{"id":47194,"date":"2008-01-10T00:00:00","date_gmt":"2008-01-09T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/venture-global-engineering-vs-satyam-computer-services-ltd-on-10-january-2008"},"modified":"2016-02-06T12:05:08","modified_gmt":"2016-02-06T06:35:08","slug":"venture-global-engineering-vs-satyam-computer-services-ltd-on-10-january-2008","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/venture-global-engineering-vs-satyam-computer-services-ltd-on-10-january-2008","title":{"rendered":"Venture Global Engineering vs Satyam Computer Services Ltd. & … on 10 January, 2008"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Venture Global Engineering vs Satyam Computer Services Ltd. & … on 10 January, 2008<\/div>\n
Author: P Sathasivam<\/div>\n
Bench: Tarun Chatterjee, P. Sathasivam<\/div>\n
           CASE NO.:\nAppeal (civil)  309 of 2008\n\nPETITIONER:\nVenture Global Engineering\n\nRESPONDENT:\nSatyam Computer Services Ltd. & Anr.\n\nDATE OF JUDGMENT: 10\/01\/2008\n\nBENCH:\nTarun Chatterjee & P. Sathasivam\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
(Arising out of SLP (C) No.8491 OF 2007)<\/p>\n
P. Sathasivam, J.\n<\/p>\n
1)\tLeave granted.\n<\/p>\n
2)\t Appellant – Venture Global Engineering (in short VGE),
\na company incorporated in the United States of America with
\nits principal office at 33662, James J Pampo Drive, Fraser,
\nMichigan, USA 48026 through its Constituted Attorney, Mr.
\nPradeep Yadav filed this appeal challenging the final order and
\njudgment dated 27.2.2007 passed by the High Court of
\nJudicature, Andhra Pradesh at Hyderabad in City Civil Court
\nAppeal No. 26 of 2007 whereby the Division Bench of the High
\nCourt dismissed their appeal.\n<\/p>\n
3)\tThe facts, which are necessary for the disposal of this
\nappeal, are as under:\n<\/p>\n
On 20.10.1999, Appellant-Company and respondent No.1-
\nSatyam Computer Services Limited (in short SCSL), a
\nregistered company having its office at Mayfair Centre, S.P.
\nRoad, Secunderabad entered into a Joint Venture Agreement
\nto constitute a company named Satyam Venture Engineering
\nServices Ltd. respondent No.2 herein (in short SVES) in
\nwhich both the appellant and respondent No.1 have 50 per
\ncent equity shareholding.  Another agreement was also
\nexecuted between the parties on the same day being the
\nShareholders Agreement (in short SHA) which provides that
\ndisputes have to be resolved amicably between the parties and
\nfailing such resolution, the disputes are to be referred to
\narbitration.  Section 11.05 of the SHA provides for certain
\nterms and conditions as regards the resolution of the disputes.
\nIn February, 2005, disputes arose between the parties.
\nRespondent No.1 alleged that the appellant had committed an
\nevent of default under the SHA owing to several venture
\ncompanies becoming insolvent and they had exercised its
\noption to purchase the appellant-companys shares in SVES at
\nits book value.  On 25.07.2005, respondent No.1 filed a
\nrequest for arbitration with the London Court of International
\nArbitration which appointed Mr. Paul B Hannon as sole
\narbitrator on 10.9.2005.  The sole Arbitrator on 3.4.2006
\npassed an award directing the appellant  VGE to transfer the
\nshares to respondent No.1.  On 14.4.2006, respondent No.1
\nfiled a petition to recognize and enforce the award before the
\nUnited States District Court, Eastern District Court of
\nMichigan (US Court).  The appellant entered appearance to
\ndefend this proceeding before the US Court by filing a cross
\npetition.  In the said petition, it objected to the enforcement of
\nthe Award which ordered transfer of shares which was in
\nviolation of Indian Laws and Regulations specifically the
\nForeign Exchange Management Act, 1999 (in short FEMA)
\nand its notifications.  The appellant filed a suit being O.S. No.
\n80 of 2006 before the Ist Additional Chief Judge, City Civil
\nCourt, Secunderabad on 28.4.2006 seeking declaration to set
\naside the award and permanent injunction on the transfer of
\nshares under the Award.  On 15.6.2006, the District Court
\npassed an ad-interim ex parte order of injunction, inter alia,
\nrestraining respondent No.1 from seeking or effecting the
\ntransfer of shares either under the terms of the Award or
\notherwise.  Challenging the said order, respondent No.1 filed
\nan appeal before the High Court of Andhra Pradesh.  The High
\nCourt admitted respondents appeal and directed interim
\nsuspension of the order of the District Court but made it clear
\nthat respondent No.1 would not effect the transfer of shares
\nuntil further orders.  On 13.07.2006, in response to the
\nsummons served upon the respondents, respondent No.1
\nappeared in the Court and filed a petition under Order VII
\nRule 11 C.P.C. for rejection of the plaint.  The appellant filed
\nobjection to the application.  The trial Court, by its order dated
\n28.12.2006, allowed the said application and rejected the
\nplaint of the appellant.  Challenging the said order, the
\nappellant filed an appeal before the High Court.  On
\n27.2.2007, the High Court dismissed the appeal holding that
\nthe award cannot be challenged even if it is against the public
\npolicy and in contravention of statutory provisions.  Against
\nthe said order, the appellant preferred the above appeal by
\nway of special leave petition.\n<\/p>\n
4)\tHeard Mr. K.K. Venugopal, learned senior counsel,
\nappearing for the appellant and Mr. R.F. Nariman, learned
\nsenior counsel, appearing for respondent No.1.\n<\/p>\n
5)\tAfter taking us through agreements entered into by both
\nthe parties, subsequent developments such as alleged
\nviolations, Award by an Arbitrator at U.K., proceedings before
\nthe District Court, Michigan, USA and the impugned
\nproceedings of the Ist Additional Chief Judge-City Civil Court,
\nSecunderabad as well as the order of the High Court, Mr. K.K.
\nVenugopal learned senior counsel appearing for the appellant
\nhas raised the following contentions:\n<\/p>\n
(i)\tThe claim that Part I of the Arbitration and Conciliation
\nAct, 1996 (in short the Act) applies to foreign awards is
\ncovered by the judgment of this Court in Bhatia
\nInternational vs. Bulk Trading S.A. & Anr.,<\/a> (2002) 4
\nSCC 105.\n<\/p>\n
ii)\tThe first respondent – Satyam Computer Services Ltd.
\ncould not have pursued the enforcement proceedings in
\nthe District Court in Michigan, USA in the teeth of the
\ninjunction granted by the Courts in India which also, on
\nthe basis of the Comity of Courts should have been
\nrespected by the District Court in Michigan.\n<\/p>\n
iii)\tThe overriding Section 11.5 (c) of the SHA would exclude
\nrespondent No.1- Satyam Computer Services Ltd.
\napproaching the US Court in regard to the enforcement of
\nthe Award.\n<\/p>\n
6)       On the other hand, Mr. R.F. Nariman, learned senior
\ncounsel, appearing for the first respondent, submitted that,\n<\/p>\n
(i)\tIn view of Section 44 of the Act and the terms of the
\nagreement, no suit would lie in India to set aside the
\nAward, which is a foreign Award.\n<\/p>\n
(ii)\tNo application under Section 34 of the Act would lie to
\nset aside the Award.\n<\/p>\n
(iii)\tIn view of the provisions of the Act and the terms of the
\nagreement, the first respondent rightly sought
\nenforcement of the Award in Michigan, USA, hence the
\ncivil suit filed at Secunderabad is not maintainable.\n<\/p>\n
(iv)\tSection 11.5(c) of the SHA only deals with the rights and
\nobligations of the appellant and the first respondent
\nwhile acting as shareholders of the 2nd respondent it has
\nnothing to do with the enforcement of foreign Award.\n<\/p>\n
(v)\tIn terms of the agreement, having participated in the
\narbitration proceedings in UK, filed cross-suit\/objection
\nin the District Court, Michigan opposing the Award, the
\nappellant cannot agitate the very same issue in the
\nIndian Courts namely, District Court, Secunderabad.  In
\nother words, the appellant, VGE, cannot ride two horses
\nat the same time.\n<\/p>\n
7)\tWe perused all the relevant materials, Annexures and
\nconsidered the rival contentions.\n<\/p>\n
8)\tSince both Mr. K.K. Venugopal, learned senior counsel
\nfor the appellant and Mr. R. F. Nariman, learned senior
\ncounsel, for respondent No.1 heavily relied on a judgment of
\nthis Court in Bhatia International (supra), in support of their
\nrespective stand, let us consider the facts in that case and
\nultimate conclusion arrived at therein.\n<\/p>\n
9)\tBhatia International filed an Appeal before this Court
\nagainst the judgment of the M.P. High Court in W.P. No. 453 of
\n2000.  The appellant-Bhatia International entered into a
\ncontract with the first respondent  Bulk Trading on 9.5.1997.
\nThis contract contained an arbitration clause which provided
\nthat arbitration was to be as per the Rules of the International
\nChamber of Commerce (for short ICC).  On 23.10.1997, the
\nIst respondent made a request for arbitration with ICC.
\nParties had agreed that the arbitration be held in Paris,
\nFrance.  ICC has appointed a sole arbitrator.  The first
\nrespondent filed an application under Section 9 of the Act
\nbefore the 3rd Additional District Judge, Indore, M.P. against
\nthe appellant and the 2nd respondent.  One of the interim
\nreliefs sought for was an order of injunction restraining these
\nparties from alienating, transferring and\/or creating third-
\nparty rights, disposing of, dealing with and\/or selling their
\nbusiness assets and properties.  The appellant raised the plea
\nof maintainability of such an application.  The appellant
\ncontended that Part I of the Act would not apply to
\narbitrations where the place of arbitration was not in India.
\nThe application was rejected by the 3rd Additional District
\nJudge on 1-2-2000. It was held that the court at Indore (M.P.)
\nhad jurisdiction and the application was maintainable. The
\nappellant filed a writ petition before the High Court of Madhya
\nPradesh, Indore Bench and the same was dismissed by the
\nimpugned judgment dated 10-10-2000. Several contentions
\nhave been raised on behalf of the appellant, namely, Part I of
\nthe Act only applies to arbitrations where the place of
\narbitration is in India and if the place of arbitration is not in
\nIndia then Part II of the said Act would apply. Sub-section (2)
\nof Section 2 of the Act makes it clear that the provisions of
\nPart I do not apply where the place of arbitration is not in
\nIndia. The Court at Indore could not have entertained the
\napplication under Section 9 of the Act as Part I did not apply
\nto arbitrations which had taken place outside India. On the
\nother hand, on behalf of respondent No.1, it was submitted
\nthat a conjoint reading of the provisions shows that Part I is to
\nbe applied to all arbitrations.  It was further submitted that
\nunless the parties by their agreement exclude its provisions,
\nPart I would also apply to all International Commercial
\narbitrations including those that take place out of India.\n<\/p>\n
10)\tThe above contentions were considered in detail.  In view
\nof the assertion of both the senior counsel, the decision in
\nBhatia International (supra) has very much bearing on the
\nissue raised in this case.  The relevant paragraphs are
\nreproduced hereunder:\n<\/p>\n
14. At first blush the arguments of Mr. Sen appear very
\nattractive. Undoubtedly sub-section (2) of Section 2 states
\nthat Part I is to apply where the place of arbitration is in
\nIndia. Undoubtedly, Part II applies to foreign awards. Whilst
\nthe submissions of Mr. Sen are attractive, one has to keep in
\nmind the consequence which would follow if they are
\naccepted. The result would:\n<\/p>\n
( a ) Amount to holding that the legislature has left a lacuna
\nin the said Act. There would be a lacuna as neither Part I or
\nII would apply to arbitrations held in a country which is not
\na signatory to the New York Convention or the Geneva
\nConvention (hereinafter called a non-convention country).
\nIt would mean that there is no law, in India, governing such
\narbitrations.\n<\/p>\n
( b ) Lead to an anomalous situation, inasmuch as Part I
\nwould apply to Jammu and Kashmir in all international
\ncommercial arbitrations but Part I would not apply to the
\nrest of India if the arbitration takes place out of India.\n<\/p>\n
( c ) Lead to a conflict between sub-section (2) of Section 2 on
\none hand and sub-sections (4) and (5) of Section 2 on the
\nother. Further, sub-section (2) of Section 2 would also be in
\nconflict with Section 1 which provides that the Act extends to
\nthe whole of India.\n<\/p>\n
( d ) Leave a party remediless inasmuch as in international
\ncommercial arbitrations which take place out of India the
\nparty would not be able to apply for interim relief in India
\neven though the properties and assets are in India. Thus a
\nparty may not be able to get any interim relief at all.
\n 16. A reading of the provisions shows that the said Act
\napplies to arbitrations which are held in India between
\nIndian nationals and to international commercial
\narbitrations whether held in India or out of India. Section
\n2(1)( f ) defines an international commercial arbitration. The
\ndefinition makes no distinction between international
\ncommercial arbitrations held in India or outside India. An
\ninternational commercial arbitration may be held in a
\ncountry which is a signatory to either the New York
\nConvention or the Geneva Convention (hereinafter called the
\nconvention country). An international commercial
\narbitration may be held in a non-convention country. The
\nsaid Act nowhere provides that its provisions are not to apply
\nto international commercial arbitrations which take place in
\na non-convention country. Admittedly, Part II only applies to
\narbitrations which take place in a convention country. Mr.
\nSen fairly admitted that Part II would not apply to an
\ninternational commercial arbitration which takes place in a
\nnon-convention country. He also fairly admitted that there
\nwould be countries which are not signatories either to the
\nNew York Convention or to the Geneva Convention. It is not
\npossible to accept the submission that the said Act makes no
\nprovision for international commercial arbitrations which
\ntake place in a non-convention country.
\n17. Section 1 of the said Act reads as follows:
\n1. Short title, extent and commencement .(1) This Act may
\nbe called the Arbitration and Conciliation Act, 1996.
\n(2) It extends to the whole of India:\n<\/p>\n
Provided that Parts I, III and IV shall extend to the State of
\nJammu and Kashmir only insofar as they relate to
\ninternational commercial arbitration or, as the case may be,
\ninternational commercial conciliation.
\nThe words this Act mean the entire Act. This shows that
\nthe entire Act, including Part I, applies to the whole of India.
\nThe fact that all Parts apply to the whole of India is clear
\nfrom the proviso which provides that Parts I, III and IV will
\napply to the State of Jammu and Kashmir only so far as
\ninternational commercial arbitrations\/conciliations are
\nconcerned. Significantly, the proviso does not state that Part
\nI would apply to Jammu and Kashmir only if the place of the
\ninternational commercial arbitration is in Jammu and
\nKashmir. Thus if sub-section (2) of Section 2 is read in the
\nmanner suggested by Mr. Sen there would be a conflict
\nbetween Section 1 and Section 2(2). There would also be an
\nanomaly inasmuch as even if an international commercial
\narbitration takes place outside India, Part I would continue
\nto apply in Jammu and Kashmir, but it would not apply to
\nthe rest of India. The legislature could not have so intended.
\n 21. Now let us look at sub-sections (2), (3), (4) and (5) of
\nSection 2. Sub-section (2) of Section 2 provides that Part I
\nwould apply where the place of arbitration is in India. To be
\nimmediately noted, that it is not providing that Part I shall
\nnot apply where the place of arbitration is not in India. It is
\nalso not providing that Part I will  only  apply where the
\nplace of arbitration is in India (emphasis supplied). Thus the
\nlegislature has not provided that Part I is not to apply to
\narbitrations which take place outside India. The use of the
\nlanguage is significant and important. The legislature is
\nemphasizing that the provisions of Part I would apply to
\narbitrations which take place in India, but not providing that
\nthe provisions of Part I will not apply to arbitrations which
\ntake place out of India. The wording of sub-section (2) of
\nSection 2 suggests that the intention of the legislature was to
\nmake provisions of Part I compulsorily applicable to an
\narbitration, including an international commercial
\narbitration, which takes place in India. Parties cannot, by
\nagreement, override or exclude the non-derogable provisions
\nof Part I in such arbitrations. By omitting to provide that
\nPart I will not apply to international commercial arbitrations
\nwhich take place outside India the effect would be that Part I
\nwould also apply to international commercial arbitrations
\nheld out of India. But by not specifically providing that the
\nprovisions of Part I apply to international commercial
\narbitrations held out of India, the intention of the legislature
\nappears to be to ally (sic allow) parties to provide by
\nagreement that Part I or any provision therein will not apply.
\nThus in respect of arbitrations which take place outside
\nIndia even the non-derogable provisions of Part I can be
\nexcluded. Such an agreement may be express or implied.  <\/p>\n
26. Mr. Sen had also submitted that Part II, which deals
\nwith enforcement of foreign awards does not contain any
\nprovision similar to Section 9 or Section 17. As indicated
\nearlier, Mr. Sen had submitted that this indicated the
\nintention of the legislature not to apply Sections 9 and 17 to
\narbitrations, like the present, which are taking place in a
\nforeign country. The said Act is one consolidated and
\nintegrated Act. General provisions applicable to all
\narbitrations will not be repeated in all Chapters or Parts. The
\ngeneral provisions will apply to all Chapters or Parts unless
\nthe statute expressly states that they are not to apply or
\nwhere, in respect of a matter, there is a separate provision in
\na separate Chapter or Part. Part II deals with enforcement of
\nforeign awards. Thus Section 44 (in Chapter I) and Section
\n53 (in Chapter II) define foreign awards, as being awards
\ncovered by arbitrations under the New York Convention and
\nthe Geneva Convention respectively. Part II then contains
\nprovisions for enforcement of foreign awards which
\nnecessarily would be different. For that reason special
\nprovisions for enforcement of foreign awards are made in
\nPart II. To the extent that Part II provides a separate
\ndefinition of an arbitral award and separate provisions for
\nenforcement of foreign awards, the provisions in Part I
\ndealing with these aspects will not apply to such foreign
\nawards. It must immediately be clarified that the arbitration
\nnot having taken place in India, all or some of the provisions
\nof Part I may also get excluded by an express or implied
\nagreement of parties. But if not so excluded the provisions of
\nPart I will also apply to foreign awards. The opening words
\nof Sections 45 and 54, which are in Part II, read
\nnotwithstanding anything contained in Part I. Such a non
\nobstante clause had to be put in because the provisions of
\nPart I apply to Part II.
\n32. To conclude, we hold that the provisions of Part I would
\napply to all arbitrations and to all proceedings relating
\nthereto. Where such arbitration is held in India the
\nprovisions of Part I would compulsorily apply and parties are
\nfree to deviate only to the extent permitted by the derogable
\nprovisions of Part I. In cases of international commercial
\narbitrations held out of India provisions of Part I would apply
\nunless the parties by agreement, express or implied, exclude
\nall or any of its provisions. In that case the laws or rules
\nchosen by the parties would prevail. Any provision, in Part I,
\nwhich is contrary to or excluded by that law or rules will not
\napply.  <\/p>\n
35. Lastly, it must be stated that the said Act does not
\nappear to be a well-drafted legislation. Therefore the High
\nCourts of Orissa, Bombay, Madras, Delhi and Calcutta
\ncannot be faulted for interpreting it in the manner indicated
\nabove. However, in our view a proper and conjoint reading of
\nall the provisions indicates that Part I is to apply also to
\ninternational commercial arbitrations which take place out of
\nIndia, unless the parties by agreement, express or implied,
\nexclude it or any of its provisions. Such an interpretation
\ndoes not lead to any conflict between any of the provisions of
\nthe said Act. On this interpretation there are no lacunae in
\nthe said Act. This interpretation also does not leave a party
\nremediless. Thus such an interpretation has to be preferred
\nto the one adopted by the High Courts of Orissa, Bombay,
\nMadras, Delhi and Calcutta. It will therefore have to be held
\nthat the contrary view taken by these High Courts is not
\ngood law. <\/p>\n
11)\tMr. K.K. Venugopal, learned senior counsel, has pointed
\nout that paragraph 14 of the judgment of Bhatia
\nInternational (supra) sets out four independent reasons for
\narriving at the conclusion that Part I would apply to foreign
\nAwards that are as follows:\n<\/p>\n
i)\tto hold to the contrary would result in a lacunae as
\nNon-Convention country awards cannot be enforced in
\nIndia.\n<\/p>\n
ii)\tSection 1(2) expressly extends Part I to the State of
\nJammu and Kashmir so far as it relates to
\ninternational commercial arbitration giving rise to an
\nanomaly so far as the rest of India is concerned unless
\nPart I applies to international commercial arbitrations
\nin the other States as well.\n<\/p>\n
iii)\tIf the word only is read into Section 2(2), it would
\nthen render the sub-section inconsistent with sub-
\nsections (4) and (5) of Section 2 which apply Part I to
\nall arbitrations, meaning thereby, including foreign
\ninternational arbitrations.\n<\/p>\n
iv)\tAs otherwise, no relief can be sought in India even
\nthough the properties and assets are situated in India,
\nmerely because the arbitration is an international
\ncommercial arbitration.\n<\/p>\n
Further, by drawing our attention to the specific conclusion
\narrived in paragraphs 32 and 35, he reiterated that the issue
\nhas been very well concluded and the argument based on
\nparagraph 26 is not acceptable.\n<\/p>\n
12)\tMr. Nariman heavily relied on paragraph 26 of the
\njudgment in Bhatia International which we have extracted
\nsupra.  According to him, the said paragraph contains not only
\nthe submissions of Mr. Sen, who appeared for Bhatia
\nInternational therein but also the ultimate conclusion of the
\nBench.  He reiterated that the Court concluded Thus Section
\n44 (in Chapter I) and Section 53 (in Chapter II) define foreign
\nAwards, as being awards covered by arbitrations under the
\nNew York Convention and the Geneva Convention respectively.
\nPart II then contains provisions for enforcement of foreign
\nawards    which necessarily would be different.  For that
\nreason, special provisions for enforcement of foreign awards
\nare made in Part II.  To the extent that Part II provides a
\nseparate definition of an arbitral award and separate
\nprovisions for enforcement of foreign awards, the provisions in
\nPart I dealing with these aspects will not apply to such foreign
\nawards.  It must immediately be clarified that the arbitration
\nnot having taken place in India, all or some of the provisions of
\nPart I may also get excluded by an express or implied
\nagreement of parties.  But if not so excluded, the provisions of
\nPart I will also apply to foreign awards.  The opening words
\nof Sections 45 and 54, which are in Part II, read
\nnotwithstanding anything contained in Part I.  Such a non
\nobstante clause had to be put in because the provisions of Part
\nI apply to Part II.\n<\/p>\n
13)\tAccording to Mr. K.K. Venugopal, paragraphs 26 and 27
\nstart by dealing with the arguments of Mr. Sen who argued
\nthat Part I is not applicable to foreign awards.  He further
\npointed out that it is only in the sentence starting at the
\nbottom of para 26 that the phrase it must immediately be
\nclarified that the finding of the Court is rendered.  That
\nfinding is to the effect that an express or implied agreement of
\nparties can exclude the applicability of Part I.  He further
\npointed out that the finding specifically states that, But if not
\nso excluded, the provisions of Part I will also apply to all
\nforeign awards.  This exception which is carved out, based
\non agreement of the parties.  By omitting to provide that Part I
\nwill not apply to international commercial arbitrations which
\ntake place outside India the effect would be that Part I would
\nalso apply to international commercial arbitrations held out of
\nIndia.  But by not specifically providing that the provisions of
\nPart I apply to international commercial arbitrations held out
\nof India, the intention of the legislature appears to be to allow
\nparties to provide by agreement that Part I or any provision
\ntherein will not apply.  Thus in respect of arbitrations which
\ntake place outside India even the non-derogable provisions of
\nPart I can be excluded.  Such an agreement may be express or
\nimplied.  He further pointed out the very fact that the
\njudgment holds that it would be open to the parties to exclude
\nthe application of the provisions of Part I by express or implied
\nagreement, would mean that otherwise the whole of Part I
\nwould apply.  In any event, according to him, to apply Section
\n34 to foreign international awards would not be inconsistent
\nwith Section 48 of the Act, or any other provision of Part II as
\na situation may arise, where, even in respect of properties
\nsituate in India and where an award would be invalid if
\nopposed to the public policy of India, merely because the
\njudgment-debtor resides abroad, the award can be enforced
\nagainst properties in India through personal compliance of the
\njudgment-debtor and by holding out the threat of contempt as
\nis being sought to be done in the present case.  In such an
\nevent, the judgment-debtor cannot be deprived of his right
\nunder Section 34 to invoke the public policy of India, to set
\naside the award.  He very much relied on the judgment of this
\nCourt in Oil & Natural Gas Corporation Ltd. vs. Saw Pipes
\nLtd.<\/a> (2003) 5 SCC 705 wherein particularly, in paragraphs 30
\nand 31, the public policy of India has been defined to include-<\/p>\n
(a)\tthe fundamental policy of India; or\n<\/p>\n
(b)\tthe interests of India; or\n<\/p>\n
(c)\tjustice or morality; or\n<\/p>\n
(d)    in addition, if it is patently illegal.\n<\/p>\n
He pointed out that this extended definition of public policy
\ncan be by-passed by taking the award to a foreign country for
\nenforcement.  In such circumstances, according to him, there
\nis nothing inconsistent between Section 48 which deals with
\nenforcement and Section 34 which deals with a challenge to
\nthe Award.  He also relied on a decision of the Division Bench
\nof the Calcutta High Court in Pratabmull Rameshwar vs.
\nK.C. Sethia Ltd., AIR 1960 Calcutta 702.  In paragraphs 45
\nand 63, the Calcutta High Court while dealing with Arbitration
\nAct of 1940 sets out the reasoning in support of a challenge
\nbeing permissible in India to a foreign award.\n<\/p>\n
14)\tIn order to find out an answer to the first and prime
\nissue and whether the decision in Bhatia International
\n(supra) is an answer to the same, let us go into the details
\nregarding the suit filed by the appellant as well as the relevant
\nprovisions of the Act.  The appellant VGE filed O.S. No. 80 of
\n2006 on the file of the Ist Additional District Court,
\nSecunderabad, for a declaration that the Award dated
\n3.4.2006 is invalid, unenforceable and to set aside the same.
\nSection 5 of the Act makes it clear that in matters governed by
\nPart I, no judicial authority shall intervene except where so
\nprovided.  Section 5 which falls in Part I, specifies that no
\njudicial authority shall intervene except where so provided.
\nThe Scheme of the Act is such that the general provisions of
\nPart I, including Section 5, will apply to all Chapters or Parts
\nof the Act.  Section 2(5) which falls in Part I, specifies that
\nthis part shall apply to all arbitrations and to all proceedings
\nrelating thereto.  It is useful to refer Section 45 which is in
\npart II of the Act which starts with non obstante clause
\nnamely, Notwithstanding anything contained in Part I or in
\nCode of Civil Procedure  Section 52 in Chapter I of
\nPart II of the Act provides that Chapter II of this Part shall not
\napply in relation to foreign awards to which this Chapter
\napplies.  As rightly pointed out, the said section does not
\nexclude the applicability of Part I of the Act to such awards.\n<\/p>\n
15)\tPart II of the Act speaks about the enforcement of certain
\nforeign awards.  Section 48 speaks about conditions for
\nenforcement of foreign awards.  Section 48(1) (e) read with
\nSection 48(3) of the Act specify that an action to set aside the
\nAward would lie to the competent authority.  Mr. Nariman,
\nafter taking us through the relevant provisions of Chapter I
\nPart II submitted that Section 48(1)(e) read with Section 48(3)
\nof the Act specifies that an action to set aside a foreign award
\nwithin the meaning of Section 44 of the Act would lie to the
\ncompetent authority of the country in which, or under the law
\nof which, that award was made.  According to him, the phrase
\nthe countryunder the law of which, that award was made
\nrefers to the country of the curial law of arbitration, in the
\nextremely rare situation where the parties choose a curial law
\nother than the law of the country of the seat of arbitration.  He
\nfurther pointed out that therefore such a challenge would lie
\nonly to the competent Court of the country in which the
\nforeign award was made.  He also submitted that the said
\nprinciple is recognized internationally by Courts in US and UK
\nas well as by several High Courts in India.  The US decisions
\nwhich support\/recognize the above principle are :
\n(1)\tInternational Standard Electric Corp. vs. Bridas
\nSociedad Anonima Petrolera, Industrial Y Comercial, 745
\nF.supp.172
\n(2)\tM & C Corporation vs. ERWIN BEHR GmbH & Co., KG,
\na foreign corporation, 87 F.3d 844
\n(3)\tYusuf Ahmed Alghanim & Sons vs. Toys R US. INC.
\nThr. (HK) Ltd. 126 F.3d 15
\n(4)\tKaraha Bodas Co. L.L.C. vs. Perusahaan
\nPertambangan Minyakdan Gas Bumi Negara 364 F.3d 274
\n(5)\tC v. D (2007) EWHC 1541\n<\/p>\n
16)\tApart from the above US decisions, Mr. R.F. Nariman,
\npointed out that all the Indian High Courts except the Gujarat
\nHigh Court in Nirma Ltd. vs. Lurgi Energie Und Entsorgung
\nGMBH, Germany, AIR<\/a> 2003 Gujarat 145 have taken this
\nconsistent view in the following judgments:\n<\/p>\n
(a)\tBombay Gas Company Limited vs. Mark Victor
\nMascarenhas & Ors., 1998 1 LJ 977\n<\/p>\n
(b)\tInventa Fischer Gmbh & Co., K.G. vs. Polygenta
\nTechnologies Ltd.,  2005 (2) Bom C.R. 364\n<\/p>\n
(c)\tTrusuns Chemical Industry Ltd. vs. Tata
\nInternational Ltd. AIR 2004 Gujarat. 274\n<\/p>\n
(d)\tBharat Aluminium Co. Ltd. vs. Kaiser Aluminium
\nTechnical Services, AIR<\/a> 2005 Chhatisgarh 21\n<\/p>\n
(e)\tBulk Trading SA vs. Dalmia Cement (Bharat)
\nLimited,  (2006) 1 Arb.LR 38(Delhi)\n<\/p>\n
17)    On close scrutiny of the materials and the dictum laid
\ndown in three-Judge Bench decision in Bhatia International
\n(supra), we agree with the contention of Mr. K.K.Venugopal
\nand hold that paragraphs 32 and 35 of the Bhatia
\nInternational (supra) make it clear that the provisions of Part
\nI of the Act would apply to all arbitrations including
\ninternational commercial arbitrations and to all proceedings
\nrelating thereto.  We further hold that where such arbitration
\nis held in India, the provisions of Part-I would compulsorily
\napply and parties are free to deviate to the extent permitted by
\nthe provisions of Part-I.  It is also clear that even in the case of
\ninternational commercial arbitrations held out of India
\nprovisions of Part-I would apply unless the parties by
\nagreement, express or implied, exclude all or any of its
\nprovisions.  We are also of the view that such an interpretation
\ndoes not lead to any conflict between any of the provisions of
\nthe Act and there is no lacuna as such.  The matter, therefore,
\nis concluded by the three-Judge Bench decision in Bhatia
\nInternational (supra).\n<\/p>\n
18)\tLearned senior counsel for the respondent based on para
\n26 submitted that in the case of foreign award which was
\npassed outside India is not enforceable in India by invoking
\nthe provisions of the Act or the CPC. However, after critical
\nanalysis of para 26, we are unable to accept the argument of
\nlearned senior counsel for the respondent.  Paras 26 and 27
\nstart by dealing with the arguments of Mr. Sen who argued
\nthat Part I is not applicable to foreign awards.  It is only in the
\nsentence starting at the bottom of para 26 that the phrase it
\nmust immediately be clarified that the finding of the Court is
\nrendered.  That finding is to the effect that an express or
\nimplied agreement of parties can exclude the applicability of
\nPart I.  The finding specifically states: But if not so excluded,
\nthe provisions of Part I will also apply to all foreign awards.
\nThis exception which is carved out, based on agreement of the
\nparties, in para 21 (placitum (e) to (f) is extracted below:
\nBy omitting to provide that Part I will not apply to
\ninternational commercial arbitrations which take place
\noutside India the effect would be that Part I would also apply
\nto international commercial arbitrations held out of India.
\nBut by not specifically providing that the provisions of Part I
\napply to international commercial arbitrations held out of
\nIndia, the intention of the legislature appears to be to allow
\nparties to provide by agreement that Part I or any provision
\ntherein will not apply.  Thus in respect of arbitrations which
\ntake place outside India even the non-derogable provisions of
\nPart I can be excluded.  Such an agreement may be express
\nor implied.\n<\/p>\n
19)\tThe very fact that the judgment holds that it would be
\nopen to the parties to exclude the application of the provisions
\nof Part I by express or implied agreement, would mean that
\notherwise the whole of Part I would apply.  In any event, to
\napply Section 34 to foreign international awards would not be
\ninconsistent with Section 48 of the Act, or any other provision
\nof Part II as a situation may arise, where, even in respect of
\nproperties situate in India and where an award would be
\ninvalid if opposed to the public policy of India, merely because
\nthe judgment-debtor resides abroad, the award can be
\nenforced against properties in India through personal
\ncompliance of the judgment-debtor and by holding out the
\nthreat of contempt as is being sought to be done in the present
\ncase.  In such an event, the judgment-debtor cannot be
\ndeprived of his right under Section 34 to invoke the public
\npolicy of India, to set aside the award.  As observed earlier, the
\npublic policy of India includes – (a) the fundamental policy of
\nIndia; or (b) the interests of India; or (c)\tjustice or morality;
\nor (d) in addition, if it is patently illegal.  This extended
\ndefinition of public policy can be by-passed by taking the
\naward to a foreign country for enforcement.\n<\/p>\n
20)\tMr. K.K.Venugopal also highlighted that in Company
\nLaw, the word transfer has a definite connotation which
\nwould require the ownership of the shares to be transferred to
\nthe transferee, which would involve the following steps being
\ntaken under the Companies Act and the rules and regulations
\nthereunder, as well as the Foreign Exchange Management Act,
\n1999 (FEMA):\n<\/p>\n
i)\tObtaining a Share Transfer Form 7-B and having it
\nendorsed by the prescribed authority under the
\nCompanies Act, 1956 in compliance with Section 108.\n<\/p>\n
ii)\tExecution of Share Transfer Form 7-B by the appellant
\nand respondent.\n<\/p>\n
iii)\tPayment of stamp duty on the transfer of shares.\n<\/p>\n
iv)\tSending duly executed Share Transfer Form 7-B and the
\nshare Certificates to SVES, the respondent No.2 herein
\nunder Section 110 of Companies Act.\n<\/p>\n
v)\tRespondent No.2 approving the transfer of shares and
\ncausing alternation in its Register of Members under
\nSection 111A.\n<\/p>\n
vi)\tCompliance with Rules and Regulations, completing
\nprescribed forms, giving relevant undertakings in
\naccordance with Indian foreign exchange laws and
\nRegulations such as the Foreign Exchange Management
\nAct, 1999 and its notifications, given that the transaction
\ninvolved transfer of shares from a non-resident to a
\nresident.\n<\/p>\n
By pointing out, he submitted that respondent No.1, in
\nenforcing the Award in the US District Court instead of Indian
\nCourts was motivated by the intention of evading the legal and
\nregulatory scrutiny to which this transaction would have been
\nsubject to had it been enforced in India.  In the light of the
\nstatutory provisions as provided in the Companies Act and
\nFEMA, we agree with the submission of Mr. K.K.Venugopal.\n<\/p>\n
21)    As rightly pointed out the effort of respondent No.1   was
\nto avoid enforcement of the Award under Section 48 of the
\n1996 Act which would have given the appellant herein the
\nbenefit of the Indian Public Policy rule based on the judgment
\nin the Saw Pipes case (supra) and for avoiding the jurisdiction
\nof the Courts in India though the award had an intimate and
\nclose nexus to India in view of the fact that, (a) the company
\nwas situated in India; (b) the transfer of the ownership
\ninterests shall be made in India under the laws of India as set
\nout above; (c) all the steps necessary have to be taken in India
\nbefore the ownership interests stood transferred.  If, therefore,
\nrespondent No.1 was not prepared to enforce the Award in
\nspite of this intimate and close nexus to India and its laws, the
\nappellant herein would certainly not be deprived of the right to
\nchallenge the award in Indian Courts.\n<\/p>\n
22)   Mr. R.F. Nariman by placing the factual details, namely,
\nfiling of petition before the Michigan Court for execution of the
\nAward the objection petition filed by the first respondent
\nherein as well as the orders passed by the Court of Michigan,
\nUS submitted that the appellant having participated and
\nconsented in those proceedings is precluded from re-opening
\nthe very same issue by filing a suit in a court at Secunderabad
\nwhich is not permissible either under law or in terms of their
\nconduct.  In view of the legal position derived from Bhatia
\nInternational (supra), we are unable to accept Mr. Narimans
\nargument.  It is relevant to point out that in this proceeding,
\nwe are not deciding the merits of the claim of both parties,
\nparticularly, the stand taken in the suit filed by the appellant-
\nherein for setting aside the award.  It is for the concerned
\ncourt to decide the issue on merits and we are not expressing
\nanything on the same.  The present conclusion is only with
\nregard to the main issue whether the aggrieved party is
\nentitled to challenge the foreign award which was passed
\noutside India in terms of Section 9\/34 of the Act.  Inasmuch
\nas the three-Judge Bench decision is an answer to the main
\nissue raised, we are unable to accept the contra view taken in
\nvarious decisions relied on by Mr. Nariman.  Though in
\nBhatia International (supra) the issue relates to filing a
\npetition under Section 9 of the Act for interim orders the
\nultimate conclusion that Part I would apply even for foreign
\nawards is an answer to the main issue raised in this case.\n<\/p>\n
23)\tMr. K.K. Venugopal, learned senior counsel, next
\ncontended that the overriding section 11.05 (c) of the
\nShareholders Agreement would exclude respondent No.1
\napproaching the US Courts in regard to enforcement of the
\nAward.  Section 11.05 (b) and (c) of the Shareholders
\nAgreement between the parties read as follows:
\n(b) This Agreement shall be construed in accordance with
\nand governed by the laws of the State of Michigan, United
\nStates, without regard to the conflicts of law rules of such
\njurisdiction.  Disputes between the parties that cannot be
\nresolved via negotiations shall be submitted for final, binding
\narbitration to the London Court of Arbitration.\n<\/p>\n
(c)\tNotwithstanding anything to the contrary in this
\nagreement, the Shareholders shall at all times act in
\naccordance with the Companies Act and other applicable
\nActs\/Rules being in force, in India at any time.
\nIt was pointed out that the non-obstante clause would override
\nthe entirety of the agreement including sub-section (b) which
\ndeals with settlement of the dispute by arbitration.  It was
\nfurther pointed out that sub-section (c), therefore, would apply
\nto the enforcement of the Award which declares that,
\nnotwithstanding that the proper law or the governing law of
\nthe contract is the law of the State of Michigan, their
\nshareholders shall at all times act in accordance with the
\nCompanies Act and other applicable Acts\/Rules being in force
\nin India at any time.  In such circumstances, it is the claim of
\nthe appellant that necessarily enforcement has to be in India,
\nas mentioned in sub-section (c) which overrides every other section
\nin the Shareholders Agreement.  Mr. K.K. Venugopal further
\npointed out that respondent No.1 totally violated the
\nagreement between the parties by seeking enforcement of the
\ntransfer of the shares in the Indian company by approaching
\nthe District Court in the United States.  On the other hand,
\nMr. Nariman pointed out that Section 11.05 (b) of the
\nShareholders agreement alone governs the rights and
\nobligations between the appellant and the first respondent
\ninter se and dispute resolution thereof.  In view of our
\ndiscussion supra, we agree with the stand of the learned
\nsenior counsel for the appellant.\n<\/p>\n
24)   Coming to the other contentions particularly the fact that
\nthe suit has been filed before the trial Court which is a court of
\ncompetent jurisdiction under Section 2(e) of the Act and not
\nan application under Section 34 of the Act,  Mr. K.K.
\nVenugopal pointed out that it would not affect the issue of
\njurisdiction as this Court has upheld the conversion of a suit
\ninto a Section 9 petition under the Act.  (vide Sameer Barar
\nand Ors. Vs. Ratan Bhushan Jain & Ors. (2006) 1 SCC 419)
\nand in another instance, converted a writ petition into a first
\nappeal under the Civil Procedure Code. (vide Ajay Bansal vs.
\nAnup Mehta & Ors.<\/a> (2007) 2 SCC 275).  Even otherwise, if the
\nCourt in question is not having jurisdiction in the interest of
\njustice the suit\/proceeding has to be transferred to the court
\nhaving competent jurisdiction.\n<\/p>\n
25)    Learned senior counsel for the appellant submitted that
\nthe first respondent – Satyam Computer Services Ltd. could
\nnot have pursued the enforcement proceedings in the District
\nCourt in Michigan, USA in the teeth of the injunction granted
\nby the Courts in India which also, on the basis of the Comity
\nof Courts, should have been respected by the District Courts
\nin Michigan, USA.  Elaborating the same, he further submitted
\nthat the injunction of the trial court restraining the
\nrespondents from seeking or effecting the transfer of shares
\neither under the terms of the Award or otherwise was in force
\nbetween 15.06.2006 and 27.06.2006.  The injunction of the
\nHigh Court in the following terms appellant (i.e. respondent
\nNo.1) shall not effect the transfer of shares of the respondents
\npending further orders was in effect from 27.06.2006 till
\n28.12.2006.  The judgment of the US District Court was on
\n13.07.2006 and 31.07.2006 when the Award was directed to
\nbe enforced as sought by respondent No.1, notwithstanding
\nthe injunction to the effect that the appellant (respondent No.1
\nherein) shall not effect the transfer of shares of the
\nrespondents pending further orders.  The first respondent
\npursued his enforcement suit in Michigan District Courts to
\nhave a decree passed directing   VGE shall deliver to
\nSatyam or its designee, share certificates in a form suitable for
\nimmediate transfer to Satyam evidencing all of the appellants
\nownership interest in Satyam Ventures Engineering Services
\n(SVES), the partys joint venture company.  Further, the VGE
\n(appellant herein) shall do all that may otherwise be necessary
\nto effect the transfer of its ownership interest in SVES to
\nSatyam (or its designee).  It is pointed out that obtaining this
\norder by pursuing the case in the US District Courts, in the
\nteeth of the prohibition contained in the order of the High
\nCourt, would not only be a contempt of the High Court but
\nwould render all proceedings before the US courts a brutum
\nfulmen, and liable to be ignored.  Though Mr. R.F.Nariman has
\npointed out that the High Court only restrained the
\nrespondent from effecting transfer of the shares pending
\nfurther orders by the City Civil Court, Secunderabad, after the
\norders of the trial Court as well as limited order of the High
\nCourt, the first respondent ought not to have proceeded the
\nissue before the District Court, Michigan without getting the
\ninterim orders\/directions vacated.\n<\/p>\n
26)\tFinally, the overriding section 11.5 (c) of the SHA cannot
\nbe ignored lightly.  As pointed out, the said section would
\nexclude respondent No.1- Satyam Computer Services Ltd.
\napproaching the US Courts in regard to the enforcement of the
\nAward.  Section 11.05 (b) and (c) of the Shareholders
\nAgreement between the parties which is relevant has already
\nbeen extracted in para 23.\n<\/p>\n
The non-obstante clause would override the entirety of the
\nagreement including sub-section (b) which deals with
\nsettlement of the dispute by arbitration.  Sub-section (c),
\ntherefore, would apply to the enforcement of the Award which
\ndeclares that, notwithstanding that the proper law or the
\ngoverning law of the contract is the law of the State of
\nMichigan, their shareholders shall at all times act in
\naccordance with the Companies Act and other applicable
\nActs\/Rules being in force in India at any time.  Necessarily,
\nenforcement has to be in India, as declared by this very
\nsection which overrides every other section in the
\nShareholders Agreement.  Respondent No.1, therefore, totally
\nviolated the agreement between the parties by seeking
\nenforcement of the transfer of the shares in the Indian
\ncompany by approaching the District Courts in the United
\nStates.\n<\/p>\n
27)   The claim of the first respondent that the section,
\nnamely, 11.05 (c) of the SHA cannot be construed to mean
\nthat Indian law is a substantive law of the contract or that
\nIndian law would govern the dispute resolution clause in
\nSection 11.05(b) are not acceptable.  As rightly pointed out
\nand observed earlier, the non obstante clause would over ride
\nthe entirety of the agreement including sub-section (b) which
\ndeals with the settlement of the dispute by arbitration and,
\ntherefore, section 3 would apply to the enforcement of the
\naward.  In such event, necessarily enforcement has to be in
\nIndia as declared by the very section which over rides every
\nother section.\n<\/p>\n
28)   The above-mentioned relevant aspects,  the legal position
\nas set out in three-Judge Bench decision in Bhatia
\nInternational (supra), specific clause in the Shareholders
\nAgreement (SHA), conduct of the parties have not been
\nproperly adverted to and considered by the trial Court as well
\nas the High Court.  Accordingly, both the orders passed by the
\nCity Civil Court and of the High Court are set aside.\n<\/p>\n
29)    In terms of the decision in Bhatia International (supra),
\nwe hold that Part I of the Act is applicable to the Award in
\nquestion even though it is a foreign Award.  We have not
\nexpressed anything on the merits of claim of both the parties.
\nIt is further made clear that if it is found that the Court in
\nwhich the appellant has filed a petition challenging the Award
\nis not competent and having jurisdiction, the same shall be
\ntransferred to the appropriate Court.  Since from the inception
\nof ordering notice in the special leave petition both parties
\nwere directed to maintain status quo with regard to transfer of
\nshares in issue, the same shall be maintained till the disposal
\nof the suit.  Considering the nature of dispute which relates to
\nan arbitration Award, we request the concerned Court to
\ndispose of the suit on merits one way or the other within a
\nperiod of six months from the date of receipt of copy of this
\njudgment.  Civil appeal is allowed to this extent.  No costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Venture Global Engineering vs Satyam Computer Services Ltd. & … on 10 January, 2008 Author: P Sathasivam Bench: Tarun Chatterjee, P. Sathasivam CASE NO.: Appeal (civil) 309 of 2008 PETITIONER: Venture Global Engineering RESPONDENT: Satyam Computer Services Ltd. & Anr. DATE OF JUDGMENT: 10\/01\/2008 BENCH: Tarun Chatterjee & P. Sathasivam JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-47194","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nVenture Global Engineering vs Satyam Computer Services Ltd. & ... on 10 January, 2008 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/venture-global-engineering-vs-satyam-computer-services-ltd-on-10-january-2008\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Venture Global Engineering vs Satyam Computer Services Ltd. & ... on 10 January, 2008 - 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