TMI Blog2010 (8) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... tain `events of default', and in the event of default, non-defaulting shareholder has the option to purchase the defaulter's shares at book value or cause immediate dissolution and liquidation of the second respondent. 6. In the year 2000, the second respondent entered into an agreement with TRW, a manufacturer and supplier of automotive equipments, to provide engineering and IT services. They agreed to sub-contract the automotive engineering works to the second respondent. The first respondent levied US $3 an hour towards administrative charges. According to first respondent, they retained US $859,899 from the TRW receipts. The appellant disputed the same and alleged that Satyam retained a total of US $2,188,000, and also alleged concealment and dereliction of duty as a joint venture partner. Thus, disputes cropped-up and were referred to arbitration. 7. The sole arbitrator gave his award on 3rd April, 2006 whereby the appellant is to transfer its entire shareholding in the second respondent to the first respondent. The first respondent filed a petition for the recognition and enforcement of the award before the U.S. District Court, Eastern District Court of Michigan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order of the Trial Court by filing a civil revision before the High Court. 15. The High Court, vide its order dated 19th February, 2010, allowed the revision petition of the first respondent. The High Court, inter alia, held that a reading of Section 34(1) and (3) of the ABC, 1996 indicates that a party could only set aside the arbitral award if an application for the same is made within a period of 3 months (extendable by another 30 days) from the date of making the award; whereas in the present case the new grounds of challenge are sought to be brought after the limitation period. 16. Further, the High Court also held that an application under Order VIII Rule 9 of the Civil Procedure Code, 1908 for bringing additional pleadings on record would not lie. The High Court held, relying on Rule 12(1) of the Andhra Pradesh Arbitration Rules, 2000, that Rule VIII of Civil Procedure Code is not applicable, so a petition for additional pleading is not maintainable under Order VIII of Civil Procedure Code. Therefore, the High Court did not allow the appellant to file additional pleadings on record. 17. Aggrieved by the impugned judgment and order of the High Court, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the High Court. 23. Mr. Salve, learned senior counsel argued on a different line. The learned Counsel submitted that the grounds which are sought to be incorporated by way of amendment are not relevant and do not come within the concept of public policy which has been explained in the Explanation to Section 34 of ABC, 1996. The learned Counsel took us through the award and tried to demonstrate that the facts which are sought to be brought on record, even if they are accepted to be true, have no bearing on the material facts on which the award is based. The learned Counsel urged that the Explanation under Section 34 of ABC, 1996 has to be strictly construed and the expression in the making of the award must be confined to mean any fraud committed before the arbitrator in the course of the arbitral proceedings. According to the learned Counsel that expression will not take within its sweep anything which happened after the making of the award. In other words the learned Counsel repeatedly urged that the expression making of the award must be confined to facts anterior to the delivery of the award and not anything which happened subsequent to that. 24. Mr. K.K. Venugopal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of the first respondent, wrote to the Board of the first respondent that in the light of statements made by Mr. Raju, the financial statements for the period from June 2000 to 30th September, 2008 could no longer be considered reliable. Extracts from the said opinion of PwC are also enclosed with the additional pleading. e) On 13.1.2009, the Government of India directed the Serious Fraud Investigation Office (SFIO) to investigate the matter. SFIO is a multi-functional investigating agency representing the Ministry of Home Affairs, Enforcement Directorate and the Intelligence Department. f) Such order by Government of India came on the basis of a report from the Registrar of Companies, Hyderabad. g) On 21.1.2009, Mr. Raju reportedly admitted diversion of funds from the first respondent, which was widely published in newspapers across India. Mr. Raju confessed diversion of funds of the first respondent to two real estate firms held by his family and others. h) On being questioned by criminal investigation department of the Andhra Pradesh police, Mr. Raju reportedly admitted to using Satyam (respondent No. 1) money for buying prime land in and around Hyderabad and Mr. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was breached, even prior to the Shareholders Agreement between the parties. The first respondent on concealment of these facts induced the appellant to enter into an agreement with it. 29. It appears that the first respondent did not make available to the appellant verified financial statements to show the amount of TRW revenue which was diverted, and the appellant was thus left to assess such amount based on various representations of the financial statements made by the first respondent to the appellant. But the facts which the appellant wanted to bring on record by way of amendment would show that the representations made by the first respondent about its financial position were prima facie unreliable. 30. It was also urged that the valuation of the shares of the second respondent is fundamentally important in the decision-making process relating to the award. Such valuation is based on unreliable financial statements. 31. Under these circumstances, a prayer was made in the amendment petition to bring the aforesaid facts on record in the pending proceeding for setting aside the award. 32. Learned Counsel for the appellants also urged that in the statement of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Lord Justice Burrough in Richardson v. Mellish (1824-34) All E.R. 258, conjures up to our mind an equine image of a high and unruly horse. The consensus of opinion amongst judges is that concept of public policy is incapable of precise definition. 40. In Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and Anr. reported in AIR 1986 SC 1571 at 1612, this Court discussed the concept of public policy elaborately in the context of Section 23 of the Contract Act. The discussion, however, was not confined to Section 23 of Contract Act alone but was on a general jurisprudential concept of public policy, and it referred to the opinion of Lord Denning, where the Master of Rolls said with characteristic clarity- With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles. (See Enderby Town Football Club Ltd. v. Football Association Ltd. 1971 CD 591 at 606). 41. A three judge Bench in Renusagar Power Co. Ltd. v. General Electric Co. reported in AIR 1994 SC 860, after referring to Brojo Nath (supra), dealt with the concept of public policy while construing the provisions of Foreign Awards (Recognition and Enforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the decision of the House of Lords in Frank Reddaway and Co. Ltd. v. George Banham 1896 AC 199, Lord Macnaghten explained the multifarious aspects of fraud very lucidly, and which we quote: But fraud is infinite in variety; sometimes it is audacious and unblushing; sometimes it pays a sort of homage to virtue, and then it is modest and retiring; it would be honesty itself if it could only afford it. But fraud is fraud all the same; and it is the fraud, not the manner of it, which calls for the interposition of the Court. (Page 221 of the report). 49. The aforesaid elucidation by the learned Law Lord has also been accepted in celebrated treaties on fraud (see Kerr on Fraud and Mistake, 7th Edition, pg. 1). Kerr has also referred to Story's Equity Jurisprudence and defined fraud as: Fraud, in the contemplation of a civil court of justice, may be said to include properly all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another. 50. In Indian law, namely the Indian Contract Act, the said common law doct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld defeat the principle of due process and would be opposed to the concept of public policy incorporated in the explanation. 53. In English Arbitration Law, a somewhat similar provision for challenging an award is contained in Section 68(2)(g) of the 1996 Arbitration Act, which reads as follows: 68(2)(g).- The award being obtained by fraud or the way in which it was procured being contrary to public policy. 54. Commenting on the said provision, Russell (Russell on Arbitration, 23rd Edition) stated that an award will be obtained by fraud if the consequence of deliberate concealment is an award in favour of the concealing party. (P. 497, Para 8-100) 55. In Elektrim S.A. v. Vivendi Universal S.A. and Ors. (2007) EWHC 11 (Comm), Mr. Justice Aikens held that the words `obtained by fraud' must refer to an award being obtained by the fraud of the party to the arbitration or by the fraud of another to which the party to the arbitration was a privy. The learned Judge at page 82 of the report held that an award will only be obtained by fraud if the party which has deliberately concealed the document has, as a consequence of that concealment, obtained an award in its favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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