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2008(1) Supreme 1
Supreme Court of india
(From Andhra Pradesh High Court)
Tarun Chatterjee & P. Sathasivam, JJ.
Venture Global Engineering — Petitioner
versus
Satyam Computer Services Ltd. & Anr. — Respondents
Appeal (civil) 309 of 2008
(Arising out of SLP (C) No.8491 OF 2007)
Decided on : 10-01-2008
(b)Arbitration and Conciliation Act, 1996 – Part I – Provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto – Where such arbitration is held in India, the provisions of Part-I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part-I – Even in the case of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions – In respect of arbitrations which take place outside India even the non-derogable provisions of Part I can be excluded by agreement, express or implied. (Paras 17 and 18)
(2002) 4 SCC 105 – Relied upon.
(2003) 5 SCC 705 – Distinguished.
(c)Arbitration and Conciliation Act, 1996 – Section 34 – Application of Section 34 to foreign international awards would not be inconsistent with Section 48 of the Act, or any other provision of Part II – The judgment-debtor cannot be deprived of his right under Section 34 to invoke the public policy of India, to set aside the award.(Para 19)
(d)Arbitration and Conciliation Act, 1996 – Section 48 – The public policy of India includes (a) the fundamental policy of India; or (b) the interests of India; or (c) justice or morality; or (d) in addition, if it is patently illegal – This extended definition of public policy can be by-passed by taking the award to a foreign country for enforcement – Section 34 comes to rescue of a judgment debtor in such a case. (Para 19)
(e)Arbitration and Conciliation Act, 1996 – Section 48 – The motivation for foreign award may also be the intention of evading the legal and regulatory scrutiny to which this transaction would have been subject to had it been enforced in India – This cannot be permitted. (Para 20)
(f)Arbitration and Conciliation Act, 1996 – Sections 9 and 34 – Filing of suit in trial court challenged on the ground that instead an application u/s 34 should have been filed – The trial court is the court of competent jurisdiction u/s 2(e) and the suit could be converted into an application u/s 9 – Even otherwise, if the Court in question is not having jurisdiction in the interest of justice the suit/proceeding has to be transferred to the court the suit has been filed before the trial Court which is a court of competent jurisdiction – Therefore question of jurisdiction does not arise.(Para 24)
(2006) 1 SCC 419; (2007) 2 SCC 275 – Relied upon.
Facts of the case:
1.On 20.10.1999, Appellant-Company and respondent No.1- Satyam Computer Services Limited entered into a Joint Venture Agreement to constitute a company named Satyam Venture Engineering Services Ltd. respondent No.2. Another agreement was also executed between the parties on the same day being the Shareholders Agreement which provides that disputes have to be resolved amicably between the parties and failing such resolution, the disputes are to be referred to arbitration.
2.In February, 2005, disputes arose between the parties. Respondent No.1 alleged that the appellant had committed an event of default under the SHA owing to several venture companies becoming insolvent and they had exercised its option to purchase the appellant-company’s shares in SVES at its book value.
3.On 25.07.2005, respondent No.1 filed a request for arbitration with the London Court of International Arbitration which appointed Mr. Paul B Hannon as sole arbitrator on 10.9.2005. The sole Arbitrator on 3.4.2006 passed an award directing the appellant - VGE to transfer the shares to respondent No.1.
4.On 14.4.2006, respondent No.1 filed a petition to recognize and enforce the award before the United States District Court, Eastern District Court of Michigan (US Court). On 15.6.2006, the District Court passed an ad-interim ex parte order of injunction, inter alia, restraining respondent No.1 from seeking or effecting the transfer of shares either under the terms of the Award or otherwise.
5.Challenging the said order, respondent No.1 filed an appeal before the High Court of Andhra Pradesh. The High Court admitted respondent’s appeal and directed interim suspension of the order of the District Court but made it clear that respondent No.1 would not effect the transfer of shares until further orders. On 27.2.2007, the High Court dismissed the appeal holding that the award cannot be challenged even if it is against the public policy and in contravention of statutory provisions.
Findings of the Court:
The judgment-debtor cannot be deprived of his right under Section 34 to invoke the public policy of India, to set aside the award.
Result : Appeal partly allowed.
Certainly. Based on the provided legal document, the key points are as follows:
The judgment emphasizes that a judgment-debtor retains the right under Section 34 of the Arbitration and Conciliation Act to invoke the public policy of India to set aside an award, even if the award is foreign in nature (!) .
The applicable law, the Arbitration and Conciliation Act, 1996, applies comprehensively to all arbitrations, including international commercial arbitrations, and to proceedings related thereto, unless explicitly excluded by agreement (!) (!) (!) .
Part I of the Act, which contains core provisions such as Sections 34 and 9, is applicable to all arbitrations held in India and, unless parties agree otherwise, also to international commercial arbitrations held outside India. This broad applicability is supported by a comprehensive interpretation that avoids lacunae and conflicts within the Act (!) (!) (!) (!) (!) .
The Act's provisions, including Section 34, are not inconsistent with Section 48, which deals with the enforcement of foreign awards. The public policy of India, as defined in the Act, includes fundamental policies, interests of India, justice, morality, and legality, and can be invoked to challenge awards that are patently illegal or contrary to Indian interests (!) (!) .
The enforcement of foreign awards can be challenged in India under Section 34, and such challenges are permissible even if the award is passed outside India, provided they are based on public policy grounds (!) (!) .
The legal process for transferring shares involves compliance with Indian laws such as the Companies Act and FEMA, including obtaining necessary endorsements, executing transfer forms, paying stamp duty, and registering the transfer with the company [p_67–p_73].
Enforcement of awards in foreign courts, such as in the US, must respect Indian injunctions and orders, and proceeding contrary to such orders may constitute contempt and undermine the enforceability of foreign judgments or awards (!) (!) .
Specific contractual provisions, such as non-obstante clauses in Shareholders Agreements, can override other dispute resolution mechanisms, including arbitration clauses, and require enforcement actions to be taken in accordance with Indian law [p_77–p_79] (!) .
The orders of Indian courts, including injunctions, must be respected by foreign courts, and pursuing enforcement in foreign jurisdictions despite Indian orders may be deemed a violation of jurisdiction and legal protocol (!) (!) .
The orders passed by lower courts and the High Court are set aside, affirming that Part I of the Act applies to foreign awards and that challenges to such awards on public policy grounds are valid and permissible in Indian courts (!) (!) .
These points collectively highlight the broad jurisdictional scope of Indian arbitration law, the importance of respecting Indian legal orders in enforcement proceedings abroad, and the rights of parties to challenge arbitration awards on public policy grounds within Indian courts.
JUDGMENT
P. Sathasivam, J. —
1.Leave granted.
2.Appellant - Venture Global Engineering (in short VGE), a company incorporated in the United States of America with its principal office at 33662, James J Pampo Drive, Fraser, Michigan, USA 48026 through its Constituted Attorney, Mr. Pradeep Yadav filed this appeal challenging the final order and judgment dated 27.2.2007 passed by the High Court of Judicature, Andhra Pradesh at Hyderabad in City Civil Court Appeal No. 26 of 2007 whereby the Division Bench of the High Court dismissed their appeal.
3.The facts, which are necessary for the disposal of this appeal, are as under:
On 20.10.1999, Appellant-Company and respondent No.1- Satyam Computer Services Limited (in short ‘SCSL’), a registered company having its office at Mayfair Centre, S.P. Road, Secunderabad entered into a Joint Venture Agreement to constitute a company named Satyam Venture Engineering Services Ltd. respondent No.2 herein (in short ‘SVES’) in which both the appellant and respondent No.1 have 50 per cent equity shareholding. Another agreement was also executed between the parties on the same day being the Shareholders Agreement (in short ‘SHA’) which provides that disputes have to be resolved amicably between the parties and failing such resolution, the disputes are to be referred to arbitration. Section 11.05 of the SHA provides for certain terms and conditions as regards the resolution of the disputes. In February, 2005, disputes arose between the parties. Respondent No.1 alleged that the appellant had committed an event of default under the SHA owing to several venture companies becoming insolvent and they had exercised its option to purchase the appellant-companys shares in SVES at its book value. On 25.07.2005, respondent No.1 filed a request for arbitration with the London Court of International Arbitration which appointed Mr. Paul B Hannon as sole arbitrator on 10.9.2005. The sole Arbitrator on 3.4.2006 passed an award directing the appellant VGE to transfer the shares to respondent No.1. On 14.4.2006, respondent No.1 filed a petition to recognize and enforce the award before the United States District Court, Eastern District Court of Michigan (US Court). The appellant entered appearance to defend this proceeding before the US Court by filing a cross petition. In the said petition, it objected to the enforcement of the Award which ordered transfer of shares which was in violation of Indian Laws and Regulations specifically the Foreign Exchange Management Act, 1999 (in short ‘FEMA’) and its notifications. The appellant filed a suit being O.S. No. 80 of 2006 before the Ist Additional Chief Judge, City Civil Court, Secunderabad on 28.4.2006 seeking declaration to set aside the award and permanent injunction on the transfer of shares under the Award. On 15.6.2006, the District Court passed an ad-interim ex parte order of injunction, inter alia, restraining respondent No.1 from seeking or effecting the transfer of shares either under the terms of the Award or otherwise. Challenging the said order, respondent No.1 filed an appeal before the High Court of Andhra Pradesh. The High Court admitted respondents appeal and directed interim suspension of the order of the District Court but made it clear that respondent No.1 would not effect the transfer of shares until further orders. On 13.07.2006, in response to the summons served upon the respondents, respondent No.1 appeared in the Court and filed a petition under Order VII Rule 11 C.P.C. for rejection of the plaint. The appellant filed objection to the application. The trial Court, by its order dated 28.12.2006, allowed the said application and rejected the plaint of the appellant. Challenging the said order, the appellant filed an appeal before the High Court. On 27.2.2007, the High Court dismissed the appeal holding that the award cannot be challenged even if it is against the public policy and in contravention of statutory provisions. Against the said order, the app
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