Damages Awarded By Foreign Court Cannot Be Subject To FEMA, RBI Ceiling: Delhi High Court

The Delhi High Court on Monday held that damages awarded by a competent foreign court for breach of contract cannot be subjected to ceilings prescribed under the Foreign Exchange Management Act or RBI guidelines.

“In my considered view, the amounts awarded by a competent Court, whether Indian or foreign, towards damages for breach of contract, cannot be subject to ceilings prescribed under FEMA and/or RBI directions/circulars,” Justice Amit Bansal observed while allowing execution of an English court decree against Prakash Industries Limited.

The court rejected objections raised by Prakash Industries against enforcement of the foreign decree obtained by Peter Beck und Partner Vermögensverwaltung GmbH. It held that the decree was executable under Section 44A of the Code of Civil Procedure and did not fall within the exceptions under Section 13(c) or 13(f). The objections were termed “completely devoid of merits”, and costs of Rs. 1 lakh were imposed.

Peter Beck had filed an execution petition seeking enforcement of a final judgment dated April 1, 2022 along with an ancillary order dated May 20, 2022 passed by the High Court of Justice Business & Property Courts of England & Wales Commercial Court, Queen's Bench Division.

The dispute arose from Foreign Currency Convertible Bonds issued by Prakash Industries in 2009 and 2010. The bonds were subscribed by Peter Beck. A Subscription Agreement dated December 20, 2017 was executed between the parties. It was governed by English law and approved by the Reserve Bank of India.

After Prakash Industries defaulted in payment of coupon interest, proceedings were initiated before the English court. In April 2022, the English court held that the company had defaulted and delayed conversion of the bonds. Subsequtently, In May 2022, it directed payment of the Early Redemption Amount, damages, interest and costs.

Prakash Industries did not file any appeal against the English judgment, and the decree attained finality under English law. Peter Beck thereafter initiated execution proceedings before the Delhi High Court.

Before the High Court, Prakash Industries objected to execution of the decree. It argued that enforcement would violate FEMA and RBI's External Commercial Borrowings guidelines. It contended that the decree was hit by the exceptions under Section 13(c) and 13(f) of the CPC and that the interest and damages awarded exceeded the prescribed ceiling.

The court noted that the issue of alleged FEMA violations had never been raised before the English court. “A foreign court cannot be expected to take cognizance of an Indian statute, unless it has been pointed out by a contesting party,” it observed.

It further clarified:

“Even if amounts have been awarded under certain heads by a Foreign Court of competent jurisdiction, which are not permissible in Indian law, the decree passed by the Foreign Court would not become unenforceable.”

On the interest awarded on the Early Redemption Amount, the court found that the rate of 7.95% per annum was in line with the contractual framework of 5.95% coupon interest plus 2% default interest. It therefore did not violate the ECB guidelines.

Accordingly, the court directed that the decretal amount be remitted in favour of Peter Beck.

For Decree Holder: Advocates Ankur Kashyap, Ajith S.Ranganathan, Rohit Rajershi, Aman Bajaj, Purushartha Singh and Siddharth Dua

For Judgment Debtors: Senior Advocate Sandeep Sethi, Advocates Ankur Chawla, Akshay Ringe, C. B. Bansal, Gurpreet Singh, Kunal Aggarwal, Ishanee Kapoor, Janhavi Negi, Shivam Bansal, Ravi Sharma, Abhinav Sharma, Ankur Sharma and Snehashish B