This case came before the Delhi High Court for enforcement of a foreign decree in India. A dispute was decided by the English Commercial Court in England and the question before the Delhi High Court was whether that judgement could be executed in India under Section 44A of the Civil Procedure Code(CPC).
Peter Beck, a German entity, obtained a decree against Prakash Industries and since the UK is a “reciprocating territory,” the decree holder sought the enforcement of the judgement directly in India. The judgement debtor argued that enforcing the decree would violate the RBIs External Commercial Borrowing (ECB) guidelines.
The Delhi High Court had to decide whether such objections were enough to not execute the decree in favour of Peter Beck.
Prakash Industries Limited raised certain funds by issuing Foreign Currency Convertible Bonds, which were subscribed by Peter Beck. In December 2017, both the parties signed a Subscription Agreement governed by the English Law. The financial terms as to their bonds were also approved from the Reserve Bank of India. The bond carried an interest of 5.95% per annum, with 2% payable in case of default.
Disputes arose when the Prakash Industries failed to pay the coupon interest and also were late in converting the bonds into equity. The matter was taken to the English Commercial Court. On 1 April 2022, the court concluded that Prakash Industries was in the wrong and an order was passed directing the company to pay the ERA of USD 11 million, interest @ 7.95%, the damages for delaying the conversion, along with certain costs.
Peter Beck, the decree holder, moved to Delhi High Court under Section 44A of the CPC, to execute the money decree in India. Prakash Industries argued that the interest which was awarded was beyond the limits set by RBI, the damages exceeded the 2% cap under ECB Guidelines and that the restrictions under FEMA prevented any payment to the account mentioned by the decree holder.
Following this the Delhi High Court sought certain clarifications from RBI as to it’s rules and regulations, which then submitted affidavits explaining everything which was asked for.
Legal Issues
Decision
The Delhi High Court permitted the execution of the foreign decree passed by the English Commercial Court. It first emphasised on the fact that the United Kingdom is a reciprocating territory and that the English Commercial Court is considered to be a superior court under Section 44A of the CPC. Therefore, other than the situation where the decree falls within the exceptions under Section 13 of the CPC, it was enforceable in India.
The court also observed that FEMA is of regulatory nature and even if any issues arise, the decree cannot be rendered unenforceable. Certain regulatory permissions can be obtained for the same. As to the damages, it was analysed by the court that the 2% ceiling as to ECB Master Direction was not applicable to the damages awarded by a court and that the damages are different from contractual penalties. The court accepted the clarification as to the account provided by Peter Beck and that it was not barred under FEMA.
Finally, it was held that the decree did not fall under any of the exceptions mentioned under Section 13 of the CPC. The objections were dismissed and it was ordered that the amount mentioned should be remitted to the decree holder.
Case Reference :- EX.P. 87/2022, EX. Appl.(OS) 3572/2022, EX. Appl.(OS) 3573/2022 and EX. Appl.(OS) 3574/2022 (SJB, Delivered by Amit Bansal J.) Peter Beck Und Partner Vermongensverwaltung Gmbh Vs. Prakash Industries Limited
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