IBC Case Law PART-3

NATIONAL COMPANY LAW TRIBUNAL (I.B.C.) LANDMARK CASE

CASE NO.5

NATIONAL COMPANY LAW TRIBUNAL, DIVISION BENCH, CHENNAI 

C.P. 670/IB/2017 

IN THE MATTER OF: 

M/s Stanbic Bank Ghana Limited                                    …Petitioner 

Vs. 

Raj kumar Impex Pvt. Ltd.                                              …Respondent 

Order dated 27.04.2018

Case Heading:
No Bar in taking cognizance of the Foreign Decree as English Commercial-Court is recognized under Section-13 and 44A of CPC

The Creditor had sanctioned loan to the subsidiary of the Debtor-company, to which it was a guarantor. However, the Principal-borrower failed to repay the loan and a decree was also passed by the English-court against the Debtor-company. Relatively, the NCLT admitted the application as the Creditor had prima facie established the case.

Facts of the Case:

1. The Financial Creditor is a Bank incorporated at Ghana and the Debtor-company(Respondent) was a guarantor of the Principal Borrower. The Creditor and Rajkumar Impex Ghana Limited (Principal Borrower), wholly owned subsidiary of the Debtor-company, had entered into Loan Agreements. The loan agreements had exclusive jurisdiction to Courts of England and Wales. Subsequently, the Creditor and the Debtor-company (Guarantor), had entered into a deed of guarantor which was an ‘on-demand guarantee’. The deed also consisted of an indemnity issued by the Debtor-company to the Creditor.

2. According, to the indemnity-deed between the Creditor and Debtor it was clear that the NCLT has competent jurisdiction in spite of lis pendens before the Ghana court. The Agreement also consisted the terms which stated the loan was sanctioned with the security which included guarantee given by the Debtor-company.

3. However, the Principal-Borrower had defaulted in repaying the loan, for which proceedings were initiated in Ghana against the Principal-Borrower and Debtor-company before the English-courts. While the proceedings before the Ghana Court were pending and no money had been recovered till the date, pursuant to the same the English Court had passed an order analyzing the evidence. The order was a proof of default on the Debtor-company’s part. Subsequently, since the Principal-Borrower failed to repay the loan, the Creditor initiated proceedings before the Hon’ble High Court of Justice, Queen’s Bench, Commercial Court, London against the Debtor-company as it was the Guarantor as per the ‘On-demand guarantee’. After giving sufficient opportunities to the Debtor-company, the court passed an order directing the Debtor to repay the principal amount with interest to the Creditor.
However, the Debtor did not make the payment as per the order of the Court for which the Creditor filed an application under IBC, 2016 against the Debtor. Subsequently, the Debtor contended that the application as follows

Contentions by the Corporate Debtor( Guarantor):

1. The Application was not maintainable as the Creditor was not an Indian Company and also that the application was signed by an agent in Ghana and a constituted attorney cannot institute application on behalf of principal.

2. It was further contended that the Principal borrower was an independent entity and not a subsidiary of it.

3. The Debtor also contended that it was not proved before the NCLT or before the Commercial Court, London which warranted the invocation of guarantee or the fact that debt has not been recovered.

4. The order made by the Hon’ble High Court of Justice, Commercial Court, London was not conclusive as it was not based on merits. To support its contention, it relied on Section 13 of CPC.

5. Also, it contended that as per Foreign Exchange Management Regulation, 2000 it was mandatory for the Creditor to obtain permission from RBI before signing of the guarantee, thus no valid guarantee was executed.

6. The amount was disputed and the matter was pending before the Ghana Court, thus the provisions of IBC, 2016 would not apply.

7. It also alleged that the Creditor had suppressed all of these facts and had also suppressed the fact that the Creditor had invoked Ghana Lenders and Borrowers Act and took possession of Principal borrower’s assets.

8. The Creditor that dispute was irrelevant for the purpose of Section-7 of IBC, 2016. It was stated that Guarantee was ‘On-demand’ instrument and there arises not necessity to prove that Guarantee Deed had arisen. The Creditor relied on Section 128 and 141 of Indian Contract Act, 1872, further referring to the order of Commercial Court, London that Debtor-company was not only liable as guarantor but also as a principal obligator. The Creditor stated that though the order of Commercial Court was an ex-parte order it was conclusive and based on merits. Creditor submitted that the IBC, 2016 does not prohibit filing of petition by a foreign company and stated that Rule-23 of NCLT Rules r/w Form-1 permits an authorized representative to present an application including an agent. The Creditor further stated that rules of FEMA are not applicable as the Principal Borrower was not an Indian-company.

9. The Creditor relied on the following cases to support its submissions:

Bank of Bihar V. Dr Damodar Prasad, Ram Kishun & Ors V. State of UP

SBI V. Saksaria Sugar Mills Ltd, Arumugam Chettiar V. Sadasivam Pillai & Ors., The hukum chand Insurance Co. Ltd V. Bank of Baroda, PNB V. Mehra Brothers (p) Ltd, SBI V. Indiexport Registered & Ors., Sukur Pradhan & Ors. V. Orissa State Financial Corporation, Balakrishnan V. Chunnilal Bagmar, United Bank of India V. Satyawati Tandon & Ors, Central Bank of India V. CL Vimla

Wright V. Simpson, referred in Bank of Baroda V. Dr Damodar Prasad- wherein it was held that it is for the guarantor to see whether the principal borrower pays and not that of creditor.

Bank of Baroda V. Dr Damodar Prasad and Amritlal Goverdhanlalan V. State Bank of Travancore- wherein it was held that Guarantor’s right is protected by the virtue of right of subrogation

Govindan Asari V. Sankarfan Asari- wherein it was held that foreign judgment summary based on merits is enforceable in India.

Innoventive Industries Ltd V. ICICI Bank & Ors.- wherein it was held that dispute is irrelevant for the purpose of determining an application under Section-7 of IBC, 2016.

Macquerie Bank Ltd V. Shilpi Cable Technologies Ltd- wherein it was held that there is no restriction on POA holder signing on behalf of the company to initiate proceedings under I&B Code, 2016 and no restriction on foreign company to initiate proceedings under I&B Code, 2016.

The Debtor-company relied on the following cases to support its submissions

Karnataka Vegetable Oils and Refineries Limited V. The Madras Industrial Investment Corporation Limited.

International Wollen Mills V. Standard Wool (UK) Ltd- it was held on facts that the decree was not on merit and could not be enforced in India.

Manipal Finance Corporation Ltd V. CRC Limited- it was held that winding up petition is not a legitimate means to seek to enforce payment of the debt which bona fide disputed by the Company.

China Shipping Development Co Limited V. Lanyard Foods Limited- it was decided whether foreign court had jurisdiction and that judgment of English court was rendered on merits.

Palogix Infrastructure Private Ltd V. ICICI Bank Ltd – it was held that power of attorney holder is not competent to file an application on behalf of the Financial or Operational Creditor or Corporate Applicant and had dismissed the application on that ground.

Order:

NCLT held that:

· The objections raised by Counsel for the respondent are not valid ground for rejection.

· The tribunal thus orders for the commencement of the CRIP.

· We appoint Ms. Deepa V. Ramani as Interim Resolution Professional.

DISCLAIMER: The information given in this document has been made on the basis of the judicial order by adjudication authority. It is based on the analysis and interpretation of order. Under no circumstances whatsoever, the blogger shall be responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document. 

CS Diwakar Agrawal

PH: +91-9911746549