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2017 (2) TMI 563 - KARNATAKA HIGH COURT

2017 (2) TMI 563 - KARNATAKA HIGH COURT - TMI - Winding up petitions - Held that:- There has been no opposition as such to the present winding up petition and such of other winding up petitions against the respondent-company. The alleged defences of pendency of civil suit filed by holding company against the manufacturers but not against petitioner- Aerotron Ltd., locus standi of petitioner company to file this winding up petition, there being chance of revival of the business etc., are all, moo .....

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nsolvent Company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors. - The petitioners are not seeking execution of any decree passed by English Courts or other Foreign jurisdiction against the Respondent – Company. They have invoked the winding up of Respondent- Company before this Court under Section 433 read with Sections 434 and 439 of the Companies Act, 1956 and have been able to satisfy this Court with the rel .....

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whether from the facts and figures, contentions and defences, this Court can form a reasonable opinion about the commercial insolvency and erosion of its net worth and inability of the Respondent Company, UBHL, to pay-off its admitted dues or not. This Court does hold this opinion against the Respondent - Company, UBHL. Therefore, the contention that the applicability of the English law was required to be pleaded and proved as a fact, as if in the realm of trial of a Civil Suit, does not merit a .....

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r them to establish before the Court that such Companies had a ‘permanent establishment’ of business in India so as to fall within the definition of a Foreign Company, requiring registration and permissions in terms of Sections 592 and 599 of the Act. No such material has been placed by them before this Court to question the locus standi of the petitioning creditors. Mere presence of some sales representatives while undertaking business of supply of Aero Engines and Allied Equipments does not es .....

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due Notice to UBHL are on record. The RBI approval for Corporate Guarantee in favour of KF Aero will be equally good for BNP Paribas also. RBI has never objected to the execution of Corporate Guartntee by UBHL in favour of BNP Paribas. No additional approval could be insisted upon by the Respondent, UBHL itself. - The contention that multiplicity of the proceedings has been initiated by the petitioning creditors and therefore the winding up petitions should not be entertained, is also equall .....

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tion of legal proceedings is bound to be different. - The deposits of ₹ 1280.00 crores made in the Court under Interim Orders of the Court will of course be utilized for distribution, if the Respondent – Company, UBHL is to be wound up. The argument that such deposit being in excess of claims of unsecured creditors or suppliers and therefore the Respondent –Company does not deserve winding up ignores the much larger claim of Secured Creditors, Banks led by SBI, whose dues are far in ex .....

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ected by Company itself and its Supporting Creditors. All these contentions are, not bona fide and are therefore rejected. - Co.P.No.57/2012, C/W Co.P.No.121/2012, Co.P.No.122/2012, Co.P.No.185/2012, Co.P.No.248/2012, Co.P.No.51/2013, Co.P.No.99/2013, Co.P.No.162/2013, Co.P.No.265/2013 & Co.P.No.148/2016 - Dated:- 7-2-2017 - Dr. VINEET KOTHARI, J. For The Petitioner : Shreyas Jayasimha, Mr. Pramod Nair, Mr. C. Muralidhar, Mrs. Fereshte Sethna, Mr. Shanthanu Singh and Mr. Prashanth G, Advocates, .....

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ions have been filed by host of creditors in this Court, seeking the winding up of the Respondent - Company, United Breweries (Holdings) Limited ( UBHL for short) and in these ten winding up petitions, the secured creditors, consortium of Banks, 14 in number, led by State Bank of India (SBI) and various unsecured creditors like suppliers of Aero Engines, Lessors of Aircrafts and Service Providers who have invoked Corporate Guarantees furnished by the Respondent - Company, UBHL, to them to secure .....

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) has already been ordered to be wound up recently by this Court in its judgment and order dated 18/11/2016 in Company Petition No.214/2016 a/w. C.A.No.1183/2012 & C.A.No.1184/2012 (Aerotron Limited Vs. Kingfisher Airlines Limited) and various other winding up petitions against KFAL. 3. It is also reported that the Founder - Promoter and Chairman of the Respondent - Company UBHL, Dr. Vijay Mallya has since left the Country, India, for the last about one year and various Civil and Criminal pr .....

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placed before the Court when the matter was again listed before the Court on 25/01/2017, has directed a sum of ₹ 6203.35 crores to be recoverable from the Respondent - Company, UBHL, for the default in repayments made by the KFAL and invoking the Corporate Guarantees given by the Respondent - Company, UBHL has been held to be under a legally valid obligation to pay off its dues and the petitioning Banks have been allowed to proceed to recover the said sum of ₹ 6203.35 crores from the .....

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end the winding up petitions against KFAL also or not, the learned Senior Counsel, Mr. Udaya Holla answered in negative and therefore, the said Company, KFAL, almost defence-less and unopposing, was ordered to be wound up, on account of its failure to pay the admitted liability and the dues towards the petitioning creditors. About fifty-five (55) winding up petitions against KFAL were thus allowed by the Court and the Official Liquidator was appointed to take charge of the assets of the said Com .....

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- Company, UBHL and other allied companies. 7. The dues claimed from the Respondent - Company were relating to the KFAL and it is on the anvil of the Corporate Guarantees of UBHL and personal Guarantees given by Dr. Vijay Mallya to these petitioning creditors, which were invoked and on account of the failure to discharge the said Guarantee obligations, these winding up petitions were filed by the different secured and unsecured creditors and the learned counsel appearing for the petitioning cre .....

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an iota of hope of the said Company, UBHL reviving its net worth in positive in such a manner to meet the financial obligations of the petitioners against it and it is not only a commercially insolvent Company, but otherwise also it is absolutely just and equitable to wind up the Respondent -Company. The winding up is thus sought under Section 433(c),(e) and (f) of the Companies Act, 1956. 8. They have also contended before the Court that the surreptitious deals made by the Ex-Chairman, Dr. Vija .....

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Companies Act, 2013 has been enforced in India and some jurisdictions under that new Law have been transferred from this Court to National Company Law Tribunal, but under the recently issued Notification dated 07/12/2016 by the Central Government, the winding up petitions in which Respondent - Company had already been served with the Court summons have been retained in High Courts and are to be disposed of by the High Courts only. 10. The various contentions raised by both the sides will be dea .....

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Guarantee executed by Respondent - Company, UBHL in favour of the petitioners to secure the obligations of KFA Limited (KFAL). 13. The petitioners have specifically stated in the petition that they are standing out side the winding up insofar as their secured interest are concerned and that they have not relinquished their rights and interest as secured creditors and are also pursuing other remedies available to them for realization of the Securities created in their favour, without the assista .....

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ited, IDBI Bank Limited, Indian Overseas Bank, Jammu and Kashmir Bank Limited, Punjab & Sind Bank, Punjab National Bank, State Bank of Mysore, and UCO Bank have stated before the Court that in April 2010, at the request of KFAL, some of the petitioners - Banks, since 2005, have provided Working Capital facilities, both fund based and non fund based and Rupee Term loan facilities including Short Term loan to KFAL and subsequently in view of the financial difficulties faced by it, KFAL request .....

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securities were created in pursuance of the said MDRA. 15. The State Bank of India was appointed as Lenders Agent by other petitioners and the borrower, KFAL and other subsidiaries, that is, Respondent - Company, UBHL and Dr. Vijay Mallya executed the Corporate Guarantee in favour of the petitioners. The State Bank of India Cap Trustee Limited (SBICAP) was appointed as Security Trustee for the benefit of petitioners - Banks and the KFAL, the Respondent - UBHL and King Fisher Finvest (India) Limi .....

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the interest to the invocation of the Letters of Credit and Bank Guarantees and non repayment of loan instalments by KFAL, all the petitioning Banks classified the Accounts of KFAL as Non-Performing Assets (NPA) and invoking the guarantees given by the Respondent Company and personal guarantee of Dr. Vijay Mallya, the petitioners - Banks called upon the Respondent - Company, UBHL to pay the debts due under the said Guarantee Agreements, amounting to ₹ 6,203.35 Crores, which the Respondent .....

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ny, UBHL, has filed a Civil Suit, namely Suit No.263/2013 (R311/2013) before the Bombay High Court, inter alia, challenging the validity of the Corporate Guarantee given by it and sought a declaration to that effect and also another collusive Suit filed by the United Spirits Limited in Special Civil Suit No.31/2013/A, before the Civil Judge, (Sr.Dvn.) at Mapusa, Goa, whereas these Companies had no jurisdiction and the whole purpose of the said Suit was to some how create as many hurdles for reco .....

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Respondent - Company to pay its admitted dues under the Corporate Guarantees and raising sham defences which deserve to be overruled, the petitioners have prayed for winding up of the Respondent - Company and appointment of Official Liquidator to take charge of all the remaining assets of the Company for realization and pro-rata distribution amongst the secured and unsecured creditors as per Section 529, 529-A and other relevant provisions of the Indian Companies Act, 1956. 20. They also conten .....

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ts, on lighter side to a query as to what was the subject of Ph.D. of Dr. Vijay Mallya, the learned Senior Counsels appearing on defence side without being specific, only passed an intriguing smile. Company Petition No.57/2012 - IAE International Aero Engines AG Vs. UBHL 22. The petitioner - Company, IAE International Aero Engines AG, incorporated in Switzerland and having a permanent place of business in USA, has approached this Court by way of aforesaid winding up petition with the case that t .....

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d 2010. 23. The Respondent - Company, UBHL executed two Corporate Guarantees, Guarantee No.1 under Repayment Agreement on 10/11/2010 for USD 27,804,678 and Guarantee No.2 under V2500 Rework Agreement on 01/08/2011 for USD 18,500,000. Both the Guarantees were unconditional and irrevocable as Principal Obliger and it took obligation to pay all monies whether actual or contingent, due owing or incurred by KFAL under these Agreements, upon failure of KFAL to pay its dues towards petitioner - Company .....

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solve the issue amicably. Thus, a total sum of USD 30,682,251.01 (approximately ₹ 153 crores) was due for which the petitioner -Company filed the present winding up petition in this Court on 26/03/2012. Company Petition No.121/2012 & Company Petition No.122/2012 - RRPF Engine Leasing Limited & Rolls-Royce & Partners Finance Limited Vs. UBHL. 24. The petitioner - Company (in Co.P.No.121/2012) incorporated under the Laws of England is engaged in the business of renting Air Transp .....

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according to that, the lessee agreed to make payment of loan to the petitioner in advance on each Rent Date and the Engine Lease Agreement No.2 dated 30/09/2005 was in respect of the new Aircraft Engine being IAE V2527-A5 Engine with MSN V12416 (Engine 2) and the lessee and both the parties also entered into a Maintenance Reserves Letter dated 07/10/2005. The Respondent - Company, UBHL executed a Corporate Guarantee on 25/01/2006 in favour of the petitioner and RRPF in respect of amounts due and .....

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titioner - Company. After terminating the lease on 29/03/2012, a statutory notice was served on the Respondent - Company also under Section 434 of the Companies Act, claiming a sum of USD 533, 268, 97 (Rs. 2,96,01,760.52). 28. In Company Petition No.122/2012, petitioner - Company, RRPF made claim of USD 10,437,866 (Rs. 57,94,05,941.70) vide paragraph 12 of its Company Petition from the Respondent, UBHL and inter alia, both the Companies contended that the Respondent, UBHL has failed to discharge .....

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ims outstanding dues against KFAL to the tune of USD 20,988,224.42 under the Payment Agreement dated 22/09/2011 and the Respondent, UBHL is said to have executed an unconditional and irrevocable Corporate Guarantee to the maximum amount of USD 25,000,000, vide Guarantee dated 14/10/2011, Annexure E of this Company petition. 30. On 23/03/2012, the said Guarantee was invoked and upon failure of the Respondent to discharge its related obligations, the statutory legal notice was served by the petiti .....

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rance. According to petitioner, all three parties to Agreement dated 05/06/2006 Kingfisher Airlines Limited, KF Aero, and the petitioner, BNP Paribas. The KF Aero, lessor agreed to purchase the Aircrafts from G.I.E. Avoins de Transport Regional (the Manufacturer) of Blagnac, France and KF Aero agreed to immediately lease its Aircraft to KFAL pursuant to lease Agreements dated 05/06/2006, the Hypothecation lease was executed on 21/06/2006 by KFAL in favour of KF Aero. Under each Loan Agreement, a .....

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he governing law and the jurisdiction qua its Lease Agreements was agreed to be of the English Courts according to the petitioner - Company. 32. Learned counsel, Ms.Fereshte Sethna, appearing for BNP Paribas explained that an integral aspect to the financing arrangements was the execution and delivery by the Respondent, UBHL of three Guarantees, all dated 17/06/2006, pursuant to which the Respondent, UBHL unconditionally and irrevocably agreed to guarantee and indemnify as Principal Obliger and .....

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t in force and exercise all rights and powers in relation to the Guarantees. Since KFAL, in breach of Lease Agreements failed to make payments to KF Aero for these three Aircrafts, a sum total of USD 724,246.29 and second demand of USD 742,653.77. 33. The learned counsel further submitted that the petitioner - Company sought a decree by instituting the proceedings in the High Court of Justice, Queen s Bench Division, Commercial Court, in London against KFAL and Respondent - UBHL on 23/12/2011 se .....

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ries (Holdings) Limited 34. The petitioner - Bank claims that initially it had sanctioned credit limits to M/s. Deccan Aviation Limited since October 2003 and further credit limits were also sanctioned to KFAL since November 2005 and M/s.Deccan Aviation Limited was taken over by KFAL vide Merger of the two, sanctioned by the Karnataka High Court on 16/06/2008 in Company petition Nos.45, 46 and 47 of 2008. 35. The Respondent - Company, UBHL had granted a Corporate Guarantee in favour of the petit .....

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al Term Loan (WCTL), Funded Interest Term Loan (FITL) Term Loan (PDP), with interest, the petitioner Bank claims a sum of ₹ 450,02,31,757.07 against the Respondent - UBHL and filed the present winding up petition in this Court on 21/06/2013. Company Petition No.99/2013 - Hindustan Petroleum Corporation Limited Vs. UBHL 36. The petitioner, a Government of India Enterprise and Supplier of Aviation Fuel to KFAL, has filed this winding up petition, claiming a sum of ₹ 66,72,44,516.73 as .....

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nd 434 of the Companies Act, claimed the said amount vide statutory notice dated 06/03/2013, and upon failure to pay the same, has filed the winding up petition on 11/05/2013. Company Petition No.265/2013 by Oriental Bank of Commerce against UBHL. 37. The petitioner - Bank has also filed this separate winding up petition, invoking its Guarantee for the dues of the KFAL and for recovery of a sum of ₹ 58,88,87,231.76 plus interest vide statutory Notice dated 07/02/2013, Annexure J, against t .....

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0 crores for Fund based limits. The petitioner - Bank has served a statutory Notice under Sections 433 and 434 of the Companies Act on Respondent - UBHL, claming a sum of ₹ 46,89,15,617.87 vide its Notice dated 03/03/2016 and thereafter has filed this winding up petition on 28/06/2016. The contentions of the Petitioners 39. Since the different creditors, secured and unsecured creditors, Banks and Financial Institutions and other trading creditors like suppliers and service providers have f .....

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e advances and extended loans to the Company - Kingfisher Air Lines Ltd., ( KFAL for short) and the Respondent-company United Breweries (Holdings) Limited ( UBHL for short) was earlier the Holding company qua its subsidiary KFAL and the claim of these petitioning creditors are based on the Corporate Guarantees given by the Respondent-company UBHL to secure the loans and advances by these petitioner- Banks to KFAL, which company has already been ordered to be wound up by this Court on 18.11.2016. .....

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he Master Debt Recast Agreement (MDRA) was recast for restructuring of the various loans of KFAL and even further loans were advanced by these Banks to KFAL. The Security Trustee Agreement was also entered into and SBICAP Trustee Company Ltd.,(SBICTCL) was appointed as trustee of the petitioner -Bank to receive and recover the dues from the said borrower KFAL. The Corporate Guarantee Agreement was executed by the Respondent-UBHL in favour of the petitioner-Bank on 21.12.2010. Since 2011-12, the .....

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t), vide O.A.No.766/13, the total dues are to the extent of ₹ 6203.35 crores as on 25.06.2013 which, with continuously accruing interest, coupled with other Banks outside this consortium and unsecured creditors now may be well over ₹ 10,000 crores against UBHL. 43. Mr.S.S.Naganand, further submitted that the corporate guarantee given by the respondent-UBHL to secure the financial obligations of KFAL under various loan agreements, was co-extensive with that of the principal borrower K .....

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nding outside the winding up proceedings, insofar as secured interest are concerned, they have initiated action against the respondent-company before the DRT, Bangalore also, but that does preclude them from pursuing the present winding up petitions against the Respondent-company UBHL. He also drew the attention of the Court towards one settlement proposal dated 29.03.2016 filed on behalf of KFAL and Respondent-company UBHL and Kingfisher Finvest(India) Ltd., through its Chairman Dr.Vijay Mallya .....

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pondent company are presently worth only ₹ 4,986/- crores, whereas, the liabilities of the respondent aggregated to about ₹ 11,452 crores and thus on the own showing of the Respondent company, it was clear that it was not commercially solvent and was not capable of discharging its admitted debts and was therefore, liable to be wound up under the provisions of the Companies Act. 45. Mr.S.S.Naganand, also drew the attention of the Court towards the audited Balance Sheets of the Respond .....

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company has been completely lost and it had already run into several litigations, petitions, suits and recovery proceedings and the operations of Airlines Company KFAL, for which, it stood guarantor had stopped operations long back in 2011 and that it has already been wound up by this Court in the recent past, therefore, the present Respondent company UBHL also deserves to be wound up by this Court. For M/s.IAE International Aero Engines AG in Co.P.No.57/2012:- 46. Mr.Shreyas Jayasimha, learned .....

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itioner from KFAL, to whom such engines and equipments were supplied during the contemporary period under various agreements. The amounts due to the petitioner- company as per the statutory notice served upon the Respondent company is to the extent of USD 3,06,82,251, equivalent to ₹ 184,09,35,060/- (an average conversion rate of ₹ 60/- for one (1) of USD for approximate value). The said amounts were due towards the supply of Aircraft Engines and expenses incurred by the petitioner t .....

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that series of Agreements were executed between the petitioner and KFAL including the Agreement called V2500 Rework Agreement dated 27.10.2010 and FPA (Fleet Power Agreement) Termination Agreement and Agreement for mutual release and waiver of claims between the petitioner and KFAL, Deeds of lease for Aircraft Engines and for repayment of outstanding amounts which fell due between 2005-10 and all these series of Agreements were executed on 27.10.2010. The Corporate Guarantees were executed by UB .....

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ability to pay the amount demanded by the petitioner-company and hence, the present winding up petition No.57/12 was filed in this Court on 26.03.2012. 48. The learned counsel for the petitioner- company, Mr.Shreyas Jayasimha also submitted that the defences raised by the Respondent company are merely an eyewash and moonshine defences and mere filing of the suit bearing O.S.No.6406/12 by the Respondent-UBHL against the petitioner-company IAE International AG and others in City Civil Court at Ban .....

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from the Queen s Bench Division, High Court of Justice (Commercial Court in U.K.) on 05.07.2013, by which, the said Court in U.K., ordered the Respondent company UBHL to pay the guaranteed amounts or related expenses and he submitted that the Respondent company deliberately chose to remain absent and ex-parte before that Commercial Court at U.K. and the petitioner company is entitled to recover the said amounts from the Respondent company even in execution of that decree of U.K. Court held by i .....

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t on 02.02.2015 in Newspapers, the Hindu and Udayavani . 51. He, therefore submitted that the Respondent company also deserves to be wound up, so that the Official Liquidator can take charge of whatever assets of the Respondent company are available and by realizing the sum by sale of assets of Respondent company UBHL and distribute the same to the petitioner company and others like, who have filed various winding up petitions before this Court in accordance with the provisions of the Companies .....

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2012 28/03/2012 7,32,710 4,39,62,600/- 3. Co.P.No.122 of 2012 Rolls-Royce & Partners Finance Limited 12/06/2012 28/03/2012 1,04,37,866 62,62,71,960/- 4 Co.P.No.185 of 2012 Avions de Transport 03/09/2012 03/08/2012 1,68,99,970 101,39,98,200/- 5 Co.P.No.248 of 2012 BNP Paribas 05/11/2012 05/07/2012 2,66,34,728 159,80,83,680/- 6 Co.P.No.51 of 2013 United Bank of India (UBI) 19/03/2013 25/02/2013 450,02,31,757/- 7 Co.P.No.99 of 2013 Hindustan Petroleum Corpn.Ltd.(HPCL) 27/05/2013 06/03/2013 66,7 .....

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013 filed by SBI & ors against KFAL, UBHL, KFIL is ₹ 6203,35,03,879-42 The contentions on behalf of the United Spirits Ltd., ( USL ) (Mr.Ramanand Mundkur, Advocate) 52. Mr.Ramanand Mundkur, Advocate appearing for United Spirits Ltd., a Group company of the respondent-UBHL which was initially opposing the winding up of the respondent company-UBHL but shifted its stand from opposition to supporting of the winding up petition during the course of these winding up proceedings, was called u .....

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te of 9.5% p.a. simple interest computed for the period 03.07.2013 to 31.12.2016) and therefore, submitted that the Loan Agreement dated 03.07.2013 was approved by the Board of Directors of both the companies. Mr.Ramanand also submitted that the effective date of this Loan Agreement was 04.07.2013 as defined in the Shareholders Agreement amongst Respondent-UBHL and Kingfisher Finvest India Limited dated 09.11.2012, which become effective upon completion of the purchase of USL shares by Relay B.V .....

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the Court by appropriate orders in the present winding up petitions, the change of stand shifting from opposing winding up petition to supporting the same now by this Affidavit 10.01.2017 happened in the following circumstances:- 55. That the Company USL originally filed its Affidavit dated 25.02.2015 opposing the winding up of UBHL but slightly shifted its stand by subsequent affidavit dated 25.01.2016, seeking protection against the respondent-UBHL from the court of its own interest and the f .....

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e Court Judge Mr.Justice Santhosh Hegde (Retd.,) as an Arbitrator, by Arbitration Notice dated 14.07.2016 and the respondent company UBHL replied to USL Arbitration Notice on 13.08.2016 and UBHL appointed former Supreme Court Judge Hon ble Mr.Justice B.P.Singh (Retd.,) as its arbitrator. These two Arbitrators jointly appointed the third arbitrator, namely, Former Supreme Court Judge Hon ble Mr.Justice B.P.Jeevan Reddy (Retd.,) as the presiding Arbitrator, who accepted the said offer on 13.10.201 .....

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date of completion of the sale of the USL shares by the respondent company to the Diageo plc/Relay BV. In these un-audited results, the respondent company UBHL notes that the sale of shares in question was completed on 04.07.2013, pursuant to the permission given by the High Court in its order dated 24.05.2013 and the said order dated 24.05.2013 was appealed against and the same was set aside by the Division Bench of this Court on 20.12.2013 and thereafter the appeal came to be filed before the .....

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nsequence thereof, there was no loan outstanding or interest payable by UBHL to USL under the said Loan Agreement. This disclosure of the Respondent UBHL according to the learned counsel, Mr.Ramanand Mundkur, was clearly a moonshine and demonstrates its malafide intention to evade and avoid payment of its legitimate dues. He further submitted that in all its audited statements and Balance Sheets, after the order of the Hon ble Supreme Court dated 11.02.2014, for the Financial Years ending on 31. .....

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n the year 2015-16. 59. Therefore, in paragraphs 8 and 9 of the said Affidavit dated 10.01.2017, the said USL company submits that it now supports the winding up petitions filed by the other petitioner-Creditors against UBHL for these reasons. 60. Paragraphs 8 and 9 of the said Affidavit dated 10.01.2017 are quoted below for ready reference:- 8. In the above-circumstances, USL respectfully submits that the basis on which USL earlier opposed the winding-up of the Respondent-Company has been vitia .....

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such further orders protecting the interest of USL, one of the largest single unsecured creditors of the Respondent-Company, as also a large body of unsecured creditors. This is in the background of the facts that the Respondent- Company is unable to discharge its debts in the ordinary course and is desperately making every effort to dispute indisputable debts . The Defences/contentions on behalf of Respondent - UBHL by (Mr. Udaya Holla, Senior Advocate) 61. Mr. Udaya Holla, learned Senior Couns .....

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ing Fisher Airlines Limited (KFAL) the said submissions are noted below:- 62. The first and foremost submission made by Mr. Udaya Holla, before the Court was that the petitioner -Banks led by SBI in Co.P.No.162/2013 have initiated multiple recovery proceedings against the Respondent - UBHL which is not permissible in law and the winding up petitions filed by these Banks cannot be converted into money recovery suits resulting in deadly consequences of winding up against the Respondent - Company, .....

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the Respondent - UBHL itself has filed Civil Suit No.6406/2012 in Bangalore City Civil Court against the supplier of Aero Engines to KFAL not only claiming declaratory relief of declaring Corporate Guarantees given by UBHL to IAE International Aero Engines and others as void and non-est but have also claimed compensation to a large extent against these suppliers for supplying defective Aero Engines to KFAL which have not only resulted in huge losses to the said erstwhile subsidiary Company of t .....

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y, KFAL suffered huge losses and its business operations completely stopped in the year 2011 and unless and until the said Civil Suit is decided and decreed by the Court concerned in which the effort made by the defendants for dismissal of the suit at the threshold by filing Applications under Order 7 Rule 11, of the Civil Procedure Code was rejected by the Trial Court and the Suit is now pending for trial. He urged that unless and until the said Suit is decreed, it would be wholly unjust and im .....

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ay High Court, the winding up petitions deserve to wait and deserve to be stayed. 65. Another issue raised on behalf of the Respondent -Company, by Mr. Udaya Holla, Senior Counsel is that the law applicable as per the contracts between the Foreign Companies and KFAL clearly goes to say that they would be governed by the English law and in fact, the petitioner, IAE International Aero Engines obtained an ex-parte decree from English Court against the Respondent - UBHL also, but unless such English .....

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so submitted that Section 599 of the Companies Act, 1956 bars the Foreign Companies to take any legal proceedings including the winding up proceedings before this Court without complying with the mandatory provisions of Section 592 of the Companies Act, 1956, which requires a Foreign Company which has an establishment in India, to seek requisite approval and Registration from the Registrar of Companies and RBI and since the petitioner - M/s. IAE International Aero Engines, while it was actively .....

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er consortium of Banks had filed recovery proceedings was seized of the said case in O.A.No.766/2013 filed on 25/06/2013 and the Debt Recovery Tribunal is yet to finally determine the amount outstanding and due to be paid by the Respondent Company to them and therefore the winding up proceedings cannot be undertaken in view of the yet unascertained amount of debt due to the petitioners. 68. Besides raising the aforesaid contentions, the learned Senior Counsel for the Respondent - Company, UBHL, .....

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ompany is a profit making Company and has been consistently making profits for the last several years. The revenues of the Respondent - Company is over ₹ 400 crores. The Respondent - Company also has assets of over ₹ 7,500 crores, which are detailed in Annexure A hereto. The Respondent Company directly and indirectly employs over 2000 persons. It is a Going concern which is carrying on business, inter alia, as a Holding Company and as a Trading and Manufacturing concern. 71. This Res .....

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, having regard to the judgment of the Supreme Court in Pradeshiya Industrial & Investment Corp. v. North India Petrochemicals Ltd., reported in 1994 (3) SCC 348, the petition for winding up ought to be dismissed. 73. Without prejudice to the foregoing, the Respondent sets forth its contentions in each of the company petitions as under: CO.P.No.162/2013 - State Bank of India & Others v. United Breweries (Holdings) Limited 74. On 19th August, 2013, State Bank of India ( SBI ) and other me .....

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Mallya have filed a Suit in the Hon'ble Bombay High Court, being Suit No. 311 of 2013 on 26th March, 2013 ( Bombay High Court Suit ), inter alia, seeking a declaration that the Corporate Guarantee dated 21st December, 2010 given by UBHL ( Corporate Guarantee ) and the Personal Guarantee dated 21st December, 2010 given by Dr. Vijay Mallya ( Personal Guarantee ) are void ab initio and non est, inter alia, on the ground of coercion and duress. It is pertinent to note that the Bombay High Court .....

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Consortium have filed their Written Statement in Suit No. 311 of 2013. 77. In these circumstances, it is submitted that in the absence of a valid, binding and subsisting Corporate Guarantee from UBHL, the question of UBHL being liable to make any payment or being wound up does not and cannot arise. 78. Given that UBHL and others have previously instituted the Bombay High Court Suit, inter alia, for a declaration that the Corporate Guarantee is void ab initio and non-est, it is submitted that the .....

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efore the High Court of Judicature at Bombay and has sought for damages to the tune of ₹ 3200 crores in addition to a declaration that the guarantees are void and non-est. This being the case and there being claims and counterclaims, the winding up petition is not maintainable and deserves to be dismissed. Breach of obligations by the Petitioner Consortium 80. Despite the fundamental terms of the Master Debt Recast Agreement dated 21st December, 2010 ( MDRA ) entered into between KFA and t .....

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lleged Corporate Guarantee and the alleged Personal Guarantee. 81. The serious breaches of the Consortium s obligations under the Lender s Liability principles and especially the obligations of strict confidentiality with regard to which all the members of the Consortium have signed an undertaking binding themselves to maintain confidentiality of the information with regard to KFA, UBHL and Dr. Vijay Mallya, by the barrage of disparaging statements made in the media by or on behalf of the Consor .....

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principles of good faith and fair dealings between the parties and the Consortium has now even gone to the length of attempting to initiate draconian measures in an attempt to leave KFA, UBHL and Dr. Vijay Mallya, without an avenue to pursue their legal remedies according to the procedure established by law. 83. The concerted action of the consortium in targeting KFA, UBHL and Dr.Vijay Mallya is a blatant example of a private enterprise being victimized and being made an example to others in si .....

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set out in a note dated 2nd February, 2013 handed over by KFA to the Consortium, there are a number of precedents of large borrowers where banks (including one or more of the Consortium) have shown considerable forbearance and/or facilitated multiple restructuring, viz. Suzlon (Rs. 13,000 crores - 2nd restructuring under CDR), Jindal Stainless (Rs. 7,900 crores - 2nd restructuring under CDR), Hindustan Construction (Rs. 11,000 crores - restructuring approved under CDR), Bharati Shipyard (Rs. 11 .....

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Recovery Tribunal. The banks resorted to the proceedings before the Debt Recovery Tribunal prior to the very filing of the present winding up petition. 85. There is no final adjudication till date as against the Respondent herein in respect of the alleged corporate guarantees and its liability there under. Therefore, the winding up petition does not survive. In fact, the Respondent has contested its liability before the Debts Recovery Tribunal and has also demonstrated the disparity in the inter .....

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by a party in respect of the same matter at the same time. The Bombay High Court in Dalmia Cement v. Indian Seamless Steels and Alloys, reported in 2002 (112) Comp. Case. 314 and QSS Investors v. Allied Fibres, reported in 2001 (107) Comp. Case 587 and the Himachal Pradesh High Court in Azeet International v. HPH Produce Marketing, reported in 2001 (107) Comp. Case. 587 have held that even in respect of winding up petitions, parallel remedies cannot be pursued. The petitioners have admitted tha .....

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ondent has substantial assets to recover the whole of the claim before DRT in OA 766/2013 (approximately ₹ 6,280 crores), and if sold the realizable value of these assets will be sufficient for recovery of almost the entire dues of the Banks. Proposals for Settlement have not been considered by the Petitioners 89. It is an admitted position that Banks make One Time Settlements with various defaulting customers, based upon their own Board approved policy, as directed by RBI to all the comme .....

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ower / Guarantor in accordance with a settlement frame work approved by the respective Boards. The proposal of settlement which was rejected by the Consortium led by SBI bank was without justification/ reasoning and had no approval from the competent authority as envisaged in the policy. 90. The Consortium led by SBI has deliberately failed to give valid reasons for rejecting the proposal for settlement. Although, in absence of any counter offer the option of a negotiated settlement was not clos .....

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ive information received form certain Banks the qualifying amount for settlement in KFA s case would in fact have been far lower than the offer made and referred to above. It will be seen that the settlement offer already made is largely from distribution of cash deposits and from the disposal of liquid assets with a transparent price determination on the Stock Exchange and therefore not subject to any conditionalities. CO.P.No. 57/2012 - International Aero Engines v. United Breweries (Holdings) .....

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diaries (including by way of equity share capital and shareholder loans) in KFA has been seriously damaged primarily on account of the operational and financial woes of KFAL, which in turn has been primarily or in any event decisively been caused by the defective engines supplied, and further on account of the false assurances/representations given made by IAE (the Petitioner Company) and/or its constituent joint-venture partners, viz. Rolls-Royce plc, Pratt & Whitney, a division of United T .....

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er Company herein, which is far in excess of the alleged debt claimed by the Petitioner Company to be allegedly due and payable. Since by an order dated 18th November, 2016, Kingfisher Airlines has been ordered to be wound up, and Kingfisher Airlines is a defendant in Suit No. O.S.No.6406 of 2012, the Respondent Company has filed an application before the Company Court to transfer Suit No. O.S.No.6406 of 2012 to the Company Court, which application is pending. 93. It is the specific case of the .....

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totaled ₹ 4,321 crores - the root cause of these operational and financial woes of Kingfisher Airlines being principally attributable to the inherently defective and commercially unviable IAE V2500 - A5 Engines. Thus, by this time KFA was exposed as a soft target of economic duress at the hands of IAE. 95. Since KFA encountered problems with the IAE V 2500 - A5 engines it had been constrained to operate on a significantly truncated fleet - primarily on account of the engine problems. This .....

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d 2010, Kingfisher Airlines, which was already overburdened on account of the aforesaid huge accumulated losses totaling ₹ 4,321 crores, occasioned principally on account of the substandard, inherently defective and commercially unviable IAE V 2500 - A5 engines, was faced with no real choice. If it had to survive as an airline, it had to come to terms with IAE and get its fleet back in the air. It is in this background that KFA commenced negotiations with IAE sometime in mid 2010 to try an .....

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e Hot Section Distress defect respectively. KFA and the Respondent were left with no alternative but to rely upon these representations. KFA and the Respondent accepted at face value the representations made by IAE regarding the complete fix of the problem of the engines. On the basis of such representations, KFA entered into the various Agreements and UBHL entered into the guarantee. 97. It has now come to the attention of KFA and the Respondent herein that the mandatory terminating action pres .....

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n the various directives that have been issued by IAE itself and which are part of the record. The representations made as to a solution being found by replacing the nuts was thus either false or at least made negligently. In any event, since the representation constitutes the fundamental basis of the aforesaid Agreements, as well as the guarantees given by the Respondent, the Agreements as well as the guarantees have been obtained on the basis of a misrepresentation, and thus, are void and/or i .....

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ings are liable to be dismissed. In the light of the same, no amounts whatsoever are payable by the Respondent Company to the Petitioner Company. 99. The Respondent has also sought a relief of an indemnity from IAE against all the claims against the Respondent herein as the petitioner herein (IAE) is the root cause of the downfall of KFA and it was based on the representations of IAE that Respondent gave corporate guarantees even to the consortium of banks. Guarantees are governed by Foreign Law .....

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take judicial notice of foreign law, it should be pleaded as any other fact, if a party wants to rely on the same. 102. The Bombay High Court in Iridium India Telecom v. Motorola Inc., reported in MANU/ MH/1125/2003 (BOM) has held that the legal position is well settled that foreign law is a question of fact and must be pleaded by the parties who relies upon it. 103. The petitioner in the present winding up petition has neither pleaded nor proved English law which is the foreign law. This being .....

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the winding up petition. 105. It is submitted that the said judgment of the English Court is a summary judgment which has been passed with the Respondent being ex-parte. Therefore, the same is contrary to Section 13(d) read with Section 44A of the Code of Civil Procedure, 1908. 106. The Supreme Court in International Woollen Mills v. Standard Wool, reported in 2001(5) SCC 265, has held that an ex-parte decree generally is not a judgment on merits and that decree and judgment granted by a foreign .....

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ary proceedings after refusing leave to defend sought for by the defendant is not a judgment on merits and hence, the judgment cannot be considered as conclusive as contemplated under Sec. 13(b) of the C.P.Code. 108. The Delhi High Court in A. S. Sandhu v. Mithals International Private Limited, reported in 2001 (93) DLT 700, has held that if case is covered in any of the exceptions under Section 13(a) to (e) of the Code of Civil Procedure, 1908, decree passed by a foreign court will not be concl .....

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ns of Section 592 is in terms of Section 599 of the Companies Act, 1956 barred from prosecuting any legal proceedings in India. 110. The Chancery Division in Re: Tovarishstvo Manufacur Liudvig Rabenek, reported in 1944 (2) All E R 556, if the representatives of foreign company were often coming and staying in hotel in England for purchase of machinery etc, the foreign company is deemed to have a place of business in England. The judgement of the Chancery Division has been affirmed in the judgeme .....

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in favour of KF Aero and not to its successors and assigns. KF Aero in turn appears to have assigned its rights in favour of BNP Paribas which is the petitioner in the present petition. Since RBI permission was not there for assigning the Corporate Guarantee in favour of BNP Paribas the same is void. It is hit by provisions of Section 13 of Foreign Exchange Management Act. Further, the very assignment has not been effected as BNP Paribas has not yet notified the Respondent in writing about the .....

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Annexures Q (pg. 530), R (pg.549) and S (pg.568) to the Petition) came to be given to KF Aero. On 21.06.2006, there was a notice of assignment. However, this notice of assignment itself was qualified in that it expressly stated (notwithstanding the assignment) that the Respondent shall owe your obligations under the guarantee exclusively in favour of the Assignor unless the Assignee notifies you in writing otherwise, from which time your obligations under the Guarantee falling due for performanc .....

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n of such assignment was deferred to a future date. UBHL acknowledged the first part and thereby accepted that if and when it was notified of a transfer of its obligations to the assignee under clause 2, the obligations would stand so transferred. No such notice was ever given and therefore, no obligations exist vis a vis BNP Paribas and the present petition is not maintainable. No permission of the RBI allowing assignment of the three corporate guarantees to KF Aero s assignees: 114. As stated .....

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s (Holdings) Ltd., Bangalore, in favour of lessor M/s. KF Aero .(Annexure R-3 to the Objections of UBHL. (pg. 24)). Thus, there was no permission of the RBI allowing assignment of the three corporate guarantees to KF Aero s assignees, and although such permission had been expressly sought, it had not been granted. 115. It is submitted that unless prior permission was duly obtained from the RBI, the purported assignment of the three corporate guarantees in favour of BNP Paribas would be void and/ .....

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r issuing the Guarantee in favour of the Lessor. Any change in its terms would require RBI s approval. (emphasis supplied) 116. This position also emerges from the plain language of Regulation 3 of the Foreign Exchange Management (Guarantees) Regulations, 2000 as well as in light of the judgment of the Supreme Court in Mannalal Khetan v. KedarNath Khetan (1997) 2 SCC 424. Regulation 3 of the Foreign Exchange Management (Guarantees) Regulations 2000 ( FEMA Guarantee Regulations ) expressly provid .....

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upreme Court held that: The contract is void if prohibited by statute under a penalty, even without explicit declaration that the contract is void because such a penalty implies a prohibition. If contact is made to do is prohibited act, that contract will be unenforceable. This contract is expressly or impliedly prohibited by statute, one has see not what acts the statute prohibits but what contracts is prohibits. One is not concerned with the intent of the parties. 118. It is submitted that Sec .....

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rate guarantees in favour of BNP Paribas are in violation of the law in India and unenforceable. Hence, BNP Paribas has no locus standi to file the present Company Petition, and the same ought to be dismissed in limine with costs. 119. It is pertinent to note that before the Division Bench of this HonRs. ble Court, BNP Paribas cited the decision of the Calcutta High Court in Eurometal Ltd. v. Aluminium Cables and Conductors in support of its proposition that absence of a permission under the pro .....

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said article states: Article VIII: General Obligations of Members Section 2. Avoidance of restrictions on current payments (b) Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. In addition, members may, by mutual accord, cooperate in measures for the purpose of making the exchange control regulations o .....

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e authorities of other members in obtaining the performance of such contracts. That is to say, the obligations of such contracts will not be implemented by the judicial or administrative authorities of member countries, for example by decreeing performance of the contracts or by awarding damages for their non performance. India joined the IMF on December 27, 1945, as one of the IMF's original members and adopted the Articles of Agreement. Furthermore, India expressly accepted the obligations .....

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the Guaranteed Amount (as defined in Letter Agreement No.2 between ATR and erstwhile Kingfisher Airlines) which is an amount equal to the outstanding principal related to the portion of the Aircraft Final Price funded under the financing Agreement. By three tripartite Agreements all dated 21st June, 2006 by and between the erstwhile Kingfisher Airlines, KF Aero and ATR ( the Tripartite Agreements ) (Annexures R-8 (pg. 96), R-9 (pg. 114) and R-10 (pg. 132) to the Objections filed by UBHL to the .....

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nst ATR. If KF Aero and/or BNP Paribas have or had so invoked the Asset Value Guarantees, ATR is contractually bound to pay to KF Aero and/or BNP Paribas the Guaranteed Amount, i.e. the entire alleged debt or at least the entire alleged outstanding principal amount claimed in the present Petition. 123. BNP Paribas was therefore, obliged to invoke the Asset Value Guarantees before approaching this HonRs. ble Court by way of the present Company Petition. The Guarantees are governed by Foreign Law, .....

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the Rolls Royce group, which is a party to the IAE Suit 125. From (i) the websites of Rolls-Royce and IAE, (ii) the Annual Report of Rolls-Royce Holdings plc, and (iii) the Directors Report and Financial Statements for 2011 for Rolls-Royce plc - the details of which are set out in the statement of objections, it is clear that the petitioners are a constituent of the Rolls-Royce Group of companies which includes Rolls-Royce plc - which admittedly was at all material times a constituent joint vent .....

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f Rolls Royce Plc. UBHL has a claim in the aforesaid suit against IAE and its aforesaid constituent partners, including Rolls Royce Plc., far in excess of the alleged amount claimed in the present company petition. Petitioners being Foreign Companies have failed to comply with Section 592 127. Petitioners are companies organized and existing under the laws of England having their registered office and principal place of business in England. Petitions therefore are foreign companies as defined in .....

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and the Foreign Exchange Management (Establishment in India of a Branch Office or other Place of Business) Regulations, 2000 ( the Regulations ), prior approval of the Reserve Bank of India is required for establishment of a branch or liaison office or office or any other place of business in India by any entity resident outside India other than a banking company. Petitioners are admittedly not banking companies and have established a place of business in India as is evident from what is stated .....

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ited ( erstwhile Kingfisher ), which inter alia, operated Scheduled Air Transport Services within India and was a part of the UB Group of Companies, had entered into Agreements with the Petitioner for purchase of ATR 72-500 aircraft as well as General Maintenance Agreements ( GMA ) for maintenance of these aircraft. Erstwhile Kingfisher had entered into a Purchase Agreement dated 13th December, 2005 ( the erstwhile Kingfisher PA ), and GMA dated 21st June, 2006 with the Petitioner ( the erstwhil .....

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ply of parts by the Petitioner. Thereafter, subsequent to the de-merger mentioned above, the Deccan PA and the Deccan GMA were terminated and, inter alia, the enlarged fleet was consolidated into the erstwhile Kingfisher GMA. 130. Further in terms of the Deccan GMA, the Repairer (petitioner) was to provide or cause to provide technical and operational support to Operator (KFA), including assistance and advise on engine performance and conditions follow up, airworthiness and OEM publications foll .....

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o fulfill its task properly. (Under the Deccan GMA entered into prior to the de-merger mentioned above, Deccan Aviation Limited (the Respondent Company herein) is the Operator and the Petitioner is the Repairer). 131. The Respondent Company believes and understands that the Petitioner Company has similar arrangements with other airlines in India who operate ATR fleet. 132. Accordingly, the Petitioner provided KFA, (and the Respondent Company verily believes is being provided by the Petitioner to .....

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presentation and/or the CSR and/or the LMR and/or the engine specialist to fulfill their task properly. 134. These representatives referred to hereinabove carried out the various functions required to be carried out by them under the relevant Agreements including providing dedicated technical support to the products and services supplied by the Petitioner, assistance as well as customer service support to the airline on a day to day basis in respect of the operating fleet of ATR aircraft and als .....

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CO.P.No.99/2013 - HPCL v. United Breweries (Holdings) Limited Petitioners claim is for interest 136. It is submitted that the entire claim of the petitioner herein is for delayed payment service charges (interest). The entire outstanding amount with respect to the fuel supplied has been paid in full by KFA. What is being claimed in the present petition is only the amounts allegedly due from KFA on account of the interest. 137. The High Court of Karnataka in Southern Industrial Polymers (P.) Ltd. .....

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1989 (66) Comp Cases 232 ahs held that where there is a bona fide dispute regarding the interest, the petition for winding up cannot be maintained. 139. Thus, the claim is in the nature of damages, which will have to be proved by leading evidence and in respect of a claim for damages, before the same is ascertained by a court, the same does not amount to a debt and the very winding up petition deserves to be dismissed. 140. The Supreme Court in Union of India v. Raman Iron Foundry, reported in A .....

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. Mr. Sajjan Poovaiah, learned Senior Advocate representing M/s. Prestige Estate Projects Limited (PEPL), an unsecured creditor of the Respondent - United Breweries (Holdings) Limited (UBHL) and also representing HDFC Bank Limited (HDFC), Lakshmi Vilas Bank Limited (LV Bank) and IFIN Securities Finance Limited (IFIN), all three secured creditors of the Respondent - Company, opposed the present set of winding up petitions to support the Respondent - UBHL and made the following submissions:- 143. .....

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luru for the Respondent - UBHL itself, has dues to the extent of ₹ 94.33 crores against the Respondent - Company. But, it is hopeful and quite positive that the Respondent - UBHL will repay its dues and winding up of UBHL therefore will not be the solution of the financial crisis, which the Respondent - UBHL may be temporarily facing. 145. He submitted that even the secured creditors like HDFC Bank who have their financial exposure in the Respondent - UBHL, want to oppose these winding up .....

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ly ₹ 1,280 crores lying deposited in the Account of the Respondent - UBHL with this Court itself, which is more than the total claims of the petitioning creditors, who are also unsecured creditors like the objector, Prestige Estate Projects Limited and except the secured creditors like SBI and consortium of 13 Banks, the dues of the other petitioning creditors Company can be squared-up by the funds lying deposited with this Court itself and therefore, there is no justification for winding .....

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e very basis on which the Respondent - UBHL is liable to be yet adjudicated in favour of these Banks, there is no justification for prematurely winding up the Respondent - UBHL at their instance without even awaiting for the Debt Recovery Tribunal to pass the final decree in favour of these petitioner - Banks. This argument stands negatived by the decree of the Debt Recovery Tribunal given later on 19/01/2017, as discussed hereinafter in more detail. 148. He further urged that the substratum of .....

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se creditors to seek winding up against the Respondent - UBHL on the basis of such Corporate Guarantee Agreements, is subject matter of adjudication before the Bombay High Court and therefore, winding up petitions cannot be proceeded and prosecuted by them. 149. He also drew the attention of the Court towards another Suit, in O.S.No.6406/2012 filed by the Respondent -UBHL in Bangalore City Civil Court, similarly raising a question on the validity of the Corporate Guarantee Agreements of the Resp .....

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defendants before this Court, however, there is no stay order granted by this Court in such Revision Petitions and they are pending consideration before this Court. 150. Finally, Mr. Poovaiah also submitted that the winding up petitions cannot be converted into Money Recovery Suits and as per the well settled legal position, if the liability to pay is seriously and bona fide disputed by the Respondent - UBHL, the present objecting creditors also have the right to save the Respondent - UBHL from .....

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of the workmen of UBHL, opposing the winding up petitions on the following grounds: 152. The learned counsel for the workmen contended before the Court by seeking intervention that the Respondent Company UBHL has a large workforce in its Associate Company and subsidiary Company which is dependent on the Respondent s Company for all support and the said workforce apprising of about 110 in number will not be able to make their survival if the Respondent - Company, UBHL is directed to be wound up. .....

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They have also stated that the UBITL (M/s. UB International Trading Limited) is engaged in the footwear manufacturing business since 2002, exporting leather footwear to Europe, USA and UK and employs about 450 workers directly and 500 workers indirectly and therefore for their survival, they have submitted before the Court that the Respondent - Company does not deserve to be wound up. The following case laws are relied upon by the learned counsel for the petitioners:- 154. The learned counsel f .....

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of the suit by the Creditor-Bank for recovery of the dues against the respondent company does not bar the filing up of the winding up petition as well. The relevant portions of the judgment are quoted below for ready reference:- These observations, in our opinion, do not advance the contention of Sri.Shetty any further. Section 529(1) of the Act attracts the rules of insolvency to winding up in relation to the respective rights of secured and unsecured creditors and confines these Rules so attr .....

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d for by Sri.Shetty. The words in winding up of insolvent company in Section 529(1) of the Act has obvious reference to a post winding up stage. The point to note is that this rule of insolvency is attracted to winding up in the matter of proof of debts. That is after the stage of the winding up order. A secured creditor is, under Section 439(2) of the Act as much a creditor entitled to present a winding up petition as any other. The law in regard to the right of Secured Creditor to present a pe .....

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ty s contention is that the claims in the subsequent suits and the entire rest of the Bank s claim were hit at by Order 11 Rule 2 of the Code of Civil Procedure. In our opinion, the sanctions of limits from time to time were distinct transactions giving rise to distinct causes of action. In some cases the sanctioned limits were operated, wholly or partially, in one account. In other cases, the sanctioned limits were operated upon in one current account. That would not make the limits, sanctioned .....

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e 2 CPC are not attracted . (ii) The Delhi High Court Division Bench in the case of Bank of Nova Scotia vs. RPG Transmission Limited [ILR (2004) II Delhi 583], held that the Companies Act 1956 and Recovery of Debts due to the Banks and Financial Institutions Act of 1993 (RDB Act) operate in two different and distinct fields and mutually exclusive jurisdiction and while the purpose of initiating proceedings under RDB Act is to recover the amount due and payable to the Bank/Financial Institutions, .....

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are available is applicable when the remedy provided for is one and the same but when two different remedies are provided for two different reliefs, in that event the plea of election of remedies is not applicable. We, therefore, hold that the winding up court is concerned with the issue as to whether or not a company could be declared as commercially insolvent and, therefore, comes within the ambit of provisions of Section 433 of the Companies Act. The Debt Recovery Tribunal does not have any j .....

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the Respondent-State Bank of India to stand outside the liquidation and realize its security with respect to Kingfisher House held in the case of Kingfisher Airlines Ltd., vs. State Bank of India and others (ILR 2014 KAR 1739) that the proceedings initiated by the Respondent-Bank under SARFAESI Act are not alternate to winding up petition. Paragraph-24 of the judgment is quoted below for ready reference. 24. In the present case, the proceedings under the provisions of SARFAESI Act were initiated .....

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ttedly as of today are more than 6000 crores. In this backdrop they were constrained to file company petition. They clarified it in the petition, making their position unequivocably clear at the time of filing of company petition. In paragraph 4 of the memorandum of company petition, the respondents-Banks, specifically stated that they are standing outside winding up insofar as their secured interest, including Kingfisher House and the same is being filed without relinquishing their rights and i .....

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are ad idem that the worth of Kingfisher House in nay case may not be more than Rs. 300 Crores as against total outstanding of Rs. 6200 Crores. The proceedings under the Act are not recovery proceedings and need to be filed for winding up of the company which is unable to pay its debts. The proceedings initiated by the respondent-Banks under SARFAESI are not alternate to the winding up petition . (iv) In the case of Official Liquidator, Uttar Pradesh vs. Allahabad Bank & Others (2013) 14 SCC .....

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uction was conducted he can challenge the said auction by filing the appeal before the Debt Recovery Appellate Tribunal as a person aggrieved under Section 30 of the RDB Act. However, the official liquidator cannot approach the Company Court to set aside the auction/confirmation of sale under RDB Act, 1993. (v) In Bank of New York Mellon vs. Cranes Software International Ltd., (2016) 195 Comp Case 17 (Karn), the Division Bench of this Court held that Section 9 of the Companies Act provides that .....

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ference. Section 9 of the Companies Act provides that the provisions of the Act shall have effect, notwithstanding anything to the contrary contained in any agreement which may be executed, meaning thereby that the Companies Act would override the provisions of the agreement or the trust deed. Section 10 of the Act provides that the court having jurisdiction under the Act would be the High Court having territorial jurisdiction in relation to the place at which the registered office of the compan .....

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tee for holders of debentures, shall have a right to file a petition for winding up of the company. Clause (e) of section 433 provides that the company can be would up if it is unable to pay it debts. Section 434 gives the details as to when the company would be deemed to be unable to pay its debts. While passing the impugned order dismissing the company petition for lack of jurisdiction, the learned company judge has relied on the decision of Swastik Gases P. Ltd. Vs. Indian Oil Corporation Ltd .....

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s considered and interpreted clause 20 of the agreement and held that the English courts alone would have jurisdiction to try any case regarding a dispute with regard to the trust deed. There cannot be any quarrel with regard to the law laid down by the apex court in the case of Swastik Gases P. Ltd. Vs. Indian Oil Corporation Ltd.,[2013] 9 SCC 32. However, the facts in the present case are quite different. The trust deed (clause 20) does not impose a blanket ban on the jurisdiction of the India .....

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payable and it provides that the trustee may, at his discretion and without further notice, take such proceedings against the issuer, i.e., the company, as it may think fit to enforce repayment of the bonds and to enforce the provisions of the trust deed or the conditions. In the case of Swastik Gases P. Ltd. Vs. Indian Oil Corporation Ltd.,[2013] 9 SCC 32, part of the contract was performed both at Kolkata and Jaipur and parties had agreed to the jurisdiction of Kolkata court to entertain all c .....

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parte decree from a Foreign court and had filed execution proceedings in Indian Court, such creditor could not maintain a winding up petition before the High Court. The learned single Judge held that such an objection was unsustainable. The following relevant extract of paragraphs 46, 47, 48 & 67 are quoted below for ready reference:- 46. If a creditor with or without a decree of an Indian Court can file a petition for winding up based upon a original cause or action, pending the suit and af .....

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action and till the decree by Indian Court is passed in it s favour, it will make a distinction between two classes of creditors. This will lead to the Indian companies adopting unhealthy practices of borrowing capital abroad and then refuse to repay admitted debts and resist winding up. This will have negative effect on the cross border flow of capital and international commerce. Thus there is no warrant to read such an exclusion of the statutory right by way of interpretation. 47. Therefore, t .....

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to become a creditor of the Company. 48. It was further contended by the Respondent in the Patronage Letter that the decree of Turin Court was an ex-parte decree and obtained by fraud and is opposed to principles of natural justice. In view above discussion this point does not have much relevance. Even other wise there is no substance in this grievance . 67. To sum up: the petition is based on the guarantee contained in the Patronage Letter and the admissions, and not on the decree of the Turin .....

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atronage Letter are clearly admitted in the correspondence between the parties. The ad-interim order in the suit instituted in Calcutta by one of the bond holders is not a bar for entertaining the petition. Commercial solvency of the Company is not a stand alone ground. Commercial morality and the need to instill confidence in the mind of international investors, are also matters of public interest . (vii) In P.J.Johnson & Sons Vs. Astrofiel Armadorn S.A. of Panama, Panama City & Others .....

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or sufficiently and reasonably long period of time, it cannot be said to hold as being present in India. Paragraph-20 of the judgment is quoted below for ready reference. 20. To sum up: The decisions discussed above evidence what is now generally accepted as a rule of Private International Law See Dicey & Morris, on cit; and Cheshire & North, e.g. cit; and what may be regarded as part of Indian Law, namely, that a foreign corporation is resident in India only if it carries on business in .....

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corporation. The question really is, as stated by Lord Loraborn, does the corporation really keep house and does business in India? Its real business is carried on where the central management and control actually abides . De Beers Consolidated Mines Ltd. V. Howe, (1906) AC 455, 458 (see above). While a company is domiciled where it is incorporated, it is resident where its controlling power and authority is vested. Although dual residence is conceivable where there is division of management an .....

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f residence at a fixed place was considered to be sufficient on the special and peculiar facts of that case, it was nevertheless recognized in that case by Romer, L.J. that, in principle, to satisfy the concept of residence the business should be carried on for a substantial period of time (p.349). These are the essential tests which must be satisfied if a foreign corporation has to be treated as present in India . (viii) About the foreign decrees where ex-parte order on merits and whether such .....

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the decree was on merits as all documents and particulars had been endorsed with the statement of claim also cannot be accepted. It must not be forgotten that at the stage of issuance of writ of summons the court only forms, if it at all does, a prima facie opinion. Thereafter the court has to consider the case on merits by looking into the evidence led and documents proved before it, as per its rules. It is only if this is done that the decree can be said to be on merits. Decree would not be o .....

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reed merely because of the absence of the defendant either by way of penalty or in a formal manner, the judgment may not be one based on the merits of the case . (ix) The leading case on the maintainability of the winding up petition when there is a bonafide dispute about the debt was rendered by the Hon ble Supreme Court in the case of Madhusudan Gordhandas & Co., vs. Madhu Woollen Industries Pvt. Ltd., [1972]2 S.C.R. 201, the Hon ble Supreme Court has laid down the principles in the follow .....

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an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed.(See Re. Brighton Club and Norfold Hotel Co. Ltd.) 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 (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but th .....

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pposition to the making of the winding up order by the creditors the court will consider their wishes and may decline to make the winding up order. Under Section 557 of the Company Act 1956 in all matters relating to the winding up of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered though perhaps the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer s Company Law, 21st Editi .....

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ould be inquired into and investigated if a winding up order is made. 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. The grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case (See Re. P. & J Macrae Ltd.) . 155. The brief discussion of the case laws relied upon by Mr. Udaya Holla on behalf of the Respondent - UBHL at .....

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o establish his claim in an action, lest, there is danger of abuse of winding up procedure. A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court in a winding up proceedings is not expected to hold a full trial of the matter. If the debt is bona fide disputed, there cannot be neglect to pay within the meaning of Section 433(1)(a) of the Companies Act, 1956. The relevant portion of the judgment is quoted below for .....

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he jurisdiction of the Company Court is being abused by filing winding-up petitions to pressurize the companies to pay the 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. A creditor s winding-up petition implies insolvency and is likely to damage the company s creditworthiness or its financial standing with its creditors or customers and even among the public and which may als .....

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its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. If there is no dispute as to the company s liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses .....

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Ramakrishna Setty K.S. Vs. Clarian Fisheries Pvt. Ltd. And Others, decided on 10/09/1984, [1985 (1) Kar.Law Journal 155], a learned Single Judge of this Court held that the Company Court, while exercising its jurisdiction under Section 433 of the Act, cannot convert itself into a Court of Original Jurisdiction settling civil dispute including drawing up of a decree in favour of one or the other parties in proceedings under Section 433 of the Act and then convert itself into a kind of Executing C .....

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hen it exercises its power under Sec.446 of the Act. But the nature of jurisdiction and the nature of power exercised under the two sections are widely different. Under the latter section jurisdiction is acquired only if an order is made under Sec.433 of the Act and not otherwise. If there is no order under Sec.433 of the Act, including the appointment of a provisional liquidator then there is no jurisdiction acquired by the Court under Sec.446 of the Act. If this is borne in mind then Sec. 433 .....

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f consideration or the execution thereof, then this Court would be compelled to refer such a petitioner to the civil Court for obtaining the necessary decree before he can move the Company Court for a winding up order. In other words, the test would be whether this Court should first grant a decree for an alleged debt and then convert itself into a kind of executing Court by passing the winding up order. That should be avoided. 158. Mr. Udaya Holla also relied upon the Supreme Court decision in .....

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buse of the process of the Court. 159. Similarly, in Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries (P) Ltd.,[A.I.R. 2 (1971) 3 SCC 632], the Hon ble Supreme Court held, that the principles on which the Court acts are first, that the defence of the Company is good faith and one of substance, secondly, the defence is likely to succeed in a point of law and thirdly, the Company adduces prima facie proof of the facts on which the defence depends. 160. Another case relied upon by Mr. Hol .....

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ises resulting in loss of machine hours in one shift on 24/02/1982 and the Respondent - Company refused to pay the security charges to that extent of ₹ 4,450-60. The Court held that where there were certain allegations and counter allegations and claims and counter claims involving disputed question of facts, the substance of the defence of the Respondent - Company was that it was under no obligation to pay the amounts claimed by the petitioner- Company on account of the loss suffered by i .....

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ms and counter claims between the parties, the winding up petitions deserve to be dismissed. 162. On the issue of Foreign Law to be proved as a matter of fact, Mr. Holla relied upon the Supreme Court decision in the case of Hari Shanker Jain Vs. Sonia Gandhi, decided on 12/09/2001, [(2001) 8 SCC 233], paragraphs 27 to 28 where dealing with the question, whether the returned candidate, Mrs. Sonia Gandhi was a citizen of India and was so qualified to contest the election or not, the Court held, It .....

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Foreign law is a matter of fact and therefore a plea based on a point of Foreign law must satisfy the requirement of pleading a material fact in an election petition filed before the High Court. 164. Mr. Holla submitted that similarly in the absence of English law applicable as claimed by the petitioner - Company in the present case, was not pleaded or proved as a fact by the petitioner and no judicial notice of that English law could be taken by the Courts in India, including this Court. 165. .....

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ded by the party who relies upon it. The petitioner has not pleaded about the relevant laws of merger. The documents that have been placed on record only show that certain documents were filed by the petitioner in the office of the secretary of the State of Delaware. Nothing is pleaded about its legal effect. These documents only show that the certificate of ownership and merger merging Capital Controls (Delaware) Inc. (Delaware Corporation) into Severn Trent Water Purification Inc. were filed b .....

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r recovery of the money in question, the same creditor cannot pursue the winding up proceedings against the Respondent - Company like the petitioning Banks, SBI and others are pleading before this Court, Mr. Udaya Holla relied upon the judgment of the Bombay High Court in the case of Dalmia Cement (Bharat)Ltd. Vs. Indian Seamless Steels and Alloys Limited, decided on 31st August, 2001 [2002(112) Comp.Case 314(Bom)] in which the learned Single Judge of the Bombay High Court held that the winding .....

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s of the contention of both the parties and thus having resorted to alternative remedy, it was not proper and legitimate for the petitioner - Company to seek winding up of the Respondent - UBHL on the basis of the same debt. 167. To the same effect, he relied upon the Himachal Pradesh High Court judgment in the case of Azeet International Pvt.Ltd. Vs. Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd., decided on 10th December 1997, [1998 (92) Com.P. Case 356 (HP) ] .....

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h Court of Punjab and Haryana in State Trading Corporation of India Ltd. V. Punjab Tanneries Ltd. (1989) 66 comp Cas 634, also had declined to exercise the powers under section 433 of the Act, in view of the fact that the petitioner therein had already resorted to a civil suit for recovery of the disputed debt. 168. In QSS Investors Private Limited Vs. Allied Fibres Limited, decided on 08/09/2001, [(2001) 107 Company Case 587 (Bom)], the learned Single Judge of Bombay High Court held on facts th .....

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petition could not be entertained. 169. In Divya Export Enterprises Vs. Producin Private Ltd. (I.L.R.1990 Kar.1610), the learned Single Judge of this Court held, that a mere assertion of debt payable was not sufficient to attract the discretion of winding up under Section 433 (e) of the Companies Act, 1956. 170. On the issue of compliance of Sections 592 and 599 of the Companies Act, 1956, Mr. Udaya Holla also relied upon a Foreign judgment, in the case of Re TOVARISHESTVO MANUFACTUR LIUDVIG RA .....

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n established place of business under the jurisdiction of the Courts within the meaning of the Companies Act, 1929. Section 343, which refers to companies incorporated outside Great Britain which….establish a place of business within Great Britain it was held, that it was sufficient for the purposes of the Companies Act, 1929. Section 338 for the Company to have a place, not an established place of business in England and thus there was jurisdiction of the Court to wind up the Company, si .....

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r damages. Since the Court held that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. The damages is money claimed by, or ordered to be paid to a person as compensation for loss or injury, and it merely remains as a claim till adjudication by a Court and becomes a debt only after a Court awards it. COURT S REASONS & FINDINGS: 172. Having considered the rival submissions made at length on both the sides with all vehemence and se .....

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e and these Guarantees created in favour of the lenders and creditors by separate Agreements executed at the contemporary period of time are valid Agreements in the eye of law. There is no dispute before me that the obligations of the Guarantor in law are co-extensive and co-terminus with that of the principal borrower and therefore on account of the admitted failure of KFAL to meet its financial obligations towards the secured and unsecured creditors who are petitioners before this Court, the l .....

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findings recorded in the judgment and order dated 18/11/2016 winding up Respondent KFAL therein are also extracted below for ready reference. 17. There has been no opposition as such to the present winding up petition and such of other winding up petitions against the respondent-company. The alleged defences of pendency of civil suit filed by holding company against the manufacturers but not against petitioner- Aerotron Ltd., locus standi of petitioner company to file this winding up petition, .....

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ing company, even though UBHL facing similar winding up petitions against itself filed allegedly for not discharging its own guarantee obligations for discharging the debts of its own subsidiary- the Respondent company, and UBHL is hotly contesting winding up petitions filed against itself. This is nothing but self serving suicidal contradiction of these two companies. 18. The failure of the respondent- company even to make any alternative arrangement to argue and oppose the present case and oth .....

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ercially insolvent. 19. Therefore, this Court, considers it just and proper to wind up the respondent-company for failure to pay the admitted liability and accordingly, the said respondent, Company-Kingfisher Airlines Limited deserves to be wound-up. Therefore, this Court is of the considered opinion that respondent-company, KFA Ltd., deserves to be wound up under the provisions of 433 (e) and (f) read with 439 of the Companies Act, 1956. Accordingly, the respondent-company, Kingfisher Airlines .....

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ides and find them to be too far-fetched without any solid foundation and it is difficult to see such defences to really succeed either before this Court or at appropriate Forums where they have been raised against and instituted as legal proceedings against the petitioning creditors. 177. Taking up the arguments of Mr. Udaya Holla, learned senior counsel for Respondent - Company, UBHL, that UBHL has instituted Civil Suits in Bombay High Court and Bengaluru City Civil Court, challenging the vali .....

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ngs. 178. The assertion of duress or coercion on a corporate body like Respondent - Company, UBHL, at the point of time when these Guarantees were extended to the creditors for securing the financial obligations of KFAL towards them, firstly, is a question of fact to be established by the plaintiff, UBHL and secondly these guarantees were extended in normal course of business in the contemporary period on account of business exigencies as normal business contracts and not any grudge or grievance .....

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ey are pending but this Court does not find the mere institution of these Civil Suits as a defence good enough, much less substantial enough to put-off the winding up proceedings against the Respondent - Company itself which in law was bound to honour its Corporate Guarantees, at the given point of time when they were invoked and UBHL was called upon to honor them. 179. That as far as admission of liabilities towards secured and unsecured creditors in the present case is concerned, two facts sta .....

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Recovery Tribunal and the debts allegedly due from the Respondent UBHL were not yet determined and ascertained, goes away. 181. The learned Member of the Debt Recovery Tribunal, Bengaluru, has made the following observations and referred the findings while answering Issue No.2 about the validity of the Corporate and Personal Guarantees, on the issue whether they were vitiated by coercion by Applicants in the following manner and to quote the relevant portion from the order dated 19/01/2017 of th .....

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movable properties, hypothecation over movables and guarantees of directors and all other types of guarantees including even that of third parties wherever offered or possible. The second and third defendants cannot expect the banks to give away public money as loans to them without even guarantee from them for the repayment in addition to other securities and loan documents. In fact, the second and third defendants would have done well to have volunteered execution of such guarantees, being the .....

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e defendant 2 being the parent company of first defendant and third defendant being the Group Chairman and man of sufficient net worth and as Member of Rajya Sabha, were bound to execute guarantee documents for the repayment of loan availed by first defendant. The third defendant who was also a Member of Parliament cannot be heard to say without any basis or material that he was coerced by Nationalized banks into execution of personal guarantee at the time of availing thousands of crores as loan .....

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ing the credit facilities and also by charging very high rate of interest when the defendants were in dire need of funds. This contention is also unacceptable. In fact one of the judgment cited by the learned counsel for Defendants 2 and 3 is directly on the point (AIR 1924 PC 60). That was the case where alleged unconscionable interest charged was challenged as coercion since lender was considered to be in a dominating position. The argument was that the lender took advantage of the position of .....

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d is not in accord with the principles laid down by the Appellate Civil Court of Calcutta in Abdul Majeed v. Khirode Chandra Pal I.L.R. 42 C.690, that where there is ample security, the exaction of excessive and usurious interest in itself raises a presumption of undue influence which it requires very little evidence to substantiate . Their Lordships think that decision to be wrong. There is no such presumption until the question has first been settled as to the lender being in a position to dom .....

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fact, in my view, it was the defendants 1 to 3 herein who were in dominant position of demanding restructuring of the loan by not repaying the huge loans already availed by them from the banks. In my opinion, therefore, it was the bank which, just for the sake of arguments, can be heard to say that they were coerced into entering into MDRA so as to recover its huge outstandings and not the other way around. However, in view of the above, I am therefore of the considered view that the defendants .....

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ate of 11.50% p.a. with yearly rests from the date of the application till the date of complete realization. (b) The charge of 6th defendant shall rank as 2nd charges over the schedule properties and other receivable after satisfaction of all claims of applicant banks. (c) In the event of failure of defendants to pay the said OA amount, the applicant bank is at liberty to sell the hypothecated/mortgaged movables/ immovables properties described in schedule of the main petition according to law a .....

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nd/or amount realized by sale of assets, etc., during the intervening period after filing the OA, to enable the office to prepare Recovery Certificate for the amount to be paid by the Defendants to the Applicant Bank. (f) Office is directed to issue Recovery Certificate as sought by the Applicant Bank in the OA and do the needful as required under law forthwith. All other orders in I.A.s shall merge with the order passed in the main OA. 182. That besides the aforesaid judgment and decree of the .....

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h December 2011 in which the said Chairman, Dr. Vijay Mallya not only acknowledged all the debts towards the said Company and expressed his difficulties faced by the Company in meeting its obligations towards the company KFAL but sought for the co-operation of the said creditor supplier, IAE International Aero Engines AG, in the following manner and to complete this contextual background, the entire letter is quoted in- extenso below: From: Vijay Mallya To: Aitk .....

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Certainly better than most developed economies but disappointing given our own expectations, and the inevitable comparison with China. The Indian currency is in free fall against the USD and has depreciated by almost 20% in the last 8 weeks. Any USD payments cost us significantly more as a result. Forward contracts have also been banned for the time being. Inflation has been a major cause for concern and the RBI (Federal Bank) has raised interest rates more than a dozen times with the current r .....

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ion of our Prime Minister who has made two public pronouncements about assisting Kingfisher Airlines. I have forwarded these reports to you. Some important policy change announcements are expected in the next couple of weeks pertaining to direct import of jet fuel and to allow investment by Foreign Airlines to invest in Indian carries. This will have a direct financial impact. However, we have been negotiating with our Bankers for the past few months on a restructuring package so as to achieve r .....

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all our cash pending their own interpretation of Law which is the most frustrating aspect for me. As I leave Delhi tonight, I would like to share my optimism with you that in the first few weeks of 2012, you shall see a slew of positive policy changes which would impact the entire Aviation industry and Kingfisher in particular. I am painfully aware that Kingfisher is in serious default on its payments to you and that quarterly financial reporting as of tomorrow is important. I write to first ac .....

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mmitment to making the Airlines a success. I was confident that all our negotiations with the Government, Ministry of Finance, Banks and all those involved would be concluded before mid December and that you would be paid your overdues. Sadly, this did not happen due to the pre-occupation of Government Ministers that I have explained. However, I write with confidence that everything will get sorted out and put in place during the month of January 2012. Specifically, we will secure: 1. USD 130 mi .....

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s damage to Kingfisher. You have had the faith-please continue to have faith. If, during the course of January 2012, I sense that nothing is progressing, I will myself come back to you and keep you informed. Till then please bear with me and let us work together. With my best regards and wishes for the new year. Vijay Mallya 3/24/2012 Member of Parliament-India Chairman, The UB Group. 183. That not only the aforesaid letter of the Chairman of the Respondent Company, UBHL, a look at the financial .....

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s recorded in the duly audited Balance Sheets of the Respondent - Company. 185. A brief narration of the same is given hereunder: For Annual Report 2011-12, the title Ties that Bind with a photo of the Earth with Monogram of a Flying Horse of UB Group of Companies with different hands holding each other the said Earth is there. For Annual Report 2012-13, the title of Annual Report is again Moving Forward with Beautiful Flower Petals making a rotation. The next Annual Report of 2013-14 has the ti .....

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Horse of UB Group is on the Front Cover of the Annual Report. 186. While these photographs and description of Annual Reports do not indicate or establish anything in particular, but the selection of the photos and Logos by the Company, UBHL, carries some hidden message…. Be that as it may. 187. These winding up petitions have to be dealt with on harder facts and figures and financial results as reflected in these Balance Sheets and commented upon by the Auditors including independent Audi .....

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ment, is that the Respondent Company chose to make no provision for the said Guarantee obligations even though it noted that KFAL, in which the Respondent UBHL has huge financial exposure is in severe financial stress, not a prudent commercially good stand by UBHL. The said Note No.4 is quoted below: Note: 4. Attention is invited to the following: (i) Note no 39 regarding inclusion in the income for the year, an amount of ₹ 521.143 million of guarantee/security commission charged to Kingfi .....

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te no 40 regarding significant financial exposure to KFA in the form of investments in equity, loans and advances and guarantees. KFA has considerably scaled down its operations and it is under severe financial stress. No provision has been made in the accounts for the probable loss that may aside due to non recovery of loans and advances and other receivables, decline in the value of investments and invocation of guarantees. (iv) Note no 32(f) and note no 34 regarding non provision for signific .....

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profit from operations to the tune of ₹ 185.315 millions in the year 2011-12 it went into red (losses) to the extent of ₹ 1,577.425 millions for the Financial Year 2012-13. 191. From the Report of Directors for the next year 2013-14, the Chairman of the Company, Dr. Vijay Mallya while giving his over-view of the Company s performance under the heading of Management Discussion Analysis , noted the position as under:- While Kingfisher Airlines was an unquestionable success in terms of .....

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ted underlying support from the Company. Kingfisher Airlines ceased operations in October 2012 primarily on account of suspension of license by the Civil Aviation Regulator in response to constant disruption by crew and staff. Your Company has continued its efforts to find a suitable investor who could capitalize on the still strong reputation and license. With this intent, your Company continues to fund Kingfisher Airlines. Certain lenders and other creditors have approached the Hon. High Court .....

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6/2012, instituted by the Respondent - Company in the Bangalore City Civil Court, on 05/09/2012 even while referring to the Suit filed by it in the Bombay High Court. The Auditor in the Report dated 13/08/2014, by the same Chartered Accountant, Mr. Vishnu Murthy, in this very year, clearly noted that accumulated losses of the Company are more than 50% of its net worth . The relevant extract from Auditor s Report is quoted below for ready reference. (x) Accumulated losses of the company are more .....

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tion with the banker. The company has not issued any debentures. 193. For the year 2014-15 Annual Report, the Auditor, Mr. S. Vishnu Murthy, Chartered Accountant in his Report dated 29/05/2015 in which Balance Sheet also, the Respondent - Company, UBHL had registered a profit of ₹ 433.974 crores taking into account the exceptional gain of ₹ 965 crores for the said year on account of sale of Pledged Shares with certain lenders, namely Banks of the Company to recover their dues and whi .....

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itors gave the following remarks: Winding up petitions filed against the Company have been admitted by the Honourable High Court of Karnataka and are being heard (Ref. note no.45); the Honourable High Court of Karnataka has restrained the Company from disposing of any of its assets [Ref. note no.52(e)]; the Company is a defendant in recovery suits instituted by certain creditors/lenders for recovery of their dues of ₹ 62,033 million [Ref. note no.45]; some of the lenders have recovered the .....

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zed in its financial statements, disputed liabilities amounting to ₹ 77,309 million arising out of invocation of its corporate guarantees [Ref. note no.31] and claims of ₹ 1,463 million made against it under agreements entered into with a banker [Ref. note no.31]. Had the company recognized the above, current liabilities in the Balance Sheet would have been higher by that amounts and guarantees under contingent liabilities and claims not acknowledged as debt would have been lower by .....

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orporate guarantee null, void ab initio and non-est. The suit is still pending adjudication. (b) Connected with the Corporate Guarantees, the winding up petitions filed in Hon ble Karnataka High Court referred to in the Directors report, in the opinion of Counsel, can be successfully resisted. (c) The company has filed a suit for damages against the aircraft engine manufacturers for supply of inherently defective engines, both in design and manufacture, to KFA. The suit is pending. The company i .....

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ial office space could not be leased out resulting in continued loss of significant rental revenue. The Company has filed an Application vide CA No.1428 of 2014 in COP 185/2012 with a prayer to permit the Company to lease/rent out the vacant premises at UB City and grant such other further orders as are just. Also, high value residential units in Kingfisher Towers, could not be sold which has impacted the cash flow. The said application is pending. Having regard to the totality of all the above .....

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any also increased and while noting that the lenders of KFAL have taken the possession of the Company s property in Goa to recover its dues, the Auditor reported the following qualifications in his Report dated 31/08/2016. The company had extended corporate guarantees of ₹ 87,072 million in favour of lenders/lessors/creditors of Kingfisher Airlines Limited (KFA) an erstwhile subsidiary of the company (Refer note no.31 to financial statements). The beneficiaries of such guarantees have invo .....

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recognized in the financial statements (Refer note 42 to financial statements). An amount of ₹ 8,074 million is shown as dues from a contributory trust ( Trust ) managed by a financial company which had sold the company s investments that were pledged with it and had appropriated part of the sale proceeds against dues from KFA (Ref note no.43 & 33(e)). Further, the said Trust still holds custody of 59,150,000 shares in KFA, belonging to the company (Ref note no.33(c)). The company has .....

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ount of provisions required in the above cases. 197. Thus, on the basis of summary of the aforesaid Financial Reports and constant increase in the losses and complete erosion of net worth and reticent refusal of the Respondent - Company, UBHL to square up its Guarantee obligations and raising sham and moonshine defences to avoid winding up of the Respondent Company, this Court comes to a fair, reasonable and firm conclusion that the Respondent - Company, UBHL is a commercially insolvent Company .....

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ctively the Offerors ) The Consortium of Banks through SBICAP Trustees Limited had issued a Notice dated 3rd May, 2013 under Section 13(2) of the Securitisation and Reconstruction of financial Assets and Enforcement of Security interest Act, 2002 ( SARFAESI Act ) to the Offerors, in which it was alleged that the aggregate outstanding principal amount (both fund based and non-fund based outstanding) was Rs. 5,440 crores plus unapplied interest of ₹ 1,131 crores. In addition thereto, 4 Banks .....

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lication No.766 of 2013 filed by the Consortium of Banks before DRT, it is alleged that the alleged dues of the Consortium of Banks are guaranteed by a Personal Guarantee of Dr. Vijay Mallya and a Corporate Guarantee of UBHL (collectively Alleged Guarantees ). It is further stated in the Original Application No.766 of 2013 filed by the Consortium of Banks, that between 28- 03-2013 and 25-04-2013 the Consortium of Banks recovered an aggregate sum of ₹ 544 crores from the sale of shares pled .....

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Spirits Ltd (net of taxes), shares held by Dr. Vijay Mallya in United Breweries Ltd (net of taxes) and shares held by companies controlled by the Mallya family in United Breweries Ltd (net of taxes) aggregate to approximately Rs. 3,175 crores (of which the average shareholding of Dr. Mallya is less than 10% in the family controlled companies) as set out in Annexure 3 hereto. In the light of the aforesaid facts, and without prejudice to the respective rights and contentions of the Consortium of .....

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ious pending proceedings, make payment to the Consortium of Bank/Asset Re-construction company an aggregate amount of ₹ 4,000 crores in the manner following: (i) The Consortium of Banks shall adjust and appropriate against the principal amount outstanding, the aggregate amount of RS.544 crores already recovered by the Consortium of Banks from sale of pledged shares referred to hereinabove. (ii) Upon acceptance in writing of this Offer by the Consortium of Banks/Asset Re- construction Compa .....

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cause KFA, UBHL and KFIL to consent to the aforesaid sum of RS.700 crores being paid over to the Consortium of Banks in full and final settlement of their claims in O.S.No.25877 of 2013; (b) The residual value of 4,116,306 equity shares of United Spirits Ltd held by UBHL shall be pledged in favour of the Consortium of Banks (Petitioners), the current residual value of which (net of MAT and dues payable to pledgees) being approximately ₹ 660 crores. These shares shall be liquidated so as t .....

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covered, subject to the Offerors receiving a minimum credit of ₹ 243 crores (net of MAT and dues payable to pledgees). (iii) The balance ₹ 1,853 crores shall be paid by the Offerors on or before 30th September, 2016 in the manner following: (a) An aggregate amount of approximately US$ 101,000,000 (equivalent to approximately Rs. 688 crores) is lying deposited with Airbus Industries S.A. which includes an amount of US$ 32 million (equivalent to approximately ₹ 217.60 crores) tow .....

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ual value of 17,773,404 equity shares held by companies controlled by the Mallya family and/or UBHL in United Breweries Ltd to be pledged in favour of the Consortium of Banks, the current residual value of which (net of MAT and dues payable to pledgees) being approximately ₹ 1,165 crores. In addition to payment of the aforesaid aggregate amount of ₹ 4,000 crores, the Offerors shall cause UBHL to assign all and any amount that UBHL may recover against the claim of USD 210,400,000 plus .....

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k shall forthwith release 3,459,090 equity shares of United Spirits Ltd in favour of USL Benefit Trust which are the subject matter of Writ Petition No.49864-49865 of 2013 pending in the Hon ble Karnataka High Court. (iii) all orders passed by any of the Banks against any of the Offerors declaring them willful defaulters shall be kept in abeyance and not acted upon. The Consortium of Banks shall inform the Reserve Bank of India and CIBIL accordingly. Upon the Offerors making payment of the balan .....

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rty which created the security/security interest in favour of the Consortium of Banks. (iii) all orders passed by any of the Banks against any of the Offerors declaring them willful defaulters shall stand quashed, and the Reserve Bank of India and CIBIL informed accordingly. Upon acceptance in writing of this Offer by the Consortium of Banks, the Parties shall mutually agree to and execute suitable documentation to record the settlement. It is clarified that non of the ad-interim or interim orde .....

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strict confidentiality of the contents hereof. Yours sincerely, (Dr. Vijay Mallya) Encls: As above. 199. Thereafter, the Hon ble Apex Court by its order dated 07/04/2016 on I.A.Nos.5 to 8 of 2016, in the aforesaid Special Leave Petitions, made the following order:- I.A.Nos.5-8 of 2016 - applications for impleadment on behalf of Oriental Bank of Commerce are allowed. Mr. Shyam Divan and Mr.S.S. Naganand, learned senior counsel appearing for the petitioners have submitted that the offer made by R .....

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ble, share holdings and any right, title or interest including beneficial interest and those held in fiduciary capacity, in private trusts, public trusts, companies, partnerships, limited liability partnerships, and/or any other entity/ies both in India and abroad etc. in any form and there should be a substantial deposit made before this Court. Mr.C.S. Vaidyanathan and Mr. Para P. Tripathi, learned senior counsel appearing for Respondent Nos.1 to 4 have submitted that on receipt of the response .....

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that they may be given short time to file their response to the main petition. Accordingly, they are granted time upto 21.04.2016 to file their response. In the response filed by the third respondent, he shall disclose the details of all his properties - movable, immovable, tangible, intangible, share holdings and any right, title or interest including beneficial interest and those held in fiduciary capacity, in private trusts, public trusts, companies, partnerships, limited liability partnersh .....

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ll be obtained from the third respondent as to his probable date of appearance in person before this Court. The petitioners and the intervenor are free to file reply to the response of Respondent Nos.1 to 4 on or before 25.04.2016. Post the matters on 26.04.2016 as first item. 200. That asfaras other technical objections or defences raised by the learned Senior Counsel for the Respondent Company, UBHL, Mr. Udaya Holla is concerned, they are also found to be devoid of any merit. They are dealt wi .....

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ding up of Respondent- Company before this Court under Section 433 read with Sections 434 and 439 of the Companies Act, 1956 and have been able to satisfy this Court with the relevant and cogent material that the specified amounts of debts are due to be recovered by them from the Respondent - Company and the Respondent - UBHL under its contractual Guarantee obligations incurred by it for the financial obligations of the KFAL, which it has failed to discharge, despite due notice without any cogen .....

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Therefore, the contention that the applicability of the English law was required to be pleaded and proved as a fact, as if in the realm of trial of a Civil Suit, does not merit acceptance of such a contention by this Court. The same is therefore liable to be rejected and is accordingly rejected. 203. Another contention about the petitioning Companies other than the secured creditors like SBI and consortium of Banks and others that such Foreign Companies ought to have obtained due permissions fro .....

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No such material has been placed by them before this Court to question the locus standi of the petitioning creditors. Mere presence of some sales representatives while undertaking business of supply of Aero Engines and Allied Equipments does not establish in any manner that such Companies had their permanent establishment in India so as to attract rigor of Sections 592 and 599 of the Companies Act. The said contention also is therefore liable to be rejected and is accordingly hereby rejected. 20 .....

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roval could be insisted upon by the Respondent, UBHL itself. 205. The contention that multiplicity of the proceedings has been initiated by the petitioning creditors and therefore the winding up petitions should not be entertained, is also equally devoid of any merit. The petitioning creditors are entitled in law to take all suitable measures and remedies for not only to recover their just debts but if on the basis of that material they can establish the commercial insolvency of the Respondent- .....

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dered to be wound up but it does not partake the character of a money decree against the Respondent - Company. Therefore the institution of Civil Suits, recovery proceedings in Debt Recovery Tribunal proceedings does not and cannot prohibit the institution and pursuing of the winding up petitions by the secured creditors like SBI and others and unsecured creditors like IAE International Aero Engines AG and BNP Paribas, etc. On the other hand, the interest of the creditors, workmen and other stak .....

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to salvage the Respondent Company and settle its financial obligations amicably with the petitioning creditors, a viable, reasonable and bona fide arrangement or Scheme could always be produced before the Court, after consultation and concurrence of the creditors even during the course of these winding up petitions. But no such effort was made by the Respondent - Company before this Court. On the contrary, it was brought to the notice of the Court that one such proposal submitted before the Hon .....

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e, this Court finds no serious and sincere efforts made by the Respondent - Company to save itself from the winding up of the Company in accordance with law. 208. This Court also finds that if one of the Group Companies itself, viz. the United Spirits Limited (USL), on account of its financial help extended to UBHL and KFAL and now later on upon change of its management by the purchase of shares by Foreign Companies like Diageo Plc and Relay B.V., had to change its stand from initial opposing wi .....

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USL to change its stand for which the detailed Affidavits were filed before this Court explaining such reasons. 209. That as far as the contention of Supporting Creditors and Workmen of Respondent - Company, UBHL are concerned, they were more of the nature of proxy arguments raised on behalf of the UBHL itself and for the reasons aforesaid they also deserve to be rejected for the same reasons. 210. The deposits of ₹ 1280.00 crores made in the Court under Interim Orders of the Court will o .....

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nt and a mere skeleton of some assets and liquidity. The presentation of the same as a Going Concern in Annual Reports by skewed, distorted and misleading presentation of facts and figures in Balanace Sheets leads one to draw an adverse inference against the Respondent - Company, UBHL rather than being swayed by false picture sought to be projected by Company itself and its Supporting Creditors. All these contentions are, not bona fide and are therefore rejected. 211. Therefore, on a totality of .....

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