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2015 (3) TMI 462 - HC - Companies LawDefault in repayment of debts - Winding up application - Decree from foreign court - Held that - However, as indicated in the foregoing discussion, step down subsidiary of Videocon in Italy had admittedly taken a loan of 38 Million Euros from the Bank in Italy. Admittedly, Videocon had given a guarantee in the form of Patronage letter of 5 June 2007 for the aforesaid loan but it kept its liability limited to 38 Million Euros. As noted by the learned Company Judge and as was the case before us, there is no denial of the aforesaid basic facts. In fact Videocon had admitted its liability before issuance of the statutory notice by the Bank. For instance, in the letter dated 19 January 2010, the Subsidiary not only admitted the liability, but requested the Bank not to enforce the guarantees backing the loan stating that Videocon is one of the oldest and well known companies in Indian stock market giving the figures of its turnover and net worth. It also stated that Videocon has a distribution channel with around 45,000 distributors spread all over India and counts more than 160 million satisfied clients. The Subsidiary which is a step down subsidiary of Videocon requested for installments to grant a very short moratorium in order to reschedule the loan in question according to parameters. The Subsidiary enclosed financial statements of Videocon of 30 September 2009. Even thereafter Videocon itself addressed a letter dated 9 December 2010 admitting that the Bank had granted to its subsidiary loan of 35 Million Euros under the Facility Agreement which was secured by Patronage Letter granted by Videocon itself on 5 June 2007 in favour of the Bank for the benefit of its subsidiary. In the said letter, the Videocon further admitted that the Subsidiary was not able to comply with the financial covenants of the Facility Agreement. Videocon further indicated that it was ready to discuss the term sheet containing proposed reconstructing. All these letters leave no room for doubt that Videocon admitted its liability to honour the guarantee given in the form of Patronage letter dated 5 June 2007. It cannot, therefore, be said that Videocon has even a tittle of defence on merits. All that it has been contending after receiving the statutory notice and filing of the winding up petition is not merely a technical but a hyper technical defence that the Bank cannot enforce the liability arising from the Patronage Letter because the Bank has already obtained a decree from a Court in Turin. Learned Company Judge has rightly observed that a creditor who obtains a decree from a foreign court cannot be at a disadvantage in the matter of filing of a winding up petition. We fully concur with the view of the learned Company Judge. Since we have already granted time upto 30 September 2014 to Videocon to pay the amount to the respondent Bank (petitioning creditor), it is not necessary to grant any stay as prayed for, but the respondent Bank shall not take any further steps on the basis of this judgment till 30 September 2014. - Appeal dismissed.
Issues Involved:
1. Whether the Bank can proceed with the winding-up petition in India based on the original cause of action despite obtaining a decree from the Court in Turin, Italy. 2. Whether the decree from the Court in Turin, Italy, is enforceable and binding on Videocon. 3. Whether the Patronage Letter issued by Videocon violates the Foreign Exchange Management Act (FEMA), 1999. 4. Whether there was a novatio due to the termsheet signed on 9 December 2010, affecting the enforceability of the Patronage Letter. 5. Whether the learned Company Judge erred in directing Videocon to pay the amount to the Bank instead of depositing it in court. Detailed Analysis: 1. Whether the Bank can proceed with the winding-up petition in India based on the original cause of action despite obtaining a decree from the Court in Turin, Italy: The court upheld the finding that the winding-up petition is based on the original cause of action, i.e., the guarantee in the form of the Patronage Letter and admissions made by Videocon in the correspondence. The court noted that the original cause of action does not merge with a foreign judgment, allowing the Bank to file the winding-up petition in India despite obtaining a decree from the Court in Turin. The court cited the Supreme Court's principles from the case of Badat and Co., Bombay vs. East India Trading Co., emphasizing that a foreign judgment creates a new legal obligation but does not eliminate the original cause of action. 2. Whether the decree from the Court in Turin, Italy, is enforceable and binding on Videocon: The court dismissed Videocon's argument that the decree from the Court in Turin was ex parte and not served upon them. The court found that the Bank had served the writ of summons on Videocon at the address provided in the Patronage Letter, making the decree enforceable. The court also noted that the decree's enforceability does not preclude the Bank from filing a winding-up petition based on the original cause of action. 3. Whether the Patronage Letter issued by Videocon violates the Foreign Exchange Management Act (FEMA), 1999: The court rejected Videocon's defence that the Patronage Letter violated FEMA. The court noted that Videocon had abandoned this defence during the hearing before the learned Company Judge. Additionally, the court found that the issuance of the Patronage Letter did not require prior permission from the Reserve Bank of India under the applicable regulations. The court referred to the Foreign Exchange Management (Guarantees) Regulations, 2000, and subsequent clarifications and amendments, concluding that the Patronage Letter was within permissible financial commitments and did not breach statutory requirements. 4. Whether there was a novatio due to the termsheet signed on 9 December 2010, affecting the enforceability of the Patronage Letter: The court found no merit in Videocon's argument that the termsheet constituted a novatio, thereby nullifying the original Patronage Letter. The court noted that the termsheet explicitly referred to the original loan agreement and the Patronage Letters, and Videocon failed to comply with the conditions precedent specified in the termsheet. Therefore, the original obligations under the Patronage Letter remained enforceable. 5. Whether the learned Company Judge erred in directing Videocon to pay the amount to the Bank instead of depositing it in court: The court dismissed Videocon's contention that the amount should be deposited in court rather than paid to the Bank. The court reasoned that if Videocon made the payment, the winding-up petition would be dismissed, and there would be no need for further proceedings or advertisements inviting other creditors. The court found the direction for payment to the Bank justified, given Videocon's lack of a substantial defence and the admitted liability. Conclusion: The court dismissed the appeal, upholding the learned Company Judge's order directing Videocon to pay the amount to the Bank. The court also directed Videocon to pay interest at 9% p.a. from 27 January 2014 and specified that if Videocon failed to make the payment by 30 September 2014, the winding-up petition would stand admitted, and the advertisement for inviting claims from other creditors would proceed. The court denied Videocon's request for a stay of the judgment, noting that sufficient time had already been granted for payment.
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