TaxTMI 
TaxTMI 
2023 (2) TMI 488
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....facts of the case are as follows: "3.1 Aapcio Thailand" is a public listed company, incorporated under the laws of Thailand. "Aapico Singapore" is incorporated under the laws of Singapore. 3.2 Aapico Thailand holds 100% shares of Aapico Singapore and hence, Aapico Thailand and Aapico Singapore are collectively referred to as "Aapico Group" and its Founder and the President is one Mr.Yeap Swee Chuan (Mr.Yeap). "SGAH" is incorporated under the laws of England and Wales. In 2017-18, Aapico Group invested in SGAH which was then part of the Sakthi Group of Companies ("Sakthi Group"). As on date, as Aapico holds 100% of the shareholding in SGAH, Aapico and SGAH are hereinafter collectively referred to as 'petitioners'. 3.3 SACL/respondent is a public unlisted company 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....
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....s ocassion, ABT Auto also provided a charge over its shares in SGAH dated 01.10.2018, to secure the amounts due both under the 2017 and 2018 loan agreements. 4.3 Alleging defaults under the Loan agreements, on 04.06.2019, Aapico appears to have taken complete control of the Board of SGAH. Subsequently, on 15.08.2019, by enforcing the charged shares, Aapico appropriated 50.01% shares of ABT UK therby becoming 100% equity holder of SGAH, which position is not disputed and is also reflected in the UK Companies House and through SGAH, a 77.04% holder of SACL, indirectly. The value of appropriated shares, based on a valuation report dated July 31, 2019 tendered by an internationally renowed firm namely, FIZ Consulting LLP, was around USD 27 million. 4.4 As sole shareholder 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: ....
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....w and thereby, Aapico acquired 100% shares in SGAH and consequently, since SGAH holds 77.04% in SACL, Aapico now became holder of 77.04% shares in SACL through its 100% shareholding in SGAH. However, despite Aapico's shareholders of SACL having 77.04% shares, the petitioners have been prevented from exercising their rights management/control of SACL under the SHA by the entities of Sakthi Group in breach of the SHA. Therefore, due to breaches under the SHA, the petitioners initiated arbitral proceedings and conducted before the SIAC Arbirtal Tribunal, which, after giving the parties a full opportunity to be heard and after applying its mind to the facts and circumstances and after considering all the relevant aspects of the dispute and all the evidence adduced by the parties, has passed a detailed 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. ....
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....ond look at the Award. He referred to the decisions in "Shri Lal Mahal v. Progtto" reported in (2014) 2 SCC 433, and in "Vijay Karia v. Prysmian" reported in (2020) 11 SCC 1 (hereinafter called as "Vijay Karia case law") 8. The learned counsel submits that though the respondent filed additional counter and brought on certain new documents and raised supplementaty grounds, those documents were not formed part of the records of the Tribunal SIAC for passing the final Award. He contended that the alleged non-production of documents/supression of documents as contended by the respondent is not a fraud that can be attributed against the petitioners and further, it is baseless, erroneous and falls outside the purview of Section 48 of the Act and in this regard, he relies upon the 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 irre....
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....e learned counsel would submit that UK High Court has delivered its final judgement wherein, the ABT UK's challenge to Aapico's appropriation of SGAH shares has been outrightly rejected. Further, as regards the proceedings before the NCLT pertaining to the oppression and mismanagement under Section 241 of the Companies Act, 2013 he would submit that it has no relevance to the arbitration which dealt with the breach of the SHA. The above position has been confirmed in the Award by the Tribunal, which observed that- "......the Tribunal accepts the Respondents' submission that a number of claims raised in the SSL NCLT Proceedings pertain to factual and legal aspects which are not matters to be determined in this arbitration". These concerns the claims relating to the allegedly 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....
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.... be produced before this Court have no causative link and the counter-claim is not a set-claim and for the above reasons, the documents have no relevance at all for making of the Award by the Tribunal. Therefore, the learned counsel contends that the objections/grounds taken by the Respondent and filing of the above documents is an abuse of the process of law and intended to confuse the issues and delay the enforcement of the Award. It is one the several frivolous tactics deployed by the respondent to prevent the petitioners from exercising their rights as 77.04% majority shareholder. The learned counsel would submit that non-enforcement of the Award will cause grave prejudice to the petitioners, who had invested more than INR 1000 crores, as the respondent continues to be run by 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 peti....
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....d documents were not available with the respondent, it was constrained for the respondent to give up its counter-claim before the SIAC Tribunal. However, during the course of the trial before the High Court of England and Wales CL-2020-000398, discovery was ordered and in that process, access to entire e-mail domain of the petitioners was taken and during the discovery process which took place between 2021 and February 2022, discovery of vital documents and e-mails concealed by the Petitioners from the respondents were unearthed and in one of such e-mails would show how the Petitioners had orchestrated a fraud on the respondent through Mr.Yeap, the founder of Aapico and Mr. Venkat Ramasamy of Shrinidhi investment and advisers in January 2019. Therefore, he would contend that since 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 i....
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....agement of the files of SACL and wrongful loss caused as a result of Aapico usurping Portugal operations. These Portugal operations were behind the back of Sakthi group usurped by Aapico. Sakthi Portugal SA is a Wholly owned subsidiary of SACL involved in the manufacture auto components. Portugal operations were supported by a loan from Oxy Captial, which debt Aapico promised to take over by substituting itself as a lender and thereby providing financial gain to SGAH. However contrary to such representation, Aapico behind the back of SGAH, colluded with Portugal Executives and usurped the entire Portugal operations. Further not stopping with usurping the subsidiary, the value created by the Aapico for such takeover was grossly undervalued and caused wrongful loss to the tune of several crores to 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 responde....
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....urt generally will not interfere with the Foreign Award, unless and otherwise, the same is hit by any of the conditions mentioned in Section 48 of the Act. For ready reference, it would be appropriate to extract the provisions of Section 48 of the Act, which read as follows: "48. Conditions for enforcement of Foreign Awards.- (1) Enforcement of a Foreign Award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that- (a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the Award was made; 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....
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.... subjected to. b) The party against whom the Award is invoked was unable to present its case. c) The Award deals with the difference not contemplated by or not falling within terms of the submissions of the Arbitration or it contains decisions on matters beyond the scope of submission of the arbitration. d) The composition of arbitration authority or the arbitral procedure are 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. e) The Award has not yet become binding on the parties or has been set aside by the Super-seated competent Authority of the Country under law, which the Award was made. f) The subject matter of the difference is not capable of settlement by arbitration under the law of India. g) The enforcement of the Award would 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....
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....and conditions mentioned in the sanction letter issued by the KMB by virtue of the Board Resolution passed at the Board meeting held on 12.09.2018 wherein one of the common condition was that the parties should not change the share holdings, Directorship, ownership in the company without prior permission of the bank. In the present case, no such prior approval from the bank has been obtained, even subsequent to the pronouncement of the Award, but before filing the present original petition. The KMB's sanction letter was approved by the respondent company's Board, which is much prior to the execution of SHA dated 29.09.2018. Thus, both parties had knowledge about KMB's letter dated 11.09.2018. Therefore, the parties to the SHA are well aware of the fact that the enforcement of terms and conditions of SHA will be always subject to the loan sanction letter of KMB. Hence, any attempt to change the shareholding, 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 l....
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.... their favour. However, even if ABT Auto succeeds in the Share Charge proceedings, this would only lead to an adjustment of the security value taken by Aapico. The respondents' obligation to amend their Articles of Association would not be affected since that obligation had been in place and breached even prior to Aapico's appropriation of security. 184. The respondents submitted in their closing submissions that they do not seek to persuade the Tribunal to revisit what they have already found. The respondents accepted that under the interim order, the Tribunal had already found that the respondents are obliged to procure that SACL's Articles of Association are amended to incorporate the rights of Aapico under the SHA. Since SACL's Articles of Association had been amended to provide at Article 119 that all rights under the original SHA were entrenched in the Articles of Association, there was no basis 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&#....
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....B sanctioned a sum of Rs.22,353 lakhs as loan by virtue of sanction letter dated 11.09.2018. The said letter was placed before the Board at its Board meeting held on 12.09.2018 at Thailand, where the representative of the petitioners, Mr.Yeap, was also present and in the said meeting, a decision was taken to avail the financial facilities from the KMB in terms of the bank's sanction letter dated 11.09.2018 and subsequently, the said facilities were availed by the respondent and necessary documents were also executed. 35. No doubt that the KMB has lent the respondent out of the public money i.e., KMB lent the money to the respondent, which was mobilised through public deposit. Hence, in this way larger public interest is involved in the process of lending money to the respondent by KMB. Only to protect the interest of the public, the Bank has put up conditions that no change in shareholding and Directorship shall be made without 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....
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....ndertaking given by the respondent to the KMB and contrary to the provisions of management of the respondent in terms of SHA. 38. The Tribunal has given priority to the private interest between the two share holders. However, it has not given any importance to the public interest. As far as the interest of the public is concerned, the public interest will always prevail over the private interest. In the present case, the Award was passed as if private interest will prevail over the public interest. Therefore, this Court is of the considered view that enforcement of the present Award is against the public interest and breach of undertaking given to the Bank, while borrowing money by the respondent from the bank. Under the ground of public interest, even something is not pleaded and the same is brought to the knowledge before this Court, when the petition is filed for enforcement of foreign Award, this Court certainly can entertain the 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 c....
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.... terms and conditions of the loan sanction letter of the KMB, they have incapacitated from implementing the terms and conditions of the SHA dated 29.09.2018 without prior approval of the KMB. For the reasons stated above, this Court is of the considered view that there is injustice caused not only to the respondent but also KMB including the public at large. Without considering all the above aspects, 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. II. RESPONDENT UNABLE TO PRESENT ITS CASE BEFORE SIAC: 40. The next point for consideration is, whether the respondent was unable to present its case on the ground under Section 48(1)(b) of the Act. The respondent 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 al....
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....elational contract carrying an implied duty of good faith and consequently, an obligation on Aapico to exercise their powers under the Shareholders' Agreement in the best interests of the Company (SGAH) as a co- operative joint enterprise, and in line with its fiduciary duty and obligation, having regard to Aapico's position of influence and control. 3.4. Aapico's Mr Yeap has also assumed the role of Group CEO for SGAH since January 2019 (Exhibit R-2). By reason of their positions, each one of them owed fiduciary duties to SGAH; and in view of Aapico's position of influence given by the provisions of the 2018 Shareholders' Agreement, Aapico itself owed fiduciary duties to SGAH. 3.5. Acting with an intent to cause a default to both trigger security enforcement and a takeover: A. Under Aapico's effective operational and financial control, SAGUSA (a 100% owned subsidiary of SGAH) has been deliberately mismanaged in order, among other ends, 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 obligati....
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....f approximately USD 10 million from General Motors, therefore incurring not only additional and unnecessary financing costs but also, as would have been obvious to Aapico, causing significant reputational damage to SAGUSA. g) In the circumstances significant sums are still due by SAGUSA to its suppliers. ii. Meeting with suppliers: a) At Mr Yeap's instigation, a meeting was held in January 2019 with over 15 of SAGUSA's suppliers (including suppliers of raw materials, general supplies and machine and equipment). b) At that meeting, Mr Yeap informed SAGUSA's suppliers that SAGUSA did not have sufficient funds to pay them. This was not in SAGUSA's interest and was contrary to usual business practice and more importantly contrary to the fiduciary position that Aapico and particularly Mr Yeap owed to SAGUSA. c) As a direct result, and as would have been obvious to Aapico, critical suppliers to SAGUSA such as Cadillac Castings, Rio Tinto, CTR, and WSBSSS, if they had not done so already, changed their terms of trade to include much more stringent and protective payment terms: thereby serving to exacerbate SAGUSA's difficult....
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....ctors appointed by ABT UK on the boards of SGAH and SAGUSA. Such solution would have resulted in the continuation of supplies by WBSSS. c) During these discussions, it was learnt that Aapico and specifically Mr Yeap, had unilaterally concluded an arrangement with Dr Yongbin, that Aapico failed to keep ABT UK and SAGUSA informed of, and that Dr Yongbin alleged breach of such understanding by Aapico, which escalated and complicated the situation. Aapico also took a stand that Dr Yongbin had consented to waiver of the lien, which assertion was specifically denied by Dr Yongbin. d) On 22nd January 2019, a binding MOU was executed between SGAH and Aapico represented by Mr. Manickam Mahalingam and Mr. SC Yeap respectively, committing certain funds to inter alia address the WBSSS situation. Aapico subsequently denied the nature of the MOU, and requested a further definitive document with onerous clauses and defaulted on the MOU. e) Notwithstanding all of the foregoing and when ABT UK was supportive of the solution by providing contractual lien, incontrast, and without any reasonable basis, Aapico was not supportive of this solution and accordingly neither were t....
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....e of SACL/SAGUSA was to be remitted to SGAH. vi. Breach of understanding reached on 11th March2019 at USA: a) When Mr Yeap was in the USA, after extensive discussions, he proposed a settlement which was captured in an email dated 11th March 2019 from Dr Manickam (Exhibit R-7). A schedule of payment was also attached to the email. It was agreed that ABT UK will manage the affairs of the operating entities and that there will be no escalation of issues and no trigger of any default clause under the transaction documents, so long as ABT UK complies with the terms. The language of the email itself was as per the terms that Mr. Yeap had said in the Meeting, and for the sake of clarity Mr. Yeap himself dictated the draft to Dr. Manickam. b) While having led Dr Manickam to believe that the understanding would be honoured, Mr Yeap failed to formally acknowledge the mail from Dr Manickam and also failed to confirm formally his acceptance by way of reply to the email c) To further derail the progress made, Aapico supported a motion initiated by Huntington National Bank for a preliminary injunction and appointment of a receiver to SAGUSA, thereby not only e....
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.... Aapico further manifested itself in Aapico submitting an offer to purchase the assets of SAGUSA and as a result, the receiver and Aapico signing a Purchase Agreement called a "Stalking Horse Purchase Agreement". This fact is recorded in the Receiver's motion to the District Court for the Eastern District of Michigan, Southern Division dated 04 September 2019 (Exhibit R-11) and a copy of the Stalking Horse Purchase Agreement is Exhibit R- 12. 3.8. The actions, omission, concealment and the gross abuse of position indulged in by Aapico with regard to SAGUSA have been with an intent to deceive and gain control of the Respondents' entire automotive corporate group and to prejudice the interest of the Promoters, ABT UK, SACL and its other stakeholders. 3.9. The manner in which the defaults under the Loan Agreements have been engineered, combined with further malafide actions of Aapico as are detailed hereinafter in this Defence including the appropriation of charged shares at a low valuation, the manner in which the entire investment of SACL in the Portugal operation has been usurped by Aapico through clandestine dealings; the manner in which Aapico has breach....
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....ll gain through its clandestine dealing with Oxy Capital and ended up unjustly enriching itself in a sum of not less than Euro 140 million through the deal. Given the valuation of Portugal operations, even assuming without admitting that there was necessity to allow the shareholding in Portugal operations to be sold, rationally and legally, it ought to have been restricted to sale of shareholding proportionate to fair value. Clearly, the intent that is patently manifest in the manner in which the transaction has been structured between Aapico and Oxy Capital, is to clandestinely undervalue the Portugal operations, at the cost of and loss to SACL. The Respondents are not privy to the details of the deal between Oxy Capital and Aapico and also the rationale behind the valuation for the transfer by Oxy Capital to Aapico and therefore, reserve their right to further substantiate on the undervaluation once the terms of the deal and the documents forming the basis for the deal are produced before the Tribunal. 4.5. It is submitted that, Aapico is liable to answer in counter-claim for this unconscionable loss caused to SACL, and hence to SGAH and ABT UK. Significantly, it is to b....
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....ngs between Aapico representative(s) and Court Receiver Appointed by the District Court for the Eastern District of Michigan, Southern Division, in connection with SAGUSA. vii. The valuation report and other financial statements that formed the basis for the Offer given by Aapico through the Stalking Horse Purchase Agreement in the Receiver Proceedings concerning SAGUSA, in the District Court for the Eastern District of Michigan, Southern Division. viii. All documents, noting(s) of Meetings (or) Minutes of Meetings, or Record of Meetings inter se: a. Mr. SC Yeap, b. Mr. Jet Lian, c.Mr. Shuro Matsubara, d. Mr. Joginder Singh, and/or e. Any other Aapico representative or one or more of them and Inves Detroit, that strategically supports businesses in Detroit (or any Representative of Invest Detroit in respect of the affairs 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. ix. Minutes of Meeting of Board of Directors (or) any Committee of claimants, or recording of any Board or Directors Co....
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....Mr.Yeap and Venkat Ramaswamy of Srinidhi Investment and Advisors Private Limited as early as January 2019, which are totally contrary to the SHA, according to the respondent. The said Venkat Ramaswamy was associated with the respondent from 2002 until 2017. He was initially representing HSBC through whom NCD was syndicated for Sakthi Sugars Limited, which was then the holding company of SACL. Subsequently, he was representing Fortress/Drawbridge Group USA, who had invested substantially in Sakthi Automotive Group in 2007 and such investment was continued till 2017. He was advising and actively interacting with the Group. Eventually, Aapico was identified as a potential investor to invest in the Sakthi Automotive Group and also take out Fortress. He was actively interacting on Sakthi's side during the transactions with Aapico. At an early point of time, i.e., from 27.12.2006 to 15.11.2008, Mr.Venkat Ramaswamy's father, Mr.K.V.Ramaswamy was a Director on the Board of Directors in Sakthi Sugars Limited and the said Venkat Ramaswamy himself was a Director of SACL from 26.06.2013 to 14.06.2017. Therefore, he had a long association and claims with Sakthi Group. 43. Under these....
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.... in the production scheduling and delivery matching. 4. CONSOLIDATION OF CONTROL ON PORTUGAL: Consolidate the hold and control on Portugal by taking out Oxy deal asap and bringing in strict financial discipline in the Portugal operations. Oxy deal to be negotiated and funding source to be tied up asap. Bangkok Bank is a possibility. Other sources are also possible. 5.CONSOLIDATION OF OPERATIONAL AND FINANCIAL CONTROL OF SGAH AND THE ENTIRE GROUP: To consolidate legal and de- facto control of operations by making these key appointments and changes in operating matters: a. To remove joint signatory of the bank accounts in SGAH and all other group entities. b. To review the signing authority of the CFO and CEO of each operation and set new limits in accordance with Aapico policy. c. To appoint a CEO and CFO for the USA operations and eventually for the Group; d. To appoint a Head of Human Resources for SAGUSA; e. To appoint a Head of Quality for SAG USA; f. To appoint a Head of Production for SAGUSA; g. Remove unwanted and unproductive staff in USA: (To be identified and will tell in person). h. ....
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....rds into SGAH forno increase in shareholding. b. Balance USD 5.5 MN will be invested in SACL for which fresh shares will be allotted to SGAH at face value (INR 10) this will increase SGAH stake further to 82.30% from earlier 80.19%. iii. SACL will make a step-down investment of USD 5.5 MI to 'Orlando fin B. V. iv. Orlando fin B. V has a payable amount of USD 5.5 MNI ot ABT UK. v. ABT UK will assign its receivables from Orlando in the favour of SGAH for USD 5.5Mn. Jordans and Srinidhi to work on this documentation to ensure that this is possible under UK law. vi. Orlando then shall remit USD 5.5 Mn as repayment of loan on behalf of ABT UK to SGAH. If the assignment of the debt is not possible then we need to have a bank account control of ABT UK into which Orlando Fin BV will send the funds and we will take it back to SGAH. The above steps are to be confirmed with the Jordan team in London. 2. Increase of Stake in SACL to greater than 90%: The following is an idea to enhance the shareholding of SGAH into SACL. Platinum Partners to be engaged-Ankit Majmudar is evaluating if there is a more elegant solution on....
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....he Company shall, after the Completion Date, acquire the 10,139,760 (ten million one hundred thirty-nine thousand seven hundred and sixty) shares of SACL, which constitute all the shares of SACL currently held by ABTIP and ABT Limited for a price acceptable to Aapico. ABTIP and the Promoters shall ensure that they shall, or shall procure that any other person shall, invest a sum equal to such price into ABTAuto. ABT Auto, in turn, shall invest such price into SGAH without increasing the shareholding of ABT Auto in SGAH from: 50.01%. ABTIP shall procure that ABT Limited adheres to the provisions of this clause" * Clause 6.3 of SSA "The Parties shall implement arrangements in accordance with applicable law whereby 3% (three percent) of the revenues of SACL and 5% (five percent) of the revenues of SAG shall b e remitted annually to SGAH" * Clause 6.5 of SSA- "The Company (SGAH) shall submit a five-year business plan to Aapico, containing the details as Aapico shall request" 5.Steps to be taken in China to Protect the China operations: i. Ensure proper legal diligence is done by checking on all documentation signed in the past between Mr. Lalit, Mr. ....
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....s by the Company. The Company acknowledges that this is to enable ABT Auto and the Company to complete (I) the conditions subsequent to Closing, which are stated in the Share Subscriptio Agreement dated 25 May 2017 between SGAH, ABT Auto, ABT Investments (India) Private Limited, AAPICO, Dr.M.Mahalingam, Mr.Lalit Kumar, SAG, Sakthi Auto Component Limited (SACL), ABT Limited and AAPICO Investment PTE Limited; and (ii) the conditions subsequent to Closing, which are set out in the Subscription Agreement upon the injection of the new capital under the Subscription Agreement. As part of the disbursements by Aapico to the Company, all present dues and overdues to Aapico from the Company shall be cleared and made current." A perusal of the above clause shows that AAPICO was permitted to appoint CEO and CFO and other top positions in the SGAH and its step down subsidiaries, with the intention to improve the performance in the SGAH and its step down subsidiaries and to clear all the present dues and over dues. In the present case, the petitioners acted against the terms and conditions of the SHA. Therefore, in the award passed by the Tribunal, it has to be examined that whether the invol....
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....ortugal SA, the Oxy Capital was the original lender, who lent around 43 million Euro as on September 2019 and the said shares were purchased behind the back by the Aapico at 24.5 Million USD when Mr.Yeap of Aapico sent the mail to Dr.Manickam, who is the Group Chairman, stating that the Oxy Capital, loan can be acquired by the Aapico by the lesser price of 25 Million USD. When these talks were going on behind the back, the Aapico purchased the shares at the throw away price of 24.5 Million USD as narrated above and thereby, petitioners made loss to the Sakthi Portugal SA and ultimately it would reflect in the balance sheet of SGAH, and its valuations. 48. These are all the conspiracies appear to be made against the interest of the company and also SGAH, so as to enable the Aapico to enforce the pledge and thereby acquiring the control of the SGAH and its subsidiaries including the respondent-company. The acts committed by the Aapico/petitioners are totally contrary to the agreed terms and conditions of the SHA. Though those aspects are pleaded, since due to non-availability of evidences at the instance of the petitioners' failure to comply its second procedural order, ultima....
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.... full and equal opportunity to present their respective cases and this includes due notice of proceedings. In the event a party opposing the enforcement of a foreign Award is able to present sufficient proof of such infirmity in the arbitral proceedings, the courts may decline to enforce the foreign Award. 26. A clear distinction needs to be drawn between cases where a party is unable to present its case, rendering the arbitral Award susceptible to challenge as falling foul of the minimal standards of due process/natural justice and cases where the arbitral tribunal does not accept the case sought to be set up by a party. The latter case, obviously, does not give rise to a ground as mentioned in Section 48 (1)(b) of the Act, even if the decision of the arbitral tribunal is erroneous." 64........................... 65............................ 66. An application of this test is found in Jorf Lasfar Energy Co. v. AMCI Export Corp. 2008 WL 1228930, where the U.S District Court, W.D.Pennsylvania decided that if a party fails to obey procedural orders given by the arbitrator, it must suffer the consequences. If evidence is excluded because it is not....
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....aturally the petitioner must suffer the consequences. 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 the relevant documents and the same were traced out in the discovery proceedings before the UK Court, subsequent to the pronouncement of the award. The acts of the petitioners, ultimately proved the various fraud played in the course of the transfer of shares in SGAH, managing the company and valuing the shares, which are all well within the scope of agreement as the same would reflect in the step down subsidiaries of SGAH. Due to the non-availability of these documents, the respondent was not in a position to present his case before the tribunal. Therefore, the present award is liable to be suffered on the ground mentioned in Section 48(1)(b) of the Act. Hence the enforcement of the award is liable to be rejected on this ground also. III. FRAUD 52. The learned counsel for the respondent also made submissions with regard to the allegation of fraud. Let the Court now examine whether the present Award is suffered by fraud. In gener....
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....ion 34 of the A and C Act is like "a stable man in the saddle" on the unruly horse of public policy. 36. It is well known that fraud cannot be put in a strait jacket and it has a very wide connotation in legal parlance. In the decision of the House of Lords in Reddaway (Frank) and Co. Ltd. vs. George Banham & Co. Ltd., [1896 AC 199 : (1895-99) All ER Rep 133 (HL)], 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." 37.................. 38.................. 39. Therefore, this 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 e....
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....urt in the year 2020, have dealt with all the aspects and also applicable for the present case. Therefore, the said case has been referred to the extent relevant for this present case. 57. Aapico deliberately withheld and concealed the documents and it amounts to fraud within the meaning of Explanation at 1(i) to Section 48(2)(b) of the Act. Therefore, this Court is of the view that the enforcement of the present award is also liable to be rejected on this ground as well. IV. VIOLATION OF RBI REGULATIONS AND COMMISSION OF FRAUD IN THE VALUATION OF THE SHARES OF SGAH 58. In general, this Court will not interfere into the valuations made as per the terms and conditions agreed in the SHA by the parties while passing the order for enforcement of the Foreign Award in India. However, if anything brought into the knowledge of this Court that the valuation method followed by the parties are in violation of the Section 16(1)(iii) of the FEMA Regulation of the Transfer or Issue of Any Foreign Security Regulations, 2004, which reads as follows, the same has to be considered, when fraud has been played: "Transfer by way of sale of shares of a JV/WOS outside India 16.....
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....rned, this Court is of the considered view that merely procedural contravention of the provision is concerned, the Foreign Award cannot be said to be refused from its enforcement, since these contraventions are curable at later point of time also. If it is cured, the position of the parties would not get changed from what the positions they are holding as on date and the same will be continued. In the event, if the position of the parties gets changed certainly, this Court can intervene with the Award that too when a fraud had been played to reduce the value of the company. The Hon'ble Supreme Court held at paragraph No.27 in the case of "Associate Builders vs. Delhi Development Authorities" reported in 2015 3 SCC 49, which reads as follows: "Fundamental Policy of Indian Law 27. Coming to each of the heads contained in the Saw Pipes judgement, we will first deal with the head "fundamental policy of Indian Law". It has already been seen from the Renusagar judgement that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added t....
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....outside India to make any investment in India subject to such conditions as may be considered necessary. 9. Transfer of equity instruments of an Indian company by or to a person resident outside India.- A person resident outside India holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions prescribed hereunder: (3) A person resident in India holding equity instruments of an Indian company or units, may transfer the same to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps or investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person resident outside India and documentation and reporting requirements for such transfers as may be specified by the Reserve Bank in consultation with the Central Government from time to time; 21. Pricing guidelines - (1) The pricing guidelines specified in these rules shall not be ....
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....be at variance with a corresponding Indian statute. And, if the expression "fundamental policy of Indian law" is considered as a reference to a provision of the Indian statue, as is sought to be contended on behalf of Unitech, the basic purpose of the New York Convention to enforce foreign Awards would stand frustrated. One of the principal objective of the New York Convention is to ensure enforcement of Awards notwithstanding that the Awards are not rendered in conformity to the national laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State's national policy and which it cannot be expected to compromise. The expression "fundamental policy of law" must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. 102. Although, this contention appears attractive, however, fails to take into account that there has been a material change in the fundamental policy of exchange control as enacted under FERA and as now contemplated under FEMA. FERA was enacted at the time when the India's economy was a closed econom....
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....ndia may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Further, even if the Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign Award on the ground of violation of a FEMA Regulation or Rule would not arise as the Award does not become void on that count. The fundamental policy of Indian law, as has been held in Renusagar (supra), must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. "Fundamental Policy" refers to the core values of India's public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign Award cannot be made on this ground. 89. The Appellants, however, relied upon certain observations in Dropti Devi vs. Union of India (2012) 7 SCC 499. In that case, a challenge was made to the constitutional validity of Section 3 of Conservation of Foreign Exchange....
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....gmentation of foreign exchange, so far as FEMA is concerned, were made in the context of preventive detention of persons who violate foreign exchange regulations. The Court was careful to note that any illegal activity which jeopardises the economic fabric of the country, which includes smuggling activities relating to foreign exchange, are a serious menace to the nation and can be dealt with effectively, inter alia, through the mechanism of preventive detention. From this to contend that any violation of any FEMA Rule would make such violation an illegal activity does not follow. In fact, even if the reasoning contained in this judgment is torn out of its specific context and applied to this case, there being no alleged smuggling activity which involves depletion of foreign exchange, as against foreign exchange coming into the country as a result of sale of shares in an Indian company to a foreign company, it does not follow that such violation, even if proved, would breach the fundamental policy of Indian law." 62. From a perusal of the above judgement, it is clear that merely for the procedural violation as stated above, which are all curable in nature without affecting the p....
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....atever 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. 65. In the present case, subsequent to the valuation by the FTI, the respondent on behalf of the ABT Auto, conducted valuation through the Think Capital Private Limited in May 2020, which was based on the data available as on June 2019. The Think Capital has categorically stated that the Market Multiple Method was not able to apply for the following reasons: " Market Multiples Methodology Under this methodology, market multiples of comparable listed companies are computed and applied to the business being valued in order to arrive at a multiple based valuation. This is based on the premise that the market multiples of comparable listed companies are a good benchmark to derive valuation. In this method, market multiples based on a revenue/profitability metric of comparable listed companies are applied to the business being valued to derive the multiple based valuation. The difficulty here is in the selection of a comparable companies since it is rare to find ....
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....ld take place between market participants at the measurement date under current market condition (i.e., an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liabilities). 68. As far as FTI is concerned, it has valued the shares based on the Market Multiple Method. While valuing the shares by Think Capital, it has categorically submitted that relevant informations are not available and therefore, they have adopted the DCF Method. Without availability of said information, the FTI valued the shares. The comparison of the valuation of Think Capital and FTI is huge as stated above. This Court is not sitting here to decide which method of valuation is best for which party. However, this Court is concerned about whether the method of valuation adopted by the parties is in accordance with the RBI Regulations without any malpractices and commission of fraud and ultimately, it would not loose any foreign exchange compared to the methods of valuation used by the parties. By virtue of adopting Multiple Method, the loss of foreign exchange to the exchequer, as stated above, is a sum of Rs.822.98 Crores. In the present case, this ....
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....t dependent on any finding of the English Courts in the Share Charge proceedings. Further, the findings of the Tribunal appears to be that it totally goes by the SHA dated 29.09.2018. 71. A perusal of the Clause 5.3 of the SHA, it appears that Aapico together with professionals nominated by and at the sole discretion of the Aapico, shall control the end use of the funds by the company. Further Aapico was appointed and provided sole control to dealt with the finances and appointment of Key Managerial Personnel only for the reasons that all the present dues and over dues to Aapico from the company shall be cleared and made current. With this obligation, this SHA was entered. However, as stated above, the Aapico's representatives had not worked for the company's benefit but all sort of dubious methods have been adopted by the Aapico's representatives to see that all the step down subsidiaries facing financial crises and thereafter letting the company either go for liquidation or purchase the loan, which are all evident from the documents discovered from the discovery proceedings of UK Court. The said attitude was totally contrary to clause 5.3 of the SHA and the same wa....