TMI Blog2015 (3) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 tittle of defence on merits. All that it has been contending after receiving the statutory notice and filing of the win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3] Correspondence ensued between the Bank and the 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. 4] 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 termsheet was signed on the same day. This termsheet, explicitly stated that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n/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. 8] 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. 9] 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. 10] 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 12] On the other hand, learned counsel for the respondent Bank has opposed the above submissions and supported the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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 14] 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. 15] Since learned counsel for both the parties have referred to the decision in Badat and Co., Bombay vs. East India Trading Co., AIR 1964 SC 538 ( V 51 C 68) we will quote the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 17] 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 termsheet 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. 21] 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 Tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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] 25] 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 Ors. (2001)2 SCC 221, paragraphs 18 and 19 where the Court reiterated the principles laid down in State of Maharashtra vs. Ramdas Shrinivas Nayak AIR (1982) 2 SCC 463 and in Bhagwati Prasad vs. Delhi St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teeing, 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. 29] 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. 30] It is not possible to accept the above contention for several reasons. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 32] 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 Purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ltd. v. Aluminium Cables and Conductors (U.P) Pvt. Ltd.) [(1983)53 Comp Cas 744 Cal and SRM Exploration Pvt. Ltd. v. N S N Consultants S.R.O [ (2012) 4 Comp L.J. 178 (Del)], 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (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 windingup should not be allowed to be utilised merely as a means of realising its debts. [Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami (1965) 35 Comp Cas 456 (SC); (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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge requiring Videocon to pay 38 Million Euros to the Bank is contrary to the settled legal position. 43] 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. 44] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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