Venture Global Engineering vs Satyam Computer Services Ltd & Anr

Venture Global Engineering vs Satyam Computer Services Ltd & Anr

(The India’s biggest corporate scam)

By:- Jashanpreet kaur from Maharishi Markandeshwar deemed to be university 

Bench: 

• P. Sathasivam, 

• Asok Kumar Ganguly

Case description: 

Case was a major marketable reproach that shook India in 2009. It involved the author and chairman of Satyam Computer Services Ltd, Byrraju Ramalinga Raju, confessing to overstating the company’s earnings and means for several times. Raju admitted to inflating the company’s accounts by over Rs 7,000 crore(US$1.4 billion) through varied tactics, including creating fake checks and bank statements. This manipulation led to Satyam’s stock price artificially inflating, causing significant losses to investors when the swindle was revealed. 

Background

In 1987,B. Ramalinga Raju(“Mr. Raju”) formed Satyam in Hyderabad, India with lower than 20 workers Ironically, Satyam means” facticity” in the ancient Indian language Sanskrit. The company specializes in IT , business services, C.S, and is a leading outsourcing company in India. Satyam directly endured success after it issued an original public sacrifice on the Bombay Stock Exchange in 1991 Established on 24th June 1987 byB. Ramalinga Raju and his family in- law,D.V.S. Raju, Satyam Computer Services Limited was incorporated in 1991 as a public ltd co and also got its first Fortune 500 client, Deere and Co. In a short span of time, it came a leading global consulting and IT services company gauging 55 countries before nemesis caught up with it. It was one of the numerous Indian IT services companies listed on the New York Stock Exchange. It was ranked as India ‘s fourth largest software exporter, after TCS, Infosys and Wipro. The 1990s were an period of considerable growth for the company. It also caused the conformation of a number of attachment companies analogous as Satyam Renaissance, Satyam Info way, Satyam Spark results and Satyam Enterprise results; Satyam Info way( Sify) apropos came the first Indian internet company to be listed on the NASDAQ. Satyam acquired a lot of businesses and expanded its operations to multitudinous countries and signed MoUs with multitudinous international companies in the new belle Epoque . Satyam added feather after feather to its cap by getting the first company in the world to start a programme known as the customer- acquainted Global Organisation training in May 2000, subscribing contracts with numerous international players analogous as Microsoft, Emirates, TRW, i2 Technologies and Ford, claiming the honour of being the first ISO 90012001 company in the world certified by BVQI, and earning the name as a global company by opening services in Singapore, Dubai and Sydney. In 2005, it acquired a 100 per cent stake in Singapore- predicated Knowledge Dynamic and 75 per cent stake in London predicated Citisoft Plc. Satyam was a company on the fast track to success and has justifiably earned for itself a name for consulting in the area of strategy right through to administering IT results for guests. At the peak of its business, Satyam employed nearly 50,000 workers and operated in 67 countries. Satyam was as an illustration of India’s growing success. Satyam won numerous awards for invention, governance, and marketable responsibility. In 2007, Ernst & Young awardedMr. Raju with the Entrepreneur of the Year award. On April 14, 2008, Satyam won awards from MZ Consult’s for being a leader in India in marketable governance and responsibility. In September 2008, the World Council for Corporate Governance awarded Satyam with the” Global Peacock Award” for global excellence in marketable responsibility. Unfortunately, lower than five months after winning the Global Peacock Award, Satyam came the centerpiece of a massive account fraud. In 2010, Satyam sought to apply the arbitral award by filing a supplication in a US District Court to transfer VGE’s SVES shares. VGE continued to repel the enforcement, emphasising their arguments about fabricated financial information and illegal arbitration proceedings. In January 2009, Satyam’s author confessed to a massive account fraud, shaking the Indian marketable world. This exposure significantly bolstered VGE’s claims about Satyam’s financial irregularities and implicit misrepresentation within the JV. The reproach raised uncertainties about the legitimacy of Satyam’s claims and the fairness of the arbitration process The focus shifted from VGE’s original defense against the dereliction denunciation to using the Satyam reproach as validation of implicit fraud and misrepresentation within the JV. This new development bolstered VGE’s legal station and increased the stakes for both companies. The Supreme Court’s judgment in 2010 paved the way for further legal proceedings and examinations into the disputed transfer of shares in SVES .

Issues raised:

1. governance and enforceability of foreign arbitral awards

 • Could Indian courts challenge a foreign arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996?

 • Did the lately revealed Satyam reproach constitute” new validation” or a violation of public policy justifying challenging the award under Section 34?

2. Allegations of fraud and misrepresentation

 • Did Satyam’s claims of VGE’s financial dereliction within the common adventure calculate on fabricated financial information or unethical account practices?

 • Were there grounds to questionable bias or lack of due process in the London arbitration proceedings? 

3. marketable governance and translucence

 • Did the Satyam reproach expose deeper systemic issues within the company regarding account practices and financial reporting? 

• What arrears do companies have to ensure translucence and help financial fraud within common crapshoots? 

4. Legal implications of the Satyam reproach

 • Could validation or information attained during the Satyam reproach exploration be used in legal proceedings related to the Venture Global Engineering case?

 • Did the reproach have broader implications for the legal and nonsupervisory frame girding foreign arbitral awards and marketable governance in India? 

5. Ethical considerations in business connections 

• How can companies guard against unethical practices and implicit fraud within common crapshoots and alliances? 

• What impact do analogous cases have on trust and confidence in business collaboration’s, both domestically and internationally?

Argument of petitioner 

Challenge to Arbitration Award:

1. Section 34 Violation: The award violates Section 34 of the Arbitration and Conciliation Act, 1996, as enforcing it would condone and benefit from potentially fraudulent activities (Satyam scandal) and misrepresentation (inflated financial information).
2. Public Policy Violation: Enforcing the award would be contrary to Indian public policy by rewarding illegal and unethical conduct.
3. Fraud: The award was obtained through fraud due to Satyam’s:
   • Misrepresentation of their financial condition.
   • Concealment of crucial evidence during arbitration.
   • Potential bias on the part of the arbitrator.

Allegations of Fraud and Misrepresentation:

4. Satyam’s claims of VGE’s “event of default” and subsequent share transfer in SVES were fabricated.
5. Satyam inflated its financial information, misrepresenting SVES’s true health and influencing their “default” claims.
6. The Satyam accounting scandal corroborates VGE’s claims of fraudulent practices within the joint venture.
7. Satyam deliberately concealed evidence of its fraud, hindering VGE’s defense and compromising the arbitration process.

Procedural Fairness and Due Process:

8. The London arbitration lacked transparency and fairness. VGE had limited access to evidence due to Satyam’s concealment.
9. The arbitration proceedings did not comply with Indian procedural laws and principles of natural justice.
10. Indian courts have a crucial role in reviewing the award under Section 34 and ensuring due process was followed.

Contractual Interpretation and Joint Venture Disputes:

11. VGE’s interpretation of the JVA clauses regarding “event of default” and Satyam’s share purchase right differs from Satyam’s.
12. Satyam failed to fulfil its obligations within the joint venture, contributing to financial difficulties and misinterpretations.
13. VGE seeks financial damages and compensation for lost shares and legal costs.

Validity of Arbitration Award:

1. No Violation of Section 34: The award does not violate Section 34 of the Arbitration and Conciliation Act, 1996, as it was not obtained through fraud or contrary to Indian public policy.
2. Finality and Binding Nature: The London arbitration award is final and binding.VGE’s challenge based on the Satyam scandal is an attempt to avoid contractual obligations.
3. Fair and Transparent Proceedings: The arbitration proceedings were fair and transparent, with both parties presented with opportunities to present arguments and evidence.

Respondents Arguments

Validity of Arbitration Award:

1. No Violation of Section 34: The award does not violate Section 34 of the Arbitration and Conciliation Act, 1996, as it was not obtained through fraud or contrary to Indian public policy.
2. Finality and Binding Nature: The London arbitration award is final and binding.VGE’s challenge based on the Satyam scandal is an attempt to avoid contractual obligations.
3. Fair and Transparent Proceedings: The arbitration proceedings were fair and transparent, with both parties presented with opportunities to present arguments and evidence.

Defense against Allegations of Fraud and Misrepresentation:

4. No inflated financial information or misrepresentation: Satyam’s financial records and expert analysis support their financial claims.
5. Satyam Scandal not impacting SVES: The Satyam scandal primarily affected the parent company and did not directly impact SVES’s financial health.
6. VGE responsible for financial difficulties and breach of contract: VGE’s mismanagement led to default, triggering Satyam’s right to purchase shares.

Procedural Fairness and Due Process:

7. Compliance with Procedural Laws: The London arbitration complied with all applicable procedural laws and principles of natural justice. No bias on the part of the arbitrator, VGE had full access to evidence.
8. Indian Court Interference: Questioning the fairness of the arbitration under Section 34 is an overreach by Indian courts and undermines international arbitration principles.

Contractual Interpretation and Joint Venture Disputes:

9. Satyam’s interpretation of JVA clauses is correct: Their interpretation aligns with the agreement’s intent regarding “event of default” and the share purchase option.
10. VGE’s mismanagement led to their default: VGE’s financial decisions within the joint venture justified Satyam’s right to purchase their shares.
11. Uphold share transfer and defend against compensation claims: Satyam seeks to maintain the transfer of VGE’s shares and resist any claims for financial damages or compensation.

Held –

The Supreme Court of India in 2017

 They upheld the High Court of Andhra Pradesh’s ruling from 2010, which required Venture Global Engineering (VGE) to transfer their entire shareholding in the joint venture company to Satyam Computer Services Ltd.

This means that the arbitrator’s initial decision in 2006, finding VGE in breach of the joint venture agreement and ordering the share transfer, ultimately stood. VGE’s attempts to challenge the award both in India and the US were unsuccessful.

Therefore, the final outcome of the case is a victory for Satyam (now owned by Tech Mahindra) as they gained full ownership of the joint venture company.

2006 London Arbitration Award: The London arbitration tribunal ruled in favour of Satyam, ordering VGE to transfer their shares in the joint venture SVES due to an “event of default.”

2010 Supreme Court Judgment: This landmark judgment held crucial importance. The Supreme Court acknowledged VGE’s right to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996, based on the newly discovered evidence of the Satyam accounting scandal. The court’s reasoning cantered on potential public policy violation arising from enforcing an award potentially tainted by fraud and irregularities.

2013 Settlement: Recognising the legal complexities and potential for protracted litigation, both parties opted for a settlement in 2013. The settlement terms remained confidential, but presumably involved a financial compensation package for VGE along with potentially a modified shareholding structure in SVES.