Venture Global Engineering LLC Vs. Tech Mahindra Ltd. & ANR Etc.
[Civil Appeal Nos. 17753-17755 of 2017 arising out of SLP (C) No(S). 29747-29749 of 2013]
[Civil Appeal Nos. 17756 of 2017 arising out of SLP (C) No. 8298 of 2014]
O R D E R
In view of the difference of opinion in terms of separate judgments pronounced by us in these appeals today, the Registry is directed to place the papers before Hon'ble the Chief Justice of India for appropriate further course of action.
.......................J. (J. CHELAMESWAR)
.......................J. (ABHAY MANOHAR SAPRE)
NEW DELHI
NOVEMBER 1, 2017
Venture Global Engineering LLC Vs. Tech Mahindra Ltd. & another Etc.
[Civil Appeal Nos. 17753-17755 of 2017 arising out of SLP (C) Nos. 29747-29749/2013]
[Civil Appeal No. 17756 of 2017 arising out of SLP (C) No. 8298/2014]
Tech Mahindra Ltd. & another Etc. Vs. Venture Global Engineering LLC
Chelameswar, J.
1. Leave granted in both the SLPs. I had the advantage of reading the opinion of my learned brother Justice Sapre. While I agree with the conclusion recorded by him that the High Court erred in its conclusion on the question whether the proceedings initiated by VENTURE in OP No. 390 of 2008 are barred by the principle of "issue estoppel", I am unable to persuade myself to agree with his conclusions that the judgment under appeal is required to be reversed on the questions relating to public policy and fraud for the following reasons;
2. The facts of these appeals are narrated in great detail by my learned brother. There is no need to repeat except to mention those which are essential for the purpose of my conclusion.
3. An Arbitral Award dated 3rd April, 2006 (hereinafter the AWARD) came to be passed in an arbitration between VENTURE and SATYAM.
The relevant portion of the AWARD reads as under:
"A. I order VGE to deliver to Satyam share certificates in form suitable for immediate transfer to Satyam or its designee evidencing all of VGE's ownership interest legal and/or beneficial in SVES. I further order it to do all that may otherwise be necessary to effect the transfer of such ownership to Satyam or its designee."
4. The dispute leading to the Arbitration and the AWARD arose out of the Agreement dated 20th October, 1999 (Agreement I) entered into between VENTURE and SATYAM.
5. Article VIII of the said Agreement defined the expression "Events of Default" and stipulated the consequences thereof:
"ARTICLE VIII EVENTS of DEFAULT AND REMEDIES
Section 8.01 Events of Default For the purposes of this Agreement, an "Event of Default" means, with respect to any Shareholder, the occurrence of any of the following:
(a) A Bankruptcy Event occurs with respect to such Shareholder.
(b) Subject to clause (c) and (d) below, such Shareholder breaches this Agreement in any material respect and fails to cure such breach within thirty (30) days after being notified in writing by the other Shareholder of such breach.
(c) A Shareholder Transfers, or attempts to Transfer, any Shares in violation of the transfer restrictions set forth in Article VII of this Agreement.
(d) Such Shareholder is subject to Change in Control
Section 8.02 Rights Upon Events of Default Generally
Upon the occurrence of an Event of Default (other than a Bankruptcy Event) with respect to any Shareholder (the Defaulting Shareholder"), the other Shareholder (the "Non- Defaulting Shareholder") shall have the option, within thirty (30) days after becoming aware of the Event of Default to (a) purchase the Defaulting Shareholder's Shares at book value and repay Shareholder's loan, or
(b) cause the immediate dissolution and liquidation of the COMPANY in accordance with Article IX. Either of such options must be exercised by the Non-Defaulting Shareholder by written notice to the Defaulting Shareholder within thirty (30) days after becoming aware of the subject Event of Default.
Section 8.03 Rights Upon Bankruptcy Event
Upon the occurrence of a Bankruptcy Event with respect to any Shareholder (the "Bankrupt Shareholder"), such shareholder shall give immediate written notice to the other Shareholder (the "Solvent Shareholder"). The Solvent Shareholder shall have the option of
(a) purchasing the Shares held by the Bankruptcy Shareholder at book value and repay such Shareholder's loans or
(b) causing the immediate dissolution of liquidation of the company in accordance with Article IX. Either of such options must be exercised by the Solvent Shareholder by written notice to the Bankrupt Shareholder within one hundred twenty (120) days of receipt of notice of the Bankruptcy Event from the Bankrupt shareholder.
Section 8.04 Remedies Not Exclusive
The rights granted in this Article are not exclusive of any other rights or remedies available at law or in equity."
6. The arbitrator inter alia opined that an Event of Default on the part of VENTURE occurred and therefore, VENTURE (the defaulting shareholder) is liable to transfer its interest i.e. 50 per cent of the shares in the JVC to SATYAM (non-defaulting shareholder).
7. SATYAM filed a petition in the Eastern District Court of Michigan, US seeking enforcement of the AWARD against VENTURE. Admittedly, the petition was allowed on 31st July, 2006 and the District Court of Michigan by its judgment directed the enforcement of the AWARD. It appears that VENTURE appealed against the said order in the 6th Circuit, US Appellate Court in Michigan.
8. I assume for the purpose of these appeals that the directions of the Eastern District Court of Michigan dated 31st July, 2006 is legally tenable. In the final analysis, enforcement of the AWARD means transfer of the shares (property of VENTURE) in the JVC. Since the JVC is a company registered (incorporated) in India, transfer of shares therein will have to be effected in accordance with the relevant procedure established by law of India i.e. the Companies Act and other related enactments which obligate VENTURE to perform certain acts. If VENTURE declines to perform its obligations, the directions contained in the judgment of the American Court will have to be executed in India in accordance with the procedure prescribed under the Code of Civil Procedure , 1908 for the enforcement of foreign judgments or decrees, as the case may be.
9. Be that as it may, in my opinion, it was really not necessary for SATYAM to have approached the American Court for the enforcement of the AWARD, whether the AWARD is a "foreign award" as defined under Chapters I or II of Part II of the Arbitration and Conciliation Act, 1996 (hereafter "the ACT") or not, in view of 6 the judgments of this Court in Bhatia's case1 and BALCO's case, Part I of the ACT is applicable to the AWARD since the AWARD is anterior to the date of the judgment of this Court in BALCO's case3.
"Para 197. ... Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter." Therefore, the AWARD would be enforceable as if it were a decree of a civil court in view of Section 364 of the ACT.
10. The only way VENTURE could avoid the enforcement of the AWARD is by having the AWARD set aside either under Section 34 of the ACT or any other procedure applicable under any other applicable law in any other appropriate jurisdiction available to VENTURE under the principles of international law. We are not informed of any such proceeding either subsisting or successfully pursued by VENTURE in any jurisdiction.
On the other hand, VENTURE initiated proceedings on 13th April, 2006 before the District Court for the Northern District of Illinois Eastern Division, USA for a declaration that the AWARD was not enforceable in the United States of America. Subsequently, even that application was dismissed as withdrawn by an Order of that Court dated 25th April, 2006.
11. Thereafter, VENTURE filed OS No. 80 of 2006 on 28th April, 2006 before the Ist Additional Chief Judge, City Civil Court, Secunderabad seeking mainly two reliefs:
i. a declaration that the Award was illegal and without jurisdiction; and
ii. a permanent injunction restraining Satyam from enforcing the Award.
12. This Court had an occasion to examine the maintainability of the said suit in an appeal arising out of certain interlocutory proceedings (detailed in the judgment of my learned brother) in Venture Global Engineering v. Satyam Computer Services Ltd. & Another, (2008) 4 SCC 190 (hereinafter called VENTURE-I). In substance, this Court held (subject to certain qualifications) that VENTURE is not disentitled to challenge the AWARD in India.
13. Consequent upon the judgment in VENTURE-I, the Ist Additional Chief Judge, City Civil Court, Secunderabad transferred O.S. No. 80 of 2006 to the Court of 2nd Additional Chief Judge City 8 Civil Court at Hyderabad. The suit was converted into an application under Section 34 of the ACT and was renumbered O.P. No. 390 of 2008. The Suit/O.P. as originally filed was based on certain grounds other than the grounds on which the O.P. eventually came to be allowed.
14. On the 7th of January 2009, Ramalinga Raju, the Chairman and founder of SATYAM made a statement in writing5 wherein he made certain admissions to the effect that the balance sheets of SATYAM had been manipulated to inflate profits to the tune of Rs. 7080 crores.
15. VENTURE filed an application6 under Order VIII Rule 9 of the CPC seeking permission to plead additional facts by amending the pleadings in O.P. No. 390 of 2008. VENTURE contended that the facts disclosed by Ramalinga Raju and the subsequent developments "are crucial at the adjudication of the disputes between the parties" and prayed;
"In the foregoing fats (sic) and circumstances it is humbly submitted that the Hon'ble Court may be pleased to pass the following orders;
a) That the subsequent developments and events as stated in this petition in para 3 to 21 together with the accompanying documentation be brought on Record.
b) Such other or further orders as may be necessary in the interests of justice."
The Trial Court, by an order dated the 3rd of November, 2009 allowed the application.
16. SATYAM challenged the order dated 3rd November, 2009 in a revision petition before the High Court. By an order dated the 19th of February, 2010, the High Court allowed the revision petition and dismissed Venture's application. The High Court held (in substance) that under Section 34 of the ACT, an application for setting aside of an Award could only be filed within 3 months (extendable only by another 30 days) from the date of the Award permitting attack against the AWARD on a new ground would amount to permitting the AWARD to be challenged after the expiration of limitation.
17. VENTURE appealed to this Court. This Court, by judgment of the 11th of August, 20107, allowed the appeal and restored the order of the Trial Court.
"39. Therefore, this Court is unable to accept the contention of the learned counsel for the respondent that the expression "fraud in the making of the award" has to be narrowly construed. This Court cannot do so primarily because fraud being of "infinite variety" may take many forms, and secondly, the expression `the making of the award' will have to be read in conjunction with whether the award "was induced or affected by fraud".
40. On such conjoint reading, this Court is unable to accept the contentions of the learned counsel for the respondents that facts which surfaced subsequent to the making of the award, but have a nexus with the facts constituting the award, are not relevant to demonstrate that there has been fraud in the making of the award. Concealment of relevant and material facts, which should have been disclosed before the arbitrator, is an act of fraud.
If the argument advanced by the learned counsel for the respondents is accepted, then a party, who has suffered an award against another party who has concealed facts and obtained an award, cannot rely on facts which have surfaced subsequently even if those facts have a bearing on the facts constituting the award. Concealed facts in the very nature of things surface subsequently. Such a construction would defeat the principle of due process and would be opposed to the concept of public policy incorporated in the explanation."
18. Thereafter, OP No. 390 of 2008 was heard and allowed by the trial Court by its Order dated 31.01.2012. The AWARD was set aside. 7 Venture Global Engineering v. Satyam Computer Services Limited & Another, (2010) 8 SCC 660 ("Venture-II")
19. The trial court framed as many as 8 points for consideration, and they read:
"(1) Whether the proceeding as it stands now before this Court is a suit in the true sense of the term and whether the instant original proceeding can still be construed as a suit as contended by the respondents and, if so, whether the proceeding is liable to be dismissed as not maintainable?
(2) Whether the proceeding, even if construed as an original petition under Section 34 of the Act, is still liable to be dismissed as not maintainable as contended by the respondents?
(3) Whether the instant proceeding is barred by the law of limitation and is liable to be dismissed on that ground?
(4) Whether the Bankruptcy of petitioner's affiliates does not constitute a bankruptcy event as per the terms and conditions agreed to between the parties?
(5) Whether the award in so far as the order of transfer of petitioner's shares to the 1st respondent at the book value is violation of Foreign Exchange Management Act and also a violation of public policy?
(6) Whether the Award is vitiated by any irregularities in the financial statements of 1st respondent as set out in additional pleadings?
(7) Whether the petitioner was under any incapacity on account of the suppression of material facts and the indulgence in fraud by the 1st respondent which were said to have come to light after the passing of the award by the learned Tribunal?
And, if so, whether such suppression of material facts and fraud have any causative link, and, if so, whether the award is vitiated by fraud on the part of the 1st respondent in the facts and circumstances urged by the petitioner?
And, if so, whether the award is liable to be set aside?
8. Whether the petitioner had made out valid and sufficient grounds to set aside the impugned award, and if so, the award is liable to be set aside?
9. To what relief?
20. After an elaborate discussion of the said points, the trial court concluded at para 12 of the judgment. "Before the last point is taken up, it is necessary to sum up the discussion and findings. Under point number 1, it is held that the present proceeding after conversion from the Suit to the Original Petition cannot be construed to be a suit and hence cannot be rejected on the assumption that the suit is not maintainable. Under point number 2, it is held that the present proceeding which to be construed as an Original Petition under Section 34 of the Act is not liable to be dismissed as not maintainable.
Under point number 3 it is held that the instant proceeding i.e. Original Petition is not barred by Law of Limitation. Under point number 4 answered against the Petitioner it is held that bankruptcy of Petitioner's affiliates had constituted a bankruptcy event as per the terms and conditions agreed to between the parties. However, it is to be noted that when this finding was recorded by the Arbitral Tribunal the additional pleas now urged by the Petitioner before this court were not available to the Petitioner and hence the additional pleas were not brought to the notice of the learned Arbitral Tribunal.
The said findings of the Arbitral Tribunal can be sustained if only the issue of fraud is not taken into consideration. Thus, in the absence of plea of the suppression of material facts and fraud on the part of the 1st Respondent, the findings of the learned arbitrator that the bankruptcy of Petitioner's affiliates constitutes a bankruptcy event is sustainable. However, after the suppressed material facts and fraud have come to light even that finding of the Arbitral Tribunal cannot be sustained for the reasons already assigned under point numbers 6 and 7. Under point number 5, the award in so far as it ordered transfer of petitioner's share to the 1st Respondent @ book value is in violation to FEMA and Public Policy of India.
Under points numbers 6 and 7, it is held that the award which is affected and induced by fraud is vitiated and cannot be enforced being opposed to Public Policy of India and is liable to set aside. In view of the above findings, this Court holds that the Petitioner has made out valid and sufficient grounds to set-aside the impugned award and hence, the award is liable to be set aside. The point is accordingly answered."
21. In substance, the trial court held all the points in favour of VENTURE except Point No.4 and concluded that the AWARD is 13 required to be set aside on two grounds,
(i) the direction in the AWARD to transfer the shares in JVC of VENTURE at book value is in conflict with the requirements of The Foreign Exchange Management Act, 1999 (hereafter referred to as "FEMA") and therefore violation of public policy8,
(ii) The AWARD is unsustainable because of the financial irregularities and the manipulation of the accounts of SATYAM.9 In the opinion of the trial court, the AWARD "is affected and induced by fraud" and cannot be enforced being opposed to public policy of India.
22. Whether the above conclusions are tenable? was the question before the High Court. The High Court framed 8 points for consideration in the judgment under appeal.
"1) Whether the institution of the proceedings by the 1st respondent in the Indian Courts to enforce a foreign award can be justified in view of the judgment of the Supreme Court in BALCO'S case (4 supra)?
2) Whether the principle of 'issue estoppel' gets attracted in the facts of the case?
3) Whether it is competent for a party to arbitration to invoke Part-I as well as Part-II of the Arbitration Act in relation to a foreign award?
4) Whether the ground of fraud raised by the appellant has been pleaded and proved as required in law, and whether the finding recorded by the trial Court on that aspect can be sustained?
5) Whether the award can be said to be opposed to public policy, on the ground that the transfer of money for its implementation, needs permission, under FEMA?
6) Whether an Indian Court can set aside a foreign award, which has already been enforced in the proceedings with the participation of both the parties to the award?
7) Whether the trial Court followed the correct procedure in deciding the O.P.? and
8) Whether the miscellaneous orders that are challenged in certain appeals and revisions can be sustained in law?"
23. Point Nos.4 and 5 above are relevant in the context of the twin reasons given by the trial court for arriving at the conclusion that the AWARD is required to be set-aside.
24. The High Court opined that the findings recorded by the trial court are unsustainable. The relevant portion of the judgment under appeal insofar as it pertains to point No. 4 reads:
"In every alternative sentence, the word 'fraud' has been used and it was proceeded as though fraud was proved. It is important to mention that the trial Court did not record any finding to the effect 15 that fraud has been proved by the 1st respondent, much less any reference was made to the oral and documentary evidence. It hardly needs any mention that the OP was required to be tried as a suit, particularly when allegations of far-reaching consequences were made. However, the trial Court was mostly impressed by the contents of the charge-sheet filed against Mr. Ramalinga Raju by the investigating agencies.
Even while the cases are pending trial before the respective Courts, it has proceeded as though the allegation as to fraud was proved. For all practical purposes, it has rendered the trial before the concerned Courts, nugatory. We are, therefore, of the clear view that the finding of the trial Court on the question of fraud does not accord with law."
Coming to point No. 5, the High Court held:
"It is also important to mention that I.A. No. 1331 of 2009 did not contain any plea as to public policy.
It was only in relation to alleged fraud. The observation of the trial Court is erroneous and contrary to record. It is possible to argue that, if the complaint itself is that the award is opposed to public policy, an aggrieved party cannot be expected to raise that plea before the Arbitrator;
and if the violation of the public policy is brought about by the award, the complaint cannot be made at any stage, anterior to that.
However, when a ground of that nature is raised under Section 34 of the Act, it must be demonstrated as to how the award is opposed to public policy. Even at the cost of repetition, it can be said that, it is only when the award exhorts a party to the proceedings to take steps, that has the effect of contravening law of the land, in which it is to be enforced, that the ground can be invoked. There is not even a semblance of finding by the trial Court in this behalf. It is trite that every step for enforcing the award must be in accordance with the relevant provisions of law. Therefore, we answer this point in favour of the appellant."
25. The net result of the litigation is that while the Trial Court set aside the AWARD, the High Court reversed the trial court judgment and restored the AWARD.
26. Aggrieved by the judgment, the present two appeals are filed one by VENTURE and other by SATYAM now represented by Tech Mahindra.
27. Naturally VENTURE is aggrieved by the judgment. Notwithstanding the fact SATYAM succeeded before the High Court, SATYAM also filed a separate appeal (being SLP(C) No. 8298 of 2014) questioning the correctness of the decision of the High Court insofar as it held that the trial court had the jurisdiction to examine the legality of the AWARD.
28. The crux of the entire litigation is that VENTURE seeks to have the AWARD set aside. It must be remembered that SATYAM has not initiated any proceeding so far in India for the enforcement of the AWARD.
29. As rightly pointed out by my learned brother, though various submissions were made both before the trial court and the High Court, before this Court VENTURE confined its attack on the 17 AWARD only to two grounds i.e. the AWARD is contrary to the public policy of India because compliance with the AWARD would amount to violation of the provisions of the FEMA ACT., and the AWARD is required to be set aside because of the "fraud" disclosed by the statement dated 7th January 2009 of Ramalinga Raju. 30. Under the scheme of the ACT an award can be set aside in this country only on the grounds enumerated in Section 3410, if an 10 Section 34. Application for setting aside arbitral award.-
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if a. the party making the application furnishes proof that
i. a party was under some incapacity, or
ii. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
iii. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
iv. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
v. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
b. the Court finds that
i. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
ii. the arbitral award is in conflict with the public policy of India. application praying for such a relief is filed in accordance with the procedure stipulated therein. Section 34(2)(b)(ii) stipulates that an award which is in conflict with public policy of India is liable to be set aside.
Explanation I.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An Arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party. 19 In the Explanation to Section 34(2) it is declared that "... an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud ..."
31. Though the trial Court had set aside the AWARD purportedly on two grounds, in essence the ground is only one, that the AWARD is in conflict with the public policy of India. Because the conclusion of the trial court on Point Nos. 6 & 7 framed by it that "the AWARD is affected and induced by fraud" is also an aspect of the "conflict with the public policy of India."
32. I am of the opinion that the High Court is right in reversing the judgment of the trial court, though the reasons given by the High Court, in my opinion, are not very elegant and logical. Therefore, I propose to examine the correctness of the conclusions of the trial court on Points No.5, 6 & 7 framed by it.
PUBLIC POLICY:
33. The trial court recorded that the AWARD is required to be set aside on the ground that the AWARD is opposed to the public policy of India. In the opinion of the trial court, the AWARD contained directions which are in conflict with the FEMA Act and Regulations 20 made thereunder. The trial court considered this under Point No.5 framed by it in para no.10 of its judgment. It framed the question as follows:
"(a) The question under this point is this: 'Whether the award in so far as the order of transfer of petitioner's shares to the 1st Respondent at the book value is a violation of Foreign Exchange Management Act and violation of public policy?' The trial court took note of the contention of VENTURE:
(b) The contentions of the petitioner on this aspect are as under: "It is admitted that the Award directed 1st Respondent to acquire the Petitioner's shares in Respondent No. 2 at book value being less than its fair value. Such a direction was in express violation of the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, which require such transfers to take place at fair value..."
34. The submission of VENTURE appears to be:
(i) The AWARD insofar as it directed VENTURE to transfer its shares in the JVC to SATYAM at book value is in violation of the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000; and
(ii) The book value of the shares of JVC is less than that of their fair value.
35. It must be pointed out here that even according to the trial court SATYAM argued "that the book value of the shares is the price of shares as recorded in the books of accounts of the Company. It may be above or below the market value." On the above rival submissions, the trial Court concluded; "Thus the award to the extent it directed the transfer of Petitioner's shares to the 1st Respondent at the rate of book value is violation of Foreign Exchange Management Act and consequently the public policy.
***** ***** ***** ***** *****
In view of the discussion coupled with reasons the point is answered in favour of the petitioner and against the Respondents holding that the award in so far as it ordered for transfer of petitioner's shares to the 1st Respondent at book value is a violation of Foreign Exchange Management Act and violation of public policy."
36. In the entire discussion dealing with the submission, neither the text of the regulations nor the scheme of either the FEMA Act or the regulations is subjected to any analysis. The trial court did not even indicate the number of the regulation which mandates (if at all) that the transfer such as the one directed by the AWARD is required to be only at "fair value' of the shares. The trial court simply accepted the submission of VENTURE.
37. Assuming for the sake of argument that there is some stipulation in the abovementioned regulation which forbids the transfer of shares in question except "for a fair value", there is no discussion in the judgment of the trial court as to;
(i) what is meant by fair value of the shares under FEMA;
(ii) how that fair value is to be determined;
(iii) whether the fair value of shares is the same as market value of shares;
(iv) what exactly is the fair value of the shares in question;
The trial court did not even record a finding that the book value of the shares of the JVC is less than that of their market value or fair value. It must also be pointed out here that the trial court did not even refer to any pleading on the basis of which submission was made before it.
38. The entire exercise undertaken by the trial court only demonstrates the unfortunate trend in the legal system where without settling the facts in issue first and identifying the questions 23 of law relevant in the context for determining the controversy between the parties, case law is dumped upon and examined by the courts.
The result is an exercise like the one undertaken by the trial court. I am of the opinion that the conclusion recorded by the trial court on Point No.5 is without any basis in facts and without even identifying the provision of law with which the AWARD is in conflict with. Hence, in my opinion, the conclusion in this point cannot be sustained.
39. In the process of such uncharted debate, the trial court undertook an examination whether the payment of US$ 622,656 to be made towards the book value of the shares requires permission of the Reserve Bank of India and whether such permission is required to precede the award etc. I failed to identify any categoric conclusion recorded by the trial court on that question. Whether there are any pleadings calling upon the court to examine those questions is also not indicated in the judgment.
FRAUD:
40. The next question is - whether fudging of the accounts of SATYAM would in any way provide a ground for VENTURE to seek setting aside of the AWARD? 41. The content of the letter11 dated 7th January 2009 of Ramalinga Raju, if true undoubtedly would have legal consequences both civil and criminal for SATYAM, Ramalinga Raju and some more persons who are responsible for the fudging of the accounts of SATYAM. Various civil and criminal proceedings were in fact initiated and some consequences followed.
According to the Statement of Ramalinga Raju, the fudging of accounts of SATYAM took place over a number of years.12 11 Extracted in extenso by my learned brother The gap in the balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years.
It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of Rs. 11,276 crore in the September quarter, 2008 and official reserves of Rs. 8,392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher lever of operations - thereby significantly increasing the costs.
Ramalinga Raju's statement is not very clear regarding the point of time at which the fudging of the accounts of SATYAM commenced.13 42. In my opinion, Points No.6 & 7 framed by the trial court are too vague and imprecise. Section 34(2) of the ACT declares that if making of an award is either "induced or affected by fraud", the same is liable to be set aside. Whether the facts relating to the fudging of the accounts of SATYAM and the non-disclosure of those facts by SATYAM before the arbitrator would amount either
(i) to 'inducing' the making of the AWARD by fraud; or
(ii) the AWARD made in ignorance of those facts by virtue of non-disclosure of those facts by SATYAM would be an 'award affected by fraud', - would be the questions relevant for deciding whether the AWARD is required to be set aside.
43. The expression "Fraud" has no definition in law which has universal application. In "KERR on the Law of Fraud and Mistake"14, it is said: The trial court at para 11(a) of the judgment recorded a submission that the fudging commenced w.e.f. the year 2002. 14 McDonnell, Denis Lane & Monroe, John George, A Treatise on the Law of Fraud and Mistake, KERR ON THE LAW of FRAUD AND MISTAKE, 1952 (7th Edn.) Sweet & Maxwell Limited (London), page 1. 26 "It is not easy to give a definition of what constitutes fraud in the extensive signification in which that term is understood by Civil Courts of Justice.
The Courts have always avoided hampering themselves by defining or laying down as a general proposition what shall be held to constitute fraud. Fraud is infinite in variety ... Courts have always declined to define it, ... reserving to themselves the liberty to deal with it under whatever form it may present itself.
Fraud ... may be said to include properly all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat any one is considered as fraud. Fraud in all cases implies a willful act on the part of any one, whereby another is sought to be deprived, by illegal or inequitable means, of what he is entitled to."
The ACT does not define the expression 'Fraud'. A reference is made to the definition of the expression 'Fraud' in Section 17 of the Contract Act, 1872 in a bid to explain the meaning of the word 'fraud'.15 15 Section 19 of the Contract Act declares that if the consent to an agreement is caused by fraud, such agreement though a contract, is voidable at the option of the party whose consent was so caused. "Section 19 Voidability of agreements without free consent.-When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true." Section 17 of the Contract Act defines fraud. Section 17. 'Fraud' defined.- 'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it;
44. But the fact remains, such a definition is valid only in the context of contracts. In my opinion, the definition under Section 17 of the Contract Act may not be of any great assistance, to understand the meaning and scope of the explanation to Section 34(2) of the ACT. From the language of the explanation to Section 34(2), what renders an AWARD liable to be set aside is that the making of the AWARD must have been induced by fraud or the AWARD is affected by fraud.
Neither does the trial court judgment identify the legal parameters for recording a conclusion that the making of the AWARD was induced by or fraud or that the AWARD is affected by fraud, nor does it explain how the non-disclosure of the facts relating to the true financial status of SATYAM actually is an inducement for making of the AWARD. On the other hand, the trial court relied upon the observations made by this Court in VENTURE-II (Venture Global Engineering v. Satyam Computer Services Limited & Another, (2010) 8 SCC 660), that "concealment (4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent. 28 of relevant and material facts which should have been disclosed before the Arbitrator is an act of fraud" to support the conclusion that the AWARD is required to be set aside. The Trial Court opined that: "In the light of this legal position and the pleadings supported by documentary evidence on record, I am of the well considered view that there is adequate pleading on the point of material suppression of facts and fraud and also the required standard of evidence to prima facie accept the version of the Petitioner on the application of the test of preponderance of probabilities.
... Therefore, the non-disclosure of material facts and fraud go to the root of the matter and suggest that they do have a causative link affecting the award. In view of the detailed discussions coupled with the reasons, the points 6 and 7 are thus answered in favour of the Petitioner and against the Respondent 1 and 2 holding that the Award is vitiated by irregularities in the financial statements of 1st Respondent as set out in additional pleadings and that the Petitioner was under an incapacity on account of the acts of fraud committed by the 1st Respondent which had come to light after the passing of the award by the learned Tribunal and, therefore, such acts of fraud have causative link, and hence, the award which is affected and induced by fraud is vitiated and cannot be enforced being opposed to Public Policy of India and is liable to set aside on the grounds of material suppression of facts, fraud, incapacity of the Petitioner and violation of Public Policy of India."
45. In my opinion, the conclusion of the trial court that the various facts brought on record by VENTURE borne by the disclosure statement of Ramalinga Raju dated 7th January, 2009 and the subsequent developments thereafter (I shall refer to them collectively as 'CONCEALED FACTS' for the sake of convenience) are material facts which ought to have been disclosed before the Arbitrator and the failure to make such a disclosure would render the AWARD liable to be set aside is wholly untenable. No reference is made to the pleadings of VENTURE as to how VENTURE believed that the "CONCEALED FACTS" are material for the adjudication of the dispute by the arbitrator. Equally absent is the discussion by the trial court as to how the "CONCEALED FACTS" would become material facts in the context of the arbitration. In the entire discussion on point nos.6 & 7, the trial court does not give any reason justifying the conclusion that the "CONCEALED FACTS" are material facts in the context of the arbitration.
Except mechanically repeating the words of this Court that the non-disclosure or concealment of the material facts before the arbitrator is an act of fraud, there is no discussion as to how the CONCEALED FACTS are material facts whose concealment resulted in inducing the making of the AWARD by fraud or affected by fraud.
46. It must be remembered here that this Court in VENTURE-II categorically declared:
"44. This Court also holds that the facts concealed must have a causative link. And if the concealed facts, disclosed after the passing of the award, have a causative link with the facts constituting or inducing the award, such facts are relevant in a setting-aside proceeding and award may be set aside as affected or induced by fraud. The question in this case is therefore one of relevance of the materials which the appellant wants to bring on record by way of amendment in its plea for setting aside the award.
45. Whether the award will be set aside or not is a different question and that has to be decided by the appropriate court. In this appeal, this Court is concerned only with the question whether by allowing the amendment, as prayed for by the appellant, the Court will allow material facts to be brought on record in the pending setting-aside proceeding. Judging the case from this angle, this Court is of the opinion that in the interest of justice and considering the fairness of procedure, the Court should allow the appellant to bring those materials on record as those materials are not wholly irrelevant or they may have a bearing on the appellant's plea for setting aside the award.
46. Nothing said in this judgment will be construed as even remotely expressing any opinion on the legality of the award. That question will be decided by the court where the setting-aside proceeding is pending. The proceeding for setting aside the award may be disposed of as early as possible, preferably within 4 months."
This Court only held that the CONCEALED FACTS of Ramalinga Raju are relevant and, therefore, VENTURE must be permitted to plead those facts. But this Court did not make any declaration that such facts would constitute material facts rendering the AWARD liable to be set aside on the ground that the non-disclosure of those facts before the arbitrator would amount to fraud, inducing the making of the AWARD or that the AWARD is affected by the fraud. At the same time, this Court categorically declared in para 61 that 31 "nothing said in the judgment will be construed as even remotely expressing any opinion on the legality of the award."
47. The High Court rightly disagreed with the conclusions of the trial court and reversed the judgment of the trial court. High Court ought to have given more cogent reasons for the disagreement.
48. In the circumstances, I am of the opinion that the High Court rightly reversed the judgment of the trial court, not warranting any interference by this Court in exercise of the discretionary jurisdiction under Article 136 of the Constitution of India. I would therefore dismiss the appeals of VENTURE.
[Civil Appeal No. of 2017 arising out of SLP (C) No. 8298/2014]
49. If this Court agrees with the conclusion of the High Court that the AWARD is not liable to be set aside, the appeal of SATYAM would become purely academic. Even otherwise, a reading of the Special Leave Petition discloses, all that SATYAM is seeking is to reagitate the question of the applicability of Part-I of the ACT to an international commercial arbitration. In other words, it is a challenge to the correctness of the decision of a Constitution Bench of this Court in BALCO's case. I am of the opinion that such a 32 course ought not to be permitted. I would, therefore, dismiss the appeal of SATYAM.
..............................J. (J. CHELAMESWAR)
New Delhi
November 01, 2017
Venture Global Engineering LLC Vs. Tech Mahindra Ltd. & ANR. Etc.
[Civil Appeal Nos. 17756 of 2017 arising out of SLP (C) Nos. 29747-29749/2013]
Tech Mahindra Ltd. & ANR. Etc. Vs. Venture Global Engineering LLC.
[Civil Appeal No. of 2017 arising out of SLP (C) No. 8298/2014]
Abhay Manohar Sapre, J.
1. Special Leave Petition (Civil) Nos.29747-29749 of 2013 are filed by the Venture Global Engineering 2 LLC. Special Leave Petition (C) No.8298 of 2014 is filed by Tech Mahindra Ltd. Both of them are Bodies Corporate. They are the plaintiff and the 1st defendant respectively in O.S. No.87 of 2012 on the file of the 1st Additional Chief Judge, City Civil Court, Secunderabad.
2. Leave granted.
3. O.S. No.87 of 2012 was filed praying that an Arbitral Award dated 03.04.2006 (hereinafter referred to as the "Award") be set aside in exercise of the power under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "AAC Act"). O.S. No. 87 of 2012 was transferred to the Court of Chief Judge, City Civil Court, Hyderabad and re-numbered as O.P. No. 390 of 2008.
4. By order dated 31.01.2012, O.P. No.390 of 2008 was allowed setting aside the Award.
5. Aggrieved by the said order, the defendant preferred three appeals to the High Court of Andhra Pradesh. By a common judgment dated 23.08.2013, the High Court allowed the appeals. Hence, the instant appeals.
6. The necessary background facts of these appeals are:
7. For the sake of convenience and brevity, the plaintiff-Venture Global Engineering LLC is hereinafter referred to as "Venture", whereas defendant No.1-Tech Mahindra (formerly known as Satyam Computer Services Private Ltd. is hereinafter referred to as "Satyam" and defendant No.2-Satyam Venture Engineering Services is hereinafter referred to as "JVC".
8. Plaintiff-Venture in O.S. No.87 of 2012 is a Company incorporated under the US laws. It is one of a group of companies.
9. Satyam is an Indian Company registered under the Companies Act, 1956 with its office at Hyderabad engaged in the business of computer software.
10. On 20.10.1999, the Venture and Satyam entered into a Joint Venture and Shareholder Agreement (hereinafter referred to as Agreement-I) for incorporating JVC. The entire shareholding of JVC is to be held between the two collaborating companies equally. The Agreement consists of XI Articles. Each Article consists of several sections.
11. Annexure-A to the Agreement defines several expressions used in the Agreement.
12. The provisions of Agreement-I relevant to the controversy on hand are:
(i) Section 6 (a) to (e) of Article VI which provide that both Venture and Satyam would not compete in any manner in the business of JVC and 5 also would not compete inter se in their respective business directly or indirectly so long as both of them hold shares in JVC and also within two years after they cease to hold the shares in the JVC.
(ii) Section 8.01 of Article VIII defines the expression "event of default". It then sets out four events of default in clauses (a) to (d). One such event specified in Clause (a) is - "A bankruptcy event when occurs with respect to a shareholder."
It reads as under:
"Section 8.01 Events of Default For purposes of this Agreement, an "Event of Default" means, with respect to any Shareholder, the occurrence of any of the following:
(a) A Bankruptcy Event occurs with respect to such Shareholder.
(b) Subject to clause (c) and (d) below, such Shareholder breaches this Agreement in an material respect and fails to cure such breach within thirty(30) days after being notified in writing the other Shareholder of such breach. (c) A Shareholder Transfers, or attempts to 6 Transfer, any Shares in violation of the transfer restrictions set forth in Article VII of this Agreement. (d) Such Shareholder is subject to a Change in Control."
(iii) Section 8.02 provides the consequences of the occurrence of any "event of default". It reads as under: "Section 8.02 Rights Upon Events of Default Generally Upon the occurrence of an Event of Default (other than a Bankruptcy Event) with respect to any Shareholder (the "Defaulting Shareholder"), the other Shareholder (the "Non-Defaulting Shareholder") shall have the option, within thirty (30) days after becoming aware of the Event of Default to
(a) purchase the Defaulting Shareholder's Shares at book value and repay Shareholder's loan, or
(b) cause the immediate dissolution and liquidation of the COMPANY in accordance with Article IX.
Either of such options must be exercised by the Non-Defaulting Shareholder by written notice to the Defaulting Shareholder within thirty (30) days after becoming aware of the subject Event of Default."
(iv) Sections 8.03 and 8.04 stipulate the rights and obligations flowing from the occurrence 7 of the "event of default". One of them is that the non-defaulting shareholder shall have an option within 30 days after becoming aware of the occurrence of the "event of default" to either purchase the defaulting shareholder's shares at book value or cause the immediate dissolution and liquidation of the JVC Company following the procedure prescribed in Agreement-I.
It read as under:
"Section 8.03 Rights Upon Bankruptcy Event Upon the occurrence of a Bankruptcy Event with respect to any Shareholder (the "Bankrupt Shareholder"), such shareholder shall give immediate written notice to the other Shareholder (the "Solvent Shareholder").
The Solvent Shareholder shall have the option of
(a) purchasing the Shares held by the Bankruptcy Shareholder at book value and repay such Shareholder's loans or
(b) causing the immediate dissolution of liquidation of the company in accordance with Article IX. Either of such options must be exercised by the Solvent Shareholder by written notice to the Bankrupt Shareholder within one hundred Twenty (120) days of receipt of notice of the Bankruptcy Event from the Bankrupt shareholder."
"Section 8.04 Remedies Not Exclusive - The rights granted in this Article are not exclusive of any other rights or remedies available at law or in equity."
(v) Article XI, Section 11.05
(a) prescribes the procedure for the settlement of disputes: "
(a) In the event of a dispute between the parties to this Agreement regarding the terms and conditions of this Agreement or any of the transaction documents, the Parties shall negotiate in good faith for a period of 30 days in an effort to resolve the issues causing such dispute.
If such negotiations are not successful, the parties shall submit the disagreement to the senior officer VENTURE and the senior officer of SATYAM designees for their review and resolution in such manner as they deem necessary or appropriate. Compliance with this Section 11.5
(a) shall be a condition precedent to the commencement of any judicial or other legal proceeding."
(vi) Section 11.05
(b) stipulates the governing law of the agreement;
"(b) This Agreement shall be construed in accordance with and governed by the laws of the State Michigan, United States, without regard to the conflicts of law rules of such jurisdiction. Disputes between the parties that cannot be resolved via negotiations shall be submitted for final, binding arbitration to 9 the London Court of Arbitration."
It provides that the disputes between the parties, if not settled through negotiations, shall be referred to arbitration to the London Court of International Arbitration (hereinafter referred to as LCIA).
(vii) Section 11.05(c) stipulates ensuring compliance of provisions of Companies Act and other applicable Acts/Rules, which are in force in India at any time.
It reads as under:
"(c) Notwithstanding anything to the contrary in this agreement, the Shareholders shall at all times act in accordance with the Company's Act and other applicable Acts/Rules being in force, in India, at any time."
13. Pursuant to the aforementioned Agreement, Satyam, Venture and JVC entered into another Agreement dated 11.02.2000, Agreement-II called Non-Compete Agreement. Clause 5 of the Agreement provides that the Agreement shall be governed by and construed according to laws of the State of 10 Michigan (US) without regard to conflicts of law rules of its jurisdiction. It then also provides that the disputes between the parties, if cannot be mutually resolved, shall be referred to arbitration to the LCIA. It also provides that a party to the Agreement may seek injunctive relief in a Court of competent jurisdiction restraining a violation of the Agreement. It reads as under:
"Clause 5 - This agreement shall be governed by and construed according to the Laws of the States of Michigan, United States, without regard to conflicts of law rules of such jurisdiction. Disputes between the parties which cannot be resolved via negotiations shall be submitted for final, binding arbitration to the London Court of Arbitration. In addition, a party may seek injunctive relief in a court of competent jurisdiction, restraining a violation of this agreement."
14. In September 2000, Satyam entered into an Agreement with another American Company called- TRW Automotive to provide information technology to TRW. Satyam also entered into a "sub-contract" 11 with the JVC to share the benefits of the business with TRW.
15. Between March 2003 to May 2004, 21 members of the Group of Companies of which the Venture is a member filed bankruptcy proceedings in U.S. Courts and were declared bankrupt.
16. Aforementioned two events gave rise to disputes between Venture and Satyam. Eventually Satyam invoked the arbitration clause contained in Section 11.5 (b) of Agreement-I by filing a request with the LCIA for arbitration on 25.07.2005 against Venture.
17. On 10.09.2005 the LCIA appointed Mr. Paul B. Hanon as sole Arbitrator to decide the disputes. Both the parties entered appearance before the Arbitrator and filed their respective claims against each other.
18. The Arbitrator delivered his reasoned Award on 03.04.2006. He rejected the claims of Venture and allowed the claims of Satyam.
19. The Arbitrator held that an "event of default (bankruptcy)" on the part of Venture had occurred entitling Satyam to claim reliefs specified in Section 8.03 of Agreement-I against Venture. The Arbitrator also held that Venture violated Agreement-II by failing to provide business as stipulated in the Agreement.
20. The relevant part of the operative portion of the Award reads as under:
"A. I order VGE1 to deliver to Satyam share certificates in form suitable for immediate transfer to Satyam2 or its designee evidencing all of VGE's ownership interest (legal and/or beneficial) in SVES3. I further order it to do all that may otherwise be necessary to effect the transfer of such ownership to Satyam or its designee.
B. Concurrently with the transfer of 1 VGE = VENTURE 2 Satyam = SATYAM 3 SVES = JVC 13 ownership described in Section 6.1A above, I order Satyam to pay VGE US$622,656, such sum being the net difference between the amount payable by Satyam to VGE for the book value of the share of SVES (plus interest) and the amount payable by VGE to Satyam for the disgorgement of royalties paid to VGE by SVES (plus interest).
C. I order VGE to pay Satyam GBP48,777.48, the costs of the Arbitration as determined by the LCIA Court.
D. I order VGE to pay to Satyam US$1,488,454.11 Satyam's additional costs as determined in Section 5.12 hereof.
E. I order VGE to pay Satyam interest at the 5 per cent per annum compounded annually on the unpaid balance of the sums set forth in Sections 6.1 C and D hereof until such sums are paid.
F. I declare that Satyam is released from its obligation under the NCA not to compete with SVES or VGE with respect to engineering services to the automotive industry."
21. Aggrieved by the Award, Venture filed a complaint against Satyam on 13.04.2006 before the United States District Court for the Northern District of Illinois, Eastern Division (USA) seeking a declaration that the Award was not enforceable in 14 US. By an Order dated 25.04.2006, the said complaint was dismissed as withdrawn.
22. On 14.04.2006, Satyam filed a petition against Venture in Eastern District Court of Michigan (US) seeking to enforce the Award against the Venture. On 28.04.2006, Venture filed its response and cross-petition in Satyam's petition. By Order dated 31.07.2006, Satyam's petition was allowed directing enforcement of the Award.
23. Aggrieved by order dated 31.07.2006, Venture filed an appeal on 08.09.2006 in 6th circuit US appeal Court in Michigan.
24. On 28.04.2006, Venture filed a civil suit (O.S. No.80/2006) before the 1st Additional Chief Judge City Civil Court Secunderabad seeking
(i) a declaration that the Award is illegal and without jurisdiction,
(ii) a decree for grant of permanent injunction restraining Satyam from enforcing the Award which, inter alia, directed Venture to sell their 50% shares of JVC to Satyam at book value.
25. In the said suit, on 15.06.2006, an ex parte injunction order was passed restraining Satyam from enforcing the Award insofar as it directed transfer of shares by Venture to Satyam.
26. Aggrieved by the order dated 15.06.2006, Satyam filed Misc. Appeal No.519/2006 in the High Court of Andhra Pradesh. By its order dated 13.09.2006, the High Court allowed the said appeal, remitted the matter to the Trial Court for fresh adjudication on merits.
27. On remand, Satyam filed an application (IA No.2042/2006) under Order VII Rule 11 of the Code of Civil Procedure , 1908 (in short "the Code") praying for rejection of the plaint and dismissal of suit. 28. By order dated 28.12.2006, the Trial Judge allowed the application. The plaint was rejected.
29. Challenging the said order, Venture filed appeal before the High Court. The High Court dismissed the appeal on 27.02.2007. 30. Aggrieved by the said order, Venture moved this Court. This Court allowed the appeal by a reported judgm
