2017 (11) TMI 777 - SC - Indian Laws

Arbitral Award - VENTURE seeks to have the AWARD set aside - failure to make disclosure would render the AWARD liable to be set aside - Held that - Hon ble Mr. Justice J. Chelameswar and Hon ble Mr. Justice Abhay Manohar Sapre pronounced separate and dissenting judgments of the Bench comprising His Lordship and Hon ble Mr. Justice Abhay Manohar Sapre, in these petitions. Leave granted in the SLPs. In terms of common signed reportable order, the Registry is directed to place the papers before Hon ble the Chief Justice of India for appropriate further course of action.

Issues Involved:
1. Issue Estoppel
2. Public Policy and Fraud
3. Jurisdiction of Indian Courts
4. Applicability of Part I and Part II of the Arbitration and Conciliation Act, 1996 (AAC Act)
5. Limitation Period for Filing Application under Section 34 of the AAC Act
6. Enforcement of Foreign Awards
7. Material Suppression of Facts and Fraud
8. Violation of Foreign Exchange Management Act (FEMA)

Issue-Wise Analysis:

1. Issue Estoppel:
The High Court held that the principle of "issue estoppel" was not applicable to the proceedings under Section 34 of the AAC Act. The Supreme Court concurred, noting that "issue estoppel" applies only to criminal proceedings and not to civil proceedings such as those under the AAC Act.

2. Public Policy and Fraud:
The trial court set aside the arbitral award on the grounds that it was contrary to the public policy of India, citing violations of FEMA and financial irregularities in Satyam's accounts. The High Court reversed this decision, stating that the trial court did not properly substantiate the claims of fraud and public policy violations. The Supreme Court, however, reinstated the trial court's decision, emphasizing that the acts of fraud and misrepresentation by Satyam's Chairman, Mr. Raju, were material and had a causative link to the arbitral proceedings. The Court held that the award was obtained by fraud and was thus against the public policy of India.

3. Jurisdiction of Indian Courts:
The High Court affirmed that Indian courts had jurisdiction to hear the application under Section 34 of the AAC Act, even though the award was foreign. This was based on the law laid down in Bhatia International vs. Bulk Trading S.A. and Bharat Aluminium Company vs. Kaiser Aluminium Technical Services Inc. (BALCO), which allowed for the application of Part I of the AAC Act to foreign awards. The Supreme Court upheld this view.

4. Applicability of Part I and Part II of the AAC Act:
The High Court held that a party could not invoke both Part I and Part II of the AAC Act simultaneously. The Supreme Court did not find this issue relevant for the final decision, focusing instead on the grounds of fraud and public policy.

5. Limitation Period for Filing Application under Section 34 of the AAC Act:
The High Court initially held that the application to set aside the award was time-barred. However, the Supreme Court allowed the amendment to include additional grounds of fraud, recognizing the materiality of the subsequent disclosure by Mr. Raju.

6. Enforcement of Foreign Awards:
The High Court noted that the award had already been enforced in the US, and questioned whether an Indian court could set aside a foreign award. The Supreme Court, however, focused on the fraud and public policy issues, ultimately setting aside the award.

7. Material Suppression of Facts and Fraud:
The trial court found that Satyam had suppressed material facts and committed fraud, which had a causative link to the arbitral award. The High Court disagreed, but the Supreme Court reinstated the trial court's findings, emphasizing the significance of Mr. Raju's confessional statement and its impact on the arbitral proceedings.

8. Violation of FEMA:
The trial court held that the award violated FEMA by directing the transfer of shares at book value rather than fair value. The High Court found this conclusion unsustainable due to lack of evidence. The Supreme Court, however, upheld the trial court's decision, noting that the violation of FEMA constituted a breach of public policy.

Conclusion:
The Supreme Court ultimately set aside the arbitral award, reinstating the trial court's decision on the grounds of fraud, misrepresentation, and violation of public policy. The Court emphasized the materiality of Mr. Raju's fraudulent activities and their impact on the arbitral proceedings, thereby rendering the award void ab initio. The appeal by Venture Global Engineering LLC was allowed, and the appeal by Tech Mahindra was dismissed.

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