Venture
Global Engineering Vs. Satyam Computer Services Ltd. & Anr. [2008] Insc 40
(10 January 2008)
Tarun
Chatterjee & P. Sathasivam
(Arising
out of SLP (C) No.8491 OF 2007) P. Sathasivam, J.
1)
Leave granted.
2)
Appellant - Venture Global Engineering (in short VGE), a company
incorporated in the United States of America with its principal office at
33662, James J Pampo Drive, Fraser, Michigan, USA 48026 through its Constituted
Attorney, Mr. Pradeep Yadav filed this appeal challenging the final order and
judgment dated 27.2.2007 passed by the High Court of Judicature, Andhra Pradesh
at Hyderabad in City Civil Court Appeal No. 26 of 2007 whereby the Division
Bench of the High Court dismissed their appeal.
3) The
facts, which are necessary for the disposal of this appeal, are as under:
On
20.10.1999, Appellant-Company and respondent No.1- Satyam Computer Services
Limited (in short SCSL), a registered company having its office at
Mayfair Centre, S.P. Road, Secunderabad entered into a Joint Venture Agreement
to constitute a company named Satyam Venture Engineering Services Ltd.
respondent No.2 herein (in short SVES) in which both the appellant
and respondent No.1 have 50 per cent equity shareholding. Another agreement was
also executed between the parties on the same day being the Shareholders
Agreement (in short SHA) which provides that disputes have to be
resolved amicably between the parties and failing such resolution, the disputes
are to be referred to arbitration. Section 11.05 of the SHA provides for
certain terms and conditions as regards the resolution of the disputes.
In
February, 2005, disputes arose between the parties.
Respondent
No.1 alleged that the appellant had committed an event of default under the SHA
owing to several venture companies becoming insolvent and they had exercised
its option to purchase the appellant-companys shares in SVES at its book
value. On 25.07.2005, respondent No.1 filed a request for arbitration with the
London Court of International Arbitration which appointed Mr. Paul B Hannon as
sole arbitrator on 10.9.2005.
The
sole Arbitrator on 3.4.2006 passed an award directing the appellant VGE to
transfer the shares to respondent No.1. On 14.4.2006, respondent No.1 filed a
petition to recognize and enforce the award before the United States District
Court, Eastern District Court of Michigan (US Court). The appellant entered appearance to defend this proceeding before the
US Court by filing a cross petition. In the
said petition, it objected to the enforcement of the Award which ordered
transfer of shares which was in violation of Indian Laws and Regulations
specifically the Foreign Exchange Management Act, 1999 (in short
FEMA) and its notifications. The appellant filed a suit being O.S.
No. 80 of 2006 before the Ist Additional Chief Judge, City Civil Court, Secunderabad on 28.4.2006 seeking
declaration to set aside the award and permanent injunction on the transfer of
shares under the Award. On 15.6.2006, the District Court passed an ad-interim
ex parte order of injunction, inter alia, restraining respondent No.1 from
seeking or effecting the transfer of shares either under the terms of the Award
or otherwise. Challenging the said order, respondent No.1 filed an appeal
before the High Court of Andhra Pradesh.
The High
Court admitted respondents appeal and directed interim suspension of the
order of the District Court but made it clear that respondent No.1 would not effect
the transfer of shares until further orders. On 13.07.2006, in response to the
summons served upon the respondents, respondent No.1 appeared in the Court and
filed a petition under Order VII Rule 11 C.P.C. for rejection of the plaint.
The appellant filed objection to the application. The trial Court, by its order
dated 28.12.2006, allowed the said application and rejected the plaint of the
appellant. Challenging the said order, the appellant filed an appeal before the
High Court. On 27.2.2007, the High Court dismissed the appeal holding that the
award cannot be challenged even if it is against the public policy and in
contravention of statutory provisions. Against the said order, the appellant
preferred the above appeal by way of special leave petition.
4)
Heard Mr. K.K. Venugopal, learned senior counsel, appearing for the appellant
and Mr. R.F. Nariman, learned senior counsel, appearing for respondent No.1.
5)
After taking us through agreements entered into by both the parties, subsequent
developments such as alleged violations, Award by an Arbitrator at U.K.,
proceedings before the District Court, Michigan, USA and the impugned
proceedings of the Ist Additional Chief Judge-City Civil Court, Secunderabad as
well as the order of the High Court, Mr. K.K. Venugopal learned senior counsel
appearing for the appellant has raised the following contentions:
(i)
The claim that Part I of the Arbitration and Conciliation Act, 1996 (in short
the Act) applies to foreign awards is covered by the judgment of this
Court in Bhatia International vs. Bulk Trading S.A. & Anr., (2002) 4 SCC
105.
ii)
The first respondent - Satyam Computer Services Ltd. could not have pursued the
enforcement proceedings in the District Court in Michigan, USA in the teeth of the injunction
granted by the Courts in India which also, on the basis of the
Comity of Courts should have been respected by the District Court in Michigan.
iii)
The overriding Section 11.5 (c) of the SHA would exclude respondent No.1- Satyam
Computer Services Ltd. approaching the US Court in regard to the enforcement of the Award.
6) On
the other hand, Mr. R.F. Nariman, learned senior counsel, appearing for the
first respondent, submitted that,
(i) In
view of Section 44 of the Act and the terms of the agreement, no suit would lie
in India to set aside the Award, which is a
foreign Award.
(ii)
No application under Section 34 of the Act would lie to set aside the Award.
(iii)
In view of the provisions of the Act and the terms of the agreement, the first
respondent rightly sought enforcement of the Award in Michigan, USA, hence the civil suit filed at Secunderabad is not maintainable.
(iv)
Section 11.5(c) of the SHA only deals with the rights and obligations of the
appellant and the first respondent while acting as shareholders of the 2nd
respondent it has nothing to do with the enforcement of foreign Award.
(v) In
terms of the agreement, having participated in the arbitration proceedings in
UK, filed cross-suit/objection in the District Court, Michigan opposing the
Award, the appellant cannot agitate the very same issue in the Indian Courts
namely, District Court, Secunderabad. In other words, the appellant, VGE,
cannot ride two horses at the same time.
7) We
perused all the relevant materials, Annexures and considered the rival
contentions.
8)
Since both Mr. K.K. Venugopal, learned senior counsel for the appellant and Mr.
R. F. Nariman, learned senior counsel, for respondent No.1 heavily relied on a
judgment of this Court in Bhatia International (supra), in support of their
respective stand, let us consider the facts in that case and ultimate
conclusion arrived at therein.
9)
Bhatia International filed an Appeal before this Court against the judgment of
the M.P. High Court in W.P. No. 453 of 2000. The appellant-Bhatia International
entered into a contract with the first respondent Bulk Trading on 9.5.1997.
This contract
contained an arbitration clause which provided that arbitration was to be as
per the Rules of the International Chamber of Commerce (for short
ICC). On 23.10.1997, the Ist respondent made a request for
arbitration with ICC.
Parties
had agreed that the arbitration be held in Paris, France. ICC has appointed a sole
arbitrator. The first respondent filed an application under Section 9 of the
Act before the 3rd Additional District Judge, Indore, M.P. against the appellant and the 2nd respondent. One of
the interim reliefs sought for was an order of injunction restraining these
parties from alienating, transferring and/or creating third- party rights,
disposing of, dealing with and/or selling their business assets and properties.
The appellant raised the plea of maintainability of such an application. The
appellant contended that Part I of the Act would not apply to arbitrations
where the place of arbitration was not in India.
The
application was rejected by the 3rd Additional District Judge on 1-2-2000. It was held that the court at Indore (M.P.) had
jurisdiction and the application was maintainable. The appellant filed a writ
petition before the High Court of Madhya Pradesh, Indore Bench and the same was
dismissed by the impugned judgment dated 10-10-2000. Several contentions have been
raised on behalf of the appellant, namely, Part I of the Act only applies to
arbitrations where the place of arbitration is in India and if the place of arbitration is
not in India then Part II of the said Act would
apply. Sub-section (2) of Section 2 of the Act makes it clear that the
provisions of Part I do not apply where the place of arbitration is not in India. The Court at Indore could not have entertained the
application under Section 9 of the Act as Part I did not apply to arbitrations
which had taken place outside India. On the
other hand, on behalf of respondent No.1, it was submitted that a conjoint
reading of the provisions shows that Part I is to be applied to all
arbitrations. It was further submitted that unless the parties by their
agreement exclude its provisions, Part I would also apply to all International
Commercial arbitrations including those that take place out of India.
10)
The above contentions were considered in detail. In view of the assertion of
both the senior counsel, the decision in Bhatia International (supra) has very
much bearing on the issue raised in this case. The relevant paragraphs are
reproduced hereunder:
14.
At first blush the arguments of Mr. Sen appear very attractive. Undoubtedly
sub-section (2) of Section 2 states that Part I is to apply where the place of
arbitration is in India. Undoubtedly, Part II applies to foreign awards. Whilst
the submissions of Mr. Sen are attractive, one has to keep in mind the
consequence which would follow if they are accepted. The result would:
(a)
Amount to holding that the legislature has left a lacuna in the said Act. There
would be a lacuna as neither Part I or II would apply to arbitrations held in a
country which is not a signatory to the New York Convention or the Geneva
Convention (hereinafter called a non-convention country).
It
would mean that there is no law, in India, governing such arbitrations.
(b)
Lead to an anomalous situation, inasmuch as Part I would apply to Jammu and Kashmir in all international commercial
arbitrations but Part I would not apply to the rest of India if the arbitration takes place out
of India.
(c)
Lead to a conflict between sub-section (2) of Section 2 on one hand and
sub-sections (4) and (5) of Section 2 on the other. Further, sub-section (2) of
Section 2 would also be in conflict with Section 1 which provides that the Act
extends to the whole of India.
(d)
Leave a party remediless inasmuch as in international commercial arbitrations
which take place out of India the party would not be able to apply for interim
relief in India even though the properties and assets are in India. Thus a
party may not be able to get any interim relief at all. 16. A reading
of the provisions shows that the said Act applies to arbitrations which are
held in India between Indian nationals and to international commercial
arbitrations whether held in India or out of India. Section 2(1)( f ) defines
an international commercial arbitration. The definition makes no distinction
between international commercial arbitrations held in India or outside India.
An international commercial arbitration may be held in a country which is a
signatory to either the New York Convention or the Geneva Convention
(hereinafter called the convention country). An international
commercial arbitration may be held in a non-convention country. The said Act
nowhere provides that its provisions are not to apply to international
commercial arbitrations which take place in a non-convention country. Admittedly,
Part II only applies to arbitrations which take place in a convention country.
Mr. Sen fairly admitted that Part II would not apply to an international
commercial arbitration which takes place in a non-convention country. He also
fairly admitted that there would be countries which are not signatories either
to the New York Convention or to the Geneva Convention. It is not possible to
accept the submission that the said Act makes no provision for international
commercial arbitrations which take place in a non-convention country.
17. Section 1 of the said Act reads as follows:
1.
Short title, extent and commencement .(1) This Act may be called the
Arbitration and Conciliation Act, 1996.
(2) It
extends to the whole of India:
Provided
that Parts I, III and IV shall extend to the State of Jammu and Kashmir only insofar as they relate to
international commercial arbitration or, as the case may be, international
commercial conciliation. The words this Act mean the entire Act.
This shows that the entire Act, including Part I, applies to the whole of
India.
The
fact that all Parts apply to the whole of India is clear from the proviso which
provides that Parts I, III and IV will apply to the State of Jammu and Kashmir
only so far as international commercial arbitrations/conciliations are
concerned. Significantly, the proviso does not state that Part I would apply to
Jammu and Kashmir only if the place of the international commercial arbitration
is in Jammu and Kashmir. Thus if sub-section (2) of Section 2 is read in the
manner suggested by Mr. Sen there would be a conflict between Section 1 and
Section 2(2). There would also be an anomaly inasmuch as even if an
international commercial arbitration takes place outside India, Part I would
continue to apply in Jammu and Kashmir, but it would not apply to the rest of
India. The legislature could not have so intended. 21. Now let us
look at sub-sections (2), (3), (4) and (5) of Section 2. Sub-section (2) of
Section 2 provides that Part I would apply where the place of arbitration is in
India. To be immediately noted, that it is not providing that Part I shall not
apply where the place of arbitration is not in India. It is also not providing
that Part I will only apply where the place of arbitration is in
India (emphasis supplied). Thus the legislature has not provided that Part I is
not to apply to arbitrations which take place outside India. The use of the
language is significant and important.
The
legislature is emphasizing that the provisions of Part I would apply to
arbitrations which take place in India, but not providing that the provisions of Part I will not apply to
arbitrations which take place out of India. The wording of sub-section (2) of Section 2 suggests that the
intention of the legislature was to make provisions of Part I compulsorily
applicable to an arbitration, including an international commercial
arbitration, which takes place in India. Parties cannot, by agreement, override
or exclude the non-derogable provisions of Part I in such arbitrations. By
omitting to provide that Part I will not apply to international commercial
arbitrations which take place outside India the effect would be that Part I
would also apply to international commercial arbitrations held out of India.
But by not specifically providing that the provisions of Part I apply to
international commercial arbitrations held out of India, the intention of the
legislature appears to be to ally (sic allow) parties to provide by agreement
that Part I or any provision therein will not apply.
Thus
in respect of arbitrations which take place outside India even the non-derogable
provisions of Part I can be excluded. Such an agreement may be express or
implied. 26. Mr. Sen had also submitted that Part II, which deals
with enforcement of foreign awards does not contain any provision similar to
Section 9 or Section 17. As indicated earlier, Mr. Sen had submitted that this
indicated the intention of the legislature not to apply Sections 9 and 17 to
arbitrations, like the present, which are taking place in a foreign country.
The said Act is one consolidated and integrated Act. General provisions
applicable to all arbitrations will not be repeated in all Chapters or Parts.
The general provisions will apply to all Chapters or Parts unless the statute
expressly states that they are not to apply or where, in respect of a matter,
there is a separate provision in a separate Chapter or Part. Part II deals with
enforcement of foreign awards. Thus Section 44 (in Chapter I) and Section 53
(in Chapter II) define foreign awards, as being awards covered by arbitrations
under the New York Convention and the Geneva Convention respectively. Part II
then contains provisions for enforcement of foreign awards which
necessarily would be different. For that reason special provisions for
enforcement of foreign awards are made in Part II. To the extent that Part II
provides a separate definition of an arbitral award and separate provisions for
enforcement of foreign awards, the provisions in Part I dealing with these aspects
will not apply to such foreign awards. It must immediately be clarified that
the arbitration not having taken place in India, all or some of the provisions
of Part I may also get excluded by an express or implied agreement of parties.
But if not so excluded the provisions of Part I will also apply to foreign
awards.
The
opening words of Sections 45 and 54, which are in Part II, read
notwithstanding anything contained in Part I. Such a non obstante
clause had to be put in because the provisions of Part I apply to Part II.
32. To conclude, we hold that the provisions of Part I would apply
to all arbitrations and to all proceedings relating thereto. Where such
arbitration is held in India the provisions of Part I would compulsorily apply
and parties are free to deviate only to the extent permitted by the derogable
provisions of Part I. In cases of international commercial arbitrations held
out of India provisions of Part I would apply unless the parties by agreement,
express or implied, exclude all or any of its provisions. In that case the laws
or rules chosen by the parties would prevail. Any provision, in Part I, which is
contrary to or excluded by that law or rules will not apply. 35.
Lastly, it must be stated that the said Act does not appear to be a
well-drafted legislation. Therefore the High Courts of Orissa, Bombay, Madras,
Delhi and Calcutta cannot be faulted for interpreting it in the manner
indicated above. However, in our view a proper and conjoint reading of all the
provisions indicates that Part I is to apply also to international commercial
arbitrations which take place out of India, unless the parties by agreement,
express or implied, exclude it or any of its provisions. Such an interpretation
does not lead to any conflict between any of the provisions of the said Act. On
this interpretation there are no lacunae in the said Act. This interpretation
also does not leave a party remediless. Thus such an interpretation has to be
preferred to the one adopted by the High Courts of Orissa, Bombay, Madras,
Delhi and Calcutta. It will therefore have to be held that the contrary view
taken by these High Courts is not good law. 11) Mr. K.K. Venugopal,
learned senior counsel, has pointed out that paragraph 14 of the judgment of
Bhatia International (supra) sets out four independent reasons for arriving at
the conclusion that Part I would apply to foreign Awards that are as follows:
i) to
hold to the contrary would result in a lacunae as Non-Convention country awards
cannot be enforced in India.
ii)
Section 1(2) expressly extends Part I to the State of Jammu and Kashmir so far
as it relates to international commercial arbitration giving rise to an anomaly
so far as the rest of India is concerned unless Part I applies to international
commercial arbitrations in the other States as well.
iii)
If the word only is read into Section 2(2), it would then render the
sub-section inconsistent with sub- sections (4) and (5) of Section 2 which
apply Part I to all arbitrations, meaning thereby, including foreign
international arbitrations.
iv) As
otherwise, no relief can be sought in India even though the properties and
assets are situated in India, merely because the arbitration is an
international commercial arbitration.
Further,
by drawing our attention to the specific conclusion arrived in paragraphs 32
and 35, he reiterated that the issue has been very well concluded and the
argument based on paragraph 26 is not acceptable.
12)
Mr. Nariman heavily relied on paragraph 26 of the judgment in Bhatia International
which we have extracted supra. According to him, the said paragraph contains
not only the submissions of Mr. Sen, who appeared for Bhatia International
therein but also the ultimate conclusion of the Bench. He reiterated that the
Court concluded Thus Section 44 (in Chapter I) and Section 53 (in Chapter
II) define foreign Awards, as being awards covered by arbitrations under the
New York Convention and the Geneva Convention respectively.
Part
II then contains provisions for enforcement of foreign awards which
necessarily would be different. For that reason, special provisions for
enforcement of foreign awards are made in Part II. To the extent that Part II
provides a separate definition of an arbitral award and separate provisions for
enforcement of foreign awards, the provisions in Part I dealing with these
aspects will not apply to such foreign awards. It must immediately be clarified
that the arbitration not having taken place in India, all or some of the
provisions of Part I may also get excluded by an express or implied agreement
of parties. But if not so excluded, the provisions of Part I will also apply to
foreign awards. The opening words of Sections 45 and 54, which are in
Part II, read notwithstanding anything contained in Part I. Such a
non obstante clause had to be put in because the provisions of Part I apply to
Part II.
13)
According to Mr. K.K. Venugopal, paragraphs 26 and 27 start by dealing with the
arguments of Mr. Sen who argued that Part I is not applicable to foreign awards.
He further pointed out that it is only in the sentence starting at the bottom
of para 26 that the phrase it must immediately be clarified that the
finding of the Court is rendered. That finding is to the effect that an express
or implied agreement of parties can exclude the applicability of Part I. He
further pointed out that the finding specifically states that, But if not
so excluded, the provisions of Part I will also apply to all foreign
awards. This exception which is carved out, based on agreement of the
parties. By omitting to provide that Part I will not apply to international
commercial arbitrations which take place outside India the effect would be that
Part I would also apply to international commercial arbitrations held out of
India. But by not specifically providing that the provisions of Part I apply to
international commercial arbitrations held out of India, the intention of the
legislature appears to be to allow parties to provide by agreement that Part I
or any provision therein will not apply. Thus in respect of arbitrations which
take place outside India even the non-derogable provisions
of Part I can be excluded. Such an agreement may be express or implied. He
further pointed out the very fact that the judgment holds that it would be open
to the parties to exclude the application of the provisions of Part I by
express or implied agreement, would mean that otherwise the whole of Part I
would apply. In any event, according to him, to apply Section 34 to foreign
international awards would not be inconsistent with Section 48 of the Act, or
any other provision of Part II as a situation may arise, where, even in respect
of properties situate in India and where an award would be invalid if opposed
to the public policy of India, merely because the judgment-debtor resides
abroad, the award can be enforced against properties in India through personal
compliance of the judgment-debtor and by holding out the threat of contempt as
is being sought to be done in the present case. In such an event, the
judgment-debtor cannot be deprived of his right under Section 34 to invoke the
public policy of India, to set aside the award. He very
much relied on the judgment of this Court in Oil & Natural Gas Corporation
Ltd. vs. Saw Pipes Ltd. (2003) 5 SCC 705 wherein particularly, in paragraphs 30
and 31, the public policy of India has been defined to include-
(a) the
fundamental policy of India; or
(b) the
interests of India; or
(c) justice
or morality; or
(d) in
addition, if it is patently illegal.
He
pointed out that this extended definition of public policy can be by-passed by
taking the award to a foreign country for enforcement. In such circumstances,
according to him, there is nothing inconsistent between Section 48 which deals
with enforcement and Section 34 which deals with a challenge to the Award. He
also relied on a decision of the Division Bench of the Calcutta High Court in Pratabmull
Rameshwar vs. K.C. Sethia Ltd., AIR 1960 Calcutta 702. In paragraphs 45 and 63, the Calcutta High Court while dealing
with Arbitration Act of 1940 sets out the reasoning in support of a challenge
being permissible in India to a foreign award.
14) In
order to find out an answer to the first and prime issue and whether the
decision in Bhatia International (supra) is an answer to the same, let us go
into the details regarding the suit filed by the appellant as well as the
relevant provisions of the Act. The appellant VGE filed O.S. No. 80 of 2006 on
the file of the Ist Additional District Court, Secunderabad, for a declaration
that the Award dated 3.4.2006 is invalid, unenforceable and to set aside the
same.
Section
5 of the Act makes it clear that in matters governed by Part I, no judicial
authority shall intervene except where so provided. Section 5 which falls in
Part I, specifies that no judicial authority shall intervene except where so
provided.
The
Scheme of the Act is such that the general provisions of Part I, including
Section 5, will apply to all Chapters or Parts of the Act. Section 2(5) which
falls in Part I, specifies that this part shall apply to all arbitrations
and to all proceedings relating thereto. It is useful to refer Section 45
which is in part II of the Act which starts with non obstante clause namely,
Notwithstanding anything contained in Part I or in Code of Civil Procedure
Section 52 in Chapter I of Part II of the Act provides that Chapter II of
this Part shall not apply in relation to foreign awards to which this Chapter
applies. As rightly pointed out, the said section does not exclude the
applicability of Part I of the Act to such awards.
15)
Part II of the Act speaks about the enforcement of certain foreign awards.
Section 48 speaks about conditions for enforcement of foreign awards. Section
48(1) (e) read with Section 48(3) of the Act specify that an action to set
aside the Award would lie to the competent authority. Mr. Nariman, after taking
us through the relevant provisions of Chapter I Part II submitted that Section
48(1)(e) read with Section 48(3) of the Act specifies that an action to set
aside a foreign award within the meaning of Section 44 of the Act would lie to
the competent authority of the country in which, or under the law of
which, that award was made. According to him, the phrase the countryunder
the law of which, that award was made refers to the country of the curial
law of arbitration, in the extremely rare situation where the parties choose a
curial law other than the law of the country of the seat of arbitration. He
further pointed out that therefore such a challenge would lie only to the
competent Court of the country in which the foreign award was made. He also
submitted that the said principle is recognized internationally by Courts in US
and UK as well as by several High Courts
in India. The US decisions which support/recognize the above principle are :
(1)
International Standard Electric Corp. vs. Bridas Sociedad Anonima Petrolera,
Industrial Y Comercial, 745 F.supp.172
(2) M
& C Corporation vs. ERWIN BEHR GmbH & Co., KG, a foreign corporation,
87 F.3d 844
(3) Yusuf
Ahmed Alghanim & Sons vs. Toys R US. INC. Thr. (HK) Ltd. 126 F.3d 15
(4) Karaha
Bodas Co. L.L.C. vs. Perusahaan Pertambangan Minyakdan Gas Bumi Negara 364 F.3d
274
(5) C
v. D (2007) EWHC 1541 16) Apart from the above US decisions, Mr. R.F. Nariman,
pointed out that all the Indian High Courts except the Gujarat High Court in Nirma
Ltd. vs. Lurgi Energie Und Entsorgung GMBH, Germany, AIR 2003 Gujarat 145 have
taken this consistent view in the following judgments:
(a)
Bombay Gas Company Limited vs. Mark Victor Mascarenhas & Ors., 1998 1 LJ
977
(b) Inventa
Fischer Gmbh & Co., K.G. vs. Polygenta Technologies Ltd., 2005 (2) Bom C.R.
364
(c) Trusuns
Chemical Industry Ltd. vs. Tata International Ltd. AIR 2004 Gujarat. 274
(d) Bharat
Aluminium Co. Ltd. vs. Kaiser Aluminium Technical Services, AIR 2005 Chhatisgarh
21
(e)
Bulk Trading SA vs. Dalmia Cement (Bharat) Limited, (2006) 1 Arb.LR 38(Delhi) 17)
On
close scrutiny of the materials and the dictum laid down in three-Judge Bench
decision in Bhatia International (supra), we agree with the contention of Mr. K.K.Venugopal
and hold that paragraphs 32 and 35 of the Bhatia International (supra) make it
clear that the provisions of Part I of the Act would apply to all arbitrations
including international commercial arbitrations and to all proceedings relating
thereto. We further hold that where such arbitration is held in India, the provisions of Part-I would
compulsorily apply and parties are free to deviate to the extent permitted by
the provisions of Part-I. It is also clear that even in the case of
international commercial arbitrations held out of India provisions of Part-I would apply
unless the parties by agreement, express or implied, exclude all or any of its
provisions. We are also of the view that such an interpretation does not lead
to any conflict between any of the provisions of the Act and there is no lacuna
as such. The matter, therefore, is concluded by the three-Judge Bench decision
in Bhatia International (supra).
18)
Learned senior counsel for the respondent based on para 26 submitted that in
the case of foreign award which was passed outside India is not enforceable in India by invoking the provisions of the
Act or the CPC. However, after critical analysis of para 26, we are unable to
accept the argument of learned senior counsel for the respondent. Paras 26 and
27 start by dealing with the arguments of Mr. Sen who argued that Part I is not
applicable to foreign awards. It is only in the sentence starting at the bottom
of para 26 that the phrase it must immediately be clarified that the
finding of the Court is rendered. That finding is to the effect that an express
or implied agreement of parties can exclude the applicability of Part I. The
finding specifically states: But if not so excluded, the provisions of
Part I will also apply to all foreign awards.
This
exception which is carved out, based on agreement of the parties, in para 21 (placitum
(e) to (f) is extracted below:
By
omitting to provide that Part I will not apply to international commercial
arbitrations which take place outside India the effect would be that Part I would also apply to international
commercial arbitrations held out of India.
But by
not specifically providing that the provisions of Part I apply to international
commercial arbitrations held out of India, the intention of the legislature
appears to be to allow parties to provide by agreement that Part I or any
provision therein will not apply. Thus in respect of arbitrations which take
place outside India even the non-derogable provisions
of Part I can be excluded. Such an agreement may be express or implied.
19)
The very fact that the judgment holds that it would be open to the parties to
exclude the application of the provisions of Part I by express or implied
agreement, would mean that otherwise the whole of Part I would apply. In any
event, to apply Section 34 to foreign international awards would not be
inconsistent with Section 48 of the Act, or any other provision of Part II as a
situation may arise, where, even in respect of properties situate in India and
where an award would be invalid if opposed to the public policy of India,
merely because the judgment-debtor resides abroad, the award can be enforced
against properties in India through personal compliance of the judgment-debtor
and by holding out the threat of contempt as is being sought to be done in the
present case. In such an event, the judgment-debtor cannot be deprived of his
right under Section 34 to invoke the public policy of India, to set aside the award. As
observed earlier, the public policy of India includes –
(a) the
fundamental policy of India; or
(b) the
interests of India; or
(c) justice
or morality; or
(d) in
addition, if it is patently illegal. This extended definition of public policy
can be by-passed by taking the award to a foreign country for enforcement.
20)
Mr. K.K.Venugopal also highlighted that in Company Law, the word
transfer has a definite connotation which would require the ownership
of the shares to be transferred to the transferee, which would involve the
following steps being taken under the Companies Act and the rules and
regulations thereunder, as well as the Foreign Exchange Management Act, 1999
(FEMA):
i)
Obtaining a Share Transfer Form 7-B and having it endorsed by the prescribed
authority under the Companies Act, 1956 in compliance with Section 108.
ii)
Execution of Share Transfer Form 7-B by the appellant and respondent.
iii)
Payment of stamp duty on the transfer of shares.
iv)
Sending duly executed Share Transfer Form 7-B and the share Certificates to
SVES, the respondent No.2 herein under Section 110 of Companies Act.
v)
Respondent No.2 approving the transfer of shares and causing alternation in its
Register of Members under Section 111A.
vi) Compliance
with Rules and Regulations, completing prescribed forms, giving relevant
undertakings in accordance with Indian foreign exchange laws and Regulations
such as the Foreign Exchange Management Act, 1999 and its notifications, given
that the transaction involved transfer of shares from a non-resident to a
resident.
By
pointing out, he submitted that respondent No.1, in enforcing the Award in the
US District Court instead of Indian Courts was motivated by the intention of
evading the legal and regulatory scrutiny to which this transaction would have
been subject to had it been enforced in India. In the light of the statutory
provisions as provided in the Companies Act and FEMA, we agree with the
submission of Mr. K.K.Venugopal.
21) As
rightly pointed out the effort of respondent No.1 was to avoid enforcement of
the Award under Section 48 of the 1996 Act which would have given the appellant
herein the benefit of the Indian Public Policy rule based on the judgment in
the Saw Pipes case (supra) and for avoiding the jurisdiction of the Courts in
India though the award had an intimate and close nexus to India in view of the
fact that,
(a) the
company was situated in India;
(b) the
transfer of the ownership interests shall be made in India under the laws of India as set out above;
(c) all
the steps necessary have to be taken in India before the ownership interests stood transferred. If, therefore,
respondent No.1 was not prepared to enforce the Award in spite of this intimate
and close nexus to India and its laws, the appellant herein
would certainly not be deprived of the right to challenge the award in Indian
Courts.
22)
Mr. R.F. Nariman by placing the factual details, namely, filing of petition
before the Michigan Court for execution of the Award the objection petition
filed by the first respondent herein as well as the orders passed by the Court
of Michigan, US submitted that the appellant having participated and consented
in those proceedings is precluded from re-opening the very same issue by filing
a suit in a court at Secunderabad which is not permissible either under law or
in terms of their conduct. In view of the legal position derived from Bhatia
International (supra), we are unable to accept Mr. Narimans argument. It
is relevant to point out that in this proceeding, we are not deciding the
merits of the claim of both parties, particularly, the stand taken in the suit
filed by the appellant- herein for setting aside the award. It is for the
concerned court to decide the issue on merits and we are not expressing
anything on the same. The present conclusion is only with regard to the main
issue whether the aggrieved party is entitled to challenge the foreign award
which was passed outside India in terms of Section 9/34 of the
Act. Inasmuch as the three-Judge Bench decision is an answer to the main issue
raised, we are unable to accept the contra view taken in various decisions
relied on by Mr. Nariman. Though in Bhatia International (supra) the issue
relates to filing a petition under Section 9 of the Act for interim orders the
ultimate conclusion that Part I would apply even for foreign awards is an
answer to the main issue raised in this case.
23)
Mr. K.K. Venugopal, learned senior counsel, next contended that the overriding
section 11.05 (c) of the Shareholders Agreement would exclude respondent No.1
approaching the US Courts in regard to enforcement of the Award. Section 11.05
(b) and (c) of the Shareholders Agreement between the parties read as follows:
(b)
This Agreement shall be construed in accordance with and governed by the laws
of the State of 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.
(c)
Notwithstanding anything to the contrary in this agreement, the Shareholders
shall at all times act in accordance with the Companies Act and other
applicable Acts/Rules being in force, in India at any time. It was pointed out that the non-obstante clause would
override the entirety of the agreement including sub-section (b) which deals
with settlement of the dispute by arbitration. It was further pointed out that
sub-section (c), therefore, would apply to the enforcement of the Award which
declares that, notwithstanding that the proper law or the governing law of the
contract is the law of the State of Michigan, their shareholders shall at all
times act in accordance with the Companies Act and other applicable Acts/Rules
being in force in India at any time. In such circumstances, it is the claim of
the appellant that necessarily enforcement has to be in India, as mentioned in sub-section (c)
which overrides every other section in the Shareholders Agreement. Mr. K.K. Venugopal
further pointed out that respondent No.1 totally violated the agreement between
the parties by seeking enforcement of the transfer of the shares in the Indian
company by approaching the District Court in the United States. On the other hand, Mr. Nariman pointed out that Section
11.05 (b) of the Shareholders agreement alone governs the rights and
obligations between the appellant and the first respondent inter se and dispute
resolution thereof. In view of our discussion supra, we agree with the stand of
the learned senior counsel for the appellant.
24)
Coming to the other contentions particularly the fact that the suit has been
filed before the trial Court which is a court of competent jurisdiction under
Section 2(e) of the Act and not an application under Section 34 of the Act, Mr.
K.K. Venugopal pointed out that it would not affect the issue of jurisdiction
as this Court has upheld the conversion of a suit into a Section 9 petition
under the Act. (vide Sameer Barar and in another instance, converted a writ
petition into a first appeal under the Civil Procedure Code. (vide Ajay Bansal
vs. Anup Mehta & Ors. (2007) 2 SCC 275). Even otherwise, if the Court in
question is not having jurisdiction in the interest of justice the
suit/proceeding has to be transferred to the court having competent
jurisdiction.
25)
Learned senior counsel for the appellant submitted that the first respondent - Satyam
Computer Services Ltd. could not have pursued the enforcement proceedings in
the District Court in Michigan, USA in the teeth of the injunction granted by
the Courts in India which also, on the basis of the Comity of Courts, should
have been respected by the District Courts in Michigan, USA. Elaborating the
same, he further submitted that the injunction of the trial court restraining
the respondents from seeking or effecting the transfer of shares either under
the terms of the Award or otherwise was in force between 15.06.2006 and
27.06.2006. The injunction of the High Court in the following terms appellant
(i.e. respondent No.1) shall not effect the transfer of shares of the
respondents pending further orders was in effect from 27.06.2006 till
28.12.2006. The judgment of the US District Court was on 13.07.2006 and
31.07.2006 when the Award was directed to be enforced as sought by respondent
No.1, notwithstanding the injunction to the effect that the appellant
(respondent No.1 herein) shall not effect the transfer of shares of the
respondents pending further orders. The first respondent pursued his enforcement
suit in Michigan District Courts to have a decree passed directing VGE
shall deliver to Satyam or its designee, share certificates in a form suitable
for immediate transfer to Satyam evidencing all of the appellants
ownership interest in Satyam Ventures Engineering Services (SVES), the
partys joint venture company. Further, the VGE (appellant
herein) shall do all that may otherwise be necessary to effect the transfer of
its ownership interest in SVES to Satyam (or its designee). It is pointed
out that obtaining this order by pursuing the case in the US District Courts,
in the teeth of the prohibition contained in the order of the High Court, would
not only be a contempt of the High Court but would render all proceedings
before the US courts a brutum fulmen, and liable to be ignored. Though Mr. R.F.Nariman
has pointed out that the High Court only restrained the respondent from
effecting transfer of the shares pending further orders by the City Civil
Court, Secunderabad, after the orders of the trial Court as well as limited
order of the High Court, the first respondent ought not to have proceeded the
issue before the District Court, Michigan without getting the interim
orders/directions vacated.
26)
Finally, the overriding section 11.5 (c) of the SHA cannot be ignored lightly.
As pointed out, the said section would exclude respondent No.1- Satyam Computer
Services Ltd. approaching the US Courts in regard to the enforcement of the
Award. Section 11.05 (b) and (c) of the Shareholders Agreement between the
parties which is relevant has already been extracted in para 23.
The
non-obstante clause would override the entirety of the agreement including
sub-section (b) which deals with settlement of the dispute by arbitration.
Sub-section (c), therefore, would apply to the enforcement of the Award which
declares that, notwithstanding that the proper law or the governing law of the
contract is the law of the State of Michigan, their shareholders shall at all
times act in accordance with the Companies Act and other applicable Acts/Rules
being in force in India at any time. Necessarily, enforcement has to be in India, as declared by this very section
which overrides every other section in the Shareholders Agreement. Respondent
No.1, therefore, totally violated the agreement between the parties by seeking
enforcement of the transfer of the shares in the Indian company by approaching
the District Courts in the United States.
27)
The claim of the first respondent that the section, namely, 11.05 (c) of the SHA
cannot be construed to mean that Indian law is a substantive law of the
contract or that Indian law would govern the dispute resolution clause in
Section 11.05(b) are not acceptable. As rightly pointed out and observed
earlier, the non obstante clause would over ride the entirety of the agreement
including sub-section (b) which deals with the settlement of the dispute by
arbitration and, therefore, section 3 would apply to the enforcement of the
award. In such event, necessarily enforcement has to be in India as declared by the very section
which over rides every other section.
28)
The above-mentioned relevant aspects, the legal position as set out in
three-Judge Bench decision in Bhatia International (supra), specific clause in
the Shareholders Agreement (SHA), conduct of the parties have not been properly
adverted to and considered by the trial Court as well as the High Court.
Accordingly, both the orders passed by the City Civil Court and of the High Court are set aside.
29) In
terms of the decision in Bhatia International (supra), we hold that Part I of
the Act is applicable to the Award in question even though it is a foreign
Award. We have not expressed anything on the merits of claim of both the
parties.
It is
further made clear that if it is found that the Court in which the appellant
has filed a petition challenging the Award is not competent and having
jurisdiction, the same shall be transferred to the appropriate Court. Since
from the inception of ordering notice in the special leave petition both
parties were directed to maintain status quo with regard to transfer of shares
in issue, the same shall be maintained till the disposal of the suit.
Considering the nature of dispute which relates to an arbitration Award, we
request the concerned Court to dispose of the suit on merits one way or the
other within a period of six months from the date of receipt of copy of this
judgment. Civil appeal is allowed to this extent. No costs.
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