This note is prepared based on Indian law.

This note only sets out a general outline of Indian laws on certain topics and does not consider any particular set of facts, other than as specifically set out herein. This does not constitute legal advice.


This note discusses in detail the judgement of the Hon’ble Madras High Court in the case of Aapico Hitech Public Company Limited and Ors. Vs. Sakthi Auto Component Ltd (Order dated February 03, 2023). It may be noted that this order is but one facet of a broader dispute between the parties mentioned below and for the sake of simplicity, the focus of this summary shall remain on the abovementioned order.

i. Background of the case

The primary question that the Hon’ble Madras High Court (“Court”) dealt with was the enforceability of the a foreign arbitral award (“Arbitral Award”) under Sections 47 to 49 of the Arbitration and Conciliation Act, 1996 (“Act”).

In 2017, Petitioner no. 3, Sakthi Global Auto Holdings Limited (“SGAH“) was formed as a joint venture company between the Petitioner no.1, and 2 (collectively referred to as the “Aapico Group”) and Sakthi Auto Component Limited (“Respondent Company“). SGAH was to become the owner of Sakthi Auto Group USA Inc. (“SAGUSA”), one of the production expansions of Respondent Company, and owner of 70% interest in Respondent Company. Aapico Group contributed to SGAH in the form of equity and loans. SAGUSA had two joint ventures with another Chinese conglomerate for manufacturing various products.

Since SAGUSA was facing financial problems, Aapico Group granted financial assistance in the form of additional loans and equity, taking its shareholding in SGAH to 49.9%, which was incorporated in an amended and reinstated Shareholders Agreement (“SHA”) executed in 2018.

Due to default in repayment of the loan amount pursuant to the SHA, Aapico Group appropriated the remaining 50.01% shares of SGAH held by ABT UK (a UK based entity of Respondent Company), which had provided a charge over its shares, thereby becoming 100% equity holder of SGAH. Indirectly, through SGAH, the Aapico Group became a 77.04% shareholder of Respondent Company and as per the SHA, the Aapico Group was entitled to the control and management rights over the Respondent Company.

However, the Respondent Company prevented the Petitioner No. 1, 2 and 3 (hereinafter collectively referred to as “Petitioners”) from exercising their rights under the SHA, which led the Petitioners to invoke arbitration before the Singapore International Arbitration Centre (“SIAC”) as per the SHA terms and conditions.

ii. Arbitral Award:

The SIAC Arbitration dealt with whether the Petitioners had the right to exercise the control and management rights, informational rights, right to appoint the Chief Financial Officer and governance rights under the SHA against the Respondent Company. On October 06, 2021, SIAC passed an award allowing the Petitioners to exercise their rights under the SHA, including having management & control over the Respondent Company.

Upon contentions being made by the Respondent of concealment by the Petitioners of information pertaining to the relevant companies and businesses and suppression of evidence of fraudulent dealings, SIAC had also passed a procedural order directing the Petitioners to submit such information. The Respondent Company contended that this procedural order was not complied with by the Petitioners.

iii. Petitioners’ submissions:

When the matter came before the Court for the enforcement of the Arbitral Award, the Petitioners submitted that all the requirements, as laid down under section 47 (which deals with evidence) and 48 (conditions to enforce foreign awards) of the Act, have been met with.

Further, contrary to the submissions made by the Respondents before the Court (see section IV below), the Petitioners submitted that the alleged non-production/suppression of documents, especially the ones which are unrelated to the dispute, did not amount to fraud and was not against the public policy of India, which is one of the conditions to reject enforcement of an award under section 48. Further, unrelated or distinct litigations which are pending would not be against public policy and cannot be a ground to reject enforcement of an award.

iv. Respondent Company’s submissions:

The Respondent Company submitted, inter-alia that the Arbitral Award should not be enforced since it was obtained fraudulently by the Petitioners concealing crucial facts, and suppressing various documents and information, pertaining to the financial performance of SAGUSA, the existence of a bank sanction letter issued by Kotak Bank & its covenants on effecting changes to the Board & management, as well as information on other businesses of SGAH.

The Respondent further submitted that there was concealment of information about pending litigations which dealt with the issues of shareholding of the Aapico Group in SGAH. Such fraudulent acts would be against the public policy.

The Respondent Company further alleged that the senior management of the Aapico Group had carried out meetings with the customers of SAGUSA and had provided a wilfully misleading and inaccurate picture of the financial standing of SAGUSA and its abilities to fulfil its contractual commitments; allegations of the wrongful takeover of the businesses of the Respondent Company in Portugal were also submitted by the Respondent Company.

v. Court’s Decision:

Reaffirming the provisions of the Act, the Court rejected the petition on the following grounds:

  • The SHA was executed against the terms and conditions of a sanction letter issued by Kotak bank in favour of the Respondent Company, as per which prior approval of the bank was required before affecting any change in the shareholding, etc. It held that the Arbitral Award was obtained by suppressing this fact. Further, it held that such prior approval covenants in the sanction letter are inserted to safeguard the public money and since this was violated, enforcement of the award would be against the public policy;
  • The Arbitral Award was passed by violating the principles of natural justice since the deliberate concealment of documents, in spite of SIAC ordering disclosure of such documents, led to a lost opportunity for the Respondent Company to file a counter claim. Therefore, by virtue of section 48(1)(b) of the Act, the Arbitral Award could not be enforced since the Respondent Company was unable to present its case;
  • Aapico Group’s acts, leading the SGAH subsidiaries into losses, and subsequently acquiring and controlling its management of such entities, thereby affecting the valuation of shares, were all against the SHA, and would be construed as an act of fraud. It held that the Arbitral Award was induced or affected by fraud and hence would be unenforceable as per Section 48(2) of the Act;
  • Although this was not a primary point of contention, it observed that as per the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulation, 2004 (“FEMA Regulations”), transfer of securities should be as per the fair market price, which the Petitioners failed to follow, leading to undervaluation of SGAH’s shares. This amounts to a violation of the FEMA Regulations and other procedural flaws committed by the fraudulent intention of the Petitioners, which are procedurally curable on its own.

This judgement has reflected in detail upon the conditions to reject a foreign arbitral award such as fraud, public policy, etc. as laid down in the provisions of the Act. The judgment provides a detailed analysis on the identification of fraud as well as concealment of information and possible evidence.

The observations made in respect of the purported violations of the FEMA Regulations are also useful for consideration, especially when distinguished from landmark orders of various Indian courts dealing with the issue of ‘liquidated damages’ under the FEMA Regulations.



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