Case: Venture Global Engineering Vs. Satyam Computer Services Ltd

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.5. Article VIII of the Shareholders Agreement contemplates certain `events of default, and in the event of default,shareholder has the option to purchase the defaulters shares at book value or cause immediate dissolution and liquidation of the second respondent.6. In the year 2000, the second respondent entered into an agreement with TRW, a manufacturer and supplier of automotive equipments, to provide engineering and IT services. They agreed tothe 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, disputesand 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.8. On 28th April, 2006, the appellant filed a suit (O.S. No. 80/2006) seeking a declaration to set aside the award and also prayed for a permanent injunction against the transfer of shares under the arbitral award, in the Court of Ist Additional Chief Judge, City Civil Court, Secundrabad. The Trial Court dismissed the suit of the appellant on the ground that a foreign award could not be challenged under Section 34 of the Arbitration & Conciliation Act, 1996 (herein after, ABC, 1996).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, 2007.10. Thereafter, the appellant filed a special leave petition before this Court and this Court, vide its order dated 15th May, 2007, issued notice to the respondents and passed an interim order restraining the transfer of shares pending the disposal of the special leave petition.This Court then finally heard the matter and allowed the special leave petition vide its Judgment and Order in Venture Global Engineering vs. Satyam Computer Services Ltd. and another (2008) 4 SCC 190  and held that a foreign award could be challenged under Section 34 of ABC, 1996. In the light of this finding, this Court remanded the case to the trial court and directed that the parties were to maintain status quo with respect to transfer of shares. Thus, the case of the appellant was transferred to the IInd Additional Chief Judge, City Civil Court, Hyderabad.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.13. In the light of these developments regarding the first respondent, the appellant filed an interim application before the Trial Court (I.A. No. 1331/2009 dated 12th June, 2009) to bring certain facts on record and also filed additional pleadings in respect of the same under Order VIII Rule 9 of the Civil Procedure Code, 1908.14. 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.16. Further, the High Court also held that an application under Order VIII Rule 9 of the Civil Procedure Code, 1908 for bringing additional pleadings on record would not lie. The High Court held, relying on Rule 12(1) of the Andhra Pradesh Arbitration Rules, 2000, that Rule VIII of Civil Procedure Code is not applicable, so a petition for additional pleading is not maintainable under Order VIII of Civil Procedure Code. Therefore, the High Court did not allow the appellant to file additional pleadings on record.17. Aggrieved by the impugned judgment and order of the High Court, the appellant has approached this Court by way of filing a special leave petition.

Court's reasoning:
22. We are of the opinion that in dealing with a prayer for amendment, Courts normally prefer substance to form and techniques and the interest of justice is one of most relevant considerations. Therefore, if a party is entitled to amend its pleadings, having regard to the justice of the case, the right of the party to amend cannot be defeated just because a wrong Section or a wrong provision has been quoted in the amendment petition. The approach of the High Court in this case, in rejecting the appellants prayer for amendment, inter alia, on the ground that a wrong provision has been quoted in the amendment petition, is obviously a very hyper technical one. Mr. Salve rightly did not even try to defend the impugned order on the aforesaid technical ground adopted by the High Court.This concept of public policy, in the realm of arbitration law, is a rather vexed concept, in the sense that different countries have different concepts of public policy. Say for instance, some countries which do not countenance gambling, an award arising out of a gambling dispute may be set aside on the ground that it offends public policy of the State. But in a country where gambling is legalized in some form, the award will not offend public policy. Similarly, a dispute between a producer of wine and its distributor is arbitrable in countries which are not governed by a strict Islamic Code. But a country with such a Code may hold the award contrary to public policy.45. In view of such varying standards of public policy in different countries, an attempt is made to arrive at a somewhat acceptable standard by construing that something is opposed to public policy where there is an excess of jurisdiction and a lack of due process. (See Redfern and Hunter on International Arbitration, 5th Edition, paragraphs6. The concept of public policy in ABC, 1996 as given in the explanation has virtually adopted the aforesaid international standard, namely if anything is found in excess of jurisdiction and depicts a lack of due process, it will be opposed to public policy of India. When an award is induced or affected by fraud or corruption, the same will fall within the aforesaid grounds of excess of jurisdiction and a lack of due process. Therefore, if we may say so, the explanation to Section 34 of ABC is like `a stable man in the saddle on the unruly horse of public policy.47. It is well known that fraud cannot be put in a strait jacket and it has a very wide connotation in legal parlance.48. In the decision of the House of Lords in Frank Reddaway and Co. Ltd. vs. George Banham, 1896 Appeal Cases 199, Lord Macnaghten explained the multifarious aspects of fraud very lucidly, and which we quote: "But fraud is infinite in variety; sometimes it is audacious and unblushing; sometimes it pays a sort of homage to virtue, and then it is modest and retiring; it would be honesty itself if it could only afford it. But fraud is fraud all the same; and it is the fraud, not the manner of it, which calls for the interposition of the Court."(Page 221 of the report).49. The aforesaid elucidation by the learned Law Lord has also been accepted in celebrated treaties on fraud (see Kerr on Fraud and Mistake, 7th Edition, pg. 1). Kerr has also referred to Storys Equity Jurisprudence and defined fraud as: "Fraud, in the contemplation of a civil court of justice, 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."50. In Indian law, namely the Indian Contract Act, the said common law doctrine of fraud has been assimilated in Section 17 of the said Act.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.52. 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.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, ParaThis 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.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 appellants plea for setting aside the award.