Venture Global Engineering Llc vs Tech Mahindra Ltd & Anr Etc

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.

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. 2

6. The arbitrator inter alia opined that an Event of Default on the part of VENTURE occurred and therefore, VENTURE (the defaulting shareholder) is liable to transfer its interest i.e. 50 per cent of the shares in the JVC to SATYAM (non-defaulting shareholder).

7. SATYAM filed a petition in the Eastern District Court of Michigan, US seeking enforcement of the AWARD against VENTURE. Admittedly, the petition was allowed on 31st July, 2006 and the District Court of Michigan by its judgment directed the enforcement of the AWARD. It appears that VENTURE appealed against the said order in the 6th Circuit, US Appellate Court in Michigan.

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 7 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.

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;

17. VENTURE appealed to this Court. This Court, by judgment of the 11th of August, 2010 7, allowed the appeal and restored the order of the Trial Court.

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.

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.

6. The necessary background facts of these appeals are:

17. On 10.09.2005 the LCIA appointed Mr. Paul B. Hanon as sole Arbitrator to decide the disputes. Both the parties entered appearance before the Arbitrator and filed their respective claims against each other.

18. The Arbitrator delivered his reasoned Award on 03.04.2006. He rejected the claims of Venture and allowed the claims of Satyam.

29. Challenging the said order, Venture filed appeal before the High Court. The High Court dismissed the appeal on 27.02.2007.

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 their complaint/suit. 24 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.

“Before the last point is taken up, it is necessary to sum up the discussion and findings. Under point number 1, it is held that the present proceeding after conversion from the Suit to the Original Petition cannot be construed to be a suit and hence cannot be rejected on the assumption that the suit is not maintainable. Under point number 2, it is held that the present proceeding which to be construed as an Original Petition under Section 34 of the Act is not liable to be dismissed as not maintainable. Under point number 3 it is held that the instant proceeding i.e. Original Petition is not barred by Law of Limitation. Under point number 4 answered against the Petitioner it is held that bankruptcy of Petitioner’s affiliates had constituted a bankruptcy event as per the terms and conditions agreed to between the parties. However, it is to be noted that when this finding was recorded by the Arbitral Tribunal the additional pleas now urged by the Petitioner before this court were not available to the Petitioner and hence the additional pleas were not brought to the notice of the learned Arbitral Tribunal. The said findings of the Arbitral Tribunal can be sustained if only the issue of fraud is not taken into consideration. Thus, in the absence of plea of the suppression of material facts and fraud on the part of the 1st Respondent, the findings of the learned arbitrator that the bankruptcy of Petitioner’s affiliates constitutes a bankruptcy event is sustainable. However, after the suppressed material facts and fraud have come to light even that finding of the Arbitral Tribunal cannot be sustained for the reasons already assigned under point numbers 6 and 7. Under point number 5, the award in so far as it ordered transfer of petitioner’s share to the 1st Respondent @ book value is in violation to FEMA and Public Policy of India. Under points numbers 6 and 7, it is held that the award which is affected and induced by fraud is vitiated and cannot be enforced being opposed to Public Policy of India and is liable to set aside. In view of the above findings, this Court holds that the Petitioner has made out valid and sufficient grounds to set-aside the impugned award and hence, the award is liable to be set aside. The point is accordingly answered.”

(f) In view of the discussion coupled with reasons the point is answered in favour of the petitioner and against st the Respondents holding that the award in so far as it ordered for transfer of petitioner’s shares to the 1 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.

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.

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 22 of law relevant in the context for determining the controversy between the parties, case law is dumped upon and examined by the courts. The result is an exercise like the one undertaken by the trial court. I am of the opinion that the conclusion recorded by the trial court on Point No.5 is without any basis in facts and without even identifying the provision of law with which the AWARD is in conflict with. Hence, in my opinion, the conclusion in this point cannot be sustained.

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.

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 31 course ought not to be permitted. I would, therefore, dismiss the appeal of SATYAM.

C. I order VGE to pay Satyam GBP48,777.48, the costs of the Arbitration as determined by the LCIA Court.

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.”

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.

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 20 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.

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.”

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.

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 constitute ground for setting aside the Award under Section 34 of the AAC Act.

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.

53. Venture, in substance, seeks restoration of the order of the Trial Court, which had allowed their application under Section 34 of the AAC Act and had set aside the Award.

(iii) read with Explanation 2 of the AAC Act and hence it deserves to be set aside on this ground also.

96. Following features emerge from reading the Agreements:

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) 62

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.

I would like the Board to know:

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.

I am now prepared to subject myself to the laws of the land and face consequences thereof.

(B.Ramalinga Raju) Copies marked to:

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.

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.

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 81 thus not legally sustainable. I accordingly hold so.

5. The petition is dismissed.” 85

135. In my view, the issues arising in the case must be given 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 87 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.

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 90 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 91 proceedings including the Award dated 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;

Date : 01-11-2017 These petitions were called on for pronouncement of judgment today.

For Petitioner(s)/ Mr. K.V. Vishwanathan,Sr.Adv, Respondent(s) Mr. Abhijit Sinha,Adv.

Ms. Shally Bhasin,Adv.

Mr. Siddhant Boxy,Adv.

Mr. E. C. Agrawala, AOR Mr. Dhruv Mehta,Sr.Adv.

Mr. V.K. Misra,Adv.

Mr. Rajat Taimni,Adv.

Mr. Naval Sharma,Adv.

Mr. Saket Satapathy,Adv.

Mrs. Shriye Luke,Adv.

Mr. Devendra Singh, AOR Mr. Abhijit Sinha,Adv.

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.

Pending application(s), if any, stand disposed of.

(Two signed reportable judgments and the common order are placed on the file) 2