettiar, [1953) SCR 789, ·
referred to.
8. There would not be unjust enrichment by General Electric on
account of non-deduction of U.S. tax payable on the amount of regular
interest and delinquent interest, since General Electric would be liable to
pay U.S. tax on amount of compensatory damages of commodities. Interest
is payable for the period subsequent to the maturity of the promissory.
D notes . till payment. There is, therefore, no unjust enrichment on this
account. Award of delinquent interest for the period during which the
matter was pending consideration with the Government of India, would.
also not result in unjust enrichment of General Electric. (92-F, H, 93-DJ
E
The decision of the Surpeme Court of Romania dated February 16,
1985, Year Book of Commercial Arbitration, Vol.XW, 1989, pp.689 to 691;
· Orakpo v. Manson Investments Ltd., 1978 A.C. 95 at p.104; British Transport
Commission v. Gourley, 1955 (3) All Eng. R.796 and Hanover Shoe v. United
Shoe Machinery Corporation, (1968) 20 L.Ed. (2d) 1231, referred to
F
Law of Restitution by Goff and Jones (Supra); Chitty on Contracts
26th Edn., Vol. I p.1313 para 2037, referred to:
9. The enforcement of the award is not barred on the ground that
Renusagar was unable to present its case before the Arbitral Tribunal.
Having taken the stand that the Arbitrators had become functus officio
G and could not proceed with the arbitration and that there was, therefore,
no question of Renusagar appearing before the Ar~itral Tribunal on the
dates fixed for hearing, it is not open to Renusagar to say that the Arbitral
Tribunal after having rejected the said objeetion should have given a
further notice asking them to make their submission on merits.
H
(62-B, 61-FJ
r
RENUSAGARPOWERLTD. v. ELECTRIC CO.
31
10.1. The enforcement of the award in the instant case is governed A
by the law laid down in the Forasol case which does not call for reconsideration. The amount payable by Renusagar has to be converted in
Indian rupees on the basis of the rupee-dollar exchange rate prevailing at
the time of this judgment. (115-F]
10.2. The foreign Awards Act does not exclude the applicability of the B
principl~s laid down in the Forasol case with regard to enforcement of
foreign awards. The manner in which the court should pass the decree in
a case where a foreign award is sought to be enforced is a matter of
procedure and not of substance and is governed by lex f ori i.e., the law of
the forum. (105-F, 186-B]
C
Forasol v. Oil & Natural Gas Commission, (1984] 1 SCR~26, followed
and applied.
United Railway of Havana & Regla Warehouses Ltd., 1961 A.C. 1007;
Miliangos v. Ge01ge Frank (Textiles) Ltd., 1976 A.C. 443; Schorsch Meire D
G.M.B.H. v. Bennin, 1975 Q.B. 416; Owners of M.V. Eleftherotria v. Owners
of M.V. DespinQ4 Services Europe At/antique Sub (Seas) of Paris v. Stockinglia Rederiaktiebolag Svea of Stockholm, 1979 A.C. 685; Jugoslavenska
Oceanska Plovidba v. Castle Investment Co. Inc., 1974 Q.B. 292; The Custodian v. Bhucher, (1927] SCR 420; Gatineau Power Co. v. Crown Life E
Insurance Co., (1945] SCR 655; Batavia Times Publishing Co. v. Davis,
(1978) DLR (3d) 144; Clinton v. Ford, (1982) 137 DLR (3d) 281; Deutsche
Bank Filiable Nurenberg v. Humphrey, (1926] 272 US St 7; Hicks v. Guiness,
(1925] 271 US 711; John S. Metcalf Co. v. Mayer,. (1925) 211 N.Y. Supp. 53;
Sirie v. Godfrey, (1921) 188 N.Y. Supp.52; Indaq v. Irridelco Corpn., (1987)
658 F. Supp. 768 and Competex SA. v. La/lord, (1986) 783 F.Zd 333, F
referred to.
Legal Aspects of Money by F.A. Mann, Sth Edn. pp.326-27, 352, 436Explained; Conflict of Laws by Dicey and Morris 11th Edn. Vol.II p.1454;
Cheshire & North, Private International Law, 12th Ed., page 106 and Judiciary G
Law of the State of New York, S.27 (as amended in 1987), referred to
11. The award of interest would be governed by lex fori i.e., the law
of the forum where the award is sought to be enforced. The Judgment of
the Bombay High Court declining to give any direction for payment of
interest pendente lite i.e. for the period the proceedings were pending in H
32
SUPREME COURT REPORTS (1993) SUPP. 3 S.CR.
A
the High Court till the date of decree as wel~ as for the period subsequent
to the decree is upheld. (111-D]
Gujarat Water Supply & Sewerage Board v. Unique Erectors (Gujarat)
(P) Ltd., (1989] 1 SCR 318, referred to.
B
Redfern & Hunter, Law and Practice of International Commercial
Arbitration, 2nd Edn., p. 406, referred.to.
CIVIL APPELLATE JURISIDICTION: Civil Appeal Nos. 71 and
71A of 1990.
C
From the judgment and Order dated 12.10.89 of the· Bombay High
Court in A.No.680 of 1989.
K.K. Venugopal, Dr. AM. Singhvi, P. Tripathi, C. Mukhopadhaya,
S. Rizivi, Vivek Sibal, U.K. Khaitan, KN. Srivastava, P.K. Bansal for the
D appellants.
E
Shanti Bhushan, Soli Dastur, KJ. John, C.Mohan Rao and Ms. Bapsy
F.Dastur for the Respondents.
•
The Judgment of the Court was delivered by
S.C. AGRAWAL. J.: The decision in these appeals would, we hope,
mark the culmination of the protracted litigation arising out of a contract
entered into by the parties on August 24, 1964 for the supply and erection
of a thermal power plant at Renukoot in District Mirzapur, U.P.
p
· Renusagar Power Co. Ltd (for short 'Renusagar'), the appellant in
C.A .. Nos. 71 and 71A for 1990 and the respondent in C.A. No. 370/92, is
a company incorporated under the Indian Companies Act, 1956 engaged
in the production and sale of electric power. General Electric Company
(for short 'General Electic'), respondent in CA.Nos. 71 and 71A and
appellant in C.A. No. 370/92, is a company incorporated under the laws of
G the State of New York in United States of America and is engaged in the
business of manufacturing, selling and servicing electircal products and
various ancillary activities. After negotiations, the parties arrived at an
arrangement whereunder General Electric was to supply to Renusagar the
equipment and power services for setting up a thermal power plant to be
H known as 'Renusagar Power Station' at Renukoot and, on November 27,
,.
'
)II
RENUSAGARPOWERLTD. v.ELECTRICCO.[AGRAWAL,J.)
33
1963, Renusagar moved the Government of India for its approval. By its A
letter dated January 2, 1964, the Government of India gave its approval to
the proposals and thereafter a formal contract was executed by the parties
on August 24, 1964. Under the said contract, General Electric undertook
to supply equipment and services for a plant having a capacity of 135,800
K.W. The total price for the electrical and mechanical equipment, spare B
parts, freights forwarding services, plant design and consulting services was
US $ 13,195,000. The contract price for all electrical and mechanical
equipment and spare parts was FAS vessel, U.S.A port so selected by seller
(Article II). All items of the equipment were to be delivered alongwith
vessel at New York not later than 15 months from the contract effective
date (which was December 31, 1964) and the erection of the plant was to C
be completed within 30 months from the contract effective date (Article
IV A 1). 10% of the total contract basic price (US $ 1,319,500) was to be
paid either in cash or by Letter of Credit. The balance 9J% of the price
(US $ 11,875,500) plus interest at the rate of 6-1/2% per annum from the
16th to the 30th month of the contract effective date (US $ 900,558,75) D
totalling US $ 12,776,058.75 was to be paid in 16 equal six monthly
instalments commencing from the date of the expiry of 30 months from the
contract effective date, and the last instalment was payable on the date of
expiry of 120 months from the contract effective date (Article III). Since
the contract effective date was December 31, 1964 the first instalment was
payable on June 30, 1967 and the last, i.e., 16th instalment was payable on E
December 31, 1974. In the contract, it was also provided the Renusagar
would execute unconditional negotiable promissory notes in four series
(A-B-C-D) in respect of the 16 instalments (Article III A 31 (a)] and that
the notes shall be prepared substantially in the form shown in the attached
Exhibit 'B' entitled "Promissory Note" and shall bear interest, at the rate F
of 6.1/2% per annum on the outstanding principal balance commencing
from 30 months after contract effective date (Article IIl-3 (a)]. A provision
was also made that the payment of the full amount of each note shall be
unconditionally guaranteed by the United Commercial Bank or other
mutually acceptable bank. (Article III-A 3 (e)]. The contract contained an
arbitration clause which provides that any disagreement arising out of or G
related to the contract which the parties are unable to resolve by sincere
negotiation shall be finally settled in accordance with the Arbitration Rules
of the International Chamber of Commerce (for short 'ICq). Each party
would appoint one arbitrator and the Court of Arbitration of the ICC
H
34
SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.
A
would appoint a third arbitrator (Article XVII). It was also agreed that the
rights and obligations of the parties under the Contract shall be governed
in all respects by the laws of the State of New York, USA (Article XIX
A).
B
It was, also, provided that if General electric received an exemption
from the Government of India from the payment of income-tax levied by
the Government of India on interest payments made by Renusagar then
the interest rate on that series of promissory notes as exempted shall be
reduced from 6.1/2% to 6% per annum commencing on the date such
exemption is made effective and the notes so affected shall be replaced by
C
new notes [Article III A:> (b)]. In the contract it was stated that General
Electric intended to apply to the Central Government of India for exemption from income tax on the interest (Including capitalisation interest and
interest thereon) and Renusagar undertook to assist General Electric in
expediting the application of General Electric for exemption. It was also
D agreed that should the application of General Electric be denied
Renusagar may withhole the Indian income-tax applicable to any payment
of interest, but Renusagar was, to furnish General Electric with receipts on
all withheld amounts apid to the Goverllm.ent of India. (Article XIV B].
By its orders dated September 3, 1965 and June 7, 1967 the GovemE
ment of India gave their approval under Section 10(15)(iv)(c) of the
Income Tax Act, 1961 to the loan obtained by Renusagar from General
electric and thereby exempted the interest paid on the said loan from
payment of income tax. The said exemption was, however, withdrawn by
the order of the Government of India dated September 11, 1969 whereby
F
the orders granting exemption were cancelleq retrospectively and General
Electric was held liable to pay Indian income tax on the interest payable
@ 6.5.% per annum.
Renusagar filed a writ petition (C.W. No. 179nO) before Delhi High
Court on February 24, 1970 wherein it challenged the above order of the
G Government of India dated September 11, 1969 relating to cancellation or
revocation of the tax exemption. In the said writ petition, the Delhi High
Court on February 24, 1970 passed an ad-interim order restraining the
, Government, of India and its officers from enforcing, or implementing the
said order dated September 11, 1969. The said order was continued by
H order dated May 18, 1970 subject to Renusagar furnishing st!t:urity for Rs.
,,
RENU SAGAR POWER LTD. v. ELECTRIC CO. [AGRAWAL, J.)
35
4 lakhs to the satisfaction of Commissioner of Income-Tax, Lucknow.· A
Renusagar furnished the necessary security and as a result, the operation
of the order dated September 11, 1969 was suspended. Renusagar, however, did not remit the amount of interest calculated @ 6% per annum
payable to Gene.rat Electric in terms of the contract. Renusagar only
remitted 27% of the amount of interest calculated @ 6-1/2% per annum B
and it did not deposit the balance amount of 73% by way of tax with the
Government but retained the same with themselves. It, however, sent
letters to General.Electric to the effect that they had deducted the said
amount towards tax and had retained the same with itself. Originally
General Electric was not impleaded as a party in the writ petition before
the Delhi High Court and it got itself impleaded as a respondent in the C
writ petition by moving an application dated October 28, 1977. The writ
petition was decided by the Delhi High Court by its judgment dated
November 17, 1980 whereby the writ petition was allowed and the order
dated September 11, 1%9 was set aside. As a result the exemption from
the payment of income-tax on the interest payable by Renusagar was D
restored and the liability of Renusagar for interest was reduced from
6.1/2% to 6%. On June 3, 1981, Renusagar moved the Reserve Bank of
India for permission to remit the balance amount of Regular interest
calculated @ 6% per annum to General Electric and on February 3, 1982,
the Income-tax Officer, Bombay issued "No Objection Certificate" for
repatriating the balance regular interest amount of US $ 2.130 million. The E
said amount was, however, not remitted by Renusagar to General Electric.
It,. appe~s that there was. some delay on the part of the General
Electric in adhering to the time schedule for the supply of equipment and
keeping the same in view General Electric by their letter dated January 5, F
1%7 agreed to defer the payment of the first instalment payable of June
30, 1967 by six months and suggested that the promissory notes shall be
recast into 15 notes instead of 16 which would commence on the 36th
month from the contract effective date and capitalised interest shall be
calculated for 20 months instead of 14 months and the said interest would
then be reduced by a sum of 132,500 US $. By another letter dated October G
4, 1967, General Electric agreed to recast the note structure to provide for
14 notes with the first note becoming due on June 30, 1%8 instead of
December 31, 1967 and the capitalised interest was to be calculated for20
months instead of 14 months and it would be reduced to 132,500 US $. It
appears that during the course of supply of equipment and erection of the H
36
SUPREME COURT REPORTS [1993) SUPP. 3 S.CR.
A
plant, some disputes arose between the parties and Renusagar made
certain claims against General Electric some of which were accepted by
General Electric and a settlement was arrived at on December 10, 1968
whereunder General Electric agreed that the payment of the instalments
due on December 30, 1968 and June 30, 1969 with accrued interest would
B be deferred for payment with the result that there would be no payment
on December 31, 1968 -and June 30, 1969 been on interest and principal
and that the interest accrued upto December 31, 1968 and to accrue upto
June 30. 1969 on the oustanding balance due would.be calculated at the
rate provided for in the contract and capitalised and that the entire sum,
namely, the principal and interest to be so capitalised would be recast in
C 13 notes, the first of which would be payable on December 31, 1969 and
the last on December 31, 1975. As a result of these discussions and
settlement, instalments nos. 1,2,4 and 5 were not paid by Renusagar on the
due dates. Renusagar moved the Government of India for approval to the
revised schedules regardiD.g the payments of the instalments to General
D Electric. The said request of Renusagar was, however, not accepted by the
Government of India and by their letter dated August 1, 1969, the government of India expressed their inability to agree to the revised proposals for
repayment in view of the larger outgo of foreign exchange (by way of
inte.rest) which was not contemplated when the loan was approved originally. Renusagar were, therefore, asked to take necessary action to effect
· E payments of the past instalments immediately. The request for review of
the said decision was rejected by the Government of India by their letter
dated August 4, 1969. The first instalment which was payable on June 30,
1967 under the original contract was paid by Renusagar in instalments by
July, 1970, the second instalment which was payable on December 31, 1967
F
was paid in instalments by December, 1971, the fourth instalment which
was payable on December 31, 1968 was paid in instalments by December,
1973 and the fifth instalement which was payable on June 30, 1969 was paid
in instalments by February, 1976.
On March, 1, 1982, General Electric served a notice on Renusagar
G indicating its intention to arbitrate pursuant to clause XVII of the Contract.
On March 2, 1982, General Electric . tn.a~e a request to. the Court of
Arbitration of ICC for arbitration of the disputes between General electric
and Renusagar. ICC, after taking: cognizance of the said request for arbitration made by General Elecrtric, called upon Renusagar to nominate
H their arbitrator, file its reply and remit certairi sums towards administrative
RENUSAGARPOWERLID. v. ELECTRICCO.(AGRAWAL,J.)
37
expenses and arbitration fees. Renusagar raised an objection that the A
claims of General Electric did not fall within the purview of a~bitration
clause in the contract and challenged the arbitrability of the claims. The
Arbitration Court of ICC accepted that there was a prima facie dispute
within the agreement and appointed Rt. Hon. Peter Thomes, Q.C MP as
Chairman of the Arbitral Tribunal and confirmed the appointment of Prof.
Boris I. Bittker as arbitrator nominated by General Electric and Dr. R.K.
Dixit as arbitrator nominated by Renusagar.
B
On June 11, 1982, Renusagar filed a suit {Suit No. 832/82) in the
Bombay High Court, on its original side, against General Electric and the
ICC seeking a declaration that the claims referred to the arbitration of ICC C
by General Electric were beyond the purview and scope of Article XVII
of the contract dated August 24, 1964 and that General electric was not
entitled to refer to same to arbitration with consequential prayers for
injunctions restraining the ICC and General Electric to proceed further
with the reference and restraining ICC from requiring Renusagar to make D
any deposit towards administrative expenses and arbitration fees.
Renusagar obtained an ex-parte ad-interim relief in the said suit. General
Electric filed Arbitration Petition No. 96 of 1982 under section 3 of the
Foreign Awards {Recognition and Enforcement) Act, 1961 {hereinafter
referred to as 'the Foreign Awards Act') seeking stay of suit No. 832 of
1982 and all proceedings therein with a prayer for vacting the ad-interim E
ex-parte reliefs obtained by Renusagar in the said suit. Both the matters,
namely, stay petition of General Electric under section 3 of the Foreign
Awards Act and Renusagar's notice of motion for confirmation of ad-interim relief were heard together and disposed of 1,Jy a learned Single Judge
of the Bombay High Court by a common judgment and order dated April F
20, 1983 whereby the prayer for stay of the suit filed by General Electric
tunder section 3 of the Foreign Awards Act was allowed and all proceedings
in the said suit were stayed and all the interim reliefs which were granted
earlier by ad-interim order were vacated. C.A. Nos. 404-405 of 1983 filed
by Renusagar against the said judgment of the learned Single Judge were
dismissed by a division of the High Court b)ijudgment dated October 21, G
1983. The appeals filed by Renusagar against the said decision of the High
Court were dismissed by this Court on August 16, 1984. [See : Renusagar
Power Co. Ltd. v. General Elecrtric Co. & Anr., (1985] 1 SCR 432],
hereinafter referred to as 'Renusagar Case I'. In the said case, this Court
(Tulzapurkar & Pathak, JJ) has held that the three claims referred by H
38
SUPREME COURT REPORTS (1993] SUPP. 3 S.C.R.
.
(
A
Genral Electfic to the ICC do 'arise out of' and are 'related to the contract'
and squarely fall within the widely worded arbitration clause contained in
Article XVII of the Contract.
On August, 19, 1982, General Electric filed a suit in the Calcutta
B High Court against United Commercial Bank to enforce the bank guarantee given by the said Bank at the instance of Renusagar. As a counter to,
the said suit, Renusagar, on November 25, 1982, filed a suit (no. 127 of·
1982) in the Court of Civil Judge, Mirzapur, U.P.