RBI Approval Needed To Enforce Foreign Decree Where FERA Regime Applies: Supreme Court

The Supreme Court of India on Tuesday clarified that enforcement of a foreign decree arising from a transaction governed by India's foreign exchange regulatory regime would require prior approval of the Reserve Bank of India (RBI), where such approval is mandated under the governing statutory framework.

A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe held that while there is no prohibition on the initiation of proceedings or determination of liability based on a foreign decree, taking steps towards enforcement is distinct and may be subject to prior RBI/Central Government approval depending on the statutory regime and conditions governing the transaction.

The court was dealing with a transaction under the erstwhile foreign exchange regime governed by FERA, where the RBI, by its letter dated September 3, 1997, had permitted the furnishing of a guarantee subject to conditions, including that no liability would extend to the Indian company upon invocation of the guarantee.

“Having considered the matter in detail, we are of the opinion that there is no prohibition for initiation of proceedings and for a determination as regards the liability. However, after obtaining a declaration, for its implementation, obtaining permission from RBI is sine qua non. In other words, without RBI approval, it is not possible to take steps for enforcement of a decree.” the court observed.

Rejecting Senior Advocate P. Chidambaram's contention that the RBI condition created an absolute bar on enforcement of the foreign decree, the court clarified that such regulatory restrictions do not preclude adjudication of liability.

It reiterated that foreign judgments may be enforced in India if they satisfy the requirements under Section 13 of the Code of Civil Procedure, subject to compliance with applicable regulatory conditions.

“In view of the above discussion, we have no hesitation in rejecting Mr. Chidambaram's submission that there is absolute and total bar of enforcement of a decree by virtue of the conditional permission in its letter dated 03.09.1997. This submission is therefore rejected. In the normal course, a party obtaining foreign judgment can seek enforcement in India if such a judgment qualifies the test laid down in Section 13 of CPC. The Central Government/RBI can exercise its regulatory power under Section 47(3) of FERA and grant its approval before any further steps are taken for implementing the judgment.,” the bench said.

The court, however, noted that the issue of RBI approval did not strictly arise for determination in the present case in view of its finding on enforceability under the Code of Civil Procedure, but proceeded to clarify the law.

On the facts, the court refused enforcement of the English court decree, holding that it was not rendered on merits. It found that the foreign court had initially passed a default judgment in 2003, which was later set aside and replaced with a summary judgment in 2006, and that such summary adjudication despite the presence of triable issues failed the test under Section 13(b) CPC.

“Having considered the matter in detail, we are of the opinion that the procedure adopted in rendering of the foreign judgment sought to be enforced is not consistent with the well-established principles of law. Consequently, the summary disposal of the claim in the presence of triable issues cannot be sustained, and we are constrained to hold that the foreign judgment, falls foul of the requirement of Section 13(b) CPC,” the bench observed.

While upholding the Delhi High Court's ultimate conclusion refusing enforcement of the decree, the Supreme Court clarified that the High Court's view treating the RBI condition as an absolute bar was not correct in law.

The dispute traces back to a Share Purchase and Co-operation Agreement dated May 12, 1995 between Messer Griesheim GmbH (now Air Liquide Deutschland GmbH), a German company, and Goyal MG Gases Pvt Ltd, an Indian company. The arrangement later involved an external commercial borrowing approved under the then-prevailing foreign exchange regime.

When the Indian borrower defaulted, the foreign guarantor stepped in and paid about 4.78 million US dollars in October 2001. It then moved the English court to recover the amount and secured a decree in 2006, which it subsequently sought to enforce in India.

A single judge of the Delhi High Court had allowed enforcement of the decree in 2013. However, a Division Bench in 2022 set aside that order, holding the decree unenforceable. The Supreme Court upheld that conclusion and dismissed the appeal.