2007 (4) TMI 366 - HC - Companies Law

Court Upholds English Judgment, Admits Winding-Up Petition Due to Financial Distress and Appoints Provisional Liquidator.

The court affirmed the validity and enforceability of the Letters of Indemnity and upheld the jurisdiction of the English Court, finding the judgment was ... Winding up of company - Circumstances in which a company may be wound up - Provisions of the indemnity - Decree obtained from Foreign Court - HELD THAT:- The Letters of Indemnity provide in clause 5 that the liability of each and every person under the indemnity shall be joint and several and shall not be conditional upon the petitioner proceeding first against any person whether or not such person is a party to or liable under the indemnity. The decision of the English Court in the action brought against the bank was found on the finding that the Bank was not bound by a document on which the signature of its officer was forged. It must be noted that at Exh. D to the petition for winding up, the petitioner has annexed the formal or operative order of the Court of England. Even that order makes it ex facie clear that the judgment was delivered upon reading the state-ments of the witnesses and was a judgment granted on merits. That, as noted above, appears amply clear from the text of the reasoned judgment which has also been produced on record. A defendant to the proceedings before a foreign Court who chooses not to appear despite being served runs the risk of an ex parte judgment in favour of the plaintiff and it is a well-settled principle of law that even such a judgment would be a judgment given on merits if evidence is adduced on behalf of the plaintiff and judgment is based on a consideration of the evidence. Thus, the Company Petition shall stand admitted. The Company Petition shall be advertised in two local newspapers, namely, 'Free Press Journal', 'Navshakti' and in the Maharashtra Government Gazette. The Petitioner shall deposit an amount with the Prothonotary and Senior Master towards the publication charges, within three weeks with intimation to the Company Registrar failing which the Petition shall stand dismissed for non-prosecution. The facts adverted to hereinabove amply establish that this is a fit and proper case where the Official Liquidator should be appointed as a provisional liquidator in terms of prayer clause (a) of Company Application. From the averment of the Company Petition, it is clear that the financial substratum of the Company has been completely eroded. There shall accordingly be an order in terms of prayer clause (a) of Company Application. Until the provisional Liquidator takes charge, the order of injunction shall continue to operate. Company Application shall accordingly stand disposed of. Issues Involved:1. Validity and enforceability of the Letters of Indemnity.2. Jurisdiction of the English Court.3. Whether the English Court's judgment was on merits.4. Maintainability of a winding-up petition based on a foreign court's judgment.5. Financial status and insolvency of the respondent company.Detailed Analysis:1. Validity and Enforceability of the Letters of Indemnity:The respondent executed four letters of indemnity on 13-4-2000, requesting the petitioner to deliver cargo without the original Bills of Lading. The indemnities included clauses to indemnify the petitioner against liabilities, provide funds for defense, and submit to the jurisdiction of the High Court of England. The petitioner complied with these requests, resulting in liabilities towards third parties and subsequent legal proceedings where the petitioner incurred significant costs. The respondent denied liability in a letter dated 1-8-2000. The petitioner then sought redress in the High Court of Justice of England and Wales, which resulted in a summary judgment against the respondent for substantial sums.2. Jurisdiction of the English Court:The respondent contended that the English Court lacked jurisdiction. However, clause 7 of the Letters of Indemnity explicitly stated that the indemnity would be governed by English Law and that the parties would submit to the jurisdiction of the High Court of England. The English Court's decision in the case against the State Bank of Saurashtra, which involved a forgery defense, did not affect the jurisdiction over the respondent. The court found no merit in the respondent's challenge to the jurisdiction.3. Whether the English Court's Judgment Was on Merits:The respondent argued that the judgment of the English Court was not on merits. However, the judgment included a detailed discussion of the claim, evidence, and merits. The petitioner sought a summary judgment instead of a default judgment to ensure enforceability in India. The English Court's judgment was based on evidence and was considered a judgment on merits, as required by section 13 of the Code of Civil Procedure, 1908. The Supreme Court's precedent in International Woollen Mills v. Standard Wool (U.K.) Ltd. supported this view.4. Maintainability of a Winding-Up Petition Based on a Foreign Court's Judgment:The petitioner filed a winding-up petition under sections 433 and 434 of the Companies Act, 1956, based on the English Court's judgment. The court held that a winding-up petition is not a mode of execution of a foreign decree but is maintainable if the company is unable to pay its debts. The petitioner established its locus as a creditor based on the English Court's judgment. The court referred to the precedent in Silver Shield Construction v. Recondo Ltd., which supported the maintainability of such petitions based on foreign judgments.5. Financial Status and Insolvency of the Respondent Company:The petitioner provided evidence of the respondent's poor financial condition, including substantial operational losses, negative cash flows, and liabilities far exceeding assets. The respondent's failure to file annual accounts and reports with the Registrar of Companies further indicated financial distress. The court found that the company was unable to pay its debts, fulfilling the requirements of sections 433(e) and 434(1)(a) and (c) of the Companies Act. The court admitted the winding-up petition and ordered the appointment of a provisional liquidator, citing the complete erosion of the company's financial substratum.In conclusion, the court addressed each issue comprehensively, affirming the validity and enforceability of the Letters of Indemnity, the jurisdiction of the English Court, the judgment on merits, the maintainability of the winding-up petition, and the respondent's insolvency. The petition for winding up was admitted, and a provisional liquidator was appointed.