INDIAN LAWS GOVERN ARBITRATIONS IN NONCONVENTION COUNTRIES?

Appelants - Mr. K.K. Venugopal argued that if neither Part I nor Part II of the Arbitration Act applies to
arbitrations in non-convention countries, it would create a gap in the law. He pointed out that the
Act doesn’t specify that international commercial arbitration won’t take place in India or non-
convention countries. If it did, parties to such arbitrations would be left without recourse in India,
even if their properties and assets are in India. The court rejected Mr. Sen’s interpretation in the
Bhatia Case, as it would create a lacuna in the legislation. It was also noted that the Act applies to the
whole of India, and its applicability to international commercial arbitration is not limited to Jammu
and Kashmir. If Mr. Sen’s contrary interpretation were considered, it would create a conflict within
the Act and an anomaly where international commercial arbitration outside India would apply to
Jammu and Kashmir but not the rest of India.

Respondents - Respoendent argues that Sections 44 and 53, which define foreign awards from the
New York and Geneva Conventions respectively, and related enforcement provisions, are part of Part
2 of the Act and are different from Part 1. Therefore, Part 1 doesn’t apply to Part 2. The appellant,
having participated in proceedings in the Michigan Court for enforcement of the award, can’t raise
the same issue in Indian courts. In simple terms, the appellant can’t pursue the same issue in two
different jurisdictions.

11.05(C) OVERRIDES 11.05(B) AND ALL OTHER PROVISIONS SHAREHOLDERS AGREEMENT

Appellants- The appellant argues that non-obstante clause Section 11.05 (c) of the Shareholders
Agreement, which states that shareholders must always adhere to Indian laws, takes precedence
over all other parts of the agreement, including Section 11.05 (b), which discusses arbitration. This
means that despite the contract’s governing law being Michigan’s, any enforcement of awards or
decisions should happen in India. Notwithstanding anything to the contrary in this agreement, the
Shareholders shall at all times act by the Companies Act and other applicable Acts/Rules being in
force, in India at any time. Therefore, if a party sought enforcement in the U.S., they would
essentially be violating the agreement.

Respondents - The appellant argues that Section 11.05(c) of the Shareholder’s Agreement only deals
with the rights and obligations of the appellant and the first respondent, and does not govern the
enforcement of foreign awards. This means that even though the shareholders of the second
respondent are parties to the agreement, which is governed by Indian laws and follows the
Companies Act, 1956 and other rules at all times, it doesn’t mean that arbitration proceedings and
the enforcement of arbitral awards from such proceedings will be governed by Indian laws at all
times.
VIOLATION OF THE COMITY OF COURTS

Appellants - The appellant’s senior counsel argued that Satyam Computer Services Ltd. should not
have pursued enforcement proceedings in the Michigan District Court, USA, especially when Indian
courts had issued injunctions that should have been respected. Despite these injunctions, the US
District Court allowed Satyam to enforce the Award and transfer shares, which contradicted the
Indian court injunctions. The appellant argued that pursuing enforcement in the US courts while
Indian court injunctions were in place was essentially contempt of the Indian court orders, making
the US court proceedings a “brutum fulmen” that could be disregarded.

Respondents- In response to the appellant’s claim about contempt of the High Court, it’s important
to note that the High Court only stopped the first respondent from transferring shares until further
notice from the City Civil Court, Secunderabad. This means the High Court’s order was limited and
didn’t prevent the first respondent from recognizing and enforcing the award in the District Court,
Michigan, without having to cancel the interim orders or directions.

EVADING LEGAL SCRUTINY BY THE RESPONDENT IN FEAR OF APPLICABILITY OF THE PUBLIC POLICY
RULE IN INDIA.

Appellant- Mr. K.K. Venugopal highlighted that the “transfer” of shares in company law is a specific
process governed by the Companies Act and other regulations like FEMA. It involves steps such as
obtaining and executing a Share Transfer Form (7-B), paying stamp duty, sending the executed form
and share certificates to the company, getting the company’s approval, and complying with various
rules, especially when transferring shares from a non-resident to a resident. He argued that Satyam
Computer Services Ltd. chose to enforce an Award in the US District Court, rather than Indian courts,
to avoid the scrutiny that the transaction would have faced in India. This was seen as an attempt to
bypass Indian laws and the oversight they impose. The effort to enforce the Award in the US was
viewed as a way to circumvent Section 48 of the Arbitration and Conciliation Act, 1996, which would
have allowed the appellant to benefit from Indian public policy rules. The ONGC Ltd. V. Saw Pipes Ltd.
Case Award was closely connected to India because the company involved was located in India, the
transfer of ownership interests was supposed to occur under Indian laws, and all necessary steps for
the transfer had to be completed in India. Therefore, even if Satyam Computer Service Ltd. was
unwilling to enforce the Award in India, the appellant would still have the right to challenge the
Award in Indian courts. This case underscores the importance of adhering to local laws and
regulations in business transactions.

Respondent- Upon reading Section 48(1)(e) and Section 48(3) of the act conjointly, it can be stated
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, the award has been
made.’ Accordingly, the phrase ‘the country in which, or under the law of which, the award has been
made’ written in Section 48(1)(e) refers to the country of the curial law of arbitration, that is the lex
arbitri, in situation where the parties choose the procedural law of arbitration in a country different
from the seat of arbitration. Therefore, such a challenge would lie specifically to the competent court
of the country in which the foreign award was made, which in this case was the District Court,
Michigan.
Criticism of the Judgement

The Supreme Court’s ruling four years ago allowed domestic arbitral awards that contravene Indian
statutory provisions to be set aside for violating public policy (ONGC v. SAW Pipes). This decision,
which expanded judicial review of Indian arbitral awards, was criticized both domestically and
internationally. Despite the Arbitration Act of 1996 aiming to limit such reviews, the Venture Global
Engineering case has seen Indian courts scrutinizing arbitration awards more closely. This has led to
increased uncertainty about the enforceability of international arbitration awards in India. The
Venture Global case introduced a new procedure and ground for challenging a foreign award, which
was not anticipated under the Act. This has largely replaced the statutory mechanism for enforcing
foreign awards with judge-made law. Parties entering into agreements with entities having assets in
India are now advised to include provisions in their contracts to limit judicial review.

2010 CASE

VGE claimed that Satyam broke their non-compete agreement first, which they believe is more
significant than any later breaches by VGE. They said that Satyam did two things wrong: (1) Satyam
made a deal directly with TRW, a big company that supplies car parts, and then gave some of that
work (about 25%) to SVES without sharing the extra fee they charged. (2) When VGE asked for a copy
of the contract between Satyam and TRW, Satyam didn’t provide it, which VGE says is against the
rules. The arbitrator dismissed VGE’s counterclaims. He concluded that Satyam did not compete with
SVES as it passed on all the automotive engineering work it got from TRW to SVES. The arbitrator
also found that VGE gained from this setup of arrangement.