Currency Conversion in Construction Contracts: Supreme Court clarifies payment terms in National Projects Construction Corporation vs. Royal Construction Company (2023)

Date of the Judgment: October 10, 2023

Citation: 2023 INSC 899

Judges: Aniruddha Bose, J., Vikram Nath, J.

Can a court order payment in a currency different from what was agreed upon in a contract? The Supreme Court of India recently addressed this question in a dispute between National Projects Construction Corporation Limited (NPCCL) and Royal Construction Company Private Limited (RCCPL). The core issue revolved around the currency in which payments should be made following an arbitration award, specifically whether the awarded amount in Iraqi Dinars should be converted to Indian Rupees, and if so, at what date.

The Supreme Court held that, based on the original agreement and the arbitration award, the payment was to be made in US Dollars, not Indian Rupees, after converting the Iraqi Dinars. The court clarified that it could not alter the terms of the contract or the award to mandate payment in a currency not originally agreed upon.

Case Background

The dispute arose from a contract between NPCCL and RCCPL for earthwork in Iraq. The contract specified payments in Iraqi Dinars (ID) and US Dollars (USD). A dispute led to arbitration, with the arbitrator awarding RCCPL a sum in Iraqi Dinars, along with interest, and a separate sum in Indian Rupees (INR) related to a bank guarantee. The award stipulated that the Iraqi Dinar amount should be converted to US Dollars as per the original agreement.

Following the arbitration award, multiple rounds of litigation ensued. The Delhi High Court initially modified the interest rate and the date of currency conversion. However, the Supreme Court, in a previous judgment dated 24.02.2015, set aside the High Court’s orders, affirming that the arbitrator’s directions and the original agreement would govern the matter.

Timeline

Course of Proceedings

Following the arbitration award, NPCCL filed objections under Section 34 of the Arbitration and Conciliation Act, 1996, which were dismissed. An appeal under Section 37 of the same Act was partly allowed by the Delhi High Court, which reduced the interest rate and fixed the date for converting US Dollars to Indian Rupees as the date of the award (10.08.2002). The Supreme Court, in a previous judgment, reversed this decision, stating that the arbitrator’s directions and the original agreement should prevail. Subsequently, a Single Judge of the Delhi High Court directed payment in Indian Rupees, using the date of the original agreement for conversion. This was appealed, leading to the Division Bench referring the question of law to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the contract between the parties and the arbitration award. The relevant clauses of the agreement are:

• Clause 31: Specifies that all amounts are in Iraqi Dinars.
• Clause 32.6: States that payments against monthly account bills shall be made 35% in Iraqi Dinars and 65% in US Dollars.
• Clause 32.8: Defines the exchange rate for converting Iraqi Dinars to US Dollars as 1 ID = 3.37778 USD.

The arbitration award directed that the amount payable in Iraqi Dinars be converted to US Dollars as per the original agreement. The Supreme Court’s earlier judgment had also emphasized that the arbitrator’s directions and the original agreement would govern the matter.

Arguments

The core argument revolved around the date for converting the awarded amount from US Dollars to Indian Rupees. The respondent, RCCPL, sought payment in Indian Rupees, while the appellant, NPCCL, contended that the contract and the award did not provide for such conversion and payment should be made in US Dollars.

• RCCPL’s Argument: RCCPL argued that the awarded amount should be converted to Indian Rupees for payment, and the date of the original agreement should be used for conversion.
• NPCCL’s Argument: NPCCL contended that the agreement and the award did not stipulate payment in Indian Rupees. The conversion was only from Iraqi Dinars to US Dollars as per the contract.

Issues Framed by the Supreme Court

The substantial question of law framed by the High Court and considered by the Supreme Court was:

1. “In terms of the agreement dated 29th June 1982 between the parties and in light of the judgment dated 24th February 2015 of the Supreme Court of India in Civil Appeal Nos. 2543 -44/2015, what should be the relevant date for conversion of the awarded sum from USD to Indian rupees?”

Treatment of the Issue by the Court

Authorities

The Court relied on the following authorities:

• Previous judgment of the Supreme Court dated 24.02.2015 in Civil Appeal Nos. 2543-44/2015, which clarified that the arbitrator’s directions and the original agreement would govern the matter.
• Clauses 31, 32.6 and 32.8 of the agreement between the parties, which specify the payment terms and currency conversion.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the principle of contractual sanctity and the need to uphold the terms of the arbitration award. The Court emphasized that it could not rewrite the contract or the award to introduce a payment term (in Indian Rupees) that was not originally agreed upon by the parties. The Court’s reasoning focused on the following points:

• The agreement stipulated payments in Iraqi Dinars and US Dollars, with a defined exchange rate between them.
• The arbitration award directed the conversion of Iraqi Dinars to US Dollars as per the original agreement.
• There was no provision in the agreement or the award for converting US Dollars to Indian Rupees.
• The Court’s role was to interpret and enforce the contract and the award, not to modify them.

Logical Reasoning

The Court rejected the argument for payment in Indian Rupees because neither the original contract nor the arbitration award provided for it. The Court emphasized that it could not introduce new terms or modify existing terms that the parties had not agreed upon. The Court also noted that its role was to interpret and enforce the contract and the award, not to rewrite them.

The Court stated:

“We do not find any mention of payment being made in the Indian Currency i.e. INR from the agreement. Once there is no contract between the parties of making payment in Indian Currency INR, then, there would be no question of determining or finding out any date of conversion.”

“The award does not permit or grant the liberty to the appellant to make the amount payable in Iraqi Dinars to be converted into Indian Currency (INR).”

“In our considered view, perusal of the above material does not permit payment of the awarded amount in Indian currency except the amount of Rs. 20 lacs with admissible interest against the encashment of bank guarantee. As a necessary corollary, there would be no question of the amount awarded in Iraqi Dinars to be converted in Indian currency. The only conversion permissible was in US Dollars.”

There were no dissenting opinions; the judgment was unanimous.

The decision reinforces the principle that courts should respect the contractual agreements between parties and the decisions of arbitrators, and should not impose terms that were not part of the original agreement or award.

Key Takeaways

• Courts will generally uphold the terms of contracts and arbitration awards.
• Payment currencies specified in contracts must be adhered to, unless explicitly altered by mutual agreement or a valid arbitration award.
• Courts will not typically order payment in a currency not stipulated in the original contract or the arbitration award.
• The principle of contractual sanctity is paramount in commercial disputes.

Directions

The Supreme Court directed that the payment has to be made in the foreign currency (US Dollars) along with computed interest. The Court also clarified that the parties were free to agree to accept payment in Indian currency, either at the current rate or at an agreed rate, but the Court could not impose such a condition.

Development of Law

The ratio decidendi of the case is that the courts cannot alter the terms of the contract or the arbitration award to mandate payment in a currency not originally agreed upon. There is no change in the previous position of law, as the court reiterated the principle of contractual sanctity and the need to uphold the terms of the arbitration award.

Conclusion

The Supreme Court’s judgment clarifies that in cases involving international contracts and arbitration awards, the currency of payment is determined by the terms of the original contract and the award. The Court cannot mandate payment in a currency not specified in these documents. This decision reinforces the importance of clear contractual terms and the respect for arbitration decisions. The court has clarified that the payment has to be made in the foreign currency (US Dollars) along with computed interest.

Category

• Contract Law
  • Currency of Payment
  • Interpretation of Contracts
• Arbitration Law
  • Enforcement of Arbitral Awards
  • Arbitration and Conciliation Act, 1996
• Civil Procedure
  • Execution Proceedings
• Contract Law
  • Agreement dated 29th June 1982

FAQ

Q: What was the main issue in the case?

A: The main issue was whether the awarded amount in Iraqi Dinars should be converted to Indian Rupees for payment, and if so, what date should be used for conversion.

Q: What did the Supreme Court decide?

A: The Supreme Court decided that the payment should be made in US Dollars, as per the original contract and the arbitration award. There was no provision for payment in Indian Rupees.

Q: Can a court order payment in a currency different from what was agreed upon in a contract?

A: No, generally a court cannot order payment in a currency different from what was agreed upon in the contract, unless there is a valid reason for such a change.

Q: What is the significance of this judgment?

A: This judgment reinforces the principle that courts should respect the contractual agreements between parties and the decisions of arbitrators, and should not impose terms that were not part of the original agreement or award.

Q: What should businesses learn from this case?

A: Businesses should ensure that their contracts clearly specify the currency of payment and understand that courts will generally uphold those terms.