Case Analysis of “Venture Global Engg. v. Satyam Computer Services Ltd., (2008) 4 SCC 190”
CASE NAME:
Venture Global Engg. v. Satyam Computer Services Ltd.
CITATION:
(2008) 4 SCC 190
PARTIES INVOLVED:
APPELLANT- Venture Global Engineering
RESPONDENT 1- Satyam Computer Services Ltd.
RESPONDENT 2- Satyam Venture Engineering Services Ltd.
COURT:
The Supreme Court of India
BENCH OF JUDGES:
Hon’ble Justice Tarun Chatterjee and Justice P. Sathasivam
DATE OF PASSING THE JUDGMENT:
January 10, 2008
ISSUES INVOLVED:
Whether the aggrieved party is entitled to challenge the foreign award which was passed outside India in terms of Sections 9/34 of the Act.
Jurisdiction of Indian Courts under the Arbitration and Conciliation Act, 1996 for setting aside of a foreign arbitral award.
FACTS OF THE CASE:
On 20-10-1999, the Appellant, Venture Global Engineering and Respondent 1, Satyam Computer Services Limited entered into a joint venture agreement to constitute a company named Satyam Venture Engineering Services Ltd., Respondent 2 herein, in which both the appellant and Respondent 1 have 50 per cent equity shareholding. 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.
In February 2005, disputes arose between the parties. On 25-7-2005, Respondent 1 filed a request for arbitration with the London Court of International Arbitration which appointed a sole arbitrator.
The sole arbitrator passed an award in favour of the Respondent 1, directing the appellant to transfer the shares to Respondent 1. Respondent 1 filed a petition to recognize and enforce the award before the United States District Court. The appellant objected to the enforcement of the award stating that it violated of Indian laws and regulations.
The appellant filed a suit before the 1st Additional Chief Judge, City Civil Court, Secunderabad seeking declaration to set aside the award and permanent injunction on the transfer of shares under the award.
DECISION OF DISTRICT COURT
District Court passed an ad interim ex parte order of injunction, inter alia, restraining Respondent 1 from seeking or effecting the transfer of shares either under the terms of the award or otherwise. District Court passed an order in favour of the Appellant.
Challenging the said order, Respondent 1 filed an appeal before the High Court of Andhra Pradesh.
DECISION OF THE HIGH COURT
High Court dismissed the appeal holding that the award cannot be challenged even if it is against the public policy and in contravention of statutory provisions.
Against the said order, the Appellant preferred an appeal to the Supreme Court by way of special leave petition.
CONTENTIONS OF APPELLANT
- The claim that Part I of the Arbitration and Conciliation Act, 1996 (in short “the Act”) applies to foreign awards is covered by the judgment of this Court in Bhatia International v. Bulk Trading S.A
- The Respondent 1 could not have pursued the enforcement proceedings in the District Court in Michigan, USA in the teeth of the injunction granted by the courts in India which also, on the basis of the comity of courts should have been respected by the District Court in Michigan.
- The overriding the arbitration clause in the share-holders agreement would exclude Respondent 1 Satyam Computer Services Ltd. from approaching the US Court in regard to the enforcement of the award.
CONTENTIONS OF RESPONDENT 1
- In view of Section 44 of the Arbitration and Conciliation Act and the terms of the agreement; no suit would lie in India to set aside the award, which is a foreign award.
- No application under Section 34 of the Act would lie to set aside the award.
- In view of the provisions of the Act and the terms of the agreement, the respondent 1 rightly sought enforcement of the award in Michigan, USA, hence the civil suit filed at Secunderabad is not maintainable.
- The arbitration clause incorporated in the share-holders agreement only deals with the rights and obligations of the appellant and the respondent 1 while acting as shareholders of the respondent 2; it has nothing to do with the enforcement of foreign award.
- In terms of the agreement, having participated in the arbitration proceedings in UK, filing cross-suit/objection in the District Court, Michigan opposing the award, the appellant cannot agitate the very same issue in the Indian courts, namely, District Court, Secunderabad. In other words, the appellant cannot ride two horses at the same time.
Supreme Court has also analyzed the Bhatia International v. Bulk Trading S.A case since the counsel for both the Appellant and Respondent 1 heavily relied upon the said case.
ANALYSIS OF BHATIA INTERNATIONAL CASE
The provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I.
In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply. Such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such. The matter, therefore, was concluded by the three-Judge Bench decision in Bhatia International case.
DECISION OF THE SUPREME COURT:
The fact that the suit has been filed before the trial court which is a court of competent jurisdiction under Section 2(1)(e) of the Act and not an application under Section 34 of the Act would not affect the issue of jurisdiction of the Supreme Court.
Section 2(5) which falls in Part I, specifies that “this Part shall apply to all arbitrations and to all proceedings relating thereto”. Thus, the Scheme of the 1996 Act is such that the general provisions of Part I, including Section 5, will apply to all Chapters or Parts of the Act.
Court referred to Section 45 which is in Part II of the Act which starts with a non obstante clause, namely, “Notwithstanding anything contained in Part I or in the Code of Civil Procedure….”
Section 52 in Chapter I of Part II of the Act provides that “Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter applies”.
The court stated that it was rightly pointed out that the said section does not exclude the applicability of Part I of the Act to such awards.
The court further held that the specific clause in the share-holders agreement and conduct of the parties have not been properly adverted to and considered by the trial court as well as the High Court. Accordingly, both the orders passed by the City Civil Court and of the High Court are set aside.
The Supreme Court upheld Bhatia International case and stated that, “Part I of the Act is applicable to the award in question even though it is a foreign award. We have not expressed anything on the merits of claim of both the parties. It is further made clear that if it is found that the court, in which the appellant has filed a petition challenging the award, is not competent and having jurisdiction, the same shall be transferred to the appropriate court.
Considering the nature of dispute which relates to an arbitration award, we request the court concerned to dispose of the suit on merits one way or the other within a period of six months from the date of receipt of copy of this judgment. Civil appeal is allowed to this extent with no costs.”
CONCLUSION:
In 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.
Hence, the Court held that Part I of the Act is applicable to the Award in question even though it is a foreign Award.
A foreign award can be challenged under Section 34 of the Act, even though Section 34 of the Arbitration and Conciliation Act, 1996 deals with challenge to a domestic award.
Author
ASIN HIBBA
ICFAI LAW SCHOOL, HYDERABAD
