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TMI Blog2013 (3) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be not bona fide, before this Court passes the further order for issuing advertisement in accordance with law, by way of an opportunity to be given to the respondent Company for showing its ability to pay the debt and also to show the complications which may arise on account of the advertisement upon its commercial solvency or insolvency as the case may be, the respondent is directed to deposit the amount of Rs. 89,19,840/- being equivalent Indian rupees at the rate of Rs.80/- per pound of 48,343.13 is concerned, no order for directing to deposit is made at this stage. Such amount be deposited with this Court without (sic-within) two weeks on or before 15th September, 2009." 1.2 The present appeal questions the legality of above order dated 26.08.2009. The aggrieved appellant contends that it has got a substantive and bona fide dispute as to the debt claimed and therefore, the winding up petition itself is not maintainable. 2. The factual profile emerging from the record of the appeal is set out as follows. The original petitioner Vanguard Textiles Ltd. (VTL) (referred to as 'the original petitioner' or 'VTL' hereinafter) claims to be a company incorporated under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner, the summons of the UK Court was served on the appellant and certificate of service dated 28.10.2008 reflected such service. As the company did not appear, the judgment was passed directing the company to pay to original petitioner VTL 1,10,558.21 and 940/- towards cost totalling 1,11,498.21 forthwith. It is pertinent to notice that learned Company Judge directed to deposit the amount as directed by the Foreign Court as aforesaid in the order while admitting the winding up petition. 2.4 The correspondence which was ensued between the parties in the subject matter is summarized as under. (i) The original petitioner-VTL sent an E-mail message dated 26.09.2008, communicating that the Rosebys Operation Ltd. (hereinafter mentioned as 'the Rosebys') has been placed under administration. The VTL expressed intention to enforce the guarantee. (ii) By letter dated 2.10.2008, the VTL raised a formal demand of the sum of 220,354.7 based on the deed of guarantee. (iii) The appellant by communication dated 17.11.2008 sent through its solicitors, inter-alia denied the liability stating that the appellant was not privy to the transaction. It further asked the attorni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousand Eight Hundred forty two and Cents Thirty Four only) alongwith only interest due thereon at the rate of 12% per annum from November 22, 2008 till payment/realisation thereof, within twenty one (21) days of the receipt of this notice by you, failing which our clients will have no alternative but to adopt appropriate legal proceedings against you, as they may be advised, including but not limited to initiating winding up proceedings against you, which shall be entirely at your risk as to costs and consequences thereof. Kindly treat this as a notice as Sections 433 and 434 of the Companies Act,. 1956." 2.7 The appellant has resisted the winding up petition raising contentions in its affidavit-in-reply inter-alia that (i) the company is a going concern having turn-over of Rs. 11,568.90 million having its manufacturing units at different places in Gujarat, and also in Madurai as well as in Tamilnadu. It provides employment to number of persons. (ii) The company has not lost its substratum and is capable to discharge its dues and has the net worth of Rs. 42798.17 mn (iii) the gurantee on the basis of which the dues are claimed is not approved by Reserve Bank of India as req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner has rested his case on the deed of guarantee or has based the claim for debt due under the judgment and decree of the UK Court. In order to buttress the contention, he highlighted the aspects that there was no proper service of summons by the UK Court. By referring to the dates and events it is submitted by him that the entire alleged transaction resulting into a default judgment by the UK court ex-parte delivered, entertains serious doubts. 4.2 On the basis of all aforesaid contentions, the learned senior counsel finally submitted that in the minimum the appellant company has a bonafide defence to successfully resist the winding up petition. According to his submission there is no neglect to pay for the purpose of section 433 and 434 of the Companies Act, 1956. 4.3 Learned counsel in support of his arguments, relied on the following decisions : (i) International Woollen Mills v. Standard Wool (U.K.) Ltd. AIR 2001 SC 2134. (ii) Madhusudan Gordhandas Co. v. Madhu Woollen Industries (P.) Ltd. AIR 1971 SC 2600. (iii) IBA Health (India) (P.) Ltd. v. Info-Drive Systems Sdn. Bhd. 104 SCL 367. 4.4 On the other hand, learned advocate for 'the opponent - original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to all goods delivered by the Supplier to the Obligor on or after 20 June 2008 together with applying to all goods ordered and delivered from the date of this guarantee. This guarantee shall not apply to goods ordered but not delivered to the Obligor, provided that the Guarantor serves notice on the Supplier prior to delivery of such goods to the Obligors premises. 4.6 It was next contended that the guarantee payment under the deed of guarantee also came to be decreed by the UK Court and that the said judgment is against the principal debtor and further that thereby the claim of payment essentially arises from the guarantee deed and is enforceable. It was submitted that the appellant being a guarantor, his liability is coextensive and in that way also the debt was undisputed and enforceable. It was submitted that there was a neglect to pay the debt and the debt having not been paid even after the statutory notice, the winding up petition was maintainable and rightly admitted by the learned company judge as per provisions of section 433 (e) read with section 434 of the Act. 4.7 Learned advocate for the respondent relied on a decision of this Court in Boi Finance Ltd. v. Arvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up petition and that there was a convenient make-shift on its part to assert the claim somehow and anyhow. Be that as it may. 5.1 A perusal of copy of judgment and decree of UK Court dated 20.11.2008 which is on record of the petition, unmistakably shows that it was an ex parte decree. At the top, it is mentioned "Judgment for claimant (in default)". The claim No. is 8MA91372 and the claimant's name shown is Vanguard Textiles Ltd. whereas the defendant is indicated as Ghcl Ltd.. The Judgment states, "You have not replied to the claim form. It is therefore ordered that you must pay the claimant 110558.21 for debt (and interest to date of judgment) and 940.00 for costs. You must pay the claimant a total of 111,498.21 forthwith." 5.2. It is manifest from the above that the said judgment and decree of the UK Court was not on merits and was passed in absence of the defendant. Section 13 of CPC speaks about conclusiveness of a Foreign Judgment. The provisions of sec. 13 which comes into play in the context of above, reads as under : "13. ' When foreign judgment not conclusive - A foreign judgment shall be conclusive as to any matter thereby directly adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack on the grounds mentioned in Section 13. It is beside the point that the validity of the judgment is questioned in a criminal court and not in a civil court. Thus, a foreign decree of divorce obtained by the husband from the Nevada Court in USA in absentum of the wife without her submitting to its jurisdiction will not be valid and binding on a criminal court in proceedings for maintenance under Section 488, Criminal P.C." 5.6 Therefore, in light of observations made in Smt. Satya (supra) and the position of law emerging from other decisions referred to, whatever may be the kind of jurisdiction 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. The scope and ambit of the provisions are relevant in the adjudication of issues in winding up petitioner as well. 5.6.1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been passed on merits. Therefore for a decision on the question whether a decree has been passed on merits or not, the presumption under Section 114 would be of no help at all. It must be mentioned that in support of submission that it must be presumed that all formalities were complied with and the decree passed regularly reliance was also placed on cases of Krishna Kumari v. State of Haryana reported in AIR 1999 SC 854 : (1998 AIR SCW 3958) and The Commr. of Income-tax, AP. v. M. Chandra Sekhar @page-SC2139 reported in AIR 1985 SC 114 : (1985 Tax LR 497). In our view these authorities are of no help in deciding the question under consideration. Even if we presume that all formalities were complied with and Decree was passed regularly it still would not lead to the conclusion that it was passed on merits." (para 17) (Emphasis supplied) 5.8 The Supreme Court In Vishwanath v. Abdul Wajid AIR 1963 SC 1 observed with reference clause (d) of the section 13 of the CPC that the plea that a foreign judgment is contrary to natural justice has to be considered in the light of statutory law of India and there is nothing in section 13 which warrants the interpretation that at a ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly owned subsidiary. (d) investment in agricultural operations through overseas offices or directly (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines Notwithstanding anything contained in these Regulations investment in Pakistan shall not be permitted." 5.10 Regulation 5 prohibits any person resident in India or any Indian party from making any direct investment outside India, whereas Regulation 6 permits such direct investment in certain cases subject to the conditions specified in sub regulation (2). Sub regulation (2) inter-alia provides that the total financial commitment of Indian party in joint ventures/wholly owned subsidiaries shall not exceed 100% of the net worth of the Indian Party. The Explanation to sub regulation (2) explains the formula to reckon the limit of 100% of the net worth. In sub clause (c) it is inter-alia stated that it shall comprise of 50% of the value of the guarantees issued by the Indian party to on or behalf of the joint venture company or wholly owned subsidiary. It was therefore rightly submitted in the facts of the case that guarantee which guaranteed 100% payment on behalf of foreign subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outside this ceiling and would be subject to prudential norms issued by Reserve Bank from time to time." 5.12 In view of above, 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 above. It is in this context that clause (f) of section 13 of CPC gets attracted, when it provides that a foreign judgment cannot be a conclusive judgment where it sustained a claim founded on breach of any law in force in India. What follows is that what is discussed above and what is true for the UK Judgment in terms of its enforceability at law, it is equally true for the deed of guarantee dated 14.07.2008. Either of them independently or taken together in their nature and effect are the documents, which prima facie are not enforceable in law to get the debt claimed thereby or guaranteed thereunder even in a civil proceedings. By no stretch of logic of law, therefore, a winding up petition can rest or can be maintained thereon. 6. At this stage, certain other baffling aspects emerging from the facts and the record may be noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the judgment of the UK Court is opposed to natural justice. On the basis of above aspects of the matter, one may view the whole transaction to be under cloud as to its genuineness itself. But these aspects are mentioned herein by this Court for the purpose only to indicate that they further weaken the case of the original petitioner, and make the defence of the appellant stronger. 6.3 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 bonafide dispute, the court will not order for winding up. The principles in this regard are elucidated in Madhusudan Gordhandas (supra). "Two rules are well settled. First if the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. The Court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contented that no price had been agreed upon and the sum demanded by the creditor was unreasonable (See London and Paris Banking Corporation, (1874) 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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