Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s.)17753-17755 OF 2017
(Arising out of SLP(C) No(s). 29747-29749 of 2013)
VENTURE GLOBAL ENGINEERING LLC Appellant(s)
VERSUS
TECH MAHINDRA LTD & ANR ETC. Respondent(s)
WITH
CIVIL APPEAL NO(s.) 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
1
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos.17753-17755 OF 2017
(ARISING OUT OF SLP (C) Nos. 29747-29749/2013)
Venture Global Engineering LLC … Appellant
Versus
Tech Mahindra Ltd. & Another Etc. … Respondents
WITH
CIVIL APPEAL No. 17756 OF 2017
(ARISING OUT OF SLP (C) No. 8298/2014)
Tech Mahindra Ltd. & Another Etc. … Appellants
Versus
Venture Global Engineering LLC … Respondent
J U D G M E N T
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
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
3
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
4
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 the judgments of this
Court in Bhatia’s case1 and BALCO’s case2
, Part I of the ACT is
1 Bhatia International vs. Bulk Trading S.A. & Anr., (2002) 4 SCC
105
2 Bharat Aluminium Company vs. Kaiser Aluminium Technical
Services Inc., (2012) 9 SCC 552 (CB)
5
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
3 6
th September 2012
4 Section 36. Enforcement.—(1)Where the time for making an
application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2),
such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908) in the
same manner as if it were a decree of the Court.
6
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
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.
5 Letter addressed to the Board of Directors of SATYAM
7
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
6 IA No. 1331 of 2009 dated 12.06.2009 in O.P. No. 390 of 2008
8
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.
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?
7 Venture Global Engineering v. Satyam Computer Services Limited
& Another, (2010) 8 SCC 660 (“Venture-II”)
9
(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
1
st 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
10
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
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.
8 (f) 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.
9 ….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 inducted 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.
11
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 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
12
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
13
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 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
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.
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 …”
10
14
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
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
15
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
16
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 of law
relevant in the context for determining the controversy between the
parties, case law is dumped upon and examined by the courts. The
17
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
11
18
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 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:
12
13
14
19
“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
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
15
20
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 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
21
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:
22
“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 “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
23
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 re-agitate 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 course ought not to be
permitted. I would, therefore, dismiss the appeal of SATYAM.
…………………………J.
(J. CHELAMESWAR)
New Delhi
November 01, 2017
24
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos. 17753-17755 OF 2017
(ARISING OUT OF SLP (C) Nos. 29747-29749/2013)
Venture Global Engineering LLC …….Appellant(s)
VERSUS
Tech Mahindra Ltd. & Anr. Etc. ……Respondent(s)
WITH
CIVIL APPEAL No. 17756 OF 2017
(ARISING OUT OF SLP (C) No. 8298/2014)
Tech Mahindra Ltd. & Anr. Etc. …….Appellant(s)
VERSUS
Venture Global Engineering LLC. ……Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. Special Leave Petition (Civil) Nos.29747-29749 of 2013
are filed by the Venture Global Engineering 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
25
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
26
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 also would not compete inter se in their
respective business directly or indirectly so long
27
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 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
28
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 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
29
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 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
30
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
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
31
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" 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
32
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 VGE16 to deliver to Satyam share
certificates in form suitable for immediate transfer to
Satyam17 or its designee evidencing all of VGE’s
ownership interest (legal and/or beneficial) in SVES18. 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 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
16
17
18
33
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 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
34
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.
35
30. Aggrieved by the said order, Venture moved this Court.
This Court allowed the appeal by a reported judgment in
Venture Global Engineering vs. Satyam Computer Services
Ltd. & Anr., (2008) 4 SCC 190 (hereinafter referred to as
“Venture-I”). This Court, inter alia, held that:
(i) Venture was entitled to challenge the Award in Indian
Courts as the provisions of Part I of AAC Act will apply to the
Award in the light of law laid down in Bhatia International
vs. Bulk Trading S.A. & Anr., (2002) 4 SCC 105 (See Paras
33/35);
(ii) That Award violates the provisions of FEMA and the
Companies Act (Para 34);
(iii) That parties will have a right to challenge the Award
including its enforceability in Indian Courts by virtue of
Section 11.05(c) of Agreement-I which has an overriding effect
on all clauses of the Agreement including Section 11.05(b) -
(Para 39);
(iv) That Satyam violated the terms of Agreement-I when
they sought transfer of shares of Indian company in US
Courts (Paras 40/44);
(v) That the appropriate remedy for a person, aggrieved
by the Award, lies in filing application under Section 34 of the
36
AAC Act in Indian Courts rather than filing a civil suit;
(vi) Conversion of the suit into proceedings under Section
34 of the AAC Act is permissible in law and such proceedings
can be transferred to the Court of competent jurisdiction, if
necessary (Para 41);
(vii) That Satyam should not have continued with the
proceedings filed in US Courts against Venture on the
strength of the Award in the light of injunction orders passed
by the Courts in India against Satyam and (Para 42),
(viii) That in the light of law laid down in Bhatia
International’s case (supra), even though the Award in
question is a foreign Award, yet it will be governed by Part I of
the Act (Para 47).
31. This Court observed "we have not expressed anything on
merits of the claim of both the parties.” This Court further
observed that the Trial Court was at liberty to transfer the
case to the competent Court to decide the case (if found
necessary) on merits and directed parties to maintain status
quo with respect to transfer of shares.
32. On 17.01.2008, the Eastern District of Michigan
Southern Division, US Court passed an order observing
therein that Venture violated the order of US Courts which
37
directed the enforcement of the Award and called upon the
parties to move to this Court. Venture filed an appeal to US
Court of Appeal. In the appeal, Venture attempted to provide
some new evidence to show fraud played by Satyam. It was,
however, dismissed on 09.04.2009
33. In the meanwhile, both Venture and Satyam filed review
petitions against the order dated 10.01.2008 passed in
Venture I by this Court. By order dated 29.04.2008, this
Court dismissed both the review petitions.
34. Pursuant to the order of this Court in Venture I, the Ist
Addl. Chief Judge, City Civil Court, Secunderabad transferred
O.S. No.80 of 2006 to the Court of 2nd Additional Chief Judge,
City Civil Court of Hyderabad. The suit was then converted
into an application under Section 34 of the Act and was
renumbered as O.P. No. 390/2008.
35. On 07.01.2009, B. Ramalinga Raju-Chairman and
founder of the Satyam made a disclosure and confessed in
writing that the balance sheets of Satyam had been
manipulated inflating the profits to the tune of Rs.7080 crores.
M/s Price Waterhouse Cooper (PWC), the auditors of Satyam
was compelled to declare that the financial statements of
Satyam could no longer be considered accurate or/and
38
reliable.
36. Venture filed an application (IA No. 1331 of 2009 dated
12.06.2009) under Order VIII Rule 9 of the Code in O.P.
No.390/2008 seeking permission to bring additional facts on
record by amending the pleadings to question the legality of
the Award. It was contended that the disclosure of facts made
by Ramlainga Raju prima facie constituted a fraud and
misrepresentation committed by Satyam on all the
stakeholders including Venture and, therefore, the Award is
liable to be set aside on this ground in addition to those
already taken. The Trial Court, by order dated 03.11.2009,
allowed the application.
37. Challenging the order, Satyam filed a revision before the
High Court. By order dated 19.02.2010, the revision was
allowed. The application (IA No.1331/2009) filed by Venture
stood dismissed. The High Court held that under Section 34
of the AAC Act, an application for setting aside of an Award
could be filed only within 3 months (extendable by 30 days)
from the date of the Award and a new ground of attack to the
Award cannot be permitted after the expiry of the period of
limitation.
38. Venture carried the matter to this Court. This Court, by
39
judgment dated 11.08.2010, in Venture Global Engineering
vs. Satyam Computer Services Limited & Anr. (2010) 8
SCC 660 (hereinafter referred to as Venture II) allowed the
appeal and restored the order of the Trial Court. This Court
held that the facts, which are sought to be brought on record
by the Venture, are relevant for deciding the rights of the
parties to O.P. No. 390 of 2008. It was also held that those
facts have causative link with the facts, which constituted the
lis of the Award or induced the making of the Award and,
therefore, relevant and material for deciding the legality of the
Award.
39. In substance, this Court permitted Venture to challenge
the Award on the ground that it was obtained by playing
fraud/misrepresentation/ suppression of material facts.
40. It is apposite to quote Paras 44 to 46 of this Court’s
judgment, which dealt with this issue:
“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
40
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.”
41. On 28.12.2010, Venture filed a complaint (suit) in U.S.
District Court of Easter District of Michigan against Satyam
alleging, inter alia, that the Award is vitiated by the fraudulent
conduct of the former Chairman of Satyam, who suppressed
the material facts in the arbitral proceedings. In the
complaint (suit), Venture alleged that Ramalinga Raju played
fraud and misrepresentation on all stakeholders of Satyam
including Venture and also on judicial process. It, therefore,
prayed that the Award in question be set aside on this ground.
42. Satyam entered appearance in the aforesaid
complaint/suit filed by Venture and opposed the complaint on
several grounds. By order dated 30.03.2012, U.S. District
Court dismissed the Venture’s complaint/suit. On
41
10.04.2012, Venture filed an application in the complaint
seeking permission to amend the complaint/suit. The U.S.
Court, by order dated 23.08.2012, dismissed the application.
On 21.09.2012, Venture filed an appeal to U.S. Court of
appeal against the order dated 30.03.2012 rejecting their
complaint/suit. Venture also filed an appeal on 12.12.2012 to
U.S. Court of appeal against the order dated 23.03.2012 by
which their amended application was rejected.
43. On 13.09.2012, U.S. Court of appeal for the sixth Circuit
allowed the appeal filed by Venture and set aside the order of
the District Court dismissing the suit/complaint filed by
Venture. The suit/complaint is now remanded to the District
Court. It is pending.
44. Coming back to the litigation pending in Indian Courts,
consequent upon the judgment of this Court in Venture-II,
Satyam joined issues with Venture on the additional pleadings
and contended that the facts pleaded have no causative links
with Award. Satyam also objected to admissibility of the
documents filed by Venture. The Trial Court heard the
application filed by Venture under Section 34 of the AAC Act
and by its final order dated 31.01.2012 allowed the
application and set aside the Award. The Trial Court held:
42
(i) civil suit filed by Venture could be converted to be an
application under Section 34 of the AAC Act and, accordingly,
converted;
(ii) the application filed by Venture under Section 34 of the
AAC Act is within the period of limitation;
(iii) the Court to which the civil suit was transferred has
jurisdiction to try and decide the application under Section 34
of the AAC Act;
(iv) bankruptcy of the Venture’s affiliates constitutes an event
of default as defined under Agreement-I;
(v) the Award insofar as it directs the Venture to transfer their
50% shares of JVC to Satyam for book value violates the
provisions of FEMA and is against public policy;
(vi) the facts revealed by the statement made by Ramalinga
Raju (Chairman of Satyam) constitute fraud and
mis-representation played by Satyam on various stakeholders
in Satyam including Venture;
(vii) it has causative link with the facts which formed the basis
of the Award.
45. It is, therefore, held that the Award is not sustainable in
law. Sustaining such Award would be against public policy
and the grounds mentioned above would cumulatively
43
constitute ground for setting aside the Award under Section
34 of the AAC Act.
46. Aggrieved by the said order, Satyam carried the matter in
appeal to the High Court in CMA No.832/2012.
47. After the aforesaid judgment, Venture filed another civil
suit being O.S.No.87/2012 in the Court of Ist Additional Chief
Judge, Secunderabad against Satyam seeking restitution of all
their rights in JVC as a consequence of setting aside of the
Award. During the pendency of the suit, Venture also applied
for grant of ex parte interim relief (IA No.1143/2012) in
relation to transfer of shares of JVC and by another
application being IA No. 1360/2012 sought order restraining
Satyam and JVC not to take any major decision in the affairs
of JVC.
48. By orders dated 27.04.2012 and 04.06.2012, both the
applications were disposed of by the 1st Additional Chief Judge
directing the parties to maintain status quo in relation to the
subject matter of both the I.As.
49. Satyam preferred two appeals against the said two orders
– CMAs 834 and 844 of 2012. The three appeals were clubbed
together.
50. By interim order dated 22.08.2012, the High Court
44
directed all the parties to appeals to maintain status quo in
relation to the affairs of JVC and also in relation to the rights
of the shareholders of the said company and of Venture.
51. By final order dated 23.08.2013, the High Court allowed
the appeals filed by Satyam. The High Court, inter alia, held
that:
(i) the civil suit/application filed by Venture under Section
34 of the Act is maintainable and not hit by the decision
of Bharat Aluminium Company vs. Kaiser Aluminium
Technical Services Inc. (in short “Balco”), (2012) 9
SCC 552 for the reason that the agreements in question
were executed between the parties prior to BALCO regime
whereas the decision rendered in BALCO has a
prospective effect;
(ii) proceedings in question are governed by part I of the AAC
Act;
(iii) Civil suits/application under Section 34 of the AAC Act
filed by Venture in Indian Courts are hit by the principle
of "issue estoppel" and are thus not maintainable in law;
(iv) Venture had no right to invoke both Part I and Part II,
i.e., Sections 34 and 48 because it is against the Scheme
of the AAC Act;
45
(v) a case of fraud and misrepresentation set up by Venture
in additional pleadings is not in accordance with law
inasmuch as these allegations neither satisfies the
requirements of law and nor were proved by oral or
documentary evidence;
(vi) the Award in question is not against the public policy;
(vii) since the issues arising between the parties have attained
finality in US Courts and hence now they cannot be
reopened in Indian Courts by taking recourse to the
provisions of the AAC Act; and
(viii) since both the parties to the suit/application did not
agree to treat the documents filed by them as proved and
no evidence was adduced to prove them in accordance
with law although the application under Section 34 of the
AAC Act is required to be decided like a suit, the Trial
Court did not follow the stipulated procedure while
deciding the application.
52. Aggrieved by the said judgment, both Venture and
Satyam filed instant appeals by way of special leave petitions
before this Court.
53. Venture, in substance, seeks restoration of the order of
the Trial Court, which had allowed their application under
46
Section 34 of the AAC Act and had set aside the Award.
54. Satyam’s challenge is confined only to the finding of the
High Court that the Trial Court has jurisdiction to entertain
and decide the application filed under Section 34 of the AAC
Act.
55. Heard Mr. K. K. Venugopal, learned senior counsel for
Venture Global Engineering LLC-appellant in SLP(C)
Nos.29747-49 of 2013 and respondent in S.L.P.(C) No.8298 of
2014, Mr. K.V. Vishwanathan, learned senior counsel for Tech
Mahindra Ltd.-respondent No.1 in SLP(C) Nos.29747-49 of
2013 and appellant No.1 in S.L.P.(C) No.8298 of 2014 and
Mr. Iqbal Chagla, learned senior counsel for Satyam Venture
Engineering Services-respondent No.2 in SLP(C) Nos.29747-49
of 2013 and appellant No.2 in S.L.P.(C) No.8298 of 2014 and
also perused the written submissions filed by the parties.
56. Mr. K. K. Venugopal, learned senior counsel, appearing
for the Venture while assailing the legality and correctness of
the impugned judgment urged many-fold submissions as
detailed hereinbelow and submitted that the impugned
judgment is legally unsustainable inasmuch as it is based on
wrong application of law which governs the issues whereas the
order of the Trial Court which rightly allowed the application
47
filed by the appellant under Section 34 of the AAC Act and set
aside the award deserves to be restored.
57. While elaborating his arguments, learned senior counsel
submitted that firstly, the Award impugned in Section 34
proceedings out of which these appeals arise is vitiated on
account of fraud, misrepresentation and suppression of
material facts played by Mr. Raju in the affairs of Satyam.
According to learned counsel, a ground of fraud which stands
made out in this case squarely falls under Section 34 of the
AAC Act and, therefore, the Award in question deserves to be
set aside.
58. In the second place, learned senior counsel submitted
that it is not in dispute that Mr. Raju, in no uncertain terms,
admitted in his letter dated 07.01.2009 that he not only
indulged in several fraudulent and illegal acts in the affairs of
Satyam but also indulged in manipulating and fabricating the
accounts and the balance-sheet of Satyam with a sole
intention to secure illegal monetary gains.
59. Learned senior counsel, therefore, submitted that such
fraudulent and illegal acts of Mr. Raju once surfaced in the
public domain had a direct bearing over the issues involved in
the arbitral proceedings because these acts relate to the period
48
prior to commencement of arbitral proceedings and continued
during the pendency of arbitral proceedings but without any
knowledge to Venture and learned Arbitrator and hence the
entire arbitral proceedings, which eventually culminated in
passing of the impugned award in ignorance of these material
major events connected with Venture, Satyam and their
affiliates, stood vitiated on account of Mr. Raju’s activities.
60. In other words, the submission was that, if the factum of
the fraud, misrepresentation, suppression etc. had been
disclosed or/and had come to the notice of the Arbitrator
or/and Venture, it being the most relevant and material
ground, the same could be made basis for seeking setting
aside of the arbitral proceedings including the Award in
question. In any event, according to learned counsel, the
arbitral proceedings would not have then resulted in passing
of the Award in question in favour of Satyam, had these facts
been taken into consideration?
61. In the third place, learned senior counsel submitted that if
the fraud/manipulation/ misrepresentation/suppression of
material facts had been disclosed to all the stakeholders
including Venture when actually committed and, in all fairness,
it ought to have been disclosed by Mr. Raju then it would have
49
enabled Venture to terminate Agreement-I forthwith and claim
appropriate reliefs against Satyam in terms of Agreement-I at
that time itself.
62. In the fourth place, learned senior counsel submitted
that firstly, the fraud/misrepresentation /suppression played
by Mr. Raju in the affairs of Satyam was prior in point of time
as compared to the "event of default" by the Venture and
secondly, the acts of Mr. Raju also constituted an "event of
default" under Section 8.01(b) read with Section 11.05 (c) for
termination of Agreement-I and for claiming reliefs against
Satyam as per Agreement-I.
63. In the fifth place, learned senior counsel submitted that
the confessional statement of Mr. Raju was a "notorious fact"
and known to the whole world and especially known to those
in market and, therefore, judicial notice of such fact could be
taken by the Court for relying upon the letter including its
contents against Satyam without any further evidence to prove
it.
64. In the sixth place, learned senior counsel submitted that it
is a fundamental principle of law that any
award/order/judgment passed in judicial proceedings once
found to have been obtained by a party against his adversary by
50
taking recourse to illegal means such as fraud, manipulation,
misrepresentation, suppression of material facts etc. then the
entire judicial proceedings including award/order/judgment
passed therein is rendered void ab initio. The reason is that
fraud/manipulation/misrepresentation/suppression of material
facts etc., if resorted to while prosecuting the judicial
proceedings for obtaining the order/judgment/award, the same
would result in vitiating such judicial proceedings.
65. This legal principle, according to learned senior counsel,
applies to the facts of this case with full force and, therefore,
the fraud played, manipulation done and suppression of
material facts made by Mr. Raju as its creator was rightly held
proved by the Trial Court and was, therefore, rightly made
basis to quash the Award in question on the ground of it being
against the public policy of India.
66. In the seventh place, learned senior counsel submitted
that the acts of Mr. Raju attracted the rigor of Section 8.01(b)
read with Section 11.05 (c) and since Section 11.05(c) has an
overriding effect on all sections, as held by this Court in
Venture-I, if these acts had been disclosed, it would have
enabled the Venture to seek termination of Agreement-I under
Sections 8.02 and 8.03 against Satyam.
51
67. In other words, according to learned senior counsel, there
was a causative link between the acts of Mr. Raju, which he
did in the affairs of Satyam and the issues which were subject
matter of arbitral proceedings. It is for this reason, learned
counsel urged that the acts of Mr. Raju constituted an "event
of default" under Section 8.01 read with Sections 8.01(b) and
11.05(c). Venture, according to him, was, therefore, deprived
of exercising their right against Satyam to claim reliefs in
terms of Agreement-I due to suppression of the acts by Mr.
Raju from all stakeholders.
68. In the eighth place, learned senior counsel submitted
that Satyam committed another breach of Section 4.01 when
it appointed Mr. Raju as one of the nominee Directors on the
Board of JVC. It was also an "event of default" under Section
8.01 read with Section 4.01, which entitled the Venture to
terminate the Agreement-I and seek appropriate reliefs against
Satyam.
69. According to learned senior counsel, a person who
indulged in such acts was not eligible for being nominated in
the Board of JVC.
70. In the ninth place, learned senior counsel submitted that
the scope and width of Sections 8.01(b) and 11.05 (c) is wide
52
enough to include the acts of Mr. Raju which he did in affairs
of Satyam and his acts were sufficient for terminating the
Agreement-I and seek appropriate relief as provided in the
Agreement-I.
71. In the tenth place, learned senior counsel, placing
reliance on the doctrine of "alter ego of the Company",
contended that this doctrine applies to the facts of this case
and, therefore, if the issues arising in the case are examined
in the light of this doctrine, the Award impugned is liable to be
set aside on this ground also.
72. In the eleventh place, learned senior counsel contended
that in order to decide the questions involved, it is not
necessary to appreciate any evidence and the issues have to
be decided only on the basis of material on record, which is
not in dispute. Learned counsel, therefore, urged that keeping
in view these submissions, the Award is against the public
policy of India as explained and clarified in Section 34(2)(b)(ii)
Explanation I(i)(ii) and (iii) read with Explanation 2 of the AAC
Act and hence it deserves to be set aside on this ground also.
73. It is essentially these submissions and some more which
are dealt with infra were elaborated by the learned counsel
with the aid of relevant sections of Agreement-I and II together
53
with decisions of this Court described as Venture I and
Venture II rendered in the earlier round of litigation in this
very case, relevant provisions of the AAC Act and decided
cases cited at the Bar.
74. In reply, learned counsel for the respondents supported
the impugned order and contended that the appellant has
failed to make out any case for interference by this Court in
the impugned order inasmuch as none of the submissions
urged by learned counsel for the appellant has any merit and
deserve rejection for want of any factual foundation.
75. Learned counsel further contended that firstly, the
appellant’s submissions are based on sheer hypothesis with
no factual foundation and hence cannot be made basis to set
aside the arbitral proceedings and Award. It was urged that
otherwise also they are totally irrelevant and have no
causative link in any manner with the arbitral proceedings
and nor they have any kind of impact on the arbitral
proceedings much less adverse and lastly, the acts of Mr. Raju
were in relation to affairs of Satyam and hence had no
significance while examining the legality and correctness of
arbitral proceedings and Award under Section 34 of AAC Act.
It was also urged that there is no evidence to prove the alleged
54
acts of Mr. Raju as being illegal in any manner. Learned
counsel elaborated these submissions by placing reliance on
relevant sections of Agreement -I and the decided case law.
76. Having heard learned counsel for the parties and on
perusal of the record of the case and the written submissions,
I find force in the submissions urged by Mr. K.K. Venugopal,
learned senior counsel for the appellant (Venture).
77. In substance, the questions, which arise for
consideration in these appeals, are essentially three. In other
words, the fate of these appeals largely depends upon the
answers to the following questions as, in my view, these
questions are interlinked together.
78. First, whether the acts of Mr. Raju in the affairs of
Satyam, as admitted by him in his letter dated 07.01.2009,
amounts to misrepresentation/ suppression of material facts
and, if so, whether they could be made basis to seek quashing
of an Award dated 03.04.2006 of the sole Arbitrator on the
ground of it being against the public policy of India under
Section 34(2)(b)(ii) read with Explanation (1)(i)(ii) and (iii) of the
AAC Act; second, whether the acts of Mr. Raju, in the affairs
of Satyam, has any causative link to the arbitral proceedings
or/and to JVC affairs and, if so, whether such acts constitute
55
an “event of default” under Section 8.01(b) read with Section
11.05(c) thereby entitling the Venture to terminate the
Agreement I and claim relief as contemplated in Sections 8.03
and 8.04 against Satyam; and third, if the aforesaid questions
are answered in affirmative then whether they constitute a
ground to enable the Court to set aside the Award under
Section 34 of AAC Act.
79. Before I examine the facts of this case to answer the
aforementioned questions, it is necessary to take note of the
law, which applies to the case on hand. Indeed, if I may say
so, it is fairly well settled by the several decisions of this
Court.
80. The expression "fraud" occurring in Section 34 is not
defined in the AAC Act but is defined in Section 17 of the
Indian Contract Act,1872. It reads as under:
“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;
(4) any other act fitted to deceive;
56
(5) any such act or omission as the law specially declares
to be fraudulent.
Explanation.—Mere silence as to facts likely to affect
the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such
that, regard being had to them, it is the duty of the
person keeping silence to speak, or unless his silence, is,
in itself, equivalent to speech.”
81. The expression "public policy of India" and what it
includes is explained and clarified for avoiding any doubt in
the Explanation I(i), (ii) and (iii) and Explanation 2 of Section
34(2)(b)(ii) of the AAC Act. It reads as under:
Section 34. Application for setting aside arbitral award-
(1)…………………………………………………………
(2) An arbitral award may be set aside by the Court only
if-
(a)…………………………………………………………
(b) the Court finds that-
(i)………………………………………………………
(ii) the arbitral award is in conflict with the public
policy of India.
Explanation 1.—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
57
to whether there is a contravention with the
fundamental policy of Indian law shall not entail a
review on the merits of the dispute.”
82. The expression "fraud", what it means and once proved
to have been committed by the party to the Lis against his
adversary then its effect on the judicial proceedings was
succinctly explained by this Court in Ram Chandra Singh vs.
Savitri Devi & Ors., (2003) 8 SCC 319 in the following words:
“Fraud as is well known vitiates every solemn act. Fraud
and justice never dwell together. Fraud is a conduct
either by letter or words, which induces the other person
or authority to take a definite determinative stand as a
response to the conduct of the former either by word or
letter. It is also well settled that misrepresentation itself
amounts to fraud. Indeed, innocent misrepresentation
may also give reason to claim relief against fraud. A
fraudulent misrepresentation is called deceit and
consists in leading a man into damage by willfully or
recklessly causing him to believe and act on falsehood.
It is a fraud in law if a party makes representations
which he knows to be false, and injury ensues therefrom
although the motive from which the representations
proceeded may not have been bad. An act of fraud on
court is always viewed seriously. A collusion or
conspiracy with a view to deprive the rights of others in
relation to a property would render the transaction void
ab initio. Fraud and deception are synonymous.
Although in a given case a deception may not amount to
fraud, fraud is anathema to all equitable principles and
any affair tainted with fraud cannot be perpetuated or
saved by the application of any equitable doctrine
including res judicata.”
83. Similarly, how the leading authors have dealt with the
expressions "fraud”, “misrepresentation”, “suppression of
material facts” with reference to various English cases also
need to be taken note of. This is what the learned author -
58
“Kerr” in his book “Fraud and Mistake” has said on these
expressions.
84. While dealing with the question as to what constitutes
fraud, the learned author said, “What amounts to fraud has
been settled by the decision of House of Lords in Derry vs.
Peek (f) where lord Herscheel said “fraud is proved when it is
shown that a false representation has been made (1)
knowingly or (2) without belief in its truth or (3) recklessly,
careless whether it be true or false.” (See Kerr on Fraud and
Mistake- Seventh Edition. Page 10/11).
85. The author has said that, Courts of Equity have from a
very early period had jurisdiction to set aside Awards on the
ground of fraud, except where it is excluded by Statute. So
also, if the Award was obtained by fraud or concealment of
material circumstances on the part of one of the parties so as
to mislead the Arbitrator or if either party be guilty of
fraudulent concealment of matters which he ought to have
declared, or if he willfully mislead or deceive the Arbitrator,
such Award may be set aside. (See - Kerr on Fraud and
Mistake - Seventh Edition - pages 424, 425)
86. The author said that, if a man makes a representation in
point of fact, whether by suppressing the truth or suggesting
59
what is false, however innocent his motive may have been, he
is equally responsible in a civil proceeding as if he had while
committing these acts done so with a view to injure others or
to benefit himself. It matters not that there was no intention
to cheat or injure the person to whom the statement was
made. (See - Kerr on Fraud and Mistake – Seventh Edition,
page 7)
87. This rule of law is applicable not only between the two
individuals entering into any contract but is also applicable
between an individual and a company and also between the
two companies. (See- Kerr on Fraud and Mistake – Seventh
Edition, page 99).
88. The author said that this principle is also not limited to
cases where an express and distinct representation by words
has been made, but it applies equally to cases where a man by
his silence causes another to believe in the existence of a
certain state of things, or so conducts himself as to induce a
reasonable man to take the representation to be true, and to
believe that it was meant that he should act upon it, and the
other accordingly acts upon it and so alters his previous
position. (See - Kerr on Fraud and Mistake – Seventh
Edition, page 110).
60
89. The author said that where there is a duty or obligation
to speak, and a man in breach of that duty or obligation holds
his tongue and does not speak and does not say the thing
which he was bound to say, if that be done with the intention
of inducing the other party to act upon the belief that the
reason why he did not speak was because he had nothing to
say, there is a fraud (See- Kerr on Fraud and
Mistake-Seventh Edition, page 110).
90. So far as expression "public policy of India" in the context
of arbitration cases is concerned, this Court examined the
meaning, scope and ambit of this expression for the first time
in the case of Renusagar Power Co. Ltd. vs. General Electric
Co., 1994 Suppl(1) SCC 644 in the context of Foreign Awards
(Recognition & Enforcement) Act, 1961. It was then examined
in the case of Oil & Natural Gas Corporation Ltd. vs. Saw
Pipes Ltd., (2003) 5 SCC 705[ONGC(I)] and then again in
another case of Oil & Natural Gas Corporation Ltd. vs.
Western Geco International Ltd., (2014) 9 SCC
263[ONGC(II)]. It was recently examined in Associate Builders
vs. Delhi Development Authority, (2015) 3 SCC 49 in the
context of Section 34 of the Arbitration and Conciliation Act,
1996.
61
91. In between this period, this Court had also examined the
expression in some cases. However, in Associate Builders’s
case (supra), this Court examined the expression in detail in
the light of all previous decisions referred above on the
subject. R.F. Nariman, J. speaking for the Bench held that the
law laid down in the cases ONGC (I) and ONGC (II) has been
consistently followed by this Court till date. His Lordship
further clarified the meaning of expression–“public policy of
India” and what it includes therein and held that violation of
the provisions of Foreign Exchange Act, disregarding orders of
superior Courts in India and their binding effect, if
disregarded, would be violative of the Fundamental Policy of
Indian Laws. It was, however, held that juristic principle of
“judicial approach” demands that a decision be fair,
reasonable and objective. In other words, a decision which is
wholly arbitrary and whimsical would not be termed as fair,
reasonable or an objective determination of the questions
involved in the case. It was also held that observance of audi
alteram partem principle is also a part of juristic principle
which needs to be followed. It was held that if the Award is
against justice or morality, it is against public policy. It was
held that if there is a patent illegality noticed in the Award, it
62
is also against public policy.
92. Keeping in view the aforementioned broad principle of law
in mind, I examine the questions in the light of undisputed
facts of the case on hand and in the context of the
submissions urged.
93. It is apposite to take note of some more relevant sections
of Agreement-I in addition to those quoted above. In my view,
these sections also have material bearing over the controversy
involved as they show the true nature of Joint Venture
Agreement. Instead of quoting these sections in verbatim, its
reference alone may suffice.
94. These relevant sections are, (1) Recitals in the Agreement,
(2) Clause C of Recitals, (3) Section 1.01(c) and (d), (4) Section
3.02-Place of business, (5) Section 4.01-Authority of Board;
Election of Chairman, (6) Section 4.03-Board Meetings and
related matters, (7) Section 4.06-Financial, Accounting and
Tax Matters, (8) Section 5.06-Capital, (9) Section
5.07-Relationship between the Shareholders and the
Company, (10) Section 5.08-Power of Board of Directors, (11)
Section 6.03-Ownership of Proprietary Information; Public
Disclosures; Non-use of Proprietary and Confidential
information, (12) Section 6.07-Representation and Warranties,
63
(13) Definitions of expressions – (a) Affiliate, (b) Company’s
Act, and (c) Shareholder or Shareholders.
95. Reading of Agreement-I as a whole and, in particular, in
the context of the afore-noted sections of the Agreement would
go to show (1) the nature of the Joint Venture Agreement, (2)
who are parties to the agreement and what are their inter se
rights and obligations, and (3) how and in what manner the
JVC was to do business in India.
96. Following features emerge from reading the Agreements:
(i) First, the Joint Venture Agreement was between the
"Satyam and its affiliates" on the one part and "Venture and
its affiliates" on the other part. In other words, Agreement I
and Agreement II were between the "Satyam" and "Venture" as
also it included along with them their respective "affiliates"
(See-Recitals in Agreement I-which read -"hereinafter together
with all its affiliates, referred to as "Satyam" and "Venture” ).
(ii) Second, Satyam and Venture were the only two
shareholders of JVC each holding 50% equity share capital of
JVC.
(iii) Third, since JVC was formed to do its new business in
India, it was made obligatory upon "Satyam and its affiliates",
"Venture and its affiliates” and "JVC" to ensure compliance of
64
all the Indian Laws in force. In other words, all the
stakeholders, who formed the “JVC", were under legal
obligation to ensure strict compliance of all the Indian Laws
(Acts/Rules/Regulations) not only in relation to business
activities of “JVC” alone but also to ensure compliance of all
the Indian laws in their respective business activities jointly
and severally, namely, Satyam, Satyam’s affiliates, Venture
and Venture’s affiliates.
(iv) Fourth, Satyam to begin with was to provide all
infrastructural facilities to JVC to enable it to start its new
business in India.
(v) Fifth, the Chairman of JVC was to be nominated by
Satyam, who would have a right to preside over all Board of
Directors’ meetings of JVC.
(vi) Sixth, it was obligatory on JVC to maintain "true and
correct" accounts of JVC by ensuring strict compliance of all
Indian laws governing accounting and finances and to disclose
to their major stakeholders the true picture of the JVC's
financial status.
97. It is not in dispute that the Agreements were entered into
in the year 1999 whereas the business operations of JVC
began in 2000. It is also not in dispute that in terms of Section
65
5.06(a) and (b), Satyam was to give loan in cash and provide
all infrastructural facilities, Human Resources, Accounting,
Networking facilities and legal advice to JVC. It is also not in
dispute that Satyam and Venture, on 20.10.1999, had
prepared a financial plan pursuant thereto each one had
contributed $US 300.000 and $US 60.000 per month to cover
short falls in Bank loan of JVC. (page 176 of SLP paper book).
It is also not in dispute that in terms of the Agreements
(Section 4.01/5.03), Mr. Raju was nominated as Chairman of
JVC and he presided over all the Board of Directors meetings
of JVC from 2000 onwards in addition to presiding over of the
Board meetings of Satyam being its Chairman.
98. At this stage, it is apposite to reproduce in verbatim the
most crucial document namely, a “confessional statement of
Mr. Raju in the form of a letter dated 7th January, 2009
addressed to Satyam's Board of Directors". It is this
confessional statement, which turned the entire complexion of
the case on hand.
99. As mentioned above, this Court, in earlier round of
litigation in two decisions, namely, Venture I and II, permitted
the Venture to raise the additional plea in Section 34
proceedings to challenge the arbitral proceedings including the
66
Award on the basis of Mr. Raju's confessional statement made
on 07.01.2009. It was held by this Court that such being a
material fact which came into existence as a subsequent event
had a direct bearing over the issues arising in the case, the
legality and correctness of arbitral proceedings including the
Award could, therefore, be tested in the light of this material
subsequent event. It was also held that since the case on
hand relates to the period prior to Balco’s regime (supra), it
would be governed by Bhatia (supra) regime and, in
consequence, fall in Part I of the AAC Act. It was held that, as
a result, the legality of the Award, though foreign in nature,
could still be decided under Section 34 of the AAC Act by the
Indian Courts. These findings attained finality being rendered
inter se parties in this very case, are binding on the parties.
This is the reason, why the issues arising in this case are
being decided in these proceedings.
100. The letter dated 07.01.2009 reads as under:
“To the Board of Directors
Satyam Computer Services Ltd.
From B. Ramalinga Raju
Chairman, Satyam Computer Services Ltd.
January 7, 2009
Dear Board Members,
It is with deep regret, and tremendous burden that I am
67
carrying on my conscience, that I would like to bring the
following facts to your notice:
1. The Balance Sheet carries as of September 30, 2008.
a. Inflated (non-existent)cash and bank balances of Rs.5,040
crore (as against Rs.5361 crore reflected in the books)
b. An accrued interest of Rs.376 crore which is non-existent.
c. An understated liability of Rs.1,230 crore on account of
funds arranged by me.
d. An over stated debtors position of Rs.490 crore (as against
Rs.2651 reflected in the books)
2. For the September quarter (Q2) we reported a revenue of
Rs.2,700 crore and an operating margin of Rs.649 crore (24%
of revenues) as against the actual revenues of Rs.2,112 crore
and an actual operating margin of Rs.61 crore (3% of
revenues). This has resulted in artificial cash and bank
balances going up by Rs.583 crore in Q2 alone.
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 stand alone, 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 level of
operations – thereby significantly increasing the costs.
Every attempt made to eliminate the gap failed. As the
promoters held a small percentage of equity, the
concern was that poor performance would result in a
take-over, thereby exposing the gap. It was like riding a
tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last
attempt to fill the fictitious assets with real ones.
Maytas’ investors were convinced that this is a good
divestment opportunity and a strategic fit. Once
Satyam’s problem was solved, it was hoped that Maytas’
payments can be delayed. But that was not to be. What
68
followed in the last several days is common knowledge.
I would like the Board to know:
1. That neither myself, nor the Managing Director (including our
spouses) sold any shares in the last eight years – excepting for
a small proportion declared and sold for philanthropic
purposes.
2. That in the last two years a net amount of Rs.1,230 crore was
arranged to Satyam (not reflected in the books of Satyam) to
keep the operations going by resorting to pledging all the
promoter shares and raising funds from known sources by
giving all kinds of assurances (Statement enclosed, only to the
members of the board). Significant dividend payments,
acquisitions, capital expenditure to provide for growth did not
help matters. Every attempt was made to keep the wheel
moving and to ensure prompt payment of salaries to the
associates. The last straw was the selling of most of the
pledged share by the lenders on account of margin triggers.
3. That neither me, nor the Managing Director took even one
rupee/dollar from the company and have not benefited in
financial terms on account of the inflated results.
4. None of the board members, past or present, had any
knowledge of the situation in which the company is placed.
Even business leaders and senior executives in the company,
such as, Ram Mynampati, Subu D, T.R. Anand, Keshab Panda,
Virender Agarwal, A.S. Murthy, Hari T, SV Krishnan, Vijay
Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale,
Joe Lagioia, Ravindra Penumetsa, Jayaraman and Prabhakar
Gupta are unaware of the real situation as against the books of
accounts. None of my or Managing Director’s immediate or
extended family members has any idea about these issues.
Having put these facts before you, I leave it to the
wisdom of the board to take the matters forward.
However, I am also taking the liberty to recommend the
following steps:
1. A Task Force has been formed in the last few days to
address the situation arising out of the failed Maytas
acquisition attempt. This consists of some of the most
accomplished leaders of Satyam: Subu D, T.R. Anand,
Keshab Panda and Virender Agarwal, representing
business functions, and A.S. Murthy, Hari T and Murali V
representing support functions. I suggest that Ram
Mynampati be made the Chairman of this Task Force to
immediately address some of the operational matters on
69
hand. Ram can also act as an interim CEO reporting to
the board.
2. Merrill Lynch can be entrusted with the task of quickly
exploring some Merger opportunities.
3. You may have a ‘restatement of accounts’ prepared by the
auditors in light of the facts that I have placed before you.
I have promoted and have been associated with Satyam
for well over twenty years now. I have seen it grow from
few people to 53,000 people, with 185 Fortune 500
companies as customers and operations in 66 countries.
Satyam has established an excellent leadership and
competency base at all levels. I sincerely apologize to all
Satyamites and stakeholders, who have made Satyam a
special organization, for the current situation. I am
confident they will stand by the company in this hour of
crisis.
In light of the above, I fervently appeal to the board to
hold together to take some important steps. Mr. T.R.
Prasad is well placed to mobilize support from the
government at this crucial time. With the hope that
members of the Task Force and the financial advisor,
Merrill Lynch (now Bank of America) will stand by the
company at this crucial hour, I am marking copies of
this statement to them as well.
Under the circumstances, I am tendering my resignation
as the chairman of Satyam and shall continue in this
position only till such time the current board is
expanded. My continuance is just to ensure
enhancement of the board over the next several days or
as early as possible.
I am now prepared to subject myself to the laws of the
land and face consequences thereof.
(B.Ramalinga Raju)
Copies marked to:
1.Chairman SEBI
2. Stock Exchanges” (Emphasis supplied)”
101. It may here be mentioned that the aforesaid letter, its
contents and signature of the author of the letter - Mr. Raju,
70
were never in dispute and nor at any point of time anyone
questioned it. In other words, the existence of letter, its
contents and signature of Mr. Raju on the letter were never
doubted and nor its author (Mr. Raju) at any point of time
retracted from his confessional statement made therein or
denied having written such letter.
102. In my opinion, therefore, the letter in question was
rightly received in evidence without requiring any further
formal proof to corroborate its existence and contents. That
apart, it being a "notorious fact” being in the knowledge of
the whole World and especially those in the trade, the Courts
could take judicial notice of such evidence as held by this
Court in the case of Onkar Nath & Ors. Vs. Delhi
Administration, (1977) 2 SCC 611. It is appropriate to quote
the words of the leaned Judge-Justice Y.V.Chandrachud (as
His Lordship then was), who speaking for the Bench held as
under:
“6. One of the points urged before us is whether the
courts below were justified in taking judicial notice of
the fact that on the date when the appellants delivered
their speeches a railway strike was imminent and that
such a strike was in fact launched on May 8, 1974.
Section 56 of the Evidence Act provides that no fact of
which the Court will take judicial notice need be proved.
Section 57 enumerates facts of which the Court “shall”
take judicial notice and states that on all matters of
public history, literature, science or art the Court may
resort for its aid to appropriate books or documents of
71
reference. The list of facts mentioned in Section 57 of
which the Court can take judicial notice is not
exhaustive and indeed the purpose of the section is to
provide that the Court shall take judicial notice of
certain facts rather than exhaust the category of facts of
which the Court may in appropriate cases take judicial
notice. Recognition of facts without formal proof is a
matter of expediency and no one has ever questioned
the need and wisdom of accepting the existence of
matters which are unquestionably within public
knowledge. (See Taylor, 11th Edn., pp. 3-12; Wigmore,
Section 2571, footnote; Stephen’s Digest, notes to
Article 58; Whitley Stokes’ Anglo-Indian Codes, Vol. II,
p. 887.) Shutting the judicial eye to the existence of
such facts and matters is in a sense an insult to
commonsense and would tend to reduce the judicial
process to a meaningless and wasteful ritual. No court
therefore insists on formal proof, by evidence, of
notorious facts of history, past or present. The date of
poll, the passing away of a man of eminence and events
that have rocked the nation need no proof and are
judicially noticed. Judicial notice, in such matters, takes
the place of proof and is of equal force. In fact, as a
means of establishing notorious and widely known facts
it is superior to formal means of proof. Accordingly, the
courts below were justified in assuming, without formal
evidence, that the Railway strike was imminent on May
5, 1974 and that a strike paralysing the civic life of the
Nation was undertaken by a section of workers on May 8,
1974.”
103. I apply the aforementioned principle of law to the facts of
this case and hold that letter dated 07.01.2006 of Mr. Raju did
not require any more formal proof.
104. On reading its contents, I am of the view that the acts of
Mr. Raju, in the affairs of Satyam, were essentially in the
nature of manipulating and fabricating the accounts
books/balance-sheets of Satyam. These acts were done by
Mr. Raju without knowledge to all the stakeholders of Satyam
including Venture. These acts were detrimental to the interest
72
of all the stakeholders who were/are directly and indirectly
dealing and involved in the affairs of Satyam and its affiliates
at all material times.
105. In my opinion, it is a clear case where Mr. Raju
suppressed the real facts relating to the affairs of Satyam from
its stakeholders and, on the other hand, went on indulging in
manipulating and fabricating the accounts
books/balance-sheets of Satyam.
106. Satyam, being a limited Company registered under the
Indian Companies Act, 1956, was under legal obligation to
ensure strict compliance of the Companies Act.
107. Section 209 of the Companies Act deals with Books of
Account of the Company. Sub-section (3) thereof casts an
obligation on the Company to keep "proper books of account"
as are necessary to give a “true and fair view of the state of
affairs of the Company” or its Branch office and explain its
transactions.
108. Similarly, Section 211 of the Act deals with “form and
contents of balance-sheet and profit and loss account of the
Company”. This Section again casts an obligation on every
Company that it shall give "true and fair view of the state of
affairs of the company" at the end of the financial year.
73
Sub-section(3B) provides that if the Company does not comply
with the accounting standard prescribed then they have to
disclose the reasons for not being able to do so.
Non-compliance of these provisions renders the Company to
suffer penalty prescribed under Section 628 and other
Sections of the Act.
109. Keeping in view the requirements of Sections 209 and
211, I am of the considered opinion that the acts of Mr. Raju,
in the affairs of Satyam, were prima facie in breach of Sections
209 and 211 of 1956 Act and other Acts. It had adverse
impact on the affairs of Satyam, its affiliates and on those who
were dealing with Satyam at the relevant time.
110. These acts also constituted the acts of misrepresentation
and suppression of material facts on the part of Mr. Raju
which he himself candidly confessed to have done it by
expressing his regrets only in his letter dated 07.01.2009. In
my view, the principle of law quoted from “Kerr” above
squarely applies to the facts of this case. I, accordingly, hold
so against Satyam.
111. This takes me to examine the next question as to whether
the acts of Mr. Raju, in the affairs of Satyam, amount to "event
of default" under Sections 8.01 and 11.05(c) of Agreement-I
74
and, if so, its effect on the rights of the parties to the
Agreement.
112. In my opinion, the acts of Mr. Raju amount to “event of
default" under Section 8.01(b) and Section 11.05(c) of
Agreement-I for the following reasons:
113. First, the acts satisfy the requirements of Section 8.01(b)
read with Section 11.05 (c) of Agreement-I.
114. Second, Section 11.05(c) which gives overriding effect on
all Sections of Agreement I casts an obligation on
“Shareholders” to ensure compliance of all laws of India. The
expressions “Shareholder” and “Shareholders” include
“Venture”, “Satyam”, their affiliates and assigns.
115. A fortorari, non-compliance of any provision(s) of any
Act/Rules by any shareholder would, therefore, amount to
"event of default" under Sections 8.01(b) and 11.05(c) of
Agreement-I.
116. Third, having regard to the nature of the Agreement, it is
clear that Section 11.05(c) applies to the affairs of JVC so also
it applies to the shareholders of JVC, viz., Satyam, Venture
and their respective affiliates in the affairs of their respective
business activities. In my view, to confine the applicability of
Section 11.05(c) only to the affairs of JVC would defeat the
75
very purpose of Joint Venture Agreement. It would also not be
the true interpretation of Section 11.05(c) and nor was it
intended by the parties.
117. In this view of the matter, in my view, breach on the part
of Satyam, who was 50% shareholder of JVC, was clearly
made out under Agreement-I thereby entitling Venture to take
recourse to the remedies provided in Sections 8.03 and 8.04
against Satyam on happening of such events.
118. Fourth, the acts of Mr. Raju, in the affairs of Satyam,
were not isolated but spread over in several years in past as is
clear from his own statement (see -Para 2 of the letter) and
were prior in point of time as compared to the breach
committed by Venture.
119. Fifth, the affairs of Satyam had a direct bearing over the
rights of the parties to the Agreement and also on the affairs of
JVC because Satyam and Venture were the only 2
shareholders of JVC each having 50% stakes therein; second,
Satyam and its affiliates were also party to the Agreements
with Venture and their affiliates; third, the entire capital
including providing of the loan facilities to JVC were to be
funded by Satyam and Venture as per Agreement dated
20.10.1999 whereas operative infrastructure was to be
76
provided by Satyam; fourth, Mr. Raju was the Chairman of
Satyam and JVC and, as such being in dual capacity, was in a
position to control the affairs of both the Companies, i.e.,
Satyam and JVC; fifth and the most pertinently, the affairs of
Satyam, Venture, JVC and their respective affiliates were so
intrinsically connected with each other that any major event
occurring in one Company would have had direct and indirect
impact on the working of other group companies. Agreement-I,
in my view, has to be construed accordingly while deciding the
rights of all parties to the Agreement.
120. It could not be, therefore, contended that there was no
causative link of any kind between these Companies inter se.
On the other hand, taking into consideration these admitted
facts including the findings of this Court rendered earlier in
Venture-I and II, I am clearly of the view that there existed
causative link inter se these companies. To hold otherwise
would be nullifying the findings of this Court recorded earlier
in Venture-I and II.
121. In the light of aforesaid reasons, any major event
occurring in the affairs of Satyam could be made basis for
determining the rights of the parties arising out Agreement I.
122. A fortiori, the acts of Mr. Raju, in the affairs of Satyam,
77
had also direct bearing over the claim filed by Satyam against
Venture in arbitration proceedings in London Court of
Arbitration in 2005 because Satyam’s claim also arose out of
Agreement I/II. Had Mr. Raju brought his acts of Satyam to
the notice of shareholders/Board of Directors of JVC in any
Board meeting of JVC, Venture too would have been able to
get first right to terminate Agreement-I under Section 8.01(b)
read with Section 11.05(c) and claim appropriate reliefs
against Satyam because, as held above, Satyam breach was
prior in point of time.
123. In my opinion, Venture was, therefore, deprived of their
legal and contractual rights to exercise against Satyam but for
no fault of theirs. Venture also lost their right to defend
Satyam’s claim before the Arbitrator on these grounds, which
were deliberately suppressed by Satyam from Venture.
124. Sixth, it is a well settled principle of law that commission
of fraud, misrepresentation, suppression of material facts from
the adversary in the judicial proceedings and the
Court/Arbitrator result in vitiating the entire judicial/arbitral
proceedings including judgment/order/award passed thereon
once come to the knowledge of the party concerned. On
proving existence of commission of fraud, misrepresentation,
78
suppression of material facts by the party concern, the
judicial/arbitral proceedings are rendered illegal and void ab
initio. This principle applies to arbitral proceedings in
question and to Award dated 03.04.2006 and thus renders
both void ab initio. I accordingly hold so.
125. Seventh, the Award dated 03.04.2006 is also against the
public policy of India in the light of law laid down by this
Court in the case of Associate builder’s case quoted supra,
It is, therefore, liable to be set aside for the reasons that it is
proved that the Award was obtained by Satyam against
Venture by misrepresentation and suppression of material
facts having bearing over the proceedings; second, the acts of
Mr. Raju, in the affairs of Satyam, as its Chairman violated
several sections of IPC, Companies Act and FEMA; and third,
the arbitral proceedings in question due to this reason, which
came to knowledge to all stakeholders of Satyam including
Venture subsequent to passing of the Award could not be said
to have been held fairly or reasonably but were concluded to
the detriment of the interest of Venture causing them
prejudice while defending their interest before the learned
Arbitrator. It also deprived Venture from exercising their
contractual right for want of knowledge of these acts of Mr.
79
Raju against Satyam at appropriate stage in court of law in
terms of agreement. All this occurred obviously due to Satyam
concealing these major events at all relevant time from
Venture.
126. As taken note of above, once the fraud, misrepresentation
or suppression of fact, if found to have been done by the party
in any judicial proceedings is later discovered or disclosed
then it would relate back to the date of its actual commission
and would necessarily result in vitiating such judicial
proceedings. Such is the case here.
127. The Award of an arbitral Tribunal can be set aside only
on the grounds specified in Section 34 of the AAC Act and on
no other ground. The Court cannot act as an Appellate Court
to examine the legality of Award nor it can examine the merits
of claim by entering in factual arena like an Appellate Court.
It has to confine its enquiry only to the limited issue as to
whether any ground specified in Section 34 of AAC Act is
made out or not. Once the ground under Section 34 of the
AAC Act is made out, the Award then has to be set aside. In
the case on hand, in my view, a ground under Section 34(2)(b)
(ii) read with Explanation I (i)(ii) and (iii) is made out. I
accordingly hold so.
80
128. In the light of foregoing discussion, I am of the opinion
that the arbitral proceedings including the Award in question
was passed in violation of public policy of India under Section
34(2)(b)(ii) read with Explanation 1(i), (ii) and (iii) of the AAC
Act and thus not legally sustainable. I accordingly hold so.
129. This takes me to examine the next argument of learned
senior counsel for the appellant that the High Court was not
right in dismissing the appellant’s application by applying the
principle of "issue-estoppel". I find force in the appellant’s
submission.
130. This Court in the case of Masud Khan vs. State of Uttar
Pradesh, (1974) 3 SCC 469 had the occasion to consider the
question of applicability of principle of "issue-estoppel" to
judicial proceedings. Their Lordships speaking through A.
Alagiriswami, J. examined the facts of that case in the light of
law laid down in several English and Indian cases and held
that principle of "issue-estoppel" applies to criminal
proceedings only and not to any other proceedings. This is
what His Lordship held in para 4 and in concluding para:
“4. But that apart, this matter could be decided on
another point. The question of issue-estoppel has been
considered by this Court in Pritam Singh v. State of
Punjab, AIR 1956 SC 415, Manipur Administration v.
Thokchom Bira Singh, AIR 1965 SC 87 and Piara Singh
v. Staff of Punjab,(1969) 1 SCC 379. Issue-estoppel
81
arises only if the earlier as well as the subsequent
proceedings were criminal prosecutions. In the present
case while the earlier one was a criminal prosecution the
present is merely an action taken under the Foreigners
(Internment) Order for the purpose of deporting the
petitioner out of India. It is not a criminal prosecution.
The principle of issue-estoppel is simply this: that where
an issue of fact has been tried by a competent court on a
former occasion and a finding has been reached in favour
of an accused, such a finding would constitute an
estoppel or res judicata against the prosecution not as a
bar to the trial and conviction of the accused for a
different or distinct offence but as precluding the
reception of evidence to disturb that finding of fact
when the accused is tried subsequently even for a
different offence which might be permitted by law.
Pritam Singh case was based on the decision of the
Privy Council is Sambasivam v. Public Prosecutor,
Federation of Malaya, (1950) AC 458. In that case Lord
MacDermott speaking for the Board said:
“The effect of a verdict of acquittal
pronounced by a competent court on a lawful
charge and after a lawful trial is not
completely stated by saying that the person
acquitted cannot be tried again for the same
offence. To that it must be added that the
verdict is binding and conclusive in all
subsequent proceedings between the parties
to the adjudication.”
It should be kept clearly in mind that the proceeding
referred to herein is a criminal prosecution. The plea of
issue-estoppel is not the same as the plea of double
jeopardy or autrefois acquit. In King v. Wilkes, 77 CLR
511, Dixon, J., referring to the question of
issue-estoppel said:
“...it appears to me that there is nothing
wrong in the view that there is an
issue-estoppel, if it appears by record of itself
or as explained by proper evidence, that the
same point was determined in favour of a
prisoner in a previous criminal trial which is
brought in issue on a second criminal trial of
the same prisoner ... There must be a prior
proceeding determined against the Crown
necessarily involving an issue which again
arises in a subsequent proceeding by the
Crown against the same prisoner. The
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allegation of the Crown in the subsequent
proceeding must itself be inconsistent with
the acquittal of the prisoner in the previous
proceeding. But if such a condition of affairs
arises I see no reason why the ordinary rules
of issue-estoppel should not apply....
Issue-estoppel is concerned with the judicial
establishment of a proposition of law or fact
between parties. It depends upon well-known
doctrines which control the relitigation of
issues which are settled by prior litigation.”
The emphasis here again would be seen to be on the
determination of criminal liability. In Marz v. Queen, 96
CLR 62, the High Court of Australia said:
“The Crown is as much precluded by an
estoppel by judgment in criminal proceedings
as is a subject in civil proceedings... The law
which gives effect to issue-estoppel is not
concerned with the correctness or
incorrectness of the finding which amounts
to an estoppel, still less with the process of
reasoning by which the finding was reached
in fact ... It is enough that an issue or issues
have been distinctly raised or found. Once
that is done, then, so long as the finding
stands, if there be any subsequent litigation
between the same parties, no allegations
legally inconsistent with the finding, may be
made by one of them against the other.”
Here again it is to be remembered that the principle
applies to two criminal proceedings and the proceeding
with which we are now concerned is not a criminal
proceeding. We therefore hold that there is no substance
in this contention.
5. The petition is dismissed.”
131. Applying the aforesaid principle of law to the facts of the
case, I find that the arbitral proceedings out of which these
appeals arise are essentially in the nature of the civil
proceedings and, therefore, in the light of law laid down in the
83
case of Masud Khan(supra), the High Court was not right in
applying the principle of "issue-estoppel" for dismissing the
application filed by the appellant under Section 34 of the AAC
Act.
132. In other words, the application filed by the appellant
under Section 34 of the AAC Act could not be dismissed by
applying the principle of "issue-estoppel", which in the light of
law laid down in the case of Masud Khan (supra) had no
application to the civil proceedings.
133. Mr. Chagla and Mr. Vishwanathan, learned senior
counsel for the respondents, apart from supporting the
impugned judgment of the High Court made various
submissions on the merits of the case as taken note of supra.
However, in the light of the detailed reasoning given supra, the
submissions of learned counsel for the respondents do not
survive. They need not be, therefore, dealt with separately
again in detail.
134. Yet, another submission of Mr. Vishwanathan in
Satyam’s appeal that Satyam still has a right to raise the
issues on merits in Section 34 proceedings in Trial Court has
no substance in the light of what I have held above.
135. In my view, the issues arising in the case must be given
84
quietus in third round of litigation in this Court and which I
hereby give to the case. Moreover, when the grounds urged by
the appellant (Venture) to attack the Award are made out on
merits in these proceedings and which were also dealt with by
the two Courts below then I do not find any justification to
again send the case back to the Trial Court to decide the case
on merits on some other ground. It is more so when such
prayer was not made in the Courts below.
136. That apart, there is enough material on record on which
decision could be rendered on the merits of the case. Indeed,
it was so rendered by the Trial Court and the High Court
though of reversal. In the light of facts emerging from the
record, it is not considered necessary to have another round of
litigation for filing any additional material or to adduce any
more evidence again before the Trial Court.
137. Learned counsel for the appellant attacked the legality of
the Award on other grounds also. In the light of foregoing
discussion, I do not consider it necessary to deal with any
other grounds.
138. Learned counsel for the appellant cited several decisions
in support of his submission. These decisions are: 2008(4)
SCC 190, 2010(8) SCC 660, 2015(10) SCC 213, 2016(2) Scale
85
60, 2003(5) SCC 705, 1997(3) SCC 540, 1993(2) SCC
507,1996(4) SCC 622, 1972 Appeal Cases 153, 2015(4) SCC
609, 1995(2) SCC 513, 2010(8) SCC 665, 1994(1) SCC 1,
2000(3) SCC 581, 1964(4) SCR 19, 1974(1) SCC 242, 2003(8)
SCC 673, 1955(2) SCR 271, 1969(1) SCR 1006, 1977(2) SCC
611, 2010(8) SCC 660, 1995(1) SCC 478, 2005(4) SCC 605,
2005(4) SCC 530, 2015(4) SCC 609, 2010(8) SCC 44, 2011(1)
SCC 74, 2009(10) SCC 259, 2016(4) SCC 126 and 1955(1)
SCR 206.
139. Learned Counsel for the respondents cited several
decisions in support of his submissions. These decisions are:
1966(3) SCC 527, 2010(4) SCC 491, 1972 (2) SCR 646,
1968(3) SCR 1, 2012(8) SCC 148, AIR 1971 SC 1949, 1972(4)
SCC 562, 2013(10) SCC 758, 1966(3) SCR 283, 1996(4) SCC
622, 2010(7) SCC 1, 1977(2) SCC 611, 1977(8) SCC 683,
2003(11) SCC 405, 1996(6) SCC 665, 2005(4) SCC 530,
2006(6) SCC 94, 2009(17) SCC 796, 1951 SCR 548, 1998(4)
SCC 577 and 1996(5) SCC 550.
140. I have carefully gone through these decisions cited at the
bar by both the learned counsel appearing for the parties. In
my view, there can be no quarrel to the legal principles laid
down in these cases as they are laid down in the light of facts
86
involved in them. However, in the light of what I have held
supra, it is not necessary to deal with each of these decisions
in detail separately.
141. I, however, consider it apposite to mention that I have
considered the issue arising in arbitral proceedings in the
context of AAC Act only and, have not expressed any opinion
on any of the case relating to this case which are pending in
various Courts in India including in foreign Courts against
Satyam and its officials and vice versa. All such pending
cases will, accordingly, be decided in accordance with law.
142. In view of foregoing discussion, the questions posed
above are answered in affirmative and in favour of the
appellant (Venture) and against the respondent(Satyam). The
appeals filed by Venture Global Engineering LLC thus succeed
and are, accordingly, allowed with cost of Rs.5 lacs payable by
Satyam to the appellant (Venture). Impugned judgment of the
High Court is accordingly set aside and that of the
judgment/order passed by the Trial Court is hereby restored.
143. As a consequence, the application filed by the Venture
(appellant herein) under Section 34 of the AAC Act, out of
which these appeals arise, is allowed. As a result thereof, the
entire arbitral proceedings including the Award dated
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03.04.2006 passed by the sole Arbitrator is set aside as being
against the public policy of India under Section 34(b)(ii) read
with Explanation I(i)(ii) and (iii) of the AAC Act.
144. As a Consequence, the appeal filed by Tech Mahindra is
dismissed.
...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
November 01, 2017
88
