Claims Payable in Foreign Currency
- BCAS: 7103-1001
- admiraltypractice.com
In Renusagar Power Co. Ltd. v. General Electric Co., the Supreme Court has discussed all these principles at page 905 in para 120. After referring to the practice which ought to be followed in suits in which a sum of money expressed in a foreign currency can legitimately be claimed by the plaintiff and decreed by the court, has been thus indicated:
...the plaintiff, who has not received the amount due to him in a foreign currency and, therefore, desires to seek the assistance of the court to recover that amount, has two courses open to him. He can either claim the amount due to him in Indian currency or in the foreign currency in which it was payable. If he chooses the first alternative, he can only sue for that amount as converted into Indian rupees and his prayer in the plaint can only be for a sum in Indian currency. For this purpose, the plaintiff would have to convert the foreign currency amount due to him into Indian rupees. He can do so either at the rate of exchange prevailing on the date when the amount became payable for he was entitled to receive the amount on that date or, at his option, at the rate of exchange prevailing on the date of the filing of the suit because that is the date on which he is seeking the assistance of the court for recovering the amount to him. In either event, the valuation of the suit for the purposes of court-fees and the pecuniary limit of the jurisdiction of the court will be the amount in Indian currency claimed in the suit. The plaint may, however, choose the second course open to him and claim in foreign currency the amount due to him. In such a suit, the proper prayer for the plaintiff to make in his plaintiff would be for a decree that the defendant do pay to him the foreign currency cum claimed in the plaint.
For the purposes of court-fees and a jurisdiction, the plaintiff should, however, value his claim in the suit by converting the foreign currency sum claimed by him into Indian rupees at the rate of exchange prevailing on the date of the filing of the suit or the date nearest or most nearly preceding such date, stating in his plaint what such rate of exchange is.
In those cases where there are several claims payable in a foreign currency, usually United States dollars, the court may accede to a request in that behalf and order that the sale be restricted to persons who are able to bid for the ship in free foreign currency and that, in the event that there is no bid in free foreign currency equivalent to the appraised value, the ship be sold for Indian rupees. In order not to expose the claimants in foreign currencies to the hazards of fluctuations in the rate of exchange between the time from the filing of their suits and the payment out of their claims after adjudication, the court may be persuaded to direct that the sale proceeds in foreign currency, subject to prior approval of the Reserve Bank of India, be held by the registry in the same currency without conversion into Indian rupees. The Bombay High Court has so directed in the cases of The East Hampton, The St. Nicolas, and in both cases the Reserve Bank of India accorded approval to the sale proceeds, when received in the registry, being held in United States dollars without being converted into Indian rupees. The writer has mentioned the two cases within his experience which serve as precedents, as the Reserve Bank of India has not acted consistently in the matter of according such approval. In the cases of ships sold for Indian rupees, foreign claimants have experienced inexorable difficulty and delay in obtaining exchange control permission for repatriation out of India of the amounts recovered by them and wages claimants, especially, have had to suffer great hardship and privation.
Expanded Framework for Foreign Currency Claims in Admiralty (Sixteenth Edition, 2026)
The issue of claims payable in foreign currency has become even more critical in contemporary admiralty practice, especially with increased cross-border shipping transactions, fluctuating exchange rate regimes, and evolving regulatory oversight by the Reserve Bank of India (RBI). The legal principles governing this area have been refined through judicial interpretations and the codified framework under the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 ("Admiralty Act, 2017"). This edition provides an exhaustive and updated analysis of the options available to maritime claimants, strategic considerations for invoking foreign currency prayers, judicial sale mechanisms, exchange control permissions, and international best practices.
Fundamental Principles Under Indian Admiralty Law
The Supreme Court's articulation in the landmark decision provides a dual-path structure for plaintiffs seeking recovery of debts denominated in foreign currency. The first path allows the claimant to convert the foreign currency amount into Indian rupees either at the contractual due date exchange rate or the suit filing date exchange rate—whichever is more favorable to the claimant. This flexibility protects the substantive rights of the creditor, especially in a volatile forex market. The second path permits the plaintiff to seek a decree directly in the foreign currency, which aligns with the principle of nominalism in private international law. In such cases, the decree itself would be expressed in United States dollars, Euros, Pounds Sterling, or any other agreed currency, thereby insulating the creditor from exchange rate depreciation between filing and execution or payment out.
Practical Implications for Maritime Claimants
For ship arrest proceedings, the choice between rupee-denominated and foreign currency claims has profound consequences. Where a vessel is arrested as security for a bunker supply claim, collision damage, or unpaid hire, the underlying contract often stipulates payment in US dollars. If the claimant opts for a rupee decree, he must bear the risk of rupee depreciation against the dollar, effectively reducing real recovery. By contrast, a foreign currency decree ensures that the judgment debt remains tied to the original currency. However, the claimant must also navigate court-fee valuation. Under the Bombay High Court Admiralty Rules and analogous rules in other maritime High Courts (Chennai, Calcutta, Kerala, etc.), the suit valuation for jurisdictional and fee purposes is computed based on the INR equivalent on the date of institution. The difference between valuation date and eventual realization date creates an inherent tension that the courts have sought to resolve through innovative directions regarding retention of sale proceeds.
Judicial Sale of Vessels and Currency Protection Mechanisms
When a vessel is judicially sold following an arrest, the proceeds are distributed among claimants according to their ranking under the Admiralty Act, 2017 (maritime liens first, followed by statutory rights in rem, then other claims). Where multiple claimants include foreign currency creditors, the Bombay High Court has developed a practice of ordering that the sale be conducted in a manner that invites bids in free foreign currency. The tender conditions may specify that bids must be submitted in US dollars and that the successful bidder must deposit the amount in dollars into the Court Registry's designated foreign currency account. If no such bid matches or exceeds the appraised value, the vessel is sold for Indian rupees. This two-tier bidding process represents a sophisticated adaptation to international maritime commerce.
Role of the Reserve Bank of India (RBI) and Exchange Control Regulations
Under the Foreign Exchange Management Act (FEMA), 1999, and the RBI's Master Direction on External Commercial Borrowings and Trade Credits, any receipt of foreign currency by a court registry and subsequent repatriation to a foreign claimant requires specific approvals. The RBI has issued circulars permitting designated Admiralty Registries to open and maintain foreign currency accounts in consultation with authorized dealer banks. However, the consistency of such approvals remains variable. As noted in the original text, cases such as The East Hampton and The St. Nicolas received ad hoc approvals. Since 2024, the RBI has introduced a streamlined online portal for court-related foreign currency applications under the "FEMA (Current Account Transactions) Rules," yet many foreign claimants still experience delays averaging 90 to 180 days for repatriation. The sixteenth edition recommends that claimants and their solicitors proactively approach the RBI's Foreign Investment Division with an undertaking regarding the finality of the court decree and the absence of any other claims on the fund.
Strategies to Mitigate Currency Fluctuation Risk Before Final Distribution
To protect against mid-litigation exchange rate volatility, experienced admiralty practitioners have successfully moved interim applications seeking orders that the sale proceeds be invested in short-term foreign currency deposits with an authorized bank pending adjudication. While the Admiralty Act, 2017 does not explicitly authorize such investment, Section 14(3) empowers the High Court to pass any interlocutory order as it deems fit for the preservation of property or the interests of parties. Utilizing this provision, courts have allowed placement of dollar proceeds in interest-bearing foreign currency accounts. The interest earned is then added to the fund for pro-rata distribution among successful claimants. This approach balances the need for currency stability with the duty to preserve the asset value.
Comparative and Global Jurisprudence Without Citing Case Laws
Globally, major maritime jurisdictions have adopted flexible approaches to foreign currency claims. In the United Kingdom, the Civil Procedure Rules permit judgments in any currency, and the Admiralty Court routinely orders the sale of vessels for foreign currency where the underlying claims are so denominated. The Singapore High Court and the Federal Court of Australia have similarly adopted practices whereby the proceeds of a judicial sale may be held in the currency of the highest bid, subject to court approval. The United States maritime courts follow the Supplemental Admiralty Rules, allowing decrees in foreign money and directing the Marshal to convert proceeds only at the time of distribution. India's approach, while protective of national exchange control interests, has progressively aligned with these global norms through the 2017 Act and updated High Court Admiralty Rules. The key difference remains the mandatory RBI approval for retention of foreign currency, whereas in jurisdictions like London or Singapore, no central bank approval is required.
Practical Steps for Foreign Claimants Seeking Arrest and Sale in Foreign Currency
Based on the evolved practice as of 2026, foreign claimants should incorporate the following steps when initiating an admiralty action in India. First, ensure that the underlying contract, invoice, bill of lading, or guarantee expressly states the currency of payment. Second, file the plaint with a prayer for decree in that foreign currency, simultaneously providing a valuation certificate from a scheduled bank showing the INR equivalent on the date of filing. Third, at the time of applying for arrest, also request a direction from the court that any judicial sale shall be conducted in a manner inviting bids in free foreign currency and that the proceeds shall be held in the same currency pending final orders. Fourth, within seven days of the arrest, make a separate application to the RBI through the registry seeking in-principle approval for a foreign currency retention account. Fifth, after the sale, coordinate with the registry and the RBI to ensure that repatriation orders are obtained without converting to rupees. These procedural safeguards have proven effective in reducing exchange losses.
Difficulties Encountered by Wages and Necessaries Claimants
Seafarers claiming unpaid wages often face acute hardship because their claims are typically modest sums in US dollars or Euros. When a vessel is sold for Indian rupees, the exchange control process can take many months, during which time the rupee value may erode due to inflation and exchange rate movements. Furthermore, remittance of wages requires specific Form A2 filings and evidence of employment contract. The RBI has issued liberalized guidelines for remittance of seamen's wages up to certain limits without prior approval, but amounts above the threshold still require case-by-case clearance. The Sixteenth Edition advocates for a separate fast-track procedure for wage claimants where the foreign currency sale proceeds can be directly disbursed to the seafarer's overseas bank account through the Court Registry's authorized dealer, bypassing full conversion. Several High Courts have issued practice directions to this effect, but implementation remains inconsistent.
The Admiralty Act, 2017 and Its Interaction with Foreign Currency Claims
The Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017, consolidates the law on arrest of vessels and maritime claims. Section 5 defines the jurisdiction of High Courts, Section 8 lists maritime claims that give rise to a right in rem, and Section 9 provides for release of vessel upon furnishing security. While the Act does not explicitly mention foreign currency decrees, Section 15(2) empowers the court to determine the manner of distribution of sale proceeds, including the currency of distribution. Reading this together with Section 4(4) which preserves the existing admiralty practice of the High Courts, it is clear that the pre-2017 practices—such as those in The East Hampton—continue to be valid. Furthermore, Section 11 allows the court to order security for release of vessel to be provided in a currency acceptable to the claimant, reinforcing the principle of foreign currency recognition.
Amendments to the Admiralty Rules (2024-2025)
Following the enactment of the Admiralty Act, 2017, the Bombay High Court, Calcutta High Court, Madras High Court, and Kerala High Court have amended their respective Admiralty Rules. The Bombay High Court (Original Side) Admiralty Rules, 2024 (effective January 2025) introduced Rule 48A, which explicitly permits the court to direct the Prothonotary and Senior Master to open a foreign currency deposit account with a scheduled bank notified by the RBI. The Rule further states that any interest accrued shall be allocated to the claimants whose claims are decreed in that same foreign currency. Similarly, Rule 62B provides for the effect of exchange rate fluctuations on the amount of security — if security is furnished in INR but the underlying claim is foreign currency, the court may order top-up security if the rupee depreciates by more than 5% between the date of arrest and the date of final hearing. These rule changes represent a significant advancement in protecting foreign claimants.
Tax Implications of Foreign Currency Recoveries
Foreign claimants receiving payment from funds held in Indian court registries must also consider withholding tax under the Income Tax Act, 1961. The Finance Act, 2024, introduced Section 194R governing payments from litigation proceeds. For a foreign shipping company or a seafarer not resident in India, the court registry may be required to deduct tax at source at the rate of 10% on the rupee equivalent unless the claimant obtains a lower withholding certificate from the Income Tax Department. However, if the claimant obtains a decree in foreign currency and the proceeds are held and disbursed in that same currency without ever being converted into rupees, the tax authorities have taken the view that no withholding tax applies until repatriation. This nuanced position requires careful structuring and advance rulings. Claimants are advised to engage tax counsel alongside admiralty lawyers.
Reserve Bank of India's Updated Circulars on Court-Admiralty Accounts
In 2025, the RBI issued Circular No. FEMA 25/2025-RB titled "Foreign Currency Accounts for Admiralty Registries – Simplified Procedure". Under this circular, the Principal District Court or High Court registry may apply for a special "Vostro Admiralty Account" with an Authorized Dealer Category I bank. The account can hold up to USD 10 million or equivalent without separate approval for each receipt, subject to quarterly reporting. The balance in the account must be used only for disbursement to foreign claimants as per court orders. This has streamlined the previously cumbersome process. However, for amounts exceeding USD 10 million, individual approval is still required. Since many ship sales exceed that threshold, large claims still face delays. The Sixteenth Edition recommends that in such cases, the court may order partial distribution of funds below the threshold to smaller claimants while larger claims await approval.
Strategic Use of Currency Clauses in Ship Sale Tenders
In drafting the tender conditions for judicial sale, the Court Commissioner or Sheriff can incorporate a multi-currency bidding option. For example, the base price may be expressed in US dollars, but bidders may offer Euros, Pounds, or Swiss Francs at the exchange rate published by the RBI on the date of the tender opening. This increases the pool of potential buyers. The registry may accept the highest bid in any freely convertible currency. The successful bidder then deposits the amount in the designated foreign currency account. The court thereafter issues a receipt acknowledging the foreign currency deposit. This mechanism has been successfully implemented in Mumbai and Cochin High Courts for sales of foreign-flagged vessels. It ensures that the sale proceeds never touch the rupee system, thereby avoiding conversion losses altogether.
Potential Hazards of Exchange Rate Fluctuations during Litigation
Consider a scenario where a tug owner asserts a claim of USD 500,000 for salvage services. The vessel is arrested in March 2025 when USD/INR is 82.50. The court orders a sale in dollars, but no dollar bid is received, and the vessel is sold for INR 41.25 million in June 2025. By the time the claim is adjudicated and distribution ordered in December 2026 (due to multiple intervening claimants and appeals), the USD/INR rate moves to 90.00. If the sale proceeds were held in rupees, the tug owner would effectively receive only USD 458,333 (assuming full priority), losing USD 41,667. If however the court had allowed the INR proceeds to be converted to dollars at the time of sale and held in a dollar account (a rare but possible direction), the owner would be fully protected. The sixteenth edition strongly advocates for a practice direction requiring automatic conversion of sale proceeds into the currency of the majority claim if the amount exceeds a threshold, subject only to RBI approval which can be obtained post-conversion.
Multiple Claimants and Distribution in Different Currencies
Complex admiralty actions often involve several maritime lien holders, some with claims in dollars, some in euros, and occasionally a claimant with a statutory right in rem denominated in Indian rupees. The court must equitably distribute the sale fund. The Admiralty Act, 2017, read with the applicable rules, provides that distribution shall be made according to the ranking of claims, and where claims are of equal rank, pro-rata. If the fund is held in US dollars but there is a euro claimant, the registry must convert the euro claim into dollars at the exchange rate prevailing on the date of distribution, which may create an inequity if the euro has appreciated. To avoid this, the court may direct that the fund be distributed in multiple currencies by splitting the deposit into separate sub-accounts. While the RBI permits such splitting for periods not exceeding six months, it requires detailed justification. Experienced practitioners prepare a distribution schedule in advance and obtain a composite RBI approval before distribution orders are drawn.
Recent Developments in Foreign Currency Litigation Funding
Third-party funding for admiralty claims has gained traction globally. In India, while contingency fees are restricted for advocates, funding by non-lawyer entities is not expressly prohibited. Several international litigation funders now offer to finance ship arrest claims, taking a percentage of the recovery. However, when the claim and potential recovery are in foreign currency, funders demand that the decree be denominated in the same currency to avoid exchange rate volatility. Indian courts have been receptive to funding arrangements being disclosed to the court, provided the funder does not interfere with legal strategy. The Sixteenth Edition notes that a funded foreign claimant should still follow the same steps for foreign currency prayer and RBI approval, but must additionally disclose the funding agreement to ensure that no portion of the foreign currency proceeds is paid to a non-registered foreign entity without RBI permission.
Electronic Filing and Digital Admiralty Registries
The e-Courts Project Phase III (2024-2026) has digitized admiralty filings in all major High Courts. Claimants can now file plaints, arrest applications, and applications for foreign currency retention online. The digital registry automatically calculates court fees based on the RBI reference rate on the date of filing. It also generates a unique Foreign Currency Claim (FCC) identifier. The digital dashboard allows the claimant to track the status of RBI approval in real-time. Furthermore, the e-payment module enables foreign claimants to pay court fees in foreign currency through SWIFT transfers to a designated escrow account maintained by the High Court. These developments have significantly reduced procedural delays. However, smaller claimants without digital access can still file physically, though the court may direct digital conversion for RBI reporting purposes.
Practical Guidance for Drafting the Plaint and Decree
When drafting the plaint for a foreign currency claim, the advocate must state the following clearly: (i) the exact amount of foreign currency claimed, (ii) the date on which the cause of action arose, (iii) the contractual or statutory basis for the currency, (iv) the exchange rate on the date of filing (with source, e.g., RBI reference rate), (v) the INR valuation for court fees, (vi) a prayer that the decree be drawn in the foreign currency. Additionally, the advocate should attach a proposed draft decree in the foreign currency form. The court, after adjudication, will issue a decree that reads: "Defendant do pay to Plaintiff USD [amount] or the INR equivalent at the RBI TT selling rate on the date of payment, whichever is higher". This "higher of" clause is an innovative drafting technique that has been accepted by some High Courts and protects the claimant from exchange loss. The sixteenth edition provides sample formats of such clauses.
Role of the Admiralty Sheriff and Commissioner for Sale
The Admiralty Sheriff (or Commissioner for Sale) plays a crucial role in implementing foreign currency sale orders. The Sheriff must ensure that the notice of sale is published in trade publications that are read by international buyers, and the notice must state the currency in which bids are invited. The Sheriff also liaises with the authorized dealer bank to receive foreign currency deposits. The Sheriff's report to the court must include a certificate of exchange rate as on the date of deposit. If the Sheriff converts funds without specific court permission, he may be held personally liable for exchange losses. Thus, the Sheriff typically seeks a judicial direction before any conversion. Claimants should proactively request the court to give clear, unconditional directions to the Sheriff regarding retention of foreign currency.
Enforcement of Foreign Currency Decree Against Other Assets
If the arrested vessel is sold and the sale proceeds are insufficient to cover all decrees, the claimants with foreign currency decrees may seek to enforce the balance against other assets of the debtor in India, such as bank accounts, receivables, or other vessels. The execution process under the Code of Civil Procedure, 1908, allows for attachment of property. Where the decree is in foreign currency, the executing court converts the outstanding amount into INR at the exchange rate prevailing on the date of execution application. This again exposes the claimant to volatility. To mitigate, the claimant may simultaneously apply for a garnishee order against the debtor's foreign currency bank account in India, if any. The RBI permits such attachments under FEMA, but the claimant must demonstrate that the underlying debt arose from a maritime claim. This layered enforcement strategy requires coordinated effort between admiralty and execution counsel.
Conclusion-Word Avoidance and Final Analysis
The landscape of claims payable in foreign currency in Indian admiralty jurisdiction has matured significantly from the early precedents. The Sixteenth Edition (2026) reflects a robust framework where claimants have clear statutory and procedural pathways, courts are equipped with modernized rules, and the RBI has gradually streamlined approvals. Nevertheless, practical challenges persist: inconsistent approval times, limited awareness among registries about foreign currency accounts, and residual exchange rate risks despite best efforts. The most proactive strategy for any foreign maritime creditor is to engage specialized admiralty solicitors who have hands-on experience in obtaining foreign currency sale orders and RBI approvals from the outset. The authors, based on extensive practice, have successfully guided numerous claimants through the entire life cycle — from arrest in foreign currency to final repatriation without avoidable conversion losses. The continued evolution of digital processes and regulatory liberalization promises even greater efficiency in the coming years.