Venture Global Engineering vs Satyam Computer Services Ltd & Anr

3. The material facts which are required to be considered to resolve the controversy in this appeal, are as follows.

4. The appellant, Venture Global Engineering, having its principal office in Michigan, USA, entered into a Shareholders Agreement and a Joint Venture Agreement on 20th October, 1999 with the first respondent, for establishing a company called Satyam Venture Engineering Services (hereinafter, "the second respondent"). As per the terms of the agreement, the appellant and the first respondent each held 50 per cent shareholding in the second respondent.

6. In the year 2000, the second respondent entered into an agreement with TRW, a manufacturer and supplier 2 of automotive equipments, to provide engineering and IT services. They agreed to sub-contract the automotive engineering works to the second respondent. The first respondent levied US $3 an hour towards administrative charges. According to first respondent, they retained US $859,899 from the TRW receipts. The appellant disputed the same and alleged that Satyam retained a total of US $2,188,000, and also alleged concealment and dereliction of duty as a joint venture partner. Thus, disputes cropped-up and were referred to arbitration.

7. The sole arbitrator gave his award on 3rd April, 2006 whereby the appellant is to transfer its entire shareholding in the second respondent to the first respondent. The first respondent filed a petition for the recognition and enforcement of the award before the U.S. District Court, Eastern District Court of Michigan.

9. The appellant appealed against the order of the Trial Court before the High Court of Andhra Pradesh at Hyderabad, and the said appeal was also dismissed on 27th February, 2007.

12. Meanwhile, on 7th January, 2009, Mr. Ramalinga Raju, Chairman and founder of the first respondent confessed that the balance sheets of the first respondent had been fraudulently inflated to the tune of Rs.7,080/- crores. As a result, Price Waterhouse Cooper (PWC), auditors of the first respondent, declared that the financial statements could no longer be considered accurate or reliable.

14. The Trial Court, vide its Order dated 3rd November, 2009, allowed the application of the appellant. The first respondent challenged the said order of the Trial Court by filing a civil revision before the High Court.

15. The High Court, vide its order dated 19th February, 2010, allowed the revision petition of the first respondent. The High Court, inter alia, held that a reading of Section 34(1) and (3) of the ABC, 1996 indicates that a party could only set aside the arbitral award if an application for the same is made within a period of 3 months (extendable by another 30 days) from the date of making the award; whereas in the present case the new grounds of challenge are sought to be brought after the limitation period.

27. Now let us consider the facts which the appellant wanted to incorporate by way of amendment in the 11 petition for additional pleading filed in the Court of Additional Chief Judge, City Civil Court at Hyderabad (I.A. No. 1331/2009). Those facts are:

28. Relying on the aforesaid materials which were sought to be incorporated by way of amendment, it was urged by the appellant that the aforesaid materials go to show that the very basis of the fiduciary duties of the first respondent to the appellant was breached, even prior to the Shareholders Agreement between the parties. The first respondent on concealment of these facts induced the appellant to enter into an agreement with it.

31. Under these circumstances, a prayer was made in the amendment petition to bring the aforesaid facts on record in the pending proceeding for setting aside the award.

54. Commenting on the said provision, Russell (Russell on Arbitration, 23rd Edition) stated that an "award will be obtained by fraud if the consequence of deliberate concealment is an award in favour of the concealing party." (P. 497, Para 8-100)

57. 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.

58. 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.

59. 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.

60. 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.

61. Nothing said in this judgment will be construed as even remotely expressing any opinion on the legality 29 of the award. That question will be decided by the Court where setting aside proceeding is pending. The proceeding for setting aside the award may be disposed of as early as possible, preferably within 4 months.

62. For the reasons aforesaid, this appeal succeeds. The order of the High Court is set aside and that of the court below is restored. No order as to costs.