Sunday, May 2, 2010

Satyam – Venture, Phase II: A case of judicial law making by the AP High Court

Bar & Bench reports here that the Satyam – Venture dispute could land in the Supreme Court for a second time. Andhra Pradesh High court allowed a civil revision petition under Art. 227 by Satyam directed against the decision of the Civil Court permitting Venture to amend its application to set aside an award rendered by the London Court of International Arbitration in a dispute between Satyam and Venture. Amendment of the application was sought so that the letter of Mr. Ramalinga Raju, the former Chairman of Satyam, confessing to massive fraud and other documents relating to the episode could be placed on record to be considered while deciding the application to set aside the award.

The procedural history of this case up to the controversial decision in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] is fairly well known. In short, after failing to get the award in favour of Satyam set aside before courts in Michigan and Illinois courts and after the enforcement of the award was granted in the United States, Venture filed a sought setting aside of the award in India. Though the civil court and Andhra Pradesh High court ruled that a foreign award could not be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, Supreme Court in Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190] held that a foreign award could be set aside under Section 34 and remanded the application under Section 34 to be decided by the Civil Court.

While the matter was pending before the Civil Court, Mr. Ramalinga Raju confessed to acts of fraud in relation to the books of Satyam and subsequently Satyam was taken over by Tech Mahindra and renamed Mahindra Satyam. An application was moved by Venture seeking amendment of the application to place on record matters relating to the fraud. This application was allowed by the Civil Court. However, in the Civil Revision mentioned above, the Andhra Pradesh High Court struck down this decision and held (i) that the fraud had no nexus with the foreign award, (ii) a court while deciding on an application to set aside an award cannot consider material that was not available to the arbitral tribunal, (iii) despite Order VI of the CPC being applicable, no application under Section 34 for setting aside an award could be amended after the time period to file such an application has elapsed.

The third observation of the Court seems to suggest a blanket rule that “[a]n amendment can be permitted if it is sought within the unextendable stipulated time under Section 34(3) and an amendment sought after a period of 120 days would not be permissible”. The Court here imposes a limitation period for an application for amendment in a proceeding under Section 34, which coincides with the limitation period for the filing of the application. The court relies in this regard on the judgments of the Bombay High Court in Pushpa P Mulchandani v Admiral Radhakrishin Tahilani [2001 (2) Arb LR 284 (Bombay)], Vastu Invest & Holdings Private Limited v Gujarat Lease Financing Limited [2001 (2) Arb LR 315 (Bombay) (DB)] and Patel Engineering Company Limited v Konkan Railway Corporation Limited [MANU/MH/0383/2009].

Does this have any statutory backing? To me the answer appears to be no. This appears to be another case of judicial law making in the arena of arbitration law in India. It is true that the decision of the Court could be sustained on other grounds independent of this observation. However, given the far reaching implications that this proposition can have for litigators if accepted as a blanket rule, it is pertinent to examine the relevant statutory provisions.

To begin with, the Court accepted that the Code of Civil Procedure, including Order VI, Rule 17 which speaks of “Amendment of pleadings” applies to proceedings under Section 34 by virtue of Rule 12 of Andhra Pradesh Arbitration Rules, 2000. Even independent of the Rules, it has been held by the Supreme Court in ITI Ltd. v Siemens Public Communications Network Ltd. [(2002) 5 SCC 510] that when a special statutes vests powers in an ordinary court of law without prescribing a special procedure, ordinary procedural laws of the land apply. Applying this principle, CPC applies to proceedings before civil courts under Section 34 as no special procedure has been provided.

Section 34(3) of the Arbitration and Conciliation Act states:
“An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.”
Order VI, Rule 17 of the CPC says:
“The Court may at any stage of the proceedings allow either party o alter or amend his pleadings in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real question in controversy between the parties. Provided that no application for amendment shall be allowed after the trial has commenced, unless the Court comes to the conclusion that in spite of due diligence, the party could not have raised the matter before the commencement of trial.”

It is clear from a plain reading of Section 34 that the limitation period imposed by this section is only on the institution of a proceeding under Section 34 and not for amending an application under Section 34 which has already been filed. Further, Order VI, Rule 17 of the CPC which has been held to be applicable by the same Court in the same decision, does not impose any limitation period beyond which a court would be incapable of accepting an application for amendment of pleadings in a case. Also, there exists no general rule that pleadings cannot be amended after the expiry of the limitation period to institute the proceedings in connection with which they are filed. Further, amendment of pleadings could be of highest necessity for parties after expiry of the limitation period as it will no more be open for them to terminate the proceedings and institute fresh ones. Under these circumstances, the construction suggested by the court is untenable unless something in the text of the Arbitration and Conciliation Act suggests such a construction. As already discussed, nothing in the text seems to suggest this. A more reasonable decision would have been to say that while courts have discretion under Order VI, Rule 17 to entertain applications at any stage, the wording of the proviso of that section in respect of amendments after the commencement of the trial should be strictly adhered to.

The only reason that the court has given in support of its decision is that the allowing amendments would defeat the intent behind Section 34(1) read with (3) of Arbitration Act. This “intent” appears to be one of speedy disposal of matters under Section 34. With an appeal against the decision of the High Court being taken to the Supreme Court with the prospect of another longwinded litigation before the Apex Court, speedy disposal seems a far cry in this case.


  1. Ideally, the law, as it should stand, is this:

    When an application for amendment of pleadings is made in a petition for setting aside an award under Section 34(2)after the period specified in Section 34(3)[three months, and + 30 days, in case of sufficient cause], it should ordinarily be rejected :

    (a) unless new facts have come to the knowledge of the challenging party after the petition was filed, and the facts are material to deciding whether to set aside the award or not;

    (b) if the application is for addition of grounds of the challenge of the award, unless the petitioner had come to know of such additional ground after the petition was filed. For example, after the filing of the petition, the challenging party come across new evidence of an arbitrator constituting the tribunal accepting bribe from the other party. The court should allow challenge of the award on such additional ground. Such acts are viewed by the Act as violations of public policy [see, Explanation to S. 34(2)(b)(ii)] Instead, the court seems to support a blanket ban on such amendments.

    In both the above situations, the new facts should be such that even with ordinary diligence the challenging party could not have found them out. On this point you hit the bull's eye.

    Also, could you please elaborate on your contention that "amendment of pleadings could be of highest necessity for parties after expiry of the limitation period as it will no more be open for them to terminate the proceedings and institute fresh ones"?

    This was a good post. Keep up the good work.

  2. Saw your comment in Law and Legal Developments. While "judicial law making" per se is not wrong [especially in a a nascent Indian arbitration industry with arbitration conducted unlike its European or American counterparts], judicial law making unwarranted by sound legislative policy or reasonableness is bad.

    One of the problems with judicial law making is that the judge is convinced to make law but is constricted by the facts of the case and fails to see the impact of her law on situations beyond the facts at her hand. This seems to have happened with the AP High Court in this case.

  3. Thanks Badri for your insightful comments.

    I agree with you that judicial law making per se may not be "bad" in all circumstances. But in the arena of arbitration, what you say about judges not looking beyond the case at hand has been particularly true. For instance, I am not sure if the judges in Bhatia International v Bulk Trading SA [(2002)4 SCC 105] had foreseen that their decision could pave the way for Venture Global v. Satyam Computer Services Ltd, [(2008) 4 SCC 190]. Bhatia made Part I applicable to arbitrations held outside India inter alia on the ground that this was necessary so that arbitration as a dispute resolution is not frustrated by the lack of interim protection to a party to an arbitration held outside India. In Satyam, relying on Bhatia it was held that a foreign award could be set aside in India as Section 34 applied, a decision that has the capability of frustrating the institution of arbitration through increased litigation.

    On your position on what the law should be: If the two statutes were accorded their plain meaning, the result you propose would follow in most cases. This is because, Order VI Rule 17 lays down very stringent criteria for entertainment of an application after the commencement of the trial.

    Clarifying what I meant when I said that amendments could be of the highest necessity when the limitation period is over:

    Before the expiry of the limitation period, a party can (in most cases) reinstitute a proceeding if an application or suit is returned for technical errors, etc. However, upon the expiry of the limitation period, amendment becomes the only way to cure such errors.

  4. You are correct when u say that "if the two statutes were accorded their plain meaning, the result you propose would follow in most cases." One important limitation under Order VI R 17 is that an amendment would be disallowed if it seeks to evade the laws of limitation (what cannot be done directly cannot be done indirectly. This is a well recognised principle (Rajkumar Gurawara v. SK sarwagi AIR 2008 SC 2303, for example). Thus, if new grounds are sought to be introduced for challenging an award through an amendment to the petition beyond the prescribed period [34(3)], O VI R 17 would prohibit them. But the problem is that it is the general view among practitioners that courts construe O VI R 17 very liberally and usually allow amendments. Hence, the APHC might have gone overboard the whole way in preventing amendments of any sort. Notwithstanding that, the same liberal standards in R 17 ought not to be allowed in case of a petition under S 34, considering the fact that the ACA 96 is structured in that way. (for example, S 4).

    This is perhaps another area which requires deliberations and can be the subject of the reforms that the law ministry has recently proposed.

  5. You might want to check out the judgement by the Supreme Court in State Of Maharashtra v. Hindustan Construction Company (JT2010(3)SC420: MANU/SC/0215/2010) on the issue relating to amendment of a section 34 petition beyond the period specified in S 34(3) thereby adding extra grounds challenging arbitral awards. The Supreme Court seems to have taken a stand that is consistent with yours and inconsitent with the AP HC judgement in venture v. sathyam.

  6. Its well settled law that CPC is applicable to the arbitration proceedings in court. So filing of section 34 objecting or setting aside an Arbitration award has to be made withing 3 months and a grace period of 30 days is given from the receiving of the award copy with a filing of condonation of delay and not there after. Therfore CPC being applicable an application under order VI rule 17 can be filed by the judgment debtor at any time but the court may not take a liberal view as it might take in non arbitration matters.
    Arbitration being a specail law was enacted to reslove dispute keeping in mind the changing economy and a uniform accpetable alternative dispute resolution by different countries.The Application under O VI Rule 17 filed after filing of section 34 can be done but the court shall take a very cautious step in allowing such as the time period of filing section 34 has been limited. In case the court feels that the amendment is a must and in the interest of justice the court always have the power to grant such amendment,as such disclosure may not have been possible as it was know after the filing or in case such concealment was done deliberately in order to get the award in that case the court should allow such application. By doing so court will follow the principle laid down in section 34 (2(b) the Court finds that- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation.-Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.”

    As now in arbitration case the concept of Public policy has been widen by a recent judgment of supreme court. So when ever a court feels that an award goes to the root of being against justice, morality and public policy that shall interfeir at any stage and can allow an application under Ovi rule 17.

    1. Guys, I guess this case has been referred by Supreme court to the lower court to check whther there are any valid reasons to set this aside vide OP 390/2008 to the Chief Judge City Civil Court Hyderabad. As per online Case status information the lowercourt has already pronounced the judgement and disposed off the case. I am not sure as to what is the judgement. Can any of you let me know?

  7. Hi Guys,
    The next level judgements have come in. Looks the arbitration award has been set aside....


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