Winding up on original guarantee survives foreign decree, with no novation or bona fide defence shown.

A winding up petition based on the original guarantee and the company's admissions remained maintainable despite a foreign decree and a separate suit in India for enforcement of that decree. The foreign decree did not extinguish the creditor's right to proceed on the original cause of action. The defence of FEMA illegality was rejected because the objection had been treated as abandoned, no clear statutory bar to the guarantee was shown, and the plea was raised belatedly. The term sheet did not amount to novation, as the contemplated restructuring never took effect and the existing liability under the patronage letter survived. A dishonest or moonshine defence could not defeat winding up where the debt was repeatedly acknowledged.

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Issues: (i) Whether a winding up petition based on the original guarantee and admissions remained maintainable despite a foreign decree and a pending suit on the decree in India; (ii) Whether the defence based on alleged violation of FEMA defeated enforcement of the guarantee; (iii) Whether the term sheet amounted to novation so as to discharge the guarantor's liability; (iv) Whether the company had raised a bona fide and substantial defence to resist winding up.

Issue (i): Whether a winding up petition based on the original guarantee and admissions remained maintainable despite a foreign decree and a pending suit on the decree in India.

Analysis: The petition was founded on the patronage letter and the company's admissions in correspondence, not on the foreign decree alone. A foreign judgment does not extinguish the creditor's right to proceed on the original cause of action, and the existence of a separate suit for enforcement of the foreign decree did not bar a winding up petition filed within the jurisdiction where the company's registered office was situated.

Conclusion: The winding up petition was maintainable on the original cause of action and the foreign decree did not bar it.

Issue (ii): Whether the defence based on alleged violation of FEMA defeated enforcement of the guarantee.

Analysis: The alleged FEMA objection had been treated by the Company Judge as abandoned at the hearing, and that factual record was not displaced. In any event, the regulations contemplated guarantees by Indian parties in respect of step-down subsidiaries, and the material showed no clear statutory prohibition rendering the guarantee void. The defence was also raised belatedly after long correspondence admitting liability.

Conclusion: The FEMA-based defence was rejected and did not invalidate the guarantee.

Issue (iii): Whether the term sheet amounted to novation so as to discharge the guarantor's liability.

Analysis: The term sheet expressly referred to the earlier financing documents and contemplated fresh documents and conditions precedent, which were never fulfilled. Since the contemplated restructuring did not come into effect, there was no novation that could extinguish the existing liability under the patronage letter.

Conclusion: There was no novation discharging the company from liability under the patronage letter.

Issue (iv): Whether the company had raised a bona fide and substantial defence to resist winding up.

Analysis: The debt had been repeatedly acknowledged, the defaults were admitted, and the objections raised were found to be technical, untenable, and lacking substance. On the settled principles governing company winding up, a company cannot resist a petition by a dishonest or moonshine defence when the debt is undisputed and the company merely chooses not to pay.

Conclusion: The defence was not bona fide or substantial and could not defeat the winding up petition.

Final Conclusion: The appeal failed, the company was directed to comply with the payment directions, and the winding up petition would stand dismissed upon timely deposit, failing which it would stand admitted and proceed further.

Ratio Decidendi: A winding up petition is maintainable on the original debt and guarantee despite a foreign decree, and a company cannot resist such a petition on the basis of a dishonest or moonshine defence, including an unsubstantiated plea of novation or statutory illegality.

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