2013 (3) TMI 284 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up The petitioner-foreign company-VTL filed a petition for winding up of appellant company for outstanding dues payable towards price of goods supplied Rosebys Operations Ltd a 100% subsidiary of the appellant-Company - As per petitioner the appellant company committed the breach of guarantee, requiring the original petitioner to institute a suit against the company in High Court of Justice, Queen s Bench, Manchester, United Kingdom for recovery of the amount with interest - Appellant argued that it is capable to discharge its dues thus need not to be wounded & guarantee on the basis of which the dues were claimed was not approved by Reserve Bank of India as required under the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 & also judgment by the Court of Queens Bench was an ex parte judgment and not enforceable in India - Whether winding up petition against appellant company on basis of judgment of UK Court was maintainable? - Held that - A perusal of copy of judgment and decree of UK Court dated 20-11-2008 which is on record of the petition, shows that it was an ex parte decree. A suit in Indian Court shall not lie on basis of foreign judgment covered by section 13 of CPC as Clause (b) of Sec. 13 CPC says that a foreign Judgment shall not be conclusive where it has not been given on merit. As in the present case, it is seen that the UK Court judgment relied on for the purpose of the debt claimed as due in the winding up petition cannot be treated as conclusive in view of clear application of clause (b) and clause (d) of section 13. What emanates from the provisions of section 13 is that on the basis of a foreign judgment and decree covered under any of the clause of section 13 CPC, a suit in an Indian Court shall not lie to enforce the dues or a claim flowing. As in Smt. Satya (1974 (10) TMI 83 - SUPREME COURT) and the position of law in which the Foreign Judgment is a subject matter, if any of the clauses of section 13 of the CPC applies to the Foreign Judgment, it is not to be treated as conclusive. Thus, it cannot be gainsaid that under the company jurisdictions also, the principles of sec. 13 will apply. Therefore, it is clear that the above mentioned UK Court judgment being ex parte and being not on merits, the same stands covered under clause (b) and clause (d) respectively. The same is not conclusive and do not have any binding effect in the Courts in India. In view of regulation 6, the deed of guarantee relied on by VTL is not approved by the Reserve Bank of India. Not only that, in its nature, it is open-ended guarantee in favour of a foreign company, which is prohibited in terms of the Regulation 6. It is in this context that clause (f) of section 13 of CPC gets attracted, when it provides that a foreign judgment can not be a conclusive judgment where it sustained a claim founded on breach of any law in force in India. It is well settled that the proceedings of winding up is not a recovery proceeding. Once it is demonstrated that the debt is subject to a bona fide dispute, the Court will not order for winding up. Thus, the appellant company has been able to raise a bona fide dispute and substantial defence. That being so, it cannot be said that it has failed or neglect to pay the dues claimed by the respondent. The winding up petition having been found to be devoid of merits, the company petition stands dismissed.

Issues Involved:
1. Legality of the winding-up petition.
2. Validity and enforceability of the UK Court judgment.
3. Compliance with Foreign Exchange Management Regulations.
4. Bona fide dispute regarding the debt.
5. Procedural aspects and service of summons.

Detailed Analysis:

1. Legality of the Winding-Up Petition:
The original petitioner, Vanguard Textiles Ltd. (VTL), filed a petition under sections 433 and 434 of the Indian Companies Act, 1956, seeking the winding up of the appellant company for non-payment of dues. The learned company judge admitted the petition and directed the appellant to deposit Rs. 89,19,840/-.

2. Validity and Enforceability of the UK Court Judgment:
The appellant contended that the UK Court judgment, being an ex parte decree, was not enforceable in India under section 13 of the Code of Civil Procedure, 1908. The judgment was not on merits and opposed to natural justice, thus not conclusive. The Court observed that the UK judgment fell under clauses (b) and (d) of section 13, making it non-conclusive and unenforceable in India.

3. Compliance with Foreign Exchange Management Regulations:
The appellant argued that the deed of guarantee was not approved by the Reserve Bank of India as required under the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. The Court noted that the guarantee was prohibited under Regulation 6, making it void. The deed of guarantee was an open-ended guarantee in favor of a foreign subsidiary, which was not permissible.

4. Bona Fide Dispute Regarding the Debt:
The appellant maintained that there was a bona fide dispute regarding the debt claimed by VTL. The Court emphasized that the proceedings of winding up are not for recovery and should not be used to enforce a disputed debt. The appellant demonstrated a substantial and bona fide dispute, making the winding-up petition unsustainable.

5. Procedural Aspects and Service of Summons:
The Court found that the service of summons by the UK Court was questionable, as it was not served at the appellant's address in India. This added to the doubt about the validity of the service, further weakening the enforceability of the UK judgment.

Conclusion:
The Court concluded that the appellant company had raised a substantial and bona fide dispute regarding the debt. The winding-up petition was found to be devoid of merits, and the company petition was dismissed. The appeal was allowed, and the order directing the deposit of the amount was set aside.

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