The Supreme Court has asserted that a foreign judgment sought to be enforced under Section 44A read with Section 13 CPC is not conclusive or enforceable in India where it is rendered by summary judgment despite the existence of bona fide triable issues supported by contemporaneous material, because such adjudication is not a judgment on merits within Section 13(b) and is opposed to natural justice within Section 13(d).
The Court clarified that Section 47(3) of FERA draws a distinction between institution of legal proceedings and enforcement of a judgment. While proceedings to determine liability are not barred, no steps can be taken to enforce the judgment or decree without prior permission of the Central Government or RBI, and such regulatory approval remains a condition precedent to enforcement.
Accordingly, the Supreme Court upheld the dismissal of the execution of the English judgment, holding that the foreign judgment was unenforceable in India as it fell within the exceptions under Section 13 CPC, though the High Court’s broader view that the RBI condition created an absolute bar to enforcement was reversed as a matter of legal principle.
A Two-Judge Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that the core question under Section 13 CPC was whether the English Court’s summary judgment was a judgment on merits and whether the procedure adopted was consistent with natural justice. The Bench found that the respondent had raised triable issues based on three alleged oral agreements and had relied upon contemporaneous documents such as balance sheets and board minutes carrying statutory significance under the Companies Act, 1956. In such circumstances, the respondent ought not to have been foreclosed from a full opportunity to defend.
The Bench noted that the balance sheet for FY 2001-02 specifically recorded that the appellant had paid the ECB liability pursuant to an understanding with the respondent to partially compensate it for losses suffered, and further stated that the respondent considered the appellant’s demand to have no merit. The minutes of meetings dated May 27, 2002 and January 31, 2003 showed adoption and approval of those accounts with participation and signatures of the appellant’s nominee director. These contemporaneous records, in the Court’s view, disclosed real and not fanciful defences.
The Bench observed that even under the principles governing summary judgment, both in Indian law and under the UK CPR, summary disposal is inappropriate where triable issues exist and fuller investigation may affect the outcome. Since the respondent had produced contemporaneous documentary material and sought leave to defend, the English Court ought to have refrained from disposing of the matter summarily. The grant of summary judgment therefore resulted in premature adjudication of disputed questions of fact and denied a meaningful opportunity to establish the defence through oral evidence and cross-examination.
On the FERA issue, although the Bench held that the finding on Section 13 CPC was sufficient to dismiss the appeal, it still clarified the legal position under Section 47 FERA. The Bench distinguished between bringing legal proceedings in India and taking steps for enforcement of a judgment. It held that there is no prohibition on institution of proceedings or adjudication of liability, but no steps for enforcement can be taken without prior permission of the Central Government or RBI. The Bench rejected the submission that the RBI condition created an absolute and perpetual bar to enforcement, but held that RBI approval is sine qua non before taking enforcement steps.
The Bench further clarified that the English Court was a court of competent jurisdiction under the contractual clauses conferring English law and jurisdiction, and no case of fraud under Section 13(e) CPC was made out. However, the foreign judgment failed the tests under Section 13(b), (c), (d) and (f) CPC because it was rendered by summary judgment despite bona fide triable issues, failed to give due effect to statutory permissions and conditions under Indian foreign exchange law, denied leave to defend, and sustained a liability contrary to law in force in India.
Briefly, the dispute arose out of a Share Purchase and Co-operation Agreement dated May 12, 1995 between the appellant, a foreign company, and the respondent, an Indian company, for establishing a joint venture in India for manufacture and business of industrial gases. By addendum dated November 07, 1996, the appellant’s shareholding increased from 30% to 49%, and three nominee directors were appointed on the respondent’s board. On the same day, the parties also entered into a Technical Collaboration Agreement relating to supply of helium gas.
The respondent decided to raise overseas borrowing for acquisition of plant and machinery, and funding was arranged through Citibank UK by way of an External Commercial Borrowing facility of up to USD 7 million, subject to approvals from the Government of India and the RBI under FERA. The Government granted approval on April 02, 1997 and stipulated that no additional foreign exchange liability, express or implied, was being assumed. RBI thereafter granted an in-principle approval on May 28, 1997, subject to compliance with governmental conditions and final approval.
On June 30, 1997, the respondent executed the Loan Agreement with Citibank N.A., London, and the appellant irrevocably and unconditionally guaranteed repayment and performance of the borrower’s obligations. The agreement was governed by English law, conferred jurisdiction on English courts, and provided that any judgment obtained in England would be recognized and enforced in India subject to Section 13 CPC. The obligors also undertook to maintain all approvals required under applicable law, and the guarantor was given rights of subrogation upon discharge of its obligations.
The Government of India later recorded the loan agreement on July 24, 1997 and clarified that any provision inconsistent with its sanction would be void and non-binding on the Government or RBI. Later, the RBI granted final approval to the loan on August 12, 1997, and by letter dated September 03, 1997 permitted the appellant’s guarantee subject to two conditions: no outgo of foreign exchange by way of guarantee fee, and in case of invocation of guarantee, no liability whatsoever would extend to the Indian company.
After disputes arose between the parties, the lender invoked the guarantee on October 08, 2001 due to the respondent’s default. The appellant paid about USD 4.78 million with interest on October 09, 2001 and claimed reimbursement by subrogation. The respondent denied liability and asserted that the payment was in partial discharge of liabilities owed by the appellant to the respondent. Thereafter, the appellant first obtained a default judgment from the English Court on February 06, 2003, then had that judgment set aside and obtained a summary judgment on February 07, 2006 directing the respondent to pay the decretal amounts with interest and costs. The appellant then filed execution proceedings in Delhi under Section 44A CPC.
Appearances:
AOR Mohna, for the Appellant
Senior Advocate P Chidhambaram, AOR Anil Kumar, along with Advocates Simran Mehta, Ramesh Allanki, and Aruna Gupta, for the Respondent
