2008 (1) TMI 829 - SC - Companies Law

Supreme Court Upholds Applicability of Arbitration Act to Foreign Awards, Orders Maintenance of Status Quo

VENTURE GLOBAL ENGINEERING Versus SATYAM COMPUTER SERVICES LTD. & ANR.

The Supreme Court held that Part I of the Arbitration and Conciliation Act, 1996 applies to foreign awards. The court set aside the lower court orders and ... Whether the aggrieved party is entitled to challenge the foreign award which was passed outside India in terms of Section 9/34 of the Act? Held that:- Part I of the Act is applicable to the Award in question even though it is a foreign Award. We have not expressed anything on the merits of claim of both the parties. It is further made clear that if it is found that the Court in which the appellant has filed a petition challenging the Award is not competent and having jurisdiction, the same shall be transferred to the appropriate Court. Since from the inception of ordering notice in the special leave petition both parties were directed to maintain status quo with regard to transfer of shares in issue, the same shall be maintained till the disposal of the suit. Considering the nature of dispute which relates to an arbitration Award, we request the concerned Court to dispose of the suit on merits one way or the other within a period of six months from the date of receipt of copy of this judgment. Civil appeal is allowed to this extent. Issues Involved:1. Applicability of Part I of the Arbitration and Conciliation Act, 1996 to foreign awards.2. Enforcement of the arbitration award in the US despite the Indian court's injunction.3. Interpretation of Section 11.05(c) of the Shareholders Agreement (SHA) regarding enforcement of the award.4. Jurisdiction of the Indian courts to set aside a foreign award.Detailed Analysis:1. Applicability of Part I of the Arbitration and Conciliation Act, 1996 to Foreign AwardsThe primary issue was whether Part I of the Arbitration and Conciliation Act, 1996 applies to foreign awards. The court referred extensively to the precedent set in Bhatia International vs. Bulk Trading S.A. & Anr., which established that Part I of the Act applies to all arbitrations and related proceedings unless explicitly excluded by the parties. The court held:- 'The provisions of Part I would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto.'- 'Even in the case of international commercial arbitrations held out of India, provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions.'2. Enforcement of the Arbitration Award in the US Despite the Indian Court's InjunctionThe appellant argued that the respondent should not have pursued enforcement proceedings in the US District Court in Michigan due to an injunction granted by Indian courts. The court noted:- 'The injunction of the trial court restraining the respondents from seeking or effecting the transfer of shares either under the terms of the Award or otherwise was in force.'- 'Obtaining this order by pursuing the case in the US District Courts, in the teeth of the prohibition contained in the order of the High Court, would not only be a contempt of the High Court but would render all proceedings before the US courts a brutum fulmen, and liable to be ignored.'3. Interpretation of Section 11.05(c) of the Shareholders Agreement (SHA) Regarding Enforcement of the AwardSection 11.05(c) of the SHA was crucial in determining the enforcement jurisdiction. The court interpreted this section to mean that enforcement must comply with Indian laws:- 'Section 11.05 (c) would apply to the enforcement of the Award which declares that, notwithstanding that the proper law or the governing law of the contract is the law of the State of Michigan, their shareholders shall at all times act in accordance with the Companies Act and other applicable Acts/Rules being in force in India at any time.'- 'Respondent No.1, therefore, totally violated the agreement between the parties by seeking enforcement of the transfer of the shares in the Indian company by approaching the District Courts in the United States.'4. Jurisdiction of the Indian Courts to Set Aside a Foreign AwardThe appellant filed a suit in the City Civil Court, Secunderabad, seeking to set aside the award. The court held that Indian courts have jurisdiction to entertain such suits under the Act:- 'Section 5 of the Act makes it clear that in matters governed by Part I, no judicial authority shall intervene except where so provided.'- 'Section 48(1)(e) read with Section 48(3) of the Act specifies that an action to set aside a foreign award within the meaning of Section 44 of the Act would lie to the 'competent authority of the country in which, or under the law of which, that award was made.''ConclusionThe Supreme Court set aside the orders of the City Civil Court and the High Court, holding that Part I of the Arbitration and Conciliation Act, 1996, applies to the award in question. The court directed that the status quo regarding the transfer of shares be maintained until the disposal of the suit and requested the concerned court to dispose of the suit on merits within six months. The civil appeal was allowed to this extent, with no costs awarded.