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Judgment
Mohit S. Shah, C.J.—This Appeal is directed against the order dated 5 December 2013 made by the learned Company Judge of this Court directing the appellant company (Videocon) to pay an amount of Rs. 259.73 crores (equivalent to Euros 38 Millions) to the petitioning creditor (the Bank) within stipulated time limit, failing which the petition for winding up of Videocon shall stand admitted with consequential directions for publication of advertisement.
The petition for winding up of Videocon was instituted by the Bank, which is a bank incorporated under the Laws of Italy. It is the case of the Bank that in the month of October 2006 Videocon approached the Bank for financial assistance to the tune Euros 35 Millions for its first generation step down subsidiary viz. VDC Technologies S.P.A. (the Subsidiary). As a condition to secure the financial assistance, Videocon offered and ultimately issued a guarantee letter styled as ''Patronage Letter'' on 5 June 2007 in favour of the Bank. Under loan agreement dated 6 June 2007, the Bank advanced financial assistance to the tune of Euros 35 Million to the Subsidiary, in which the terms and conditions for such advance, came to be set out. Clause 7.1 of the loan agreement, inter alia required the Subsidiary to maintain sufficient balance in its current account to repay the loan installments. There was a breach of this provision and consequent default in payment of the very first loan installment. The Bank, therefore, took up the issue of default with the Subsidiary.
Correspondence ensued between the Bank and the Subsidiary, in which, the Subsidiary by letters dated 14 December 2009 and 19 January 2010, acknowledged the default and assured regularization of the loan account. However, as there was no compliance, the Bank by letter dated 19 April 2010 took up the matter with Videocon.
Further correspondence ensued, in which both the Subsidiary and Videocon acknowledged defaults, but offered fresh proposals for restructure of the loan. By letter dated 9 December 2010, Videocon, once again acknowledged liability, offered to reschedule the structure of indebtedness. Certain terms and conditions were negotiated and a term-sheet was signed on the same day. This term-sheet, explicitly stated that it was subject to satisfaction of the certain preconditions, including execution of fresh set of documents on or before 17 December 2010. In the course of negotiations as a prelude to the signing of the term-sheet, it was noticed that shareholding patterns of the Subsidiary had been varied. In terms of loan agreement, such variation without the consent of the Bank constituted an event of default. The term-sheet become inoperative, as Videocon failed to comply with prescribed precondition.
On 11 February 2011, the Bank wrote to the Subsidiary and Videocon protesting the events of defaults and requiring payment of the entire outstanding loan. As there was no suitable response, the Bank by letter dated 7 April 2011 invoked the Patronage Letter dated 5 June 2007 and called upon Videocon to pay the acknowledged amount, while reserving its right to initiate appropriate legal proceedings to recover the entire outstanding loan amounts. This was followed by the letter dated 11 April 2011 to the same effect.
Again, as there was no suitable response, the Bank instituted proceedings in the Court of Turin, Italy on 28 June 2011 for recovery of outstanding amounts in accordance with Article 633 of the Italian Civil Procedure Code. As per the agreement between the parties, the Court of Turin, Italy was to be the Court designated for purposes of such recoveries on 8 July 2011, the Court of Turin issued Payment Injunction No. 7067 of 2011 against Videocon. In the Payment Injunction, it was clearly stated that Videocon had a period of 60 days from the date of Notification to challenge the Payment Injunction, failing which the same would become final and enforceable. The Payment Injunction was served upon Videocon on 28 July 2011. Despite receipt, however, Videocon took no steps to challenge the same.
In March 2012, Suit No. 319 of 2012 has been instituted by one Mr. Vellatuthodi Krishnakumar through his constituted attorney Mr. Sanjib Chakraborty in the Calcutta City Civil Court seeking, inter alia a declaration that the Patronage Letter dated 5 June 2007, being in violation of FEMA 1999 is null and void. It is the case of the Bank that this suit is a collusive proceedings engineered by Videocon, in order to avoid payments under the Patronage Letter. As the Bank was not even impleaded as a party in the suit, it has taken out appropriate proceedings to seek intervention/impleadment in order to protect its right and interest. Till date however, there is no injunction to restrain enforcement of right under the Patronage Letter dated 5 June 2007.
The Bank, ultimately issued notice under Section 433 read with 434 of the Company Act, 1956 (the Act) demanding payment of Euros 38 Million from Videocon in discharge of its liabilities under the Patronage Letter. This was received by the Videocon at its registered office on 7 July 2012.
Videocon through its advocate addressed a reply dated 28 July 2012 to the Bank, in which the execution of Patronage Letter was neither denied nor disputed. Even the defaults repayment of loan by the Subsidiary, were virtually admitted. However, as no payments were forthcoming, the Bank instituted in this Court, petition for winding up of Videocon, inter alia on the ground of inability to pay its debts.
The learned Company Judge, in making impugned order, has noted that Videocon has neither disputed the execution of Patronage Letter nor its liability to pay as a guarantor. The event of defaults under the Patronage Letter and the agreements are clearly admitted in the correspondence between the parties. The circumstance that the Bank had obtained a decree from the Turin Court in Italy, cannot be a bar to the maintainability of winding-up petition in this Court, particularly because registered office of Videocon is situated within territorial jurisdiction of this Court and consequently the jurisdiction to entertain winding-up petition, is only with this Court. The winding-up petition was in fact based upon the Patronage Letter dated 5 June 2007 and the contention about violation of FEMA was abandoned by Videocon. In this background, it was held that the commercial solvency of Videocon cannot be a stand alone ground. Commercial morality need to instill confidence in the minds of International investors, are also matters of public interest, which are not alien to proceedings for winding-up of a company.
Learned counsel for the appellant Videocon has assailed the impugned order primarily on the following grounds:-
(a) Once the Bank filed a suit in the Court in Italy and obtained a decree (which was ex parte ) and thereafter the Bank has filed a suit in this Court for enforcement of the said decree, unless and until the Bank obtains a decree from this Court, after satisfying all the requirements of Section 13 of the Code of Civil Procedure, the Bank cannot be allowed to proceed further and prosecute this winding up petition because Videocon, would raise all defences in the said suit and therefore till the said suit pending before this Court is decided, the learned Company Judge ought not to have proceeded with the present winding up petition.
(b) The decree passed by the Turin Court was an ex parte decree, as the writ in the said suit instituted in the Turin Court was not served upon Videocon based in Mumbai. Such a valuable defence is available to Videocon in the suit filed by the Bank for enforcement of the decree of the Turin Court. Until and unless such defences are determined by this Court in the pending civil suit, the winding up petition cannot be proceeded with.
(c) Videocon also has the defence that the Patronage Letter was issued in breach of the statutory provisions under the Foreign Exchange Management Act, 1999 ("FEMA") because prior permission of the Reserve Bank of India was not obtained before issuing such Patronage Letter. This contention was raised by Videocon in its affidavit in reply to the winding up petition. At the hearing of the winding up petition before the learned Company Judge, Videocon had not abandoned the said defence but at the hearing Videocon was not in a position to substantiate its defence. The fact that the defence was not abandoned would also be clear from the written submissions submitted after conclusion of the arguments and, therefore, this Court may not proceed on the basis that Videocon had abandoned its defence that issuance of Patronage Letter was illegal as in violation of the statutory provisions of FEMA. In view of such illegality, the Bank is not entitled to prosecute the winding up petition, even if it were to be held that the winding up petition is based on the Patronage Letter and not merely on the basis of the decree of the Turin Court.
(d) On merits also Videocon is in a position to defend the claim of the Bank which has made its claim on the basis of the Patronage Letter of the year 2007 but thereafter there was a novatio on 9 December 2010. In view of the said novatio, the claim based on the said Patronage Letter of the year 2007 is not maintainable.
On the other hand, learned counsel for the respondent Bank has opposed the above submissions and supported the order of the learned Company Judge and submitted that :
(i) Winding up petition is based on the letter of Patronage which is a letter of guarantee and admissions made by Videocon in the correspondence between the parties. Hence the claim based on the original cause of action is the subject matter of the winding up petition and not on the decree passed by the Turin Court.
(ii) Taking us through the Patronage Letter and the subsequent correspondence, the learned counsel submitted that all the three events contemplated by the Patronage Letter have taken place and therefore the liability of Videocon to pay Euros Thirty Eight Million has arisen.
(iii) In absence of any defence on merits, Videocon cannot be permitted to avoid its liabilities merely on the ground that Videocon has the capacity to pay but that Videocon chooses not to pay.
(iv) Videocon was served with the writ of summons of the suit in the Turin Court at the address mentioned in the Patronage Letter as required by the parties, and, therefore it is not open to Videocon to plead that the decree passed by the Turin Court is not binding on it.
(v) Winding up petition is a statutory remedy which is different from the contractual remedy for which the suit was filed in the Turin Court. Relying on several decisions of the Supreme Court and the High Courts, learned counsel submitted that the Bank is entitled to prosecute the winding up petition which is different from a suit for enforcing contractual claim for recovery of money.
As regards the contention of Videocon regarding alleged violation of FEMA, learned counsel for the Bank has submitted that :
(a) This plea was abandoned by the Videocon at the hearing of the winding up petition and the learned Judge has recorded such abandonment in paragraphs 53 and 54 of the judgment.
(b) Without prejudice to the above submission, learned counsel for the Bank submitted that there was no violation of FEMA or the Regulations thereunder to which detailed reference will be made hereinafter.
(c) Without prejudice to the above submissions, it is submitted by the learned counsel for the Bank that :
(i) Videocon had never referred to absence of any RBI permission as a ground for not honouring the patronage letter. On the contrary in their letter dated 22 April 2010 whilst suggesting restructuring; Videocon had stated that all the legal requirements were met and had gone to the extent of stating as under:
" You may kindly note that the above structure has been worked out keeping in view the broad requirements of laws of different regimes and once confirmed, the finer aspects could be worked out."
(ii) In any view of the matter if at all any RBI permission was required by Videocon before issuing the Patronage letter, it was the responsibility of Videocon alone and if it chose not to obtain such permission, it cannot now be allowed to take advantage of its own wrong.
19 July 2014
DISCUSSION
We will now take up for consideration the first contention of Videocon that since the Bank has already filed a suit in this Court for enforcement of the decree obtained from the Court in Turin and Videocon is going to file its written statement raising all available defences under Section 13 of the Code of Civil Procedure, 1908 (CPC), it is not open to the Bank to now file this winding up petition on the basis of the original cause of action.
Since learned counsel for both the parties have referred to the decision in Badat and Co. Vs. East India Trading Co., we will quote the principles laid down in paragraph 34 of the judgment, the relevant portion of which reads as under :-
"34. ............. Schmitthoff in The English Conflict of Laws, 3rd edn. has stated at p. 459 :
"The English courts recognise that a foreign judgment gives rise to private rights which, on principle, should be protected by them. Consequently, when referring to the recognition of a foreign judgment, what is actually meant is the recognition of the private right that is created by the judgment and not the enforcement of a foreign judicial act of State. In the words of Professor Read ''The true basis upon which the Anglo-Dominion authorities........ place the recognition of a foreign judgment is that it proves the fact that a vested right has been created through the judicial process by the law of a foreign law district''........ The view that the recognition of a foreign judgment in the English jurisdiction is based on the assumption that the foreign, judgment creates a new legal obligation is firmly established by numerous decisions."
Learned counsel for Videocon has particularly placed heavy reliance on the underlined observations at ''B'' that once the creditor chooses to sue upon the judgment, he cannot found jurisdiction for the institution of the suit on the basis of the original cause of action because once he chooses to rest himself on the judgment obtained by him in a foreign court, the original cause of action will have no relevance whatsoever even though it may not have merged in that judgment.
On the other hand, learned counsel for the Bank has submitted that in Badat''s case the Supreme Court has recognized the principle that the original cause of action does not merge in a foreign judgment and therefore even after obtaining a foreign judgment, the Creditor can sue on the original cause of action. Secondly, the observation at ''B'' in Badat''s case would not apply to the facts of the present case because in that case the Supreme Court was dealing with a suit for recovery of money and it was not a case of winding up petition. Thirdly, it is submitted that even otherwise the facts in the case are distinguishable. In that case what the plaintiff was seeking to enforce was an arbitration award which had not attained finality. The creditor had filed a suit for enforcement of the foreign judgment based on an award but the award itself had not attained finality, which is clear from the observations in paragraphs 42 and 44 of the judgment of the Supreme Court. The Supreme Court held that the award can also furnish fresh cause of action provided the award has attained finality. If the law of the country in which it was made gives finality to a judgment based upon an award and not to the award itself, the award can furnish no cause of action for a suit in India. The Supreme Court accordingly held that though the Bombay High Court has jurisdiction to enforce a final award made in a foreign country, the award in question not being final cannot furnish a valid cause of action for the suit.
Having considered the rival submissions, we find considerable substance in the submissions of Mr. Jagtiani for the Bank that a creditor obtaining a foreign judgment does not lose the right to file a winding up petition in this Court within whose territorial limits the registered office of the guarantor company is situate. The guarantee in the form of the Patronage Letter given by Videocon to the Bank in Mumbai is the foundation of the claim made by the Bank. Merely because the loan agreement, which was backed by the Patronage letter provides that the Courts in Turin alone will have exclusive jurisdiction to entertain suits between the parties and therefore the Bank had filed such a suit in Turin Court and obtained a decree therefrom, would not come in the way of the Bank filing the present winding up petition in this Court on the basis of the original cause of action, i.e., the guarantee in the form of patronage letter and admissions of Videocon in the correspondence prior to institution of the winding up petition.
We, therefore, uphold the finding given by the learned Company Judge that the present winding up petition is based on the Letter of Patronage and the admissions made by Videocon in the correspondence between the parties including the correspondence letters dated 14 December 2009, 19 December 2010 and 22 April 2010.
Dr. Tulzapurkar, learned counsel for Videocon however submitted that since the parties had signed term sheet on 9 December 2010, there was a novatio and therefore the Bank cannot rely upon the Patronage letter or the subsequent correspondence till the date of the signing of the term sheet.
The contention cannot be accepted because the term-sheet signed by the parties on 9 December 2010 specifically referred to the finance documents including the term loan agreement dated 6 June 2007 for the loan of 35 Million Euros, the Patronage Letters dated 1 June 2007 and 5 June 2007 granted by Videocon in favour of the Bank for the above loan agreements. The term-sheet further referred to the conditions precedent, which included providing new Patronage Letter to guarantee the existing obligations. The relevant documents specified as condition precedent were not furnished by Videocon.
There is no dispute about the fact that Videocon did not comply with these conditions precedent and therefore it cannot be said there was a novatio between the parties so as to exonerate Videocon from the liabilities arising from the Patronage letter dated 5 June 2007 for 38 Million Euros.
It is also necessary to note that the statutory notice which was given by the Bank on 3 July 2012 under Sections 433 and 434 of the Companies Act, 1956 also specifically invoked the rights of the Bank under the Patronage Letter dated 5 June 2007 and the subsequent correspondence containing the admissions made by Videocon. Merely because as a part of narration of facts, the said statutory notice and the memo of the Company Petition also referred to the fact about the Bank having filed a suit in the Court of Turin and the decree having been passed by that Court cannot mean that the Bank had given up its original cause of action and was merely relying upon a decree of the Court of Turin for the purposes of filing the winding up petition. We, therefore, do not find any merit in the submission of Videocon that the winding up petition is filed on the basis of the decree passed by the Court of Turin.
In this view of the matter, it would not be necessary to consider Videocon''s argument that a decree passed by the Court of Turin was not enforceable because it was an ex parte decree. In any view of the matter, the learned Company Judge has given cogent reasons for holding that the decree could not be faulted because the Bank had served the writ of summons on Videocon at the address given in the performance letter, which clearly provided that the party shall be served at the address indicated in the said letter. (For the service of any deed or summons we (Videocon) the undersigned elect our domicile at the registered office of the Borrowing Company in Anagni (FR), Localita Fratta Rotonda, Italy).
Coming to the next defence of Videocon that the Patronage Letter dated 5 June 2007 could not be enforced as the same was given in breach of the statutory provisions of FEMA; Mr. Jagtiani, has vehemently submitted that Videocon having abandoned the said defence before the learned Company Judge, it is not open to Videocon to raise such defence in appeal.
On the other hand, Dr. Tulzapurkar for Videocon submitted that the defence was not abandoned but only because it was not substantiated at the hearing of winding up petition, it cannot be said that the Videocon abandoned the defence based on the provisions of FEMA.
In view of the above controversy, it is necessary to quote the relevant paragraphs, being paragraphs 53 and 54 of the judgment of the learned Company Judge which is under Appeal:
"53. .......Defence is taken that the Patronage Letter violates the Indian Law i.e. FEMA. The Respondent in the reply to the notice of winding up and also in the affidavit in reply, has stated that the Patronage Letter violates the provisions of FEMA. During the course of the argument, the learned counsel for the Respondent abandoned this ground. In fact nothing was pointed out as to which provision of the Indian or Italian law the Patronage Letter violates.
In the present case even though a contention was taken in the reply that the patronage letter is in violation of Foreign Exchange Management Act, this point was abandoned during the arguments. As stated earlier there is no ground raised whatsoever that the patronage letter was in violation of any law much less Italian law. The Respondent cannot raise academic questions, it must indicate which are the questions of fact the court of Turin had an exclusive jurisdiction to decide. Even assuming the question of service of summons has been established in the pending suit in Calcutta, which will be referred to later on."
[emphasis supplied]
The aforesaid statements made in the judgment of the learned Company Judge must be accepted as to what transpired in the Court. As per the settled legal position it is not open to the litigant to challenge the statement of the facts made in the judgment of the Court as to what transpired in the courts, vide D.P. Chadha Vs. Triyugi Narain Mishra and Others, where the Court reiterated the principles laid down in State of Maharashtra Vs. Ramdas Shrinivas Nayak and Another, and in Bhagwati Prasad Vs. Delhi State Mineral Development Corporation, . It is now settled law that the statement of facts recorded by a court in its proceedings as regards the matter which transpired during the hearing before it would not be permitted to be assailed as incorrect, unless steps are taken before the same forum. It is not open to a party or the counsel to say that the proceedings recorded by the Court are incorrect.
It is necessary to note that this objection was raised by Mr. Jagtiani for the Bank, right at the outset when learned counsel for Videocon opened the arguments and gave the broad over all view of his submissions at the first hearing. The hearing did not conclude in one session, but was spread over a few days. Videocon, however, did not take any steps to move the learned Company Judge for review and for deletion of the observations about the abandonment of the defence based on the provisions of FEMA. Merely because the written submissions filed by the advocates of Videocon reiterated the contention about breach of provisions of FEMA, the same cannot nullify the categorical observations made by the learned Company Judge in the judgment under appeal.
We cannot help observing that this Court has been calling upon learned counsel time and again to give gist of submissions while at the commencement of or during the arguments and not to give verbose written submissions weeks or months after the arguments are concluded.
Learned counsel for Videocon, however submitted that concession on a question of law can always be withdrawn in appeal. We do not accept the submission as an unqualified licence to withdraw such a concession. But learned counsel for the Bank not only made alternate submissions on merits, but also submitted that the question was a mixed question of law and fact and not a pure question of law.
Section 3 of the FEMA by itself does not contain any prohibition against issuance of any letter of guarantee without permission of RBI. However, the statutory regulations being Foreign Exchange Management (Guarantees) Regulations, 2000 provide as under:
"Reg. 3 : Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect or, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by a person resident outside India."
While Regulation 4 refers to guarantees which may be given by authorised dealers, Regulation 5 deals with guarantees which may be given by persons other than authorised dealers. A person other than the authorised dealer may give a guarantee in the specified cases. The relevant clause being (b) reads as under:
"5(b) a company in India promoting or setting up outside India, a joint venture company or a wholly owned subsidiary, may give a guarantee to or on behalf of the latter in connection with its business."
It is true that Videocon which is a person resident in India gave such a guarantee for its subsidiary with registered office in Italy which is a person resident outside India. Learned counsel for Videocon vehemently submitted that since no special permission of the Reserve Bank is on record and no general permission was granted at the time of issuance of the letter of guarantee in 2007, it may be held that the Patronage letter was null and void ab initio.
It is not possible to accept the above contention for several reasons. In the first place the words "or with the general or special permission of Reserve Bank" cannot be construed as prior permission of the Reserve Bank. Where the Regulations contemplate that prior permission or prior approval of the Reserve Bank is required to be obtained, it is so specified. For instance, Regulation 3.A imposes restriction of obtaining overseas guarantee in the following terms:
"3.A No corporate registered under the Companies Act, 1956 (1 of 1956) shall avail domestic rupee denominated structured obligations by obtaining credit enhancement in the form of guarantee by international Banks, international financial institutions or joint venture partners, except with the prior approval of the Reserve Bank."
[Emphasis supplied]
Hence, it cannot be said that the Patronage letter issued in 2007 could not be issued without prior approval or prior special permission of the Reserve Bank.
Secondly, on 27 May 2011 the Reserve Bank issued circular No. 69 providing for performance guarantees to be issued by Indian parties and generally permitted issuance of guarantees by an Indian party to step down subsidiary of a joint venture or wholly owned subsidiary under general permission in the following terms:
"Issue of guarantee by an Indian Party to step down subsidiary of JV/WOS under general permission:
(a) Currently Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV/WOS set up by their JV/WOS operating as a special Purpose Vehicle (SPV) under the Automatic Route, subject to the condition that the financial commitment of the Indian party is within the extant limit for overseas direct investment. As a measure of further liberalization, it has been decided that irrespective of whether the direct subsidiary is an operating company or a SPV, the Indian promoter entity may extend corporate guarantee on behalf of the first generation step down operating company under the Automatic Route, within the prevailing limit for overseas direct investment. Such guarantees will have to be reported to the Reserve Bank in Form ODI, as hitherto, through the designated AD concerned.
(b) Further, it has also been decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party directly or indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued."
The said circular came to be further clarified by Foreign Exchange Management (Guarantees) (Fourth Amendment) Regulations, 2013 contained in Notification dated 8 may 2013. Relevant portion of amended Regulation 5 (b) reads as under:-
"(ii) An Indian Party promoting or setting up outside India, a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS), may give a guarantee to or on behalf of the first generation step down operating company in connection with its business."
Though learned counsel for Videocon submitted that the aforesaid amendment came into force from 27 May 2011 and therefore long after issuance of the Patronage letter, it is necessary to see how Reserve Bank itself looked at such a situation in the year 2007. Question Nos. 34 and 35 and the answers given to the respective questions by the Reserve Bank in the Appendix II of the Foreign Exchange Management Manual 2007 Edition contain "Frequently Asked Questions", which inter alia, read as under:
Q. 34 Can an Indian Party have a JV/WOS through a Special Purpose Vehicle (SPV) under the Automatic Route?
A. Yes. Direct investment through the medium of a SPV is permitted under the Automatic Route.
Q. 35 Can an Indian Party directly fund such step-subsidiaries?
A. Where the JV/WOS has been established through a SPV all funding to the operating subsidiary should be routed through the SPV only. However, in the case of guarantees to be given to the step down subsidiary these can be given directly by the Indian Party provided such exposures are within the permissible financial commitment of the Indian Party.
[Emphasis supplied]
Answer to Q. 35 leaves no manner of doubt that it was permissible for Videocon to give Guarantees for its step down subsidiary provided such exposures were within the permissible financial commitments of Videocon. Now the question whether the guarantee of 38 Million Euro was within the permissible financial commitments of Videocon such as turnover and other relevant financial performance was solely within the knowledge of Videocon and therefore the question whether the issuance of Patronage Letter by Videocon on 5 June 2007 was within its permissible financial commitments would be a question of fact or at the most a mixed question of law and fact. It is, therefore, not open to Videocon now to contend that even after having abandoned the defence before the learned Company Judge, it is still entitled to raise such a defence on the ground that it is a pure question of law. As indicated above, neither in the affidavit in reply nor at the hearing before the learned Company Judge, Videocon had given any justification for raising its defence that issuance of the Patronage letter in 2007 was in breach of the statutory requirements or that it was not within its financial commitments. Since Reserve Bank itself had permitted issuance of such guarantees for the step down subsidiaries directly by Indian party, it cannot be said that there was any breach of any statutory requirements, much less any inherent illegality.
In any view of the matter, it is also necessary to know that Videocon had never contended in any of its correspondence between 2007 till giving reply to the statutory notice that the Patronage Letter was issued in contravention of the provisions of FEMA or in breach of any other legal requirements. The defence is, therefore, raised for the first time only after receiving statutory notice i.e. after almost four years of issuance of the Patronage Letter. Assuming that Videocon have committed any wrong in issuing the Patronage Letter without obtaining permission of the Reserve Bank, as per the settled legal position, it is not open to a party to take advantage of its own wrong. In Eurometal Limited Vs. Aluminium Cables and Conductors (U.P.) P. Ltd., and SRM Exploration Pvt. Ltd Vs. N and S and N Consultants S.R.O., , Calcutta and Delhi High Courts respectively have frowned upon company facing a winding up petition taking up such dishonest defence. In these decisions High Courts have taken the view that in matters of commercial transactions involving crores of amount where the company facing winding up proceedings had stood a guarantor, if any such defence were to be accepted, we would be giving a wrong signal and dissuading foreign commercial entities from relying on the guarantees given by Indian Companies and which would ultimately undermine the role of India the world of trade and commerce. We could not agree less. We, therefore, do not find any merit in submissions of Dr. Tulzapurkar that the order of admission of the winding up petition was erroneous on any such count.
Dr. Tulzapurkar submitted that Videocon has more than 335,000 shareholders and has market capitalization of approximately Rs. 5690 Crore. Videocon has 78 offices in India as also abroad and is having 4 factories at different places in India and is having around 4500 employees, the net profit of the Videocon for the six months period ended 30 June 2012, the turnover for the six months ended 30 June 2012 is Rs. 5294.324 crores + Rs. 718.39 crores and the profit for the said period is Rs. 544.89 crores + Rs. 227.79 crores.
Learned counsel has placed strong reliance on the decision of the Supreme Court in IBA Health (I) Pvt. Ltd. Vs. Info-Drive Systems Sdn. Bhd., . Learned counsel has particularly relied upon the observations made in paragraphs 29, 30, 33, 34 and 35 in support of the contention that the creditor''s winding up petition in certain situations, implies insolvency to financial position to every creditor, Banking institutions, customers and so on and publication in the newspaper of the filing of the winding up petition would damage the credit worthiness or financial standing of the company and which would also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross-defaults. Learned counsel therefore submitted that the Company Court has not only to look into the interest of the creditors, but also the interests of the public at large. It is submitted that the Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bonafide disputed debt. It is also submitted that the Supreme Court has noted that the jurisdiction of the Company Courts is being abused by filing winding up petitions to put pressure to pay debts which are substantially disputed and the courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity.
We have given careful consideration to the principles laid down by the Apex Court in the above judgment. The caveat sounded by the Apex Court is in the context of cases where the Company bonafide disputes a debt and the creditor is trying to pressurize the company to pay a debt which is substantially disputed.
However, as indicated in the foregoing discussion, step down subsidiary of Videocon in Italy had admittedly taken a loan of 38 Million Euros from the Bank in Italy. Admittedly, Videocon had given a guarantee in the form of Patronage letter of 5 June 2007 for the aforesaid loan but it kept its liability limited to 38 Million Euros. As noted by the learned Company Judge and as was the case before us, there is no denial of the aforesaid basic facts. In fact Videocon had admitted its liability before issuance of the statutory notice by the Bank. For instance, in the letter dated 19 January 2010, the Subsidiary not only admitted the liability, but requested the Bank not to enforce the guarantees backing the loan stating that Videocon is one of the oldest and well known companies in Indian stock market giving the figures of its turnover and net worth. It also stated that Videocon has a distribution channel with around 45,000 distributors spread all over India and counts more than 160 million satisfied clients. The Subsidiary which is a step down subsidiary of Videocon requested for installments to grant a very short moratorium in order to reschedule the loan in question according to parameters. The Subsidiary enclosed financial statements of Videocon of 30 September 2009. Even thereafter Videocon itself addressed a letter dated 9 December 2010 admitting that the Bank had granted to its subsidiary loan of 35 Million Euros under the Facility Agreement which was secured by Patronage Letter granted by Videocon itself on 5 June 2007 in favour of the Bank for the benefit of its subsidiary. In the said letter, the Videocon further admitted that the Subsidiary was not able to comply with the financial covenants of the Facility Agreement. Videocon further indicated that it was ready to discuss the term sheet containing proposed reconstructing. All these letters leave no room for doubt that Videocon admitted its liability to honour the guarantee given in the form of Patronage letter dated 5 June 2007. It cannot, therefore, be said that Videocon has even a title of defence on merits. All that it has been contending after receiving the statutory notice and filing of the winding up petition is not merely a technical but a hyper technical defence that the Bank cannot enforce the liability arising from the Patronage Letter because the Bank has already obtained a decree from a Court in Turin.
Learned Company Judge has rightly observed that a creditor who obtains a decree from a foreign court cannot be at a disadvantage in the matter of filing of a winding up petition. We fully concur with the view of the learned Company Judge.
The principles to be applied by winding up courts are well settled by authoritative pronouncements of the Courts and may be broadly be stated as under:
(i) If the debt is bonafide disputed and the defence is substantial one, the court will not wind-up the company. Madhusudan Gordhandas and Co. Vs. Madhu Wollen Industries Pvt. Ltd., ;
(ii) Where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt, but the company chooses not to pay that particular debt. [Madhusudan Gordhandas (supra)].
(iii) Where there is no doubt that the company owes the creditor a debt entitling him to the winding up order but the exact amount of the debt is disputed, the court will make a winding up order without requiring the creditor to quantify the debt precisely. [Tweeds Garages Ltd. Re, (1962) Comp Cas 795 (Ch D)];
(iv) Where the defence of the company is in good, fair and one of substance, and the defence is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defence depends, the petition should be rejected.
[Madhusudan Gordhandas (supra)]
(v) The court may consider the wishes of the creditors so long as these appear to be reasonable and justified. It is also well settled that a winding up order will not be made on a creditor''s petition, if it would not benefit him or the company''s creditors generally. Therefore, the grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case. [P.J. Macrae Ltd. Re, (1961) 1 All ER 302];
(vi) The machinery of winding-up should not be allowed to be utilised merely as a means of realising its debts. Amalgamated Commercial Traders (P.) Ltd. Vs. A.C.K. Krishnaswami and Another, ;
(vii) If the stance of the adversaries hangs in balance, it is always open to the Company Court to order the respondent company to deposit the disputed amount. This amount may be retained by the court and be held to the credit of the suit, if any is pending, or likely to be filed in the immediate future. [Civil Appeal No. 720 of 1999 arising out of SLP (C) No. 14096 of 1998 Nishal Enterprises v. Apte Amalgamations Ltd., decided by the Supreme Court on 5 February, 1999);
(viii) Generally speaking, an admission of debt should be available and/or the defence that has been adopted should appear to the court to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favour of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order XXXVII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction, it would have granted unconditional leave to defend, it must dismiss the winding-up-petition. ITW Signode India Limited Vs. Bhushan Steel and Strips Limited, ;
Applying the above principles, we have no hesitation in holding that the dispute raised by Videocon is not at all bonafide, much less substantial. The defence adopted by Videocon is not merely moonshine but dishonest and therefore the learned Company Judge was fully justified in passing the order directing Videocon to pay the amount of the guarantee called Patronage Letter dated 5 June 2007 for 38 Millions Euro. The debt was undisputed before the Bank gave the statutory notice under Sections 433 and 434 of the said Act. Hence, the Court will not act upon a defence that Videocon has the ability to pay the debt but the company chooses not to pay it.
In view of the above discussion, we do not find any merit in any of the submissions made by learned counsel for Videocon.
When we so indicated at the conclusion of the arguments, learned counsel for Videocon, however, submits that in any view of the matter the learned Company Judge erred in directing Videocon to pay the amount to the Bank. It is submitted that at the most the amount could have been directed to be deposited in Court but not paid over to the Bank. It was vehemently submitted that the winding up petition is for the benefit of all the creditors and any amount paid after filing of the winding up petition would enure for the benefit of all the creditors and, therefore, the impugned direction given by the learned Judge requiring Videocon to pay 38 Million Euros to the Bank is contrary to the settled legal position.
The argument is fallacious for the simple reason that after Videocon pays the amount to the Bank, the winding up petition would stand dismissed and, therefore, there would be no order of admission of the winding up petition or publication of the advertisement for inviting other creditors to come forward with their claims. That stage would not at all arise if Videocon makes the payment. It is only if Videocon fails to make payment even after three adjudications that Company Petition would stand admitted, which would be followed by publication of the advertisement for inviting claims from the other creditors. We, therefore, do not find any merit in this contention also.
As already discussed above, the subsidiary of Videocon had admittedly taken a loan of 35 Million Euros from the Bank (petitioning creditor) as far back as in 2007. Videocon is now called upon to pay the Bank only 38 Million Euros on account of the cap provided in the Patronage Letter which was admittedly executed by Videocon on 5 June 2007. It is only in cases where the Company facing winding up petition has some arguable case and the creditor is required to file a suit for the purpose of establishing its claim that the Court would direct that the amount be merely deposited in Court and not paid over. As discussed earlier, Videocon has no defence on merits whatsoever and, therefore, the direction given by the learned Company Judge for payment of the amount to the Bank (petitioning creditor) is fully justified.
No other contentions were urged.
We see no merit in the Appeal and the same is accordingly dismissed.
The learned Company Judge passed the order on 5 December 2013 and granted eight weeks time to deposit the amount but Videocon has not even deposited the amount, much less paid the amount to the petitioning creditor, which it could have deposited without prejudice to its rights and contentions. Having regard to the fact that the amount was due as far back as on 7 April 2011, it would be in the fitness of things to direct that Videocon shall also pay interest at the rate of 9% p.a. with effect from 27 January 2014 which was the last date by which Videocon was to make payment to the Bank. Hence it is directed that Videocon shall deposit the amount of Rs. 259.73 crores (Euros 38 Million) with 9% interest w.e.f. 27 January 2014 (which was the last date for Videocon to deposit the amount under the directions of the learned Company Judge) by 30 September 2014. The amount shall be deposited by Videocon in this Court and upon deposit of the amount, the petitioning creditor Intesa (the Bank) will be permitted to withdraw the amount as already permitted by the learned Company Judge.
In case appellant Videocon deposits the amounts with interest in compliance with the above directions within the aforesaid time limit, the winding-up petition (Company Petition No. 528 of 2012) shall stand dismissed. In case of default, the winding-up petition shall stand admitted and the directions given by the learned Company Judge for publication of the advertisement shall stand and the Company Petition shall be listed for final hearing on a date to be notified by the learned Company Judge in the first week of October 2014.
At this stage, learned counsel for Videocon prays for stay of the operation of this judgment in order to have further recourse in accordance with law.
Learned counsel for the respondent Bank (petitioning creditor) opposes the request and submits that Videocon was given enough opportunity by the learned Company Judge and by this Court and both the Courts have found the Videocon''s defences to be dishonest and therefore, no stay may be granted.
Since we have already granted time upto 30 September 2014 to Videocon to pay the amount to the respondent Bank (petitioning creditor), it is not necessary to grant any stay as prayed for, but the respondent Bank shall not take any further steps on the basis of this judgment till 30 September 2014.