2014 (2) TMI 13 - HC - Companies Law

Winding up of company - Dues not cleared under a letter of guarantee - Basis of Petition - Decree obtained from Foreign Court - Held that - petition is based on the Patronage Letter and the admissions of the Respondent Company and that facts on record show that grounds for invoking the guarantee have occurred and the Respondent Company has not honored its obligation - petition is not based on the decree of Turin Court but on the Patronage Letter and various admissions given by the Respondent Company. It is the case of the Petitioner that there is a clear admission of liability by the Respondent Company and that the guarantee given by the Respondent Company has come into effect on certain events having been occurred. and that the Respondent Company has not paid the amount in spite of the demand, the petition needs to be admitted. Once, the tenor of the petition show that the petition is filed on the basis of the Patronage Letter and the admissions in several correspondence then the question as regards the applicability of the Private International Law in order to examine the correctness of the decree of Turin Court does not arise. Winding-up proceedings and a suit for recovery of money are not one and the same. It is also established that the right to move a petition for winding-up is a statutory right of a creditor - The position that when a suit is filed for recovery of the amount a petition for winding-up is also simultaneously maintainable is well settled - merely because a decree is obtained the creditor it does not cease to be creditor of a Company - Bare perusal of the Patronage Letter shows that the Respondent had in unequivocal terms guaranteed to pay the amount upon default. The Patronage Letter lists events that will trigger the enforcement of guarantee. Nowhere in the correspondence the Patronage Letter is referred to as a comfort letter. The loan agreement executed between the parties is conditional upon execution of the Patronage Letter cum guarantee. Thus the loan agreement is based on the guarantee given by the Respondent and makes it clear that if there was to be no guarantee by the respondent, the loan agreement would not have been executed. In the reply a stand is taken by the respondent that the Patronage letter violates provisions of FEMA. If it was a mere letter of comfort there was no question of violation of FEMA. The respondent has sought to take contradictory stand in respect of the Patronage Letter in a desperate attempt to wriggle out of the guarantee given under the Patronage Letter. The argument advanced by the Respondent that it was a comfort letter has to be rejected. It is no doubt true that the court will keep in mind the commercial solvency of a company, larger public interest and repercussions of the order of admission. The commercial solvency, however, cannot be a stand alone ground. If that be so, then every Company which is commercially solvent will refuse to pay the admitted debts and then take up the ground of commercial solvency - Merely because the Petitioner has obtained a decree from the Turin court and has instituted a suit for enforcement of the same, the Petitioner cannot be deprived of its right to file a winding up petition. The jurisdiction to entertain a winding up petition is only with this court. No bonafide defence on merits has been raised by the respondent. The events of default contemplated under the Patronage 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 - Decided in favour of Petitioner.

Issues Involved:
1. Basis of the winding-up petition.
2. Validity and enforceability of the Patronage Letter.
3. Merger of the Patronage Letter into the decree of the Turin Court.
4. Jurisdiction and applicability of foreign law.
5. Alleged fraud and principles of natural justice.
6. Time-barred claim.
7. Commercial solvency of the Respondent Company.
8. Collusive suit in Calcutta.

Detailed Analysis:

1. Basis of the Winding-Up Petition:
The petition is based on the Patronage Letter dated 5 June 2007 and the admissions of the Respondent Company. The Petitioner contends that the Respondent Company acknowledged its liability and defaulted on the obligations under the Patronage Letter. The statutory notice and the petition clearly indicate that the claim made by the Petitioner is based on the Patronage Letter, not solely on the decree of the Turin Court.

2. Validity and Enforceability of the Patronage Letter:
The Patronage Letter was issued by the Respondent Company, guaranteeing payment upon default by VDC. The Respondent Company admitted its liability in various correspondences, and the events triggering the guarantee, such as default by VDC and dilution of shareholding, have occurred. The Patronage Letter is not a mere letter of comfort but a binding guarantee.

3. Merger of the Patronage Letter into the Decree of the Turin Court:
The doctrine of merger does not apply to foreign judgments. The original cause of action does not merge into a foreign judgment, and the Petitioner can maintain action on either the original cause of action or the foreign judgment. The petition is based on the Patronage Letter and not on the decree, thus the question of merger does not arise.

4. Jurisdiction and Applicability of Foreign Law:
The Patronage Letter specifies that it is governed by Italian law and subject to the exclusive jurisdiction of the Turin Court. However, the petition for winding up can only be filed in this court, and the jurisdiction to entertain a winding-up petition lies with this court. The argument based on the exclusion clause has no merit as the petition is based on the Patronage Letter and admissions of liability.

5. Alleged Fraud and Principles of Natural Justice:
The Respondent Company claimed that the decree of the Turin Court was obtained by fraud and is opposed to natural justice. However, the Patronage Letter provided for service of summons at the address of VDC, which was not changed by the Respondent Company. The Respondent Company was aware of the proceedings, and there was no breach of principles of natural justice.

6. Time-Barred Claim:
The claim based on the Patronage Letter is not time-barred. The Respondent Company acknowledged its liability as late as 9 December 2010, and the petition filed on 17 October 2012 is within the limitation period.

7. Commercial Solvency of the Respondent Company:
Commercial solvency alone cannot be a ground to reject the winding-up petition. The Apex Court has held that commercial solvency is relevant to determine if there is a bona fide dispute as to liability, but it cannot be a standalone ground. The Respondent Company's refusal to pay the admitted debt without good reason justifies the petition for winding up.

8. Collusive Suit in Calcutta:
The suit filed in Calcutta is claimed to be collusive and does not affect the right of the Petitioner to proceed with the winding-up petition. The suit seeks to restrain the debenture trustees from treating the breach as an event of default and is not concerned with the interse dispute between the Petitioner and the Respondent.

Conclusion:
The petition is based on the guarantee contained in the Patronage Letter and the admissions of the Respondent Company. The events of default have occurred, and the Respondent Company has not honored its obligation. The petition is admitted with directions for the Respondent Company to deposit the claimed amount by 27 January 2014, failing which the petition will proceed further.

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