UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
SATYAM COMPUTER SERVICES LTD.
SECURITIES LITIGATION
09 MD 2027 (BSJ)
(Consolidated Action)
ECF Case
This Document Applies to: All Cases
DECLARATION OF SANDEEP PAREKH
I, SANDEEP PAREKH, declare as follows:
I.
INTRODUCTION
1.
I am a visiting associate professor of law at the Indian Institute of Management,
Ahmedabad, India. I primarily teach and engage in research in Indian securities
law.
2.
I have been retained by Lead Plaintiffs' counsel to submit a Declaration in the
above captioned matter in the context of the motion to dismiss for forum non
conveniens brought by Defendants.
3.
I have no professional affiliation with the Lead Plaintiffs' counsel, except in the
context of this Declaration. I also have no affiliation with the Lead Plaintiffs and
am independent of the parties to the litigation.
1
4.
I have written extensively about the events that give rise to the claims of the
plaintiffs' on my blog (http://blog.livemint.comlinitial-private-opinion, which is
hosted by an Indian publication, The Mint, in collaboration with The Wall Street
Journal); an op-ed article for the Financial Times newspaper; and a piece in an
academic journal "Vikalpa". These pieces are consistent with my views given
below.
5.
I have been a visiting associate professor of law at the Indian Institute of
Management, Ahmedabad for over a year.
6.
From 2006 until 2008, I worked as an executive director at the Securities and
Exchange Board ofIndia ("SEBI"), India's securities regulator, where I headed
the Legal Affairs and Enforcement departments. At SEBI, I worked on a wide
variety of areas of securities law enforcement. I had authority over a staff of
attorneys that was responsible for litigating several thousand court cases, both
civil and criminal, at the trial and appellate levels. As head of the Legal Affairs
department, I acted as the general counsel ofSEBI. I have been a member of the
SEBI committee on the "Future of Regional Stock Exchanges" and SEBI standing
committees on "Disclosure and Accounting" and "Primary Markets". I have
served as Chairman of the SEBI sub-committee on "Integrated Disclosures". I
have also been a member of various committees ofIndia's central bank, the
Reserve Bank of India.
2
7.
From 1995, when I was registered as an Indian attorney, in addition to my work at
SEBI, I have also worked as an attorney at law firms in Delhi, Mumbai and
Washington, D.C. in the fields of securities regulation, investment regulation,
private equity, corporate governance and financial regulation. As a securities
lawyer, I have been recognized for exceptional standing by international
publications such as AsiaLaw, International Financial Law Review and Lega1500.
8.
In 1995, I received an LL.B. degree from Delhi University and, in 1997, I
obtained an LL.M. (Securities and Financial Regulations) from Georgetown
University, Washington D.C. In 1998, I was admitted to practice law in the State
of New York. I have been honoured by the World Economic Forum as a Young
Global Leader for my work on public policy. Finally, I have been quoted by The
Wall Street Journal, Economist, Financial Times, Bloomberg and CNBC for my
views on securities and financial law in India.
9.
I have reviewed the Consolidated Class Action Complaint ("Complaint") filed in
the United States District Court for the Southern District of New York on July 17,
2009 and the Defendants' motion to dismiss for forum non conveniens. I have also
reviewed the declarations of former Chief Justice A. M. Ahmadi and Arvind P.
Datar offered in support of Defendants' motion to dismiss and the final draft of
the declaration of Prof. Vikramaditya Khanna of the University of Michigan Law
School offered in opposition to the motion to dismiss.
3
II.
ISSUE AND QUERIES
10.
Lead Plaintiffs' counsel have asked me to give my opinion on the following
questions:
a. Whether plaintiff shareholders would be able to initiate and litigate any
statutory or common law action in India to recover damages resulting
from the Satyam fraud;
b. Whether plaintiff shareholders would be able to recover any damages in
India resulting from the Satyam fraud through a class action lawsuit or a
representative lawsuit;
c. Whether a United States court ruling would be enforceable in India; and
d. Whether parties to United States litigation can obtain evidence in India.
III.
SUMMARY OF CONCLUSIONS
11.
To summarise the conclusions explained in detail below:
a.
Private parties have no right to sue to recover damages resulting from the
Satyam fraud under Indian statutory or common law because the Indian
civil courts have no power to hear disputes where, as in this case, SEBI is
empowered to act (discussed at Section IV, paras. 12 to 23
b.
infi~a);
Satyam investors will not be able to use the representative action
procedure to recover damages because Indian law bars their substantive
claims in civil court and the representative action is only a procedural
4
mechanism that cannot create any substantive rights (discussed at Section
V, paras. 24 to 29 infra);
c.
A United States court ruling is enforceable in India, under the specific
language of section 13 of the Code of Civil Procedure 1908 (hereinafter
"CCP") (discussed at Section VI, paras. 30 to 34 infra); and
d.
Parties in United States litigation may obtain evidence in India through
several mechanisms provided by Indian law (discussed at Section VII,
paras. 35 to 37, infra).
IV.
THE INDIAN SECURITIES LAWS BAR SHAREHOLDER ACTIONS
12.
Indian civil courts have no authority to preside over cases where their jurisdiction
is explicitly or implicitly barred by statute. Section 9 of the CCP states:
9. Courts to try all civil suits unless barred.
The Courts shall (subject to the provisions herein contained) have
jurisdiction to try all suits of a civil nature excepting suits of which their
cognizance is either expressly or impliedly barred.
[Emphasis supplied]
13.
Indian securities law is one of the areas in which the civil courts' jurisdiction has
been barred by statute. Specifically, the statutes empowering SEBI to act in the
area of securities and securities fraud, bar the civil courts from exercising
jurisdiction over such matters.
14.
SEBI is empowered to take legal action with respect to securities fraud under
Section 12A of the SEBI Act 1992 (hereinafter the "SEBI Act"), which is read
5
together with the regulations promulgated to enforce the Act, SEBI (Prohibition
of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 (hereinafter "FUTP Regulations"). The FUTP Regulations
provide the general anti-fraud provisions of Indian securities law. [Copies of the
SEBI Act and FUTP Regulations are provided as Exhibits A and B, respectively]
15.
These laws expressly empower SEBI to address cases of securities fraud by: (1)
issuing cease and desist orders under Section lID of the Act; (2) imposing
monetary penalties up to Rs. 250 million (approximately US $5 million) or three
times the gain made, whichever is higher under Section 15HA read with Section
151; (3) issuing broad remedial directions (not in the nature of penalties) under
Section lIB; and (4) prosecuting offenders under Section 24. Each of the first
three remedies is administrative in nature in that SEBI has the sole authority to
adjudicate and enforce them. SEBI must initiate any criminal prosecution in a
criminal court. The SEBI Act provides a comprehensive set of sanctions for
violating the prohibition against fraud for all listed companies.
16.
After listing these powers of SEBI, the SEBI Act bars the jurisdiction of courts
where SEBI is empowered to act, as provided in the following sections:
6
Civil Court not to have jurisdiction.
15Y. No civil court shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which an adjudicating officer
appointed under this Act or a Securities Appellate Tribunall constituted
under this Act is empowered by or under this Act to determine and no
injunction shall be granted by any court or other authority in respect of
any action taken or to be taken in pursuance of any power conferred by or
under this Act.
Bar of jurisdiction.
20A. No order passed by the Board or the Adjudicating Officer under
this Act shall be appealable except as provided in section 15T or section
20 and no civil court shall have jurisdiction in respect of any matter which
the Board or the Adjudicating Officer is empowered by, or under, this Act
to pass any order and no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken in pursuance of any
order passed by the Board or the Adjudicating Officer by, or under, this
Act.
17.
A plain reading indicates the broad scope of these sections. For instance, the
broad reach of the bar on civil suits is clear from the fact that Section 15Y bars
"any matter", including suits or proceedings where SEBI or its officers are
empowered to act. SEBI's powers (the powers to issue cease and desist orders,
impose penalties, impose remedial actions and to initiate criminal proceedings)
are comprehensive, such that all civil suits in a securities fraud action are barred!.
18.
The Securities Contracts (Regulation) Act 1956 ("SCR Act") [attached as Exhibit
C] also includes a similar jurisdictional bar. The SCR Act makes it unlawful to
violate the terms of a company's listing agreement, which contains extensive
1 The scope of the bar is very wide and even the power to pass an order of injunction, a power that an
adjudicating officer of SEBI, the Board of SEBI or even the Securities Appellate Tribunal does not have, is
barred by Section 15Y. In other words, the bar extends to areas even beyond the explicit powers of SEBI
and the appellate tribunal.
7
obligations for continuous disclosures of both financial and non-financial
information for listed companies. Any misrepresentation in the disclosures of a
company would amount to a violation of the SCR Act. With respect to any
potential claims by Satyam's shareholders for the Defendants' failure to disclose
material information in violation of the listing agreement, a similar exclusion of
civil court jurisdiction would apply. Section 22E of the SCR Act excludes the
jurisdiction of civil courts in the event of violation of the Act:
Civil court not to have jurisdiction.
22E.
19.
No civil court shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which a Securities Appellate
Tribunal is empowered by or under this Act to determine and no
injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any
power conferred by or under this Act.
As the jurisdictional analysis is identical to that of the provisions of the SEBI Act
discussed in paras. 12 to 17 above, it is not being repeated for the sake of brevity.
20.
The broad scope of the bar on civil court jurisdiction imposed by the SEBI Act
has been articulated in Kesha Appliances v. Royal Holdings Services Ltd. 2006 65
SCL 293 (Bombay) [Attached as Exhibit D]. In briefthe Bombay High Court
provided that:
a) Any pre-existing common law right arising under Section 9 of the CCP
is excluded by Sections 15Y and 20A (para. 41):
The contention of the learned counsel for the plaintiff that there
was a pre-existing common law right under section 9 of the [CCP]
and that pre-existing common law right is not taken away by the
provisions of sections 15Y and 20A also cannot be accepted.
8
b) Sections 15Y and 20A exclude not only jurisdiction where SEBI has the
power to impose penalties, but over all actions where SEB I can issue
2
directions to persons and entities who transact in the securities market
(para. 41).
c) Sections 15Y and 20A also exclude the jurisdiction of civil courts
where SEBI is empowered to Act under the SEBI Act or has issued
regulations (para. 41):
I have no doubt in my mind that there is an express bar as to the
jurisdiction of this court for rectification of the register when it is
solely based on the contention that the allotment and/or transfer of
shares is contrary to the [SEBI] Regulations.
d) Sections 15Y and 20A bar civil suits where the violation is of the SEBI
Act or any regulations passed under it. Only SEBI is empowered to act in
such cases (paras. 43 to 46).
21.
In view of the clear provisions of the law and the unambiguous interpretation by
the Bombay High Court in Kesha, civil courts have no jurisdiction over a civil
suit by any plaintiff where the anti-fraud provisions (or in fact any provision of
the SEBI Act or the SCR Act) are applicable. Thus, common law rights, such as
2 The words 'directions' and 'remedial directions' are terms of art used in Indian securities law
jurisprudence to include a vast array of implied powers in the arsenal ofSEBI. For example" SEBI could
pass orders such as a halt in trading of certain securities, divestiture of voting rights or an order barring a
person from trading. The only restraint on SEBI's powers of directions is that directions cannot be penal in
nature, meaning the goal is to protect the market rather than punish the wrong-doer. SEBI has separate
powers to penalise violators of the law through a separate parallel process for imposing monetary penalties.
9
rights under the tort of deceit (or claims of damages under that tort), cannot be
heard or enforced by civil courts. In addition, only SEBI can initiate actions in
response to violations of the statutory provisions and the cause of action of
shareholders is barred under the SEBI Act by express provision 3 .
22.
Because they cannot bring their claims in Indian civil courts, some Satyam
investors have already tried and failed to bring an action before a quasi-judicial
body, the National Consumer Disputes Redressal Commission ("NCDRC"),
which was established by the Consumer Protection Act 1986 to provide for
summary redressal of consumer disputes related to the provisions of goods and
services. Specifically, an investor association, called the Midas Touch Investor
Association, attempted to file a suit before the NCDRC seeking damages based on
the fraud at Satyam, but the claims were dismissed reportedly because other
government agencies were already investigating the matter and because the
NCDRC lacks the infrastructure to handle the claims of Satyam investors. The
investor association appealed directly to India's Supreme Court, which dismissed
the appeal as withdrawn summarily [A copy of the Supreme Court order is
The Kesha decision is the definitive decision on this question issued by the Bombay High Court, which is
a key jurisdiction for financial-regulation jurisprudence. A similar view was also voiced by the Delhi High
Court in MR. Goyal v. Usha International Ltd. 1997 Indlaw (Delhi) 303[A copy of which is attached as
Exhibit E]. Prior to Kesha, numerous legal scholars, myself included, speculated that an implied right of
action could possibly exist for injured investors. This speculation was based in part on an earlier ruling of
the Bombay High Court in M Sreenivasulu Reddy v. Kishore R. Chhabria [2001] 34 SCL 1/[2002] 109
CaMP. CAS. 18 (BaM) (decided April 1999), which implied without deciding that a plaintiff could have a
private right of action based on certain SEBI regulations. The Kesha court addressed this earllier decision
and held that it did not reach the issue of jurisdiction, explaining in paragraph 26 that "In the light of the
aforesaid I am of the view that the judgment of the learned Single Judge and the Division Bench does not
conclude an issue as to whether this court has jurisdiction or not in the light of the provisions of sections
15Y and 20A." The Kesha court went on to rule that it did not have jurisdiction to hear a private claim. The
Kesha decision established the controlling rule that there is no private action for investors under Indian law.
3
10
attached as Exhibit
Ft The dismissal of the Midas Touch claim is further
evidence that there is no right of action for private parties in India who have been
injured by the Satyam fraud.
23.
It is relevant to note that any penalties collected by SEBI related to the Satyam
fraud would not go to shareholders of Satyam under Indian securities law. Unlike
the Fair Fund introduced in the United States, penalty amounts collected by SEBI
go to the Consolidated Fund ofIndia (See SEBI Act, Section ISlA). Thus even if
SEBI imposes monetary penalties against the various persons alleged to be a part
of the fraud, Satyam shareholders cannot expect any relief from such action.
V.
CLASS ACTION OR REPRESENTATIVE SUIT
24.
Where a private plaintiff s cause of action itself is barred before a civil court, no
representative suit can possibly lie. Order I Rule 8 of the CCP [attached as Exhibit
H] establishes a "representative action" procedure. A representative suit under
this provision can do no more than what a single plaintiff can do by way of a civil
suit as a representative suit is only a procedural rather than a substantive right. In
other words, if the substantive right to bring a civil suit is barred, the bar applies
Paragraph 35 of Justice Ahmadi's declaration raises a point about SEBI's creation of the Investor
Education and Protection Fund ("Investor Fund") and suggests that this fund will provide financing to bring
a claim in India [see the SEBI (Investor Protection and Education Fund) Regulations 2009 attached as
Exhibit 0]. This is not so. The Investor Fund cannot provide any assistance to any party seeking redress for
securities law violations before the Indian civil courts because, as discussed above, those courts have no
jurisdiction to hear such claims. The Investor Fund can only provide financial aid to investor associations,
such as the Midas Touch Investor Association, but these associations as explained above have had no
success in bringing Satyam-related claims. Furthermore, the regulations specifically prohibit SEBI from
providing any financial assistance to investor associations in cases where SEBI has taken any regulatory
action. Because SEBI has already taken action in the Satyam matter, including investigation of Satyam' s
officers and auditors, the Investor Fund can give no assistance to Satyam investors, even if there was a
forum for their claims in India.
4
11
- - - -
equally to suits brought in private and representative capacities. In a leading
commentary on the CCP by CK Thakker5, Rule 8 is described as follows:
Rule 8 is a procedural provision. It is regulative and not constitutive. It
deals with procedure and does not create any right to sue. It presupposes
the existence of a right to sue. Where there is such a right, Rule 8 can be
invoked. Where there is no right, the rule does not confer it.
Thus where a suit was barred under any law, it cannot be maintained
merely because it is brought following the procedure prescribed by Order
1, Rule 8.
Mulla on Civil Procedure Code, the classic text on the subject, also aflfirms this
.
6
VIew.
25.
Thus representative lawsuits based on securities fraud are simply not possible
under Indian law because, as discussed above, neither a civil suit under a
statute nor a civil suit under a common law right is possible in a securities
fraud context of a listed company.
26.
Any residual doubts about the eflficacy of the above in the real world can easily be
addressed by the fact that India has never seen a securities fraud class action suit.
It is not without reason that there have been no such cases.
27.
Justice Ahmadi's analysis of representative suits ignores the question of whether a
civil cause of action in securities cases exists in the first place. Section 9 of the
CCP explicitly excludes the jurisdiction ofIndian courts where a cause of action
C.K. Thakker, Code of Civil Procedure, 2005 edition, EBC, Vol 3, pg. 55 [attached as Exhibit I].
Mulla, Code of Civil Procedure, 16th Ed, LexisNexisButterworths, Vol 2, pg. 1519-1521 [attached as
Exhibit J].
5
6
12
---~----~-
is "either expressly or impliedly barred". This makes further discussion futile as
civil suits are in fact barred by securities laws as discussed above in paras. 12 to
23 of this declaration. At the risk of repetition, no civil suit may lie in a case
where SEBI has powers to exercise jurisdiction.
28.
Also any discussion of class action lawsuits is irrelevant because if an individual
lawsuit is barred, class action lawsuits would automatically stand barred as the
filing of class action or representative suits is predicated upon the existence of a
cause of action. Given the bar contained in Section 9 of the CCP read with
Sections 15Y and 20A of the SEBI Act, neither civil suits nor class action civil
suits are permitted under the securities laws in India.
29.
India thus does not provide a venue for either a plaintiff's common law or
statutory civil suit or a representative lawsuit in the context of securities fraud.
VI.
ENFORCEABILITY OF A UNITED STATES JUDGMENT IN INDIA
30.
Foreign judgments can be enforced in India through one of two routes. First,
where there is a treaty between India and another country, an abbreviated
mechanism is in place to enforce foreign judgments. In the absence of a treaty, the
procedure set forth in the CCP alone must be satisfied. As the United States and
India are not bound by either a bi-Iateral or a multilateral treaty, only the second
procedure is described in this section.
13
31.
Section 13 of the CCP [attached as Exhibit K] reads as follows:
13.
When foreign judgment not conclusive
A foreign judgment shall be conclusive as to any matter thereby
directly adjudicated upon between the same parties or between
parties under whom they or any of them claim litigating under the
same title except(a) where it has not been pronounced by a Court of competent
jurisdiction;
(b) where it has not been given on the merits of the case;
(c) where it appears on the face of the proceedings to be founded
on an incorrect view of intemationallaw or a refusal to
recognise the law of India in cases in which such law is
applicable;
(d) where the proceedings in which the judgment was obtained are
opposed to natural justice;
(e) where it has been obtained by fraud;
(f) where it sustains a claim founded on a breach of any law in
force in India.
32.
In my opinion there is no reason Section 13 would not be satisfied in the case of a
judgment rendered by this Hon'ble Court. A foreign judgment is not conclusive
between the parties only if it falls within any of the six exceptions. In view of the
present facts and assuming a ruling by a United States court, none of the six
exceptions would apply in this matter, as United States courts would have
competent jurisdiction, the ruling can be expected to be rendered on the merits,
applying Indian and United States law as may be appropriate, the jUdgment would
meet with the developed principles of civil procedure of the United States, which
exceed the minimal standards required of natural justice, the judgment would not
14
be obtained by fraud but by a fair, court-determined process and, fInally, the claim
would not be founded on a breach of any law in force in India.
33.
Furthermore, I have reviewed and agree with the authorities cited by Prof.
Khanna, which support this position.
34.
Thus, even though the foreign judgment would need to be flled in an Indian court
and executed for enforcement, it is not likely to meet with any credible challenge.
VII.
OBTAINING EVIDENCE IN INDIA
35.
In addition to the above observations, I would like to add the following general
observations about obtaining evidence in India that may be relevant in the context
of this declaration.
36.
Indian courts recognise the validity of letters rogatory issued by foreign judges
and routinely grant these requests. In addition, the extensive investigative records
assembled in this matter by Indian regulators and investigative agencies would be
readily accessible without resort to the process ofletters rogatory under India's
Right to Information Act 2005 7 [attached as Exhibit L] anytime after the
investigations are complete. It would, therefore, not be particularly diffIcult for
any person who is a citizen ofIndia to get these witnesses' testimony and also to
7 Any citizen can get access to the investigative documents upon payment of a nominal fee and copying
charges. There is no requirement of proving any cause for seeking the information. Investigations are the
fact finding task ofthe various regulators, agencies and governmental bodies and often result in formal
investigation reports.
15
obtain the existing contemporaneous investigative records in India. If Indian
citizens obtain the information, they in tum can share it with other persons.
37.
Ifit becomes necessary to take the deposition of witnesses injail, video
examination can be used. The Indian Supreme Court has allowed video testimony
to be taken in other cases and thus the concept is neither alien nor impermissible 8.
VIII.
CONCLUSION
38.
More than a year after the Satyam fraud was made public, to my knowledge not
one civil liability suit has been initiated (other than the failed consumer action
brought by Midas Touch) because of the legal impediments described above. The
actions taken by SEBI thus far cannot result in any recovery of losses or damages
payable to investors, but only in the collection of penalty amounts and criminal
prosecution. In addition, because of the bar against bringing civil suits in the
context of securities fraud actions, no representative suit can lie in Indian courts.
Finally, a United States court ruling on the merits would likely be enforceable in
Indian courts after plaintiffs satisfy the required enforcement procedures under
Indian law because there does not appear to be any credible reason why Indian
courts would refuse to enforce such a judgment in India.
8
See The State of Maharashtra v Dr. Praful B. Desai 2003 AIR(SC) 2053 [attached as Exhibit M]
16
Respectfully submitted to this Court on 21 5t January 2010.
I declare under penalty of perjury under the
laws of the United States that the foregoing
is true and correct.
~J.dh. J1~u~- /
V.~eep ~;ek{
17