INTRODUCTION

In a judgment that should provide greater certainty to foreign investors and lenders about the enforceability of foreign decrees in India requiring remittance of funds, the Delhi High Court while allowing execution of a money decree of the English commercial court under Section 44A^[1] of the Code of Civil Procedure, 1908 (CPC) in Peter Beck und Partner Vermogensverwaltung GmbH v. Prakash Industries Limited^[2], specifically overruled objections made by the judgment debtor and the submissions of the Reserve Bank of India (RBI) based on the provisions of the Foreign Exchange Management Act, 1999 (FEMA). 

BACKGROUND TO THE EXECUTION PETITION

• The judgment debtor, Prakash Industries Limited (Prakash Industries), an Indian steel and power company, had issued foreign currency convertible bonds (FCCBs), which were subscribed by Peter Beck und Partner Vermögensverwaltungs GmbH (Peter Beck), a German investor. 
• Prakash Industries and Peter Beck entered into a share subscription agreement dated 20 December 2017, which was governed by English law. The FCCBs carried a coupon rate of 5.95% with additional 2% default interest in case of non-payment. 
• Following defaults in coupon payments and delays in converting the FCCBs into equity, proceedings were brought before the English commercial court. The English court passed a final judgment holding that Prakash Industries had defaulted in making coupon payments and had also delayed the conversion of the FCCBs into equity, and then an ancillary order directing Prakash Industries to pay to Peter Beck, among other amounts, outstanding debt amounting to USD 11.2 million plus interest, and contractual damages for delay in conversion of FCCBs amounting to USD 3.5 million plus interest. 
• Prakash Industries did not file any appeal against the judgment, which therefore attained finality. Peter Beck then approached the Delhi High Court for execution under Section 44A of the CPC

OBJECTIONS RAISED UNDER FEMA

Prakash Industries resisted execution primarily on the ground that the decree was contrary to FEMA, arguing that:

• since the FCCBs were subject to the RBI’s directions governing external commercial borrowings (ECBs), the interest at 7.95% p.a. breached the “all‑in‑cost ceiling” under paragraph 2.1(vi) of RBI’s Master Direction on ECBs (ECB Master Direction); and
• the damages awarded by the English commercial court exceeded the 2% cap on “prepayment charges / penal interest” in paragraph 2.1(vii) of the ECB Master Direction, and should therefore be treated as impermissible under FEMA and the ECB Master Direction.

On this basis, Prakash Industries argued that the decree was in violation of FEMA and was therefore not executable in India in terms of Sections 13(c) and 13(f) of CPC^[3]. The Court therefore issued notice to the RBI to clarify its position on the alleged non-conformity with FEMA requirements.

RBI, in its affidavits filed before the Court, made the following submissions:

• Payment of the outstanding debt is a capital account transaction and is akin to repayment of the FCCBs. Therefore, as long as the minimum average maturity period of the FCCBs was completed, the amount could be remitted under the general permission available to an authorized dealer under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. 
• Payment of damages and interest is a current account transaction, for which RBI approval is not necessary under the Foreign Exchange Management (Current Account Transactions) Rules, 2000. However, since the interest and damages were to be paid pursuant to an ECB, they would need to comply with the ECB guidelines, i.e., interest must be within the all-in cost ceiling and damages must be within the 2% cap on penal interest. 

FINDINGS OF THE COURT

With respect to the objections raised by Prakash Industries, the Delhi High Court:

• rejected the argument by Prakash Industries that the exceptions under Section 13 of CPC applied to execution in India of the decree of the English court, referring to a decision of the Gujarat High Court in a similar case^[4] where it was held that since a transaction that contravenes FEMA is not void and can be approved on a post-facto basis, such a foreign judgment would not be in breach of Indian law; and
• observed that the issue of violation of FEMA had not been raised before the English court, which could not be expected to take cognizance of an Indian statute that was not raised by a contesting party. 

Nevertheless, the Court went on to examine the submissions made by RBI, and rejected the RBI’s contention that payment of damages and interest, despite being a current account transaction, would if made in the context of an ECB be subject to limits under the ECB guidelines. The Court noted instead that “…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”.

Furthermore, the Court cited a Supreme Court decision^[5] when observing that even where a competent foreign court has awarded amounts that are not permissible under Indian law, such a decree would not become unenforceable in India, particularly where the underlying contract is governed by foreign law. 

The Court also cited its decision in NTT Docomo Inc. v. Tata Sons Limited^[6], where it was held that no general or special permission would be required from the RBI for remittance of an amount awarded as damages by an arbitral tribunal, noting that the same would be equally applicable where a foreign court issues a decree awarding damages.

The Court noted that there is no bar under FEMA or the RBI’s regulations and directions governing ECBs in respect of an early redemption, but did not expressly engage with the RBI’s submission that payment of an early redemption amount is permissible under the general permission subject to the minimum average maturity period of the ECB having been completed.

KEY TAKEAWAYS FROM THE DECISION

• FEMA is not a tool to resist execution of foreign decrees: Regulatory ceilings and FEMA compliance requirements do not, by themselves, bring a foreign decree within the “public policy” or “contrary to law” exceptions under Section 13 of CPC.
• Court awarded damages are not subject to RBI caps on ECBs: Court‑awarded damages for contractual breaches are not constrained by the ECB “all‑in‑cost” or 2% penal interest ceilings, even where the underlying instrument is an ECB.
• Regulators cannot re‑characterise decrees: RBI directions cannot be used to re‑label damages as prohibited interest or pricing, once a competent court (or tribunal) has characterised them as damages.

The decision reinforces that Indian courts remain pro‑enforcement on foreign money decrees, and that FEMA concerns are to be handled at the regulatory / banking level, not as a basis to deny execution. For foreign investors, the judgment provides greater certainty that valid foreign court decisions will be respected in India, even where nuances under FEMA are involved.