Venture Global Engineering v Satyam Computer Services & Another: Excerpts and some observations

We had argued in one of our earlier posts, that the judgment of the AP High Court in Venture Global Engineering v. Satyam Computer Services and another was unfounded in law. We reported recently that the said judgment has been reversed by the Supreme Court in appeal. Here we reproduce the relevant portions of the judgment of the Supreme Court and make some observations on the judgment.

Facts and procedural history of the case:

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.


Decision of the High Court:


In a Civil Revision, 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; (iv) an application under Order VIII, Rule 9 of the CPC to bring additional pleadings cannot be entertained as Order VIII stands excluded by Rule 12(1) of Andhra Pradesh Arbitration Rules, 2000.

Contentions of the Parties before the Supreme Court:

The Appellant was represented by Mr. KK Venugopal and Mr. Harish Salve appeared for the Respondent.  Salve did not seek to defend the judgment on the technical ground of limitation. Instead he argued that the requested amendment, if allowed, would not have any bearing on the outcome of the proceedings. According to him fraud could be brought within the ambit of "public policy" under Section 34 only if it was committed  during the course of the arbitral proceedings. In making this submission, he relied on the phrase "the making of the award was induced of affected by fraud" appearing in the text of the Explanation to Section 34(2)(b)(ii). Demanding a narrow construction of this phrase, he argued that the fraud, in this case, would not fall under the definition of “public policy” as it was committed before the commencement of arbitration.

Venugopal argued that the fraud, in the present case, falls squarely within the ambit of public policy as the shareholders agreement in which the arbitration clause was contained was entered into suppressing material facts.

Decision of the Supreme Court:

On the issue of whether there was a limitation on amending the grounds in an application under Section 34, the Supreme Court placed reliance on State Maharashtra Vs. M/s Hindustan Construction Company Ltd. (AIR 2010 SC 1299) (a guest post by Mr. Badrinath Srinivasan on this case can be found here) which recently held that “where application under Section 34 has been made within the prescribed time, leave to amend grounds, in such an application, if the peculiar circumstances of the case and the interest of justice so warrant, can be granted”. The Court held: “We are of the opinion that in dealing with a prayer for amendment, Courts normally prefer substance to form and techniques and the interest of justice is one of most relevant considerations. Therefore, if a party is entitled to amend its pleadings, having regard to the justice of the case, the right of the party to amend cannot be defeated just because a wrong Section or a wrong provision has been quoted in the amendment petition. The approach of the High Court in this case, in rejecting the appellant’s prayer for amendment, inter alia, on the ground that a wrong provision has been quoted in the amendment petition, is obviously a very hyper technical one".

On the the question of whether fraud, in this case, fell within the ambit of "public policy" the court observed:

"[T]his Court is unable to accept the contention of the learned counsel for the respondent that the expression ‘fraud in the making of the award’ has to be narrowly construed. This Court cannot do so primarily because fraud being of ‘infinite variety’ may take many forms, and secondly, the expression ‘the making of the award’ will have to be read in conjunction with whether the award ‘was induced or affected by fraud’. On such conjoint reading, this Court is unable to accept the contentions of the learned counsel for the respondents that facts which surfaced subsequent to the making of the award, but have a nexus with the facts constituting the award, are not relevant to demonstrate 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."

Finally, the Court laid down the following position in relation to amendment of pleadings in a proceeding under Section 34 upon the discovery of fraud:

"[…]This Court also holds that the facts concealed must have a causative link. And if the concealed facts, disclosed after the passing of the award, have a causative link with the facts constituting or inducing the award, such facts are relevant in a setting aside proceeding and award may be set aside as affected or induced by fraud. [...] The question in this case, is therefore one of relevance of the materials which the appellant wants to bring on record by way of amendment in its plea for setting aside the award."

Conclusion

By laying down justness of the plea, relevance and causative link as the the parameters to judge an application for amendment, the position taken by the Supreme Court is identical to that advocated by us and several commentators, especially Badri, in our post following the HC judgment.