Court’s decision
The Delhi High Court allowed an execution petition under Section 44A of the Code of Civil Procedure, 1908, seeking enforcement of a foreign decree passed by the High Court of Justice, Business & Property Courts of England & Wales. The Court held that the foreign decree did not fall within the exceptions under Section 13(c) or Section 13(f) of the CPC and was fully executable in India.
Rejecting objections based on alleged violation of the Foreign Exchange Management Act, 1999 and Reserve Bank of India guidelines, the Court ruled that damages awarded by a competent foreign court cannot be subjected to regulatory ceilings under FEMA. The objections were dismissed with costs of Rs. 1,00,000.
Facts
The decree holder, a German investment entity, had subscribed to Foreign Currency Convertible Bonds issued by an Indian steel and power company. A Subscription Agreement governed by English law regulated the transaction. The FCCBs were approved by the Reserve Bank of India.
Disputes arose when the Indian company defaulted in payment of coupon interest and delayed conversion of bonds into equity. Proceedings were initiated before the English Commercial Court. The foreign court held the Indian company liable for Early Redemption Amount, damages for delay in conversion, and interest.
No appeal was filed against the English judgment, rendering it final. The decree holder initiated execution proceedings before the Delhi High Court under Section 44A CPC.
Issues
The High Court considered the following issues:
- Whether the foreign decree was unenforceable under Section 13(c) or 13(f) CPC for alleged violation of FEMA and RBI’s Master Direction on External Commercial Borrowings.
- Whether damages and interest awarded by the English Court exceeded the “all-in-cost ceiling” prescribed under RBI guidelines.
- Whether remittance of decretal amounts to a foreign bank account violated FEMA provisions.
Petitioner’s arguments
The decree holder argued that FEMA objections were never raised before the English Court and could not now be invoked to resist execution. It contended that FEMA violations, if any, do not render transactions void and at best require post-facto regulatory compliance.
It was submitted that the interest awarded at 7.95% per annum was within the permissible limit, considering the contracted rate of 5.95% and additional default interest of 2% allowed under the Master Direction.
As regards damages for delayed conversion, it was argued that such damages arose from breach of contract and were not governed by the “all-in-cost ceiling” under ECB guidelines. Reliance was placed on precedent holding that FEMA cannot obstruct enforcement of foreign awards granting damages.
Respondent’s arguments
The judgment debtor contended that enforcement of the foreign decree would violate FEMA and RBI’s ECB guidelines. It argued that the interest exceeded the permissible “all-in-cost ceiling” and that damages were effectively penal charges beyond the 2% cap prescribed for “other costs.”
The respondent relied on RBI affidavits stating that damages linked to ECB transactions must comply with paragraph 2.1(vii) of the Master Direction. It was argued that FEMA ceilings have statutory force and that a decree violating Indian law cannot be enforced under Section 13(c) CPC.
An additional objection was raised regarding the absence of a registered bondholder account for remittance.
Analysis of the law
The Court began by reiterating that the United Kingdom is a “reciprocating territory” under Section 44A CPC and that the English Commercial Court qualifies as a superior court.
Relying on Supreme Court precedent, the Court emphasized that foreign judgments must ordinarily be enforced unless they fall within narrow statutory exceptions.
On FEMA objections, the Court held that transactions violating FEMA are not void and that post-facto permission may be obtained. A foreign court cannot be faulted for not applying Indian regulatory law unless such issue was raised before it.
Importantly, the Court distinguished between contractual interest and damages. The Master Direction’s “other costs” provision covers prepayment charges and penal interest, not damages awarded by a court for breach of contract.
Precedent analysis
The Court relied on:
- Alcon Electronics Pvt. Ltd. v. Celem S.A. – Supreme Court held that Indian courts must enforce foreign decrees and cannot refuse execution merely because certain components differ from Indian procedural norms.
- NTT Docomo Inc. v. Tata Sons Ltd. – Delhi High Court held that damages awarded in a foreign arbitral award are not subject to FEMA restrictions.
- Arun Kumar Jagatramka v. Ultrabulk A/S – Gujarat High Court held that FEMA violations do not render foreign judgments unenforceable.
Applying these precedents, the Court concluded that FEMA and RBI guidelines cannot dilute or obstruct enforcement of a foreign decree granting damages.
Court’s reasoning
The Court found that the contracted interest rate of 5.95% plus additional 2% default interest was expressly permitted under the Master Direction. The English Court’s award of 7.95% interest therefore fell within permissible limits.
On damages, the Court held that RBI’s attempt to subject judicially awarded damages to ECB ceilings was legally unsustainable. Damages for breach of contract are distinct from “other costs” under paragraph 2.1(vii).
The Court also noted RBI’s clarification that remittance to the specified Euro account was not barred under FEMA regulations.
Consequently, the foreign decree was held executable, and objections were dismissed as obstructive.
Conclusion
The Delhi High Court enforced the English Commercial Court decree and directed remittance of deposited amounts along with accrued interest to the decree holder’s Euro account. Remaining amounts were ordered to be paid directly.
The Court imposed costs of Rs. 1,00,000 on the judgment debtor for raising meritless objections.
The ruling firmly establishes that foreign decrees awarding damages cannot be curtailed by FEMA ceilings and that regulatory guidelines cannot override binding judicial determinations of competent foreign courts.
Implications
This judgment significantly strengthens the enforceability of foreign commercial decrees in India. It clarifies that FEMA compliance issues are regulatory and do not automatically render foreign judgments unenforceable under Section 13 CPC.
The ruling also narrows the scope of “public policy” objections in execution proceedings and reinforces India’s pro-enforcement stance in cross-border commercial litigation.
For international investors and bondholders, the decision signals judicial support for certainty in enforcement of foreign debt recovery and damages awards.
Case Law References
- Alcon Electronics Pvt. Ltd. v. Celem S.A. (2012) 2 SCC 253 – Foreign decrees must be enforced unless falling under Section 13 CPC exceptions.
- NTT Docomo Inc. v. Tata Sons Ltd., 2017 SCC OnLine Del 8078 – FEMA cannot obstruct enforcement of foreign arbitral award granting damages.
- Arun Kumar Jagatramka v. Ultrabulk A/S, 2023 SCC OnLine Guj 3152 – FEMA violations do not render foreign judgment unenforceable.
The Court applied these authorities to uphold execution.
FAQs
1. Can a foreign decree be refused execution in India due to FEMA violations?
Not ordinarily. Courts have held that FEMA compliance issues are regulatory and do not automatically render foreign judgments unenforceable under Section 13 CPC.
2. Are damages awarded by a foreign court subject to RBI’s ECB ceiling?
No. The Delhi High Court held that judicially awarded damages for breach of contract are not governed by the “all-in-cost ceiling” applicable to ECB interest and penal charges.
3. Can remittance of decretal amounts to a foreign bank account violate FEMA?
If the transaction complies with FEMA regulations, remittance in satisfaction of a court decree is permissible. RBI clarified that such remittance is not barred.
