Foreign Creditors Can't Be Treated Differently From Domestic Creditors In Modern Times Of Globalization: Delhi High Court

"In the modern times of globalization, foreign creditors cannot be treated differently from domestic creditors," the Delhi High Court has observed.Justice Amit Bansal observed thus while dealing with an application filed under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) on behalf of the applicant (defendant no.2) seeking rejection of the plaint.Between 16th July, 2013 and 20th October, 2014, five separate loan agreements were executed between the Bank of Tokyo Mitsubishi UFJ Ltd. (BTMU), a bank incorporated in Japan, and various companies engaged in the business of shipping.In respect of the aforesaid loan agreements, guarantees were given by the defendant no.1 in favour of BTMU. However, due to failure on the part of the borrowers to repay the loan amounts, an Acceleration Notice dated 10th November, 2015 was issued by BTMU to the defendant no.1 in terms of which the loan amounts were recalled. Upon failure of the defendant no.1 to repay his debts, the Tokyo District Court, vide order dated 4th January, 2016 declared the defendant no.1 as bankrupt and appointed the plaintiff as the Bankruptcy Trustee Administrator. The plaintiff was appointed as a Bankruptcy Trustee in accordance with the provisions of the Bankruptcy Act of Japan to recuperate the necessary amounts against the estate of the defendant no.1. The defendant no.1 challenged the bankruptcy order of the Tokyo District Court by filing an appeal before the Tokyo High Court.The Tokyo High Court dismissed the aforesaid appeal vide detailed judgment dated 17th June, 2016 and upheld the order passed by the Tokyo District Court. Thereafter, the defendant no.1 filed an appeal before the Supreme Court of Japan, which was dismissed vide order dated 16th September, 2016.After taking over as the Bankruptcy Trustee in respect of the estate of the defendant no.1, the plaintiff conducted an investigation in India and around November, 2017, the plaintiff came to know that the defendant no.1 was the owner of the following properties in India. A Property was transferred in favour of the defendant no.2 vide registered Gift Deed dated 23rd November, 2015 and the registered Relinquishment Deed dated 8th January, 2016 was executed, along with other siblings, in respect of Property No.2 in favour of the defendant no.2.The suit in High Court was thus filed seeking a decree of declaration in favour of the Plaintiff and against theDefendants, declaring the Gift Deed dated November 23, 2015, and the Relinquishment Deed dated January 8, 2016 to the extent of the relinquishment of the one-fourth undivided share of the defendant no.1 in the first floor of a building as void under sec. 53 of the Transfer of Property Act, 1882. The Court noted that the cause of action for filing the suit was the default of the defendant no.1 in respect of his loan obligations towards the bankers or financiers in Japan, resulting in him being declared bankrupt by the competent Courts in Japan. It also noted that the suit had been filed to administer the suit properties of the bankrupt defendant no.1 towards realization of monies. "So, it is squarely covered by the language of Section 2(1)(c) of the Commercial Courts Act and the Explanation thereto. Therefore, it would be irrelevant if the said properties, in respect of which relief is claimed, are residential properties or not and the present suit would be maintainable as a commercial suit," it said. Further observing that if the suit was not taken to be a commercial suit, the Court had the power to convert a commercial suit into an ordinary suit and proceed to hear the matter, it added thus:"This cannot be a ground for rejection of the suit. The suit has been valued in excess of Rs. 10 crores and ad valorem court fees thereon has been paid by the plaintiff. It is not denied that this Court has the territorial and the pecuniary jurisdiction to hear the present suit, even if it is taken to be an ordinary suit."The Court also said that it cannot be said that judgment dated 17th June, 2016 of the Tokyo High Court, dismissing the appeal filed on behalf of the defendant no.1, fell under any of the exceptions provided in sec. 13 of CPC. It said that the the judgment would be conclusive as to the defendant no.1 being declared bankrupt in Japan and the plaintiff being appointed as the bankruptcy trustee to administer the estate of the defendant no.1, even outside Japan.In this backdrop, the Court said that foreign courts have to be respected by the Indian Courts, unless the same are shown to be falling under the limited exceptions provided in sec. 13 of the CPC. "The Plaintiff, being the Bankruptcy Trustee appointed by the Japanese court, is seeking the assistance of the courts in India, to administer assets of defendant no. 1 in India. There is no reason why a person who has been declared bankrupt by a foreign court in terms of the law applicable to that jurisdiction, should be afforded protection by the Indian Courts on technical...

Foreign Creditors Can't Be Treated Differently From Domestic Creditors In Modern Times Of Globalization: Delhi High Court

Nupur Thapliyal

Tags