# 12 S.C.R. 259 VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA LTD. & ANOTHER ETC

- **Citation:** [2017] 12 S.C.R. 259
- **Court:** Supreme Court of India
- **Decided:** 2017-11-01
- **Case number:** Civil Appeal Nos. 17753-17755 of2017
- **Bench:** J. Chelameswar, Abhay Manohar Sapre
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/12-s-c-r-259-venture-global-engineering-llc-v-tech-mahindra-ltd-another-etc-31527
- **Pages:** 72

## Headnote

Arbitration and Conciliation Act, 1996 -
s. 34 - Arbitral
award - Joint Venture between two companies for incorporating
Joint Venture Company wherein entire shareholding of JVC to be
held between two collaborating companies equally - In event of C
default, non-defaulting shareholder to purchase the defaulting
shareholders shares at book value - Appellant company declared
bankrupt - Jn vocation of arbitration clause -Award passed in favour
of non-defaulting company, directing the defaulting company to
transfer their 50% shares of JVC to non-defaulting company at D
book value - Rounds of litigation in US and Indian Courts -
Challenge to foreign arbitral award in India u/s. 34 - Subsequent
thereto, disclosure by chairman and founder of non-defaulting
company that balance sheet of the company had been manipuluted,
inflating the profit - Said additional facts brought on record -
Thereafter, as regards application by defaulting company u/s. 34,
E
trial court set aside the award since it violates the provisions of
FEMA Act and is against the public policy - However, High Court
held that award is not against the public policy and restored the
award - Whether the award impugned in s. 34 proceedings is
vitiated on account of fraud, misrepresentation and suppression of F
material facts played by the chairman and founder of
non-defaulting company in the affairs of the company - Held: Per
Sapre, !.-Award was obtained by misrepresentation and
suppression of material facts having bearing over the proceedings,
thus, arbitral proceedings including the award being in violation
of public policy of India u!s. 34(2)(b)(ii) read with Explanation l(i),
G
(ii) and (iii), not legally sustainable and set aside - Per Chelameswar,
I-Except mechanically repeating that the non-disclosure or
concealment of the material facts before the arbitrator is m1 act of
fraud, no discussion as to how the concealed facts are material
facts whose concealment resulted in inducing the making of the H
. 259
260
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[2017] 12 S.C.R.
award by fraud or affected by fraud, thus, restoration of the award
upheld - In view of difference of opinion, matter referred to larger
Bench.
While directing the matter to be placed before the Hon'ble
the Chief .Justice of India, the Court
HELD: Per Ab hay Manohar Sa pre, .J:
1.1 This Court, in earlier round of litigation in two decisions,
namely, Venture I and II, permitted the V company to raise the
additional plea in Section 34 of the Arbitration and Conciliation
Act, 1996 proceedings to challenge the arbitral proceedings
including the Award on the basis of 'R's confessional statement
made on 07.01.2009. It was held by this Court that such being a
material fact which came into existence as a subsequent event
had a direct bearing over the issues arising in the case, the legality
and correctness of arbitral proceedings including the Award could,
thus, be tested in the light of this material subsequent event. It
was also held that since the case on hand relates to the period
prior to Balco's regime, it would be governed by Bhatia's regime
and, in consequence, fall in Part I of the Act. It was held that, as
a result, the legality of the Award, though foreign in nature, could
still be decided under Section 34 of the Act by the Indian Courts.
These findings attained finality being rendered inter se parties in
this very case, are binding on the parties. [Para 99] [294-G-H;
295-A-B]
1.3 The existence of letter, its contents and signature of R
on the letter were never doubted and nor its author-'R' at any
point of time retracted from his confessional statement made
therein or denied having written such letter. Therefore, the letter
was rightly received in evidence without requiring any further
formal proof to corroborate its existence and contents. That apart,
it being a "notorious fact" being in the knowledge of the whole
world and especially those in the trade, the Courts could take
judicial notice of such evidence

## Text

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[2017) 12 S.C.R. 259
VENTURE GLOBAL ENGINEERING LLC
v.
TECH MAHINDRA LTD. & ANOTHER ETC.
(Civil Appeal Nos. 17753-17755 of2017)
A
NOVEMBER 01, 2017
B
[J. CHELAMESWAR AND ABHAY MANOHAR SAPRE, JJ.]
Arbitration and Conciliation Act, 1996 -
s. 34 - Arbitral
award - Joint Venture between two companies for incorporating
Joint Venture Company wherein entire shareholding of JVC to be
held between two collaborating companies equally - In event of C
default, non-defaulting shareholder to purchase the defaulting
shareholders shares at book value - Appellant company declared
bankrupt - Jn vocation of arbitration clause -Award passed in favour
of non-defaulting company, directing the defaulting company to
transfer their 50% shares of JVC to non-defaulting company at D
book value - Rounds of litigation in US and Indian Courts -
Challenge to foreign arbitral award in India u/s. 34 - Subsequent
thereto, disclosure by chairman and founder of non-defaulting
company that balance sheet of the company had been manipuluted,
inflating the profit - Said additional facts brought on record -
Thereafter, as regards application by defaulting company u/s. 34,
E
trial court set aside the award since it violates the provisions of
FEMA Act and is against the public policy - However, High Court
held that award is not against the public policy and restored the
award - Whether the award impugned in s. 34 proceedings is
vitiated on account of fraud, misrepresentation and suppression of F
material facts played by the chairman and founder of
non-defaulting company in the affairs of the company - Held: Per
Sapre, !.-Award was obtained by misrepresentation and
suppression of material facts having bearing over the proceedings,
thus, arbitral proceedings including the award being in violation
of public policy of India u!s. 34(2)(b)(ii) read with Explanation l(i),
G
(ii) and (iii), not legally sustainable and set aside - Per Chelameswar,
I-Except mechanically repeating that the non-disclosure or
concealment of the material facts before the arbitrator is m1 act of
fraud, no discussion as to how the concealed facts are material
facts whose concealment resulted in inducing the making of the H
. 259
260
A
B
c
D
E
I
F
SUPREME COURT REPORTS
[2017] 12 S.C.R.
award by fraud or affected by fraud, thus, restoration of the award
upheld - In view of difference of opinion, matter referred to larger
Bench.
While directing the matter to be placed before the Hon'ble
the Chief .Justice of India, the Court
HELD: Per Ab hay Manohar Sa pre, .J:
1.1 This Court, in earlier round of litigation in two decisions,
namely, Venture I and II, permitted the V company to raise the
additional plea in Section 34 of the Arbitration and Conciliation
Act, 1996 proceedings to challenge the arbitral proceedings
including the Award on the basis of 'R's confessional statement
made on 07.01.2009. It was held by this Court that such being a
material fact which came into existence as a subsequent event
had a direct bearing over the issues arising in the case, the legality
and correctness of arbitral proceedings including the Award could,
thus, be tested in the light of this material subsequent event. It
was also held that since the case on hand relates to the period
prior to Balco's regime, it would be governed by Bhatia's regime
and, in consequence, fall in Part I of the Act. It was held that, as
a result, the legality of the Award, though foreign in nature, could
still be decided under Section 34 of the Act by the Indian Courts.
These findings attained finality being rendered inter se parties in
this very case, are binding on the parties. [Para 99] [294-G-H;
295-A-B]
1.3 The existence of letter, its contents and signature of R
on the letter were never doubted and nor its author-'R' at any
point of time retracted from his confessional statement made
therein or denied having written such letter. Therefore, the letter
was rightly received in evidence without requiring any further
formal proof to corroborate its existence and contents. That apart,
it being a "notorious fact" being in the knowledge of the whole
world and especially those in the trade, the Courts could take
judicial notice of such evidence. The letter did not require any
G more formal proof. [Paras 101-103] [298-G-H; 299-A-B]
Onkar Nath & Ors. v. Delhi Administration (1977) 2
SCC 611 : [1977] 2 SCR 991 - relied on.
1.4 The acts of 'R' in the affairs of S Company were
essentially in the nature of manipulating and fabricating the
H accounts books/balance-sheets of S Company. These acts were
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done by 'R' without knowledge to all the stakeholders of S
A
including V. These acts were detrimental to the interest of all the
stakeholders who were/are directly and indirectly dealing and
involved in the affairs of S and its affiliates at all material times. It
is a clear case where R suppressed the real facts relating to the
affairs of S from its stakeholders and, on the other hand, went on
B
indulging in manipulating and fabricating the accounts books/
balance-sheets of S. [Paras 104-105] [300-C-E]
1.5 'S' being a limited Company registered under the
Companies Act, 1956, was under legal obligation to ensure strict
compliance of the Companies Act. Section 209 of the Companies
Act deals with Books of Account of the Company, sub-section (3)
C
thereof casts an obligation on the Company to keep "proper books
of account" as are necessary to give a "true and fair view of the
state of afl'airs of tlle Company" or its Branch office and explain
its transactions. Section 211 of the Act deals with "form and
contents of balance-sheet and profit and loss account of the D
Company'', again casting an obligation on every Company that it
shall give "true andj'air view of the state of affairs of the company"
at the end of the financial year. Keeping in view the requirements
of Sections 209 and 211, the acts of 'R', in the affairs of S Company
were prima facie in breach of Sections 209 and 211 and other
Acts. It had adverse impact on the affairs of S, its affiliates and on E
those who were dealing with S at the relevant time. These acts
also constituted the acts of misrepresentation and suppression
of material facts on the part of 'R' which he himself candidly
confessed to have done it by expressing his regrets only in his
letter. It is held so against S. [Paras 108-110] [300-G-H; 301-A·
CJ
1.6 The acts of 'R' amount to "event of default" under
Section 8.0l(b) and Section ll.05(c) of Agreement-I for the
following reasons:
F
(i) The acts satisfy the requirements of Section 8.0l(b) read G
with Section 11.05 (c) of Agreement-I.
(ii) Section 11.05(c) which gives overriding effect on all
Sections of Agreement I casts an obligation on "Shareholders"
to ensure compliance of all laws of India. The expressions
"Shareholder" and "Shareholders" include "V", "S", their
affiliates and assigns. A fortorari, non-compliance of any H
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[2017] 12 S.C.R.
A
provision(s) of any Act/Rules by any shareholder would, thus,
amount to "event of default" u/s 8.0l(b) and 11.05(c) of
Agreement-I. [Para 113-115] [301-F-G]
(iii) Having regard to the nature of the Agreement, it is
clear that Section ll.05(c) applies to the affairs of JVC so also it
B
applies to the shareholders of JVC, viz., S, V and their respective
affiliates in the affairs of their respective business activities. To
confine the applicability of Section 11.05( c) only to the affairs of
JVC would defeat the very purpose of Joint Venture Agreement.
It would also not be the true interpretation of Section 11.05(c)
and nor was it intended by the parties. In view thereof, breach on
C
the part of S who was 50% shareholder of .JVC, was clearly made
out under Agreement-I thereby entitling V to take recourse to
the remedies provided in Sections 8.03 and 8.04 against S on
happening of such events. [Para 116-117] [301-H; 302-A-B]
(iv) The acts of R in the affairs of S were not isolated but
D spread over in several years in past as is clear from his own
statement and were prior in point of time as compared to the
breach committed by V. [Para 118] [302-C]
E
F
(v) The affairs of S had a direct bearing over the rights of
the parties to the Agreement and also on the affairs of JVC
because S and V were the only 2 shareholders of JVC each having
50% stakes therein; S and its affiliates were also party to the
Agreements with V and their affiliates; the entire capital including
providing of the loan facilities to JVC were to be funded by S and
V as per Agreement whereas operative infrastructure was to be
provided by S; 'R' was the Chairman of Sand JVC and, as such
being in dual capacity, was in a position to control the affairs of
both the Companies, i.e., S and JVC; the most pertinently, the
affairs of S, V, JVC and their respective affiliates were so
intrinsically connected with each other that any major event
occurring in one Company would have had direct and indirect
G impact on the working of other group companies. Agreement-I,
has to be construed accordingly while deciding the rights of all
parties to the Agreement. Taking into consideration these
admitted facts including the findings of this Court rendered earlier
in Venture-I and II, there existed causative link inter se these
H companies. To hold otherwise would be nullifying the findings of
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA
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this Court recorded earlier in Venture-I and II. Any major event
A
occurring in the affairs of S could be made basis for determining
the rights of the parties arising out Agreement I. A fortiori, the
acts of 'R' in the affairs of S had also direct bearing over the
claim filed by S against V in arbitration proceedings in London
Court of Arbitration in 2005 because S's claim also arose out of
Agreement I/II. Had 'R' brought his acts of S to the notice of B
shareholders/Board of Directors of JVC in any Board meeting of
JVC, V too would have been able to get first right to terminate
Agreement-I under Section 8.0l(b) rw Section 11.0S(c) and claim
appropriate reliefs against S because, S's breach was prior in point
of time. V was, thus, deprived of their legal and contractual rights
C
to exercise against S but for no fault of theirs. V also lost their
right to defend S claim before the Arbitrator on these grounds,
which were deliberately suppressed by S from V. [Para 119-123)
[302-D-H; 303-A-D]
(vi) Commission of fraud, misrepresentation, suppression D
of material facts from the adversary in the judicial proceedings
and the CourUArbitrator result in vitiating the entire judicial/
arbitral proceedings including judgment/order/award passed
thereon once come to the knowledge of the party concerned. On
proving existence of commission of fraud, misrepresentation,
suppression of material facts by the party concern, the judicial/
arbitral proceedings are rendered illegal and void ab initio. This
principle applies to arbitral proceedings in question and to Award
and thus, renders both void ab initio. [Para 124)(303-E-F]
E
(vii) The Award is also against the public policy of India in
the light of law laid down in Associate builder's case. It is, thus,
liable-to be set aside since it is proved that the Award was obtained
by S against V by misrepresentation and suppression of material
facts having bearing over the proceedings; the acts of 'R' in the
affairs of 'S', as its Chairman violated several sections of IPC,
Companies Act and FEMA; and the arbitral proceedings due to
the reason, which came to knowledge to all stakeholders of S
including V subsequent to passing of the Award could not be said
to have been held fairly or reasonably but were concluded to the
detriment of the interest of V causing them prejudice while
defending their interest before the Arbitrator. It also deprived V
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[2017) 12 S.C.R.
A from exercising their contractual right for want of knowledge of
these acts of 'R' against Sat appropriate stage in court of Jaw in
terms of agreement. All this occurred due to S concealing these
major events at all relevant time from V. [Para 125] [303-G-H;
304-A-B]
B
1.7 Once the fraud, misrepresentation or suppression of
c
fact, if found to have been done by the party in any judicial
proceedings is later discovered or disclosed then it would relate
back to the date of its actual commission and would necessarily
result in vitiating such judicial proceedings. Such is the case here.
[Para 126] [304-C]
1.8 The award of an arbitral tribunal can be set aside only
on the grounds specified in Section 34 of the Act and on no other
ground. The Court cannot act as an appellate court to examine
the legality of Award nor it can examine the merits of claim by
entering in factual arena like an appellate court. It has to confine
D
its enquiry only to the limited issue as to whether any ground
specified in Section 34 is made out or not, and once it is made
out, the award then has to be set aside. In the instant case, ground
u/s 34(2)(b )(ii) read with Explanation I (i)(ii) and (iii) is made out.
The arbitral proceedings including the award was passed in
E
violation of public policy of India under Section 34(2)(b)(ii) read
with Explanation l(i), (ii) and (iii), thus, not legally sustainable.
[Para 127-128] [304-D-F]
1.9 The arbitral proceedings are essentially in the nature
of the civil proceedings and, therefore, in the light of law laid
down in Masud Khan's case that principle of 'issue-estoppel'
F
applies to criminal proceedings only and not to any other
proceedings, the High Court was not right in applying the
principle of "issue-estoppel" for dismissing the application filed
by the appellant u/s. 34. [Para 132) [307-B-C]
1.10 The issues arising in the case must be given quietus
G in third round of litigation in this Court and which hereby is given.
Moreover, when the grounds urged by the appellant-V to attack
the Award are made out on merits in these proceedings and which
were also dealt with by the two courts below there is no justification
to again send the case back to the trial court to decide the case
on merits on some other ground, more so when such prayer was
H
not made in the courts below. That apart, there is enough material
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA
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on record on which decision could be rendered on the merits of A
the case. Indeed, it was so rendered by the trial court and the
High Court though of reversal. In the light of facts emerging
from the record, it is not considered necessary to have another
round of litigation for filing any additional material or to adduce
any more evidence again before the trial court. [Para 135-136]
(307-E-G]
1.11 The questions are answered in favour of the appellantB
V and against the respondent-S. Impugned judgment of the High
Court is set aside and that of the trial court is restored. As a
consequence, the application filed by the V-appellant under
Section 34, is allowed. As a result thereof, the entire arbitral
C
proceedings including the Award passed by the sole Arbitrator is
set aside as being against the public policy of India u/s. 34(b )(ii)
read with Explanation l(i)(ii) and (iii). [Para 142-143) [308-H; 309A-C]
Venture Global Engineering v. Satyam Computer
D
Sen1ices Ltd. & Am:, (2008) 4 SCC 190 : [2008) 1 SCR
501 ; Bhatia International v. Bulk Trading S.A. & Afll:,
(2002) 4 SCC 105 : [2002] 2 SCR 411; Venture Global
Engineering v. Satyam Computer Services Limited &
Another (2010) 8 SCC 660 : [2010] 9 SCR 858 ; Bharat
Aluminium Co. v. Kaiser Aluminium Technical Services
Inc., (2012) 9 SCC 552 : 2012 (12) SCR 327 ; Ram
Chandra Singh v. Savitri Devi.& Ors. (2003) 8 SCC
319 : [2003] 4 Suppl. SCR 543 ; Derry vs. Peek ;
Renusagar Power Co. Ltd. vs. General Electric Co.,
(1994) Suppl(l) SCC 644 : [1993) 3 Suppl. SCR 22 ;
Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.,
[ONGC(l)] (2003) 5 sec 705 : (2003] 3 SCR 691; Oil
& Natural Gas Corporation Ltd. v. Western Geco
International Ltd. (2014) 9 SCC 263 [ONGC(II)] :
[2014] 12 SCR 1 ; Associate Builders v. Delhi
Development Authority (2015) 3 SCC 49 ; Onkar Nath
& Ors. v. Delhi Administration, (1977) 2 SCC 611 :
[1977] 2 SCR 991 ; Masud Khan vs. State of Uttar
Pradesh, (1974) 3 SCC 469 : [1974) 1 SCR 793 -
referred to.
'Fraud and Mistake' by Kerr - Seventh Edn.
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(2017] 12 S.C.R.
Per Chelameswar J.:
1.1 Though the trial court had set aside the award
purportedly on two grounds, in essence the ground is only one,
that the award is in conflict with the public policy of India. Because
the conclusion of the trial court on Point Nos. 6 & 7 framed by it
that "the award is affected and induced by fraud" is also an aspect
of the "conflict with the public policy of India." The High Court
is right in reversing the judgment of the trial court though the
reasons are not very elegant and logical. [Paras 31-32) [322-AC]
1.2 Neither the text of the regulations nor the scheme of
either the FEMA Act or the regulations is subjected to any
analysis. The trial court did not even indicate the number of the
regulation which mandates (if at all) that the transfer such as the
one directed by the award is required to be only at "fair value' of
the shares. The trial court simply accepted the submission of V
Company. [Para 36) [323-E-F]
1.3 Assuming for the sake of argument that there is some
stipulation in the regulation which forbids the transfer of shares
in question except "for a fair value", there is no discussion in the
judgment of the trial court as to; what is meant by fair value of
the shares under FEMA; how that fair value is to be determined;
whether the fair value of shares is the same as market value of
shares; what exactly is the fair vaiue of the shares in question.
The trial court did not even record a finding that the book value
of the shares of the JVC is less than that of their market value or
fair value. The trial court did not even refer to any pleading on
F
the basis of which submission was made before it. [Para 37) [323G-H; 324-A-B]
1.4 The entire exercise undertaken by the trial court only
demonstrates the unfortunate trend in the legal system where
without settling the facts in issue first and identifying the
questions of law relevant in the context for determining the
G controversy between the parties, case law is dumped upon and
examined by the courts. The result is an exercise like the one
undertaken by the trial court. The conclusion recorded by the
trial court as regards the issue whether award can be said to be
opposed to public policy on the ground that the transfer of money
H for its implementation needs permission under FEMA, is
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without any basis in facts and without even identifying the
provision of law with which the award is in conflict with. Hence,
the conclusion in this point cannot be sustained. In the process
of such uncharted debate, the trial court undertook an
examination whether the payment of US$ 622,656 to be made
towards the book value of the shares requires permission of the
RBI and whether such permission is required to precede the
award etc. There is failure to identify any categorical conclusion
recorded by the trial court. Whether there are any pleadings calling upon the court to examine those questions is also not indicated in the judgment. [Paras 38-39] [324-C-E]
1.5 Section 34(2) of the Act declares that if making of an
award is either "induced or affected by fraud", the same is liable
to be set aside. Whether the facts relating to the fudging of the
accounts of S and the non-disclosure of those facts by S before
the arbitrator would amount either to 'inducing' the making of
the award by fraud; or the award made in ignorance of those facts
by virtue of non-disclosure of those facts by S would be an 'award
affected by fraud', would be the questions relevant for deciding
whether the award is required to be set aside. The Act does not
define the expression 'Fraud'. From the language of the
explanation to Section 34(2), what renders an award liable to be
set aside is that the making of the award must have been induced
by fraud or the award is affected by fraud. Neither does the trial
court judgment identify the legal parameters for recording a
conclusion that the making of the award was induced by or fraud
or that the award is affected by fraud, nor does it explain how the
non-disclosure of the facts relating to the true financial status of
S actually is an inducement for making of the award. Whereas the
trial court relied upon the observations made by this Court in
VENTURE-II. [Paras 42-44] [325-B-C; 326-D; 327-A-B]
1.6 The conclusion of the trial court that the various facts
brought on record by V-appellant borne by the disclosure
statement of 'R' dated 7 .01.2009 and the subsequent
developments thereafter (Concealed facts) are material facts
which ought to have been disclosed before the Arbitrator and
the failure to make such a disclosure would render the award
liable to be set aside is wholly untenable. No reference is made
A
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c
D
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F
G
H
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[2017] 12 S.C.R.
to the pleadings of 'V' as to how 'V' believed that the "Concealed
facts" are material for the adjudication of the dispute by the
arbitrator. Equally absent is the discussion by the trial court as to
how the "concealed facts" would become material facts in the
context of the arbitration. The trial court does not give any reason
justifying the conclusion that the "Concealed facts" are material
facts in the context of the arbitration. Except mechanically
repeating the words of this Court that the non-disclosure or
concealment of the material facts before the arbitrator is an act
of fraud, there is no discussion as to how the concealed facts are
material facts whose concealment resulted in inducing the making
of the award by fraud or affected by fraud. [Para 45] [328-A-D]
1.7 This Court in Venture II only held that the concealed
facts of 'R' are relevant and, therefore, V-appellant must be
permitted to plead those facts. But this Court did not make any
declaration that such facts would constitute material facts
rendering the award liable to be set aside on the ground that the
non-disclosure of those facts before the arbitrator would amount
to fraud, inducing the making of the award or that the award is
affected by the fraud. At the same time, this Court categorically
declared that "nothing said in the judgment would be construed
as even remotely expressing any opinion on the legality of the
award." [Para 46] [328-E-F]
1.8 The High Court rightly disagreed with the conclusions
of the trial court and reversed the judgment of the trial court.
The High Court ought to have given more cogent reasons for
the disagreement. In the circumstances, the High Court rightly
reversed the judgment of the trial court, not warranting any
interference by this Court in exercise of the discretionary
jurisdiction under Article 136 of the Constitution. [Para 47, 48]
[329-E-F]
1.9 If this Court agrees with the conclusion of the High
Court that the AWARD is not liable to be set aside, the appeal of
S would become purely academic. Even otherwise, a reading of
the SLP discloses, all that S is seeking is to re-agitate the question
of the applicability of Part-I of the ACT to an international
commercial arbitration. In other words, it is a challenge to the
correctness of the decision of a Constitution Bench of this Court
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in BALCO's case and that such a course ought not to be permitted.
A
[Para 49] [329-G-H]
Bhatia International v. Bulk Trading S.A. & Anr. (2002)
4 SCC 105 : [2002] 2 SCR 411 ; Bharat Aluminium
Company v. Kaiser Aluminium Technical Services Inc.,
(2012) 9 sec 552 (CB) : [2012] 12 SCR 327 ; Bharat
B
Aluminium Co. v. Kaiser Aluminium Technical Services
Inc., [2012] 9 SCC 552 : [2012] 12 SCR 327 ; Venture
Global Engineering v. Satyam Computer Services Ltd.
& Anothe1; (2008) 4 SCC 190 : [2008] 1 SCR 501 ;
Venture Global Engineering v. Satyam Computer
Services Limited & Another, (2010) 8 SCC 660
("Venture-II") : [2010] 9 SCR 858 - referred to.
"KERR on the Law of Fraud and Mistake" 1952
(7'" Edn.) Sweet & Maxwell Limited - referred to.
Case Law Reference
In the .Judgment of Justice Sapre
[2008] 1 SCR 501
referred to
Para 28
[2002] 2 SCR 411
referred to
Para 28
[2010] 9 SCR 858
referred to
Para 38
[2012] 12 SCR 327
referred to
Para 51
[2003] 4 Suppl. SCR 543
referred to
Para 82
[1993] 3 Suppl. SCR 22
referred to
Para 89
[2003] 3 SCR 691
referred to
Para 89
[2014] 12 SCR 1
referred to
Para 90
(2015) 3 sec 49
referred to
Para 90
[1977] 2 SCR 991
referred to
Para 102
[1974] 1 SCR 793
referred to
Para 130
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[2002] 2 SCR 411
referred to
Para9
[2012] 12 SCR 327
referred to
Para9
[2012] 12 SCR 327
referred to
Para9
[2008] 1 SCR 501
referred to
Para 12
[2010] 9 SCR 858
referred to
Para 17
CIVILAPPELLATE JURISDICTION: Civil Appeal Nos. 1775317755 of2017.
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From the final Judgment and Order dated 23.08.2013 of the
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High Court of Andhra Pradesh at Hyderabad in CMANos.832, 834 and
864 of2012 respectively
WITH
Civil Appeal No.17756 of2017.
K.K. Venugopal, K.V. Vishwanathan, Sr. Advs, V.K. Misra, Rajat
Taimni, Naval Sharma, Saket Satapathy, Ms.Shriya Luke, Devendra Singh,
Ro hit Bhat, Vivek Reddy, Abhijeet Sinha, Ms.Shally Bhasin, Chaitnaya
Safaya, Ms.Shruti Garg, SiddhantBuky, Siddharth Naidu, E.C.Agrawala,
Advs for the appearing parties.
The following Judgments and Order of the Court were
delivered by
ABHAY MANOHAR SAPRE, .J. I. Special Leave Petition
(Civil) Nos.29747-29749 of 2013 are filed by the Venture Global
Engineering LLC. Special Leave Petition (C) No.8298 of2014 is filed
by Tech Mahindra Ltd. Both of them are Bodies Corporate. They are
the plaintiff and the !st defendant respectively in O.S. No.87 of 2012 on
the file of the 1 ''Additional Chief Judge, City Civil Court, Secunderabad.
2. Leave granted.
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3. O.S. No.87 of 2012 was filed praying that an Arbitral Award
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dated 03.04.2006 (hereinafter referred to as the "Award") be set aside
in exercise of the power under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the "AAC Act"). O.S.
No. 87 of 2012 was transferred to the Court of Chief Judge, City Civil
Court, Hyderabad and re-numbered as O.P. No. 390 of 2008.
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA
271
LTD. & ANOTHER ETC. [ABHAY MANOHAR SAPRE, J.]
4. By order dated 31.01.2012, O.P. No.390 of 2008 was allowed
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setting aside the Award.
5. Aggrieved by the said order, the defendant preferred three
appeals to the High Court of Andhra Pradesh. By a common judgment
dated 23.08.2013, the High Court allowed the appeals.
Hence, the
instant appeals.
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6. The necessary background facts of these appeals are:
7. For the sake of convenience and brevity, the plaintiff-Venture
Global Engineering LLC is hereinafter referred to as "Venture", whereas
defendant No.1-Tech Mahindra (formerly known as Satyam Computer
Services Private Ltd. is hereinafter referred to as "Satyam" and
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defendant No.2-Satyam Venture Engineering Services is hereinafter
referred to as "JVC".
8. Plaintiff-Venture in O.S. No.87 of 2012 is a Company
incorporated under the US laws. It is one of a group of companies.
9. Satyam is an Indian Company registered under the Companies
Act, 1956 with its office at Hyderabad engaged in the business of computer
software.
10. On 20.10.1999, the Venture and Satyam entered into a Joint
Venture and Shareholder Agreement (hereinafter referred to as
Agreement-I) for incorporating JVC. The entire shareholding of JVC is
to be held between the two collaborating companies equally. The
Agreement consists of XI Articles. Each Article consists of several
sections.
11. Annexure-A to the Agreement defines several expressions
used in the Agreement.
12. The provisions of Agreement-I relevant to the controversy on
hand are:
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(i) Section 6 (a) to (e) of Article VI which provide that both
Venture and Satyam would not compete in any manner in the business
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of JVC and also would not compete inter se in their respective business
directly or indirectly so long as both of them hold shares in JVC and also
within two years after they cease to hold the shares in the JVC.
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(ii) Section 8.01 of Article VIII defines the expression '"event of
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default". It then sets out four events of default in clauses (a) to (d). One
such event specified in Clause (a) is - "A bankruptcy event when occurs
with respect to a shareholder." It reads as under:
"Section 8.01 Events of Default
For purposes of this Agreement, an "Event of Default"
means, with respect to any Shareholder; the occurrence
of any of the following:
(a) A Bankruptcy Event occurs with respect to such
Shareholder.
(b) Subject to clause (c) and (d) below, such Shareholder
breaches this Agreement in an material respect and
fails to cure such breach within thirty(30) days after
being notified in writing the other Shareholder of such
breach.
(c) A Shareholder Transfers, or attempts to Transfer, any
Shares in violation of the transfer restrictions set
forth in Article VII of this Agreement.
(d) Such Shareholder is subject to a Change in Control."
(iii) Section 8.02 provides the consequences of the occurrence of
any "event of default". It reads as under:
"Section 8.02 Rights Upon Events of Default Generally
Upon the occurrence of an Event of Default (other than a
Bankruptcy Event) with respect to any Shareholder (the
"Defaulting Shareholder"), the other Shareholder (the
"Non-Defaulting Shareholder") shall have the option, within
thirty (30) days after becoming aware of the Event of Default
to (a) purchase the Defaulting Shareholder's Shares at book
value and repay Shareholder's loan, or (b) cause the
immediate dissolution and liquidation of the COMPANY in
accordance with Article IX. Either of such options must be
exercised by the Non-Defaulting Shareholder by written
notice to the Defaulting Shareholder within thirty (30) days
after becoming aware of the subject Event of Default."
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA
273
LTD. & ANOTHER ETC. [ABHAY MANOHAR SAPRE, J.]
(iv) Sections 8.03 and 8.04 stipulate the rights and obligations
flowing from the occurrence of the "event of default". One of them is
that the noncdefaulting shareholder shall have an option within 30 days
after becoming aware of the occurrence of the "event of default" to
either purchase the defaulting shareholder's shares at book value or
cause the immediate dissolution and liquidation of the JVC Company
following the procedure prescribed in Agreement-I. It read as under:
"Section 8.03 Rights Upon Bankruptcy Event
Upon the occurrence of a Bankruptcy Event with respect
to any Shareholder (the ~'Bankrupt Shareholder"), such
shareholder shall give immediate written notice to the
other Shareholder (the "Sol vent Shareholder"). The
Solvent Shareholder shall have the option of (a) purchasing
the Shares held by the Bankruptcy Shareholder at book
value and repay such Shareholder's loans or (b) causing
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the immediate dissolution of liquidation of the company in
accordance with Article IX. Either of such options must be D
exercised by the Solvent Shareholder by written notice to
the Bankrupt Shareholder within one hundred Twenty (120)
days of receipt of notice of the Bankruptcy Event from the
Bankrupt shareholder."
"Section 8.04 Remedies Not Exclusive - The rights granted
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in this Article are not exclusive of any other rights or
remedies available at law or in equity."
(v) Article XI, Section 11.05 (a) prescribes the procedure for the
settlement of disputes:
"(a) In the event of a dispute between the parties to this
Agreement regarding the terms and conditions of this
Agreement or any of the transaction documents, the Parties
shall negotiate in good faith for a period of 30 days in an
effort to resolve the issues causing such dispute. If such
negotiations are not successful, the parties shall submit
the disagfeement to the senior officer VENTURE and the
senior officer of SATYAM designees for their review- and
resolution in such manner as they deem necessary or
appropriate. Compliance ~ith this Section 11.5 (a) shall be
a condition precedent to the commencement of any judicial
or other legal proceeding."
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(vi) Section 11.05 (b) stipulates the governing law of the agreement;
"(b) This Agreement shall be construed in accordance with
and governed by the laws of the State Michigan, United
States, without regard to the conflicts of law rules of such
jurisdiction.
Disputes between the parties that cannot be
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resolved via negotiations shall be submitted for final, binding
arbitration to the London Court of Arbitration."
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It provides that the disputes between the parties, if not settled
through negotiations, shall be referred to arbitration to the London Court
of International Arbitration (hereinafter referred to as LCIA).
(vii) Section 11.05( c) stipulates ensuring compliance of provisions
of Companies Act and other applicable Acts/Rules, which are in force in
India at any time. It reads as under:
"(c) Notwithstanding anything to the contrary in this
agreement, the Shareholders shall at all times act in
accordance with the Company's Act and other applicable
Acts/Rules being in force, in India, at any time."
13. Pursuant to the aforementioned Agreement, Satyam, Venture
and NC entered into another Agreement dated 11.02.2000, AgreementII called Non-Compete Agreement. Clause 5 of the Agreement provides
that the Agreement shall be governed by and construed according to
laws of the State of Michigan (US) without regard to conflicts of law
rules of its jurisdiction. It then also provides that the disputes between
the parties, if cannot be mutually resolved, shall be referred to arbitration
to the LCIA. It also provides that a party to the Agreement may seek
injunctive relief in a Court of competent jurisdiction restraining a violation
of the Agreement. It reads as under:
"Clause 5 - This agreement shall be governed by and
construed according to the Laws of the States of Michigan,
United States, without regard to conflicts of law rules of
such jurisdiction.
Disputes between the parties which
cannot be resolved via negotiations shall be submitted for
final, binding arbitration to the London Court of Arbitration.
In addition, a party may seek injunctive relief in a court of
competent jurisdiction, restraining a violation of this
agreement."
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA 275
LTD. & ANOTHER ETC. [ABHAY MANOHAR SAPRE, J.]
14. In September 2000, Satyam entered into an Agreement with
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another American Company called-TRW Automotive to provide
information technology to TRW.
Satyam also entered into a "subcontract" with the JVC to share the benefits of the business with TRW.
15. Between March 2003 to May 2004, 21 members of the Group
of Companies of which the Venture is a member filed bankruptcy
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proceedings in U.S. Courts and were declared bankrupt.
16. Aforementioned two events gave rise to disputes between
Venture and Satyam. Eventually Satyam invoked the arbitration clause
contained in Section 11.5 (b) of Agreement-I by filing a request with the
LCIA for arbitration on 25.07 .2005 against Venture.
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17. On 10.09.2005 the LCIA appointed Mr. Paul B. Hanon as
sole Arbitrator to decide the disputes. Both the parties entered appearance
before the Arbitrator and filed their respective claims against each other.
18. The Arbitrator delivered his reasoned Award on 03.04.2006.
He rejected the claims of Venture and allowed the claims of Satyam.
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19. The Arbitrator held that an "event of default (bankruptcy)" on
the part of Venture had occurred entitling Satyam to claim reliefs specified
in Section 8.03 of Agreement-I against Venture. The Arbitrator also
held that Venture violated Agreement-II by failing to provide business as
stipulated in the Agreement.
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20. The relevant part of the operative portion of the Award reads
as under:
"A. I order VGE1 to deliver to Satyam share certificates
in form suitable for immediate transfer to Satyam2 or its
designee evidencing all of VGE's ownership interest (legal
and/or beneficial) in SVES3• I further order it to do all that
may otherwise be necessary to effect the transfer of such
ownership to Satyam or its designee.
B. Concurrently with the transfer of ownership
described in Section 6.lA above, I order Satyam to pay VGE
US$622,656, such sum being the net difference between
the amount payable by Satyam to VGE for the book value
1 VGE = VENTURE
'Satyam = SATYAM
3 SVES=JVC
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of the share of SVES (plus interest) and the amount payable
by VGE to Satyam for the disgorgement of royalties paid to
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VGE by SVES (plus interest).
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C. I order VGE to pay Satyam GBP48,777.48, the costs of
the Arbitration as determined by the LCIA Court.
D. I order VGE to pay to Satyam US$1,488,454.11 Satyam's
additional costs as determined in Section 5.12 hereof.
E. I order VGE to pay Satyam interest at the 5 per cent per
annum compounded annually on the unpaid balance of the
sums set forth in Sections 6.1 C and D hereof until such
sums are paid.
F. I declare that Satyam is released from its obligation under
the NCA not to compete with SVES or VGE with respect to
engineering services to the automotive industry."
21. Aggrieved by the Award, Venture filed a complaint against
Satyam on 13.04.2006 before the United States District Court for the
Northern District of Illinois, Eastern Division (USA) seeking a declaration
that the Award was not enforceable in US. By an Order dated
• 25.04.2006, the said complaint was dismissed as withdrawn.
22. On 14.04.2006, Satyam filed a petition against Venture in
Eastern District Court of Michigan (US) seeking to enforce the Award
against the Venture. On 28.04.2006, Venture filed its response and crosspetition in Satyam's petition. By Order dated 31.07.2006, Satyam's petition
was allowed directing enforcement of the Award.
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23. Aggrieved by order dated 31.07.2006, Venture filed an appeal
on 08.09 .2006 in 6th circuit US appeal Court in Michigan.
24. On 28.04.2006, Venture filed a civil suit (0.S. No.80/2006)
before the 1st Additional Chief Judge City Civil Court Secunderabad
seeking (i) a declaration that the Award is illegal and without jurisdiction,
(ii) a decree for grant of permanent injunction restraining Satyam from
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enforcing the Award which, inter alia, directed Venture to sell their
50% shares of JVC to Satyam at book value.
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25. In the said suit, on 15.06.2006, an ex parte injunction order
was passed restraining Satyam from enforcing the Award insofar as it
directed transfer of shares by Venture to Satyam.
VENTURE GLOBAL ENGINEERING LLC v. TECH MAHINDRA
277
LTD. & ANOTHER ETC. [ABHAY MANOHAR SAPRE, J.]
26. Aggrieved by the order dated 15.06.2006, Satyam filed Misc.
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Appeal No.519/2006 in the High Court ofAndhra Pradesh. By its order
dated 13.09.2006, the High Court allowed the said appeal, remitted the
matter to the Trial Court for fresh adjudication on merits.
27. On remand, Satyam filed an application (IA No.2042/2006)
under Order VII Rule 11 of the Code of Civil Procedure, 1908 (in short
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"the Code") praying for rejection of the plaint and dismissal of suit.
28. By order dated 28.12.2006, the Trial Judge allowed the
application.The plaint was rejected.
29. Challenging the said order, Venture filed appeal before the
High Court. The High Court dismissed the appeal on 27.02.2007.
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30. Aggrieved by the said order, Venture moved this Court.