Appeal Against Admission Of Winding Up: 'Moonshine Defence By SpiceJet, Ploy To Avoid Liability': Swiss Corporation Argues Before Madras High Court
After hearing the caveator Credit Suisse AG at length, Madras High Court has decided to hear the appeal against the admission of SpiceJet's winding up further on January 10, 2022. Yesterday, a Division Bench of Justice Paresh Upadhyay and Sathi Kumar Sukumara Kurup heard the counsel appearing for the Switzerland based Corporation, Advocate Rahul Balaji. While deferring the...
After hearing the caveator Credit Suisse AG at length, Madras High Court has decided to hear the appeal against the admission of SpiceJet's winding up further on January 10, 2022.
Yesterday, a Division Bench of Justice Paresh Upadhyay and Sathi Kumar Sukumara Kurup heard the counsel appearing for the Switzerland based Corporation, Advocate Rahul Balaji.
While deferring the hearing, the court has also mentioned that the interim stay on the operation of winding up order will continue till 11th January subject to further orders passed.
Credit Suisse AG contended that the admission of winding up and appointment of provisional liquidator by the single judge bench does not suffer from any illegality, procedural or otherwise. Yesterday, the counsel appearing for the appellant, Senior Advocate Ramakrishnan Viraraghavan had contended that a party who has violated a public safety statute cannot demand enforcement of a claim rendered illegal.
On 6th December, Madras High Court had ordered the admission of winding up SpiceJet Ltd. while adjudicating a company petition filed by Credit Suisse AG, a Switzerland based Stock Corporation and a creditor, who alleged inability on the part of respondent Airlines to pay the debts owed to the former. The company petition was filed by the Swiss Corporation under Sections 433(e) and (f) r/w Sections 434 and 439 of the Companies Act, 1956, before the single judge bench.
Background
SpiceJet Limited (First Party) had availed the services of SR Technics (Second Party) in Switzerland for Air Craft maintenance and repair, among other related services, via an agreement that has a lifetime of 10 years, back in 2011. In 2021, a supplemental agreement was signed between the two parties that enabled the airlines to pay back the monies raised by SR Technics at various occasions through a deferred payment scheme.
Before the High Court, the contentious matter was the seven invoices raised by SR Technics, the seven corresponding Bills of Exchange for the amount due under invoices, and the acknowledgement of debts through the issuance of certificates of acceptance by the Airlines. In 2012, the stock corporation Credit Suisse AG (Third Party) was assigned all the rights to receive payments due to SR Technics through a financial agreement. The assignment also entitled the third party to receive payments from SpiceJet under the seven invoices issued by SR Technics.
Even after repeated requests, SpiceJet allegedly shrugged off its responsibility to pay the monies due under the invoices, that too after a statutory notice under Sections 433 and 434 of the Companies Act, 1956. Therefore, the third party preferred a company petition for winding up under Section 433 (e), citing the inability on the part of the first party airlines to repay the debts.
Court Room Exchange
The counsel mentioned before going into the merits that since the hearing pertains to a company petition, it involves a continuing exercise of jurisdiction and appeal is a continuation of the original procedure. Therefore, he told the court that he wanted to show some recent developments by producing the annual statement of the appellant passenger carrier. According to him, this was necessary since SpiceJet was ordered by the single judge bench to deposit only 20 per cent of the total claim (24 Million US Dollars) by Credit Suisse for a stay on the operation of winding up order.
On the merits, the counsel argued that the submission of SpiceJet that they were unaware of the alleged non-approval from DGCA is inherently false. The argument that they came to know about the non-existence of valid license from DGCA only in 2020 via an RTI application is negated by the finding of UK Arbitral Tribunal in favour of SR Technics back in 2017.
The respondent banker Credit Suisse submitted that the Airlines entered into an agreement for 10 years with SR Technics for aircraft maintenance which can be deemed as the original agreement. Thereafter, a supplementary agreement was entered into between SR Technics and SpiceJet in 2012, whereby SpiceJet was granted the option of a deferred payment scheme and extension of time for payment of monies due under various invoices. The financing agreement between Credit Suisse AG and SR Technics later that year assigned all rights to the former for receiving SR technics' payments. It also included the assignment of Bills of Exchange issued by appellant airlines based on the original and supplemental agreements, according to the counsel. He submitted that the Bills of Exchange. Confronting the submission made by appellant, Mr. Balaji argued that when the Banker has the right to assignment available and seven Bills of Exchange have been executed in their favour, the airlines cannot take the stand that they don't know the beneficiary.
The appellant had earlier argued that the Swiss Corporation cannot be treated as a creditor since the rights in the agreement cannot be assigned and Bills of Exchange are dependent upon the underlying contract. Refuting the above argument, the counsel submitted that Bills of Exchange can be treated as independent documents.
The findings in the Arbitral Award indicate that the appellant was aware of the DGCA licensing issue as far back as 2012. Despite the same, the Company never issued a single notice to SR Technics neither did they withdraw the Certificates of Acceptance, argued the counsel.
The counsel termed the defense of the appellant now as a peculiar attempt to flee from its liability to pay the banker who funded the transactions by using the ploy of alleged illegality not known to the Airlines. Clarifying another aspect, Mr. Balaji contended that the Corporation has only said that the arbitral claim is irrelevant to the current proceedings in so far as the Corporation's claim is independent of the previous award.
Referring to Clause 19.3 of the original agreement and the deferred payment scheme envisaged in the supplemental agreement, Mr. Balaji further contended that SR Technics was allowed to endorse the bills of exchange to Credit Suisse AG, therefore the respondent knew the bills of exchange could be endorsed in favour of the banker. Mr. Balaji further pointed out that the Corporation got Bills of Exchange signed by SpiceJet along with an endorsement from its banker, Yes Bank Ltd. Since it was drawn on SpiceJet and endorsed by its banker, iterating the argument before the single judge bench, Mr. Balaji added that the Airlines secured an advantage of a deferred payment by execution of these documents. Therefore, it cannot now deny the same and take the stand that no amount is payable, which is not a bona fide stand.
The counsel further submitted that the single judge bench order was correct since there was a proven inability of the appellant to pay the debts, along with just & equitable grounds.
The appellant sought relief in the arbitral proceedings that the original agreement must be deemed null and void and refund must be allowed for payments already made. The counsel remarked that the counterclaim challenging all invoices were dismissed by the tribunal. Even on the question of misrepresentation of facts or law in the arbitral proceedings, the tribunal couldn't find any such misrepresentation from SR Technics. The arbitral tribunal, in its findings, clearly specify that if non-approval from DGCA was noticed by SpiceJet, it was the Airline's responsibility to intimate the same to DGCA as a responsible passenger carrier. Further, Advocate Rahul Balaji submitted that after the arbitral award in favour of SR Technics, the first and second appeals before English Courts were also dismissed.
Citing the absence of reply to the statutory notice by Credit Suisse, the counsel also added that SR Technics also issued notice to the Airlines in 2015. However, the invoices relied upon by the Corporation is different from those referred to by SR Technics in 2015.
Even assuming and ignoring the foreign arbitral award, it is also pertinent to note that DGCA has not yet initiated any action against SR Technics for alleged lack of valid license to carry out its services., submitted the counsel. He added that it was not entirely believable that DGCA wouldn't take notice of the legislative incompetence of SR Technics over the years to carry out aircraft maintenance if it were true.
Calling the defence put forward by the appellant as 'moonshine defence', Mr. Balaji also attempted to rebut the Carrier's argument that the Bills of Exchange and the supplemental agreement was not properly stamped under the Indian Stamp Act. To this, he replied that it is not for the company court to dwell on the adequacy of stamping the agreements in a winding up petition filed by the creditor. Once the company petition is admitted, the official liquidator can take charge and adjudicate the matter.
About the most recent financial statement of the appellant company, the counsel submitted to the court that the math about assets and liabilities were 'alarming' as far as the protection of the interests of the creditor corporation is concerned. According to him, the auditor's annual report as of late 2021 revealed that SpiceJet was accumulating loss, and the current liabilities exceeds the company assets.
The counsel contended that it indicates 'material uncertainty' on the Company's ability to continue the business, Mr. Balaji submitted that the above situation should be considered if the Court contemplates granting a stay on the admission of winding up and appointment of liquidator.
On this question, the court answered that it cannot decide on the sustainability in appeal since it was not a subject matter before the single judge bench. Even though Mr. Balaji contended that the stay of admission without taking into account the financial position of SpiceJet will have serious ramifications to the interests of the Creditor Company, the court opined that it wouldn't be fair to the appellants or the respondents.
Mr. Balaji also disagreed with the argument of the appellant that the single-judge made 'substantive amendments' twice to the original order dated 6th December. The counsel for Credit Suisse AG submitted that the Company Court Rules are to be followed in such proceedings. An order of admitting winding-up petition must be in a prescribed format. The court dictated the order; but when the order was uploaded, it was devoid of the directions about publication, advertisement etc given. When the matter came up for 'being mentioned' again, the court decided to upload the order in the requisite format. However, the registry did commit another error in the uploaded order and it was rectified once again.
Hearing From Day 1- 'Claim Not Legally Enforceable, Admission Of Winding Up Laden With Procedural Infirmities': SpiceJet Files Appeal Before Madras High Court
Case Title: SpiceJet Limited v. Credit Suisse AG
Case No: OSA/1/2022 & Connected Matters