Madras High Court
In a judgment handed down on 11 January 2022, a division bench of the Madras High Court rejected SpiceJet's appeal to set aside a Company Court winding-up order under section 43(e) and (f) of the Companies Act 2013 and the appointment of the official liquidator.
The bench, comprising Justice Paresh Upadhyay and Justice Sathi Kumar Sukumara Kurup, dismissed the appeal on all grounds. However, they ordered a stay of the proceedings until 28 January 2022 to allow the appellant to approach the Supreme Court to appeal.
For 10 years, starting in 2011, the appellant, SpiceJet, made use of engine management and other maintenance services from SR Technics. During this time, SR Technics raised several invoices, which SpiceJet duly accepted. The parties also signed corresponding bills of exchange.
The appellant wished to defer payment. It thus engaged the services of Credit Suisse AG, the respondent. The respondent made a payment to SR Technics on the appellant's behalf as part of a supplementary agreement for deferred payment between SR Technics and the appellant.
The appellant failed to pay the amount it owed to Credit Suisse AG. This led to winding-up proceedings before the Madras High Court.
SpiceJet's central argument was that there was a genuine substantial dispute as to the amount payable to SR Technics for the following reasons:
- The documents on which the respondent relied had not been stamped. Therefore, the Indian courts could not take them into account.
- SR Technics did not have a valid licence from the director general of civil aviation (DGCA). Therefore, it could not have legally engaged in engine management services.
On the basis of this two-fold argument, SpiceJet contended that a genuine dispute existed and therefore that no amount was payable to the respondent.
The respondent's central claim was that the admission of the winding-up petition and the appointment of the official liquidator could not be said to be erroneous in any manner and no interference should be made by the court.
With regard to the stamping of documents, the respondent referred to the Company Court's earlier decision to refuse investigation of the matter in cases concerning the admission of winding-up petitions.
With regard to the lack of authorisation from the DGCA, the respondent claimed that SR Technics had foreign approval, which was adequate. The respondent also claimed that SpiceJet had been aware of this discrepancy since before 2012, and had still chosen to continue the contractual relationship. In an earlier decision, an arbitral tribunal had also rendered the contract between the parties valid, despite the lack of certification by the DGCA.
Stamping of documents
The Madras High Court agreed with the Company Court's approach that, with regard to the admission of a winding-up petition, the point at issue is not whether the relevant documents are stamped. Instead, the sole points to be verified are whether the debt is disputed in a genuine manner and whether such defence is substantial. In this regard, the Madras High Court relied on a decision of the Bombay High Court wherein no stamp duty was imposed on a bill of exchange payable on demand.(1)
The Madras High Court ruled that the stamping or non-stamping of documents is immaterial at this stage and such a defence would not constitute a genuine dispute. Therefore, the Court ruled that the issue required no further investigation.
Lack of DGCA authorisation
With regard to the second limb of the appellant's submission – that is, the fact that the DGCA had not authorised SR Technics – the Madras High Court outrightly rejected the contention and commented that the appellant company was "blowing hot and cold together" at its convenience. The Court drew reference to the earlier concluded international arbitration proceedings between the two parties, wherein the appellant had made a similar contention about SR Technics but the tribunal had rendered their contractual relationship valid regardless.
Even though the appellant had been aware of the discrepancy, it had continued to engage SR Technics as an engine management service provider. It had also accepted payment invoices from SR Technics.
Moreover, the Court remarked that the admission of the winding-up petition was in fact further justified by the fact that the appellant – one of the largest passenger carriers in India – had, by its own admission, provided its services without its aircrafts being maintained by any service provider with a valid DGCA licence for years.
The Court thus concluded that such a claim could not constitute a genuine defence. Therefore, it held that the winding-up proceedings were justified under section 433 of the Companies Act.
Appointment of provisional liquidator
The Madras High Court held that it saw no reason to interfere with the Company Court's approval of the appointment of the provisional liquidator. The Madras High Court noted that the winding-up petition had been filed in 2015, and the pendency of the matter had been to the detriment of the respondent and SR Technics.
The Madras High Court remarked that none of the authorities on which the appellant had relied would make the Company Court's order unsustainable. Therefore, the Madras High Court deemed the appeal liable to be dismissed on all grounds.
Granting of stay
The Company Court had granted a stay on the impugned order to the appellant, for which the appellant had submitted a bank guarantee of an amount equivalent to $5 million. The appellant requested the Madras High Court to extend that stay further, to allow time for an appeal to the Supreme Court.
The Madras High Court was amenable to this request and extended the stay on the impugned order of the Company Court by a further three weeks, until 28 January 2022.
SpiceJet appealed the Madras High Court's 11 January 2022 judgment before the Supreme Court. On 28 January 2022, the Supreme Court reprimanded SpiceJet for the default and, on the request of the parties, granted three weeks to the parties to amicably resolve the dispute. Until then, the Supreme Court stayed the orders of the Company Court and the Madras High Court. Thus, the matter was adjourned by three weeks. The case has not yet been listed again.
Given the fact that the Supreme Court reprimanded SpiceJet for dishonouring Credit Suisse AG's receipts, coupled with the fact that SpiceJet sought time to resolve the dispute, it is highly likely that the litigation – which started from a Company Court decision and reached the apex court – will be resolved amicably.
For further information on this topic please contact Syed Tamjeed Ahmad or Rakhee Biswas at Spaviatech Law by telephone (+55 21 2276 6200) or email ([email protected] or [email protected]). The Spaviatech Law website can be accessed at www.spaviatechlaw.com.
(1) Ms Kamal and Co v Antwerpse Diamant Bank NV (Appeal No. 409 of 2006), dated 15 April 2010 (Bombay High Court).