TMI Blog2023 (2) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners have agreed for the terms and conditions of the loan sanction letter of KMB, the said loan sanction letter has to be read with the SHA. Conjoint reading of the SHA and the loan sanction letter makes it clear that the petitioners, who are the parties to the SHA have agreed for the loan sanction letter. Therefore, when the petitioners intend to change the shareholding pattern, directorship, ownership, etc., it is their bounded duty to get prior approval from KMB as per the terms and conditions of the said loan sanction letter. This vital fact was not at all considered by the Tribunal - it is clear that the rendering of Award is conflict with the most basic notion of the justice and also against the public policy of India. Therefore, this Arbitration award is liable to be rejected on this ground and for this reason, this Court is not inclined to grant any approval for enforcement of the subject foreign Award. Respondent unable to present its case before SIAC - HELD THAT:- In the present case, the petitioner failed to comply with the second procedural order, by not producing the documents as if the petitioners did not have the documents. However, the petitioners had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 50.01% as 27 Million USD. The total valuation of SGAH by the FTI was 55 Million USD - as per the Regulations of FEMA, in the event of transfer of shares in foreign entities, the shares have to be valued and transferred based on the Fair Value Method. Fair Value means that it should be valued based on the market value, that means by following the DCF method. At any cost, whatever the method adopted by the parties ultimately it should not affect the interest of the country and also it should be in accordance with the RBI Regulations without affecting the parties interest also. Since the basic information, which are required for arriving at the valuation in the Market Multiple Method were not available, the Think Capital adopted DCF method and valued SGAH as on May 2019 at 274.42 Million USD, whereas the total value arrived at by the FTI based on the multiple method is about 55 Million USD. The total difference between the DCF and multiple method is 219.42 Million USD - If the dollar rate in the year 2019 is considered as 75 Rupees, the loss of foreign exchange through the step down subsidiary for India is a sum of Rs.822.98 crores INR. The petitioners have concealed various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated in Coimbatore, Tamil Nadu (India), which is among the Sakthi Group, controlled by Dr. Mahalingam. 3.4 The genesis of the entire dispute between the parties originates from the dealings of two groups, one being Sakthi Group and the other being Aapico Group . 3.5 Initially, in about 2000, the automative foundry part of Sakthi Group's business was hived off into a separate company, i.e Sakthi Auto Components Limited, viz., SACL, the respondents herein, controlled and managed by Dr. Manickam Mahalingam and family. In 2004, SACL began supplying steering knuckles to General Motors (GM) and expanded its production capcities through various factories in different countries. One such expansion was in USA namely Sakthi Auto Group USA Inc., which is herein referred to SAGUSA . In 2012, SAGUSA entered into a Joint Venture (JV) with the Chinese company namely Bethel Automative Safety Systems Co. Ltd (Wehei China), because of an increased demand from the GM. The terms of this JV were eventually set out in an agreement dated 16.02.2019. The JV was carried out through two new companies, viz., namely Wehiei Bethel Sakthi Automative Safety Systems Co. Ltd (WBS) wherein SAG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the majority shareholder of SACL, Aapico is entitled to control and manage SACL pusuant to its rights under the 2018 SHA. As Aapico has been prevented from exercising those rights by the entities of Sakthi group, Aapico and SGAH invoked the terms of arbitration agreement and issued a notice of arbitration on 11.10.2019 to ABT UK and SACL. Accordingly, Aapico commenced the SIAC Arbitration with regard to: (i) Control and management rights including proportionate representation on the board of director of SACL at clauses 4.1,4.3,4.14,6 and 22 of the SHA. (ii) Informational rights including corporate, financial and other information relating to SACL at clause 7 of the SHA; (iii) Right of appointment of the Chief Financial Officer (CFO) at clauses 4.4 of the SHA. (iv) Governance rights as set out in the SHA and which, it was agreed, were to be reflected in amendments to SACL's articles of association ( AoA ) at clauses 4.1, 4.3, 4.4, 4.7 to 4.15, 6, 22 and 4. 17 and 27 of the SHA. 4.5 Pursuant to the Shareholders Agreement executed in 2017 and 2018 Amended agreement, Aapico has right to appoint the Nominee Directors on the Board of SACL. Factually, continuously from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed and comprehensive Award, which requires no interference and therefore, enforcement of the Award cannot be refused under Section 48(1)(b) of the Act. He would also submit that the Arbitration Clause contained in the 2018 SHA is valid and the composition of the SIAC Arbitral Tribunal was also as per the choice of the parties under the law of Singapore, which is the seat of arbitration. 6. It is further case of the petitioners that the Award is a foreign Award within the meaning of Chapter I of Part II of the Act and the only recourse against the Award is under the Singapore International Arbitration Act and since the Award has become final and binding upon the parties in any Court of competent jurisdiction and the respondent has not filed any application to challenge the Award. He would submit that the requirements contemplated under Sections 47 and 48 of the Act have been duly complied with and virtually, there is no legal flaw or impediment for this Court to direct the enforcement and execution of the Award. The Award contains only on matters falling within the terms of the submission to arbitration and within the scope of the submission to arbitration and the enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions in Sleepwell industries Co.Ltd v. LMJ International Ltd reported in 2017 SCC Online Cal 12109; in LMJ International Ltd v. Sleepwell industries Co.Ltd reported in 2019 (5) SCC 302 ]. Therefore, he pointed out that there is no obligation on the part of the petitioners to produce the alleged documents before the Tribunal and hence, the Award shall be held enforceable. Further non-production of irrelevant documents in a foreign seated arbitration, cannot be termed as breach of fundamental policy of India. The learned counsel further submits that the contention of the respondent about the pendency of certain separate/distinct/unrelated litigations is not a ground for resisiting the enforcement of the Award as it does not fall under the preview of public policy and has no relevance to the enforcement of the Award. The learned counsel also submits as it was contended by the respondent that petitioners suppressed several materials concerning the below proceedings, viz., i) Criminal Complaint filed by the Respondent before the Special Court under Companies Act, 2013, relating to Aapico's acquisition of control of the Respondent's Portugal operations. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legedly oppressive conduct of SGAH (through Aapico) as the majority shareholder of SACL and the complaints relating to the takeover of Sakthi Services S.A. and Sakthi Portugal S.A. . 11. The learned counsel would further submit that the allegation of the fraudulent conduct of the petitioners is baseless and irrelevant since in the present proceedings 'fraud' as contemplated under section 48 of the Act is not a 'fraud' or 'corruption' in making of the Award , hence it is enforceable. He also submits that with regard to the withdrawal of the counter-claim, the respondent alleged that the counter-claim had to be withdrawn due to non-production of the documents on behalf of the respondent before the Tribunal SIAC which in reality, was only due to non-payment of filing fees, which is clear from the E-mail sent by the respondent to the Tribunal dated 25.11.2020. 12. As regards the E-mails which were relied upon by the respondent, said to have been discovered from the UK Court proceedings is concerned, the learned counsel would submit that those E-mails, viz., E-mail though which a Memo circulated by Srinidhi Investments and Advisor Pvt Ltd., dated January 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the nominees of its minority shareholder, contrary to the terms of the SHA and the Articles of Association of the respondent. The learned counsel submits that the petitioners and their nominees do not have any access to the office/factory premises of the respondent. There is absolute lack of visibility on the financial health vis-a-vis state of affairs of the company, despite the Award recognising the petitioners information rights under the SHA. 13. With these contentions, the learned counsel for the petitioners would urge this Court to petition for the enforcement of the Award filed under Section 47 to 49 of the Act be allowed by this Hon'ble Court. 14. Mr.R.Vidya Shankar, learned counsel appearing for the respondent would vehemently contend that the present petition itself is unsustainable and the enforcement of the Award is opposed to public policy of India which is liable to be dismissed. He pointed out that the crucial facts and pending legal proceedings have been suppressed in the present petition, which have a direct bearing on the enforceability of the Award. The petitioners/Aapico are guilty of seriously fraudulent and abusive conduct and has had a track of us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the Award has been obtained by fraud by suppression of vital documents, this Court is empowered to refuse the enforcement of the foreign Award in terms of Sec.48(2)(b) of the Act as fraud is clarified under said provision as conflict with public policy of India. He also submitted that fraud initiates all solemn acts and it has been repeatedly held by the Apex Court and the High Courts held that if Award is obtained by reason of commission of fraud, even the principles of natural justice are not required to be complied with for setting aside the same. He also submitted that even suppression of material documents would amount to fraud on the Court and any order or decree obtained by practising fraud is a nullity. In this regard he reiled upon following judgements of the Hon'ble Supreme Court, viz. i) India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. (2007) 5 SCC 510; ii) Hamza Haji v. State of Kerala , (2006) 7 SCC 416; iii) Patch v. Ward (1867) 3 Ch App 203 ; 18 LT 134; iv) Bhaurao Dagdu Paralkar v. State of Maharastra (2005)7 SCC 605; v) Jai Narain Parasrampuria v. Pushpa Devi Saraf (2006) 7 SCC 756; vi) Venture Gl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SACL. In fact, this was exhaustively pleaded before the SIAC tribunal, but for want of evidence the respondent was constrained to withdraw the same. However subsequent discovery of the memo before UK Court would have enabled the respondent to vehemently agitate the issue as regards the loss of Portugal operations before SIAC. 17. The learned counsel would further submit that the respondent/SACL discovered an Email exchange between Aapico and Oxy Capital in June, 2019, wherein, a step by step action plan was deployed by Aapico behind the back of respondent/SACL to usurp control over Portugal Operations. Therefore, he would submit that the Aapico by series of orchestrated actions, caused SACL to loose its Portugal operations valued in excess of Rs.1000 crores and appropriate the same for a meagre amount of approximately Rs.175 crores and thereby caused wrongful insurmountable loss to SACL. 18. The learned counsel would further contend that since the valuation report ascribing NIL value to Portugal and the Memo exchanged between Mr.Venkat Ramaswamy, who is CEO of Srinidhi Investment and Advisers Pvt.Ltd., and Mr.Yeap were unearthed only in the process of UK proceedings, which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; or (b) the party against whom the Award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (c) the Award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the Award which contains decisions on matters submitted to arbitration may be enforced; or (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place ; or (e) the Award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that Award was made. (2) Enforcement of an arbitral Award may also be refused if the Court finds that- (a) the subject-matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be contrary to the public policy of India. The conflict of Public policy refers to the following situations: i) The making of the Award was induced or affected by fraud or corruption or was in violation of Section 75 and 81 of the Act, or ii) If it is in contravention of fundamental policy of Indian law or iii) If it is in contravention with the most basic notions and morality or justice. 24. Except the grounds mentioned above, the Court, in general, will not entertain any other objections to refuse the enforcement of the Foreign Award. 25. Though, the learned counsel made very many submissions on various aspects, this Court captured only the relevant, which are justifiable under the grounds mentioned in Section 48 of the Act . I. NON-COMPLIANCE OF TERMS AND CONDITIONS OF KMB'S LOAN SANCTION LETTER DATED 11.09.2018 26. In the present case, the respondent-company borrowed a sum of Rs.22,353 lakhs from Kotak Mahindra Bank (hereinafter referred to as KMB or Bank ), who became the sole Banker of SACL by taking over of all the credit payments availed in SACL from multiple Banks. In this regard, the said KMB issued a sanction letter dated 11.09.2018. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, directorship, management, etc., without prior approval of KMB, would be contrary to the terms and conditions of loan sanction letter of KMB. Hence, suppressing the above facts, the petitioner obtained the award from SIAC. SHA will be always subject to loan sanction letter of KMB. 29. Further in the said Board meeting, it had also resolved to authorise the Managing Director and CFO to execute all undertakings and documents as required by the Bank. In the same meeting, the SHA to be entered into between the parties was placed as subject No.5 and the Board has approved the same. At the very same Board meeting, subject No.7, the terms and conditions of the sanction letter issued by the KMB were discussed and the loan was availed by SACL as per the sanction letter approved by the Board. The minutes of the said Board meeting was marked before the Tribunal SIAC as Ex.R.48. 30. Subsequent to the passing of the above Board Resolution, the respondent had acted upon the resolution and executed all undertakings and documents and also filed the same with the Ministry of Corporate Affairs with the relevant documentary evidence in the availment of the facilities and terms thereof and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for them not to be updated to reflect the rights under the SHA. The respondents also acknowledged that in the order on the stay application dated 8 October 2020, the Tribunal had held that the Claimants had attempted to put into effect the amendments to SACL's Articles of Association, but were unsucessful as the SACL Board did not call an EGM, and the respondents' representatives on the SACL Board have not acted in any way to put into effect (1) and (6) of the interim order. Tribunal's findings and decision 185. In light of the confirmation and acknowledgment by the respondents as discussed above, the Tribunal considers it appropriate to make a final order in terms of the prayer for relief sought at [182.3] of the statement of claim, being: The Respondents are directed to amend or procure the amendment of the articles of association of SACL such that the said articles of association are updated to incorporate the relevant terms of the SHA 32. A perusal of the above Award would show that only the Tribunal has recorded the submission of the respective parties, but has not given any findings to protect the interest of KMB, when the parties to the SHA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior permission of the KMB. However, while passing the Award, though all these facts were brought to the knowledge of the Tribunal SIAC, it has not given any finding except merely recording the submissions of the respective parties. Virtually it is a non-speaking Award with respect to the present issue is concerned. Thus any change of shareholder, directorship, management, etc., as prayed by the petitioners in the claim statement, without prior approval of the KMB, it will clearly amount to making an attempt to loot the public money, which is clearly against the public policy of India. For this acts of the petitioners, this Court either wittingly or unwittingly cannot be a party by allowing the enforcement of the subject foreign award. 36. In the present case, there are two types of interest involved. The first one is share holders' interest and the next is the public interest. As far as the share holders' interest is concerned, it is based on the SHA and as far as the public interest is concerned, lending the public money by the KMB to the respondent. The Tribunal has taken into consideration mainly the interest of shareholders based on the SHA. However, it has complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions and examine the aspects of the public interest and thereafter, decide about the enforcement of foreign Award. 39. In the written arguments, the learned counsel for the petitioner has stated that the following prayer as stated in the counter statement filed before SIAC was withdrawn by the respondent: declaring that the claimants are bound by the undertaking given to KMB of SACL not to effect change of management or ownership of SACL without the prior permission of the said Bank and grand a consequential permanent injunction restraining the claimants from effecting any change of management or ownership of SACL without the prior permission of the KMB According to the petitioner, this prayer was withdrawn. Therefore, the Arbitral Tribunal has not passed any order with regard to the prior approval of KMB. In the present case, the claim was filed for the change of management, shareholdings, Directorship, ownership, etc. The main prayer in the claim statement was with regard to the change of management, directorship, shareholdings, etc. When such being the case, merely withdrawing the prayer in the counter claim by the respondent would not deny the right to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has filed a reply statement cum counter claim, wherein the stand taken by the respondent at paragraph Nos.III and IV, are as follows: III. The claimants abused their position, and orchestrated actions with the motive of engineering an alleged event of default to usurp control of the automotive group from the existing promoters, and the claimants are answerable in counter-claim; consequently, claimants are not entitled to any relief 3.1. Aapico is aware that, under the Amended and Restated Loan Agreement ( the 2018 Loan Agreement ), there was an obligation for SGAH as the Borrower to make the March 2019 Repayment (in the amount of USD 14 million plus interest) by 31st March 2019 (pursuant to Clause 6.1). There is also an obligation to pay interest under the 2017 Loan Agreement. 3.2. Under the 2017 Shareholders Agreement and under the Amended and Restated Shareholders' Agreement ( the 2018 Shareholders' Agreement ) between ABT UK and Aapico, the parties owe the following obligations to each other: A. Clause 14.1-Further Cooperation - ABT [UK] and Aapico intend to collaborate and work together in good faith for the purpose of expanding each of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to strategically ensure that SAGUSA did not have cash available to honour its commitments. This was done with a view to ultimately try to render SGAH unable to meet its March 2019 Repayment obligation. B. By way of example only, from January 2018 to June 2018, SAGUSA's audited accounts demonstrate that its profit before tax was USD 2.5 million, and this is evidenced by Exhibit R-3. In contrast, in the period from July 2018 to December 2018, under Aapico's effective operational and financial control, SAGUSA suffered catastrophic losses of USD 21.4 million (loss for the year USD 18.9 million after adjusting the profit made up to June 2018 amounting to USD 2.5 million) and this is evidenced by Exhibit R-4. The causes of these losses include: i. Non-payment to critical suppliers: a) From approximately September 2018 onwards, payment was deliberately delayed or stopped to critical suppliers of SAGUSA, such as Cadillac Castings, Rio Tinto for aluminium ingots, Vibroacoustic/CTR as bushing suppliers, and perhaps most importantly, SAGUSA's Joint Venture partner in China, Weihail Bethel Sakthi Safety Systems Limited ( WBSSS ) for castings. b) Aapico cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready, changed their terms of trade to include much more stringent and protective payment terms: thereby serving to exacerbate SAGUSA's difficulties. iii. Meetings with customers; a) From about October 2018 onwards, at Mr Yeap's instigation, separate meetings were held with major customers of SAGUSA including General Motors, Ford and Volkswagen. b) At these meetings, and contrary to accepted business practice in the automotive industry, Aapico attempted to destroy the long- term trust and confidence that SAGUSA had established with those customers over many years, through ABT UK, Dr Manickam Mahalingam and Mr Lalit Kumar. c) This was done by informing the customers (1) of the cash flow difficulties in which SAGUSA had found itself (without admitting that these difficulties had occurred while SAGUSA was under Aapico's effective, operational and financial control) and (2) that ABT UK was not in a position, or was not capable, of raising further finance in order to assist SAGUSA. d) As would have been obvious to Aapico, SAGUSA's cash flow difficulties were of great concern to its customers, who have very tight production schedules, and Aapico ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any reasonable basis, Aapico was not supportive of this solution and accordingly neither were the Directors appointed by Aapico on the boards of SGAH and SAGUSA Aapico even went so far as to send a legal letter to SAGUSA to stop it, claiming the subject to be falling within reserved subject under the transaction documents with Aapico, and thereby stalled passing of the resolution in this regard. In the circumstance, the contractual lien could not be perfected in favour of WBSSS, leading to supplies to SAGUSA getting severely affected. The material communications in this regard are Exhibit R-5 series. v. Binding MOU dated 22nd January 2019 and its breach: a) Aapico showed great urgency and exerted significant influence on General Motors, to cause a binding MOU dated 22nd January 2019 to be executed, inter alia committing to certain funds to SGAH/SAGUSA by 25th January 2019 (Exhibit R-6); b) ABT UK was led to believe that the liquidity of SGAH/SAGUSA was being addressed through this binding MOU; c) Having got ABT UK to commit to the MOU, Aapico recanted the MOU with the stand that the binding MOU required further definitive documentation before funding can happ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a receiver to SAGUSA, thereby not only escalating but also hampering the honouring of the commitment. Aapico was clearly therefore and at every stage, taking malafide steps to trigger a default. 3.6. Proceedings initiated by Huntington National Bank and action of Aapico, against the interest of SGAH and SAGUSA: A. Even while having caused the aforesaid significant actions having a negative impact on SGAH and SAGUSA, and with a view to prevent ABT UK averting an event of default from occurring to SGAH under 2017 Loan Agreement and/or the 2018 Loan Agreement with Aapico, and even while remaining a significant shareholder in SGAH, Aapico went as far as to support a notice of motion for preliminary injunction and appointment of Receiver moved by Huntington National Bank in the US District Court, at the hearing on 28th March 2019. Such course of action, as is reflected in the transcript of proceedings (Exhibit R-8), effectively stalled all fundraising efforts of ABT UK. B. Subsequent to the oral hearing Aapico has followed up its support for Huntington National Bank, with a statement in support of notice of motion dated 9th April 2019, favouring the appointment of a Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has breached the trust, abused the fiduciary position, acted behind the back of the Promoters and other stakeholders, deceived the Promoters and other stakeholders are all actions motivated by the sole objective of making wrongful gain for Aapico and Aapico is fully answerable in counter claim and liable to status quo ante and/or liable to ABT UK for compensation. 3.10. It is submitted therefore, that it is Aapico which has usurped wrongful control of SGAH. It is false to allege that there has been a wrongful attempt by ABT UK and its affiliates to retain control of SGAH, in breach of clause 4 and 22 of SHA. IV. Aapico wrongfully usurped control of Wholly owned Step- Down Subsidiary of SACL in Portugal and unjustly enriched themselves for which again Aapico is answerable in counter claim. 4.1. Sakthi Portugal SA is a wholly owned step-down subsidiary of SACL engaged in manufacture of automotive components having a significant turnover of Euro 119.21 million as per the last financial statement (Exhibit R-13) as at 31st December, 2018. 4.2. The fair market value of the Portugal operations had been assessed periodically. Oxy Capital which granted a loan, had valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Aapico caused such a clandestine transaction to be carried out, at the cost of SACL. even without being in control of SACL. 41. To substantiate the above claim made by the respondent, the Tribunal SIAC had passed a procedural Order No.2, dated 20th June 2020. In the aforesaid procedural order, the Tribunal directed the parties to the proceedings to produce inter alia the following documents: 7............... i. All documents from 1st September 2018 and 31st March 2010 exchanged inter se: a. Mr. SC Yeap, b. Mr. Jet Lian, c. Mr. Shuro Matsubara, d. Mr. Joginder Singh, and/or e. Any Aapico representative or agent or one or more of them and General Motors, (or) Ford (or) Volkswagen on the Other Part in respect of SAGUSA, concerning the a. financial status of SAGUSA; b. ability of SAGUSA to meet its obligations; c. ability of Sakthi Group to manage SAGUSA. ii. All documents, correspondence, emails, meeting minutes, notes or records relating to the payment of critical suppliers of SAGUSA from 1 September 2018 to 31 March 2019. iii. All preparatory documents, notes of discussions, analysis and related emails which ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Board or Directors Committee level discussion concerning Email of Mr. Mahalingam dt. 11 March 2019 (Exhibit R7) xi. All documents, noting(s) of Meetings (or) Minutes of Meetings or Record of Meetings inter se representative(s) of Aapico and representative of Oxy Capital. xii. The transaction documents between Aapico and Oxy Capital in connection with the acquisition of Portugal Operations. xiii. Valuation report (and drafts thereof or other analysis which formed the basis for Aapico disclosing the cost of acquisition of the Portugal Operations to be USD 24.5 million. 42. However, in response to the said procedural order, the petitioners/claimants did not come forward to produce any material documents. Eventually, in the absence and non availability of tangible evidence to substantiate the defence as pleaded in paragraph Nos.III and IV of the reply statement at the hearing before the Tribunal on 25.01.2020, the respondent had conceded not to press its counter claim and sought permission to amend its statement of defence by deleting paragraph Nos.III and IV of the reply statement and accordingly deleted along with prayers in paragraph 22.1 to 22.5, thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s position in Sakthi Global Auto Holdings ( SAGH ) and its subsidiaries . The relevant portion of the memo, which incorporates an executive summary and detailed action plan is as follows: Executive Summary: 1. ENHANCE MAJORITY CONTROL: a. Aapico to get a majority stake in SGAH from current 49.99% to 90% or higher and also take charge of the operations globally to prevent any further lapse in operations. b. SGAH to own at least 80% (ideally higher closer to 90%) directly in Sakthi Auto Component Limited ( SACL )to have a substantial hold on Indian operations. 2. CHINA DEJURE and DE-FACTO JV CONTROL: a. Aapico to take immediate steps to infuse funds to pay all dues to China so that there is no case for the Chinese JV partner to lien the shares. b. Detailed documentation related points listed in the detailed section of report. c. Reduce dependency on China for rough castingsthink strategically of develop alternatives. (Venkat to discuss on ability ot source alternative sources for Aluminum castings elsewhere); 3. CUSTOMER MEET AND TAKEOVER OF RELATIONSHIPS: a. It is heard in market that GM is quite upset with SAGUSA and is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittees of all these Boards j. To consider appointing a strong internal auditor for review of all operations until they are streamlined. (This includes all jurisdictions). k. And set up weekly, monthly and in some cases daily meetings with all the staff globally. l. Call for a CEO/ CFO summit at the next opportune moment in which full authority ofAapico to be asserted. m. To start the consolidation of accounts process and roll out AAPICO group policies and procedures to the entire Sakthi Group. (For example:Expenses management, accounting policies etc.) 6. To conduct a forensic audit asap to determine the quantity of loss in SAGUSA and to use the evidence found ni the forensic audit of frame the thieves and realize the lost funds through proper legal and police action. Detailed Action Plan: 1. Increase the Aapico Stake in SGAH to 90% and SGAH stake in SACL to 80%: i. Aapico shall invest USD 7MN into SGAH at such price that the stake increases from the current 49.99% to 90%. This detail on the number of shares will be worked with Jordan and we will advise you of the exact numbers. However, based on the share math we see in the last bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve with a USD32 Milion (approx conversion of Euro 29 Million) SGAH shareholding in SACL will be greater than 90%. b. SACL will invest the Euro 29 Million into OFBV and then it will be given as a loan onto Sakthi Portugal to buy out Oxy. Sakthi Portugal can service this loan over a 5-year period. 3 .Legal battle in case of claim on oppression and mismanagement: In case of dispute as per Indian Companies ACT 2013 any shareholders who hold not less than 10% of the share capital can only make an application to National Company Law Tribunal ( NCLT ) for oppression and mismanagement However, provided that the Tribunal may, on an application made to it in this behalf, waive this requirement and still admit this case in NCLT. Is it oppression and mismanagement? 1. Analysis of recent judgment clearly lays that a petitioners approaching the Tribunal under section 241 alleging mismanagement, will now have to meet the twin conditions of (i) mismanagement and (ii) the existence of just and equitable ground for winding-up the company. 2. Minority shareholders are bound by the rule of majority mere unfairness of the action complained of is not enough to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation. ii. Quickly and swiftly plan and develop alternative sources of Aluminum castings in USA or Thailand or Portugal so that we can reduce the dependence on the Chinese JV partner. iii. To fix all documentation issues with the Chinese JV partner- for example there are supposed to be two companies one marketing company and one production company and there is supposed to be an exclusivity arrangement between the production company and the marketing entity such that the production entity will only sell through the marketing entity. Marketing entity is 51% owned by SAGUSA whereas the production entity is 49% owned by SAGUSA. Appoint a local Chinese CFO for these JV operations asap. 44. Though, all those documents as mentioned were very much available with the Aapico consequent to the procedural order passed by SIAC, they have failed to produce them before the Tribunal. These are all the documents pertaining to the plans orchestrated by the said Venkat Ramaswamy joining with Mr.Yeap, who is the representative of the petitioners and proceeded to take over the SGAH and other its subsidiaries, where the petitioners' representatives were appointed as CEO, CFO and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments to proceed before the learned Arbitrator, since for the non production of documents, the Tribunal can take adverse inference against the petitioner. However, in the present case, the submission of the learned counsel for the respondent was that some of the vital documents was not at all available. In the event, the original documents are not available and if the respondent provide only the photocopy, the Tribunal can take adverse inference. However in the present case, no such document is available and only they have heard about the commission of fraud and therefore, the Tribunal directed the petitioners by way of second procedural order to submit the relevant documents. However, the petitioners had not submitted the same and ultimately in the discovery proceedings before the UK Court, all the documents came to light. Under these circumstances, as contended by the learned counsel for the respondent, this Court is also of the view that even in the absence of photocopy of the documents, it is very difficult for the tribunal to take any adverse inference. Accordingly, no adverse inference can be taken. 46. On the other hand, prima facie it appears in the instances narrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in its counter claim, this ground is also a reason for withdrawal of the counter claim. 49. However all the frauds, as narrated above, have been brought to the knowledge of the respondent, only on the discovery proceedings initiated before the UK Court, which is subsequent to the passing of the Award. Though, these documents were directed to be produced to the respondent by the petitioners through the second procedural order, the petitioner failed to produce the same, but the petitioner concealed these documents deliberately without complying the second procedural order of SIAC. Therefore, the respondent was unable to present its case due to the failure of provision of these documents, by the petitioners as directed in the second procedural order passed by the SIAC and under these circumstances, in violation of the principles of natural justice, the Award came to be passed. Had the petitioners been complied with the above order and produced all the documents, the respondent would have obtained the fair opportunities to present its case. Therefore, the present Arbitration Award is liable to be suffered under the grounds mentioned in Section 48(1)(b) of the Act. 50. In Vija ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscovery order is not per se a contravention of public policy because the adversarial procedure in arbitration admits of the possible sanction of an adverse inference being drawn against the party that does not produce the document in question in compliance with an order. The tribunal will of course consider all the relevant facts and circumstances, and the submissions by the parties before the tribunal decides whether or not to draw an adverse inference for the non-production. Dongwoo also had the liberty to apply to the High Court to compel production of the documents under s 13 and 14 of the IAA, if it was not content with merely arguing on the question of adverse inference and if it desperately needed the production by M+H of those documents for its inspection so that it could properly argue the point on drawing an adverse inference. However, Dongwoo chose not to do so. 146. Further, the present case was not one where a party hides even the existence of the damning document and then dishonestly denies its very existence so that the opposing party does not even have the chance to submit that an adverse inference ought to be drawn for non-production. M+H in fact disclosed the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete involvement of Mr.Yeap, Aapico's representatives and the other representatives of Aapico, as narrated above. That apart, the Oxy's loan was purchased at throw away price of 24.5 million USD and thereby Sakthi Porugal SA was acquired by the Aapico. The Aapico originally informed Dr.Manickam, that they are going to lend money and purchase the loan only to the extend of 25 Million USD, so as nearly 15 million would be profit to Sakthi Portugal SA. When the Aapico is one of the Joint Venture partners of entire business and behind the back they are not supposed to have purchased the shares of one of the step down subsidiary of SGAH i.e., Shakti Portugal SA, hence there appears that they have played fraud in purchasing the loan of Oxy and thereby made Sakthi Portugal SA into loss, which is contrary to the SHA dated 29.09.2018. The intention of the Aapico was that to make all the step down subsidiaries of SGAH into loss and thereafter to acquire all the entities of SGAH at throw away price by taking advantage of the positions of managing the company in the capacity as CEO and CFO etc., and ultimately, the losses made to these subsidiaries of the SGAH would reflect in the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trate that there has been fraud in the making of the Award. Concealment of relevant and material facts, which should have been disclosed before the arbitrator, is an act of fraud. If the argument advanced by the learned counsel for the respondents is accepted, then a party, who has suffered an Award against another party who has concealed facts and obtained an Award, cannot rely on facts which have surfaced subsequently even if those facts have a bearing on the facts constituting the Award. Concealed facts in the very nature of things surface subsequently. Such a construction would defeat the principle of due process and would be opposed to the concept of public policy incorporated in the explanation. 54. In regard to the fraud played by the petitioners, the respondent had initiated and filed a criminal complaint before the Court of law in India and also filed oppression and mismanagement petition, which is pending before the NCLT, Chennai. 55. As contended by the respondent, all these aspects of fraud came to the knowledge of the respondent only when the discovery proceedings was ordered during the course of trial in the UK Court. Therefore, when the commission of fraud by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private arrangement, the share price is not less than the value certified by a Chartered Accountant/Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of JV/WOS. 59. In the present case, the petitioners enforced its rights of transfer of shares by virtue of invocation of pledge, in the respondent holding company namely Sakthi Global Auto Holdings Limited (SGAH). In the said company originally, ABT Auto holds 50.01% shares and 80% of the share of the said ABT Auto held by the ABT investment (India) Private Limited, which means SGAH is a step down subsidiary of Indian company. At this juncture, it would be appropriate to extract the group holding structure, as below: Group Holding Structure pursuant to 2017, 2018 Investment: 60. In the present case, ABT Auto pledged its 50.01% of the shares in favour of the petitioner. It is the requirement under the Regulation 18 of FEMA (Transfer or Issue of any Foreign Security) Regulation, 2004 as amended by its office circular dated 29.12.2014, a pledge is possible in favour of a overseas lender, only if such lender is regulated and supervised as a Bank. Admittedly, in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the binding effect of the judgement of the Superior Court being disregarded would be equally violating the fundamental policy. Subsequent to this judgement, the order of the Supreme Court in Vijay Karia case law, it was held at paragraph Nos.84 to 89 as follows: Violation of FEMA Rules 84 . It has been argued by the Appellants, based on the Non-Debt Instrument Rules, that a foreign Award by which shares have to be purchased at a discounted value, would violate the aforesaid Rules, and therefore, would amount to a violation of the fundamental policy of Indian law. Resultantly, the Appellants contended that as a result of this, the Award in the present case would not be enforceable in India. 85 . The relevant provisions of the aforesaid rules are set out hereinbelow: 2. Definitions: (ac) investment means to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India; Explanation:- (i) Investment shall include to acquire, hold or transfer depository receipts issued outside India, the underlying of which is a security issued by a person resident in India; (ii) for the purpose of LLP, investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity instruments done as per any internationally accepted pricing methodology for valuation on an arm s length basis duly certified by a Chartered Accountant or a Merchant Banker registered with the Securities and Exchange Board of India or a practising Cost Accountant, in case of an unlisted Indian company. 86 . Based on the aforesaid Rules, the Appellants have argued that the transfer of shares from the Karias, who are persons resident in India, to the Respondent No.1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian law contained in the aforesaid Rules would be breached; as a result of which the Award cannot be enforced. 87 . Before answering this question, it is important to first advert to the decision of the Delhi High Court in Cruz (supra). The learned Single Judge was faced with a similar problem of a foreign Award violating the provisions of FEMA. In an exhaustive analysis, the learned Single Judge referred to Renu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to replace the Foreign Exchange Regulation Act, 1947 which was originally enacted as a temporary measure. The Statement of Objects and Reasons of FERA indicate that FERA was enacted as the RBI had suggested and Government had agreed on the need for regulating, among other matters, the entry of foreign capital in the form of branches and concerns with substantial non- resident interest in them, the employment of foreigners in India etc. 110. The contention that enforcement of the Award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the Award would necessarily require compliance of regulatory provisions and/or permissions. 88 . This reasoning commends itself to us. First and foremost, FEMA - unlike FERA - refers to the nation s policy of managing foreign exchange instead of policing foreign exchange, the policeman being the Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA. FEMA continues with the regime of rigorous control of foreign exchange and dealing in the foreign exchange is permitted only through authorised person. While its aim is to promote the orderly development and maintenance of foreign exchange markets in India, the Government's control in matters of foreign exchange has not been diluted. The conservation and augmentation of foreign exchange continues to be as important as it was under FERA. The restrictions on the dealings in foreign exchange continue to be as rigorous in FEMA as they were in FERA and the control of the Government over foreign exchange continues to be as complete and full as it was in FERA. 67. The importance of foreign exchange in the development of a country needs no emphasis. FEMA regulates the foreign exchange. The conservation and augmentation of foreign exchange continue to be its important theme. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow, let this Court examine that in the present case, whether loss of the foreign exchange occurred to the exchequer due to the play of fraud, violation of FEMA and contravention of the under valuation of the shares by the Aapico at the time of execution and enforcement of the pledge of shares in SGAH, are not curable? As stated above, as per the FEMA Regulations, in the event of any transaction of securities, it should be at the fair market price or value. In the present case, the petitioners valued on its own through the FTI Consulting. It has valued the shares of SGAH for its holding company, who holds 50.01% as 27 Million USD. The total valuation of SGAH by the FTI was 55 Million USD. In the valuation report, the FTI has stated that they have relied on Multiple Analysis as: 1. This is a approach commonly used to value the assets in the Sector 2. Appropriate forecast to prepare Discounted Cash Flow (DCF) analysis are not available. 64. A perusal of the said report shows that the relevant information has not been furnished by the applicant, who was in-charge as CEO and CFO of SGAH and to that extent fraud has been played on the part of the petitioner's representatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition or divestitures involving similar companies are identified, and the multiples implied by their purchase prices are used to assess the subject company's value. There is no rule of thumb for the appropriate age of a reasonable transaction; however it is important to be aware of the competitive market at the time of the transaction, synergies included in the transaction value negotiated and hence factor any changes in the marketplace environment or underlying synergies into the analysis. All other things being equal, the more recent the transaction, the more reliable the value arrived at using this technique. 66. Since the basic information, which are required for arriving at the valuation in the Market Multiple Method were not available, the Think Capital adopted DCF method and valued SGAH as on May 2019 at 274.42 Million USD, whereas the total value arrived at by the FTI based on the multiple method is about 55 Million USD. The total difference between the DCF and multiple method is 219.42 Million USD. If the dollar rate in the year 2019 is considered as 75 Rupees, the loss of foreign exchange through the step down subsidiary for India, is as follows: 219.42 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners otherwise merely a violation of the FEMA, this Court normally will not interfere. 69. Anything which would affect the Indian economy due to the loss of foreign exchange would be certainly against the public interest and would amounts to violation of the fundamental policy of the Indian law. If any foreign Award is against the fundamental policy of the Indian law, the said Award cannot be permitted to be enforced under Section 48 of the Act. In the present case, for the reasons stated above, the valuation adopted by the petitioners is not in accordance with the RBI Regulations, which are applicable for the step down subsidiary to value the investment while transferring the shares to other foreign entities. Though, all these aspects have been brought into the knowledge of the Tribunal SIAC by way of appropriate pleadings, unfortunately, the said aspects have not been considered and only they have referred the parties to proceed before this Court as no way. The Tribunal SIAC, depend on the said findings, recorded as follows: 177. Having carefully considered the submissions of the parties, the Tribunal does not accept that it should determine Issue 2.a.(i) only after con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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