9911796707
TMI Blog2017 (11) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... dv., Mr. Naval Sharma,Adv., Mr. Saket Satapathy,Adv., Mrs. Shriye Luke,Adv., Mr. Devendra Singh, AOR, Mr. Abhijit Sinha,Adv., Mr. Abhinav Mukerji, AOR JUDGMENT Chelameswar, J. 1. Leave granted in both the SLPs. I had the advantage of reading the opinion of my learned brother Justice Sapre. While I agree with the conclusion recorded by him that the High Court erred in its conclusion on the question whether the proceedings initiated by VENTURE in OP No. 390 of 2008 are barred by the principle of issue estoppel , I am unable to persuade myself to agree with his conclusions that the judgment under appeal is required to be reversed on the questions relating to public policy and fraud for the following reasons; 2. The facts of these appeals are narrated in great detail by my learned brother. There is no need to repeat except to mention those which are essential for the purpose of my conclusion. 3. An Arbitral Award dated 3 rd 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 immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 31 st July, 2006 and the District Court of Michigan by its judgment directed the enforcement of the AWARD. It appears that VENTURE appealed against the said order in the 6 th Circuit, US Appellate Court in Michigan. 8. I assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 13 th 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 25 th April, 2006. 11. Thereafter, VENTURE filed OS No. 80 of 2006 on 28 th April, 2006 before the Ist Additional Chief Judge, City Civil Court, Secunderabad seeking mainly two reliefs: i. a declaration that the Award was illegal and without jurisdiction; and ii. a permanent injunction restraining Satyam from enforcing the Award. 12. This Court had an occasion to examine the maintainability of the said suit in an appeal arising out of certain interlocutory proceedings (detailed in the judgment of my learned brother) in Venture Global Engineering v. Satyam Computer Services Ltd. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitting the AWARD to be challenged after the expiration of limitation. 17. VENTURE appealed to this Court. This Court, by judgment of the 11 th of August, 2010 Venture Global Engineering v. Satyam Computer Services Limited Another, (2010) 8 SCC 660 ( Venture-II ) , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). In the opinion of the trial court, the AWARD is affected and induced by fraud and cannot be enforced being opposed to public policy of India. 22. Whether the above conclusions are tenable? was the question before the High Court. The High Court framed 8 points for consideration in the judgment under appeal. 1) Whether the institution of the proceedings by the 1st respondent in the Indian Courts to enforce a foreign award can be justified in view of the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or v. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or b. the Court finds that i. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or ii. the arbitral award is in conflict with the public policy of India. Explanation I.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,- ( i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or ( ii) it is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks was further accentuated by the fact that the company had to carry additional resources and assets to justify higher lever of operations thereby significantly increasing the costs). Ramalinga Raju s statement is not very clear regarding the point of time at which the fudging of the accounts of SATYAM commenced. (The trial court at para 11(a) of the judgment recorded a submission that the fudging commenced w.e.f. the year 2002.) 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 univers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, 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; ( 5) any such act or omission as the law specially declares to be fraudulent.) 44. But the fact remains, such a definition is valid only in the context of contracts. In my opinion, the definition under Section 17 of the Contract Act may not be of any great assistance, to understand the meaning and scope of the explanation to Section 34(2) of the ACT. From the language of the explanation to Section 34(2), what renders an AWARD liable to be set aside is that the making of the AWARD must have been induced by fraud or the AWARD is affected by fraud. Neither does the trial court judgment identify the legal parameters for recording a conclusion that the making of the AWARD was induced by or fraud or that the AWARD is affected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render the AWARD liable to be set aside is wholly untenable. No reference is made to the pleadings of VENTURE as to how VENTURE believed that the CONCEALED FACTS are material for the adjudication of the dispute by the arbitrator. Equally absent is the discussion by the trial court as to how the CONCEALED FACTS would become material facts in the context of the arbitration. In the entire discussion on point nos.6 7, the trial court does not give any reason justifying the conclusion that the CONCEALED FACTS are material facts in the context of the arbitration. Except mechanically repeating the words of this Court that the non-disclosure or concealment of the material facts before the arbitrator is an act of fraud, there is no discussion as to how the CONCEALED FACTS are material facts whose concealment resulted in inducing the making of the AWARD by fraud or affected by fraud. 46. It must be remembered here that this Court in VENTURE-II categorically declared: 44. This Court also holds that the facts concealed must have a causative link. And if the concealed facts, disclosed after the passing of the award, have a causative link with the facts constituting or inducing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of the Constitution of India. I would therefore dismiss the appeals of VENTURE. CIVIL APPEAL No. OF 2017 (ARISING OUT OF SLP (C) No. 8298/2014) 49. If this Court agrees with the conclusion of the High Court that the AWARD is not liable to be set aside, the appeal of SATYAM would become purely academic. Even otherwise, a reading of the Special Leave Petition discloses, all that SATYAM is seeking is to reagitate the question of the applicability of Part-I of the ACT to an international commercial arbitration. In other words, it is a challenge to the correctness of the decision of a Constitution Bench of this Court in BALCO s case . I am of the opinion that such a course ought not to be permitted. I would, therefore, dismiss the appeal of SATYAM. JUDGMENT 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 Court, Secunderabad. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses (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 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-Def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 VGE (VGE = VENTURE) to deliver to Satyam share certificates in form suitable for immediate transfer to Satyam (Satyam = SATYAM) or its designee evidencing all of VGE s ownership interest (legal and/or beneficial) in SVES (SVES = JVC) . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint was rejected. 29. Challenging the said order, Venture filed appeal before the High Court. The High Court dismissed the appeal on 27.02.2007. 30. Aggrieved by the said order, Venture moved this Court. This Court allowed the appeal by a reported 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 appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he auditors of Satyam was compelled to declare that the financial statements of Satyam could no longer be considered accurate or/and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting-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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional 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 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/appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.-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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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/suppressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 with decisions of this Court described as Venture I and Venture II rendered in the earlier ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs or/and to JVC affairs and, if so, whether such acts constitute 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on it, and the other accordingly acts upon it and so alters his previous position. ( See - Kerr on Fraud and Mistake Seventh Edition, page 110 ). 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[ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting 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, (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-wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ₹ 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 hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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, were never in dispute and nor at any point of time anyone questioned it. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of, 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 of all the stakeholders who we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining the rights of the parties arising out Agreement I. 122. A fortiori , the acts of Mr. Raju, in the affairs of Satyam, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 wellknown 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 60, 2003(5) SCC 705, 1997(3) SCC 540, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
